K.L.E.

Society's College of Business Administration – BBA, Hubli

SMALL BUSINESS MANAGEMENT

I. PART – 1: Each question carries 5 to 10 marks.

1. Discuss the contribution of SSI to the Indian Economy.

Small scale industries play an important role for the development of Indian
economy in many ways. About 60 to 70 percent of the total innovations in India
come from the SSIs. Many of the big businesses today were all started small and
then nurtured into big businesses. The roles of SSIs in economic development of the
country are briefly explained below.

Role of Small Scale Industries in Indian Economy Role of Small Scale Industries in
Indian Economy

1. Small Scale Industries Provides Employment

 SSI uses labour intensive techniques. Hence, it provides employment
opportunities to a large number of people. Thus, it reduces the unemployment
problem to a great extent.
 SSI provides employment to artisans, technically qualified persons and
professionals. It also provides employment opportunities to people engaged in
traditional arts in India.
 SSI accounts for employment of people in rural sector and unorganized sector.
 It provides employment to skilled and unskilled people in India.
 The employment capital ratio is high for the SSI.

2. SSI Facilitates Women Growth

 It provides employment opportunities to women in India.
 It promotes entrepreneurial skills among women as special incentives are given
to women entrepreneurs.

3. SSI Brings Balanced Regional Development

 SSI promotes decentralized development of industries as most of the small scale
industries are set up in backward and rural areas.
 It removes regional disparities by industrializing rural and backward areas and
brings balanced regional development.
 It promotes urban and rural growth in India.
 It helps to reduce the problems of congestion, slums, sanitation and pollution in
cities by providing employment and income to people living in rural areas. It plays
an important role by initiating the government to build the infrastructural facilities
in rural areas.

 It helps in improving the standard of living of people residing in suburban and rural
areas in India.
 The entrepreneurial talent is tapped in different regions and the income is also
distributed instead of being concentrated in the hands of a few individuals or
business families.

4. SSI Helps in Mobilization of Local Resources

 It helps to mobilize and utilize local resources like small savings, entrepreneurial
talent, etc., of the entrepreneurs, which might otherwise remain idle and unutilized.
Thus it helps in effective utilization of resources.
 It paves way for promoting traditional family skills and handicrafts. There is a great
demand for handicraft goods in foreign countries.
 It helps to improve the growth of local entrepreneurs and self-employed
professionals in small towns and villages in India.

5. SSI Paves for Optimisation of Capital

 SSI requires less capital per unit of output. It provides quick return on investment
due to shorter gestation period. The pay back period is quite short in small scale
industries.
 SSI functions as a stabilizing force by providing high output capital ratio as well as
high employment capital ratio.
 It encourages the people living in rural areas and small towns to mobilize savings
and channelize them into industrial activities.

6. SSI Promotes Exports

 SSI does not require sophisticated machinery. Hence, it is not necessary to import
the machines from abroad. On the other hand, there is a great demand for goods
produced by small scale sector. Thus it reduces the pressure on the country’s
balance of payments.
 SSI earns valuable foreign exchange through exports from India.

7. SSI Complements Large Scale Industries

  SSI plays a complementary role to large scale sector and supports the large scale
industries.
 SSI provides parts, components, accessories to large scale industries and meets the
requirements of large scale industries through setting up units near the large scale
units.
 It serves as ancillaries to large Scale units.

8. SSI Meets Consumer Demands

 SSI produces wide range of products required by consumers in India.

 SSI meets the demand of the consumers without creating a shortage for goods.
Hence, it serves as an anti-inflationary force by providing goods of daily use.

9. SSI Ensures Social Advantage

 SSI helps in the development of the society by reducing concentration of income and
wealth in few hands.
 SSI provides employment to people and pave for independent living.
 SSI helps the people living in rural and backward sector to participate in the process
of development.
 It encourages democracy and self-governance.

10. Develops Entrepreneurship

 It helps to develop a class of entrepreneurs in the society. It helps the job seekers to
turn out as job givers.
 It promotes self-employment and spirit of self-reliance in the society.
 Development of small scale industries helps to increase the per capita income of
India in various ways.
 It facilitates development of backward areas and weaker sections of the society.
 Small Scale Industries are adept in distributing national income in more efficient and
equitable manner among the various participants of the society.

2. Discuss in brief the main service of KSSIDC

Karnataka State Small Industries Development Corporation KSSIDC is another
organisation of the Government engaged in providing readymade industrial sheds for
the ready use of investors. KSSIDC (then Mysore Small Industries Corporation) is
rendering services to the small sector in the State for more than 40 years.
 The Corporation started with the following as its Main Services:

1. Establishment and Management of Industrial Estates.

2. Procurement and distribution of raw materials.
3. Assistance towards marketing.
4. Dissemination of information by participating in the internal and international
exhibitions.
5. Supply of machinery under Hire Purchase Scheme.
6. Providing Guidance to SSI Entrepreneurs.
7. Providing Technical Library facilities.

3. Discuss the various incentives for promoting SSIs in backward areas.

Incentives for Development of SSI in Backward Areas:
To ensure the balanced regional development, the government of India has announced
various concessions & facilities. They are as follows
1. Concessional Finance: Government started giving Extra concessional finance to the
backward areas to uplift and ensure the balanced economic development.
2. Central investment subsidies: The Government categorized districts on the basis of the
development. Category A: 25% to the maximum of 25 Lakhs.
1. Category B: 15% to the maximum of 15 Lakhs
2. Category C: 10% to the maximum of 10 Lakhs
3. Tax Holiday: Tax Holiday to new industrial undertakings set up in backward States and
union territories. (i.e. Tax Holiday offers a period of exemption from income tax for new
industries in order to develop or diversify domestic industries.)
4. Tax holiday for the power sector: The exemption extended towards the power/
electricity generating sector.
5. Special Concessions to MRTP/FERA companies: the Companies coming under the
control of these acts are provided special concessions MRTP (Monopoly Restrictive
Trade Practices 1969). FERA(Foreign Exchange Regulation Act 1973)
6. Subsidised Consultancy & Market studies: Government Provide the consultancy &
Market research facilities at lower and affordable costs.
7. Adoption of Indigenous Technology: Government encourages using and upgrading the
new Domestic Technology. They promote Desi Contribution in technology.
8. Machinery on Hire Purchase: NSIC is an apex body which is giving all the facilities
required to the SSIs. They provide machinery on Hire purchases basis.
9. Transport subsidies: Government is supporting SSI by providing Concessional
transportation facility.
10. 101 district areas have been declared as specially Backward: Additional incentives
like capital subsidy, special import facilities etc. are provided to the industrial projects.
11. Seed Capital: in order to assist financially to the SSI units established in the non areas the
scheme of Seed capital scheme has been taken up by IDBI(Industrial Development Bank
of India)
 12. Special Incentives: Special incentives offered to industrialists establishing in in
backward states and backward districts.
13. District Declared by the central Government as backward & Eligible for
concessional finance:
Category A: Bidar
Category B: Mysore Dharwad, & Raichur.
Category C: Tumkur, Daxina Kannada. Hassan Guglbarga, Belgaum, Bijapur, Uttara
Kannada.

4. Explain the stages of project formulation

Micro and small-scale enterprises do not include sophisticated techniques which are used
for preparing project reports of large-scale enterprises. Within the small-scale enterprises
too, all the information may not be homogeneous for all units.

Project formulation divides the process of project development into eight distinct and
sequential stages.
These stages are:
1. General Information.
2. Project Description.
3. Market Potential.
4. Capital Costs and Sources of Finance.
5. Assessment of Working Capital Requirements.
6. Other Financial Aspects.
7. Economic and Social Variables.
8. Project Implementation.

1. General Information:
The information of general nature given in the project report includes the following:
Bio-data of Promoter:

Name and address of entrepreneur; the qualifications, experience and other capabilities of
the entrepreneur; if these are partners, state these characteristics of all the partners
individually.

Industry Profile:
A reference of analysis of industry to which the project belongs, e.g., past performance,
present status, its organisation, its problems, etc.

Constitution and Organisation:

The constitution and organisational structure of the enterprise, in case of partnership firm,
its registration with the Registrar of Firms; application for getting Registration Certificate
from the Directorate of Industries/District Industry Centre, etc.

Product Details:
Product utility, product range; product design; advantages to be offered by the product
over its substitutes

2. Project Description:
A brief description of the project covering the following aspects is given in the project
report.

Site:
Location of enterprise; owned or leasehold land; industrial area; No Objection Certificate
(NOC) from the Municipal Authorities if the enterprise location falls in the residential area.

