Tax concessions, exemptions or discounts on utility charges, exemption from registration fee and stamp duty, and capital subsidies to new investments in backward districts are among the state-level incentives to investors, notes ‘OECD Investment Policy Reviews: India’ (www.academicfoundation.com).
As there is no coordination mechanism for state-level investment incentives and investment promotion activities, there is strong competition among the states for investment, the publication adds. “An interstate forum to evaluate impacts of state-level investment incentives on other states’ investment environment, for example using the ‘OECD Checklist for FDI Incentives Policies,’ may be useful,” reads a recommendation, therefore.
The OECD observes that while incentives competition may in some cases contribute to efficiency in the allocation of FDI, there are important risks that these benefits come at an excessive cost to the domestic as well as international community. “Such risks may include distorting impacts on domestic resource allocation, unjustifiable budgetary cost, waste of economic resources, and violation of commitments under international agreements.”
Since investment incentives often have effects beyond the jurisdiction that offers them, cooperation among different jurisdictions or authorities is crucial, reasons the OECD.
Useful reference.
