The manufacturing units in Himachal and Uttarakhand has seen lot of ups and down in the recent past because of fluctuating policies of the Government according to B.R.Sikri Co-Chairman, Federation of Pharma Entrepreneurs (FOPE), an organisation representing around 700 pharma units in Himachal Pradesh and Uttarakhand.

Though a 10-year tax holiday was introduced in Uttarakhand and Himachal Pradesh by the BJP-led National Democratic Alliance (NDA) government in January 2003, the Congress-led United Progressive Alliance (UPA) regime, which came to power in 2004, curtailed the holiday to 2007.

However, the Govt reconsidered the proposal and finally decided to extend it to March 2010. 

People from all over India had put their entire energy and hard-earned money had set up units in these hilly areas, he said.

Says Vinod Kalani, FOPE General Secretary “these excise free zones have become a hub for manufacture pharmaceutical, cosmetics etc. Most of the units in these zones were set up by entrepreneurs from all the corners of the country giving a new dimension to the national integration. Very big names in the country shifted their base to these areas”.“Now practically the benefits enjoyed are no more as the Central Excise duty has become four per cent in other part of the country while in these areas one has to add modavat paid in the cost of the product”,he added.

Says Mr Sikri ,recently CIPI, a pharma body of SSI units received Notification No: 49/2003 and No:50/2003 from the Department of Revenue,Ministry of Finance which informed that units cannot add additional production facility after March 31,2010 and units adding any further capacity after March 31,2010 shall not be eligible for exemption.

“They went to the extent of saying that we cannot add new formulations to the line of production after March 31,2010 with the same machinery and in case it happens than the benefit of the said notification would not be available for such goods. This is a clear indication that units in these two states are going to face tough time in days to come”, Sikri added.

Another anomaly which is creating problems to the pharma industry in these two hilly states  according to Mr Sikri is the variation of excise duty in API and finished goods. While ED on API/raw material/bulk drug is 10 per cent,ED on finished formulation is four per cent.  Earlier units in these two states were absorbing eight per cent excise element as their input cost and now the burden on such units is further added by two per cent more resulting in unavailability of production in the state.

It goes without saying that the units in these two states are state of art units having GMP, Schedule M compliance and many of them are exporting to various countries i.e. regulatory market, non regulatory market and semi regulatory market and emerging market too.

They have generated employment to lakhs of people of hill states and given indirect employment to various ancillary industries like printing, packaging, transport. It had also helped the state government in generating revenues through electricity etc, Sikri pointed out.

Another sword which is hanging on these two hill states according to Sikri is the Goods and Services Tax (GST) which is yet to be implemented.  The pharma units in these two states are in dark and they don’t know what is going to be the impact of GST because there is no excise duty in these two states.

The Govt. of India should come forward to listen to the version of these two states and explain them the modus operandi how the modalities of GST will be worked out by Govt. in these two states so that they keep themselves ready for the GST new regime, he added.

The Empowered Committee of the state finance ministers had released its first discussion paper on Nov 10, 2009. In this paper, the committee had outlined the broad contours of the proposed GST model though various issues, mainly of micro nature were not dealt which are expected to be taken up in the subsequent papers. Just a month after the release of the discussion paper , the task force appointed by the 13th Finance Commission headed by Dr. Vijay Kelkar released its own report on GST on Dec 15,2009. The recommendations of task force were at variance with the recommendations of Empowered Committee on certain key issues, Sikri pointed out.

Though the pharma industry in these two states during the Budget announcement had hoped that the schedule of package would be further extended for two to three years , Finance Minister did not pay heed to the woes of the units in these states.  Many units are in the implementation stage and if the package is not extended further  , many may suffer huge financial losses, he added . 

With Finance Minister Pranab Mukherjee making no mention of extending the special industrial package for Himachal Pradesh, fears are being expressed that investors may stay away from the hill state.

With the centre’s seven-year old industrial package to Himachal Pradesh coming to an end , the fate of a number of investment proposals hang in balance. Though the Chief Minister Prem Kumar Dhumal met Prime Minister Manmohan Singh concerning the package, there has been no word from the Centre.

A miffed Chief Minister Prem Kumar Dhumal alleged discrimination by the Centre and said it could affect industrial growth in the state.“The Union Government once again discriminated against Himachal by not extending the industrial package. This will stop industrial growth in the hill state,” he said.

According to some reports,the Bharatiya Janata Party (BJP) government in Uttarakhand has even threatened to stage a sit-in in the national capital to pressure the Congress-led Union Government into extending a tax holiday for the state and neighbouring Himachal Pradesh that ends this month. Even Congress leaders from Uttarakhand have put their weight behind the BJP state government, demanding that tax exemptions be continued for another three years.

The industrial package with several concessions for setting up new units provided in 2003 by the NDA government included excise duty exemption for 10 years, income tax exemption for five years and capital investment subsidy. The states, on their part, provided lower electricity rates and cheap land, besides the option of a deferment of sales tax.

The package proved a boon for the hill state as it invited large-scale investment in the last seven years. Accordingg to the PHD Chamber of Commerce and Industry, Himachal Pradesh saw an increase in industrialisation by 200 per cent thanks to the incentives.

As per sources in the state industries department, proposals for 12,802 new industrial projects (small, medium as well as large) were cleared in Himachal Pradesh between January 7, 2003 and December 31, 2009.More than Rs 40,000 crore investment proposals are in the pipeline, of which Rs 11,204 crore was approved in the last two years. Himachal Pradesh hopes to see at least 50 per cent of the proposals coming on the ground with this package.

According to some reports, about 6,151 new units started production during the period while expansion projects of 288 units were completed, adding the total investment was Rs 6326.84 crore with employment for 80,338 people.

Officials in Himachal Pradesh and Uttarakhand estimate an 80 per cent drop in new investment proposals. The removal of the tax breaks will now impact 30-40 projects that are in the pipeline. With deficient infrastructural facilities such as transport and power supply and lack of skilled manpower, the financial incentives had played a huge role in attracting industry to these states.