Gujarat’s Appeal to Foreign Investors: Industrial Capacity, SEZs, Exports
- Gujarat’s new industrial policy intends to provide its flagship industries and small and medium enterprises with robust infrastructure and ease facilitation for foreign investment.
- In this article, we profile the state, including its leading industries, exports, and special economic zones and industrial investment corridors.
Gujarat’s status as India’s most industrialized state is reflected in its contribution to the national GDP and its management of exports. According to a 2017-18 annual survey of industries, the western coastal state contributed nearly eight percent to India’s GDP and accounted for over 20 percent of exports. Gujarat’s ports handled over 40 percent of India’s cargo.
Between April 2015 and March 2020, the state received foreign direct investment (FDI) worth US$15.6 billion. In the FY 2019-20, the percentage of FDI inflows went up by 240 percent – propelling the state to grow sixty times the overall economic growth of India.
State-of-the-art infrastructure and a policy-driven, business friendly ecosystem has encouraged foreign investors to take steady interest in Gujarat. The state’s flagship manufacturing industries include agro and food processing, automobiles, chemicals, pharmaceuticals, and petrochemicals.
In the following sections, we discuss key aspects that make the state attractive to offshore investors across a range of industries, including manufacturing capacity, location advantages, export capabilities, and other incentives.
For offshore financial market investors, India’s first International Financial Services Center (IFSC) has been set up at Gujarat International Financial Tec-City (GIFT City) in Ahmedabad. Recent changes in tax regulations include the waiver of several tax liabilities like goods and services tax (GST), dividend distribution tax, and capital gains tax for entities operating in the IFSC GIFT City. According to tax experts, Category III alternative investment funds (AIF) setting up in IFSC GIFT City will benefit from zero tax on bond trading and zero tax on derivative trading, which is in line with offshore treaties. GIFT City is modelled along the hybrid structure of Singapore’s financial center.
Agro and food processing industry
By 2006-08, agricultural infrastructure in the state improved greatly and enabled the setup of a number of agro-industrial projects. Gujarat offers financial support to all companies interested in taking up agro-based projects, including marketing and research. The organic growth of Gujarat’s agro industry also benefits from the easy availability of skilled labor and a strong network of farmers.
The next phase of development for the industry is now the establishment of ‘agro export zones.’ These zones refer to institutes whose purpose is to develop specific crops. Gujarat has been divided into 20 agro export zones. In order to develop these zones, the state government has ordered that incentives be given to aid private sector firms and agriculture product marketing committees (APMCs) engaged in this field.
In terms of food processing, Gujarat is the fifth largest producer of milk in the country, producing 14,499 million metric tons of milk in 2018-19. The state has 45 dairy plants, 560 cold storage and fish processing units, and over 30,000 food processing units.
Gujarat is empowering its automotive industry to get recognized at a global level. The state contributes nine percent to India’s total output of transport equipment manufacturing. At the 2019 Vibrant Gujarat Summit, in an interaction between the government of Gujarat and potential investors, it was decided that low cost, low risk, and high efficiency auto cars and components should be promoted as they will become attractive options in the near future. Further, this will promote job creation and feed into the development of the industrial and R&D ecosystem.
Gujarat’s contributions to the auto industry is helped by its stronghold in the heavy and light engineering sector. The state’s automotive clusters and auto component manufacturing facilities are located near Ahmedabad and Rajkot. As many as 350 ancillary units (auto component manufacturing) are expected to come up in the Sanand-Mandal-Becharaji region.
Chemicals, pharmaceuticals, and petrochemicals industries
Gujarat is a major pharmaceutical hub in India, ranking first in terms of chemical manufacturing output. This is supported by its possession of over 3,245 manufacturing licenses and management of 22 percent and 18 percent of India’s pharma and chemical exports, respectively.
Statistically, Gujarat commands 50 percent of the chemicals and pharmaceuticals industry, respectively, and 30 percent of the petrochemicals industry. It is responsible for 62 percent of the total petrochemical production and 35 percent of the total chemical production in India. In marine production, Gujarat is responsible for the production of 70 percent salt, 20 percent caustic soda, and 90 percent soda ash.
To further enhance Gujarat’s industrial capacity in these areas, there is a plan in the works to set up a Petroleum, Chemicals and Petrochemicals Investment Region (PCPIR) in the state.
Prominent investment locations
To attract large foreign investments, Gujarat’s industrial policy has organized its development zones that will enhance industrial activity by concentrating investment areas. These include the setting up of special investment regions (SIRs), improving existing investment regions (IRs), setting up new industrial parks, and establishing SEZs.
The Government of Gujarat enacted ‘The Gujarat Special Investment Region Act-2009’ to spur the creation of large industrial investment areas supported by world class infrastructure. (The concept of SIR has been evolved in concurrence with Delhi-Mumbai Industrial Corridor, a high impact industrial area within 150 km distance on both sides of the Dedicated Freight Corridor from Dadri-NCR to JN Port-Mumbai.) Out of 24 industrial nodes identified on Delhi-Mumbai Industrial Corridor, six nodes are located in Gujarat.
Six cities have been designated as investment regions to attract foreign investors (shown below).
