Perhaps, it’s after a long time that the country waited for the Union Budget. This time has been different. Battered, bruised and hurt (in different ways, of course), the year 2020 is one that most would like to forget.
The government has been trying its best to pump in money into the econmy. But its best efforts didn’t create the effect it ought to have. To a large extent, most of the key announcements were in line with the central theme of ‘Aspirational India, Economic Development, A Caring Society’. Although the fiscal deficit has been pegged at 9.5 percent in the Budget, this is a necessity to cure ailing industries, particularly the MSMEs. The tax reform measures have been tweaked to enable metal recyclers to flourish, particularly when it comes to the import of steel and copper.
Is it enough?
The Budget provides an opportunity to harness the capabilities required to implement transformative reforms and build upon the foundations integral for the manufacturing sector to contribute to 25% of the country’s GDP by 2025. Economic growth in India over the years has been propelled by growth in the services sector. Today, the sector contributes the highest to India’s GDP. In contrast, the manufacturing sector, despite its higher multiplier effect on employment and growth, has not been able to serve as a powerhouse for the country’s growth engines.
Prashant Sardeshmukh, MD, MMC Hardmetal India, says, “At the moment, I feel, it may have very few exciting things to show because we are still under the shadow of the pandemic. But I hope, this budget is a stepping stone for the long term reforms. It looks reassuring and balanced. Apart from introducing revolutionary reforms in the agricultural sector, the government has tried to give mega push to the manufacturing sector. Letʹs hope, we will come out of the dark phase of the pandemic as quickly as possible and peaceful, conducive atmosphere will prevail to experience the vibrant outcome of this budget.”
He believes that the vehicle scrappage policy will give much needed boost and momentum to the automotive industry and allied ancillary segments. Similarly, the government’s thrust on infrastructure building will serve as major stimulus to overall manufacturing sector and MSME industry across India.
Jay Shah, MD, Tungaloy India, says, “The Budget has provided the right stimulus and there are several positive indications. It is aimed at increasing investments which will ultimately benefit the manufacturing industry. It has also given a direction for building core competencies and spend on creating an infrastructure for R&D. There is also a thrust on minimising imports and boosting local production which is going to benefit us in the long run.”
Going forward, Shah sees more thrust on investments and growth of the manufacturing industry post Budget 2021.
L Krishnan, MD, Taegutec India, says, “The Union Budget 2021 has been widely acclaimed as an investment-friendly budget. It is expected to spur demand and increase manufacturing activities within the country. The Government of India’s ‘AtmaNirbhar Bharat’ campaign and Production Linked Incentives (PLIs) for new investments are a great shot in the arm for this sector. Hence we are very optimistic about medium-to-long term growth of the manufacturing industry in India.”
The Union Budget 2021 was the most anticipated budget for the Indian automotive and manufacturing sector. Anurag Garg, MD & country head, Vitesco Technologies, said, “There was a strong push towards manufacturing and localization in this budget. Apart from the usual focus on fiscal deficit, this time the government has shown a great focus on health and infrastructure development this time. The announcement of a voluntary Scrappage policy is a move in the right direction. We look forward to further details on this to understand how this can encourage the adoption of electric vehicles, gradual reduction of air pollution in coming years, and newer Bharat Stage Norms in the future. Now, we look forward to the proper implementation of this policy at a larger stage as soon as possible will help us to enhance demand in the market.”
Most also say that the finalization of the Production-Linked Incentive (PLI) scheme and the allotments are also positive. The PLI Scheme will get a better push to boost manufacturing and attract investments in the automotive sector, benefitting us in the long run.
The increase in customs duties in some sectors is designed to push self-reliance and localization. As we look towards a future with electrified automotives, localization will definitely help in cost optimization in the future. Though it might create initial challenges through price hikes and demand generation, it will be better for our economy in the long run.
