EDP by Gowtham Kumar C.K

Entrepreneurship Development- Chapter no.
UNIT .1
ENTREPRENEURSHIP
The word entrepreneur is derived from a French word entreprendre which means to command. An
entrepreneur is a person who puts together capital and labour and converts his idea into reality
Definitions Entrepreneurship
Entrepreneurship is the propensity of mind to take calculated risks with confidence to achieve a
pre-determined business or industrial objective. In substance it is the risk taking ability of the
individual, broadly coupled with correct decision-making.
According to A.H.Cole “Entrepreneurship is a purposeful activity of an individuals or group of

individuals undertaken to initiate, maintain and aggrandize profits by production and distribution
of associated goods and services.”
Entrepreneur
According to the Peter .F. Drucker, “An entrepreneur is one who always searches for change,
responds to it and exploits it as an opportunity. Innovation is the specific tool of entrepreneurs,
the means by which they exploit change as an opportunity for a different business or service”.
Enterprise
Enterprise simply means an economic Organization or activity. Thus enterprise is an integrated

whole of values, orientation
FUNCTIONS OF ENTREPRENEUR (DR ASIMO)
 Decision Making
 Risk-Taking
 Accepting Challenges
 Skilful Management
 Innovation
 Making the Enterprise A Success Organization
Gowtham Kumar C. K M.Com, KSET Page 2

Asst. professor Dr. NSAM FGC
Entrepreneurship Development- Chapter no.1
QUALITIES/ CHARACTERISTICS OF ENTREPRENEUR
(MCC HIT PGS BHC)
o Mental Ability: Mental Ability consists of intelligence and creative thinking. An

entrepreneur must be reasonably intelligent and should have creative thinking.
Entrepreneur must be able to engage in the analysis of various problems and situations.
o Clear Objectives: An entrepreneur should have a clear objective. A Successful entrepreneur

may have the objective to establish the product, to make profit or to render social service.
o Communication Ability: An entrepreneur who can effectively communicate with customers,

employees, suppliers and creditors will be more likely to succeed than the entrepreneur who
does not.
o Human Relation Ability: An entrepreneur who maintains good human relations with
customers, employees, suppliers and creditors will be more likely to succeed than the
entrepreneur who does not.
o Initiative: An entrepreneur must have initiative, accepting personal responsibility for actions,
and above all make good use of resources.
o Technical Knowledge: An entrepreneur must have a reasonable level of technical Knowledge.
o Persistent problem –solver: An entrepreneur must have an intense desire to complete a

task or solve a problem. Creativity is an essential ingredient.
o Goal Setter: An entrepreneur must be able to set challenging but realistic goals.
o Self-confidence: Entrepreneurs must have belief in themselves and the ability to achieve their
goals.
o Business Secrecy: Leakage of business secrets to trade competitions is a serious matter which
should be carefully guarded against by an entrepreneur.
o High energy level: Success of an entrepreneur demands the ability to work for long hours
for sustained period of time.
o Commitment and Conviction - should be committed to the project and should be at peace
only when the goal is achieved .He should have strong conviction and should complete the
tasks as desired.

PROS AND CONS OF BEING AN ENTREPRENEUR
Advantages (Pros): (ABC BBC OB)
Alternative to current career: Many people with entrepreneurial skills will be working for others
for reasons known or unknown to them. They are called “Intrapreneurs”. The advantage of being
that they not only get satisfaction of becoming entrepreneurs, but also their creative skill will be
used for the benefit of the society.
Bridge the gap between knowledge and application: Entrepreneur can bridge the gap between
knowledge and applications. Entrepreneur can convert the knowledge into an economic activity and
gain out of it. But he has to take risk. Knowledge conversion is a complicated issue.
Converting an idea into money :Being an entrepreneur, one may push up ones innovative ideas
into reality. He/she puts societal resources into societal use.
Be your own boss: Many people would like to enjoy their lives independently. They feel excited by
doing so.
Better utilistion of skill and knowledge: The advantage of becoming an entrepreneur is the
creative skill and knowledge of individual can be used for the society otherwise which would go
wasted.
Competition: By adapting innovative ideas of entrepreneur the product/service can be produced at a

low cost. This facilitates the organization to face the competition in the market
Originality, respected: The creative and original business ideas of an individual can be used for
societal benefit and with this the originator respected in the society. Originators feel that they can
offer a new service/ product that no one has offered before.
Business Opportunity: People with entrepreneurial ability can seize such opportunities and have
personal gain. This also facilitates the society to tap the resources for improving the standard of living
of the people.
Disadvantages (Cons): ( MET RB)

Management: Entrepreneur will be the boss of one’s own business and decision making will be again
a critical factor.. But the greatest limitation is that entrepreneur being the top person in the chain of
command, may take decisions which may prove abortive for the business.
Experience: An unskilled person with an unskilled staff will have difficult time in running the
business. Therefore an inexperienced person without entrepreneurial ability cannot manage one’s
own business.

Time management: An entrepreneur will be taking more risk; time is very precious for him. Time is
money for him. The work schedule of an entrepreneur is never predictable. An emergency can come
up in a matter of a second and late hours will have to be put in.
Remuneration: Entrepreneur works on his own for economic gain. But he/she is not assured of
positive economic gain. This means without taking to self-employment, had he/she worked as a paid
employee he/she would have got regular monthly income. To become an entrepreneur, he/she may
work on the principle of opportunity cost and decides to get into own business. His expected grown
in terms of profits/assets may not happen. Therefore, in entrepreneurship development, reward may
be positive or negative.
Benefits: Being an entrepreneur, a person not gain much in initial stages. The start-up problems
being more. It takes considerable time to reap the benefit of being an entrepreneur. Even in long-run
benefits will not be extraordinary.
Role of Entrepreneurs in Economic Development of India
1. Employment opportunities
Entrepreneurs employ labour for managing their business activities and provides employment
opportunities to a large number of people. They remove unemployment problem.
2. Balanced Regional Development

Government promotes decentralized development of industries as most of the incentives are
granted for establishing industries in backward and rural areas. Thus, the entrepreneurs to avail the
benefits establish industries in backward and rural areas They remove regional disparities and bring
balanced regional development. They also help to reduce the problems of congestion, slums, sanitation
and pollution in cities by providing employment and income to people living in rural areas. They help
in improving the standard of living of the people residing in suburban and rural areas.
3. Mobilization Of Local Resources

Entrepreneurs help to mobilize and utilize local resources like small savings and talents of
relatives and friends, which might otherwise remain idle and unutilized. Thus they help in effective
utilization of resources.
4. Optimization Of Capital
Entrepreneurs aim to get quick return on investment. They act as a stabilizing force by
providing high output capital ratio as well as high employment capital ratio.
5. Promotion of Exports
Entrepreneurs reduce the pressure on the country’s balance of payments by exporting their
goods they earn valuable foreign exchange through exports.
6. Consumer Demands
Entrepreneurs produce a wide range of products required by consumers. They meet the demand

of the consumers without creating a shortage for goods.
7. Social Advantage
Entrepreneurs help in the development of the society by providing employment to people and
paves for independent living They encourage democracy and self-governance. They are adept in
distributing national income in more efficient and equitable manner among the various participants of
the society.
8. Increase per capita income

Entrepreneurs help to increase the per capita income of the country in various ways and
facilitate development of backward areas and weaker sections of the society.
9. Capital formation
A country can attain economic development only when there is more amount of investment
and production. Entrepreneurs help in channelizing their savings and savings of the public to
productive resources by establishing enterprises. They promote capital formation by channelizing the
savings of public to productive resources.
10. Growth of capital market

Entrepreneurs raises money for running their business through shares and debentures. Trading
of shares and debentures by the public with the help of financial services sector leads to capital market
growth.
11. Growth of infrastructure

The infrastructure development of any country determines the economic development of a
country, Entrepreneurs by establishing their enterprises in rural and backward areas influence the
government to develop the infrastructure of those areas.
12. Development of Trader

Entrepreneurs play an important role in the promotion of domestic trade and foreign trade.
They avail assistance from various financial institutions in the form of cash credit, trade credit,
overdraft, short term loans, secured loans and unsecured loans and lead to the development of the trade
in the country.
13. Economic Integration

Entrepreneur reduces the concentration of power in a few hands by creating employment
opportunities and through equitable distribution of income. Entrepreneurs promote economic
integration in the country by adopting certain economic policies and laws framed by the government.
They help in removing the disparity between the rich and the poor by adopting the rules and regulation
framed by the government for the effective functioning of business in the country.
14. Inflow of Foreign Capital

Entrepreneurs help to attract funds from individuals and institutions residing in foreign
countries for their businesses.

Distinguish Between ENTREPRENEUR And MANAGER

Scope ENTREPRENEUR MANAGER
Meaning An entrepreneur is a person who is Manager has a primary motive of getting

motivated to satisfy high need for Rewards being promoted. So he is either
achievement in Innovative and creative motivated by money or power.
activities. He is the owner of the business
which he has established and so is a self
motivated person.
The reward for a manager is salary which is
Profit The reward for an entrepreneur is profit certain and fixed.
which is Highly uncertain.
As a servant or employee of the business they
Risk Being the owner of the business He need not bear any risk.
bearing certainly bears all the risk and uncertainties
of running the business.
Function As a manager he renders only managerial in the
Functions as an entrepreneur he has to organization.
perform Many and multiple functions to run
the business Successfully.
Role A manager acts as an executor of the plan
An entrepreneur plays the role of an Prepared by the entrepreneur.
innovator And prepares the plan for its
execution.
Objectives A manager takes up a business activity just
An entrepreneur takes up business activities for as a duty to be performance for his personal
Personal ratification and profit. growth and reward.


TYPES OF ENTREPRENEURS
Following are the classification of entrepreneurs on the basis of common characteristics
Classification on the Basis of Ownership:
Private: Private entrepreneur is motivated by profit and it would not enterthose sectors of the
economy in which prospects of monetary rewards are not very bright.
Public entrepreneurship: In the underdeveloped countries government will take the

initiative to share enterprise.

Classification Based on the Scale of Enterprise:
Small Scale: The classification is specially popular in the underdeveloped countries. Small
entrepreneurs does not posses the necessary talents and resources to initiate large scale production
and introduce revolutionary technological changes.
Large Scale: In the developed countries most entrepreneurs deal with large scale enterprises. They
poses the financial and necessary enterprise to initiate and introduce new technical changes. The
result is the developed countries are able to sustain and develop a high level of technical progress.
1. Business Entrepreneurs:
Business entrepreneurs are the one who conceive an idea for a new product or service and then
create a business to materialize or convert their idea into reality.
2. Trading Entrepreneurs:
They are those entrepreneurs who take up trading activities but are not concerned with its
manufacturing i.e. they concentrate on marketing and not production.
3. Industrial Entrepreneurs:
Are those entrepreneurs who identify the potential needs of the customers and manufacture the
product or service to meet marketing needs i.e. they concentrate more on Production and not
marketing.
4. Corporate Entrepreneurs:
Are those entrepreneurs who demonstrate the innovative skills by converting the Idea into reality
organizing and also managing the undertaken business.
5. Agricultural Entrepreneurs:
The entrepreneurs who take up agricultural activities like raising & marketing Crops, fertilizers,
insecticides and other related agricultural products and services are called Agricultural
entrepreneurs.
6. Technical Entrepreneurs:
These are those entrepreneurs who develop new and improved quality of goods. Because of their
craftsmanship and concentrate more on production than marketing.
7. Non-Technical Entrepreneurs:
These are the ones who are not concerned with the technical aspects of the Product. They are more
into introducing new styles of advertising, sales promotion etc…,
8. Professional Entrepreneurs:
They are entrepreneurs who are interested in establishing a business but do not like to manage or
operate the business once it is established. They prefer to sell the set Business and start another
venture with the sales proceeds.

