Volume 13 Issue 8 FEBRUARY 2017 `150
Visionary Budget, Vibrant Manufacturing!
Budget to boost Make in India Age of Artificial Intelligence February 2017
Welcome new India in 2020
IMTEX 2017 POST SHOW REPORT
Efficient Inventory 1 Management www.martupdate.com
“
Cover Story
The Union Budget 2017-18 provides some much-needed impetus to Manufacturing and Make in India initiatives. Particularly, our startups & small scale industries will benefit much from new announcements like profit exemption for startups for 3 out of 7 years, the abolishment of FIPB and lower taxation rate for companies with turnover less than 50 cr. Interestingly, there is a welcome increase in the investment for infrastructure under Make in India programme. All of this will also be supported by measures to increase the capability & skills of over 35 million youths through skill development & vocational training schemes – Sankalp and Strive. I’m very hopeful that these measures along with the recent demonetization drive will provide an impetus to progress and help accomplish goals for manufacturing contribution to our GDP sooner.
”
Vineet Seth Managing Director (Asia, South East Asia), Mastercam
been increased in 15 sectors and a single reference document for all FDI has boosted investor confidence. A rapidly growing consumer base holds out the promise of mega investments. GST Another proposed reform, in line with ‘Make in India’, is the implementation of Goods & Service Tax (GST). The introduction of GST is much anticipated, as it is expected to ease the task of estimating and filing taxes for businesses.
Arnab Mondal arnab@martinfotech.in
Visionary Budget, Vibrant Manufacturing!
GST will transform India into a single market that will bring in significant competitiveness among manufacturers and traders. The challenges of having multiple warehouses,
The clarion of ‘Make in India’ laid the foundation for growth in Manufacturing. The sector has witnessed increased inflow of FDI since then; the sector is expecting more conducive tax structure and ‘Ease of Doing Business’ with the roll out of GST soon. Meanwhile, as a catalyst, the Union Budget 2017 has features in store for the manufacturing sector to provide it right impetus for continuous growth.
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. The government has set an ambitious target of increasing the manufacturing output from 16 per cent to 25 per cent of the GDP by 2025, which means a promising future for the manufacturing sector in India. Gross domestic product (GDP) from manufacturing in India decreased to Rs 4,84,150 crore in the third quarter of 201617 from Rs 4,901,64 crore in the second
10
www.martupdate.com
quarter. GDP from manufacturing in India averaged Rs 4,13,621 crore from 2011 until 2016, reaching an all-time high of Rs 4,90,833 crore in the first quarter of 201617. This happened due to an enormous push by the government to open up the economy. FDI in Manufacturing FDI in manufacturing has increased from US$ 1.65 billion in 2014 to US$ 18.36 billion in 2016. And the sector has received FDI equity inflow worth US$ 16.13 billion during April-November period of the current fiscal registering 82 per cent growth in FDI inflow as compared to the corresponding period last fiscal when it attracted FDI worth US$ 8.85 billion.
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. To promote foreign direct investment, government has put in place an investor-friendly policy, wherein except for a small negative list, most sectors are open for 100 per cent FDI under the automatic route. “Further, the policy on FDI is reviewed on an ongoing basis, to ensure that India remains attractive and investor friendly destination,” Commerce and Industry Minister Smt. Nirmala Sitharaman said in recently in the Rajya Sabha. The foreign direct investment (FDI) limit has
February 2017
state registrations etc. will be done away with, facilitating operational uniformity and optimisation. Also since there will be one single tax subsuming myriads of taxes in practice currently, the predictability and ease of doing business will increase. Undoubtedly, this reform has the potential to attract foreign investments further which is essential to realise the dream of ‘Make in India’. Budget Effect on Manufacturing The Union Budget for 2017-18 was tabled in Parliament on 1 February. After demonetization and its consequent impact
on GDP, manufacturing sector has been hoping to generate greater demand through the Budget proposals. In the past couple of years, the Government seems to be focusing on building a long term growth plan for the manufacturing sector by investing resources in infrastructure and rural market development. The finance budget 2017 provides for substantial allocation towards these areas. Several measures have been announced in the Budget 2017-18 to provide impetus to commerce and industry. The key initiatives include: 1. The long standing demand of startups has been accepted and the profit (linked deduction) exemption available to them for
Muthu Sekkar Managing Director, NORD India
“
Though the Budget will not directly aid for the manufacturing, but the benefits and considerations done for MSME ‘s and Small scale sectors, textile, Agriculture, both highly labour -intensive will benefit and also support the Make In India program. Special scheme for creating employment in leather and footwear industry, startups exemption on the profits, FDI liberalisation policy should help the Make In India and Manufacturing mission a step nearer. Manufacturing industry, particularly Infra has been one of the key priorities, in my opinion this needs special attention for at least an decade. GST- always I mention as one pill to cure many diseases will create an even level playing field for manufacturers, also many hassles such as various forms, time delay, transport time, paperwork, multi tax layer, Evasion, inventory, input tax credit, etc. will be addressed and certainly boost the revenues for Government and for manufacturers will benefit from the cascading tax, high logistics and fragmented markets and increased protection from imports as GST provides for appropriate countervailing duty.