Physical Infrastructure:
Availability of the following items of infrastructure should be mentioned in the
project report:
(i) Raw Material:
Requirement of raw material, whether inland or imported, sources of raw material supply.
(ii) Skilled Labour:
Availability of skilled labour in the area, arrangements for training labourers in various
skills.
Utilities:
These include:
(i) Power: Requirement for power, load sanctioned availability of power.
(ii) Fuel: Requirement for fuel items such as coal, coke, oil or gas, state of their availability.
(iii) Water: The sources and quality of water required should be clearly stated in the
project report.
Pollution Control:
The aspects like scope of dumps, sewage system and sewage treatment plant should be
clearly stated in case of industries producing emissions.
Communication System:
Availability of communication facilities, e.g., telephone, telexes etc. should be stated in the
project report.
Transport Facilities:
Requirements for transport, mode of transport, potential means of transport, distances to
be covered, bottlenecks etc., should be stated in the business plan.
Other Common Facilities:
Availability of common facilities like machine shops, welding shops and electrical repair
shops etc. should be stated in the report.
Production Process:
A mention should be made for process involved in production and period of conversion
from raw material into finished goods.
Machinery and Equipment:
A complete list of items of machinery and equipment’s required indicating their size, type,
cost and sources of their supply should be enclosed with the project report.
Capacity of the Plant:
The installed licensed capacity of the plant along with the shifts should also be mentioned
in the project report.
Technology Selected:
The selection of technology, arrangements made for acquiring it should be mentioned in
the business plan.
Research and Development:
A mention should be made in the project report regarding proposed research and
development activities to be undertaken in future.

3. Market Potential:
While preparing a project report, the following aspects relating to market potential
of the product should be stated in the report:
(i) Demand and Supply Position:
State the total expected demand for the product and present supply position. This should
also be mentioned how much of the gap will be filled up by the proposed unit.
(ii) Expected Price:
An expected price of the product to be realised should be mentioned in the project report.
(iii) Marketing Strategy:
Arrangements made for selling the product should be clearly stated in the project report.
(iv) After-Sales Service:
Depending upon the nature of the product, provisions made for after-sales service should
normally be stated in the project report.
(v) Transportation:
Requirement for transportation means indicating whether public transport or
entrepreneur’s own transport should be mentioned in the project report.

4. Capital Costs and Sources of Finance:

An estimate of the various components of capital items like land and buildings, plant and
machinery, installation costs, preliminary expenses, margin for working capital should be
given in the project report. The present probable sources of finance should also be stated in
the project report. The sources should indicate the owner’s funds together with funds
raised from financial institutions and banks.

5. Assessment of Working Capital Requirements:

The requirement for working capital and its sources of supply should be carefully and
clearly mentioned in the business plan or project report. It is always better to prepare
working capital requirements in the prescribed formats designed by limits of requirement.
It will minimise objections from the banker’s side.

6. Other Financial Aspects:

In order to adjudge the profitability of the project to be set up, a projected Profit and Loss
Account indicating likely sales revenue, cost of production, allied cost and profit should be
prepared. A projected Balance Sheet and Cash Flow Statement should also be prepared to
indicate the financial position and requirements at various stages of the project.
In addition to above, the Break-Even Analysis should also be presented in the project
report. Break-even point is the level of production/ sales where the industrial enterprise
shall earn neither profit nor incur loss. In fact, it will just break even. Break-even level
indicates the gestation period and the likely moratorium required for repayment of loans.
Break-even point (BEP) is calculated as follows:
BEP = F/S-V x 100
where, F = Fixed Cost
S = Sales Projected
V = Variable Costs
Thus, the break-even point so calculated will indicate at what percentage of sales, the
enterprise will break even i.e., no profit, no loss.

7. Economic and Social Variables:

In view of the social responsibility of business, the abatement costs, i.e., the costs for
controlling the environmental damage should be stated in the project. Arrangements made
for treating the effluents and emissions should also be mentioned in the report.
Besides, the socio-economic benefits expected to accrue from the project should also be
stated in the report itself.
Following are the examples of socioeconomic benefits:
(i) Employment Generation.
(ii) Import Substitution.
(iii) Ancillarisation.
(iv) Exports.
(v) Local Resource Utilization.
(vi) Development of the Area.
8. Project Implementation:
Last but no means the least, every entrepreneur should draw an implementation scheme or
a time-table for his project to ensure the timely completion of all activities involved in
setting-up an enterprise. Timely implementation is important because if there is a delay, it
causes, among other things, a project cost overrun.
In India, delays in project implementation have become a common feature. Delay in project
implementation jeopardizes the financial viability of the project, on the one hand, and
props up the entrepreneur to drop the idea to set-up an enterprise, on the other. Hence,
there is a need to draw up an implementation schedule for the project and then to adhere
to it to complete the project in time.

5. Explain the importance of a Project Report.

Project report is an important cornerstone for setting up an enterprise. It is a business plan
to convert a business idea into a productive venture. It is like a blue print for any
construction activity without which one would land in confusion or chaos at a later stage.

The significance of a project report is as follows;

 Serves as a Master Plan-
For successful management, effective planning is absolutely essential. A project
report serves as a business plan indicating the objectives or goals of the enterprise
& states in detail how these objectives are going to be achieved at various stages of
the enterprise.

 Describes Direction / Road Map-

A project report is like a road map. It describes the direction in which the enterprise
should go & how to reach the goal. Without well defined goals & operational
methods as stated in the report, most enterprises land in troubled waters &
flounder on the rocks of hard times.

 Shows Feasibility-
A project report also shows the feasibility of the proposed project & the probability
of achieving profit. Whether a project is feasible from different angles- economic,
financial, commercial, social etc. can be ascertained while preparing a project report.

 Foresees requirements-
A project report enables an entrepreneur to realize what he needs for implementing
the project well in advance. It also gives a general idea of his various resource
requirements like raw materials, manpower, finance, infrastructure facilities etc.
and also the means of procuring them. Thus, it enables an entrepreneur to foresee
his requirements in advance & helps him to take suitable decisions accordingly.
  Indicates Profitability-
It gives an indication of likely & benefits which a prospective entrepreneur can get
from his venture. This profitability indication will help an entrepreneur to take an
important investment decision. Thus, the financial rewards can be visualized in
advance.

 Helps in Decision Making-

Crucial decisions have to be made at various stages of production. How much to
produce to achieve Break-Even-Level? How to fix the repayment schedule? Such
important decisions can be taken with the help of a project report prepared well in
advance. It also anticipates problems in advance so that suitable decisions can be
taken then & there to solve those problems. Thus, it helps to visualize action tasks
also.

 Paves way for Financial Assistance-

The preparation of a project report is absolutely essential for those enterprises
which apply for financial assistance from different financial institutions & banks. It
is on the basis of project report, that the financial institutions could be given or not.
In most cases, the quality of the firms project report weighs heavily in taking lending
decisions. Thus, it paves the way for financial assistance which is the life blood of an
enterprise.

6. Write the short note on

1) KIADB
KIADB is a wholly owned infrastructure agency of Karnataka government, set up under
Karnataka Industrial Areas Development Act of 1966

Objectives of KIADB:
 Promote rapid & orderly development of industries in the state.
 Assist in implementation of policies of government within the purview of KIAD Act
 Facilitate in establishing infrastructure projects
 Function on No Profit No Loss basis

Role / Functions of KIADB:

 Acquire Land & Form industrial area in the state.
 Provide basic infrastructure in the industrial areas.
 Acquire Land for single unit complexes.
 Acquire Land for government agencies for their schemes & infrastructure projects.
2) KSIIDC
Karnataka State Industrial Investment and Development Corporation (KSIIDC) is a premier
State Level Industrial Development Corporation established under the Companies Act in
1964. KSIIDC is wholly owned Government of Karnataka undertaking with share capital,
including share application money, of Rs 112.44 Crores. An ISO 9002 company, recognised
by IDBI as Category "A" IDC.
KSIIDC has its head office at Bangalore and branch offices at Hubli, Mysore, Mangalore and
Gulbarga.

Objectives of KSIIDC
The objectives of the Karnataka State Industrial Infrastructure Development Corporation
are
 To act as catalyst for promoting industrial growth in the State, especially in the
medium and large sector by
o Identifying industrial opportunities;
o Providing guidance and advice to prospective entrepreneurs
o Providing necessary financial assistance and other related services to realise
these opportunities.

