Budget 2023: Revving up manufacturing with duty revisions and capex boost

  • Industry News
  • Feb 02,23
By allocating Rs 10 lakh crores for capital expenditure (which would be 3.3 per cent of GDP) and making minor changes in the basic custom duties, cesses and surcharges on some components, the budget aims to provide more opportunities for local manufacturing.
Budget 2023: Revving up manufacturing with duty revisions and capex boost

New Delhi

With an aim to promote exports, boost domestic manufacturing, enhance domestic value addition and encourage green energy and mobility, Budget 2023 has proposed to reduce the number of Basic Custom Duty (BCD) rates on goods (other than textiles and agriculture) from 21 to 13. It has also announced minor changes in the basic custom duties, cesses and surcharges on some items including toys, bicycles, automobiles and naphtha.

Capex up 37.4%
The biggest takeaway of the budget 2023 is the steep increase in the capital expenditure outlay by 37.4 per cent in BE 2023-24 to whooping Rs 10 lakh crore compared to Rs 7.28 lakh crore in RE 2022-23. The capex is almost 3 times of the capital expenditure in FY 2019-20. The key infrastructure and strategic ministries such as Road Transport and Highways, Railways, Defence, etc will lead in driving the capital expenditure in FY 2023-24. 

Capital outlay of Rs. 2.40 lakh crore has been provided for the Railways, which is the highest ever outlay and about nine times the outlay made in 2013-14.

Duty revisions
Finance Minister Nirmala Sitharaman, in the Budget, has doubled the BCD on kitchen chimneys to 15 per cent, on bicycles from 30 per cent to 35 per cent, and toys and parts of toys (except electronic toy parts) from 60 per cent to 70 per cent which will increase the prices of the imported products. This, in turn, will make locally manufactured products cost competitive.

With consumption of electronics growing in India manifold in the last 10-15 years, the Government of India has been promoting domestic manufacturing of the same through various policies, including PLI (Production Linked Incentive) Scheme. As a result, the mobile phone production in India has increased from 5.8 crore units valued at about Rs 18,900 crore in 2014-15 to 31 crore units valued at over Rs 2,75,000 crore in the last financial year as a result of various initiatives of the Government, stated Sitharaman while presenting the budget 2023. 

Budget 2023 proposes to provide relief in customs duty on import of certain parts and inputs like camera lens and continue the concessional duty on lithium-ion cells for batteries for another year in order to further deepen domestic value addition in manufacture of mobile phones. The BCD on parts of open cells of TV panels has been reduced to 2.5 per cent to promote value addition in manufacture of televisions.

Budget has brought custom duty down to nil on several mobile phone components – camera lens and parts used in the manufacturing of camera module (from earlier 2.5 per cent duty), palladium tetra amine sulphate for manufacturing of parts of connectors and specified items for manufacture of pre-calcined ferrite powder(earlier both were at 7.5 per cent duty).

To support the ethanol blending programme and facilitate India’s endeavour for energy transition, FM Nirmala Sitharaman has proposed to exempt BCD on denatured ethyl alcohol. Budget 2023 has also reduced BCD on acid grade fluorspar from 5 per cent to 2.5 per cent to make the domestic fluorochemicals industry competitive. The BCD on crude glycerin for use in manufacture of epicholorhydrin has been reduced from 7.5 per cent to 2.5 per cent.

Defence spending up
With an aim to continue the modernisation programme and help Armed Forces to be battle ready to meet any eventuality, the non-salary revenue outlay has been enhanced significantly from Rs 62,431 crore in budget estimates (BE) 2022-23 to Rs 90,000 crore in BE 2023-24, representing a 44 per cent jump. This will cater to sustenance of weapon systems, platforms including ships/aircrafts & their logistics; boost fleet serviceability; emergency procurement of critical ammunition and spares; procuring/hiring of niche capabilities to mitigate capability gaps wherever required; progress stocking of military reserves, strengthening forward defences, among others. 

The capital allocations pertaining to modernisation and infrastructure development of the Defence Services has been increased to Rs 1,62,600 crore representing a rise of Rs 10,230 crore (6.7 per cent) over FY 2022-23. This increase is a reflection of the Government’s commitment towards sustainable augmentation in the area of modernisation & infrastructure development of the Defence Services.

Towards strengthening R&D in defence, the allocation to DRDO has been enhanced by 9 per cent, with a total allocation of Rs 23,264 crore in BE 2023-24. To further foster innovation, encourage technology development and strengthen the defence industrial ecosystem in the country, iDEX and DTIS have been allocated Rs 116 crore and Rs 45 crore respectively representing an enhancement of 93 per cent for iDEX and 95 per cent for DTIS over 2022-23. This will fulfill the Ministry of Defence’s vision to leverage ideas from bright young minds across the country.

Industry Reactions
While the Union Government says the Budget 2023-24 has a slew of measures to accelerate growth of manufacturing and boost to exports, here is what industry leaders have to say about the budget:

Baba Kalyani, Chairman and Managing Director, Bharat Forge Ltd, commented, "Government policy formulation is a consultative process and the successive budgets, including this budget, is a strong reflection of this process, aimed at promoting a virtuous cycle of growth and employment. Significant and sustained push on infrastructure spend, railways, green technologies and defence is a welcome measure. Overall direction to take India on the trajectory of a technology-driven and knowledge-based economy coupled with productive capital investments will have long-standing benefits in driving inclusive financial growth and enhancing per-capita income levels."

