Government Incentives & Schemes for Setting-up of Manufacturing in India by Foreign Nationals & Foreign Corporations: FDI in India

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Introduction for Setting-up Manufacturing in India: Foreign Direct Investments in India for India Business Entry
The Indian government has implemented various initiatives and schemes to attract Foreign Direct Investment. Under the automatic route, foreign companies can invest in most sectors without prior approval from the government. This provides a simplified process for foreign investors to establish manufacturing units in India. The government has implemented sector-specific policies to encourage FDI in key manufacturing sectors such as automobiles, electronics, defence, pharmaceuticals, and renewable energy. These policies offer incentives, tax benefits, and relaxed regulations to attract foreign direct investments. The government has liberalized FDI norms over the years by increasing the sectoral caps, easing entry and exit rules, and allowing the repatriation of profits and dividends. This creates a favorable environment for foreign investors to invest in the manufacturing sector in India. The Government has designated SEZ (Special Economic Zones) areas that offer various benefits to foreign investors, such as tax exemptions, duty-free imports, and simplified regulatory processes. Setting up manufacturing units in SEZs provides a conducive ecosystem for foreign companies. And the concept of single window clearance was introduced, streamlining the approval processes for setting up manufacturing units. This reduces bureaucratic hurdles and improves the ease of doing business for foreign investors. Indian Government has taken measures to strengthen IPR protection such as patent protection, which is crucial for attracting foreign investment. Robust IPR laws and enforcement mechanisms provide assurance to foreign investors regarding the protection of their innovations and technologies. India is focused on developing world-class infrastructure, including industrial parks, logistics hubs, and transport networks. This infrastructure development attracts foreign investors by ensuring smooth operations, connectivity, and efficient supply chains. And also Offers tax incentives and concessions to foreign investors in the form of reduced corporate tax rates, investment-linked deductions, and tax holidays in certain sectors or regions. These incentives help in reducing the overall cost of manufacturing operations. The Government also launched skill development initiatives in which foreign investors can benefit from a skilled labour force. India has signed BIPA (Bilateral Investment Promotion and Protection Agreement) with several countries to provide a framework for protecting foreign investments. These agreements offer legal protection, dispute resolution mechanisms, and assurances against the unfair treatment of foreign investors. The Government has launched various schemes under Make in India such as AMRUT (Atal Mission for Rejuvenation and Urban Transformation), Smart Cities, Skill India, Startup India, and Digital India for transforming India into a knowledge-based society and economy. Utilizing technology and digital solutions, it seeks to close the digital divide, improve connection, advance digital literacy, and foster inclusive growth and development across numerous industries.

Incentives for Setting-up of Manufacturing in India: The Department for Promotion of Industry and Internal Trade (DPIIT) in India has undertaken various schemes to promote the manufacturing sector and attract investments.
1. Industrial Corridor Development Programme: The Industrial Corridor Development Programme is an ambitious initiative undertaken by the Government of India to create industrial corridors across the country. The program aims to promote balanced regional development, enhance industrial competitiveness, and attract investments in key sectors.
• The program focuses on the development of dedicated industrial corridors, which are essentially high-quality transportation and infrastructure networks connecting major industrial hubs. The key industrial corridors under this program include the Delhi-Mumbai Industrial Corridor (DMIC), Chennai-Bengaluru Industrial Corridor (CBIC), Amritsar-Kolkata Industrial Corridor (AKIC), and Bengaluru-Mumbai Economic Corridor (BMEC).
• The program emphasizes the development of world-class infrastructure along the industrial corridors. This includes the creation of industrial parks, special economic zones (SEZs), logistics hubs, integrated manufacturing clusters, power plants, transportation networks, and social infrastructure facilities such as housing, healthcare, and education.
• The government provides policy support and incentives to attract investments and facilitate the development of industries along the corridors. This includes regulatory reforms, ease-of-doing business measures, financial incentives, tax benefits, and special provisions for land acquisition and infrastructure development.

2. Make In India: On September 25, 2014, the Prime Minister of India announced plans to encourage both domestic and foreign businesses to set up in India, in order to increase the growth rate of the manufacturing sector in India to 12–14% annually. There are several benefits and government incentives available for manufacturers under the Make in India campaign.
• 10 years of permanent status for foreign investors
• The Bankruptcy Code of 2015 is a new bankruptcy law that mandates the implementation of a straightforward and time-limited insolvency procedure by 2017.
• Single tax system for the Goods and Services Tax by April 2017
• Industrial license is now valid for 7 years instead of just 3 years.
• Power connection made within the legally required time span of 15 days rather than 180 days.
• Reduction of the 10-day company incorporation process to one day
• Reduced from 11 documents to 3 documents for the export and import from India

3. National Single Window System: The National Single Window System is a digital platform established by the Government of India to streamline and simplify the process of obtaining clearances and approvals for various business operations. It serves as a one-stop portal for businesses to submit applications, track progress, and receive approvals from multiple government agencies involved in regulatory clearances.
• It eliminates the need for businesses to visit multiple offices and submit physical documents, reducing administrative burdens and improving efficiency.
• Businesses can submit their applications for permits, licenses, and clearances online through a centralized portal. The system provides a standardized application form and document requirements for different types of approvals, making it easier for businesses to navigate the process.
• The National Single Window System aims to simplify documentation requirements by eliminating redundant or unnecessary paperwork. It provides a standardized list of documents needed for each type of clearance, reducing the burden on businesses and ensuring transparency in the process.
• It allows businesses to track the progress of their applications, view comments or queries from government officials, and respond to them promptly.
• It was launched in Budget 2020-21 on 22nd September 2021 by the Ministry of Commerce with the objective to provide support to investors, and also pre-investment advisory by providing end-to-end facilitation and support as a one-stop shop for foreign or domestic investor-related approvals and services in India.

