Here's how to import capital goods to India inexpensively with the MOOWR scheme

European companies operating or wanting to start production in India can use the MOOWR scheme to import (capital) goods to India in a smart and cheaper way. The scheme offers foreign companies the chance to invest in cutting-edge technology, allowing them to optimize their production processes in India and aims to modernize domestic industries. Here's how you, as a European company, can source smart by taking advantage of the MOOWR scheme.

By importing (capital) goods and under the MOOWR scheme European companies can benefit from low import duties and other incentives, making it an attractive way to expand and modernize your manufacturing operations in India.

Read more here about what exactly the MOOWR scheme is and what benefits it offers European companies.

Tax benefits of the MOOWR scheme.

If you use the MOOWR scheme, European companies get a deferral on paying import duties until the goods are cleared for domestic use or export to a subsequent location. The customs process is also relaxed, which means fewer documentation requirements, fewer physical inspections and faster clearance of products. This, of course, reduces administrative and operational costs.

But what makes the scheme especially attractive is the range of goods that can be imported advantageously under the scheme.

Economical sourcing under MOOWR

MOOWR may seem to focus on sourcing capital goods, but the scheme is much broader. Companies can economically source all elements needed for more efficient production, including raw materials, components and intermediate goods.

In addition, the MOOWR scheme also promotes cooperation between foreign companies and Indian suppliers. This cooperation not only facilitates technology transfer and knowledge sharing, but also strengthens the overall ecosystem by stimulating local industries and creating jobs.

Roadmap for sourcing through the MOOWR program

1. Find a suitable bonded warehouse
Find a bonded warehouse that meets your company's needs in terms of location, size and facilities. Consider both government-run and privately-run bonded warehouses in India.

2. Build a relationship with a bonded warehouse
Enter into a formal agreement with the warehouse operator. Obtain necessary licenses and approvals from relevant authorities.

3. Import capital goods
Purchase capital goods from both Indian and international suppliers. Import these goods into bonded warehouse and clear them under MOOWR scheme.

4. Manufacturing and other activities
Manufacture, process, pack and test goods in bonded warehouse. Store goods safely until ready for clearance.

5. Clear goods for domestic consumption or export
If the goods are ready for domestic consumption or export, apply for clearance. Pay deferred import duties at this stage.

Also take advantage of the MOOWR scheme

European companies looking to set up production in India should look into the benefits the MOOWR rulein offers them to get started and to import capital goods in a cost-effective manner.

Curious about the details of the program and how your company too could use this scheme in a smart way?

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Shashank Verma

Vice President of Supply Chain Management

This article was written in collaboration with vice president of Supply Chain Management, Shashank Verma.

Verma has over 22 years of experience in establishing business strategies, managing the supply chain of hundreds of European companies, establishing sound logistics in India and other related functions with a focus on revenue growth and profit maximization of organizations.

Outsourcing production to an Indian party - here's how to find the right partner

India has become one of the world's leading manufacturing centers in the past decade. The Indian government has invested heavily in developing the industrial sector with the result that India's automotive, aerospace, IT and pharmaceutical (think vaccines) sectors now produce for the entire world. In addition, India offers access to a wide availability of raw materials and costs are lower than in China. The country therefore offers a lot of interesting opportunities for European companies looking to outsource their production.

Finding the right production site in India

Many companies see India as one country, but India is incredibly large and diverse. India is better approached as a continent, like Europe. Therefore, to find a good producer, it is smart to do or have a thorough location analysis done. India has manufacturing clusters in which companies of a specific sector are located. Several clusters of each sector exist in the states where the best materials, infrastructure and personnel can be found for this industry. For example, the auto industry has four major clusters in Gujarat and around the cities of Chennai, Pune and New Delhi.

Companies should not focus on these clusters, but look at all options across India. Sometimes the options outside these clusters are more advantageous because, for example, wages are lower outside the cities. Once it is determined which locations meet the needs, a list of potential suppliers and manufacturers in these regions can be made.

An Indian partner with experience

To ensure the desired specifications and quality, a potential supplier must have the right expertise and experience within the sector in which the European company operates. It is also necessary to check whether quality systems are in place, what the annual output is and whether the supplier has enough experience in exporting the product.

If you have little experience doing business in India, it is advisable to hire a local consultant for this step. They know exactly what legal requirements products must meet and what permits are needed to produce and ship your products.

Quality control

From the list of potential candidates, after extensive evaluation, the three to five best options for the industry and product are chosen. With these producers, the European company then goes deeper into the opportunities offered by the producer. In this step, it is advisable to schedule a visit to the production facility, or, if a visit is not possible, to organize a video call to get an even better idea of the process and quality of the products manufactured there. Once the selection is narrowed down to 1 manufacturing company, a quote can be requested so that price and terms can be negotiated.

Keep in mind that a factory in India usually looks different than in Europe. This does not mean that the products being delivered are also of inferior quality. Often factories in India are more simply furnished, and there is no air conditioning, for example, but the machines are of the same caliber as in Europe.

