Budget 2019

Measures essential to boost manufacturing, bolster disposable incomes

Rajat Wahi | Updated on June 27, 2019 Published on June 27, 2019

The Government is expected to push its ‘Make in India’ scheme this budget

There is an overall expectation that the Government will use the Budget to push its flagship programme of ‘Make in India’ by incentivising manufacturing and providing a fillip to exports. Given the current slowdown in the economy, it is also hoped that there will be some relaxation in individual and corporate taxes to increase disposable incomes and boost capital expenditure, respectively.

Tap rural market

Tapping rural and lower-tier markets is a big opportunity area for the FMCG industry — rural market contributes nearly 50 per cent of the country’s GDP, comprises approximately 170 million households out of a total of nearly 280 million households in India and constitutes more than two-thirds of the Indian population.

The government can provide a fillip to the FMCG industry and boost local production and employment by incentivising setting up of large manufacturing hubs in Tier-2, -3 and rural towns, similar to what we have seen in other parts of Asia.

Employment potential

This will not only help create employment in these regions and but also absorb the local population there. It will also reduce wastage, transportation costs and bring down the overall costs of production.

Given the 100 per cent electrification of villages in India, this is a great opportunity to leverage this by spreading the manufacturing footprint. Specialised training centers could also be set up near these hubs to provide training to the local population.

Employment will also help boost rural consumption as people will live and work in these areas, using their earnings to consume more. Innovative manufacturing “plug-and-play” hubs should be set up/incentivised where manufacturers can come and set up local production using existing facilities and assets.

Lower GST

The government could also look at bringing more FMCG items in the lower tax slabs of GST to reduce prices and drive consumption, besides ensuring more GST compliance.

This would go a long way in achieving the ‘One Nation One Tax’ objective that the government is pursuing and provide a fillip for consumption, especially in rural markets where consumers are more price sensitive.

GST rate cuts on components would not only provide the manufacturers an incentive to expand production, but will also ensure that the cost of consumer durables are reduced, thereby further increasing demand and consumption.

This will also help reduce imports of components into India, and will be beneficial both from the point of view of the Government’s push for “Make in India” as well as the government’s Phased Manufacturing Programme (PMP).

 

(The writer is Partner at Deloitte Touche Tohmatsu India LLP)

 

Published on June 27, 2019
This article is closed for comments.
Please Email the Editor