High import duties on key inputs such as steel, polymers, copper and aluminium are proving to be counterproductive to such aspirations, as manufacturers find it difficult to be competitive in international markets. What can Budget 2023 include to address such anomalies that are hurting the interests of small and medium manufacturers?
VK Agarwal, MD of Shashi Cables, a manufacturer of aluminium conductors used for transmission of electricity, says there is no sense in levying import duties on items in which India has a natural advantage. “Products such as aluminium, copper and petrochemicals, for example, are inputs that India is rich in. No duty is needed to protect the industry. Rather, when you levy a duty, there is definite harm to the economy as domestic producers also raise prices to the extent of the duty,” he says.
Duty on such raw materials should be zero-rated for the real benefits to reach the domestic industry, says Agarwal. “The government should take a bold step in favour of the people of India, although it may go against the big sharks. The objective should be to reduce duty to appropriate levels for each item,” he says.
With MSMEs already hard-pressed to make ends meet, such duties – ranging between 5% and 17% – only add to their financial constraints. There is a range of duties, such as customs duty and anti-dumping duty. It just amounts to uncertainty for MSMEs, as they are not able to keep their manufacturing costs at a uniform level. “They are reversing the entire process of liberalisation,” Agarwal says.
Echoing similar sentiments, Vikas Vasal, National Managing Partner, Grant Thornton Bharat, says while a lot of reforms have taken place in customs, there should be further refinement in this year’s budget as well. “Many times, import duties become a disincentive for manufacturing and exporting of goods. For instance, there is a huge growth opportunity for India in the field of special chemicals. This industry requires a lot of raw materials and needs multiple clearances from various departments for imports and exports. We should look at smoothing the process in all respects so that businesses don’t get entangled in higher import duties and compliance administrative mechanisms?” he says.
Moreover, for India to be an integral part of the global value chains (GVCs), a friendly import regime is the only answer. Else, the country cannot achieve the ambitious aspirations it has set for itself.The government has been encouraging domestic manufacturing to reduce the dependence on imports and also to make Indian goods more competitive in the global markets. According to the National Manufacturing Policy, the share of manufacturing in the GDP will increase from 15% to 25% by 2025.
The Department of Commerce’s India Brand Equity Foundation says the manufacturing GVA has contributed around 16.3% to the nominal GVA over the past 10 years. By 2030, India can add more than $500 billion annually to the global economy. The segment has the potential to export goods worth $1 trillion by 2030. This number was $418 billion in FY22, 40% more than the previous year, says Bain & Company.
Quoting the Economic Survey, the IBEF estimates employment in the manufacturing sector to be 6.24 crore in 2019-20.
In an earlier interaction with ET Digital, Anil Bhardwaj, Secretary General, Federation of Indian Micro and Small & Medium Enterprises (FISME), alluded to how customs duty in developed countries is not more than 1-2%. “The objective of customs duty should be to create an incentive to get more and more value created in the host country. If raw material becomes very expensive to export, then domestic manufacturers will increase prices. Then the value addition will not be in the host country; instead, people will import finished products directly. Many products that can be made in India are being imported, as it is cheaper to import. This is a direct contradiction to Make in India,” he says.
Besides such aspects, industry experts say that special attention should be paid to the quality of exported goods. “We can’t just give a good product in the sample and be satisfied with that. We have to strive to be quality conscious throughout. The government is the largest business house of the country. They should look at revolutionising the system of purchasing. They must offer additional incentive for quality. A starting point can be that the government starts giving importance to quality in its own purchases. Currently, we are just taking shortcuts in quality and lagging in export. The objective should be to instil a culture of quality control, which will eventually find its way into export as well,” adds Agarwal.