India’s Union Budget 2024-25: A Boost for Mid-Cap Foreign Investors

The Union Budget 2024-25 marks a significant step towards making India an attractive destination for foreign investments, especially for mid-cap companies. With a clear emphasis on fiscal stability, manufacturing services, and MSMEs, the budget introduces several measures designed to streamline operations, reduce costs, and enhance competitiveness.

Facilitating Foreign Investments and Fiscal Stability 

India's commitment to fiscal stability is evident in the budget's focus on maintaining a balanced fiscal deficit while providing incentives to attract foreign investments. The reduction of the corporate tax rate for foreign companies from 40% to 35% is a significant move to draw more investors into the Indian market. This reduction aligns India with global tax norms, making it a more appealing destination for foreign capital.

Prioritizing Manufacturing and Services 

The budget underscores the importance of manufacturing and services in driving economic growth. Key initiatives include: 

1. Customs Duty Rationalization: A comprehensive review of the rate structure over the next six months aims to simplify customs duty rates, facilitate trade, remove duty inversion, and reduce disputes. 

2. Sector-Specific Proposals: 

   - Medicines and Medical Equipment: Exemptions for cancer medicines and adjustments in customs duties on medical equipment components. 

   - Mobile Phones and Related Parts: Reduction of Basic Customs Duty (BCD) on mobile phones and components to 15%. 

   - Critical Minerals: Full exemption on customs duties for 25 critical minerals and reduced BCD for two, aiding strategic sectors like nuclear energy and telecommunications. 

   - Solar Energy: Expansion of the list of exempted capital goods for manufacturing solar cells and panels. 

Support for MSMEs 

The MSME sector, crucial for India's economic fabric, receives significant support in this budget: 

1. Credit Guarantee Scheme: Enhanced credit guarantees for MSMEs in the manufacturing sector. 

2. New Assessment Model: Introduction of a new model for assessing MSME credit to ensure better access to financing. 

3. Sector-Specific Initiatives: 

   - Food Irradiation and Quality Testing: Support for MSME units involved in these critical areas. 

   - Integrated Technology Platform: Development of a platform for the Insolvency and Bankruptcy Code (IBC) ecosystem. 

   - Voluntary Closure of LLPs: Simplified procedures for the voluntary closure of Limited Liability Partnerships (LLPs).

Customs Duty Proposals Across Sectors 

The budget proposes various customs duty changes to enhance the competitiveness of several sectors: 

1. Medicines and Medical Equipment: Exemptions and adjustments to support domestic manufacturing capacity. 

2. Mobile Phones: Duty reductions to encourage local production. 

3. Critical Minerals: Duty exemptions to secure availability for strategic industries. 

4. Solar Energy: Duty adjustments to support the domestic solar manufacturing industry. 

5. Marine Products: Reduced duties on inputs for shrimp and fish feed. 

6. Leather and Textile: Expanded exemptions for manufacturing export-oriented products. 

7. Precious Metals: Reduced customs duties to boost domestic value addition. 

8. Other Metals: Removal of duties on materials essential for steel and copper production. 

9. Electronics: Duty removals to support the domestic electronics industry. 

10. Chemicals and Petrochemicals: Increased duties on specific chemicals to support domestic production. 

11. Plastics: Increased duties to curb imports of specific plastic products. 

12. Telecommunication Equipment: Duty increases to incentivize domestic manufacturing. 

Trade Facilitation Measures 

To further promote trade, the budget introduces several facilitation measures, such as extending the period for exporting goods imported for repairs, increasing the time limit for re-import of goods for repairs under warranty, and applying safe harbour rates for foreign mining companies selling raw diamonds in India. 

Taxation Implications 

The budget also introduces significant changes in direct and indirect taxation: 

1. Direct Taxation: The reduction in the corporate tax rate for foreign companies will have a profound impact on operational costs and profit margins. 

2. Indirect Tax Changes: Adjustments in customs duties across various sectors will affect supply chain dynamics and operational costs.