Additionally, the focus on renewable energy is welcome. The Hydrogen Energy Mission and focus on solar energy will help meet our energy requirements in the future adequately. Health outlay in the budget has increased by almost 100% considering the pandemic situation, this will help us to uplift the health infrastructure in both urban and rural segments of our country.
According to Subhrakant Panda, VP, FICCI & MD of IMFA, “The budget is very comprehensive and proposals are well thought through which will provides fiscal support for investment & consumption while also providing a 5 year roadmap to come back to prudent norms. Higher outlays for various sectors augurs well, as does the fact that the quality of expenditure is improving with more thrust on capital expenditure. Setting up of a DFI to fund long gestation projects, and an asset reconstruction cum asset management company to deal with stressed assets are welcome steps. Limiting reopening of assessments and providing for a faceless ITAT will encourage the honest taxpayer. Similarly, several regulations and laws subsiding into a single securities code is a very positive step. Finally, no major changes in the tax structure is a major commitment to provide stability.”
How far will we go
Of course there were expectations that left many disappointed too. Shah of Tungaloy says, “The auto sector contributes a large chunk to the manufacturing GDP. We were expecting the implementation of scrappage policy to be announced as a major reform measure as this would have led to increased demand for nearly one crore vehicles. The scrappage policy was announced as a voluntary measure – the impact of which remains to be seen on how much it will benefit in boosting sales.”
While Krishnan of Taegutec is confident that PLIs will accelerate growth in the manufacturing sector significantly, his expectations were an optimum policy framework to increase domestic demand, increased investment in manufacturing, and significant improvement in ease of doing business. This budget has addressed all three aspects. We believe this is an ongoing journey, and moving forward in these broad directions will certainly facilitate manufacturing and job creation.”
Sardeshmukh of MMC Hardmetal India had expected a big push to the manufacturing industry, which has been addressed. “At the same time, I had expected a sustained support to other sectors like agriculture, healthcare, pharma, education, infrastructure, and so on. The government has tried to strike a good balance by giving a significant push to all mainly through the Atmanirbhar initiative. Another important thing which I had expected is the tax structure stability. Fortunately, the government has not tinkered with it. This will help the industry to make long term planning for strategic investment for expansion and diversification.”
Shailendra Shukla, MD – India, vehicle group, Eaton, said, “The increased capital outlay for infrastructure spend with commitment to building additional roads and national highways and improving urban infrastructure will spur demand in the medium to long-term for the sector and generate employment. Also, the Voluntary Scrappage policy for commercial vehicle and passenger vehicle is a good step which is likely to help our country’s sustainability goals and boost demand.”
Encouragingly, Railways is set to emerge as a growth driver in addition to roads and highways, which was long overdue. Deepak Shetty, CEO & MD, JCB India, says, “A record allocation for Railway Corridors and other Structural Developments has been made. This will certainly help in generating on ground activity in the sector. With the formation of a Development Finance Institute (DFI), the stress in Capital Requirements for long-term infrastructure projects should significantly ease out. This was critical to infrastructure development. The Government has shown a strong intent towards generating funds by proposing a Privatisation drive and Monetisation of assets. Another positive in the budget announcement is focus on Hydrogen Energy and the aim to create an ecosystem for Alternative Fuels.”
“National and state specific highway projects will push usage of commodities like steel, aluminium and zinc which in turn which forms the base of the economic growth. Notably, state specific highway projects including the ones proposed in West Bengal, Tamil Nadu, Kerala are critical as most of them fall on the coastal lines that are subjected to humidity and varying temperatures. We’re hopeful that these project development incorporate appropriate corrosion protection measures. Additionally, MSME’s and other allied sectors were severely hit by the pandemic led price hikes in commodities including steel and other metals. The reduction in custom duties will provide them much required relief and will encourage players to enhance their production capacities. This will not only encourage the domestic players to expand their operations and will further lead to employment opportunities thereby making India self-reliant,” said Dr Rahul Sharma, director (India), International Zinc Association.