Excise exemption cut to hit N-E industries

The industries in the North-East are in a fix as the recent notification of the Union finance ministry to restrict excise exemption under the North-East Industrial and Investment Promotion Policy (NEIIPP) will affect units across the board in the region.

The Centre, through a notification on March 27, had withdrawn the total exemption of excise duty paid from the personal ledger account (PLA) and allowed exemption only up to 56 per cent of total excise duty paid from PLA on medicines, cosmetics and toiletries. The rates would vary from industries to industries.

"The impact of the recent notification would affect more or less all the units in North-East with varying degree," said RS Joshi, president of Federation of Industries and Commerce of North-Eastern Region (FINER), the premier chamber of commerce of North-East.

Though he could not say categorically how costlier the operations of industries in the region would become, he said, "It would be substantial as every unit is going to be affected."

Till now, the industries enjoyed excise exemption in the region from 10 per cent to as high as 50 per cent, depending on their inputs. Hence, it is estimated that the operation of the units would become costlier in a proportionate manner, which would be as high as 50 per cent in case of some units.

Vikas Jain, managing director of Colortech Meghalaya Pvt Ltd, a local company producing FMCG products for companies like Godrej Sara Lee, Revlon, Park Avenue, said the notification will increase the product cost for him by 30 per cent.

"The MRP-based units have to shut down as we cannot increase our price despite an increase in the cost of production," said Jain. He said six other such units, with whom he is in touch, too are considering shutting down if the notification prevails.

He further said that companies like Godrej Sara Lee (GSL) and Revlon are planning to pull out of the region. Following the notification, a Rs 20-crore expansion proposal of GSL for construction of a "huge integrated complex" has been scrapped. Revlon too is re-considering a proposed expansion plan in the region.

"If companies don't have cost advantage here they will surely move to Uttaranchal and Himachal Pradesh. The local units, which produce products for them, would be hard hit," said Jain. He added it's "closure" for local units and "pulling out" for big companies.

Pradyut Bhuyan, director of SRD group of companies, which is involved in food processing sector, too said that the cost of production will shot up by at least 25 to 30 per cent for food processing units in the region. Though closure does not seem imminent, the notification would severely affect the operation of his company, Bhuyan said. He is presently "working out" a formula, which might include downsizing, to offset the extra financial pressure the notification has put.

As a consequence of the notification, the industries of the region will have to forego excise refund to the tune of Rs 700 crore.

Local entrepreneurs are of the view that with excise exemption being restricted, it would now become difficult for industries in North-East to arrive at more value additions.

It is also feared that with excise benefits still available to industries in Himachal Pradesh and Uttarachal, big FMCG companies, like Hindustan Unilever, which has a unit in Assam, might in the long run shift the unit to those two states.

Though Business Standard tried to find out HUL's future plan in North-East following the notification via an e-mail, no reply was received.

The notification is also expected to hit hard the pharmaceutical companies in Sikkim. After Sikkim was included in NEIIPP last year, several pharmaceutical companies made huge investments in the state.

Joshi said that FINER "vehemently" opposes the notification and would take up the matter with the prime minster and finance minster. He added that the trade bodies of the region were not taken into confidence before arriving at the decision.

Though contacted, Confederation of Indian Industry did not provide any information on the matter.