­­­­­­­­­The Indian economy has not been immune to the side-effects of COVID-19, particularly as far as the healthcare and financial systems are concerned. Amidst such global economic turbulence, the Indian government has made efforts to boost the economy by announcing a significant economic stimulus package under the Atmanirbhar Bharat (self-reliant India) scheme. Many state governments in India have also swung into action to incentivise investment and capitalise on the opportunity offered by the pandemic, wherein several global businesses heavily dependent on China are reconsidering their business continuity plans and looking at alternative manufacturing bases.

Gujarat has a distinct advantage in this area on account of its pro-business government initiatives, conducive business ecosystem and progressive infrastructure. The Government of Gujarat (“GoG”) is continuously pushing for reforms and has rolled out the red carpet to foreign investors looking to invest in the state, resulting in the state receiving the highest national increment of 240% in FDI inflows in financial year 2019-20 compared to the previous year.[1]

Gujarat Industrial Development Policy

As part of GoG’s efforts to boost the state economy, on August 7, 2020, the GoG announced the Gujarat Industrial Policy 2020[2] (“New Policy”) to give thrust to Atmanirbhar Bharat, with a proposed aggregate outlay of INR 400 billion over a period of next five years. The New Policy aims to incentivise further investment in the state and make Gujarat a global business destination for sustainable manufacturing and service industry. Some of the key reforms introduced as part of the New Policy from a foreign investor’s perspective are set out below:

• Reforms in Regulatory Mechanism

In addition to the ongoing measures introduced to facilitate single window clearance, the state is preparing a framework for mega permissions, requiring investors to submit a single application form for 26 different state-related compliances and initiating a centralised inspection system, thereby strengthening investor facilitation, bringing transparency and enhancing the “ease of doing business” in the state.

• Balanced Regional Development

With a view to increase job creation and infrastructure development in developing regions of the state, the New Policy aims to offer special incentives to businesses investing in such less developed industrial areas. 

• Land Acquisition

Land acquisition and associated approvals is often one of key challenges faced by foreign investors when considering investment in India. To avoid such roadblocks and attract industries to invest in Gujarat, the New Policy facilitates industries in getting government land on a 50-year lease (extendable thereafter), depending on the strategic importance of the project. The GoG has also earmarked land parcels available for industrial use across the state and provides details of the same on an online portal[3], making it easier for investors to identify the land suited for their project. Additionally, measures are also being taken to accelerate the process of land procurement and conversion of land for industrial use.

• Relocation Incentive

With a view to incentivise businesses relocating their operations to Gujarat, the New Policy has introduced special incentives to such investors on a case to case basis.

• Thrust Sectors

The New Policy conceptualises 15 focus sectors, which will be offered incremental incentives, taking into consideration global investment trends and need for strengthening the integrated value chains, exports, policies, etc.

• Promotion of Micro, Small and Medium Enterprises (MSMEs)
  

As a major source of employment in the state, MSMEs form an integral part of the value chain for a larger industrial ecosystem. As a result, for businesses qualifying as a MSME, the New Policy proposes to provide capital and interest subsidies based on the taluka in which the MSME unit is located. Other incentives in the form of quality certification, technology upgradation, energy conservation, acquisition support, patent support and market development assistance are also provided.

• Capital Subsidy

Since GST has been implemented, companies were being compensated as per net GST on goods sold within the state under the erstwhile industrial policy. There were several complexities in calculations and therefore, GoG de-linked incentives from state GST – becoming the first state in India to take such a decision. 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 help the industry estimate future financial projections. The rate of incentive would vary based on the taluka in which the manufacturing unit is situated. Additionally, there is no upper ceiling on the amount of incentive to be given to a unit. This will help in grounding major investments in the state.

• Infrastructure

This sector remains the top-priority focus area for GoG. The New Policy offers financial support to set up industrial infrastructures, such as construction and upgradation of roads, warehousing facilities, underground utilities, etc., at 80% of the project cost up to INR 250 million. The Policy also provides incentives to private developers for setting up industrial parks in the state. This will reduce production cost, enhance competitiveness, support industrial infrastructure creation and aid in developing last-mile connectivity.

• Export Promotion

Under the New Policy, the GoG aims to continue to promote trade and facilitate exports and export-oriented units. A number of steps have been proposed by the GoG to this effect, including, inter alia, providing good quality logistics infrastructure, providing robust information dissemination and grievance redressal mechanism, setting up exhibitions/ conventions/ trade fairs (particularly for MSMEs) and partnering with leading national and state-level export promotion councils.

• Other Reforms

In addition to the above incentives, the New Policy offers various fiscal incentives for ensuring greater compliance with environmental standards and developing sustainable manufacturing and industrial infrastructure. Additionally, to support R&D, assistance will be provided to private companies proposing to set up research and product development centres in the state. Besides this, the New Policy offers assistance for sponsored research work from any industrial enterprise/ association to a recognised and approved R&D institution, to promote contract research work. The New Policy also puts a strong focus on expanding skill base in the state by incentivising private investment in training sector-specific manpower. Gap analysis of skill requirement of industries and available workforce across various sectors has also been proposed to realign training incentives with shifting technological trends and the relevant skill set[4].

Conclusion

Given Gujarat’s strong economic, political and demographic indicators, it makes a compelling case for investors looking to set-up regional/ global manufacturing base to consider the opportunities available in the state. With the introduction of standout features, like land on lease and de-linking of incentive from tax structure, the New Policy certainly aims to make Gujarat a lucrative long-term investment destination for companies looking to relocate/start/expand their operation in India. However, effective implementation of reforms introduced by the New Policy will be important for its success and overall growth of the state.

[1] Industrial Policy 2020: Propelling Gujarat’s Industries for an Atmanirbhar Gujarat, August 7, 2020, Industries Commissionerate, Industries and Mines Department, government of Gujarat. Can be accessed at: http://www.imd-gujarat.gov.in/policy

[2] Gujarat Industrial Policy 2015 came to an end on December 31, 2019. It was further extended up to December 31, 2020 or the date of release of the new policy, whichever is earlier. The New Policy was released on August 30, 2020. Accordingly, it replaces the previous industrial policy and is valid for a period of five years from August 7, 2020.

[3] http://gujarat.ncog.gov.in/indextb.

[4] Further, the GoG is also proposing to offer a 1200 days exemption from the applicability of key labour laws to companies that are willing to come and set up operations in Gujarat.