The SME sector, which has contributed to the economic development of Himachal Pradesh in a significant way, is reeling under a serious liquidity crunch.
The slowing of demand amid the overall economic meltdown has led to a dent in the margins of the SME sector. Industry leaders feel that the government needs to take up the issues of inadequate access to finances and poor infrastructure on a priority basis.
Over the past few years, the process of industrialisation has gathered momentum in the state. The share of the secondary sector in the state gross domestic product has risen from 16.73% in 1970-71 to 36.83% in 2005-06. Over the same period, the share of the tertiary sector increased from 24.71% to 37.88%. According to data procured from the industries directorate of the state, there are about 35,369 small-scale and 421 medium and large-scale industrial units with an investment of about Rs 8,311.39 crore, generating employment for about 2.29 lakh people, till March 31.
To accelerate the pace of industrialisation, the state had received a special package of incentives by the Centre on January 7, 2003. The package included 100% exemption from payment of central excise duty for a period of 10 years and 100% income tax exemption for five years. The package also offered 15% capital investment subsidy on investment in plant and machinery subject to a ceiling of Rs 30 lakh.
From the time of the announcement of the special incentive package in 2003 till September 30, 2008, the state approved 967 new investment proposals and 96 expansion proposals in the medium and large-scale sector and 1,05,309 new investment proposals and 242 expansion proposals in the SSI sector, with a combined investment of Rs 36,844.64 crore and employment potential of 4.15 lakh. Around, 10,782 small-scale units with an investment of Rs 7,298.71 crore with proposed employment for 2,57,704 persons were registered after the special package was announced.
However, the biggest relief?that is exemption of central excise duty under the tax incentives package being enjoyed by the industry in the stat?will come to end in 2010. Moreover, the income tax benefit will expire in 2012 and subsidy on capital investment will also be over in 2013.
With such incentives coming to an end, analysts say the pace of industrialisation in the state is bound to suffer.
Rajinder Guleria, member of CII, HP state council, says, ?When the incentive packages run out, fresh investments coming to the state would be affected. This will, in turn, hit the SME sector. To revive business sentiment, the government should ensure credit availability to the SME sector at cost-effective rates. Besides, infrastructure, including roads, hospitals, housing and schools, should be developed on public private partnership.?
Supporting Guleria?s version, Anil Sehgal, CII chairman for the HP state council, says, ?Though the government is quite active in promoting the industry in the state, there is a need to improve infrastructure. The good news is that the central sales tax notification, which expired on March 31, has been extended till 2013. This decision will certainly instill confidence in the sector.?
An industry official told FE, ?The special package given to HP industry is showing results already. The Baddi-Barotiwala region has emerged as a pharma hub for north India. To overcome the shortage of housing in the industrial belt, two hostels with a housing capacity of 900 for workers are being set up in Baddi, with an investment of Rs 10 crore each.?
The state government has also identified linking major industrial areas and estates with improved roads and railway network as a priority area. The project of Baddi-Pinjore rail link, the Nangal-Talwara rail link via Una are underway.
The state has intensified efforts to impress upon the railway ministry to execute the Bhanupalli-Bilaspur-Barmana rail link. The Centre has approved an amount of Rs 350.33 crore for this 20-km stretch. Widening of approach roads, such as Pinjore-Baddi highway, Kala-Amb-Yamunanagar highway, Nalagarh-Ropar road, Gowalthai-Nangal road, Garget-Hoshiarpur road is important as well. The state government has identified textiles, agro-food processing industry, ayurvedic formulation, precision engineering, electronic and IT industry and a few more to be the growth drivers for the state.