Budget 2020

Budget expectations: Manufacturing, exports and SMEs need a push

Amiti Sen New Delhi | Updated on January 25, 2019 Published on January 25, 2019

The Govt must be sensitive to the needs of the industry; more tax sops must to boost output and consumption

 

Wooing farmers will no doubt be a priority for the government presenting its Budget or Vote-on-Account next week, but the floundering Indian industry, including the manufacturing sector critical for employment generation, needs attention too.

The extent to which government can take policy decisions or announce sops in the Budget/vote-on-account to be presented on February 1 is a matter of conjecture. However, it will certainly help if the government takes stock of what is ailing the industry and indicates what it could do if voted back to power.

According to the latest Index of Industrial Production (IIP) figures, industrial growth almost screeched to a halt in November posting an increase of 0.5 per cent over the same month last year.

The poor performance was mainly led by manufacturing, where production declined 0.4 per cent. Within manufacturing, the worst performers were the capital, intermediate and consumer goods segments, which indeed are worrying signs for the economy given the fact that the Centre is simultaneously stressing on the need to promote ‘Make in India’. Although, the overall IIP growth for April-November 2018 at 5 per cent, is much higher than the 3.2-per cent increase posted in the corresponding period last year, the slowdown in November may also bring down the GDP estimated to grow at 7.2 per cent in 2018-19.

 

The reasons for the industrial slowdown are attributed by economists to factors such as lower domestic demand, lower rural spending and lower lending to various sectors including micro, small and medium enterprises (MSMEs).

Fall in exports

Exports, too, have been showing lacklustre growth, with shipments in December stagnating at 0.34 per cent. Worse still, many of the employment-generating sectors such as gems & jewellery, engineering, leather & leather products, handloom products and commodities posted a fall in exports.

So, how does one get around the situation and push production back on a steady growth track? Many economists recommend additional tax sops to boost both output and consumption to get the industry out of its low phase.

While income tax slabs may not be tinkered with much in this Budget, there are expectations that some measures may be taken to boost rural demand. The interest rate subvention scheme, where the government bears a part of the interest burden on credit of identified sectors, may be another tool to help out the credit-starved industry,

I-T exemptions

The government may also give indications that it would raise income tax exemption limits further if it continues to be in power after the General Elections.

There is not much scope for the government to increase incentives under the Merchandise Export Incentive Scheme for exporters as the World Trade Organization has already ruled that India is no longer eligible for export subsidies and existing schemes are already being disputed by other members, mainly the US.

What the government could do is link subsidies for exporters to other performance indicators such as requirement of employment or investment in technology, which focuses on scale expansion and growth.

Other measures being demanded by industry and traders include further lowering of GST slabs, an insurance scheme for registered MSME units, greater incentives for home buyers to boost the real estate sector and more concessions for start-ups, which have not done well despite the Centre’s special focus.

Published on January 25, 2019
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