Key Government programs to incentivize business operations in India
India is one of the fastest growing economies across the globe with an expected growth rate of 7.5 percent for fiscal 2019-20. Even for fiscal 2018-19, the GDP growth rate is estimated to be 7.2 percent. Retaining these remarkable growth rates with a clear vision to improvise them, the economy needs consistent fueling through a combination of fiscal as well as non-fiscal policies.
Various incentives, including tax linked benefits, have been consistently deployed to stimulate growth of existing business operations and inducing fresh investments into the country. During the run up to Goods and Services Tax (GST) regime, recommendations were made to scale down indirect tax exemptions to ensure seamless flow of credits through supply chain. Following these, industrial policies are now increasingly focused towards providing incentives through budgetary support schemes. Under present regime, the tax linked benefits are fairly limited and are being supported largely through budgetary / fiscal allocations.
A brief outlook on the key incentive programs in operation today is as under:
1. Incentive packages as part of State Industrial policies
Majority of states in India offer various incentives to attract investors for setting up operations in their state. These incentives are usually offered in shape of SGST refunds, capital subsidies, soft loans, stamp duty and electricity duty concessions, allotment of land at cheaper rates, improved infrastructure access and fast track approvals.
While the nature and quantum of benefits are typically defined in industrial policies, the States are often willing to negotiate and offer a customized incentives package to the investors depending upon scale and period of investment, expected employment generation, brand value etc. The blend of monetary and non-monetary benefits makes investing in certain states quite lucrative, especially where the projects are capital intensive.
During Global Investors Summit conducted by Maharashtra authorities in 2018, over 4,106 Memorandum of Understanding (MoU) were signed with investors having expected investment of around INR 12 lakh crore in the State. The state of Tamil Nadu conducted Global Investors Meet 2019 wherein 304 MoUs were signed with proposed investment plans of over INR 3 lakh crore in the State. Similarly, around 28,360 MoUs were signed by the state of Gujarat during Vibrant Gujarat Global Summit 2019 held recently.
Various States have started rolling out different options such as sector wise packages (automobiles, electronics, data centers, hospitality, aviation etc.), policies for Micro, Small & Medium Enterprises (MSME) etc. to diversify investors profile applying for benefits. State incentives packages have gained immense significance to the extent that its now considered as a critical factor for investors to decide geographical presence of their business.
2. Sector specific schemes:
FAME-India is one of the most robust schemes by the Union Government for automobile industry and provides incentives for manufacturing of hybrid and electric vehicles in India. Currently, phase-1 of the scheme is operational up to 31st March 2019, wherein subsidy is provided for each unit of eligible vehicle sold under the scheme.
Compared to budget of around INR 895 Cr for FAME-Phase I, the Union Cabinet has recently approved Phase II of FAME scheme with impressive allocation of INR 10,000 crores. The second phase is largely focused towards electrification of public transportation and commercial vehicles. Thus, benefits are expected to be limited for vehicles fitted with advanced battery like a lithium ion battery. The scheme further envisages development of infrastructure to support electric vehicles through installation of battery charging stations across the country. The scheme aims to provide benefits over a period of three years and is expected to go live from 1 April 2019. As the country gets ready to ply electric wheels, this incentive package could turn out to be a boon for automobile industry.
Focused towards indigenization of products in electronics industry, Modified Special Incentive Package Scheme (M-SIPS) was launched in 2012. This scheme provided capital subsidy to the eligible manufacturing units by reimbursement of taxes and duties. However, the scheme was open for fresh applications only till 31st December 2018 and has not been extended any further. Around 419 investment proposals were received by the authorities under this scheme with gross investment outlay of INR 1.13 lakh crore. Out of these, 197 applications have been already approved, with proposed investment of INR 41,791 crore, and the remaining are under appraisal.
The recently introduced National Policy on Electronics, 2019 seeks to implement various schemes to promote domestic manufacturing in Electronics System Design and Manufacturing. It targets to achieve turnover of USD 400 billion by 2025 and creation of startup ecosystem for evolving technologies, including Internet of Things (IoT), 5G, artificial intelligence, robotics, photonics and nano-based devices. Fiscal incentives and creation of infrastructural support, as intended by the Government under this policy, clearly represents India as an ideal hub for investment in these emerging fields.
