The Hindu : Study calls for change in plan to promote industries

Online edition of India's National Newspaper
Tuesday, Jul 01, 2003

Southern States

Southern States - Karnataka

Study calls for change in plan to promote industries

By Nagesh Prabhu

BANGALORE JUNE 30. The implementation of the capital investment subsidy (CIS) scheme by the State Government has grave deficiencies. The scheme has not served its purpose, and its financial benefits have largely accrued to the regions that do not deserve subsidy. Many industrial units that have availed of the subsidy under the scheme, including those in Bangalore, have now shut down.

Distortions in the investment pattern and decisions, widespread corruption in the administration of the subsidy, cases of middlemen negotiating sanction and release of subsidy, and availing of subsidy by a large number of management units have made the scheme unproductive, according to a recent study commissioned by the Department of Industries and Commerce.

Promotion of industries in the backward regions is the main objective of the scheme. But industrially advanced districts such as Bangalore Rural and Urban have secured more monetary benefits compared to the backward districts in Gulbarga Division. Yet, a significant number of units located in Bangalore Division were closed down (34 per cent).

It is argued that a large number of units were started just to take advantage of the scheme. The survey in Bangalore Division shows that the percentage of closures is very high in Bangalore Urban (45 per cent), followed by Kolar District (40 per cent), Chitradurga District (35 per cent), Bangalore Rural (32 per cent), Shimoga District (29 per cent), and Tumkur District (28 per cent).

In Bangalore Division, a large number of electrical industrial machinery, computer and computer-based systems (56.69 per cent), and textile category (43 per cent) units have closed down. Many units in the minerals category comprising bricks, tiles, granite, polishing stone (28.18 per cent), paper and printing (28.95 per cent), and food products (29.04 per cent) have been closed, the study says. Bangalore Rural District has the highest number of closed units in wool and silk category. The subsidy given to closed units amounts to 29 per cent of the total subsidy covered (the survey covered 1,500 units in Bangalore Division).

More units were shut down in urban areas. The subsidy amount involved in the case of closed urban units is 61 per cent and in rural areas 39 per cent in Bangalore Division, reveals the study, `Who benefits from industrial incentives? A study of capital investment subsidy in Karnataka', conducted by K. Gayathri, Associate Professor, ISEC, Bangalore.

A number of units in Tumkur (49.75 per cent), Bangalore Urban (43.53 per cent), and Bangalore Rural (36.69 per cent) failed to adhere to the Government stipulation that the location of the unit should not be changed and it should not be sold or leased to others within five years (recently it was changed to one year). As per the rule, the Government should recover the subsidy given to such units. But no recovery was made. The subsidy released to industrial units increased from Rs. 7 crore in 1991 to Rs. 173.14 crore in 1999. Bangalore Division accounted for 52 per cent of the subsidy. Bangalore Urban District, an industrially advanced zone, accounted for the largest share (17.59 per cent) in the total subsidy.

The district received the highest subsidy (34 per cent) followed by Bangalore Rural (21 per cent), Chitradurga (18.3 per cent), Tumkur (10.1 per cent), Shimoga (8.9 per cent), and Kolar (7.7 per cent). In Gulbarga Division, Bellary District received 27 per cent of the subsidy under the scheme, followed by Bidar (22 per cent), Gulbarga (21 per cent), Koppal (19 per cent), and Raichur (10 per cent).

The study points out that capital investment subsidy resulted in a sharp increase in the fiscal burden of the State Government. The fiscal implications of the growing subsidy become all the more grave on account of the fact that the Government is raising loan by floating bonds through KSFC to meet the cost of the subsidy.

The study recommended a change in the strategy of promoting industrial development by strengthening infrastructure rather than offering fiscal concessions.

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