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Institutional Support for New Ventures

Institutional Support for New Ventures

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Published by Madhavi Sadiza

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Published by: Madhavi Sadiza on Apr 11, 2012
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Board is the apex non-statutory advisory body constituted by the Government of India to render advice on all issues pertaining to the SSI sector. It provides a forum to its members for interaction to facilitate co-operation and inter institutional linkages and to render advice to the Government on various policy matters, for the development of the sector. The Board was first constituted in 1954. Its term is for two years. 2 Ministry of Small Scale Industries: The process of liberalization and market reforms has created wide-ranging opportunities of the development of small scale industries. At the same time, 280 changing world scenario has thrown up new challenges to the very existence of this sector. The need of the hour is to suitably strengthen the sector so that it could adapt itself to the changed environment and face the challenges boldly and effectively. The implementation of policies and various programmers/schemes for providing infrastructure and support services to small enterprises is undertaken through its attached office, namely the Small Industries Development Organization (SIDO), statutory bodies/other organizations like Khadi and Village Industries Commission (KVIC) & Coir Board, National Small Industries Corporation (NSIC) and three training institutes- National Institute of Small Industry Extension Training (NISIET), Hyderabad, Indian Institute for Entrepreneurship (IIE), National Institute for Entrepreneurship and Small Business Development (NIESBUD) 3 Small Industry Development Organisation (SIDO): • Advising the Govt. in policy matters concerning small scale sector. • Providing techno-economic and managerial consultancy, common facilities and extension services. • Providing facilities for technology up-gradation, modernization quality improvement & infrastructure. • Human resources development through training and skill up-gradation. • Providing economic information services. • Maintaining close liaison and vital linkage with the Central Ministries, Planning Commission, Financial Institutions, State Govts. & similar other developmental organizations/agencies related to the promotion and development of SSI Sector. 4 National Small Industries Corporation (NSIC) Limited: Some of the main services provided by NSIC are described below: • Machinery and Equipment (Hire-Purchase Scheme) • Machinery and Equipment (Lease Scheme) • Financial Assistance Scheme • Assistance for Procurement of Raw Material • Marketing Assistance • Government Store Purchase Programme • Technology Transfer Centre 5 The Khadi and Village Industries Commission (KVIC) The Khadi and Village Industries Commission (KVIC) is a statutory body created by an Act of Parliament in April 1957. The KVIC is supposed to do the planning, promotion, organization and implementation of programmes for the development of khadi and other village industries in the rural areas in coordination with other agencies engaged in rural development wherever necessary. The broad objectives that the KVIC has set before it are: • The social objective of providing employment • The economic objective of producing saleable articles, The wider objective of creating self-reliance amongst the poor and building up of a strong rural community spirit. 6 Coir Board: Coir Board is a statutory body established by the Government of India under a legislation enacted by the Parliament namely Coir Industry Act 1953 for the promotion and development of Coir Industry in India as a whole. 7Industrial Finance Corporation of India ltd (IFCI): Some sectors that have directly benefited from IFCI’s disbursals include: • Consumer goods industry (textiles, paper, sugar); • Service industries (hotels, hospitals); • Basic industries (iron & steel, fertilizers, basic chemicals, cement);

