Chapter 6Legal Requirements for Industrial Development

6.1 Industries (Development and Regulation) Act, 1951

The Industries (Development and Regulation) Act, 1951 provides for development and regulation of certain industries. The Act has been amended time to time. The last amendment in the said Act was - The Industries (Development and Regulation) Amendment Act, 1984. It provides for Establishment of the Central Advisory Council and Development Councils; regulation of the industries through the processes of registration, licensing and investigation into industries liquidation or reconstruction of companies and miscellaneous provisions. The Act gives a list of industries which requires compulsory licensing.

The first Industrial policy of the Government of India was announced in year 1948. The 1991 Industrial policy aims to maintain sustainable growth in productivity, enhance gainful employment, achieve optimal utilisation of human resources, attain international competitiveness and transform India into a major partner in the global arena. The policy is focussed on the following:

Industry de-regulation

Market responsive industrial development

Provision of a policy regime for facilitation and growth of Indian industry.

The major provisions of the policy are as given below:

1) Liberalization of Industrial Licensing Policy

a) Industries requiring compulsory licensing

As per the Industries (Development and Regulation) Act, 1951, industries required compulsory licensing. As of year 2014, only five types of industry sectors require compulsory licensing on account of environmental, safety and strategic considerations, these are:

Distillation and brewing of alcoholic drinks

Cigars and cigarettes of tobacco and manufactured tobacco substitutes

Electronic aerospace and defence equipment

Industrial explosives including detonating fuses, safety fuses, gun powder, nitrocellulose and matches.

Specified hazardous chemicals i.e (i) Hydrocyanic acid and its derivatives, (ii) Phosgene and its derivatives, (iii) Isocyanates&diisocyanates of hydrocarbon.

b) Industries under public sector

Since, 1991 only two industry sectors have been reserved for public sector. They are:

Atomic Energy – Production, separation or enrichment of special fissionable materials and substances and operation of the facilities, specified in the Department of Industrial Policy and Promotion.

Railway transport

2) Industrial Entrepreneurs’ Memorandum (IEM)

The industries which are exempted from compulsory licensing require filing an Industrial Entrepreneurs’ Memorandum (IEM) with the Secretariat for Industrial Assistance (SIA). No industrial approval is required for the exempted industries.

URDPFI Guidelines provide the sections of the Consolidated FDI Policy, 2013 which have relevance to the preparation of Regional or Urban Development Plans and its implementation.

Promotion of Foreign Direct Investment (FDI) forms an integral part of Industrial Policy. It helps in accelerating economic growth by means of infusion of capital, technology and modern management practices. The FDI policy is announced through issue of Consolidated FDI Policy Circulars. The latest Circular is effective from April 2013. As per the circular the sectors which have been liberalised are mentioned in Table 6.1.

Source: Consolidated FDI Policy, 2013

Foreign Investment Implementation Authority (FIIA) has been established to strengthen the foreign investment. As per the Consolidated FDI Policy (effective from April, 5^th 2013) salient features relevant to FDI in industrial parks (cited in section 6.2.12, page no. 59) and manufacturing (from section 6.2.5, page no. 45 of the Consolidated FDI policy, 2013) have been mentioned below:

Industrial Parks: FDI allowed in industrial parks is 100%, provided the following conditions are satisfied:

The Industrial park shall comprise minimum of 10 units and none shall occupy more than 50% of the allocable area.

Minimum percentage of area to be allocated for industrial activity shall not be less than 66% of the total allocable area.

Manufacturing: FDI in MSE (Micro, Small and Medium Enterprises) is subject to sectoral regulations. Any organization other than MSE but manufactures items reserved for MSE sector and has foreign investment in capital of more than 24% would have to come through Government Route. Additionally, such organization shall require industrial license for manufacturing. It has to achieve minimum 50% export of the MSE products within a period of three years.

The Government of India has announced the National Manufacturing Policy in year 2011 with the objective to enhance the share of manufacturing in GDP upto 25% within a decade and creating 100 million jobs. The National Manufacturing Policy outlines creation of clusters. The clusters play a critical role in technological propagation by facilitating technological learning and manufacturing through the presence of an entire ecosystem in the same geographical location. The XII Five Year Plan of Planning Commission also suggests a cluster approach for promotion of manufacturing industries.

URDPFI Guidelines provides the following Acts / Policies / Guidelines in relevance to the preparation of Regional, Industrial or Urban Development Plans and its implementation:

National Manufacturing Policy, 2011

National Investment and Manufacturing Zones (NIMZs) Guidelines

Special Economic Zone (SEZ) Act, 2005

Various schemes for cluster development under Ministries

Provisions for Micro Small and Medium Enterprises (MSME)

National Manufacturing Policy, 2011 and NIMZ Guidelines, SEZ Act, 2005 and Micro, Small & Medium Enterprises Development (MSMED) Act, 2006 are appendices respectively in AppendixS, T and Uof Volume II B.