 To act as the designated agency of the Government to

o Plan and formulate proposals for industrial infrastructure development
projects after assessing the need in different sectors/areas; and
o Monitor the specified mega projects during implementation as the nodal
agency.

Activities
TO ACT AS STATE LEVEL DEVELOPMENT FINANCE INSTITUTE
TO PERFORM PROMOTIONAL ACTIVITIES : KSIIDC performs following industrial
promotional activities for growth of industries in the state
 Project identification
 Identification and selection of suitable entrepreneurs
  Assistance in securing statutory and Government approvals/clearances
 Direct participation in equity
 Promotion of joint sector projects
 Providing of escort services

TO PERFORM DEVELOPMENTAL ACTIVITIES : KSIIDC is designated agency of the

Government to plan and formulate proposals for infrastructure development projects like
 Industrial Parks/Townships
 Industrial Growth Centers
 Airport of international standard
 Minor Airports
 Sea Ports

3) TCO.
Technical Consultancy Organisations (TCOs) were created for facilitating technical
consultancy for industrial projects. These organisations were established by the All India
Financial Institutions (IDBI, ICICI, IFCI, etc) in collaboration the state level financial /
development organisations and commercial banks. There are in all 18 state-level TCOs
across India.
Some of the activities of TCOs can be summed up as below:
 Development of Industry Clusters
 Conducting Industry Potential Surveys /Techno-Economic Viability (TEV) studies
 Infrastructure Planning
 Energy and Environment Research and Management
 NPA Resolution
 Vocational Training
 Technology Facilitation / Preparation of Project Profiles
 Conducting Entrepreneurship Development Programs
 Carrying out Market Research for specific products
 Offering Merchant Banking Services
 Offering Consultancy for Export-oriented Enterprises
4) TECSOK
Technical Consultancy Services Organisation of Karnataka (TECSOK), is amultidisciplin
ary technical, industrial and management consultancy organization set up.
Technical Consultancy Services Organisation of Karnataka (TECSOK), is multidisciplina
ry technical, industrial and management consultancy organization set up. It was established in
the year 1976 by the Government of Karnataka. The primary objective of founding
TECSOK was to provide reliable consultancy support for entrepreneurs to start up self employm
ent ventures in Karnataka, India.TECSOK is a multidisciplinary managementconsultancy organi
zation promoted by the Government of Karnataka to provide reliable consultancy services in
India.

Functions / Role of TECSOK

 Location Specific identification of investment opportunities.
 Assistance in obtaining statutory and procedural clearances.
 Feasibility studies and environment impact studies.
 Preparation of detailed project reports as per investment norms and financial norms..
 Market survey and research.
 Project implementation and turnkey assistance.
 Reorganization and restructuring of enterprises.
 Valuation of assets, man power planning & budgetary control system.
 Energy management & audit, corporate plan, technology transfer.
 Diagnostic studies and rehabilitation of sick industries

7. What do you mean by an Industrial Estate? Explain its objectives?

An industrial estate is a place where the required facilities and factory accommodation are
provided by the government to the entrepreneurs to establish their industries there.

In India, industrial estates have been utilised as an effective tool for the promotion and
growth of small-scale industries. They have also been used as an effective tool to
decentralize industrial activity to rural and backward areas.

Industrial estates are also known by different names, e.g. industrial region, industrial park,
industrial area, industrial zone, etc.
Definition:
According to P.C. Alexander, “An industrial estate is a group of factories, constructed
on an economic scale in suitable sites with facilities of water, transport, electricity, steam,
bank, post office, canteen, watch and ward and first-aid, and provided with special
arrangements for technical guidance and common service facilities”
Objectives of Industrial Estates:
The main objectives of the establishment of industrial estates are to:
1. Provide infrastructure and accommodation facilities to the entrepreneurs;
2. Encourage the development of small-scale industries in the country;
3. Decentralize industries to the rural and backward areas;
4. Encourage ancillarisation in surroundings of major industrial units; and
5. Develop entrepreneurship by creating a congenial climate to run the industries in
these estates/area /township, etc.

Types of Industrial Estates:

I. On The Basis of Functions:
On the basis of functions, industrial estates are broadly classified into two types:
1. General type industrial estates, and
2. Special type industrial estates.
General Type Industrial Estate:
These are also called as conventional or composite industrial estates. These
provide accommodation to a wide variety and range of industrial concerns.
The Indian Industrial estates are mainly of this type:
Special Type Industrial Estate:
This type of industrial estates is constructed for specific industrial units,
which are vertically or horizontally independent.
II. On the basis of Organizational set-up:
On this basis, industrial estates are classified into following four types:
1. Government Industrial Estates,
2. Private Industrial Estates,
3. Co-operative Industrial Estates.
4. Municipal Industrial Estates

III. On the Basis of the Other Variants:

On the basis of other variants, industrial estates are classified into following three
types:
(a) Ancillary Industrial Estates:
In such industrial estates, only those small- scale units are housed which are
ancillary to a particular large industry. Examples of such units are like one attached to the
HMT, Bangalore.
(b) Functional Industrial Estates:
Industrial units manufacturing the same product are usually housed in these
industrial estates. These Industrial estates also serve as a base for expansion of small units
into large units.
(c) The Workshop -bay:
Such types of industrial estates are constructed mainly for very small firms engaged
in repair work.
8. In brief, explain the consequences of industrial sickness.
The phenomenon of industrial sickness not only tends to aggravate the problem of
unemployment but also renders infectious capital investment and generally creates an
adverse climate for further industrial growth. While in advances countries where there are
adequate social security benefits, this is accepted as a normal feature of industrial scene.
But such sickness ahs much more serious economic consequences in a country where
unemployment is a major problem and financial resources are scarce.

Some of the consequences of industrial sickness are discussed below:

(i) Losses to Banks and other Financial Institutions. Banks and other financial
institutions lend substantial funds to industrial units. When these units turn sick, they
cause considerable losses to the lending institutions which had granted loans to them.
Further, the future lending capacity of these institutions also get adversely affected because
of the locked up funds in the sick industrial units.

(ii) Unemployment. Another serious consequence of industrial sickness has been loss of
employment to workers associated with sick units. This aggravates the most serious socio-
economic problem of unemployment in a labour surplus economy like India.

(iii) Industrial Unrest. A from rendering a number of workers unemployed, a sick unit
may also lead to initial unrest. The trade unions (of both sick and non-sick units) may
resort to strikes opposing retrenchment of labour of the closed units and as such disturb
industrial peace in the country.

(iv) Wastage of Resources. If a unit in which substantial investment has been made in
plant and machinery turns sick, it recourse in wastage of scarce resources. The closure of a
unit thus not only results in decline in production in the economy but also blocking of
valuable savings and capital investment which, otherwise, should have yielded profitable
returns to the economy.
(v) Revenuer Loss to the Government. The Government gets substantial revenues from
industrial units by way of various levies. but when a number of units become sick, the
receipts of revenue are greatly reduced.

(vi) Adverse Impact on Related Units. An industrial unit is normally linked with a
number of other industrial units though backward linkages and forward linkages.
Therefore, sickness in one unit is likely to adversely affect the other related units. For
example, if a iron and steel unit gets sick, it will affect the units that supply inputs to it and
which take its output.

(vii) Adverse Impact on Prospective Entrepreneurs and Investors. The closure of a

large number of sick units generally affects the psychology of investors. They may feel
demodulated to invest. The whole industrial development of the economy.

9. Explain the advantage of TQM to small enterprise

It is easy to start small enterprises but difficult to make them survive. It is more so in the
context of ever increasing competition in business brought by liberalisation, privatisation
and globalization (LPG) of the Indian economy. Only those enterprises can survive who
possess strength to face the stiff and complex competition.

Further, small enterprises find it more difficult to face competition due to their small size in
all respects be these finance, technology, managerial competencies, etc. Then, the question
arises is how to develop competitive strength among small enterprises to meet competition
effectively.

In aggregate, TQM offers various advantages to small-scale enterprises but not confined to
the following only:

a. Increases efficiency in processes.

b. Provides more time for innovation and creativity.

c. Raises the morale of employees.

d. Brings improvement in the quality of products and services.

e. Increases customer satisfaction.

f. Bags larger market share for the product.

g. Leads to higher productivity.

10. Explain the various factors influencing the selection of a location for SSI.
Location, localization and planned location of industries are often felt to be synonymous.
But, the distinction among these three terms is of immense importance. Entrepreneurs
locate their enterprises where the cost of production comes, the lowest at the time of
establishing industries. This is known as ‘location of industries’.