3. Initiatives for Startups
With a clear objective of developing an ecosystem to foster innovation and startups in India, the Government launched Startup India Action plan in January 2016. A corpus of over INR 10,000 crores has been earmarked to provide benefits to startups under this plan. Benefits include tax holidays, easy patent filing support, grants for R&D activities and centers, and fast track regulatory approvals.
Over 14,036 applicants have been already recognized as startups for entitlement of these benefits. To facilitate ease of doing business, a dedicated startup India hub is also operational to educate potential entrepreneurs and resolve their queries. Having received an excellent response, the program has been a huge success and remains one of the most lucrative policies for small and medium scale investment opportunities.
4. Tax or duty linked incentives by Central Government
The Union Government provides several tax concessions as part of its fiscal policy to incentivize trade and commerce. This includes various duty exemptions, drawback schemes, concessions pursuant to Free Trade Agreements, incentives under Foreign Trade Policy (FTP) etc. Some of the popular schemes include Service Exports from India Scheme and Merchandize Exports from India scheme wherein duty scrips are issued to exporters bringing foreign currency in the country. Estimated amount of indirect tax concessions for promotion of exports provided during FY 2017-18 was INR 36,710 Cr of which around INR 16,408 Cr pertained to incentive schemes under FTP.
5. Area based GST linked incentives
The Central Government used to provide excise duty exemptions or refunds to manufacturing units located in special category states i.e. Jammu and Kashmir, Himachal Pradesh, Uttarakhand and North East region. With excise duty being subsumed under GST, these exemptions discontinued from 1st July 2017. However, the existing benefits have been grandfathered under GST regime for residual period of entitlement through budgetary support. These eligible units are entitled to refund of GST paid by them to the extent of share of Central Government (i.e. 58% of Central GST and 29% of Integrated GST). The Central Board of Indirect Taxes and Customs (CBIC) has issued a detailed circular explaining methodology and procedure in this regard.
Fresh policies have also been introduced under GST regime by Department of Industrial Policy and Promotion (DIPP) for above mentioned special category states, such as North East Industrial Development Scheme (NEIDS), 2017. These policies are proposed to remain effective till March 2022 and provide support to both manufacturing and service sector. An assortment of tax linked benefits (such as, GST and income tax reimbursement) and incentives linked to insurance, interest, transportation and employment costs of the business are being offered under these schemes.
The trend of deploying industrial incentives is expanding through budgetary support with focus on specific products and industries as necessary. An inclination towards linking incentives with production levels, investment outlay, employment generation etc. through subsidy, instead of tax exemptions or refund, is clearly emerging. While this does not distort the supply chain, the effectiveness of these measures for the targeted sectors would be interesting to watch.
Disclaimer: Above expressed are the personal views of the author, and the publisher or the author disclaim all, and any liability and responsibility, to any person on any action taken on reliance of it.
 As per Finance Ministry of India (announced during 2019 Union Budget speech on 1 February, 2019)
 Source: https://www.livemint.com/Politics/r7Y7hPlh5yBat1k9f3fvuJ/Magnetic-Maharashtra-summit-4106-MoUs-worth-Rs1210-trilli.html
 Source: https://www.thehindubusinessline.com/companies/gim-2019-corporates-reaffirm-their-allegiance-to-tamil-nadu/article26230870.ece
 Source: https://www.businesstoday.in/top-story/vibrant-gujarat-over-28000-mous-signed-to-generate-21-lakh-jobs/story/311944.html
 Source: Press Release dated 28.02.2019 available on pib.nic.in
 Source: National Policy on Electronics 2019 published vide Notification No 26(1)/2019-IPHW dated 25.02.2019
 Source: https://www.startupindia.gov.in/content/dam/invest-india/Templates/public/Status_report_on_Startup_India.pdf
 Source: Annexure 7 to Union Receipt Budget 2018-19 titled as Statement of Revenue Impact of Tax Incentives under the Central Tax System
 Refer Circular No. 1060/9/2017-CX dated 27.11.2017 and Circular No. dated 1061/10/2017-CX dated 30.11.2017 issued by CBEC (now CBIC)
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