The Great Indian Budget and the Manufacturing Sector
The soon-to-be-announced annual budget is expected to have major announcements in an attempt to push the Indian economy towards a road to recovery. What lies ahead for the manufacturing sector? Ashima Ohri speaks with Atul Pandey, Partner, Khaitan & Co to find out what's in the offing.
Atul, given the pandemic, what is expected to be the focal point of the Budget and what lies in store for the Manufacturing Sector?
Ashima, it will not be a stretch to say that the COVID-19 pandemic has redefined global manufacturing. Electronics, pharmaceuticals, automobiles etc. are some of the top sectors that have seen the manufacturing activity moving from traditional Chinese centres to other countries. The Indian government has taken proactive steps to attract such investment into India and promote domestic manufacturing sector.
The production-linked-incentive schemes (PLI Schemes) introduced by the Indian government are positioned as a critical component of the government's flagship Atmanirbhar Bharat (self-sufficient India) programme that seeks to create a self-reliant Indian manufacturing ecosystem. PLI Schemes are aimed at making India a part of global supply chain and a manufacturing hub, as a global alternative to China. It intends to make domestic manufacturing competitive and efficient, create economies of scale, attracting investment in core manufacturing and cutting-edge technologies which in turn would lift Indian exports. The export-related revenue and localization of production are the two primary criteria for choosing the beneficiaries of the PLI Schemes. As a step in the right direction, relevant ministries have been given the power to implement the scheme. Additionally, unused scheme funds can be utilized by the other sectors, thus ensuring the optimal utilization of those funds. This is a significant opportunity for the private sector to participate and accumulate benefits under the PLI Schemes at the same time.
As the PLI Schemes are still in the nascent stage as far as implementation is concerned, it would be too early to comment on the success of PLI Schemes.
It is anticipated that the PLI Schemes will improve the share of manufacturing in the GDP, languishing at 16-17% of GDP for about three decades now, to the targeted level of 25%.
The soon-to-be announced annual budget is expected to have major announcements in an attempt to push the Indian economy towards a road to recovery. Like the PLI Schemes, what other incentives or reliefs should the sector look forward to?
The manufacturing sector may expect the government to extend the incentives other than PLI Schemes for a longer duration such as tax breaks, free electricity, subsidised land etc. Further, to boost the manufacturing sector, the budget should also have measures in the ancillary sector such as logistics as they are critical for long-term profitability and to bestow global competitive advantage to the manufacturing sector.
Reducing the compliance burden and lowering entry barriers is also expected to greatly benefit the manufacturing sector. Further, demand-side sops in the budget may also be an attractive proposition for the manufacturing sector to ramp up the supply into the market.
From a PLI Schemes perspective, the budget may include struggling or distressed industries may be included in the realm of PLI Schemes so as to utilise the existing capital and resources that are readily available.
As India tries to become a global player in the manufacturing sector, a lot is yet to be done.
The Indian government may consider cheaper credit availability to manufacturing industries especially MSMEs as that would also align with the objective of Atmanirbhar Bharat.
Further, India Inc. is still struggling with rising non-performing assets and the Indian government should also focus some of its attention on resolving such systemic issues and build a sustainable business environment. Lastly, increasing government expenditure in infrastructure and attracting foreign investment is necessary to capitalise on the current sentiment and build a framework to support the manufacturing sector in India.
Lastly, increasing government expenditure in infrastructure and attracting foreign investment is necessary to capitalise on the current sentiment and build a framework to support the manufacturing sector in India.
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