India: State Subsidies In India

Last Updated: 26 October 2015
Article by Bhavesh Thakkar


Today, India is considered to be one of the major forces in the global economic market. Due to its large consumer market, rapid infrastructural developments, ample pool of talent, abundant natural resources and low manufacturing cost, India scores over other countries in terms of being an ideal destination for business investments. The "Make in India" campaign, launched by the new Modi Government is being marketed in a big way. Though economists, industrialists and relevant stakeholders are still awaiting to declare it a 'Success' but with it, now, the focus is on manufacturing and employment generation, which was hitherto missing. India being a federal economy and for the country to be made a manufacturing hub, the contribution and role of the state governments cannot be overlooked. Rather, the role of the State Governments is predominant to attract investors to set up a manufacturing facility in their respective states. Last two years have been an era of competitive federalism wherein the State Governments are trying to outdo each other in attracting investments. Of late, this has become a very important indicator of the state's economic growth.

In the quest to attract investments there has been stiff competition amongst various states to offer subsides and grants to industries evaluating set up. Each state is trying to surpass the other in declaring the Industrial Policy, offering maximum possible benefits.

The industries planning to invest in India are required to be acquainted with these subsidies as these can significantly impact the cash flow and payback period of their enterprise. There are innumerable instances wherein manufacturing units have failed to claim these substantial benefits because of lack of awareness and knowledge of the same. The benefits range from a huge 30% to 100% of the capital cost and thus cannot be ignored.

Though each state comes up with its own policy, there are certain fundamental tenets on which all state subsidies are based, which are summarised as –

  • Each state develops an Industrial Policy generally spanning a period of 5 years. The applicable period may be different in each state depending on the formation of Government in that state.
  • The Industrial Policies are applicable mostly to all Manufacturing Enterprises. In the recent past even sector specific policies have been unveiled. For example, Maharashtra and Gujarat have a Textile Policy, Tamil Nadu has a new Automobile Policy and so on.
  • The states have generally been divided into zones. For a lesser developed zone, the percentage of benefits is more. This is in line with practices followed worldwide, like in Germany, for example. Some states do not follow the zone-wise classification and offer uniform subsidies across the state.
  • There is a common misconception that subsidies are available only to new units set up in the state. But the fact is, even existing units which undergo expansion are eligible for these benefits.
  • The percentage of benefits normally depends on the size of investment. It is important to note that the benefits for large projects with substantial capital or employment generation capabilities are kept flexible and normally decided by a special committee. This is to provide tailor made subsidies to those units and help states compete with other states to formulate the benefits.
  • None of the policy differentiates in the benefits available to a foreign company and a domestic company i.e, the benefits available to an Indian domestic company are same as available to foreign companies.

What are The Benefits

The benefits can broadly be summarised into 2 categories:

a) Cost Reductions -

The benefits are in the form of reduction in payments for certain percentage of power, stamp duty, water or other utility bills that the manufacturing unit needs to pay. This helps the unit in reduction of cost of production and makes the product competitive in the market.

b) Tax Reimbursements -

The benefits are linked to the capital cost of the company. The benefit is capped as a certain percentage of the capital cost and the encashment of the benefit is in the form of tax reimbursements of the various taxes paid to the State Government.

There are two methods by which the tax reimbursements are given by the State -

i) Cash Back Method

ii) Deferral Method

Majority of the state governments currently follow the cash back method and other states are also expected to phase out the deferral method and switch to the cash back method.


The percentage of benefit of subsidy is high and forms an important part of the decision making process. Like in the state of Rajashthan or Madhya Pradesh, the benefit percentage is 100% of the investment which is a substantial. Subsidies cannot be the sole guiding factor in choosing the location of the enterprise but the benefit percentage being so high, it is certainly one of the most important factors of the decision making process. The moot point is the awareness of the scheme which is pretty low and the manufacturing units set up in the recent past have not claimed these benefits. Investors need to be enlightened on this front so that they do not miss these benefits.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.