CAPITAL GOODS SECTOR MAY SEE FDI RUSH

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AFTER proposing relaxation of FDI norms for commodity exchanges, aviation and petroleum, the government is considering further opening up the capital goods industry to foreign players. The ministries of commerce & industry and heavy industries are in talks to allow 49% FDI for textiles machinery, leather equipment, automated machines in the construction sector, mining and computer numerically-controlled (CNC) machines. As of now, FDI in capital goods is restricted to equipment deployed by the power and petroleum sectors.

“We are considering opening the sector gradually. Initially, foreign investors will be allowed to set up shop in partnership with domestic players. We may later allow 100% FDI,” a government official told ET.

The policy, in the initial stages of formulation, is based on a proposal by the ministry of heavy industries, which is proposing Rs 54,000-crore investment in the capital goods sector in the 11th Five-Year Plan. “We are aiming to meet the Chinese growth in manufacturing, which is not possible without inhouse production of capital goods. The sector continues to remain heavily reliant on imports,” he said.

Allowing FDI will not only help the sector directly but also indirectly boost machinery supply. “We want the government to open up FDI even in the manufacture of plant equipment,” he added. Should this happen, the machinery for manufacture of textile and other machines will also be made in India. However, till that happens, the ministry has proposed a reduction in import duty on plant equipment in the sectors on the lines of concessions given to plant equipment for the power sector last year, the official added.

The country imported Rs 27,575 crore of capital goods in 2005-06 alone, as per estimates made by the ministry of heavy industries. Of this, the highest spend was on heavy electrical machinery at Rs 10,500 crore, followed by textile machinery at Rs 7,100 crore.

In the case of process plant equipment, the country imported thrice as much as it produced domestically. The total import of plant equipment amounted to Rs 6,100 crore against indigenous production of Rs 2,125 crore. As far as domestic production of machinery and equipment is concerned, the market is dominated by one or two players in each sector as in the case of textiles. In fact, 40% of the country’s demand for capital goods was met through imports in the year.

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