Amidst the global economic turmoil that emerged due to covid-19, the Indian economy cannot remain immune to its side effects. Indian Government in an effort to boost the economy, has announced a significant economic stimulus package under the ‘Atmanirbhar Bharat’ (Self-reliant India) scheme. Given that many global businesses operating in China are also reconsidering their business continuity plans and looking for alternative manufacturing bases, many State Governments in India also tried to capitalize on the opportunities by incentivizing investment.
Gujarat has a distinct advantage in this area on account of its pro-business government initiatives, conducive business environment, and progressive infrastructure. With roughly 6% of India’s geographical area and 5% of its population, Gujarat State accounts for almost 8% of India’s GDP. The fact that Gujarat has received the highest national increment of 240% in FDI inflows in the financial year 2019-20 compared to the previous year can be attributed to the Gujarat policy-driven business eco-system1.
As a part of the Government of Gujarat’s (GoG) efforts to boost the state economy, GoG announced the Gujarat Industrial Policy, 2020 (Policy 2020) to give thrust to Atmanirbhar Bharat. This policy in 2020 aims at incentivizing further investment in the state and making Gujarat a global business destination for the sustainable manufacturing and service industry. Some of the key reforms introduced as a part of the policy 2020 are set out below:
Promotion of thrust sectors: In line with the mission of Atmanirbhar Bharat, the state has identified 15 thrust sectors for industrial promotion. The sectors have been segregated into 2 categories:
Core Sectors i.e. sectors where Gujarat already holds a leadership position
Sunrise Sectors i.e. upcoming/ niche sectors in India & around the globe
1. Electrical machinery & equipment
2. Industrial Machinery & equipment
3. Auto & Auto Components
5. Technical Textiles
6. Agro & Food Processing
7. Pharmaceuticals & Medical devices
8. Gems & Jewelry
9. Chemicals (in designated area)
1. Industry 4.0 manufacturing
2. Electric Vehicle and its components
3. Waste management projects
4. Green Energy (Solar & Wind Equipment)
5. Eco-friendly compostable material (substitutes to traditional plastics)
6. 100% export oriented units, irrespective of sector
Since GST has been implemented, companies were being compensated as per net GST on goods sold within the state under the Industrial Policy-2015. There were several complexities in the calculation of the tax of goods consumed within the state and therefore, Gujarat became the first state to de-link incentives from state GST. In order to bring transparency in the calculation, it has been decided to extend incentives based on eligible Fixed Capital investment (FCI) to large industries for setting up manufacturing operations in the state in the form of capital subsidy.
Up to 12% of fixed capital investment will be given to large industries for setting up manufacturing operations in the state in the form of capital subsidy. Therefore, the incentive amount will now be more predictable and transparent and thus it will help the industry to estimate their future financial projections. There is no upper ceiling on the amount of incentive to be given to any particular unit. This will help in grounding major investments in the state
Under Policy 2020, the GoG aims to continue to promote exports by facilitating and handholding the exporters and export-oriented units. A number of measures proposed by the GoG in this regard include, inter alia, partnering with leading national and state-level export promotion councils for a comprehensive facilitation and export promotion initiative, providing good quality logistics infrastructure, setting up a robust grievance redressal mechanism, setting up exhibition cum convention centers for MSMEs and exports to conduct exhibitions and display their products, etc.
Quality infrastructure is a key driver for industrial growth, and this sector remains the top-priority focus area for GoG. Policy 2020 offers financial support for setting up new infrastructure or upgrading existing infrastructure like roads, warehousing facilities, underground utilities, etc. at 80% of the project cost up to INR 25 crore. Policy 2020 also aims to incentivize private developers for setting up industrial parks in the state. This will ensure the latest technologies and facilities.
In addition to the above measures and incentives, Policy 2020 offers various fiscal incentives for ensuring greater compliances, assistance to R&D companies proposing to set up research and development centers in the state, etc. Additionally, Policy 2020 lays a strong emphasis on expanding the skill base in the state.
Given Gujarat’s strong economic, political, and demographic indicators, it makes a convincing case for investors looking to set-up regional/ global manufacturing bases to consider the opportunities available in the state. With the introduction of certain new features, like land on lease and de-linking of incentive from tax structure, Policy 2020 certainly aims to make Gujarat a lucrative long-term investment destination for companies looking to relocate/start/expand their operation in India.
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