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On 1st February, 2025, Finance Minister Nirmala Sitharaman is expected to deliver the Union Budget 2025 to the Lok Sabha. Given, the rising costs of living for the middle class, and the overall sense that economic growth is slowing down, industry stakeholders, investors, and the nation as a whole are anticipating a plethora of measures to be announced in the finance minister's eighth budget (including interim budgets).
The Union Budget for the upcoming fiscal year is just a few days away, but Finance Minister Nirmala Sitharaman might have a significant challenge ahead of her regarding PLI initiatives.
The PLI initiatives' main goals are to increase efficiency, attain economies of scale in manufacturing, and draw investments in important industries and cutting-edge technologies.
The goal of these initiatives is to increase the competitiveness of Indian businesses and manufacturers on a worldwide scale. Another one of the main objectives of the PLI schemes is to promote manufacturing under the "Make in India" initiative, especially in particular sectors like semiconductors, electronics, and smartphone manufacture, strengthening India's standing as a formidable opponent to China.
Industry participants are counting on the next budget to provide much-needed policy support. A Production-Linked Incentive (PLI) program to support domestic manufacturing and changes to customs taxes on imports, especially from China, to reduce competition and boost home output are two of the main expectations.
Rohinton Sidhwa, Partner, Deloitte stated expectations under Production Linked Incentives (PLI) for R&D wherein he mentioned,
•With the removal of the weighted average deduction on R&D spends, taxpayers investing in R&D do not have any additional tax incentives on the spends incurred on R&D.
• An incentive could be provided through an additional deduction of certain specified expenditures spent on R&D (salary costs, materials used, etc.) based on the additional turnover generated through R&D spends compared with earlier year turnover and/or additional employment generated by a taxpayer in R&D and/or based on additional investments made in
fixed assets specifically for R&D.
• This would incentivise the directing of private investments into R&D
Vivek Tyagi, Managing Director, Analog Devices India said, “As we stand at the cusp of transformative growth in India's semiconductor sector, this year's Union Budget holds the potential to be a defining moment in realizing our aspirations. The ongoing PLI schemes have laid the foundation for a robust manufacturing ecosystem, however, as India reaches a pivotal stage in its journey toward becoming a global manufacturing hub, we need to further enhance these initiatives towards an end-to-end supply chain ecosystem. The focus must now shift to strengthening these policies and placing greater emphasis on promoting 'Design led manufacturing’ schemes to enhance the operations within our borders. Building India's design capabilities will be crucial for nurturing the skills needed to drive innovation, create intellectual property, and establish a vibrant semiconductor ecosystem."
According to Grant Thornton Bharat's Budget 2025 expectations booklet," India's telecom sector continues to be a key driver of economic growth, with a subscriber base of 1.19 billion as of September 2024. The industry is poised for further expansion, with the 5G rollout gaining momentum and expected to contribute USD 450 billion to the Indian economy between 2023-2040. The sector faces challenges such as high regulatory levies and the need for infrastructure development, particularly in rural areas. Government initiatives such as the Production Linked Incentive (PLI) scheme and the National Broadband Mission have been supporting growth and innovation in the industry."
According to a recent Goldman Sachs research, over 720 corporations might see an additional USD 459 billion in revenue over the next five to six years via PLI schemes.The government's initiatives to improve allocations and expand the reach of PLI schemes were also emphasised by Goldman Sachs. Higher disbursements to streamline incentives and improve local value addition may be part of the future Budget 2025.
Unquestionably, the PLI policies have contributed significantly to India's economic expansion, but they might still be improved. Industry participants are anxiously awaiting news from Budget 2025 that could fill in the gaps and advance India's status worldwide.