Recently, hundreds of companies have announced that they would be moving their bases from China to India. This has come amidst the allegations on China that it was responsible for the origin of the Corona Virus and had intentionally let the Virus spread across the world to gain political and financial advantage over other big countries.
The companies that are moving are mostly from the Japan, USA and South Korea and what is astonishing is that even companies from China itself are willing to move their businesses to India. This has raised many eyebrows throughout the world and has given India an opportunity to present itself as a lucrative place for conducting business.
What is expected now, the process of which has already begun, is that a lot of relaxations would be given to the companies entering India and the Prime Minister’s dream of Ease of Doing Business in India would reach new heights.
Therefore, these are special times for any new investor or company moving to India as unprecedented relaxations would be announced in all kinds of regulations and compliances by all the interested States looking to lure these companies.
An approximate area of 461,589 hectares has been recognized across the country for this purpose, which is more than the size of Luxembourg. Amongst land and labor, the two most popular incentives for companies to move to India, there are many other factors that we have tried to discuss here. These include incentives and relaxations given by both the Central and the State governments and tried to analyze how it would be beneficial in the long term to the companies moving to India.
INCENTIVES AND RELAXATIONS
A. Relaxations in Labor Laws
The Indian labor laws have always been considered complicated and troublesome by many foreign investors and apart from being very voluminous and tiring in compliance, there are always apprehensions that a single spark can ignite a huge fire. Keeping that in mind, states like Uttar Pradesh & Madhya Pradesh have already relaxed their labor laws to a large extent.
a. Uttar Pradesh (UP)
Vide a Press Release on 6th May, 2020, the UP Government has announced the Uttar Pradesh (Temporary Exemption from Certain Labor Laws) Ordinance, 2020 wherein all but three Labor laws have been temporarily suspended for a period of 3 years. Though the Ordinance is yet to be published in the public domain, this has been done in order to bring in simplicity in complying with the labor laws and provide for ease of doing business to the incoming companies.
The Bonded Labor System (Abolition) Act, 1976, Employees’ Compensation Act, 1923, and Building and Other Construction Workers (Regulation of Employment and Conditions of Service) Act, 1996 would retain their applicability and even the provisions relating to the employment of children and women have been kept in place.
However, the entities would still have to comply with Section 5 of the Payment of Wages Act, 1936 and make timely payment of wages to its employees.
b. Madhya Pradesh (MP)
The MP government has also vide Madhya Pradesh Labor Laws (Amendment) Ordinance, 2020 declared a sea of changes in its labor laws solely with the purpose of making MP a desirable state for companies moving from China to India.
The relaxations include:
1. The threshold for applicability of the MP Industrial Employment (Standing Orders) Act, 1961 was earlier 50 employees which have now been increased to 100 employees. This means that any employer who is employing less than 100 employees does not have to get standing orders regarding disciplinary process or termination of the employee or instance of the misconduct, etc, from the authority and such cases can be concluded in consultation with the trade union or the employees themselves (where there is no trade union).
2. While the provisions of the Factories Act, 1948 have been suspended for a period of 3 months, the working hours have been increased by the MP Government. The minimum working hours are now 12 hours daily and 72 hours weekly respectively, and added to it is a minimum of 30 minutes of rest interval after every shift of 6 hours of work. However, overtime provisions have been retained.
3. One drastic change is that employers will now not be required to follow the notified health measures and welfare facilities and would also not be required to maintain the requisite documents and submit the registers to the authority.
4. Other major relaxations include third party inspections as well as exemption from the applicability of the Industrial Disputes Act, 1947 for a period of 1000 days to all new industries to be registered under the Factories Act, 1948.
5. Specific industries such as electrical goods, cement, iron & steel, sugar etc. have been exempt from the provisions Madhya Pradesh Industrial Relations Act, 1960.
This clearly shows the intent of the MP Government – relax the inflexible labor laws so much that the state becomes a lucrative option for the companies coming.
c. States like Gujarat, Haryana, Rajasthan, Himachal Pradesh and Punjab have also followed suit and declared similar provisions wherein most of the labor laws have been relaxed barring a few relating to employee safety, women and children safety, payment of wages, etc. Gujarat has even went on to declare that the new establishments would not be bound by labor laws for a period of 1200 days and that allocation of land would be done in 7 days whereas all necessary permissions will be given in 15 days.
B. Data Privacy
Another reason why India becomes a desired destination is because of its Personal Data Protection Bill, 2019 (PDP Bill) which is expected to be notified as an Act very soon. The PDP Bill is based on the principles enshrined in the EU General Data Protection Regulation (GDPR) and is being considered as one the flagship laws being enacted by the current government.
Though there could be changes in the Bill before its passed, even the current version takes care of the need for giving paramount importance to Right to Privacy and the implications of its violation. Companies would now be needed to be more vigilant about how it uses its client and employee personal data without their consent and any lapses could be dealt with in the strictest of manners.
This would give more confidence to the foreign investors and companies coming into India as they have already observed such laws in other developed jurisdictions. This would give them a sense of security which is very important to start a new venture.
C. Set up of Pharmaceutical Parks
The Government, in order to reduce India’s dependency on China for Active Pharmaceutical Ingredients (APIs), has announced that 3 Pharma Parks would be created in 3 different states throughout the Country.
Assam has been one of the states to show interest in being one of the three states and had even made a formal request to the Central Government. The setting up of such parks would also be beneficial for the companies moving to India from China as they can set up their operations in such Parks and can enjoy the benefits that would be given therein.
We have already seen that Technological Parks have been a success in many parts of the country and still attract good amount of Foreign Investment. India being such a huge market and an exporter for pharmaceutical products, such Pharma parks are expected to be a huge success.
