The Union Budget 2022 - released by Nirmala Sitharaman, Finance Minister, Government of India - is a significant one for advancing domestic manufacturing. The budget looks promising to arrest the downturns and steer India’s Covid ravaged economy in the right direction.

The robust allocation of Rs 7.5 lakh crore (up by 35.4% Y-o-Y) as capital expenditure for FY 23 would give a boost to commercial vehicle sales domestically, especially in the medium and heavy commercial vehicle segment. It will also create a buoyancy to meet and sustain demand for different industry sectors besides augmenting machine tools demand. 

The extension of the Emergency Credit Line Guarantee Scheme (ECLGS) till March 2023 and extending it with focus on hospitality and related enterprises will help mitigate the adverse impacts of the pandemic. Indian machine tool industry is dominated by MSMEs and this measure will help making the industry more resilient and competitive. Machine tool industry is the backbone of MSMEs and as 90% of the industry comprises of MSMEs, they stand to benefit enormously from these measures.

The budget is in line with the Make in India and Aatmanirbhar Bharat concepts with 68% of capital procurement budget in defence being earmarked for domestic industry in 2022-23 to enhance domestic development of technologies besides opening up defence R&D for industry, startups and academia.

Furthermore, capital goods sector occupies a strategic position in India’s economy as it provides the machinery and equipment needed for industries engaged in manufacturing of goods and services. Conventionally, the Indian capital goods sector has been dependent on imports. In this light, simplifying of customs rate and tariff structure for sectors such as textiles and metals, removal of exemption on items that can be manufactured in India and providing concessional duties on raw materials that go into manufacturing of intermediate products will go a long way in boosting indigenous manufacturing. Also, the few exemptions extended on inputs like specialized castings, ball screw and linear motion guideways would encourage domestic manufacturing of capital goods.

Other measures such as bringing in 400 energy efficient Vande Bharat trains, setting up of 100 cargo terminals within 3 years, R&D in sunrise sectors, utilizing surety bonds in place of bank guarantee schemes will help MSMEs in government procurements. Moreover, investments in railway expansion, national highways expansion by 25,000 kilometres under the PM Gati Shakti initiative will spur manufacturing and the need for machines. The launching of ecosystem for skilling and livelihood through a digital portal to skill, reskill and upskill citizens through online training will help in building a smart India with skill sets. This will result in having a large pool of quality manpower that can readily be employed in industries.

Vibrant manufacturing is imperative for India’s growth. The incentives announced in the budget could perhaps trigger growth although it may take some time for the sops to trickle down to end users resulting in demand for goods and services. Once such manufacturing hits top gear, the country will be on track to realize its dream of becoming a $5 trillion economy in the years to come.