Budget 2019 Expectations: Manufacturers Seek Viable Credit Availability
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India is expected to become the fifth largest manufacturing country in the world by the end of the year 2020, claims a report by IBEF. The sector can achieve its full potential over the next two or three decades. While business conditions in the Indian manufacturing sector continue to remain positive, it has become one of the most attractive destinations for investments.
The Gross Value Added (GVA) at basic current prices from the manufacturing sector in India grew at a CAGR of 4.34 per cent during FY12 and FY18 as per the second advance estimates of annual national income published by the Government of India. During April-September 2018, GVA from manufacturing at current prices grew 14.8 per cent year-on-year to Rs 138.99 trillion (US$ 198.05 billion).
Under the Make in India initiative, the Government of India aims to increase the share of the manufacturing sector to the gross domestic product (GDP) to 25 per cent by 2022, from 16 per cent, and to create 100 million new jobs by 2022. With global giants such as GE, Siemens, HTC, Toshiba and Boeing setting up their manufacturing plants in India, the nation might soon become the hub for hi-tech manufacturing.
According to the 5th PwC-FICCI India Manufacturing Barometer, the sectoral growth will be driven by strong domestic demand and an increased focus on export markets over the next 12 months. The report further claimed that over 7 per cent growth in GDP is achievable by the year-end. Though the figures present a happy picture, Indian manufacturers are not satisfied.
Entrepreneur India talked to a string of manufacturers about the pain points they would like the government to address in upcoming Interim Budget and here’s what they said:
Lack of Credit Availability
Scaling up a small business takes a lot of efforts and finances but non-feasibility of funds due to high-interest rates has become a matter of concern for Indian manufacturers. “Public sector banks are considered better alternatives in this context, but lengthy documentation, long turnaround time, and red-tapism are those prevailing constraints that discourage small businesses in availing business loans from public sector banks,” inputted Nidhi Yadav, Founder, and Creative Head, AKS Clothings.
The scarcity of affordable financing facilities works adversely for small and medium enterprises. Due to lack of education about how equity dilution works, they end up taking debt at very high-interest rates to raise capital, that unable them to remain competitive. “Due to the lack of incentives for growth, most small companies remain small,” provided Tejas Khoday, CEO and Co-Founder FYERS.
“Compliance is an added burden for MSMEs as they have limited capital, skilled manpower and it uses up a lot of valuable time,” he further added, enunciating that raising capital without diluting equity is a challenge. If there is a legitimate effort to value non-physical assets such as Intellectual property, brand etc, innovative companies can raise capital to grow their business more easily.
Majority of manufacturing firms fall under the category of micro, small and medium enterprises, a section which is generally credit-starved. To address the issue, “Government must consider giving exemption on Capital Gains to owners who sell assets to raise capital for expansion,” said R Narayan, Founder & CEO, Power2SME, adding, “Fintech companies (should be encouraged) to establish credible alternative lending mechanisms.”
The Indian manufacturing industry is reeling under the twin constraints of import levies and transportation cost of raw materials. Without appropriate knowhow or skill to compete with foreign counterparts, the manufacturers are in need of proper training. “We need a world class manufacturing facility where we undertake assembling of accessory parts and meet the needs of Indian firms,” stated Rajeev Gaba, Co-Founder, Avishkaar.
He further added that in order to attract a larger volume of investment and improve its viability, manufacturers are in need of an incentive plan to attain the right skills required to survive in a competitive environment. Manufacturing is an extremely capital intensive field that requires constant upgrading of machinery, a huge amount of space and extensive manpower.
Keeping in mind the above-mentioned factors, Moiz Gabajiwala, CEO of Zephyr Toymakers Pvt Ltd believes that “the budget should make outreach to genuine manufacturers accessible and would ensure that it is not done through or via land sharks or brokers that inflate the cost of space tremendously.” He is dissatisfied that despite issuing a ban on Chinese toys, the government allows them inside the border if the company complies with certain standards.
To level the playing field, the government should add levy or additional duties to safeguard the Indian manufacturers from excessive foreign competitive.
The implementation of the Goods and Services Tax (GST) is termed as a good move to draw big investors towards Indian firms from international markets but the manufacturers are not happy with its complicated structure. While seeking to lower the rates across the board, they want other legitimate business expenses to be deductible.
“The GST tax paid for certain travel expenses like Taxi and Hotel stays is not claimable. This is not only unfair but also complicates the system too much, which makes compliance burdensome and prone to errors,” referred Lucas Bianchi, CFA and Co-Founder, Namaste Credit, adding that GST has raised tax rates which were earlier being paid by businesses from 14 per cent to 18 per cent.
“GST for packaged and branded foods particularly for daily staples like cereals, pulses is a burden both for value addition and consumers,” stated KC Raghu, Founder and MD, Pristine Organics.
Loans and other monetary options should be provided with minimum paperwork and at rates that are comparable to the world interest rates. “With regards to budgeting indirect tax collections, we expect the government to be more realistic as the GST collections have not been as expected. We hope to see a rationalization of both planned and non-planned expenditure,” concluded Khoday.