the Institute strives to achieve its avowed objectives through a gamut of operations ranging from training. and Govt. Entrepreneurship Development Institute of India (EDII):EDII has been spearheading an entrepreneurship movement throughout the nation in the belief that entrepreneurs need not necessarily be born. Chairman. National Institute for Entrepreneurship & Small Business Development (NIESBUD): NIESBUD’S role is that of a catalyst as it helps in developing the effectiveness of all these organizations. Ministry of Small Scale Industries. miscellaneous chemicals). The institute is engaged in creating a climate conducive for entrepreneurship and in developing favourable attitude amongst the general public in support of those who opt for entrepreneurial career. the primary responsibility for implementation of policies and programmes of assistance rests with the Directorate of Industries in each State. Programmes initiated/sponsored by the NIESBUD are constantly evaluated and revised to suit the changing needs in the area of entrepreneurship and small business development. industrial parks and setting up industrial projects either on their own or in the joint sector in collaboration with private entrepreneurs or as wholly owned subsidiaries. of India head the Executive Committee. consultancy. they are also involved in developing industrial infrastructure like industrial estates. STATE LEVEL INSTITUTIONS 1 State Industrial Development Corporations (SIDCs): The State Industrial Development Corporations were set up under the Companies Act. It performs both regulatory and developmental functions. they can be developed through wellconceived and well-directed activities. industries offices and extension offices at district sub-division and block level respectively. 8 Training Institutes: National Institute of Small Industries Extension Training (NISIET) The NISIET since its inception by the Government of India has taken gigantic strides to become the premier institution for the promotion. It acts under the overall guidance of SIDO and concerned Central institutions. as wholly owned state government undertakings for promotion and development of medium and large industries. research and education. Indian Institute of Entrepreneurship (IIE):The policy direction and guidance is provided to the Institute by its Board of Management whose chairman is the Secretary to the Government of India. to extension and information services. synthetic fibers. telecom services). development and modernization of the SME sector. . j) Maintaining liaison with other agencies for industrial development. 1956. and Infrastructure (power generation. i) Overall administration of village and small scale industries. In addition to provision of financial assistance.• • Capital & intermediate goods industries (electronics. The main functions of Directorate of Industries are as follows: a) Registration of small scale units b) Providing financial assistance c) Distributing scare and indigenous raw materials to industrial units d) Granting essentiality certificates for import of raw material e) Establishing industrial estates and industrial co-operatives f) Developing industrial infrastructure g) Undertaking industrial surveys and collecting information h) Arranging concessions and incentives for industries. SSI and ARI. Therefore. heads the governing council of the institute and the Secretary. synthetic plastics. 2 State Directorate of Industries (SDIs) Under the constitution of India promotion and development of small scale industries is a State subject. It functions through a network of District Industries offices. An autonomous arm of the Ministry of Small Scale Industries. NEC.

