Finally, the capital goods industry can hope to breathe easy.
The Budget aims at enhancing capex by a remarkable 34.5% to INR 5.54 lakh crore. Besides, it envisages as much as INR 2 lakh crore of support to states and local bodies for bolstering their capex plans. This reprioritization of public spending towards infrastructure investment is slated to catalyze the much-needed demand expansion for the capital goods industry that has seen a rather long winter of slowdown.
Roads, new Economic Corridors, Railways, Metro, Urban and Rural infrastructure have all got keen focus in the Budget. In Railways alone, FICCI Capital Goods Committee report on Opportunities for Capital Goods Industry with Indian Railways and Metros, released last year, highlighted the vast opportunities for the capital goods sector under the ambitious construction projects, such as high-speed rail and dedicated freight corridors. These provide new business opportunities for the Indian industry. The report identified specific manufacturing opportunities worth INR 28,000 crore for the industry across various areas such as rolling-stock manufacturing, sub-assembly or component manufacturing, machinery and tool manufacturing, and project execution. A new stressed assets resolution mechanism, disinvestment, and strategic sale of select state-owned enterprises and sustained focus on Atmanirbhar Bharat are all medium to long-term steps that would directly and indirectly trigger investment cycle and help create larger capital goods demand in the economy.
We have also seen rationalisation of tariffs in key raw materials namely, metals for the Capital goods sector. Tariff of 7.5% on semis, flat, and long products of non-alloy, alloy, and stainless steels, exemption of duty on steel scrap for a period up to 31 March 2022, removal of anti-dumping duty and countervailing duty on raw materials used in manufacture of CRGO steel, reduction of duty on copper scrap from 5% to 2.5%, will help in providing level playing field for the industry. The Capital Goods Sector can also hope to benefit from the review of numerous exemptions. The budget proposed to review more than 400 old custom-duty exemptions this year through extensive consultations, and from 01 October 2021, a new revised customs duty structure, free of distortions be in place. More importantly, many of these exemptions became perpetual in nature, which encourage imports of capital goods at concessional duty. Budget suggested, any new customs duty exemption henceforth will have validity up to 31 March following two years from the date of its issue. This will also hopefully provide level playing field to the domestic capital goods sector. Besides reviewing these exemptions, FICCI has been suggesting to also review certain FTAs that have resulted into duty distortions for the capital goods sector. In some cases, FTAs have resulted in duty inversion for capital goods sector where raw materials/components are imported at certain duty whereas the related capital good is at zero duty.
However, the key lies in time-bound and effective implementation of major infrastructure projects across sectors, and we hope the resolve inherent in Budget 2021 will help accelerate ground momentum.
The author is Chair, FICCI Capital Goods Committee.