BIZ MASALA INVESTIGATIONS

What the CAG found in two Telangana corporate land allotments

By Murthy ASR  |  Biz Masala

Visual overview: key figures and audit questions drawn from CAG Report No. 3 of 2025. The infographic is an editorial illustration, not a reproduction of the CAG report.

 

The Price of Industrial Promises

Industrial incentives are a familiar instrument of economic policy. Governments offer land at concessional rates and provide customised benefits to attract investment, build manufacturing capacity and create jobs. The public-interest test, however, is not simply whether a project sounds strategically important. It is also whether the allotment follows the applicable rules, whether the land granted matches the requirement assessed, and whether the promised benefits justify the concession.

A compliance audit by the Comptroller and Auditor General of India (CAG), covering the period ended March 2022, raised questions about two Telangana industrial land allotments: 511 acres at Zaheerabad to VEM Technologies Private Limited, and 20 acres at Mamidipally to Adani Defence Systems and Technologies Limited (ADSTL). The audit identified concerns over assessed land requirements, concession conditions and the authority under which decisions were taken.

The findings are audit observations, not judicial determinations of criminal wrongdoing. Their significance lies in the questions they raise about the administration of public land and the safeguards intended to govern industrial incentives.

1. Zaheerabad: 511 acres against an assessed requirement of 49

VEM Technologies proposed an integrated facility for strategic weapon systems in January 2021, with an estimated investment of ₹785 crore. In August 2021, a Cabinet Sub-Committee sanctioned customised benefits, including 511 acres at the National Investment and Manufacturing Zone (NIMZ), Zaheerabad, at ₹10 lakh per acre.

The CAG report says a TSIIC technical consultant assessed the land requirement at 49 acres in January 2022, using the company’s land-utilisation proposal and financial information in its Detailed Project Report. The consultant also expressed concern that the company’s internal accruals and net worth were insufficient to fund the promoter contribution.

TSIIC nevertheless allotted 511 acres in January 2022. According to the audit, the allotment preceded a proper assessment of the actual requirement and financial capability, and TSIIC was not in physical possession of the entire 511 acres. The CAG also said that because the land formed part of the NIMZ, the relevant NIMZ special-purpose vehicle should have considered and cleared the allotment.

The audit calculated an undue-benefit estimate of ₹106.91 crore, based on the 462-acre difference between the allotment and the assessed requirement, multiplied by ₹23.14 lakh per acre. This is the CAG’s audit estimate; it should not be described as a court-established loss or a sum legally recoverable without further evidence.

Zaheerabad: key figures

Audit item	Figure / finding
Company	VEM Technologies Private Limited
Proposed project investment	₹785 crore (proposal, January 2021)
Land allotted	511 acres
Consultant-assessed requirement	49 acres
Difference	462 acres
Allotment price	₹10 lakh per acre
CAG estimate of undue benefit	₹106.91 crore
Separate reimbursement claim noted by CAG	₹118.25 crore; unsettled as of December 2022

The ₹118.25 crore figure is separate from the ₹106.91 crore estimate. The report records a TSIIC claim for reimbursement of the differential cost from the Industrial Promotion Budget; it was unsettled as of December 2022. The two figures measure different things and should not be conflated.

The NIMZ question

The CAG further observed that the allotment would reduce the proposed NIMZ area below the minimum 12,500 acres under the relevant guidelines, potentially jeopardising the project. The report’s wider discussion also records delays in acquiring and assembling land and in operationalising the Zaheerabad NIMZ. Those broader implementation problems are related context, but they are distinct from the specific VEM allotment finding.

In its October 2023 reply, the government said the allotment followed the Cabinet Sub-Committee’s decision and referred to NICDC’s acceptance of a proposal relating to the Zaheerabad NIMZ. The CAG did not accept this as resolving the issue, clarifying that NICDC’s acceptance concerned the NIMZ’s inclusion in the Nagpur–Hyderabad industrial corridor, not VEM’s inclusion as part of the NIMZ.

2. Mamidipally: a discounted price tied to a different location

The second case concerns Adani Defence Systems and Technologies Limited. The company initially sought 50 acres at Hardware Park (Phase II), Mamidipally, for an aerospace-related project. The proposed activities included precision machining, composite aero structures, ground-testing facilities, training and skill development, and a composite certification centre. The proposal cited investment of ₹300–500 crore and employment of 300–400 people; these were projected outcomes, not proof of actual delivery.

In March 2018, the Cabinet Sub-Committee agreed to allot 50 acres but advised moving the project to the new Aerospace Park at Kongarakallan to qualify for a discounted anchor-land price. After a meeting in April 2018, the Industries and Commerce Department decided to allot 20 acres at Hardware Park, Mamidipally, at ₹40 lakh per acre, compared with TSIIC’s prevailing rate of ₹2.13 crore per acre.

