Jairam Varadaraj
| Photo Credit: The Hindu

The world is witnessing unprecedented disruptions and uncertainty. India, however, presents the promise of growth, stability, and opportunities for investment.

To avail of these opportunities, multiple steps were necessary: strong capital expenditure and infrastructure push by the Indian government; significant support to small and medium enterprises; job creation and skill development; and enhancing the purchasing power of both urban and rural Indian consumers.

There are several positive announcements in the Budget 2024 focused on some of these critical areas.

A continued focus on infrastructure development is welcome, with high budgetary allocations for roads, railways, and urban infrastructure, covering tier-two and tier-three cities too. This is crucial for enhancing connectivity and supporting the growth of manufacturing hubs across the country. Such investments are anticipated to drive demand for construction materials and equipment, providing a significant boost to the manufacturing sector.

For MSMEs, the credit guarantee scheme for acquiring plants and machinery and the announcement to formulate financing packages for technology support are laudable. These will address some of the issues MSME players face and incentivise their significant role in employment generation.

Another aspect that has attracted adverse attention in the past has been the underwhelming skill levels of the productive workforce, and lack of job creation. This, left unaddressed, may have put India’s demographic dividend at risk, even as it enjoys one of the fastest economic growth rates in the world.

Recognising this need, the Budget places this as one of the key priorities. The announcements by the Finance Minister of schemes such as the First Timer, Manufacturing Jobs Assistance, and Support to Employers, will support employment generation by providing direct benefits to employers and employees alike. These will support the job creation intent of the government and industry.

The Finance Minister has also highlighted that youth will get internship opportunities in the top 500 companies in the next five years, emphasising the importance of quality of experience. Corporates are expected to bear the training cost and 10% of the internship cost, both being funded out of their CSR obligations. It is hoped that this is embraced by the industry at large.

Reducing the scope of disputes between the tax administration and taxpayers is welcome, and the focus on this front, with reference to minimising potential future disputes and closing existing litigation goes a long way in creating a benevolent environment.

There are a couple of areas that may merit further consideration by the government in its post Budget deliberations. In implementing Production Linked Incentives (PLIs), the government has followed a sectoral approach to promoting private investments in manufacturing. This is of course important considering the needs of the Indian consumer and what is happening globally. What will also be welcome are general fiscal measures, whose benefits are not limited to select products/value chains.

It was only for five years that the window for claiming a 15% corporate tax rate was open for manufacturers. Several of these years were lost to COVID. Extending this rate to newer manufacturing investments is an opportunity worth reconsidering.

India has been embedding itself in manufacturing supply chains as an alternative to China, but it has faced competition from Vietnam, Thailand and others. The government is rightfully moving on the trade agreement front. Accelerating this agenda needs to be supplemented with incentives for Research and development (R&D). It is R&D that can move Indian manufacturers from their legacy of great execution skills and cost-arbitrage to becoming product innovators.

Incentive for innovation on the corporate tax front should travel beyond the narrow confines of patents registered in India to sale of patented products. Restoration of the earlier weighted R&D income-tax incentives can also be considered.

The Budget 2024 marks the start of a journey that has begun well, with several critical headwinds globally and Indian economic needs balanced with finesse. Expectations run high in India. The nation hopes that corporates and the Indian government work in tandem to capitalise on the momentum and standing of the Indian economy, a shining light in an otherwise murky global environment.

(Jairam Varadaraj, Managing Director of Elgi Equipments)

Presenting her seventh Union Budget and the first after this year’s Lok Sabha election, Finance Minister Nirmala Sitharaman on July 23 unveiled a flurry of measures aimed at fixing the woes of unemployed youth, small businesses, and the middle class, and sought to strengthen the ruling NDA coalition’s bonds with support for multiple investment projects in Bihar and Andhra Pradesh.

Ms. Sitharaman proposed income tax rate cuts worth up to ₹17,500 a year, putting an extra ₹1,458 a month in the hands of those earning upto ₹12 lakh a year, and hiked standard deductions for salaried taxpayers and pensioners by ₹25,000 and ₹10,000, respectively. She also promised to spend ₹2 lakh crore over five years on five schemes which are part of what she called “the Prime Minister’s package”, aimed at spurring jobs and imparting skills to 4.1 crore youth.

Changing lanes

This marked a shift in strategy, or rather a frenetic changing of lanes ahead of a roundabout as drivers in the capital are prone to do, from the previous government’s preferred reliance on letting multiplier and trickle-down effects work while avoiding direct handouts to such sections of society. A similar lane change was last seen when Ms. Sitharaman’s predecessor, the late Arun Jaitley, presented his third Budget, for 2016-17.

