Capital Goods Scheme

Capital Goods Scheme for the manufacturing sector aims to boost their production value
and make them a global competitor. This article will discuss the keynotes on capital goods
schemes.

The field of manufacturing and production is the primary contributor to developing a

country’s economy. The capital goods sector is the industrial sector based on the production
and distribution of goods. This sector is a crucial element in speeding up production
activities by supplying critical input such as instruments and machines.
The government launched the capital goods scheme to advance the current machinery and
equipment used in the industry. The introduction of modern technology in the conventional
manufacturing methods under this scheme boosted the country’s capital goods sector.
The government introduced Phase 1 of the scheme on the enhancement of competitiveness
in the capital goods sector in November 2014. They introduced Phase 2 in January 2022 to
enhance the effect of phase 1.

Capital Goods Sector

The capital goods sector comprises several industries involved in processing, manufacturing,
and production and distribution of goods. The main sub-sectors of the capital goods sector
are listed below.
 Tools related to machines comprise machines associated with cutting metal and their
forming.
 Plastic machinery comprises machinery used in the fabrication of plastic. Machinery
used in the paper and rubber industry is similar to the plastic industry.
 Equipment related to Heavy Electricity finds applications in the production,
transaction, and distribution of electricity related to this sector.
 Equipment related to Process Plant
 Food processing machinery
 Machinery of printing

Capital Goods Scheme Phase 1

A capital goods scheme is adjusting the value-added tax (VAT), which is claimed again over
the spam of this tax of capital goods.
It was introduced in 2014 to enhance the investment for the advancement of machinery in
the manufacturing sector with modern technology. The capital goods scheme also focuses
on skill development for industry progress.
The capital goods scheme is applicable for a particular asset over a fixed value in the
following ways. The economic outlay of this scheme is around Rs 995.96 Cr. with the
additional backup of Rs 631.22 Cr. and contribution from industries of Rs 583.312 Cr.

National Capital Goods Policy, 2016

The national capital goods policy 2016 is the policy of the Indian government for the
production sector of India. The main goal of the Indian government in introducing this policy
is to reach the value of manufacturing capital goods of Rs 750,000 Cr per year by 2025.
Another critical focus of the government behind the national capital goods policy is to
enhance the number of employees in this sector to 30 million people. This policy also plans
to build the startup centre in production and skill development in the capital goods sector.

Enhancement of Competitiveness in the Capital Goods Sector

The government created the scheme of enhancement of competitiveness in the capital
goods sector to address technical obsolescence and a lack of access to high-quality
industrial infrastructure and basic facilities.
The main objective of this scheme is to enhance the development of technology through the
cooperation of professional research & development institutes and the Indian Government.

Enhancement of Competitiveness in the Capital Goods Sector, Phase 2

The government announced Phase 2 of this policy in the starting month of 2022, on 25th
January. The main goal behind Phase 2 of the enhancement of competitiveness in the capital
goods sector scheme is to boost the output generated by Phase 1 of this scheme.
The economic outlay of this scheme is around Rs 1207 Cr., with the additional backup of Rs
975 Cr. and contribution from industries of Rs 232 Cr. The components of Phase 2 of the
schemes are listed below.
 To obtain the modern technological innovations for the production field front the
related portals.
 Set up the “Machine Tool Parks” for the production units. These parks should provide
a more competitive and economic system for machine equipment manufacturing.
 To build the “Advancement Centre of Excellence” for research and development of
new technologies with the cooperation of different Indian Institutes of Technology
such as Indian Institutes of Technology Madras, Indian Institutes of Technology
Kharagpur etc.
 To establish certification and testing centres for the mobile machinery to put a full
stop to importing obsolete or second-hand equipment.
Conclusion
Capital goods are the fixed or specified assets used in manufacturing goods. The owner of
these fixed assets is known as the capital goods owner. Many sectors deal with the
manufacturing and production of goods that contribute to the country’s gross development
production.
The government of India introduces capital goods schemes for such manufacturing sectors
to push domestic production and increase exports by improving technology. Enhancement
of competitiveness in the capital goods sector scheme deals with the technical degeneration
and fixed accession to the modern manufacturing infrastructure.
National Capital Goods Policy

