Budget 2024-25: Decoding The Big Manufacturing Push

Manufacturing is at the top in the central government’s list of priorities, as evidenced by finance minister Nirmala Sitharaman’s Union Budget 2024-25 speech. 

A number of measures were announced — from a reduction in basic customs duty for inputs and raw material to incentives around job-creation — that should ideally further prop up the already-booming manufacturing industry.

The customs duty exemption will in particular reduce costs related to manufacturing mobile phones, lithium-based batteries for consumer electronics devices, electric vehicles (EVs), drones as well as the other focus areas such as space tech and semiconductors. 

Speaking with Inc42, 3one4 Capital’s Pranav Pai said that the government support to the homegrown manufacturing sector has addressed a significant barrier to growth. Hence, it eradicates reasons for investors who were hesitant about opportunities in India’s manufacturing ecosystem.

Stakeholders in the startup ecosystem believe that the manufacturing related enhancements will have a trickle down positive impact on the Indian startup ecosystem. 

“Given that this was a mid-term budget, we didn’t anticipate many sector-specific initiatives. Overall, it was a positive budget for local employers and manufacturers across industries. Therefore, there hasn’t been much investor concern caused by the budget. Investors will continue to maintain bullishness on industries like EV, consumer electronics, deep tech, logistics, among others,” Pai added. 

Cheer For Mobile OEMs

In a major boost to the growing smartphone market, the central government slashed the BCD for mobile phones, mobile printed circuit boards assembly (PCBA) and mobile chargers to 15% from the erstwhile 20%. 

Xiaomi India’s president Muralikrishnan B believes this will help further strengthen the domestic electronics manufacturing ecosystem. The popular notion is that this will encourage smartphone sales in the mid-premium and premium category. 

In the past, India Cellular And Electronics Association (ICEA), the apex industry body of mobile and electronics industry, had urged the government to reduce the number of import tariff slabs on mobile components as well as reduce import duties on the aforementioned mobile components.

While these demands have only been partially addressed, ICEA has welcomed the customs rebates.  

“The global nature of the electronics value chain necessitates such measures to enhance our manufacturing and export capabilities. These announcements will be a game changer, significantly boosting our industry’s competitiveness on the global stage,” ICEA’s chairman Pankaj Mohindroo said. 

Further, the tariff slab rationalisation was also acknowledged by the FM during the speech and will be taken up in the next six months. 

According to industry analysts, the BCD rebate will allow smartphone manufacturers to introduce price cuts across segments. Consultancy firm Techarc’s chief analyst Mohammad Faisal Ali Kawoosa told Inc42 that the development can potentially be the key to making the 5G smartphones more affordable.

How The EV Ecosystem Sees The Budget

Outside the smartphone and electronics manufacturing space, the budget’s announcements are expected to spur on EV production as well. Here too, the central government had turned to PLI to drive existing units to capacity, but the budget’s proposed incentives for new investments in manufacturing trend towards capacity addition. 

One of the key developments coming out of the budget was the quashing off of custom duties on the import of 25 key industrial minerals, including cobalt, lithium, copper, germanium, and silicon.

In particular, cobalt, lithium and copper are crucial in the manufacturing of batteries used in consumer electronics devices, EVs, drones, various energy storage systems and more.

Lithium, in fact, has been one of the most sought after minerals in the world. Similarly, cobalt is critical to develop high density batteries, whereas copper is used in electric motors, batteries, inverters, wiring and in charging stations. 

India has been in talks with multiple countries for partnerships for technical help on lithium processing, which when combined with a customs duty exemption will boost local manufacturing around lithium.

EV solutions provider Omega Seiki founder Uday Narang told Inc42 that 30% of the entire costs of producing an EV can be attributed to the battery itself. Hence, rolling back the import duties on critical materials like lithium, cobalt, and copper reduces the EV battery manufacturing costs substantially.

“While battery costs have been going down continuously in recent times, the roll back of the import duties on these critical elements will lead to a big boost in cost cutting. With this, we believe that we will cut down about 5-10% costs on battery manufacturing moving forward,” he said. 

Similarly, commercial EV maker EVage Motors’ founder and CEO Inderveer Singh said that battery production costs will fall by 7.5%-12% in the case of the company. Besides battery production, the startup recently entered into a joint venture with UK-based electric drivetrain systems manufacturer DG Innovate (DGI) to set up an electric motor manufacturing plant. Singh believes the duties rebate will lead to a 4% reduction in procurement costs for this plant.

Manufacturing Impacts Key Sectors

And while the Union Budget did not specifically mention how the central government is looking to boost manufacturing in other key sectors — space tech, defence and semiconductors, for instance — we expect the overall push in manufacturing to have a trickle down effect on all these key sectors. 

For instance, the rebate on customs duty for import of minerals and raw material is also slated to act as a boost for startups in sectors such as spacetech, defence and drone tech, where specialised minerals and metals are needed to create the products. 

And not unlike the case for the EV ecosystem, the exemption of customs duty on lithium, a crucial mineral used in the aforementioned sectors, will reduce costs, making lithium-based technologies more affordable. 

Besides this, the change in mobile PCBA customs duty and allied increase in customs duty on import of PCBA for telecom is also likely to spur the manufacture of 5G equipment in India. 

In addition to the roll back of customs duties on the aforementioned minerals, the centre has also slashed custom duties on gold, silver and platinum. This will directly benefit entities in the semiconductors and electronics manufacturing space, which leverage these precious metals for manufacturing components. 

Interestingly, the budget speech did not announce any particular government investments in the semiconductor manufacturing space, preferring to focus on incentives that cover the entire gamut of manufacturing. In the past year, the government set aside INR 1K Cr to fund semiconductor design startups, along with a $10 Bn allocation for semiconductor manufacturing research and design.