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Karnataka’s New Industrial Policy 2020-2025 to draw Rs five lakh crore investmentThe Karnataka State Cabinet on 23 July 2020 approved the New Industrial Policy for 2020-2025 that aims to attract Rs five lakh crore worth investments over the next five years, and create about two million jobs to help mitigate the economic impact of the Covid-19 crisis. The Policy, which will moot significant fiscal, labour and land reforms, will further pump up investments to the state by providing fresh incentives and easing regulatory processes.

The focus of the Policy is to exploit Karnataka’s industrial prowess, create enabling environment, develop infrastructure, provide equitable opportunities for people of the state, particularly in industrially backward districts and Tier-2 and Tier-3 cities and ensuring inclusive development of investment within the state. The policy also outlines the state’s target to reach 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 is the first such initiative in India. The government has relaxed several laws governing industries, land and even diluted labour laws in Karnataka to attract big and medium ticket investments.

The delays in procuring land for industries under one particular legislation had cost Karnataka a chance to convert investments totalling over Rs 39,000 crore and a chance to create over 80,000 jobs between 2013 and 2019.

The Policy has grouped districts of the state into three zones, with a view to incentivise investments in the industrially backward districts. These 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 and Auto Components, Pharmaceutical and Medical Devices, Engineering and Machine Tools, Knowledge-based industries, Logistics, Renewable Energy, Aerospace and Defence and Electric Vehicles.

The Policy aims to enact the Special Investment Region (SIR) Act to create, operate and regulate such investment regions in the state. The Special Investment Regions would have an area of about 100 sq km and would be categorised as industrial townships. The first such region or SIR will encompass the Dharwad, Gadag, Haveri, and Belagavi districts. Another SIR 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).

The government of Karnataka has amended various legislations which include increasing the overtime to 125 working hours per quarter and linking the revision of minimum wages to factors like inflation and consumer price index (CPI).

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, avoiding delays with further approvals.
Karnataka has also set up a task force to pursue companies that are looking to relocate outside China. It continues to stress on projects and incentives for companies to set up shop in Tier-2 and -3 regions, but with little success as most corporations prefer to remain near Bengaluru.

The policy outlines that around 30 percent of its available land in industrial areas will be set aside for micro, small and medium enterprises (MSMEs). 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 will create maximum possible direct employment opportunities with a minimum employment of 70 percent to Kannadigas on an overall basis and 100 percent in case of Group-D employees.

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