Large Industries

There is very little large-scale manufacturing activity in the region (Table 5.4A, Annexure 5.1). The total number of large factories in the region is merely 1.56 per cent of the total large scale factories in India. Considering industrial employment and capital formation in the region it can be concluded that the large scale manufacturing sector in NER is virtually non-existent. The industries are mainly mining and quarrying, food processing, spinning and weaving, pulp and paper, wine and malt, bidi, cigars and cigarettes, printing, bleaching and dying, wool spinning, wooden products, foot wears, fertilizers and chemicals, insulated wires and cables and drugs and medicines (Table 5.18A in Annexure 5.1). The manufacturing activities are based on locally available resources for which the optimal plant sizes are not very large. Industries requiring large scale production such as petrochemicals, cement, steel and sugar are completely absent despite the fact that the region has the sources of basic raw materials required for the production of such goods. For example, there is abundance of limestone (in Meghalaya and Assam) but there is not a single cement factory in the region. Assam has the largest oil reserves (non-offshore) but the State has no large manufacturing unit of petrochemical products. On the other hand, we also observe some industries like insulated wires and cables coming up in the region although the region has no known reserves of copper.

Assam is the industrial ‘hub’ of the region. It alone has 88 per cent of the factories in the region which provide 86 per cent of the employment and generate 90 per cent of the output in the region. Next to Assam is Tripura in terms of the number of industrial activities. Interestingly, Tripura does not have a single rubber plant despite being the second largest producer of natural rubber in the country.

The main locational factors determining industrial establishments in Assam and Tripura are their relatively large size and higher population density. However, there are also other equally important factors like greater availability of skilled labour and power supply and also the fact that Assam has relatively better transport connectivity. It is the junction point of major road and railway networks linking the other States of the region with the rest of India.

In responding to the need for rapid industrialization of the North Eastern Region, the Government of India (GoI) had introduced the North East Industrial Policy (NEIP), 1997 which

offered a slew of fiscal incentives and subsidies to industry for a period of ten years. While NEIP, 1997 was able to attract large investments in cement (Meghalaya and Assam), ferroalloys and steel (Meghalaya) and coal and coke (Assam), it hardly had any impact in the other States. Even small ticket investments, which were mostly for facilities in the last stages of the value chain like only packaging of finished products mainly to benefit from excise duty refunds, were made in Assam and Meghalaya.

The main factors attracting industry into these two States are their relatively better industrial infrastructure as compared to the other States of the region. Assam’s location at the juncture of NER States enables industries to be connected through the major road and railway networks with the rest of India. Locating industries at the junction minimizes distribution costs to other NER States. Meghalaya’s large deposits of limestone and coal and till recently the availability of power also attracted investments.

With a view to bringing industrial investments to the other States as well, GoI announced the North East Industrial and Investment Promotion Policy (NEIIPP), 2007, for a period of another ten years, offering even more attractive fiscal incentives and subsidies and now covering the service sector also. This policy came into effect from April 1 2007. The main features of this policy are:

(i) Sikkim included under NEIIPP, 2007 and the ‘New Industrial Policy and other concessions for the State of Sikkim’ announced earlier in December, 2002 discontinued from 1.4.2007.

(ii) Under NEIIPP, 2007, all new units as well as existing units which go in for substantial expansion, unless otherwise specified and which commence commercial production within the 10 year period from the date of notification of NEIIPP, 2007 will be eligible for incentives for a period of 10 years from the date of commencement of commercial production.

(iii) The incentives under NEIIPP, 2007 will be available to all industrial units, new as well as existing on their substantial expansion, located anywhere in the North Eastern Region.

Consequently, the distinction between ‘thrust’ and ‘non thrust’ industries made in North East Industrial Policy (NEIP, 1997) will be discontinued from 1.4.2007.

(iv) Under NEIIPP, 2007 incentives on substantial expansion will be given to units effecting ‘an increase by not less than 25 per cent in the value of fixed capital investment in plant and machinery for the purpose of expansion of capacity/modernization and diversification’

as against an increase by 33 ½ per cent which was prescribed in North East Industrial Policy, 1997.

(v) Under NEIIPP, 2007, 100 per cent excise duty exemption will be continued on finished products made in the North Eastern Region, as was available under NEIP, 1997. However, in cases, where the CENVAT paid on the raw materials and intermediate products going into the production of finished products (other than the products which are otherwise exempt or subject to nil rate of duty) is higher than the excise duties payable on the finished products, ways and means to refund such overflow of CENVAT credit will be separately notified by the Ministry of Finance.

(vi) 100 per cent income tax exemption will continue under NEIIPP, 2007 as was available under NEIP, 1997.

