2 hours Ago By Tapanjana Rudra
Many industry experts are awating enhancement of fund allocation for green hydrogen in the upcoming Budget. They also expect green manufacturing and renewables to receive more attention Defense and aerospace manufacturing could see higher allocations along with custom duty rationalisation and credit support for MSMEs SBI Research has urged for PLIs to boost MSMEs in textile, garments, handicraft, food processing, leather, electronics, auto components, and drugs manufacturing India’s vast manufacturing industry, which contributes around 17% of the nation’s GDP, is expecting the central government to make some important announcements to boost the renewable energy sector, micro, small and medium enterprises (MSMEs), semiconductor and electronics manufacturing industry, and towards the allocation of various production-linked incentive (PLI) schemes in the Union Budget 2025-26. The Indian government has increased its bets in the country’s vast manufacturing industry in the recent past, which also aligns with the recent geopolitical shift towards the ‘China+1’ strategy.
During the Union Budget 2024-25 in July last year, finance minister Nirmala Sitharaman made hoards of announcements for the manufacturing industry, which included a credit guarantee scheme for MSMEs in the manufacturing sector, reduction in basic customs duty for certain raw materials used for manufacturing mobile phones, lithium-based batteries and others, increase in production linked incentive (PLI) scheme for automobile and auto components, and more. Now, with Union Budget 2025-26 around the corner, key industry demands are around expanding the PLI scheme for manufacturing in deeptech — this includes green energy, advanced materials, and semiconductors. But the manufacturing sector is also vital for the textile, automotive, and pharma industry — all of which have an impact on Indian startups.
Over the past few years, PLIs have proven to be a major catalyst in spurring manufacturing in electronics. Now experts want the same formula applied to emerging technology sectors to expedite growth in these areas. India has long been the breeding ground for research and development of technology in sectors like semiconductor chips and biotech, largely due to the presence of talent.
However, due to lack of infrastructure and capital towards building hardware, the country could not step up in the manufacturing to bolster these ecosystems. Today, with the deeptech theme growing stronger than ever, India is making significant strides towards strengthening the manufacturing in these sectors too. Sachin Sharma, partner at Grant Thornton Bharat, said that to sustain growth in the manufacturing and supply chain sectors, the Budget 2025 must focus on expanding the PLI scheme to encompass high-demand sub-sectors like green energy and advanced materials.
The government approved the INR 19,744 Cr PLI budget for green hydrogen in 2023. However, even during the previous budget, the industry wanted the government to expand the scope of this PLI scheme, which did not happen. For instance, cofounder and CEO of Newtrace, Prasanta Sarkar, had told Inc42 earlier that the current budgetary allocation for the production of green hydrogen molecule and manufacturing of electrolysers at scale favours importing existing technologies while policymaking should actually lean towards internal capacity building and developments as well owning the IP rights within the country to secure energy infrastructure.
CareEdge Ratings said that there should be enhancement of fund allocation for green hydrogen over and above the current outlay under the Strategic Interventions for Green Hydrogen Transition (SIGHT) programme. “India is steadfastly moving towards its target of 500 GW non-fossil fuel capacity by 2030 through a concerted effort to accelerate capacity additions and deepen its manufacturing value chain while remaining cognizant of its energy security needs as a developing nation as well as the variability induced by the growing share of renewable energy in its energy mix,” CareEdge said in its Budget expectation report. The ratings agency also called for enhanced capital allocation towards Green Energy Corridor projects, reinstatement of a 15% concessional corporate tax for manufacturing companies except for establishing renewable energy manufacturing zones, enhancement of budgetary support to offshore wind capacity development, among others.
“With fiscal consolidation in focus, direct spending might be measured, but areas like capital goods, auto components, defense, and renewables are likely to benefit,” Sonam Srivastava, founder and fund manager at Wright Research told Inc42. “Infrastructure-driven demand, semiconductor manufacturing incentives, and policies promoting green energy are anticipated,” she added. In fact, several industry bodies have submitted their recommendations to increase the budgetary allocation under the $10 Bn PLI scheme for semiconductor manufacturing and design.
From India Semiconductor Mission 2.0 to stricter norms for the PLI scheme for electronics manufacturing, the entire ESDM sector is looking at several important announcements in the upcoming Budget. Meanwhile, the Centre is also likely to increase its focus on building technology for defence.
