State governments in India seem to have identified apparel manufacturing as a key industry to generate employment and are actively working to provide sops and support to attract mega investments. Earlier it was the eastern states of Orissa and Jharkhand which announced lucrative incentives to apparel manufacturers to counter the lack of fully developed manufacturing ecosystem in respective states. The latest state to announce a dedicated package for apparel manufacturers is none other than the “Textile State of India” – Gujarat.
In October, Gujarat Government announced several fiscal and non-fiscal incentives under its Garment & Apparel Policy 2017 (Textile Policy 2017). The policy aims at garnering an investment of US$ 250 mn in the state’s apparel sector over the next five years and creating 1 lakh new jobs. Revamping its Textile Policy which was announced in 2012, the State Government has now identified apparel manufacturing as the engine for growth and is looking forward to attract investment in downstream value chain and create the pull effect in the entire value chain.
The key highlights of the new policy are:
- Interest subsidy: 5% per annum subject to a maximum of Rs. 7.5 Cr. per year for 5 years. Eligible Investment – Land, Building and Plant & Machinery
- Power subsidy: Subsidy @ Re.1/unit for 5 years.
- Payroll assistance: For units having minimum 150 machines and generating at least 300 domicile jobs, payroll assistance of 50% of wages will be provided up to Rs. 4000/- for female and Rs. 3200/- for male worker per month for 5 years.
- Plug and Play Systems: Gujarat Industrial Development Corporation (GIDC) will develop readymade sheds (along with adequate support infrastructure) for apparel factories in select locations and provide them on long term lease or rental basis. GIDC will be provided with 50% assistance of project cost, which will be passed on to enterprises on pro rata basis.
- Assistance through GIDC: GIDC will develop dormitories in select locations and provide them on rent (minimum lock in 10 years) or long term lease basis. Dormitories will be operated by leasing entity itself. State government will provide rent assistance of 50% to enterprises.
- Assistance directly to private developers: 50% project cost subject to a maximum of Rs 5 Cr. Dormitories to be developed for min 250 workers with a max built up area of 50 sq. ft./ person
- Setting up of training institution: Assistance up to 85% with a ceiling of Rs. 3 crore of the project. Eligible investment- Building, equipment & machinery (including installation), electrification, furniture, etc. excluding land cost.
- Setting up of training centers: Assistance of 50% subject to a maximum of Rs. 20 lakhs per center. Eligible investment- Equipment & machinery, electrification and necessary furniture
- Reimbursement of tuition fee to trainees for apparel production courses: 50% of total fee charged by institution subject to a limit of up to Rs. 7,500 per trainee (Rs 10,000/- for middle level management courses)
Mega apparel park: Up to 50% of the total cost of the project with a maximum limit of Rs. 10 crore. 100% stamp duty exemption only once, for developer and first purchaser of individual unit
Out of the various incentives provided, the major attractions for the apparel investors are payroll assistance and infrastructure support in the form of plug & play set ups. Under Payroll Assistance, wage subsidy of Rs. 4,000 per month (Rs. 3,200 for male) provided will have direct, positive impact on the cost competitiveness of the apparel manufacturers in the state as it would mean approx. 30-35% wage subsidy. Payroll assistance is a major fiscal support for apparel companies as wages have a major share in cost of manufacturing. In terms of cumulative fiscal benefits, the interest subsidy, power subsidy and payroll assistance would provide for almost the entire project investment in 5 years. In India, there is precedence of payroll assistance and other fiscal incentives being provided by few other states to textile and apparel sector. However, the infrastructure support being provided by Gujarat in the form of readymade sheds and dormitories is first of its kind.
The state government plans to provide compliant and good, standard ready-to-move-in sheds as well as dormitories to the manufacturers at reasonable cost. Such an incentivized readymade set-up will reduce the cost of establishment and will help investors in coming up with bigger units. Though there is huge availability of manpower in the state, retaining the workforce in the apparel sector is one of the key challenges industry is facing today. Availability of dormitories near the factories will not only address this challenge but also provide compliant and hygienic habitat to the workers. China had adopted this model in late 80s when it was in its initial phase of industrialization. It established large industrial zones which provided all types of support infrastructure to the investors. Today, Ethiopia is doing the same by providing such facilities in its industrial parks. Gujarat has taken the lead in India to establish such infrastructure and significantly reduce the associated risk for investors. By providing this infrastructure support, the Government of Gujarat has created a possibility for investors to set-up operations in expensive zones (with better connectivity, manpower availability, etc.) without creating their own infrastructure.
As an overall package, the Textile Policy 2017 is perhaps the best one, considering the fact that the State itself is well recognized for swift business approvals and ease of doing business. In addition to this, the state has a significant fabric and yarn availability. In view of all these aspects, the policy targets set by the Gujarat government look very much achievable.
Varun Vaid, Associate Director, Wazir Advisors, firstname.lastname@example.org
Disha Acharya, Consultant, Wazir Advisors, email@example.com
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