Understanding subsidies in a N...

Blog Detail

Understanding subsidies in a Nutshell

Understanding subsidies in a Nutshell

Subsidies are financial aid or support extended by the government to specific sectors within the economy to stimulate growth and foster innovation. Governments provide various strategically tailored subsidies to enhance the financial condition of the businesses, encouraging investments as well as generating employment. These financial incentives also help companies to adopt more sustainable options for growth and development. Let's have an in-depth look at several types of subsidies, each tailored to address diverse economic needs.

Broadly, we can categorize incentives provided by the government into three categories –

Asset Creation Incentives –

Capital Investment Subsidy –

These subsidies are aimed at promoting investments in new equipment, machinery, or technology. These subsidies cover a portion of the initial capital expenditure incurred by businesses, making it financially viable for them to modernize their operations or expand their capacities.

By availing of these subsidies, the financial burden of the enterprises is being reduced, enhancing their productivity and financial viability.

For example

Rajasthan government provides 13-28% of EFCI (eligible fixed capital investment) to be disbursed in annual installments in 10 years.

Haryana government offers 50% of Net SGST for the first five years and 25% for the next three years with a cap of 100% of Fixed Capital Investment.

Interest Subsidy

To reduce the cost of borrowing on the investments made by the companies, an interest subsidy is being provided. Lowering the interest rates on loans encourages entrepreneurs to invest in various ventures, fostering entrepreneurship and economic growth.

For example

Rajasthan Government is offering a 6% Interest subsidy for five years on loan amount up to 5 Cr.

For micro industries, the Uttar Pradesh Government is offering a 50% interest subsidy payable annually for five years, subject to a ceiling of INR 25 lakhs.

Special Incentives

Employment Booster

To generate employment in the country, the government provides various financial incentives in different sectors.

For example

Haryana government is promoting employment opportunities in the state by providing INR 30,000/- per year for the general category for seven years for direct employment on pay roll or contract with a valid ESI/PF Number.

Rajasthan government is offering 50% of the employer's contribution towards employees' EPF and ESI for seven years.

Punjab Government offers up to INR 36,000 per employee per year for up to 5 years, and for Women & SC/BC/OBC, up to INR 48,000 per employee per year.

Green Incentives –

Different financial incentives are being provided to encourage businesses to adopt cleaner and greener technologies.

For example

The government of Punjab is providing up to 75% reimbursement of expenses incurred for Energy Audits, Water Audit, Safety Audit, environmental audits, and steam Audit subject to a maximum of Rs. 1.5 lakh each.

Haryana government is offering 50% financial support or a maximum of INR 50.00 lakh on capital cost for setting up an Effluent Treatment Plant and for installation of Air Pollution Control Devices.

Freight Subsidy –

To reduce the financial burden of heavy transportation costs on goods and services, governments provide various freight subsidies.

For example

Haryana government provides freight assistance of 1% of Free on Board (FOB) value or actual freight, excluding government fees and taxes on transportation of goods from the place of manufacture to the seaport/ air cargo/ by road.

Training and Skilling Incentive –

To impart training and skills to the employees, the government helps the businesses by offering financial incentives.

For example

Skilling support is being provided in the form of a Training Subsidy of Rs. 4000 per worker per month for six months for training delivered in Rajasthan.

Haryana government is offering 50% of the training cost, up to a maximum of Rs. 5,000/- per worker per training program.

Exemptions –

The government also provides various exemptions in stamp duty, electricity duty, mandi fees, land tax, and conversion charges.

For example

Rajasthan, Haryana, Punjab, and Uttar Pradesh governments are offering 100% exemptions or reimbursements in the above categories.

Subsidies are powerful tools that governments employ to foster economic development and create a conducive environment for businesses and individuals to thrive. By understanding the different types of subsidies available, enterprises can make informed decisions, leverage available opportunities, and contribute to the sustainable growth of the nation.

About SubsidyPro

SubsidyPro is the most knowledgeable and trusted partner in navigating the complex world of government subsidies in India. It guides and assists entrepreneurs through the maze of subsidy programs offered by various governments. Subsidy Pro specializes in identifying eligible subsidies, preparing requisite documentation and ensuring compliance. The company helps unlock the potential of subsidies by providing customized solutions as per client’s needs and objectives to make their financial planning more viable.