Making India: The next manufacturing destination

Making India, the initiative aims to raise the contribution of the manufacturing sector to 25% of the Gross Domestic Product (GDP) by the year 2025 from its current 16%.

Make in India has introduced multiple new initiatives, promoting foreign direct investment, implementing intellectual property rights and developing the manufacturing sector.

India is on the threshold of major reforms and is poised to become the third-largest economy of the world by 2030. In the words of our Hon’ble Prime Minister, India offers the 3 'Ds' for business to thrive— democracy, demography and demand.

Add to that a tech-savvy and educated population, skilled labour, robust legal and IPR regime, and a strong commitment to calibrated liberalization — India is a destination that German investors cannot overlook.

India's manufacturing sector has evolved through several phases - from the initial industrialisation and the license raj to liberalisation and the current phase of global competitiveness.

Today, Indian manufacturing companies in several sectors are targeting global markets and are becoming formidable global competitors. Many are already amongst the most competitive in their sectors.

Demographics advantage:

• The country is expected to rank amongst the world’s top three growth economies and amongst the top three manufacturing destinations by 2020.
• Favourable demographic dividends for the next 2-3 decades. Sustained availability of quality workforce.
• Strong consumerism in the domestic market.
• Strong technical and engineering capabilities backed by top-notch scientific and technical institutes.
• The cost of manpower is relatively low as compared to other countries.

Infrastructure:

• Industrial Parks: Every state in India has developed industrial parks for setting up of industries.
• National Investment & Manufacturing Zones: NIMZ is a combination of production units, public utilities, logistics, residential areas and administrative services. It would have a processing area, where manufacturing facilities, along with associated logistics and other services and required infrastructure will be located, and a non-processing area, to include residential, commercial and other social and institutional infrastructure.
• Special Economic Zones: India has also developed SEZs that are specifically delineated enclaves treated as foreign territory for the purpose of industrial, service and trade operations, with relaxation in customs duties and a more liberal regime in respect of other levies, foreign investment.
• Sector specific clusters: like electronic manufacturing clusters, mega food parks etc: The government of India has been promoting the development of sector specific parks.
• Country specific zones: The country also have few dedicated zones for industrial units from countries for example Neemrana Japanese Zone etc.
• Industrial corridors: The Government of India is developing the Delhi-Mumbai Industrial Corridor (DMIC) as a global manufacturing and investment destination utilizing the 1,483 km-long, high-capacity western Dedicated Railway Freight Corridor (DFC) as the backbone. The objective is to increase the share of manufacturing in the GDP of the country and to create smart sustainable cities where manufacturing will be the key economic driver.
• Other four corridors: planned include Bengaluru Mumbai Economic Corridor (BMEC); Amritsar - Kolkata Industrial Development Corridor (AKIC); Chennai Bengaluru Industrial Corridor (CBIC), East Coast Economic Corridor (ECEC) with Chennai Vizag Industrial Corridor as the first phase of the project (CVIC).

Incentives offered for manufacturing:
Sector specific initiatives: The government of India provides sector specific subsidies for promoting manufacturing for example in order to boost manufacturing of electronics, the Govt. of India provides capital subsidy of up to 25% for 10 years.
Area based incentives: Incentives are provided for units in SEZ/NIMZ as specified in respective acts or setting up project in special areas like North East Region, Jammu & Kashmir, and Himachal Pradesh & Uttarakhand.

Incentives under income tax act:

• Investment Allowance: The Government of India in its Union Budget 2014-15, has provided investment allowance at the rate of 15 per cent to a manufacturing company that invests more than US$ 4.17 million in any year in new plant and machinery.
• Deductions: Several additional deductions are provided for instance deduction equal to 30% of additional wages paid to new regular workmen employed by the assesses over and above 50 workmen.
• R&D Incentives: Higher weighted deductions of 200% provided for expenditure related to R&D subject to fulfilment of conditions.
• Export Incentives: Under the foreign trade policy exports have been provided with several incentives like duty drawback, duty remission schemes etc.
• State Incentives: Apart from above each state in India offers additional incentives for industrial projects. Some of the states also have separate policies for textile sector. Incentives are in areas like rebated land cost; relaxation in stamp duty exemption on sale/lease of land; power tariff incentives; concessional rate of interest on loans; investment subsidies / tax incentives; backward areas subsidies; special incentive packages for mega projects.

Recent initiatives & budget announcements for promoting manufacturing:

Ease of doing business:

• The corporate tax rate for companies registered in India to go down from 30 per cent to 25 per cent of net profits in a phased manner over the next four years starting from FY 16-17.
• An expert committee to examine the possibility and prepare a draft legislation where the need for multiple prior permission can be replaced by a pre-existing regulatory mechanism.
• Goods and Services Tax proposed to be implemented from April 01, 2016.
• The process of applying for Industrial License (IL) and Industrial Entrepreneur Memorandum (IEM) has been made online.
• Initial validity period of Industrial License has been increased to three years from two years, also, two extensions of two years each in the initial validity of three years of the Industrial License shall now be allowed up to seven years. This will give enough time to licensees to procure land and obtain the necessary clearances/approvals from authorities.
• Operationalizing the e-BIZ portal: Through eBiz portal, a business user can fill the eForms online/offline, upload the attachments, make payment online and submit the forms for processing of the department.

Labor reforms:

• A dedicated Shram Suvidha Portal: The portal would allot Labour Identification Number (LIN) to nearly 6 lakhs units and allow them to file online compliance for 16 out of 44 labour laws.
• An all-new Random Inspection Scheme: Utilizing technology to eliminate human discretion in selection of units for Inspection, and uploading of Inspection Reports within 72 hours of inspection mandatory.
• Universal Account Number: Enables 4.17 crore employees to have their Provident Fund account portable, hassle-free and universally accessible.
• Apprentice Protsahan Yojana: Will support manufacturing units mainly and other establishments by reimbursing 50% of the stipend paid to apprentices during first two years of their training.
• Department of Industrial Policy and Promotion has identified various areas and action points on ease of doing business index/indicators have been prepared for assessing the overall business performance of the country as well as States/Union Territories.
• Government has undertaken a number of steps to improve Ease of Doing Business in India. A large number of components of Defence Products’ list have been excluded from the purview of Industrial Licencing. The application process for Industrial Licence and Industrial Entrepreneur’s Memorandum has been made easy by simplification of form and making the process online 24x7.
• The validity period of the Industrial Licence and security clearance from Ministry of Home Affairs has been increased. The process of registration with Employees’ Provident Fund Organization and Employees’ State Insurance Corporation has been made on line and real-time.

Process of obtaining environment and forest clearances has been made online. The Department of Industrial Policy and Promotion has advised Ministries and State Governments to simplify and rationalize the regulatory environment through business process reengineering and use of information technology. 14 Government of India services have been integrated with the online single window eBiz portal.

Skill India: ‘SKILL INDIA’ - a multi-skill development programme has been initiated with a mission for job creation and entrepreneurship for all socio-economic classes. It endeavours to establish an international equivalent of the Indian framework on skill development, creating workforce mobility and enhancing youth employability.