P E R S P E C T I V E

Punjab Industry
Red carpet rolled out, will industry walk?
Punjab is wooing big corporate houses in an attempt to revive industry. But unless it sets its house in order and spells out the terms clearly, the momentum may never be gained. There is a lesson to be learnt from the 2009 policy which failed to take off.
By Ruchika M Khanna
THE bait has been thrown. It’s now time to see if the target will bite. A high-on-incentive new industrial policy; a more than obliging government; no labour unrest; assured power supply and state-of-the-art infrastructure does make for a heady mix for Corporate India to consider Punjab as the next big investment destination.

DOING THE TALK: Instead of using its bureaucrats, the Punjab government is hiring business graduates, each specialised in wooing a particular industrial sector. Tribune file photo

On the mark — IT, textile, agro units
Punjab has also identified areas where it has the strength to attract and support investment. Agro processing, textiles and IT sector have been identified by the government as top-seek investment. Because of its primarily agrarian economy, the agro processing industry will get its raw material from the state.

What’s keeping the investor at bay
High advance tax
Imposition of advance tax, where industry and trade has to deposit VAT levied on all goods brought in Punjab in advance when it enters the state, has not gone down well. With the industry facing sharp liquidity crunch, the advance tax is further squeezing the working capital requirements.

what captains want

Punjab Industry
Red carpet rolled out, will industry walk?
Punjab is wooing big corporate houses in an attempt to revive industry. But unless it sets its house in order and spells out the terms clearly, the momentum may never be gained. There is a lesson to be learnt from the 2009 policy which failed to take off.
By Ruchika M Khanna

From left: Deputy Chief Minister Sukhbir Badal and Chief Minister Parkash Singh Badal at an interaction with Tata Group chairman Cyrus Mistry, in a file photo.

THE bait has been thrown. It’s now time to see if the target will bite. A high-on-incentive new industrial policy; a more than obliging government; no labour unrest; assured power supply and state-of-the-art infrastructure does make for a heady mix for Corporate India to consider Punjab as the next big investment destination. After all, the Deputy Chief Minister of the state, Sukhbir Singh Badal, who is the poster boy of the new, post-Panthic agenda Akali Dal government, is himself knocking at the doors of top corporate houses to draw them to the state.

But in this era of economic downturn, coupled with stymied policy making at the national level and fear of continuity in industry-related policy in case power changed hands in Delhi after the parliamentary elections, the industry seems to be in little mood to expand immediately. The legacy that the present Akali-BJP government carries (of being anti-industry after the Reliance farm-to-fork project was unceremoniously scrapped and the inability to implement the industrial policy of 2009) too raises some suspicion in the minds of the corporate czars before they zoom in on Punjab. The high price of land in the state is another deterrent for the industry.

Meaning business

On a positive note, the present Akali government is doing all that it can to build urban infrastructure and thus attract fresh investors. This time round, it seems, the government is serious and willing to aid industrial investment. By offering several incentives to all investors (including those investing up to Rs 1 crore), the state is willing to risk some arrest in its revenue growth initially so as to enjoy the cascading effects of rapid industrialisation it hopes will take off now. In spite of several legal hurdles, the government has managed to notify its package of fiscal incentives within five months since the package was formally announced. For the first time, the government has also accepted that one needs hard-nosed marketing gurus armed with the latest marketing gimmicks and those entrenched in the corporate worlds, rather than seasoned bureaucrats to talk to investors and facilitate their investments here. The government is hiring graduates from top global business schools for the job. Each of these people will be a specialist in a particular industrial sector and deal with investors from that sector alone. The state is also mooting a single man or single-point clearance system for new investors, and promising to clear proposals within days of receiving them. The Punjab Investment Board has been set up where these marketing and management gurus will be working under a chief executive officer. This CEO will get powers of all departments like local bodies and Pollution Control Board that give approvals for projects and can clear each investment proposal independently.

“We are much wiser this time round. If the industrial policy in our last tenure could not be notified and implemented, getting a new policy and attracting the big investors to Punjab was the first thing we put on our governance agenda during this tenure. In the last tenure, the emphasis was on creating infrastructure and all other ecosystem in place so that we could showcase the state as the new investment destination. I have been meeting top corporate honchos to win their confidence. And it has started showing results,” says Sukhbir Badal, who also holds charge of the investment promotion department.

With the NCR in Haryana getting too clustered and riddled with labour unrest; and tax-exempt neighbouring hill states failing to create good infrastructure and offer trained workforce, Punjab sees a huge potential for attracting industry.

Not enough

Having a good policy in place is one thing, and implanting it in letter and spirit is quite another. As Punjab woos industry in a big way, the question now being debated is whether the state and those governing it have the will to sustain the momentum and continue to attract it.

Another area where the government needs to focus on is to assure investors of continuity in its taxation structure. This year, imposition of property tax and now the row over advance tax (VAT is to be paid in advance) has not gone down well with the industry and trade. The corporate world always assesses the place where it wants to invest its chips, primarily on continuity in policy, especially fiscal policy, so that it can make its calculations of when it will be able to break even and turn profitable. The other area which a potential investor considers, perhaps much more than the financial benefits, is an assured power supply. Here Punjab scores well as it is soon going to be a power surplus state.

The fiscal incentives being offered by Punjab in its new industrial policy include VAT and CST relief for new, medium and large-scale industry once they get into commercial production; 100 per cent exemption from electricity duty, stamp duty and property tax; 7 per cent tax exemption on food processing industry in the form of mandi fee, rural development tax and infrastructure development cess; exemption from VAT and entry tax on farm equipment; and concessions for IT industry to be set up in dedicated IT hubs of Mohali and Amritsar.

