Saturday, June 9, 2012

Himalayan Industrial Policy: Who benefits and who loses in Himachal Pradesh? R.Sreedhar, Environics Trust

I wrote this a while ago but....

During the last few years, the state of Himachal Pradesh has made significant progress in industrialization of specific pockets. Share in the state’s income from this sector accounted for only 1.1% of the total income of the state in the year 1950-1951 which has now jumped to 17.1% during 2005-2006[1]. The grant of special package by the Central Government has acted as a catalyst in boosting industrial development in the state and increased the industrial investment proposals in the state manifolds. In order to provide infrastructural facilities to entrepreneurs, 41 industrial areas and 15 industrial estates have been developed in the state so far. Most of the industrial areas in the state so far are set up either by the Department of Industries (DOI) or under the provisions of Town and Country Planning Act as Special Area Development Authority (SADA). The state government has set up single window clearance agencies in the state, which are functioning from several locations in the state. The state has been acknowledging the importance of development of industries in the state through their industrial policy statements in 1999 and the most recent in 2004. As per the Industrial Policy Guidelines, 1999 and 2004, there is a shift in the perception of the state government from the existing practice of merely taxing industries to being more facilitative, in order to increase investment in the industrial sector.

Government of India announced a new package [2] of industrial incentives for the facilitation of rapid industrialization of the state of HP. These incentives provide for cent per cent excise duty exemption and income tax exemption for a period of 10 years, coupled with enhanced capital investment subsidy, relaxation in the cost sharing for industrial infrastructure development fund, central transport subsidy etc amongst many other things. In line with these incentives the state government also gave some more incentives to the industry, which would be additional to the existing ones.
Official data shows that the state has got investment of only Rs.6,523 crore, though proposals amounting to Rs.41,205 crore have been cleared. The government has approved 13,195 projects since 2003 when the package was announced. Of these, only 6,356 units have begun production.  Pharmaceutical, food processing, textile, packaging and light engineering sectors have seen most of the investment. 

More than 80 percent of industry is mainly cluttered in the Baddi-Barotiwala-Nalagarh belt in Solan district only.  A resolution demanding that the package be extended by 10 years till 2020 was passed in the assembly in December last year. In January, the commerce ministry had recommended to the prime minister and the finance ministry that the package is extended till 2013.  Punjab government moved the Supreme Court in December last year challenging the central government's sops to Jammu and Kashmir, Himachal Pradesh and Uttarakhand since 2002 for industrial development.  It contended that the 'discriminatory fiscal incentives' in the form of excise duty waiver, income-tax holidays and investment subsidies to industries in the three states had led to mass exodus of industries from Punjab.  Most pharmaceutical units that have set up their units here are from Goa and Maharashtra. Industry experts say if the subsidies are withdrawn, the cost to companies could increase by anywhere between 20 and 30 percent. Further, they would go to other states where there is better infrastructure.

The attitude of the governments and the industrialists is clear that in a capitalist economy the profit of the few can be rationalized at the cost of many.

The Financial Dole

If we take the lower figure of the companies which have already come in and just take the component of “Capital Subsidy” which has a ceiling of Rs 30 lakhs only, it comes to a whopping Rs 2000 crores. Of course, despite these being called back-ended subsidies ie given after the investments have been made we all know that several more would have claimed and the figure could be as high as Rs 5000 crores or that is what the government is already committed to dole out to the companies.  This is an outright give away in cash. Thus for an investment of Rs 6500 crores if industrialists get back Rs 5000 crores in cash what is the need for such industrialization.

It is not that the rest of the money invested is not guaranteed to shower more returns. The tax holidays will add to an enormous amount over this as excise duty and income tax alone will be 40 percent of the gross profits. Few specific companies themselves have reported turnovers of Rs 1000 crores[3]. But even if we take a conservative estimate of Ra 5000 crores, another Rs 2000 crores is given away as tax concessions.

The process of robbing itself and the community to pay investors and promoters is not new or isolated to the industrial sector alone. The infrastructural back up of power is provided with another package of concessions. However, the utility in the State is bleeding hundreds of crores. (see box 1)
The contra-banking of power during current summer has created a financial crisis for the state power utility which is running a huge overdraft of over Rs 640 crore. The utility the assets and functions of which have been vested in the government under the ongoing restructuring exercise has been in the red and its accumulated loss has crossed Rs 260 crore. 

Its cash-flow position has worsened as under the contra-banking arrangement surplus power supplied to deficit neighbouring states during summer months will be returned during the lean winter months. It is not receiving the usual revenue from sale of power during summer

The financial health of the utility has not improved despite annual increase in tariff by the state electricity regulatory commission over the past five years. The employees have been claiming that consumers will have to pay more after unbundling as electricity will become dearer. However, the fact was that successive tariff hikes have increased the average sale price of power from Rs 1.90 paise per unit in 2003 to Rs 3.70 paise in 2008.