Seeking to shed the “suit-boot sarkar” label used by the Opposition at the time, Mr. Jaitley had dedicated that Budget to the farmers, the poor, and vulnerable sections of society and switched his focus to the rural economy and job creation. The trigger for the shift, this time, could be the BJP’s electoral reverses after a decade of outright majority in Parliament, preceded by revelations such as big businesses’ electoral bond purchases.

Jobs, jobs, jobs

At a briefing after her roughly-90 minute speech, which appeared to acknowledge and begin addressing the perceived disenchantment among specific voter groups like the young, the salaried class, farmers, and small entrepreneurs, Ms. Sitharaman made it clear that the overarching theme of Budget 2024-25 was ‘EMPLOYMENT’. Used as an acronym, the theme was spelt out — Employment and Education; Micro, Small and Medium Enterprises (MSMEs); Productivity; Land; Opportunities; Youth; Middle Class; Energy Security; New Generation Reforms; and Technology.

Her speech referred to ‘employment’ 23 times, up sharply from three mentions of the word in the 2023-24 Budget, and seven (four of which were about past achievements rather than the future) in the Interim Budget presented this February. ‘Jobs’ featured four times in relation to new schemes, compared with just one mention in the pre-poll Interim Budget. Similarly, there were three references to the middle-class, from just one mention in the Interim Budget and two in 2023-24.

Shift in priorities

References to growth slipped to 10, from a combined 34 mentions in the last two Budget speeches. Mr. Jaitley’s third Budget had also slashed growth references, but the similarities with that speech don’t end there. While he had released a plan to ‘Transform India’ based on action points around nine pillars, Ms. Sitharaman on Tuesday laid out nine priorities for generating ample opportunities for all. Five of those are, in fact, similar to Mr. Jaitley’s list that led with the promise to double farmers’ incomes in five years. Ms. Sitharaman said that her first priority would be to raise productivity and resilience in agriculture, followed by employment and skilling, inclusive human resource development and social justice.

Infrastructure and next generation reforms also figure in the priorities, with the Minister promising more details about the latter through an economic policy framework to be formulated later, with a focus on fixing factors of productivity, including land, labour, capital, and entrepreneurship. She also announced a review of the Income Tax and Customs Acts, a simplification of Foreign Direct Investment (FDI) norms, and a financial sector vision document for five years.

Fiscal consolidation

While investors will need to wait for those details, the Finance Minister did provide some indirect support to private investments by accelerating the fiscal consolidation process, armed with a ₹2.1 lakh crore surprise dividend from the central bank. The fiscal deficit target for this year has been pegged at 4.9% of GDP from the 5.1% projected in the Interim Budget, and the 5.6% of GDP achieved last year. A reduction in the government’s market borrowings would facilitate a reduction in policy interest rates and encourage private investment, EY’s chief policy advisor D.K. Srivastava pointed out.

Among the PM’s employment package schemes is a plan to provide one year internships in 500 top companies to one crore youth over five years. It is not clear if this will subsume the Pradhan Mantri Kaushal Vikas Yojana 4.0 that was announced in the last Budget to “skill lakhs of youth within the next three years” with an on-the-job training component.

As is the case with many initiatives of this Budget, more details will emerge over time. But Ms. Sitharaman, who began her speech by thanking the people of India for re-electing a government led by Prime Minister Narendra Modi, will be hoping that the lens change reflected in the Budget’s focus areas will not be lost on voters gearing up to cast their ballots in the upcoming State Assembly elections.

Watch: Union Budget gives a leg-up to MSMEs, manufacturing sector

The Union Budget for 2024-2025 has a package of support measures for the Micro, Small and Medium-scale Enterprises (MSMEs) and the labour-intensive manufacturing sector.

According to the Economic Survey tabled on Monday, the contribution of MSMEs to all-India manufacturing output in FY 22 was 35.4% and the share of MSME-made products in exports in FY 24 was 45.7%.

“This budget provides special attention to MSMEs and manufacturing, particularly labour-intensive manufacturing. We have formulated a package covering financing, regulatory changes, and technology support for MSMEs to help them grow and also compete globally,” said Finance Minister Nirmala Sitharaman.

The budget proposes a credit guarantee scheme that will work on pooling of credit risks of MSMEs to facilitate term loans to MSMEs for purchase of machinery and equipment without collateral or third-party guarantee. A separately constituted self-financing guarantee fund will provide, to each applicant, guarantee cover up to ₹100 crore, while the loan amount may be larger. The borrower will have to provide an upfront guarantee fee and an annual guarantee fee on the reducing loan balance. Public sector banks will build in-house capabilities to assess MSMEs for credit. They will also take a lead in developing a new credit assessment model, based on the scoring of digital footprints of MSMEs in the economy so that MSMEs without a formal accounting system are also covered.

