Global commodity supply continued to be disrupted due to intensified Russia-Ukraine war and re-emergence of Covid-19 in China. Amid this tantrum, the Economic Survey expects India to make a realistic bid to be an important player in global supply chains with production-linked incentive (PLI) schemes. The survey believes that India has a unique opportunity to become a global manufacturing hub this decade due to its young workforce, domestic demand and the government’s focus on local production.

The Covid 19 pandemic forced companies and governments globally to prioritise "security" over "efficiency" in their supply chain. This change in the approach presents an opportunity for India to firmly plug into global manufacturing network.

Despite ongoing supply chain issues and inflationary pressures, the overall global manufacturing industry output grew by 3.8 per cent in 2022, according to Interact Analysis (IA) report. Regionally, the US manufacturing industry has performed strongly, and the Americas growth rate hit 6.9 per cent in 2022, compared to 3.3 per cent for Asia Pacific and 2.6 per cent for Europe. Machinery producing sectors have performed better than the manufacturing sector overall, and despite current challenges the next global downturn for manufacturing is not expected until late 2025 or early 2026, says the IA report.

On the contrary, India’s industrial sector grew 4.1 per cent in 2022-23 compared to 10.3 per cent in 2021-22 mainly due to rising input costs, supply chain disruptions and impact of the China lockdown on the availability of essential inputs. This indicates that it is still a long way to go for India to become a critical spoke in the wheel of global manufacturing value chain.

In a push to value added manufacturing in India (and she mentioned the word ‘manufacturing’ 13 times in her budget speech), Finance Minister Nirmala Sitharaman in Budget 2023 has proposed cuts in basic customs and excise duty on a range of products including mobile phone and television parts. The proposed reduction in basic customs duty is expected to further help companies approved under PLI scheme for mobile phones and large scale electronics to achieve sales targets under the scheme.

Experts believe customs duty exemptions on import of capital goods and machinery required for producing lithium ion cells (used in batteries of electric vehicles) will bring down cost of manufacturing of electric vehicles (EVs) and provide much-needed impetus to the EV industry as batteries contribute majorly to the overall EV cost.

In a big relief to micro, small and medium enterprises (MSMEs), FM has announced the extension of the credit guarantee scheme for MSMEs with an infusion of Rs 90 billion. This is expected to boost fund flow to the distressed and fund-starved MSME sector. On the investment front, 33 per cent increase in capex to Rs 10 trillion (compared to targeted RS 7.5 trillion in 2022-23) will help in building productive assets to give a major boost to the economy.

While the budget looks balanced, the impact can be only estimated after exploring the fine print.