Union budget 2017: what could be expected in Manufacturing sector

In India, the manufacturing sector has emerged as one of the high-growth sectors. ‘Make In India’ program has been launched by Prime Minister of India to place India on the world map as a manufacturing hub and give global recognition to the Indian economy.
make in india
Source: financialexpress.com
In 2015 India has improved his ranking among the world’s manufacturing countries. It ranks among the top 10 and is positioned in sixth place.

An ambitious target has been set by the Government of India of increasing the contribution of manufacturing output to 25 percent of Gross Domestic Product (GDP) by 2025 from 16 per cent currently.

Size of the Market –
India’s manufacturing sector has the potential to touch US$1 trillion by 2025. As per sources, there is potential for the sector to account for 25-30 percent of the country’s GDP and create up to 90 million domestic jobs by 2025. Business conditions in the Indian manufacturing sector continue to remain positive.

Manufacturing has emerged as one of the high focused sectors in India during Prime Minister Narendra Modi – led NDA government regime. Many economists and experts have set the bar high with their expectations from the Central Government on laying various reforms in the sector as the budget for the fiscal year 2017-2018 is just around the corner.
budget 2017
Source: moneycontrol.com
Some of the pre-budget expectations of manufacturing sector from the budget 2017 are –
1.      Accelerating the depreciation – Finance Act 2016 restricted depreciation rate to 40 percent from April 1, 2017. As per the act, it is important to consider the need for continuing accelerated depreciation on certain assets not as an incentive but considering quick obsolescence due to rapidly changing technology. the depreciation available on plant and machinery at the rate of 15 per cent, should be increased to 25 per cent which would enable companies to invest in latest technology to manufacture products of international standards and be competitive in global trade.

2.      Restoring Incentives on R&D expenditure – In the world, research is a lifeline of any business. It would be imperative to extend weighted deduction incentive by another 5 years at the same rate in order to promote innovation and create a state of art technology in sectors such as defence manufacturing, medical devices manufacturing, automobiles, etc. There is a need to give the similar benefit to renewable solar industries even on technology development.

3.      Deduction of CSR expenses – Companies Act presently does not make CSR expenditure mandatory for companies. The Income Tax Act does not permit any deduction of the expenditure. Considering the fact that the expenditure is mandatory deduction should be permitted for any expenditure incurred. The nation will be benefited when private sector spends on CSR.

4.      Clarity on benefits of Investment Allowance – Finance Act 2016 clarified that the investment allowance/deduction @ 15 per cent of the cost of new plant and machinery would be available in the year of installation even if such machinery was not acquired during the year. With respect to 1 April 2016, the clarification was only perspective. To avoid unnecessary litigation it is imperative that such clarification amendment is made a retrospective of April 1, 2014.

5.      Exchange rate difference on the acquisition of assets – At present, the taxpayer is permitted to adjust the cost of acquisition of an asset in respect of exchange difference arising on loan received in foreign currency for the acquirement of imported assets only. Such adjustment is not permitted in respect of a foreign currency loan used for acquiring of assets in India. Foreign exchange loans used to purchase new assets for the indigenous source should be treated on par with the imported assets.

6.      Clarity on the deduction under Section 80-IA – A deduction of profits earned by taxpayers carrying on specified businesses is provided under Section 80-IA. There is no clarity in regard to whether the deduction is available for each unit i.e. without setting off losses of other units or after increasing profits or losses of all units together. A clarification on this issue will clarify the litigation of the issue.

7.      Clarity on conversion of the company into LLP — The Finance Act, 2016 introduced an additional condition of asset base being lower than INR 5 crores in order to obtain the exemption in respect of exemption of gains arising on conversion of a company into an LLP. It should be made clear that such condition would apply only to conversion proposals initiated on or after April 1, 2016.

8.      Other Reforms – To reduce the cost of transportation, the Government has launched an inland waterways policy to build a strong network of inland transportation for industries. An ambitious target has been set by the government to increase the contribution of manufacturing output to 25% of GDP by 2025 from the current 16%. Thus it is very important for this sector to be in focus of government to provide all such facilities such as proper infrastructure, development of manufacturing zones with world class facilities, etc to be able to compete in a global environment.

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About the Author: Arjun N

Founder of SolutionBuggy who has about 11+ years of experience in manufacturing industries. An entrepreneur with astute sales and marketing skills.
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