It was at the peak of proposal submissions that the union finance ministry got a voluminous report from revenue intelligence suggesting that various units were misusing the excise refund benefits. In March 2008, central government reworked the package and restricted the excise refund benefits to the tune of value addition only. With the major incentive withdrawn, various sectors lost viability barring the cement manufacturers.
“Average incidence of central excise duty was 10-14 percent. Typical value addition in industry is only approx 5-10 percent. Since the exemption was given only to the extent of value addition, the excise exemption benefit to the industry in J&K was effectively reduced from 10-14 percent to mere 0.5-1.5 percent,” says Sanjay Puri of the CII J&K. The excise duty in pharmaceuticals had already been brought down from 16 percent to four percent nationally that devoured the advantage pharmaceutical units had while manufacturing in Jammu. Menthol was brought under the zero excise regime across India.
This had a massive impact. “Most of the white good manufacturers have fled. Menthol units are closed and copper units are closing the shop as the enterprise has become non-remunerative. The pharmaceutical units were working three shifts but now they have reduced to one because there are losses,” says T S Rein, president of Federation Chamber of Industries Jammu. “Nothing much is happening for the last one year,” officials who are part of the system in accepting and clearing the new proposals said. “There were instances of capital flight to better areas though formally there are not many cases in which the estates have been returned or sold out.”
By the time the excise component was withdrawn, investors had already claimed excise refund worth Rs 3000 crores. “By the end of January, the central excise refund amounted to Rs 2759.52 crores. The benefit was disproportionate. As no investor had come to Kashmir, the existing eligible units here could avail a benefit of Rs 29.50 crores only,” says Shakeel Qalander. “Even the benefit to local entrepreneurs (in Jammu) was not beyond ten percent of the total as the concession was drafted for new investments and significant expansions in the existing units, something which we could not avail,” adds Anil Suri. This infuriated FCIK and it symbolically returned the package.
Vajpayee government’s package had apparent considerations. Kashmir industry had been struggling to come out of the losses incurred by strife, partly due to unfavourable business environment and partly due to occupation of industrial units by security forces. Efforts were required to find places outside the government for placement of unemployed.
While non-local investors had fled J&K, it was the local investor that had stayed put – either for the lack of will to flee or for the stakes that he has within the society. This was despite the 1800 days of strikes and curfews that Kashmir witnessed in last two decades and outright occupation of the sprawling estates by security forces throughout the valley.
Javed Ahmad Bhat set up Alpine Productions, a furniture manufacturing unit, in Sopore industrial estate before 1989 with an investment of 35 lakh rupees. The unit began with 15 workers and was flourishing before Border Security Force occupied the building. “One morning, when we went to work, we saw it had been taken over by the Border Security Force,” remembers Javed.