Interestingly, while the package of incentives is finally ready, the state government is yet to formally decide on simplifying the procedures and other policy decisions. These include setting up a venture capital fund; setting up of incubators to provide basic infrastructure to startup units; common facilitation centres to assist small and medium units; common tool rooms; tie-ups with public sector financial institutions to provide credit to investors; and, simplifying labour laws and filing of labour returns.

The state will have to get its act together and announce its complete policy and notify it. The 2009 industrial policy failed as the government was unable to issue notifications in time.

On the mark — IT, textile, agro units

As much as 1,700 acres of land has been reserved for Knowledge Park at Mohali.

Punjab has also identified areas where it has the strength to attract and support investment. Agro processing, textiles and IT sector have been identified by the government as top-seek investment. Because of its primarily agrarian economy, the agro processing industry will get its raw material from the state. In this sector, the government is wooing ITC Ltd (to set up a food park in Ludhiana), Cargill India (to set up a maize processing plant) and Mahindras, keen on setting up a farm-to-fork project by procuring citrus fruits, potato seeds and other vegetables from the state. Being a rich cotton growing belt and having a well established textile industry, the state is looking at attracting more integrated textile units.

Since the state now boasts of a number of new age IT schools, especially surrounding Chandigarh, which churn out hundreds of IT professionals each year, the government is also keen on attracting big names in the IT sector. Global IT giant Infosys Technologies has reportedly been offered 50 acres at concessional rates in the IT park being developed at Mohali. A team from the company has already visited Mohali and inspected the site. The government has reserved about 1,700 acres for the development of a knowledge park at Mohali, of which 40 acres has been earmarked for the development of an electronics system design manufacturing (ESDM) cluster.

“The reason why we are very keen on attracting investment in the IT sector is because we now have a large number of qualified IT professionals who will get gainful employment here. We want a top IT company as an anchor unit in Mohali, which in turn will lead to many other IT and ITeS companies to set up base here. That is why we are offering fiscal concessions like assured power supply and exemptions from electricity duty to this sector,” Badal says.

What’s keeping the investor at bay

High advance tax

Imposition of advance tax, where industry and trade has to deposit VAT levied on all goods brought in Punjab in advance when it enters the state, has not gone down well. With the industry facing sharp liquidity crunch, the advance tax is further squeezing the working capital requirements. VR Sharma, deputy managing director and CEO, Jindal Steel and Power Ltd., says tax barriers within states should be removed. "Punjab imposes 5 per cent entry tax on steel, which makes it expensive. Uttar Pradesh and Haryana have reduced the tax from 5 per cent to 1 per cent, while Delhi and Rajasthan do not charge any entry tax on steel. This high tax is a deterrent not only to steel consumption in the state, but also to fresh investment. Five million tonnes of steel per annum comes to Punjab from other states for consumption within and for onward delivery to Jammu. It should be allowed to enter the state free," he says.

Power generation

Punjab claims to be a power-surplus state by 2014. It will be adding 3920 MW of power to its already installed capacity of 8071 MW, with the commissioning of three power plants at Rajpura, Talwandi Sabo and Goindwal Sahib. Though this additional capacity will make it power surplus based on its present needs, the industrial units expected to be set up in the state will need more power and the demand could increase at a much faster pace than the increase in capacity generation. The state will have to continue to invest in additional capacity creation. For the industry, a major issue continues to be the high cost of power. DK Sidhwani, president of Hero Steels Ltd, says power in Punjab was more costly than other states. This made the goods manufactured in Punjab more expensive, but to remain competitive, the industry was forced to sell goods at cheaper rates.

what captains want

Improve infrastructure

The initiatives are praiseworthy. But the concern of the industry before choosing a destination to expand its operations is less about fiscal incentives and more about the ecosystem needed for growth. A lot more needs to be done regarding infrastructure. Road connectivity is good, but major roads need to be widened for smooth movement of cargo. Better air connectivity and more international flights to and from Amritsar are needed. The Mohali International Airport should also be made functional.

— Rakesh Bharti Mittal, Vice-Chairman and Managing Director, Bharti Enterprises

Focus on connectivity

For the IT industry, Punjab is now becoming a natural choice as it offers trained manpower and has availability of land to set up campuses. About 1,700 acres has been set aside for this purpose in Mohali. Power supply has been assured and other tax incentives are being offered. However, the state will have to ensure that the Mohali airport becomes operational soon, and the international airport at Amritsar, which is also being developed as an IT hub, gets more connectivity.

— Sameer Goyal, Chandigarh Head, Infosys Technologies

Rationalise tariff

Though the incentives, especially to the textile sector, are very attractive, they cannot match those being offered in Gujarat, Maharashtra and Madhya Pradesh. These states offer matching subsidy as is offered by the Government of India under its Technical Upgradation Fund Scheme. Concessions in stamp duty are needed, considering land prices are too high and increase input costs. Regular power supply at nominal rates is also needed. Since power cost is almost 15 per cent of the total input costs, investors would come flocking if the tariff is rationalised.~

— Hardyal Cheema, Vice-president, Northern India Textile Mills Association

‘Will see investment promises through’

One must understand that there has been a general slowdown. It is to beat this negative economic sentiment alone that we are offering a package of attractive incentives to investors. With a concerted will and promise of regular follow-ups with the investors on getting the projects started, we will ensure that the approved projects take off on time.

— Sukhbir Badal, Deputy Chief Minister, Punjab