बेबाक · Editorial
Industrial incentives are back in favour, and they must be judged by jobs, not tax receipts
From the Centre's mobile PLI scheme to West Bengal's new investment policy, subsidies are returning. Each must show audited jobs and value added before it is called a success.
Subsidies return to policy
Two developments show that industrial incentives are back at the centre of Indian economic policy. The Union Minister for Electronics and Information Technology has defended the government's production-linked incentive (PLI) scheme for mobile phones. He says the scheme has generated ₹3.25 lakh crore, including direct tax and GST, against ₹19,000 crore in incentives. Separately, the West Bengal government has announced a new investment policy that promotes job-linked growth and offers incentives for plant and machinery. That marks a policy shift, because the previous state government had scrapped industrial incentive schemes and subsidies. The state has also held early discussions with Ashok Leyland about fresh industrial investment at Singur, the Hooghly district site once earmarked for Tata Motors' Nano project.
Two ideas in conflict
Behind both decisions lies an old argument. One view holds that public money spent to attract manufacturing is an investment that pays for itself many times over. The other holds that incentives are transfers from taxpayers to firms, and that they are easy to announce and hard to withdraw. Both views have merit. India needs factories, especially labour-intensive ones, if growth is to reach the bottom decile. India also cannot afford schemes whose benefits are measured mostly by the people who designed them. The question is not whether to offer incentives. It is how to know whether they worked.
The case on each side
The strongest case for incentives is clear. Manufacturing locations are contested between countries, and competing nations offer generous support. A country that refuses to bid may lose capacity that, once built elsewhere, rarely moves. A state like West Bengal, which has long struggled to attract industry, has reason to signal that it is open for investment, and linking support to jobs is the right instinct. The strongest case for caution is equally serious. Firms may take incentives for production they would have undertaken anyway. Assembly can grow while local value addition stays thin. Tax collected on activity in a sector is not the same as revenue the subsidy created.
What the figure shows
The ministry's figure of ₹3.25 lakh crore deserves scrutiny, not dismissal. Set against ₹19,000 crore, it implies a return of roughly seventeen times the outlay. That is an impressive ratio, but it rests on the government's own accounting. The reported claim combines direct tax and GST, and as reported it does not separate revenue that the incentive caused from revenue that would have arisen anyway. GST on phones sold in India would be collected whether or not those phones were assembled here. The figure may understate or overstate the scheme's real effect. Until it is independently tested, it should be treated as a claim, not a finding.
Our verdict
Production-linked incentives are a legitimate tool, and West Bengal's turn toward job-linked support is a sensible correction to the earlier scrapping of incentive schemes. But governments at both levels risk the same mistake. They describe success in terms of revenue collected and money committed, when the real test is employment created, local value added and the capabilities that remain once the support ends. Growth that does not produce jobs is a vanity metric. So is a subsidy measured only by the tax receipts around it. Citizens are entitled to know what each rupee of incentive actually bought.
How to measure success
Three changes would put this debate on firmer ground. First, the Union government should commission an independent evaluation of the mobile PLI scheme, ideally through the Comptroller and Auditor General. The evaluation should separate revenue the scheme caused from revenue that would have been collected anyway, and it should publish the cost per verified job. Second, West Bengal's policy should release incentives in stages, only after employment has been confirmed through payroll and provident fund records. It should also include clawback clauses for firms that miss their commitments. Third, every incentive scheme, Union or state, should carry a fixed end date and an annual public report. Policies that are confident in their results should welcome both.
A subsidy is not justified by the taxes collected around it, but by the factories, skills and jobs that would not have existed without it.
What this editorial rests on
Drawn from our live multi-newsroom feed — read the reporting at source.
An editorial is the considered opinion of the FarziUPSC desk, argued from the sourced reporting above and written under our published persona, बेबाक. We name institutions, not parties. If we are wrong, we will say so. How we work →