Jairam Varadaraj
| Photo Credit: The Hindu
The world is witnessing unprecedented disruptions and uncertainty. India, however, presents the promise of growth, stability, and opportunities for investment.
To avail of these opportunities, multiple steps were necessary: strong capital expenditure and infrastructure push by the Indian government; significant support to small and medium enterprises; job creation and skill development; and enhancing the purchasing power of both urban and rural Indian consumers.
There are several positive announcements in the Budget 2024 focused on some of these critical areas.
A continued focus on infrastructure development is welcome, with high budgetary allocations for roads, railways, and urban infrastructure, covering tier-two and tier-three cities too. This is crucial for enhancing connectivity and supporting the growth of manufacturing hubs across the country. Such investments are anticipated to drive demand for construction materials and equipment, providing a significant boost to the manufacturing sector.
For MSMEs, the credit guarantee scheme for acquiring plants and machinery and the announcement to formulate financing packages for technology support are laudable. These will address some of the issues MSME players face and incentivise their significant role in employment generation.
Another aspect that has attracted adverse attention in the past has been the underwhelming skill levels of the productive workforce, and lack of job creation. This, left unaddressed, may have put India’s demographic dividend at risk, even as it enjoys one of the fastest economic growth rates in the world.
Recognising this need, the Budget places this as one of the key priorities. The announcements by the Finance Minister of schemes such as the First Timer, Manufacturing Jobs Assistance, and Support to Employers, will support employment generation by providing direct benefits to employers and employees alike. These will support the job creation intent of the government and industry.
The Finance Minister has also highlighted that youth will get internship opportunities in the top 500 companies in the next five years, emphasising the importance of quality of experience. Corporates are expected to bear the training cost and 10% of the internship cost, both being funded out of their CSR obligations. It is hoped that this is embraced by the industry at large.
Reducing the scope of disputes between the tax administration and taxpayers is welcome, and the focus on this front, with reference to minimising potential future disputes and closing existing litigation goes a long way in creating a benevolent environment.
There are a couple of areas that may merit further consideration by the government in its post Budget deliberations. In implementing Production Linked Incentives (PLIs), the government has followed a sectoral approach to promoting private investments in manufacturing. This is of course important considering the needs of the Indian consumer and what is happening globally. What will also be welcome are general fiscal measures, whose benefits are not limited to select products/value chains.
It was only for five years that the window for claiming a 15% corporate tax rate was open for manufacturers. Several of these years were lost to COVID. Extending this rate to newer manufacturing investments is an opportunity worth reconsidering.
India has been embedding itself in manufacturing supply chains as an alternative to China, but it has faced competition from Vietnam, Thailand and others. The government is rightfully moving on the trade agreement front. Accelerating this agenda needs to be supplemented with incentives for Research and development (R&D). It is R&D that can move Indian manufacturers from their legacy of great execution skills and cost-arbitrage to becoming product innovators.
Incentive for innovation on the corporate tax front should travel beyond the narrow confines of patents registered in India to sale of patented products. Restoration of the earlier weighted R&D income-tax incentives can also be considered.
The Budget 2024 marks the start of a journey that has begun well, with several critical headwinds globally and Indian economic needs balanced with finesse. Expectations run high in India. The nation hopes that corporates and the Indian government work in tandem to capitalise on the momentum and standing of the Indian economy, a shining light in an otherwise murky global environment.
(Jairam Varadaraj, Managing Director of Elgi Equipments)