Industrial subsidies go on back burner

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NEW DELHI : While the union budget last week proposed a record โ‚น10 trillion in capital expenditure for the next fiscal year to propel economic growth, it marked a shift away from several social sector subsidy schemes including industrial subsidy, analysts and government officials said.

Provision for Transport and Marketing Assistance (TMA) that aims to provide assistance for the international component of freight and marketing of agricultural produce was brought to nil the in 2023-24 budget estimate (BE) after a โ‚น545 crore allocation as per the Revised Estimates (RE) in 2022-23.

A senior government official said, โ€œYes, there are cuts in industrial subsidies. We cannot raise capital expenditure and raise revenue expenditure and raise subsidies for industries [at the same time]. These market assistance schemes are sops for commercial entities who export the same thing whether we give subsidy or not.”

In fact, Ajay Sahai, DG and CEO, Federation of Indian Export Organizations (FIEO) said the TMA scheme has been withdrawn.

The rationale for providing subsidies was the cost disability factor of the economy, which is essentially higher cost due to economic inefficiencies, said Sahai. As the ecosystem is addressing them to a large extent by overall improvement in infrastructure and logistics efficiency, the need to support manufacturing or exports through subsidy becomes less relevant. However, the government official quoted above said results of industrial subsidies such as the TMA have been โ€œvery poor”.

โ€œThere are claimants for the subsidy but they donโ€™t achieve anything. We have not closed those schemes. We have restricted those schemes. We have sort of capped them at a lower level of growth,” the official added.

Commerce minister Piyush Goyal in a media interaction also said small subsidy schemes are detrimental in the long run for Indiaโ€™s export competitiveness.

โ€œWe are reimbursing the duties and cesses which are not a part of GST under Remission of Duties and Taxes on Exported Products (RoDTEP) Scheme, that is fully WTO compliant. Other than that, by and large, we are encouraging industry and exporters to stand on own feet. Very often the amounts are so small, but waiting for that amount we lose bigger opportunities,” Goyal added.

Madan Sabnavis, chief economist, Bank of Baroda said, โ€œIndustry should get competitive and cannot take subsidies for granted. Hence just as the government is reducing other subsidies this is in line with ideology. The same holds for PLI (production linked incentive)… (These) should not be permanent. In todayโ€™s world when all countries are deglobalizing it is okay. But after a time it should be withdrawn,” Sabnavis added.

Meanwhile, the allocation to the Department of Commerce was reduced 18.61% to โ‚น 5,254.58 crore in the budget estimates for the next financial year compared to revised estimates for 2022-23.

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