Legal Guidelines, Procedures, Rues & Regulations for Setting-Up Manufacturing Unit in India: Lawyers Advice on Foreign Investments in India | | FDI Attorney in Delhi NCR | FDI Attorney in India | India Business Entry

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The manufacturing sector in India has the highest growth rate in the past decade, which has targeted the global market and plays a key role in the global competition. As per reports, India’s manufacturing sector is estimated to touch One Trillion US Dollars by the year 2025 and accounting for 25-30% of India’s GDP and further, excepted to create 90 million jobs domestically. In the past few years, the Indian Government has taken strategic steps to lay down laws, rules and regulation to boost the manufacturing industry by promoting foreign investment and giving highly attractive tax incentives. Further, high consumerism in the domestic market and availability of high skilled labour at low costs, makes the manufacturing industry even more attractive to the investors, as it portrays potential of high returns in a short duration.

Ten Advantages for Setting-Up Manufacturing Units in India are:
• Subsidies and Tax Incentives in certain specific States & Region
• Government emphasis on Make in India
• Availability of 1.35 Billion Domestic Consumers
• Easy Availability of Skilled Workforce under the National Skill Development Program
• Establishment of Special Industrial Parks & Corridors
• India, a Country of Ample Natural Resources
• Extreme Export Opportunities across the Globe with Assistance from the Government both at the Centre and at the State levels
• Demographic Advantages
• Intellectual Properties (IP) Protection & Safeguards with Zero Tolerance Policy towards Infringement & Piracy
• Special Incentives & Economic Packages offered by the Governments of different States & Union Territories

FOREIGN DIRECT INVESTMENT (FDI) POLICY IN RESPECT OF MANUFACTURING INDUSTRY
India has since a long time been a preference for many foreign investors and companies to set up a manufacturing unit in. This has further increased after the Make in India campaign initiated by the Indian Government in 2014 promoting manufacturing of goods in India. After the Make in India campaign, Indian has seen a 62% increase in FDI equity inflow and 14% all over growth in the manufacturing industry.

In India, there are two routes available for Foreign Direct Investments (FDI) i.e.
1) Automatic Route wherein no government approval is required and
2) Approval Route wherein a government approval is required through the Foreign Investment Promotional Board.

There exists caps for FDI in each sector. Under the manufacturing sector, the following permitted limit of FDI exists for the given sub-sectors:

Manufacturing: 100% FDI through Automatic Route

Defence: 49% FDI through Automatic Route and beyond 49% through Approval Route .

Pharma Industry: In case of Greenfield Investment 100% FDI through Automatic Route and in case of Brownfield Investment 100% FDI through Government Approval Route. However, 100% FDI through Automatic Route in case of medical devices.

SOME KEY REFORMS UNDERTAKEN BY THE GOVERNMENT TO PROMOTE INVESTMENT IN MANUFACTURING SECTOR
E-biz: It is an online portal created by the Government to make a one stop clearance mechanism for all investment proposals. A single application can provide a number of permissions, clearance, etc from multiple governmental agencies.

National Manufacturing Policy: Created with a aim to increase the share of manufacturing section in the GDP and promote employment through an industrial growth facilitated by partnership with the State in the form of Public Private Partnership (PPP).

Free Trade Agreement (FTA): India has entered into FTA’s with various countries to ensure free flow of goods and service and prevent an hinderance in doing business.

National Investments and Manufacturing Zones: A combination of production units, public utilities, logistics and residential area.

TAX INCENTIVE OFFERED BY THE GOVERNMENT
Activity Incentive: 150% deductions for on-site research and development and funding for importation of any material required of the activity, provided certain conditions are met by the manufacturer.

New Employee Incentive: With an aim to create new jobs, a tax deduction of 30% for their workers earning for 3 years is granted to a manufacturer who increases the workforce of 10% or hires 100 new employees.

Skill Development Incentive: 150% Deduction of the fees paid by the manufacturer towards providing the employees with a training programme and such money could be paid to the manufacturers as cash returns rather than tax deductions.

Export Incentive: Offer a 100% deduction of the manufacturer’s export profit for the first 5 years, which is reduced to 50% for the next 5 years. The manufacturer can be granted a deduction of 50% for a further period of 5 years provided certain pre-requisites are fulfilled.

BENEFITS UNDER THE INCOME TAX ACT OF 1961
• Deductions linked to profit for start-ups for a period of three and permission to carry forward losses.
• Tax Holiday for new establishments set up in a Special Economic Zone (SEZ) for a period up to 15 years subject to certain requirements.
• Additional depreciation at 20% available on new plant or machinery for the business of manufacturers.
• Deduction equal to 30% of additional wage paid to new regular workmen by the manufacturer, over and above 50 workmen.

BENEFITS THAT GST (GOODS AND SERVICES TAX) HAS BROUGHT FOR MANUFACTURING SECTOR
• Eliminated the cascading effect of taxes as all the taxes levied by the Central and State Government is combined into one tax, thus easy to monitor and ensure compliance.
• Subsuming of entry taxes had made the procurement of raw material more convenient and reduced the time taken to deliver final goods.
• The concepts of Manufacture and Trading no longer exist, giving an opportunity to re-structure supply chain and gain strategic benefits.
• An inter-state supply shall be liable for IGST, which is decided by combining the rate of CGST and SGST. These procurements would be eligible for input credit thereby reducing actual cost.

Therefore, due to the geographical advantage and abundance of skilled labour along with the plethora of reforms and initiatives taken by the Government, India is expected to become a ‘Global Manufacturing Hub’. Investment in India provides various strategical advantage to the manufacturer along with ensuring increased margins of profit. The purpose of the Indian Government is clear, which is promote production of articles in India and to ensure a conducive and a friendly environment for manufacturers.
Authored By: Adv. Anant Sharma & Ananya Jain