India stands at the threshold of a new wave of industrial growth, as companies look to adopt technology and automation in their manufacturing and engineering set-ups, moving towards Industry 4.0 - the transformation in manufacturing enabled by technology. The Indian manufacturing sector accounts for about 16% of the economy, and the government is looking to increase that to 25% by 2022 with the Make in India programme. In 2020, during the COVID-19 pandemic, the government has become even more vocal about making India an attractive manufacturing destination for global and domestic companies through its initiative Atmanirbhar Bharat.
Colliers believes that a thrust on manufacturing is imperative as every job created in the manufacturing sector leads to about three additional jobs* created in additional sectors such as infrastructure, real estate and retail and consumer services. Over the last five months, several state governments have made reforms to kickstart industrial activity in their respective states. In this report, Colliers discusses the central and state governments’ manufacturing reforms, specific recommendations for the government as well as recommendations for occupiers and manufacturing and warehousing developers.
India is increasing its attractiveness as a manufacturing hub for companies from across the world. Over the last few months, propelled in part by the economic slowdown, the central government and several state governments have initiated policies and reforms to make India competitive for global firms.
Colliers believes that in 2020 India is better positioned to serve as a manufacturing hub led by low labour costs, an improved tax regime, an increased ease of doing business, a large domestic market. In 2019, India ranked 63 among 190 nations in the World Bank’s Ease of Doing Business index, an improvement of 14 places. Colliers believes the following reforms will
aid manufacturing firms in India. Tax rebates to make domestic manufacturing more competitive
In 2019, the government changed the concessional rate of taxation to 17% (inclusive of surcharge and cess ) for all new domestic companies engaged in manufacturing. This is a cost benefit for Indian firms, and especially micro, small and medium enterprises, helping them become them more competitive. For context, this is compared to tax rate of 25% in China and 20% in Vietnam, making India more competitive globally. Moreover, The Goods and Services Tax (GST) introduced in 2017 is leading to a more efficient logistics system across the country.
Atmanirbhar Bharat: In pursuit of self reliant India
The central government, focussing on Indian self reliance, announced an INR20 trillion (USD267 billion) package of collateral free loans and equity financing to build manufacturing capacities across sectors, and to promote local products. This includes reforms such as fast tracking investment clearance and upgrading of industrial infrastructure, among other plans. Colliers believes this has opened a credit line for micro, small and medium enterprises (MSMEs).
Focus on labour reforms to clear a big roadblock
Colliers believe that the upcoming labour reforms will make Indian manufacturing more competitive. The government has drafted new labour codes to regulate wages, define industrial relations, address occupational safety, health, and regulate social security. 6 Since labour is in the concurrent list*, we recommend that after setting up the codes, the state governments customise the set norms based on the local conditions.
INDUSTRY EXPECTATIONS FROM THE GOVERNMENT:
Industry expects some tax waivers for manufacturing units directly proportional to employment generation.
Colliers proposes that government agencies aggregate large contiguous land parcels at suitable manufacturing and logistics
locations , which are free from encumbrances. This land can be made available to the private sector at a fair market value.
Colliers recommends the government focus on improving contract enforcement by putting in place a stronger judicial
mechanisms. Colliers recommends the government focus on supporting infrastructure such as roadways, inter state transport, and factory to port infrastructure to lower logistics costs, which currently stands at about 14% of the gross domestic product.
Colliers also recommends state governments follow the lead of Tamil Nadu and Telangana states and adopt single window clearance for projects, a wide ranging mechanism with specific timelines, that are believed to lead to a simpler and faster process.
INDIAN STATES BOOST MANUFACTRING BY INITIATING REFORMS
Several Indian states are taking steps to offer incentives to companies to expand their industrial facilities. The report highlights certain reforms initiated over the last five months by states such as Uttar Pradesh, Maharashtra and Karnataka, and previously implemented reforms by other states.
Uttar Pradesh (Noida): In May 2020, the government passed 8 an ordinance to exempt businesses from the purview of major labour laws for three years, to attract fresh investments.
The Government is planning 9 to auction shuttered public sector undertakings (aka PSUs, the term for a state owned enterprise in India) that fall under the industrial development department and create a land bank for industries by auctioning land owned by closed central PSUs.
Haryana (Gurugram): Haryana formulated a Logistics, Warehousing and Retail Policy, 2019, with an objective to create five logistics parks across the state with private sector participation. Policy aims to attract investment of INR100 billion (USD1.3 billion) and create 25,000 jobs focusing on cold chain facilities and retail hubs.
Maharashtra (Mumbai & Pune): In June 2020, the government announced 11 it would simplify the process of permissions required for setting up industries in the state. By providing promotional incentives, the state is keen to attract investments for logistics parks in Mumbai and Navi Mumbai areas.
Tamil Nadu (Chennai): Tamil Nadu has passed Business Facilitation Act, 2018, to improve ease of doing business by facilitating clearances and renew als to enterprises to improve the ease of doing business. Tamil Nadu has signed eight memorandums of understanding (MoUs) worth INR104 billion (USD1.3 billion) to set up their manufacturing units and generate employment in the state.
Tamil Nadu Electric Vehicle policy, 2019, provides various concessions to manufacturers of electric vehicles (EV). Apart from in cubation services such as office space, common facilities and mentoring support, an EV Venture capital fund will provide financial sup por t to EV start ups. As of July 2019, Tamil Nadu accounts for 6.4% of the electric vehicles sold in the country. We expect this policy to increase the state’s share of electric vehicles production.
Telangana (Hyderabad): According to the government of Telangana, logistics is one of the 14 priorities identified in the state’s industrial policy ( TSiPass , 2014) and in October 2019, state government announced construction of 10 logistics parks along Outer Ring Road (ORR) with private parti cip ation.
We expect these logistics parks to cater demand from the consumer goods, pharmaceuticals and defence sectors.
Karnataka (Bengaluru): In May 2020, the government made amendments to the Land Reforms Act to allow industries to buy agricultural land. In 2020, the government plans to exempt companies setting up industrial units from obtaining clearances under multiple state laws, including trade licenses and building plan approvals.