4. PM Gati Shakti National Master Plan (NMP): The PM Gati Shakti National Master Plan (NMP) is a strategic initiative launched by the Government of India to transform India’s infrastructure and enhance connectivity across various sectors. The plan aims to strengthen the country’s logistics and transportation network, improve the efficiency of goods movement, and boost economic growth. Here are the key features and objectives of the PM Gati Shakti National Master Plan
• The PM Gati Shakti National Master Plan focuses on developing world-class infrastructure across key sectors such as roads, railways, ports, airports, and logistics. It aims to enhance the capacity, efficiency, and connectivity of infrastructure networks to support economic activities and facilitate trade.
• The plan emphasizes the integration of different modes of transport, such as road, rail, waterways, and air, to create a seamless and efficient multi-modal transportation system. It aims to enable the smooth movement of goods and people across various regions of the country.
• The National Master plan sets clear timelines for the implementation of infrastructure projects and emphasizes the need for timely completion. It focuses on removing bottlenecks and streamlining approval processes to accelerate project execution and ensure time-bound delivery.
• The PM Gati Shakti National Master Plan was launched in October 2021 for a transformative approach to facilitate data-based decisions the government has created two groups, for an institutional arrangement such as the Empowered Group of Secretaries and the Network planning group

5. National Logistics Policy: The National Logistics Policy is a government initiative aimed at streamlining and optimizing the logistics sector in India. It focuses on creating an efficient, integrated, and cost-effective logistics ecosystem to support domestic and international trade.
• The National Logistics Policy was launched on 17th September 2022, which is a comprehensive framework for cross-sectorial and multi- Jurisdictional for developing the entire logistics system
• The policy aims to simplify trade procedures and reduce logistics-related barriers to domestic and international trade. It focuses on improving customs clearance processes, reducing transit times, and enhancing cross-border logistics connectivity.
• The National Logistics policy encourages collaboration among various stakeholders, including government agencies, industry associations, logistics service providers, and technology providers. It promotes public-private partnerships and industry engagement to drive the implementation of policy initiatives.

6. Production Linked Incentive Scheme: The Production Linked Incentive (PLI) scheme is a government initiative launched to boost manufacturing in India across various sectors. The scheme aims to attract investments, enhance domestic production capabilities, promote exports, and create employment opportunities.
• Under the PLI scheme, eligible manufacturers receive financial incentives based on their incremental sales or production volume. The incentives are provided as a percentage of the incremental sales or production value over a specified base year.
• It encourages the localization of supply chains, reduces dependence on imports, and promotes the development of a robust manufacturing ecosystem.
• The Production Linked Incentive scheme emphasizes boosting exports from India. It provides additional incentives to manufacturers for exporting their products, thereby enhancing the country’s export competitiveness and reducing the trade deficit.
• The Production Linked Incentive scheme is expected to drive investments, boost manufacturing capabilities, and enhance India’s competitiveness in global markets. It aligns with the government’s vision of making India a global manufacturing hub, attracting investments, and creating a self-reliant manufacturing ecosystem.

7. Ease of Doing Business: Ease of doing business refers to the level of simplicity, efficiency, and convenience with which individuals and businesses can operate and conduct economic activities in a particular country. It encompasses various aspects, including starting a business, obtaining permits and licenses, accessing finance, dealing with tax regulations, protecting investors, enforcing contracts, and resolving disputes.

The business Regulation is done in 10 areas
• Starting a business
• Dealing with Construction Permits
• Trading Across Borders
• Enforcing contracts
• Getting Credit
• Getting Electricity
• Registering The property
• Resolving Insolvency
• Paying taxes
• Other Areas
Simplifying and expediting the process of starting a business In India by reducing paperwork, time, and costs involved. This may include introducing online registration systems, eliminating unnecessary requirements, and implementing single-window clearance mechanisms.