Once there is agreement with the manufacturer on the price and terms, samples can be made. The key here is that the European company has people available in India who can check the manufacturing process and quality before it is checked again in Europe.

If everything is satisfactory, the first batch can be manufactured. Even though the new supplier has already been screened in various ways, it is then advisable to have quality control checks done every year or even more frequently.

Protecting your Intellectual Property

When outsourcing your manufacturing to a partner in another country, you want to make sure your intellectual property (IP) is well protected. India has been a member of WIPO (World Intellectual Property Organization) for nearly 50 years, which means that most intellectual property laws in India meet international standards.

In our IP manual, you will read not only how your intellectual property is legally protected in India, but also what you can do and have documented yourself to protect your IP if you will be working with an Indian partner.

The benefits of sourcing in India: here's why these Fortune 500 companies are already doing it

For more than 30 years, the Indian family-owned Roots Group of Companies has been designing and manufacturing components for the world's biggest brands, including Bosch, Harley Davidson, GE and Philips. Why do these top brands prefer a local, Indian company? The answer is simple, says the group's founder and president, Krishnaswamy Ramasamy. "We provide quality products at a competitive price."

Founder of Roots Group of Companies, Krishnaswamy Ramasamy (left), with Masakazu Yoshimura, Managing Director of Toyota (right).

From an idea to global customers

Ramasamy founded Roots in the 1970s with the goal of improving the horn. "In India, we really like using our horns, so they have to be rugged and reliable. Which they weren't back then time-wise," says the chairman.

"Developing a horn that meets the high and strict standards of the automotive industry takes time, so in the meantime I decided to expand my business. For example, we picked up production of radiator cooling and brake booster systems."

Ramasamy - not only the founder, but also the company's chief engineer - is the kind of entrepreneur who sees opportunities and trends before the rest of the world notices them. His idea to design a better and more reliable horn might have been an unnecessary improvement to the layman. But when he launched his alternative 12 years later, all the major car companies in India lined up for his product.

And that attracted international interest. "I always wanted to work with the German company Bosch because they are known for their quality products. When we became the largest company for horns in India, we caught their eye and managed to set up a collaboration. Now 80 percent of their supplies are sourced from us," Ramasamy says.

"After Bosch, companies like Volkswagen, Skoda, Toyota and Harley Davidson followed, because we are not only a supplier of parts, but we also provide our customers with a solution to the problem they have. Our goal is to provide service and be a strategic partner at a competitive price, that combination is unique."

Sourcing in India means quality products at a competitive price

According to Ruediger Schroeder, vice president of IndiaConnected's partner, Maier and Vidorno, Roots is a perfect example of the high-quality components and service that can be found in India. "India is one of the largest producers of automobiles, pharmaceuticals and has a significant food processing sector. It also specializes in aerospace and military equipment," he explains.

"All these industries need high quality parts, which means that there are thousands of suppliers running around providing these parts that meet international standards. Whatever you are looking for, it can be had in India. You just need to have the right partner with the right experience by your side to ensure that you can take full advantage of the advanced knowledge and experience that India has to offer."

High quality for all industries from construction to medical

Roots is now active in sectors other than just the automotive industry, producing parts for customers in the construction, aerospace and medical sectors. "In 2007 we visited a lot of trade fairs, because I saw opportunities in the medical sector. But because of all the regulations and quality checks that the products have to go through, that's a tough sector to get a foothold in," says Ramasamy.

"At one of the trade shows, we did come into contact with the Swedish branch of GE healthcare, which at the time was importing components for their bioscience equipment from 48 different companies around the world. So we decided to take a chance and submit a proposal to them to develop the entire product for them. To their surprise, we were not only able to do this more cheaply than the other subcontractors, but we also immediately met their quality and delivery expectations. Roots is now GE's sole supplier and not only for GE healthcare Sweden, but also for the sites in the US and India."

Tips to get started with sourcing in India

According to Ruediger Schroeder and Deepmala Datta, Consultant Market Expansion at IndiaConnected, quality options are available to any company looking to source from India.

"But the key to successful sourcing is daring to seek the help of a local partner who can find the perfect supplier for you," says Deepmala. "India is a very large market and if you don't know what to look for, you can easily end up with the wrong option."

"You have to understand in which cluster they have the most expertise in your sector or specific product," Schroeder explains. "For international companies, with little experience in India, it's hard to get that good overview of the market and to be able to figure out where to find the manufacturing clusters of your segment. That's why a local consultant plays such an important role in this process; he or she can not only do the research for you, but also preselect the right suppliers based on key criteria such as experience and expertise."

"The mistake we see many companies make is choosing the first supplier they come across without doing due diligence or sufficient testing. Finding a high-quality supplier like Roots takes time, because you have to give them the opportunity to study and develop your product or component," says Deepmala. "That process will certainly take 6 months or more. Having a local representative, who can do follow-ups, visit the site and take over time-consuming processes, will not only speed up this process, but will also ensure that your company gets the high-quality solution it is looking for."

Curious about what the Indian manufacturing sector has to offer your company? Or would you like to have a sparring session about starting sourcing in India?