Investment policy and ecosystem in Northeast

Members of Parliament from the Northeast region moving the Central Government for formulating an investment policy exclusively for the region has been a routine exercise closer to the expiry of a similar policy in force. As long as the mismatch between adoption and implementation of northeast-specific investment policies and schemes go unaddressed, the region cannot expect to attract big-ticket investments. Key arguments advanced by the Northeast MPs' Forum in support of a Northeast-specific investment policy are: partition snapping access of the region to sea routes and reducing it as a landlocked region, the cost of doing business is high due to the import of raw materials from outside render finished goods costly and cannot compete with cheaper goods manufactured and sourced from elsewhere and small regional markets with low purchasing capacities fail to attract mega-investment. The answer to the question of why previous investment policies specific to the region failed to work must be found first before formulating another new policy to prevent it from being seen as old wine in a new bottle. The term of the ongoing North East Industrial Scheme (NEIDS) is expiring on April 1 which requires clarity on the status of applicability of various subsidies and incentives for industrial investment in the region. The Parliamentary Standing Committee on Commerce has expressed the view that the extension of the scheme for a longer time is crucial for the accelerated industrial development of the region and also to compensate for the disruptions in implementation of the scheme during the last two years due to COVID-19 pandemic. The committee has recommended the Department of Commerce consult industry stakeholders and State Governments concerned for extension of the scheme beyond April 1 so that new registrations can be granted to industrial units. So far 394 industrial units have been granted registration under the scheme which replaced the previous North East Industrial Investment Promotion Policy (NEIPP) 2007. Implementation of NEIPP, 2007 was suspended in 2014 which resulted in a policy gap and registration of new industrial units was not done for nearly four years. The formulation of a new investment policy for the region will have to weigh options between the centralized system of registration under NEIDS, 2017 and the decentralized system of registration of new units by district industrial centres under NEIPP, 2007. Official Data show that 31,471 industrial units were set up under NEIPP while barely 1.25 % of the total registrations during the NEIPP policy regime. Even the Central Government announced a total outlay of Rs 3,000 crore for disbursement of incentives under the NEDIS, the registered units envisage a total incentive of Rs 1,740 crore while actual expenditure was paltry Rs 19.84 crore against the total allocation of Rs 30 crore for 2020-21. For the financial year, 2022-23 an allocation of Rs 150 crore has been made in the Union budget while only Rs 1 crore was allocated in 2019-20 for NEIDS which indicates the pace of industrial activities in the region after the replacement of the policy regime with a central scheme. The NEDIS requires units registered on the web portal of the Department of Industry and Internal Trade of the Ministry of Commerce and Industry to start commercial production within 18 months after registration and submit claims of subsidies after one year of commercial production. The centralization of the registration system is attributed to the failure of the district industrial units to ensure transparency and accountability during previous policy regimes and allegations of siphoning of subsidies by ineligible units. Under NEIDS, the onus lies with state governments in the region to facilitate registration and submission of claims by the registered unit to ensure timely utilization of allocated funds under the scheme but actual allocations and expenditures reveal the ground realities. The policy of having an exclusive industrial policy specific to the region dates back to 1997 when the North East Industrial Policy, 1997 was launched for 10 years to attract investors to the region. Over ten years of the first policy regime the total investment the region could attract was only Rs 1,067 crore and 681 industrial units set up during the period could generate only 20,000 employments. The investment jumped to about Rs 19,000 crore during the second policy regime and around 2.80 lakh employments were generated. Broad contours of subsidies and incentives available under policy regimes and subsequently under the scheme have remained unchanged. Incentives available include capital investment subsidies, tax holidays, transport subsidies on the movement of finished goods. According to industry bodies, the delay in reimbursement of Goods and Services Tax, cumbersome process of registration and disbursal of subsidy claims are disincentives that often overshadow the available incentives and insist on simplifying the procedures to attract investment. All these give rise to the pertinent question of the problem of industrialization in the region lies with policy formulation or the lack of required investment ecosystem.