Capital goods refer to those goods which are required for the production of other goods,
rather than for consumption. (e.g. comprising textile machinery, machine tools, electrical
and power equipment, plastic machinery, construction equipment).
National Capital Goods Policy, 2016 is first ever policy for Capital Goods sector framed by
the Union Government (Ministry of Heavy Industry & Public Enterprise).
Need for a National capital goods sector policy: A robust and well developed capital
goods sector is vital as it can serve as an engine for India’s manufacturing growth. It
becomes even more vital in light of the ‘Make in India’ campaign. It contributes 12 % of
manufacturing output.
Framework: The basic framework should focus on creating markets for the goods,
increasing export potential, technological support, better IPR policy, involving MSME sector,
human resource development and skilling etc. Besides, attracting credit through FDI, dealing
with WTO guidelines, taxation issues , preferential trading agreements, environmental
concerns, safety concerns etc. are some other areas which needs to be looked at.
Potential:
1. Currently, capital goods are 12% of our manufacturing output. They can be
increased to 20% by 2022 according to the vision of the policy.
2. A robust capital goods sector will fire up the manufacturing sector, as there is
a direct correlation between them.
3. It will provide jobs and help harness our demographic dividend.
4. It also increases our export competitiveness and which can have positive
cascading effects on various other sectors of the economy like defence,
infrastructure. Thus it can truly be the backbone of India’s growth.

Aims to increase share of capital goods contribution from present 12% to 20% of total
manufacturing activity by 2025.
 A long term, stable and rationalised tax and duty structure to promote the
capital goods segment promised by government
 Stress for creation of a globally competitive capital goods sector
 Proposes uniform customs duty on imports of all capital goods related
products
 Adoption of a uniform GST across all capital goods sub sectors
 Provide incentives for domestic and global mergers
 Venture funding and risk capital to start-up
 The policy envisages making India a net exporter of capital goods and aims at
facilitating improvement in technology across sub-sectors, increasing skill
availability, ensuring mandatory standards and promoting growth and
capacity building of MSMEs
 Some of the key issues addressed include availability of finance, raw material,
innovation and technology, productivity, quality and environment-friendly
manufacturing practices, promoting exports and creating domestic demand.
 Facilitate improvement in technology depth across sub-sectors
 Ensure mandatory standards
 Increase skill availability and promote growth
 Capacity building of MSMEs

What are the provisions?

 introducing a Technology Development Fund,
 upgrading existing and setting up a new testing and certification facility,
 making standards mandatory in order to reduce sub-standard machine
imports
 providing opportunity to local manufacturing units by utilising their installed
capacity
 unveiling scheme for skill development for capital goods sector.
National Capital Goods Policy

The government of India had unveiled its National Capital Goods Policy in 2016, aimed at
the manufacturing sector in the country, which has been lagging behind potential. This
policy is set to boost the ambitious‘Make in India’ initiative. In this article, you can read
about the National Capital Goods Policy for the UPSC civil services exam.

National Capital Goods Policy, 2016

Capital goods refer to machinery and equipment required for the production of goods or
services, and are not for direct consumption. The capital goods industry in India contributes
12% to the manufacturing sector, which translates to 2% of the Gross Domestic Product
(GDP). This sector employs approximately 1.4 million people directly and about another 7
million indirectly.
The National Capital Goods Policy is a manufacturing sector policy devised by the
Government of India aimed at increasing the production of capital goods from the 2014-15
value of approximately Rs.230, 000 Cr to Rs.750, 000 Cr by 2025. Another stated aim is to
increase the employment to approximately 30 million people. This is for the first time that
the government has come up with a policy for capital goods.

Issues in the sector

Manufacturing is a key component of economic development. It creates employment
opportunities and also makes a nation self-reliant. The capital goods sector contributes
significantly to the manufacturing sector’s growth.
 The growth of the capital goods sector has been slow. It has grown only at a rate of
1.1% in the time period 2013 – 2016. But, during the 12th Five Year Plans, the target
growth rate for this sector was 16.8%.
 Import of capital goods have been increasing, growing at a rate of 9.8% for the five
year period from 2010. The share of imports in this market was 40% in 2014 – 15.
 Also, in exports, India’s share of global exports is only about 0.8%.
 Insufficient growth of domestic market for capital goods.
 Declining share of domestic production in the total domestic consumption and growth
of more imports.
 Inadequate capacity expansion in infrastructure and power industries, and
institutional issues such as inadequate inter-ministerial coordination.
 Import of second-hand machinery discouraged domestic production of capital goods.
The provision of a zero import duty concession for several items imported under the
“project imports” category has put the domestic industry at a disadvantage.
 We have FTAs with many countries that have an advantage over India with respect to
capital goods production, and this hampers our domestic industry.
 Inverted duty structure is prevalent in certain category of imports which means the
import duty is lower on finished goods rather than on the components and raw
materials. This has also affected the competitiveness of the industry.
 Another problem affecting this sector is low technology depth and low spend on
research and development.
 Another cause for lack of competitiveness is that the sector is fragmented into small
units operating on uneconomic scales.
 There is also a non-availability of long-term finance for the sector.
 Low level of skill development in the sector is also a cause for worry.