9. Pure Entrepreneurs:
The entrepreneurs who undertake business activities for personal satisfaction in terms of status, ego
or work and are generally interested in psychological and economic rewards are called as pure
entrepreneurs.
10. Induced Entrepreneurs:

These are those entrepreneurs who take up the entrepreneur activities as they are attracted by
various policy measures of the government in the form of financial assistance, Infrastructure
facilities, Concessions, exemptions and incentives.
11. Motivated Entrepreneurs:

Entrepreneurs with the desire for self fulfillment are motivated entrepreneurs.
12. Spontaneous Entrepreneurs:

Individuals who are bold, confident, have strong conviction, have the ability to take the risk and
initiate business and moreover start the business as they are naturally talented or have the inborn
talent are called as spontaneous entrepreneurs.
13. Growth and Super growth Entrepreneurs:

Entrepreneurs who take up high growth industries are growth entrepreneurs whereas, super growth
entrepreneurs show enormous growth of performance in their venture.
14. First Generation Entrepreneurs:

The individuals who are the pioneers or who starts a business unit by putting together their
innovative skills and technology and produce marketable product or service are first generation
entrepreneurs.
15. Modern Entrepreneurs:

Entrepreneurs who change with the change for demand in the market and undertake those business
which modify with the changing are modern entrepreneurs .
16. Classical Entrepreneurs:

They are those entrepreneurs who are concerned with customers and satisfaction of their needs by
development and marketing of self supporting business.
17. Innovative Entrepreneurs:

Individuals who are characterized by information, aggression, analytical Skills have the ability to
introduce products with new and nove features such entrepreneurs are innovative entrepreneurs.
18. Institutional Entrepreneurs:

These are created by government through various financial and promotional institutions for the
development of the nations.
19. Forced Entrepreneurs:

These are entrepreneurs who are driven out from other vocations but to satisfy their physiological
needs or to run their life are forced to start their business.

20. Inheritance Entrepreneurs:

Businesses which are inherited by family members are inherited ventures and the entrepreneur
who accepts the business the way it is runned by his forefathers are Inheritance Entrepreneurs.
PROBLEMS FACED BY WOMEN ENTREPRENEURS

According to Government of India “An enterprise which is owned and controlled by women
entrepreneurs with 50% of employment opportunities to women”.
Following are the problems faced by women entrepreneurs.
Access to start-up finance
Is one of the major issues faced by women entrepreneurs as the family members are
unwilling to support financially to the women in the house for starting the business naturally they
will have to resort to external finance. The men in the family are not willing to stand as surety or
provide security to the financing agencies so that the loan can be granted, external finance also
becomes a hurdle.
Managing working capital
Another hurdle is managing the working capital i.e. the capital required for
maintaining finished goods, production activities and other administrative expenses. It will be
difficult for women to raise funds from financial institutions as they are unable to provide security.
At the same time the family members are also reluctant to support the raising of heavy finance.
Lack of marketing skills
Marketing skills of women entrepreneurs are considered to be weak as compared to

men entrepreneurs maintaining existing business and access to fresh business requires strategic
marketing skills, this is the major barrier for women entrepreneurs to either enter the business or
expand it.
Access to technology and production process
Coordinating factors of production is a real challenge for women entrepreneurs they

cannot keep in pace with the ever changing technology. This is one of the reasons which put down
a women initiative to become an entrepreneur.
Administrative and regulatory issues
These are significantly a greater issue for women entrepreneurs as compared to men
entrepreneurs. It is because of disproportionate compliance of lost between micro and macro
environment.

Lack of management skills

This is another vital problem faced by majority of women entrepreneurs. This is
because they have low propensity of previous business experience Management Skills refers to
skills required right from managing day to day activities to long term Strategic development. As
there is no external support to develop managerial skills it is one of the major problems fixed by
women entrepreneurs.
Other problems
Apart from the above problems mentioned women entrepreneurs have other problems
like lack of self confidence, society’s attitude towards women entrepreneurs, men dominated
society lack of motivation, unequal opportunities etc are very important and vital problems among
many.
ASSOCIATIONS PROMOTING WOMEN ENTREPRENEUR:
1. Self – Help Groups (SHG’S)

This is an association of small group of self-employed rural or urban women entrepreneurs who join
together to take case of group welfare & everyone will voluntarily contribute little amount.
To start SHG requires Rs 1 Lakh – 10 Lakh
SHG is a small, economically homogeneous group which is voluntary in nature, to share the
facilities equally b/w members.All member of SHG have to be active, attend all meetings &
discuss the Programmer and problems. The funds will be provided by members as well as
supporting institutions Such as NGO‟s, govt & funding agencies.
2. FIWE – Federation of Indian women entrepreneur

This was founded in 1993.The help in providing network facilities to women entrepreneurs in the
country & abroad to develop their business.It helps in providing facilities in the area of marketing,
quality control,Export management, standardization etc.
Provides facilities to expand the business of members of member associations. It helps in providing
facilities for members to participate in national & international conference, fairs, exhibitions etc.
3. WTI – Women’s India Trust
Established in 1968. It is used to market the products of WTI members from door to door Under
kamila trust. Then opened the shop in London named KASHI and also extended in Europe
Germany etc. Has started educational programme in nursing & kinder garden training has planned
to launch computer training for me.
4. SIDBI – Small Industry Development Bank of India

Established at national level to provide facilities to small scale Industries. It has established 2
schemes.
1. Mahila Udyam Nidhi – equity to women entrepreneur.
2. Mahila vikas Nidhi – development assistance for pursuit of income generating activities to
women.

5. SIDO – Small Industries Development Organisation

It has introduced process / product oriented EDP‟s in area like TV repairing, printed circuit boards,
leather goods etc. A special prize to repairing – “outstanding women entrepreneur” A women cell is
also functioning to provide co-ordination & assistance
For setting up training cum income generating activities for needy women.
6. CWEI – Consortium of Women Entrepreneurs of India

It is a voluntary organization, consisting of NGO‟s, SHG‟s Voluntary Organizations & individual
business units. This is formed on 2001. It provides technology up gradation facilities to women
entrepreneurs and other facilities in marketing, finance HR & production. It provides man power
training .It plays role b/w India & international entrepreneur‟s agencies.
7. NABARD – National Bank For Agriculture And Rural Development.

It is established on the lines of RBI . It is used to provide various types of agricultural credit to
agriculturalist of the country. Credit to rural women entrepreneurs.SHG‟s, MAHIMA,ARWIND
are linked it is an apex tredy like RBIwhich provides refinance facility.
8. Central and State government schemes DWCRA – Development of women & children in
rural areas – 1982 – 83
This is for the women development it helps women in providing facilities different types of trades
& business houses on sustained basis for development of economic, social health & educational
status ofRural women.
9. SEWA – Self – Employed Women’s Asociation
Registered in 1972. Under trade union act.This is to empower poor rural women and urban
entrepreneurs have become members of Sewa to become self employed.
10. AWAKE – Association of Women Entrepreneurs of Karnataka
a) It is used to promote & develop entrepreneurship among women

b) Established in 1983.It works in the area of training & helping the women to start their own
business & empower them economically.
d) Development of both rural & urban areas in social & economically self reliable,irrespective of
their academic, social & economical background.
e) It enhances the status of women in the society by creating culture of entrepreneurship among
women in both rural & urban areas and thereby enhances the status of women in society.

Unit – II
SMALL SCALE INDUSTRIES
Meaning &Definition – Product Range - Capital Investment - Ownership Patterns – Meaning and importance
of Tiny Industries, Ancillary Industries, Cottage Industries. Role played by SSI in the development of Indian
Economy. Problems faced by SSI’s and the steps taken to solve the problems - Policies Governing SSI’s.
Small-Scale Industries in India
In Indian economy small-scale and cottage industries occupy an important place, because of
their employment potential and their contribution to total industrial output and exports.
Government of India has taken a number of steps to promote them. However, with the recent
measures, small-scale and cottage industries facing both internal competition as well as external
competition.
There is no clear distinction between small-scale and cottage industries. However it is

generally believed that cottage industry is one which is carried on wholly or primarily with the
help of the members of the family. As against this, small-scale industry employs hired labour.
Moreover industries are generally associated with agriculture and provide subsidiary employment
in rural areas. As against this, small scale units are mainly located in urban areas as separate
establishments.
Definition:
The official definitions of a small scale unit are as follows:
(i) Small-Scale Industries:

These are the industrial undertakings having fixed investment in plant and machinery, whether
held on ownership basis or lease basis or hire purchase basis not exceeding Rs. 1 crore.
(ii) Ancillary Industries:

These are industrial undertakings having fixed investment in plant and machinery not
exceeding Rs. 1 core engaged in or proposed to engage in,
(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.
(iii) Tiny Units:

These refer to undertakings having fixed investment in plant and machinery not exceeding Rs.
Gowtham Kumar C. K M.Com, KSET.

Asst. professor Dr. NSAM FGC Page 1
23 lakhs. These also include undertakings providing services such as laundry, Xeroxing, repairs
and maintenance of customer equipment and machinery, hatching and poultry etc. Located m
towns with population less than 50,000.
(iv) Small-Scale Service Establishments:
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.
(v) Household Industries:

These cover artisans skilled craftsman and technicians who can work in their own houses if
their work requires less than 300 square feet space, less than 1 Kw power, less than 5 workers and
no pollution is caused. Handicrafts, toys, dolls, small plastic and paper products electronic and
electrical gadgets are some examples of these industries.
Characteristics of Small-Scale Industries:
(i) Ownership:
Ownership of small scale unit is with one individual in sole-proprietorship or it can be with a
few individuals in partnership.
(ii) Management and control:

A small-scale unit is normally a one man show and even in case of partnership the activities
are mainly carried out by the active partner and the rest are generally sleeping partners. These
units are managed in a personalized fashion. The owner is activity involved in all the decisions
concerning business.
(iii) Area of operation:

The area of operation of small units is generally localized catering to the local or regional
demand. The overall resources at the disposal of small scale units are limited and as a result of
this, it is forced to confine its activities to the local level.
(iv) Technology:
Small industries are fairly labour intensive with comparatively smaller capital investment than
the larger units. Therefore, these units are more suited for economics where capital is scarce and
there is abundant supply of labour.
(v) Gestation period:

Gestation period is that period after which teething problems are over and return on investment
starts. Gestation period of small scale unit is less as compared to large scale unit.
(vi) Flexibility:
Small scale units as compared to large scale units are more change susceptible and highly
reactive and responsive to socio-economic conditions.
They are more flexible to adopt changes like new method of production, introduction of new
products etc.
(vii) Resources:
Small scale units use local or indigenous resources and as such can be located anywhere
subject to the availability of these resources like labour and raw materials.
(viii) Dispersal of units:

Small scale units use local resources and can be dispersed over a wide territory. The
development of small scale units in rural and backward areas promotes more balanced regional
development and can prevent the influx of job seekers from rural areas to cities.
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 mobilise and ensure optimum utilisation 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.
Advantages of SSI’s:
1. They do not require high level of Technology

2. They do not require high investment
3. They are labour intensive
4. Short gestation period
5. Easy to avail raw materials for production
6. Easy to earn Forex by exporting goods
7. Trains Entrepreneurs in decision making
8. Provides equitable distribution of income
9. Improves standard of living
10. Creates employment
11. Contributes in the development of nation
12. Creates competitive environment

13. Increases demand for consumer goods
14. Improves rural economy
15. Do not require heavy and costly infrastructure
16. They development is integrated with rural development programs
Definitions of Micro, Small & Medium Enterprises In accordance with the provision of Micro,
Small & Medium Enterprises Development (MSMED) Act, 2006 the Micro, Small and Medium
Enterprises (MSME) are classified in two Classes:
1. Manufacturing Enterprises-he enterprises engaged in the manufacture or production of

goods pertaining to any industry specified in the first schedule to the industries (Development
and regulation) Act, 1951) or employing plant and machinery in the process of value addition
to the final product having a distinct name or character or use. The Manufacturing Enterprise
are defined in terms of investment in Plant & Machinery.
2. Service Enterprises:-The enterprises engaged in providing or rendering of services and are

defined in terms of investment in equipment.
Manufacturing Sector
Enterprises Investment in plant & machinery
Micro Enterprises Does not exceed twenty five lakh rupees
Small Enterprises More than twenty five lakh rupees but does not exceed five crore rupees
Medium Enterprises More than five crore rupees but does not exceed ten crore rupees
Service Sector
Enterprises Investment in equipments
Micro Enterprises Does not exceed ten lakh rupees:
Small Enterprises More than ten lakh rupees but does not exceed two crore rupees
Medium Enterprises More than two crore rupees but does not exceed five core rupees
Product range
There are about twenty-one major industry groups in the small scale sector. These are listed below
:
1. Food Products
2. Chemical & Chemical Products
3. Basic Metal Industries
4. Metal Products
5. Electrical Machinery & Parts

