In an important step to bolster India’s manufacturing sector, the Indian government has unveiled the first ever comprehensive policy on India’s capital goods sector, which seeks to create 21 million jobs by 2025. . Prime Minister Narendra Modi cleared the capital goods policy last week, according to Heavy Industries Minister Anant Geete.
Capital goods are tangible assets that are produced by organisations such as equipment and machinery. The ‘National Capital Goods Policy’ aims to create an ecosystem for a globally competitive capital goods sector. Under the new policy, the government aims to increase direct domestic employment from the current 1.4 million to at least 5 million. It also aims to increase indirect employment from the current 7 million to 25 million by 2025, which would provide an additional employment to over 21 million people.
“The capital goods sector is currently going through many challenges and issues and to address those challenges, the government has launched the comprehensive policy document, the National Capital Goods Policy, today,” Mr Geete said during his address at a seminar on ‘Make in India’ week in Mumbai. Mr Modi has been emphasising on growth with jobs, one of his key poll promises.
Problems facing India’s manufacturing sector
While the Indian economy is being hailed as a global bright spot, all is not well in its manufacturing sector which has been badly hit in recent times. India’s manufacturing sector has been hit in the past one year, with a fall in factory output. The exports have been falling, and the Index for Industrial Production (IIP) fell by 1.3 per cent (as of December 2015) due to a decline in manufacturing output by 2.4 per cent. Adding to India’s woes has been a falling rupee, which has hit the manufacturing sector. Due to a severe slowdown in private investment, it brought down the capital goods output by 19.7 per cent in December 2015.
Recommendations of National Capital Goods Policy
The policy has recommended the need to devise a long term, stable and rationalized tax and duty structure. It has also stressed on the need to have a uniform Goods and Services Tax (GST) regime that would ensure an effective GST rate across all capital goods sub-sectors competitive with import duty after set-off. According to the policy recommendations, GST would ensure a level playing field. Stressing on the need to ensure parity, the policy recommends equalizing Countervailing Duty (CVD) and Excise duty; and Special Additional Duty (SAD) with Sales tax/ VAT or GST.
The new policy has also recommended strengthening the existing scheme of the Department of Heavy Industry. It focuses on the need to enhance competitiveness of the capital goods sector by increasing budgetary allocation and increasing its scope to further boost global competitiveness.
Some of the other recommendations include a ‘Heavy Industry Export & Market Development Assistance Scheme (HIEMDA)’, the launch of Technology Development Fund, setting up new testing and certification facility and upgrading existing ones and making standards mandatory in order to reduce sub-standard machine imports. The new policy seeks to enhance the availability of skilled manpower in the capital goods sector by training 50,00,000 people in 2025 along with creating institutions to deliver human resources with skills.
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