Capital Goods Sector Scheme Approved


The Cabinet Committee on Economic Affairs, chaired by the Prime, on September 15, 2014 approved the "Scheme for Enhancement of Competitiveness of the Capital Goods Sector" to boost the Indian economy. This scheme, on its implementation, would attempt to make the Indian capital goods sector globally competitive. The sub- sectors of Capital Goods covered under the scheme are mainly for Machine Tools, Textile Machinery, Construction and Mining Machinery, and Process Plant Machinery. The proposed scheme addresses the issue of technological depth creation in the capital goods sector, besides creating common industrial facility centres.
The Scheme on Enhancement of Competitiveness in the Indian Capital Goods Sector will be implemented in the 12th Plan period and spill over to the 13th Plan period with an estimated outlay of Rs. 930.96 crore. The Gross Budgetary Support (GBS) from the government for the scheme would be Rs. 581.22 crore and the balance Rs. 349.74 crore would be contributed by the stakeholder industries.
The scheme has five components -
(i) Creation of "Advanced Centres of Excellence" for R & D and Technology Development with National Centres of Excellence in Education and Technology such as the Indian Institute of Technology Delhi, the Indian Institute of Technology Bombay, the Indian Institute of Technology Madras, the Indian Institute of Technology Kharagpur and the Central Manufacturing Technology Institute (CMTI), Bangalore.
(ii) Establishment of "Integrated Industrial Infrastructure Facilities" popularly known as Machine Tool Parks with a basic objective of making the machine tool sector more competitive by providing an ecosystem for production. Establishment of Machine Tool Parks will cut down logistic cost substantially and would be a step forward in making the sector cost effective, having enhanced export capability and favourable for attracting more investment. The park would be established by a Special Purpose Vehicle (SPV) formed by local industries, industry associations, financial institutions, Central / State Governments, R & D Institutions, etc.
(iii) Common Engineering Facility Centre" for Textile Machinery is to be set up with active participation of the local industry and the industry association, which in turn would improve facilitation to the users along with visibility. The Common Engineering Facility that can be provided within such set ups are common foundry, common heat treatment, testing laboratories, design center, common prototyping, general and specific machinery, etc. The facility would enable textile machinery and other capital goods manufacturers to develop capital goods to meet the large requirements and improve capacity utilization, thereby reducing the variable cost of operation. This would also be established by a Special Purpose Vehicle (SPV) formed by local industries, industry associations, financial institutions, Central/State Governments, R&D Institutions, etc.
(iv) Testing and Certification Centre" for earth moving machineries in view of the fact that it is soon going to be made a mandatory requirement and at present there is no test facility to test earthmoving machinery like that in the automobile industry. By setting up of the test centre, the import of second hand and outdated machinery could be restricted through mandatory testing and certification, In addition, the centre would facilitate evaluating the performance, statutory and regulatory requirements of construction and mining machinery and equipment. The setting up of Test and Certification Centre for Earthmoving Machinery will be done by the SPV specifically created by the Department of Heavy Industry with the approval of the Cabinet. After approval of the Scheme, a separate proposal for information of SPV for implementation of this particular scheme component will be sent to the Cabinet for approval.
(v) The creation of a "Technology Acquisition Fund" under the Technology 'Acquisition Fund Programme (TAFP) in order to help the Capital Goods Industry to acquire and assimilate specific technologies, for achieving global standards and competitiveness within a short period of time. The TAFP will provide financial assistance to Indian capital goods industry to facilitate acquisition of strategic and relevant technologies, and also development of technologies through contract route, in-house route or through joint route of contract and in-house. The Fund can extend partial support to industry to enhance their technology level, for achieving superior product quality / functionality, production capacity, safety and sustainability performance. This programme would bridge the technology gaps identified in the 12th Plan Working Group Report on "Capital Goods and Engineering Sector".
Performance of Capital Goods Sector
The Capital Goods value added contributes a fairly constant proportion of 9-12 percent of the total manufacturing value added. This establishes that manufacturing is the key end-user sector of Capital Goods and drives the performance of the latter. Another key determinant of the demand for Capital Goods is the gross investment undertaken in the economy. The apparent consumption of Capital Goods constitutes a constant share of 17-21 percent of the total Gross Domestic investment in the country. The investments in the Capital Goods sector have declined with the decline in the relative profitability of the Capital Goods sector with respect to other sectors. The capital goods sector determines global competitiveness of the manufacturing sector by being a vehicle of technology.
Related Terms-
Capital Goods
Any tangible assets that are used to produce goods or services to be used as capital to other industries.  Consumer goods are the end result of this production process.
Capital goods are the produce that are in process of being manufactured, but are not yet completed for sale. Capital goods also means the buildings, installations, equipment, tools, transport vehicles etc that are used in the production process
Capital goods represent a major expense for businesses. However, capital goods that a business does not use up in a single year of production cannot be entirely deducted as business expenses in the year they are purchased. Instead, they must be depreciated over their useful lives, meaning that the business takes a partial tax deduction for the item for each year that the capital good is in use.
The acronym stands for special purpose vehicle. The word vehicle can be interchanged with market entity. In the US, the term used is special purpose entity (SPE). The name SPV is given to an entity which is formed for a single, well-defined and narrow purpose. An SPV can be formed for any lawful purpose. No SPV can be formed for an unlawful purpose, or for undertaking activities which are contrary to the provisions of law or public policy. An SPV is, primarily, a business association of persons or entities eligible to participate in the association. According to Joy Jain of PricewaterhouseCoopers, an SPV is mainly formed to raise funds by collateralising future receivables.
SPVs are mostly formed to raise funds from the market. Technically, an SPV is a company. It has to follow the rules of formation of a company laid down in the Companies Act. Like a company, the SPV is an artificial person. It has all the attributes of a legal person. It is independent of members subscribing to the shares of the SPV. The SPV has an existence of its own in the eyes of law. It can sue and be sued in its name. The SPV has to adhere to all the regulations laid down in the Companies Act. Members of an SPV are mostly the companies and individuals sponsoring the entity. An SPV can also be a partnership firm. This, however, is unusual.


The Gross Budgetary Support (GBS) is a component of the Central Plan of vital importance of the Government of India. The government's support to the Central plan is called the Gross Budgetary Support. The GBS includes the tax receipts and other sources of revenue raised by the Government. In the recent years the GBS has been slightly more than 50 per cent of the total Central Plan. The Planning Commission aggregates and puts forward the demand by various administrative Ministries in a consolidated form to the Finance Ministry for the budgetary support required from the Government. This demand is vetted and then approved by the Finance Ministry. Since 2008-9 the share of the GBS in Central Plan has been rising.

Monday, 15th Sep 2014, 07:55:41 PM

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