With the Modi budget out, industry veterans express their opinions and suggestions for the betterment of manufacturing | The manufacturing sector has been struggling for the past few years with
low industrial output and negative investor sentiments, primarily owing to the economic slowdown and rising input costs. According to a KPMG report, the key challenges remain low growth, low availability of affordable power, poor infrastructure, dwindling demand and rising input costs.
With the 2014 budget out, the report states that the new government announced their mandate for stability and gave rise to hope for a few incentives. The NDA stance included a ‘promise’ to revive the sector, and turn India into a powerful manufacturing hub, thereby boosting employment opportunities. Manufacturers expected a clear road map for GST implementation, incentives and infrastructure support and addressal of issues related to mining (coal and iron ore).
The report states some key announcements made by the government such as:
• Investment allowance of 15% for the SME segment
• FDI limit in the defence sector raised from 26% to 49%
• Proposal to develop 16 new ports, seven industrial cities, relaxation of the FDI limit in real estate, etc., which could indirectly impact the sector
• Proposal to revisit coal linkages and harmonise the duty structure around coke and coal
• Focus on skill development
• Strong intent to implement GST by end of the year.
KPMG stating its impact reported that in case of the manufacturing sector, the budget came across more as a statement of intentions than concrete actions. Overall, it appears that the government is still making up its mind on major policy decisions, and to that extent this budget looks like an interim measure. Having said that, there are many decisions related to issues of mining and environmental clearances, which are not necessarily related to the budget that can be addressed later, thereby resolving a few issues impacting the industry over a period of time.
It also stated that the focus on skill development can have a direct impact on productivity. Though the finance minister spoke about reviving the manufacturing sector, many of the proposals seem to be secondary drivers, excepting those in the case of metals. KMPG is of the opinion that the directional policies are positive and one would expect quite a few big announcements in the following months.
The budget ofcourse impacted everybody differently. Within the purview of the manufacturing industry too there are varied opinions. We spoke to the captains of some of the industries and sought their opinion on the budget and how it affected their sector.
Incidentally, these very chieftains happen to also form a part of our ‘Grand Jury’ team for the Manufacturing Today Annual Awards & Conference. The following pages will not only give you an insight into who all are going to whet the nominations for the awards but also give you an idea of how ably these nominations would be judged.
Director, Cummins India Ltd
As industry members/associations, many of us had given our thoughts/ advise/prescriptions to the Government for reviving the economy in general and the manufacturing sector in particular. Some of these directions do figure in the budget document. However, I am refraining from giving my thoughts on the budget and will share my thoughts on the expectations that the society/government has from the industry (particularly the manufacturing sector).
The industry is one of the most privileged sections of the society and it has to go beyond seeking support/ concessions in every pre budget memorandum. Instead it should try and articulate what we will do for the nation in return (not just for our shareholders and customers). I am opining that the industry cannot absolve itself of its larger responsibilities by just being compliant to the laws (paying taxes and duties). There is need for us to engage in larger roles, for which we are well equipped.
Skill development and engagement in CSR are two such examples. In order to get skilled employees rather than expect the governments/academia to correct the situation we should share our expectations with the academia and institutions. We should work with them in various spheres like framing relevant syllabus, having students as interns, etc. Unless the industry comes forward to strengthen these institutions, we will never be able to create a “skilled nation”.
There has also been a massive debate in the country when the government proposed and has since enacted mandatory spend on CSR as part of the new Companies Act. Many opposed this move as in their opinion it is the Government’s job to create an inclusive society.
But here too, the industry should repay to the larger society since it has benefitted significantly in the non inclusive development model. Inclusive society will make the business more sustainable and the reverse can be a big survival agenda for the industry.
Managing director, Blue Star Ltd
The Indian manufacturing industry has been performing below its’ potential for some time now. We urgently need reforms and a modern policy for our manufacturing to revive strongly. Multiple levels of taxation along with an inverted duty structure, poor infrastructure, and lack of a skill development mechanism has not helped our manufacturing. Land acquisition difficulties and archaic factory laws at the centre and various state levels have created difficulties in growing or investing in our manufacturing industry.
However, there is hope as we realise that we need to substantially improve the manufacturing contribution to the national growth, so as to get back to 8% GDP growth. It will help create jobs for a large young population and enable them to contribute to and benefit from the economic growth. We need to improve the image of our quality too. Currently, the’ Made in India’ brand is not as good as the best.
The Union Budget recently announced by the new Government was received with mixed reactions in some quarters. Overall, given the current circumstances, I feel it is a good budget. With the challenges of a large fiscal deficit and lack of growth for the last two years, the immediate requirement was to bring stability and a longer term direction to revive growth and improve investments in infrastructure and capital goods.
The budget addressed these aspects, without adding any additional tax burden beyond what was expected. However, some more steps will be required to improve the situation in the coming months. GST is one of them, for example. I would like the Government to help create the right manufacturing environment to encourage the MSMEs, who form the backbone of our manufacturing support for the larger industry. In addition, we would need better logistic infrastructure and encouragement of indigenous R&D and product standards.
