Funds crunch cripples industrialisation in North-eastern States

The Narendra Modi government’s industrialisation policy for the north-eastern States has proved to be a non-starter as it is highly centralised and fund allocation for it is abysmally low.

Prime Minister Narendra Modi at a function in Itanagar in February 2015. He keeps referring to the north-eastern States as “Asta Lakshmi” but avoids talking about his government’s scheme for the region’s industrialisation.

The Narendra Modi government, which launched the North East Industrial Scheme (NEIDS) with a total outlay of Rs. 3000 crore in 2017, has allocated only Rs.1 crore for it in 2019-20. The scheme, which was expected to benefit eight north-eastern States, will remain in force for another year, until March 31, 2022.

This was revealed in the 227th Report of the Department Related Parliamentary Standing Committee on Home Affairs on Action Taken by Government on the recommendations/observation by the committee on Demand for Grants (2020-21) of the Ministry of Development of North Eastern Region.

The Modi government notified this Central sector scheme on April 12, 2018 replacing the erstwhile policy regime established by the Congress-led United Progressive Alliance (UPA), which provided incentives to attract investments for industrialisation in the region. The UPA’s policy, known as the North East Industrial Investment Promotion Policy (NEIIPP), 2007, was to be in force for 10 years. In fact, this policy was an extension of the North East Industrial Policy, the first policy of its kind for the region, which was introduced by the United Front government in 1997. However, the Bharatiya Janata Party (BJP)-led government at the Centre suspended the NEIIPP in 2014, prohibiting registration of new industrial units under the policy. After a three-year gap, the Modi government introduced the NEIDS.

Official data show that the Modi government’s experiment of replacing the policy regime with a Central sector scheme has failed to attract much investment for new industrial units in the industry-deficit region.

The report of the parliamentary panel presented to the Rajya Sabha Chairman on December 21, 2020, states: “As on date, 104 industrial units have been registered by the empowered committee based on the recommendations of the State Government under NEIDS, 2017.” A copy of the report was forwarded to the Lok Sabha Speaker on the same day.

Under the NEIIPP, altogether 31,471 industrial units were set up in the region involving an investment of Rs.19,097 crore, which generated employment for 2,81,602 people from April 2007 to March 2017. The region received a total investment of Rs.1,067 crore; 681 units were set up, which provided employment to 20,709 people.

The Modi government’s Action Taken Report was on a recommendation of the Parliamentary Committee in its 225th Report, which said: “The Committee is displeased to note that no fund has been sanctioned under NEIDS and respective State Level Committees of NEIDS have not recommended release of funds to any company. The Committee therefore recommends that a strategy should be chalked out to implement the programme/action plan to boost integrated and balanced industrialisation in NER and to promote employment in the North East States.”

Faced with the charge of non-release of funds under the NEIDS, the Modi government passed the buck to the region’s State governments. The government informed the parliamentary panel that “no allocation was initially made in NEIDS Scheme for BE lBudget Estimates] 2019-20” because “no claims were received from State governments”. “At RE [Revised Estimates] stage, after constant follow-up, State Level Committee (SLC) of Assam confirmed about some claims being ready for consideration and a token amount of Rs.1.00 crore was allocated. Govt. of Assam conducted the first meeting of SLC and considered the claims of six industrial units on 17th March 2020,” the government told the panel.

For 2020-21, the government has allocated Rs.100 crore for all the eight north-eastern States under NEIDS, 2017. It has informed the committee that “efforts are being made to speed up the process of disbursal of incentives, by revisiting and simplifying stages involved in processing of the claims”.

NEIDS guidelines require all eligible industrial units to register with the Department for Promotion of Industry & Internal Trade (DPIIT) through the portal; applicants have to submit detailed project reports with their applications. Units should start commercial production within 18 months of registration and thereafter file their claims within one year from their date of commercial production under the Central Capital Investment Incentive for Access to Credit (CCIIAC).

The Central government informed the parliamentary committee that of the 107 units registered under NEIDS, 67 were able to start their commercial production and could be registered on the DPIIT web portal for processing “only after constant follow-up and requisite hand-holding by District industries Centres”.

The economist Joydeep Baruah, Professor and Director, Surya Kumar Bhuyan School of Social Sciences of Krishna Kanta Handiqui State Open University, explains that the key difference between NEIDS and NEIIP lies in the condition of eligibility of industrial units for coverage. “While in the case of NEIIP, new as well as existing industrial units were eligible, NEIDS left out the existing industrial units from its purview. Since 2017 onwards, the overall industrial environment has witnessed a slump, especially in the aftermath of demonetisation and the GST [Goods and Services Tax] regime… it is no wonder that initiatives for setting up new industries have also died down. This is one of the main reasons for NEIDS not taking off,” he said. Joydeep Baruah was also the Principal Coordinator and Lead Author of the Assam Human Development Report 2014.

He said: “Another reason is the highly centralised system of administration of NEIDS compared with NEIIP. Earlier, under NEIIP, industrial units could approach District Industrial Centres for claiming subsidies and reimbursements. Now one has to submit the detailed project report online for receiving incentives under NEIDS. The region lacks supporting eco-systems for new industrial units to complete this process efficiently. Moreover, long delays in processing the claims and reimbursements under various subsidies, including GST reimbursement, have made the industrial units suspicious about timely reimbursement under NEIDS in many cases.” He suggests that in order to make NEIDS attractive and more visible “it is necessary that existing industrial units are also made eligible for coverage along with the new ones and its administration is made simple and decentralised”.

