The Indian chemical sector, a significant contributor to the nation's GDP, continues to benefit from strategic policy announcements in the Union Budget 2024. Despite global economic challenges, India's economy remains resilient, emerging as the fastest-growing G20. The chemical industry, a vital component of this growth, is anticipated to reach a valuation of US$300 billion by FY2025.
Capital Investment and Infrastructure Development
The Union Budget 2024 aims to bolster manufacturing, MSME sectors, and infrastructure development:
- An 11% increase in capital investment outlay, totalling INR 11.1 lakh crore, alongside a long-term interest-free loan of INR 1.5 lakh crore for states to support infrastructure, signals a robust demand for construction chemicals and allied products.
- To bolster industrial development, 12 new industrial parks have been sanctioned under the National Industrial Corridor Development Programme.
- These parks will be investment-ready, "plug and play" facilities, intended to attract domestic and foreign investments.
- Extensive infrastructure projects in states like Bihar and Andhra Pradesh will further drive demand for basic and specialty chemicals.
Tax Proposals and Customs Duty Adjustments
The Budget refrained from changing corporate tax rates for domestic companies while reducing the corporate tax rate for foreign companies to 35%. Several adjustments in Basic Customs Duty (BCD) impact the chemical sector:
- Increase in BCD rates for Ammonium Nitrate and PVC Flex films.
- Significant rise in BCD rates for laboratory chemicals.
- Exemption of 25 critical minerals from BCD.
- Reduction in BCD on MDI for Spandex Yarn manufacturing and specific parts used in connector manufacturing.
Support for MSMEs
The Budget introduces several measures to support MSMEs:
- Credit Guarantee Scheme for MSMEs in the manufacturing sector.
- A new credit assessment model and support during stress periods.
- Enhanced Mudra loan limits from INR 10 lakhs to INR 20 lakhs.
- Mandatory onboarding in TReDS and establishment of SIDBI branches in MSME clusters.
- Creation of e-commerce export hubs.
These initiatives are designed to ease financial processes, augment credit availability, and support the formalisation of smaller manufacturers.
Housing and Renewable Energy Initiatives
The development of three crore additional houses, focusing on urban poor and middle-class families, involves an investment of INR 10 lakh crore
- The continued promotion of the PM Surya Ghar Muft Bijli Yojana, encouraging solar rooftop installations, will likely increase the demand for silicon and other chemicals used in solar panel manufacturing.
- This initiative will significantly boost the demand for construction chemicals, paints, adhesives, and other allied products.
- The operationalisation of the Anusandhan National Research Fund, with a financing pool of INR 1 lakh crore, aims to enhance private sector-driven research and prototype development, fostering innovation and technological advancement in the chemical industry.
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Employment and Skilling Programs
The budget introduces three employment-linked incentive schemes:
- One-month wage up to INR 15,000 for new entrants with salaries up to INR 1 lakh in formal sectors.
- Incentives for first-time employees and employers towards EPFO contributions for the first four years in the manufacturing sector.
- A comprehensive internship scheme providing opportunities in 500 top companies for one crore youth over five years, partially funded by Corporate Social Responsibility funds.
These initiatives aim to reduce unemployment, create a skilled workforce, and maintain India’s competitive edge in the global market.
Challenges and Future Outlook
Despite these positive developments, the Indian chemical industry faces global economic headwinds, environmental concerns, and competitive pressures from low-cost exports, particularly from China. The industry has been advocating for the implementation of the Production Linked Incentive (PLI) scheme and the creation of Petroleum, Chemicals, and Petrochemicals Investment Regions (PCPIRs) to boost its competitiveness.
In conclusion, the Union Budget 2024 sets a strategic roadmap for the Indian chemical industry, prioritising manufacturing, infrastructure, employment, and innovation. These measures are expected to create a conducive environment for investment, drive industry growth, and support India's ambition of becoming a global manufacturing hub.