This Budget will be a litmus test of the government’s resolve to ensure Make in India strategy works
The just concluded “Make in India” event at the Bandra Kurla Complex in Mumbai was able to generate huge interest among CEOs and leaders across the world. Barring a few untoward incidents, the event can be termed successful purely by the buzz it created. Though there was an intent to invest hundreds of billions of dollars in India’s manufacturing sector, the real figure may change at the ground level.
To a large extent, the conversion of intent of investment on the ground depends on the government’s ability to provide a supportive infrastructure, not only in terms of transportation, power, and land, but also in the matter of taxes, incentives, large SEZs, skilled workforce, and political stability.
Budget 2016 – the ‘make’ or break Budget
All of the above and more are expected from the budget 2016. The government has made right noises about businesses, manufacturing, defence, start-ups, alternative energy, and banking. Now it is the time to implement its promises at the ground level.
The manufacturing sector – at the forefront of economic revival
India currently faces the prospect of demographic disaster if the youths are not gainfully employed. The only way to employ such a huge population is to revive manufacturing. Some of the steps taken by the government have started bearing fruits such as allowing private sector in defence. However, a lot more needs to be done. Here are some of the steps that are expected to be taken to revive manufacturing.
Setting up a vibrant defence sector: The best part about the defence sector is that India is a big purchaser. Facilitating an environment to set up defence sector will add to the manufacturing capability. SAAB and Lockheed Martin have already shown interest in setting up assembly line in India. On the Indian side, Bharat Forge, M&M, Tata, and L&T are actively pursuing tie-ups with multinationals to set up factories and assembly lines to make defence products.
Setting up manufacturing clusters: The government is expected to set up exclusive zones for manufacturing. The clusters can be for a sector, product or general manufacturing clusters like China has. This will require acquiring land on time. Moreover, it will also require support industry nearby. Budget 2016 is expected to announce few clusters in this regard and work should be started immediately. A few weeks back, the government announced setting up electronic manufacturing facility near Raipur in Chhattisgarh. More such announcements are expected in the upcoming Budget. The potential of electronic manufacturing is very big considering that we import 65percent of electronic goods consumed in India.
Speeding up the pace of infrastructure building: While the rate of building roads has increased under the new government, the pace is expected to further accelerate. Moreover, building new ports, seamless connectivity among different modes of transport, railways, roads, and sea will get more emphasis. While the government alone will not be able to carry the burden of infrastructure, it will look for PPP (Private public partnership) mode to arrange finances.
SME and Start-up: We have already witnessed the announcement regarding technology start-ups. The push is expected to be more in the forthcoming Budget in terms of facilitating easier regulation and labour laws. SMEs are the biggest employers in the country but the productivity is low.
As per a report, SMEs employ about 80 per cent of the workers but produce just 25 per cent of the products, so there is huge scope for improvement. The industry expects the government to spend in skilling its youth under its Skill India program to increase the productivity.
Taxes and policies: The much discussed retrospective tax raised its head again in a recent case involving a corporate litigant. This may not be an issue pertaining exclusively to the Budget but the Finance Ministry should resolve this matter sooner rather than later. Apart from this, the industry expects incentives and tax breaks to revive manufacturing.
The government too is intent to provide tax breaks for a few years. Goods and Services Tax (GST) is expected to follow the Budget immediately to create a uniform system of taxation across the country. The government has imposed its own deadline on GST as 1st April. While this doesn’t look possible in such a politically fractious atmosphere, the pressure will be high on the Finance Ministry to pass it into law as soon as possible.
Conclusion
These are great expectations from the industry. While infrastructure building takes time, policy changes can be done immediately if the government shows enough will. This Budget will be a litmus test of the government’s resolve to make the “Make in India” strategy work wonders for its burgeoning population and provide employment to avert a crisis of jobless growth when the country can ill-afford it. At the same time, if the government executes its policies well, India will see rich dividends and emerge as one of the largest manufacturing hubs in the world.
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