6. Rubber & Plastic Products
7. Machinery & Parts Except Electrical goods
8. Hosiery & Garments - Wood Products
9. Non-metallic Mineral Products
10. Paper Products & Printing
11. Transport Equipments & Parts
12. Leather & Leather Products
13. Miscellaneous Manufacturing Industries
14. Other Services & Products
15. Beverages, Tobacco & Tobacco Products
16. Repair Services
17. Cotton Textiles
18. Wool, Silk, Synthetic Fiber Textiles
19. Jute, Hemp and Mesta Textiles
20. Other Services
A survey of indices of industrial production (IIP) maintained for these major industry groups
reveals what the sunrise industries are and on what segments the sun has set. SSI units produce an
amazing variety and type of products. Over 7500 products are known to be manufactured in this
sector. Even in a particular product, there would exist a wide range of qualities or specifications
catering to different market segments, particularly in consumer/household products. Small Scale
sector has emerged as a major supplier of mass consumption items like
1. Leather And Leather Goods

2. Plastic And Rubber Goods
3. Ready-Made Garments
4. Hosiery Goods, Sheet Metal Goods
5. Stationery Items - Soap And Detergents
6. Domestic Utensils
7. Toothpaste And Toothpowder
8. Safety Matches
9. Preserved Foods And Vegetables
10. Wooden And Steel Furniture
11. Paints And varnishes etc.,
Among the sophisticated items mention may also be made of
1. Television sets
2. Calculators
3. Microwave Components

4. Plastic Film Capacitors

5. Carbon Film Registers
6. Electro Medical Equipments
7. Electronic Teaching Aids
8. Digital Measuring Equipments
9. Air-Conditioning Equipments
10. Optical Lenses
11. Drugs And Pharmaceuticals
12. Electric Motors
13. Pesticide Formulators
14. Photographic Sensitised Paper
15. Razor Blades
16. Collapsible Tubes,Etc.
Industries not recognized as SSI
 Transportation and storage

 Wholesale and retail trade establishments
 General merchandize stores
 Sale outlets for industrial components
 Health and educational services
 Legal and consultancy services
 Social and hospitality services
Meaning and importance of tiny industries
Same meaning of SSI and Importance of SSI will be considered just learn those points
CAPITAL INVESTMENT
FINANCIAL PLAN (FP)
Financial Plan is a concept which clearly indicated the total project outlay of a business activity. A
sound financial plan will be an integrated financial statement which explains the financial status of
business activity. The following chart can reveal these aspects.
GENERAL INVESTMENT DECISION (GID)
Investment decision is concerned with allocation of funds. Since financial management deals with
mobilization and deployment of funds, equal importance must be given to both the functions. The

process though which different projects are evaluated is known as “Capital Budgeting”.
FACTORS INFLUENCING THE INVESTMENT DECISSIONS
1. Capital Return: It refers to the payback of investment. The management, while taking an investment
decision has to assess as to how soon it will get back the investment. The decision is influenced by the
liquidity concept. Therefore, financial manager has to carefully evaluate the proposal at the time of
finalizing the investment decisions.
2. Earnings: If the earning capacity of the project is not good, it is not advisable on the part of the financial
manager to take such decisions. Earnings can be measured with the minimum earnings or cut-off point of
the same firm or of the industry. If the estimated profits are below the cut-off rate and the industry or the firm, the
investment becomes useless.
3. Lending Policies of the Financial Institutions: The policies with regard to various covenants of term
loan. Documentation, security margin money, prime lending rate, general state of the economy, money
supply etc. will have direct impact on the flow of funds or lending policies.
4. Working Capital: There are two types of working capital requirement that arise in the industry, viz
Permanent Working Capital and Variable Working Capital. Financial manager has to consider working
capital requirement of the firm in finalizing the investment decision.
5. Accounting Policies: The accounting policies are different for different types of projects. The treatment of
depreciation directly affects the cash inflows. Accounting practices have to be carefully planned for
availing financial assistance. The knowledge of these instruments helps the financial manager in making
investment decisions.
6. Immediate need of the Project: Some of the decisions of investment may not yield immediate returns, e.g.
Investment decisions for expansion, diversification and on R&D. Definitely these areas of investments are
long-term. Any wrong decision taken by him at this stage will become too costly for organization.
7. Trends of earnings: As the business risk is associated directly with the profitability fluctuation in the
earnings are normally seen from the project. It is the duty of the finance manager to consider fluctuating
cash flows for the proposes of making investment decisions.
8. Structure of Capital: Financial structure or Capital structure may contain only equity or both debt and
equity. Debt-equity ratio will offer leverage benefits, through which a firm increase returns. Hence the
composition of securities in the Capital structure influences the investment decisions.
9. Taxation Policy: If the firm prefers to enjoy the benefit of tax holiday concessions in the sales tax, stamp

duty, excise duties, direct subsidies., it has to choose the investment proposal judiciously. Therefore,
finance manager has to consider Taxation Policy at the time of taking the decision in capital budgeting.
10. Availability of Funds: Funds are available in different sources. Equity capital, Debentures and preference
capital can be raised through the Primary market. The investment decisions are to be planned in such a
manner, so that it can raise cheaper source of funds quickly. Ultimately project should have the target of
recovering the cost of funds which always vary on the basis of availability.
11. Government Policy: The industrial policy, foreign trade policies and finance policies of the government
will have direct bearing on the investment policies of a company. This has been practically experienced
by the Indian firms after the introduction of Liberalization, Privatization and Globalization. All these
changes are to be noted while making investment decisions.
12. Economic Value of the Project: The investment decisions are also influenced by the economic value of
the project. Economic value means how best the project can expand cash inflows and outflows with the
initial investment and satisfy the funds need of the project. The project must be capable of running its
activities mainly by the generated funds.
OWNERSHIP
PATTERNS
The different kinds of ownership organizations are:
1. Sole proprietorship
2. Partnership
3. Co-operative society
4. Joint stock company
Sole proprietorship
Sole proprietorship: it is a form of business organization in which an individual invests his own
capital, uses his own skill and intelligence in the management of its affairs and is solely responsible
for the results of its operations.
Features
1. Sole ownership
2. One man control
3. Sole decision making power
4. Unlimited risk
5. Undivided risk
6. No separate entity of the firm
7. No government regulations
Merits
1. Easy and simple formation with less policies or procedure to follow

2. Smooth management with less oppositions or clashes
3. Promptness in decision making as the proprietor is free to conduct the affairs of business
4. Direct motivation
5. Provides direct incentives to work
6. Personal touch to customers
7. Secrecy can be maintained in terms of important matters relating to the business
8. Provides social advantage by providing employment to many.
Limitations
1. Limited financial resources

2. Limited Managerial Ability
3. Unlimited liability in covering risks and bearing losses
4. Mortality rate in terms of continuing the business is high
Partnership Organization
Partnership Organization: it the relationship among persons who have agreed to share profits of
a business carried on by all or any of them acting for all.
Features:
1. There should be at least two persons to form partnership organization

2. It has a contractual relationship
3. No legal relationship between firms and partners
4. Unlimited liability
Merits
1. Easy formation
2. Flexibility in terms of making changes w.r.t no of partners, capital etc.
3. Pool of resources and skills
4. Division of risks among the partners
5. Strong credit position
6. Less incidence of Tax as the burden is shared among partners
7. Encourages mutual trust
Demerits

1. Limited resource financially, technically

2. Unlimited liability
3. Instability as the business can come to an end due to quarrels among partners
4. Lack of harmony of interest
Joint Stock companies
Joint Stock companies: It is a voluntary association of persons who contribute to the capital but
their liability remains limited, it carries on business for profit as a legal entity. It can sue and can
also be sued in its own
Features:
1. It has its own existence

2. It is a separate legal entity
3. It is considered to be a person in the eyes of law
4. It is an association of members
5. It involves legal formalities
6. It is intangible , invisible artificial being
Co operative societies
Co operative societies: it is an association of persons usually of limited means who voluntarily join
together to achieve a common economic end through formation of a democratically controlled
business organization, making equitable contribution to the capital required and accepting a fair share
of risks and benefits of the undertaking.
Factors determining the form of ownership to be undertaken
1. Type of business
2. Scope of operation
3. Control Dimension in terms of Sole trading and Joint stock co
4. Capital requirement
5. Magnitude of risk
6. Continuity
7. Policy and procedures
8. Tax advantage
COTTAGE INDUSTRIES
Definition
An industry where the creation of products and services is home-based, rather than factory-
based. While products and services created by cottage industry are often unique and distinctive

given the fact that they are usually not mass-produced, producers in this sector often face
numerous disadvantages when trying to compete with much larger factory-based companies.
1. An industry whose labor force consists of family units or individuals working at home with
their own equipment
2. A small and often informally organized industry
3. A limited but enthusiastically pursued activity or subject
Examples of cottage industry: Weaving, Pottery, and other cottage industries product for small scale units
The opportunities in the small-scale sector are enormous due to the following factors:-
 Less Capital Intensive

 Extensive Promotion & Support by Government
 Reservation for Exclusive Manufacture by small scale sector
 Funding - Finance & Subsidies
 Machinery Procurement
 Raw Material Procurement
 Manpower Training
 Technical & Managerial skills
 Tooling & Testing support
 Reservation for Exclusive Purchase by Government
 Export Promotion
 Growth in demand in the domestic market size due to overall economic growth
 Increasing Export Potential for Indian products
 Growth in Requirements for ancillary units
INVESTMENT CEILINGS FOR SSIs & SSSBEs
Small scale industries were first defined in 1950. At that time, in addition to a limit on
investment in fixed assets, there was also an employment stipulation. The employment
condition was deleted in 1960. In 1966, the limit on investment in fixed assets was changed to a
limit on investment in plant and machinery (original value) only. The Table below indicates the
historical evolution of the definition of small scale and ancillary units.
Enhancement of Investment Ceilings

Requests have been periodically received from stakeholders for suitable enhancement in investment
ceiling for both SSIs and SSSBEs. Requests have also been received for extending the ceiling of Rs. 5
crore to the specified industry sector as a whole instead of only the reserved items in that sector.
Role and importance of SSI’s in Development of Economy / Contribution to Economic

Development in India
1. Self Employment: Small scale sector provides numerous opportunities for self employment. A self
employed entrepreneur is the master of his own show and he thus gets opportunity for doing something
creative, new and different.
2. Equitable spread of income and wealth: Ownership of small scale industries is widespread and offer more
employment potential as compared with large scale industries. Large scale industries result in concentration of
income and wealth in few hands. Whereas small scale industries ensure Equitable spread of income and wealth
amongst all and that too at all places. Small scale industries thus promote the objective of social justice.
3. Employment Generation: Small scale industries employ labour intensive technology and hence generate
more employment opportunities. In a country like India confronted with the twin problems of
unemployment and scarcity of capital, it is only the small scale industry which can solve these problems.
Small scale industries can be located anywhere and hence can provide employment to workers near their
homes, more work for the under employed and additional work for the farmers when they are idle.
4. Supporting Large scale industries: Small scale industries can facilitate growth and development of large
scale industries by providing various parts, components and accessories to large scale industries. Small
scale units serve as ancillaries to large units by playing a complementary role.
5. Contribution to foreign exchange: This sector is helping in realization of the objective or export
promotion and import substitution. Nearly 50 percent of the output of the manufacturing sector in our
country is produced by small scale sector.
6. Optimum use of capital: Small scale enterprises require relatively lesser amount of capital as compared
with large scale enterprises. Small scale units help in capital formation by mobilizing idle and small
scattered savings of the people and put theses into productive use by investment in small scale units.
7. Facilitate entrepreneurial development: The units provide self employment to educated unemployed
and reduce their overdependence on the government. It also generates feeling of self reliance amongst the
people.
8. Use of local resources: Small scale enterprises employ local resources like raw material, savings, and
entrepreneurial skill more effectively. Small scale sector generates employment opportunities and income

for local population.
9. Balance regional development: Small scale industries utilize local resources and promote decentralized
development of industries. It is only through dispersal of industries in rural and backward areas that the
objective of balanced regional development can be achieved.
10. Contribution towards national economy: Small scale industries have made rapid strides over years
and can produce wide range of products having mass consumption.
Problems faced by Small Scale Industries
The following are the problems faced by Small Scale Industries:
1. Poor capacity utilization

In many of the Small Scale Industries, the capacity utilization is not even 50% of the installed
capacity. Nearly half of the machinery remains idle. Capital is unnecessarily locked up and idle machinery
also occupies space and needs to be serviced resulting in increased costs.
2. Incompetent management
Many Small Scale Industries are run in an incompetent manner by poorly qualified entrepreneurs
without much skill or experience. Very little thought has gone into matters such as demand, production level
and techniques, financial availability, plant location, future prospects etc. According to one official study, the
major reason for SSI sickness is deficiency in project Management i.e., inexperience of promoters in the basic
processes of production, cash flow etc
3. Inadequate Finance
Many Small Scale Industries face the problem of scarcity of funds. They are not able to access the
domestic capital market to raise resources. They are also not able to tap foreign markets by issuing ADR’s
(American Depository Receipts) GDR’s (Global Depository Receipts) etc because of their small capital base.
Banks and financial institutions require various procedures and formalities to be completed. Even after a long
delay, the funds allocated are inadequate.
Bank credit to the small scale sector as a percentage of total credit has been declining. It fell from 16%
in 1999 to 12.5% in 2002. Small Scale Industries are not able to get funds immediately for their needs. They
have to depend on private money lenders who charge high interest. Finance, as a whole, both long and short
term, accounts for as large as 43% of the sector’s sickness.
4. Raw material shortages

Raw materials are not available at the required quantity and quality. Since demand for raw materials is
more than the supply, the prices of raw materials are quite high which pushes up the cost. Scarcity of raw
materials results in idle capacity, low production, inability to meet demand and loss of customers.

