The tax holiday in Kutch is effective until December 2005. Similar sops for other northern and north-eastern states have been extended.

The industry contends that companies that planned to take advantage of the tax benefits in the Kutch will prefer to play safe and shelve their investment plans.

Only those firms that are able to commission their units before December 31, 2005, will enjoy tax benefits.

"The incentive scheme should be extended for another year. There were many industrialists who were initially planning to set up units with the incentive scheme.

But as the scheme comes to an end in December, many industrialists are now not willing to invest in Kutch. The government should look into the matter for betterment of the economy and industry in the district," Ashok Punj, managing director, PSL Ltd said.

The incentive scheme 2001 for economic development of Kutch district created new opportunities in the region after the devastating earthquake that hit the state on January 26, 2001.

The scheme was introduced to set up new industries in the region with a extended time period up to December 2005. As the scheme was found to be profitable for both the industrialists and the local economy, there was a demand for its extension.

"The economic activities came to a standstill in Kutch district on account of earthquake in January, 2001. But the initiative taken by the government to boost the economy of the region saw huge investments in the region from big industries, " says Mahesh Tirthani, secretary, Gandhidham Chamber of Commerce and Industries.

It will be better if the government considers extending the scheme for another one year as many companies plan to set up units here," he added.

The incentive scheme brought in new employment opportunities in the district with several new units being set up. In addition to the central government announcing excise duty exemption for new industries to promote large-scale investments, the state government also announce several tax incentives.

Under the tax incentive scheme, the unit with capital investment exceeding Rs 100 crore (Rs 1 billion) will be entitled to the benefit of sales tax exemption.

The eligible unit for the purpose of manufacturing products will be entitled to purchase of raw materials, packaging materials, processing materials free of tax.

"The tax exemption in the Kutch helps us manufacture our product at a lower cost as compared with any other place in the country. The abolition of the tax exemption will increase manufacturing costs, which will have a direct impact on the customers. Due to the tax exemption, Gujarat enjoyed a comparative low price than other states," C M Singh, marketing head, LG Electronics, said.

So far over 25 manufacturing units have already started their commercial production in the Kutch region in the last one year, while over 30 new manufacturing units including Bharat Petroleum, Videocon [Get Quote] are planning to set their unit in the region in the next one year.