Budget 2022-23: Logistics & MSME Support Focus

The 2022-2023 UnionBudget introduces a slew of measures to further the vision of ‘Atma Nirbhar Bharat’ and pushes economic growth in the lead up to India’s 100 years of independence. Moreover, the Budget focuses on improving both physical and social infrastructure. In her speech, Finance Minister Nirmala Seetharaman emphasized the importance of the PM Gati Shakti National Master Plan in building multimodal connectivity and improving logistics efficiency. The finance minister has also introduced measures to build self-sufficiency in several sectors as well as aid the MSME sector.

‍

‍Building logistics capacity and increasing connectivity:

Estimates indicate that India’s logistics cost accounts for almost 14% of its GDP. This is much higher than 8%-9% share of GDP reported by most advanced economies. The government aims to reduce logistics costs to 10% of GDP within the next three years. Developing overall infrastructure will increase efficiencies, boost manufacturing, and lower costs across the domestic supply chain. Further, public spending on infrastructure and logistics will spur private investments, especially from institutional funds and developers. The Budget has also identified technology as a key enabler for streamlining logistics-related regulatory processes across the proposed initiatives.

1. PM Gati Shakti National Master Plan: The finance minister has outlined four priority areas for the development of modern infrastructure. Primary among them is the PM Gati Shakti National Master Plan which focuses on seven engines: Roads, Railways, Airports, Ports, Mass Transport, Waterways and Logistics Infrastructure. Building synergies among these seven engines will enable swifter, more efficient movement of both goods and people.
2.  PM Gati Shakti Master Plan for Expressways: The Master Plan aims to add 25,000 kilometres to the national highway network in 2022-2023. This is expected to improve overall connectivity and positively impact last-mile linkages
3. ‍Unified Logistics Interface Plan (ULIP): Data Exchange among all-mode operators will be brought on to ULIP. This will eliminate duplication in documentation, assist Just-In-Time inventory, enable faster movement of goods and improve the availability of real-time information to stakeholders, thereby reducing logistics cost and time.
4. ‍Multi-Modal Logistics Parks: Four Multi-modal logistics Parks will be developed through Public-Private Partnerships in 2022-2023. This is expected to improve connectivity across various modes of movement as well as simplify logistics-related processes. ‍
5. Railways: Railways will develop new products and logistics services for farmers and MSMEs. This is expected to improve connectivity between urban transport and railways and as a result, improve the movement of goods across the country. ‍
6. One Station One Product: The program is expected to improve supply chain efficiencies for local products. Further, designating each railway station as a hub and showcase destination for a local product will improve demand. ‍
7. Gati Shakti Cargo Terminals: A hundred PM Gati Shakti Cargo Terminals for multimodal logistics are to be developed over the next three years. This is expected to aid India’s export-import competitiveness by increasing the freight movement of goods across the country and improving connectivity to international destinations. ‍
8. Local Shipping Industry: To encourage flagging of merchant ships in India, the government will provide subsidies to Indian shipping companies bidding for global tenders floated by ministries and Central Public Sector Enterprises.  Approximately Rs. 1624 crores have been allocated for this initiative over the next five years. Moreover, royalties and interest earned by non-residents from ship leases by units of the International Financial Services Center will be exempt from taxation. This is expected to open an additional avenue for the financing of ship acquisitions.

Together these measures will create efficiencies, improve connectivity, and reduce logistics time and cost.

MSME Sector:

The MSME sector has suffered huge losses due to the pandemic-induced slowdown. Given the sector's significant contribution to the economy, the Budget has increased outlay for the sector from Rs. 15,699.65 crores in 2021-22 to Rs. 21,422 crores in 2022-2023.

1. ‍Emergency Credit Line Guarantee Scheme to be extended to 2023. the scheme was introduced in 2021 considering the challenges faced by MSMEs during the Covid-19 pandemic. Under it, the National Credit Guarantee Trustee Company provides a 100% guarantee to banks and NBFCs for additional term loans and working capital loans to MSMEs. The current extension allows MSME’s continued access to capital through this scheme. A fresh infusion (of Rs.50,000 crores) has been allocated for the scheme; however, this is exclusively for hospitality and related enterprises. ‍
2. Credit Guarantee Trust: The Credit Guarantee Trust for MSMEs will receive fresh funds facilitating an additional credit of Rs. 2 lakh crores. ‍
3. Raising and Accelerating MSME Performance (RAMP) Programme: RAMP will receive Rs. 6,000 crores over 5 years to improve resilience, competitiveness, and efficiency for MSMEs.

The global value chain disruption has severely strained MSMEs’ capacity and financial health over the last 20 months. Measures to improve the availability of easily accessible capital are expected to aid the recovery of the MSME sector.

Exports and imports:  

The budget has adopted a two-pronged approach to improve domestic manufacturing and spur global competitiveness. It phases out exemptions to boost domestic industry, especially where capacity exists, while also allowing duty exemptions on raw materials and machinery that are critical for certain industries. ‍

• ‍Special Economic Zones: The budget announced a new legislation that envisages a greater role for States in the development and administration of SEZs. Moreover, the budget also provides for IT-driven reforms in the customs administration of SEZs to facilitate doing business with SEZs.

• Customs Reforms:

1. ‍‍‍Rules: Amendments to the Customs ICGR Rules, 2017 allow for the electronic submission of data through the customs portal. Further, various forms will be standardized, and certain transaction-based permissions/intimations will no longer be required to claim exemptions.
2. ‍Duties: The finance minister has proposed gradually easing out concessional rates on capital goods and project imports, to a tariff of 7.5% to boost domestic capacity. However, certain exceptions for advanced machinery will continue to apply and certain new concessions for inputs like castings, ballscrew and linear motion guides have also been introduced. Further, over 350 exemptions are expected to be gradually phased out in areas where sufficient domestic capacity exists. These measures aim to ease supply-side constraints while also creating a level playing field for MSMEs.‍‍

• ‍Sector Specific Measures:

1. Electronics: The budget proposes graded rate structures to facilitate the domestic manufacturing of wearable devices, hearable devices, and electronic smart meters. Duty concessions will also be provided for transformer parts used in mobile phone chargers and camera lenses for mobile phones, to aid the domestic electronics industry. However, parts of electronic toys will attract an increased import duty of 25%. ‍
2. Gems and Jewelry: Customs duty on cut and polished diamonds and gemstones will be reduced to 5% and simply sawn diamonds will attract no customs duty. Moreover, a simplified regulatory framework will be put in place to facilitate the export of jewellery. Import of imitation jewellery will attract higher duty up to Rs. 400 per kilogram.
3. Customs duty on certain chemicals such as methanol, acetic acids and heavy feedstock for petroleum refining will be reduced. Duty on sodium cyanide will be increased to 10%.
4. Customs duty on umbrellas will be raised to 20% and exemptions on umbrella parts will be withdrawn.
5. Customs duty exemptions to steel scrap will be extended for another year. Further, certain anti-dumping and other duties on stainless steel and coated steel flat products, alloy steel bars and high-speed metal will be revoked given the high prices of metals.
6. Exemptions will be provided on items such as embellishments, trimmings, fasteners, buttons, zippers, lining material, specified leather, furniture fittings and packaging boxes, required by manufacturers of handicrafts, textile and leather garments and foot ware and other goods.

Overall, the budget's fillip to infrastructure and logistics is welcome and the emphasis on improving connectivity and logistics will have a positive impact on the competitiveness of manufacturing units. Coupled with measures to aid recovery, the budget is expected to boost domestic capacity, and provide the right impetus for economic growth.