The policy is based on the principle of industrial growth in partnership with the States. The Central Government will create the enabling policy frame work, provide incentives for infrastructure development on a Public Private Partnership (PPP) basis through appropriate financing instruments, and State Governments will be encouraged to adopt the instrumentalities provided in the policy.

Under the policy (section 1.11), the industry verticals which will be given special attention are: employment intensive industries, capital goods, industries with strategic significance like aerospace; shipping; IT hardware and electronics; telecommunication equipment; defence equipment; and solar energy, industries where India enjoy a competitive advantage, Small and Medium Industries and Public sector Enterprises. The policy presents specific action points in the areas identified as constraints that require immediate policy attention

For rationalisation and simplification of business regulations (section 2, page no. 8), several provisions of different acts may be rationalised or implemented in cooperation with public or private institutions under the control of statutory authorities. The provisions are:

a) Central and State Government may provide exemptions subject to fulfilment of conditions.

b) Mechanisms to be developed for cooperation of public or private institutions with government inspection services.

c) In respect of environment laws, it is proposed to delegate the powers as allowed by the relevant statues to an official of the State Pollution Control Board posted in the NIMZ.

d) State Pollution Control Boards to evolve mechanisms for third party inspection (by notified private agencies) for compliance monitoring

e) State Environment Impact Assessment Authorities to expedite prior environment clearances for ‘B’ category projects under the provisions of EIA notification 2006

f) Defining the timelines in respect of all clearances – the clearance to be ‘deemed’ to have been given on expiry of timeline.

g) Development of Combined Application Form and a Common Registrar for granting various consents and authorisations under various statutes.

The Planning Commission has identified concomitant policy interventions (page no. 1 of Policy document) which impact the manufacturing sector (but which have not been addressed in the National Manufacturing Policy), these are : digitization of land and resource maps and creation of land banks by states; water zoning; offset policy; fiscal and exchange rate measures; strategic acquisitions; development of world class manufacturing management capabilities; trade policy especially boosting India‘s exports; and reforming the role of public sector enterprises.

The NIMZs are important instrumentality of the National Manufacturing Policy. The NIMZs are envisaged as integrated industrial townships with land use on the basis of zoning, clean and energy efficient technology, necessary social infrastructure, skill development facilities etc. to provide a productive environment for persons transitioning from the primary to the secondary and tertiary sectors.

The key features of the NIMZ Guidelines are:

1. The approval process is in two stages: In principal approval and final approval for the NIMZ. After the in-principal approval, as soon as a substantial part of the land area is in possession of State Government, application for obtaining final approval shall be made which will be granted at the level of Ministry of Commerce and Industry.After obtaining the approval, each NIMZ will be notified by the DIPP in the official gazette.

a. For planning the NIMZ, maps shall be prepared and submitted along with the application for final approval. The maps shall consist of following:

Administrative and physical map: indicating the districts, villages, townships, water bodies, high lands, low lands and forests etc. which are located within its boundaries.

Existing land use map: At least 30% of the total land area proposed for the NIMZ will be utilized for location of manufacturing units.

External and existing internal linkages map of proposed NIMZ.

b. Preparation of Techno-economic feasibility report cum development plan and presentation by the State for final approval. It shall include the following:

Overview of the region and adjoining areas

External linkages

Existing internal infrastructure in NIMZ area

Land including status and time frame of land acquisition

– Assessment of industrial and commercial potential

Preliminary environment impact assessment

External and technical infrastructure requirement

Financial implications

Proposed management structure

Zone development plan

– Regulatory environment

2. Formation of an agreement of implementation between State Government and DIPP:

a. Constitution of Special Purpose Vehicle to discharge the functions: There shall be a provision for suitable representation of a nominee of the Government of India (DIPP), and of the allottees and subsequently of the industrial units on the Board of the SPV.

b. Preparation of Master Plan and designing by SPV

c. Preparation of a strategy of development of zone and action plan for self-regulation within 3 months from constitution of SPV.

3. Land Allotment: Land shall be allotted on leasehold basis by SPV. The SPV will ensure that land is utilised as per the permissible purpose within the specified period of time as indicated in the land allotment letter otherwise, it shall revert back to the SPV.

4. Land for NIMZs: NIMZs would be large developed land, with the requisite eco-system for promoting world class manufacturing activity. They would be different from SEZs in terms of size, level of infrastructure planning, and governance structures related to regulatory procedures and exit policies. Following are the land requirements for NIMZ:

a. Size of land for NIMZ – An NIMZ would have an area of at least 5000 hectares in size.

b. Availability of land- The State Government will be responsible for selection of land suitable for development of the NIMZ including land acquisition, if necessary. The land may constitute:

i. Government owned land;

ii. Private lands falling within the proposed NIMZ, to be acquired by the State Government;

iii. Land under existing industrial areas/estates/sick and defunct units including PSUs.