5. Lack of marketing support

Small Scale Industries lack market knowledge with regard to competitors, consumer preferences,
market trends. Since their production volume is small and cannot meet demand for large quantities their
market is very restricted. Now with the process of liberalization and globalization they are facing competition
from local industries as well as foreign competitors who sell better quality products at lower prices. For e.g.
heavily subsidized but better quality imports from China has made most of the Indian SSI units producing
toys, electronic goods, machine tools, chemicals, locks and paper etc.
6. Problem of working capital

Many Small Scale Industries face the problem of inadequate working capital. Due to lack of market
knowledge their production exceeds demand, and capital gets locked in unsold stock. They do not have
enough funds to meet operational expenses and run the business.
7. Problems in Export
They lack knowledge about the export procedures, demand patterns, product preferences, international
currency rates and foreign buyer behavior. Small Scale Industries are not able to penetrate foreign markets
because of their poor quality and lack of cost competitiveness. In countries like Taiwan, Japan etc. products
produced by Small Scale Industries are exported to many foreign countries. But in India not much thought and
focus has gone into improving the export competitiveness of Small Scale Industries.
8. Lack of technology up-gradation

Many Small Scale Industries still use primitive, outdated technology leading to poor quality and low
productivity. They do not have adequate funds, skills or resources to engage in research and development to
develop new technologies. Acquiring technology from other firms is costly. Therefore Small Scale Industries
are left with no choice but to continue with their old techniques.
9. Multiplicity of labor laws

One of the merits of Small Scale Industries are that they are labor intensive and can provide
employment to a large number of people. But the multiplicity of labor laws, need to maintain several records
(PF, ESI, Muster Rolls etc), fines and penalties for minor violations etc place Small Scale Industries at a great
disadvantage.
10. Inability to meet environmental standards

The government lays down strict environmental standards and Courts have ordered closure of
polluting industries. Small Scale Industries which are already facing shortage of funds to carry out their
business are not able to spend huge sums on erecting chimneys, setting up effluent treatment plants etc.
11. Delayed payments

Small Scale Industries buy raw materials on cash but due to the intense competition have to sell their
products on credit. Buying on cash and selling on credit itself places a great strain on finances. The greater
problem is payments are delayed, sometimes even by 6 months to one year. It is not only the private sector but
even government departments are equally guilty. Delayed payments severely impact the survival of many
Small Scale Industries.
12. Poor industrial relations

Many Small Scale Industries are not able to match the pay and benefits offered by large enterprises,
because their revenues and profitability are low and also uncertain. This leads to labor problems. Employees
fight for higher wages and benefits which the SSI is not able to provide. This may lead to strikes, resulting in
damage to property in case of violence by employees, production losses etc.
13. Strain on government finances

Marketing of products manufactured by Small Scale Industries is a problem area. The government has
to provide high subsidies to promote sales of products produced by Khadi and Village Industries. This places
a great strain on government finances.
14. Concentration of industrial units

There is high concentration of small scale industrial units in a few states. Of the estimated 3.37 million
units as on 2000-01, nearly 60% were located in six states. West Bengal, Madhya Pradesh and Uttar Pradesh
alone account for 20% of Small Scale Industries. Due to concentration, there is high competition among them
to procure raw materials and other industrial inputs. This leads to high costs and scarcity of raw materials and
other inputs affecting their production and increasing costs.
15. Inadequate dispersal

One of the objectives of the government in promoting Small Scale Industries was to increase industrial
development and employment opportunities throughout the country. Since nearly 60% of the Small Scale
Industries are concentrated in few states, the objective of balanced regional development and promotion of
backward areas has not been achieved. Further majority of Small Scale Industries are located in urban areas
and the aim of industrial development in rural areas has also been defeated.
16. Widespread sickness

Sickness among Small Scale Industries is widespread. Sickness is not detected in the initial stages and
large amount of funds are locked in them. Nearly two and a half lakh SSI units are sick and as on 2001 and
nearly Rs. five thousand five hundred crores of bank funds are locked in them. Due to this new entrepreneurs
are not able to get loans, workers in the sick units lose their jobs and industrial and economic development is
affected. In Maharashtra alone nearly 3 lakh units have closed down, 38 lakh workers have lost their jobs and
the loss to the government is Rs.5,000 crore.
17. Lack of awareness

The government has set up many organizations to support and provide assistance to Small Scale
Industries. But, many of the entrepreneurs running Small Scale Industries are not aware of the various support
services.
18. Government interference

Small Scale Industries have to maintain a number of records and there are endless government
inspections. A lot of time, money and effort is wasted in complying with various inspections and records
verification. This prevents Small Scale Industries from fully concentrating on their business activities.
Measures to remove difficulties faced by Small-Scale Industries in India !!!!
It will be noted that small scale industrial units experience serious handicaps by an inequitable
allocation system for scarce raw materials, inadequate institutional finance, poor technical skill and
managerial ability, and lack of marketing channels. It is, therefore, essential to develop an overall approach to
remove these difficulties and put the small-scale industrial sector on a sound path of development.
In this connection, the following measures may be suggested:
1. Equitable allocation of raw materials, imported components and equipment.

2. Improvement in the methods and techniques of production.
3. Provision for adequate finance.
4. Marketing assistance.
5. Provision for industrial education and training.
6. Demarcating spheres for large-scale and small-scale units.
7. Establishing industrial estates
8. Providing testing laboratories
9. Supply of designs
10. Publicity
11. Purchase of SSIs products.
12. Advisory services
13. Effective planning
(1) Equitable Allocation of Raw Materials, Imported Components and Equipment:

The small scale industrial units should be given adequate degree of priority in the allocation pattern of
essential, but scarce, raw materials, imported components and equipment.
(2) Improvement in the Methods and Techniques of Production:

The small scale industrial units should be encouraged to replace their outmoded equipment with that
incorporating an up-to-date technology, and facilities and incentives should be provided wherever required.
Up-dating the methods and techniques of production of quality goods conforming to standards. The role of the
Government in this respect is quite significant. Standardization of certain products should be ensured, the
quality of products should be guaranteed, and malpractices like adulteration, misrepresentation, etc., need to
be curbed drastically.
(3) Provision of Adequate Finance:

Promoter’s own capital in the small-scale industrial units is generally small and generation of internal
resources small and slow. They depend, therefore, on the external sources of finance in a substantial measure.
This factor requires, therefore, a system of integrated credit whereby the long-term as well as short-term
finance is made available in an adequate measure and at a rate of interest which these undertakings can bear.
(4) Marketing Assistance:

Marketing of their products at remunerative prices is the major problem of small-scale industrial units.
There is, therefore, a clear case for government intervention with a view to reducing the disadvantages arising
out of market imperfections. Market research, intelligence and information systems should be strengthened
and the results made available to those units.
(5) Industrial Education and Training:

With full advantages of changing technique of production, dispensation of technical knowledge, both
to the small-scale entrepreneurs as well as their workers, should form an essential element of the overall
strategy. Provision of adequate facilities for industrial education and training, therefore cannot be over-
emphasized.
(6) Demarcation of Spheres of Large-Scale and Small-Scale Industrial Units:

Once the role of small-scale industries in the national economy is recognized, it becomes imperative that a
secured berth is provided to it. In this connection the guiding principle should be to clearly demarcate, as
possible, the spheres of production for these units. It may be pointed out that all the measures suggested above
should be viewed as a package and applied simultaneously.
(7)
An industrial estate programme has been in operation since 1955. An industrial estate is a planned
clustering of industrial enterprises offering standard factory buildings erected in advance of demand. It offers
all infrastructure facilities like sheds, water, power, communication, transportation etc.
Policies Governing SSI’s
Some of the Government Policies for development and promotion of Small-Scale Industries in India are:
1. Industrial Policy Resolution (IPR) 1948,
4. Industrial Policy Resolution (IPR) 1980
5. Industrial Policy Resolution (IPR) 1990.
Since Independence, India has several Industrial Policies to her credit. So much so that Lawrence A.
Viet tempted to say that “if India has as much industry as it has industrial policy, it would be a far well-to-
do nation.” With this background in view, in what follows is a review of India’s Industrial Policies for the
development and promotion of small-scale enterprises in the country.
1. Industrial Policy Resolution (IPR) 1948:
The IPR, 1948 for the first time, accepted the importance of small-scale industries in the overall
industrial development of the country. It was well realized that small-scale industries are particularly suited
for the utilization of local resources and for creation of employment opportunities. However, they have to face
acute problems of raw materials, capital, skilled labour, marketing, etc. since a long period of time. Therefore,
emphasis was laid in the IPR, 1948 that these problems of small-scale enterprises should be solved by the
Central Government with the cooperation of the State Governments. In nutshell, the main thrust of IPR 1948,
as far as small-scale enterprises were concerned, was ‘protection.’
The main contribution of the IPR 1948 was that it set in the nature and pattern of industrial
development in the country. The post-IPR 1948 period was marked by significant developments taken place
in the country. For example, planning has proceeded on an organized manner and the First Five Year Plan
1951-56 had been completed. Industries (Development and Regulation) Act, 1951 was also introduced to
regulate and control industries in the country. The parliament had also accepted ‘the socialist pattern of
society’ as the basic aim of social and economic policy during this period. It was this background that the
declaration of a new industrial policy resolution seemed essential. This came in the form of IPR 1956.
The IPR 1956 provided that along with continuing policy support to the small sector, it also aimed at
to ensure that decentralized sector acquires sufficient vitality to self-supporting and its development is
integrated with that of large- scale industry in the country. To mention, some 128 items were reserved for
exclusive production in the small-scale sector.
Besides, the Small-Scale Industries Board (SSIB) constituted a working group in 1959 to examine and
formulate a development plan for small-scale industries during the, Third Five Year Plan, 1961-66. In the
Third Five Year Plan period, specific developmental projects like ‘Rural Industries Projects’ and ‘Industrial
Estates Projects’ were started to strengthen the small-scale sector in the country. Thus, to the earlier emphasis
of ‘protection’ was added ‘development.’ The IPR 1956 for small-scale industries aimed at “Protection plus
Development.” In a way, the IPR 1956 initiated the modem SSI in India.
During the two decades after the IPR 1956, the economy witnessed lopsided industrial development
skewed in favor of large and medium sector, on the one hand, and increase in unemployment, on the other.
This situation led to a renewed emphasis on industrial policy. This gave emergence to IPR 1977.

The Policy Statement categorically mentioned:
“The emphasis on industrial policy so far has been mainly on large industries, neglecting cottage industries
completely, relegating small industries to a minor role. The main thrust of the new industrial policy will be on
effective promotion of cottage and small-scale industries widely dispersed in rural areas and small towns. It is
the policy of the Government that whatever can be produced by small and cottage industries must only be so
produced.”
The IPR 1977 accordingly classified small sector into three broad categories:
1. Cottage and Household Industries which provide self-employment on a large scale.
2. Tiny sector incorporating investment in industrial units in plant and machinery up to Rs. 1 lakh and situated
in towns with a population of less than 50,000 according to 1971 Census.
3. Small-scale industries comprising of industrial units with an investment of upto Rs. 10 lakhs and in case of
ancillary units with an investment up to Rs. 15 lakhs.
The measures suggested for the promotion of small-scale and cottage industries included:
(i) Reservation of 504 items for exclusive production in small-scale sector.
(ii) Proposal to set up in each district an agency called ‘District Industry Centre’ (DIC) to serve as a focal
point of development for small-scale and cottage industries. The scheme of DIC was introduced in May 1978.
The main objective of setting up DICs was to promote under a single roof all the services and support required
by small and village entrepreneurs.
What follows from above is that to the earlier thrust of protection (IPR 1948) and development (IPR 1956),
the IPR 1977 added ‘promotion’. As per this resolution, the small sector was, thus, to be ‘protected,
developed, and promoted.’
The Government of India adopted a new Industrial Policy Resolution (IPR) on July 23, 1980. The
main objective of IPR 1980 was defined as facilitating an increase in industrial production through optimum
utilization of installed capacity and expansion of industries.
(i) Increase in investment ceilings from Rs. 1 lakh to Rs. 2 lakhs in case of tiny units, from Rs. 10 lakhs to Rs.
20 lakhs in case of small-scale units and from Rs. 15 lakhs to Rs. 25 lakhs in case of ancillaries.
(ii) Introduction of the concept of nucleus plants to replace the earlier scheme of the District Industry Centers
in each industrially backward district to promote the maximum small-scale industries there.

