Capital goods in sorry state
The government, through commerce minister Anand Sharma, is considering imposing duties to curb the $31 billion worth of imports of electronic items. It also proposed on Tuesday to review the present inverted duty for capital goods that is one of the factors crippling the domestic capital goods industry. The urgency of turning words into action, however, seems to be missing as Mr Sharma says the ministry would review the progress of the capital goods industries at the National Manufacturing and Investment Zones after three months. For a country that has barely seven months of foreign exchange reserves needed to cover its widening current account deficit ($88 billion), three months is a very long time.
It is not that the government is unaware of the problems facing the capital goods industry. The Indian electrical equipment industry, for instance, has been complaining for several years about cheap imports and that duties on raw materials needed for manufacturing are higher than on the finished products (inverted duty), but the short sighted government was unconcerned and preferred to squander the country’s foreign exchange which was not scarce until recently. For instance, import duty on copper is higher than on finished cables, so companies prefer to import cables instead of manufacturing them here. The Chinese today have 40 per cent share of the Indian electrical equipment market, while 30-40 per cent of the domestic capacity is lying idle.
The government has made a beginning and it is hoped that it will look at all sectors beside capital goods where there is no level-playing field for the domestic players.
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