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Budget 2017: India's pathway to be the next manufacturing destination

The government has set an ambitious target of increasing the manufacturing output from 16% to 25% of the GDP by 2025, which means a promising future for the manufacturing sector and B2B commerce in India.

Rahul Garg        Last Updated: January 30, 2017  | 20:29 IST
Budget 2017: India's pathway to be the next manufacturing destination

Rahul Garg
At the recent Vibrant Gujarat Summit, Prime Minister Narendra Modi announced India's rise to be the sixth-largest manufacturing nation in the world, as opposed to being the ninth largest at the time when 'Make in India' programme was launched, back in 2014.

FULL COVERAGE: UNION BUDGET 2017-18

The government has set an ambitious target of increasing the manufacturing output from 16% to 25% of the GDP by 2025, which means a promising future for the manufacturing sector and B2B commerce in India.

FDI in manufacturing has increased from US$ 1.65 billion in 2014 to US$ 18.36 billion in 2016. Initiatives have been undertaken to alleviate the business environment from outdated policies and regulations, and to align with parameters of  World Bank's 'Ease of Doing Business' index.

India is a bright spot in the global economy, as per the International Monetary Fund (IMF). Its contribution to global growth is 68% higher than its share in the world economy. In the run up to the Budget, the Indian economy has been growing at a rapid pace registering GDP growth of around 7.6%, until the demonetization announcement.

But if we need to make India a manufacturing hub we need to compete with China aggressively by creating access to capital at much lower interest rates for export oriented units and facilitating export duty-drawbacks in an easy and simple manner.  

Though China continues to dominate the world in manufacturing, its proposition is no longer compelling to companies that are looking to expand their footprint overseas.

The government should continue with its anti-dumping duties on import of certain finished capital goods from China, to protect the interest of domestic players from cheap in-bound shipments. India, in fact, has initiated the maximum anti-dumping cases against below-cost imports from China.

Another proposed reform, in line with Make in India, is the implementation of GST. The introduction of GST is much anticipated, as it would ease the task of estimating and filing taxes for businesses.

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GST will transform India into a single market that will bring in significant competitiveness among manufacturers and traders.

The challenges of having multiple warehouses, state registrations etc. will be done away with, facilitating operational uniformity and optimization.

Also since there will be one single tax subsuming myriads of taxes in play today, the predictability and ease of doing business will increase.

This has the potential to attract foreign investments further which is essential to realize the dream of Make in India. In my view, the government should look at implementing GST on priority basis.

The Startup India programme may get a boost in the upcoming Budget. The startups that have the potential to innovate are the ones that will sustain in the long run and the government should take definitive steps in the Budget to help them tide over the economic anxiety created by demonetization.

Today it is impossible for startups to engage with government due to norms such as 3-year existence and turnover limitations combined with a complex and time consuming procurement process.

The Budget should reduce both income tax and corporate tax to boost consumption and investment that has been affected by demonetization. There is a need to make government procurement more startup-friendly and digital-savvy. The government should move towards 100% digital procurement process where startups can compete effectively and efficiently.

Digital technology and digital-based governance will be at the forefront in the coming months.

Considering government's move of demonetization, GST roll out among others, the budget too is expected to promote digital transaction.

Measures to promote cashless transactions will be welcomed by startups, as consumers today are more digital savvy and are opting for hassle-free methods of transaction. Even more and more manufacturing units today understand the benefits of doing business digitally than through offline mode.  

Overall, the initiatives indicate that any future moves by the government, including the Budget, shall consider a nurturing environment for startups in India to flourish.

Rahul Garg is contributed by CEO & Founder, Moglix


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