A strange, last-minute circular that invalidates many business proposals will almost certainly impact private investment and job creation.
Over the last three years, the Modi government has come to be known for amendments to its policies that often cause uncertainty for market players. The most recent example of this is the Pradhan Mantri Kisan Sampada (PMKS) Yojana which aims to give a big push to the small agro-processing industry, with a focus on benefiting farmers and boosting employment in general.
The PMKS is a capital investment scheme launched by the ministry of food processing industries for attracting investments from entrepreneurs for setting up new food processing units or expansion of existing food processing units. The detailed guidelines of the scheme were uploaded on the website of the ministry on July 11, 2017, and the advertisement for making bids under the scheme was uploaded on August 31, 2017.
In the original guidelines, proposals that would set up units in mega food parks (assisted by the ministry by way of capital subsidy) were given priority over units being set up at other locations. For example, a unit that would be set up at a mega food park but scored only 65 marks on the basis of parameters set by the ministry was to get preference over a different unit that scored 85 marks but was being set up at a different location.
The policy of developing mega food parks in India has largely been unsuccessful as entrepreneurs have failed to show interest in acquiring land due to higher costs and logistical issues. A recent study by the Indian Council for Research on International Economic Relations showed that the Centre’s ambitious scheme of increasing mega food parks was ineffective.
This is exactly why entrepreneurs who planned on setting up units outside mega food parks decided to bid for the capital subsidy under the PMKS scheme as they were confident that applicants from mega food parks would be less in number. They consequently felt they would have a better chance to avail capital subsidy from the ministry despite the special treatment being offered to proposals that would set up units inside mega food parks.
Some entrepreneurs had industrial lands in their possession and some had acquired industrial lands at locations other than mega food parks and got sanctioned term loans from their banks for setting up food processing units. In the wake of poor response to the scheme, on September 14, the ministry extended the last date for submission of application by four weeks. Many entrepreneurs had filed online applications by September 21.
Last minute circular change
To their surprise, however, the ministry came out with a circular the very next day (September 22) in which it modified the July 11 guidelines. In the latest circular, the ministry restricted the capital subsidy only to units being set up in the mega food parks.
Many questions remain unanswered due to this abrupt decision taken by the ministry. A few follow below.
Firstly, what prompted the ministry to issue a restrictive circular on September 22, when a week before that it had extended the deadline for submission of applications?
Secondly, when the units being set up in mega food parks were already getting preference over units being set up at other locations, what was the need to issue a new circular that restricted it only to mega food park units?
Thirdly, who is going to compensate for the losses that numerous entrepreneurs are now facing? They have acquired land after going through the draft guidelines of the scheme and were relatively confident of getting a capital subsidy and had consequently even made advance payments to machinery suppliers.
Taking a broad view of this issue, does the government want to encourage private investment in such a manner? Who will trust the policies of the government if they are altered on an ad-hoc basis without taking into consideration the interest of stakeholders?
If the Centre does not withdraw the controversial September 22 circular, many aggrieved entrepreneurs may go to court, challenging the ministry’s unilateral decision. Will this not disrupt private investments, prospective investment and job creation, all of which is the need of the hour?
Mahesh Natani is an Indore-based financial consultant.