The following are the incentives available under NEIDS. (i) Central Capital Investment Incentive—30 per cent of the investment in plant—and machinery with an upper limit of Rs.5 crore. (ii) Central Interest Incentive—3 per cent interest on working capital for five years; (iii) Central Comprehensive Insurance incentive—reimbursement of 100 per cent insurance premium for five years; (iv) Income Tax reimbursement of the Centre’s share for five years; (v) GST reimbursement of the Centre’s share of CGST and IGST for five years; (vi) Employment Incentive—3.67 per cent of the employer’s contribution to the Employees’ Provident Fund in addition to the government bearing 8.33 per cent of the Employee Pension Scheme contribution of the employer under the Pradhan Mantri Rojgar Protsahan Yojana (PMPRY); (vii) Transport Incentive on finished goods movement by the Railways—20 per cent of the cost of transportation; by the Inland Waterways Authority—20 per cent of the cost of transportation; and on transportation by air—33 per cent of the cost of transportation—from the station / port / airport nearest to unit to the station / port / airport nearest to the destination point. Under NEIIPP, 2007, there was no upper limit on capital subsidy until 2016.

On October 18, 2019, the Federation of Industry & Commerce of North Eastern Region (FINER) gave a representation to the DPIIT seeking a review of the NEIDS and a revamped policy. The memorandum stated:

“The scheme has failed to take off as (i) The benefits have been substantially truncated, (ii) The changes made pursuant to the imposition of GST has further limited the available benefits substantially and in some cases to the extent of 80% - 90%, (iii) The eligibility to the policy is not automatic, and the parameters for eligibility have not been defined. The registration itself is cumbersome and time taking, putting off potential investors. (iv). The scheme does not have any success role models (v) The upper cap for limit of capital subsidy is meagre. (v) Expansion of capacity and addition of capacity by existing players has been kept outside the purview. (vi) The people who have set up units under the scheme are still to see the money promised flow to them.”

In a memorandum to Nirmala Sitharaman, then Union Minister of State for Commerce and Industry, on December 15, 2016, the North East MP’s Forum drew attention to the industrial drought in the region. It stated that the Central government spent on an average less than Rs.100 crore a year as capital investment subsidy during 16 years of policy regime for capital formation in the region. The forum stressed the need for an exclusive policy regime for the region: “North East requires focussed hand-holding from the Central government for removing the regional imbalances. Job creation is the most important aspect of North East Industrial Policy as most jobs can be created in industry and service sectors.” The memorandum stressed the need for policy support for micro, small and medium enterprises (MSMEs), large units and service sector units.

No longer exclusive

The NEIP was meant to be exclusive for the region. But the National Democratic Alliance (NDA) government extended similar benefits to Jammu and Kashmir in 2002 and to Himachal Pradesh and Uttarakhand in 2003. The north-eastern States and industry bodies voiced concern over this.

The Modi government notified the Industrial Development Scheme (IDS), 2017 on May 2, 2018, for what are now the Union Territories of Jammu and Kashmir and Ladakh and for Himachal Pradesh and Uttarakhand. Only new industrial units in are eligible for the incentives under NEIDS in the north-eastern States. Under the IDS, however, all new and existing industrial units are entitled to the incentives in Jammu and Kashmir, Ladakh, Himachal Pradesh and Uttarakhand. The Annual Report of the DPIIT for 2019-20 states that the Empowered Committee has already registered 489 industrial units (87 in Jammu and Kashmir, three in Ladakh, 248 in Himachal Pradesh and 151 in Uttarakhand). The figures of registration under NEIDS and IDS present contrasting pictures of implementation of the Central schemes for industrialisation in the respective regions. They also expose the outcome of the experiment of replacing the policy regime with a scheme in the north-eastern States. In January, the Union Cabinet approved the new industrial development scheme for the Union Territory of Jammu and Kashmir with a total outlay of Rs. 28,400 from 2020-21 to 2036-37.

Pradyut Bordoloi, former Assam Industry and Commerce Minister and senior Congress leader, alleges that the allocation of only Rs. 1 crore under NEIDS “shows how insincere they are towards to the development north-east region”. He feared that depriving the north-eastern States from special assistance by the Central government would lead to further regional disparity and the region will be pushed further to the fringe. He said that the Modi government put NEIIPP in cold storage even though the policy had attracted industrial investments and created jobs. He also alleged that the Centre retrieved it from “cold storage” a few months before the expiry of the policy term only to benefit some crony capitalists.

The parliamentary committee’s report also brought to light poor implementation of another Central scheme critical for the region—the North East Special Infrastructure Development Scheme (NESIDS). Against a financial outlay of Rs.1,600 crore, only Rs.532.39 crore was utilised in 2018-19 and 2019-20, as of January 31, 2020, the report stated.

In his speeches, Prime Minister Narendra Modi refers to the north-eastern States as “Asta Lakshmi”’ (eight forms of Lakshmi, the goddess of wealth) and lists statistics on schemes undertaken and allocations made by his government for the region. He, however, skips any mention of NEIDS and the status of its implementation. Ahead of the upcoming Assembly election in Assam, all eyes are on Modi and the ruling BJP to see if any new election promise is going to be made to repackage its implementation.