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"We can look into incentives once we have settled on the site, can we not?" This is the sequence we hear most often from companies preparing to enter India. It looks natural enough. In practice it is the sentence that gives away a considerable part of what you could have received.
State incentives in India are not offered at a fixed price. They are an instrument whose terms move only once you have placed several states on the same table and set them against one another — and that table closes the moment you settle on the state you are going to.
In the previous article we set out the five axes on which a state is chosen. In this article we turn to the one axis on which room for negotiation remains, namely how India's incentives are actually obtained, and in what order.
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Key Points of This Article
For those of you who are pressed for time, we will begin with the conclusions.
State incentives are not an application process but a negotiation. Most states hold an individual negotiation clause for large investments.
The substance of the negotiation is the competitive position itself. You should begin with no fewer than three states still in contention.
Put the same proposal to three states at the same time. Only where the investment amount, headcount and date of commencement are identical can the offers that come back be compared.
Your negotiating position disappears at two moments — when you settle on a state, and when you break ground.
The principal items require prior registration before the investment commences. Apply after breaking ground and those items do not open.
1. Central Incentives and State Incentives — Two Different Kinds of Money
The central government's Production Linked Incentive (PLI) scheme has operated, on the basis of the Indian government's own published figures, across 14 sectors with an outlay of approximately ₹1.91 lakh crore. The terms are the same wherever in India you build. It is therefore not a variable in your choice of state.
As matters stand in 2026, however, the application window for a considerable number of sectors has either closed or is in the process of closing, and the centre of gravity has moved to successor schemes such as the Electronics Component Manufacturing Scheme (ECMS). If you are entering now, the accurate question is not "can we obtain PLI" but "which window is open at present".
State incentives, by contrast, are available only where you invest in that state, and it is not uncommon in practice for their total value to exceed that of the central incentives. This is where the negotiation takes place.
The distinction matters for how your project team is organised. Central schemes are read: you establish whether your product falls within a notified sector, whether the window is open, and what the eligibility thresholds are, and the answer is the same in every state. State schemes are asked for: the published policy sets a floor, not a ceiling, and what you finally receive depends on what you put in front of the state and on who else is being shown the same thing. A company that treats both as reading exercises will complete the central analysis competently and leave the larger of the two sums on the table.
2. Why the States Compete — What Happened Once They Could No Longer Cut the Rate
Before GST, a state government could reduce the tax itself: "come to our state and we will exempt you from VAT". Under GST, however, rates are uniform nationwide, and a state government has no power to lower them.
So another route was made. "Pay your GST in the normal way, and we will return the state's share of it — the SGST — to you afterwards as a subsidy." That is the SGST reimbursement mechanism. The tax was unified; incentive competition survived, in a changed form.
The practical implication follows. What you are negotiating is not a rate. It is the reimbursement percentage, the reimbursement period, and the combination of subsidies laid on top of them.
It also explains why the competition between states did not soften after 2017 but hardened. A state that can no longer differentiate itself on the headline tax rate has to differentiate itself somewhere, and the room left to it lies entirely in the reimbursement and subsidy layer. That layer is discretionary, it is set case by case, and it is therefore the layer on which a company arriving with a credible alternative can move the terms.
3. What You Are Actually Negotiating — The Composition of the Package
A package is generally built from the following elements. Separating it into items is itself the starting point of the negotiation, because where one item is blocked the value can be moved onto another.
Item | What moves in negotiation |
|---|---|
Capital subsidy — cash support amounting to a set proportion of fixed asset investment | The rate and the cap. The less developed the district, the more favourable the terms |
Net SGST reimbursement — the state's share of GST paid, returned to you | The rate (typically 75–100%) and the period (typically 7 to 15 years) |
Interest subsidy — partial coverage of interest on borrowings for plant and equipment | The extent of coverage. Gujarat supports up to around 9% depending on the taluka classification |
Electricity tariff support and exemption from electricity duty | The period of exemption |
Exemption from, or refund of, stamp duty | Whether the exemption is full |
Reimbursement of the employer's EPF contribution | The headcount covered and the period |
Discount on land price | The rate per unit and the payment terms on development corporation land |
This package is not offered at a fixed price. Most states hold an individual negotiation clause for large (Mega / Ultra-Mega) investments, and will put forward terms beyond the standard package according to the employment created, the amount invested and whether the site lies in a less developed district.
The items are also worth reading against one another rather than in isolation. A capital subsidy is paid against fixed assets and therefore lands early; an SGST reimbursement is paid against output over seven to fifteen years and therefore lands late and only if you are in fact selling. A stamp duty exemption is a single figure that appears at acquisition, while a discount on development corporation land reduces the cost base before you have committed anything at all. Two packages of the same nominal value can sit very differently in a cash flow, which is why the composition matters as much as the total.
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Note: The levels of support set out above change as each state's industrial policy is amended (the Aatmanirbhar Gujarat Scheme and others). For your actual review you should re-confirm them against the latest notification.
4. The Two Moments at Which Your Negotiating Position Disappears
The first is the moment you settle on a state. If you fix the state internally and only then approach that state's industrial development corporation to enquire about incentives, no negotiating position remains to you. There is no reason for that state to offer more than the standard package to a company that has already decided to come.
