Government Policies and Business Regulatory Environment

Government Response to the Pandemic

Due to the COVID-19 pandemic, from early 2020, manufacturing suffered greatly on both the supply and demand side. The Indian government imposed one of the longest lockdowns mandated by any country so far. The enormity of the lockdown has affected manufacturing activities and took a toll on the supply chains as well as the overall economy.

Knowing the economic risks associated with such a nationwide lockdown, the Government of India has provided an impetus to local businesses and domestic manufacturing by introducing a stimulus package of 10% of India's GDP (INR 20 trillion). The stimulus package provides loans to potential businesses, protection against the pandemic, and technology upgradation via employment. The package focused on land reforms, labor reforms, MSMEs, and industry incentives.

The government also distinctly identified key sectors, which are the pillars of the Indian economy, such as the electronics sector, and in April 2020, announced a package of INR 500 billion worth of incentives based on production and employment. Major players in this sector, both domestic and international, have already begun talks to leverage these incentives. Similarly, the government has provided incentives in the power supply, social infrastructure, and healthcare sectors worth several billion as a proactive response to the importance of industry in the midst of the COVID-19 pandemic.

The RBI has also introduced liquidity measures listed below to help counter the pandemic slowdown. These measures are mentioned below:

  • Repo rate: Cut by 75 bps from 5.15 to 4.4
  • Reverse repo rate: Cut by 90 bps
  • Loan moratorium: Loan moratorium available to lenders up to a period of 6 months
  • CRR: Reduced by 100 bps to 3%, which injected INR 1.37 trillion

These announcements injected nearly 3.2% of the GDP in terms of liquidity into the Indian economy.

With the new measures, India's manufacturing infrastructure is poised for phenomenal growth with smart cities and industrial corridors being developed. Youth-focused programs and novel institutions are being dedicated to developing specialized skills. Innovation is being encouraged through better management of patent and trademark registration. A striking indicator of progress is the opening up of key sectors, including railways, defense, insurance, and medical devices, to dramatically increase the amount of FDI. These factors will result in stronger growth for the Indian economy and its populace and will lead to a rise in the investments in the country.

Industry-specific incentives:

These incentives can be governed by both Central and State Government legislation and could include capital and interest subsidies, tax incentives, R&D incentives, export incentives, and area-based incentives.

State-level incentives:

These are governed by State Industrial Policies and depend on the amount of investment and location of the industrial project. The incentives include rebates in land cost, relaxation in stamp duty, exemption on sale or lease of land, power tariff incentives, concessional interest rates, investment subsidies, tax incentives, backward-area subsidies, and special incentive packages for mega projects.

Details on incentives for the 25 sectors covered under the Make in India program can be seen under the “Financial Support” section for each sector at www.makeinindia.com.

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Rajiv Rajendran
Executive Director
Corporate Services

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