Andhra govt to devise new forms of incentives

Move aimed at making the state an attractive investment destination

The Andhra Pradesh government may look at new forms of non-tax incentives for the industry to make the state an attractive investment destination.

The issue becomes all the more critical at this point of time as the state cannot offer any more tax holidays because of the VAT regime that is slated to start from April 2005.

State industry department officials say that the government is now devising new forms of non-tax incentives in terms of market support, infrastructure support and subsidies, including power subsidies.

Andhra Pradesh as a state has remained far behind other states on the issue of non-tax incentives and subsidies, especially to the SSI sector which has been plagued by sickness.

A spokesperson for the Federation of Andhra Pradesh Chambers of Commerce and Industry (Fapcci) blames the situation almost entirely on the low industrial productivity and the fact that non-tax incentives and subsidies in the state remained ignored as compared to other states like Maharashtra and West Bengal.

The non-tax incentives currently being implemented by Andhra Pradesh for SSIs and other sectors include investment subsidy of 20 per cent on capital investment with a cap of Rs 20 lakh and an additional cash subsidy of 10 per cent for SC and ST with an upper limit of Rs 10 lakh which are available across the state.

Also, a 50 per cent exemption of registration fee and stamp duty is offered to all the eligible small, medium and large industrial units. AP incentive policies are insensitive to the inequities among the regions and areas of the state.

Unlike Andhra Pradesh, several states like Maharashtra, West Bengal, Karnataka, Tamil Nadu and Jharkhand had classified the state into several areas and zones in a view to promote industries in newer or backward areas.

For example, Maharashtra designated six separate category areas, which include no-industry districts where the SSIs are entitled to get 40 per cent of investment subsidy not exceeding Rs 35 lakh.

Similarly, no-investment subsidy is offered in the other designated areas.

In contrast to the above states, the industrially-well-developed Gujarat has fixed a 10 per cent cash subsidy on fixed capital investment with a ceiling of Rs 10 lakh, applicable only for self-financed units.

Andhra Pradesh, along with Karnataka and Tamil Nadu (barring Bihar, which is not comparable), is not implementing interest subsidy schemes whereas Maharashtra, Gujarat, West Bengal, Jharkhand, Assam, Chattisgarh, Orissa and Rajasthan have been implementing schemes involving an interest subsidy of 5 per cent. In some cases, up to 50 per cent of the total annual interest liability is being given.

Stamp duty exemption is followed by most of the states . Bihar is one state where no schemes under investment subsidy, interest subsidy or stamp duty exemption are available.

When it comes to other benefits too, other states offer much more for the SSI units.

While Andhra Pradesh government offers 25 per cent of the infrastructure cost in isolated areas and a couple of other small provisions, the sops available for SSIs in Maharashtra include sales tax exemption for Khadi and village industries, exemption of electricity duty, provision of 50 per cent expenditure up to Rs 2 lakh towards obtaining ISO certificates among others.

The West Bengal government also implements a unique employment generation subsidy which offers 75 per cent of reimbursement of the expenditure for ESI and EPF schemes among others. Chattisgarh offers 50 per cent cost with a maximum of Rs 5 lakh to both SSI and other industrial units for acquiring technology patent and intellectual property right.

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Timely act

• Move more critical as the state government cannot offer any more tax holidays because of the VAT regime that is slated to start from April 2005
• Govt is now devising new forms of non-tax incentives in terms of market support, infrastructure support and subsidies, including power subsidies
• Andhra Pradesh's incentive policies are insensitive to the inequities among the regions