Tax Incentive Policy for Development of Himalayan and North-eastern States in India

Abstract

Government of India announced a tax incentive policy for North-eastern and Himalayan states by which income tax and excise duty exemption of ₹2,186,330 million was granted for a period of 12 years from financial year (FY) 2004–2005 to FY 2015–2016 to new industrial units set up in these states, with an objective to boost development. The aim of this article is to evaluate whether these states have developed as a result of this policy and also to examine whether the policy has affected the North-eastern and Himalayan states differently. In this article, the development is measured on six indicators: (i) per capita net state domestic product; (ii) per capita manufacturing sector state domestic product; (iii) per capita employment in private sector; (iv) number of industrial units set up; (v) amount of investment in the industrial units and (vi) human development index. It is observed that only Himachal Pradesh, Uttarakhand and Sikkim show development as a result of the policy and even this development has taken place only in pockets. The policy has failed to give fillip to development in the seven North-eastern states. As a policy recommendation, this article suggests that the government should discontinue tax incentives. It should collect taxes on Pan-India basis and use it on infrastructural development of these states, especially on those projects demanded by the states.