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Subsidies come in different shapes and sizes!

Our Government, both centre and state, and almost all other governments across the world, talk against subsidies! They give it a new name, Freebies and then tell us that this is not the way to go.

People should not be looking forward to freebies. Freebies create laziness amongst people, etc., etc.,

But then what the governments really do is exactly the opposite.

Take our GoI, for instance. They talk of removing farm subsidies, electricity subsidy, streamlining public Distribution System, fertilizer subsidies and many others. But that is on one side. On the other side, they have added many new freebies, albeit silently.

A new subsidy of Rs 76,000 Crores was announced on 15 Dec 2021 to the semiconductor industry! Earlier an industrial subsidy amounting to over Rs.2 lakh crores is already in place. All these are direct subsidies given in the form of boosting an industry. Not including the indirect subsidy which are incurred losses passed on to banks by industries. These losses total to about Rs.9 lakh crores in the last five years that banks passed on to the taxpayer.

Subsidies take other shapes as well. For instance, a new subsidy in the form of Import duty on solar panels is on the anvil, to the local solar panel manufacturers amounting to about 40% of the cost of the panels! In the name of protecting the local industry, appears like a good scheme for India. But a raw deal for the consumer and the taxpayer. For the same product, you will have to shell out 40% more cost just because you believe someone in India should make more money!

The same rule of protection does not apply to other industries. Agriculture must face competition from the world. Textiles, IT and everyone else should face the heat of worldwide competition. Whereas Government chooses specific industries to ‘protect’!

As a taxpayer, I am certainly against freebies of all shapes and sizes! 

But really do we gain anything by ‘protecting’ an industry? None whatsoever. Protection was a failure. It was tried from 1950s to 1980s. We all know how many different cars we had on the roads at that time. Protection deters innovation. We are yet to come out of that.

Semiconductor and solar industry are the fast growing and developing industries with a change in technology every other hour. What are they trying to protect the industry from? 

Giving subsidy to semiconductor industry is as bad as the demonetization. Simply because semiconductor industry and technology are very dynamic. Changes in the density of the chip has been increasing manifold every year. Investment done this year is a waste next year. And will the government fund every year or every other year, when the equipment goes for an update?

This whole proposal arises out of a gross misunderstanding that it is the initial capital which is the cause of projects not happening in this sector. No, it is not so.

India is long out of capital shortage era. But the government is still thinking of capital shortage. Capital subsidies may help in bringing up new industries. But mostly outdated technology ones will come into the country simply because the industry is highly competitive.

The problem is in the economic environment made up of ruthless taxation structure, corrupt government systems and money sucking public sector enterprises, that are a drain on the economy. Remove them! Make in India, Startup India and all these will happen by themselves. There is no need to infuse capital into them.


Also read: SubscriberWrites: India has unrealistic dreams of semiconductor production. It needs a measured approach


 

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