The production-linked incentives (PLI) scheme for the automotive sector has hit another speed breaker due to lack of clarity about the process to apply for subsidies, multiple industry executives said.
https://www.livemint.com/news/india/why-india-s-auto-pli-is-yet-to-pick-up-after-two-years-11703788981031.html
The government is still working on the standard operating procedures (SoPs) for claiming incentives, nearly two years after the scheme became operational, the people said on the condition of anonymity.
What is missing? Processes for verifying sales and investments, the “formats” of various certificates, undertakings and documents, and a “standardized procedure” for testing agencies to verify the claims.
More importantly, the article goes on to point out three very face-palm-y things. One, no applicant has been able to file claims for the first year of the scheme, which ended in March 2023. Why? Because the SoP for calculation of domestic value addition were only released a year after the scheme become operational. Second, the volume of documents and compliances required only seems to be going up. And finally, the reason this is happening is because of the unholy mess that was FAME-2.
Executives said the government’s insistence on strict compliance with the rules arises from its experience with another auto industry subsidy scheme. Many automotive companies had wrongfully claimed subsidies as part of the FAME-2 scheme by stating incorrect details and taking a warped interpretation of the rules. Many companies wrongfully claimed that they were sourcing certain parts locally as mandated by the scheme even as they relied on imports.
https://www.livemint.com/news/india/why-india-s-auto-pli-is-yet-to-pick-up-after-two-years-11703788981031.html
“The FAME episode has put the whole ecosystem into an auditor’s mindset rather than a facilitator’s mindset. The same rules can be interpreted in different ways. They are taking the strictest interpretation due to the FAME setback,” an auto industry executive said.
Now, there are only two acceptable ways to react to news like this these days. You can take your pick.
The first would be to point out that it is early days, and that other schemes in the past have also had teething issues, and that it is too soon to tell, and that we need to be more positive about things that are being attempted.
The second would be to point out that nothing seems to be working, and that this is another example of how bad things have become, and it is all announcements and glitz and glamour, but the nuts and bolts of policymaking really and truly matter, but nobody cares.
Would you care to take a look at a third way instead?
The third way involves thinking about a paragraph from the article, one that I have not quoted thus far. Here goes:
“No one wants to take the blame in case anything goes wrong with this scheme too. But in all that, somewhere, the spirit of the scheme has got lost,” they added.
If you are a sarkari babu tasked with “making this PLI work”, you can treat your assignment in one of two ways. Option one is to treat your job as one in which production of automobiles in India goes up over time. Option two is to treat your job as one in which you are not to be blamed for companies taking undue advantage of the rules and compliances you set up.
The problem is that option one means that you may well get the production to go up, but you cannot control for incidences of cheating. Option two, on the other hand, means that you may well come out of this smelling like roses, but production of automobiles may not go up.
Which error would you rather make?
Babus in our country are crystal clear about their choice. They are always going to choose option two.
Why, you ask? Well, because there is no upside to them in the case of option 1. Their salaries don’t go up if automobile production increases. But in the case of option 2, they will be in hot water if companies end up cheating on subsidies and incentives given.
Ask yourself how their incentives line up, and once you answer that question, the article in Livemint begins to make a lot more sense. It is still depressing as hell, mind you, but hey, at least you understand why.
Economics can be quite a simple science every now and then, thankfully. It can also be quite dismal, more’s the pity.
EconForEverybody 
Another lens to apply is the Iterated Prisoner’s Dilemma. Auto companies defected in FAME2 and now the players are stuck playing defect-defect.
LikeLiked by 1 person