Revamp, really?

Government juggles with data to rehash Northeast India's industrial policy

Published: Friday 15 July 2005

Subsidy dream? Industrial Deve The Union cabinet will soon revamp the existing Northeastern Industrial Development Policy (neip). But the revision is very likely to be based on a flawed review of the existing policy.

The original neip was initiated by the Union ministry of commerce and industry's department of industrial policy and promotion (dipp) in 1997. The programme that aimed to generate employment and attract investment in the northeast was dogged by controversy since inception and in 2003, the dipp commissioned the Mumbai-based Tata Economic Consultancy Services (tecs) to review it. But serious question marks over the credibility of the report have now been raised.

tecs has been forced to submit two versions of its review because the government was not 'pleased' with the first one. Officials of the company explain: "Some concerned parties were unhappy with the first review we submitted in 2004. So we had to submit another review in May, 2005." S Jagdeesan, joint secretary, dipp is quick to counter: "The first tecs report was trash. It didn't do a cost-benefit analysis and also did not provide figures for the revenue forgone by the government as a result of the incentives offered by neip." Jagdeesan has also expressed disappointment with the second version.

Figure this out The first review evaluated neip between 1997 and 2003. The second appraised the programme till 2004. How exactly did extending the scope of the review by a year help the government? The two tecs reports offer clues. The first states that the neip drew investments worth Rs 701 crore between 1997 and 2003, but industrialisation induced by the programme offered employment to only 16,224 people in those six years. tecs officials insinuate that 'concerned parties' were not ready to accept such dismal performance. Matters had to be mended. The second tecs report noted that neip- induced employment had risen to 20,709 by March 2004 -- an increase of almost 28 per cent in a year. There were more glad tidings for the union government: the second report showed that investment had gone up to Rs 1,067 crore -- a 50 per cent hike in one year over the past six years. tecs project manager A R Balasubramanium explains: "The final report also includes a lot of investment that's still in the planning phase." So, proposals that are just on paper have been included in the second review to suit the government's belief that neip has been successful!

The report contains more shoddy work. For example, it shows that the industrial entrepreneur's memoranda (iem, an informal investment agreement between state governments and entrepreneurs) in the northeast increased from 377 to 392 between 2003 and 2004; investment under that head also increased from Rs 5,614 crores to Rs 5,672 crores. But, shockingly, there is no commensurate rise in the countrywide iem figures for 2004; they remain at 2003 levels: 14739. Money invested under that head also remain at the 2003 level, so does the northeast's share in the country's iem. Such callousness can only be ascribed to a desperate haste to play up statistics to appease the dipp.

But why are bureaucrats such as the Jagdeesan still miffed at the consultants? There is good reason: the dipp wanted tecs to show indirect employment figures besides the ones on direct employment. It wanted the consultants to show that how people who found employment as a result of neip in turn went on to hire more people for their domestic chores -- or other work. Hard pressed to find suitable methods that proved higher indirect employment, tecs could not find data to support dipp's desires. Consequently, despite the organisation's innovative methods to 'improve' the data, employment figures do not show a great increase.

Beyond reports
The desperation to conjure up statistics stems from neip's abject failure to achieve its numerous objectives. Two schemes that have drawn the most flak are the transport subsidy scheme and the excise duty exemption.

Tobacco/cigarette and cosmetics industries cornered about 50 per cent of the benefits of excise duty exemption even though they attracted just about 20 per cent of investment. Most such units restrict their activity in the northeast to the last stages of production such as mixing and packaging. These activities do not demand much investment and also do not employ many people.

Transport subsidies have also not helped. "Most such subsidies have been claimed by the cottage industries transporting raw material from neighbouring states. This is hardly the sector that neip was geared to develop," says Jayant Madhab, financial advisor to the Assam government (See interview: " We don't have any economy"). Transport subsidies are also not immune to corruption. Between 1997 and 2003, Rs 123 crore were disbursed as disbursed as transport subsidy. By 2004, such disbursal touched Rs 227 crore. This, when tecs reported that "the scheme relates to a number of arbitrary claims".

Another addition to the litany of failures is the capital investment subsidy scheme (ciss). ciss provides a 15 per cent subsidy in capital investment to all entrepreneurs who open new units in northeast or expand the existing ones substantially -- the subsidy is subject to a ceiling of Rs 30 lakh. But, says Madhab, the subsidy doesn't offer much to the small entrepreneur, who has to contend with high interest rates charged by banks. Moreover, ciss accounts for a mere 1.63 per cent in total disbursal.

Skewed growth
neip has not been able to promote balanced growth in the region. Assam and Meghalaya accounted for 94 per cent of the investments, while Manipur and Mizoram hardly attracted any investor (see graph: Created imbalance).

Sectors such as handloom, handicrafts and bamboo-based agroforestry industries, which could have generated employment in some states -- specially Manipur and Mizoram -- have lost out in this game because they could not garner excise duty benefits.

The changing climate
The northeast also has to vie with other regions for investments. For example, Himachal Pradesh was able to attract investment proposals worth Rs 10,570 crore since it offered tax holiday to investors in 2004. "In order to compete with safety for investments and investors and proximity to the market, that other states offer, we will recommend more incentives. It is crucial that neip be revamped," says Jagdeesan. dipp promises that the revised version shall be out by end-June. Will a policy based on a flawed report bring any benefits to the people? Or will it just offer freebies to the industry? Such questions remain.

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