Gujarat’s Ambitious Target To Attract $1 Billion In Aerospace And Defence

After falling behind states like Telangana and Andhra Pradesh in the ease of doing business ranking, Gujarat is looking to take a leaf out of their books and attract investments in the aerospace and defence sector. The state government is set to notify the new Aerospace and Defence Manufacturing Policy 2016 ahead of the eighth Vibrant Gujarat Summit to be held in January 2017.

“We are finalising policies on defence and aerospace. All facilities required for defence and aerospace will be provided to them (companies). There has been a relaxation in foreign direct investment norms for defence, and foreign companies would require connectivity. Gujarat has ports, that is a big plus point, and they can export and import from there. We are forming policies based on those strengths,” Gujarat Chief Minister Vijay Ropani told BloombergQuint on the sidelines of the Vibrant Gujarat roadshow in Mumbai.

The policy seeks to attract more than Rs 5,000 crore over the next five years from global or Indian-origin equipment manufacturers in defence and aerospace. The Gujarat government said incentives on mega aerospace and defence (A&D) units will apply on the first two units on a first-come, first-served basis. Among the objectives of this policy, the state seeks to,

• attract 10 percent of the value of all defence contracts in India in the next five years
• attract five mega aerospace and defence (A&D) companies who will invest at least Rs 1,000 crore each over the next five years
• attract 10 percent of all fresh offset development and manufacturing value chain.

The guidelines require mega A&D companies to commit Rs 500 crore in investments in plant and machinery, and to secure defence orders worth at least Rs 50 crore from the ministry of defence or ministry of home affairs or their equivalents in foreign countries.

Land Allotment Incentives

Any unit investing more than Rs 200 crore will get preference in land allotment and will be provided a 50 percent discount to the prevalent rate set by the civic authority or the price fixed by the land price committee, whichever is lower. The A&D unit will be fully reimbursed for stamp duty and registration charges. The state government is also willing to provide coastal land at 25 percent of the prevalent rate set by civic authorities, or the land price committee, whichever is lower.

Fiscal Incentives

The Gujarat government is open to equity participation through the Gujarat Industrial Development Corporation Ltd. (GIDC). The support will be up to a maximum of 11 percent of the paid-up equity subject to a cap of Rs 10 crore for mega A&D units, Rs 5 crore for large A&D units and Rs 1 crore for small and medium enterprises (SMEs).

In addition, the government is willing to provide interest rate subsidy to these units for five years. The state will bear 50 percent of the interest cost on all external commercial borrowings capped at 2 percent. The government will also provide financial assistance of up to Rs 10 crore for mega A&D units and Rs 5 crore for large A&D units, and attract an interest rate of 5 percent.

The fiscal incentive is expected to be a biggest carrot for the the Indian aerospace and defence industry, which finds it tough to access working capital from banks due to the long gestation period of defence projects.

The state government is also offering exemptions on VAT and electricity duty and has clarified that under the Goods and Services Tax regime, the state will reimburse up to the extent of state GST paid by the unit in the inter-state sale of specified goods.

The state government is aware that it faces stiff competition from Telangana and Andhra Pradesh in aerospace and defence. Both the southern states recently beat Gujarat to take the top spot in the ease of doing business ranking. Gujarat came in third.

“Developmental politics has been started by Modiji. I believe earlier we didn’t even discuss developmental politics. So this discussion, is leading to people seeking delivery of development. This has led to competition, this is healthy competition. And this should happen because this will lead to more development of the people”, Rupani said.