February 2017
”
www.martupdate.com
11
3 years out of 5 years is changed to 3 years out of 7 years. For the purpose of carry forward of losses in respect of start-ups, the condition of continuous holding of 51per cent of voting rights has been relaxed subject to the condition that the holding of the original promoter/promoters continues.
Sunil Khanna President & Managing Director Vertiv India
“
We believe that the government has focused on creating an inclusive budget for a transparently governed country. It’s refreshing to see the government calling out digital economy as one of the major areas of focus as this will bring in a more transparent administration, enhancing finances for everyone. The move to incentivize merchants with rebates will accelerate the adoption of mobile and digital payment systems in India thus increasing the scope of financial services to the underbanked. I personally believe that this budget holds a lot of promise for skilling the youth in the country. This is something that various industry bodies including the CII, have always advocated. The fulfilment of the Bharat Net scheme along with schemes tailored for the MSME sector will help contribute to a viable and healthy start-up ecosystem. The provision to support NABARD in digitizing 63,000 primary agrooperatives is a healthy move in order to penetrate rural sectors to achieve its goal of a Digital India. Considering the power deficit situation in the country, the proposal to feed 7000 railway stations with solar energy will help in reducing dependence on conventional energy sources. The almost 1/3rd increase in resource allocation towards Integrated Power Development Scheme and Deen Dayal Upadhyaya Gram JyotiYojna (from INR. 7874cr to INR. 10635cr) is also a step in the positive direction
”
12
www.martupdate.com
2. Further liberalisation of FDI policy is under consideration and the Foreign Investment Promotion Board (FIPB) to be abolished in 2017-18. 3. In order to make MSME companies more viable, income tax for companies with annual turnover up to Rs. 50 crore is reduced to 25 per cent. About 96 per cent of companies will get this benefit of lower taxation. This will make our MSME sector more competitive as compared to large companies. 4. MAT credit is allowed to be carried forward up to a period of 15 years instead of 10 years at present. 5. For creating an eco-system to make India a global hub for electronics manufacturing a provision of Rs. 745 crores in 2017-18 in incentive schemes like M-SIPS and EDF. The incentives and allocation has been exponentially increased following the increase in number of investment proposals. 6. Inverted duty has been rectified in several products in the chemicals & petrochemicals, textiles, metals, renewable energy sectors. Duty changes to improve domestic manufacturing of medical devices, those used for digital transactions and capital goods have also been announced. 7. Infrastructure – a key pillar under the ‘Make in India’ programme has been strengthened with a large budgetary allocation. The total allocation for infrastructure development in 2017-18 stands at Rs. 3,96,135 crores. A specific programme for development of multi-modal logistics parks, together with multi modal transport facilities, to be drawn up and implemented. 8. Modernisation and upgradation of identified corridor, railway lines of 3,500 kms will be commissioned, 25 stations are expected to be awarded for station
redevelopment and 500 stations will be made differently abled friendly by providing lifts and escalators during 2017-18. These provide large opportunities under the Make in India initiative 9. Initiatives in Skill Development provide essential support for the ‘Make in India’ sectors to thrive. Launch of ‘SANKALP’ scheme to provide market relevant training to 3.5 crore youth and ‘STRIVE’ scheme to improve the quality and market relevance of vocational training.
