Business as usual

GDP

Representational image (Photo: Getty Images)

Parivartan (transformation) is the title of the Assam government’s report published on 24 May on the completion of one year of the BJP government headed by Sarbananda Sonowal.

It has a paragraph on the North-east Industrial Promotion Policy stating that the NEIPP was valid up to 31 March 2017 and a committee under the chief executive officer, NITI Ayog, is preparing a new policy and that Dispur has urged the Centre to allow continuation of the existing policy till a new one is announced.

The report also states that 124 medium and large industrial units and 2,193 small and micro-industrial units, involving an investment of Rs.5,881.60 crore and Rs.618.15 crore respectively, have been set up since last year.

They have generated direct and indirect employment for 39,535 people and contributed in near equal measure by the two sectors.

This is a commendable achievement and also shows the huge employment potential of the micro and small industrial sector with a much lower investment, and thus holds a strategic importance in the economy of Assam and the Northeast.

The region’s dream of industrial development is old but its pursuit only turned intense after the 1965 IndoPak war when trade and transport links with East Pakistan were closed.

And, this led to a perception that an agri-horticultural and plantationbased economy would not enable Assam to get back to its pre-1947 position in the top five states in terms of per capita income — a position that would seem unattainable today.

The “Refinery agitations” of the 1950s and 60s demanded that the crude oil extracted in Assam must be refined in the state itself to create a base for the petro-chemicals industry, and by the same logic, the bamboo grown in Assam forests should rather be processed for making paper and other products in Assam.

These made a lot of sense. A jute mill set up as a cooperative, however, did not work for various reasons. The major constraints on industrial development were seen to be high transport costs of bringing materials and equipment from outside the region and the very small size of the regional market and demand to sustain industries.

The Northeast had to wait till 1971 when the Centre introduced a transport subsidy scheme to address this core issue by bearing the transport cost of materials from Siliguri by rail to the railway station nearest to the industrial unit and also the cost of road transport from the railway station to the plant in any location in the Northeast.

In the same manner, the cost of transport of products of any industrial unit in the North-east for reaching markets outside the region is borne by the Centre from its location to Siliguri. If, however, the industry decided to transport by road, the subsidy was limited to the amount the unit might have spent had the consignment moved by rail and road as approved under the scheme.

This was indeed a big boon and also a bane for the region as, while it removed a major cause of high cost of production and the inability to compete in the market, the transport subsidy promoted the plywood industry on such a scale that very soon the Northeast emerged as the supplier of over half the country’s total plywood output.

The plywood unit is not the “right” industry for the Northeast as its growth is the main cause of illegal feeling of trees and deforestation in the hill state of Meghalaya. Nevertheless, it signalled the central government’s concern for development of the region and coincided with the strategic move to reorganise the North-east into seven units and liberation of Bangladesh, thereby raising hopes for revival of the vibrant pre- 1947 eastern regional economy of South Asia.

The transport subsidy scheme continues to be the main plank of the central policy to promote industrial development of the region. It has now quite rightly tightened the mechanism of disbursement of subsidy by operating it through the Direct Benefit Transfer mode.

The NEIPP 2007 was put in place after the 10-year of the NEIP 1997 was over and also for a further period of 10 years. It doubled capital investment subsidy to 30 per cent, subject to a maximum of Rs.30 crore for each industrial unit, relaxed norms defining “substantial expansion of existing units” as it stipulated that an increase of 25 per cent of the value of plant and machinery would qualify as against the earlier requirement of 33.5 per cent.

Further, it granted 100 per cent exemption from payment of income tax and excise duty, and extended this incentive to all industrial units—- existing and new and also to units in service, bio-technology and power generation sectors.

For the first time, the 2007 policy was extended to Sikkim as by then it had become a member of the North Eastern Council. The spurt in the private sectorled hydro power generation projects in Sikkim and Arunachal Pradesh that followed the 2007 policy produced yet another environment unfriendly outcome as presently two hydro power development projects —Tawang and Lower Subansiri in Arunachal Pradesh — have ran into serious problems. In December 2014, the Centre suspended registration of new industrial units, which led to protests by local and regional trade bodies and a feeling of uncertainty about the fate of the special policy for the Northeast.

However, the order for suspension of registration of new units was revoked in December 2016 following a court order on the petition of the Federation of Industries of Northeast region and the 10-year term of the policy itself ended on 31 March 2017.

A dispassionate look at these policies is really necessary now. It is common knowledge that the transport subsidy scheme was being routinely misused from its inception and cornered by a few big players. And, a professional evaluation of the impact of 20 years of the Northeast industrial policy is still awaited while macro-economic statistics of the region’s states suggest that it could not trigger industrial growth.

There, however, are some success stories like the commissioning of the eighth manufacturing unit of Skipper, a private sector enterprise at Palasbari near Guwahati on 27 March this year with an installed capacity of 30,000 MT of engineering products and 7,000 metric tonnes of polymer products, taking the combined installed capacity of the firm’s engineering products to 2.3 lakh mt and products to 48, 000 mt. As of now all the region’s states are demanding the continuation of NEIPP for another 10 years for some practical reasons.

Firstly, introduction of the Goods and Services Tax will tilt the balance of investment and economic power in favour of advanced coastal states and states which are developed in terms of infrastructure, market access, skills and entrepreneurship. Second, the Northeast states require massive investment in building infrastructure that the Assam chief minister has underscored in a recent press interview in Delhi in connectivity, power, skill and local entrepreneurship development to capture the Southeast Asian market — a point also stressed by NITI Ayog.

And, this would require large private investment in public private partnership mode. There is thus a strong case for renewal of NEIPP and continuation of the transport subsidy and expanding the incentives to attract private and foreign direct investment in infrastructure. These should be viewed as integral to the Act East Policy for the Northeast.

The keenness of Assam to participate in PM Modi’s development initiatives is clear as it was the first state to ratify the GST Constitutional (Amendment) Bill and enacted the Assam ease of doing business Act 2016 creating under it a single window agency. A web portal, www.easeofdoingbusinessinassam has been already launched and 268 services and 27 departments of Assam are available online.

The writer is a retired ias officer of the assam-meghalaya cadre and has served as a scientific consultant in the office of thePprincipal Scientific Advisor to the Government of India.

Related Articles