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Lowdown of Government’s ambitious Draft Capital Goods Policy

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The Government of India has released a Draft National Capital Goods Policy (pdf) for the country which, among other things, outlines the issues stunting the industry as well as the policy actions that can be taken to fix these issues and encourage growth.

The capital goods sector in India contributes to only 2% of the country’s GDP and is significantly underdeveloped. Capital goods include categories like machine tools, process plant equipment, plastics machinery, textile machinery and food processing machinery. According to the report, the Planning Commission had targeted a growth rate of 16.8% per year during the 12th 5 year plan, however the sector only grew by 0.3% per year in the last three years.

The current draft looks to address this woeful growth. The draft addresses the policy actions the Government will have to undertake for issues common across the industry, including technology and intellectual property rights, introduction of mandatory standards and focus on SME development and the governance mechanism for policy initiatives. The notable policy points are listed below:

Technology and IPR:

– Incentivise FDI on long term for high tech manufacturing and increase investment allowance from 15% to 25%.

– Allocate sector specific research funds for strategic industry sectors and provide a two year income tax holiday on sales of products under new technology.

– Promote tech development and acquisition support for SMEs through industry and academic collaboration.

– Launch a tech development fund of Rs 10,000 crore to fund tech developments and commercialization of capital goods.

– Review the patent application process from initial stages to when it is granted. This includes enhancing the capacity of the patent office as well as quick initial patent examination.

– Promote development of tech through indigenous sources and set up insurance to cover failure risk of locally developed tech.

– Encourage employer incentives for researchers of patents in the corporate sector.

– Upgrade testing and certification infrastructure, and set up more institutes for the same.

– Increase International R&D cooperation, and provide 100% funding under some scheme for R&D activities.

Mandatory standards:

– Develop a standards policy to ensure performance based global benchmarks and the standards ecosystem and promote skill enhancement programs for standards development through industry associations.

– Participate in and influence International standards forums on behalf of Indian manufacturers as well as conduct regular programs for upgradation of existing standards.

– Promote standards promoting organizations (SDOs) to propose new areas of standards where international standards do not exist, but national do. Additionally, lobby in regional standards bodies for acceptance of Indian standards.

– Setup an umbrella association, to increase global standard compliance, develop test facilities for mandatory/global standards, appoint nodal agencies for SMEs to get international standards approvals.

– Prohibit above threshold usage of machinery based on its lifecycle and depreciation norms. Focus on green and sustainability based manufacturing.

Focus on SME development:

– Setup an advisory group for SMEs to promote modernization, common manufacturing clusters, consider eliminating bank guarantees or money deposits for MSMEs.

– Incentivize large corporates which are handholding smaller industries in bringing them up to global standards.

Support services:

– Computerized port to port collection of all import and export data of capital goods with separate codes.

– Additionally, build a database of all production through a reporting system as well as improve second hand machinery reporting system.

Image source: Wikimedia Commons

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