Budget 2024 adopts multifaceted approach to bolstering manufacturing sector

By Saurabh Agarwal and Mohit Sharma
Budget 2024 for manufacturing sector: The recent Union Budget has struck a balance between fiscal consolidation and stimulating economic growth. While the middle class has been offered tax relief, the government's primary focus remains on judicious spending to maximize economic impact. The budget's core themes are employment, skilling, MSME development, and support for the middle class.Largely focus has remained intact on spending money judiciously to ensure that each penny spent creates a ripple effect in the entire economic landscape.
Although at first glance, manufacturing might appear to have taken a backseat, a deeper analysis reveals a multifaceted approach to bolstering the sector. Initiatives like employment-linked benefits and internship programs, while primarily aimed at job creation and skill development, indirectly benefit manufacturing companies by expanding the talent pool.
Extensive focus on the MSME manufacturing units by way of extending term loan facility for purchase of machinery and equipment without collateral or third-party guarantee, would help companies in augmenting their capital base/ capacity and strengthen the very foundation of the manufacturing ecosystem in the country. Development of a new credit-assessment model by Public Sector Banks to assess MSME credit shall provide much needed regulatory relief to the units.
With respect to the large manufacturing entities, while there is no direct fiscal/ tax incentive introduced in this budget, some support has been provided with an extensive focus on development of ‘industrial parks’ in nearly 100 cities under the ‘plug and play’ model. Reforms proposed with respect to land administration, planning and management, shall also ease out acquisition related difficulties often faced by entrepreneurs/ business houses in acquiring lands for manufacturing set-ups.
Targeted Customs duty interventions like, rationalization of Customs duty provisions in Mobile phone manufacturing setups, extension of Customs duty exemption on import of capital goods for manufacturing of solar cells and panels, full Customs duty exemption on import of 25 critical minerals, inter alia, shall provide the required impetus for enhancing domestic manufacturing environment.
Governments’ focus on formulating an Economic Policy Framework to set the scope for next-gen reforms in the country, has a target to improve the productivity of factors of production, namely, land, labour, capital, entrepreneurship and technology. This shall pave the way for enabling achievement of a target of 25% manufacturing sector contribution to the nation’s GDP over the course of next 7-10 years.
While the overall outlook is positive, the extension of tax benefits under Section 115BAB for manufacturing entities and the absence of new PLI schemes are notable omissions.
The country’s manufacturing base is expanding as is reflective from the continuously increasing tax collections and expanding Purchasing Manager’s Index. It would be pertinent to see how the ground realities evolve vis-à-vis the vision envisaged, in the upcoming Financial Year.
(Saurabh Agarwal is Partner, EY India and Mohit Sharma is Director, EY India)