Though the demand for capital goods in the country has grown by almost two-and-a-half times over the last decade to Rs 3.7 lakh crore in 2015, sectors’ contribution to India’s GDP is 0.6 per cent as compared to 4.1 per cent for China, 3.4 per cent for Germany and 2.8 per cent for Korea. Much of the demand was met by imports, thus making it the country’s fourth-largest import category after crude oil, electronics and gold, as per a report by FICCI and McKinsey & Company.
As per the report, the capital goods sector grew at only 2 per cent per annum between 2010 and 2015, compared to the overall economic growth rate of 7 per cent. The demand for capital goods, driven by overall economic growth, has been increasing at the rate of 10 per cent per annum, pushing the imports of capital goods to $ 30 billion in 2015.
For a $ 2 trillion economy, the sector is still relatively under-developed. The study reveals that the sector could have been weighed down due to low investments in technology and talent. In Indian capital goods sector, less than 1 per cent of revenue is ploughed back in R&D as compared to 5-6 per cent in Germany. The sector has attracted an annual investment of Rs 18,000-20,000 crore and has been stagnant at 1.4 per cent growth. Indian goods sector has also been missing a deep component supplier ecosystem along with limited B2B sales and marketing capabilities.
Dr. A Didar Singh, Secretary General, FICCI said “Capital goods is now the fourth largest import category after crude oil, electronics and gold. The future growth trajectory of the sector could be accelerated. Based on the push under the “Make in India” campaign and the trends in key end-use sectors, there are multiple growth opportunities on the horizon in India for capital goods players.”
In order to change this scenario, there are certain sectors that need to be tapped. According to Abhishek Agrawal, Associate Partner, McKinsey & Company, if the following sectors-Emission norms regulations, investing into railways, ports, roads, thrust on indigenisation of manufacturing in aerospace and defence, Urbanisation and meeting India’s energy, material and food demands are tapped, it could result in an annual opportunity worth Rs2 lakh crore. He further stated that tapping these could also accelerate the growth of this sector and thus add Rs 40,000 – 50,000 crore to country’s GDP. Such a scenario will create additional 5 lakh direct jobs and 50 lakh jobs in total.