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    Sceptical about PLI scheme; time to reverse customs duty hike: Arvind Panagariya

    Synopsis

    “Certainly, PLI as well as protection can give a boost in certain sectors that get the protection and sectors that get the subsidy will undoubtedly do better. It improves the profitability for the entrepreneurs and so those sectors will do better. The question is whether manufacturing as a whole will do better, and that we have not seen. Also, it is not sustainable,” says Arvind Panagariya, Former VC, NITI Aayog.

    Arvind Panagariya-1200ETMarkets.com
    What about the other announcements you would like to see within the Budget? There is a lot of talk that we may see an extension of the PLI scheme. Is there enough data to suggest that the PLI scheme has achieved its goals and should we be expanding its ambit?
    I have never been very persuaded on the PLI scheme. I am one of the few economists who have been sceptical on this front because ultimately the goal has to be for manufacturing as a whole to flourish. Certainly, PLI as well as protection can give a boost in certain sectors that get the protection and sectors that get the subsidy will undoubtedly do better.

    It improves the profitability for the entrepreneurs and so those sectors will do better. The question is whether manufacturing as a whole will do better, and that we have not seen. Manufacturing as a whole ultimately requires good policies. Policies in which investors will flock to India, policies that would allow the new alternative supply chains to be built with India as its focus as its hub. How much subsidy can you give really? For two, three or four years you can give subsidy, but ultimately the entrepreneur is going to have to survive without subsidy.

    We are looking for a sustainable kind of investment and obviously investors love it. Foreigners and multinationals when they come in, think they want to come in any way and in the process, get a few hundred million dollars’ worth of subsidy. So they would love it, they will never say no this is of no use. But ultimately to me as an analyst and as an economist, it is very hard to build up a whole wide manufacturing sector on the back of subsidies. Good policies cannot be substituted by either protection or subsidies.

    Also Read: Why Arvind Panagariya does not expect a populist Budget this year

    Custom duty hikes and surge of protectionism is now in vogue globally. Should there now be a break on some of these?
    Most certainly. We need to not only have a break from it but we also need to reverse some of what we have done. The big tariff increase happened in 2018-2019 and that happened in the context of a GST which had not yet begun to function well. Remember that the GST had started to get implemented in July 2017 and initial revenue losses were large.

    At that time, the then finance minister Arun Jaitley, consciously reversed several two decades of policy and raised tariff custom duties on about 40% of our tariff lines. Almost 40% of items experienced an increase in tariff duties in that year.

    Now, the GST is working well even the direct taxes have been functioning quite well, showing good buoyancy in the last two years. Given that the revenue goal of custom duties which was to begin with was wrong, custom duties are not supposed to be a revenue instrument. They are instruments of protection but not of revenue. Anyway, as the revenues are doing well, this is the time to begin rolling back at least those custom duties which would be imposed particularly in 2018-2019 with revenue as the objective.



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    (What's moving Sensex and Nifty Track latest market news, stock tips, Budget 2024 and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
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