By Disha Rawal
My grandfathers favourite dinner table story is about how he had to wait for seven whole years to get a scooter after he booked it, and how he simply sold the scooter once he got it since he needed the money more. Indias manufacturing sector has crept up from those times to see better days. The Indian consumer enjoys choice and quality, while some industries have done remarkably well.
However, a country with a population as large as ours and abundant resources probably could have performed better. The government recognises that as well, as made evident by the Make in India campaign. However, has it played out in the Budget 2018?
Hopes of revival for the industry
A major reason behind weak manufacturing is weak rural demand. A highly agriculture-dependent population enjoys low purchasing power, thus hampering diversity in production. However, the rural focus of this budget may pay off in this regard. Initiatives taken towards rural infrastructure, healthcare and financial stability of farmers can revive rural demand and consumption. These steps are especially important considering projections of increased inflation in the near future.
Supply-side considerations
However, there is still a large, growing, diverse urban market to cater to. There have to be various supply-side factors impeding growth as well. A few of the problems are cheap imports, complex labour laws and low skill levels. Increased customs duties form a very prominent part of this years budget, and these protectionist duties may serve to revive domestic production. However, this comes right after Modi’s comments at the World Economic Forum Summit at Davos about how “protectionism can be as dangerous as terrorism“, and India continues to struggle for a level playing field at the WTO. This budget has also allowed fixed-term contract hiring, which will provide flexibility to companies and will contribute to the growth of manufacturing in the coming times. Fixed-term contract hiring is also likely to be extended to all sectors soon.
The third concern of skill development has to follow adequate emphasis being given to the education sector, which this years budget does not bring anything new to. A widespread and revitalised training institution net can feed the needs of the manufacturing sector.
Good news for MSMEs
The budget has decreased corporate tax by 5 percent for companies having a turnover less than Rs 250 crore. This will allow small firms to become more competitive and will give a boost to employment.
However, small firms may soon be under threat due to automation in the larger firms, making them more competitive than ever. In fact, India as a whole is disadvantaged, being squeezed between countries which are making great strides in automation like China, and countries with abundant cheap labour like Vietnam and Bangladesh. Thus apart from skill training, India needs a strong automation policy, clarity on regulations and heightened activity in this area. As the industrial landscape changes with changing technology, policies will have to change too.
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