Credit availability

In a move to provide relief to MSMEs during stress period, credit availability will be supported through a guarantee from a government promoted fund. The limit of Mudra loans will be enhanced to ₹20 lakh from the current ₹10 lakh for those who have repaid previous loans under the ‘Tarun’ category.

To facilitate MSMEs unlock their working capital by converting their trade receivables into cash, the turnover threshold of buyers for mandatory onboarding on the TReDS platform will be reduced from ₹500 crore to ₹250 crore. “This measure will bring 22 more CPSEs and 7,000 more companies onto the platform,” the Finance Minister said.

E-Commerce Export Hubs will be set up on public-private-partnership mode so that MSMEs and traditional artisans sell their products in the international markets.

An investment-grade energy audit of traditional micro and small industries will be done in 60 clusters and financial support will be provided to shift them to cleaner forms of energy and implementation of energy efficiency measures. The scheme will be replicated in another 100 clusters in the next phase. Rental housing with dormitory type accommodation for industrial workers will also be facilitated on PPP mode.

Sudhir Jha, national convener, All India Manufacturers Organisation and vice-president of the MSME Development Forum, said the MSME policy of the government needed a relook to improve the entire eco system of MSMEs to meet the current challenges.

Wet grinder manufacturing at a unit in Coimbatore. File
| Photo Credit: M. Periasamy

Festival season, when sale of kitchen equipment peak, does not offer hope for wet grinder manufacturers in Coimbatore.

Manufacturers of the grinders, a product that has Geographical Indication tag, are moving to other businesses as demand has slumped.

R. Soundarakumar, president of the Coimbatore Wet Grinders and Accessories Manufacturers’ Association, told The Hindu on Tuesday, September 26 that the demand used to peak from Dasara and go on till Pongal. The manufacturers in Coimbatore were selling more than one lakh grinders a month. “Now we sell just about 50,000 grinders a month and on an average the total sales is just 30% of what it used to be,” he said.

Of the nearly 200 end product manufacturers, only 80 – 100 manufacturers are continuing business. “The decline started more than six years ago when the government distributed grinders free of cost. We thought business will revive. But, one development after another – GST, COVID-19, etc – has led to complete fall of business,” he said.

‘Consumers now buy idli/dosa batter from shops’

There is no demand for wet grinders because of change in food habits and life style. Most of the consumers buy idli/dosa batter and do not grind batter at home. The demand has fallen across geographies.

The dealers ask for new models regularly. But, the manufacturers require nearly ₹13 lakh to make a die. With fall in demand and business, they find it difficult to make new models of grinders regularly.

Also Read | Wet grinder manufacturers seek support

Though the Central government is implementing from 2004 a cluster project for wet grinder and accessory manufacturers it is practically difficult to make dies through common facilities or take up common marketing, says Mr. Soundarakumar.

The issues that the manufacturers face include 18 % GST on the grinders and shortage in availability of grinding stones. “We have also not raised the issues much because there is no demand for the grinders,” he added.

The revamped credit guarantee scheme for Micro, Small and Medium Enterprises (MSMEs) will take effect from April 1, through infusion of ₹9,000 crore in the corpus, said Union Finance Minister Nirmala Sitharaman while presenting the Union Budget 2023.

“This will enable additional collateral-free guaranteed credit of ₹2 lakh crore. Further, the cost of the credit will be reduced by about 1%,” she said.

“Further, in cases of failure by MSMEs to execute contracts during the COVID-19 period, 95% of the forfeited amount relating to bid or performance security will be returned to them by government and government undertakings. This will provide relief to MSMEs”, the Finance Minister said.

The total allocation for the MSME Ministry will see a nearly 42% increase for 2023-24 with ₹22,138 crore to be made available compared to ₹15,629 crore in 2022-23. Schemes such as Raising and Accelerating MSME Performance (RAMP) and Scheme for Fund for Regeneration of Traditional Industries (SFURTI) will see significantly higher allocation compared to FY23.

The Federation of Indian Micro and Small & Medium Enterprises (FISME) and the Coimbatore District Small Industries Association (CODISSIA) said in press statements that to ensure MSMEs received payments on time, the Budget has proposed that deduction for expenditure incurred on payments made to MSMEs will be allowed for buyers only when the payment is actually made. This means buyers cannot claim deduction without paying the MSMEs.

The FISME added that setting up of a National Financial Information Registry will help create a robust information system and help MSMEs access loans. The Common Universal Identifier for businesses proposed in the Budget will also rid MSMEs of the need for having multiple identities, it added.