Wooing investment

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New Delhi has extended the excise exemption to industry operating in J&K for another 10 years. But the contents of the package have brought a reluctant cheer to industrialists here. A Kashmir life report.

Rs 3000 crores investment did not come to J&K because of the package rollback.

Rs 3000 crores investment did not come to J&K because of the package rollback.

Finance Ministry in Delhi has extended the prevailing excise package for a decade. It has also omitted the location specific clause in the earlier package notification that will get benefits to many more units which were operating outside the designated industrial estates in J&K.

The fresh notification, however, has not accepted the state government and the industry’s persistent demand that the original package envisaging full excise refund should be restored. The excise refund will continue to be claimed for value addition only. It has also not come to the rescue of the units whose excise refund is being taxed by the Income Tax department that considers the refund money as income.

“We are happy that the new notification has location neutrality and it will help a number of our units that were not getting any benefit because they were operating outside the designated spots,” Shakeel Qalander, president of the Federation Chamber of Industry Kashmir (FCIK) said.

“Even some of the units operating within designated spots in various estates were facing problems because they were falling on the fringes of the Khasra numbers where the package was in vogue,” adds Sanjay Puri, an industrialist who heads the state chapter of the CII.

The new order has also included 25 percent increase in manpower of the units as “substantial expansion”. Earlier, only those who invested 25 percent in their unit machinery would fall under this category.

For a long time, J&K government has an industrial policy that offers many incentives. But these were not enough to attract major corporate investments. With an objective of getting outside investment that will help manage part of the educated unemployed youth, the central government notified an incentive package on November 14, 2002 for a decade. Apart from 100 percent excise duty refund for new ventures and substantial expansion of the existing ones; the package offered capital investment incentive of 15 percent within three million rupees ceiling; full reimbursement of insurance premium on capital investment; and three percent interest subsidy on capital investment.

It marked the beginning of a change as major corporates in white goods, pharmaceuticals, started their units in J&K especially in Jammu, Samba and Kathua because they are closer to rail head, market and in many cases to the raw material as well.

By the end of March 2009, the package helped setting up of 136 MSME units and 870 SSI units in Jammu with a cumulative investment of Rs 4406 crore. In Kashmir, only 2374 SSI units were registered with cumulative investment of Rs 119.49 crore. Unlike Kashmir, most of the units in Jammu are either operational or in the final phase of implementation.

For this much of investment, the incentives that the units got under the central and the state government packages was of the order of Rs 3438.68 crore. The excise refund was the major component of these incentives. It started with a refund of Rs 117.44 crore in 2004-05, increased to Rs 535.13 crore in 2005-06, Rs 820.28 crore in 2006-07 and peaked at Rs 1264.41 crore in 2007-08. For the fiscal 2008-09 the excise refund dipped to Rs 642.87 crore.

But, somehow the revenue intelligence got suspicious and it suggested rollback of the entire excise package. The notification was amended in March 2008. The new notification restricted the excise refund benefits to the value addition only. The industry reacted in panic saying there were no evidences of the package getting misused but nothing changed.

But it did have its impact. A number of, otherwise, best performing units either slowed down their production or simply closed their shutters. There were certain cases of flight of capital to neighbouring states where environment for the industry and the incentives were better. “I am aware of around Rs 3000 crores investment that did not come to J&K because of the package rollback,” says Puri.

As the industry launched campaign to undo the damage, the Income Tax was up to get its bit. It issued a circular that the excise refund will be taxed as it falls under ‘income from other sources’ category. After notices were issued, the industry approached the court and there is no decision on the issue, so far. “We made our own efforts at the centre to get the package back to rails and we did succeed to an extent,” says Qalander, who once “humbly returned the package” to the Prime Minister Dr Manmohan Singh saying it has not helped Kashmir at all. “The amended fresh notification will help the cement sector which is the only area in which the industry in Kashmir has grown in last few years.” Earlier only two cement manufacturers in Kashmir were getting the benefits but now all are eligible. Under the package, excise refund of 75 percent instead of 36 percent in earlier one, is available to iron and steel, cement, starch and coco-butter manufacturers in J&K, north-east, Sikkim and Gujarat’s Kutch district.

On the request of the industry, the chief ministers – Omar Abdullah and his predecessor Ghulam Nabi Azad, did approach the central government. They got many promises but eventually the request was partly accepted. Under the new notification, all the existing units can claim the benefits by just increasing the workforce by 25 percent. They can operate from anywhere across the state. But now the kitty has just a fraction of the benefits. So Industry Minister Surjit Singh Slathia needs not to be excited.

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A journalist with seven years of working experience in Kashmir.

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