Manufacturing Sops Linked to Jobs, CapEx in Development – Industry News

The government has begun internal discussions on ways to revive the manufacturing sector with a new set of incentives as budget preparations for FY26 continue.

While investment in a number of sectors is already being encouraged through production-linked incentives, a broader scheme is being considered that would link government aid to job creation and new investment, the sources said.

Over the last two decades or more, India has taken several policy steps to increase the share of manufacturing in its gross domestic product (GDP) to 25%. However, the sector’s share of GDP has not increased and has hovered around 16% since FY12.

“The government will do something for the manufacturing sector. It may not be a manufacturing (scheme) but one based on capital expenditure and job creation,” the official said, adding that discussions are at a preliminary stage.

In recent months, the government has been pushing India Inc to invest in expanding its capacity to meet India’s growing needs, taking advantage of the government’s employment promotion schemes, PLI and the corporate tax rate cut announced in 2019.

Three employment-linked incentive schemes were announced in the Union Budget 2024-25 as part of the Prime Minister’s package of five schemes and initiatives to promote employment, skill development and other opportunities for 41 million youth over a five-year period at a cost of 2 million crore rupees.

Since the budget was delayed until July due to the general elections, these schemes are yet to be implemented.

The government lost just over Rs 1 lakh crore in revenue in 2020-21 due to corporate tax cuts and similar amounts in subsequent years. The rate of corporate tax revenue growth has slowed following tax cuts without a corresponding increase in corporate investment.

In September 2019, the government announced a reduction in basic corporation tax for existing companies to 22% from 30%; and for new manufacturing companies registered after October 1, 2019, to 15% from 25%.

“The industry is now telling us that to increase investment in manufacturing, the government should extend some additional incentives,” another official said.

Of India’s approximately 565 million workforce, only 11.4% are employed in manufacturing, while over 45% are employed in agriculture.

To boost manufacturing, the government launched PLI schemes covering 14 sectors in 2021 with an allocated incentive outlay of Rs 1.95 lakh crore. The scheme gave mixed results.