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Department of Heavy Industry to press for 14% customs duty on capital goods Print E-mail
Written by Ganesh   
Monday, 20 December 2010
New Delhi: The Department of Heavy Industry had evolved a scheme for setting up four Common Facility Centres for machine tools, textile machinery, heavy electrical equipment and process plant equipment and establishment of two Industrial Cluster Parks for machine tools and textile machinery to enhance the competiveness of the Indian capital goods industry at the global level, said Vilasrao Deshmukh, Union Minister for Heavy Industries and Public Enterprises.

"The Finance Committee in the Ministry of Finance has agreed to make a provision of Rs 300 crore for the development of Common Facility Centres and Industrial Cluster Parks for giving a boost to the domestic capital goods industry," he said.

"The benefits envisaged from Common Facility Centres and Industrial Cluster Parks would be the abolition of capital investment programmes by individual units, provision of value added services like accredited testing centres at affordable prices, quality upgradation, optimum utilization of equipments, better supply chain management and more employment growth," he added.

14% customs duty on capital goods

The Department of Heavy Industry will pursue with the Finance Ministry the critical need for imposing a customs duty of 14% on capital goods to give the domestic industry a level-playing field.

"We will refer the matter to the Cabinet for a decision,", Deshmukh said. He was speaking on the sidelines of the National Conference on ‘Indian Capital Goods Industry – Prospects and Issues: Enabling Framework for Sustainable Development, organized by FICCI and the Department of Heavy Industry.

National Manufacturing Policy to be released in the next few weeks

Alongside, the Planning Commission, Department of Industrial Policy and Promotion (DIPP) and the National Manufacturing Competitiveness Council (NMCC) are set to release the National Manufacturing Policy in the next few weeks for discussion and implementation, Mr. Arun Maira, Member, Planning Commission, announced.

The policy would make recommendations in the areas of technology, trade, IPR, infrastructure, transaction costs, and skill development & training in all areas of the manufacturing sector, including the capital goods industry, he said.

The Planning Commission, Mr. Maira said, had recommended creation of a level playing field for the growth of the domestic capital goods industry through the imposition of import duty which had long suffered at the hands of imported capital goods.

Half of the requirements of the sector are met through imports

Mr. B S Meena, Secretary, Department of Heavy Industries, in his remarks, expressed concern over the continued dependence on imports for meeting the requirements of the capital goods sector. Currently, half of the requirements of the sector are met through imports and this was bound to rise with the growth in the economy and the growing needs of the nuclear power and defence sectors. He emphasized the need for substantial capacity building and an enabling framework of the domestic industry to compete.

Mr. K Venkataramanan, Chairman, FICCI Capital Goods Committee & Member of the Board & President (Operations) Larsen & Toubro Ltd., Mr. M S Unnikrishnan, Managing Director & CEO, Thermax Ltd., and Mr. Sunand Sharma, Chairman, ALSTOM Projects India Ltd. stressed the need for imposing a customs duty of 14% on power equipments to create a level playing field, critical government support for the capital goods sector that had the potential of create 1 million jobs a year and, avoiding the pitfalls of tariff-based bidding, proper evaluation of a life cycle of a machine and long term guarantee and support for machinery from foreign suppliers and the tendency of foreign financiers and contractors to favour home country suppliers.

Mr. Venkataramanan, in particular, recommended the following:
- Lower local taxes and duties on final products and raw materials
- Working capital for SMEs at lower rates of interest
- Technology Upgradation Fund for SMEs
- Clusters/Parks for developing vendor chain
- Promotion of international linkages with world class research institutes
- Relook at the rules for second hand imported machinery

Capital goods industry should grow at around 18%- 20% per annum

Mr. Deshmukh, on his part, noted that to achieve a 9% GDP growth during the 11th Plan (2007- 12), the manufacturing industry should grow by at least 12%-15% per annum. This would mean that the capital goods industry, which is the core of manufacturing, should grow at around 18%- 20%. "However, despite registering consistent growth in manufacturing during the last three to four years, barring 2008-09, the capital goods industry has failed to ride the manufacturing boom and has not been able to meet the entire requirement of the user industries. This had resulted in the gaps being filled through imports of various sub-sectors of capital goods", he pointed out.

The Minister concurred with the observations of Mr. Rajan Bharti Mittal, President, FICCI, stating that the Indian capital goods industry suffered from a number of difficulties like nonavailability of advanced technologies, benchmarking, inadequate infrastructure and absence of a level playing field, induced mainly by cheap imports.

Issues such as inadequate supply and low technology of indigenous machinery and equipment in the capital goods industry, he said, affects the competitiveness of the user manufacturing and infrastructure industries, as they perforce, resort to imports of machinery as well as services and components for repair.

Underlining the crucial important of a strong and sustained growth in manufacturing for absorption of skilled and semi-skilled rural population, Mr. Deshmukh said unfortunately, in India, the manufacturing sector’s contribution of 16% to the GDP has been stagnating for the last few years.

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