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What are Government Grants?

Government Grants

Meaning of Government Grants

‘Grant’ is a gift. It is free and not be returned. Grant can be a ‘tied’ grant or ‘untied’ grant. A tied grant is where government will insist for its utilization for the purpose given. Untied grant can be used for anything. Untied grant is not sanctioned for specific purpose. For example, If a grant is given by World Bank to the earthquake affected area, the local authority can use it, for any purpose they deem fit. On the other hand, the USA gave grant for establishing dairy plant in Marathwada region and this grant was conditional. Industries generally received tied grants.

Incentives for Development Industries in Backward Areas

As a part of the measures to ensure balanced regional development, Government of India has announced a number of 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 for the purpose of State level subsidies. The programme of assistance drawn up for setting up industries in the selected backward area/ district is briefly indicated below:

  1. Concessional finance:

    All India financial institutions namely, Industrial Development Bank of India, Industrial Finance Corporation of India and Industrial Credit and Investment Corporation 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 rate.

  2. Central Investment Subsidy:

    The granting of cash subsidy on the capital investment is called capital investment subsidy. It will be usually in the form of outright grant of 10% to 20% of the amount of capital invested in the industrial units in areas specified to be backward regions/ districts. The government also fixes ceiling above which the subsidy cannot be availed. It is offered by the Central Government.

Out of the 247 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:

  1. Quantum of subsidy : When the scheme was originally announced in 1971, 1% 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 lakhs. This was raised to 15% with effect from 1.3.1973. The maximum amount payable is, however, restricted to Rs. 15 lakhs per industrial unit.
    • After the division of backward districts into (A), (B) and (C) categories the subsidy will be: (A) 25% subject to a maximum of Rs. 25 lakhs; (B) 15% subject to a maximum of Rs. 15 lakhs (c) 10% subject to a maximum of 10 lakhs.
  2. Eligibility: An industrial unit other than those run departmentally which made investments land, building, and plant and machinery on or; after 1-3-1973 and located in the above category of districts/ areas is eligible to claim subsidies. Existing units taking into expansion, modernization and diversification are also eligible to claim subsidy.
  3. 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 subsidy under the scheme. Each industrial unit being set up in the specified district/ area gets registered with the Director of Industrial for claiming investment subsidy. The units desirous of getting investment subsidy may approach the disbursing agencies who in turn make recommendation after verification etc. to the State level committee which has been appointed in each State Union/Territory.

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