Gujarat SMEs got just 2% of Rs 54,000 crore subsidy in 21 years: Study

The study is part of a recently-released book 'Growth or Development -- Which way is Gujarat Going?'

Gujarat's small scale industries got just two per cent of subsidy meant for industries and infrastructure projects in the last 21 years, a study showed.

The study, Political Economy of Subsidies and Incentives to Industries in Gujarat between 1990 and 2011, is part of a recent book titled Growth or Development -- Which way is Gujarat Going?, edited by economist Indira Hirway of the Centre of Development Alternatives, Ahmedabad; Amita Shah, former director of Gujarat Institute of Development Research; and Ghanshyam Shah, former professor with the Jawaharlal Nehru University, New Delhi.

“Total subsidies given to industries and infrastructure projects during the period 1990–2011 has been Rs 56,538 crore, of which the maximum share is of sales tax subsidies (Rs 54,303 crore), followed by Rs 1,766 crore for capital subsidies and Rs 370 crore of interest subsidy," stated the research paper authored by Hirway, Neha Shah and Rajeev Sharma. The paper relied on data from the Gujarat government and its departments.

“Of this, Rs 1,150 crore or a mere 2.03 per cent subsidy has gone to small scale industries (SSIs)/ micro, small and medium enterprises (MSMEs),” the study further pointed out. “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 or 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 added.

The total amount of subsidies provided to the SSI/MSME sector during 2001 to 2011 was Rs 869.36 crore, which comes to 2.27 per cent of the total subsidies provided to all industries put together during the same period, excluding the subsidies given on land, water and infrastructure.

Comparing the subsidies by the state government to other sectors, the paper stated, “The amounts of the subsidies is more than 10 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."

The paper said there was marked shift in the subsidy policy after 1990. “In the earlier periods, new industrial units were entitled to incentives or 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 five crore and more in backward talukas were entitled to special subsidies and incentives. The size of units jumped up multifold, thereafter," the paper stated.

“Instead of only the SSI sector, the focus is now on prestigious, premier, and mega units with Rs 100 crore to Rs 1,000-2,000 crore or more capital investments and project investments,” the paper said, adding, under the 2009 policy, “no limit has been laid out as the subsidies and incentives for mega units are to be determined on a case-to-case basis”. It also said conditions of employment were also watered down substantially.

The paper pointed out that such policy changes have brought in major distortions in the economy. “The backward bending policies to attract private investments do no seem to promote free market forces," the authors of the paper added. Describing the actions of state government as “promoting crony capitalism”, where “favours (incentives and subsidies) and not competitive forces determine allocation of resources”.

They went on to observe that this policy “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”.