Manufacturing dying a slow death in Baddi

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By Srabani Sen from Baddi, HP

Electronics manufacturing will die a slow death in Baddi, a sleepy town in Solan district of Himachal Pradesh, if timely action is not taken by the government. In 2003, a manufacturing hub was developed in Baddi with the intention of promoting investments in production facilities that would generate substantial local employment and help develop the relatively ‘backward’ areas in Himachal Pradesh. Fortunes of Baddi began to change when Prime Minister Atal Behari Vajpayee announced tax and central excise concessions in 2002 to attract investments to the state.

Major attractions for investors included a 100 per cent outright excise duty exemption for a period of 10 years; a 100 per cent income tax exemption for an initial period of five years and thereafter an exemption of 30 per cent for further five years; and a capital investment subsidy of 15 per cent on plant and machinery, subject to a ceiling of Rs 3 million. Many electronics companies like Havells, Su-Kam, Luminous, Spice Mobile, SGS Tekniks, Digital Systems, had consequently set up plants in the belt.

Major challenges

Unfortunately, all these incentives have been discontinued since March 2010. Baddi, Parwanoo and other industrial hubs of the state now cease to enjoy these incentives. However, after a lot of lobbying, the government has agreed to extend IT exemption for the existing units, till 2013.

Despite the fact that the number of industries almost doubled over the last five years, manufacturing units in Baddi face some major challenges—one of them being a severe shortage of skilled labour. “It is mandatory to appoint 70 per cent of the workforce from amongst the local population,” informs Vipul Kumar Jain, senior manager, Su-Kam Power Systems Ltd. However, the state lacks a proper technical institute. Due to this problem, while large and medium companies survive as they can afford to get manpower from outside the state or train local people, smallscale units find it difficult to survive. Many units, even big ones like Kobian, Potra Power and others, have recently closed down. In many cases, compliance with this law has not been possible despite investment on training. For example, PC maker Lenovo had to close down its plant in January 2010, which, according to industry experts is due to acute manpower problems.  States S S Sharma, general manager, operations, Digital Systems Inc, “The difficulty in retaining skilled hands, along with absenteeism, are big problems as well. After we invest in training local people, they leave the company for even a very nominal hike.”

Missing rail connection is another problem. “The area is not connected to any major town or city, by rail. The dependence on road connectivity makes things difficult since roads are also badly maintained,” says Arun Rawat, president elect, Baddi Barotiwals Nalagarh Industries Association (BBNIA).

“Strong unionism is another serious crisis that cripples Baddi quite often. While truck drivers’ strikes prevent raw materials from coming in, workers’ strikes lead to a loss in production. Ultimately, it is a national loss,” explains Rawat. Adds Rajiv Chawdhry, general manager, SGS Tekniks Manufacturing Pvt Ltd, “The local cost of living is high and basic amenities are woefully inadequate, making it difficult for employees.” As a result, many people who were proposing to invest in this area are now looking at setting up production in other states. Moreover, some companies are using it only as a tax haven and not really as a ‘manufacturing’ base, as defined by the law.

Undoubtedly, the government has to address these issues immediately and find a solution that can benefit the industry as a whole, as well as check the government’s revenue losses. Industry in Baddi now waits anxiously for the government’s next move.

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