Manufacturing Reset: India Eyes Efficiency Over Incentives

India's upcoming budget is poised to signal a significant reset in the government's approach to manufacturing support. The strategy is shifting from a primary reliance on incentives and protectionist measures towards addressing the daily operational frictions that hinder business growth and global competitiveness.

The new emphasis will be on implementing simpler regulations, expediting approval processes, and cultivating a more predictable regulatory landscape. This aims to empower manufacturers to advance up the value chain and enhance their offerings in international markets.

Recommendations from high-level committees are expected to inform budget proposals, focusing on reducing 'regulatory cholesterol' and building core strengths in competitiveness, efficiency, and technology. Announcements concerning semiconductors, critical minerals, and supply chain resilience, viewed through both economic and security lenses, are also anticipated.

While existing production-linked incentive (PLI) schemes are unlikely to be withdrawn, future support will be more closely tied to productivity and technological advancements. The government's refreshed approach aligns with the Economic Survey's call for cutting compliance costs and fostering a trust-based system, aiming to attract foreign direct investment and facilitate technology transfer.

This policy recalibration occurs as global trade dynamics evolve, with nations exploring new alliances and economic realignments. India's export challenge is increasingly seen as one of capability building rather than mere scale. Clear, predictable regulations and swifter approvals are vital for firms to upgrade products and compete effectively on quality.

Simplicity and predictability are particularly targeted for smaller firms, with a focus on easing compliance and improving access to infrastructure. The budget may also encourage MSMEs to formalize without escalating costs. This initiative supports the broader goal of boosting exports and enhancing investor sentiment through improved ease-of-doing-business metrics.

Further infrastructure development, including industrial corridors and logistics parks, is expected to lower supply chain costs and improve delivery reliability. The budget is also likely to provide clearer guidance on the balanced use of quality control orders (QCOs) to support domestic manufacturing while minimizing supply chain disruption.

Converting strong economic growth and potential into sustained investment hinges on making it easier for businesses to operate. While some regulatory easing has begun, deeper reforms, especially at the state level, are critical for transforming the operating environment and enhancing India's appeal for global businesses.