National Capital Goods Policy 2016 Features

This policy was drafted by the government to address all the issues mentioned above and
boster the ‘Make in India’ programme.
 Increasing exports – currently, it is 27% of the production. The policy seeks to
increase it to 40%.
 Push for domestic production – currently, the share of domestic production in the
demand is 60%. The policy seeks to increase it to 80% and making India a net
exporter of capital goods.
 Improvement in technology – the policy aims to increase the skill availability,
improve technology, and promote growth and capacity building of Micro, Small and
Medium Enterprises.
 HIEMDA Scheme – Heavy Industry Export & Market Development Assistance
Scheme aims to augment Indian-made capital goods export.
 Budgetary allocation – the policy seeks to increase the budgetary allocation to the
sector and strengthen the current Department of Heavy Industries.
 Technology Development Fund – A technology development fund will be started
under the PPP model to finance acquisition or transfer of technology, and
commercialise capital goods technologies.
 Integrate subsectors – the policy seeks to integrate all the subsectors and also
introduce mandatory standards and reduce sub-standard machinery.
 Start-up Center – the policy also plans to have a start-up center to aid start-ups in
the manufacturing sector. This will offer technical, financial and business support to
the start-ups.
 Standardisation – the policy aims for mandatory standardisation. This includes
defining minimum acceptable standards and also adoption of international standards.

FAQ about National Capital Goods Policy

Q1 - What is the motto of make in India?
Zero Deffect Zero Effect is the slogan coined by the prime minister of india, Narendra Modi
with reference to the make in India initiative launched by the GoI. By zero defect, he means
that the quality of the products has to be very high and by zero effect he means that there
should be no adverse effect on the environment by manufacturing.
Q2- What is the aim of National Capital Goods Policy, 2016?
National Capital Goods Policy, 2016 aims at increasing the production of capital goods from
the value of approximately Rs.230, 000 Cr in 2014-15 to Rs.750, 000 Cr by 2025.
Building India, for tomorrow
India’s Capital Goods manufacturing industry serves as a strong base for its
engagement across sectors such as Engineering, Construction, Infrastructure
and Consumer goods, amongst others.
The leading export subsectors of the capital goods sector are heavy electrical
and power equipment, earthmoving and mining machinery, and process plant
equipment – together accounting for 85% of India's total capital goods exports.
To indigenize manufacturing capabilities in India, IIT Madras has launched the
advanced manufacturing technology development center which is working with
the capital goods industry, India on various aspects including the smart
manufacturing platform for production processes.
 Target Production size of capital goods will be $ 112 Bn by 2025.
 By 2025, the Electrical equipment industry, comprising generation and
T&D equipment, is targeted to reach a size of $100 Bn.
 By 2025, the T&D equipment segment is targeted to reach a size of $75
Bn.
100% FDI is allowed under the automatic route.

Industry Scenario
The Capital Goods in India has a market size of $ 43.2 Bn.
The capital goods industry is divided into 10 sub-sectors where Electrical
equipment is the largest sub-sector followed by Plant equipment, and
Earthmoving/ Mining machinery. The market size of each of the sub-sectors are
as follows:
 Heavy electrical equipment: $24.2 Bn
 Process plant equipment: $3.7 Bn
 Earth-moving and mining machinery: $3.3 Bn
 Printing machinery: $3.01 Bn
 Food processing machinery: $2.4 Bn
 Dies, Moulds and press tools: $2.3 Bn
 Textile machinery: $1.8 Bn
 Machine tools: $1.4 Bn
 Plastic machinery: $0.5 Bn
 Metallurgical machinery: $0.4 Bn
Exports of Engineering goods values at $7,818.22 Mn in September 2022 and
shares highest with 23.96 % of the total exports of the month.
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