Capital goods sector can add up to Rs 50,000 cr to GDP: Study

With conducive government policies and strategic approach (adopted by domestic manufacturers), capital goods sector can add up to Rs 50,000 crores to India’s GDP, according to a new report of FICCI and McKinsey & Company.

The report, released during ‘World of Industry’ (WIN) India conference in Mumbai, mentions that though the demand for capital goods in the country has grown by almost two-and-a-half times over the last decade to Rs 3.7 lakh crore in 2015, sectors’ contribution to India’s GDP is 0.6 percent as compared to 4.1 percent for China, 3.4 percent for Germany and 2.8 percent for Korea. Much of the demand was met by imports, thus making it the country’s fourth largest import category after crude oil, electronics and gold. 
 

For a $2 trillion economy, the sector is still relatively under-developed. The study revealed that the sector could have been weighed down due to low investments in technology and talent. In Indian capital good sector, less than 1 percent of revenue is ploughed back in R&D as compared to 5-6 percent in Germany. The sector has attracted an annual investment of Rs 18,000-20,000 crore and has been stagnant at 1.4 percent growth. Indian goods sector has also been missing a deep component supplier ecosystem along with limited B2B sales and marketing capabilities.

“Capital goods is now the fourth largest import category after crude oil, electronics and gold. The future growth trajectory of the sector could be accelerated. Based on the push under the Make in India campaign and the trends in key end-use sectors, there are multiple growth opportunities on the horizon in India for capital goods players,” commented Dr A Didar Singh, secretary general, FICCI.

Abhishek Agrawal, associate partner, McKinsey & Company, said, “Despite the sector being under-developed, there is a silver lining. Economic reforms rolled out by the government over the years and kick-starting of capex cycle in many end-use sectors have created new opportunities.”

According to him, tapping of key areas can result in $ 30 billion (Rs 2 lakh crore) annual opportunity for India’s capital goods players and global OEMs. These areas are emission norms regulations; investments into logistics infrastructure (railways, ports & roads); thrust on indigenisation of manufacturing in aerospace & defence; urbanisation; and meeting India’s energy, material & food demands. “Tapping these opportunities could also accelerate the growth of this sector, add Rs 40,000-50,000 crore to country’s GDP, allow import bill to be reduced by about $ 20-25 billion. It could also create additional 5 lakh direct jobs and 50 lakh jobs in total,” added Agrawal.