Budget 2015 Rebooting India

IMPACT ON MANUFACTURING

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FM Fires up Make in India Engine

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
expected to lift a number of accompanying sectors.
The only sector that failed to match the hype on
NOW FOR SOME MASALA
Jaitley also sought to facilitate cheaper technol- Make in India was defence. As against the likely
THE
IN FOCUS
IN OUR MANUFACTURING
ogy transfer to small businesses by more than expenditure of this year of `2,22,370 crore the
halving the rate of income tax on royalty and fees budget allocation for 2015-16 is `2,46,727 crore,
CONTEXT
Binoy.Prabhakar@timesgroup.com
for technical services to 10%. By proposing to re- said Jaitley.

BUDGET AT A GLANCE

Customs duty has been lowered

for certain inputs and
components. To help small
businesses access technology at
low costs, income tax rate on
royalty and fees for technical
services has been cut to 10% from
25%. The government will appoint
a committee of experts to replace
multiple prior permissions needed
to start a business with a
regulatory mechanism.

MANUFACTURING
Domestic Production
Gets a Helping Hand

Imaging: Arindam

Excise duty on leather footwear

priced over `1,000 a pair is
halved to 12%. New plant and
machinery installed by a
manufacturer or a unit engaged
in generation and distribution of
power will get an additional
depreciation rate of 20%. Tax
benefit for persons deriving
profits from manufacture of
goods. The government will also
launch a scheme to facilitate the
faster adoption and manufacture
of electric vehicles.

TONY ABBOTT DOWN UNDER HE BATS FOR INDIA

Although the cricketing rivalry between India and Australia is intense, Tony
Abbott says India is a model citizen. His trust in New Delhi has resulted in the
uranium deal sans strings. The blues that the bonding faced are fading. Even
the Men in Blue are showing their mettle at the World Cup Down Under.

DEFENCE
Budget Allocation Raised to `2.46 lakh cr
As against the likely defence expenditure of `2,22,370 crore in FY15,
the budget allocation for 2015-16 is `2,46,727 crore. The modest
rise means Indias arsenal will not expand significantly (the lions
share of the money is spent on maintaining the armed forces).
Despite raising FDI from 49% to 74% for real technology transfer
and hi-tech Make in India, no money has come since the last
budget in June 2014.

SKILLING BOOST
National Skills Mission
in the Works
A national skills mission, which
will consolidate skill initiatives
by different ministries and
standardise procedures and
outcomes across 31 sector skill
councils, is on the anvil. The
proposed Micro Units
Development Refinance Agency
Bank, aimed at providing easier
access to formal systems of
credit to bottom-of-thepyramid entrepreneurs, will
encourage skilled or educated
workers to become firstgeneration entrepreneurs.

MODIS IMPRINT
z Special Emphasis on

Make in India Project

Big Boost for Manufacturing Companies

BABA KALYANI
CHAIRMAN & MD,
BHARAT FORGE LTD

This Budget has a

vision to propel India
to double-digit growth
and make the country
a manufacturing hub
of the world

MFG NOT PULLING ITS

WEIGHT IN INDIA...

Rate of
income tax on
royalty and
fees for technical services
reduced from
25% to 10% to
facilitate technology
inflow

Customs duty on certain

inputs, raw materials, intermediates and components in
22 items reduced to minimise
the impact of duty inversion
National Skills Mission to
consolidate skill initiatives
spread across several
ministries to be launched

Special Additional Duty cut on

import of certain inputs
Deen Dayal Upadhyay
Gramin Kaushal Yojana with
a corpus of `1,500 crore to
enhance the employability
of rural youth

The first full Budget of the Modi government has come at a time when the green
shoots of economic revival appear to be taking root. My impression is that the finance
minister has delivered a Budget which is
strong on vision, reflects clear intent to put
the economy on the path of double-digit
growth and has a strategy to execute challenging reforms in critical areas.
From a macro-economic perspective, the
government has done well to meet the fiscal
deficit target of 4.1%. The softening of global
crude oil and commodity prices has contributed in a significantly lower current account
deficit. Forex reserves at $ 340 billion are at
an all-time high. The government is committed to keep inflation at below 5%. All these
have helped the finance minister to spell out
a road map for lowering fiscal deficit.
The Budget clearly provides a tremendous
impetus to Make in India. Increased investment in infrastructure of `70,000 crore
and a higher allocation of `2,46,727 crore for
defence will clearly provide a boost to domestic manufacturing industry. These investments would help revive the investment
cycle and contribute to increasing the share
of manufacturing in national GDP from
15% to 25%. As a follow up, we now expect
the government to expedite announcement
of the new defence procurement policy to
facilitate larger private sector participation

