Eco Survey on cap goods: Potential expansions in industrial capacities seen

The Economic Survey 2023-2024 report, released on Monday, noted potential expansions or upgrades in industrial capacities. The report used the rise in the share of capital goods merchandise export to underscore its observation.

“Notably, the share of capital goods in merchandise exports rose substantially from 16.3 per cent in FY23 to 18.9 per cent in FY24. This increase suggests India’s improved supplies of machinery, equipment, and other durable goods used in production processes, reflecting potential expansions or upgrades in its industrial capacities,” the report said.

The Survey also noted there is an increase in imports of capital goods, "which is welcome as it indicates a heightened demand for machinery, equipment, and other durable goods used in production processes, suggesting potential investments in industrial infrastructure or technological upgrades.”

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Further commenting on India’s enhanced global supply chain participation, the survey noted, “it is reflected in increased investment by foreign firms in electronics, apparel and toys, automobiles and components, capital goods, and semiconductor manufacturing in India.”

The report also anticipated the UAE could become a hub for sourcing India’s capital goods and intermediates for further value-added exports to other African and European destinations. “The India-UAE CEPA is likely to benefit about $26 billion worth of Indian products that are subjected to 5 per cent import duty by the UAE,” the Survey said.

The report added that the medium-term outlook on the demand for capital goods and key construction inputs like steel and cement is likely to be positive, as there are clear signs that capital formation in the private sector is gathering momentum.

Commenting on private sector participation in capital formation, the report noted, “Early corporate sector data for FY24 suggest that capital formation in the private sector continued to expand but at a slower rate.”