All of us would like to see a vibrant domestic capital goods industry. But to achieve this, we cannot replicate the protectionist policies of most of the countries of the world. Today, the formation of the WTO and various trade blocs have led to far greater scrutiny of product prices across the globe. Thanks largely to a fair amount of disclosure, in comparison to countries like China, it is quite easy to arrive at the product price of an Indian company from publicly available information. Hence, any relief given by the government would invite immediate retaliation from various trade blocs in the form of anti-dumping duty. And secondly, Indian companies do not have the access to cheap finance which was a feature ofbuilding up capital goods capability in countries such as Korea.

The capital goods market is not a commodity market, where price is the sole factor. One of the most important factors while finalising the purchase order is the safety factor of the machine and not the price. The safety factor is simply the capacity of the machine to give rated output in spite of variations in power, etc and the time for which the machine would give trouble free operations. Even today, the high safety factor of capital goods produced by the German companies have helped them earn far greater profits than capital goods producers from other countries. The Taiwanese machine tool industry, very competitive today, started off as very small players.

Taking a cue from the Germans, the industry's focus on R&D has to increase. Even technical tie-ups with foreign players would help, as it would greatly enhance the work practices followed by them. However, joint ventures, though a short-term solution, may not be beneficial to the Indianpartner in the long run as they result in foreign players developing far greater understanding of local market. The biggest competitive advantage of the Indian industry is that it knows the Indian market -- a market which along with China would be the only big market left for capital goods. The domestic capital goods industry must therefore leverage its understanding of the market to obtain the know-how necessary to upgrade its products. While the budget could provide a certain amount of protection, it should also lay down a time-frame within which these sops should be phased out.