By Deepak Jain and Sushil Pasricha
On 1st February 2023, Finance Minister Nirmala Sitharaman presented the Union Budget for fiscal year (FY) 2024. Amidst concerns of global slow-down and geopolitical tensions, India continues to be the island of hope, with a projected 7% growth rate, highest among the major economies in the world.
The current budget is another step in promoting manufacturing and industrial sector towards having lion-share of India’s GDP in the coming decade through sustained focus on increased capital expenditure and logistics & infrastructure development. This is being further enabled by continued investment in technology, MSMEs, green growth and upskilling youth of the country.
The following themes highlighted in budget 2023 can fast-track manufacturing’s contribution to 25% of India’s GDP:
Sustained focus on capital expenditure
The budget announced highest ever proposed capital expenditure of INR 10 Lakh Cr.in FY24, 33% higher than the last year. In addition to that, existing PLI schemes will continue to drive investment in manufacturing and Industrial sectors. The push for increased capex outlay will have a multiplier effect on Indian economy by accelerating domestic manufacturing growth, generating employment, and enabling India to become center for manufacturing for the world, which has already shown significant growth in the recent years after the wave of global supply chain diversification.
Push on logistics & infrastructure development
As a part of 7-point agenda for the budget, FM announced multiple logistics and infrastructure development initiatives include setting up 100 critical projects for ports, coal, steel, fertilizer, and food grains sectors with investment of INR 75,000 Cr. The highest ever capital outlay of INR 2.4 Lakh Cr. for railways and revival of 50 additional airports, heliports, water aerodromes, and advanced landing zones, will help improve regional air and land connectivity.
Logistics & infrastructure development will enable ease of doing business in India and position her well as a manufacturing destination through efficient transportation of raw materials and finished goods domestically as well as for exports. This push in infrastructure development is going to have a substantial impact on expansion in manufacturing sectors such as steel, cement, and construction.
Building manufacturing ecosystem through MSMEs
MSMEs are the growth engine for any economy, and they have been supported by growth in credit by 30% since Jan’ 22. In the current budget, the government announced infusion of INR 9,000 Cr. in the credit guarantee scheme, relief measures and taxation benefits along with compliance complexity reduction (39,000+ compliances reduced and 3,400+ legal provisions decriminalized). These measures will support building manufacturing ecosystem and the network of tier-2 and tier-3 suppliers and create employment for skilled and semi-skilled workforce in the MSME sector.
Youth skill development
Government continues to invest in youth through technology. To up-skill the youth and facilitate job creation, the budget announced the formulation of National Education Policy, launch of PMKVY 4.0, roll out of Skill India Digital platform, National Apprenticeship Promotion Scheme and 30 Skill India international centers. These initiatives will support development of new age skill requirements amongst youth in manufacturing sector. Additionally, digitization through creation of 100 labs for developing apps using 5G was announced to support range of opportunities specifically in intelligent transport systems and healthcare space.
Green growth
Multiple initiatives were announced for green growth led by allocation of INR 19,700 Cr. to National Green Hydrogen mission, to reach annual production capacity of 5 MMT by 2030. The green credit program will also incentivize environmentally sustainable and responsive actions by companies.
Stronger push for smartphone manufacturing and pharmaceuticals
While the growth in manufacturing from India will be driven by six key sectors— automotive, electronics, pharma, chemical, industrial machinery, and textile; the budget for this year, focused more on a few key sectors.
With India’s smartphone manufacturing sector witnessing an upward trajectory, manufacturers will rejoice with FM’s customs duty relief for inputs like camera lenses, and lithium-ion batteries, to continue for another year in the budget 2023. This will incentivize global manufacturers looking to diversify supply chains and shift to India.
For pharmaceuticals sector, the budget included incentives for research & innovation in the sector through centers of excellence. Facilities in select ICMR labs will be made available for research by public and private medical facilities. This will bolster the sector further and make them move higher up the value chain in pharmaceuticals related research, development, and manufacturing.
On the other hand, custom duty cuts and exemptions announced will also drive growth in automotive, chemical, industrial machinery sectors.
Overall, the measures announced in the budget seemed to be in right direction for catapulting manufacturing’s contribution in India’s GDP.
(By Deepak Jain and Sushil Pasricha, Partners, Bain and Co. The views expressed in the article are of the author and do not reflect the official position or policy of FinancialExpress.com.)