Two schemes to incentivise capital goods sector

Govt proposed cut in excise duty on capital goods from 10% to 12% in interim budget last week

The government has approved two major proposal of investment in schemes to incentivise the capital goods sector soon after slashing the excise duty on capital goods in the interim budget.

The government proposed a cut in excise duty on capital goods from 10% to 12% in the interim budget last week.

The schemes are meant to promote tool rooms, technology centers and thus upgrade the capital goods sector through programmes run under two ministries – ministry of heavy industries and ministry of micro, small and medium enterprises (MSME).

The two schemes have been approved by the planning commission for the new plan period and will run in full length of the five year plan. The incentivisation will be in the form of either fresh initiatives or realignment of existing incentives for research and development, re-engineering of patent filing process and incentivization of intellectual property filing, outcome and commercialization. The specific ministries are working out the frame work, said officials who attended the meeting last week.

The primary objective will be to develop new cost effective technology to combat imports in the capital goods sector. Besides, the schemes aim at reducing import of technology which is gaining market share across all sub-sectors with 30% of domestic demand met through imports, said officials.

According to officials the 12th plan envisages increasing manufacturing sector growth to 2-4% more than GDP growth and increases its share to 25% of overall GDP by 2025.

Accordingly, the outcome of these schemes will also involve making policy changes in the existing public procurement policy, offset policy so as to create a demand for such technologies.

Besides, the ministry of commerce is reviewing export promotion schemes in capital goods sector. According to official sources, the new foreign trade policy (FTP) will make the export scrips for capital goods sector broad based.

Currently these scrips, used for importing duty free capital goods for manufacturing of export goods are getting transferred in the secondary market at a discount below 50%. This is because these scrips are meant only for import of capital goods and this sector is hit with industrial slowdown.

Moreover it will be only transferable for selected sectors like plastics, engineering but not automobiles etc which are relatively experiencing demand. Therefore there will be review of the structure of such scrips, official, sources aid.

The review is intended to widen the benefits of export scrips to more sectors so that import of capital goods could become easier for lot more sectors. However the objective to promote the scrip only for manufacturing of export items.