3 minute read 1 Jul 2020
Make in India 2.0

Gearing up for Make in India 2.0

By EY India

Multidisciplinary professional services organization

3 minute read 1 Jul 2020
Related topics Tax COVID-19

Supported by government policies, this could be the right time to strengthen India’s manufacturing prowess.

India is proving to be an attractive destination for businesses around the world. To become a competitive manufacturing hub, India will leverage its advantages such as the existing strong manufacturing base, competitive labor and taxation, investor-friendly business regulations and upgradations in infrastructure. A strong foundation has been laid for Make in India to unleash India‘s full potential to support the global economy.

Our report, Tapping into the globally-competitive Indian manufacturing opportunity, is aimed to unravel potential opportunities for businesses in India and why India serves as a strong contender for manufacturing providing opportunities to collaborate with Indian companies through contract manufacturing.

With its 1.3 billion people and a rich culture and history of upholding strong democratic values, India has been rapidly adapting to change. With over 440 million millennials and 390 million Gen Z[1], the Government of India has been focused on its National Skill Mission to strengthen its human capital. Juxtapose this with the annual 2.6 million STEM graduates (largest pool in the world) and the true potential of India becomes evident.[2]

India has a growing consumer market adding US$150 billion annually.[3] India’s per-capita income of US$2,200 has reached a tipping point after which the journey towards doubling of per-capita income would lead to rapid increase in consumption by the middle class.

The government has also taken significant reforms, such as introduction of Goods and Services Tax, Insolvency and Bankruptcy Code, codification of Labor laws into four codes. All of this in the backdrop of improving its India’s ranking in Ease of Doing Business from 133 in 2014 to 63 in 2019.[4]

COVID-19 and its impact on global supply chains has, on the other hand, posed a new challenge for global enterprises to explore options and evaluate new geographies for manufacturing. In this context, India is committed to firmly place itself as a strong contender for global enterprises as a manufacturing destination. For this, the government on its part has committed towards:

  • Expanding the role of private capital
  • De-controlling the agriculture sector
  • Efficient and competitive electricity sector
  • Continued commitment towards foreign direct investment
  • Reducing corporate tax rate for manufacturing entities to 17% (being lowest among Asian countries)
  • Abolishing Dividend Distribution Tax and introducing dividend withholding tax concept to reduce the cost of equity capital

Complementing these efforts is the vision of an Atmanirbhar India, which supports the cause of building capacities, products and solutions for the Indian market while participating in the global economy.

What does all this mean for global corporations?

India with a vibrant and growing domestic market offers a growth opportunity for new entrants, which includes:

  • New sectors such as defence, medical devices, smartphones, electronics, battery manufacturing and food processing
  • Existing strong sectors such as Consumer products, textiles and apparel, pharmaceuticals, iron and steel, industrials, automotive components, etc.

India is also a viable destination for contract manufacturing, which has been enabled by:

  • Its policies that enable import of inputs and capital goods to undertake manufacturing for export in bonded warehouses
  • Free flow of goods in and out of the country with simplified customs procedures and major upgradation of port infrastructure

The central and state governments have also put together specific incentive programs for various sectors and set up a framework to facilitate investments while setting aside a dedicated land bank for building new manufacturing capacities to realize the vision of Make in India.

Summary

With proper engagement with the government, multinational companies can get requisite policy support along the necessary lines.

About this article

By EY India

Multidisciplinary professional services organization

Related topics Tax COVID-19