The reason is that the then industrial structure was heavily dominated by the natural
resource-base and consumer-oriented industries. But, over the period the very
consideration for locating industries in a particular region has undergone a considerable
change so the early theories of industrial location have become improper to explain
location. Consideration of natural resources in the choice of industrial location has declined
and the industries are likely to be established even in those areas with poor natural
endowment.

Factors influencing the selection of a location

(i) Availability of Raw Materials

(ii) Proximity to Market

(iii) Infrastructural Facilities

(iv) Government Policy

(v) Availability of Manpower

(vi) Local Laws, Regulations and Taxation

(vii) Ecological and Environmental Factors

(viii) Competition

(ix) Incentives, Land costs. Subsidies for Backward Areas

(x) Climatic Conditions

(xi) Political conditions.

11. Explain the functions of SISI.
SMALL INDUSTRIES SERVICE INSTITUTES (SISI)

The small industries service institutes (SISI’s) are set-up one in each state to provide
consultancy and training to small and prospective entrepreneurs. The activities of SISs are
co-ordinate by the industrial management training division of the DC, SSI office (New
Delhi). In all there are 28 SISI’s and 30 Branch SISI’s set up in state capitals and other
places all over the country.

SISI has wide spectrum of technological, management and administrative tasks to perform.

Functions of SISI

 To assist existing and prospective entrepreneurs through technical and managerial

counseling such as help in selecting the appropriate machinery and equipment,
adoption of recognized standards of testing, quality performance etc;

 Conducting EDPs all over the country;

 To advise the Central and State governments on policy matters relating to small
industry development;

 To assist in testing of raw materials and products of SSIs, their inspection and
quality control;

 To provide market information to the SISI’s;

 To recommend SSI’s for financial assistance from financial institutions;

 To enlist entrepreneurs for partition in Government stores purchase programme;

 Conduct economic and technical surveys and prepare techno-economic feasible

reports for selected areas and industries.

 Identify the potential for ancillary development through sub-contract exchanges;

 Organize seminars, Workshops and Industries Clinics for the benefit of

entrepreneurs.

12. Discuss the problems of small business units

Small scale industries play a vital role in the economic development of our country.

Small Scale Industries do not enjoy much of the advantages enjoyed by large scale
enterprises because of their nature and size. Though they have made significant
contribution to economic development, they have not realized their full potential. They face
many problems in their functioning and many Small Scale Industries are sick.

(1) Finance:

Finance is one of the most important problem confronting small scale industries Finance is
the life blood of an organisation and no organisation can function proper у in the absence
of adequate funds. The scarcity of capital and inadequate availability of credit facilities are
the major causes of this problem.

Firstly, adequate funds are not available and secondly, entrepreneurs due to weak
economic base, have lower credit worthiness. Neither they are having their own resources
nov are others prepared to lend them. Entrepreneurs are forced to borrow money from
money lenders at exorbitant rate of interest and this upsets all their calculations.

(2) Raw Material:

Small scale industries normally tap local sources for meeting raw material requirements.
These units have to face numerous problems like availability of inadequate quantity, poor
quality and even supply of raw material is not on regular basis. All these factors adversely
affect t e functioning of these units.

Large scale units, because of more resources, normally corner whatever raw material that
is available in the open market. Small scale units are thus forced to purchase the same raw
material from the open market at very high prices. It will lead to increase in the cost of
production thereby making their functioning unviable.

(3) Idle Capacity:

There is under utilisation of installed capacity to the extent of 40 to 50 percent in case of

small scale industries. Various causes of this under-utilisation are shortage of raw material
problem associated with funds and even availability of power. Small scale units are not
fully equipped to overcome all these problems as is the case with the rivals in the large
scale sector.

(4) Technology:

Small scale entrepreneurs are not fully exposed to the latest technology. Moreover, they
lack requisite resources to update or modernise their plant and machinery Due to obsolete
methods of production, they are confronted with the problems of less production in
inferior quality and that too at higher cost. They are in no position to compete with their
better equipped rivals operating modem large scale units.

(5) Marketing:
These small scale units are also exposed to marketing problems. They are not in a position
to get first hand information about the market i.e. about the competition, taste, liking,
disliking of the consumers and prevalent fashion.

With the result they are not in a position to upgrade their products keeping in mind market
requirements. They are producing less of inferior quality and that too at higher costs.
Therefore, in competition with better equipped large scale units they are placed in a
relatively disadvantageous position.

(6) Infrastructure:

Infrastructure aspects adversely affect the functioning of small scale units. There is
inadequate availability of transportation, communication, power and other facilities in the
backward areas. Entrepreneurs are faced with the problem of getting power connections
and even when they are lucky enough to get these they are exposed to unscheduled long
power cuts.

(7) Under Utilisation of Capacity:

Most of the small-scale units are working below full potentials or there is gross
underutilization of capacities. Large scale units are working for 24 hours a day i.e. in three
shifts of 8 hours each and are thus making best possible use of their machinery and
equipments.

On the other hand small scale units are making only 40 to 50 percent use of their installed
capacities. Various reasons attributed to this gross under- utilisation of capacities are
problems of finance, raw material, power and underdeveloped markets for their products.

(8) Project Planning:

Another important problem faced by small scale entrepreneurs is poor project planning.
These entrepreneurs do not attach much significance to viability studies i.e. both technical
and economical and plunge into entrepreneurial activity out of mere enthusiasm and
excitement.

(9) Skilled Manpower:

A small scale unit located in a remote backward area may not have problem with respect to
unskilled workers, but skilled workers are not available there. The reason is Firstly, skilled
workers may be reluctant to work in these areas and secondly, the enterprise may not
afford to pay the wages and other facilities demanded by these workers.

(10) Managerial:
Managerial inadequacies pose another serious problem for small scale units. Modern
business demands vision, knowledge, skill, aptitude and whole hearted devotion.
Competence of the entrepreneur is vital for the success of any venture. An entrepreneur is
a pivot around whom the entire enterprise revolves.

14. Discuss the role of DIC in the development of SSI.

The 'District Industries Centre' (DICs) programme was started by the central government
in 1978 with the objective of providing a focal point for promoting small, tiny, cottage and
village industries in a particular area and to make available to them all necessary services
and facilities at one place.

Functions of District Industries Centre (DIC):

 Acts as the focal point of the industrialization of the district.

 Prepares the industrial profile of the district with respect to :

 Statistics and information about existing industrial units in the district in the large,
medium, small as well as co-operative sectors.

 Opportunity guidance to entrepreneurs.

 Compilation of information about local sources of raw materials and their

availability.

 Manpower assessment with respect to skilled, semi-skilled workers.

 Assessment of availability of infrastructure facilities like quality testing, research

and development, transport, prototype development, warehouse etc.

 Organizes entrepreneurship development training programs.

 Provides information about various government schemes, subsidies, grants and

assistance available from the other corporations set up for promotion of industries.

 Gives SSI registration.

 Prepares techno-economic feasibility report.

 Advices the entrepreneurs on investments.

 Acts as a link between the entrepreneurs and the lead bank of the district.
15. Explain the contents of a project report.
A project report is a detailed plan of action and particulars about the proposed project.
The project report will be prepared for a plan of action to be undertaken which covers
various aspects viz., technical, financial, marketing, management and social.
A project report consists of analytical study of the proposed project and conclusion can
be drawn about its viability. The promoters capacity and competence will also reflect in the
project report.

CONTENTS OF PROJECT REPORT:

Introduction to Project and Industry:

 Industry position in the world scenario,
 Industry position in the country,
 Value addition by the industry, and
 Profile of the industry in the country.
Project Details:
 Promoters,
 Registered office,
 Location of the factory,
 Line of activity,
 Background of other directors,
 Scheme of project,
 Land and site development,
 Building and civil works,
 Plant and machinery,
 Contingencies to plant and machinery,
 Utilities,
 Miscellaneous fixed assets,
 Vehicles,
 Quality control and testing equipment,

 Erection and commissioning,

 Technical knowhow fee,
 Deposits,
 Preliminary and preoperative expenses,
 Working capital margin,
 Schedule of implementation, and
 Management etc.
Raw Materials Details:
 Requirement of raw materials,
 Situation of raw material availability indigenously,
 Feasibility of import of raw materials,
 Areas from which raw material can be procured,
  Suppliers of raw materials,
 Annual requirement,
 Transportation of raw materials,
 Varieties and grades of raw material,
 Cost of raw materials and transportation cost to the factory, and
 Linkages with suppliers of raw material.
Utilities Details:
 Power,
 Steam,
 Compressed air,
 Fuel,
 Water,
 Chilled water, and
 Effluent and waste disposal etc.
Technical Details:
 Plant capacity,
 Capacity utilization,
 Manufacturing process with flow chart,
 Plant layout,
 Product description and properties,
 Packaging and its cost,
 Technical know-how,
 Plant and machinery details, and
 Plant and machinery suppliers.
Manpower Details:
 Manpower requirement,
 Organization chart, and
 Availability of manpower.

