Hard on the heels of the Budget, FICCI asked the government to ok recourse to protectionism, saying liberal imports of capital goods were hurting the domestic industry and sought high customs duties for such goods.

The government should declare capital goods as strategic industry and provide a level-playing field to the domestic industry, the chamber said.

According to the FICCI study on ‘India’s Imports of Machinery, Equipment and Machine Tools’, India’s capital goods imports increased five times from 6.5 billion dollars in 2003-04 to 30 billion dollars in 2008-09.

In terms of sources of imports, the study observed that China has surpassed Germany as the largest exporter of capital goods to India.

In 2008-09, 23 per cent of total capital goods were imported from China and Germany’s share fell to 16.2 per cent, the study pointed.

FICCI said for bridging technology gaps in the domestic machine tools industry, critical machines imported as model for product development should be allowed duty free and weighted deductions of 200 per cent on R&D activities should be considered for income tax.

The present level of custom duty (7.5 per cent) should be maintained for machine tools in the forthcoming Budget and second-hand machine tools should attract higher duty than the new products, it said.

The chamber said the cost disadvantage to domestic capital goods industry vis-a-vis foreign suppliers comes in the range of 11-22 per cent on account of various exemptions, zero custom duty on capital goods imports and other disability factors.

It has sought excise duty exemption for domestic supplier of equipment to mega power plants for projects that are not under the International Competitive Bidding (ICB) procedure.

The chamber said the government should impose additional duty equal to CST or VAT on all project goods imports in view of CST or VAT paid by local manufacturers for industrial projects as these industries are not in position to offset the CST paid by supplier of capital goods.

FICCI has also sought for 15 per cent price preference in private sector mega power projects for domestic manufacturers of capital goods.

In order to offset the disadvantages to domestic supplier arising out of duty free imports, the chamber suggested that 15 per cent price preference should be applicable by loading the price of foreign supplier only and the import content of domestic bidder should not be loaded in line with World Bank and ADB procurement guidelines.

Further, the benefit of excise duty exemption should be extended on the goods to be supplied to the projects funded by other international organisations.

In machine tool, requirements of defence and other strategic sectors need to be sourced from domestic machine tool manufacturers only, FICCI said.

Currently, only low-end machines are being procured locally, FICCI pointed-out.

The excise duty on machine tools and accessories should be reduced.

FICCI has suggested that government should bring out a policy framework for promoting capital goods parks and clusters.

These parks and clusters are required to address the infrastructure issues for the sector.

UNI