President, Rolls-Royce India and South Asia
The Union Budget 2014 was a realistic with a long term view which affirms the vision of the government to bring about an all-round development in the country, with emphasis on manufacturing, job creation and skill development. We welcome the move to increase the FDI in defence and are confident that such timely measures will allow the sector to brave the slow economic growth and a host of other factors and ensure long term growth.
For India to continue with its massive acquisition programme to provide its armed forces with the latest and best equipment in the most economical and sustainable manner, it needs to actively look into indigenisation through co-development and collaboration. This has to happen across the entire value chain – from research, design and development to manufacturing, integration, maintenance and repair. The Government should also consider establishing dedicated SEZs to include common infrastructure facilities for MSMEs and make the country an important hub in global supply chain on aerospace and defence production.
Robindra Nath Som
Consultant, Aerospace, and president, Nickunj Eximp
I think the budget was positive in the context of no policy decisions with negative impact. It gives a definite direction for more positive actions to be taken towards economic growth. So far, even on ground executions are quite in sync with statements of intent. For example, the labour law experimentation by the state government of Rajasthan.
For the long term, opening up sectors like defence production, private participation in high speed train network, reduction in cost of finance for large infra investments etc. are sure positives. I would like the government to concentrate on providing competency/skill development to the manufacturing industry and this has to be directed towards: improving labour efficiency as there seems to be shortage in skilled hands for operating multi axis and high productive machines.
The government should also promote/support industries to set up skill development parks in major industrial areas for the segments of aerospace, automotive, ship building, construction equipment, etc.
MD, VDMA India Services
The first union budget of the newly elected NDA government did not disappoint the market expectations and announced a substantial increase in the foreign investment limit in defence, manufacturing and insurance sectors. Budget 2014 emphasises the need for fiscal prudence, which clearly is the need of the hour. What’s particularly noteworthy is the emphasis on the manufacturing and infrastructure sectors as the key levers to reviving economic growth.
This is perhaps one of the few occasions that the manufacturing sector has received special attention. India is a favourite destination for foreign direct investments. From a policy perspective, the decision to raise FDI from 26% to 49% through the FIPB route, with management control in Indian hands, will provide a boost to the domestic manufacturing industry. There is also a great opportunity for Indian firms to cooperate with German companies in various areas and forge a closer working relationship between the SMEs in both the countries. The large scale manufacturing for domestic markets would make us more competitive from cost and quality point of view and provide opportunities for exports to developed countries.
Deputy MD, Yamazaki Mazak India
Given the short time frame for presenting the budget and to provide a good budget to meet all the expectations of the “acche din”, the task has been accomplished without hurting any. Budget had laid out the good intentions of the newly elected government without delving into specifics of any issue that are hurting business and industry. For example, issues like retrospective amendments in tax laws and GST and DTC could have been dealt with clear guidelines/frame work. At the same time measures like increasing the taxable income limits for personal income tax and increase in investment limit under section 80c have provided relief to the vast working middle class. In all it is a good budget with clear intentions for growth.
The budget states to undertake certain economic initiatives pertaining to the manufacturing industry which are: development of industrial corridors with emphasis on smart cities linked to transport connectivity to spur growth in manufacturing and urbanisation; proposal to establish an export promotion mission to bring all stakeholders under one umbrella; apprenticeship act to be suitably amended to make it more responsive to industry and youth.
Such measures when implemented quickly and efficiently will boost the growth in manufacturing industry. Industry– institute interaction can ensure that employment ready people are delivered by the institutes. This should help in reducing the gap in skill requirement for the industry. Also, in the longer run institutes will become the affordable research and development sources for the industry to churn out more advanced products at affordable price levels. Keeping in view the long term benefits, the government should consider tax concessions for the industries who adopt the institutes. Also the educational institutions can get tax exemptions and government subsidies for investment in machines and instruments used for educational purpose.
Leader advisory, PwC India
The new government has acknowledged the woes in the economy and has indicated the need to introduce structural reforms to rebuild confidence. It is a rational budget which is balanced and has created positive sentiment. While FDI in defence manufacturing has been raised from 26% to 49%, it may still not be enough incentive for foreign firms to bring in investment and proprietary technology. One significant criticism of the Indian tax system was the ineffectiveness of the dispute resolution system. The budget proposals relating to setting up a high-level committee to interact with industry on disputed issues, advance ruling for residents, roll-back of advance pricing agreement (APAs) and easing of transfer pricing norms should ideally calm the nerves of anxious taxpayers.
While the industry’s expectation to roll back the retrospective amendments have not been met, the FM’s statements to put in place a mechanism for new cases involving ‘indirect transfer’ through a CBDT committee is likely to reduce litigation. Besides the tax proposals, allowing foreign owned manufacturing companies to sell via ecommerce is also a positive development.
We expect the government to initiate measures to ease doing business; undertake requisite modifications in land acquisitions laws and changes in labour laws in order to encourage setting up new manufacturing units. On taxation policies, the government can look at rationalizing MAT rates, in particular for SEZs which will go a long way to revive SEZ investments.
