Leading corporates shift plans from Andhra Pradesh to Uttaranchal

Andhra Pradesh is facing competition on the industrial investment side from an unlikely competitor in the form of Uttaranchal. All thanks to the special tax incentive package announced by the Government of India for one of the newest states of the Indian Union, carved out of Uttar Pradesh.

Several leading Indian corporates like Colgate, Britannia and ITC have now decided to allocate their investments to the hill state to avail the incentives offered by the Centre. All this, of course, has meant that the much-awaited and delayed industrial policy of the Y S Rajasekhara Reddy government in the state may well be rendered ineffective.

"ITC was to set up a biscuit plant in Andhra Pradesh. Now the company has shifted its plans to Uttaranchal to avail of the huge central tax incentives besides other benefits announced by the Uttaranchal government," a senior government official told Business Standard.

Similarly, Colgate, which had plans to increase its manufacturing capacity at the Balanagar industrial estate in Hyderabad has now decided to set up a new plant in Uttaranchal rather than invest in increasing capacities in Hyderabad. Same has been the case with Marico, the Mumbai based edible oil company which sells the Saffola brand oil.

Amway, the international direct marketing major, Britannia and Duke, two biscuit companies which have their bases in the state are among those who are planning to set up their new units only in Uttaranchal, according to industry department sources.

Though this early migratory trend is visible in operations that come under FMCG category, several other companies which originally thought of Andhra Pradesh as the base for their future plans also learnt to be in a serious rethink mode.

Response from Asahi, which is setting up a glass manufacturing unit in Uttaranchal could be an example for the shape of things to come.

According to a state government official, who spoke to one of the senior executives of Asahi for prospective investment in Andhra Pradesh, though the company representative was very appreciative of the policies in Andhra Pradesh, all incentives dwarfed when they compared it with the incentive package announced for Uttaranchal, Himachal Pradesh and the Kutch region by the centre.

Concessions available under the central government's industrial package include, 100 per cent excise tax exemption for ten years, 100 per cent income tax exemption for first five years and there after 30 per cent for companies and 25 per cent exemption for other categories, central investment subsidy at 15 per cent with a maximum of Rs 30 lakh on plant and machinery and a central transport subsidy.

Apart from this, the Uttaranchal government is providing several other advantages like an interest incentive, entertainment tax exemption for tourism projects including multiplexes, exemption of entry tax on plant and machinery among others.

The state government here, while taking stock of this flight of investment, still thinks that the damage is temporary and limited.

"The companies which have units with low capital investment and high output have been migrating to the states like Uttaranchal. It may not by possible for companies with big machinery to shift their bases," Hariharan, special chief secretary of the state revenue department told Business Standard.

"These companies are merely going there to take advantage of these tax sops without factoring in other disadvantages like markets and manpower which means the whole incentive package for those states may serve only a temporary purpose," he observed.

The state industry department officials though are much more worried over this trend, because, according to them, the incentive package available in those states can never be matched by states like Andhra Pradesh on their own.

"An 18 per cent central excise exemption will mean much more to the companies than what we offer at state level. More over, the VAT regime will more or less do away with all the state level tax sops," an industry department official said.

According to him, the threat from Uttaranchal seems to be much more decisive as 62 per cent of the future power supply in that state would be from cheaper hydel power sources.