Moreover, higher carry forward of MAT credit and rectification of inverted duty structures in certain sectors will also benefit local manufacturers
Finance minister Arun Jaitley’s Budget proposals seek to transform rural lives and energise the economy through enhanced government expenditure but doesn’t conform to the conventional expectations of the manufacturing sector – typically duty cuts and deductions. What it does, however, is creates demand and proposes a host of measures to propel manufacturing growth consistent with the government’s ‘Make in India’ vision.
Boosting direct demand
Halving tax rate for individuals with income of Rs 2.5 – 5 lakh per annum to 5%, will increase the disposable income of the middle class and boost demand. Besides, measures such as increasing target for agricultural credit to Rs 10 lakh crore and interest waivers for farmers will lead to higher rural incomes and improve demand for farm implements such as tractors, shredders and harvesters.
Incentives for production
Slashing tax rate for MSMEs (annual turnover up to Rs 50 crore) by 5% will lower the tax burden of nearly 96% of Indian companies, making them more competitive while incentivizing them to increase capital expenditure. Moreover, higher carry forward of MAT credit and rectification of inverted duty structures in certain sectors will also benefit local manufacturers. Special emphasis has been given to electronics manufacturing by increasing allocations for special incentive schemes to Rs 745 crore. Similarly, new rules for production of medical devices is expected to be announced to attract investment and reduce cost of such equipment.
Infrastructure expansion
Its a hefty allocation for transport infrastructure development (Rs 2.4 lakh crore). Massive overhaul of Railways has been proposed with commissioning of 3,500 km of railway tracks and launch of 70 projects through joint ventures with state governments. This, along with increased focus on metro rails, will create tremendous demand for rolling stock and rail equipment. Moreover, a major expansion in construction of national highways and affordable housing will increase consumption of cement, steel, construction machinery and commercial vehicles. Similarly, the ambitious plan for rural electrification and solar power generation will create demand for solar panels and electrical equipment. Although defence allocation increased in absolute terms, it fell from 2.29% of GDP this year to 2.14% of GDP in 2017-18. This will do little to boost the morale of indigenous defence manufacturers.
The writers are partners at Bain & Company
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