Tax facts & GST for Heavy Engineering Equipment Industry – What Indian Economy has to Offer for Global OEMs

Big Change

The Indian economy from sluggish space has shown signs of recovery and in past couple of years it is among the most rapidly emerging economies globally. In FY15, India became the fastest growing major economy, surpassing China in terms of GDP growth, and has emerged as a bright spot in the global economy. As per the advanced estimates, the country is expected to register a GDP growth of 7.6 per cent in FY16, as compared to 7.2 percent in FY15 (with the base as 2011-12), recording the highest percentage increase in the last five years.

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Improved economic growth in FY16 is due to the enhanced performance in the manufacturing and services sector

India’s economic performance, which came under heavy sluggishness in FY13, registering about 5 per cent GDP growth, has attained north bound trajectory since the current government came into power. India has embarked upon the path of steady growth owing to an improved performance in various macroeconomic parameters as well as the several reforms announced by the government, to provide the much-needed economic stimulus. This stimulus has also impacted the industry segment and it also has displayed a better performance in FY 16 as compared to FY 15, mainly due to key initiatives announced by GoI like Make in India, Start-Up India, Smart Cities etc. The note worthy fact is the growth of manufacturing sector which is expected to be only 5 basis point short to the double digit mark of 10% and is pegged at 9.5% for FY 16, which was a dismal of 5% in FY 15. Interestingly the power generation growth rate for FY 16 is estimated at 5.9% which certainly is better if compared to last fiscal. However, still more  fillip is required in this segment.

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“Share of Japan is highest in this segment followed by Swiss suppliers to India. Germany & China are placed at tough competition in terms of import volumes to India. Forging JV’s are a key focus for global OEMs in this service segment to tap Indian BTG market . The likes of Toshiba having turbine manufacturing capacity forged JV with JSW to bid as a BTG OEM for projects in India”

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GST and it’s Impact on Power Sector Equipment

The new GST regime is likely to benefit the power equipment manufacturing sector significantly through an overall reduction in tax rates. Under the new tax structure, the overall incidence of effective indirect taxes on the companies in the sector will be lowered to around 18-20 per cent from the current 29-30 per cent.Though it is not confirmed that power sector is included in GST regime, moreover whether the power sector equipment manufacturing will also fall under the GST ambit is also unknown as of now. However, if included under GST , it will reduce the cost of manufacturing power equipment. Consequently, cost of generation and distribution of electricity will also come down. It will stimulate the Indian industries since power is a significant input in the process of production of goods and services. Indian industries may compete in the international market more efficiently. Reduced cost of generation and distribution of electricity will improve the profitability of power projects. Profitability in this sector will generate the scope of new investment into this sector.

 

*The views expressed in this article are solely those of enincon perspectives and do not necessarily represent those of Enincon LLP.

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