The article initiates centering on the critical influences of the capital goods sector in the economy of India, primarily due to the recent interventions and policies developed by the Government. An essential point of discussion is the Scheme on Enhancement of Competitiveness in the Indian Capital Goods Sector- Phase-II, which was recently announced by the Ministry of Heavy Industries (MHI).
Understanding Phase II Scheme
Recently, the Ministry of Heavy Industries has disclosed the Phase II of the Scheme on Enhancement of Competitiveness in the Indian Capital Goods Sector. The main goal of this scheme is to build upon the potential impact initiated by the Phase I pilot scheme. Phase II aims to provide additional stimulus through the establishment of a robust and internationally competitive capital goods sector contributing at least 25% to the overall manufacturing sector.
Background of the Scheme
The original scheme aimed to boost technology development and infrastructure creation. It was first introduced in November 2014 as an initiative to enhance competitiveness in the Indian Capital Goods Sector.
Financial Breakdown of the Scheme
This scheme is backed by a financial outline amounting to Rs. 1207 crores. This encompasses a budgetary support of Rs. 975 crore supplemented with an industry contribution of Rs. 232 crore.
Scheme Components
Several essential components form the backbone of the scheme. These include the identification of technologies through Technology Innovation Portals, establishment and augmentation of Centers of Excellence and Common Engineering Facility Centers (CEFCs), promotion of skilling in the Capital Goods Sector, and set-up of Industry Accelerators for Technology Development.
Understanding Capital Goods
Capital goods refer to physical assets used by companies while manufacturing services or products destined for consumer use. Capital goods encompass buildings, machinery, equipment, vehicles, and tools used in the production process. Notably, these are not finished goods, but they aid in producing finished goods.
Significance of Capital Goods in the Indian Economy
The capital goods sector holds significant value in the Indian economy due to its multiplier effect. This sector contributes about 12% to the total manufacturing activity, which is roughly around 1.8% of the GDP. The impact extends to providing employment opportunities, with approximately 1.4 million direct and 7 million indirect jobs originating from this sector.
FDI and Free Trade Agreement Influence on the Sector
Pertaining to industrial licensing, there are no specific requirements for the sector. Foreign Direct Investment (FDI) up to 100% is allowed via automatic routes managed by RBI. Moreover, India has participated in numerous Free Trade Agreements (FTA), offering lower duty rates. The promotion of exports also plays a vital part in the sector’s development, as it allows duty-free imports of raw materials, components, consumables, and subassemblies through different DGFT schemes under the Ministry of Commerce and Industry.
The capital goods sector plays a pivotal role in the Indian economy, with government policies and interventions designed to enhance growth and competitiveness. The Phase II scheme is one such intervention aimed at strengthening this crucial sector in India’s economy.