Fiscal incetives and balanced regional development

Since the advent of planning for economic development, the Government of India has been making concerted efforts to correct regional socio-economic imbalances. With a view to promote development of backward areas through the policy of industrial dispersal, financial concessions and tax incentives are made available to entrepreneurs to set up industry in backward areas. The present study evalu ates one such tax incentive-backward area development allowance (section 80HH of the Income-tax Act, 1961).

The study concludes that this incentive as well as other major incentive schemes, alongwith the necessary infrastructural facilities, have played a significant role in the dispersal of industry to backward areas and their growth. The cost to the exchequer is found to be meagre. However, the backward area development allowance has now been replaced by the growth centre scheme that aims at creating infrastructural facilities in select regions.

The methodology as well as findings of this study may be of interest to scholars and students of public finance and regional economics. The study would also provide valuable insight to policy-makers in designing fiscal incentive schemes and to entrepreneurs in taking decisions about investment and location of industrial units.