Financial Details:
 Cost of project, with details to individual cost items,
 Means of finance,
 Assumptions made in financial projections about capacity utilization, prices of raw
materials, power, fuel, transportation, packing etc., selling price, yield, salaries and
wages, rates of depreciation, rates of tax, pre-operative expenses, proposed rate of
dividend, method of working capital requirement computed etc.,
 Estimates of production and sales,
 Estimated cost of production and profitability,
 Estimated funds flow statement,
 Projected balance sheet,
 Statement of debt service coverage ratio,
 Statement of computation of working capital,
 Statement of break-even analysis,
 IRR calculations,
 Payback period calculations,
  Return on investment calculations,
 Debt-equity ratio calculations,
 Promoters’ contribution to Cost of project,
 Promoter’s contribution to Total equity, and
 Workings for financial projections.

Marketing Details:
 Present state of the industry,
 Consumer preferences,
 Market requirements,
 Market segments,
 Distribution channels,
 Market characteristics of the product,
 Export prospects and international market, and
 Marketing and selling arrangements.
Project Evaluation-Social Angle:
 Analysis of critical factors,
 Socio Economic benefit,
 Labour availability,
 Impact on ecology,
 Foreign exchange earnings,
 Value addition,
 Import substitution, and
 Technology absorption etc.

16. What are the various sources of short term finance for an SSI? Explain

Short term finance are required primarily to meet working capital requirement, the Basic
focus is on maintaining liquidity at a reasonable cost

Forms of short term Finance are as follows

 Working Capital Finance

 Trade Credit

 Inter corporate deposits

 Factoring

 Commercial paper

Working Capital Finance by Commercial Banks

Commercial banks grants short terms finance to business firms which is known as “Bank
Credit”.
Bank Credit may be granted in the following ways:

Loans

Purchase / Discounting of bills.

Cash Credit

Over draft

Trade Credit

Trade credit represents credit granted by the suppliers of goods, etc. as an incident of sale.

Merits

Credit for the purpose of raw material or finished goods

No security

No interest payable

Demerits

Less flexible.

Not reliable

May spoil the trade relations

Inter Corporate deposits

A deposit made by one company to another is called as inter-corporate deposit.

It is generally for working capital funding & is for period not exceeding six months.

Factoring

Factoring is an agreement in which receivable arising out of sale are sold by a firm (client)
to the factor (a financial intermediary).

Advantages

• Establish a strong foundation.

• Maximize profitability.

• Capture growth opportunities.

Disadvantages

• Cost.

• Possible harm to customer relation.

• Company image distortion.

Commercial Paper (CP)

Commercial paper is an unsecured money market instrument issued in the form of a

promissory note.

Advantages

• High credit ratings

• Flexibility.

• Provides exit options.

Disadvantages

• Limited applicability.

• Low bank credit limits.

• A high degree of control

17. Explain the characteristics of a successful Enterpreneur

An entrepreneur is an individual who, rather than working as an employee, founds and

runs a small business, assuming all the risks and rewards of the venture. The entrepreneur
is commonly seen as an innovator, a source of new ideas, goods, services and business/or
procedures.

1. Disciplined

These individuals are focused on making their businesses work, and eliminate any
hindrances or distractions to their goals.
2. Confidence

The entrepreneur does not ask questions about whether they can succeed or whether they
are worthy of success. They are confident with the knowledge that they will make their
businesses succeed. They exude that confidence in everything they do.

3. Open Minded

Entrepreneurs realize that every event and situation is a business opportunity. Ideas are
constantly being generated about workflows and efficiency, people skills and potential new
businesses. They have the ability to look at everything around them and focus it toward
their goals.

4. Self Starter

Entrepreneurs know that if something needs to be done, they should start it themselves.
They set the parameters and make sure that projects follow that path. They are proactive,
not waiting for someone to give them permission.

5. Competitive

Many companies are formed because an entrepreneur knows that they can do a job better
than another. They need to win at the sports they play and need to win at the businesses
that they create. An entrepreneur will highlight their own company’s track record of
success.

6. Creativity

One facet of creativity is being able to make connections between seemingly unrelated
events or situations. Entrepreneurs often come up with solutions which are the synthesis of
other items. They will repurpose products to market them to new industries.

7. Determination

Entrepreneurs are not thwarted by their defeats. They look at defeat as an opportunity for
success. They are determined to make all of their endeavors succeed, so will try and try
again until it does. Successful entrepreneurs do not believe that something cannot be done.

8. Strong people skills

The entrepreneur has strong communication skills to sell the product and motivate
employees. Most successful entrepreneurs know how to motivate their employees so the
business grows overall. They are very good at highlighting the benefits of any situation and
coaching others to their success.
9. Strong work ethic

The successful entrepreneur will often be the first person to arrive at the office and the last
one to leave. They will come in on their days off to make sure that an outcome meets their
expectations. Their mind is constantly on their work, whether they are in or out of the
workplace.

10. Passion

Passion is the most important trait of the successful entrepreneur. They genuinely love
their work. They are willing to put in those extra hours to make the business succeed
because there is a joy their business gives which goes beyond the money. The successful
entrepreneur will always be reading and researching ways to make the business better.

18. Discuss various types of entrepreneurs

Entrepreneurs are classified into different types based on different classifications as

mentioned below:

Based on the Type of Business:

1. Trading Entrepreneur:

As the name itself suggests, the trading entrepreneur undertake the trading activities. They
procure the finished products from the manufacturers and sell these to the customers
directly or through a retailer. These serve as the middlemen as wholesalers, dealers, and
retailers between the manufacturers and customers.

2. Manufacturing Entrepreneur:

The manufacturing entrepreneurs manufacture products. They identify the needs of the
customers and, then, explore the resources and technology to be used to manufacture the
products to satisfy the customers’ needs. In other words, the manufacturing entrepreneurs
convert raw materials into finished products.

3. Agricultural Entrepreneur:

The entrepreneurs who undertake agricultural pursuits are called agricultural

entrepreneurs. They cover a wide spectrum of agricultural activities like cultivation,
marketing of agricultural produce, irrigation, mechanization, and technology.

Based on the Use of Technology:

1. Technical Entrepreneur:
The entrepreneurs who establish and run science and technology-based industries are
called ‘technical entrepreneurs.’ Speaking alternatively, these are the entrepreneurs who
make use of science and technology in their enterprises. Expectedly, they use new and
innovative methods of production in their enterprises.

2. Non-Technical Entrepreneur:

Based on the use of technology, the entrepreneurs who are not technical entrepreneurs are
non-technical entrepreneurs. The forte of their enterprises is not science and technology.
They are concerned with the use of alternative and imitative methods of marketing and
distribution strategies to make their business survive and thrive in the competitive market.

Based on Ownership:

1. Private Entrepreneur:

A private entrepreneur is one who as an individual sets up a business enterprise. He / she

it’s the sole owner of the enterprise and bears the entire risk involved in it.

2. State Entrepreneur:

When the trading or industrial venture is undertaken by the State or the Government, it is
called ‘state entrepreneur.’

3. Joint Entrepreneurs:

When a private entrepreneur and the Government jointly run a business enterprise, it is
called ‘joint entrepreneurs.’

Based on Gender:

1. Men Entrepreneurs:

When business enterprises are owned, managed, and controlled by men, these are called
‘men entrepreneurs.’

2. Women Entrepreneurs:

Women entrepreneurs are defined as the enterprises owned and controlled by a woman or
women having a minimum financial interest of 51 per cent of the capital and giving at least
51 per cent of employment generated in the enterprises to women.

Based on the Size of Enterprise:

1. Small-Scale Entrepreneur:
An entrepreneur who has made investment in plant and machinery up to Rs 1.00 crore is
called ‘small-scale entrepreneur.’

2. Medium-Scale Entrepreneur:

The entrepreneur who has made investment in plant and machinery above Rs 1.00 crore
but below Rs 5.00 crore is called ‘medium-scale entrepreneur.’

