Union Budget 2021: Budget supports V-shaped recovery
February 3, 2021 12:50 AM
A strong components ecosystem has developed in the auto component industry where some companies are exporting even in a zero duty regime.
'One of the greatest success stories of manufacturing in India is the auto sector, which not only caters to domestic demand but our companies are leaders in some categories in global markets also.'
By Sunil Vachani
After experiencing sharp contraction of 23.9% in FY21, India is expected to be the fastest growing economy in the next two years. It was imperative the Budget put in place policies to support V-shaped recovery, and the FM has delivered a Budget that lives up to the expectations.
As far as manufacturing sector is concerned, steps taken to increase basic customs duty on certain components and finished products will ensure Indian manufacturers are able to compete first in the domestic market, and then build scale and invest in backward integration and design products to capture global markets. Prior to the Budget I had seen a lot of debates around the move to increase customs duties on finished products and some economists had questioned this move and felt this will make Indian industry uncompetitive. I am on the side of members who support this move. We must appreciate that Indian industry suffers from certain disabilities in terms of competitiveness with high cost of interest, logistics, power tariffs and poor infrastructure. These disabilities must be taken care of, and concrete steps have been taken in this Budget to ensure that logistics and other costs come down in the near future. Till this is done, it is important we have a customs duty structure in place that has the highest duty slab for finished products and lower on components and raw materials.
One of the greatest success stories of manufacturing in India is the auto sector, which not only caters to domestic demand but our companies are leaders in some categories in global markets also. A strong components ecosystem has developed in the auto component industry where some companies are exporting even in a zero duty regime. This has been possible because this industry was nurtured in the early days and was allowed to develop strengths before opening up the domestic market to foreign companies with zero duty. Unfortunately, one of the casualties of a wrong policy has been our components industry which had to face zero duty regime many years back with the signing of ITA-1 agreement wherein all components were brought to 0% duty at once without the industry having any sort of competitiveness. The current policy initiatives of having a phased manufacturing programme for all components will encourage investments in setting up facilities for key components in sectors such as electronics and telecom.
Initiatives taken in the Budget and the PLI scheme will ensure Indian manufacturers emerge as global champions. Going forward, Indian industry has to focus on developing cutting-edge products and investing in R&D to ensure that we do not merely rely on our competitive advantage of low labour cost. We need to raise our R&D expenditure to over 2% of GDP from the current 0.7% and some taken in this Budget will help this.