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Tuesday, July 03, 2001

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Investing in the future

BY CHOOSING INFRASTRUCTURE as a key area of attention, Karnataka has sent two messages through its new industrial policy, which will run its course for the next five years. The first is that there is the realisation that to improve upon its present position, the crucial ingredient would be in providing a sound foundation for industrial development. The second message is not only more subtle, it is also one that will be increasingly sent out by many more States as India enters the second decade of economic reforms. It is the message that the role of States as economic players will be more restricted to that of facilitators of industrial activity, marking a distinct shift from the past. In a way, the thrust given by the Karnataka Government to infrastructure should only have been expected. Viewed in the backdrop of the various policies that Karnataka already has in place for specific sectors - including, among others, information technology, agro-food processing, bio-technology, automobile components and minerals - the new industrial policy, announced by the State's Large and Medium Industries Minister, Mr. R.V. Deshpande, brings a sense of completeness to the State's approach to guide economic activity.

As Karnataka attempts to reach a higher plateau of performance, by pegging expected growth rates of the State's economy at 8 to 9 per cent and of industrial growth at 10 to 12 per cent, it would also be in order if it takes note of the lowering in the projections made for the growth of the nation's economy. The importance of having to kick-start the State's manufacturing sector should also not be lost on Karnataka's policy-makers. The Government has done well in announcing a relief package for the revival and rehabilitation of sick small scale industries. The decision to accord protection to its small industries, by way of marketing assistance in the form of price preference and procurement of 75 per of the reserved items from local units, comes in the backdrop of initial estimates that 30 per cent of such units surveyed are sick. That there is a growing realisation that protection of small industries would have to be an inherent part of larger policies is reflected by such measures. The clearance accorded by the Union Government to establish a Special Economic Zone at Hassan and an apparel park in Bellary should mark the beginning of an increased role for the State as an infrastructure provider.

The relevance of State industrial policies would largely be determined by their ability to attune industrial development to the exogenous factors, especially the developments that take place in the rest of the nation. While there is the case for various States to provide tax benefits to spur industrial growth, it would also be in order if such measures are done in a manner that does not trigger a race to the bottom as a result of competitive lowering of taxes to attract investment. Karnataka's measures to provide a range of tax incentives would have to stand the test of effectiveness. The promise to provide uninterrupted quality of power is indeed well-intentioned, but translating it into reality would call for serious structural changes. The difficulties involved in developing the infrastructure sector should also not be lost on the planners, especially those relating to financing. The proposed infrastructure development fund, with a corpus of Rs. 100 crores, for setting up industrial townships is to be seen as but an initial step to providing a conducive environment for the spread of industries. The results would take time to show, more than the five year period that this policy covers, but the priorities that have been outlined should be pursued with the long-term benefits in mind.

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