Budget 2018: Steps to Stimulate the Manufacturing Sector

India’s recent jump of 30 positions on the ease of doing business ranking by the World Bank is definitely a welcome trend. But still much has to be done; further cut in red tape, taking up challenging reforms and identifying and removing bottlenecks are just some of the steps which are needed to further cement India’s position as a lucrative and viable investment destination. A vibrant manufacturing sector is a must for a vibrant economy and budget 2018 provides the FM with a unique opportunity to further push for reforms and boost the manufacturing sector. In the past the government has stated that it wants and expects 25% of the India’s GDP to come from the Manufacturing sector by the year 2022, up from the current 16%. Also under the PM Narendra Modi's Make in India scheme the government expects that the manufacturing sector will create 10 crore jobs by 2020. Although in India the manufacturing sector has grown over the years yet the growth has been slower when compared to the rivals in the neighborhood. By 2020, it is expected that India will become the fifth largest manufacturing hub in the world. For India's manufacturing sector to compete and outshine the likes of China much work will be required by the government in the Budget 2018-19.

Expectations of the Manufacturing Sector from Budget 2018

Budget 2018-19 is the government’s last full budget. To provide relief and the required impetus to the corporate and the manufacturing sector, the government can announce some big ticket announcements in the budget. According to sources, a rate cut in the MAT (Minimum Alternative Tax) and Corporate Tax are being considered. Experts believe that the corporate tax rates may be reduced to 25 percent; also Special Economic Zones may get relief from MAT. Many players are also expecting relief from Dividend Distribution Tax (DDT) and cess. The first and foremost necessity of the manufacturing sector is that in the Budget the FM should take steps to revive demand. The manufacturing sector is both struggling with excessive capacity and is also inhibited to add extra capacity due to slow demand. Thus improving the confidence and purchasing power of the consumer but steps such as reduction in personal income tax rates can help put extra cash in the pockets of the consumers and thus enhance demand. Another expectation of the industry from the government is to continue and add anti-dumping duties of certain goods from China to protect the local manufacturing industry. Cut in GST rates and import duty on equipments used in the manufacturing units will also help reduce manufacturing cost thus help cut product prices and boost demand.

How Budget 2018 can boost the Manufacturing Sector?

One of the concerns with regards to the manufacturing sector has been that even though the sector has been able to clock decent growth rates but the growth has been jobless. Although big manufacturing plants and increase in FDI in manufacturing sector is welcome but a special focus in Budget 2018 should be given to small and medium sized enterprise (SMEs) as they are the real job creators. Government should ensure that manufacturing units that are employment intrinsic, export oriented manufacturing units and new-age hi-tech manufacturing should have simpler setup process and easy access to credit facilities. Certain manufacturing segments such as that of electronics and semiconductors manufacturing should be offered incentives and tax breaks just as their software development counterparts. Consistency in long-term policy formulation, steps to bring the unorganized manufacturing sector under the organized one and increase in public spending and capital investment will also help provide impetus to the manufacturing sector. For India to shine as a manufacturing hub instead of assembly hub the government needs to provide a nurturing environment for manufacturing startups too. Government schemes such as MUDRA, skill development, push for Digital economy, nationwide road-building program, further improvement in power supply especially in the rural areas and building of 10 million homes for the underprivileged under the Housing for All scheme can also be used to boost the manufacturing sector.

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