FM Fires up Make in India Engine

Mar 01 2015 : The Economic Times (Mumbai)

IN FOCUS - FM Fires up Make in India Engine

Binoy Prabhakar





PLENTY OF PROPOSALS Manufacturing units expected to benefit from specific steps such as customs & excise rejig, greater access to credit, focus on improving skills and broader impetus on ease of doing business and infrastructure

Arun Jaitley has attempted to bolster Prime Minister Narendra Modi's Make in India project by packing his budget with proposals that are expected to help manufacturing units cut costs as well as access credit and skilled manpower.

Both in terms of specific proposals such as reduction of customs duty on inputs and parts and the broad emphasis on making it easy to do business and infrastructure, the budget was unwavering in its attention on Modi's pet project. Jaitley said the first pillar of his tax proposals was to deal with black money while the second was the promotion of manufacturing and `Make in India' (manufacturing found mention 15 times in Jaitley's speech while Make in India made it 10 times).

True to his word, he announced customs duty cuts on 22 items that will make it cheaper for Indian companies to import parts to manufacture products. He sought to protect domestic makers of commercial vehicles such as trucks and buses by thrusting a higher duty on importers of such vehicles. Given that many sectors are reliant on trucks to transport goods, the helping hand here is expected to lift a number of accompanying sectors.

Jaitley also sought to facilitate cheaper technol ogy transfer to small businesses by more than halving the rate of income tax on royalty and fees for technical services to 10%. By proposing to re cast excise duty structure on certain goods, the FM has tried to boost the manufacture of products such as tablet PCs and leather footwear.

Despite Modi's ambition to make India a manufacturing hub, the current situation is not pretty.Manufacturing actually declined from 18% to 17% of the GDP, according to the new GDP data, while manufacturing exports have remained stagnant at about 10% of the GDP.

The government seems keen to make amends.Jaitley said the government will launch a National Skills Mission to consolidate skill initiatives spread across several ministries. In the works is also a scheme called Deen Dayal Upadhyay Gramin Kaushal Yojana to enhance the employability of rural youth.

Now, less than 5% of the potential workforce get formal skill training.

The budget has taken note of the difficulties of small businesses in accessing credit. The proposed Micro Units Development Refinance Agency (MUDRA) Bank, with a corpus of `20,000 crore and credit guarantee corpus of `3,000 crore and tax breaks for Alternative Investment Funds are expected to provide relief on this front. The only sector that failed to match the hype on Make in India was defence. "As against the likely expenditure of this year of `2,22,370 crore the budget allocation for 2015-16 is `2,46,727 crore," said Jaitley.

Defence analysts said the 11% increase in outlay is too modest to achieve the government's ambition on greater self-sufficiency in making defence equipment, including aircraft. India's military will not have much money to expand its arsenal significantly, given that a substantial chunk of this money will go to meet operational expenditure.

Amber Dubey, partner and India head of aerospace and defence at global consultancy KPMG, said the industry expected "infrastructure status" for the sector in order to attract tax incentives and to meet the capital requirements. "That has been a disappointment," he said, adding that overall, there is nothing to write home about in defence.

At least one manufacturing sector was left disappointed, too. Mehul Choksi, chairman of the Gem & Jewelry, Luxury & Lifestyle Forum of industry lobby Ficci, said though the FM has announced a slew of measures to curb black money, he has ignored one of the biggest issues faced due to smuggling of gold. "The impact of this `unofficial' supply of gold of about 180 tonnes is valued at about $10 billion, leading to a loss in foreign exchange inflow of a similar amount and a loss in revenue of over $ 1 billion on account of customs duty," he said.