Gautam Pai

The Chief Minister of the Government of Gujarat (‘GOG’), Mr. Vijaybhai Rupani, last week announced the New Gujarat Industrial Policy 2020 (‘the New Policy’) vide a press release.  The earlier industrial policy of 2015 was expired on 31 December 2019, which was extended twice up to the date of release of New Policy.

In Gujarat, the MSMEs grew by over 60 per cent from 2014-15 and is a home to over 3.5 million MSMEs, which forms a major source of employment and industrial growth.  As per the national statistics, Gujarat stands first in India in terms of industrial output with about 17 per cent of India’s output.

In the last 5 years, the State has registered an average growth rate of 10.14 per cent in the GDP at constant price.Considering the incentives provided under the earlier industrial policy, the amount of subsidy has increased almost 3 times in the last five years showing an exponential growth.

With the extraordinary success of the earlier industrial policy, the New Policy aims to commit an average outlay of INR 8,000 croresper annum for the next five years.

While the introduction of the New Policy was planned well in advance last year, the GOG was conscious in framing the right structure for the New Policy. It is understood that the GOG had constituted nine task force committees which had several rounds of discussions for deliberating the current needs of the State and constructive suggestions were taken into consideration from all the industries. Considering the outbreak of Covid-19 and changes in global economies, there could not be a better time to roll out the vision for attracting new investments in the State.

While announcing the New Policy, Mr. Rupani openly welcomed all the multinational companies who are planning to shift their industrial units from China and other countries due to the pandemic. Adding further, he also mentioned that the GOG already held four meeting with Japan, three meetings with United States, one each with Germany and UK in this regard.

The key focus of the New policy seems to be towards employment generation, Next generation industry 4.0 led manufacturing, advancement of the thrust sectors, supporting the MSMEs, adoption of the state-of-art technology, inclusive & balanced regional development, so as to propel the state towards ‘Aatmanirbhar Gujarat’ which shall contribute to India’s vision of “Aatmanirbhar Bharat” as laid out by the Hon’ble Prime Minister of India.

Given the above background, the key highlights of the New Policy issued vide a press release have been provided below:

Key Features of the Policy

1. Special incentives for relocation of industries

On the outbreak of Covid-19, many companies from over the globe have been planning to shift its manufacturing base from China to other countries. Countries like Japan has also provided stimulus to its companies to move its industrial base from China to other Asian countries like Vietnam, Myanmar and India amongst others. In the New Policy, GOG would be providing special incentives to such companies planning to relocate their operations and / or diversify their supply chains from other countries to the State.

While the details of the incentives have not been disclosed clearly in the press release, the GOG has introduced this as one-of-a-kind incentive which has not yet been provided by any other state. However, the New Policy document is awaited to be released and available in the public domain.

2. Thrust Sectors

In view of the industrial policies of the other states and the global industrial trends, the GOG of has conceptualized various thrust sectors and divided into two baskets – (i) Core sectors and (ii) Sunrise sectors. Core sectors includes sectors which already has a very strong manufacturing base in the State and has the potential to accelerate further considering the global scenarios. Sunrise sectors includes sectors which has a significant potential for technological advancement and can contribute to sustainable economic development.

Sectors which have been identified as thrust sectors are mentioned below:

Core sectors(nine): Electrical machinery & equipment, Industrial machinery & equipment, Auto & auto components, Ceramics, Technical textiles, Agro & food processing, Pharmaceuticals & medical devices, Gems & jewelry and Chemicals (in designated areas)

Sunrise sectors (six): Industrial 4.0 manufacturing, Electric vehicle & its components, Waste management projects, Green energy (solar & wind equipment), Eco-friendly compostable material (substitute to traditional plastics) and 100% export-oriented units (irrespective of the sector)

The New Policy to provide incremental incentives to the thrust sectors as mentioned above, which could turn out to be a bold move in attracting new investments in the State.

However, the New Policy seems to be silent on large infrastructure and key industries as part of the port-led development of the State, including LNG, petrochemicals, iron and steel, and cement.Since there was provision for exclusion of the negative list was provided in the earlier industrial policy, it would be pertinent to see the list of the negative list of industries in the New Policy, if any.

3. Capital Subsidy

As a part of the earlier industrial policy, companies were being compensated by the State by reimbursement of GST paid in the State as ‘Net SGST reimbursement’.  Due to the complexities involved in computation of GST and the amount to be reimbursed, the GOG has replaced the same to introduce flat subsidy on new investments.

GOG becomes the first state to delink incentives based on Net SGST and provide incentives up to 12 per cent of fixed capital investment (FCI) will be given to large industries for setting up manufacturing operations in the state in form of capital subsidy.  While there is no upper ceiling on the amount of incentive to be given to a unit, there is an annual ceiling for the same at INR 40 crores per annum for a period of ten or twenty years, depending on case to case basis.

