India’s Auto Component Industry: Investment Incentives by Location

This is the second article in a two part series. In part one, we examined the resurgent investment outlook of India’s auto component manufacturing industry, which you can access here.

India’s auto components sector has evolved to form three main clusters located in the southern, western, and northern regions, respectively.

Although infrastructure for regional connectivity has improved considerably in the last five years, India’s coastal states enjoy a definitive advantage due to their proximity to marine-based transport hubs.

Sunjay Kapur, CEO of the Sona Group, a US$800 million multinational firm and leading Indian auto component manufacturer comments on the status of the sector in India: “The auto component sector is very mature and with the kind of technology several companies in the tier I space have adopted, India can become a global hub for component supplies. The component industry is also readying for the push towards electric vehicles, which should bring more technology to India.”

Large investments in specific Indian states – viewed to be investor-friendly – have created regional hubs for major automobile manufacturing units and ancillary industries.

In this article, we outline key incentives offered by specific states in India who have attracted the bulk of FDI in auto components manufacturing. We also provide a map of India’s rapidly developing logistics network.

Andhra Pradesh

The state has set up two new auto clusters in the districts of Nellore and Chittoor. The state government also plans to set up several industrial parks, which are referred to as Automotive Suppliers’ Manufacturing Centers (ASMC).

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An original equipment manufacturer (OEM) hoping to set up a mega integrated project (worth US$230 million and above) in one of these centers may receive another plot, at the same rate for its ancillaries. However, the discounted rate is applicable up to a maximum of 50 percent of the additional land.

Andhra Pradesh offers a 10-year full reimbursement of GST for mega integrated projects and a 20-year SGST reimbursement on the sale of finished goods. It also offers concessional SGST rates on input/raw materials for 20 years.

Developers in the ASMCs and clusters are eligible to receive financial assistance for fixed capital investments, up to a maximum of US$3.5 million.

In the case of micro, small, and medium enterprises (MSMEs), the state will provide financial assistance of up to a maximum of US$38,000 on patent registration charges; it will also provide a maximum of US$7,500 in quality certification assistance.

Andhra Pradesh has 15 deep water ports, including a major port at Visakhapatnam. Visakhapatnam is equipped with modern state-of the-art port infrastructure, capable of handling vessels up to 200,000 deadweight tonnage (DWT). Not only does it have the capacity to handle large cargo, the port also enjoys greater connectivity with nearby Southeast Asian markets.

Gujarat

Situated on the western coast, Gujarat is the most recent auto component manufacturing hub in the country. As of 2017, 15 engineering parks were established around the metropolitan cities of Ahmedabad and Rajkot. Rajkot, in central Gujarat, contains more than 500 auto component manufacturers. 50 of these are OEMs and the rest are SMEs catering to the retail (aftersales) market.

Gujarat’s Industrial Policy of 2015 guarantees projects 10-year tax holidays, ranging between 70 to 90 percent – depending on the location of the site and the amount of fixed capital investments.

Mega projects worth US$153.40 million (Rs 1,000 crore), with a minimum of 2,000 employees, are eligible for financial assistance from the state government and assistance for identifying appropriate project sites by the Gujarat Industrial Development Corporation (GIDC). 

The state’s ports of Kandla, Mundra, and Pipavav have dedicated terminals for automotive exports.

Haryana

The Gurgaon-Manesar-Bawal belt is a key emerging auto component hub within the northern state of Haryana.

Manufacturers in this area receive priority in the allotment of developed land by the state government.

Further, its location in the country’s interior has resulted in the construction of dedicated railway sidings, equipped with inventory management and dispatch centers, which connect to the country’s several ports.

Maharashtra

The state of Maharashtra on the western coast has hubs located in the cities of Mumbai, Pune, Nagpur, Aurangabad, and Nashik. Pune, with 4,000 units, is the largest of these locations.

MSMEs and Large Scale Industries (LSIs) are eligible to receive Industrial Promotion Subsidy, Interest Subsidy, and Electricity Duty Exemption on fixed capital investments in the sector. Industrial units may also receive an additional incentive if they employ more individuals (double the number of original employees) from local communities.

The acquisition of land and term loans by MSMEs and LSIs are completely exempt from the payment of stamp duty. MSMEs are also exempt from payment of duty on the electricity consumed.

Tamil Nadu

The auto components hub in the southern coastal state of Tamil Nadu is concentrated around its capital, Chennai. Worth US$6.2 billion, the state produces 35 percent of India’s total auto components manufactured.

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Over 350 large suppliers and 4,000 SMEs have their operations here. The ports of Chennai, Tuticorin, and Ennore cater to the unrestricted movement of auto component consignments with dedicated berths.

If power requirements exceed a specified electrical load, investors are assured that the Tamil Nadu Electricity Board will set up a substation at its own expense, on land provided by the developing agency.

Auto component projects receive a five percent rebate on the cost of land purchased from the State Industries Promotion Corporation of Tamil Nadu (SIPCOT). Clusters in industrial areas receive 50 percent reduction in stamp duty. A five percent additional capital subsidy may also be granted.

For instance, a company with 200 employees, investing up to US$15 million in fixed assets is liable to receive US$92,000 (Rs 6 million) in capital subsidy. New units in SIPCOT industrial parks can also receive up to 50 percent capital subsidy, over the eligible limit.

Projects also receive 25 percent of capital cost or a subsidy of US$45,000 (Rs 3 million) for a dedicated Effluent Treatment Plant (ETP) and/or Hazardous Waste Treatment Storage and Disposal Facility (HWTSDF), whichever is less expensive.

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