The cut of 2 per cent in excise duty on capital goods is expected to provide a short-term breather for the capital goods sector, which has been under stress for a prolonged period.

On Monday, Finance Minister P. Chidambaram proposed a cut of 2 per cent in excise duty on capital goods, from 12 per cent to 10 per cent, in the interim budget for the financial year 2014-15.

Goods that fall under chapter 84 and 85 of the schedule to the Central Excise Tariff Act include engineering goods equipment like furnaces, boilers, DG sets, television sets, laptops and microwaves, among others.

Capital goods industry hailed the decision. MS Unnikrishnan, managing director and CEO of Thermax, said the reduction in excise duty was an acknowledgement from the finance minister that the capital goods sector was under stress.

Speaking on the topic, he added, "Even if there is a stable government after June 30, sentiments will be reversed by that time, consumption will increase and existing capacities will get utilised. To enhance capacity then to meet the increased demand will be a story of at least 12 to 18 months."

Harish Laxman, President of the Automotive Components Manufacturers Association of India (ACMA), said the decision would uplift consumer sentiments and stimulate the industry for higher investments in manufacturing.