Union Budget 2021: Nirmala Sitharaman should announce policies to generate demand, boost consumption

For the manufacturing sector, 2020 was one of the toughest years due to COVID-19. Given the unprecedented times, the emphasis for every company has shifted to cash flow management. Atmanirbhar Bharat initiative is already central to the government’s core agenda in transforming India’s manufacturing sector. In the upcoming Union Budget, the expectation is that there will be further incentives to the manufacturing industry in a bid to help its recovery post-COVID-19. MSMEs need government support One of the most important expectations from the government in the upcoming Budget is to generate demand in the form of policies like vehicle scrappage which will serve the need for the automotive sector. Leaders from the manufacturing sector will also look towards policies that will help boost demand for consumption. The production-linked incentive (PLI) scheme, which has already proven successful for the electronics and pharmaceutical industry, should be extended to other industries in the sector. With the PLI scheme, there will be more overseas companies willing to set up in India, and the MSMEs need to be better prepared to face the competition. MSMEs also need support in terms of skill and infrastructure development for smart manufacturing. Production Linked Incentive (PLI) scheme for the manufacturing sector It is a scheme that aims to give companies incentives on incremental sales from products manufactured in domestic units. Apart from inviting foreign companies to set shop in India, the scheme also aims to encourage local companies to set up or expand existing manufacturing units. This will motivate manufacturing units to produce more and sell more. PLI scheme for mobile phone/electronic manufacturers and pharmaceutical companies have already yielded significant investments in the respective sectors. In the upcoming Budget, the expectation is that the PLI schemes will be extended to other manufacturing industries. Vehicle Scrappage Policy To boost automotive demand by phasing out old, polluting vehicles, the industry hopes that the Vehicle Scrappage Policy finds a mention in the Union Budget 2021-22. The hope is that the Budget will unveil the rollout plan for scrappage that, in turn, will push the sale of new vehicles. This would be a good way to avoid financial burden on the government as recycling metals like steel, copper, and aluminium from the scrapped vehicles will not only help reduce their imports but reduce emissions as well. The vehicle scrappage policy is expected to boost demand for new vehicles in a COVID-hit economy. There is also a proposal to levy a “Green Tax” on old vehicles that are polluting the environment. With this policy, the commercial vehicle segment, which has been struggling in terms of growth in demand, is expected to gain the most. Smart manufacturing infrastructure enabler for MSMEs One of the most significant barriers to IT adoption by MSMEs is the huge upfront cost associated with setting up a fully integrated application to support the firm’s processes. MSMEs find it difficult to justify spending money on IT when their core businesses can do with improvement. Hence, the government must facilitate technological solutions at a considerably lower total cost of MSMEs’ operations and include the same in the upcoming Budget. With technological disruption gradually becoming a catalyst for the rise of MSMEs and startups today, it is expected that the government will make the necessary investments in technology hubs, which in turn will help in strengthening emerging technologies like Artificial Intelligence (AI), machine learning (ML), and Industrial Internet of Things (IIoT). Digital disruption has already taken a pace in India’s businesses across all sectors. The upcoming Union Budget needs to make way for relevant measures to ensure that adequate support is given to MSMEs in this disruption. The writer is Principal Consultant, Manufacturing and Process Consulting Practice, Frost and Sullivan