On October 25, 2011, the Indian cabinet passed the National Manufacturing Policy, which, if and when passed by the Indian Parliament, as is expected, will make it easier for foreign companies to establish manufacturing facilities in India.

Many foreign companies have been hesitant to establish manufacturing facilities in India due to multiple layers of bureaucracy and the 70+ laws that need to be met before facilities can be established.  In addition, closing facilities in India is very difficult.  The National Manufacturing Policy is supposed to significantly alleviate or eliminate these obstacles and promote world-class manufacturing activity.

Objectives of the National Manufacturing Policy

• Increase the manufacturing industry’s contribution to the Indian Growth Domestic Product (GDP) from the current level of 16% to 25%;
• Create 100 million more jobs over the next 10 years;
• Enhance skill levels among rural migrant and urban poor;
• Increase the domestic value addition and technological depth in manufacturing; and
• Ensure environmental sustainability for the growth.

National Investment and Manufacturing Zones

Establishing a number of National Investment and Manufacturing Zones (NIMZs) is the most important feature of the National Manufacturing Policy.  NIMZs will be large tracts of developed industrial zones with the requisite ecosystem for manufacturing operations.

The Indian government will obtain environmental and other statutory clearances and state governments will provide basic facilities such as water and power.

Each NIMZ will be managed by a special purpose vehicle (SPV), whose CEO will be a senior central or state governmental official.  NIMZs will be publicly-run entities for the benefit of the private sector.

India is planning on initially establishing seven NIMZs.  A few Indian States such as Gujarat, Maharashtra, and Andhra Pradesh have already started assembling large land banks anticipating implementing the National Manufacturing Policy.

Reducing Legal Barriers

In addition, under the National Manufacturing Policy, there will be a significant reduction in the number of laws and regulatory hurdles that will need to be complied with for setting up manufacturing operations in India.  A fast track approval system will also be available and a web-based clearance system will help speed up clearance by central and state authorities.

Closing Manufacturing Plants

The National Manufacturing Policy will also make closing manufacturing facilities easier.  Companies will be permitted to use insurance to pay workers’ compensation in the event that a manufacturing facility closes.

Easing Labor and Tax Impediments

In addition, as part of its responsibilities, each SPV will help re-deploy laid-off workers to other NIMZs facing labor shortages.  And there will be an exemption from capital gains tax on sales of plants and machinery of unsuccessful manufacturing units that are closed as long as profits are reinvested within a period of three years.

The main objective of the revised National Manufacturing Policy is to encourage and facilitate more manufacturing growth and investment in India.  For more information, please contact Miller Canfield’s India Team.

Gurinder Singh
singh@millercanfield.com

Amita Gopinath
gopinath@millercanfield.com