Karnataka Industrial Policy 2020-25
What are the salient features of Karnataka industrial policy 2020-25. How will it benefit Karnataka’s economy?
Introduction: (upto 30 words) Write about the objective of the policy
Body: (upto 100 words) Bring out the salient features of the policy and its benefit to the economy.
Conclusion: (upto 30 words) Conclude with the importance/need of such a policy.
With the aim to emerge as a global leader in manufacturing, innovation, research, and development, the State Cabinet approved the New Industrial Policy 2020-25, offering a series of incentives to industries to invest in Karnataka, including turnover-based incentives for the first time in the country.
The focus of the policy:
- To exploit Karnataka's industrial prowess
- Creation of enabling environment
- Development of infrastructure
- Provide equitable opportunities for the people of the state particularly in industrially backward districts and Tier-2 & Tier-3 cities
- Ensuring inclusive development of investment within the state
- The policy will be “pro-industry and aligned with recent reforms, such as:
- Amendments to the Land Reforms Act
- Reform in the Labour Act
- Karnataka Industries (Facilitation) (Amendment) Act.
Aim of the policy:
To attract ₹5 lakh crore worth investments over the next five years, and create about 2 million jobs to help mitigate the economic impact of the COVID-19 crisis.
Salient Features of the policy:
- Decentralization: The New Industrial Policy 2020-25 aims at holistic development of the State and looks beyond Bangalore with an aim to promote Tier 2 and Tier 3 cities as engines of economic growth.
- The Policy has grouped districts of the State into three zones, with a view to incentivise investments in the industrially backward districts. Industrially backward districts are classified in Zone-1 & 2 and Bengaluru Urban and Rural districts are classified in Zone-3
- Based on competitive strengths and potential for growth, the Policy has identified certain Focus sectors: Automobiles & Auto components, Pharmaceutical & Medical Devices, Engineering and Machine Tools, Knowledge-based industries, Logistics, Renewable Energy, Aerospace & Defence and Electric Vehicles.
- The policy also outlines the state's target to reach the third position in merchandise exports in the next five years.
- The policy also adopts a production turnover based incentive system instead of tax based incentives, which, was the first such initiative in India. Tax holiday and GST relaxation created confusion, the State has decided to give incentives to the industries based on their annual turnover
- The government also amended the Karnataka Industries (Facilitation) (Amendment) Act that allows any company to commence construction and other operations after it is cleared by high-level committees and not be delayed with further approvals.
- Karnataka has also set up a task force to pursue companies that are looking to relocate outside China.
- The policy outlines that around 30% of its available land in industrial areas will be set aside for micro, small and medium enterprises.
- Local jobs creation: The new policy also reiterates its priority to provide more employment to Kannadigas or people with a specific number of domicile in the state to reserve jobs for locals.
- All new industrial investment projects shall create maximum possible direct employment opportunities with a minimum employment of 70% to Kannadigas on an overall basis and 100% in case of Group D employees
- A Special Investment Region has been created for backward districts and taluks. Urban development department has been asked to develop industrial townships across the state.
- Special investment regions: The policy aims to enact the Special Investment Region (SIR) Act to create, operate, and regulate such investment regions in the state. Special investment regions would have an area of about 100 sq.km and be categorized as industrial townships. The first such region or SIR will encompass the Dharwad, Gadag, Haveri, and Belagavi districts of Karnataka. Another SIR that is being planned includes Shivamogga, Davanagere, Chitradurga, and Chickamagaluru districts as well as Kalaburagi, which is in the Kalyana Karnataka district (previously known as Hyderabad-Karnataka region).
- Subsidies for MSMEs: The policy offers production turnover-based subsidies for micro, small, and medium-sized enterprises (MSMEs) with a view to boost industrial innovation. The investment promotion subsidy will be based on 10 percent on turnover each year for a period of five years and limited to 20 to 30 percent of value of fixed assets (VFA).
- Other incentives include – exemption from stamp duty and concessional registration charges; reimbursement of land conversion fee; tax exemption on electricity tariff for MSMEs; and power subsidy for MSMEs.
- Labor reforms under the policy: An amendment to the Factories Act, 1948 will ensure that women workers who work the night shift in factories, which is between 7pm to 6am, are registered. Sections 64 and 65 of the Factories Act have been amended to extend overtime hours to 125 hours per quarter. The Industrial Employment (Standing Order) Act, 1946 has been amended to permit fixed term employment or contract employment.
- Wage revisions: The minimum wage will be periodically revised based on factors like inflation and consumer price index (CPI).
How will enterprises qualify for incentives?
The New Industrial Policy 2020-25 outlines investment promotion subsidies for enterprises according to their scale of production, turnover, and whether they are operated by persons belonging to special categories.
Investment promotion subsidies:
- For micro enterprises – investment promotion subsidies of up to 30 percent of VFA (Value of fixed assets) will be offered in Zone-1, 25 percent of VFA in Zone-2, and 15 percent VFA in Zone-3.
- For enterprises run by persons belonging to a special category – women, members of the Dalit and Adivasi communities, ex-servicepersons, members from minority communities, and persons with disabilities – there are separate incentives.
- For those eligible for special category incentives, they will qualify for investment promotion subsidies worth 35 percent of VFA in Zone-1, 30 percent of VFA in Zone-2, 20 percent in Zone-3, and 10 percent in Zone-4.
- For large enterprises with investment on fixed assets between INR 100 million (US$1.33 million) and INR 2.5 billion (US$33.39 million), the policy offers an investment promotion subsidy based on their turnover. The priority is once again given to enterprises in Zones-1, 2, and 3. In Zone-1, 65 percent of VFA will be offered for a turnover rate of 2.75 percent for a period of seven years. In Zone-2, it is 55 percent VFA for 2.5 percent turnover for six years and 45 percent VFA for large enterprises in Zone-3 showing a 2.5 percent turnover rate.
Interest subsidy on loans:
- The policy also stipulates that MSMEs qualify for interest subsidy on technology upgradation loans of up to 10 percent for a period of five years.
- Micro and small enterprises will be offered interest subsidies if they secure loans from public service banks at an annual rate of three percent for five years.