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Budget remains true to Modi govt's long-term vision while trying to address immediate challenges

Make in India push is clear from tariff, policy rejig

Nirmala Sitharaman | Sanjay Ahlawat

RS11,11,111 CRORE. Earmarked for infrastructure projects, this assumedly auspicious number in this year’s budget does have a nice ring to it. Another expected figure, however, was surprisingly missing―the $4 trillion mark that India’s GDP is set to cross this year.

Domestic industry has been holding off on investing in new capacity. This is despite a consistent pampering of the formal economy biggies with massive government spending in infra and logistics.

What is not surprising was the absence of the usual hyperbole. Walking the tightrope between political expediency and long-term ‘Amrit Kaal’ goals, Finance Minister Nirmala Sitharaman had bigger shrimps (considering their regular appearance in her budget speeches) to fry.

TWO BIRDS WITH ONE STONE

While the political need of keeping the two main coalition partners, from Andhra Pradesh and Bihar, well-fed and happy was taken care of with an unabashed, almost embarrassing, largesse, a bigger issue remained―an economic boom that is not creating enough jobs and seemed to be benefitting only those at the top of the pyramid.

Sitharaman’s remedy? A two-pronged approach of pushing for skilling, education loans and job creation while doubling down on domestic manufacturing and wooing investment. The jobs push has a central outlay of Rs2 lakh crore over a period of five years and it would benefit 4.1crore youth. It includes not just schemes for skilling the young and providing education loans, but an ‘employment linked incentive’, which will pay Rs15,000 to new employees. The aim is to coax entrepreneurs and corporates to offer jobs, and also get more private sector professionals registered in the Employees Provident Fund Office (EPFO), by taking care of a portion of their contribution to the EPFO for a period.

“The budget’s commitment to boosting education, employment and skill building… are steps in the right direction,” said Raghav Gupta, MD (India and Asia Pacific) of Coursera. “The provision for gaining industry experience through internships with 500 top companies can address the rapidly growing skills gap and social inequities, ensuring students’ transition smoothly into high-demand job roles.”

The success of these initiatives, however, will depend on how well they will bridge the gap between classroom learning and workplace demands. “If implemented effectively, it could profoundly transform our educational landscape,” said Monica Soni, professor, JKLU Institute of Management in Jaipur.

The job push will work only if there are enough entrepreneurs offering jobs. This is where MSMEs (micro, small and medium enterprises) get some attention. Facilitating easier loans for MSMEs and establishing e-commerce hubs in MSME clusters form the crux of Sitharaman’s several initiatives for the sector.

Tarun Chugh, CEO of Bajaj Allianz Life Insurance, said the focus on developing skills and generating employment laid the groundwork for a robust and sustainable economic growth.

That exactly was the intention. “We want more investment to come into this country,” Sitharaman said after the budget presentation on her measures to woo foreign direct investment (FDI), which included slashing of corporate tax for foreign companies. She knows well that big numbers in jobs are possible only with big-ticket investments, and who better to do that than multinational giants coming on the wing of ‘China plus one’ and a prayer for ease of doing business.

STRENGTH IN NUMBERS

Of course, Sitharaman also knows that while big ticket foreign investment gives the country bragging rights, it is not the basket you put all your eggs in. This is where the many other announcements, be it the emphasis on energy transition, funding for innovation and research, multiplying capital expenditure for private space startups and, most importantly, the reduction of basic customs duty on a plethora of items come in. This reduction of duty on anything from solar panels to critical minerals like lithium, precious metals like gold and silver and many raw materials and components for electronics manufacturing, petrochemicals and telecom sectors are specifically meant to give a fillip to their local manufacturing base.

Take, for instance, the cut in the customs duty on gold, silver and platinum. As revenue secretary Sanjay Malhotra clarified, the decision was taken considering India’s growing importance as a business and processing hub for precious stones and metals. “We have 50 lakh Indians employed in this sector,” he said.

The ‘Make in India’ push is clear from the rejigging of tariffs and policies―telecom equipment duty goes up to 15 per cent in an effort to entice local manufacturing, while the period of export of goods imported for repairs has been extended from six months to one year in aviation and shipping in hopes of attracting international business in maintenance, repair and overhauling.

NIRMALA’S NIGHTMARE

While the government’s best intention is reaping a GDP windfall from a combination of skilling and job incentives plus businesses investing more money and employing more people, there is a recurring worst-case-scenario in it. FDI fell 43 per cent last year, the lowest in 17 years, with many foreign investors preferring Indian bourses to doing business here.

Domestic industry, meanwhile, has been holding off on investing in new capacity. This is despite a consistent pampering of the formal economy biggies with massive government spending in infra and logistics. While this has helped shareholders of India Inc fatten their wallets, a reciprocal pumping of money into new plants and new businesses has not happened yet.

One of the marked features of the Modi regime’s economic policy has been its relentless push for manufacturing. What kicked off as ‘Make in India’ back in 2015 hit take-off velocity with the ‘Atmanirbhar Bharat’ package later and the production-linked incentives (PLI). But, with the exception of an Apple here or a Micron there, a rush by global biggies to set up plants in India is yet to be seen.

“India considers itself as a big market, but we should consider that as a per capita market and we are small,” said Rahul Ahluwalia, co-founder of the Delhi-based think tank Foundation for Economic Development. “For a global company, we may be just 5 or 6 per cent of their total market. That is not enough for them to set up their manufacturing base here, unless we transform our local ecosystem and make it competitive with what they get in Vietnam or China. Raising protective tariff walls and inviting manufacturers is not going to do it.”

Then there are concerns about the growing inequality. While the growth has been good, it has been top-heavy. Kaushik Basu, former chief economist at World Bank, said India’s recovery after the Covid pandemic was a classic case of K-shaped recovery. Sitharaman might be hoping to fix this with skilling and employment incentives, but she completely ignored it in the opportunity provided by the income tax restructuring.

ACE UP HER SLEEVE

Sitharaman’s seventh budget remains true to the long-term vision of the Modi government that local manufacturing is the way forward. While it was a blinkers-on race to notch up numbers till now, this budget has tweaked it a bit by embracing education, job generation and social sector guarantees.

To her credit, Sitharaman has stuck to her vision of spending big and dreaming bigger, even while pulling off a miracle of sorts by targeting a sharp reduction in fiscal deficit, from 5.5 per cent to 4.9 per cent. “Keeping the fiscal deficit target at a better-than-expected 4.9 per cent of the GDP while retaining the focus on capital expenditure is no mean achievement,” said Sanjiv Puri, president of the Confederation of Indian Industry and chairman of ITC Limited.

The robust tax collections and the record dividend from the Reserve Bank of India this year sure helped, while the additional revenue Sitharaman intends to mop up does stand her in good stead.

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