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To fast become the factory of the world
Factors like China plus one and the rising labour costs across the developed world, offers India a viable chance to grab the global manufacturing opportunity. It is also a means to provide employment to the burgeoning youth of the nation. To direct actions towards this, the budget has yet again increased the capital expenditure to more than Rs 11 lakh crore and expects that this would stimulate private players to pump in equal and more amounts. The Economic Survey 2024 pointed to private investments slowly picking up. Apart from expansion by existing players, new ones need to be attracted. To present India as an alternative and stable destination to China, infrastructure and access to markets play a key role. India by itself is a huge market and also offers an entry to other south east markets. The infrastructure aspect was quite missing but that has been continuously addressed in the past few budgets with investments of more than 3 per cent of GDP. This trickle-down effect is expected to create employment, as well spur the interest of international players to consider India as a strong investment destination.
Repowering MSME
Apart from the infrastructure, a well-established eco system is primary to become the factory of the world. MSMEs play a key enabling role in this. They contribute nearly 45 per cent to manufacturing output, 30 per cent to the country’s GDP and provide employment to 11 crore as per the Economic Survey 2024. They have been suffering from structural issues including inability to adapt to technology, digitalisation, skilled man power, access to credit,… This budget has taken efforts to address these. The FM announced of a package covering financing, regulatory changes and technology support for MSMEs to help them grow and also compete globally. While it is overarching and covers the major concerns, further details and implementation will be crucial. The credit guarantee scheme, new assessment models for credit eligibility, establishment of e-commerce export hubs in partnership with the private sector provide the needed support to ramp up operations. The enhancement of Mudra loan limit from Rs 10 lakh to Rs 20 lakh and decrease in turnover threshold of buyers for mandatory onboarding on the TReDS platform from Rs 500 crore to Rs 250 crore, help in unlocking the working capital of the sector. To make the players globally competitive, an investment-grade energy audit of traditional MSMEs is to be done along with financial support to shift to cleaner energy sources. This will allow them to export to developed markets that demand such details. The programme is expected to begin with 60 clusters and then be replicated in another 100 clusters in the next phase.
Revitalising FDI
As per the UNCTAD 2024 report, FDI inflows coming to India dropped from USD 49.3 billion in 2022 to USD 28.1 billion in 2023 making India slip down by 7 rungs to 15th on the world investment ranking. To facilitate the inflow of funds, the budget has announced to ease regulations related to FDI and overseas investments while nudging prioritisation and promoting opportunities for using Indian Rupee as a currency for overseas investments
In addition, the corporate tax for foreign firms has been reduced from 40 percent to 35 percent facilitating to narrow the tax disparity between Indian and foreign corporations. This will both attract new FDI as also encourage the expansion of existing foreign companies in India. The government is also looking to keep infrastructure ready by the announcement of twelve industrial parks under the National Industrial Corridor Development Programme with complete plug and play facilitates.
Population scale digital models for startups
The move towards net zero is order of the day. In a boost to renewable and EV sectors, the budget has proposed a critical mineral mission that would focus on domestic production, recycling of critical minerals and overseas acquisition of critical mineral assets.
A long-standing request of the startup ecosystem has been heeded, with the announcement to abolish angel tax for all investor classes. Angel tax was imposed on the capital raised by unlisted companies through the issue of shares to Indian investors, if the share price exceeded the fair market value (FMV) of the company. The intent was to prevent unaccounted money into the economy and was taxed at a rate of 30.9 per cent but it eventually led to several complications and hindered the needed initial investments. The budget has also earmarked provisions of Rs 1000 crore VC fund to promote space economy. India recently liberalised the space sector allowing for 100 per cent FDI. Several new companies have mushroomed, increasing India’s space exploration capabilities.
Digital public infrastructure in sectors like infrastructure, agriculture, MSME, e-commerce, land records, amongst others will provide immense opportunity for startups to create new business model to facilitate services in these sectors.