This would help increasing the transparency in terms of the amount of the incentives available at the time of investment itself, which is a positive move by the GOG.

In addition to the above, new industries will continue to get exemption from electricity duty for a period of five years.

4. MSMEs

In order to bring a parity in MSME sector, the GOG has revised the definition of MSME in lines with that of the Central Government to provide advantages and benefits proposed to be provided to MSMEs to a larger group of units.  The New policy focuses to lift-up the MSMEs by providing various incentives and the same are mentioned below:

1. Capital subsidy: Eligible for capital subsidy up to 25 per cent of the eligible loan amount, subject to a ceiling of INR 35 lacs. For units having FCI over INR 10 crores, the said units shall be eligible for an additional capital subsidy of INR 10 lacs.
2. Interest subsidy: Eligible for interest subsidy up to 7 per cent of the interest levied on the term loan, subject to INR 35 lacs per annum for a period of seven years. Additional 1% of interest subsidy to be provided to each of the below:
   • • SC or ST entrepreneur, physically challenged entrepreneur, women entrepreneur, start-up in manufacturing sector
   • Entrepreneur below the age of 35 (as on the date of sanction of the loan)
3. Service sector MSMEs: The New Policy to offer incentives in form of interest subsidy as mentioned above to the service sector MSMEs in the State including those engaged in financial services, healthcare services, audio visual services, construction related engineering services, environmental services, etc. Having said this, a separate policy on the services sector is still awaited for the large industries.
4. Acquisition of foreign technologies by MSMEs: Eligible MSMEs to receive 65 per cent of the cost of acquiring foreign patented technologies, subject to a ceiling of INR 50 lacs. Again, this is a one-of-a-kind incentive provided to raise the bar of technology for the Indian MSMEs to make them globally competitive.
5. Market Development Assistance: Fiscal assistance of 75 per cent of the stall rent (subject to a ceiling of INR 2 lacs) for exhibitions in India and 60 per cent of the stall rent (subject to a ceiling of INR 5 lacs) for exhibitions outside India. This would keep on encouraging the MSMEs to market their product at a global level.
6. Encouraging MSMEs to use Solar Power:In order to encourage more MSMEs to use rooftop solar power, GOG will pay 50 paise more to every unit of solar power bought from MSMEs and accordingly, the new purchase price stands at INR 2.25 per unit. Additionally, existing industries who switch to solar power, would be provided interest subsidy on the term loan. However, the quantum and further details would be laid out in the New Policy document.
7. Other incentives proposed to be provided to MSMEs include implementation of enterprise resource planning, information & communication technology, obtaining quality certifications including ZED certification, patent filing, service line and power connection charges, rent assistance etc.
9. Government land to be given on long term lease basis

After the outbreak of the Covid-19 pandemic, in order to attract investment in the country for the companies who are planning to shift base from China, India has been developing a land pool which is nearly double the size of Luxembourg.  Hon’ble Prime Minister Mr. Narendra Modi has been closely working with the state governments and such identified land pool includes existing industrial land in states such as Gujarat, Maharashtra, Tamil Nadu and Andhra Pradesh.  At present, investors that are keen on setting up a factory in India need to acquire land on their own and there have been delays in the project as it involves negotiating with small plot owners to part with their holding.

In order resolve the above issue and give a thrust to a balance regional development in the State, the New Policy offers to facilitate the companies in getting ‘Government Land’ on a long term lease up to 50 years (further extendible) to industrial enterprises at 6 per cent of the market rate.  Such land can be further mortgage by the industries.

6. Support to Startups

Gujarat has been one of the leading states when it comes to manufacturing growth, but the State has not been a home to many scalable startups in the past decade.  While Karnataka, Maharashtra and Delhi are amongst the states who have developed a focused startup ecosystem, Gujarat has not been on the fore front.

However, there are some of the well-known startups, which have gone beyond the traditional businesses with its innovation in technology such as Lendingkart, Infibeam Avenues, Reelo, Beardo, Naapbooks, etc.

Further to the above, institutes like Centre for Innovation Incubation and Entrepreneurship CIIE, IIM Ahmedabad), MICA Incubator, Swarnim University and PDPU Innovation & Incubation Centre have been playing a crucial role in incubation of various startups in the State.

