Tracking Key Incentives for Heavy Equipment OEMs under MII (Make in India) Scheme

Advantage India: Unleashing Growth Drivers

  • Demand Side Drivers: The power generation capacity in the country post witnessing sluggish rate from 2012-15 is gaining momentum and is expected to be at 14-15 GWs per annum, from 2016-17 onwards, signaling good prospects for OEMs in manufacturing of main plant equipment, BoP equipment and also the T&D equipment. Moreover the country is pushing towards greener alternative in thermal generation which means, more super critical capacity additions leading to enriching prospects for the OEMs involved in manufacturing of main plant and BoP equipment.
  • Investments: Since India was lagging in inherent manufacturing capacity of power generation equipment (main plant & BoP) , the need of the hour was to open up manufacturing of such equipment in India bringing down the imports. To facilitate this Government of India introduced a flagship of MII which proved to be a boom to cut down the red-tapism, which was prevalent erstwhile. This enthused confidence among the global OEMs to set up their manufacturing units (if not being set) or invest in increasing the existing manufacturing capacity in India through fresh pool of investments.
  • Policy: Lot of incentives where offered for local manufacturing in India for both foreign and domestic OEMs which included tax holidays, lower duty rates, and multiple policy level support at both central and state levels. Also coupled with the ease of doing business the condition of availability of finances to search companies involved in manufacturing were made easy and supportive.
  • Competitive Advantages: Among the fast paced developing economies India boasts to have relevant advantages for OEMs involved in manufacturing of main plant and BoP equipment which are mentioned as below:
  1. Comparatively lower land cost
  2. Low cost of labour at relatively better skill set
  3. Minimal government level hindrance in terms of setting up manufacturing plants in the country and apt support in terms of facilitating SEZs/NIMZ to help OEMs develop R&D centers and manufacturing units
  4. Good market potential and future demand for power generation equipment

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Make In India (MII) Scheme & Incentives for Manufacturing Sector – Demographic Advantage

Demographic Advantage of India – MII Enabler

India as a country offers following demographic advantage, which is highly suitable for the envisaged Make in India Initiative of the government:

  • 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

What does it mean for Heavy Equipment Manufacturing Sectors:  It clearly highlights that for setting up manufacturing business, India is decently placed as a country. Though, India has always been blessed with resources be it manpower or raw materials but the policy level impediments and business environment in the past has not been apt for big firms establishing aggressive business in India. But, with MII in place it is expected that companies in manufacturing segment will be able to leverage upon the demographic advantage of the country, especially in the heavy engineering & power plant equipment segment .

Make In India (MII) Scheme & Incentives for Manufacturing Sector – Infrastructural Facilities

Infrastructure Facilities Under MII – Positives for Manufacturing Companies

Government under MII initiative is facilitating following infrastructural support for manufacturing companies (especially heavy engineering companies):

  • 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
  • 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
  • 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)

What does it mean for Heavy Equipment Manufacturing Sectors:  The initiatives are clearly positive for manufacturing sectors. However, the ―effectiveness of these infrastructure facilities and the speed at which they come into being holds the key to leverage upon them. Given, the market sentiments and the level of advancements in so far observed under MII is not so enticing in current space and especially for heavy engineering segment. Although, still some facets and industry experts along with the feed from Government representative views MII is bound to gain momentum in coming years and the heavy engineering and power equipment manufacturing industry will benefit being as one of the priority sectors.

Make In India (MII) Scheme & Incentives for Manufacturing Sector – Ease of Doing Business

Ease of Doing Business – In Store for Manufacturing Companies

  • The corporate tax rate for companies registered in India to go down from 30% to 25% 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
  • 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 e-Biz portal, a business user can fill the e-Forms online/offline, upload the attachments, make payment online and submit the forms for processing of the department

What does it mean for Heavy Equipment Manufacturing Sectors:  The phased reduction in the corporate tax will be a boost as it will increase the margins on profit for companies in manufacturing where the competition is very stiff in India, especially in OEM segment for heavy engineering & power plant equipment. Also, the single window clearance will disable the inhibitions of the conglomerates to set up business in India.

Make In India (MII) Scheme & Incentives for Manufacturing Sector – Incentives Applicable

Incentives Offered to Manufacturing Industries under MII

  • Sector specific initiatives: The government of India provides sector specific subsidies for promoting manufacturing. For heavy engineering & power plant equipment business for setting up business for new establishments the corporate tax rate is at 25% in effect from FY 2016
  • 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
  • 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 assesse 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

What does it mean for Heavy Equipment Manufacturing Sectors:  With scores of incentives at concurrent levels i.e. at State as well as Central levels to boost the companies set up the manufacturing units in India.it is opportune time set up the same in the country. With the impetus on DCR (Domestic Content Requirements) for all the power projects which will be domestically funded, these incentives are a certain positive to be leveraged for all companies planning to set up manufacturing unit in India.

 

*The views expressed in this article are solely those of enincon perspectives and do not necessarily represent those of Enincon LLP.

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