(iii) Promotion of village and rural industries to generate economic viability in the villages well compatible
with the environment.
Thus, the IPR 1980 re emphasized the spirit of the IPR 1956. The small-scale sector still remained the best
sector for generating wage and self-employment based opportunities in the country.
The IPR 1990 was announced during June 1990. As to the small-scale sector, the resolution continued to give
increasing importance to small-scale enterprises to serve the objective of employment generation.
The important elements included in the resolution to boost the development of small-scale sector were as
follows:
(i) The investment ceiling in plant and machinery for small-scale industries (fixed in 1985) was raised from
Rs. 35 lakhs to Rs. 60 lakhs and correspondingly, for ancillary units from Rs. 45 lakhs to Rs. 75 lakhs.
(ii) Investment ceiling for tiny units had been increased from Rs. 2 lakhs to Rs. 5 lakhs provided the unit is
located in an area having a population of 50,000 as per 1981 Census.
(iii) As many as 836 items were reserved for exclusive manufacture in small- scale sector.
(iv) A new scheme of Central Investment Subsidy exclusively for small-scale sector in rural and backward
areas capable of generating more employment at lower cost of capital had been mooted and implemented.
(iv) With a view, to improve the competitiveness of the products manufactured in the small-scale sector;
programmes of technology up gradation will be implemented under the umbrella of an apex Technology
Development Centre in Small Industries Development Organization (SIDO).
(v) To ensure both adequate and timely flow of credit facilities for the small- scale industries, a new apex
bank known as ‘Small Industries Development Bank of India (SIDBI)’ was established in 1990.

Questions:
Section A (2 marks)
1. Define SSI
2. What is an ancillary unit?
3. Define micro enterprise
4. What is a sick unit?
Section B (6 marks)
1. Explain the importance of SSI
2. Explain the problems faced by SSI
3. What is the role of SSI‟s in the development of the economy?
Section C (14 marks)

1. Explain the different kinds of ownership with their merits and demerits
2. Elaborate on the “New industrial policy of 1991”
3. Explain the problems faced by SSI‟s. Write of the measures taken to solve the problems.

UNIT III
FORMATION OF SMALL SCALE INDUSTRY
Business opportunity, scanning the environment for opportunities, evaluation of alternatives and
selection based on personal competencies. Steps involved in the formation of a small business venture:
location, clearances and permits required, formalities, licensing and registration procedure. Assessment of the
market for the proposed project – Financial, Technical, Market and Social feasibility study.
Definition
A business opportunity is a packaged business investment that allows the buyer to begin a business.
Meaning
A business opportunity, in the simplest terms, is a packaged business investment that allows the buyer to begin
a business.
A business opportunity is an arrangement where a third party (the seller) offers to sell you products,
equipment, supplies or services to enable you to start your own business.
Business opportunity involves sale or lease of any product, services ,equipment etc that will enable the
purchaser licensing to begin a business.
Identification of business opportunities / Scanning the environment for opportunities
1. Identifying Market inefficient:
When an individual looking at the market one must consider what inefficient are present in the market,
one should have an idea on who to correct this inefficiency? So therefore an individual must have a knowledge
about how to create an opportunity with the help of market inefficiencies.
2. Remove Key hassles :
One should take a look at some of the key hassles customers face when buying or using product or
services. An individual need not necessary to have a new product or services . one can be innovative and
improve a productive, a service or business process.
3. Consumer Behavior:
Consumer behavior will explain the tastes and preferences of the consumer and throw light on the
demand situation. One may or may not have business idea or business process to serve a market. An individual
can take advantages of market inefficiencies to exploits opportunities.

4. Pick a growing sector or industry:
Which considering new business. It improve to look at whether an idea is in a growing sector or
industry. For example A lot of start ups in sector in India very well because there was huge demand in the
industry.
5. Product differentiation:
Creating superior product or services alternative is improvement for using in the market place. The
product introduced by an individual should be from the existing product.
6. The study on financial support:
The study on financial support will examine the quantum of money required sources of obtaining
finance subsidies an incentives available , cost of finance and the break even period. At the start up stage cash
flow consideration are just improvement as any other business function. No business man can run a business
without cash flow consideration.
7.It is a seasonal Business:
When picking a new business consideration whether it it’s a seasonal or the year around. If decides on
the seasonal business he need to consider how to operate during off the season will help to get through the off
season.
9. Conduct a survey/ research:
Conduct a survey / research and collect information on the existing condition of the propsed product/
service to be manufactured / rendered
10. Market behavior, Consumer behavior, financial support, legal aspects and economic viability have to
examined.
Market behavior gives information on the market feasibility . It gives information on whether the
product has to potential to get sold without any problems. Legal aspects will determine the type of business
opportunities available, the prevailing government policy ecological constraints and the like .

Selection Of Opportunities Based On Personal Competencies (SWOT) /
1. Environment Scanning
2. SWOT analysis
3. Evaluation of Opportunities:
Environmental scanning:
Environmental scanning involves studying and interpreting the sweep of social, political, economic
ecological and technological events in an effort to spot budding trends and conditions that could become
driving forces. Environmental scanning involves the scanning of internal and external environments.
Need for environmental scanning:
1. Identification Strength
2. Identification of Weakness
3. Identification of Opportunities
4. Identification of Threats
5. Optimum use of resources
6. Survival and Growth
7. To plan for long term business Strategy
8. Helps in decision making
SWOT analysis
Evaluation of alternatives
Establishing a small business unit involves and requires the preliminary study of several factors
associated with it. The study of these factors will help the evaluation of different alternatives available to
continue or drop the proposed business. For each of the proposed business it is always necessary to prepare
two to three plans considering the existing resource and competencies of entrepreneur. Of these proposed
plans a viable plan has to selected or all plans can be rejected, if it is not viable on any score in long-term

STEPS INVOLVED IN STARTING A SSI OR SMALL BUSINESS VENTURE
1. Decision to become an Entrepreneur :
An unemployed person faces a multifaceted environment and if he possesses strong orientation

towards entrepreneurship and growth, the right type of decision to start a small scale enterprise, instead of
playing the subservient role of an employee/worker.
2. Selection of Product or Services :
Entrepreneur is free to select any product which he thinks, that product is profitable and viable from
market point of view. If the entrepreneur selects and develops a particular product, he has to consider
dimensions like technological Know-how, financial resources, a rough estimate of demand, customers
satisfaction, position of competitors.
3. Decide on form of Ownership :
Ownership pattern could be from sole proprietorship, Family ownership, Partnership, private limited
company, Joint stock Company, co-operative society etc.
4. Identification of Location :
Selecting a place to locate the proposed unit is a real challenge to entrepreneur. If the proposed unit is
located in a place which satisfies all location needs, the unit have smooth sail. Following points may be
considered in selection of location

 Availability of sufficient space
 Easy availability of Labour
 Availability of raw material at reasonable price
 Availability of industrial fuel and its supply
 Availability of transport facility
 Availability of power and degree of dependability of its supply
 Water supply as per requirement
 Facilities available for education, health, recreation, shopping, religious and social life and
professional services
 Laws and regulations conducive for establishing a business unit
 Climate condition of the area
 Tax incentive available in that locality
 Nearness to the market
 Provision for disposal of waste
 Cheap power supply
5. Preparation of Project Profile :
A project profile gives a bird’s-eye view of the proposed project. This may be used for obtaining the
provisional registration certificate from the district industries centre and for making, applying for industrial
areas development board or state small industries development for shed and other infrastructures.
6. Arrange for Infrastructure:
The main infrastructure facilities required for a SSI unit are land or shed for the project, power
connection, Water supply, telephone facility, connectivity to the nearest rail, road or port etc..
7. Designing capital structure :
Arrangement and management of capital is an important task of an entrepreneur. The initial capital
will be from the following resources: own capital, long term loans taken from friends and relatives, term
loans from banks and financial institutions. The institutional lending has increase but is not the dominant
source for small industry; banks generally provide working capital finance.
8. Clearances and permits : Several types of clearance and permissions have to be obtained from different
agencies
 Provisional registration from the respective District Industrial Centers.
 Environmental clearances from Government of India.
 No objection for the building layout from town planning department.
 Approval of plant and machinery layout from department of factories
 Approval of power supply form state Government Authority.
 Approval of water supply from State Government authority.
 Registration and license under factories act.
 Registration from Central Excise Department.
 Sales tax registration with commercial taxes department
 Provident fund registration.
 Employee state insurance Registration

Phases of starting a Small Scale Industry

1. Project Selection Phase:
The objective is to select those products, processes or system in an organization where the value and cost
ratio is low and where analysis will lead to increased benefits: To gather, organize and analyze data; to
define functions; to establish a functional monetary value.
2. Information Phase
3. Creative Phase
4. Evaluation Phase

The objective of Information Phase, Creative Phase, and Evaluation Phase is to generate
alternative methods for providing necessary function: To develop refine and evaluate alternative methods
generated during the creative phase; to determine the cost; to select a feasible method offering best value.
5. Recommendation Phase
6. Implementation Phase
The objective of Recommendation and Implementation Phase is to prepare a report containing
recommendation along with benefits: To establish a plan of action for implementation of selected method;
to obtain approval; to perform all other actions necessary to put the proposal into effect.
7. Follow-Up Phase:
The objective of this phase is to follow-up and audit actual results and to resolve problems if any during
proposal implementation.
SSI- Concept to Commissioning
After identifying the business opportunity, entrepreneur has to commission this concept. He / She has
to work on the proposal with the issue involved in selection of a proper site for locating the unit, availing all
clearance, analyzing the feasibility of finance, societal reaction and potential market for the product or service
of the proposed unit. These issues are
1. Location
2. Clearance and permits
3. Licensing
4. Registration
5. Market Feasibility
6. Financial Feasibility
7. Technical Feasibility
8. Social Feasibility
1. Location:
Selecting a place to locate the proposed unit is a real challenge to entrepreneur. It is said that “good location
is half the problem solved”. A thorough analysis of the location to be selected is to be undertaken by the
entrepreneur before he selects a particular site. The issues to be examined are:
 Availability of sufficient space including the space requires for future expansion
 Availability of raw material at reasonable price
 Easy availability of skilled / unskilled labour
 Availability of industrial fuel and supply
 The type of transport facility, the proposed unit requires and its availability
 Distribution facilities available for the proposed product or service
 Availability of power and degree of dependability of its supply
 Water supply as per the requirement
 Facilities available for education, health, recreation, shopping, religious and social life and professional
services
 Housing facilities available to employees of the proposed project.
 Laws and regulation conducive for establishing a business unit
 Tax incentives available in that locality
 Climatic condition of the area
Thus selection of a best place for establishing a business unit plays a major role in successful operation of
proposed venture
2. Clearance and Permits:

Several types of clearance and permissions have to be obtained from different agencies. General
clearance applicable to SSIs and other size of business are enlisted.
Following types of industries have obtain Provision Registration from the respective District Industrial
Centers‟ (DICs)
a. SSI‟s
b. Ancillary industries whose investment in plant and equipment below Rs 1 Crores
c. Tiny industries (Investments below Rs 25 Lakhs in plant and machinery)
d. Women entrepreneurs where one or more women entrepreneur has not less than 51% financial holding.
Pre Implementation Clearance/Approvals Other Clearances
a. Land/Location: Environmental clearance from government of India; No objection certificate (NOC)

from Pollution Board of the respective state; Change of land used from District Collector/Government
in municipal Administration and Urban Development through Director/ Town and Country Planning/
Urban Development Authority; Exemption from Land Ceiling.
b. Building: Permission for building layout need to be taken from Gram Panchayat/ Municipality/Town
and Country Planning Department/ Urban Development Authority.
c. Plant and Machinery: Approval of layout needs to be taken from the departmental of
Factories/Boilers
d. Raw Material: Need to get permit of scarce raw materials like Coal, Molasses, alcohol, paraffin wax
etc. If required from Industries Department.
e. Power: Need to get power feasibility from concerned State Electricity Board; to obtain approval
Captive Generation, if need be; Agreement with private power producer to purchase power from
private generating stations.

