Supply Chains: India
Investment Climate
Prime Minister Narendra Modi’s time in office began with a focus on liberalizing foreign direct investment (FDI) norms and promoting a view that India is open for business. However, as India faced growing unemployment and an economic slowdown, the government pivoted away from the reform agenda to more protectionist tendencies. Nonetheless, since the COVID-19 pandemic, there has been renewed appetite to attract FDI and supply chains. Various reforms have been implemented to lower FDI restrictions in several industries and schemes have been rolled out in sectors including electronics manufacturing, textiles, and pharmaceuticals to encourage economic growth and improve the investment climate. In 2021, India received US$44.7 billion of inbound FDI versus US$44.5 billion five years earlier, an increase of 0.4 percent, and real GDP grew by 8.9 percent.
India continues to be an attractive destination for FDI investment because of its skilled workforce, growing consumer base, and proximity to important manufacturing sites and suppliers. However, challenges continue to impact India’s investment climate including political unpredictability, weak infrastructure and logistics, and numerous administrative barriers. India currently ranks 44 out of 146 in economic complexity.
In recent years, India has introduced various initiatives to attract FDI, which it views as an integral part in sustaining high levels of economic growth. In 2019, the Indian government implemented a package of new liberalization policies lifting some restrictions on FDI in multiple sectors including coal mining and contract manufacturing to bolster the slowing economy. As, part of its revitalization efforts, India aims to bring more manufacturing onshore and increase the number of sectors in which it is a competitive location for supply chains, with a particular focus on energy, pharmaceuticals, and financial services. India’s top foreign sources of investment in recent years have been the United States, Singapore, Japan, and the Netherlands.
Recent Investment/Supply Chain Policies
Economy-Wide Policies
ADMINISTRATIVE BARRIERS
National
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On March 23, 2022, the Ministry of Industry & Commerce put in place an investor-friendly policy, which allows most sectors, except those that are considered strategically important, to be open for 100 percent foreign direct investment under the automatic route. The automatic route ensures that eligible foreign investors do not need the approval of the Reserve Bank of India or the Government of India before making an investment.
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On September 22, 2021, Minister of Commerce and Industry Shri Piyush Goyal launched the National Single Window System (NSWS), a digital platform designed as a one-stop-shop that helps investors “identify and apply for various pre-operations approvals required for commencing a business in India."
ADMINISTRATIVE BARRIERS
Subnational
- On December 21, 2020, Chief Minister B. S. Yediyurappa launched an affidavit-based approval system (ABAS), as part of the amended Karnataka Industrial (Facilitation) Act, which “waives multiple clearances for investors” looking to set up businesses in the state of Karnataka for the first three years of establishment.
SUBSIDIES
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On February 20, 2021, the Department for Promotion of Industry and Internal Trade approved the New Central Sector Scheme for the industrial development of Jammu and Kashmir, which will run from April 1, 2021, to September 30, 2024. The scheme will provide more than ₹284 billion (US$3.83 billion) in financial incentives to eligible companies to attract investments in machinery and facilities for manufacturing, and to promote job creation and tourism in the region.
LAND REFORM
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On November 2, 2020, the Karnataka Parliament published the Karnataka Land Reforms (Second Amendment) Ordinance, 2020, which enables non-farmers and industries to buy agricultural land for nonagricultural use. This follows similar laws released over the past decade by the parliaments of Andhra Pradesh, Gujarat, Haryana, Karnataka, Madhya Pradesh, Maharashtra, Punjab, Rajasthan, Tamil Nadu, Uttarakhand, and West Bengal.
SPECIAL ECONOMIC ZONES
National
- On February 2, 2022, Finance & Corporate Affairs Minister Smt. Nirmala Sitharaman announced that the 2022-2023 National Budget will include a proposal for modernizing customs administrations and moderating tariffs. The new legislation will digitize the customs administration process of special economic zones (SEZs), reduce tariffs on capital goods imports to 7.5 percent, and lower administrative barriers by only selectively inspecting imports considered high risk.
SPECIAL ECONOMIC ZONES
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On February 2, 2022, Finance & Corporate Affairs Minister Smt. Nirmala Sitharaman announced that the 2022-2023 National Budget will include a proposal for replacing the existing 2006 SEZ Act. In Gujrat, the new legislation will allow foreign universities and institutions to offer courses in Financial Management, FinTech, Science, Technology, Engineering, and Mathematics in the Gujarat International Finance Tec-City (GIFT) “free from domestic regulations.” The new legislation will also establish an International Arbitration Centre, which will be set up in Gujrat’s GIFT City, for timely settlement of disputes under international jurisprudence.
