Gujarat govt's largesse to mega investors: Just 2% of Rs 54,000 cr industrial subsidies went to small sector

By Our Representative
A research paper, “Political Economy of Subsidies and Incentives to Industries in Gujarat: Some Issues”, by scholars Indira Hirway, Neha Shah and Rajeev Sharma, has calculated that the total subsidies given to industries and infrastructure projects during 1990–2011 was a whopping Rs 56,538 crore, of which the maximum share is of sales tax subsidies (Rs 54,303 crore), followed by Rs 1,677 crore of capital subsidies and Rs 370 crore of interest subsidy.” Of this, the paper points out, “Rs 1,150 crore or a mere 2.03 per cent subsidies have gone to the small scale industries/ micro, small and medium enterprises (SSI/MSME)."
"The total amount of subsidies disbursed during the past decade (2001-02 to 2010–11) is Rs 38,226 crore, of which the major share is of sales tax subsidy/ incentives (Rs 37,467 crore). The other major subsidies are Rs 371 crore of interest subsidies and Rs 224 crore of capital subsidies”, the paper, which forms part of a book containing dozen-odd well-researched articles on Gujarat growth story, points out.
Providing a comparison, the paper says, “The amounts of the subsidies is more than ten times of the total subsidies given by the state to agriculture and allied activities and to food and civil supply put together. In other words, the state spent ten times more to attract investments in industry and infrastructure than to help the poor in agriculture and allied activities and food subsidies — at a time when malnutrition, particularly of women and children, is a serious concern in the state.”
All this has been made possible, says the paper, because of gradual undermining of the social agenda while providing subsidies. The paper says, “In the earlier periods, new industrial units were entitled to incentives/ subsidies when they were small or/and located in backward areas. Gradually the larger units have also been included. Before 1990, ‘pioneering’ units with capital investment of Rs 5 crore and more in backward talukas were entitled to special subsidies and incentives. The size of units jumped up multifold thereafter.”
The paper adds, “Instead of only the SSI sector, the focus is now on prestigious, premier, and mega units with Rs 100 crore to Rs 1,000-2000 crore or more capital investments and project investments.” In fact, after 2009, “no limit has been laid out as the subsidies and incentives for mega units are to be determined on a case-to-case basis”, the paper says.
Giving the example of subsidies to the Tata Nano project, which was the first mega project under the new scheme. “The details of the subsidies/incentives given to this project are estimated to be Rs 38,000 crore. The other beneficiaries of mega projects, according to official announcements, are Ford Motors, Maruti Suzuki, and a textile company. The terms and conditions of the incentives will be the same for the incoming companies Ford and Peugeot”, the paper says.
The paper further points to how the conditionality of employment has been watered down substantially. “In the early years of the 1990s, it was mandatory for the beneficiary units to employ 100 permanent workers each, and to employ local workers who would constitute 80 per cent or more of the total workers employed in the unit, and who would constitute 50 per cent or more of the managerial and supervisory staff”, it says.
“The condition of employing 100 permanent workers turned into 100 regular workers and then just 100 workers”, the paper says, adding, “The condition of 1,000 workers for large projects was irrespective of the level of investment. And finally, the condition of local workers has been removed and in the case of mega projects no such condition is applicable.” Similarly, the location policy for new units has been gradually relaxed over the years.
Saying that all this is nothing but “the growth of crony capitalization”, the paper underlines, it “denied a level playing field to the large number of small enterprises, and also changed the political power substantially in favour of the corporate sector. The changes in the state policies towards subsidies and incentives to private investments in industry and infrastructure units, particularly in the past decade, have important implications for the rate and pattern of economic growth in Gujarat.”
It adds, “Instead of promoting small units, the focus is now on promoting increasingly larger units, mega units being the latest; instead of promoting subsidies/incentives to labour-intensive units, the state now invites state-of-the-art highly capital-intensive technology; and instead of worrying about balanced growth, the emphasis is now an becoming ‘the number one destination’ of corporate investments in the world.”