Tax breaks are fine. But Himalayan and NE states need more than that

The Centre's decision to extend tax exemption for industries in North-Eastern and Himalayan states till March 2027 is set to once again spur the debate on the contentious issue of industries in these places growing at the cost of neighbouring states.

It is time that the beneficiary states also look within themselves for extracting optimum benefits from such incentives besides addressing concerns of various stakeholders.

Since the Goods and Services Tax (GST) regime has been put in place, tax exemption in such states will be in the form of refunds.

The Cabinet Committee on Economic Affairs (CCEA) chaired by Prime Minister Narendra Modi on Wednesday gave its approval to the scheme of providing budgetary support under the GST regime for the eligible industrial units located in Jammu and Kashmir, Uttarakhand, Himachal Pradesh and North Eastern states including Sikkim.

According to a government spokesperson –

“Budgetary support of Rs 27,413 crore for the said scheme has been approved for the period from 1.7.2017 till 31.03.2027 for such industrial units located in aforesaid states which availed the benefit of central excise exemption prior to coming into force of GST regime.”

The Centre was implementing North East Industrial and Investment Promotion Policy (NEIIPP), 2007 for North Eastern States including Sikkim and a package for special category states for Jammu & Kashmir, Uttarakhand and Himachal Pradesh to promote industrialisation.

One of the benefits was excise duty exemption for the first 10 years after commencement of commercial production.

“Upon repeal of the central excise duty laws, the government has decided to pay a budgetary support equal to the central share of the cash component of CGST and IGST paid by the affected eligible industrial units. The support shall be available for the residual period (ten years from the date of the commercial production) in these states,” the spokesperson said.

The government will notify the scheme, including detailed operational guidelines for implementation of the scheme within six weeks. It is estimated that 4,284 eligible units located in these states will benefit from this scheme.

Ever since the tax incentive was announced for the Himalayan and North Eastern States during the NDA regime led by Atal Behari Vajpayee, states like Punjab have been complaining of its industry fleeing to these states to avail tax benefits.

There is no doubt that Punjab has been a loser in this arrangement as compared to Haryana that still enjoys the advantages that come with being a part of the NCR region. But observers say that apart from the tax benefits extended to the neighbouring states there have been other factors as well that have been responsible for industrial development coming to a halt in the recent past. They pointed to the non-conducive law and order scenario, an unfavourable VAT regime in the pre-GST era and expensive power supply.

The present government under Captain Amarinder Singh is trying to woo industry to the state by addressing various issues. It remains to be seen how far it will succeed. It is being pointed that he must take up Punjab's case forcefully with the Centre now. Throughout his poll campaign, Amarinder had been batting for setting up industry in the border state of Punjab to address the issue of large scale unemployment among the youth falling prey to the drug menace. 

Nagging issues

The extension of the tax exemption by the Centre will once again be putting the Shiromani Akali Dal (SAD) in a Catch 22 situation as it is a part of the ruling NDA at the Centre and Harsimrat Kaur Badal, who is the wife of the SAD president Sukhbir Singh Badal, is a union minister. It remains to be seen how she addresses the concern of Punjab on its fleeing industry.

The Akalis in the past have been making a lot of noise on this issue. In fact, former chief minister Parkash Singh Badal had told this reporter in 2008 that such tax benefits to select states are against the concept of the federal structure of the country. He had even threatened to approach the Supreme Court on the issue, which he never did.

Coming to the Himalayan states that have benefited from this policy introduced during the Vajpayee regime, there still remain a large number of issues to be addressed.

In these Himalayan states, the industrial zones that came up are mainly confined to the plain areas at the foothills. The industry never went uphill and the regional imbalances within these states remain.

In Jammu and Kashmir, the area that benefited is mainly confined to the Jammu region. In Himachal, a massive industrial zone came in Baddi-Barotiwala-Nalagarh area along with some units in Paonta Sahib zone.

In Uttarakhand, the areas that benefited were the State Industrial Development Corporation Limited (SIDCUL) zones at Rudrapur and some other parts of Udham Singh Nagar, Sela Qui in Dehradun and Haridwar.

In terms of employment, the top-level executives are mainly the well-educated pass outs from professional institutes in big cities and the labour force comprises mainly of migrants who are quite often from the poor states like Uttar Pradesh, Bihar and Jharkhand along with the locals.

“The fear of trade unionism often leads to these units going in for contractual mode of employment through outsourcing with the help of labour contractors. This also leads to violating norms related to employing 70% of the local work force with impunity. The end result is brutal exploitation of workers amidst job insecurity. There is no social security as those on rolls who can avail benefits like Provident Fund are kept to the minimum,” disclosed a former human resource department employee of a pharmaceutical unit in Solan district. The scenario is pretty similar in Uttarakhand too.

Sources also pointed out that in certain cases, the companies only package their end product in these states to avail tax benefits while manufacturing continues to be done elsewhere.

In states like Himachal, the development has been unplanned with some pharmaceutical units even functioning from close proximity to residential areas with the stench being emanated making life difficult for the people.

What plagues the industry

The industry has its own set of issues that need to be addressed. Shailesh Aggrawal who is the president of Baddi Barotiwala Nalagarh Industries Association (BBNIA) told Catch, “The time has come to introduce incentives that will help retain the industrial units once their tax exemption period is over. It needs to be understood that these states are not consumers but places where the industry imports raw material and exports the finished products. We are now in competition with 'growth oriented' neighbouring states.”

He further added that the governments at both the state and the Centre need to take the extra step. “The infrastructure needs to be improved. The project for four-laning of the road in our area was approved ten years ago and it continues to move on a very slow pace. Same is the case of rail connectivity. Be it the Congress or the BJP, the state governments have been friendly to the industry but at times the approach to issues is lacklustre,” he said.

Aggrawal pointed that it is only after the industry arrived following the incentive that the 'agrarian' mindset of the government changed. He says that the contribution of industry in Himachal's GDP has gone up from 8% two decades back to 18% at present with the target for 2025 being pegged at 2025. “Industry will go to other areas like lower Kangra only when there are incentives offered,” he said.