The Budget unveiled several transformative initiatives to boost manufacturing, employment, and exports. Here, we highlight the seven most impactful announcements from a trade and economic perspective.
Investment-ready “plug and play” industrial parks will be developed in or near 100 cities in India. Twelve parks are already approved under the National Industrial Corridor. This is most needed to kick-start manufacturing in different locations in India.
Delays in land acquisition and approvals deter investors. In contrast, countries like China have many operational industrial zones with pre-approved permissions for future units. For instance, a chemical zone will have pre-approved effluent discharge and quality standards. Investors simply agree to these terms, move in, install machinery, and start production quickly.
Three employment-linked incentive (ELI) schemes have been announced, focusing on EPFO enrolment and recognising first-time employees. In the first scheme, first-time employees will receive one month’s wage upon entering the workforce in all formal sectors, with a direct benefit transfer (DBT) of up to ₹15,000 provided in three instalments. The second scheme incentivises job creation in manufacturing by offering incentives to both employees and employers based on their EPFO contributions for the first four years of employment. The third scheme provides employers with up to ₹3,000 per month for two years towards their EPFO contribution for each additional employee. These ELIs aim to boost job creation and complement the PLI schemes, which have so far benefited only a few sectors like smartphones. It is hoped that the rules for these schemes will be simpler than the complex criteria of most PLI schemes.
The Critical Mineral Mission will focus on domestic production, recycling, and overseas acquisition of critical minerals. The government has eliminated tariffs on most critical minerals, such as antimony, beryllium, bismuth, cobalt, copper, gallium, germanium, hafnium, indium, lithium, molybdenum, niobium, nickel, potash, and rare earth elements. As India imports most of these minerals, budget initiatives and zero-duty imports may boost their processing in the country. Currently, 70 per cent of global processing of these minerals happens in China.
Boosting skilling
Over the next five years, 1,000 ITIs will be upgraded, and one crore youth will be trained by India’s top companies. We must also create a hundred design studios for new product development. Implementing the German Mittelstand model, which fosters collaboration between industry, research, and academia, will help small firms innovate and reduce dependence on imported daily-use goods.
Easing the credit problems faced by MSMEs. The limit for Mudra loans has been increased from ₹10 lakh to ₹20 lakh, and the turnover threshold for mandatory on-boarding on the TReDS platform has been reduced from ₹500 crore to ₹250 crore. Additionally, financial support has been announced for 50 multi-product food irradiation units in the MSME sector. The sector struggles with high credit costs, difficulty in hiring skilled manpower, and complex regulatory procedures. It is hoped that these measures will be implemented promptly.
E-Commerce export hubs will be set up in a public-private partnership (PPP) mode to help MSMEs and traditional artisans sell their products internationally. While this is a positive step, it is not enough. Despite high potential, India’s e-commerce exports are currently only about $3-4 billion. This is due to a complex patchwork of rules designed for regular B2B exporters, creating a heavy compliance burden for small firms. For instance, many banks charge ₹1,500 to process a shipment worth ₹4,000. To address these issues, the government should introduce a separate e-commerce export policy addressing all pain points at one place. E-commerce policies in countries like China, Korea, Japan, and Vietnam have successfully enabled many firms to sell globally.
Significant reductions in Basic Customs Duty (BCD) across various sectors, including precious metals, electronics, critical minerals, other metals, marine, agriculture, chemicals, petrochemicals, drugs, textiles, and leather. These changes aim to boost domestic production, reduce smuggling, prevent misuse of the India-UAE CEPA, and support critical industries.
For precious metals, customs duties have been significantly reduced: from 15 per cent to 6 per cent for gold bars, from 14.35 per cent to 5.35 per cent for gold dore, from 15.4 per cent to 6.4 per cent for platinum, from 15 per cent to 6 per cent for silver bars, and from 14.35 per cent to 5.35 per cent for silver dore. These cuts are expected to reduce smuggling but will cost the government an annual revenue loss of ₹28,000 crore based on FY24 import levels.
Customs duties on mobile phones have been reduced from 20 per cent to 15 per cent, reflecting increased production and exports. In FY24, India’s mobile phone production exceeded $49 billion, with exports over $15 billion. Duties on two key mobile phone components, PCBA and chargers/adapters, have also been cut from 20 per cent to 15 per cent.
In conclusion, the Budget presents a strategy to strengthen India’s economic foundation. By reducing customs duties across various sectors, enhancing skilling programmes, and easing credit for MSMEs, the government aims to create a more robust and self-reliant economy. However, the success of these initiatives will depend on their prompt and effective implementation, ensuring that India can fully realise its potential in the global market.
The writer is Founder, Global Trade Research Initiative