Page 57 - DMGT207_MANAGEMENT_OF_FINANCES

Management of Finances

Notes 3.7.1 Capital Assistance Seed

The seed capital assistance scheme is designed by IDBI for professionally or technically qualified
entrepreneurs and/or persons possessing relevant experience, skills and entrepreneurial traits.
The project cost should not exceed 2 crores and the maximum assistance under the project will
be restricted to 50% of the required promoters contribution or 15 lacs whichever is lower.
The seed capital assistance is interest free but carries a service charge of 1% for the first five year
and 10% p.a. thereafter. However, IDBI will have the option to change interest at such rate as
may be determined by IDBI based on the financial position and profitability of the company.
The repayment schedule is fixed depending upon the repaying capacity of the unit with an
initial moratorium up to five years.
For projects with a project cost exceeding 200 lacs, seed capital may be detained from the Risk
Capital and Technology Corporation Ltd. (RCTC). For small projects costing up to 5 lacs,
assisted under the Natural Equity Fund of SIDBI may be availed.
3.7.2 Government Subsidies

The central and state governments provide subsidies to industrial units located in backward
areas. The central government has classified backward areas into three categories of districts: A,
B and C. The central subsidies applicable to industrial projects in these districts are:
1. Category A Districts-25% of the fixed capital investment subject to a maximum of 25 lakh
2. Category B Districts-15% of the fixed capital investment subject to a maximum of 15 lakh
3. Category C Districts-10% of the fixed capital investment subject to a maximum of 10 lakh.
State governments also offer cash subsidies to promote widespread dispersal of industries
within their states. Generally, the districts notified in the state subsidy schemes are different
from those covered under the central subsidy scheme. The state subsidies vary between 5% to
25% of the fixed capital investment in the project, subject to a ceiling varying between 5 lakh
and 25 lakh depending on the location.

Example: Satavahana Ispat Limited has been set up with the capacity to manufacture
1,20,000 tones of pig iron. The cost of project has been appraised by IDBI at 5,450 lakh and is to
be mainly financed through equity capital and term loans. The unit is also eligible for a state
government subsidy (Andhra Pradesh) of 20 lakh, which will also be a source of long-term
finance. The unit is located at Anantapur district of Andhra Pradesh and falls into" the Category
of a 'backward area.'

3.7.3 Sales Tax Deferments and Exemptions

To attract industries, the state provides incentives, in the form of sales tax deferments and sales
tax exemptions. Under the sales tax deferment scheme, the payment of sales tax on the sale of
finished goods may be deferred for a period ranging between five to twelve years. Essentially,
it implies that the project gets an interest-free loan, represented by the quantum of Sales Tax
deferment period.

Notes Under the sales tax exemption scheme, some states exempt the payment of sales tax
applicable on purchase of raw materials, consumables, packing and processing materials
from within the state while used for manufacturing purposes. The period of exemption
ranges from three to nine years depending on the state and the specific location of the
project within the state.

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