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Government planning incentives worth $23 billion to boost manufacturing

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By Abhijit Roy Chowdhury

India is planning to offer incentives worth 1.68 trillion rupees ($23 billion) to attract companies to set up manufacturing in the South Asian nation, people with knowledge of the matter said.

Prime Minister Narendra Modi’s government will offer production-linked incentives to automobile manufacturers, solar panel makers, and specialty steel to consumer appliance companies, according to documents reviewed by Bloomberg News. Textile units, food processing plants and specialized pharma product makers are also being considered for the plan.

The incentive program, being spearheaded by the country’s policy planning body, uses the template of a scheme implemented earlier this year to draw businesses away from China. About two dozen companies including Samsung Electronics Co., Hon Hai Precision Industry Co., known as Foxconn and Wistron Corp. pledged $1.5 billion of investments to set up mobile-phone factories in the country, according to the government, after authorities offered to pay them an amount equivalent to 4%-6% of their incremental sales over the next five years.

New Delhi has been working on attracting investments to revive an economy that posted its worst slump among major economies last quarter, when it contracted 23.9%. Corporate taxes are already among the lowest in Asia, while insolvency rules were overhauled to improve the ease of doing business. But those have done little to make it the first choice for businesses looking to diversify supply chains away from China.

Vietnam continues to be the most favored destination, followed by Cambodia, Myanmar, Bangladesh and Thailand, according to a recent survey by Standard Chartered Plc.

The government is also planning to introduce a phased manufacturing program to other sectors for allowing companies to gradually increase local value-addition. The program, currently in vogue for components and accessories used for mobile phones, is proposed to be extended for furniture, plastics, toys and low-value consumer durables. Most of these items are currently imported from China.

The details of both the programs are being worked out and would be put up for the approval of the federal Cabinet soon, they said.

A spokesperson for Niti Aayog, the government’s policy think tank, did not answer a call made during business hours.

India imported goods worth $65 billion from China in the year ended March 31, while it exports to the neighboring nation stood at $17 billion, leaving a trade deficit of $48 billion, according to latest government data.

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