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On November 10, 2020, the Ministry of Environment, Forest and Climate Change (MoEFCC) gave the State Industries Promotion Corporation of Tamil Nadu Limited (Sipcot) clearance to develop an industrial park in Tamil Nadu. Industries to be included in the park ––according to official correspondence between MoEFCC and Sipcot –– include Electric Vehicle (EV) and EV parts, plastics manufacturing, and nonpharmaceutical chemicals.
TAX
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On August 12, 2021, Parliament passed an amendment to the 2012 Finance Act that abolishes a retrospective tax on the indirect transfer of Indian assets owned by foreign companies. The act previously allowed the Indian government to tax certain transactions with foreign companies that took place prior to 2012. Furthermore, the amendment promises to reimburse companies with the amounts that they were taxed under the former law.
OTHER POLICIES
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On March 15, 2022, the Trade Ministers of Australia, India, and Japan held the second meeting of the Supply Chain Resilience Initiative (SCRI). The ministers resolved to identify key sectors for future trilateral cooperation and to develop supply chain principles for the region. The SCRI was launched on April 27, 2021, to share best practices on supply chain resilience and hold “investment promotion events and buyer-seller matching events to provide opportunities for stakeholders to explore the possibility of diversification of their supply chains.” The Ministers agreed to hold SCRI meetings once per year, with one country acting as chair each year in the order of Japan, Australia, and India.
Information and Communication Technology
SUBSIDIES
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On October 14, 2021, the Ministry of Communications launched the Production Linked Incentive (PLI) Scheme for Promoting Telecom and Networking Products Manufacturing in India, which will provide ₹122 billion (US$ 1.63 billion) in subsidies to domestic and foreign companies from FY 2021-2022 to 2025-2026. The PLI Scheme aims to increase the manufacturing of telecommunication products by 15 percent from 2021-2026.
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On September 23, 2021, the Ministry of Electronics and Information Technology (MEITY) extended the Promotion of Manufacturing of Electronic Components and Semiconductors (SPECS) Scheme by one year to 2026, which was originally implemented on April 1, 2020. According to MEITY, "the scheme will provide financial incentives of 25% on capital expenditure for the identified list of electronic goods that comprise downstream value chain of electronic products... all of which involve high-value manufacturing.”
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On July 1, 2021, the Ministry of Electronics and Information Technology (MEITY) announced that it has approved the Production Linked Incentive (PLI) Scheme applications of 14 companies. Foreign companies include Dell, Foxconn, Wistron, and Flextronics and domestic companies include Lava, Bhagwati (Micromax), Dixon Technologies, VVDN, and Optiemus Electronics. The PLI Scheme aims to boost domestic manufacturing of and foreign investment in technology products.
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[Possible New Policy/Program] On March 31, 2021, anonymous Indian government officials informed Reuters that the government will offer more than US$1 billion in cash incentives to each company that sets up chip fabrication units in India, which aligns with the Indian government’s aim of strengthening its electronics supply chain. At a May 2021 industry event, Secretary of the Ministry of Electronics and Information Technology Ajay Prakash Sawhney said the government has received "expressions of interest" from numerous foreign companies and that "concrete schemes and the thinking from the Government of India" will be clarified within the next six months.
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On February 24, 2021, the government announced that Prime Minister Narendra Modi's Union Cabinet approved a 73.5 billion rupee (US$1.02 billion) plan to boost domestic manufacturing of Information Technology (IT) hardware. According to a Press Information Bureau press release, the scheme will "extend an incentive of 4% to 2% / 1% on net incremental sales (over base year i.e. 2019–20) of goods manufactured in India and covered under the target segment, to eligible companies, for a period of four (4) years."
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On December 15, 2020, the Indian Ministry of Electronics and Information Technology (MEITY) released an Expression of Interest (EOI) for Setting up of Semiconductor Fab, which invites companies to demonstrate interest in setting up FAB facilities in India or acquiring semiconductor FABs outside India. According to MEITY, "the information received in response of this EOI may be utilized to formulate a [benefit] Scheme" for future interested companies.
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On October 6, 2020, the Ministry of Electronics and Information Technology (MEITY) announced that it has approved the Production Linked Incentive (PLI) Scheme applications of 16 companies. Foreign companies include Samsung, Foxconn Hon Hai, Rising Star, Wistron, and Pegatron and domestic companies include Lava, Bhagwati (Micromax), Padget Electronics, UTL Neolyncs, and Optiemus Electronics. The PLI Scheme aims to boost domestic manufacturing of and foreign investment in technology products.
