India: Developing India into a Manufacturing Hub

 

India launched the “Make in India” program to place India on the world map as a manufacturing hub and give global recognition to the manufacturing sector in Indian economy. India is expected to become the fifth largest manufacturing country by next year. Under the Make in India initiative, the Government of India aims to increase the share of the manufacturing sector to the gross domestic product (GDP) to 25 per cent by 2022, from 16 per cent presently.

With the help of Make in India drive, India is on the path of becoming the hub for hi-tech manufacturing as global giants are choosing India as manufacturing and export base. Last year the Government of India released the draft National Policy on Electronics (NPE) which has envisaged creation of a US$ 400 billion electronics manufacturing industry in the country by 2025. Additionally, basic custom duty on various parts/components used in electronics industry has been exempted to boost manufacturing. Implementation of GST has created a single largest market the world has ever seen, a boon to the manufacturing sector as it gives a huge captive domestic market.

The ease of doing business could probably be the most important factor in making India a hub for manufacturing. India moved to the 63rd spot in the World Bank’s Ease of Doing Business global rankings due to sustained business reforms. India also figures in the top ten most improved countries in the world for the third consecutive year. From being ranked 142 in 2014 to 63 in 2020, it has been a significant upward journey for the country in a rank list that is an important input in the plans of global investors. The latest improvement has come on the back of the implementation of the Insolvency and Bankruptcy Code (IBC).

The country’s ranking in the “Trading across borders” category jumped 12 places from 80 to 68 signifying the abatement of paperwork in favour of electronic filing of documents and single-window customs procedures. Importing and exporting has become easier for companies with the creation of a single electronic platform, upgrades of port infrastructure and improvements to electronic submission of documents. Interestingly, there has also been improvement in a parameter “Dealing with construction permits”. The country’s ranking has improved by 25 places from 52 to 27.

With the Government’s continuous efforts to promote India as the manufacturing hub globally and the commitment towards ease of doing business, another initiative in this direction has been taken by the Central Board of Indirect Taxes (CBIC) is allowing import of raw materials and capital goods without payment of duty for manufacturing and other operations in a bonded manufacturing facility. When the raw materials or capital goods are imported, the import duty on them is deferred. If these imported inputs are utilised for exports, the deferred duty is exempted. Only when the finished goods are cleared to the domestic market, import duty is to be paid on the imported raw materials used in the production. Import duty on capital goods is to be paid if and when the capital goods are cleared to the domestic market.

Deferred custom duty payment scheme is also available for global retailers to develop India into a logistics and supply hub. Under a bonded facility, the retailer doesn’t worry about the permitted time to store warehoused goods in custom bonded warehouses with the advantage of unlimited storage. The imported goods can be exported from there after storage/packing/repacking. The retailer pays duty on the imported inputs only when the finished goods are cleared from the warehousing facility to the domestic market.

Recently Government has reduced corporate rate of tax to 15% on new domestic companies, engaged in manufacturing sector. The definition of “manufacturing” is very wide and it also includes contract manufacturing. Further, the company can be engaged in the business of manufacture or production of any article or thing, and research in relation to such article or thing. The company can also be engaged in the distribution of such article or thing manufactured or produced by it. Thus, a manufacturing unit gets benefit on lower corporate tax rate also on research/development/distribution activities. With such low rate of corporate tax, India has become the most competitive tax destination for manufacturing activity.

Mere policies are not sufficient to attract manufacturing activity to any country. However, India has numerous natural advantages in terms of availability of highly skilled manpower, low cost of living, abundant availability of natural resources and raw materials, huge market, existence of Rule of Law and vibrant democracy. Coupled with these policies measures, India is set to develop into a preferred manufacturing and distribution hub for global manufacturing operation. Having large scale manufacturing plants in India where the domestic market could swallow large percentage of manufactured goods could be a double advantage for global manufacturing corporations.

 

For further information, please contact:

Gautam Khurana, managing partner

India Law Offices, New Delhi

e: g.khurana@indialawoffices.com 

t: +91 (11) 24622218

 

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