8. North East Industrial and Investment Promotion Policy (NEIIPP), 2007: The North East Industrial and Investment Promotion Policy (NEIIPP), 2007 is a scheme introduced by the Indian government to promote industrialization and investment in the north-eastern states of India. The policy aims to accelerate the economic development of the region by providing various incentives and benefits to attract industries and businesses.
• Under this The North East Industrial and Investment Promotion Policy (NEIIPP), 2007, eligible industrial units in the north-eastern states are entitled to income tax exemptions for a specified period. The tax benefits include a complete exemption from income tax for the first five years of operation, followed by a 30% exemption for the next five years.
• The North East Industrial and Investment Promotion Policy (NEIIPP), 2007, provides a capital investment subsidy of 30% of the investment in plant and machinery, subject to a maximum limit. This subsidy aims to encourage industrial units to set up their manufacturing facilities in the region
• Industrial units in the northeastern states can avail of an interest subsidy of 3% on working capital loans for a period of five years. This subsidy helps reduce the cost of borrowing and provides financial support to businesses.
• To address the issue of high power costs in the region, the NEIIPP, 2007 provides a power cost subsidy of 50% for a period of five years. This subsidy aims to reduce the operational expenses of industries and make them more competitive.
• The North East Industrial and Investment Promotion Policy (NEIIPP), 2007, offers transport and marketing assistance to promote the export of goods manufactured in the northeastern states. It provides financial support for transportation, packaging, marketing, and other related activities to enhance the competitiveness of products in domestic and international markets.

Government Schemes for Setting-up of Manufacturing in India
FAME-India Scheme (Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles): As part of the National Mission on Electric Mobility, the government program FAME-India (Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles in India) was introduced in 2011.
• By making electric and hybrid vehicles more accessible and cheaper, the program offers incentives to both makers and consumers of these vehicles with the goal of increasing demand.
• The involved authorities put the scheme’s first phase into action, concentrating on four main areas: demand generation, technological platform, trial projects, and charging infrastructure.
• The electrification of shared and public transportation is the main goal of phase II of the plan. 10,000 crores in funding have been set aside by the government for this phase. The program intends to offer incentives to a number of vehicle types, such as electric two-wheelers, electric four-wheelers, hybrid four-wheelers, e-rickshaws, and e-buses.
• The scheme focuses on the establishment of a robust charging infrastructure network across the country. It provides financial support for the installation of charging stations in public places, residential complexes, and other suitable locations to ensure convenient access to charging facilities for electric vehicle owners.

PM Mega Integrated Textile Region and Apparel (PM MITRA): It includes:
• As a competitiveness incentive support, an additional Rs 300 crore will be given to each of these parks in order to encourage the early creation of textile manufacturing facilities.
• The CIS will have a fund cap and be given out according to the order in which applications are received.
• Investors would be eligible for incentives of up to Rs 10 crore per year for a maximum of three years if they establish anchor facilities that employ at least 100 people.
• Only manufacturing enterprises that do not currently take advantage of the Production Linked Incentive (PLI) for the textile programs will be eligible for the incentives.

Government launches new initiatives to attract investments on June 2020
• To draw investments to India, an Empowered Group of Secretaries (EGoS) has been established. The goal of this new mechanism is to support India’s goal of having a US$5 trillion GDP by 2024–2025.
• India’s small business owners are anticipated to benefit from increased financing opportunities and expanded markets thanks to an upward modification of the definition and criteria for MSMEs that takes effect on July 1, 2020.
• To help those most affected by the pandemic and spur the economy, the government has launched a stimulus package costing about Rs. 21 trillion (US$277 billion), or around 10% of India’s GDP.
• For the creation of investible projects in collaboration with the Central and State Governments, a Project creation Cell (PDC) has been established. It is anticipated that this will boost FDI inflows to India.

Taxation and Regulatory Incentives: Taxa
• Foreign direct investment regulations have been liberalized, with most industries allowing 100% FDI.
• The Foreign Trade Policy (FTP) provided a number of incentive programs to encourage the export of goods and services from India. – Bilateral or multilateral free trade agreements, such as those with Japan, Korea, The Association of Southeast Asian Nations (ASEAN), and The South Asian Free Trade Area (SAFTA), allow for the claim of concessional duty benefits.
• A dedication to a non-competitive tax system and lower tax rates for startup manufacturing businesses

Various Tax Incentives
• Domestic corporate tax rate @17.16 percent for new manufacturing companies, subject to conditions
• Employment generation benefit: Additional deduction @30 percent for an additional cost of new employees (for three years), subject to conditions
• Exports are tax-free – No indirect taxes levied on goods exported from India
• Duty exemption/deferral on import of cap.

Various Fiscal Incentives
• Reimbursement of state-level goods and services tax through refunds, exemptions, or loans (gross vs. net depending on the state and amount of investment);
• A capital subsidy;
• A refund or exemption of stamp duty;
• A subsidy for the creation of jobs and training;
• Assistance to suppliers that supply input materials or employees.

Non-Fiscal Dues Incentives
• Uninterrupted water and power supply at concessional rates
• Better rail and road connectivity
• Land at a concessional price
• Dedicated port facilities Single window facilitation
• Most preferred status for the grant of various industrial licences and single window clearances

Conclusion
Therefore, in order to take advantage of the comprehensive support that the government intends, investors should carefully assess and explore all incentive routes for setting up business in India. Since the implementation of these initiatives is crucial to their success, the government should make sure that every such program receives prompt approval along with prompt evaluation and funding disbursement. Next initiatives would be welcomed, including expanding incentives to include service providers and globally important topics like sustainability and climate change. In the end, such comprehensive assistance from policymakers might position India as a successful location for global manufacturing.
Authored By: Adv. Anant Sharma & Chandana Surthi

 

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