Capital subsidy
Also called: Capex support, Capex subsidy · Topic: Industrial Policy, Public Sector, MSMEs and Disinvestment · NCERT: Beyond NCERT
Meaning
A capital subsidy is government money that pays part of the cost of building a plant, machinery or other asset. It is usually set as a percentage of the eligible investment, often with a rupee cap for each firm. The government may pay it all at once or in stages as building milestones are met. It matters most where the start-up cost is so high that firms cannot raise the money to build at all. One limit is that it lowers only the building cost, not the daily running costs (raw material, power, wages). Another is that the money is spent even if the plant later produces little.
Example
In November 2026 the Union Cabinet approved a ₹2,814-crore Capex Support Scheme for lithium and nickel processing, running from FY 2026-27 to 2030-31. It pays 30% of eligible investment, up to ₹500 crore for each lithium firm and ₹900 crore for each nickel firm. The money comes in three tranches tied to milestones. So a firm investing ₹1,000 crore in a lithium plant would get ₹300 crore.
Don't confuse with
- Production-linked incentive (PLI): PLI pays a percentage of incremental sales, meaning extra sales above a FY20 base year. It pays only after output is made and sold. A capital subsidy pays towards building the plant, before the plant has proved it works.
- Operating subsidy: This lowers running costs such as power or interest. A capital subsidy covers only the upfront investment.