The government is working out an ambitious technology upgradation fund scheme (TUFS) for the engineering sector, which constitutes the largest chunk of exports from India (over a fifth of the total exports) and employs 10 million people.
The government is working out an ambitious technology upgradation fund scheme (TUFS) for the engineering sector, which constitutes the largest chunk of exports from India (over a fifth of the total exports) and employs 10 million people.
The approximately Rs 2,500 crore-scheme is to help the small and medium enterprises (SME) in the sector, particularly those units involved in value addition, import sophisticated and environmental-friendly machinery using cheaper credit to, in turn, produce competitively priced export items.
The plan is to create a huge demand in India for the latest capital goods, encourage SMEs to upgrade their technology, cut production costs and better compete with Chinese products in the international market, sources said. They said the scheme, once implemented, would also help boost industrial production and exports.
The timing of the preparation for the scheme is also significant as the government is expected to take a final stance on whether it would take part in ‘sectoral’ negotiations in the World Trade Organisation (WTO) Doha Round negotiations on industrial goods. In the ‘sectorals’, India will have to decide on making commitments on either drastically reducing or eliminating duties on several items in sectors including engineering within the agreed timeframe.
Developed nations, eyeing larger market access in developing countries in the industrial goods market, want provisions on ‘sectorals’ to be included in the final text of the Doha Round talks. The US is keen on getting more markets access in three sectors – chemicals, electrical electronics and industrial machinery – for its goods in emerging economies.
The TUFS for the domestic engineering sector could then act as a compensation for them, as they are against the government entering into ‘sectoral negotiations. On the other hand, developed countries will be able to increase their capital goods export to India due to the demand following TUFS, sources said.
The TUFS would be a mix of credit at a lower interest rate and longer repayment period for these SMEs, who would then be mandated to boost their exports.
Small Industries Development Bank of India (SIDBI) would be the nodal financial institution for the scheme and it would either refinance the commercial banks lending to these SMEs or provide direct finance to SMEs. The commerce ministry has asked the Engineering Export Promotion Council, India (EEPC) to work out the details including defining all the sub-sectors that would be included in the scheme and also the eligibility criteria, official sources said.
The engineering units that would be included in the scheme broadly belong to auto and auto components, electrical equipments, forgings, sheet metals, fasteners, transmission line towers, machinery & mechanical appliances, bicycle and parts, fencing and hardware. These are where most value addition happens in engineering exports sector, sources said.
Aman Chadha, chairman, EEPC India, said about 70% of engineering exports is very low in value addition. “It is, therefore critical that we move up the value chain to increase our global market share. TUFS would incentivise SMEs invest in productive activities. The demand for capital goods in India can also play a role in reviving global economic growth,” he said. He sought the introduction of TUFS with corresponding fiscal measures like increasing the depreciation rate from 15% to 25% under the Income Tax Act for plant and machinery.
Rakesh Shah, MD of Nipha Exports, said TUFS would also help the sector meet the European Union’s latest social accountability norms, including pollution norms and bring more acceptability in the international markets.
*source-The Financial Express
