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Dissecting the Union Budget

The Union Budget had something for everyone. With policy reforms to rejuvenate investment, the budget lives up to the government’s vision of a New India that aims at inclusive growth

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Union Budget 2019, Mercedes-Benz India, Deval Sheth, Olectra Greentech, MSMEs, Electric vehicles

There are ambitions. They need to be fulfilled. The diversity of our country demands that the government protect its citizens from within and that can only be done through policies. Then there’s the disparity. Catchphrases like ‘the rich get richer, the poor get poorer’ do not arise out of nowhere. Hence it is important to have policies that enable growth.

That is what Finance Minister Nirmala Sitharaman set out to do with the Budget this year. The first impression that viewers received is her clear embrace of protectionism. The list of items on which tariffs have been hiked or introduced is far longer than the list of tariff reductions. These tariff hikes, that are meant to offer a broader push towards protectionism and promoting ‘Make in India’, will have important implications for Indian industry and the economy.
In terms of the manufacturing industry alone, Sitharaman gave consideration to MSMEs, start-ups, defence manufacturing, electronics, electric vehicles, and medical devices – all under Make in India. The idea was to build India into a $5 trillion economy, and a 3 trillion dollar economy in the current year, while not forgetting to fill people’s hearts with hope, trust and aspirations.

Manufacturing Today speaks to industry heads across sectors to understand their reading of the budget.

Electric vehicles and auto industry
The finance minister’s intent on making India an environmentally sustainable and future-ready nation is clear from the thrust given to electric vehicles (EV). Import sops on EV parts, incentives to manufacturers and tax breaks on loans for EV buyers is a well-rounded strategy that will help propel the EV ecosystem. Not only will this lower the carbon footprint but also reduce the burden on the exchequer caused by oil imports. N Nagasatyam, executive director, Olectra Greentech, says, “The announcements are more than what we were expecting. Also, with this budget the government has shown its commitment by making it amply clear that EV manufacturing is the next big thing in its vision. Now, it is the responsibility of industry to raise to the expectations of the government and work towards more localisation. An income tax deduction of Rs 1.5 lakh on interest paid for buying an EV will certainly encourage the public and we will see a surge in the EV adoption.”


N Naga Satyam.

The government’s move to lower the GST rate on electric vehicles (EV) from 12% to 5% and to make EVs affordable for consumers with additional income tax deduction will bring connectivity to the vehicles. Simultaneously, the budget increased the custom duty on automotive parts and that is something the industry didn’t need at this stage. Martin Schwenk, MD & CEO, Mercedes-Benz India, says, “The automotive industry is facing continued strong macro-economic headwinds, resulting in subdued consumer interest. The increase in custom duty coupled with increased input costs due to fuel price hike, could lead to an increase in the price of our model range. Though the budget has given a boost to green mobility, we wished for the inclusion of plug-in-hybrids for duty exemption as well, as that would have further given a push to the green mobility efforts.”

EVs do bring the benefits towards fossil fuel conservation & lowering of carbon emissions. Shekar Viswanathan, vice chairman & whole-time director, Toyota Kirloskar Motor, says, “There are other forms of green mobility which will help the government achieve the same objective. The government should also align its taxation policies towards such green mobility which promote reduction of fossil fuel and betterment of environment. Thus, the focus of taxation should not only be restricted to promote and facilitate the shift to all types of green mobility but should also be towards all other means which contribute effectively to increased fuel economy and reduced tailpipe emissions.”

Sekhar Viswanathan.

Viswanathan sees the future moving towards an era with more alternate cleaner and efficient powertrains on roads that the customers and market will ultimately decide based on their mobility requirements. The eco-system should facilitate the consumers to choose the clean vehicle technology that best suits one’s mobility needs, thus enabling an environmentally sustainable growth of the nation.

There is also a dire need to focus on solar segment as a key contributor for clean energy, which was missing from the budget. With the economic viability of the solar power coupled with the fact that conventional energy sources now have to match solar parity, it would have been heartening to see more focus on the solar segment to promote ecological stability. Sunil Rathi, director, Waaree Energies, says, “The government has been indicating some changes in the solar segment for a while, however, we believe there are critical gaps that need to be plugged. On one hand, while the safeguard duty provided the industry with interim relief, the short sighted implementation of a year, holds the proverbial sword of uncertainty in the industry. Moreover, lack of tangible movement on the anti-dumping policy has dampened the business projections in segment. The only silver lining in the budget is the progressive movement towards adoption of EVs and the incentives being offered to the end consumer. With the promotion of clean energy through the use of EVs is likely to boost the demand in the segment, thus providing impetus to achieve economies of scale and in-turn create a viable ecosystem.”

Deval Sheth.

MSMEs
As part of the government’s focus on bringing micro, small and medium enterprises (MSMEs) under the formal economy’s fold, the government will set up a payment platform for them. Though small in size, this sector is a big driver of India’s manufacturing sector and plays a key role in generating jobs. At the central level, there is also a need to spur employment generation. Over the years, MSMEs have been battling to get loans, given their inability to produce relevant assets as evidence. The introduction of the Rs 1 crore MSME loan brings great relief to small business owners, making easier accessibility and processing of loans through a single portal. This, in turn, will translate into the stability and growth of the sector, with the sustenance of existing business and birth of new ones.

Sampad Swain, CEO & co-founder, Instamojo, says, “The first budget by the Modi 2.0 government has introduced several benefits for MSMEs. Over the years, they have been battling to get loans, given their inability to produce relevant assets as evidence. The pension programme for 30 million retail traders is an encouraging move, keeping in mind that the Indian retail space is still majorly driven my small business owners and traders. This not only brings a long-term life plan for these traders but also helps towards the gradual formalising of this majorly unorganised sector.”

Global demographic trends clearly indicate that major economies will have a skilled labour shortage. India proposes to leverage this by focussing on skilling India and reforming the education systems. This will also include skills sets required for working overseas such as language training in addition to an increased focus on skillset needs abroad - including language training and new age technology skills such as IoT, Big Data, and robotics. Tapti Ghose, partner, Deloitte India, says, “Focus on emerging new technologies in the form of artificial intelligence, data science, big data, internet of things, would revitalise technology companies. Connectivity, infrastructure, media, digital technology coupled with ease of living, ease of doing business and digital literacy is the focus of the government.”

Martin Schwenk.

Deval Seth, MD, Giesecke & Devrient, says, “Budget 2019 under the regime of Modi 2.0 is a promising agenda bracing some of the key economic challenges while accelerating the growth path for the economy. Building India into a $3 trillion economy this year may seem ambitious but is still not a farfetched dream with the kind of results India has shown on the economic front in the recent years. Technology, digitisation, and modernisation will have a great role in pulling up India to a $3 trillion economy this year. For instance, as more devices get connected, the market for eSIMs is set to explode in India in areas such as connected cars, manufacturing and consumer durables.”

Defence manufacturing
There's an enormous opportunity in domestic defence manufacturing. India, the world's largest arms buyer, has spent a colossal $100 billion in the past decades in arms purchase with a voracious appetite for more in the coming years. If even a fraction of that can be substituted by domestic arms manufacturing it would undoubtedly trigger green field investment from the private sector.

The import of defence equipment has been exempted from basic customs duty. The defence budget remained unchanged at Rs 3.18 lakh crore, the amount set aside in the interim budget in February, notwithstanding expectations of steep hike in resources to modernise the armed forces and procure critical military platforms.

Indian defence policy remains tied down by its inability to restructure its armed forces to meet the requirements of modern warfare. What adds to the woes is other constraints on resource optimisation.

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