Scheme on Enhancement of Competitiveness in the Indian Capital Goods Sector : Daily Current Affairs

Relevance: GS-3: Indian Economy, mobilization of resources, changes in industrial policy and their effects on industrial growth.

Relevance: GS-2: Government policies and interventions for development in various sectors.

Key phrases: capital goods sector, manufacturing, Engineering Goods, National Capital Goods Policy 2016, Dept. of heavy industries

Why in News?

Ministry of Heavy Industries (MHI) has notified the Scheme on Enhancement of Competitiveness in the Indian Capital Goods Sector- Phase-II for providing assistance to Common Technology Development and Services Infrastructure.

Capital Goods Sector in India:

India's capital goods sector has grown in size since liberalisation in the 1990s. In terms of production, the sector contributes around 12% of India's manufacturing gross value added and 1.8% of India's GDP. However, the sector's share in the global export market is less than 1%, and there is heavy dependence on imports to fill the huge demand-supply gap. Hence, a widening trade deficit is a major concern of the sector.
Capital goods sector is the base of many industries and thus is an essential component of manufacturing. With a total market size of US$ 92 billion and production valued at US$ 32 billion. India's modest export performance indicates that domestic producers are unable to tap the global export market demand effectively.
Capital Goods industry in India provides approximately 1.4 mn direct and 7 mn indirect jobs. Direct and indirect employment expected to reach 5 mn and 25 mn, respectively by 2025
Engineering Goods exports register a stupendous growth of 54% and jump to $ 81.8 Billion during April-December 2021 as compared to $ 52.9 Billion during same period in the previous year (2020).
The leading export subsectors of the capital goods sector are heavy electrical and power equipment, earthmoving and mining machinery, and process plant equipment – together accounting for 85% of India's total capital goods exports.

Enhancement of Competitiveness in the Indian Capital Goods Sector

The Scheme for Enhancement of Competitiveness of the Capital Goods Sector was approved by Union Cabinet in September 2014.
On 25th January, 2022, Ministry of Heavy Industries (MHI) has notified the Scheme on Enhancement of Competitiveness in the Indian Capital Goods Sector- Phase-II for providing assistance to Common Technology Development and Services Infrastructure.
The scheme covers four sub-sectors of Capital Goods Industry viz. Machine Tools, Textile Machinery, Construction and Mining Machinery, and Process Plant Machinery.

Objective of this scheme:

The scheme for enhancement of competitiveness in the Capital Goods sector - Phase II is aimed at:

Creating a strong and globally competitive capital goods sector that contributes at least 25% to the manufacturing sector and to increase the ability of the capital goods sector to meet the domestic demand and to make India a net exporter of capital goods.
Creating a self-sustaining eco system for research and innovation for manufacturing technologies through the use of Technology Innovation Portals.
Enhancing the skills of the existing manpower and to expand the availability of highly skilled manpower for the sector particularly in niche skills like robotic welding, precision machining, metallurgy, metrology, computer aided designing of machine parts, thermal analysis, sound and since vibration engineering, designing of high precision tools and their manufacturing etc.
Providing infrastructure for testing quality of processes / products developed and manufactured to ensure that they comply with international mandatory standards. Regular testing and certification shall facilitate improvement in quality of capital goods and make them globally competitive.
Creation of common engineering infrastructure for designing and manufacturing for the benefit of MSMEs and other industries of the Capital Goods Sector which are unable to access the latest high technology machines required for manufacturing and which will also encourage development of supply chains to develop quality products of international standards besides boosting industrial production.
Promotion of smart manufacturing and to facilitate adoption of relevant, robust and affordable technologies for Industry 4.0 in the Capital Goods sector in order to improve efficiency and productivity.
Promotion of progressive indigenization of technologies for capital goods, by engaging local industry, as an active partner in innovation and development of new products, in partnership with premier institutions, in the forefront of industrial innovations, through creation of Industry Accelerators.

Way Forward:

The scheme makes a strong recommendation on the need to focus on aggregate domestic value addition in the manufacturing sector, as India transforms from its current state to one that is gearing to compete with the likes of China and Vietnam
There is need of competitive tariff structure on good components and removal of all regulatory uncertainty to put India on the path to US$100 billion capital good manufacturing by 2025.

National Capital Goods Policy 2016.

The Department of Heavy Industry has introduced the National Capital Goods Policy in 2016.This is first ever policy for Capital Goods sector with a clear objective of increasing production of capital goods from Rs.2,30,000 crore in 2014-15 to Rs.7,50,000 crore in 2025 and raising direct and indirect employment from the current 8.4 million to 30 million.
The policy envisages increasing exports from the current 27 percent to 40 percent of production. It will increase the share of domestic production in India’s demand from 60 percent to 80 percent thus making India a net exporter of capital goods. The policy also aims to facilitate improvement in technology depth across sub-sectors, increase skill availability, ensure mandatory standards and promote growth and capacity building of MSMEs.

Source: PIB

Mains Question:

Q. Discuss the relevance of Scheme on Enhancement of Competitiveness in the Indian Capital Goods Sector in realising the vision of ‘Building India as the World class hub for Capital Goods’. Critically examine.

Q. Scheme on Enhancement of Competitiveness in the Indian Capital Goods Sector can play a pivotal role in overall manufacturing as the pillar of strength to the vision of ‘Make in India’. Critically analyse.