India’s trade ministry is proposing a tax holiday for companies bringing new investments as the government explores measures to support the economy amid the corona virus pandemic, according to people familiar with the matter. The proposal to give a 10-year full tax exemption to companies making new investment upwards of $500 million is being evaluated by the finance ministry, said the people, who asked not to be identified citing rules. The plan requires companies to start operations within three years from June 1, and will cover sectors including medical devices, electronics, telecom equipment and capital goods, they said.
Another variant of the program will be to provide a four-year tax holiday to companies that invest $100 million or more in labor-intensive sectors such as textiles, food processing, leather, and footwear. A lower corporate tax rate of 10% is proposed for the next six years, the people said. The proposal has to be approved by the finance ministry and, so far, it hasn’t taken a decision. From offering easy access to land for factories leaving China to tax breaks for new plants, Prime Minister Narendra Modi’s administration is trying to lure investors and stop the corona virus pandemic from wrecking the economy. Asia’s third-largest economy is hurtling toward its first full-year contraction in four decades as India has so far failed to provide a big stimulus, given the government’s limited fiscal room, even as an estimated 122 million people lost jobs in April and consumer demand evaporated.
A call made to trade ministry spokesman was not answered while a finance ministry spokesperson declined to comment. The benefits provided would be in addition to the existing incentives provided by the government, the people said. The trade ministry has also identified top 50 industry clusters to upgrade their existing infrastructure, testing labs and research and development facilities. While the thrust is on developing sectors such as textiles, pharma, food processing and gems and jewelry, the ministry is also working on expanding the list to include services sectors such as tourism, the people said.