By Mukesh Butani & Harsh Shukla
Emboldened with “Make in India, making for the world”, PM Modi’s belligerent effort to establish India as a manufacturing hub found resonance in the Union Budget. Buoyed by the “Vikas bhi, virasat bhi” motto, the Budget has promisingly centred around employment, skilling, micro, small, amd medium enterprises (MSMEs), and the middle class.
Given the ongoing conflicts leading to supply chain constraints and rise in ocean freights, the global growth rates are unlikely to rise. This has resulted in protectionism and mercantilism, influencing India’s trade dynamics and economic stability. As the global economy struggles to grapple with these, the trade map has stirred the energy and fertiliser imports for India.
As India embarks to an aatmanirbhar (self-reliant) approach, the Budget of the new government presented an opportunity to augment its participation in global supply chains. The proposals have laid down a road map for formalising the value chain by promoting financial inclusion, facilitating logistical and infrastructural support. The proposals on credit availability have reaffirmed much-needed support to MSMEs. The Economic Survey highlighted challenges faced by MSMEs on formalisation and inclusion, limited access to finance, markets, technology, and digitalisation, infrastructural bottlenecks, and skilling. The Budget has addressed these challenges with a slew of measures, including a credit guarantee scheme for purchase of machinery and equipment, credit support during stress, and increased Mudra loans.
India has accelerated its China Plus One strategy. Amid growing trade tension between China and the US, large corporations have reacted to a cataclysmic change in global manufacturing, with many eyeing de-risking themselves from China. So far, India has been a minor participant in the global value chains (GVCs) for electronics manufacturing. Shifting parts of the value chains to India may have been encouraged by an umbrella of schemes such as production-linked incentives, Scheme for Promotion of Manufacturing of Electronic Components and Semiconductors, and Electronics Manufacturing Clusters. The government has announced setting up of 12 industrial parks under the National Industrial Corridor Development Programme, offering “plug and play” infrastructure. This could be a game changer and attract companies looking to set up manufacturing bases in India.
India’s tariff structure has been a bone of contention for investment and the creation of manufacturing hubs. However, as a strategic move to attract GVCs setting up in India, the finance minister has announced duty exemption on 25 critical minerals. This allows India to augment its gap in downstream manufacturing capability. This would also supplement growth in technological advancement since these critical minerals comprise raw materials for sunrise sectors such as electronic vehicles, green energy, and semi-conductors.
“With a three-fold increase in domestic production, and (almost) hundred-fold jump in the export of mobile phones past six years”, the finance minister said. It affirmed that the Indian mobile industry has matured. With the aim to deepen manufacturing and encourage value addition, the Budget proposes reduction in basic customs duty on mobile phones, mobile printed circuit board assembly, and mobile chargers to 15%. Keeping the momentum of domestic manufacturing, the Budget is expected to bring stability of policies including incentives, attracting foreign direct investment and fuelling exports.
To address the economic survey challenge on employability, the Budget has strived to empower the youth. Measures to augment skills, which include upgrade of 1,000 industrial training institutes, job creation incentives, and interest subvention on education loans, feature prominently.
Budget 2024 brings William E Simon’s words to mind: “The nation should have a tax system that looks like someone designed it on purpose.” India’s future depends on skilling and employing the youth, and building a resilient manufacturing global hub. As India draws the foundation of a developed economy by 2047, the Budget resonates with the nation’s desire to facilitate the trade dynamics and ease of doing business. Budget 2024 has taken significant steps towards these goals as India embarks on a journey to robust growth and inclusive stability.
With assistance from Lopamudra Mahapatra, associate, BMR Legal
Mukesh Butani & Harsh Shukla
Respectively managing partner and managing associate, BMR Legal
Views are personal