The objections raised by the different arms of the finance ministry to the proposed National Manufacturing and Investment Zones (NMIZs) are remarkable for their unanimous tone. This is very different from the initial response to the SEZs, where the revenue department was seen as fighting a lone battle in 2005-06 to rein in the tax breaks and which, therefore, did not pass muster. But while the common front is laudable, it runs the risk of tarring the NMIZs with the same brush as the SEZs, which obviously must not be the intention of the government. As per finance ministry data, it has lost R14,073 crore because of the SEZ scheme in 2010-11. So far as one can see, the NMIZ plan has not been structured on similar lines. But if it has been, then this speaks very little about the supposed inter-ministerial coordination that even after a clear anti-tax-incentive-based position has been accepted by the government, another variant of the same has managed to get the PM?s approval. Even if the supposed freebies are lopped off at the stage of committee of secretaries, this does not inspire confidence in the decision-making process in the top echelons of the government. In terms of principle, the objections raised by the finance ministry to tax incentives are, however, appropriate.
The focus of the NMIZs?which have been conceived as a part of the national manufacturing plan being prepared by the Planning Commission for increasing the foothold of the manufacturing sector in the economy?is on developing greenfield industrial townships. The zones are intended to attract industrial investments by focusing on building physical infrastructure, putting in place facilitative regulatory and exit policies, providing incentives to develop technologies and in-house facilities for knowledge and skill development, and instituting consultative and participatory administrative structures, rather than by deploying any special package of fiscal measures. Thus, the key feature of the NMIZs is not any set of special fiscal concessions but to ensure more business friendly policy, procedures, a smooth approval ecosystem, and superior physical infrastructure. However, the zones are supposed to subsume the SEZs and this is a troublesome aspect of the new policy. The Direct Taxes Code (DTC) plans to set a cut-off date for the SEZs? tax rebates and for grandfathering the rest. Is the finance ministry worried that the new plan could scupper the DTC plans. A reading of the NMIZs? policyspeak does not give any indication that this should be so. But again, it is up to the two ministries to clearly state the goals of the new industrial city states. Unless this is done, the NMIZs could degenerate into a mud-slinging match, not the best way to push the manufacturing agenda for the country.
