Capital Goods

 

OVERVIEW

Production

The Index of Industrial Production (IIP) for capital goods (base: 2011-12) registered third consecutive year of growth during 2017-18. The growth rate of 3.98 % in the index for capital goods was lower than the growth rate in general index of 4.44 %.

During 2017-18, the index for manufacture of machinery and equipment n.e.c. (NIC: 28) and the index for manufacture of computer, electronic and optical products (NIC: 26) registered y-o-y growth of 5.58% and 17.15%, respectively. On the other hand, the index for manufacture of electrical equipment witnessed a decline of 12.45% during the year.

Production of engineering goods have been on an upswing, registering a CAGR of 6.7% over the period FY14-FY17. The manufacturing of machine tools, earth moving & mining machinery, plastic machinery, metallurgical machinery and heavy electrical equipment have exhibited impressive CAGR over the same period.

Production of Engineering Goods - Rs. Crore
Sub-Sectors 2013-14 2016-17 CAGR (FY14-FY17
Machine Tools 3481 5803 18.6% 3481 5803 18.6%
Textile Machinery 6775 6650 -0.6%
Earthmoving &Mining Machinery 16000 84945 16.0%
Heavy Electrical Equipment 128823 159221 7.3%
Plastic Machinery 2660 3690 11.5%
Process Plant Equipment 18000 19500 2.7%
Dyes, Moulds & Press Tools 13793 14750 2.3%
Printing Machinery 16069 16424 0.7%
Metallurgical Machinery 1200 1525 8.3%
Food processing machinery 11750 13000 3.4%
Total 218551 265508 6.7%

Source: Department of Heavy Industries

Export

India is currently dependent on imports of engineering goods, especially in the sub-sectors of food processing machinery, textile machinery, machine tools and printing machinery. At the same time, indigenous capacity and capability development has impacted export growth positively, reducing trade deficits across the sector. During FY14 to FY17, imports of engineering goods registered a CAGR of 3.2%, while exports witnessed a CAGR of 11.0%.

Imports of Engineering Goods - Rs. Crore

Sub-Sectors

2013-14

2016-17

CAGR

(FY14-FY17)

Machine Tools

4672

6173

9.7%

Textile Machinery

7546

10098

10.2%

Earthmoving &Mining Machinery

12689

14520

4.6%

Heavy Electrical Equipment

58354

55291

-1.8%

Plastic Machinery

1250

1863

14.2%

Process Plant Equipment

9820

11925

6.7%

Dies, Moulds & Press Tools

3081

1200

-27.0%

Printing Machinery

6042

7734

8.6%

Metallurgical Machinery

3817

2202

-16.8%

Food processing machinery

5200

12656

34.5%

Total

112471

123662

3.2%

Source: Department of Heavy Industries

Exports of Engineering Goods - Rs. Crore

Sub-Sectors

2013-14

2016-17

CAGR

(FY14-FY17)

Machine Tools

247

360

13.4%

Textile Machinery

2604

2438

-2.2%

Earthmoving & Mining Machinery

6460

7849

6.7%

Heavy Electrical Equipment

29227

39280

10.4%

Plastic Machinery

821

810

-0.4%

Process Plant Equipment

7194

9291

8.9%

Dies, Moulds & Press Tools

2694

1700

-14.2%

Printing Machinery

1421

1332

-2.1%

Metallurgical Machinery

1137

1358

6.1%

Food processing machinery

2050

9165

64.7%

Total

53855

73583

11.0%

Source: Department of Heavy Industries

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$17.68 billion during April to June 2018 period. This was nearly 4.5% of the total FDI inflows in the country.

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 petrochemicals 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

  • The engineering and capital goods industry has been de-licensed and 100 % FDI has been permitted in the sector with foreign technology agreements allowed under the automatic route..
  • The government has eliminated tariff protection on capital goods to nil or 5 % in general. . It has reduced custom duties on a range of engineering equipment.
  • Tax incentives are applicable such as 15 % exemption on tax to manufacturing companies that invest more than Rs. 100 crore 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 centres of excellence for R&D and technology development are in the process of being established in academic institutions.
  • The government has approved a significant number of SEZs across the country for the engineering sector, including the Delhi-Mumbai Industrial Corridor being developed across 7 states.
  • 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 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.

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

China

China: “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 %for all hazardous substances other than cadmium for which the level is set at 0.01 %.
  • 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 or selling products in China. Several electronics products require CCC mark.

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

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.

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

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


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