The hill state of Himachal Pradesh has warned that no changes should be made to the central government's area-based tax exemption scheme of 2003, a demand voiced by neighbouring Punjab.

Chief Minister Prem Kumar Dhumal told Business Standard that any changes to the scheme would "be an injustice to all states, particularly Himachal Pradesh" and sour inter-state relations in the country.

Dhumal was reacting to reports that the Punjab government plans to move the Supreme Court against the central government's 2003 area-based tax exemption scheme.

This is the first instance of a top regional politician speaking openly on the matter. Earlier this week, Uttarkhand government bureaucrats told this newspaper that the central package is "well deserved".

Dhumal, a second-time chief minister who led the Bharatiya Janata Party back to power last December, added that Punjab should demand tax concessions for itself, "instead of trying to harm backward states".

In an exclusive interview, Dhumal said: "If bigger states (like Punjab) oppose smaller states like ours, it will not create a congenial atmosphere and lead to problems. The areas in our state that have benefited from industrial development as a result of the scheme were part of Punjab till 1966."

He added that Punjab benefits heavily from a number of hydro-electric power projects based in Himachal.

Dhumal also pointed out that Himachal Pradesh had approached the apex court in the early 1990s seeking a share of power and income from projects like the Pong Dam in Kangra district, the Beas-Sutlej Link, the Bhakra Dam and the British-era Shanan project that supplied power to Lahore in the undivided Punjab. "The Court is yet to decide on these projects and we are waiting for justice," he said.

However, with Punjab's ruling party, the Shiromani Akali Dal, planning a 100,000-people protest march in Delhi on February 26 against the "stepmotherly" attitude of the central government towards industrial growth in India's bread basket, the matter is fast acquiring political overtones.

Punjab says the exemptions have resulted in significant revenue erosion and job losses as several industries have relocated outside the state.

Prime Minister Atal Bihari Vajpayee of the National Democratic Alliance government had announced the package at a public meeting in Solan in December 2002. The north-eastern states, Uttarakhand, Jammu & Kashmir, Himachal Pradesh and the Kutch district of Gujarat are the beneficiaries of the policy.

"The scheme was originally set to run for a decade from 2003, but the United Progressive Alliance government cut its tenure to seven years and announced that it will expire in 2010. Some provisions have also been tightened by the Union finance ministry," Dhumal said.