“
With India being the fifth largest energy consumer in the world, the country needs to make a concerted effort in promoting energy efficiency by reducing its dependence on fossil fuels and curtailing carbon footprints.While access to energy is a basic human right, we need to make it sustainable. Today’s budget gave a clear indication of the government’s focus to achieve ‘sustainable energy for all’, with two of its critical steps; firstly, by providing a boost to rural electrification with a 25% increase in the outlay for key power schemes like Integrated Power Development Scheme and Deen Dayal Upadhyaya Gram Jyoti Yojna. This is expected to fast track the rural electrification drive of the Government, which is now planned to be completed by May 1, 2018. Secondly by strengthening its focus on renewable energy forms with the inflow of another 20 GW in the next fiscal. This however, will require investments in grid management and digitisation of the grid to ensure supply of quality reliable and safe power. It is important to stress that along with rural electrification, it is equally important to provide reliable and quality power which requires investments towards modernisation of the country’s transmission and distribution power networks and use of digitisation in grid management.
”
Anil Chaudhry Country President & Managing Director, Schneider Electric India
10. A new and restructured Central scheme with a focus on export infrastructure, namely, Trade Infrastructure for Export Scheme (TIES) will be launched in 2017-18. Misses in the Budget R&D Expenditure Research is the centre of any business around the globe. To empower individual thinking and advancement in innovation the Budget should have extended weighted deduction incentive by another 5 years to develop sectors like defence manufacturing, medical devices manufacturing, automobiles, etc. Tax Reforms Last Budget, Finance Minister made a declaration to decrease the corporate tax rate from 30 per cent to 25 per cent throughout the next four years to enhance India’s global competitiveness. To balance the rate reduction, the administration has as of late set out a road map to eliminate a few tax exemptions and deductions from April 1, 2017. Government should have set out clear implementation guidelines as big projects should be reviewed independently. Safe Harbor Guidelines Central Board of Direct Taxes told safe harbor rules covering areas like auto component manufacturer, IT/ITES and KPO prescribing margins to maintain a strategic distance from a suit. Safe harbor guidelines should have been stretched out for companies manufacturing and exporting products as contract manufacturers for better certainty.
One of the real difficulties confronted by the manufacturing part directly is an accumulation of CENVAT credit because of inverted duty structure. Accumulation of CENVAT credit keeps on influencing the business, making them uncompetitive and in addition influencing financial viability. The legislature should have lowered the duty on different contributions to redress this issue. Points to Ponder 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
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. One top of that Rising labour cost and transition from investment-led growth
to consumption-led growth in China is presenting another opportunity for India. The focus should now be on design-led manufacturing rather than assembly-led manufacturing in India. 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. With proper policies in place, the country’ is expected to rank amongst the world’s top three growth economies and amongst the top three manufacturing destinations by 2020.
P C Sharma CEO & Director, TCIEXPRESS
“
We welcome the government’s budget allocation of Rs 39,61,354 crore on infrastructure development and of selected airports in tier 2 & 3 cities has come out as a favorable budget, especially for logistics sector. This will help us widen our market-base and reach out to the remote locations, thereby enhancing our value services to meet the consumer demands in these regions. The focus on infrastructure development in the budget 2017 will accelerate the growth of logistics sector to a larger extent. It will not only help us in providing robust operations to our clients, but will also boost time-definite deliveries, which is a crucial tool for express players. We are also looking forward towards timely implementation of the GST bill, to ease out the operations in the sector.
”
CENVAT Credit
February 2017
in an easy and simple manner.
February 2017
” www.martupdate.com
13
Cover Story
Will the Government’s Vision be Implemented?
Established in 1983 as a consultancy firm, Rhino Machines evolved as a full-fledged manufacturer of conventional green sand, pouring and centrifugal casting products in 1991. The company later collaborated with a French organization, Fondac to bring advanced technologies to the market. As MART has a conversation with Mr. Manish Kothari, Managing Director, Rhino Machines Pvt Ltd, he puts forth his views on the recently announced budget by the Government of India. In his discourse, he raises some critical questions that the government needs to address.
