Plea to scrutinise PLI scheme in Andhra Pradesh
In a letter addressed to the CAG, GC Murmu, EAS Sarma felt it was possible that the government would enlarge the scheme to other sectors and also enhance the allocations, all at the cost of the public exchequer
Visakhapatnam: Former Secretary to union Government EAS Sarma has urged the Comptroller and Auditor General of India (CAG) to subject the sectoral Production Linked Incentive Scheme (PLI) to thorough scrutiny and place its findings before the Parliament in view of the proposal to allocate Rs. Two lakh crore to private industry as subsidies without tangible benefits to the economy.
In a letter addressed to the CAG, G.C. Murmu, here on Friday, he felt it was possible that the government would enlarge the scheme to other sectors and also enhance the allocations, all at the cost of the public exchequer. “There should be a valid justification for giving such huge subsidies to profit-earning private companies, and the government should be held accountable to the Parliament and the public at large. From this point of view, I feel that the C&AG is obligated to subject these sectoral PLI schemes to the strictest scrutiny and place its findings before the Parliament.
As per indications available in the public domain as of now, the government proposes to allocate around Rs 2,00,000 crore under PLI towards subsidy to private industry over the next five years, implying an average allocation of Rs 40,000 crore per year. It is two-thirds of the 2023-24 budget allocation for MGNREGA, which provides employment for more than 5.54 crore of households in rural areas. This is not a small sum, considering that the 2023-24 budget projects a fiscal deficit of 5.9%, that the government has put its highly valuable CPSEs to a distress sale to raise resources, that it is curtailing allocations for obligatory commitments such as MNREGA and food security and that the government is unable to provide fully for such critical sectors as health and education. It is all the more ironic that the government should sell away its own CPSEs for a song and instead choose to subsidise profit-earning private companies, in return for societal benefits which may not be significant,” he pointed out.
While the Centre’s subsidies to private companies are in addition to comparable subsidies given by States to them, in the name of investment promotion, by way of concessions on land, water, electricity, taxes etc., the PLI subsidies to private companies are at the cost of the public exchequer and therefore the CAG would have to subject the same to an audit, to ascertain what kind of societal benefits the government, he said.
“Under the PLI scheme, subsidies are given on a first-come-first-served basis, which lacks adequate transparency, an approach that the apex court questioned in both the 2G Spectrum case and the case of pre-2014 coal auctions. The C&AG cannot ignore the legal implications in the case of the PLI. In the ten sectors chosen for PLI benefits, (Advance Chemistry Cell (ACC) Batteries, Electronic/Technology Products, Automobiles & Auto Components, Pharmaceuticals drugs, Telecom & Networking Products, Textile Products: MMF segment and technical textiles, Food Products, High-Efficiency Solar PV Modules, White Goods (Air Conditioners and LED Lights), Specialty Steel), one common objective expected to be realised is that the beneficiary units should attain certain predetermined levels of production, subject to realisation of which subsidies are to be released. Since the overarching purpose of the PLI is to promote self-reliance in each of these areas of manufacture, merely linking subsidies to the production of a finished product may not suffice. For example, the beneficiary industry could import the components, assemble them into the finished product and export it or sell it in the domestic market, in which case the domestic value addition could be negligible. Would such a situation justify the government subsidising the private industry?,” he asked.
Pointing out that in the normal course, one would expect such subsidies to result in making available finished products at globally competitive prices, with decreasing import content, enhancing domestic value addition, generating employment, triggering indigenous technology development that is readily accessible to others within the country and so on, he stated that unless in each case of a beneficiary industry, each of these objectives is well-defined and quantified over a given timeframe and the subsidy payments linked to the same, the subsidies paid would result in realising such expected benefits. Subsidising profit-earning private manufacturing units without achieving commensurate benefits for society would amount to wasteful public expenditure and promote crony capitalism, he observed.
Referring to the specific case of large semiconductor fabrication units like the Vedanta-Foxconn unit proposed to be set up in Gujarat, where the quantum of subsidy offered under a PLI-like scheme is mind-boggling, to the extent of 50% of the project cost, the project cost itself being as high as Rs 1.5 lakh crore, without any tangible commitment on employment, value addition, competitive pricing etc.. Dr. Sarma said that in the case of most of these sectors, the Ministries are giving away subsidies linked to sales turnover, without knowing whether those subsidies are going to yield tangible societal benefits or not, such as specific levels of employment, finished products supplied at globally competitive prices, whether the units are going to generate foreign exchange earnings and whether they would contribute to the indigenisation of technology and self-reliance.
“In economic terms, one rupee of subsidy given to a unit can be justified only if it yields a reasonable return on it in terms of the discounted value of the future societal benefits such as employment, value addition, price advantage and indigenous technology development. In the case of the PLI schemes for most sectors, on the face of it, the subsidies will not yield such reasonable returns,” he stated.