TSIIC allotted the 20 acres in June 2018 and collected ₹8 crore. The CAG’s concern was that the concession associated with relocation to the new Aerospace Park was extended even though the project was established at Mamidipally. It said the department had deviated from the Cabinet Sub-Committee’s decision and that such a deviation required the committee’s approval.

The CAG calculated an undue-benefit estimate of ₹34.60 crore: 20 acres multiplied by the difference between the prevailing rate of ₹2.13 crore per acre and the concessional rate of ₹40 lakh per acre.

Mamidipally: key figures

Audit item	Figure / finding
Company	Adani Defence Systems and Technologies Limited
Initial request	50 acres at Hardware Park (Phase II)
Cabinet Sub-Committee decision	Concession linked to shifting to Aerospace Park, Kongarakallan
Land actually allotted	20 acres at Mamidipally
Prevailing TSIIC rate	₹2.13 crore per acre
Concessional rate	₹40 lakh per acre
Amount collected	₹8 crore
CAG estimate of undue benefit	₹34.60 crore

In January 2023, company management said the concession reflected the project’s strategic importance to the defence sector and orders communicated by the Industries and Commerce Department. The government’s October 2023 reply said the request had been considered in the context of using resumed land and structures. The CAG rejected these explanations as sufficient, stating that the concession had been linked to relocation and that the department could not modify the committee’s decision without its approval.

What the two cases have in common

Question	Zaheerabad / VEM	Mamidipally / ADSTL
Central audit concern	511 acres allotted against assessed requirement of 49 acres	Concession extended at a location different from the one tied to the committee’s decision
Process issue	Assessment, possession and NIMZ approval concerns	Deviation from Cabinet Sub-Committee conditions
CAG estimate	₹106.91 crore	₹34.60 crore
Response recorded	Government relied on committee decision and corridor/NIMZ context	Company cited strategic defence importance; government referred to resumed land and structures
CAG’s position	Reply did not resolve the audit observations	Reply did not justify the deviation

The public-interest question is about process

These cases concern different companies, locations and decisions. They should not be treated as evidence of a common motive. What links them is the audit’s emphasis on process: whether land concessions followed the conditions under which they were approved, whether requirements were assessed before allotment, and whether the proper institutional authority approved deviations.

Industrial policy necessarily involves discretion. Governments may reasonably offer incentives to attract projects that they believe will create strategic capability, jobs and supplier networks. But discretion is more credible when its conditions are transparent, deviations are formally approved, land requirements are documented, and public agencies can demonstrate that the expected public benefit is proportionate to the concession.

The CAG report does not, by itself, establish criminal intent or settle the current status of either project. It does provide a documented basis for asking the Telangana government, TSIIC and the companies to clarify what has happened since the periods covered by the audit, whether the allotment conditions were subsequently met, and what safeguards now apply.

Questions for follow-up and right of reply

·       What is the current status of both projects, including construction, production, investment and employment actually achieved?

·       In the VEM case, how was the 511-acre allotment reconciled with the consultant’s 49-acre assessment, and what became of the ₹118.25 crore reimbursement claim recorded by the CAG?

·       What approvals, if any, were subsequently obtained from the relevant NIMZ special-purpose vehicle or Cabinet Sub-Committee?

·       In the ADSTL case, was any formal approval obtained for extending the concessional rate at Mamidipally rather than at Kongarakallan?

·       Have the audit observations or the estimated benefits been acted upon, contested or otherwise resolved since the replies recorded in the report?

Editorial note

This story is based on CAG Report No. 3 of 2025, Compliance Audit – Civil and Commercial, Government of Telangana, Chapter IV, particularly the audit discussions on pages 203–207 of the report. The report was tabled on 30 March 2026 and covers the period ended March 2022. Company and government replies are summarised as recorded by the CAG. The monetary figures attributed to the CAG are audit estimates, not judicial findings. Before publication, Biz Masala should seek updated responses from the Industries and Commerce Department, TSIIC, VEM Technologies and Adani Defence Systems and Technologies Limited.

Primary source

Comptroller and Auditor General of India, Telangana: Report No. 3 of 2025, Compliance Audit – Civil and Commercial.

Official report page: https://www.cag.gov.in/ag/telangana/en/audit-report/details/125033

Chapter IV PDF: https://d7i5wg8xwe4hf.cloudfront.net/uploads/download_audit_report/2025/5-Chapter-IV-signed-069ca29dd628ab1.23618731.pdf

At a glance: the audit estimates

Case	CAG estimate	Scale (₹ crore)
VEM Technologies — Zaheerabad	₹106.91 crore	█████████████████████
ADSTL — Mamidipally	₹34.60 crore	███████

Note: The bar lengths are illustrative only. Both amounts are estimates stated in the CAG report and should not be read as final legal determinations.

 

 

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