Manish Kothari Managing Director, RHINO Machines Pvt Ltd
How Union Budget 2017 will support manufacturing in India? The recent policies of the government, which are continued in the Budget are very much focused on the growth of Manufacturing Sector. The key for the manufacturing sector is to have growth in infrastructure investment from government and push on localization, which is very much evident from the investment growth in Railways, thrust on Defence Made in India, Skill Development, Digitization of Government operations, and increase in transparency. The challenge however will lie in the readiness of the middle level bureaucrats allowing the government in implementing the vision at the top. The faster the middle changes and understands it is for the good for all, the better and faster will be the
14
www.martupdate.com
implementation. The seeds are sown for growth of manufacturing in India but will the “middlemen” allow it to happen, is the key question. Somewhere we were looking at appreciating and supporting the existing MSME’s who have gone through all the roughs, ups & downs and are looking to grow further. Which are the major points in this Budget that focuses on Manufacturing Industry? The major point is the recognition of manufacturing sector as the engine of growth. For our country to grow sustainably, a shift from the earlier dependence on service industry is the engine of growth. The thrust on Make in India & Made in India, provisions in the budget to support the same, the thrust in agricultural economy and the support for MSME’s (the 2nd largest GDP contributor after agriculture) are the key
takeaways of the consistent policies of the government. What major changes can be seen after the implementation of GST this year? The ease of doing business definitely should improve with lesser documents, lesser offices and lesser officers. However, for a certain period till the previous year assessments are not completed, the industries will face a challenge of double books and double work. The GST will also do away with lot of unscrupulous businesses, multiple company formations, adjustments and create a healthy business environment for those who wish to do clean and clear business. Once again there will be a big tussle on removing corrupt officials and finding a way to deal with them. They will be the biggest disablers in an enabled environment in the Industry. February 2017
February 2017
www.martupdate.com
15
Cover Story
Budget to Boost Make in India!
Rashmi Ranjan Mohapatra, Managing Director of Kemppi India, has an extensive experience in multiple fields. He worked with Linde and ADOR WELDING and was consultant to the Government of Netherlands-External Affairs Ministry. With the announcement of Budget 2017, infrastructure, transport, labour and defence have received special attention that supports the manufacturing industry. Rashmi Rajan Mohapatra, Managing Director of Kemmpi India talks to MART about his take on the Budget 2017.
Rashmi Ranjan Mohapatra Managing Director, Kemppi India Pvt Ltd
How Union Budget 2017 will support Manufacturing in India? India’s ambitious Make in India programme got a boost with the budget unveiling fresh steps to correct anomalies in the indirect taxes structure to encourage manufacturing in the country. Sectors including information technology hardware, capital goods, defence production, textiles, mineral fuels and mineral oils, chemicals and petrochemicals, paper, paperboard and newsprint, maintenance repair and overhauling (MRO) of aircraft and ship repair will see changes in their customs duties. This will bring down manufacturing and compliance costs, boosting global competitiveness. In many of these cases, inputs attract higher duties than finished goods, making imports more attractive than local manufacture. Customs and excise duty structure plays an important role in incentivising domestic value addition towards Make in India campaign. The changes in indirect taxes will go on to improving competitiveness. Which are the major points in this budget, focusing on the Manufacturing industry? Infrastructure For the infrastructure, 3.96 trillion rupees
16
www.martupdate.com
has been allocated for the year 2017-18. Following that is 2.41 trillion rupees for transport sector and 640 billion rupees for investing in national and state highways. Transport To invest 1.31 trillion rupees in railways in 2017/18; budget allocates 550 billion rupees, Dedicated railway safety fund of 1 trillion rupees over next five years, 3,500 kms of railway lines to be commissioned in 2017/18 versus 2,800 km in 2016/17, Airports Authority of India to monetize land around certain Tier 2 airports, to fund airport upgrades Labour Legislative reforms to be undertaken to simplify, rationalise existing labour laws Manufacturing And Trade Government taking steps to make India a global hub for electronics manufacturing, India received more than 250,000 proposals last year with an investment value of 1.26 trillion rupees, Announces new trade infrastructure export scheme. Defence 2017/18 defence expenditure excluding pensions estimated at 2.74 trillion rupees,
Defence capital outlay at 864.88 billion rupees. Plan outlay in all these sectors will help to boost manufacturing in India. What major changes can be seen after the implementation of GST this year? Sticking to its commitment to roll out the goods and services tax (GST) on time, the government will begin its outreach to trade and industry on April 1 to make stakeholders aware of the benefits of the indirect tax reform. The GST Council has finalised its recommendations on almost all issues based on a consensus approach. GST’s tech backbone is also getting ready as per schedule. Indirect taxes in India have driven businesses to restructure and model their supply chain and systems owing to multiplicity of taxes and costs involved. With hopes that the Goods and Services Tax (GST) will see the light of the day, the way India does business will change, forever. The tax revenue mix can change as per the economic condition of the country. In developing countries, indirect taxes comprise a higher share of total taxes; in developed countries, their contribution is significantly lower. February 2017
February 2017
www.martupdate.com
17