Just as India is constantly changing, so is the world of industrial goods. Cutting-edge technological advances and increasing automation imply greater demand for new products and systems.
Capital goods help expand future production, and investment in this sector will help produce other goods – machinery, plants or equipment.
In May 2016, the cabinet approved its first-ever national capital goods policy.
India is increasing its capital good manufacture. This will lessen the country’s reliance on imported equipment and the impact will be felt throughout sectors such as engineering, construction and infrastructure where the aim is to triple the production of capital goods by 2025 and create jobs in the process.
India’s capital good’s domestic production is valued at USD32 billion, with a total market size of USD92 billion.
69% of the industry is made up of heavy electrical and power plant equipment.
Process plant equipment and construction equipment also contribute substantially to the industry. Other Indian capital goods include machine tools, earth moving and mining equipment, textile mahinery, plastic processing machinery, dies, moulds, press tools, food processing machinery, metallurgical machinery and printing machinery,
Between 2013-2014 imports increased six-fold to a total of USD18.46 billion. Exports increased four-fold to USD8.57 billion
As India’s economy continues to expand at more than 7.5% a year, the country’s capital goods sector is diversifying. Infrastructure and manufacturing will garner 50% of the estimated investment. India will need investments worth USD4.7 trillion by 2019.
The companies driving growth include companies with significant dependence on domestic markets such as Bharat Heavy Ltd and Larsen & Toubro.
Companies that can build revenue on the back of government spending on infrastructure include GE T&D (formerly Alstom T&D), Siemens and ABB India.
India’s resourceful entrepreneurs are known for using ingenuity to solve problems for the lowest possible cost, which could in turn drive year-on-year savings of up to 12%. The Indian captital goods industry aims to marry this innovative approach to cost effective, advanced solutions that foreign investors seek.
Areas of opportunities for foreign investment in India include:
- SMART CITIES – The 100 Smart Cities initiative needs low-cost housing, sanitation and sewage systems.
- ELECTRICITY GRID – A Smart Electricity Grid is being proposed with efforts also concentrated on thermal, hydro and nuclear power capacity.
- INDUSTRIAL CORRIDORS – India is focused on attracting technology and equipment for specific infrastructure sectors including industrial corridors, manufacturing hubs, high-speed trains, dedicated freight lines, cargo handling, security equipment and dredging machinery.
- GREEN CAPITAL GOODS – Machinery and equipment to help small to medium sized companies cut back on pollutants and waste.
- MINING COMPANIES – Exploration and extraction – drills, crushers, loaders and safety equipment are all in high demand.
Competitive wages and cost structures, robust laws protecting Intellectual Property that enhances scientific research and development and three million IT professionals on hand to design state-of-the-art technology-driven machinery and equipment, as well as large numbers of skilled engineers and technical graduates are some of the advantages that India provides to foreign investors.
How does the government help?
In most sectors, 100% FDI is permitted under the automatic approval route. Tariffs on capital goods and equipment have also been lowered to 0-5%. On top of that, tax incentives apply to manufacturers investing big in plants and machinery. India has signed free trade agreements with countries including Japan, Korea, Malaysia, Singapore and the ASEAN trading bloc.