Northeast subsidies go up in smoke

Even as the Finance Ministry proposes to withdraw grants to Indian Institutes of Management, Indian Institutes of Technology and Kendriya Vidyalayas, it is still giving subsidies to the tobacco companies operating from the Northeast.

The tobacco industry in the Northeast is flourishing and many factories have mushroomed in Assam since 1999 after the NDA government announced a tax-free policy on goods manufactured in the region with the objective of spurring industrial development.
However, the move backfired when instead of big industries, tobacco companies like the DS

Group hijacked the policy to set up packaging units in the region.

Documents available with CNN-IBN show how the DS Group took advantage of the tax-free policy to claim subsidies amounting to the tune of Rs 298.54 crore in the last five years. The Government has given subsidies to the tune of Rs 1500 crore to the tobacco industry in the last five years.

As if that was not enough, the tobacco industry is now looking up to Finance Minister P Chidambaram to announce further tax-free incentives to further their trade in the region.
"We have a large variety of products, basically Rajnigandha, Tulsi brand items and Catch brand items. Both the Central and state governments are trying to give incentives and we are hopeful in the next Budget also, incentives will be given to Northeast," Assam Unit Manager, of the DS Group, Brig (Retd) M Kumar says.

Tobacco industries contribute more than nine per cent of the total Central Excise revenue every year and shifting of production base to the Northeast gives them a complete duty exemption under the policy.

The modus operandi

This is how the Excise refund process functions. Tobacco companies set up packaging units in the Northeast and transport finished products to the units elsewhere in the country.
Contract labourers working at these units simply pack the materials and the tobacco products are then distributed all over the country.