f. Water: Water supply services can be obtained from the following:-Own captive source; Public Supply
(local Bodies); Supply from the state Government Authority in case of Industrial Parks/ Industrial
Development Areas; Supply from state Irrigation Department for bulk consumption
Post Implementation Clearance/Approvals
a. Registration and Licensing under Factories Act
b. Clearance and Electrical Inspectorate
c. Letter of Intent of Distillery/ Brewery
d. Registration under Milk and Milk orders
e. Mining/Quarry lease
f. Registration with central excise department
g. Sales Tax registration with Commercial Taxes department
h. Provident Fund Registration ESI Registration.
3. Licensing: This is a part of clearance activity. All legal aspects to establish a business unit irrespective
of the size have to be strictly followed.
 Any entrepreneur is open to set up an industrial unit in the small scale sector, no formal
permission from the state government is necessary for this purpose.
 Also, industries employing less than 100 workers and having fixed asset of Rs 10 Lakhs
need not obtain any license under the industries (Development Regulation) Act.
 Small scale units have to follow the rules and regulation prescribed by the state or local
authorities under Factories Act, the Commercial Establishment Act, the Town Planning
Rules and rules mage for the issue of quotas of raw materials etc.
4. Registration: In their own interest, all existing small scale unit or intending entrepreneur employing
more than 10 workers should get themselves registered with Director of Industries in their state.
 A copy of the Registration Application has to be sent to the Director of SSI Institute in the
Concerned State.
 Such registration with the Director of Industries and Small Industries service Institute will be of
considerable help to small unit in obtaining financial assistance from the government and for
obtaining machinery on hire purchase basis from National Small Industries Corporation.
Assistance in the supply of controlled raw material essentiality certificate for imported raw materials
and components and facilities for export promotion would then be easily made available to small scale units
registered with the State Director of Industries

The various steps involved in starting business:
 Identification and evaluation of the opportunity:

Consumers and business associates are the best source of ideas for a new venture. Many
entrepreneurs identify business opportunities through discussions with the retailers, wholesalers
or manufacturer’s representative. Lastly, technically oriented people often conceptualize
business opportunities when working on other projects.
 Developing a business plan:

A business plan is the description of the future direction of business. A good business plan is
not only important in developing the opportunity but also essential in determining the resources
required, obtaining these resources, and successfully managing the resulting venture. A business
plan is often an integration of functional plans such as marketing, finance, manufacturing, and
human resources.
 Determining the resources required:

The resources need for starting the venture must also be determined. The process starts with an
appraisal of existing resources, if any, with the entrepreneur. Resources that are critical must
then be distinguished from those that are just helpful. Alternative suppliers of these resources,
along with their needs and desires, must be identified, the entrepreneur should try to structure a
deal that enables the resources to be acquired at the lowest possible cost and the least cost
control.
 Project appraisal and feasibility plan:

The exercise of project appraisal is the assessment of a project in terms of its economic, social,
and financial viability. This exercise calls for a complete scanning of the project. The appraisal
of a project is undertaken by the financial institutions with the twin objective of determining the
market potential of a project and selecting an optional strategy.

Managing the venture:
If it has been decided to go ahead with the venture , the entrepreneur must employ the acquired
resources through the implementation of the business plan. Operational problems of a growing
enterprise must also be examined. This involves implementing a management style and
structure, as well as determining the key variables for success. A control system must be
identified so that any problem area can be carefully monitored.
 Feasibility analysis:
A feasibility report is a project report of a new enterprise or of an expansion which provides, in
general primary economic , information, financial data and technical details.

Feasibility report
A feasibility report is a project report of a new enterprise or of an expansion which provides in general
primary economic, information, financial data and technical details.
Objectives of Feasibility Study
1. To assess project results

2. To improve project Management and process planning
3. To promote learning
4. To establish new knowledge
5. To understand different stakeholders perspectives
6. To ensure accountability
7. Best use of funds
8. To avoid weakness and future mistakes.
Types of feasibility studies:

1. Financial feasibility 3.Market feasibility
2. Technical feasibility 4.Social feasibility
1. Financial Feasibility:
The financial aspects of any business relate to the total amount of capital required the sources of
finance ,the cost of capital and its implication on the business. An analysis of these issues will indicate
whether the business is financially viable or not.
 Statements of total projects cost , capital requirements and cash flows need to prepare
 Collection period of sales , inventory levels, credit period that can be availed, etc need to be
estimated.
 Projections for future time periods need to be worked out.
 Returns on Investment, returns on equity, Break even volume and price analysis needs to be
studied.
 A sensitive analysis needs to be conducted to know the impact of certain items on profitability.
2. Market feasibility:
Market feasibility study helps to understand the condition of the market and customer preferences and
expectations. It includes
1. Market survey will helps to understand the demand or opportunities of the customers.
2. Consumer behavior helps to understand the need and preference of the product and their buying
behavior etc.
3. Products and services which we have to offer to the market to satisfy the customers.
4. Price fixation also an important aspect in market feasibility
5. Distribution covers channels of distribution mode of transport, mode of packaging and cost of
distribution, Government policies etc.
6. Promotion will helps to reach the customer for their choices
7. Sales after services
8. Competitors ,also can be identified to prepare strategy to overcome competition.
9. stakeholders and customers must be satisfied.
3. Technical feasibility:
1. Material inputs, raw materials

2. Production/product mix
3. Location and site
4. Structures and civil works
5. Technical know-How
6. Project charts and layouts
7. Manufacturing process and technology
8. Plant capacity
9. Selection and procurement of machinery and equipment
10. Scale of operations
11. Collaboration agreements
12. Work scheduling
4. Social feasibility:
1. The estimation of costs and benefits which will accrue to individual members of society as
consumers or as suppliers of factory input.
2. Costs and benefits accrue to the community.
3. Costs and benefits accrue to the national Exchequer.

4. Costs and benefits accrue to the entrepreneur .
Factors taken while selecting the suitable site for a plant:
1. Law and order situation:

Plant location must be at that place where law and order situation is in control. If a state has bad law
and order situation, then the business must not be located within that state.
2. Availability of infrastructure facilities:
Plant location which is selected must have proper infrastructure facilities. Without good infrastructures
facilities, it will be difficult to do business efficiently.
3. Good industrial relations:

Plant location must be at those places where good industrial- relations are maintained. Entrepreneurs do
not want to locate their business at places where anti-social elements are rampant.
4. Availability of skilled workforce:

Plant location must be convenient and easily accessible to skilled workforce. The entrepreneur must be
consider the availability of competent skilled workforce at a particular place to locate their business.
5. Social Infrastructure:
There is a need for social infrastructure not only for employees but also for the development of their
families. The availability of social infrastructure will increase employees welfare.
6. Investor friendly attitude :

Plant location must be in those states whose governments have an investor friendly attitude.
Government must give attractive incentive and concessions to those who start business units in their
states.
7. Nearness to Market:
Plant location must be near a market. Every business unit depends on a market for selling its goods and
services. The goods and services must reach the market on time, and be available to the consumers at a
low price
8. Nearness to raw materials sources:

Plant location must be usually near to the source of raw materials. It is important in the business to get
the raw materials in time and at a reasonable price.
9. Nearness to supporting industries:

Plant location must be near its supporting industries and services. if it purchases spare parts from an
outside agency then these agency must be located very close to the business.
10. Safety requirements:

Plant location must meet all essential safety requirements. Due to air ,water and noise pollution, some
factories have a bad effect on the health of the people.
Sickness in Small Scale Units
“Success has many fathers while failure is an orphan”. Sickness of industry is one of the major problems faced
by developing countries.
A sick unit is one which is incapable of carrying its operations and earning profits throughout the year.
According to State Bank of India

“A sick unit is one which fails to generate an internal surplus on a continuous basis and depends for its survival
upon frequent infusion of funds”.
Kohli committee report is used to measure the sickness. According to kohli committee, there should be
continuous decline in gross output for three consecutive years, delay in repayment of institutional loan for
more than 12 months and erosion in the net worth to the extent of 50% of the net worth during the previous
accounting year.
Causes of Sickness:
External Causes:
Frequent Power Cuts: It is one of the main causes for the sickness of industry, it is not limited to one or two
states. The entire country is facing the problem of power cuts which is a major problem especially during
summers.
Non-Availability of Resources: Irregular supply or low quality raw-materials is also one of the main causes
for industrial sickness. Either the raw-material is not available or it is available at high prices.
Severe Competition: There are some products which are produced by small and large units simultaneously
and the large industries have highly advantageous factors compared to small industries which makes small
industries to suffer.
Government policies: Sudden changes in government policies relating to licensing, import, export, rate of
interest, taxation and credit limits can make the viable units sick in a short span of time. The domestic units are
threatened by imported products due to cheap price, good quality and craze of foreign goods.
Lack of Infrastructural Facilities: Lack of infrastructural facilities like energy, road, transport, banking,
finance, communication, technology, health and education are also responsible for the sickness of the units.

Problems with Financial Institutions: Financial Institutions come forward to give loans only to people like
Neerav Modi and Vijaymalya but they make common man to wait for three to four months to sanction the
loan. Many people also don’t know the procedure for applying the loan, Government benefits, incentives,
subsidies and tax concessions which make them more vulnerable prey for bribes and corruptions.
Labour Problems: Small units can’t afford the incessant demands of the workers due to their low profitability
and weak financial muscle. This results in low productivity and high labour turnover. The workers and trade
unions are well aware of the loopholes in the legal system which provoke them to involve in strikes, lockouts,
and picketing.
Limited financial base of Promoters: The promoters of SSI are usually not very elite or rich. They are not
financially strong. Many industries fail in the initial stages itself because of lack of proper planning by the
promoters.
Exploitation: The ancillary units is highly depended on mother units. These mother units instead of using the
ancillary to mutual advantage deliberately encourage more than three or four units to be set-up for the supply
of the same product and thus create rivalry and unhealthy competition.
Internal Causes:
Low Quality: One of the biggest drawbacks of SSI is that they cannot produce high quality products because
of internal and external cause. This includes hazardous electronic goods, cheap cosmetics, inferior toys and
leather products. The entrepreneurs are more concerned about the volume of production rather than the quality.
One of the major reasons is the absence of brand name.
Scanty marketing Efforts: The entrepreneur depend on the middlemen because they want to avoid
packaging, transportation, advertisement and sales promotion. The middlemen make profit more than the
producer by selling the products in their own brand name. Large industries invest crores of rupees in
advertisement which cannot be done by the SSI.
Fault Capital Structure: The combination or mix of long-term financial resources comprising of debentures,
preference shares and equity shares should be optimum and scientific. An enterprise is considered sick
according to RBI if the ratio of current assets to current liabilities is less than 1 as it indicates declining
liquidity of the firm.
Incompetent Management: Good management is an asset to the business. Young entrepreneurs start their
enterprises with romantic ideas. They keep high overhead costs, do- not mint borrowing at prohibitively high
rate of interest especially during the initial years. Lack of professional management and existence of hereditary
management is an important cause of sickness. An inexperienced entrepreneur cannot perceive things in a
proper perspective. He avoids delegating authority either due to lack of faith in subordinates or due to fear of
getting his importance overlooked. Such entrepreneur do not believe in team work and uses autocratic style of
management.

Excessive Growth of Inventories: Excessive inventories blocks the funds which can be invested in some
other profitable venture. This results in the birth of slow-moving inventory items which finally take the unit on
the path of sickness.
Under-utilisation of Capacity: It is caused by lack of working capital, lack of demand, non- availability of
raw materials, labour unrest etc, finally it results in industrial sickness leading to death of small enterprises.
Long Credit Period: Customers are given more credit due to competition from large scale units. This eats
up the profit of the unit.
Wrong Location: If location of an enterprise happens to be wrong either from the point of view of market
or the supply of inputs, it is bound to create innumerable difficulties for the unit.
Not giving importance to R&D: Research and development is like a Sanjeevani to the business. If this
part is neglected, then no business can survive in the long run.
Measure to overcome sickness of industries:
Identifying sickness at initial stage: Sickness in Small Scale Industries are not a sudden phenomenon, 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.
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.
Several 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.
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.
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.

