By Pankaj Poddar
Union Budget 2023: The global packaging market is anticipated to increase at a CAGR of 4.3 per cent from 2022 to 2031, reaching $1.5 trillion. According to GlobalData, the Indian packaging market size in 2021 was $373.6 billion and is growing at a CAGR of 6 per cent, owing to the robust economic growth of the nation coupled with e-commerce development. Therefore, this creates a big demand for Indian consumption as well as in exports, thus to grow in this sector, the support from government will be quintessential.
Expectations from the government on import duty, RoDTEP scheme, interest equalisation
The Indian packaging industry is a vital sector for India’s economy as it supports various industries such as agriculture, food, and consumer goods. To become globally competitive, the industry requires government support including infrastructure development, tax incentives, funds for research & development, and boost to small and medium-sized enterprises to help them grow.
Reducing import duties
Polymer is an important material used across businesses with shortfall in domestic production and thus India being import indent. The government should lower the import duty on polymer & machinery from 10 per cent to 5 per cent making it cost effective. This, in turn, will reduce the cost of overall production and increase supply of finished products, making Indian players globally competitive with better job opportunities, further attracting foreign investments. Reducing import duties will also help to bring in advanced technology and expertise from other countries, to enhance the quality and efficiency of the Indian packaging and plastic manufacturers.
RoDTEP Scheme
Currently, the packaging industry is getting 1.4 per cent benefit under the RoDTEP scheme. However, the industry is losing the input tax credit on fuels, electricity, construction of immovable assets, entertainment and car expenses, etc. leading to losing far more than the actual gain received from this program. An increase in the benefits (from 1.4 per cent to 3 per cent) will provide added financial incentives for exporters to increase the production and export more products. Additionally, this will encourage the industry players to invest in research and development, and introduce new tech innovations.
Interest equalisation scheme for exporters
The GOI through its financial arm RBI has extended the interest subvention to many industries; however, the packaging industry being an excellent contributor to the country’s exchequer and foreign exchange is still devoid of interest subvention. In the past few quarters, the interest has gone up substantially and the packaging sector should be included in the interest equalisation scheme being one of the few with the potential to expand and boost exports to nations outside of India. The Union Ministry of Commerce and Industry of India targets to increase the plastic exports of the country to US $25 billion by 2025; the total plastics exports between April-September 2022 stood at US $6.38 billion. The aim can only be met with a grant of 3 per cent interest equalisation for the industry.
Industry expectation in 2023 & the way ahead: Sustainable packaging & innovation
Plastic segregation
With growth of the Indian packaging industry, the government has become significantly critical towards plastic waste management and sustainability at its core. However, the government should also focus on plastic segregation with necessary infrastructure for proper collection of waste, disposal and recycle.
Plastic institution & engineering courses
An authorised plastic institution should also be established to govern and bring in new developments to scale up the industry potential. Plastic engineering courses must be introduced in Indian institutes to boost new research-led developments and pool in more skilled talents to the industry.
Sunset clause
In the 2022-23 Union Budget, Finance Minister Nirmala Sitharaman stated that the newly-incorporated manufacturing units would have another year until March 2024 to take advantage of the reduced 15 per cent corporate tax rate. The packaging machinery commissioning has significantly got delayed during Covid time causing supply chain issues. Hence, extending the sunset clause by 2 years up to 2026 will bring relief to the industry players.
Innovation & Income Tax
The industry expects growth fuelled by increased demand and technological innovation in packaging and film industry. Significant investments in R&D are essential to develop technical skills, meet high-quality requirements, and expand capabilities across the wide range of sectors. However, lack of government incentives challenges the businesses to invest in innovation despite having a large talent pool. The situation is backed with the paucity of time, effort and unpredictability of positive results leading to dependency on foreign technologies. Therefore, the government should encourage the industry players by granting incentives and increase tax reduction rate from 100 per cent to 300 per cent for innovation and R&D to make the domestic plastic industry more dynamic and globally competitive. Most developed countries offer similar incentive for R&D.
Future packaging will be more effective and environment friendly; polymers will remain in demand due to their durability, strength, and design adaptability. This would require continuous research & development by manufacturers to reach its full potential and contribute to the country’s economic growth. Overall, we are expecting the Union budget 2023 to be industry friendly with focus on industrialisation and technological innovation to support domestic businesses with enormous potential and become internationally competitive.
The author is Group CEO, Cosmo First Ltd
Disclaimer: Views expressed are personal and do not reflect the official position or policy of Financial Express Online.