COMMENT: Infrastructure boost of Rs 100 lakh crore, improving investment ecosystem to take India closer to $5 trn GDP goal
Make in India, the Modi government's flagship programme, got a leg up in the union f inance minister, Nirmala Sitharaman's first budget as she built on the government's vision of creating a $5 trillion economy over the next five years. Proposals such as a mammoth increase in infrastructure investments, creation of a domestic hub for manufacturing of electric vehicles and tweaks in ease of doing business would warm the hearts of Indian manufacturers. Let us examine some of the major themes spelt out for manufacturing.
A bold infrastructure expansion
The FM boldly laid out the government's intention to invest around Rs 100 lakh crore over the next five years. While infrastructure related industries like steel, cement, capital goods and Maintenance, Repair and Overhaul (MRO) will benefit directly with up to Rs 40-50 lakh crore over the next five years, a ripple effect is expected across most manufacturing-driven industries with reduction in logistics cost and improvement in connectivity.
Improving the investment ecosystem
Lack of liquidity has been one of the biggest challenges for industry lately. The Budget sought to build a buoyant investment environment through a number of initiatives. The government's proposal to provide Rs 70,000 crore for PSU bank recapitalisation, will bring in the much required liquidity into the system to potentially kick-start the investment cycle. Though corporates would have wanted more, but lowering of tax rate to 25% for 99.3% of the companies in the country should definitely leave them with more money to reinvest.
Similarly, there were incentives for smaller businesses too with schemes like easy access to credit for Micro, Small & Medium Enterprises (MSMEs), simplification of the Angel Tax, introduction of a payment platform along with the announcement of an Annual Global Investors Meet.
Envisioning a global hub for EV manufacturing
Carrying forward the government's intent for a phased replacement for combustion engines, the FM elaborated on a plan to make India the global hub of EV manufacturing. She also announced tax benefits in her bid to invite global companies to build mega-manufacturing plants in sunrise industries.
Besides, to supplement demand, she proposed reducing the GST on EVs from 12% to 5% while offering income tax deduction of Rs 1.5 lakh on interest paid on loans taken for EVs. These incentives come at a critical point in time when China plans to phase out the subsidies to EV manufacturers. However, competing with China would need continued aggressive investments and strident government commitment as China will continue to focus on EVs as one of the 10 commercial sectors central to its "Made in China" policy.
Increase in customs duties to encourage Make in India
The finance minister also announced changes in customs duties aimed at reducing import dependence, protecting MSMEs and developing clean energy. Customs duties were increased on many products such as auto parts, gold and precious metals, stainless steel, etc. and were reduced for certain raw materials and capital goods like wool fibres, fuel for nuclear plants, cobalt matte, etc. to promote domestic manufacturing.
Simplification of labour laws
Simplification of multiple labour laws into four labour codes will provide some relief to manufacturing firms as they struggle with India's heavily regulated legislations. The Budget focused on development of highly skilled workforce, trained in AI, VR, robotics, 3D printing, etc. to make India an attractive manufacturing destination for the new age industries.
The Budget, created with a multi-year vision, in the wake of a slowing economy, sagging exports and a decline in manufacturing, will need careful implementation to ensure that both short-term and long-term benefits are realised. The finance minister seems to have the entrepreneurship, labour and capital equation of the budget covered in this budget. Hopefully, the fourth element - land - will get the attention it requires in the next one – which should be transformational for the domestic industry.
Amit Sinha & Deepak Jain are partners in Bain & Company's New Delhi
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