3. Large-Scale entrepreneur:

The entrepreneur who has made investment in plant and machinery more than Rs 5.00
crore is called ‘large-scale entrepreneur.’

19. Explain the various sources of finance for SSL

Sources of finance classifies into three.

 Short term finance

 Medium term Finance

 Long term finance

Short term Finance

Short term finance are required primarily to meet working capital requirement, the Basic
focus is on maintaining liquidity at a reasonable cost

Forms of short term Finance are as follows

 Working Capital Finance

 Trade Credit

 Inter corporate deposits

 Factoring

 Commercial paper

Working Capital Finance by Commercial Banks

Commercial banks grants short terms finance to business firms which is known as “Bank
Credit”.
Bank Credit may be granted in the following ways:

Loans

Purchase / Discounting of bills.

Cash Credit

Over draft

Trade Credit

Trade credit represents credit granted by the suppliers of goods, etc. as an incident of sale.

Merits

Credit for the purpose of raw material or finished goods

No security

No interest payable

Demerits

Less flexible.

Not reliable

May spoil the trade relations

Inter Corporate deposits

A deposit made by one company to another is called as inter-corporate deposit.

It is generally for working capital funding & is for period not exceeding six months.

Factoring

Factoring is an agreement in which receivable arising out of sale are sold by a firm (client)
to the factor (a financial intermediary).

Advantages
• Establish a strong foundation.

• Maximize profitability.

• Capture growth opportunities.

Disadvantages

• Cost.

• Possible harm to customer relation.

• Company image distortion.

Commercial Paper (CP)

Commercial paper is an unsecured money market instrument issued in the form of a

promissory note.

Advantages

• High credit ratings

• Flexibility.

• Provides exit options.

Disadvantages

• Limited applicability.

• Low bank credit limits.

• A high degree of control

Medium Term Finance

Medium term finance is defined as money raised for a period for 1 to 5 years.

The medium term funds are required by a business mostly for the repaired and
modernizing of machinery.
Forms of Medium term Finance

 Commercial Banks & State Financial Institutions

 Lease Financing

 Hire purchase

 External Commercial Borrowings

 Euro & Foreign Bonds

Lease financing

It is a contract In which the assets is purchased initially by the lessor (leasing company)
and thereafter leased to the user(leasee company) who pays a specified rent at periodical
intervals.

Advantages

 The holder only pays for use

 Better liquidity.

 Fixed rate.

 Minimal sales risk.

Disadvantage

 Commitment to contract for entire valid period.

 Higher fixed cost per month.

 More expensive than purchase.

Hire Purchasing

Hire purchase transaction, the goods are delivered by the owner to another person the
agreement that such person pays the agreed amount in the periodical installment.

Advantage

Cheaper than a (‘unsecured’) personal loan

relatively quick

Deposits are lower than personal loans.

Disadvantages

Higher monthly payment

hidden fees

External commercial borrowing

ECB’s refer to commercial loan in the form of bank loans, buyers credit, suppliers credit,
securitized instruments.(E.g. Floating rates notes and Fixed rates bonds) availed from non-
resident lenders with minimum average maturity years.

ECBs mean foreign currency loan raised by residents from recognized lenders. Financial
leases and Foreign Currency Convertible Bonds are also covered by ECB guidelines.

Euro bonds:

“A bond issued in a currency other than the currency of the country or market in which it is
issued.”

Eurobonds are attractive to investors as they have small par values and high liquidity.

Advantages

• Increased liquidity of European bond markets..

• Protection from large market shocks and erratic market.

• Discipline, guaranteed funding for all EMU countries.

Disadvantages:

• Possible free-riding problems.

• Tensions with the no-bailout clause.

•Credibility and political viability.

Foreign Bonds

Foreign bonds are the debt instruments issued by foreign corporation or foreign
government.

Long Term Finance

Long term finance refer to those requirements of funds which are for a period exceeding 5-
10 years.

Forms of Long term Finance

 Shares

 Debentures

 New Debt Instruments

 Retained earnings

 Depositary Schemes

 Venture Capital

 Securitisation

20. Explain the procedure of registration of SSI with DIC.

Definitions of Micro, Small & Medium Enterprises is defined in accordance with the
provision of Micro, Small & Medium Enterprises Development (MSMED) Act, 2006 the
Micro, Small and Medium Enterprises (MSME). Small Scale and ancillary units (i.e.
undertaking with investment in plant and machinery of less than Rs. 10 million) should
seek registration with the Director of Industries of the concerned State Government. The
main purpose of registration of SSI or MSME is to maintain statistics and to maintain a not e
of such units for providing support and incentives for these companies.

In the registration of SSI/MSME there are two types of certificates provided by the
authorities, initially provisional registration certificate is given to the companies which is
valid for five years. It is given for pre-operative period and after that a permanent
registration certificate is given in perpetuity.
There are three slabs which are prescribed under MSME Act to define an enterprise:

No. Type of Manufacturing Enterprises Service Industry

Enterprise (Investment in Plant and (Investment in equipment)
Machinery)

1. Micro Does not exceed Rs. 25 Lakh Does not exceed Rs. 10 Lakh

2. Small Exceeds Rs. 25 Lakh but does Exceeds Rs. 25 Lakh but does
not exceed Rs. 5 Crore not exceed Rs. 5 Crore

3. Medium Exceeds Rs. 5 Crore but does Exceeds Rs. 2 Crore but
not exceed Rs. 10 Crore does not exceed Rs. 5 Crore

The registration for a medium enterprise which is engaged in manufacturing is necessary

to be registered for other enterprises registration is optional.

PROCEDURE FOR REGISTRATION

Eligibility

All Micro & Small Enterprises which are registered with the Director of Industries
(DI)/District Industries Centre (DIC) as manufacturing/service enterprises or having
Acknowledgement of Entrepreneurs Memorandum (EM Part-II) are eligible for registration
with NSIC under its Single Point Registration Scheme (SPRS).

Micro & Small Enterprises who have already commenced their commercial production but
not completed one year of existence. The Provisional Registration Certificate can be issued
to such Micro & Small Enterprises under Single Point Registration scheme with
monitorylimit, minimum amount of money to be invested, of Rs. 5 Lacs which shall be valid
for the period of one year only from the date of issue after levying the registration fee and
obtaining the requisite documents.

How to apply:

Micro and Small enterprises could be applied through online application that is provided
by the prescribed state website(State website’s of thou are applying for registration)
respective state in which or by submitting the application form in duplicate which is to be
submitted the concerned Zonal/Branch Office of NSIC located nearest to the unit.

Procedure:
Step 1: Provisional Small Scale Industry (SSI) Registration

To obtain SSI registration you must apply for provisional SSI registration certificate. This
certificate is given when the unit is in pre-operative stage and helps SSI unit obtain term
loans and working capital. This license is given for five years.

One could apply for this certificate online through the state website or by applying in the
concerned zonal department.

Important Documents for Provisional SSI registration:

 Three passport size photographs of proprietors/partners/directors, as the case may

be.

 Photocopy of the partnership deed in case of a partnership unit. It is not necessary

that the partnership should be registered under the partnership Act.

 Copy of the Memorandum and Articles of Association in case of Private Company

along with certificate of incorporation. Copy of the resolution of the company
authorising one of the Directors of the company to sign the application form and
also appear for the interview.

 Proof of legal possession i.e. rent receipt, NOC from the landlord with proof of
ownership, the power load authorised by the connection holder to the applicant

 Provisional Registration would be allowed in approved Industrial areas only after

the Unit has obtained consent to establish from Delhi Pollution Control Committee

 Some of the documents may differ because each state has different requirements of
documents. Above given documents are minimum required documents which are to
be submitted

Benefits of Provisional SSI registration

 Material for construction of factory building : The material which is needed for
construction of the factory or building would be available to the factory at
subsidized rates from government

 Apply for Municipal Corporation License & power connection. With the provisional
registration the company would be able to get all the clearances from the concerned
authorities.

Step 2: Start the Business

The next step towards having a permanent license is to start the business with SSI
certificate. The owner should start the production in the factory so that permanent licence
could be given.

Step 3: Apply for Permanent SSI registration

After you have started the business you should apply for permanent SSI registration. This
could be done by applying online through state website or through the Zonal office or
district office of the department.

Requirements for applying PRC

 You may apply for the PRC without an industrial license in case your unit is listed in
Schedule-III of the Industrial Licensing Exemption Notification. Other units must
first acquire an industrial license.

 The unit should have obtained all clearances from the pollution control board, drug
control board etc.

