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Photo: Bloomberg
Photo: Bloomberg

Central fanning

If the rewards are linked to export targets, then perhaps that problem can be overcome. Much might depend on the scheme’s details of design and transparency of operation.

On Wednesday, India’s Union cabinet approved production-linked incentives for 10 sectors, including pharmaceuticals, food products and white goods, with the biggest chunk earmarked for our auto industry. Over five years, it could receive 57,000 crore of the proposed package worth 1.46 trillion.

If it fans ambitions and prods our manufacturers to get in good enough shape to succeed in overseas markets, then it would have served its purpose: the Centre’s new thrust for an Atmanirbhar Bharat would have scored a win. However, like most incentive schemes for a chosen few industries, such support for some businesses over others could also distort domestic market forces and result in economic inefficiency, should it result in the diversion of resources from enterprises that can compete globally on their own to those that have the state’s favour. Recall that the big flaw of centrally planned production was that it let committees rather than consumers dictate the allocation of capital. If the rewards are linked to export targets, then perhaps that problem can be overcome. Much might depend on the scheme’s details of design and transparency of operation.

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