Following guiding principles will be applied by the State Government for the purpose of acquiring land for NIMZ sites:

i. Preferably in waste lands; infertile and dry lands not suitable for cultivation;

ii. Use of agricultural land to the minimum;

iii. All acquisition proceedings to specify a viable resettlement and rehabilitation plan;

iv. Reasonable access to basic resources like water;

v. It should not be within any ecologically sensitive area or closer than the minimum distance specified for such an area.

5. Rationalisation and simplification of regulatory processes:

High priority shall be given to Environment Clearance under EIA Notification, 2006

The entire process of clearances by State authorities will be made web-enabled.

Timelines will be defined in respect of all clearances and there is provision of deemed approval of clearances.

6. Role of Central Government: the Central Government shall perform the following tasks:

a. Bearing the cost of Master Planning

b. Provision of external infrastructure: Creation/ Up gradation of external infrastructure through PPP and provision of Viability gap funding through existing schemes

c. Provisions for creation of internal infrastructure:

i. Through Viability Gap Funding (VGF): Supporting Public Private Partnerships in infrastructure (maximum twenty percent of the total project cost).

ii. Long term soft loans from multilateral financial institutions

iii. External commercial borrowings

7. Set up of Technology Acquisition and Development Fund for creation of a patent pool; incentivization of production of environment friendly machines/ equipment and of SMEs for adoption of environmental audit, water audit and waste water treatment practices.

8. Provision of institutional infrastructure for productivity, quality (testing facilities etc.) and design capabilities, encouraging innovation and skill development within the NIMZ.

9. Funding for establishment of an ITI on Built Own Operate basis by the SPV in NIMZ.

10. Provision of VGF for setting up specialised polytechnics for relevant industry verticals in a NIMZ

The SEZ Act, 2005 provides for the establishment, development and management of the Special Economic Zones for the promotion of exports. The Act gives tax benefits which shall boost international trade.

The key features of the Act are:

1. Chapter III of the Act provides for Constitution of the Board of approval for granting approval for setting up the SEZ. The Central Government shall upon satisfaction of the requirements notify the specifically identified area in the State as a Special Economic Zone.

2. According to section 5 of the Act, the notification of the SEZ may be guided by the following:

a. generation of additional economic activity

b. promotion of exports of goods and services;

c. promotion of investment from domestic and foreign sources;

d. creation of employment opportunities;

e. development of infrastructure facilities; and

f. maintenance of sovereignty and integrity of India, the security of the State and friendly relations with foreign States.

3. Section 6 of SEZ Act states that areas falling within the SEZ may be demarcated as:

a. the processing area for setting up Units for activities such as manufacture of goods, or rendering services;

b. the area exclusively for trading or warehousing purposes; or

c. the non-processing areas for activities other than those specified under clause (a) and (b)

4. Any goods or services exported, imported or procured from the domestic tariff area by a unit in the SEZ or the developer is exempted from the payment of taxes, duties or cess.

5. According to section 17 (page 20) of the Act, the application for setting up and operation of an Offshore banking unit in a SEZ may be made to the Reserve Bank.

6. The SEZ can be deemed to be a port, inland container depot, land station and land customs station as per notification of Central Government under section 7 of the Customs Act, 1962.

7. The Modifications to the Income Tax Act, 1961; Insurance Act, 1938; banking Regulation Act, 1949; the Indian Stamp Act, 1899 applicable to the SEZ are given in the Act.

8. For computation of total income of an accessee, a deduction of the following is allowed:

a. Hundred % of profits and gains derived from exports for a period of first five years

b. Fifty % of profits and gains derived from exports for further five assessment years and thereafter

c. An amount upto fifty % of the profits shall be credited to a Reserve Account for the next five consecutive assessment years for the purpose of acquiring plant and machinery or for creation of any asset.

6.4.3.1 Minimum land area requirements for setting up of SEZ

Area of the SEZ:As per the amendment (12^th August, 2013) of SEZ rules (2006), to address the problem of aggregating large tracts of uncultivable land for setting up SEZs, while conforming to vacancy and contiguity norms, the minimum land area requirements for setting up of SEZ in various categories has been reduced by half. This is also aimed at permitting optimum utilization of land by the existing SEZs.

Multi-product SEZ: can be established with minimum land area of 500 hectares instead of 1,000 hectares. Similarly, a sector specific SEZ can be set-up with a minimum land area requirements of 50 hectares instead of 100 hectares.

Agro Sector: In order to encourage agro-based industries in SEZs, a new sector 'agro-based food processing' sector has been introduced. A sector specific SEZ would require a minimum land area of 10 hectares.

IT /ITES Sector: No minimum land area requirement for IT/ITES SEZs is prescribed, but these will have to conform to a minimum built up area requirement.

The minimum built up area requirement of 1,00,000 square meters will now be insisted upon for seven major cities viz: Mumbai, Delhi (NCR), Chennai, Hyderabad, Bangalore, Pune and Kolkata,

For the other set of Category B cities 50,000 square meters norm will be applicable and

For the remaining cities / locations 25,000 square meters of minimum built up area will be insisted upon.