Manufacturing sector expects serious reforms from FM

NEW DELHI: As the Union Budget for fiscal 2025 approaches, the manufacturing sector is demanding major reforms from Finance Minister Nirmala Sitharaman.

The government is expected to rationalise the tax structure, emphasise on research and development activities and introduce schemes like PLI to enhance competitiveness in the domestic and global market.

“The revival of the manufacturing sector has started. The government is not only paying attention to foreign investment but is taking steps to ensure investment from Indian investors. There are certain things that need to be in place to attract and support investment,” Blue Star Managing Director B Thiagarajan told TNIE.

He said the government should consider introducing PLI schemes for sectors where the cost of capital is high. Another important area is to look at how India can boost its research and development capabilities, without which the country is unlikely to become globally competitive.

“Domestic value added has to go up. The cost of capital has to come down and private players have to step up to promote innovation. Investment in R&D as a percentage of total GDP is just 0.65%. In developed countries it is 2.5%. Then you have to look at the ease of doing business.

Logistics costs are high here as we do not have a robust container and transport infrastructure. If this one question is answered, margins for the industry can go up by 2-3%,” said Thiagarajan. Kunal Chaudhary, partner, tax, EY India, said the Budget 2024-25 could introduce or strengthen policy measures to create a more conducive business environment for manufacturers.

“Several policy measures may include reintroduction of reduced corporate tax for manufacturing units, rationalisation of customs structures for components/parts to promote domestic backward integration and value addition in India, special budget allocations for grants or subsidies to promote design/R&D activities in manufacturing sector, policy measures like public procurement, phased manufacturing programmes (PMPs), new PLI schemes for import dependent sectors and incentives for adoption of green manufacturing practices and technologies,” Chaudhary added.

Industry experts said the sector’s share of GDP needs to increase if India is to achieve its goal of becoming a $10 trillion economy in the coming years. While the services sector’s share of GDP has increased from 45% to 55%, manufacturing’s share has remained at 15% in 2017 and 17% in 2022.