The proposal to not allow deduction for CSR activities needs to be reconsidered. Business confidence is set to return as the government puts in an investor-friendly policy framework in place. While a weak monsoon could play spoilsport to overall economy growth, we are hopeful that growth will be better than last year given the impetus to the manufacturing sector.
Head, business development,
automation products & systems,
India & Bangladesh, Siemens
The recent budget underlined the government’s resolve to walk the talk with some much needed policy and tax initiatives for the manufacturing sector. The results of this will take time to percolate into specific numbers. The budget has several morale boosters for the manufacturing sector including investment allowance as an incentive for manufacturing companies to encourage investment in plant and machinery by pegging a lower qualifying threshold. The time limit for claiming investment allowance at 15% of the investment made by a manufacturing company in new plant and machinery has increased from 31 March 2015 to 31 March 2017. This definitely would encourage more of capital investments.
I believe that for pharma, textiles and FMCG sectors, the government should extend central excise and IT exemptions that have expired. This will encourage more players to step into manufacturing. A financing policy for SMEs is crucial to boost their growth as their contribution to our national GDP would make a huge difference.
Director, Precomp Tools
Within the time constraints and other limitations, I believe that the Finance Minister has given this country a good budget. You cannot please all, but the FM has tried his best just to do that. In his own way, he has addressed all the sectors of the economy and tried to create an economic road map and not a political one. Translating some of those thoughts into actionable plans and seeing their implementation or completion will give the much needed confidence, which is rather low at the moment. I believe the real budget of this government will be presented next year, with several tweaks on the way till then.
The government should be firm; resolute and very strong willed to carry forward an economic agenda, which will bring about the changes which many are looking forward to eagerly – Drastic reduction in the fiscal deficit over a defined period of time; reduction in subsidies and better delivery system to those genuinely in need. Doing away with various internal barriers to trade and ease of setting up a manufacturing industry especially for the MSME sector will spur the growth of the industry.
CEO, Micromatic Machine Tools
From an industry perspective, there was nothing extraordinary that could have been expected from the budget simply because of the state of the economy and the preceding two years. The budget was not about some big time reforms but more about removing some impediments, which were largely present in the details. What matters now is execution of the reforms announced. Another pertinent thing to observe is how the industry would align itself to all the reforms announced. A budget is just a plan, vision, intent but we need to work together to bring about a considerable change. Capacity, capability and competency is what is needed to prepare for the next two years.
The size of the machine tool industry is not very significant but the impact it makes to Indian manufacturing far outweighs its size. Hence, looking at its importance we would like the government to award it some kind of a special status. Also, the association and government together should look at building a national platform from where the machine tools industry could become a global exporter of certain technology.
S M Bhat
MD, Ador Welding Ltd
The current fiscal budget is a good attempt to revive the manufacturing section and growth. However, the task is herculean on the back drop of a legacy carried over from the last government. It will take few months before we see investments going up in important sectors of the economy. The government has to still simplify or resolve three major issues: environment clearance, acquisition and mining policies.
The government is working on simplifying these policies which coupled with budget proposals will boost manufacturing sectors. Our industry depends heavily on oil and gas, power, infrastructure, automotive and railways. In the budget the government has generally created a feel good factor and taken steps to boost investments in the above sectors. Hence, we are confident that in next three to six months good amount of investments will take place in sectors mentioned.
The government has also declared industrial corridors and making of 100 smart cities. They also allowed FDI in some of these sectors including defence. The soaps given for capital investments to some of the above sectors should also boost the confidence of the business community and allow them investments in these sectors. In all, I think we will see demand going up for the manufacturing industry from January 2015 onwards.
President, SME Chamber of India
For the industry, especially SMEs, there is reason to be happy to some extent because the government has given specific focus for development of infrastructure, industrial growth oriented strategies and improvement of the SME sector. This will bring about a good relief for lot of industries and SMEs since they will be able to import good quality advanced technology machinery and equipment for producing products of international standard for both domestic and export purpose.
Allocation of `10,000 crore for young generation to start entrepreneurship is a welcome step and many aspiring youngsters can take advantage of this initiative. Focus on food processing and packing industry is a vital decision, which will reduce wastage and provide opportunities for packaging industry not only in India but in the overseas markets too.
The other decision to allocate `200 crore to start industrial parks, smart cities as well as better infrastructure facilities is also an encouraging step. This will help promote technology centre, networking and innovations. However, the required attention has not been given for creating skilled manpower generation, revival of sick industries especially SMEs.
The manufacturing sector needs the required support from the all concerned government agencies. Hence, the government should help for open access to export markets. Government procurement will also help Indian manufacturers achieve economies of scale and mitigate demand volatility to some extent. The stage is set for SME manufacturers to leverage its status as a priority lending sector and embrace technology. The SMEs can especially benefit from the proposed tax sops and subsidies. A few hurdles along the way need to be addressed by the concerned agencies of the government.
Banking systems currently under stress with rising non-performing assets (NPAs) may face a liquidity crunch. This will stall development and expansion plans. Manufacturers, on their part, also need to adopt flexible manufacturing to prepare for demand volatility.