Budget 2023-24: Manufacturing sector eyes revised taxations, new PLIs

Manufacturing sector contributes 15% to India's GDP and hence the expectation of experts are high from the government

As Union Budget 2023 approaches, experts from the manufacturing sector, which contributes 15 per cent to India’s gross domestic product (GDP), are hoping for a reduction in import duties, and a revision in the taxation system, among other things from the government.

Here are some of the Budget expectations for the manufacturing sector.

Electric Vehicle industry

As the Centre pushes for wider adoption of electric vehicles to meet the country’s decarbonisation goal, CEO of JLNPhenix Energy, Sunil Gandhi told Business Standard that reduction in import duty on the raw material of lithium-ion battery is what the manufacturers of the EV batteries hope for, along with a cut in the present GST rates.

Expecting big announcements for EVs, the Energy Storage System (ESS) and EV charging infrastructure, Gandhi said, “Reduction of imports duty especially on the parts used in the lithium-ion batteries can also be presented in the upcoming budget. There is a need to relook at the GST rate for Lithium-Ion batteries and reduce it from the current rate of 18 per cent and match it with the GST rate applicable on EVs i.e., 5 per cent.”

To meet the vision 2030 planned by NITI Ayog, Gandhi said that the government shall put a thrust on developing home-grown industrial units of Li-Ion cell manufacturing, BMS R&D and mass manufacturing, EV Motors and motor controllers.

Apart from FAME-II subsidies and new quality norms, the JLNPhenix Energy CEO said that the EV-battery manufacturers also expect avenues where they can invest to improve the supply chain and cost of raw materials.

Naivedya Agarwal, the CEO and Co-Founder of Runaya suggested an extension on the production-linked incentive (PLI) scheme for the space sector for indigenising the Aluminium Powder, while also requesting additional schemes for rare earth and magnet manufacturing industries.

“In the 2023-24 Union Budget, we would like to request an extension in the existing period for the new and emerging companies. Additionally, to extend the PLI scheme for the space sector for indigenising the Aluminium Powder. It will boost local manufacturing and promote capacity building within the country,” Agarwal said.

India has six per cent of the world's rare earth reserves, underscored Agarwal saying that the country only produces one per cent of global output and meets most of its requirements from China.

“We have the scope, capacity, and capability at the same time to not only support the requirement locally but also export globally. This year we expect PLI schemes for rare earth and magnet manufacturing industries. This year we are looking forward to a clear tax policy along with a PLI scheme for rare earth minerals to boost EV production in India,” he added.

The government has unveiled incentives of at least $3.4 billion for manufacturing the costliest component of EVs— batteries — locally, to make the end product more affordable for the mass market.

According to a recent report, India is exploring ways to secure supplies of metals such as copper and lithium from some of the world's top producers by acquiring overseas mines and has identified one copper and two lithium mines in resource-rich Argentina to either acquire or secure long-term leases.

Employment in the manufacturing sector

A key to the growth of an economy is skilled ‘manpower’, Subramanya Ullal, the CEO of SASMOS HET Technologies Limited said that being the largest job creators, MSMEs would look forward to the schemes and benefits for the companies hiring on a large scale and upskilling the youth. “Like the previous year the government should continue its focus on the creation of skilled professionals,” he said.

Ullal added that while ease of documentation, registration, tax benefit, easy credit, and government aid has been really helpful for the industry, there is much more that is to be done to reap the benefits of the scheme.

“Most of the government procurements, at least as we see in the aerospace and defence industry, are driven by the L1 process, which is very difficult for most companies to deliver along with superior quality and highly invested manpower. Our request to the government is to look at this issue and open up the chance for the MSMEs to provide high-quality products,” he said.  

ASSOCHAM said that the Union Budget 2023-24 is likely to focus on employment generation with the help of schemes like PLI which extends to 13 different sectors of manufacturing. An investment of nearly Rs 50,000 crore has already been committed.

“The PLI scheme is expected to be a catalyst for leveraging the China Plus policy of the global companies to set up their manufacturing base in India. The concept has moved to implementation and platforms like G20 are being utilised. The idea would reflect in the Budget as well,” ASSOCHAM’s Deepak Sood said.

One of the important issues from the long-term point of view, Sood said is that India has to increase the share of manufacturing in the country's GDP from 15-odd per cent to 25 per cent for generating quality jobs in large numbers.