Anil Verma, Executive Director and CEO, Godrej & Boyce, said, "This is a balanced and inclusive budget which will provide further impetus to growth. The renewed thrust on investment in infrastructure will drive the productivity of our economy and generate employment. Our competitiveness in the global economy will also be improved through the thrust on research in fields like 5G services, AI and agriculture. Together with the initiatives to reduce the compliance burden and de-criminalise several regulatory provisions, it will improve the ease of doing business in India and attract fresh investments. Measures to improve rural incomes and reduce personal income tax rates will deliver more disposable income in the hands of people, driving consumption. This will likely generate a virtuous cycle of fresh investments leading to higher employment, incomes and productivity, further spurring consumption. The Green growth focus will orient the entire economy towards adopting sustainable practices in all areas and put us in a good position to play our role in the efforts to improve the future of our planet. The key to realization of the planned outcomes is effective implementation.” 

Niranjan Nayak, MD, Delta Electronics India, opined, "We are firmly aligned with the Government’s vision of ‘Amrit Kaal’ which includes a technology-driven, knowledge-based sustainable economy. For the vision of 2070 Net-Zero CO2 Emission, investment in the energy transition will play a crucial role. We at Delta have already implemented many programs for reducing carbon emissions and signed up for many sustainable initiatives like RE100, net zero, green products etc. for a greener tomorrow. Also, all our products offerings are energy-efficient and green solutions that aid in achieving the overall nation’s carbon footprint reduction targets ranging from power quality improvement products to green EV charging solutions etc. The Budget 2023 further focus on sectors that include setting up labs for developing applications using 5G services, railways and enhanced focus on the smart city infrastructure to keep the economy on a steady growth, these are progressive measures and we feel that they will play a critical role for us to become key contributors in these areas and further development. The budget has particularly emphasized on efficiency and sustainability as the key driving forces in the coming years and let all key stakeholders identify and utilise these opportunities to drive the robust growth agenda of the country."

Aravind Melligeri, Chairman & CEO, Aequs, stated, "On the whole a forward-looking budget with a lot for the common man. The 33 per cent boost to capital expenditure and higher allocation for infrastructure will boost consumption and capital generation which will be good for the economy. The export oriented indirect taxation proposals focusing on in-country value addition will surely go a long way in boosting Make in India. The simplified tax structure with fewer rates should reduce the compliance burden and improve tax administration."

Dr Anish Shah, Managing Director & CEO, Mahindra Group, commented, "This is an outstanding budget as it is disciplined, growth-oriented, inclusive and sustainable. The Finance Minister has done a commendable job by tabling a budget that is big on consistency and driven majorly by capex. The steep increase in capex, to the tune of Rs 10 lakh crore, will ensure the continuum of cyclical recovery. Capex spending is good because it has a higher multiplier effect: every rupee spent on capex has a multiplier of Rs 3 as compared to just about Rs 0.9 for revenue expenditure. That apart, higher capex also creates jobs in the hinterland. The focus on core infrastructure, including increased funding for railways and clean energy, as well as the government's ambitious plans for the agricultural sector, will help to improve rural incomes. Above all, it is encouraging to see the government setting the pace for climate action by announcing a "green budget" that will pave the way for a greener, cleaner planet.”

Vinod Aggarwal, President, SIAM and MD & CEO, VECV, said, "33 per cent increase in capital outlay with an effective provision of Rs 13.7 lakh crores will spur growth in the economy resulting in positive impact on the auto sector. The auto industry is fully aligned with the initiatives on sustainability and decarbonisation and increased focus on hydrogen, ethanol blending, bio gas, electric vehicles and battery storage. Announcement for funding various government departments for replacement of old vehicles is also commended. Another appreciable feature of the budget is putting more money in the hands of the individuals by some lowering of effective personal income tax rates that should increase consumption and consequently lead to more demand. All in all, this is a growth-oriented budget with positive impact on the auto sector.”

Pratik Agarwal, Managing Director, Sterlite Power, opined, "The budget has laid down a promising path for the nation’s green growth, clearly identified as one of the seven pillars, with sizable outlay of Rs 35,000 crore. The finance minister has also focussed on some of the key issues like battery storage and pumped storage projects to ensure stable and round the clock supplies from renewable resources like solar and wind power. Additionally, the reduction in duties for lithium-ion batteries is a step in the right direction. It has also ushered in a key measure for the financial health of states’ distribution utilities by tying 0.5 per cent of their deficit to power sector reforms. This is an added incentive for the states to reform the DISCOMs. However, along with incentive, a disincentive package for the discoms would have proven beneficial. Power sector also merited a bigger budgetary allocation given it is the fuel that is driving India’s growth engine. Overall, the budget has pushed all the right buttons and is well in line with the macroeconomic goals of the country.”

Shivaji Waghmare, CEO, Fuji Electric India Pvt Ltd, said, "I think Budget 2023 is growth-oriented and it strikes a balance between economic growth and social welfare. It is great news that the budget has provided Rs 35,000 crores priority capital investment towards energy transition and net zero objectives, and energy security. We appreciate the move to extend customs duty exemption to the import of capital goods and machinery required for manufacturing of lithium-ion (Li-ion) cells for batteries used in EVs. This would reduce the production cost and lower the cost of EVs. Manufacturing credit guarantee scheme for MSME is another laudable step. Youth have to be skilled to compete in Industry 4.0 and a lot of measures are being taken to make Indian youth market-ready. More skilling centres would mean more technicians who are very important for industries like us. Reducing the cost of compliances will help reduce the overall cost for the businesses which is a welcome thing. India is going all out to embrace digitalization and also ensure that every segment of its population is taken along in its run towards realising its dream.  The increased spends India Railways is a welcome step. I am glad that consumption is being promoted and economy is being revived."

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