North East Industrial Development Scheme: Negative twist

The North East Industrial Development Scheme downgrades the industrial policy for the region to a mere Central sector scheme by limiting the scope for incentivising industrialisation.

THE North East Industrial Development Scheme (NEIDS), 2017, announced by the Narendra Modi government on March 21, has done away with the idea of having an industrial policy exclusively for the north-eastern States and limited the scope for incentivising industrialisation in the region to a Central sector scheme.

Statistics indicate that the financial outlay of Rs.3,000 crore sanctioned up to March 2020 for the implementation of NEIDS may be insufficient for the north-eastern States to catch up with Himachal Pradesh, Uttarakhand and Jammu and Kashmir, which too were extended a package of similar concessional benefits during the policy regime. The Centre is reportedly working on a new industrial development scheme for these three States.

The United Front government introduced the North East Industrial Policy (NEIP) in 1997 to incentivise industrial investments in the region in order to attract investors and generate employment. The north-eastern States felt that the NEIP became less attractive for investors after the National Democratic Alliance (NDA) government extended similar concessional benefits in 2002 and 2003 to Himachal Pradesh, Uttarakhand and Jammu and Kashmir. The Congress-led United Progressive Alliance (UPA) extended the NEIP in 2007 as the North East Industrial and Investment Promotion Policy (NEIIPP) with some modifications and notified that it would be in force until 2017.

The Modi government, however, announced the suspension of the policy for three years, with effect from December 1, 2014, prohibiting registration of any new unit under the NEIIPP, citing inadequate budgetary support against subsidy claims as the reason. Following an interim order passed by the Gauhati High Court on a petition moved by the Federation of Industries in North Eastern Region (FINER), the Modi government revoked the suspension of NEIIPP in November 2016 but notified new provisions under the policy. While the NEIIPP remained suspended in the north-eastern region until November 22, 2016, to the effect that registration of new units was prohibited, the package of industrial policy and concessions extended by the UPA government to Himachal Pradesh, Uttarakhand and Jammu and Kashmir continued to be in force until 2017.

Total investment

A study by Tata Economic Consultancy Services revealed that under the NEIP, the north-eastern region received a total investment of Rs.1,067.28 crore, with Assam accounting for Rs.528.19 crore, Meghalaya Rs.441.01 crore, Arunachal Pradesh Rs.39.86 crore, Tripura Rs.31.58 crore, Mizoram Rs.4 crore and Nagaland Rs.3 crore. Altogether 681 units were set up in the region, which provided jobs to 20,709 persons (12,422 in Assam, 6,056 in Meghalaya, and about 500 to 600 in the other States) over a period of 10 years. Altogether, 31,471 industrial units were set up in the region under NEIIPP 2007, involving an investment of Rs.19,097 crore, which generated employment for 2,81,602 persons from April 2007 to March 2017.

On the other hand, 51,708 industrial units were set up in Himachal Pradesh, Uttarakhand and Jammu and Kashmir involving a total investment of Rs.54,886 crore, which generated employment for 4,82,321 persons over a period of 14 years from 2002 to March 2, 2016.

Numaligarh Refinery Limited wax being flagged off to Poland from the Company's Marketing Terminal in Numaligarh on 12-01-17 ( Photo courtesy Numaligarh Refinery Limited )

The new industrial policy and other concessions extended to Jammu and Kashmir were introduced on June 14, 2002, for a period of 10 years and later extended up to 2017. A package of incentives was introduced in Himachal Pradesh and Uttarakhand on January 7, 2003, for a period of 10 years and later extended up to March 31, 2017. Since the inception of the policy, 30,244 units with an investment of Rs.35,343 crore were set up in Uttarakhand, which led to generation of employment for 2,45,337 persons. In Himachal Pradesh, 10,864 units with an investment of Rs.15,324.25 crore were set up in the State, which generated employment for 1,29,443 persons. In Jammu and Kashmir, 10,600 units were set up involving an investment of Rs.4,219.50 crore, which generated employment for 1,07,541 persons (source:http:// www.dipp.gov.in).

The Assam Congress dubbed NEIDS as a “cruel joke on north-east” and accused the Centre of downgrading the NEIIPP to “a mere scheme”. However, the Bharatiya Janata Party-led governments in the region and the two major industry associations, FINER and the Federation of Indian Chambers of Commerce and Industry, maintained that the NEIDS would help generate employment and trigger economic development in the region and that the region would be able to take advantage of the Central government’s Act East Policy.