Srivastava said that defense and aerospace manufacturing could see higher allocations along with custom duty rationalisation and credit support for MSMEs to push domestic manufacturing companies in EVs, renewable energy, components and other supply chains. Meanwhile, the industry is also expecting the Indian government to introduce its new scheme focussed on R&D in deeptech sectors such as AI, robotics, and advanced weapon systems. Ankur Bansal, managing director at BlackSoil said in a statement that targeted investments in climate tech, agritech, and deeptech, particularly emerging sectors like spacetech, will support India’s sustainable economic transition.
Hence, the government should implement measures to attract more foreign capital to spur growth in these critical sectors. The auto industry’s long-pending demand to rationalise GST on auto parts and components has once again been presented to the government this year. The EV ecosystem also continues to urge the Centre to reduce the current GST rate of 18% on EV charging services and lithium-ion batteries to 5%.
Mehta Equities said in its report that the EV industry has high expectations from the upcoming Budget. “The sector is hoping for some level of rate rationalisation to reduce interpretative issues and litigations. The EV ecosystem urgently needs scalable infrastructure, including widespread deployment of EV charging stations, battery-swapping hubs and integration with renewable energy sources,” the research firm said.
The EV logistics players have also urged the government to incentivise electrification of the commercial fleet and reduce financing costs for EV logistics operators. Besides this, the EV industry is also looking forward to more robust and well-defined policies on the recycling of lithium-ion batteries. Meanwhile, Mohal Lalbhai, cofounder and group CEO at Matter Motor believes that there is a need to revisit the PLI scheme for smaller companies and startups in the EV sector.
Recently, Federation of Indian Chambers of Commerce and Industry (FICCI) also put forward this recommendation to the Indian government. Whether Sitharaman’s budget addresses these concerns will be keenly watched, given the significance of the EV industry in the long run. “Manufacturing will remain a priority, though the emphasis might shift towards execution and demand generation rather than broad-based new incentives.
With private capex still lagging despite strong corporate profitability, the government may focus on policy stability and investment facilitation to crowd in private investments,” added Wright Research’s Srivastava. As for the spending on incentivising manufacturing, Mohit Khanna, fund manager at Purnartha One Fund, told Inc42 that after a significant fall in the government’s capex in FY25, a solid mid-teen YoY growth in the capex announcement can be expected. This expectation is also supported by strong revenue collection by the government in FY25.
“The government should continue to strengthen its ELI (Employee Linked Incentive) scheme. Focus on upskilling a large labor force will benefit the manufacturing sector in the long-run. Sub sectors like diagnostics and medical-equipment manufacturing could benefit from indirect-tax rationalisation and export-oriented subsidies,” Khanna said.
But he also believes that instead of sectors, India is placing its bet on emerging themes. In this regard, rural recovery could be a strong outperformer. “Inflation is trending down and should help RBI in reducing interest rates.
Lower interest rates along with increased budgetary allocations could kick-start recovery in rural incomes and the economy. Manufacturing industries like irrigation pipes, rural-housing, two-wheeler, and FMCG could benefit from this trend,” he added. Along with a huge focus remaining on sustainability and promoting green manufacturing, the experts are expecting a balanced approach that can integrate industrial growth with rural demand stimulus.
According to the Economic Survey 2024, the share of MSME-made products in exports in FY24 was 45.7%, which clearly indicates the importance of further bolstering manufacturing across MSME sector. Grant Thornton Bharat’s Sharma said that empowering MSMEs, which employ over 110 Mn people, with greater access to credit and technological support is essential.
SBI Research also urged for PLIs to boost MSMEs in textile, garments, handicraft, food processing, leather, electronics, auto components, and drugs manufacturing. This could mean that the central government increases budgetary allocation to expand the Credit Guarantee Fund Trust for Micro and Small Enterprises and incentivise banks to cover more MSME loans under this scheme. It is pertinent to note that the finance minister announced a credit guarantee scheme for the MSMEs in the manufacturing sector in the last Budget to streamline term loans for the purchase of machinery and equipment without collateral or third-party guarantees.
However, the industry now wants an expansion of the credit guarantee schemes along with a separate tax regime tailored specifically for MSMEs. “MSMEs are seeking further digitisation support to integrate technology and ecommerce, along with tax relief measures such as increased turnover limits for GST exemptions. Strengthened export incentives and skill development programs are also to help MSMEs penetrate international markets and address workforce challenges,” said Saahil Goel, MD and CEO of Shiprocket.
[Edited by Nikhil Subramaniam].