(vii) Capital investment subsidy will be enhanced from 15 per cent of the investment in plant and machinery to 30 per cent and the limit for automatic approval of subsidy at this rate will be Rs. 1.5 crore per unit as against Rs. 30 lakh as was available under NEIP, 1997. Such subsidy will be applicable to units in the private sector, joint sector, cooperative sector as well as the units set up by the State Governments of the North Eastern Region. For grant of capital investment subsidy higher than Rs. 1.5 crore but upto a maximum of Rs.30 crore, there will be an Empowered Committee. Proposals which are eligible for a subsidy higher than Rs. 30 crore, will be placed by Department of Industrial Policy & Promotion before the Union Cabinet for its approval.

(viii) Interest subsidy will be made available @ 3 per cent on working capital loan under NEIIPP, 2007 as was available under NEIP, 1997.

(ix) Under NEIIPP, 2007, new industrial units as well as the existing units on their substantial expansion will be eligible for reimbursement of 100 per cent insurance premium under the Comprehensive Insurance Scheme.

(x) The industries which will not be eligible for benefit under NEIIPP, 2007 will include tobacco and tobacco products, paan masala, plastic carry bags of less than 20 microns and goods produced by refineries.

(xi) To provide incentives to the service sector including hotels and resorts, bio-technology and power plants upto 10 MW capacity.

(xii) In order to the ensure genuine industrial activities in the North Eastern Region, benefits under NEIIPP, 2007 will not be admissible to goods in respect of which only peripheral activities like preservation during storage, cleaning operations, packing, re-packing, labelling or re-labelling, sorting, alteration of retail sale price etc. take place.

(xiii) To continue North Eastern Development Finance Corporation Ltd. (NEDFi) as the nodal agency for disbursal of subsidies under NEIIPP, 2007.

The provisions of NEIIPP, 2007 would provide requisite incentives as well as an enabling environment to speed up the industrialization of NER.

However, it would be imperative for the States to improve their industrial infrastructure if any large investments are to be attracted. Notwithstanding all this, the manufacturing sector in the North Eastern Region is looking up. A GAIL (India) Ltd. led consortium has started work on the Assam Gas Cracker Project, an integrated Petrochemical Complex. The project is expected to give rise to substantial investments in downstream plastic processing industries. It has been estimated that about 500 plastic processing industries can come up in the North Eastern Region when this project becomes operational (scheduled by 2012).

Moreover, with GoI re-dedicating itself to improving NER’s infrastructure, business climate

and international linkages—like the Kaladan Multi Modal Transit Transport Project, connecting NER with Sittwe Port in Myanmar—promises large dividends for economic development of the region in the next few decades.

While international trade would be inevitable for the economic growth of a region, which shares 96 per cent of its boundaries with four other countries, greater integration among the States of the region would have many advantages for industrialization (see Box 5.1). A major constraint to this kind of cooperation among States is the absence of a good transport network connecting the States and production centres within a State to a large collection centre, which is necessary to guarantee an adequate and reliable supply of raw materials to industry.

It is often assumed that inducements in the nature of subsidies and incentives alone help industries overcome constraints that are otherwise a hindrance in their setting up. The jury is still out on whether offering unsustainable tax sops and fiscal incentives really promote industrial growth.

Market failures and the lack of adequate infrastructure are probably bigger constraints to the vertical integration of industry. Without a proper industrialization strategy for the region and some inter-Governmental planning, the market cannot play its role in facilitating integration, which crucially depends on a well-developed transport network, free mobility of goods and services across the State and security of life and property.

Box 5.1 Constraints in the Hills

The hill States of the region are not well-integrated with the industrial clusters. They face problems of small markets as well as a lack of adequate supply of labour, even as large quantities of raw material for the agro-processing industry are grown here. Land is also a problem since most land in the hills is under community ownership. Nevertheless, it is possible to link the hill regions within the industrial network through a vertically integrated process. The hill States produce a wide variety of fruits and vegetables and various forest goods which provide scope for vertical specialization. In the fruit-processing industry, activities such as extraction of juice or slicing of the fruit (say, pineapple) can be done close to the fruit-growing areas, and further processing, bottling and packaging can be carried out in an industrial hub, which would significantly reduce transportation costs. Another example in Tripura which is one of the largest producers of natural rubber in the country. It is possible to undertake initial processing in Tripura to reduce transportation costs, while the conversion of rubber into various products could be undertaken at places close to the distribution network. The lack of an efficient transport network to connect the production point to the large collection centre in the markets is the key problem. But more importantly, market failures and lack of sufficient inducement to invest are perhaps bigger stumbling blocks for vertical specialization to take place. Without a proper industrialization strategy for the region and some inter-Governmental planning, the market by itself will not produce the desired result. Given a well-developed transport network, free mobility of goods and services across the State and guarantees for proper security of life and property of the people, the market will be able to create an environment for industrialization.

1 An industrial undertaking which is engaged in the manufacture or production of parts, components, sub-assemblies, tooling or intermediates, or the rendering of services and the undertaking supplies or renders or proposes to supply or render not less than 50 per cent of its production or services and whose investment in fixed assets in plant and machinery does not exceed Rs 10 million.

2 Service/ business enterprises with investment up to Rs 500,000 in fixed assets, excluding land and building, are called Small Scale Service/ Business Enterprises (SSSBEs).