COVID spurs Manufacturing exodus from China: India ceases opportunity with EMC 2.0

Global turmoil and break with the past

27 April, 2020 may be a historic day for Wuhan, China, the epicentre for Global Coronavirus Pandemic to have discharged  its last COVID-19 patient but things are utterly gloomy in rest of the world. United States, Spain, Italy, Germany, France, UK and Russia alone account for 62% of COVID-19 cases across the world. But its not just the existing cases that are worrying but the impending danger upon the entire world. China sweetly enjoyed the position of being “The Global Factory” but it failed miserably to deal with the COVID situation.Most of the multinationals suffered widespread disruptions to their businesses as Chineese authorities enforced strict lockdown measures to contain the pandemic. Global Companies were already rethinking its strategy of putting all eggs in one basket owing to the global financial crisis and the bitter economic cum trade war between US and China when COVID-19 added fuel to the fire.As a result many companies based in China are already shifting or planning to shift their production location to other countries.

Change in Global manufacturing Strategy

It definitely appeals to business sense to diversify production and supply lines in the face of situations like these.For foreign investors looking for alternative investment locations, there are very few countries that capable of replacing China as a source of cheap, skilled labour. Arguably, India emerges as a reliable stable substitute, given its rich landscape for manufacturing as well as its vast consumer market, remarkable entrepreneurial talent, booming private enterprises, world class analytic, financial and management services and primarily because of its cordial international relations supplemented by a strong democratic Government. In fact it is considered to share values and interests that align closely with those of Western democracies. Many companies, reports suggest, are already engaging with the India government at different levels to explore opportunities. Still there is an inherent suspicion in minds of foreign investors due to its protectionist trade policy and lack of availability of reliable and quality infrastructure for growth of industries and its dispersal across the regions.

But in light of recent developments in the world, Indian economy under foresight of Shri Narendra Modi are looking for opportunities to emerge as a manufacturing hub and in turn offering great incentives to promote industrialisation. In a major push to domestic manufacturing, as a part of Prime Minister’s Make-in-India program, the Centre had in September 2019 slashed corporate tax from 35% to 25.17 per cent. For new manufacturers, the applicable tax was brought down to 17 per cent making it the lowest in South East Asia. Together with reduced tax rate and the roll-out of goods and services tax (GST), India hopes to attract sizeable foreign investment in the manufacturing sector.

Concrete incentives rolled out by Indian Government : Modified Electronics Manufacturing Clusters (EMC 2.0) Scheme

To compliment the efforts put-in by the Government to make India an Electronics Manufacturing Hub as envisaged under “Digital India” and “Make in India” initiatives, The Government of India has introduced various schemes.Modified Electronic Manufacturing Clusters Scheme 2.0 (EMC 2.0) was introduced on 1st April , 2020 to provide support for creation of world-class infrastructure and create foundation for electronics manufacturing along with its value chain in Electronics Systems Design and Manufacturing (ESDM) sector.

What are the key undertakings of EMC 2.0?

In the (EMC 2.0) Scheme ,Electronics Manufacturing Clusters would be established to create entrepreneurial ecosystem, infrastructure with common facilities and amenities in EMC projects and drive innovation to upgrade the infrastructure in Industrial Estates / Parks / Areas as Common Facility Centre (CFC) for attracting investment in electronics manufacturing. 

How Indian Government will incentivise global investors in EMC 2.0?

The financial assistance will be given for creation of world class infrastructure along with common facilities and amenities for Electronics Manufacturing Cluster (EMC) Projects and Common Facility Centres as follows:

For EMC Project : Financial assistance extending upto 50% of the project cost may be given. Assistance is limited to Rs. 70 crore for every 100 acres of land. For larger areas, pro-rata ceiling would apply but not exceeding Rs.350 crore per project. The remaining project cost will be borne by State Government or Central / state Public Sector Unit or Industrial Corridor Development Corporation (ICDC) such as DMICDC, etc. (as the case may be). They shall have a minimum contribution of 50% of the project cost.

For Common Facility Centers (CFCs): Financial assistance extending upto 75% of the project cost but restricted to Rs.75 crore may be given. The remaining project cost will be borne by State Government or Central / state Public Sector Unit or Industrial Corridor Development Corporation (ICDC) such as DMICDC, etc. (as the case may be). They shall have a minimum contribution of 25% of the project cost.

What applicant (Investor willing to take up production in EMC ) is required to do?

i. Give a commitment for taking (purchase or lease) atleast 20% of the saleable / leasable land area and a minimum investment commitment of Rs.300 crore 

or 

ii. In case the land is in any North-Eastern States, Hill States and Union Territories (UTs), minimum investment commitment for projects in these regions will be Rs.150 crore.

iii. The investor may be actively involved in preparation of project application for details on infrastructure requirements and common facilities for the specific Project.

For how long is the scheme available?

The Scheme will be open for receipt of applications for a period of three (3) years from the date of notification. Further period of five (5) years shall be available for disbursement of funds to the approved projects. The applications received under the Scheme will be appraised on an ongoing basis.

What are the eligible activities under EMC 2.0 scheme?

An illustrative list of eligible activities under EMC 2.0 Scheme is given below:

A. Vital Services

i. Boundary Wall

ii. Internal Roads

iii. Storm Water Drains

iv. Electric Sub-Station/Distribution Network

B. Essential Services

i. Waste Disposal/Recycling

ii. Water Recycling/Water Treatment Plant

iii. Effluent Treatment Plant

iv. Sewage Lines

v. e-waste Management

vi. Street Lighting

vii. Backup Power Plant

viii. Warehousing

ix. Ready Built Factory sheds (RBF)/Plug & Play Facility

x. Fire Fighting and Safety services

C.1. Desirable Welfare Services:

i. Employee Hostel

ii. Hospital and ESIC

iii. Recreational Facility/Playground

iv. Creche/Nursery

v. Educational Facilities

vi. Banking & Financial Services

C.2. Desirable Support Services

i. Centre of Excellence (R&D, Incubation and Consultancy Services)

ii. Skill development Centre/Training Facility

iii. Auditorium & Conference Facility

iv. Video Conferencing, IT & Telecom Infrastructure

v. Business, Trade &Convention Centre

C.3. Desirable Manufacturing Support

i. Tool Room

ii. CAD/CAM Design House

iii. Plastic Molding/Cabinet Manufacturing

iv. Sheet Metal Stamping

v. Packaging/Epoxy Suppliers

vi. Testing and Certification Facility

vii. Component Testing:

a) Safety, Life Test, Reliability/Environment, Electrical & mechanical properties

b) RoHS Testing

c) EMI/EMC Testing

d) CRO compliance

he Article is based on the relevant provisions and as per the information existing at the time of the preparation. In no event I shall be liable for any direct and indirect result from this Article. This is only a knowledge sharing initiative.

The Author CA ONAM AGGARWAL (Associate Partner at One Stop Consultants and Services LLP) and can be reached at onesc2019@gmail.com or 8588072656 or consultantsonestop.com.

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CA Onam aggarwal is the Managing Partner at ONE STOP CONSULTANTS AND SERVICES LLP. She is an associate member of the Institute of Chartered Accountants of India. Earlier, She was associated with Deloitte India in Audit and Assurance division. She is an alumni of Shri Ram College of Commerce ranked a View Full Profile

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