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Industrial units allegedly inflating product accounts to claim transportation reimbursement – by Shantanu Nandan Sharma

ABOUT two dozen coke manufacturing units at the outskirts of Guwahati are becoming prized properties, thanks to a Central government’s subsidy scheme that reimburses transportation costs both for sourcing raw materials and selling finished products. Most of those units are strategically located in Assam side of the inter-state border so that coal can be sourced from neighbouring Meghalaya making them eligible for a larger pie of the subsidy.

It could have passed as a smart business strategy had hundreds of such units not mushroomed in every parts of the region, including in far away Tirap and Changlang districts of Arunachal Pradesh. Clearly, it defies the conventional wisdom of setting up factories near the raw materials, creating doubts whether some unscrupulous businessmen have ballooned their total amount of products and falsely claimed the subsidies. For the Central government, the new concern is the growing pie of the subsidy which is about 1,400 crore during the last two years alone in comparison to mere 1,652 crore for 37 years beginning 1971.

As more and more complaints are being received about the growing misuse of a 39-year old Central government scheme for North East and a few other select states such as J&K and Andaman and Nicobar Islands, the department of industrial policy and promotion (DIPP) has swung into action asking for a thorough review of the policy. If a section of officials in the Central government are to be believed, the transport subsidy scheme could be rationalised or even discarded unless a fool proof mechanism is put in place to plug loopholes.

A confidential report by Deloitte, prepared exclusively for DIPP, has observed how some of the industrial units have been set up “to benefit from the vicious cycle of incentives and subsidies that starts from establishment of an enterprise with the objective of plundering the government largesse and ends with expiry of subsidy tenure with an intent to claim benefits afresh.” The report further says that the benefits of the scheme are cornered by a few industries and there has been a limited employment generation opportunity out of the scheme. SundayET has a copy of the Deloitte report.

For the records, the scheme provides for reimbursement up to 90% of transportation cost incurred by industrial units in bringing in raw materials from another state or dispatching finished goods to designated railheads or ports. State governments from the NE and industry bodies of the region want a continuation of the scheme. “We are ready for more strict norms to plug any loopholes, but the scheme needs to be continued as our industries can’t compete with the rest of India because of geographical bottlenecks. The Assam government’s newly-introduced 50 checkpoints are quite stringent, and I don’t think anybody would be able to manipulate the scheme any longer,” says RS Joshi, chairman of Federation of Industries and Commerce of North Eastern Region.

DIPP officials in New Delhi were unavailable for comments, but one official said on the condition of anonymity that the department is now evaluating the scheme after a number of complaints were received about the misuse of the scheme. One Guwahati-based businessman said, “A section of industrial units have perfected the art of getting reimbursement, and the current set of safeguards are inadequate to stop misuse. There is virtually no audit,” he says.
It remains to be seen whether DIPP abandons the subsidy scheme in the wake of its reported misuse, but if it decides to continue, most stringent procedure must be followed. After all, any subsidy scheme is based on tax payers’ money and the government should be overcautious when it benefits just a handful of individuals.
WHAT’S THE SUBSIDY?
The scheme provides for reimbursement of up to 90% of transportation cost incurred by industrial units in bringing in raw materials from another state or dispatching finished goods to designated railheads or ports
WHERE IT’S APPLICABLE?
It’s applicable to all industrial units, barring plantations, refineries and power generation, in 14 states, including entire NE region, Himachal Pradesh and J&K. Subsidy is given to a unit for five years
HOW IT’S MISUSED?
The benefits of the scheme are cornered by a few industries, and there has been limited employment generation. The audit is quite weak and many units reportedly inflate raw materials and finished goods to grab more subsidies
WHAT’S NEXT?
The DIPP, which has received a number of complaints about the misuse of the scheme, is evaluating various options, including discarding it altogether

Comment

1. He transport subsidy hi Northeast hmelma anithei mai lo maw? Kan state ah hian Industry diktak hna trau ti tret thei tur rawn indinna tur daltu ani mai lo maw?
2. He incentive hi hmansual ani em? Hmansual nitase mipui rilru a tichhe viau ang em le?
3. Mizoramah ngei pawh hian he incentive hmangthiam riau hi an awm em? Lo awm ta sela kan ram hmelma kan ti dawn nge? An vannei ani ve mai alawm kan ti ang?
4. He incentive hi hmuthei bik riau leh kaida hre riau a awm theih em? Lo awm sela, phu leh dik taka hmu tur te chanvo a tibuai em le ?
   

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This entry was posted on Sunday, November 21st, 2010 at 3:32 pm and is filed under Economics. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.