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On April 1, 2020, the Indian Ministry of Electronics and Information Technology (MEITY) established a Production Linked Incentive (PLI) Scheme for Large Scale Electronics Manufacturing. According to MEITY, "the scheme shall extend an incentive of 4% to 6% on incremental sales of goods manufactured in India and covered under target segments, to eligible companies, for a period of five (5) years.”
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On April 1, 2020, the Ministry of Electronics and Information Technology (MEITY) established a Promotion of Manufacturing of Electronic Components and Semiconductors (SPECS) Scheme. According to MEITY, "the scheme will provide financial incentives of 25% on capital expenditure for the identified list of electronic goods that comprise downstream value chain of electronic products... all of which involve high-value manufacturing.”
LABOR REFORM
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On November 5, 2020, the Department of Telecommunications released New Guidelines for Other Service Providers (OSP), which liberalize an earlier set of regulations in the ICT sector. While previous regulations required a wide variety of IT-enabled services –– including call centers, e-commerce, telebanking, and telemedicine –– to be registered as OSPs, which includes additional administrative barriers, the New Guidelines stipulate that all “non-voice based services” are outside the purview of the OSP framework.
ADMINISTRATIVE BARRIERS
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On June 23, 2021, the Department of Telecommunication further liberalized the Guidelines for Other Service Providers (OSPs). OSPs are business process outsourcing companies, or call center companies, that offer voice-based services in India and abroad. The new guideline lifts certain regulatory requirements and removes the distinction between domestic and international OSPs, which allows for improved data interconnectivity between OSP centers.
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On February 25, 2021, the Ministry of Electronics and Information Technology (MEITY) announced the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, a new set of regulations targeting online news outlets and video content providers. These rules include a new code of ethics for digital media publishers and new due diligence practices required of “intermediaries” including internet service providers, social media platforms, and online marketplaces.
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On December 23, 2020, the government announced that Prime Minister Narendra Modi's Union Cabinet approved a proposal revising outdated FDI guidelines concerning the Direct-To-Home (DTH) broadcasting service sector. According to the Press Information Bureau, under the revised guidelines, the current cap of 49 percent FDI “will be aligned with the Department for Promotion of Industry and Internal Trade’s policy on FDl,” which is set at 100 percent.
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On April 1, 2020, the Ministry of Electronics and Information Technology (MEITY) established a Modified Electronics Manufacturing Clusters (EMC 2.0) Scheme. According to MEITY, the scheme “will fortify the linkage between domestic and international market[s] by strengthening supply chain responsiveness, consolidation of suppliers, decreased time-to-market, lower logistics costs, etc."
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On January 21, 2019, the Reserve Bank of India (RBI) announced that foreign companies in the defense, telecom, information and broadcasting, and private security services sectors will not require RBI approval to open branch offices, as long as “Government approval or license/permission by the concerned Ministry/Regulator has already been granted.”
OTHER
- On October 16, 2020, the Ministry of Commerce and Industry (MCI) released Clarification on FDI Policy for Uploading/Streaming of New and Current Affairs through Digital Media. Under this clarification, companies uploading or streaming news and current affairs through digital media platforms may receive up to 26 percent of investment by non-Indian entities.
Agriculture
ADMINISTRATIVE BARRIERS
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On September 20, 2020, the Indian Parliament passed the Farmers' Produce Trade and Commerce (Promotion and Facilitation) Bill, 2020 and the Farmers (Empowerment and Protection) Agreement of Price Assurance and Farm Services Bill, 2020, both of which aim to liberalize the agricultural sector by allowing greater freedom of the movement and sale of agricultural products. According to the Press Information Bureau, the Farmers' Produce Bill "will create an ecosystem where farmers and traders will enjoy freedom of choice of sale and purchase of agri-produce" and "will empower farmers for engaging with processors, wholesalers, aggregators, wholesalers, large retailers, exporters etc., on a level playing field.”
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On September 15, 2020, the Indian Parliament passed the Essential Commodities (Amendment) Bill. According to the Press Information Bureau, the bill aims to "remove fears of private investors of excessive regulatory interference in their business operations. The freedom to produce, hold, move, distribute and supply will lead to harnessing of economies of scale and attract private sector/foreign direct investment into [the] agriculture sector. It will help drive up investment in cold storages and modernization of food supply chain."
Medical
SUBSIDIES
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On February 24, 2021, the government announced that Prime Minister Narendra Modi's Union Cabinet has approved the Production Linked Incentive (PLI) Scheme for Pharmaceuticals. According to the Press Information Bureau, the scheme is expected to "promote the production of high value products in the country and increase the value addition in exports," as well as promote "innovation for development of complex and high-tech products including products of emerging therapies and in-vitro Diagnostic Devices."
