Solution:

Incentives For Development of Industries In Backward Areas:

• As a part of the measures to ensure balanced regional development, The government of India has announced several concessions and facilities for industries established in selected backward districts/areas from time to time.

• The Central government has declared 247 districts (covering about 70% of the areas in the country) as backward and eligible for the subsidies. Many State Governments have added to this list State-level subsidies.

The program of assistance drawn up for setting up industries in the selected backward area/district is briefly indicated below :

• (i) Concessional finance:

  • All Indian financial institutions namely, Industrial Finance Corporation of India and Industrial Credit and Investment Corporation of India, Industrial Development Bank of India, extend financial assistance on concessional terms to all, new and existing industrial projects having expansion schemes irrespective of the project costs located in the 247 districts selected by the government.

  • The concessions given by these financial institutions are in the form of lower interest rates viz., 9.5% p.a. against the normal rate of 11 %, a reduced commitment charge of 0.5% (which could be waived in exceptional cases), a lower underwriting commission of 1.25% and 0.75% for shares and debentures respectively, an initial moratorium period up to five years, longer amortizations of 15 to 20 years, and participation in the risk capital on a selective basis.

  • Besides these, the IDBI follows a flexible attitude in respect of the promoter’s contribution, margin requirements, and rescheduling of repayments during the tenure of the loan.

  • Depending upon the merits of specific cases in respect of reliance, the IDBI charges a special rate of 6% with the primary lender’s rate being subjected to a ceiling of 9.5%. The normal rate of refinancing is 6% with a ceiling of 12.5% by the primary lending institution.

• (ii) Capital Investment Subsidy:

  • The granting of cash subsidy on the capital investment is called capital investment subsidy.

  • It will be usually in the form of an outright grant of 10% to 20% of the amount of capital invested in the industrial units in areas specified to be backward regions/districts.

  • It is offered by the Central Government. Out of the districts declared backward by the planning commission, 101 districts/areas have been selected to qualify for Central investment subsidy.

  • These districts/areas have been selected on the pattern of six districts/areas for industrially backward states and three districts/areas for other states.

The salient features of the scheme are given below :

• (i) Quantum of subsidy:

  • When the scheme was originally announced in 1971, 10% of the investment made on fixed capital investment viz., land, building, and plant and machinery, was to be reimbursed as an outright grant subject to a ceiling of Rs. 15 lacs.

  • This was raised to 15% with the effect from 1-3-1973. The maximum amount payable is, however, restricted to Rs. 15 lacs per industrial unit.

  • After the division of backward districts into (A), (B), and (C) categories the the subsidy will be : (A) 25% subject to a maximum of Rs. 25 lacs; (B) 15% subject to a maximum of Rs. 15 lacs (c) 10% subject to a maximum of Rs. 10 lacs.

• (ii) Eligibility:

  • An industrial unit other than those run departmentally which made investments in land, building, plant and machinery on or after 1-3-1973 and located in the above category of districts/areas are eligible to claim subsidies.

  • Existing units taking into expansion, modernization and diversification is also eligible to claim subsidy.

• (iii) Procedure for Claiming Subsidy:

  • The State Governments/Union Territory administrations have nominated disbursing agencies to administer the scheme of investment subsidy.

  • State Financial Corporation and financial institutions such as IDBI, IFCI, and ICICI are some of the agencies selected for disbursements of subsidies under the scheme.

  • Each industrial unit being set up in the specified district gets registered with the Director of Industries for claiming investment subsidy.

  • The units are desirous of getting an investment subsidy may approach the disbursing agencies who in turn make a recommendation after verification etc. to the State level committee which has been appointed in each State/Union Territory.