Manufacturing is where India is spending real money to attract foreign capital: 100% automatic FDI (including contract manufacturing), a maturing incentive stack (component schemes, semiconductors, state subsidies), duty-deferral bonded manufacturing, and the 2026 fast-track for land-border investors in electronics, capital goods and solar. This guide maps the entry rules and the incentive stack as it actually stands in 2026 – including which schemes are still open.
The entry position
| Item | Position |
|---|---|
| FDI | 100% automatic, contract manufacturing expressly included; the manufacturer may sell wholesale, retail and via e-commerce without retail-FDI conditions |
| Industrial licence | Only defence items, explosives and hazardous categories; everything else is a simple IEM filing |
| Land-border investors | Screening applies – but with the 2026 relaxation: under-10% non-controlling stakes automatic, and a 60-day fast track for electronics components, capital goods and solar |
| Entity + setup | The standard WOS + 90-day sequence; factories add state land, power, pollution-control and Factories Act layers |
The incentive stack, honestly (July 2026)
| Scheme | Status | What it gives |
|---|---|---|
| PLI (14 sectors) | Application windows essentially closed; ₹28,748 crore disbursed to Dec 2025, ~70% to electronics + pharma | 4–6% production-linked payouts to approved applicants – relevant now mainly as supply-chain context |
| ECMS (electronics components) | The live scheme: approved Mar 2025 at ₹22,919 crore, outlay raised to ₹40,000 crore in Budget 2026; 46+ projects approved across tranches | Capex/production incentives for passive components, sub-assemblies, materials |
| Semiconductors (ISM) | ISM 1.0: 10 projects, ₹1.6 lakh crore committed, first fabs producing in 2026. ISM 2.0 approved July 2026 at ~₹1.27 lakh crore – design, equipment, fabs, ATMP, R&D | Up to ~50% project support; application processes rolling out |
| State packages | Always on – UP, Tamil Nadu, Gujarat, Karnataka lead | 10–30% capex subsidy, SGST reimbursement, power/stamp-duty concessions – stackable with central schemes |
| MOOWR (bonded manufacturing) | Fully intact – the 2023 amendment that would have curbed IGST deferral remains un-notified | Customs duty + IGST deferred on imported inputs and capital goods; no export obligation; duty never paid if output is exported |
The customs and quality layer
- Phased Manufacturing Programmes: graded basic customs duty walls around electronics value chains (mobiles, wearables, EVs) – check the current BCD on your exact HS codes before finalising the import-vs-make plan;
- QCOs (BIS quality control orders): long a de-facto import barrier on inputs – but note the November 2025 rollback withdrawing QCOs on 14+ raw-material categories (polymers, PTA, MEG, polyester). Finished-goods QCOs (toys, footwear, appliances) still bite importers;
- MOOWR mechanics: licence a bonded premises under section 65, import duty-deferred, clear to domestic market with duty on the imported content – or export and never pay it. No minimum investment, no export obligation – the most underused scheme in the toolkit (solar power generation excepted);
- Imports/exports need IEC, ICEGATE registration and AD-code mapping – part of the setup sequence.
The FEMA and tax spine (same as every sector – heavier numbers)
- Capital in: FC-GPR; parent machinery funding often pairs equity with ECB (capital goods import is a classic ECB end-use);
- Related-party flows – raw material purchases from the parent, royalty for technology, capital goods at transfer prices – all inside TP documentation; manufacturing has no safe harbour, so benchmarking or an APA carries the weight;
- The new-manufacturing 15% concessional tax rate (115BAB) closed to new entrants in 2024 – the standard ~25% regime applies; watch Budget announcements for a successor.
Evaluating an India manufacturing project?
We model the incentive stack – ECMS, state package, MOOWR, tax – against your capex plan, and run the entity, FEMA and customs setup end to end.
Talk to My Cloud AccountantFrequently asked questions
Can a foreign company own an Indian factory 100%?
Yes – manufacturing carries 100% automatic-route FDI, including contract manufacturing, and the manufacturer can sell wholesale, retail and online without retail-FDI conditions. Only defence and hazardous categories need an industrial licence.
Are PLI schemes still open for applications?
The original 14 PLI windows are essentially closed. The live money in 2026 is the electronics components scheme (ECMS, outlay raised to ₹40,000 crore), ISM 2.0 for semiconductors (~₹1.27 lakh crore, approved July 2026) and state capital-subsidy packages.
What is MOOWR bonded manufacturing?
Section 65 of the Customs Act lets a licensed bonded premises import inputs and capital goods with customs duty and IGST deferred – payable only if goods clear to the domestic market, never if exported. No export obligation, no minimum investment; the 2023 amendment curbing it was never notified.
Can Chinese suppliers invest in our Indian manufacturing venture?
Under the 2026 relaxation: below 10% and non-controlling, yes via the automatic route; larger or controlling stakes need approval – with a 60-day fast track for electronics components, capital goods and solar. Beneficial ownership is tested at the 10% PMLA threshold.
Based on the Consolidated FDI Policy, PLI/ECMS/ISM notifications through Budget 2026, MOOWR (s.65 Customs Act) practice and the November 2025 QCO withdrawals. Last reviewed: July 2026.