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 (NGO’s) 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.
Liquidation: It is better to wind up the business when there is no possibility to revive the unit.
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.
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.
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.
Several Tax Benefits available to SSI’s in India:
Some of the tax benefits available to Small-Scale Industries in India are as follows:
Tax Holiday: Under section 80J of the Income Tax Act 1961, new industrial undertakings, including small-
scale industries, are exempted from the payment of income- tax on their profits subject to a maximum of 6%
per annum of their capital employed. This exemption in tax is allowed for a period of five years from the
commencement of production.
A small-scale industry must satisfy the following two conditions to avail of this tax exemption facility:
1. The unit should not have been formed by the splitting or reconstruction of an existing unit.
2. The unit should employ 10 or more workers in a manufacturing process with the power or at least 20
workers without power.
Depreciation: Under Section 32 of the Income Tax Act, 1961, a small-scale industry is entitled to a deduction
on depreciation account on block of assets at the prescribed rate. Small enterprise is allowed subject to a
maximum of Rs. 20 lakh deduction for depreciation on plant and machinery on the diminishing balance
method.
In case of an asset acquired before the accounting period, depreciation is calculated on its written down value.
For plant and machinery that are used in manufacturing in double or triple shift, an additional allowance called
‘Extra Shift Allowance’ is also available.

UNIT IV
BUSINESS PLAN
Meaning – importance – preparation –BP format: Financial aspects of the BP, Marketing aspects
of the BP, Human Resource aspects of the BP, Technical aspects of the BP, Social aspects of the
BP. Common pitfalls to be avoided in preparation of a BP
Definition:
Mar J. Dollinger has defined the business plan as “the formal written expression of the
entrepreneurial vision, describing the strategy and operations of the proposed venture.”
Meaning:
“A goal without a plan is just a wish”. Business plan refers to the goals of the organisation written
on papers to get clear idea to execute them and to make them successful.
A business plan is a formal written document that describes the strategies and opportunities of a
proposed venture. It contains current status and projected results of the new business. It covers
overall aspects of the business-like manufacturing, finance, marketing, research and development,
human resource management, milestones, achievements, goals and objectives etc.,
The business plan serves as a road map to the entrepreneur for building a successful enterprise.
Importance or advantages of Business Plan:

 Financial Blueprint: Finance is core and crust of the business, business plan becomes
most essential statutory document to be provided to the bank, financial institute or venture
capitalist to obtain the required funds.
 To Build confidence: Business plan acts as a guide and a tool that can be used by the
management in every aspect of the business. It ensures the management whether the
business is going in the right path and it helps the management to focus on the goals,
objectives and vision.
Gowtham Kumar C. K M.Com, KSET

 Attract stake-holders: The business plan acts as a branding tool to the business. It helps
the business to attract maximum investors. Investors always rely on statistical data,
prospects, milestones and achievements and goodwill of the business. All these are
available more precisely in a business plan which makes it more reliable and attractive.
 Converting idea into product: Business plan plays a significant role in converting an
idea into successful business. Majority of the entrepreneurs fail to convert their ideas into
successful business because they lack proper planning and analysis.
 Guide to decision making and judgment: Decision making is a science and judgement is
an art. Business plan throws light on major aspects of the business-like marketing, finance,
human resource, technology, research, diversification etc., It facilitates the entrepreneur to
take right decision at the right time more scientifically and it also enables him to judge the
situations and act accordingly.
 Reduce errors: A good business plan allows mistakes to be made only on paper rather
than in the market place. It helps the entrepreneur to build clear-cut strategies to survive
the competition and to make the business successful.
 Medicine to personal dilemma: An entrepreneur always has conflict with his personal
demands and business demands. He desires for high income, social status, wealth on one
hand and desire for leisure and recreation on the other hand. An good business plan will
reduce this emotional stress and helps the entrepreneur to focus more on important matters
and helps him to set priorities.
 Acts as bridge between entrepreneur and enterprise: A business plan helps the
stakeholders to understand the vision of the entrepreneur. The entire ideas, thoughts,
dreams and emotions of the entrepreneur about the business is projected in the business
plan which makes it more reliable and trustworthy source of document.
Objectives of a Business Plan

 To give direction to the vision of Entrepreneur
 To objectively evaluate the future prospects of the business To monitor the
progress after implementation of the plan
 To seek loans from Financial Institutions To facilitate the decision making process
To persuade others to join the business
 To identify strengths and weaknesses present in the internal environment To
identify opportunities and threats in the external environment
 To assess the feasibility of the business
Contents of a good business plan:
The business plan should be clear, concise, correct, concrete and complete. It should be
prepared with intense care and consideration to make it more attractive to the outsiders and to
make it more reliable and trustworthy document.
A good business plan should contain the following information:
 Basic information: It includes information regarding the product details and profile of
the business.
 Promoter: It includes information name of the entrepreneur, educational qualification,
work experience, project related experience etc.,
 Location: It contains information about the geographical areas of operation, lease or
freehold, locational advantages.
 Land and Building: Information relating to construction area, type of construction,
cost of construction, detailed plan and estimate along with plant layout, safety
measures etc., are included.
 Plant and Machinery: Details of machinery required, capacity of each machinery, cost,
various alternatives available, cost of miscellaneous assets and other expenses are
furnished.
 Production Process: Description of production process, process chart, technical
aspects, technology alternatives available, production targets are included.
 Utilities: Water, power, steam, compressed air requirements, cost estimates, sources of
utilities, raw-materials availability, transportation facilities are identified and recorded.
 Raw Material: List of raw material required by quality and quantity, sources of
procurement, cost of raw material, tie-up arrangements, other alternatives available are
furnished.
 Manpower: Manpower requirement by skilled and semi-skilled, sources of manpower
supply, cost of procurement, requirement for training and its cost.
 Products: Product mix, estimated sales, distribution channels, competitions and their
capacities, product standard, input-output ratio, product substitute.
 Market: End-users of product, distribution of market as local, national, international,
trade practices, sales promotion devices, and proposed market research.
 Requirement of Working Capital: Working capital required, sources of working
capital need for collateral security, nature and extent of credit facilities offered and
available.
 Requirement of Funds: Break-up of project cost in terms of costs of land, building,
machinery, miscellaneous assets, preliminary expenses, contingencies and margin
money for working capital, arrangements for meeting the cost of setting up of the
project. Cost of Production and Profitability of first ten years. Break-Even Analysis
Schedule of Implementation
Elements of Business Plan:
Table of Contents: It contains the entire list of details furnished in the business plan document.
 Contents
 Executive Summary
 Details of Executive Summary
 Mission
 The Company
 The Business Competition
 Management
 Team
 Capital Requirements
 Financial Projections
 The market
Executive Summary: The primary motto of executive summary is to attract investors; hence it
should be concrete and concise. It contains the vision and mission statements of the enterprise along
with other details of the company and its products.
Vision & Mission statement: A mission is the short-term goal or objectives that the company
must achieve. A vision is the long-term goal of the company. It describes what the company wants
to be in future. The company should align the vision and mission statements with its objectives
and goals to make it more meaningful.
Company: It contains the information about the company like the name, logo, date it was founded
and products it manufactures. It is better to be clear about the information furnished because
certain investors will not invest in certain industries. Hence the company must provide a clear idea
about the products that they manufacture.
Business: The plan should contain information relating to the business (whether it is a start- up,
seed or growth stage). The sales achieved by the company, profit and loss statement, break- even
analysis, prospects, need for fresh financing are to be furnished. Here the figures should be exact,
scientific and accurate.

Competition: Mention whether there are direct competitors or whether the product is unique.
Market niche that is occupied by the company can also be illustrated. How the product is unique
when compared with its competitors can be added.
Management Team: A short information about the management team, there areas of interest and
the experience they hold in marketing or product development and other disciplines must be
mentioned.
Capital Requirement: The money required for setting up and operating should be briefly stated.
Type of financing (debt, equity or others), capital structure and other financing modes should be
mentioned. The company must also provide how the money is repaid back i.e. exit strategies if the
company fails should also be mentioned.
Financial Projections: Three years information about sales, profits and pre-tax profits are
sufficient. The figures must be accurate and scientific. It should be done with greater care since it
attracts more investors and other stakeholders of the company. The company should also include
cash flow statements, balance sheets and research and development data.
Market: The market for the product must be defined. How the demand is grown as compared to
previous years? Projected demand for the next year, target customers, how the product reaches
them, all these aspects should be covered in the business plan.
Preparation of a Business Plan
A good business plan must identify strengths and weaknesses internal to the business and the
challenges in terms of opportunities and threats to assess the viability of the business. It must lay
down all the necessary steps that are involved in initiating and operating a proposed business.
Preparation of a business plan involves the following steps :-
Preliminary Investigation – In
order to create an effective plan an
entrepreneur must Consumers Existing companies Research & Development employees
Dealers/Retailers Review available business plans Draw key business assumptions on which
plan is based Scan the environment for Strengths, Weaknesses, Opportunities and Threats Seek
professional advice Conduct a functional audit
Methods of generating ideas
 Brain storming
 Group discussion
 Data collection through questionnaires Invitation of ideas from professionals
 Value addition to existing Product and Service Market research
 Import of ideas from products launched abroad Commercializing

inventions
Screening of ideas is done to identify practical ones and eliminate impractical one. The most
feasible and the most promising idea is selected for further investigation
(I) Idea Generation – It involves generation of a new concept/product/service or value addition to

an existing Product or Service. The idea must be such that satisfies the existing demands and
future demands of market.
 Sources of ideas
 Consumers Existing companies
 Research & Development employees Dealers/Retailers
 Import of ideas from products launched abroad Commercializing inventions
 Screening of ideas is done to identify practical ones and eliminate impractical one. The
most feasible and the most promising idea is selected for further investigation.
Methods of generating ideas –
 Brain storming
 Group discussion
 Data collection through questionnaires
 Invitation of ideas from professionals
 Value addition to existing Product and Service Market research
(II) Environment Scanning → The internal and external environment, must be analysed
to study the prospective strengths, weaknesses, opportunities and threats of the
business. An entrepreneur must collect information from all formal and informal sources in order
to understand the supportive and obstructive factors related to the business enterprise.
External Environment –
 Socio cultural appraisal – It involves assessment of the values, beliefs and norms
of a particular society in order to understand their perception towards a particular idea or
product.

 Technological appraisal – It involves assessment of existing technical know-how
and availability of technology necessary to convert an idea into a product.
 Economic appraisal – It assess the economic environment in terms consumer price

index, inflation, balance of payments, consumption pattern, per capita income etc.
 Demographic – It involves an assessment of the overall population pattern of a

particular region. Variables like age, education, income pattern, sex, occupation,
distribution etc. help in identifying the size of target market.
 Government appraisal- It assess various grants, legislations, policies, incentives,

subsidies etc. formed by government.
Internal Environment –
 Availability of Raw materials
 Availability of various machines, tools and equipment required for
production Means of Finance and assessment of opening, maintaining and operating
expenses
 Assessment of Present, Potential and Future market
 Assessment of cost, quantity and quality of human resources required
(II) Feasibility analysis – Feasibility analysis is done to find out whether the proposed project
will be feasible or not. The various variables that are studied include –
(a) Market Analysis – It is conducted to Estimate the demand of the proposed product in the
future Estimate the market share of the proposed product in the future
(b) Technical or operational analysis It is conducted to access the operational ability of the
proposed business. It is very important to find out the cost and availability of technology. Under
Technical analysis data is collected on following parameters –
• Material availability
• Material requirement planning Plant location
• Plant capacity
• Machinery and Equipment Plant layout
Financial analysis – A Financial Feasibility test is carried out to access the financial issues
related with the proposed business. The following estimates have to be carried out –
 Cost of land and building
 Cost of plant and machinery

 Preliminary cost estimation
 Provision for contingencies
 Working capital estimates
 Cost of production
 Sales and production estimate
Based on the above analysis the following projections are made

 Break-even point
 Cash flow statement
 Balance sheet
(III) Drawing functional plans – If the feasibility plans give a positive indication a draft business
plan is formulated. It involves preparation of the following functional plans –
Marketing Plan – A marketing plan lays down strategies for marketing a product/service
which can lead to success of business. These strategies are made in terms of marketing mix (4
P’s) i.e. Product, Price, Place and Promotion.
Production/Operation Plan –A production plan is made for a business involved in

manufacturing industry while an operation plan is made for business involved in service
industry. It includes strategies for following –
 Location and reasons for selecting a location Physical layout
 Cost and availability of equipment, machine and raw material List of suppliers
and distributors
 Cost of manufacturing and running operations Quality management
 Production scheduling capacity and Inventory management
Organizational Plan – It defines the type of ownership i.e. it could be a single proprietary,
partnership firm, company, private limited or public limited. It also consists of details about the
organization structure and norms guiding the organization culture.
Financial Plan – It indicates the financial requirement of the proposed business and furnishes the
following details –
 Cost incurred in smooth running of all the financial plans

 Projected cash flows
 Projected income statement Projected Break even point Projected ratios
 Projected balance sheet
Human Resource Plan → It consists of the details on the following:-

 Manpower requirements
 Recruitment and Selection
 Compensation
 Organization structure
 Wages and Salaries
 Budget
 Remuneration etc.
(IV) Project Report Preparation → It is a written document that describes step by step, the
strategies involved in starting and operating a business. It is prepared when environmental
scanning has been done and feasibility studies have been carried out.
Evaluation, Review and Control → In order to keep up with the dynamic environment and
successfully face global competition a business must be continuously evaluated and reviewed. It is
necessary to periodically evaluate, control and review a business to keep up with the technological
changes and introduce changes in the business strategy
Aspects of Business Plan:

Financial Aspects:
Under this section the BP should cover the following details:
 Purpose of financing: The company must describe the purpose of financing, he has to clearly
state whether the funds are required for modernisation, working capital, expansion or
diversification or for research and development. The BP should be specific and concrete. The
money should not be inflated anticipating that the investor or banker would tend to reduce the
amount.
 Amount of Investment: Entrepreneurs must state the amount required for running the business and
should include the relevant backup data. The capital structure, projected growth, investment in
fixed assets and intangible assets, advertising and marketing expenditure and working capital
expenses, R&D expenses should be added.
 Capacity: Here capacity means cash flow and the firm’s ability to meet its regular financial
obligations and to repay loans. Many small businesses fail because of lack of cash and not because
of lack of profits. The liquidity should be maintained.