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On March 21, 2020, the government announced that Prime Minister Narendra Modi's Union Cabinet has approved the Production Linked Incentive (PLI) Scheme for Promoting Domestic Manufacturing of Medical Devices. According to the Press Information Bureau, "Under the Scheme, incentive at 5% of incremental sales over base year 2019–20 will be provided on the segments of medical devices identified.”
SPECIAL ECONOMIC ZONES
- On March 21, 2020, the government announced that Prime Minister Narendra Modi’s Union Cabinet approved the Promotion of Medical Device Parks for Financing Common Infrastructure Facilities in 4 Medical Device Parks Scheme. According to the Press Information Bureau, "the Scheme aims to promote medical device parks in the country in partnership with the States."
Financial Services
ADMINISTRATIVE BARRIERS
- On March 22, 2021, the Indian Parliament passed the Insurance (Amendment) Bill, 2021, which was first announced on February 1, 2021 by Finance Minister Nirmala Sitharaman in her budget speech for 2021. According to Sitharaman, the Indian government will increase the permissible equity limit for insurance companies from 49 percent to 74 percent and allow for foreign ownership and control with safeguards.
Automotive
TAX INCENTIVES
- [Possible New Policy/Program] According to a March 22, 2021 Reuters report, the government is looking to offer new incentives worth US$14 billion over a span of five years to EV manufacturers. According to industry sources, companies will be able to start applying for the incentives on April 1, 2021, and final details of the scheme will be released shortly thereafter.
TAX INCENTIVES
- In September 2019, the Tamil Nadu state government released an Electric Vehicle 2019 Policy document, in which various supply-and-demand–side incentive and subsidy measures are outlined –– including land cost subsidies, electricity tax exemptions, employment incentives, and others.
SUBSIDIES AND FINANCIAL ASSISTANCE
- On September 15, 2021, the Ministry of Heavy Industries approved the Production Linked Incentive (PLI) Scheme for Automobile and Auto Components, which will come into effect in fiscal year 2022-2023. The scheme will provide more than ₹259.380 billion (US$3.5 billion) in financial incentives to automobile manufacturers to stimulate supply chain growth of electric vehicle (EV) and hydrogen fuel cell vehicle components manufacturing.
Energy
SUBSIDIES
- On May 12, 2021, Prime Minister Modi's Union Cabinet approved a National Programme on Advanced Chemistry Cell (ACC) Battery Storage. According to a Press Information Bureau press release, the scheme will minimize import dependence by incentivizing investment in ACC manufacturing facilities.
- On April 7, 2021, the government announced that Prime Minister Modi's Union Cabinet approved a National Programme on High Efficiency Solar Photovoltaic (PV) Modules. According to a Press Information Bureau press release, the scheme will minimize import dependence in strategic areas by rewarding manufacturers that source material from the domestic market.
Manufacturing
Tax Incentives
- On November 22, 2021, the Central Government of India amended the tax-code of man-made fibers (MMF) to be uniform across all aspects of the supply chain. The measure provides a 12 percent tax rate for the entire value chain in the MMF textiles sector. The previous tax-scheme for MMF levied higher taxes on inputs versus final products.
SUBSIDIES
- On October 6, 2021, the Ministry of Textiles approved a government initiative to set up seven “Mega-Integrated Textile Region and Apparel Parks” across India to serve as hubs for textile and apparel manufacturing from 2021 to 2026. The government of India will provide subsidies of up to ₹44.5 billion (US$ 594 million) for construction and initial manufacturing set-up.
- On September 7, 2021, The Union Council of Ministers approved a Production Linked Incentive (PLI) Scheme for Textiles, which will be implemented from 2021-2022 to 2026-2027. The scheme will provide more than ₹106.8 billion (US$ 1.44 billion) in subsidies to promote the production of man-made fiber fabrics, garments, and technical textiles (e.g., medical and industrial cloths).
Appliances
SUBSIDIES
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On April 7, 2021, the government announced that Prime Minister Modi's Union Cabinet has approved a Production Linked Incentive (PLI) Scheme for White Goods to boost domestic manufacturing of and foreign investment in air conditioner and LED light products. According to a Press Information Bureau release, the scheme aims to simultaneously “create a complete component ecosystem in India” and “attract global investments, generate large scale employment opportunities and enhance exports substantially."
Mining & Metals
SUBSIDIES
- On July 22, 2021, the Union Council of Ministers approved a Production-Linked Incentive (PLI) Scheme for Specialty Steel, which will be implemented from 2023-2024 to 2027-2028. The scheme will provide more than ₹63.2 billion (US$852 million) in subsidies to companies producing alloy steel, which is used in specialty products for defense, automobile, and specialized capital goods.