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Tax Impacts of New National Manufacturing Policy

30 Nov 2011

While performance of the Indian manufacturing sector has shown growth, however, some of the other regions in Asia Pacific have registered a much higher growth rate in this sector in comparison. In addition, with inclusive growth being the top agenda for the Government, a stimulus to the manufacturing sector has been long awaited. The Government has now come out with its National Manufacturing Policy which seeks to achieve inclusive growth of the Indian economy by implementing cohesive policy measures for creating state-of-the art manufacturing facilities aimed at making India the next "manufacturing destination". Taxand India discusses the features of this policy and the impact it has on some of the policy and fiscal related initiatives proposed by the Government.

Objectives of NMP
Through various policy instruments like creation of National Investment and Manufacturing Zones (NIMZs), rationalisation / simplification of business regulations, provision of exit mechanisms for sick units, creation of financial and institutional mechanisms for technology development, implementing industrial training and skill up gradation measures, providing incentives for small and medium enterprises, the NMP seeks to achieve the following broad objectives:

  • Increase the share of manufacturing in Gross Domestic Product to 25 percent by 2022
  • Create 100 million additional jobs by 2022
  • Creation of appropriate skill sets among the rural migrant and urban poor to make growth inclusive
  • Increase domestic value addition and technological depth in manufacturing
  • Enhance global competitiveness of Indian manufacturing through appropriate policy support
  • Ensure sustainability of growth, particularly with regard to the environment including energy efficiency, optimal utilisation of natural resources and restoration of damaged / degraded eco-systems.

Taxand India provides an in depth analysis of the Policy with a look at likely developments

Taxand's Take

Co-ordinated implementation of NMP with other policy and procedural initiatives has the potential to bring India in the reckoning as a viable alternative for setting up manufacturing base in Asia Pacific. However, much depends on the policy symphony that government may be able to create around the subjects of infrastructure, value addition and successful clustering of business to create a self sustainable manufacturing ecosystem.

Apart from DMIC, the government at a later stage may also leverage on the infrastructure created by the Golden Quadrilateral thereby bringing most of the states within the ambit of NMP. All in all, success of manufacturing initiative would depend on various linkages that business - government partnership can create to take India into a leadership position as a preferred location for setting up manufacturing base. India has a long way to go in this regard but introduction of NMP is definitely a stepping stone in the right direction.

Your Taxand contacts for further queries are:
Rajeshree Sabnavis
T. +91124 339 5000

Himanshu Tewari
T. +91124 339 5000

Shabala Shinde
T. +91124 339 5000

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