Capital Goods

 

OVERVIEW

Production

The Index of Industrial Production (IIP) for machinery (base: 2004-05) registered positive growth rates during the period 2005-06 to 2010-11, with the growth rate remaining higher than the general IIP during the entire period except in 2009-10. However, from 2011-12 onwards, machinery index has consistently recorded negative growth, except in 2014-15, when the index grew by 6.3 percent, largely on account of base effect.

During 2011-12 to 2015-16, the IIP for machinery and equipment n.e.c. (NIC 29), and office, accounting and computing machinery (NIC 30) witnessed negative to moderate growth rates. Electrical machinery and apparatus n.e.c (NIC 31) registered double-digit growth rates during 2013-14 and 2014-15 of 14.5 percent and 21.1 percent, respectively, before declining by 11.4 percent during 2015-16.

Export

During FY 2015-16, capital goods exports declined by (-) 4.0 per cent over the corresponding period of the previous year to reach US$ 18.0 billion. Imports of capital goods during the same period registered a year-on-year growth of 4.1 per cent to reach US$ 41.1 billion. The USA is the largest market for India’s exports of machinery, with a share of 15 percent in the total capital goods exports. The UAE, Germany and the UK (share of 5 percent each) were the other top export destinations for these products. The USA was the topmost export destination in all segments of machinery, except textile machinery.

Foreign Direct Investments

Capacity of capital goods industry has grown significantly since liberalization, supported by the inward direct investments in the sector. Cumulative foreign direct investments in the capital goods industry amounted to US$ 12.0 billion during April 2000 to March 2016. FDI inflows in electrical equipment and industrial machinery account for more than two-third of the total FDI inflows in the capital goods sector.

Outlook

Demand in the capital goods sector is currently propelled by the manufacturing, power and mining industries. This demand is expected to rise, keeping in mind the government’s initiatives for infrastructure development. In addition, investments in power, oil and gas extraction, mining and petrochemical are expected to provide a positive boost for the industry. Industrial growth and development in the manufacturing industry will add to the momentum of the capital goods industry.

 

SELECT GOVERNMENT INCENTIVES

  • All sectors, except a few pertaining to national security, have been opened up for participation by the private sector, including Foreign Direct Investments.
  • In most sectors, 100 per cent FDI is permitted under the automatic approval route.
  • Tariffs on capital goods and equipment have been lowered to nil or 5 per cent in general.
  • Tax incentives are applicable such as 15 per cent exemption on tax to manufacturing companies that invest more than Rs. 100 crore (US$ 18.4 million) in plant and machinery.
  • Public sector enterprises are being encouraged to leverage their funds for investing in large projects.
  • To make the Capital Goods sector globally competitive, advanced centers of excellence for R&D and technology development are in the process of being established in academic institutions.
  • In the export sector, India has entered into a number of free trade agreements with ASEAN, Japan, Korea, Malaysia, Singapore, and others.
 

SELECT EXPORT MARKET REGULATIONS

Europe

Companies selling electrical and electronic goods in the European Union (EU) must conform to the EU legislation for electrical and electronic equipment (EEE), which includes:

The Waste Electrical and Electronic Equipment Directive (WEEE), which sets out the financial and other responsibilities of EEE producers with regard to the collection and recycling of waste from a broad range of EEE at their end of life.

The Restriction of Hazardous Substances Directive (RoHS), which bans the use of certain hazardous substances (such as lead, mercury, cadmium, hexavalent chromium and some polybrominated flame retardants) in EEE.

China

China RoHS: “Measures for Administration of the Pollution Control of Electronic Information Products (EIP)”, commonly known as RoHS is intended to restrict the use of hazardous materials in electrical and electronic equipment. All products manufactured on or after March 1st 2007 for sale in China must adhere to stage 1 requirements.

Products imported into the country for the purpose of re-export or for manufacturing of other export products are excluded. The following requirements need to be adhered to:

  • The hazardous substances which come under the ambit of this measure are Lead (Pb), Hexavalent Chromium (Cr6+), Mercury (Hg), Cadmium (Cd), Polybrominated Biphenyls (PBBs) and Polybrominated Diphenyl ethers (PBDEs). If an EIP doesn’t contain any of these, then the following symbol needs to be used:
  • If any of the above mentioned hazardous substance is present above the maximum concentration value, then the following symbol needs to be used, with the number inside it representing the Environmental Friendly Use Period (EFUP):
  • The user manual of the EIP should contain table of names and contents of toxic and hazardous materials if the product contains them in quantities above the maximum concentration values. China’s maximum concentration values are 0.1 percent for all hazardous substances other than cadmium for which the level is set at 0.01 percent.
  • Packaging of EIPs should be in accordance with the GB18455- 2001 standard.

China Compulsory Certification (CCC) mark is required to be obtained by the manufacturers before exporting to or selling products in China. Several electronics product require CCC mark.

South Korea

South Korea promulgated the Act for Resource Recycling of Electrical and Electronic Equipment and Vehicles on April 2, 2007. This regulation has aspects of RoHS and WEEE.

North America

California has passed the Electronic Waste Recycling Act of 2003 (EWRA). This law prohibits the sale of electronic devices after January 1, 2007, that are prohibited from being sold under the EU RoHS directive, but across a much narrower scope that includes LCDs, CRTs, and the like and only covers the four heavy metals restricted by RoHS. EWRA also has a restricted material disclosure requirement. Several other states that have mercury and PBDE bans.


For further details on Regulations applicable in various geographies, refer to this link: http://www.standardsmap.org/identify