India is rapidly positioning itself as a global manufacturing hub. With a large consumer base, numerous government-backed incentives, skilled labor, and expanding industrial infrastructure, the country offers lucrative opportunities for foreign companies.
Recent policy pushes like Make in India and Aatmanirbhar Bharat (Self-Reliant India) are specifically aimed at inviting global manufacturers.
Some of the sectors being promoted for manufacturing under the Make in India initiative are:
- Aerospace and defense
- Automotive and auto components
- Pharmaceuticals and medical devices
- Bio-technology
- Capital goods
- Textile and apparels
- Chemicals and petrochemicals
- Electronics system design and manufacturing
- Leather and footwear
- Food processing
- Gems and jewelry
- Shipping, railways, and construction
Entry Routes for Foreign Companies
Foreign companies can enter the Indian market in stages, based on their intent, investment level, and risk appetite.
Liaison Office
This is ideal for companies that want to study the Indian market without engaging in commercial activity.
- Permitted activities: promoting export/import from/to India, representing parent companies in communication with Indian stakeholders, market research, and sourcing inputs.
- Restrictions: cannot generate revenue locally. Must fund operations via parent companies. Approval from the Reserve Bank of India (RBI) is required.
Project / Branch Office
This is suitable for companies awarded a specific contract by an Indian company.
- Project Office: Temporary presence for executing a particular project.
- Branch Office: Can undertake some commercial activities but not manufacturing.
Both structures are limited in scope and require RBI authorization.
Joint Venture
Partnering with an Indian firm allows foreign investors to share risk and tap into local expertise. JV models are often used in regulated sectors like defense or telecom.
Wholly Owned Subsidiary (WOS)
This is the most beneficial for full-scale manufacturing. It allows:
- 100% ownership (in most sectors)
- Flexibility in operations
- Eligibility for tax and incentive schemes
Post the COVID-19 Pandemic, all investment from China needs the prior approval of the Government of India. Such approval is on an average granted within 12-24 weeks from the date of the application.
However, under the FDI Policy most sectors are open to 100% foreign ownership by Chinese companies, barring a few such as atomic energy, lottery business, gambling and betting and a few others.
Choosing the Right Location
Special Economic Zones (SEZs)
These are designated zones with liberal tax and regulatory regimes. Benefits include duty-free imports and simplified customs procedures. Key SEZs include:
- Maharashtra (engineering and electronics, information
- technology, power, etc)
- Noida (electronics)
- Kandla (multi-product)
- Cochin (IT)
- Visakhapatnam (petrochemicals)
Industrial Corridors
These promote integrated infrastructure and connectivity for mega-manufacturing zones. Flagship corridors include:
- Delhi-Mumbai Industrial Corridor (DMIC)
- Chennai-Bengaluru Industrial Corridor (CBIC)
- Amritsar-Kolkata Industrial Corridor (AKIC)
National Investment Manufacturing Zones (NIMZs)
NIMZs are developed under the National Manufacturing Policy to create mega industrial townships. Examples include:
- Prakasam (AP) – Electronics
- Aurangabad (MH) – Engineering
- Tumkur (KA) – Heavy industries
Incentives and Schemes
Production Linked Incentive (PLI) Scheme
Offers direct cash incentives based on incremental sales from local manufacturing. Applicable sectors include: electronics, pharma, EVs, solar, and more.
- Example: Foxconn and Samsung have expanded in India under this scheme.
Export-Oriented Units (EOUs)
Units exporting over 50% of output can benefit from:
- Duty-free imports
- GST refunds
- Simplified tax compliance
State-Level Industrial Policies
States like Gujarat, Tamil Nadu, and Maharashtra offer capital subsidies, power tariff discounts, and stamp duty exemptions. Examples:
- Dholera SIR (Gujarat)
- SIPCOT (Tamil Nadu)
- YEIDA (Uttar Pradesh)
Taxation Overview for Foreign Manufacturing Companies in India
Applicable Tax Regimes
- Corporate Income Tax (CIT) for foreign companies
- Rate: 35% (plus surcharge and cess)
- Condition: Income sourced from a business connection or PE in India
- Source: Income Tax India – Overview
- Special Tax Regime under Section 115BAB (Update for 2025)
- Section 115BAB of the Income Tax Act, 1961, offers a concessional tax rate of 15% (plus surcharge and cess) for newly incorporated domestic manufacturing companies. However, this benefit is only available to companies that commenced manufacturing on or before March 31, 2024. While the provision itself has not been withdrawn, new companies incorporated after this date can no longer opt for this regime. But one may be able to use an existing company to conduct such manufacturing activities, subject to conditions and certain risks.
- CIT for Domestic Companies including Wholly Owned Subsidiaries
- For wholly owned subsidiaries, the rate of taxation is lower at 25% or in some cases 30% depending on company’s turnover.
Tax Incentives
- SEZ Benefits: customs and excise duty exemptions
- PLI Scheme: Cash incentives tied to production benchmarks
- EOUs: GST refunds, duty-free inputs, simplified compliance
- Accelerated Depreciation: For plant and machinery R&D Deduction – Section 35(2AB): 150% weighted deduction for approved in-house R&D
Geo-Political Landscape: US Tariffs
- U.S. Tariff Impact (2025): In April 2025, the U.S. imposed a 26% reciprocal tariff on select Indian exports, including electronics, gems, and textiles, citing India’s relatively higher tariffs on U.S. goods. However, pharmaceuticals and energy exports were exempt, preserving India’s strength in these sectors. While the tariffs may challenge some sectors, India still faces lower U.S. tariff rates than many countries like China (245%), Vietnam (46%), and Thailand (36%) under this new regime.
- Benefit in setting-up manufacturing units in India: Given the unprecedented tariffs imposed, it would be a strategic move for companies based in tariff-hit jurisdictions to set-up manufacturing units in India, having a much lower tariff rate.
The Way Forward
For foreign companies eyeing manufacturing opportunities in 2025, India stands out more than ever. While the special 15% tax rate under Section 115BAB is no longer available, there’s still plenty on the table, from tax breaks in SEZs, to generous cash incentives under the PLI scheme, and proactive support from state governments.
With global trade shifting, especially after renewed U.S. tariffs, companies based in tariff-hit jurisdictions could significantly benefit by setting-up manufacturing operations in India.
For companies ready to invest, getting the location right, understanding the compliance maze, and planning early can make all the difference in building a successful manufacturing base in India.
