The government may extend excise duty exemptions and tax benefits to the capital goods industry so as to boost production activity in the sector, the minister for heavy industries Santosh Mohan Dev said on Friday.
The capital goods industry has asked the government that a minimum duty of 5% must be imposed on the import of capital goods as against 0% now, so as to give a level playing field to Indian industries, according to the draft report recommendations on Indian capital goods industry prepared by the Confederation of Indian Industry (CII).
Also the customs duty for imported raw materials should be a minimum 5%, so that manufacturers source more of these domestically rather than rely on imports.
The report has recommended a 150% weighted deduction on R&D expenditure as under the Income Tax Act and customs duty on laboratory testing equipment should be reduced to 5% or exempted. In addition, the government is also proposing a 2% interest subsidy on capital goods.
These are slated to be discussed at the Prime Ministers High Level Committee headed by the chairman National Manufacturing Competitiveness Council (NMCC) V Krishnamurthy. Apart from this, the government has also started a capital goods competitiveness enhancement scheme for machine tools and textile machinery for two years 06-08 which is being tried on a pilot basis currently, the minister said.
If successful, the scheme will be incorporated in the eleventh 5-Year Plan with the approval of the Planning Commission. The scheme aims to offer techniques in business development services, common research & development and modernisation to the capital goods sector.
The report marks out electrical equipment, mining and construction, machine tools and process plants as the priority areas for growth in the sector.
The capital goods industry has shown significant growth in the past two years with a 13.3% growth in 04-05 and 15.5% in 05-06. Up to May 06, the industry has recorded a growth of 21%, the minister said addressing the seminar on capital goods industry organised by CII.
Speaking on the occasion chairman, NMCC, V Krishnamurthy said that more needs to be done to revive capital goods industries in the government like Heavy Engineering (HEC) and Hindustan Machine Tools (HMT).
Customer orientation for heavy industries is important to stay in business as has been done by Bharat Heavy Electricals (Bhel) and Larsen and Tubro (L&T), he added.