India Budget 2020-21 – what is in it for the engineering manufacturing sector?

By Prasenjit Dhar

The global economy has been very sluggish in 2019-20 and India with its 6.1% GDP growth, was also impacted. This year’s budget, therefore, needed to provide some impetus to improve the country’s economic growth rate and reduce the level of unemployment. The manufacturing sector is an important lever for the government to help with both the above.

The 2020-21 Indian union budget seems to try to address some of these through a two-pronged approach. In this budget the Indian government has opted to focus on schemes to enhance manufacturing of electronics, semi-conductors, mobile phones and other electronic hardware like tablets, etc. If the government schemes in this area prove successful, it will have the potential to significantly improve employment opportunities.

It is quite evident that the aspiration to manufacture in India and being a global player, will not materialise with access to technology. The Indian government, therefore, as it second prong, has focused on this area – especially on next generation technologies in fields including robotics, artificial intelligence, machine learning, etc. The government has announced a £850 million fund for further R&D and technology applications. Not only access to technology, Indian manufacturers will also need to focus on quality if they are to be part of global supply chains.

Another area where the Indian Government has focused on in this budget is on the automotive sector – especially on electric vehicles. The increased allocation in its Faster Adoption and Manufacturing of Electric (and hybrid) vehicles – FAME scheme, will provide a fillip to EV manufacturing and adoption in India. The domestic industry in India is also pushing for the scheme, now in its second phase (FAME 2) to include electric two-wheelers and bicycles as well.

The budget announcement of increasing basic customs duties by the Indian government can prove to be a double-edged sword. On one hand the Indian automotive industry, which depends on significant imports of components, especially in the EV sector, would like customs duties to lowered to make the vehicles more affordable. While, on the other hand, a phased increase in the customs duties have been announced in the budget on passenger and commercial EVs for either completely built up imports or knocked-down units to be assembled in India. Through this, the Indian government is obviously looking to protect its indigenous businesses and encouraging manufacturing in the country. The government needs to strike a fine balance here.

This brings us to the recently published annual Economic Survey of India, which has suggested that GoI adds “Assemble in India for the World” to its flagship Make in India programme to boost exports and create jobs in the country. This can help raise India’s global export share to about 3.5 per cent by 2025 and 6 per cent by 2030. This has the potential to create 40 million jobs by 2025 and 80 million by 2030. According to the survey: “The incremental value added in the economy from the target level of exports of network products, which is expected to equal USD 248 billion in 2025, would make up about one-quarter of the increase required for making India a USD 5 trillion economy by 2025.”

For realising these significant benefits to the Indian economy, the government will have to quickly put in place necessary enabling policies and implementation mechanisms.

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