through its bills rediscounting scheme. equipment finance. b) Industrial Development Bank of India (IDBI) The IDBI provides assistance to the small-scale industries through its scheme of refinance and. bill discounting.3 District Industries Centres (DICs) Initially institutional infrastructure for small industry development existed at the state level and there was hardly any promotional machinery at the district level except a small office of the district industries. underwriting and direct subscriptions to shares/debentures and guarantees. . single window scheme. asset credit and venture capital.5% depending upon the size of the loan and its term. viz. In late 70s. it was felt that if a district has to be a unit of planning. They also provide working capital term-loan to the industrial units on competitive terms. 240 lakhs. Industrial policies over the year have focused to promote SSIs through various incentives related to financial. project counseling. there should be strong promotional machinery with delegated powers at the district level.75% to 16. Along with the Large Scale sector the thrust was on Small Scale sector because of it decentralized. They are operating a number of financial assistance schemes for the benefit of the entrepreneurs such as assistance for marketing activities. felt that an agency should be set up a district level. to a limited extent. along with a heavy industrial base. (iii) It guarantees loans from other private investment sources.. special schemes for assistance to ex-servicemen. fiscal and infrastructure measure. building and machinery. (ii) It offers variety of financial services such as deferred credit. employment intensity and its suitability for rural area with limited technoeconomic structure. therefore. As it is not feasible for the IDBI to reach a large number of small-scale industries scattered all over the country. leasing credit. 3 State Financial Corporations (SFCs) SFCs provide term loan to small and medium scale industries for creation of assets. 2 The primary responsibility for developing small industries by creating infrastructure has been provided to state government . installment sale. POLICY SUPPORT TO SMALL SCALE INDUSTRIES INTRODUCTION After attaining independence in 1947 India adopted mixed economic planning as a method to achieve economic development. etc. use mainly indigenous technology. under-writing of public issues. 3 Central government frame the broad policies and coordinates the efforts of State Government for development of SSIs. The various provisions under Industrial Policy Resolutions formulated by the government in assisting the small scale industries (SSI) The various fiscal incentives for SSIs INDUSTRIAL POLICY RESOLUTION AND SSIs INDUSTRIAL POLICY RESOLUTION 1948 1 SSIs are particularly suited for the utilization of local resources and creation of employment opportunities . its small size. the flow of its assistance to this vast number has. which will have necessary expertise to guide an entrepreneur and meet all his requirements FUND-BASED INSTITUTIONS 1 Small Industries Development Bank of India (SIDBI): Small Industries Development Bank of India (SIDBI) was established in April 1990 under an Act of Indian Parliament as the principal financial institution for: • Promotion • Financing • Development of industry in the small-scale sector • Co-ordinating the functions of other institutions engaged in similar activities 2 Commercial Banks: a) Industrial Credit and Investment Corporation of India Ltd. (ICICI): The ICICI performs the following functions: (i) It provides assistance by way of rupee and foreign currency loans. leasing and hire purchase are also been undertaken by them. It was therefore. been indirect in the form of refinancing of loans granted by the banks and the State Financial Corporations (SFCs). The interest on loan ranges between 13. SFCs provide maximum loan upto Rs. Various non-fund based services like merchant banking. land.