Unlike in the case of the NEIP and the NEIIPP, the north-eastern States will have little role in approving and monitoring units under the NEIDS as they will primarily be controlled by the Central Department of Industrial Promotion and Policy. Economists have cautioned against replacing a policy with a scheme.

Dr Joydeep Baruah, economist and lead author of the Assam Human Development Report, 2014, said: “The North East Industrial Development Scheme, 2017, announced by the Union government after the Cabinet approval on March 21, 2018, replaces the North Eastern Industrial Policy of 1997. It has been stated that the primary objective of the newly announced scheme is to promote industrialisation and employment. A cursory look at the scheme makes one feel that it continues the idea that investment to the north-eastern region could be only attracted through a set of incentives, which are primarily concessional in nature. The fact that the incentives can be in the form of improved infrastructure, such as seamless connectivity and uninterrupted power supply, finds hardly any mention in the scheme. The region has witnessed earlier that the set of concessions provided under the NEIP could not bring the desired industrialisation, and consequently, could not contribute much to the development of the region. The policy benefited only a class of investors who could take all the concessions by establishing a north-east subsidiary. If the proposed scheme is to generate employment and promote industrialisation in the region, a specific set of “qualifications”, including a minimum number of jobs to be created, has to be attached for getting concessions. Currently, the details are not available and, hence, things remain quite open [to question]. In any case, one should also consider the fact that the scope of a policy is wider than that of a scheme.”

Under the new scheme, capital subsidy on plant and machinery has been kept unchanged at 30 per cent, but there will be an upper limit of Rs.5 crore. There was no upper limit on capital subsidy under NEIIPP, 2007, until November 2016, but from November 22, 2016, until March 31, 2017, the upper limit was Rs.5 crore in the manufacturing sector and Rs.3 crore in the service sector.

Against 100 per cent reimbursement of insurance premium for 10 years under the NEIIPP, reimbursement of premium on insurance of building premises, plant and machinery will be available for five years under the NEIDS. There was 100 per cent excise duty exemption for 10 years while reimbursement of the Central government’s share of Central goods and services tax (CGST) and integrated goods and services tax (IGST) will be for five years from the date of commercial production under the new scheme. The NEIIPP had provision for 90 per cent transport subsidy for raw materials and 50 per cent for finished goods within the region. The NEIDS provides for 20 per cent transport subsidy for finished goods and 33 per cent on perishable goods.

The overall cap for benefits under all components of incentives under the NEIDS will be Rs.200 crore per unit. There was no overall cap under all benefits under the NEIIPP. The doubts over the effectiveness of the new scheme, unlike that of the NEIP and the NEIIPP, in generating employment appear to have stemmed from the rising number of the unemployed in the region and the poor implementation of some of the flagship programmes such as the Prime Minister’s Employment Generation Programme (PMEGP).

As on December 31, 2017, the total number of unemployed persons registered at 52 employment exchanges in Assam stood at 19,63,376. Of them 16,65,866 are educated. The number of unemployed is also rising in other States in the region. The official release issued by Press Information Bureau stated that the NEIDS was primarily aimed at incentivising the micro, small and medium enterprises sector.

The Annual Report (2017-18) of the Ministry of Micro, Small and Medium Enterprises reveals that only 3,497 persons benefited under the PMEGP in eight north-eastern States up to December 31, 2017, against 61,307 persons in 2013-14. The State-wise breakdown is Assam 1,529, Meghalaya 46, Manipur 319, Tripura 489, Nagaland 825, Mizoram 166, Sikkim 16, Arunachal Pradesh 140. The report reveals that the percentage share of all the north-eastern States in micro, small and medium enterprises owned by women is less than 1 per cent. While it is 23.42 per cent in West Bengal (the highest among all States) and 10.37 per cent in Tamil Nadu, it is 0.7 per cent in Manipur, 0.54 in Assam, 0.32 in Meghalaya, 0.23 in Tripura, 0.17 in Nagaland, 0.11 in Mizoram, 0.05 in Arunachal Pradesh and 0.04 in Sikkim. However, the NEIDS has neither made any specific mention about women entrepreneurship nor included any specific incentives for women-run units.

Sushanta Talukdar

This article was first published in FRONTLINE http://www.frontline.in. The orginal article can be accessed at this link http://www.frontline.in/social-issues/negative-twist/article10106638.ece