Capital Goods Industry: What can be done to pep it up

Capital Goods takes the share of 1.5% of the GDP of India which is around USD32 billion.
As Infrastructure is going to play a major role in the country growth, similarly Capital Goods would play a critical role in driving growth, creating jobs, and boosting exports.

The sector is dominated by Infrastructure, Energy, Heavy Electrical, Mining and Power Plant Equipment. Due to multiple components that goes into the finished goods and process, it caters to building high number of allied industries which again falls into this segment.
There has been lot of initiative for replacing the imported goods with indigenous production in many sectors and products but the capital goods still rely largely on the imports of such goods and there is heavy need for such manufacturing to take in house. Countries need for building energy infrastructure would keep the impetus on for imports of such goods both due to quality and quantity beside technology. In parallel, India is turning to be hub of such products being increasingly manufactured and supplied to the region of Asia and middle east. This could be mainly due to advantages of its geographical central position on the map. The demand from both local and international market is pushing the indigenous production industry to positive move.

So, what further can be done to take this sector to faster growth path by increasing the market.
The biggest demand for the capital goods is from infrastructure sector. The infrastructure as relies more on policy frame due to high fund requirement and multiple agencies involvement, the effort would be required by the policy makers. Let’s discuss them.

  • Timely approval of the infrastructure projects. There are huge number of development projects which are just buried in files mainly due to approvals from various agencies. Most important action is to have an infrastructure ministry which should be responsible for facilitating for all the approval required from various agencies and cut down the approval process and time line.
  • Local and regional trade agreements should facilitate to trade in such goods with lower duty and faster project clearance.
  • Smart city policy must be in such a way that more and more players especially smaller can be accommodated in the building process.
  • Smooth and fast clearance of approval especially for environment which is the biggest stumble block for development projects. The recent land acquisition act has given lot of impetus to the compensation package and would help in relieving the issues related to civil unrest which has proved to be biggest hurdle before starting the development projects.
  • The procurement policy needs relooking.
  • Commercial terms and condition must be of international standard
  • Qualification requirement should be able to accommodate small manufactures as well to bring them into main stream.
  • The projects which are already in the half way of completion but are in dormant stage due to litigation need to be looked by separate team to clear the hurdles.
  • Arbitration proceeding and legal procedure must be made time bound to avoid any delays.

With these strategies and steps, the complete capital goods industry can be pepped up to build the further growth and market for the industry.

Vinay Singhal
Business Advisor and Researcher