India Offers New Industrial Investment Opportunities in Andhra Pradesh

Why India investors should take a serious look at Andhra Pradesh’s new industrial development policy.

The south eastern coastal Indian state of Andhra Pradesh rolled out its new ‘Industrial Development Policy 2020-23’ on August 10, which focuses on a sustainable model of growth, infrastructure development, and asset creation across 10 key sectors.

Key incentives are promised to micro, small, and medium enterprises (MSMEs) and women entrepreneurs as well as firms generating local jobs.

The Industrial Development Policy 2020-23 aims to improve the ease of doing business and incentivize high-value addition industrial investments.

Another policy objective relates to skill development – about 70.9 percent of the Andhra Pradesh’s population (in 2018) were in the working age. This is the second-highest working age cohort among India’s states.

Sectors promoted under Andhra Pradesh’s Industrial Development Policy 2020-23

The Industrial Development Policy 2020-23 will promote the following ‘thrust’ sectors:

• Aerospace and defense;

• Automobiles;

• Electronics;

• Food processing;

• Footwear and leatherwear;

• Machinery, precision equipment, and mineral-based industries;

• Petrochemicals and allied industries;

• Pharmaceuticals and biotechnology;

• Textiles; and

• Toys and furniture.

Important provisions under the policy

The new policy has promised it will extend customized incentives for mega projects and 10 thrust sectors.

Incentives for MSMEs, job creation

The industrial policy will facilitate plug and play units through ready-built, pre-cleared facilities at affordable rates, which will benefit MSMEs.

Other incentives for MSMEs include reimbursements of stamp duty and net state goods and service tax (SGST) for five years, INR 1/unit rebate on power consumption for a five-year period, and a 15 percent investment subsidy for up to INR 2 million (approx. US$26,758) along with a three percent interest subsidy for five years. The state could also reimburse a portion of land conversion charges for aspiring MSME entrepreneurs.

Net SGST reimbursement has been linked to the number of local jobs provided by the company in the case of medium, large, and projects. For companies employing 1,000 persons, a 50 percent net SGST can be reimbursed; 75 percent reimbursement is possible if the company employees between 1,000 and 2,000 persons, and a 100 percent reimbursement for employment above 2,000 persons.

Tailor-made incentives will be offered to megaprojects that create more than 2,000 jobs.

The state is also working on a digital platform to match company workforce requirements with locally available skilled labor. Late last year, Andhra Pradesh mandated industries based in the state to reserve 75 percent of their jobs for locals through the Andhra Pradesh Employment of Local Candidates in Industries/Factories Act, 2019 and the Andhra Pradesh Employment of Local Candidates in the Industries/Factories Rules, 2019.

Support for women entrepreneurs

Policy initiatives to boost women entrepreneurs belonging to scheduled caste, tribe backward caste, and minority communities include 100 percent reimbursement of stamp duty, 50 percent land rebate on land cost up to INR 2 million (approx. US$26,758) , 25 percent land conversion rate, etc. Further, SGST reimbursement, a power reimbursement of INR 1.25/unit, and subsidy of three percent on bank interest will also be offered for five years.

Skill development

Skill building in the state is envisaged through the establishment of 30 skill development centers and two skill development universities.

Ease of doing business reforms

Access to credit lines will be cleared up and a faster turnaround for investment proposals has been promised under the policy.

The policy could also replace the existing lease and buy options in the Andhra Pradesh Industrial Infrastructure Corporation (APIIC) land policy with a lease and buy model – companies pay a smaller amount upfront and have the option to buy the land after they complete 10 years of operations.

Finally, under the Industrial Development Policy 2020-23, the government of Andhra Pradesh is to set up ‘YSR AP ONE’, which will be a multifunctional business assistance center to provide end-to end handholding support and other services throughout the investment cycle; the center will enable investor outreach, market research, marketing and branding, sales support, incentive management, etc.

Industrial zoning and safety policy

A core objective of the Industrial Development Policy 2020-23 appears to be achieving a sustainable pattern of industrial development. The policy proposes a strategy of industrial zoning to establish a planned industrial development and thereby provide an investment-friendly environment.

What is the appeal of Andhra Pradesh for foreign investors?

Andhra Pradesh enjoys certain natural advantages, such as a long coastline, that makes it a competitive location to do business. While the state has a large agriculture sectors thanks to four major rivers, it has boasts of developed industrial, mining, and solar power sectors. Key areas include pharmaceuticals, automobiles, and textiles.

Sri City located in the Chittoor district is an integrated business city and is host to several multinational companies, including PepsiCo, Isuzu Motors, Cadbury India, Kellogg’s, Colgate-Palmolive, and Kobelco. PepsiCo has set up its largest plant in India at Sri City. The state is also an important destination for the automobile industry: Ashok Leyland has set up operations in Krishna district, Hero Motors in Chittoor district, and Kia Motors in Anantapur district.

In terms of information technology and IT-enabled services, the state has developed its tier-2 and tier-3 cities like Vijayawada, Kakinada, and Tirupati.

Andhra Pradesh also has one of the country’s largest ports at Visakhapatnam in terms of cargo handling. Other important ports in the state are Krishnapatnam Port (Nellore), Gangavaram Port, and Kakinada Port. Gangavaram Port is a deep seaport that can accommodate ocean liners up to 200,000–250,000 DWT. There are 14 notified non-major ports at Bheemunipatnam, S.Yanam, Machilipatnam, Nizampatnam, and Vadarevu.

This article was first published by India Briefing, which is produced by Dezan Shira & Associates. The firm assists foreign investors throughout Asia from offices across the world, including in in China, Hong Kong, Vietnam, Singapore, India, and Russia. Readers may write info@dezshira.com for more support.