FACTORS TO CONSIDER WHILE SETTING UP MANUFACTURING FACILITY IN INDIA

4 July, 2019

The Indian economy is expected to grow at 7.3% in 2019-20, followed by a further acceleration to 7.5% in 2020-21. Three international organizations namely World Bank, International Monetary Fund (IMF) and United Nations (UN) have recognized India as world’s fastest growing economy and average growth forecast by all 3 organizations for the current fiscal hovers around 7.3-7.6%. As per IHS Markit economic outlook report published in June 2019, India is forecasted to overtake the UK to become world’s largest economy this fiscal year and projected to surpass Japan to feature in the second position in Asia-Pacific region by 2025.

Manufacturing has emerged as one of the high growth sectors in India. Prime Minister Narendra Modi launched the Make in India initiative on 25 September 2014 to place India on the world map as a manufacturing hub. 

For example, Gujarat’s GDP accounted for 8.1% of India’s national GDP in 2018-19, whereas, Maharashtra accounted for 14.73%, highest of all states. 
In-depth due diligence needs to be performed to figure out the strategic location for the setting up of manufacturing plants to meet the client’s requirements. There are a multitude of factors to be considered for any company to set up a manufacturing plant like basic infrastructure, business environment, political stability, real estate framework, labor Laws, land acquisition process and site selection due diligence. 

Categorized above factors under four major elements i.e. Infrastructure, Business environment and proactiveness of government, Human resources and Real estate. 

The first and foremost crucial point i.e. infrastructure development in terms of proximity and connectivity with airport, seaports, and network of roads with an adequate logistic framework. As infrastructure and industrial development is key to the development of the state and thus, state government must accord the highest priority to infrastructure and industrial development by creating an enabling environment for industrial development and rationalism in the policy framework. As a result of the availability of quality infrastructure, industries can be established with less capital investment and can function without impediments.

Secondly, Business environment and proactiveness of government is of paramount importance in the encouragement of businesses and attraction of greenfield capital investment projects in conjunction with incentives offered as benefits to the investor. With the improvement in the economic scenario in India, there have been various investments in various sectors of the economy. The M&A activity in India reached a record US$ 129.4 billion in 2018 while private equity (PE) and venture capital (VC) investments reached US$ 20.5 billion. In addition to this, several government initiatives and developments have been undertaken across different industries and sectors making India as an exemplary investment hub to domestic and international investors.

Thirdly, human resources (HR) play an important role in terms of labor, wage norms, manpower availability, future potential of the location and cost of accommodation in adjoining areas. Human capital plays an important role in the economic development of a country and is evinced from this statement as slow growth in underdeveloped countries is mostly resulted from a lack of investment in human capital. Thus, human capital formation is very much required for the economic development of underdeveloped countries. Thus, in order to attain circumferential development of the country, the human capital formation through an adequate volume of investment on human development is very much important under the present context of infrastructure development. The development of human resources can raise per capital income of the country through the increased formation of human capital and can lead to an overall improvement of quality of life in general.

Last but not the least, comes the real estate regulatory framework, site selection due diligence, average allotment cost of land and availability of industrial land in existing and outside government industrial estates are of paramount importance. India’s real estate is 4th largest in terms of FDI inflows and FDI in the sector is expected to grow to US$ 25 billion by FY22. Out of 5 major segments of real estate i.e. residential, commercial, retail, Hospitality and SEZs, the most grabbed segment by investors are SEZs as the government had formally approved 423 SEZs, out of which 222 are in operation as of December 2017. Secondly, the minimum land requirement has been brought down from 1000 hectares to 500 hectares for multi-product SEZ and for sector-specific SEZs to 50 hectares.

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