Introduction

The Government of Andhra Pradesh ("AP Government") recently unveiled its new Industrial Policy 2020-23 with the aim of providing incentives and an investment-friendly environment for certain industries in the state.

Broadly, the interventions by the state – that are intended to support and facilitate industry – include infrastructural interventions (related to the development and management of industrial parks), ease of doing business measures (such as creation of a single desk portal for approvals, deemed approvals for certain industries), improving labour access / skilling, developing a support centre for entrepreneurs, incentives (such as GST reimbursements for certain industries), and special incentives for socially disadvantaged groups such as women, members of the scheduled caste, scheduled tribes and other communities.

Key Measures

Industrial Parks

The development of industrial parks and provision of plots at affordable rates are a key area of focus for AP Government under the new policy with the AP Government intending to promote new industries only in industrial parks/ estates to ensure greater environmental sustainability. To accomplish this, the AP Government proposes the following:

  1. Development – by the Andhra Pradesh Industrial Infrastructure Corporation ("APIIC") – of multi-sector or sector specific industrial parks built on land that is specifically notified / zoned / designated for industrial use as per the State's Environment Management Plan.
  2. The APIIC will then complete the Environmental Impact Assessment for the park, along with all other necessary clearances, prior to allocation of the plots to micro, small and medium and large industries. This enables a quicker set up and risk free operation.
  3. The parks dedicated towards micro, small and medium enterprises ("MSME") shall have all basic facilities (roads, water, power, built factory shells) with minor deviations based on need and requirement while larger industrial parks would be developed to cater to sector specific needs. Therefore, mega industries such as bulk drugs or active pharmaceutical ingredient manufacturing (and other hazardous industries) would be permitted in certain designated parks which would be specifically built for such purposes. For instance, the AP Government has planned parks at Kurnool, Nellore and Prakasam to accommodate 300 new units, as well as explored collaborations in research for medical device technology, gene therapy, biosimilars and speciality drugs
  4. The development of industries on private land, outside of these parks shall be permitted only under specific circumstances by the AP Government.
  5. The AP government has reduced the upfront cost of land acquisition, by allowing businesses to lease land with the option to buy after 10 years. This model is also permitted for the pre-built factory shells for MSMEs.

Fiscal Incentives

The AP Government has granted certain fiscal and other incentives based on the size of the enterprise.

  1. Micro and small enterprises1 shall receive the following benefits:
  2. Reimbursement of stamp duty on land purchased for industrial use; leases; mortgages and hypothecations;
  3. Uninterrupted power at concessional rates of INR 1 per unit for the first 5 years after commencement;
  4. Reimbursement of 100% of net SGST for a period of 5 years from the date of commencement of commercial production, or up to realisation of 100% of fixed capital investment, whichever is earlier;
  5. Investment subsidy on fixed capital investment up to INR 2,000,000.
  6. Interest subsidy of 3% on the term loan taken for fixed capital investment by new industries for 5 years from the date of commencement of commercial production;
  7. Reimbursement on land conversion charges for industrial use of 25%.
  8. Medium enterprises2, large3 and mega4 industries shall receive a reimbursement on SGST for a period of 5 years from the date of commencement of commercial production, or up to realisation of 100% of fixed capital investment, whichever is earlier. The amount of reimbursement will vary based on employment generated. If the magnitude of employment generated is less than 1000 then 50%; if 1000 to 2000 then 75%; and if greater than 2000 then 100% of SGST.

Ease of Doing Business

  1. Among the transparency measures undertaken is the 'deemed approval' granted to all green and white category industries (classifications based on environmental impact). Such industries would be able to commence activities and formalise their approvals within 3 years and need only submit an undertaking / declaration of intent.
  2. Creation of a robust, single desk portal for all necessary approvals and clearances from multiple government agencies and departments and a central helpline for approvals related grievances. The portal currently grants nine pre-establishment approvals and seven pre-operational approvals with fixed timelines which include approvals for change of land use, factory licensing, consent to operate, fire NOCs and permission to utilise contract and migrant workers with the intent being to eliminate the need for in person contact with the authorities at the district level. The AP Government currently guarantees the granting of all approvals within 21 days.
  3. Other efficiency measures such as more frequent department meetings for quicker approvals and disbursement of loans.

Entrepreneurship

The AP Government proposes to set up a support centre called YSR AP One to provide one stop shop support to entrepreneurs including support regarding the business model, market research, branding, sales etc.

Special Incentives for Disadvantaged Groups

The AP Government shall grant fiscal incentives (relating to stamp duty, investment subsidies, loan interest subsidies, rebates in land cost, and SGST reimbursements) to socially disadvantaged groups such as women, scheduled caste, scheduled tribe and other backward class community members ensuring inclusive development. In addition, the AP Government shall reserve plots in industrial parks for members belonging to these groups.

Conclusion

Due to the ongoing Covid-19 crisis, India has faced a significant economic slowdown. In this context, the measures announced by the AP Government to enhance investor friendliness and streamline the processes for obtaining approvals / clearances at district level are a welcome step. The restriction on commencement of new industries to land designated for such purposes ensures greater environmental sustainability and mitigates damage to more sensitive regions of the state. Lastly, the fiscal incentives to new industry are a welcome step in light of supply side slowdowns. The State itself presents a good industrial opportunity, especially with its logistics' channel being so clean with Vizag port and access to Hyderabad airport. Hopefully, this policy will attract some takers.

Footnotes

1. As defined under the Micro, Small and Medium Enterprises Development Act, 2006 and government notifications issued from time to time – micro enterprises shall have an annual turnover less than INR 50,000,000 and investment in plant and machinery of less than INR 10,000,000. Small enterprises shall have an annual turnover less than INR 500,000,000 and investment in plant and machinery of less than INR 100,000,000.

2. As defined under the Micro, Small and Medium Enterprises Development Act, 2006 and government notifications issued from time to time – medium enterprises shall have an annual turnover less than INR 2,500,000,000 and investment in plant and machinery of less than INR 500,000,000.

3. Projects with investment and turnover greater than medium enterprises but less than INR 5,000,000,000.

4. Projects with direct employment over 2000.

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