3. Priority was accorded to small and tiny units in allocation of indigenous and raw materials. linkage of the sector to institutional framework in area like credit . Factoring services were to launch to solve the problem of delayed payment to SSIs. market survey. Stress was reiterated to upgrade technology to improve competitiveness. The family income eligibility limit of Rs 24000 was enhanced to Rs 40000 per annum under the Prime Minister Rozgar Yozna (PMRY). The concept of District Industrial Centers (DICs) was introduced to that in each district a single agency could meet all the requirement of SSIs under one roof. Market promotion of products was emphasized through co-operatives. 85 items were de-reserved in October 2004. Technological up gradation was emphasized in traditional sector . such as. were laid down. production standardization. INDUSTRIAL POLICY RESOLUTION 1977 The main thrust of policy was effective promotion of cottage . 2. generation of large scale employment opportunities. It created central investment subsidy for this sector in rural and backward area. The coverage of ongoing Integrated Infrastructure Development (IID) was enhanced to cover all area in the country with 50% reservation for rural area and 50%earmarking of plots for tiny sector. the aim of state policy would be that the development of this sector is integrated with that of large scale industry.raw material supply. public institutions and other marketing agencies and corporations. The investment limit for tiny enterprises was raised to Rs. Activities of Khadi and Village Industries Commission and Khadi and Village Industrial Board were to expand. Reservation of items to be produced by SSIs was increased to 836. Also. Special emphasis was laid on training of woman and youth under Entrepreneurial Development Programme. INDUSTRIAL POLICY RESOLUTION 1990 Main feature of this resolution are as follows: 1. Credit Guarantee cover was provided against an aggregate credit of Rs 23 crore till December 2001. Special marketing arrangement through the provision of services. 2 The focus was to improve the competitive strength of SSIs. shoes and toys. INDUSTRIAL POLICY ON SSIS 2004-05 Policy initiatives for this year are as follows: The national commission on Enterprises in the Un-organized/Informal Sector was set up in September 2004.in respect of seven item of sports goods to help to upgrade the technology and enhance . 4. Its salient feature are: SSIs were exempted from licensing for all articles of manufacture. Market Development Assistant Scheme was launched exclusively for SSI sector. infrastructure. The third census of small scale industries by the ministry of SSI was conducted. Four UNIDO assisted project were commissioned during the year under the Cluster Development Programme . SSI associations were motivated to develop and operate testing laboratories.INDUSTRIAL POLICY RESOLUTION 1956 1 It stated that besides continuing the policy support to cottage. Equity participation by other industrial undertaking was permitted up to a limit of 24% of shareholding in SSIs. 14 items were de-reserved in June 2001 related to leather goods. 5. The limit of investment was increased in industry related service and business enterprises from Rs 5 lakhs to Rs 10 lakhs. It raised the investment ceiling in plant and machinery for SSIs. assistance was granted to woman entrepreneurs for widening the entrepreneurial base. INDUSTRIAL POLICY PACKAGE FOR SSI 2001-02 This policy emphasizes the following: The investment limit was enhanced from Rs 1crore for to Rs 5 crore for units in hosiery and hand tool sub sectors.5 lacs irrespective of location.village and small industries widely dispersed in rural area and small towns. quality control. which also covered sickness and its causes in SSI’s. 6. Small Industries Development Bank of India was established to ensure adequate flow of credit to SSIs. The investment limit in plant and machinery was raised from Rs One crore to Rs 5 crore in October 2004. village and small industries by differential taxation or direct-subsidies. 7. INDUSTRIAL POLICY RESOLUTION 1991 The basic thrust of this resolution was to simplify regulations and procedures by delicensing. deregulation .It suggested measures considered necessary for improvement in the productivity of these enterprises. One time capital grant of 50% was given on reimbursement basis to each association. COMPREHENSIVE POLICY PACKAGE FOR SSIS AND TINY SECTOR 2000 The exemption for excise duty limit raised from 50 lakhs to Rs One crore to improve the competitiveness. This thinking specified the following things: 504 items were reserved for exclusive production in the small scale industries .marketing facilities and skill development by training . technology up gradation . The scheme of granting Rs 75000 to each small scale enterprise for obtaining ISO 9000 certificate was continued till the end 10 th plan. The corpus fund set up under the Credit Guarantee Fund Scheme was increased from 125 crore to 200 crore . The limit of composite loan was increased from Rs10 lakhs to Rs 25 lakh.

