In a federal structure like that of India, it is essential to ensure that economic development brings about balanced regional development. But in India, even after more than fifty years of planed economic development, there has been no tendency towards balanced development. Over the years, especially during the past two decades, there has been growing inter-state disparities in India. More developed states like Punjab and Haryana have a per capita development expenditure of about two and a half times the level of less developed states like Bihar. In the post-reform period, most of the investments have been flowing to relatively better developed states, starving poorer states of fresh investments. There have been efforts to infuse more investment to backward states by a system of incentives introduced. The National Development Council appointed two Working Groups [called Pande (1968) and Wanchoo (1968) Groups respectively], to identify industrially backward states and Union Territories and another to recommend fiscal and financial incentives for starting industries in backward areas. Based on their recommendation, 246 districts were designated backward and made eligible for concessional finance and other facilities. Examining the role of fiscal and financial incentives in stimulating industrialisation of backward areas, the Wanchoo Working Group recommended:

i.granting of higher development rebate to industries located in backward areas,

ii.granting of exemption from corporate income tax for a period of five years,

iii.exemption from import duty on plant and machinery imported for location of industries in backward districts,

iv.exemption from excise duties and sales tax for a period of five years, and,

v.provision of transport subsidy.