in defence production. The steps to facilitate ease of doing business will further
support revival of growth in the domestic
manufacturing industry.
Some of the key enablers to achieve manufacturing growth include rollout of GST
from April 1 next year, announcement of five
4,000 MW capacity power projects, the initial
`1,200 crore allocation for the Delhi Mumbai
Industrial Corridor, significantly higher investments in the renewable energy sector,
opening of opportunities for medium and
small industries, emphasis on the housing
sector and corporatisation of ports.
The road map to reduce corporate tax, deferring the applicability of GAAR for 2
years and avoidance of retrospective taxation will considerably increase confidence
of domestic and foreign investors.
While the finance minister did speak
about the need to push exports, I am slightly
disappointed that minimum alternate tax
and dividend distribution tax on special
economic zones have not been lowered. We
hope the new foreign trade policy, to be announced next month, will provide incentives to exporters.
This Budget has a vision to propel India to
double-digit growth and make the country a
manufacturing hub of the world. It is also
an inclusive Budget that seeks to make a difference in the life of every Indian.

Duty Lift for Domestic Units

Dilasha.Seth@timesgroup.com

New Delhi:The manufacturing sector received

a huge fillip in the budget with Finance
Minister Arun Jaitley proposing to rectify an
inverted duty structure, making it cheaper to
import inputs to domestically produce goods at
competitive prices. The budget also proposed to
reduce the excise duty on several items such as
solar water heaters, tablet PCs and leather footwear to prop up domestic production and the
governments clean energy initiative. By hiking the import duty for commercial vehicles,
the government has sent a message that it will
discourage imports of goods.
I propose to reduce the rates of basic customs duty on certain inputs, raw materials, intermediates and components (in all 22 items) so
as to minimise the impact of duty inversion and
reduce the manufacturing cost in several sectors, said Jaitley.
Indias free-trade pacts (FTAs) with Japan,
South Korea and the 10-nation Asean have been
blamed for the inverted duty structure, wherein the import tax on finished products is lower
than that on parts, affecting the competitive-

ness of local manufacturers.

The correction will give a big boost to the
Make in India campaign and promote quality
and competitive local production, said
Amitabh Kant, secretary, Department of
Industrial Policy and Promotion.
Input imports towards manufacturing of LED
lamp and LED/LCD TV have been made duty
free. The excise duty on solar water heater and
system has been slashed to zero from 12% while
that on leather footwear priced over `1,000 per
pair has been halved to 12%.
Tablets will become cheaper
FTAs with
Japan, S Korea with excise duty lowered sharply from 12% to 2%.
and Asean
In some cases, the basic cushave been
blamed for the toms duty has been increased to
inverted duty protect domestic industry. The
import duty on commercial vestructure
hicles has been doubled to 20%,
which will boost Indian manufacturers such as
Tata Motors. The import tariff on iron and steel
has been raised from 10% to 15%. The inverted
duty structure has been rejigged for eight input
items such as sulphuric acid (used by fertiliser
firms), magnetron (used in microwave ovens)
and metal parts used in electrical insulators.

22

24

31

24

Indonesia

South
Korea

Malaysia

Excise duty on items such as

solar water heaters, tablet PCs
and leather footwear cut to
help domestic production

Germany

Incentives to boost manufacturing in India

18

JUST MAKE IT

India

Manufacturing Share in GDP (%)

COURSE CORRECTION Inverted duty structure to be rectified

MAKE IN INDIA
Incentives to Propel
Modis Pet Project

by Invite

Defence Can Fuel Make in India

32

Defence analysts said the 11% increase in outlay

is too modest to achieve the governments ambition on greater self-sufficiency in making defence
equipment, including aircraft. Indias 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.

China

run Jaitley has attempted to bolster

Prime Minister Narendra Modis 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 Modis 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 Jaitleys 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

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 Modis 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.

SOURCE: World Bank, 2013,

For India 2014-15
*As per revised GDP data

...AND IT IS BECOMING
LESS LABOUR
INTENSIVE
Share in GDP (%)
Labour
Capital
Intensive Intensive
Mfg
Mfg

1970s

5.8

6.8

1990s

6.3

9.5

2011-13 5.5

11.1

SOURCE: CRISIL

A BIG OPPORTUNITY
FOR JOB CREATION IF
MFG MADE COMPETITIVE
$1 TRILLION
Size of manufacturing by 2025
25%-30%
Possible share in GDP
60-90 MILLION
New jobs by 2025
SOURCE: McKinsey

MFG REVIVAL CAN

START WITH DEFENCE
Replace High Foreign Defence
Procurement
2012-13
2013-14

93,217

83,090

Total Purchase (` Crore)

37

Foreign Share (%)

41