Budget 2024: What can India's manufacturing sector look forward to?

With a strong economic recovery underway, the government, is poised to unveil its full-year budget in July 2024 - the first major public policy announcement after the General Elections held in May.

In the Government’s 3rd term and Finance Minister Nirmala Sitharaman's 7th consecutive Budget presentation, all eyes will be on the economic agenda that will set the course for the next 5 years. With hopeful anticipation, the focus will be on infrastructure, economic growth, and innovation, alongside efforts to enhance ease of doing business.

The Interim budget in February 2024 themed- “Viksit Bharat 2024” merely focused on continuity and stability rather than proposing radical reforms. 

Though the government is already implementing non-tariff measures such as licensing requirements and mandatory compliances with Indian standards to reduce imports of non-essential goods that are readily available domestically. To enhance the ease of doing business, the spotlight has intensified as industry stakeholders are anticipating potential revisions and new measures that could significantly impact their economic dynamics and business operations. 

One of the significant demands from the government is a dire need of Dispute resolution Schemes under Customs. At the recent 53rd GST Council meeting, such schemes have been recommended for GST litigations, but no parallel initiative has been extended to pending Customs litigations.

There are numerous pending litigations across various forums involving substantial duty amounts. A dispute resolution scheme like Sabka Vishwas Scheme, 2019 or similar schemes, would be greatly welcomed, fulfilling a longstanding industry demand. 

Currently, the Manufacture and Other Operations in Warehouse Regulations (MOOWR) Scheme stands out as one of the government’s most promising initiatives, offering a significant boost to domestic manufacturing.

Under this scheme, duties on capital goods and inputs imported for manufacturing are either exempted or deferred, encouraging increased production within the country. However, vide Section 130 of the Finance Act, 2023, Section 65A was introduced to the Customs Act, 1962. This section provides for payment of applicable IGST and Compensation Cess at the time of import which was not required to be paid earlier.

While IGST and cess may be creditable later, their upfront payment blocks working capital, posing a major dampener for manufacturers. Industry has appealed for removal of this amendment to ensure the attractiveness of the scheme remains. 

There is a strong demand by the businesses for resolving the challenges faced by the importers in claiming IGST credit. In Circular 16/2023 dated 07 June 2023, the Central Board of Indirect Taxes and Customs (CBIC) specified that, under GST Law, the BoE is prescribed as the document for claiming Input Tax Credit of IGST and Compensation Cess, and not the TR-6 Challan. This decision has posed challenges for importers who have historically claimed credit based on payments made via TR-6 Challan. A suitable clarification or amendment would be greatly welcomed across the industries.    

Importers also face frequent delays when amending BoEs, especially for issues like embedded software remarks, value corrections due to invoice errors, and adjustments in duties or classifications by Customs. A simple and quick amendment procedure is the need of the hour for businesses. The simplified amendment process would be a step towards ‘Ease of Doing Business’ in India. 

The government could also consider some relief in the processes required to be followed by the Export Oriented Units (EOUs). It is important to note that EOUs play a crucial role in bringing foreign exchange into the country. Hence, it is imperative that the challenges faced by them are duly addressed. At the time of clearance of unutilised raw materials to DTA, amendments to the Bill of Entry for claiming credit involves complex mechanism. Easing the same should be a priority for this year’s Budget.

Expectations for the upcoming Budget emphasise the necessity for clear directives on indirect taxation to boost economic competitiveness. Clear reforms can reduce operational uncertainties and strengthen the economic framework. The Budget presents a vital chance to implement growth-supporting policies, foster investment, and encourage innovation, addressing current challenges effectively.

Views are personal. The author is Partner, Deloitte India