The manufacturing industry is one of India’s fastest developing industries and has been improving steadily, which has led to many international companies setting up manufacturing plants in India. The Indian government announced the Make in India program to transform India into a manufacturing hub. In this guide, we explain how manufacturing plants are set up, the benefits of a manufacturing plant in India and the leading sectors.
- Many companies are relocating to India because of low labour costs, skilled workforce, low taxes and large market size.
- The leading sectors for manufacturing in India are automobile, chemical, electronics, medical devices, and textile.
- The Indian government provides corporate income tax deductions to newly established manufacturing companies.
- The most common entity for a manufacturing plant is a limited company.
- Companies should determine a suitable location for the plant, as states may offer different incentives.
- Factories must obtain a factory license and comply with the provisions of the Factories Act (1948).
Key sectors for manufacturing in India
There are several industries in India that are increasingly attracting more foreign direct investment for the manufacturing industry, these key sectors include:
- Automobile manufacturing – several Indian and foreign automobile brands have research and development and innovation (R&D&I) centres in India, and the automobile industry makes up nearly half of the manufacturing GDP in the country.
- Chemical manufacturing – India manufactures more than 80,000 commercial products, including agrochemicals, bulk chemicals, fertilisers, petrochemicals, polymers and speciality chemicals.
- Electronics and equipment manufacturing – as India is one of the largest electronics consumer markets in the Asia Pacific region, electronic manufacturing has become one of the fastest-growing industries in India.
- Medical device manufacturing – India is one of the top 20 medical device markets worldwide, and the Internet of Medical Things (IOMT), IT and robots are the driving factors of this sector.
- Textile manufacturing – India is one of the largest textile manufacturing industries in the world as it produces high-quality clothing and apparel and exports leather goods.
Get our in-depth guide covering everything you need to know about starting and managing your business in India.
- Discover foreign registration options & restrictions
- Learn about available government incentives & promotions
- Understand all compliance requirements
Why set up a manufacturing plant in India?
China is known to be the world’s largest manufacturing country; however, due to recent events, a number of companies are shifting out of China and into India. Listed below are some reasons why companies are relocating to India:
- Low labour costs – the labour rates in India are relatively lower than in China.
- Low tax rates – the corporate tax rate in India was reduced from 30% to 22%, and the Indian government extended the concessional corporate tax rate of 15% for newly incorporated manufacturing to March 2024.
- Large market size – India has the second largest population worldwide and is expected to be the world’s largest consumer market in 2030.
- Educated workforce – India produces approximately 1.5 million engineers every year, which is one of India’s most common careers.
- The Indian government offers several incentive schemes for electronics companies, which include:
- The Modified Electronics Clusters Scheme (E.M.C)
- The Production Linked Incentive Scheme (P.L.I)
- The Scheme for Promotion of Manufacturing of Electronics Components and Semiconductors (S.P.E.C.S)
Setting up a manufacturing plant in India
Registering an Indian entity
Manufacturing activities in India require a physical presence and can be established as a company or a partnership. The most common entity for a manufacturing business is a limited company, both private and public.
Foreign companies can also set up a wholly owned subsidiary or form a joint venture (JV) with an Indian partner. Entering a JV provides foreign companies with the Indian partner’s experience and knowledge of the Indian market. The foreign exchange regulations set the maximum amount of foreign direct investment of each sector for a wholly owned subsidiary.
Company registration in India can be completed online, except for submitting documents that may need to be notarised and apostilled. Once the documents are submitted, the registration process may take four to six weeks to complete.
Identifying a set up location
Companies should identify a location within India to set up the manufacturing plant. There are several criteria that should be considered when choosing an Indian state, such as:
- The company’s products
- Business-friendly strategies and incentives
- Accessibility of raw materials or supply chains
- Land accessibility
- Existing infrastructure
- Availability of skilled or semi-skilled labour in the local population
- Political and administrative dependability
Nearly all Indian states provide general incentives for investment, such as cheaper land, stamp duty rebates, exemption from electricity charges, low-interest loans and subsidies for specific industries.
Choosing where to set up a company in India is an important step as some states are more business-friendly than others, and certain states have become hubs for specific sectors, such as Tamil Nadu, which is a leader in industries like automobiles and auto components.
Other states that are a leader in the manufacturing sector are:
- Andhra Pradesh
- Uttar Pradesh
- West Bengal
Leasing/buying industrial land
It is recommended to purchase or rent land in an industrial park rather than private land to avoid title-related issues.
Obtaining factor licenses
All companies in India must comply with the Factories Act 1948, and a manufacturing plant is considered a factory if it has 10 or more workers engaged in manufacturing with power or 20 workers manufacturing without power.
A company can register a factor online with the government authorities and request a factory license, however, depending on the type of manufacturing process, each state has distinct timelines and approvals. The registration process for factories engaging in hazardous substances may take longer than other activities.
Other approvals factories must get before carrying out activities include the following:
- Building plan and site approval
- Consent to establish
- Procuring water and power connections
- Fire permissions
- Boilers and explosive-related permissions
- Building a sewage
- Receiving no objection from the pollution control board
Depending on the manufacturing process, factories normally require a mix of skilled, semi-skilled and unskilled labour who can be permanently or temporarily employed.
It is important that employers comply with the labour laws and obtain the required licenses based on the number and nature of workers in the factor, which may be different from state to state.
Before operating the factory, clearances from customs must be obtained if any machinery or technology is imported. Although import clearance procedures are typically obvious for most equipment, several rounds of documentation can be necessary.
Running the factor
Once the registration of the factory and installation of machinery is completed, factories must follow ongoing compliance requirements according to the Factories Act, such as filing returns, ensuring the health and safety of the workers and public display of notices.
How Acclime can help
Many multinational companies are relocating their manufacturing plant to India because of the low costs, large market size, educated workforce and attractive incentive schemes. When setting up a manufacturing plant, choosing a location is an important step as some states offer more business incentives than others, and you should choose a location that would benefit you the most. If your manufacturing plant is operating as a factory, it is important to obtain a factory license.
If you intend to set up a manufacturing plant in India, do not hesitate to contact Acclime.
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