Modernisation in Industrial Policies

1.Introduction

Modernisation in industrial policies has been a pervasive goal of Indian official policy since independence. It has, however, acquired a new connotation since the advent of the present Prime Minister. More than ever before, the accent today is on technological upgradation, production of high quality goods at lower prices with the help of appropriate imports, drastic reduction in direct taxes, rationalisation of indirect taxes, and the creation of a healthy competitive environment in various sectors of the economy. It is also believed that the economy will respond positively to these measures, alleviating at the same stroke rural poverty and unemployment.

2.What are State Incentive Policies?

State Incentive Policies are programs which are sketched out to impact business investment behaviours for the development of the economic sector. The State budgeted program expenditures or tax expenditures are included in these incentives. These policies are implemented by the government so that new businesses are set up in the State, for expansion of some businesses etc.

The aim of SIP is to get the benefits of Foreign Direct Investment (FDI) by influencing the investors and preventing them from relocating elsewhere. SIPs are also offered to shape the benefits from FDI by making foreign companies operate in desired ways or to lead them into area where investment is a necessity.

For Example, incentives can be grants offered to local companies for investment in advanced technologies or to subsidies to foreign companies in the area. [2] The increase in competition between the states has hidden the difference between investment incentives and other policies as attracting and gaining capital has become the primary focus in making policies and regulations.

3.Indian Scenario
With the advancement in technology and related disruptions, India is slowly leading in terms of innovation and pioneering business models and strategies. It provides a boost to innovators to gain profit and sustain competition in global markets. To be in the top 50 countries, India has implemented many structural reforms.

The Department of Industrial Policy Promotion introduced ranking of states on Ease of Doing business which was done on 93 parameters. This was reformed and made more in-depth and was assessed on 336 parameters.

This was broadly based on ten parameters:

Single window clearance
Labour regulation enablers
Online tax return filing
Inspection reform enablers
Commercial dispute resolution enablers
Availability of land
Construction permit enablers
Access to information and transparency enablers
Obtaining electricity connection
Environment registration enablerrs

4.Various State Incentive Policies
Karnataka
Karnataka's new industrial policy is 2020-2025 is made for the holistic development of the State and promotion of some small cities. In this incentive policy the state has been divided into 4 zones and incentives are provided in accordance with zone and industry sector.

Highlights of the Policy
Zoning of the districts

Zone 1 and 2 Industrially backward districts
Zone 3 and 4 Industrially developed districts like Bengaluru and Mysuru

5.Identification of Focus sectors
The policy focuses on these key sectors:

Automobiles and auto components
Electric vehicles
Pharmaceuticals and medical devices
Logistics
Aerospace
Defense
Knowledge based industries
Renewable energy

6.Special Investment Regions
Special Investment Region Act will be enacted to make, operate and regulate investment regions. Each region shall be categorized as an industrial township with an area of 100 sq.km.

7.MSMEs to get Subsidies
Micro, Small and Medium Enterprises will be provided with production turnover- based subsidies to encourage innovation. This will be based on 10% of their turnover.

Other incentives include:

Power subside
Reimbursement of land conversion fee
Tax exemption on electricity tariff
Subsidies for sustainable operations strategies.

8.Creation of Direct Employment
It encourages local hiring and direct employment as much as possible. At least 70% of the employees should be locally hired. In case of Group F employees such as non-technical staff, drivers, etc. 100% should be locally hired.

Labor Reforms

The Factories Act, 1984 amended with respect to women working night shifts.
Sections 64 and 65 have been amended to extend over hours.
The Industrial Employment Act 1946 has been amended for contract employment or fixed term employment.

9.Wage Revisions
The Minimum wage shall be revised periodically based on consumer price index, inflation and other factors. [3]

Tamil Nadu State Incentive Policies
Objectives

Reach an annual average growth rate of 14% in TN manufacturing sector.
To achieve sustainable industrial development and create employment opportunities in the State.
Enhance growth of high technology industries including aerospace, nanotechnology etc.
Achieve rapid industrialization of the southern districts.
Build world class infrastructure for the industry.
Make TN as the innovation hub.

10.Focus Sectors

Automobile and auto components
Aerospace
Biotechnology and pharmaceuticals
Renewable Energy Equipment.

11.Incentives offered
Labor Sector Incentive
Flexibility in labor laws shall be given for the betterment of the labors. Flexibility in employment working conditions including working hours for women, 3 shifts, employment of women employees in night shifts and hiring contract labor shall be allowed.

Subsidy for patent registration/ quality certification

Cost of filing a patent application shall be reimbursed to the industries with tge limit of 1 lakh per patent registration or any other national or international certification.

10.1 Subsidy for training
The govt. shall provide subsidy for training for improvement of skills and generation of employment.

Incentives for manufacturing sector
The districts are categorized as:

Category A:
Chennai, Kancheepuram and Tiruvellur
Category B:
Other than A and C
Category C:
Madurai, Thengi, Dindigul, Sivagangai. Ramanathapuram, Virudhunagar, Tirunelveli, Thoothukudi and Kanniyakumari.

10.2 Standard Incentives
Industries under Category A and B are eligible for the following incentives :-

10.3 Reimbursement of Capital Investment
Manufacturing units shall be provided with an additional capital subsidy of 50% of the total cost of the project.

10.4 Stamp Duty Concession
Subsidy of 50% of stamp duty will be remitted by the government on the purchase of land or building by the industries under category A and B for industrial use.

10.5Subsidy for power supply
Uninterrupted supply of power shall be provided to the projects belonging to category C if a Government Order or MoU covers it.

