Investing in North-East India: Incentives for Industries

May 9, 2018 Posted by India Briefing Written by Melissa Cyrill Reading Time: 3 minutes

India is actively pushing for greater investments in its north-eastern states: Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, and Tripura.

The region shares international borders with China, Tibet, Myanmar, Bangladesh, Nepal, and Bhutan, and is considered to be of vital geopolitical and economic importance.

Bolstering the economic development and investment potential of the region is thus a key aspect of India’s Act East policy, which focuses on improved socioeconomic, trade, and business engagement with East Asia and the ASEAN states.

North East Industrial Development Scheme

Announced on March 21, 2018, the North East Industrial Development Scheme (NEIDS) encourages micro, small, and medium enterprises (MSMEs) to set up in the north-east region.

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The scheme comes at the heels of Prime Minister Narendra Modi’s party making major electoral gains in three north-eastern states – Tripura, Nagaland, and Meghalaya – in the state elections this year.

Since taking office, the Modi government has been keen to link the development of the north-eastern states with a more proactive Act East policy. For instance, building cross-border infrastructure to enable stronger international business and trade ties, eastwards. This includes the construction of roads and international highways and providing seaport and rail access to the benefit of firms doing business and trading across India, Bangladesh, China, and ASEAN.

Incentives under NEIDS

A host of incentives are available under NEIDS for new units setting up in the north-eastern states.

An overall cap on benefits received via the NEIDS scheme has been fixed at Rs 2 billion (US$29.7 million) per unit.

We outline the respective incentive components under NEIDS below:

Reimbursement on the goods and services tax (GST) paid to the federal government, for a period of five years from the date of commencement of production.
Reimbursement of the federal share of the income tax for five years, including the year of commencement of commercial production.
A three percent interest subsidy on working capital credit for the first five years of operation.
Access to a central capital investment incentive amounting to 30 percent of the investment in plant and machinery, with an upper limit of Rs 50 million (US$740,000).
Full reimbursement of insurance premium on buildings, plants, and machinery for five years.
NEIDS also offers transport incentives to offset costs due to geographical and logistical challenges in setting up units in the north-east.
Transport incentive of 20 percent on their cost of transportation using railways and inland waterways and 33 percent in the case of air freight for perishable items.
Employment incentive where the federal government will contribute up to 3.67 percent of the employer’s contribution to the Employees’ Provident Fund.

Investing in north-east India

The north-east region, by way of its location, enjoys key advantages as much as it throws up challenges for businesses. Being close to international borders opens up market access, although difficult geographical terrain and uneven infrastructure development have until recently punctured the scope for investments.

The situation, however, has improved significantly in the last five years.

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For instance, the share of industrial activity has risen in all eight states in the region, with Meghalaya, Tripura, and Arunachal Pradesh recording the highest growth. Most development indices also show a positive performance in the region when compared to other states in India.

The north-eastern states are also well endowed with mineral deposits, natural landscapes and forests, tea estates, and oil and natural gas – offering great scope for services, industrial, and manufacturing investments.

Foreign investors looking to tap into long-term opportunities may thus find it rewarding to explore the north-eastern states. To attract greater private investment, both federal and state governments offer various sector-linked and location-specific incentives and tax benefits for businesses across the region. Moreover, the north-eastern states also boast of highly educated populations with strong English proficiency, creating ideal conditions for talent procurement.

Important sectors in the region include: