INDIA UNION BUDGET 2014

Manufacturing
Post-budget sectoral
point of view

Table of contents

1.

Context

2.

Key policy/fiscal/tax proposals

3.

Unfinished agenda

Context

Where are we
The manufacturing sector has been struggling for the past few years with low industrial output and
negative investor sentiments, primarily owing to the economic slow down and rising input costs.

Key issues/challenges

Low growth

Low availability of affordable power

Poor infrastructure

Dwindling demand

Rising input costs.

The new government announced their mandate for stability giving rise to hope for a few incentives to be
announced in the budget.
The NDA stance included a promise to revive the sector, and turn India into a powerful manufacturing
hub, thereby boosting employment opportunities.

What was expected

A clear road map for GST implementation

Incentives and infrastructure support

Addressal of issues related to mining (coal and iron ore).

2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with
KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

Key policy/fiscal/tax proposals

Key announcements

Investment allowance of 15 per cent for the SME segment

FDI limit in the defence sector was raised from 26 per cent to 49 per cent

Proposal to develop 16 new ports, seven industrial cities, relaxation of the FDI limit in real estate,
etc., which could indirectly impact the sector

Proposal to revisit coal linkages and harmonise the duty structure around coke and coal

Focus on skill development

Strong intent to implement GST by end of the year.

Impact
In case of the manufacturing sector, the budget came across more as a statement of intentions than
concrete actions. Overall, it appears that the government is still making up its mind on major policy
decisions, and to that extent this budget looks like an interim measure. Having said that, there are many
decisions related to issues of mining and environmental clearances, which are not necessarily related
to the budget, that can be addressed later, thereby resolving a few issues impacting the industry over a
period of time.
The increased infrastructure thrust should help propel demand, and benefit the closely related
manufacturing sectors like metals and cement.
Confident announcements of taking GST to its logical conclusion is surely reassuring, but there is still no
clear road map on how the resisting states will be won over.
FDI in the defence sector will be a positive step as this can help India to move up a notch or two in
terms of high-tech manufacturing; though there are views that the limit could have been upped to
incentivise MNCs for the transfer of technology.
Also, focus on skill development can have a direct impact on productivity.
Though the finance minister spoke about reviving the manufacturing sector, many of the proposals
seem to be secondary drivers, excepting for in the case of metals.

Summary
The directional policies are positive and one would expect quite a few big announcements in the next
few months.

2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with
KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

Unfinished agenda

What remains

Labour reforms to attract MNCs to set up manufacturing facilities for their global requirements

Give attention to other manufacturing sectors like electronics, solar, etc., as was done for defence

Creation of National Manufacturing Investment Zones.

Also, it important for this government to revisit core themes of the national manufacturing policy,
introduced in 2012, by the previous government, which had ambitious targets of taking Indias
manufacturing GDP from 16 per cent to 25 per cent over a 10 year timeframe through a slew of
measures like focussing on industries of competitive advantage.

What is expected going forward

Since the government has made its intention clear, one can expect speedy resolutions of the issues
impacting the manufacturing sector as whole.

2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with
KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

Contacts:
Dinesh Kanabar
Deputy CEO and
Chairman Sales & Markets
T: +91 22 3090 1661
E: dkanabar@kpmg.com
S. V. Sukumar
Partner and Head
Manufacturing Sector
T: +91 22 3090 2490
E: sukumarsv@kpmg.com

Thank You

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independent member firms affiliated with KPMG International Cooperative (KPMG International), a
Swiss entity. All rights reserved.
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2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with
KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.