2) SSI units having turnover less than Rs. Small and Medium Enterprises were recognized in the services sector .MEASURES FOR PROMOTION AND DEVELOPMENT OF SSIs Central and state Government have formulated several schemes to make the SSIs vital and competitive. and were treated on par with SSIs in the manufacturing sector. The following concessions are available to them in this regard: 1) SSI units producing goods up to Rs. POLICY PACKAGE FOR SME 2005-06 THIS POLICY PACKAGE CONTAINS THE FOLLOWING POINTS 180 items were dereservation.5% to 1.as well as in respect of goods exported to Nepal & Bhutan.TAX HOLIDAY With effect from financial year 2005-06. 3. Promotional Package for small enterprises was initiated. The Small and Medium Enterprise (SME) fund of Rs 10000 crores was stared by SIDBI since April 2004. These incentives have been provided to promote the SSIs and discussed in following: 1. Reservation policy Government’s purchased preference policy for SSI products.EXCISE CONCESSIONS: Government of India has provided a major relief by grating full exemption from the payment of central excise duty on a specified output and thereafter slab-wise concessions. and If any other person owns SSI units . Gate –Pass System was replaced by manufacturer invoice to cover clearance of goods as the duty-paying document. deduction in respect of profit and gains for small scale industrial undertaking is available under Section 80IB. their own record are adequate for excise purpose. 4) There is no distinction between registered and unregistered units for SSI concessions for SSIs has been based on annual turnover rather than SSI registration . Duty liability is to be discharged by 15 th of following month.100 lakhs are exempted from payment of excise duties. The sum assured would be Rs 200000 per beneficiary and the premium will be paid by CGTSI. SSI unit can manufacture any nature/type of goods /article to avail deduction. This list reviewed .with 80% of the lending for SSI units. 3)SSIs are also not required to maintain any statutory records such as daily stock account of production and clearance . In February2004. Small scale industrial undertaking can claim deduction at the following rates: If SSI unit is owned by a company . 14 item on 2001. handlooms. The model is now being implemented. The reserve Bank of India raised the composite loan limit from Rs 50 lakhs to Rs One crore. in nine sector including khadi and village industries.TAX EXEMPTION CONDITIONS: No small scale or ancillary undertaking shall be subsidiary of. 75 item in 2003 and 85 items in 2004. The interest rate was 2%below the prevailing Prime Lending Rate (PLR) of the SIDBI.39 items were dereserved in four phases viz. 51 item were dereserved in 2002. Government’s price preference policy for marketing SSI products. 4. This tax exemption from total income is allowed from the assessment year in which the unit being to manufacture or produce goods or articles.5% for all loans.. 5)The SSI exemption is available for home consumption . Credit Guarantee Trust for Small Industries (CGTSI) was advised to reduce the one time guarantee fee from 2. the deduction available is 30% for first 10 year .60 lakhs per annum need not have a separate storeroom for storing the finished products. the Committee (set up to consider the .personal ledger account etc. the deduction to be availed is 25% for first 10 years .excise officers are not expected to visit SSI units paying less than Rs. The emphasis was laid on Cluster Development model not only to promote manufacturing but also to renew industrial towns build new industrial township . The corpus of the Credit Guarantee Fund was raised from Rs 1132 crore in March 2006 to Rs 2500 crore in five years.RESERVATION POLICY Out of 836 items reserved in 1989. 15 items in 1997’ 9 items on 1999 1 item on 2001 and. Now 298 items stand reserved for this sector.subsequently. agricultural products and medicinal plants. Insurance cover was extended to proximately 30. FISCAL INCENTIVES AND FACILITIES TO SSIs Fiscal incentives are provided through tax concessions granted in the form of exempted of direct or indirect taxes leviable on production or profits.GOVERNMENT’S PURCHASE PREFERENCE POLICY FOR SSI PRODUCTS Under the Store Purchase Policy of the Government 409 items of store were reserved for exclusive purchase from KVIC/Women’s Development Corporation/Small Scale units in 1989.000 borrowers. 2. 108 in March 2005 and 180 in May 2006. raw material account .11lakhs duty annually . textiles. 6. identified as chief promoters. under the CGTSI.the deduction to be claimed is 25% for first 10 years . 7)With effect from 1-4-1994. besides special tax concessions. 6) Normally . Technical assistance Raw material assistance Financial assistance New initiatives 5. The SSI unit should commence business between 1 st April1991 and 31 st March 2002. or owned or controlled by other industries undertaking .competitiveness. They should employ at least 10 workers in manufacturing process carried out with aid of power or at least 20 worker in manufacturing process carried out without the aid of power. If SSI unit is owned by a co-cooperative society.

7. A consortium to channelize and identify for the production of SSIs both in India and abroad. This list also includes 8 handicraft items reserved for purchase from the Handicraft Sector. Exempted from payment of Security Deposit up to the monetary limit for which the unit is registered. Product design including Computer Aided Designs. after deleting items having common nomenclature and addition of some new ones. . poor access to raw –material as compared to the large scale sector. Price preference up to15% over the lowest quotation of the large scale units. 8.question of inclusion of additional items) revised list and 358 items were approved .poor resource base. Common facility support in machining Energy and environment services at selected centers.GOVERNMENT PRICE PREFERENCE POLICY FOR MARKETING SSI PRODUTS These facilities includes the following : Price preference up to 15%in case of selected items. Material testing facilities through accredited laboratories. which get them registered with the NSIC: Availability of tender sets free cost. 9. The benefit is available to compensate them on a/c of nonavailability of economies of scale .The Single Point Registration scheme of NSIC the following benefits are given to SSIs units. No registration fee. Technology acquisition .TECHNICAL ASSISTANCE Technology audits and benchmarking Technology needs assessment Technology sourcing Application of new acquisition. Classroom and practical training for skill up gradation. Exempted from payment of Earnest Money Deposit.

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