The advantages of investing in these regions include:
- Taking advantage of a business friendly environment;
- Access to skilled human resources;
- Abundance of natural resources;
- Large consumer market;
- Easy connectivity by road, air, rail, and sea;
- Presence of small and medium-sized enterprises (SMEs);
- Existing social infrastructure; and
- Urban development.
The following table discusses the functions of each type of industrial park in Gujarat.
The following infrastructure facilities are developed in industrial parks:
- Upgrading of existing roads;
- Construction of a water distribution network;
- Construction of a gas/energy/electricity network;
- Construction of warehouse facilities;
- Construction of product development center;
- Construction of a product testing center; and
- Construction of a common facilities center.
Special economic zones
Gujarat boasts of several special economic zones in major cities (SEZ). SEZs are specific enclaves with relaxed duties and fiscal incentives to promote export of goods and services, expand economic activity, and facilitate increased investments. Such areas benefit from single window clearance and compliances based on self-certification. The distribution of SEZs in Gujarat are shown in the table given below.
Incentives for foreign investors
Foreign businesses will be able to access clear incentives if they choose to invest in Gujarat. The following sections highlight key benefits of setting up in the state.
Gujrat contributes to 16 percent of industrial production in India. It received 22 percent of incoming foreign investment worth US$18.59 billion between October 2019 and September 2020, facilitated by its regulatory mechanisms to ease of doing business, besides other incentives. These mechanisms include the provision of assigning relationship managers to key setups, an online approval system, and centralized inspection.
The state assigns eligible businesses with a relationship manager who acts as a single point of contact for all government related queries. A framework for online permissions is being prepared, wherein investors need only submit one application form for 26 state-related approvals and compliances. The centralized inspection system aims to bring more transparency to the ‘ease of doing busines.’ A special committee formed at the state level will aid the process of procuring land and converting it for industry use.
Exports and industry-specific special economic zones
With a contribution of over 22 percent to India’s net export share, Gujarat has begun setting up industry-specific SEZs that will encourage export-oriented manufacturing in key industries, including pharmaceuticals, chemicals, jewelry, gems, and ceramics.
Preferential policy measures
The support of a proactive government is paramount. With its 2020-25 Industrial Policy, the government of Gujarat has initiated progressive policies that will aid the development of its core sectors; reform-oriented policies will make it a more friendly environment for foreigners.
Public-private partnership policy
The public-private-partnership (PPP) policy is a partnership between the enterprises in the state-supported and private sectors to efficiently utilize incoming foreign investment. A study by the Associated Chambers of Commerce (ASSOCHAM) stated that Gujarat accounts for 15.5 percent of the country’s total infrastructure projects in operation. (There are about 1,200 projects being carried out in the PPP mode in India in different segments of the infrastructure sector.)
The Blueprint for Infrastructure in Gujarat 2020 (BIG 2020) details plans for developing infrastructure in the state through PPP. The first objective states the need for inclusive economic growth. To accomplish this, 17 growth engines have been defined across the agricultural, services, and industry sectors that would enhance the economic and social welfare in the spheres of education, health, governance, and environment. The next step is to build the support infrastructure needed. Certain infrastructure sectors will be prioritized for development and investment.
Promotion of micro, small, and medium enterprises
Micro, small, and medium enterprises (MSMEs) are invaluable in the industrial ecosystem, enabling the growth of upstream and downstream investments. The government has already initiated polices to facilitate the growth and diversification of the state’s MSME ecosystem. These include the implementation of the Gujarat Micro, Small and Medium Enterprises Act of 2019 and the establishment of MSMEs in 11 districts.
For now, the goal of Gujarat’s MSME ecosystem is to be recognized at a global level by means of higher exports, superior capital management, global supply chain integration, and being able to access global markets. The end result should be foreigners choosing to invest directly into the state’s MSMEs. Market development assistance is one of the policies geared towards achieving this goal. Gujarat’s government will fully support the participation of domestic MSMEs and startups in exhibiting themselves internationally so that they may access global resources and tap into foreign markets.
The following table represents the types of exhibitions that can take place and the reasons MSMEs should be interested in participating in them.
Promotion of exports
Exports have contributed significantly to Gujarat’s economic expansion. As per the Gujarat Industrial Policy, 2020, the state government will continue to promote exports by facilitating the exporters and export-oriented units.
The government will partner with national and state level export councils to continue seamless facilitation of exports.
Exporters will be provided with exhibition cum convention centers where they will be able to display their products.
Global market access
Exhibitions are important platforms for companies, especially MSMEs, to network with global buyers and suppliers. This will further help high performing or qualified MSMEs to participate in international exhibitions as well as trade fairs.
Awareness and publicity
In partnership with the Ahmedabad Management Association (AMA), the government will organize an information dissemination mechanism that will conduct orientation workshops, allowing exporters to promote and explain their products. Trade guides and other informative documents will also be provided.
This will allow companies to effectively express their concerns regarding their exports and immediately expect answers in return. Under the Gujarat Industrial Policy, 2020 – a robust grievance redressal mechanism will be set up under the export commissioner to address the concerns of enterprises and to ensure timely redressal of the same.
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