 The unit should not violate any locational restriction

 The original value of plant including machinery should be within prescribed limits
for which you are applying.

 The unit should not be a subsidiary, owned or controlled by another industrial

undertaking.

Documents which are to be submitted for applying in

 Proof of ownership of premises i.e. allotment letter/possession letter/lease

Deed/property tax receipt. If the unit has a municipal corporation license in its own
name or in the name of its proprietor or one of the Partner/Directors as the case
may be, then no other proof of legal possession is required.

 In case premises are arranged on rental basis, unit should submit proof of Legal
possession i.e. a rent receipt and/or NOC from the landlord supported by the proof
of land lord’s ownership. For this purpose rent receipt/rent agreement with GPA
(General Power of Attorney) is also accepted provided the GPA is appointed by the
owner/lessee through a Regd. deed.

 One photo copy of sale bill of each end product applied for.

 One photo copy of purchase bill of each raw material.

 Copy of partnership deed in case of partnership unit (this need not be registered.)
  Copy of Memorandum of Articles of Association with certificate of incorporation in
case of private limited company (in case of any change of Directors subsequently,
copy of resolution and intimation in form No.32)along with copy of resolution
authorising one of the directors to sign the application for grant of permanent SSI
registration.

 Copy of the industrial license from Govt. of India in case the end products require
such license under Industrial Development and Regulation Act.1951.

 An affidavit on Rs.10/- Non judicial Stamp Paper duly attested by Notary Public
affixed with proper notarial Stamp giving the status of the unit, machinery installed,
power requirement etc. as per the prescribed format

 Purchase bill of machinery installed.

 Photo copy of valid consent letter from pollution control committee of that state.

Benefits for having a permanent SSI registration

 Tax Benefits: Depending on your business, you may enjoyExcise Exemption Scheme
as well as exemption from certain Direct Taxes in the initial years of your business.

 Availability of raw material depending on existing policy: Raw material for

production would be given by the government in the initial years at subsidized
rates.

 Benefits from Banks: All banks and other financial institutions recognise MSMEs and
have created special schemes for them. This usually includes priority sector lending,
which means that the likelihood of your business being sanctioned a loan is high,
and lower bank interest rates. There may also be preferential treatment in case of
delay in repayment.

 Benefits from State Governments: Most states offer those who’ve registered under
the MSMED Act subsidies on power, taxes and entry to state-run industrial estates.
In particular, there is a sales tax exemption in most states and purchase preference
on goods p

Time taken for SSI or MSME registration ranges between 5 to 20 days depending on the
state in which the industry is located in.

21. Objectives of Small Scale Industries:

The objectives of small scale industries are:

1. To create more employment opportunities with less investment.

2. To remove economic backwardness of rural and less developed regions of the economy.

3. To reduce regional imbalances.

4. To mobilize and ensure optimum utilization of unexploited resources of the country.

5. To improve standard of living of people.

6. To ensure equitable distribution of income and wealth.

7. To solve unemployment problem.

8. To attain self-reliance.

9. To adopt latest technology aimed at producing better quality products at lower costs.

22. Problems Faced by SSI

Problems Faced by SSI

Internal problems:

1. Faulty planning

2. Poor project implementation i.e. Lack of proper Machinery and Equipment

3. Power problems

4. Inadequate finance problems

5. Inadequate infrastructure

6. Labour problems

External problems

1. Location

2. Poor management

3. Irregular Supply of Raw Materials

4. Market problems

5. Competition

6. Government Policies.
23. Classification of SSI

Small Scale Industries

TraditionalIndustries Modern Industries

Traditional Industries Modern Industries

Khadi Industries Power looms
Village Industries Small Scale Industries with power
Handlooms Small Scale Industries without power
Handicrafts Export Oriented Unit (EOU)
Coir Industries Ancillaries
Seri Culture Tiny Enterprises
Small Services & Business Enterprises.

Traditional Industries

Khadi Industries:
Khadi Industry refers to hand-spun and hand-woven cloth. The raw materials may be cotton, silk,
or wool, which are spun into threads on a charakha (a traditional spinning implement)

Village Industry:
Any Industry that is located within a rural area, where the Fixed Capital Investment
per Artisan (weaver) does not exceed Rupees One Lakhs.

Handlooms:
It defined handloom as "handloom means any loom, other than power loom; and includes any
hybrid loom on which at least one process for weaving requires manual intervention or human
energy for production"

Handicrafts:
Handicrafts are the objects that are produced by people doing handicrafts.
Handicrafts are activities such as embroidery and pottery which involve making things with your
hands in a skilful way.
Examples of Handicraft industries are Woodcraft, Paper craft, Pottery and Glass Crafts,
Jewellery, Other Examples of Craftwork etc.

Coir Industry:
Coir industry is one among the few rural industries. It converts coconut husk, a waste,
into wealth. It occupies a socially and economically paramount importance in states like Kerala
where one third of the villages are coir villages. It is also a fast growing industry in Tamil Nadu,
Andhra Pradesh, Karnataka, West Bengal and Orissa where coconut cultivation is extensive
followed by their staple crops.

Sericulture:
Sericulture, or silk farming, is the rearing of silkworms for the production of silk. Although there
are several commercial species of silkworms, Bombyx mori is the most widely used and
intensively studied. Today, China and India are the two main producers, together manufacturing
more than 60% of the world production each year.

Modern Industries:
Power Loom
Power loom plays an important role in modern weaving sector. This type of loom is powered by
motor in lieu of hand which we have seen in case of hand loom. Power loom produces fabric
automatically by using various types of loom motions.

Ancillary Industries:
These are industrial undertakings having fixed investment in plant and machinery not
exceeding Rs. 1 crore engaged in or proposed to engage in, (10 crore according to the
Government of India 2006 onwards.)
(a) The manufacture of parts, components, sub-assemblies, tooling or intermediaries, or
(b) The rendering of services supplying 30 percent of their production or services as the
case may be, to other units for production of other articles.

Tiny Units:
These refer to undertakings having fixed investment in plant and machinery not
exceeding Rs. 25 lakhs.
These also include undertakings providing services such as laundry, Xeroxing, repairs
and maintenance of customer equipment and machinery, hatching and poultry etc. Located in
towns with population less than 50,000.

Small Scale Services and Business Enterprises

These mean enterprises engaged in personal or household services in rural areas and town
with population not exceeding 50000 and having fixed investment in plant and machinery not
exceeding Rs. 25 lakhs.
 24. ROLE OF SSI IN INTERNATIONAL BUSINESS

 The role of SSI in international Business is phenomenal these days SSI Are
playing a crucial role in International business – Exports & imports.
 It is observed in the recent times that the export is amounted to 93% of exports are
nontraditional items.
 The modern items like Readymade garments, sports goods, finished leather a&
leather products, woollen garments, knit wears, Processed foods, Engineering
goods.
 Total export of the SSI increased 155 cr. In 1971 to 1,50,242 cr. In 2005-06.
 The Performance of SSI units has been excellent & exports have been annually
increasing to a considerable extent.
 Exports increased 9.6% in 1971-72 to 32.9 in 2005-06
 The Volume exports was Rs. 1643 cr. in 1980-81 to 39,250 cr. in 1996-97
 SSI has registered 32.9% of exports in 2005-06.
 The items of goods for exports are classified into traditional & non traditional.
 Non Traditional items like Readymade garments, sports goods, finished leather
a& leather products, woollen garments, knit wears, Processed foods, Engineering
goods.
 Traditional items like Cashew, nuts dry foods, Spices Lac, Resins etc.

25. INCENTIVES FOR DEVELOPMENT OF SSI IN BACKWARD AREAS:

To ensure the balanced regional development, the government of India has announced
various concessions & facilities. They are as follows

1. Concessional Finance: Government started giving Extra concessional finance to the

backward areas to uplift and ensure the balanced economic development.

2. Central investment subsidies: The Government categorized districts on the basis

of the development. Category A: 25% to the maximum of 25 Lakhs.

1. Category B: 15% to the maximum of 15 Lakhs

2. Category C: 10% to the maximum of 10 Lakhs

3. Tax Holiday: Tax Holiday to new industrial undertakings set up in backward States
and union territories. (i.e. Tax Holiday offers a period of exemption from income
tax for new industries in order to develop or diversify domestic industries.)

4. Tax holiday for the power sector: The exemption extended towards the power/
electricity generating sector.
 5. Special Concessions to MRTP/FERA companies: the Companies coming under the
control of these acts are provided special concessions MRTP (Monopoly Restrictive
Trade Practices 1969). FERA(Foreign Exchange Regulation Act 1973)

6. Subsidised Consultancy & Market studies: Government Provide the consultancy

& Market research facilities at lower and affordable costs.

