Goutam Das, Senior Associate Editor, Business Today
It was touted as the 'Make in India' Budget. But at the end of Finance Minister Arun Jaitley's one hour and thirty three minutes speech, peppered with 15 references to "manufacturing", many industry captains were still grappling to pinpoint that one big-bang move. It was a mixed bag for the sector. While many of the policies proposed could stimulate manufacturing demand in the long term, executives were not too sure about the near term. The Indian manufacturing sector has a problem on the demand side - there is more capacity and less demand. The automobile segment is running at about 40 per cent excess capacity, for instance. Until capacity utilisation touches 80-85 per cent, companies are unlikely to invest in new plants and create jobs.
What could create demand for the manufacturing sector in the medium to long term are investments in infrastructure that could create opportunities for the capital goods segment, steel and cement. Investments in infrastructure, the minister said, will go up by Rs 70,000 crore in the year 2015/16 over the year 2014/15. The government also proposed to set up five new Ultra Mega Power Projects, each of 4,000 MW, in the plug-and-play mode. "If the infra demand grows, the commodity demand goes up, so does the demand for construction equipment. It will also generate employment. Importantly, because of the demand, it would energise investments," Sumit Mazumdar, CMD of TIL Ltd. and President Designate of CII told Business Today.
GST, which will put in place an indirect tax system by April, 2016, will also boost manufacturers in the long run. "It will add buoyancy to our economy by developing a common Indian market and reducing the cascading effect on the cost of goods and services," the Finance Minister said. "We are moving in various fronts to implement GST from the next year," he added. Lower costs imply more domestic consumption as well as a better chance for Indian manufacturers in the export market.
For the short term, Saturday's Budget rationalised duties on some components, particularly in the electronics and white goods segments. Industry bodies such as FICCI and IESA have been lobbying for rationalisation of inverted duties that were crippling local manufacturing - the import duty on the finished product in at least seven manufacturing sectors was lower compared to the import duty on raw materials required to make those products domestically. The minister, therefore, proposed to "reduce the rates of basic customs duty on certain inputs, raw materials, intermediates and components so as to minimise the impact of duty inversion and reduce the manufacturing cost in several sectors". He also did away with the Special Additional Duty (SAD) on IT hardware.
"From an IT industry perspective, it is a mixed bag with the inverted duty structure being finally addressed with the removal of SAD on all components. The removal of customs duty on components and concessional structure of 2 per cent without CENVAT credit are positive steps to encourage tablet manufacturing in India. However it disappoints as no initiatives have been taken to increase PC manufacturing and promote exports," Amar Babu, President of MAIT, the association of India's IT hardware industry, said.
While the duties have been rationalised mostly in electronics, it would help automobile manufacturers as well - Shekar Viswanathan, Vice Chairman and Director at Toyota Kirloskar Motor Private Limited said that even entry level cars today have a lot of electronics and India today can garner the economies of scale to manufacture much of it.
The sooner that happens, the better it is for India's manufacturing sector - manufacturing's share in the country's overall GDP has been shrinking, from a high of 16.28 per cent in 2011/2012 to 14.94 per cent in 2013/2014. The government wants to push it to 25 per cent of the GDP. That appears a tough job.