A ten year excise and income tax holiday was notified by the Central government for Himachal Pradesh, Uttarakhand and Jammu & Kashmir towards end of 2003 for the industrialization of these backward states. And towards early 2005, entrepreneurs started coming to set up industrial ventures especially in pharmaceutical sector from Gujarat, Punjab, Maharashtra and Delhi. By middle of 2006, more than 120 pharmaceutical units were operating in Baddi region of Himachal alone. The state industries department of Himachal had issued a total of 320 registrations for setting up pharmaceutical units by mid of 2006. Major pharmaceutical companies such as Ranbaxy, Dr. Reddy's, Cipla, Alembic, Zydus Cadila, Torrent, Wockhardt, Unichem, Alkem, Nicholas Piramal, Glenmark, Dabur, GSK and Johnson & Johnson thus started operations with one or more of their formulation units in Himachal. The main objective of these companies was to take advantage of the massive Central tax sops without passing any benefit to the consumers. The government, at the same time, was concerned how to seal the massive revenue leakages taking place on account of migration of units from other states to this region. According to an estimate, the Centre has been losing nearly Rs 1000 crore by way of excise and customs revenue every year after 2006. Himachal and Uttarakhand have also turned into a location of large scale price violation and overcharging of drugs despite huge cost advantages. NIPER confirmed the price violations taking place in excise free states and had already reported to the Union ministry of chemicals & fertilizers. After the reduction of excise duty to 8 per cent for the pharmaceutical sector in 2008, a large number of units started returning to the states from where they had migrated. Many more are set to return to Karnataka, Tamil Nadu and Andhra Pradesh. Businesses in the hill states are thus down by 50 per cent since last year. Apart from excise reduction, another reason that forced the departure of these units is the saturation of production in hill states.
Now, as the tax holiday for hill states is scheduled to come to an end on March 31, 2010, politicians in these states started putting pressure on the Central government to extend the holiday for another three years. Haryana pharmaceutical units on the other hand sensing the move have already approached their chief minister to oppose any such extension. They have even suggested to impose a 10 per cent entry tax on goods coming from Himachal if the Centre decides to extend the tax holiday in Himachal and Uttarakhand. The concern of pharmaceutical units in Haryana and Punjab is understandable considering the damage caused to them by the pharma units in the hill states during last four years. The tax holiday was blatantly misused by several large units hitting small and medium scale units in the neighboring states and causing massive revenue loss to the exchequer. There was no Central monitoring to assess whether the tax holiday was actually helping the two backward states to industrialize during the past six years. In other words, the Central scheme had helped more to enrich the large and medium scale companies migrated from other states to profiteer. Therefore, there is no justification for the Central government to extend the tax holiday any further.