Budget 2019 must try to boost manufacturing to end the crisis of jobs

• India has high ambitions to be in top five manufacturing nations in the world by 2020.
  
• From the upcoming budget, the manufacturing industry is expecting the government to change the inverted customs structure to boost Make in india.
  
• High GST rates are also a deterrent in India’s manufacturing growth.
  

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With unemployment rate at an all time high, the Indian government has said that the service sector has witnessed growth in jobs. However, for a country whose 45% of population is in agriculture which contributes to 15% of the GDP, just the services sector can’t offer high quality jobs that Indians need. The one last chance that the Modi government has is to boost India’s manufacturing sector.

The Indian manufacturing industry saw a positive sign with the launch of the government’s ‘Make in India’ initiative in 2014 but five years later, the industry is still waiting for the government to push reforms and policies that will actually benefit them.

The World Economic Forum had ranked India 30th in the global manufacturing index in 2017-18, whereas Japan topped the list. However, from its 30th position, India has high ambitions to be among the top five manufacturing nations in the world by 2020.

To achieve this target, India needs a greater push from the government. With the Interim Budget 2019, experts want tax reductions and higher import duties which will boost the Indian manufacturing sector and make way for more domestic manufacturing.

Bring the tax down

One of the deterrents for the manufacturing industry has been the taxes the corporates have to file. From 18% on raw material to 12% on finished product along with high corporate tax, it comes up to almost 35%.

“Since the industry has been paid little attention in the last few years, this budget is where we expect the government to be bring the tax down to 25% as stated by Finance Minister in 2014 which will help domestic manufacturers eventually boosting Make in India,” said Madhu Sudhan Bhageria, Chairman and Managing Director of Filatex India Ltd, a textile production company.

Import duties to boost domestic manufacturing

Having lower import duties for raw material or manufacturing parts and higher custom duty for finished goods will boost domestic manufacturing, say industry players.

There’s a lesson to be learnt from the auto industry which has 90% duty for imported products vs import of parts attract 10%, believes A. Vijayarajan, Founder, CTO, InnAccel Technologies, a medical technology company.

“Current inverted customs structure is totally in favor of imports and is detrimental to Make in India as importing parts can become expensive,” said Vijayarajan.

With lower import duties on parts or raw material, it will also lead to assembling of products in India.

“We expect the budget for 2019-2020 to focus on mobilizing funds towards Make in India projects, wherein not only the manufacturing activity is conducted, even the assembly of the products manufactured within the Indian companies,” said Sudeep Sen, Business Head – Industrial, Manufacturing & Engineering Vertical, TeamLease Services, a staffing company.

Sen added that the government should give rebates to the companies which buy products from the Indian firms and then do the assembly of the same, which will also lead to greater job creation in the manufacturing sector.

India has also been facing fierce competition from Chinese products that have crowded the Indian market, hindering the manufacturing industry. One of the biggest example has been the Indian solar industry where solar modules are imported from China which hike up the cost of manufacturing.

Funds for skill training

In order to boost Indian manufacturing, the government also needs to look at skill development or training to make way for more trained resources in the country. With the fourth industrial revolution, which will see more and more usage of technology to boost production, it is important that Indian workforce is also skilled to take on the changes.

“Design in India is as important as Make in India – there is a lack of strong ecosystem/skill to support engineering of the products. Creating manufacture-ready products post the concept generation phase, requires technical know-how and expertise in Prototype Development and Testing Infrastructure – these are currently limited,” said Vijayarajan.

The changes have to be brought in at an institutional level believe experts.

“Students need to be exposed to last six months of Industrial experience, as staff and the government should come up with schemes to sponsor the fees of the top talent, creating a viral interest for more students. The government should also plan to allocate funds for the such large scale technical programs,” said Sen.

While there are many international manufacturers also setting up India hubs, regulatory troubles like high GST rates have reportedly hurt their growth and cash flows.

So, if the Indian government wants to achieve its ‘Make in India’ dreams, it needs to push for more favourable reforms.

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