7. Adoption of Indigenous Technology: Government encourages using and

upgrading the new Domestic Technology. They promote Desi Contribution in
technology.

8. Machinery on Hire Purchase: NSIC is an apex body which is giving all the facilities
required to the SSIs. They provide machinery on Hire purchases basis.

9. Transport subsidies: Government is supporting SSI by providing Concessional

transportation facility.

10. 101 district areas have been declared as specially Backward: Additional
incentives like capital subsidy, special import facilities etc. are provided to the
industrial projects.

11. Seed Capital: in order to assist financially to the SSI units established in the non
areas the scheme of Seed capital scheme has been taken up by IDBI(Industrial
Development Bank of India)

12. Special Incentives: Special incentives offered to industrialists establishing in in

backward states and backward districts.

13. District Declared by the central Government as backward & Eligible for
concessional finance:

Category A: Bidar

Category B: Mysore Dharwad, & Raichur.

Category C: Tumkur, Daxina Kannada. Hassan Guglbarga, Belgaum, Bijapur, Uttara

Kannada.
26. Causes of Industrial Sickness

External Causes:

1. Power Cuts:

A large number of industrial units, particularly in West Bengal and Bihar, face power cuts
from time to time. Power cuts are necessitated by the fact that generation of power is much
below its actual requirements.

2. Erratic Supply of Inputs:

Lack of regular supply of raw materials and other inputs disturb the production schedule
causing losses to the unit. This is particularly the case of units depending upon the supply
of imported inputs. Also transport bottlenecks sometimes affect the supply of inputs.

3. Recession:

General recessionary trends in the market adversely affect the demand for most of the
goods resulting in unsold stocks and losses to individual units. Products with high prices
like cars, tractors, VCR etc. depend for their sustained demand on easy availability of credit
to buyers. If credit is restrained, the buyers are not able to arrange for finance and
consequently the demands for such products suffer and ultimately such manufacturing
units get sick.

4. Official Policy:

Sudden and unfavourable changes in the government policy regarding taxation, export and
import can turn viable units into sick units. For example, liberal import policy for a
particular product might cause damage on domestic units producing similar products.

Internal Causes:

1. Mismanagement:

The most important internal cause of sickness is mismanagement. Faulty managerial

decision regarding production, finance, marketing and personnel and poor control can ruin
a business.

According to a study of the Reserve Bank of India sickness of more than 52 per cent of large
industrial units can be attributed to mismanagement, 23 per cent to market recession, 14
per cent to faulty initial planning and other technical defects and 11 per cent to other
causes.
2. Faulty Initial Planning:

Wrong location of an industrial unit might lead to its ruin. If the place of industrial location
lacks infrastructural facilities, the industry is bound to face difficulties.

Another fault is lack of proper demand forecasting for the products to be sold. Small
industries start production without making a market survey and plunge into difficulties
later.

Some industries start with a defective capital structure and some spend lavishly on
unproductive assets. Moreover, inability to raise adequate finance to withstand operational
losses is a severe constraint.

3. Financial Problems:

A growing shortage of working capital appears to be a real constraint. The equity base of
many small scale units is very weak and slight disturbance in the market puts them into
trouble and turns them into sick units.

4. Improper Choice of Technology:

Small entrepreneurs cannot afford to take technical guidance from experts in choosing
proper machinery. An improper choice of technology, unsuitable product mix and single
product technology contribute to industrial sickness.

5. Labour Problems:

Bad employer-employee relations result in strikes, lockouts and even closure of industrial
units. If wages, bonus and dearness allowances problems are tackled promptly to the
satisfaction of labour, these problems may not cause sickness.

27. SUGGESTIONS TO PREVENT AND CURE INDUSTRIAL SICKNESS

1. Proper project planning

 Location of project

 Availability of raw material

 Availability of labour & technical staff

 Availability of finance at reasonable rates.

2. Proper Market Analysis

 Demand forecasting
  Study of opportunities & threats of environment

 Consumer tastes & preferences

 Availability od reliable distributors

3. Soft loans for sick units

4. Avoid over-capitalization.

5. Steps taken by Banks

 Giving adequate working capital when there is shortage

 Recovery of interest reduced rate

 Defining the special cell in the RBI

 Arrange the special committee of state level in local branch for link between the
financial institution and government agency MEASURES

28. REMEDIAL MEASURES TO OVERCOME SICKNESS

Some of the remedial measures to curb and overcome sickness in industrial undertakings
are as follows:

1. Identifying sickness at initial stage

Sickness in Small Scale Industries is not a sudden phenomenon but it is a gradual process
taking 5 to 7 years eroding the health of a unit beyond cure. Therefore, the identification
and detection of the sickness at incipient stage is the first and foremost measure to detect
and reduce industrial sickness. Sickness must be identified at initial stage.

2. Financial assistance

Lending agencies need to relax their lengthy process and other norms for extending credit
to the SSIs. To combat the incidence of sickness financial institutions should grant credit
without delay to SSI sector.

A number of initiatives can be undertaken to overcome credit problems such as:.

 Increasing Working capital limit.

 Enhancing the powers of bank managers of specialized bank branches in offering

credit to SSI.

 Strengthening the mechanism for discounting bills.

  Reduced rate of interest.

These measures would improve the flow of credit and keep a check on the incidence of
sickness.

3. Improving Infrastructure

Infrastructure facilities can be improved by setting up industrial estates. Common testing

centers etc., infrastructural problems can be solved by improving the roadways,
waterways, establishing telecommunication systems.

4. Technology Up-gradation

Funds may be provided by the financial institutions for adoption of advanced technology.
Similarly, some sort of training may be provided for use of the latest technology to
overcome technological problems. Technological up-gradation can help to overcome
technological obsolescence.

5. Marketing assistance

Marketing assistance may be provided to entrepreneurs for marketing the goods produced
by them. Government must help to market the goods. Government and Non Government
Organizations (N.G.Os) can come forward for marketing the goods produced by the SSI
sector. The problem of poor marketing of the products can be solved by coordinated efforts
of entrepreneurs and promotional agencies.

6. Liquidation

It is better to wind up the business when there is no possibility to revive the unit.

7. Government Interventions

Interventions must be made by the government to prevent sickness. Periodic review of

financial statements can help to identify and prevent sickness at initial stage.

8. Training

A proper environment must be created where an entrepreneur will be educated and will
have a proper knowledge, skill and experience about internal and external environment of
business to compete with large-scale industries and multinational companies.

9. Rehabilitation
Potentially viable sick units should be dealt well for the purpose of rehabilitation.
Rehabilitation is a remedy considered for industrial units, which have already become sick
and for the units that are on the verge of collapse.

Under the provisions of SICA, 1985, the Government of India has established Board for
Industrial and Financial Reconstruction (BIFR) in January 1987 for determining the
preventive, ameliorative, remedial and other measures which are required to be taken in
respect of sick industrial company and for expeditious enforcement of rehabilitation
schemes.

I. Each question carries two marks.

1. Define SSI.
2. What do you mean by ancillary industry?
3. What is entrepreneurship?
4. What is primary industry?
5. What was the earlier name of MSME
6. What is project appraisal?
7. Expand a) KUM b) KVIC. c) PERT d) CPM. e) SIDO f) SKDRDP g) PERT
8. What do you mean by SEZ?
9. What do you mean by Idea generation
10. What is tax holiday?
11. What is seed capital?
12. State any two functions of KIADB.
13. What is the concept of “ Start – up India”
14. Define entrepreneur.
15. What is industrial estate?
16. What are rural industries?
17. What is Tiny Industries
18. Who is a drone entrepreneur?
19. What is meant by feasibility report?
20. Mention any two sources of working capital.
21. What is BEP?
22. What is a Sick Unit?
 23. What is fiscal incentive?

IMPORTANT: Each question carries 15 marks

1. You are thinking of establishing a school bag manufacturing unit in Hubli. Assuming
yourself the promoter, prepare a project report for the same.

2. Identify the different business opportunities in the following situations:

a. Your city is famous for horticultural crops.

b. Severe water crisis in your city

c. Good monuments in your city.

d. Increased usage of papers.

e. Growth of diabetic patients in the city.

f. Launch of Wi-fi network in the city

g. School is far away from the city.

h. Opening up of new college in the city

i. Huge number of educational institutions in your area.

j. Opening of new event management business