Informing educating and connecting Indians across the globe . . . by Virendar Chand
How to set up a new business
Government grants & incentives - New business startup
To set up a factory or industrial unit in India some clearances and approvals are required, such as:
Registration of your company.
Environment ministry clearance to comply with pollution laws.
Electricity connection clearance
Water connection approval as well as some additional items such as licenses etc that the
particular state government may require.
The government of India has made several administrative changes to help setting up factories
and Industrial units in India easy for foreign investors and NRIs returning to India to set up
The Indian Government has set up the Foreign Investment Promotion Board (FIPB) to promote
foreign investment in India.
The purpose of this board is to promote foreign investment in India as well as providing a single
window facility for all matters related to foreign investment in India.
The need to go from one department to the other for clearances in setting up business in India is
to some extend eliminated by single window clearance facility.
The Government of India has been supplementing the efforts of State Governments for
accelerating the industrial development of backward areas and special category states through
various policies and packages of incentives.
Those planning to set up industry or contemplating investing in India will find more information
regarding investing in India from the Ministry of commerce and industry website
STATE GOVERNMENTS INCENTIVES FOR INVESTORS
Many state governments are offering incentives to attract investment in their states. Many state
governments in India offer attractive incentive packages which include incentives such as:
Land at subsidized prices or Industrial sheds to set up small scale industrial units
Tax concessions for a number of years. These may include exemption from sales tax etc
for a set period of time
Electric power supply at a reduced tariff
Loans and subsidies at very attractive rates of interest
INCENTIVES FOR SETTING UP BUSINESS IN BACKWARD AREAS
The Government of India as well as several State Governments provide several benefits and incentives to promote industrialization of backward areas. Both the
central and state governments share the cost of some of the incentives provided.
The purpose of such incentives are to develop backward areas and increase employment for local inhabitants of such areas.
The bulk of new industries prefer areas with an established infrastructure and this is why incentives are offered to entice new ventures to start up in areas
that need development. Incentives offered depend on the specific area chosen.
Some of the incentives offered are:
Transportation subsidies to promote industries in areas that are not easily accessible, like remote
hilly areas. A subsidy of 50% to 90% on transportation costs is available under this scheme.
A Subsidy at the rate of 15% of the investment amount in plant and machinery is given under the
capital investment subsidy scheme.
A subsidy for interest relief is also provided at a rate of 3% for new industrial units in some
While in the past setting up an industry in India was not an easy task because of bureaucratic
requirements that needed to be fulfilled. However both the central and state governments have now
made efforts to improve some things.
Industrial Unit Startup Information for NRIs
For Non Resident Indians returning to India to start up industrial units. They will find that there is plenty of talent available in India. Hiring the right kind of
person can make things quite easy to go through the maze of Indian regulations. While the government, no doubt is trying to bring out reforms to make things
easier for foreign investors, the attitude of some officials is difficult to change.
Those who encounter problems should use the several channels available now to report clerks use delaying tactics for personal gain.
Returning NRIs who can tolerate the initial adjustment setbacks in establishing themselves when they return to India will ultimately find the rewards well
worth the effort. India offers investors tremendous opportunities and is presently one of the most sought locations for industrial investment.
Loans available for starting Industrial venture in India
There are two main financial institutions available for loans for entrepreneurs on the (federal/ all India level).
Industrial Development Bank of India (IDBI)
Industrial Finance Corporation of India (IFCI)
The Industrial Development Bank of India is the head institution in the area of long term industrial finance.
It was established under the IDBI Act 1964 as a wholly owned subsidiary of RBI and started functioning on July 01, 1964. Under Public Financial Institutions Laws
(Amendment) Act 1976, it was delinked from RBI. IDBI is engaged in direct financing of the industrial activities.
The objectives of the Industrial development bank of India are to create a principal institution for long term finance, to coordinate the institutions working in
this field for planned development of industrial sector, to provide technical and administrative support to the industries and to conduct research and
development activities for the benefit of industrial sector.
On the State level finance is available loans can be availed from:
State Financial Corporation (SFC)
State Industrial Development Corporation (SIDC).
Criteria for Business loans:
Technical assessment of project
Experience of the entrepreneurs
Financial & commercial practicality of the project
Conformity to environmental laws
Economic viability of the project
How to apply for business loans in India – Loan application procedure
The first step is to submit a detailed project report (business plan)to the financial institution to IDBI, IFCI or any other financial institution from where
the loan sanction is sought. In case a license is a requirement for the project, the license should be provided with the project report.
The financial institution after scrutinizing the project report. If the financial institution requires additional information or clarifications, they usually
ask for this in a few days of receipt of project report.
Representative from the financial institution will arrange to inspect the site etc to make certain the suitability of the project. At this stage discussions
on various aspects of the project are discussed and final project costs are calculated.
The financial institution gives its approval if they find the project feasible.
Loans provided for business ventures can be for equipment and fixed assets as well as working capital.
While there is no hard and fast rule that is revealed by financial institutions. I would say that if a project is viable and the entrepreneur has approximately 25%
of his own funds. Then 75% can be financed. In addition to this loans can be availed for working capital also.
In case you can provide proof of your expertise in the project there is always the possibility that your loans may be sanctioned with a lesser amount of cash
investment on your part. Projects costing up to Rupees 5 crore can normally be financed on the state level.
Financial institutions follow guidelines such as debt-equity ratio, entrepreneur’s contribution to the project etc when deciding on loans. It is not uncommon for
applicants to inflate their contributions in an attempt to invest the least amount of their own funds.
More detailed information is available in THE NRI GUIDE 2012/2013.
Disclaimer: Information provided is for general knowledge only and should not be deemed to be professional advice. For professional advice kindly consult a professional
accountant, immigration advisor or the Indian consulate. Rules and regulations do change from time to time. Please note that in case of any variation between what has
been stated on this website and the relevant Act, Rules, Regulations, Policy Statements etc. the latter shall prevail.
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