Going forward, new economic policies will improve efficiencies in the manufacturing sector, avers DEEPAK GARG.
India's manufacturing sector has always given a big boost to the country's economic growth and development, backing GDP, creating employment and attracting foreign investment. The manufacturing sector contributes over 16 per cent to the GDP of the country and is expected to grow in the light of the 'Make in India' initiative.
The years 2016 and 2017 have been particularly notable for the Indian economy. November 2016 saw the Central Government take a bold decision towards curbing black money and the nation witnessed a demonetisation drive after 38 years. July 2017 saw the implementation of GST, another big step by the government to curb multiple tax points and simplify the tax regime. These reforms may have caused a temporary setback across industries but will be extremely beneficial in the long run.
The biggest advantage of these new realities is the structure they will bring to a lot of unorganised sectors, especially real estate. With the advent of RERA, there will be a distinct change in the way the real-estate industry functions, which will ultimately bring the industry back from its slumber by promoting efficiencies.
Until recently, the manufacturing sector was weighed down with multiple indirect taxes like central excise, service tax and VAT.
In addition, non-availability of tax credit for central sales tax increased costs. The introduction of GST, in the backdrop of the 'Make in India' initiative, does away with multiple taxes. State-border check-posts, set up to scrutinise documents and location-based compliance, adversely impacted overall production and logistics time, which reduced the efficiency of Indian manufacturers. These check-posts are now rendered redundant with the introduction of GST. The new tax regime will unify the Indian market and help smooth the flow of goods within the country. The 'One Nation, One Market, One Tax' spirit of GST will lead to the removal of an extra level of warehousing in the supply chain, resulting in cost efficiencies.
Only a temporary setback
Speaking particularly of the construction equipment industry, there has been a temporary setback as some products have been put in the slab of 28 per cent, which were earlier taxed at an effective rate of about 18 per cent. The additional 10 per cent becomes an extra cash outflow to the customer initially, though they will eventually get an input credit. This disrupts the cash flow of customers as they will have to borrow more initially. Thus, we have seen a bit of low sentiment because of GST. However, this is transient and the industry will recover over a period of time. We believe GST is a step in the right direction; at SANY India, we have already registered under the new GST laws. The impact of these new tax reforms will be visible in the coming years as businesses are now poised to grow. For our part, we saw a rise in sales followed by a temporary decline after demonetisation in November 2016. Looking ahead, we are confident of steady growth in the business after resolution of the temporary decline post GST.
'The biggest advantage of the new realities is the structure they will bring to a lot of unorganised sectors." especially real estate.'
About the author:
Deepak Garg, Director & CEO, SANY South Asia & SANY Heavy Industry India, has rich experience in the manufacturing and construction equipment sector. As a veteran in the construction equipment industry, he has worked in various capacities and holds expertise in various aspects of manufacturing and the nuances of the construction equipment segment.