The second is the moment you break ground. Most state incentive policies impose prior registration before the investment commences as a condition. Apply after breaking ground and core items such as the capital subsidy and the SGST reimbursement are excluded, and there is no retrospective application.
The automotive component manufacturer described in the previous article passed both points. It fixed the state first, applied after breaking ground, and — with no other state on the table — had no room to re-open the terms.
Neither moment announces itself. Nothing is refused on the day you settle on a state; the standard package simply becomes the whole of what is available, and no one is obliged to mention that it was not always so. The practical consequence is that the incentive timetable has to be built backwards from the date you intend to break ground, not forwards from the day someone remembers to ask about it.
5. How to Put the Same Proposal to Three States at Once
Keep no fewer than three states in contention. With two, the competition disappears the moment one of them drops out; with four or more it becomes difficult to maintain proposals of the same standard.
The investment proposal you send to the three must be identical. At the very least the following three figures must match.
Figure | Why it must be the same |
|---|---|
Investment amount | It is the basis on which the capital subsidy and the interest subsidy are calculated |
Headcount | It is the basis for the EPF reimbursement and the employment-linked conditions |
Date of commencement | It is the basis for when SGST reimbursement begins and for the deadline by which conditions must be met |
Where these three differ between states, the offers cannot be measured against the same rule — and offers that cannot be compared generate no competition.
You submit to each state's investment promotion agency and industrial development corporation. Gujarat's GIDC, Maharashtra's MIDC, Tamil Nadu's SIPCOT, Karnataka's KIADB, Telangana's TGIIC, Andhra Pradesh's APIIC and Uttar Pradesh's UPSIDA each perform that role.
What you should obtain is not an oral explanation but an offer letter. Only in writing can the terms be compared, and only once they are compared does the next round open. An oral indication cannot be put beside another state's paper, and a figure that cannot be put beside another figure exerts no pressure on anyone.
None of this requires you to be adversarial. You are asking three agencies whose function is to attract investment to tell you, in writing, what they are prepared to do for the same project. That is the ordinary business of those agencies, and a proposal that is specific enough to be priced is treated as a more serious proposal than one that is not.
6. How to Compare the Offers That Come Back
When the offers arrive it is easy to look first at the headline total. That total, however, is only one of four items.
What to look at | The question to ask |
|---|---|
Amount | Is a cap applied? On what percentage of the investment is it calculated? |
Timing | From when, and for how many years? How long after commencement do disbursements begin? |
Conditions | Is there an obligation to complete financial closure and commence operations within a set period? For how many years must the headcount be maintained? |
Clawback | What resumption provision applies if the conditions are not met? |
Development corporation land in particular differs from one agency to another not only in allotment criteria and price but in the obligation to commence operations and the resumption provision. It is not unusual for the offer with the largest headline figure to carry the heaviest conditions.
The three should therefore be transferred onto a single format and converted to a twenty-year cash flow before the ranking can be relied upon. Once the timing of each item is placed on a year axis, an offer whose reimbursement begins in year four and runs for seven years may sit below one whose headline value is smaller but whose capital subsidy is paid against construction. That conversion is not administrative tidying after the negotiation; it is part of the negotiation, because it tells you which item to press on in the round that follows.
Frequently Asked Questions (FAQ)
Q1. Ours is not a large investment. Can we still negotiate?
A. Individual negotiation clauses generally presuppose a large investment. Even within the standard package, however, the rate of support and the price of land vary with the district classification, and allotment terms differ from one industrial development corporation to another. Comparing several states is therefore worthwhile irrespective of scale, and it costs you no more than preparing one proposal carefully and sending it three times.
Q2. Would submitting to three states at once be taken as discourteous?
A. No. India's state investment promotion agencies operate on the assumption that they are competing for investment. Saying that you are reviewing several states is ordinary practice, and in many cases a case officer is assigned to you more quickly once you have said so.
Q3. If we receive central PLI, are we excluded from state incentives?
A. They are separate schemes funded from different sources. Restrictions on receiving both may nevertheless apply scheme by scheme, so we would recommend checking the current guidelines for your sector together with the industrial policy of the state concerned.
Q4. We have already chosen our state. Is there anything we can do now?
A. If you have not yet broken ground, begin with the items for which prior registration is still open. The registration itself is usually a short filing, and making it before the investment commences preserves an eligibility that is otherwise lost permanently. If you have already broken ground, it is worth reviewing whether any employment-linked or electricity-related items remain that can be applied for at the operational stage, and whether any registration obligation attaching to the site has been missed.
In Closing
State incentives in India are not an instrument you find and apply for. They are an instrument you obtain by placing several states on the table at once and setting them in competition. A company that does not create that competitive position will not receive more than the standard package, whichever state it goes to.
The amount can always be discussed again. Putting another state back on the table cannot.
In the next article we will set out, in checklist form, the items to confirm when state selection is put before your board.
📘 If You Would Like to Go Deeper into This Subject
Working back from the application deadline — fixing the prior registration date by counting backwards from ground-breaking.
A format for comparing offer letters — the items required to measure three states by the same rule.
Allotment terms by development corporation — how the operating obligations and resumption provisions differ.
Combining central and state incentives — reading the two schemes together on an effective tax burden basis.
📗 India Incorporation and Foreign Direct Investment (FDI) Regulation, the first volume of There Are Rules for India That Nobody Tells You, is available from BOOKK.
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