The Central government had notified a ten year excise and income tax holiday for Himachal Pradesh, Uttarakhand and Jammu & Kashmir towards end of 2003 to help industrialization of these backward states. Not many entrepreneurs came into the states until the end of 2004. But, a big stream of industrial ventures especially pharmaceutical units came in from 2005 onwards mainly from Gujarat, Punjab, Maharashtra and Delhi. By middle of 2006,more than 120 pharmaceutical units were operating in Baddi region of Himachal alone. And more than 500 units were registered from all other sectors for setting up manufacturing facilities in these states. The state industries department of Himachal alone had issued a total of 320 provisional registrations for setting up pharmaceutical units by mid of 2006. Thus 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 came into operation with one or more of their formulation units in Himachal. Today there are 900 pharmaceutical units in Himachal and Uttarakhand and out of that Baddi and surrounding region of Himachal account for 500 units. This kind of a concentration of pharmaceutical units in a small region within a short span of time is quite unprecedented. Neither the Central nor the state governments could envisage such a massive flow of industrial activity into this region and its consequent problems in a matter of two years. Industrial growth in these states was unplanned and the basic infrastructure such as good roads, availability of power and drainage system are still non existing. But the industrial units in this region are least bothered. Their main concern now is how to protect the massive Central tax benefits they are already enjoying.

The government, on the other hand, has some serious worries. First is how to seal the massive revenue leakages taking place on account of migration of units to this region. It is estimated that the Centre has lost nearly Rs 1000 crore by way of excise and customs revenue during last financial year. During the current year, revenue losses could be even more. Secondly, Himachal and Uttarakhand have turned into a location of large scale price violation and overcharging of drugs despite huge cost advantages. NIPER has confirmed the price violations taking place in excise free states and has already reported to the Union ministry of chemicals and fertilisers. The Centre has to address both these issues with utmost urgency. Its move to withdraw the excise exemption granted to the contract manufacturers in these states as per the recommendations of the Economic Advisory Committee headed by Dr. C. Rangarajan has to be, therefore, welcomed. EAC had suggested that area based exemptions should be restricted to manufacturers who manufacture under their own licence and not for those who undertake contract manufacturing. A government initiative in this regard could bring some check on the huge revenue losses besides providing a level-playing field to several small drug units operating outside excise free states. Such a corrective action on the part of the Central government is warranted as the whole objective of development of backward states got hijacked by the vested interests.