Make in India, the next season India planning a Budget day release

New Delhi: The Centre is evaluating several measures to boost domestic manufacturing. These include bringing back the 15% concessional corporate tax rate for new manufacturing investments, enlarging the production-linked incentive (PLI) programme, and raising the wage cap under the tax incentive provision for incremental job creation, people familiar with budget discussions said.

“Various options to boost job creation and investment in manufacturing are being considered,” said one of the persons.

Discussions on the proposals, particularly those related to taxation, are expected to take place over the next few days, another person said. The budget for FY25 is likely to be presented in the second half of July. A final call on the measures will be taken closer to the budget at the highest level after a detailed assessment of the cost of such policies and their impact on the ground, the first person said.

India has launched several initiatives to attract investments to the country, presenting itself as an alternative manufacturing destination to companies seeking a China+1 supply chain shift.

The IT hardware and mobile phone programmes have seen success. The Centre is hopeful of a similar shift in other sectors as well and there is a view that PLI plus a lower corporate tax rate will offer investors a competitive return on investment.

TAX RATE
In 2019, finance minister Nirmala Sitharaman announced a 15% corporate tax rate for new manufacturing for three years. After a two-year extension, the scheme lapsed this March. The Centre did not introduce any tax proposals in the vote on account presented in February ahead of the general elections. However, the second person cited said the tax concession plan would be weighed against other options on the table, like a broader PLI in terms of costs and impact in terms of employment generation. The scheme offers a competitive effective tax rate of 17.16%, including cess and surcharge. Sudhir Kapadia, partner, tax and regulatory, EY, favours bringing back the concessional rate.

“Investment plans of corporates were distracted by the short-term operational challenges caused by the pandemic and, perhaps, the expected levels of private sector investments in the manufacturing sector haven't fructified,” he said.

For it to be effective, a longer window of five years is needed, Kapadia said. At current prices, manufacturing has a 14.3% share in gross value added (GVA).

PLI, HIRING
Any decision on manufacturing incentives will take into account that unemployment was a key election issue. “A big focus of the budget will be measures for swift job creation,” the first person said. An increase in the Rs 25,000 salary cap under the tax deduction scheme for incremental employment creation is also being reviewed, given the rise in wages and also to cover more jobs in an enterprise. The government could enlarge the existing PLI schemes that have worked on the ground while also adding new ones in sectors that have potential for employment creation such as leather, the person said.