Budget 2021: Driving growth in manufacturing

The year 2020 was a watershed moment for everyone around the globe. The world economy and everything around it spiralled out of control and forced the concerned stakeholders to reconsider the fundamentals of economy and business.

The manufacturing sector in India is a high growth sector and also a priority sector for the government. With programmes such as ‘Make in India’ and ‘Atmanirbhar Bharat’, this government has tried hard to provide a much-needed boost to the manufacturing sector while seeking to attract large scale foreign investment as cost of raising offshore capital tends to be cheaper than raising in India and bringing foreign exchange to the national coffers.

PLI schemes

Budget 2020 consolidated the then existing financial measures instead of introducing fresh measures. However, the measures such as production linked incentive schemes (PLI Schemes) that were launched in the later part of 2020 find their genesis in the measures introduced in Budget 2020. The PLI schemes were introduced as back-end stimulus wherein cash payment from government would downstream after the production takes place. Further, PLI schemes are posited as a smart stimulus to attract investment and revive economy and to thrust India towards becoming a manufacturing hub.

It is also believed that the government has changed its policy outlook as with the PLI schemes it is not focusing on disorganised growth in all sectors. PLI schemes propound sector specific measures and that may lead to better utilisation of time and fiscal and non-fiscal resources.

Budget 2021 is coming at a time when the Indian economy is reeling under the pressure of stagnated income and decreased demand. This Budget would be scrutinised for finer points. The industrial sector is anticipating several measures to kickstart its revival and create a long-term and sustainable ecosystem which will not only cover the supply side but also have measures to improve the demand side. The manufacturing sector has been languishing for a long time.

The government should focus its energy on increasing the annual growth rate of the sector. With the introduction of the PLI schemes, the rate saw an upward trend, but it is still off as the base was narrowed down. The effects should be seen in the long term and strengthen the fundamentals. Lowering the tax rate on industries under the PLI schemes could be a potential measure under the Budget 2021. The much-talked electronics manufacturing sector has seen a lot of action last year.

Luring foreign investments

The government has taken initiatives to attract global giants to India and set up their manufacturing units. Budget 2021 may ease the entry barriers and incorporate single window clearance so as to be a more attractive proposition for the global investors. Strengthening the intellectual property safeguards would also allow the manufacturing companies to invest in research and development and innovate further. The government may also look at investing and encouraging private capital into the technology sector and that will become backbone of India’s growth story in this decade.

The automobile sector is extremely stressed at the moment and certain measures such as reducing taxes on vehicle registration, easing emission norms may benefit the sector. The PLI schemes also focused on the pharmaceuticals sector which is at the forefront in the fight against the pandemic. This sector will be looking for some sops from the government to increase profitability and be incentivised for increasing production.

As India plans to be a leader in manufacturing sector, all eyes are on the government. The current institutional framework needs to be overhauled to promote industries. India has large amounts of unutilised land and labour that needs to be capitalised. Disruptive incidents such as labour unrest, political meddling etc. should be contained by the government as they may shake the investors confidence in the Indian economy.

Lastly, a boost to creating infrastructure will not only benefit the industry but also the masses leading to long-term sustainability.

The writer is Partner, Khaitan & Co