Considering the magnitude of the victory in the General Elections and the current scenario of the Indian economy, this Budget was riding high on expectations.
By Saloni Roy & Bilakhshah Anand
Against the backdrop of a huge Lok Sabha triumph that saw the government enter its into second term with a large majority in Parliament, the new finance minister presented the Union Budget 2019-20 on July 5, 2019. Considering the magnitude of the victory in the General Elections and the current scenario of the Indian economy, this Budget was riding high on expectations.
Without much ado, the finance minister made her intentions clear by reiterating that the country is poised to become a $5-trillion economy in the next few years. Few minutes into her speech, she re-emphasised the vision laid down in the earlier Budgets of this government.
‘Make in India’, the flagship initiative of this government, re-emerged as the pivotal talking point in this Budget. Ever since its inception on September 14, 2014, this government has laid special emphasis on ‘Make in India’, and has, over the years, shown intent by providing stimulus for the success of this scheme. These steps include manoeuvring tariff regulations, relaxation of FDI norms, development of industrial corridors, creation of a conducive regulatory environment, impartation of skills and development training, and various other sector-specific initiatives.
To bolster the ‘Make in India’ ambition, the Budget 2019-20 witnessed an increase in customs duty rates of various finished goods. These include loudspeakers, digital video recorders, CCTV cameras, television cameras, optical fibres, etc. On the flip side, exemptions were extended to certain capital goods used in the indigenous manufacturing of telecommunications equipment, set-top boxes, compact camera modules, etc. Apart from electronic goods, there have been various customs duty concessions on parts exclusively used for electric vehicles. These products are electric-drive assembly, on-board charger, e-compressor and charging gun. This step has been extended for making India an electric vehicle manufacturing hub, and is seen as a special impetus to the ‘Make in India’ initiative.
To boost this campaign, the government has time and again tweaked customs rates to incentivise domestic value addition. As a policy measure, a Phased Manufacturing Programme (PMP) has been laid down by the ministry of electronics and information technology. Under this PMP, parts of mobile handsets would be brought under the ambit of higher rate of customs duty in a phased manner, to promote indigenous manufacturing of cellular mobile handsets, its sub-assemblies and even assemblies of sub-parts. While certain products such as chargers/adapters, battery packs and wired headsets are already subject to higher rates of customs duty, the list is likely to be expanded in due course of time. Similarly, a PMP has been laid down by the ministry of heavy industries and public enterprises for boosting domestic manufacturing of electric vehicles, its sub-assemblies and manufacturing of its sub-parts.
Strategic measures such as fine-tuning of duty rates are imperative taking into consideration various factors such as a focus on policy initiative of ‘Make In India’, need for maximum value addition in the country to boost the economy, employment generation in the manufacturing sector, aspirational vision of realising the $5-trillion economy, the need to counter pushback at the WTO on export subsidies, the volume of trade in electronic goods, etc. In light of these aspects, while adjustment of duty rates for finished goods and inputs used in indigenous manufacturing may seem to take the colour of protectionism in the short term, this approach is expected to deliver the necessary impetus to the Indian economy and domestic interest in the long run.
Nevertheless, there is an acute need to up the ante on the slowing economy and a challenging fiscal situation. While in the macroeconomic shape of things, the ‘Make in India’ initiative seems to be one of the ways towards improving the overall economic health of the country, more could have been, and can be, done towards creating better infrastructure conducive to manufacturing set-ups.
(Roy is senior director, Deloitte India, and Anand is deputy manager, Deloitte Haskins and Sells LLP. Views are personal)