D. Make in India
Make in India is one of the most popular visions and projects of our Prime Minister Mr. Narendra Modi and he has left no stone unturned in ensuring that it moves quickly and steadily on the path of success.
Apart from the several new infrastructure projects announced, several relaxations have also been providing in manufacturing and compliances. These include Sector specific allowances, investment incentives, allowances under the Income Tax, Export Incentives, R&D incentives, etc.
To ease the process of doing business in India and to provide incentives for foreign companies to set up their operations in India, the Government has already been such as reduction in corporate tax, making operational the E-BiZ Portal which allows businesses to file up all the necessary forms online and initial validity periods of the Industrial Licenses have also been increased from 2 years to 3 years. All these relaxations are being provided since some time now and have aided a lot of companies to set up their businesses in India.
The introduction of Goods & Services Tax (GST) and the Insolvency & Bankruptcy Code (IBC) was also a step in the same direction to provide international level legislations in India to safeguards rights of the businesses. Even Commercial Courts and Commercial Divisions of the High Courts have been set up to provide speedy disposal of disputes.
International Arbitration Centre such as Singapore International Arbitration Centre (SIAC) has also set up its base in India and provides for international level dispute resolution between the parties. On similar lines, Mumbai Centre for International Arbitration (MCIA) has also been set up.
To facilitate the trade, the Central Board of Indirect Taxes & Customs (CBIC) has implemented the ‘Indian Customs Single Window Project’. Customs clearance documents can be filed electronically at a single point by the importers and exporters.
The document and compliance requirement for necessary things like land registration, construction permits electricity connections and other requisite factors have also been reduced to the minimum number so as to ensure that all businesses are providing the best platform in India to work on.
E. Equally Cheap Labor, Developing Infrastructure & Geographical Location
Every new business that wants to set up its base in has some pre-requisites in mind and some of the most important ones are the cost of labor, the geographical location where the business will be set up and how good is the general infrastructure in the country.
India seems to be the front runner on all these three counts. For labor, one need not worry at all as India has one of the highest populations of both skilled and unskilled labor and be that as it may, the labor is considered very cheap in India as compared to other developing or developed nations. With this abundance of labor, the cost is bound to go down and with the relaxations in labor laws now introduced by several states, it is expected that the cost of labor would further go down as millions of migrant labors have come back to their home states and are without proper jobs or earnings. Any company entering India now can make most of this opportunity to tap such labor.
As far as the geographical location is concerned, it is fairly obvious that India is at the centre of world economy at the moment, both literally and philosophically. With instant connectivity both within the country and internationally, an efficient system of Ports, Airports and the largest rail network in the world, India has advantage over its competitors.
To add to that, India is a focal point in South Asia and shares tremendous relationships with developed economies all over the world and often uses its geographical location to gain business advantage with such Western Countries.
India’s infrastructure is going at a staggering rate and apart from the usual growth in the number of National Highway, Ports & Airports, the introduction of the Bullet Train Project would be a big feather in the Indian cap. The flagship project of the current government, the Bullet Train would be operational between Maharashtra & Gujarat, two of the biggest industrial and financial hubs in the country.
Several states are also offering huge areas of lands to incoming companies which would allow them to have the benefits of the infrastructure of the state in the desired manner.
India’s infrastructure growth is on an all time high and it is evident from the introduction of the Delhi-Mumbai Industrial Corridor (DMIC) along with other four corridors that are planned – Amritsar – Kolkata Industrial Development Corridor (AKIC), Chennai Bengaluru Industrial Corridor (CBIC), Bengaluru Mumbai Economic Corridor (BMEC) and East Coast Economic Corridor (ECEC) with Chennai Vizag Industrial Corridor as the first phase of the project (CVIC).
Similarly, the Prime Minister’s Flagship Project Gujarat International Finance Tec-City (GIFT), which would be a global financial hub, is coming up in Gandhinagar, Gujarat. Companies setting up their operations in GIFT City would have additional incentives and relaxations which would very much like those in Special Economic Zone (SEZ) but much more. Even the number of SEZs in the country is expected to increase in the near future.
National Investment & Manufacturing Zones (NIMZ) is also being set up which is a combination of, and one stop shop for production units, public utilities, logistics, residential areas and administrative services. Along with this, sector specific clusters are also being set up in different parts of the country, such as Industrial Parks, Food Parks, etc.
With the current Pandemic creating havoc in economies all over the world, India has taken the right step in being flexible about its laws and regulations for new entrants in the market. China has already made a mess of things for its own self by having such strict rules and regulations and to add to that, their alleged relation in giving the world this deadly virus has also worked against them.
Though India poses its own challenges with respect to its cultural diversity and socio-economic conditions and the system here would be quite different from that of China, however the incentives and relaxations recently announced by several State Governments along with the benefits given under the Make in India scheme for the ease of doing business, India would and should be the preferred stop for the companies moving out of China.
It would be important for the Central & the State Governments to live up to the expectations and fulfil their promises and the way India has emerged as a global leader in the recent years, companies moving to India would be bettering their relations with other countries as well.
It would be interesting to see how the near future unfolds but one thing is for sure, the Indian Government would ensure that every company moving out of China gets a place in India and gets the desired benefits. It is a win-win situation as the companies would get better working conditions and benefits and India would have a shot at reviving its economy that is hampered so badly by the pandemic.
Disclaimer: The information contained in this document is intended for informational purposes only and does not constitute legal opinion, advice or any advertisement. This document is not intended to address the circumstances of any particular individual or corporate body. Readers should not act on the information provided herein without appropriate professional advice after a thorough examination of the facts and circumstances of a particular situation. There can be no assurance that the judicial/quasi-judicial authorities may not take a position contrary to the views mentioned herein.