Since developing a startup ecosystem in the State is quite vital so as to give advantage and handheld support to scalable startups, the New Policy proposes to provide the following key benefits to the startups:

1. Funding support: Seed support has been increased from INR 20 lacs to INR 30 lacs. Gujarat Venture Finance Limited (GVFL) to set-up a separate fund for providing mid-level pre-series A funding. Further, these startups to get 1% additional interest subsidy. For startups with significant impact on the society, additional grant of up to INR 10 lacs to be provided.
2. Sustenance Allowance has been increased from INR 10K per month to INR 20K per month per startup for one year. For startups with atleast one women co-founder, the same has been increased to INR 25K per month per startup for one year.
3. Fiscal support of INR 3 lacs per startup to be provided for enrolment of national / international recognized acceleration program.
4. Soft skill assistance: Funding support of upto INR 1 lac per startup for trainings specific to ‘Managerial training, soft skills, marketing skills, fundraising, finance” on would be provided on reimbursement basis
5. Mentoring assistance of INR 1 lac per startup to be provided to recognized Nodal Institutes subject to ceiling of INR 15 lacs per annum per institute
8. Research and Innovation

In order to provide continuous focus on development of new R&D institution in the State, the New Policy provide support of INR 5 crores to private companies and institutions for setting-up R&D and product development centers.

Further, industrial enterprise or industrial association may get reimbursement of 50 per cent of the cost incurred (excluding cost of land and building) for contract or sponsored research work given to recognized R&D institution or colleges approved by AICTE and the same shall be subject to maximum INR 50 lacs.

8. Development of Industrial Infrastructure

In order to support the vision of ‘Atmanirbhar Gujarat’, it is important to develop sufficient infrastructure for development of industry.

The New Policy will provide incentives to private developers for setting up private industrial parks in the state at 25 per cent of FCI subject and 50 per cent in case of Vanbandhu talukas, subject to a ceiling of INR30 crores. Stamp Duty reimbursements will be given at the rate of 100 per cent to developers and 50 per cent to individual units.

In order to promote clusters in the State, financial assistance of up to 80 per cent of the project cost upto INR 25 crores for set-up of industrial infrastructure such as construction and up gradation of roads, warehousing facilities, fire stations, underground utilities, etc. will be provided.  Further, the New Policy will provide 80 per cent of financial assistance upto INR 25 crores for dormitory housing in manufacturing clusters in order to provide better living conditions for laborers in industrial clusters.

This will support industrial infrastructure creation & developing last-mile connectivity.

9. Sustainable Manufacturing

Sustainable manufacturing is creation of manufactured products through economicallysound processes that minimize negative environmental impacts while conserving energy and natural resources.  In the recent times, where there is a steady rise in the global warming crisis, it is responsibility of the industries to adopt sustainable manufacturing.

In order to push sustainable manufacturing, the New Policy to provide up to 50 per cent of capital subsidy subject to a ceiling of INR 75 lacs for Zero Liquid Discharge plants,practicing at least 50 per cent waste recovery through Zero Liquid Discharge as certified by GPCB.  Further, the New Policy will also give Incentives to MSMEs at the rate of 35 per cent of the cost of P&M and to large units at the rate of 10 per cent of the cost of P&M, subject to a ceiling of INR 35 lacs for implementation of cleaner production technology in place of existing process such as substitution & optimization of raw material, reduction in water consumption or energy consumption or waste generation.

10. Skill Development and Training Support

The State has been the home to skilled laborers and workers migrating from other states

In support to the advancement of the industries and investment promotion in the State, skill development is one area that would play a tremendous role in attracting the investors and generating employment.

The New Policy intends to undertake gap analysis of skill requirement for industries and available workers across various sectors in the State. This will help create a roadmap for training local population in relevant skills and thus bridge the gap. The State will also give fiscal support in setting-up skill development anchor institutes, specialized skill development centers, skill upgradation centers, etc.

Further to the above, the New Policy will give financial incentives for skill enhancement up to INR 15K per person per training.

11. Others

Separate financial incentives have also been allocated for the development of common environment infrastructure. Further, in order to provide balanced regional development, incremental benefits would also be provided to industries setting-up operations in industrially less developed areas.

Ease of doing business

Currently, in order to facilitate ease of doing business in India, there has been a single window clearance option for the investor to set-up business in Gujarat i.e. Investor Facilitation Portal (IFP). However, the GOG is planning to launch a separate framework ‘Mega Permission’ which will require the investor to submit only one application form for obtaining 26 different state related approvals and compliances to be processed in a speedy manner.

While this will help further strengthen the ease of doing business in India, it would be important to see the implementation of the framework in the times to come.

Many a little, makes a mickle – Making India self-reliant

Since the manufacturing sector has not been doing so well in the recent past, incentives such as capital subsidy, interest subsidy, etc. would lift-up the sentiments of the investors and promote new investment in the State. Providing incremental incentives to the core sectors such as pharmaceuticals and medical devices and sunrise sectors such as industrial 4.0 manufacturing and electric vehicles would further support the State in competing at the global level.

This Policy may be looked at as a benchmark for states like Telangana and Tamil Nadu who are in the process of renewing their industrial policies.  While GOG has taken a step for its vision of ‘Atmanirbhar Gujarat’, it is just one of the steps to be taken by all the State Governments to support the vision of ‘Atmanirbhar Bharat’.