In India, the manufacturing
sector has emerged as one of the high-growth
sectors. ‘Make
In India’ program has been
launched by Prime Minister of India to place India on the world map as a manufacturing
hub and give global recognition to the Indian economy.
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| Source: financialexpress.com |
In 2015 India has improved his ranking among the world’s
manufacturing countries. It ranks among the top 10 and is positioned in sixth
place.
An ambitious target has been set by the Government of
India of increasing the contribution of manufacturing output to 25 percent of
Gross Domestic Product (GDP) by 2025 from 16 per cent currently.
Size of the Market –
India’s manufacturing sector has the potential to touch
US$1 trillion by 2025. As per sources, there is potential for the sector to
account for 25-30 percent of the
country’s GDP and create up to 90 million domestic jobs by 2025. Business
conditions in the Indian manufacturing sector continue to remain positive.
Manufacturing has emerged as one of the high focused
sectors in India during Prime Minister Narendra Modi – led NDA government
regime. Many economists and experts have set the bar high with their
expectations from the Central Government on laying various reforms in the
sector as the budget for the fiscal year 2017-2018 is just around the corner.
 |
| Source: moneycontrol.com |
Some of the pre-budget expectations of manufacturing
sector from the budget 2017 are –
1.
Accelerating
the depreciation – Finance Act 2016 restricted depreciation rate to 40 percent
from April 1, 2017. As per the act, it is important to consider the need for
continuing accelerated depreciation on certain assets not as an incentive but
considering quick obsolescence due to rapidly changing technology. the
depreciation available on plant and machinery at the rate of 15 per cent,
should be increased to 25 per cent which would enable companies to invest in
latest technology to manufacture products of international standards and be
competitive in global trade.
2.
Restoring
Incentives on R&D expenditure – In the world, research is a lifeline of any
business. It would be imperative to extend weighted deduction incentive by
another 5 years at the same rate in order to promote innovation and create a
state of art technology in sectors such as defence
manufacturing, medical devices manufacturing, automobiles, etc. There is a need
to give the similar benefit to renewable solar industries even on technology
development.
3.
Deduction
of CSR expenses – Companies Act presently does not make CSR expenditure mandatory
for companies. The Income Tax Act does not permit any deduction of the
expenditure. Considering the fact that the expenditure is mandatory deduction
should be permitted for any expenditure incurred. The nation will be benefited
when private sector spends on CSR.
4.
Clarity
on benefits of Investment Allowance – Finance Act 2016 clarified that the
investment allowance/deduction @ 15 per cent of the cost of new plant and
machinery would be available in the year of installation even if such machinery
was not acquired during the year. With respect to 1 April 2016, the
clarification was only perspective. To avoid unnecessary litigation it
is imperative that such clarification amendment is made a retrospective of April 1, 2014.
5.
Exchange
rate difference on the acquisition of
assets - At present, the taxpayer is
permitted to adjust the cost of acquisition of an asset in respect of exchange
difference arising on loan received in foreign currency for the acquirement of
imported assets only. Such adjustment is not permitted in respect of a foreign
currency loan used for acquiring of assets in India. Foreign exchange loans
used to purchase new assets for the indigenous
source should be treated on par with the imported assets.
6.
Clarity
on the deduction under Section 80-IA – A deduction of profits earned by
taxpayers carrying on specified businesses is provided under Section 80-IA. There
is no clarity in regard to whether the deduction is available for each unit
i.e. without setting off losses of other units or after increasing profits or
losses of all units together. A clarification on
this issue will clarify the litigation of the issue.
7.
Clarity
on conversion of the company into LLP -- The Finance Act, 2016 introduced an
additional condition of asset base being lower than INR 5 crores in order to
obtain the exemption in respect of exemption of gains arising on conversion of
a company into an LLP. It should be made clear that such condition would apply
only to conversion proposals initiated on or after April 1, 2016.
8.
Other
Reforms – To reduce the cost of transportation, the Government has launched an
inland waterways policy to build a strong network of inland transportation for
industries. An ambitious target has been set by the government to increase the contribution
of manufacturing output to 25% of GDP by 2025 from the current 16%. Thus it is
very important for this sector to be in focus of government to provide all such
facilities such as proper infrastructure, development of manufacturing zones
with world class facilities, etc to be able to compete in a global environment.
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