Budget may roll out ₹23,000 crore incentives to boost local capital goods manufacturing

New Delhi: India may unveil incentive packages of up to ₹23,000 crore in the coming budget with the aim of accelerating local manufacturing of high-value capital goods and lessening reliance on imports, said people familiar with the matter.

"Schemes are under preparation and could be announced in the budget," a senior official told ET.

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While a ₹14,000-16,000 crore incentive programme for construction equipment is nearing finalisation, a ₹7,000 crore scheme for setting up resilient global value chains (GVC) for the automobile sector is also in the works, the official said.

The proposed measures would seek to build on the government's efforts to strengthen the capital goods sector. In January 2022, the heavy industries ministry rolled out the second phase of the Scheme for Enhancement of Competitiveness in the Indian Capital Goods Sector, with a ₹1,207 crore outlay to support shared technology and testing infrastructure.

In the 2025-26 Union Budget, the Centre expanded customs duty exemptions to include 35 additional capital goods for electric vehicle battery manufacturing, and 28 for mobile phone battery production, as part of efforts to boost local lithium-ion battery manufacturing.

The construction equipment package will target indigenisation of high-end machinery such as tunnel boring machines and cranes, aiming to reduce import dependence, the official said.

Nearly half of the sector's components by value are currently sourced from countries including China, Japan, South Korea and Germany.

Curbs on tunnel boring machine exports by China had impacted key infrastructure projects in India. Beijing last year lifted the restrictions after high-level diplomatic talks with New Delhi.

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Key imported components in this segment include hydraulics, undercarriages and high-tech components such as electronic control units (ECUs), sensors and telematics.

"This scheme will lower the import of high-tonnage, and fully built machinery," the official said, adding the new programmes would strive to take forward gains from the ongoing incentive measures.

The GVC scheme is expected to focus on localised manufacturing of modern car equipment such as advanced driver assistance systems (ADAS), 360 degree cameras, and censors.

"Local manufacturing with 50% domestic value addition of these niche automotive parts will be supported," the official said, noting that this could also unlock export opportunities.

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Subsidies for buying capital goods such as moulds and power tools-used in manufacturing auto parts-are expected to be part of the new scheme. Establishing prototyping centres where pre-production stage tests can be undertaken are also expected to be supported by this scheme with the aim of ensuring supply chain resilience through industry partnerships.