The State has proposed an Industrial Township Act which is so draconian that there shall be no Panchayat for Industrial Township [4]. If any industrial development area or any part there of is specified to be in the said industrial township then such area can be allowed not to have a Panchayat. As per article 243 of the constitution of India, “Panchayat” means an institution (by whatever name it may be called) of self-government constituted under Article 243-B for the rural areas;

This Act has been accorded overriding effect [5] over provisions of any other Act such as TCPA and Himachal Pradesh Municipal Act, 1994. If such area which is now declared as industrial development area was within the municipal limits or was included in the master plan or zonal development plan under the TCPA or under any other development plan under any other Act in the state then it shall be deemed to be excluded from them from the date of declaration of such area as industrial development area.

This authority along with the Director of Industries is also granted power to issue no objection certificate under the proposed Act if any water, electricity or sewage connection with in the industrial development area is required by any person [6].

UNA Special Economic Zone
The government had announced that 4,000 acres of land adjoining the Swan River would be acquired for the project. However, the answers to the RTI application reveal that 11,500 acres are to be acquired. The government has also said that the land to be acquired is barren and lacks any form of vegetation. I have visited this site and can say with complete conviction that the land in this area is among the most fertile in Himachal Pradesh. Again, the government says that it has bored and is using 3,000 bore wells although including the private ones there are 10,000 bore wells here. The revenue department’s estimate of 7,000 trees in the area is also wrong as there are lakhs of trees here. Initially, the government had said that only the lands traditionally inundated by the Swan River would be acquired. The questions in the RTI application have uncovered a different picture. More than 25 villages supporting a population of nearly 80,000 are likely to be wiped out by the project. Among the villages to be affected are Ambota, Matyalka, Ghananal, Dioli, Nangal Jariala, Bhadrakali, Gondpur Banehra, Nakdoh, and Kailah Nagar. The government had also promised the peasants the best rates in the market for their land. However, it is now revealed that the government has disallowed any new sale deed from taking place. Apparently, the peasants used to make the sale deed in a bid to ensure that the land prices went up and they could drive a harder bargain with the company. The rates offered by the company which will undertake the project, Skil Infrastructure, do not amount to even one-fifth of the price the peasants have got in the other areas as compensation.
December 13, 2008 EPW Economic & Political Weekly
It is therefore clear that the process of dispossessing people of their land and other natural resources and depriving them of many constitutionally guaranteed rights and curtailing institutions of local self-governance is covertly and overtly being undertaken by the State in the name of liberalization, privatization and it is being conveniently spoken about as the inevitability of globalization.

Almost all river segments and over 50,000 ha of prime land and other natural resources including forests, mineral resources and even cheap human resources are being sacrificed at this alter of globalisation.

The 12th Finance Commission has granted resources for the Himalayan States for the ecosystems services and the base value for the vegetation cover itself is valued at Rs 50,000 per hectare per annum. When we include all the elements of the services provided it could be several lakhs.

Thus the model of industrialization totally negates the critical ecosystem value, destroys local cultures and accumulates wealth amongst the few.

What Himachal Needs?

The Himalayan States and particularly Himachal Pradesh demands the formulation of an industrial policy that intensively promotes decentralised and green growth.
Opportunities are abound with Horticulture, Medicinal Plants, agriculture, decentralized power generation systems, community based tourism.

Essentially these industries that need positive discrimination and if they are encouraged with the right kind of incentives the Gross Value added per invested rupee will be positive and much larger than the short run fly-by-night industrialization which would have devastated the basis for long term sustenance.

Time to Wake-Up

The deleterious effect of the massive change in the ecosystems, displacement and deprivation of people and the poor rate of assimilation of local employees in the industry (under 10 percent as against a stated policy of 70 percent) is a clarion call for change. While the State seems to be trying to extend the current concessions, it is clear that this model only benefits the investors and investment bankers, the owners, the managers, corrupt politicians and other elite while crushing the local people and annihilating the local environment which will have long term implications on the ecosystems and the community. In an era when Climate Change is a widely debated issue, it calls for an urgent change in the industrial policies and the package for promotion should clearly aim at green growth.

[2] vide office memorandum dt 7th January, 2003 GOI, Ministry of commerce and Industry
[3] Pharmaceutical Exporter - AmeriStat Pharma, Inc. Himachal Pharmaceutical Industries - Suppliers and exporters of ... our annual export turnover is around 200 million USD, including pharmaceuticals
[4] This word is used here for the first time. However there is a mention of this word in the Constitution of India in Article 243Q proviso to clause 1 which says Provided that a Municipality under this clause may not be constituted in such urban area or part thereof as the Governor may, having regard to the size of the area and the municipal services being provided or proposed to be provided by an industrial establishment in that area and such other factors as he may deem fit, by public notification, specify to be an industrial township.
[5] Section 22a
[6] Section 28

No comments: