Excise holiday sop in Kutch irks north-eastern states

Santanu Saikia

Prime Minister Atal Bihari Vajpayee’s announcement of a five-year excise holiday for industries in Kutch district of Gujarat may yield rich dividends for the earthquake-ravaged region but the sop comes as bad news for the industrially-backward north-eastern region which enjoys a similar tax incentive.

“If it is a choice between the well connected Kutch district and the north-east, it is quite obvious which way investments would go. Even those units which have come, will fold up and leave for Gujarat,” says Prodyut Bordoloi, Assam’s industry minister.

Kutch is seen as part of industrialised Gujarat and, unlike the north-east, is well-connected by road and rail to other industrial hubs of the country. For, not only does Kutch provide better infrastructure but those who do set up industries there will not have to reckon with an environment of bandhs and threats from militants.

The north-eastern states are expected to lodge a strong protest with the Prime Minister over the announcement in Kutch. “It is not as if we are opposed to initiatives taken for the earthquake ravaged region but the government should be careful about not upsetting the industrial equilibrium in the north-east,” claims Abhijit Barua, vice-president of the Federation of Industries in the North-eastern Region.”The industrial climate has just taken a turn for the better but the Kutch announcement will give it a body blow,” he adds. This view is seconded by Shashanka Bhide, an economist with the National Council of Applied Economic Research (NCAER), who is of the view that excise relief for the north-east would become meaningless because Kutch enjoys better infrastructure. “It is all too obvious that Kutch would get most of the investments,” he says.

The wary response from the north-east is, perhaps, justified. For North Block never really played straight with excise incentives for the region. The original Cabinet decision to provide a 10-year excise holiday to industries was modified several times. The notification was once amended to exclude the manufacture of cigarettes but the tax-free status on the item was reinstated after an echo of protest from the leaders of the north-east. A year later, cigarettes were again withdrawn from the duty-free list and, in the last Budget, chewing tobacco was excluded as well.

The policy flip-flop has now ended in the Assam high court. Several cases have been lodged against North Block for going back on a promise to provide relief for a 10-year period. Investors have been left in the lurch and, in the process, the sanctity of the notification is now being questioned.

The initial enthusiasm of Indian industry to move to the north-east has now worn off. In this context, the announcement in Kutch is seen as yet another attempt to undermine the tax-free status of the north-east.
But to be fair, Mr Vajpayee’s announcement in Kutch has taken even North Block by surprise. For, despite the fact that it has been several days since the Prime Ministerial pronouncement, no notification on the relief has come out yet. North Block mandarins seem to be unaware of the decision-making process that led up to the excise holiday.

In the normal course, an excise relief of this dimension is granted by the Union Cabinet but the minister seems to be in the dark about any such decision. “We are now awaiting a clarification from the Prime Minister’s Office (PMO) on what should be the nature of the relief—on whether it should be granted to existing units or should it cover new industries as well. If you go by a simultaneous Gujarat government notification of a five-year sales tax holiday to existing units in Kutch, the excise relief should cover only existing companies,” says a finance ministry official.

What is more, even if a PMO clarification comes in soon, North Block will have to wait for the finance minister to come back from the US before a notification can be issued. His signature is required on the file before the relief formally comes into effect.