Budget 2021 Expectations: ‘A competitive manufacturing ecosystem needs reduced permission bottlenecks’

Updated: Jan 31, 2021 4:43 PM

Union Budget 2021 Expectations for Manufacturing: The Production-Linked Incentive (PLI) scheme launched by the government to cut down on the import bill and boost domestic manufacturing is expected to put steam in the growth engine.

Manufacturing Budget 2021 Expectations, Budget 2021 Expectations for ManufacturingA critical motivation for the government to focus on manufacturing is the sector's job creation potential.
  • By Deepak Sood

Union Budget 2021-22 Expectations for Manufacturing: The self-sustaining circle initiated by the PM’s ‘Make in India’ and ‘Made in India’ can necessitate change within the country as it aims to transform itself into a manufacturing giant. The manufacturing sector which contributes around 20 per cent of India’s GDP, shoulders the most significant responsibility of creating jobs, securing investment, and propelling industrial and country growth. Building up the scale of its manufacturing sector is of utmost importance for the country as the lack of it would prove detrimental to its economic aspirations.

The global manufacturing industry received a devastating blow by the Covid-19 pandemic by reduced demand, affected supplies, and unavailable workforce. India should focus on pushing itself to fill the void for a better and sustainable future. The five-year target of the manufacturing economy to reach $1 trillion-dollar can only be met through a series of policy initiatives to augment products’ availability, maintain production costs, and create demand and jobs through Ease of Doing Business. A competitive manufacturing ecosystem would also need reduced permission bottlenecks and investments in better technological innovations. Availability of flexible financing and skilled workers to improve efficiency and reduce costs is the key to realize real growth in the sector.

Response to the stimulus   

The government led by PM Modi wants to make most of the opportunity presented by the current situation by launching ‘Make in India 2.0’. The priorities have been set to transform the country into a manufacturing hub under the all-encompassing ‘Atmanirbhar Bharat’. So far, the government has identified 27 sectors and 24 sub-sectors that need undivided focus. Agro-processing, electronics, steel, textiles, and auto parts have been identified as critical sectors with export potential and their capacity for employment generation towards achieving the goal of Atmanirbhar Bharat.

The smartphone manufacturing sector has already displayed significant progress, which the government hopes to replicate across other sectors. The Union Ministry of Defence has assigned 101 items to be manufactured and procured locally as a part of its local capacity expansion scheme. The Production-Linked Incentive (PLI) scheme launched by the government to cut down on the import bill and boost domestic manufacturing is expected to put steam in the growth engine. This scheme aims to provide incentives to companies based on incremental sales from products manufactured in domestic units of India.

The union cabinet has approved ten sectors under the PLI scheme, including pharmaceuticals, automobiles and auto components, telecom, advanced chemistry cell battery, textile, food products, solar modules, white goods, and specialty steel. These ten sectors aim to attract global investors and make the Indian market more competitive in the world. This particular scheme sets apart from the other grant-based schemes that are more input-oriented. It is based on incremental output and can be an effective step in managing India’s critical economic condition. The government hopes that the scheme would successfully attract foreign investors to Indian shores who can build their Indian capacities.

Also read: Budget 2021 Expectations: MSMEs, startups seek better debt access, GST relaxation, more from FM Sitharaman

A critical motivation for the government to focus on manufacturing is the sector’s job creation potential. The government plans to create 100 million new jobs in manufacturing by 2022. The sector jobs are gaining traction in the country as there are proportionately fewer skilled workers in India compared to other countries. To attract investors, the merging of 44 federal labour codes into just four codes may see the requisite formalization of the labour contracts that is otherwise much unstructured and is susceptible to exploitations.

Automation

During the Covid pandemic, automation has gained strength, as the industry, particularly the smaller businesses, faced challenges with reverse migration of labour and social distancing. Many of them now consider automation a viable option to these challenges that would yield higher productivity; however, it goes against the current sentiments of creating more jobs in the sector as advanced automation could restrict the sector’s ability to generate more low-skilled jobs. India needs to find a delicate balance of both if it has to walk the tight rope towards achieving its socio-economic goals.

Expectations

The forthcoming Union Budget is very crucial for the economy as the Finance Minister will have to balance a lot of things to steer the Indian economy in the post-Covid era. In the Union Budget, Finance Minister, Nirmala Sitharaman’s focus should continue to be on the manufacturing sector. For boosting the investment ecosystem, long-term clarity about policies is much needed. Initiatives are also needed to increase the demand for the industry, as it would lead to the creation of additional jobs.

Also, we need to refocus on exports if the government is planning to scale up the production index and manufacturing to reach up to 25 percent of Gross Domestic Product (GDP) in the next five-eight years from the current 17 percent. In the last year, all the emerging economies are vying for the next global manufacturing hub’s gainful position and share the worldwide pie. Other countries, such as Vietnam, Thailand, and Taiwan, have gained a sizable portion. India needs to take immediate action to ensure it leverages this opportunity.

Deepak Sood is the Secretary-General at ASSOCHAM. Views expressed are the author’s own.

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