What is Incentive?
The term “incentive’, generally means encouraging productivity. It is a motivational force, which encourages an entrepreneur to take a right decision and act upon it. The objective of providing incentives is to motivate an entrepreneur to set up a new venture in the larger interest of the nation and the society.
Broadly, incentives include concessions, subsidies and bounties. Incentives may be financial or non-financial. Non financial incentives push an entrepreneur towards decision and action. Entrepreneurs in India are offered a number of incentives. These incentives normally aim at reducing some of the problems faced by small scale industrialists.
Subsidy: Subsidy is a financial assistance or a sum of money provided by a government, to an industry for public welfare or interest. It is any financial aid, grant, or contribution.
“Subsidy” means a single lump sum of money that is given by a Government to an entrepreneur to cover the cost.
Bounty: The term “bounty” denotes a bonus or financial aid given to an industry to help it to compete with other units established in country or in a foreign market.
Examples of Incentives
Industrial estates, industrial complexes, availability of power, concessional finance, capital investment subsidy, transport subsidy, are few examples of incentives to solve constraints faced by entrepreneurs in small scale sector.
Advantages of providing Incentives to Entrepreneurs
Following are the advantages of providing incentives to entrepreneurs.
1. Decentralization of economic power
Incentives encourages prospective entrepreneurs to take up industrial ventures and results in decentralization of economic power in few hands.
2. Balanced regional development
Incentives are given to entrepreneurs establishing industries in backward areas. Hence, it results in the dispersal of industries over India’s geographical area and contributes to regional balanced development.
3. Transformation of Technology
Incentives help in the transformation of traditional technology into modern technology. Traditional technology is characterized by low skill; low productivity and low wages, whereas modern technology is subsequently characterized by improved skills, high productivity, raising wages and a higher standard of living.
4. Overcomes Difficulties
The package of incentives and concessions are given to entrepreneurs for setting up units both in backward as well as developed districts. But generally it is given for setting up units in backward area. It is provided to offset the disadvantages prevailing in such places.
5. Generates Industrialization
Industrial policy uses incentives both to correct the market imperfections and to accelerate the process of industrialization in the country. Regional balances can also lead to effective utilization of regional resources, removal of disparities in income and levels of living and contribute to a more integrated society.
6. Encourages Entrepreneurship
The new entrants in the field face many obstacles on account of inadequate infrastructures. The new entrepreneur is supported by the government agencies through various incentives. Being a new entrant, an entrepreneur may lack marketing and entrepreneurial skills. An entrepreneur requires support from government agencies to compete with competitors. The subsidies and concessions motivate the entrepreneur both financially and non financially and promotes entrepreneurship in the country by removing economic constraints.
7. Helps to Overcome Competition
Incentives help the entrepreneur to survive and compete with the competitors. Some of the incentives are concerned with the survival and growth of industries. Several incentives are confined to the first few years of the establishment of the unit while a few of them are made available over a long period.