Budget 2022: Focus on Make in India continues 

Representative image.

Budget 2022-23, presented by Finance Minister Nirmala Sitaraman on Tuesday, has reiterated the Narendra Modi government’s focus on boosting domestic manufacturing.

A couple of announcements during Sitharaman’s speech underlined the Centre’s commitment on this score. One with regard to the concessional tax regime under Section 115 BAB, and the other with regard to boosting solar power capacity under the production-linked incentive (PLI) scheme.

In an effort to establish a globally competitive business environment for certain domestic companies, the government had laid out a concessional tax regime of 15 per cent for newly incorporated domestic manufacturing companies. “I propose to extend the last date for commencement of manufacturing or production under Section 115 BAB by one year, i.e. from 31st March, 2023 to 31st March, 2024,” she said.

This has already elicited a positive response from the industry.

“To facilitate domestic manufacturing for the ambitious goal of 280 GW of installed solar capacity by 2030, an additional allocation of Rs 19,500 crore for Production Linked Incentive for manufacture of high-efficiency modules, with priority to fully integrated manufacturing units from poly silicon to solar PV modules, will be made,” the finance minister said.

In addition, the minister announced calibrated customs rates to facilitate manufacture of wearable devices, hearable devices and 28 electronic smart meters. “Duty concessions are also being given to parts of the transformer of mobile phone chargers and camera lens of mobile camera module and certain other items. This will enable domestic manufacturing of high-growth electronic items,” she said.

The gems and jewellery sector, too, got a fillip with the minister announcing a reduction in customs duty on cut and polished diamonds and gemstones to 5 percent. Simply sawn diamonds would attract nil customs duty. To facilitate export of jewellery through e-commerce, a simplified regulatory framework will be implemented by June this year.

The customs duty reduction in most cases is aimed at protecting the local manufacturer.

“Duty on umbrellas is being raised to 20 per cent. Exemption to parts of umbrellas is being withdrawn. Exemption is also being rationalised on implements and tools for the agriculture sector, which are manufactured in India,” she said.

Significantly enough, she has extended the  customs duty exemption given to steel scrap last year for another year to provide relief to MSME secondary steel producers. “Certain anti-dumping and CVD on stainless steel and coated steel flat products, bars of alloy steel and high-speed steel are being revoked in the larger public interest, considering prevailing high prices of metals,” she said.

Concessional import duty to be phased out

The relentless focus on ‘Make in India’ or ‘Atmanirbhar Bharat’ has forced the Finance Minister to even take a very serious look at customs duties.

Sitharaman has, in fact, proposed a phase-out of the concessional rates on capital goods and project imports gradually, with a moderate tariff of 7.5 percent in place instead.

Capital goods

The National Capital Goods Policy, 2016, was aimed at doubling the production of capital goods by 2025. This was expected to create employment opportunities and result in increased economic activity. “However, several duty exemptions, even extending to over three decades in some cases, have been granted to capital goods for various sectors like power, textiles, leather, footwear, food processing and fertilisers. These exemptions have hindered the growth of the domestic capital goods sector,” the minister said.

Sops for project imports hurting local players

Similarly, project import duty concessions have also deprived local producers of a level-playing field in areas like coal mining projects, power generation, transmission or distribution projects, railways and metro projects. “Our experience suggests that reasonable tariffs are conducive to the growth of domestic industry and ‘Make in India’ without significantly impacting the cost of essential imports. Accordingly, it is proposed to phase out the concessional rates on capital goods and project imports gradually and apply a moderate tariff of 7.5 percent,” she said.

Certain exemptions for advanced machinery that is not manufactured within the country will continue, however. “A few exemptions are being introduced on inputs, like specialised castings, ball screw and linear motion guide, to encourage domestic manufacturing of capital goods,” she added.

Rationalisation of duty

The last two budgets saw rationalisation of several customs exemptions. “We have once again carried out an extensive consultation, including by crowd-sourcing, and as a result of these consultations, more than 350 exemption entries are proposed to be gradually phased out,” she said. These include exemptions on certain kinds of agricultural produce, chemicals, fabrics, medical devices and drugs and medicines for which sufficient domestic capacity exists.

“Further, as a simplification measure, several concessional rates are being incorporated in the Customs Tariff Schedule itself, instead of prescribing them through various notifications. This comprehensive review will simplify the customs rate and tariff structure, particularly for sectors like chemicals, textiles and metals, and minimise disputes. Removal of exemption on items which are or can be manufactured in India and providing concessional duties on raw material that goes into the manufacturing of intermediate products will go many steps forward in achieving our objective of ‘Make in India’ and ‘Atmanirbhar Bharat’,” she said.

Fillip to local production of defence equipment

Asserting that the government was committed to reducing imports and promoting Atmanirbharta in equipment for the armed forces, she said 68 percent of the capital procurement budget would be earmarked for domestic industry in 2022-23, up from 58 percent in 2021-22. 88.

“Defence R&D will be opened up for industry, start-ups and academia with 25 percent of the defence R&D budget earmarked. Private industry will be encouraged to take up design and development of military platforms and equipment in collaboration with DRDO and other organisations through the SPV model,” she said.  An independent nodal umbrella body would be set up to meet wide-ranging testing and certification requirements, she said.