The point of penals is that they are an early shock unit that come within ~2 minutes. They can be used as tankier flamer units than engineers to clear buildings. Maybe they could do with better vet bonuses at vet 2, but don't give them lmgs or whatever you're thinking.
Why not? It's not like they obey their unit flavor in the first place. Penal troops with SVT-40s? Not if the zampolit has anything to say about it.
The point is that the value of a 2 minute ''shock'' unit that barely performs above conscripts is very slight. Sure, they win vs Volks and Grens 1v1 unlike Conscripts. But by the time you can get their flamer, 1v1 fights between infantry already start to matter less than what that infantry brings to you for cost, and the conscripts's vastly better utility (baseline Ooorah + AT nades + non-shit throwable) makes them more desirable.
And going T1 as Soviets can be so risky and MP intensive (especially vs OKW) that the payoff better be worth it. As it stands, Penals aren't worth it the vast majority of the time. And I'm pretty sure a role change would help them become viable for, well, how about the first time in CoH2's history.