Looking back and looking forward – impact of union budget 2016 on ‘make in india’

Looking back and looking forward – impact of union budget 2016 on ‘make in india’

SV Sukumar – Partner and Shridhar Kamath, Director of KPMG India discuss 5 ideas from the budget which will provide a fillip to the Make in India program

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SHRIDHAR KAMATH & SV SUKUMAR

The ‘Make in India’ program, launched around 18 months ago, has captured the imagination of everyone in India and abroad. While last year there was general euphoria immediately after the Budget, the announcements did not translate into significant improvement on the ground for manufacturing industries. In the run up to the current Budget, there were huge expectations on the Finance Minister to deliver a budget which was manufacturing friendly and would set the stage for making India the Manufacturing Superpower that it aims to be.

The Finance Minister did not disappoint. In a global environment fraught with risks, the Finance Minister has reiterated the government’s commitment to the ‘Make In India’ Program and the Budget laid out key initiatives which would be taken up in the next financial year. The article captures the top 5 ideas from the budget which will provide a fillip to the program:

Infrastructure Logistics infrastructure has been a problem for the manufacturing sector with significant costs affecting the topline and bottom line of manufacturing companies due to constraints in sourcing raw materials at optimal costs as well as making products available in all markets. One of the expectations from the budget was to increase the pace of infrastructure creation. The announcement in the budget to add 10,000 KM of national Highways and convert 50,000 KM of State Highways to National Highways will be a significant increase in the pace and will definitely ease out bottlenecks in logistics and help manufacturing companies to reduce their costs and expanding reach. Similarly, addition of ports on both eastern and western coasts will help in imports / exports. Revamping of airports / airstrips which are lying unused at the moment will improve connectivity and enable growth. An additional benefit due to the thrust on infrastructure would be the positive impact on commodity companies as well as infrastructure companies in the short term to medium term.

Promoting competitiveness of manufacturing sectors – Custom and Excise duties for various raw materials and goods have been refined to improve competitiveness of domestic manufacturing sectors. Basic custom duty rates have been increased in the range of 2.5% to 10% for imported outputs and reduced from around 10% to a lower rate or zero for inputs. The sectors where this rationalization has happened are either existing sectors which require support to thrive such as metals, chemicals, textiles, capital goods, paper, food processing or new focus sectors such as IT hardware and defence.

Start Up India Make in India would be possible only when there is an all-round growth in the manufacturing ecosystem. This would require new businesses to start up while enabling existing plants to grow further. There have been a number of announcements in this budget which are noteworthy:

  • Creating an enabling environment for start-ups through amendments to the Companies Act, 2013.
  • 100% deduction of profits for a period of three consecutive years out of five years for start-ups which are set up in the next 4 financial years up to March 2019
  • New manufacturing companies to be taxed at 25% (excluding surcharge and cess) provided they do not claim specific deductions and do not avail of investment allowance and accelerated depreciation.

Improving Ease of Doing Business Over the last 2 years there have been numerous initiatives taken by the government to enable businesses to start, ramp up and function smoothly. There were three key ideas in the budget this year:

  • The government has plans to introduce amendments the Companies Act 2013, to enable registration of businesses in a day. This is will also be beneficial for start-ups.
  • The government has also proposed to introduce Centre State Investment Agreement, which would ensure execution of investment treaties signed between India and other countries.
  • There have also been announcements which incrementally improve accessibility to funds, reduce complexity in disputes as well as taxation.

Skill Development Ensuring a steady flow of skilled people to support manufacturing is a key requirement to support the Make in India program. The manufacturing sector has seen shortages of skilled manpower for almost all levels from operators and technicians to engineers and managers. Also, as manufacturing technology advances, India will require to ensure that its manpower also gets re-skilled to suit the needs in an evolving manufacturing environment.  We have had numerous announcements over the last 18 months on skilling India. The Budget strengthened the government’s resolve to support this further by addressing skill building at various levels.

  • Setting-up of 1500 multi-skill training institutes across the country – This is a great intervention to help India get the right skills to enable the larger Make in India program. The number of such institutes proposed will ensure easy access for people to these institutes. This skill building effort along with the incentive announced by the government to pay PF contribution for new employees enrolling in EPFO for a period of three years should augur well for unskilled manpower to get skilled as well as get better jobs.
  • A National Board of for Skill Development Certification in partnership with the industry and academia is proposed to be set-up. This move is aimed to improve the employability of our students and to also integrate the skilling and the academic ecosystem.
  • To mentor entrepreneurs, Entrepreneurship Education and Training (EET) will be provided in 2200 colleges, 300 schools, 500 government ITIs and 50 vocational training centres through Massive Open Online Courses (MOOCs). This can support the ‘Start Up India’ program
  • The new ‘Digital Literacy Mission’ for rural India aimed to cover around six crore additional households within the next three years will make it possible for rural India to be get benefits of online learning and support the program.

While there have been notable announcements in the budget, there have also been a few misses. The delay in the GST implementation which is a key reform in taxation has not got a green signal in this budget session. Key areas which will support the Make in India program such as reforms in land acquisition and creation of industrial clusters did not find a mention in this year’s budget.

Unfinished agenda for our Goal of ‘Make in India’

For long term, we need to address more strategic areas to make our “Make in India” dream come true

Defining DNA of “Make in India “

It is time that we create a unique identify as to what India will be known for manufacturing so that there is a competitive advantage for global and local players to make in

Design a sub programs for Make more in India & Make in Rural India under this over all campaign

Probably we should also have one specific program for attracting more domestic investments that will ensure more domestic players start doing more in India.

It is imperative to take the factory to the rural area rather than attracting rural populations to come to urban or semi urban areas for getting employment.

Conclusion

All in all, the budget has raised the hopes of the manufacturing sector. It is widely accepted that the India story is intact and the world is looking to India with new eyes. Will this budget deliver “Achche Din” to the millions of common folk who aspire for a better life through improved fortunes of the manufacturing sector this year? Only time will tell.

(Views are personal.)