UNIT 5

INCENTIVES AND SUBSIDIES

MEANING OF INCENTIVES AND
SUBSIDIES



MEANING
Incentive means encouraging productivity.
It is a motivational force which makes an
entrepreneur take a right decision and act
upon it.
It includes concessions subsidies and
bounties.
Economic incentives both financial and
nonfinancial inculcate decision and action.

SUBSIDIES
Subsidy means a single amount which is given by
government to an entrepreneur to cover the cost.
The term bounty means a bonus or financial aid
given to an industry to help it compete with other
units in the country or in foreign market.
The objective of both is to motivate an
entrepreneur to set up a new venture in the
interest of the nation and the society.
NEED FOR INCENTIVES
To correct regional imbalances in development-
package of incentives and concessions is available in
backward as well as developed districts, however
what is lacking in backward districts is the overall
envioronmental growth.Industrial policy uses
incentives both to correct the market imperfections
and to accelerate the process of industrialisation.
To promote entrepreneurship by removing economic
constraintsinadequate infrastructure,defeciency of
supporting services such as (technical consultancy)
form various economic constraints.
NEED FOR INCENTIVES CONTD
The various incentives help in solving these
problems by way of industrial estates,
concessional finance, transport subsidy.
To provide competitive strength, survival and
growthSome incentives are given for the first
few years of establishment of the unit while a few
of them are given for a long period of time.
Reservation policy for SSI units is an example of
incentive given to entrepreneurs.Price preference
is another exampleof incentives given.
OBJECTIVES OF INCENTIVES
Entrepreneurship development
Regional development
Provide competitive strength
Motivate people for new ventures
Give stimulus to industry and business
Motivate entrepreneurs to set up new
ventures in view of interest of society and
nation.
STRATEGY OF INCENTIVES
Subsidy for purchaseVaries from 50% to 100% of
cost
Entrepreneur TrainingFree with stipend for SC/ST
and women entrepreneurs
Developed landAt subsidised cost, on hire
purchase, outright purchase basis
Factory shedIn industrial estates
MachineryOn hire purchase/lease
Seed capital loanTo start industries

INCENTIVES STRATEGY CONTD..
Central investment subsidy at the rate of 25%varies from
10lakhs to 50lakhs

State investment subsidy10% To 15%

Tax exemptionExcise and sales tax exemption from
stamp duty and concessional registration changes

Establishment grantIn some case

Stamp dutyExempted in most cases