Why the pandemic made India the world's most popular manufacturing location

The COVID-19 outbreak confronted the world with its dependence on China for the production of all kinds of goods. Consequently, newspapers have recently been full of reports of big names moving production to India, or opting for a second location in India. Apple and Samsung opened their Indian factories in August 2020, and pharma giant Johnson and Johnson is moving its operations from China to India. But what makes India such an attractive location to manufacture?

India offers low production and labour costs and a large pool of well-trained workers

Production hub India offers foreign companies interesting advantages. For instance, production and labour costs are still low, but the country's rapid technological development ensures that the quality of production meets high European standards. This was also an important reason for the Amersfoort-based supplier of castings and forgings, Prins, to stop producing exclusively in China after 23 years. "China became too expensive in some areas, for example, the hourly wage has risen considerably in recent years. In India, we found competitive prices and an extensive choice of production methods," Erik Sattler, the CTO of Prins, told us in an interview about setting up their Indian production branch. "On top of that, India is more accessible because of the language, everyone in India speaks English. The lines of communication are short because of this; I am in contact with our suppliers simply via Whatsapp."

Tax breaks and subsidies for those who produce in India

The Indian government is working hard to create a favourable business environment. Cheap land for industrial use is being freed up on a large scale and the country's infrastructure is being improved considerably. An example of this is the successful commissioning of the first double-stack container train by Indian Railways. In addition, the Indian government introduced a lot of favourable financial incentives for companies manufacturing in India. A few of these initiatives are listed below: 

• The corporate tax rate has been reduced from 30% to around 25%. India's corporate tax rate is now the lowest in Southeast Asia.

• Introduction of initiatives like 'Make in India' and 'Skill in India'. These programmes focus on creating employment in the manufacturing sector. Moreover, they also focus on improving skill development to create a large pool of skilled labour.

• The rules for land acquisition have been relaxed.

• Companies and limited liability companies benefit from various relaxations in the Companies Act 2013 and LLP Act 2008.

• Income tax, GST and customs exemptions came in when Lockdown was lifted.

"Opening a factory in India also offers the possibility of winning large government contracts," says Maarten Durville, director of the Indian factory of aircraft component builder Fokker Elmo. "We work a lot with Boeing, for example, and they would like to sell their Super Hornet Fighter to the Indian government. But the Indian government will only make such a large purchase on condition that the company also does something in return for the country. In this case, Boeing can show that through our cooperation it creates jobs in India and thus win a place at the negotiating table."

The Do's and Dont's of setting up production in India

Apart from all the advantages of a manufacturing location in India, there are always a lot of things to consider when starting out in India. We discussed the smartest strategies during our last webinar on manufacturing in India. The COO of Maier+Vidorno, IndiaConnected's partner in India, Shavikesh Goel shared his key tips. Please find below the registration of the webinar:

Dutch technology to India with DHI grant

The Indian government has dubbed this decade 'The Decade of Innovation'. Interest in smart, technological solutions is high in many sectors in India. The horticultural sector is a good example of this.. To succeed in India as a company, you have to have a physical presence there. Seeing is believing' is the motto and that certainly applies to expensive technology. A difficult task for Dutch companies that want to enter the Indian market with their high-tech products and machines. The Dutch government recognises this challenge and therefore offers Dutch SMEs the opportunity to take the first steps with the support of the so-called DHI subsidy.

Dutch company SweepSmart brings technology for municipal waste management and sorting centre to India

DHI grant: stimulating internationalisation

The purpose of the DHI grant is to increase the number of Dutch companies that successfully trade abroad. That success depends on good preparation, such as investigating at an early stage whether an export or investment project is feasible, or demonstrating the applicability of a certain export product or technology. An important condition of the scheme is that the activities make a positive contribution to the sustainable, local development of the DGGF countries. These are developing countries that fall under the Dutch Good Growth Fund, India being one of them. 

The DHI scheme allows the creation of 3 types of projects, which are subject to the following conditions:

• Demonstration project: demonstrating a Dutch product, technology or service in a real-life situation to as wide a group of buyers as possible. The technology, product or service must be new on the market of the country where you want to start. It is not the intention that the technology is presented at a trade fair and exhibiting a machine, for example, does not therefore fall under the DHI regulation. Finally, the expected export within 3 years must be at least 5 times the subsidy amount. 

• Feasibility study: The initiative lies with the foreign partner with whom cooperation is to take place. The partner is interested in the technology, product or service of the Dutch company. A feasibility study investigates whether the purchase is feasible and whether the investment can be earned back within the desired period. A feasibility study may not be a market research, there is already sufficient clarity on the size of the market, the intended design of the project, location, operation, financing and local impact. 

• Investment preparation project: Based on this project, the decision is taken to actually invest in one of the DHI countries. For example, a new production or service facility is set up in the target country, or the existing facility is expanded. This may be a subsidiary or a joint venture. However, it may not be a sales office. The company must already carry out substantial activities in the Netherlands and the investment abroad must logically result from the current activities, core business and strategy. 

Four million euro available for DGGF countries

In 2020, a budget of EUR 4 million is available for activities in DGGF countries, which includes India. To participate, eligible costs per project must be at least EUR 50,000. The grant rate depends on the target country chosen; normally the grant is 50% of eligible costs. The proposal must also meet certain content requirements, which can be found here.

Take your first steps in India with confidence

So, do you want to demonstrate new technology, a machine or a service in India? Do you want to research the commercial or technical feasibility of a specific project in India? Or are you considering investing in a factory, joint venture or local office in India? Then you might be eligible for a DHI grant. We would be happy to discuss all financing options for your market entry in India with you. Then get in touch with us!

New subsidy for Dutch companies in India

As of 1 October, SMEs active in India can benefit from a new subsidy scheme. The Knowledge Voucher scheme supports SMEs that need advice and guidance from an external expert in international legal and tax matters, such as an international lawyer, tax expert or tax consultant. The subsidy is intended to support the internationalisation of SMEs.

Advice and guidance may include the following activities:

1. Review of existing contracts or drafting of new contracts, use of general terms and conditions in export transactions;

2. Registration of trade mark;

3. Advice on tax rates abroad, double taxation;

4. Setting up a foreign entity;

5. Other legal or fiscal knowledge focused on sustainable internationalisation.

The Minister will only issue one voucher per SME. The voucher entitles to a reimbursement of 50% of the costs, up to a maximum of €2,500 exclusive of VAT, the equivalent of approximately 40 consultancy hours. 

Interested? IndiaConnected will gladly help you apply for the voucher.