10.6 Other Incentives
It will allocate lands for new industries in southern part of the State. To grab this incentive the company should be at least 25 acres and the range of investment should be more than Rs.50 crores. [4]

10.7 Puducherry
VAT And CST incentive/ Investment subsidy
Government of Puducherry will provide incentives and concessions on mega projects on the basis of pioneering nature, locational aspects, technology, importance of the project on Puducherry industrial growth and its ability to generate employment and revenues for UT.

For micro and Small Enterprises:
100% of the VAT/ SGST will be reimbursed.
Medium Sized Enterprises:
75% of the VAT/ SGST will be reimbursed.
Large Enterprises:
50% of the VAT/ SGST will be reimbursed.

10.8 Capital/ Interest Subsidy
The industrial units benefitting from loan from monetary organizations towards formations of fixed assets and for working capital will be qualified fpr an interest subsidy to a degree of 25% of the yearly interest amount paid.

For Micro Small Enterprises, 40% on the investments made on land, building, plant and machinery subject to a maximum of Rs.40.00 lakhs.
For Medium Large Enterprises, 35% on the investments made on land, building, plant and machinery subject to a maximum of Rs.35.00 lakhs.
For Women/SC/ST Entrepreneurs, 45% on the investments made on land, building, plant and machinery subject to a maximum of Rs.75.00 lakhs

10.9 Power Incentives
Reimbursement of 50 paisa per unit for 5 years shall be granted.

10.10 Registration Fees Incentive
100% stamp duty for purchase/ lease of building, land etc. shall be reimbursed.

10.11 Employment generation subsidy
Subsidy of 20% of wages up to 5 lakh per annum of workers covered under Provident Fund will be granted for 5 years.

10.12 Support to MSME Sector
MSMEs shall be qualified for grant of 50% subsidy with a ceiling of 5 lakh per unit.

10.13 Labor Reforms
Reforms shall be made in labor laws for maintaining peace and tranquility. [5]

11.MSMED ACT, 2006
The Govt introduced The Micro, Small and Medium Enterprises Development Act, 2006 to support the local industries, startups and manufacturing units of India. The main idea of govt to introduce this act was to promote, develop and enhance the competitiveness in micro, small and medium enterprises in India. The scheme has plays an important role in terms of incentives provided and it also helps the industries to reduce the procedural burden of industries, enterprises and startups in terms of lincensing/cerfication from govt or loan sanctioning procedure etc.

But as the time as passed there has been several amendments made in this act and there has been a division of industries/enterprises in accordance with their Investment and Turnover

Micro Industries:
The investment of Micro industries in Plant and Machinery must be less than Rs 1 Crore and the Turnover should be less than 5 Crore Rupees
Small Industries:
The investment in Plant and Machinery should not be more than 10 crore rupees and turnover should not exceed 50 crore rupees
Medium Industries:
The investment in Plant and Machinery should not be more than 50 crore rupees and turnover should not exceed 250 crore rupees

11.1Key Incentives under MSMED ACT:

Banking
Subsidy for Intellectual Property Registration
Marketing Support Assistance to MSMEs
Reimbursement of certification fees for acquiring ISO standards
Credit rating support
Concession on electricity bills
Tender Preference
Protection against Delayed Payment
Tax Benefits

12.Conclusion

The industrial policies in India have played a critical role in shaping the growth and development of the industrial sector. However, there is always room for improvement, and the following are some ways to improve industrial policies in India:

To expand the industrial sector, the government should create infrastructural facilities. This should be for power, transportation, and communication.
The government should lower administrative barriers and boost the ease of doing business. This should be done to encourage private-sector investments. The creation of industrial parks and a sound policy environment can also help in attracting investors.
The primary objective of industrial regulations should be to encourage environmentally friendly practices. Also, low-impact industrial practices help to reduce carbon emissions.
To achieve long-term sustainable development, India must look beyond traditional manufacturing. India must concentrate on innovation-led growth. The government should provide incentives for research. Also, for promoting technology transfer. This should be done to support the growth of the creative industries.
Industrial policies should focus on promoting sustainable industrial practices. It helps to reduce the carbon footprint and has a minimal environmental impact.
The growth of SMEs can play a critical role in industrial development and job creation. The government should provide incentives to promote the growth of SMEs. Also, to promote cluster-based development to support these industries.
The government should engage with industry stakeholders. Also, take their input while developing industrial policies. This is to ensure that the policies are industry-friendly. And provide adequate support to businesses.
A successful industrial policy in India should be comprehensive and centered on sustainable growth. It should offer a favourable business climate to draw investments and promote entrepreneurship.

The increase in competition between the states has hidden the difference between investment incentives and other policies as attracting and gaining capital has become the primary focus in making policies and regulations. Neoliberal environment of today of low regulation and taxation, is seen important for gaining capital. But, it is criticized by saying that the competition resulting from these incentives may lead everything downhill. Thus there is a serious necessity to regulate these policies on the global level as well as state level.

Citations

1.https://www.thehindubusinessline.com/opinion/new-industrial-policy-for-new-india/article66433347.ece/amp/ (last visit 13th December 2023)

2.https://link.springer.com/article/10.1007/s41775-022-00154-9 (last visit 13th December 2023)

3.https://testbook.com/amp/ias-preparation/industrial-policy-of-india (last visit 13th December 2023)

4.https://egyankosh.ac.in/bitstream/123456789/37990/1/Unit-22.pdf (last visit 13th December 2023)

5.https://www.ncbi.nlm.nih.gov/pmc/articles/PMC9940074/ (last visit 13th December 2023)