UP follows Uttaranchal in giving industry concessions

The financial incentives in Uttaranchal have kicked in many alterations in Uttar Pradesh's package of incentives for IT/electronics units.

This was precipitated when South Africa-based Sahara Computers, a hardware unit, preferred to set up shop in Uttaranchal, sidestepping Uttar Pradesh.

Incentives for software and IT-enabled services (ITES) had been there earlier also. Now the incentives have been expanded. Hardware, software, peripherals, cellular handsets, and software have been brought within the ambit of the IT policy. Special attention will be given to units in Noida, Greater Noida, Agra, Kanpur, Allahabad, and Lucknow.

All incentives provided to software have now been extended to hardware as well.

Electronic units set up in the state with an investment of Rs 50 crore or more will be classified as mega units. They will be given interest-free loans for a period of 15 years. The amount of the loan will be the sales/trade/entry tax liability of a unit, or 10 per cent of its turnover, whichever is less.

Also, they will be allotted land on a priority basis for at least 25 per cent less than that for the sector. They will be covered by Modvat and, more importantly, will have to pay a central sales tax at the rate of 0.5 per cent. Materials for manufacturing can be set off against trade.

They will get exemption from the entry tax on materials, be permitted to take on the tax liabilities of suppliers, contractors and dealers, and allowed to defer the payment of 2.5 per cent of trade tax liabilities for goods.

They can pay taxes at the rate applicable at the time of incorporation for a certain period, even if the rate of tax is enhanced. However, if the rates are reduced, units can take advantage of that.

There is a package for the IT and ITES sectors. Facilities for new industrial units will also be applicable to old units that want to expand and diversify. Business process outsourcing units or call centres with more than 100 employees will be allowed special rebates as given in the general industrial policy.

The new IT units will be allowed to lease or sell their premises. First, an electronic or IT unit with an investment of Rs 10 crore or more, established in any district, will be declared a pioneer unit, and these will be given loans for 15 years (increased from 10 years earlier); those with an investment of more than Rs 500 crore will get tax-free raw material, plant and machinery, and fuel, subject to the government's approval. The trade tax can be deferred.

But local entrepreneurs are not enthused. Rather than being a policy, these are piecemeal measures to attract some units, they say.

In the 1999 policy, there were concessions like allowing units to start anywhere without changes in land use. Similarly, there were concessions on the use of up to 5 KVA.

Earlier, the industry department, in its note to the Uttar Pradesh Development Council, had said the Industrial and Service Sector Investment Policy 2004 had not been able to give concessions matching those in Uttaranchal, Jharkhand, and Himachal Pradesh. That is why "no large industry has come to UP in the year 2004." None came in 2003 either.

Western UP faces an immediate threat. Entrepreneurs can live in the towns of western UP and drive regularly to Hardwar or Dehra Dun.

A comparison of the concessions available in the two states of UP and Uttaranchal brings home the problem faced by the former. Uttaranchal offers a full excise exemption for 10 years, while there is no exemption in UP.

Uttaranchal offers power at Rs 2 per unit, whereas in UP the rate is Rs 3.50. The central sales tax in UP is 2 per cent, against 1 per cent in Uttaranchal.

The Centre has given Uttaranchal units a corporate tax exemption for the first five years of their operations, and then the tax becomes 30 per cent for the subsequent five years.

Also, Uttaranchal has a central capital investment subsidy of 15 per cent not exceeding Rs 30 lakh. It has a central transport subsidy till 2007.