 Exit strategy or Plans for repayment: An important element of the loan or investment proposal
is the repayment schedule or exit strategy. Lenders main intention in granting a loan is the
assurance that the applicant will repay where as the investors intention for investing the money
will be to earn maximum returns. The entrepreneur should also include the exit strategies if the
company fails in successful operations.
 Financial projections: The company should include all the financial statements like cash flow
statements, fund flow statements, profit and loss account, balance sheets, break-even analysis and
statement of assumptions of the previous years to the BP look more trustworthy and reliable
document. The data can be of 3 to 5 years if it is a well-established firm. If it is newly started
business, then the budgeted financial statements can be included.
Marketing Aspects of Business Plan:
 Entrepreneur’s must describe the company’s target market most effectively since it plays a vital role
in satisfying the investors and the customers. The business can’t make “everything for everybody”
hence target market should be clearly explained in detail.
 Market segment: The BP should contain information relating to how the market is segmented or
differentiated. The target customers. Ex. Kinder joy chocolate attracts children only when it is
advertised in cartoon channels.
 Pricing: The pricing policy should be clearly defined. The company should state whether the
products are priced based on market price, cost price, gross profit objectives, or perceived
value. The company should also analyse whether the customers are willing to pay that price for the
product.
 Distribution Channels: It is the most important part. Distribution channel play a significant role
in reducing the cost as well as reaching the target customers quickly. Ex Wholesaler, retailer,
factory outlets, exclusive online sale, door to door selling, agency selling, chain link selling etc.,
must be described clearly.
 Promotional strategies: It is the modern way to market the products. In this stiff competition
there is a need for using promotional strategies like cash backs, reward points, free after sale
services, guarantees and warrantees, discounts and coupons etc., to make the product penetrate the
market and to survive the stiff competition.
 Advertising: Advertising has changed drastically in the modern era due to the introduction of
data analytics and artificial intelligence. Each and every customer is uniquely identified, and the
advertisements are tailored for each customer to tempt them to buy the product in every possible
manner. The BP should contain the advertising strategies adopted by the company.
 Research and Development: The company should concentrate on R&D constantly to modify and
update the products regularly so that it suits the targeted customers in long run.
Human resource aspects of Business Plan:
 The complete profile of the key personnel resources should be included such as
 The organization chart with the names and titles of the key executives.
 Brief details about the executives like the educational qualification, achievements and experience
should be included.
 Complete resume of top managers should be furnished.
 Contributions of the staff to the company should be mentioned.
 Salaries, incentives, pensions, fringe benefits of the staff and top personnel should be included.
 If the firm is a manufacturing unit, human resource requirements should be summarised
 The BP should describe its management and control the health care and insurance costs.
 The BP must contain the training cost, employees responsibilities, positions and job descriptions.
Technical Aspects of Business Plan:
 The BP should contain the details of the quantity to be produced, technology used, collaborations
with foreign manufacturer should be furnished.
 Details of the equipment’s and plant and machinery to be used may be added
 Method of depreciating the assets and the replacement costs should be mentioned.
 Right technology should be used at the right time based on the affordability, suitability, functions
and its maintenance. Purchasing Lamborghini or rolls Royce is not a big deal but maintaining it
and using it in the Indian roads and traffic is a big deal. It is not suitable here.
 The technology complies with all the legal and statutory requirements.
Social aspects of Business Plan:

 Details regarding the quality and quantity standards maintained should be mentioned.
 Customer oriented approach should be adopted in marketing.
 Healthy working conditions should be highlighted.
 The business plan should also contain the safety measures adopted by the company for the welfare
of the employees and society.
 Equal opportunity should be given to women employees

 The company should involve in activities like donations, sponsorships etc for the benefit of the
society.
Contents of Business Plan

Common Pitfalls of Business Plan
1. Impractical financial projections: The most common mistake committed by the

entrepreneurs is overestimating the value of their company. Lenders and investors expect
realistic picture of where your business is now and where it hopes to be, therefore if the
plan is overly optimistic with no explanation of the projections, it will ring warning bells
and cause the plan to be rejected.
2. Not defining target audience: No business will appeal to everyone. entrepreneur must
define specific target market and present how assumptions are made. Each customer is
unique. The company has to focus only on the customers who are interested and willing to
buy its products. The company can save money in advertisements and marketing if they
define the target customers clearly.
3. Exaggerated hype: There is no need to create unnecessary hype while preparing the BP.
Entrepreneur should keep in mind that he should have a back-up for every claim. Investors
don’t like to hear sugar-coated words. They like scientific plans and strategies that are
realistic.
4. Bad Research: Research is the key for the success of any business. Proper research leads
to most accurate findings and analysis which helps the entrepreneurs to take up right
decision at the right time.
5. Eye on competitors: No business is free from competition. Every business faces

competition directly or indirectly which effects the functioning and profitability of the
business. It is the responsibility of the entrepreneur to double check the market, customers
and govt policies. On the other hand, competitors should not be highlighted too much
because the investors hesitate to invest in highly competitive environment.
6. Improper SWOT analysis: Entrepreneur should first understand himself and his
company, then he can analyse external environment properly. He should know his
strengths, weaknesses, opportunities and threats. Hiding and highlighting both will affect
the entrepreneur in the long run.

7. Improper Distribution Channels: The ability to articulate your strategy about how your
product or service will reach your client is vital. Proper distribution channels help the
products to reach the customers quickly by reducing the cost of distribution. There are
many ways to distribute the product in the modern era. Ex: wholesaler, retailer, online,
agency, chain links and door to door service etc.,
8. Adding too much information: For a person resume is important to brand himself and for
a company business plan is important. The information provided in the business plan
should be clear, concise, concrete and complete. The investor is not ready to read 200
pages. The entrepreneur should focus only on key elements of the business.
9. Inconsistency and Assumptions: Each sections of business plan should be reviewed

properly and there should be a scientific back-up for all the claim in the business plan.
Avoiding too much assumptions is better. The business plan should be realistic so that the
investors and lenders come forward to invest or to lend expected finance at lower rates.
10. Wrong selection of technology: Technology should be adopted based on affordability

and usage. Technology should be used according to the suitability of the business.
Unnecessary spending should be avoided. It is of no use if we have 5G compatible phone
without 5G network.
11. Overestimation of Revenues: No investor or lender can be fooled by projecting

unrealistic data and profits. The entrepreneur should be smart in analyzing the profits,
cash-flows and revenues.
12. Conclusion:
A business plan is the nerve of the business which helps the entrepreneur in decision-
making and judging the events of the business. Hence it must be done with great care and
zeal.

Unit –V
IMPLEMENTATION OF THE PROJECT AND SICKNESS IN SSI
Financial assistance also known as financial aid, refers to loans, loans guarantees, subsidies, tax
allowances, cost sharing arrangements or outright grants provided by third parties
Name of the institutions offering financial assistance

1. State financial Corporation (SFC)
2. Industrial Development Bank of India (IDBI)
3. Industrial Financial Corporation of India(IFCI)
4. Industrial credit Investment Corporation of India(ICICI)
5. Industrial Reconstruction Bank of India( IRBI)
6. Commercial Banks
7. Life Insurance Corporation(LIC)
8. General Insurance Corporation
9. Unit Trust of India(UTI)
10. Small Industries Development Bank of India(SIDBI)
11. Mutual Funds
12. Leasing companies
13. Risk Capital Foundation
14. National Bank for Agriculture and Rural Development (NABARD)
15. Khadi and Village Industries commission (KVIC)
16. Stock Exchange
17. Venture capital finance
18. Housing Development Finance Corporation Ltd
19. The shipping credit and investment company of India
20. The World Bank
21. Asian Development Bank
22. Infrastructure and leasing finance corporation
Gowtham Kumar C.K M.Com, KSET

State Financial Corporations: (SFC)

The state finance corporation was setup under a separate State finance corporation act 1951 on lines
of industrial financial corporation set up in 1948. State Finance Corporation is set up at every state to
develop Small and Medium scale industries.
The Objectives of State Financial Corporation (SFC) is

1. To fulfill the financial needs of the small and Medium scale Industries
2. To extends loans to industrial units
3. Development of infrastructure facilities
4. Extending financial assistance
5. It provides term loan to small and Medium scale industries for creation of assets.
6. It provide working capital term loan to the industrial unit.
7. It provides non fund based services like merchant banking
8. To establish uniformity in regional industries.
9. To provide incentive to new industries.
10. To bring efficiency in regional industrial units.
11. To provide finance to small scale ,Medium sized and cottage industries in the state.
12. To develop regional financial resources.
KARNATAKA STATE FINANCE CORPORATION (KSFC):

It was established by the government of Karnataka , in march 1959 under the SFC act of1951. The aim of
KSFC was to extend financial assistance to tiny small and medium scale industries in the state. Rs5 crs for
corporate bodies and registered co-operative societies. Rs2 crs are sanctioned proprietary, partnership and
Hindu undivided family concerns.
Objectives of KSFC:
1. To promote the overall development of Indian Economy
2. To provide financial assistance to tiny ,Small and Medium Scale Industries.
3. To have a balanced Economic growth.
4. To guide new entrepreneur in their venture.

5. To assist the enterprises in acquisition of Machinery, land ,Building, Equipment etc

6. Generate Employment Opportunities.
Functions of KSFC:
1. To provide loans for a period not exceeding 20 years to industrial units.
2. To underwrite the issue of shares, debentures and binds for a period not exceeding 20 years of
Industrial Units.
3. To give guarantees to loans taken by industrial units for a period not exceeding 20 years.
4. To subscribe the share capital of the industrial unit.
5. To do all such acts as may be incidental of its duties under this act.
KSFC has involved loan schemes for extending financial assistance:
1. Industrial concern promotes by rural artisans.
2. Weaker sections of the society
3. Disabled entrepreneurs’ and others
4. EX-Servicemen
5. Women entrepreneurs and Hire purchase scheme.
SMALL INDUSTRIES DEVELOPMENT BANK OF INDIA (SIDBI)

Small Industries Development Bank of India (SIDBI) was set up by an act of parliament, it commenced
operations in April 2 1990
The objectives of SIDBI are:
1. Promotion, financing and developing of industry in the small scale sector.
2. Co-coordinating the functions of other institutions engaged in similar activities.
3. Setting up to new projects
4. Expansion, diversification, modernization, technology up gradation, quality improvement
rehabilitation of existing units.
5. Strengthening Marketing capabilities of SSI units.
6. Development of infrastructure fir SSI units.
7. Export promotion.

Functions of SIDBI:
1. Refinances the credits and loans granted by Financial institutions to small scale industries.
2. SIDBI also serves the functions of discounting and rediscounting of bills of SSI units.
3. SIDBI also extends direct assistance to the SSI for exporting goods.
4. SIDBI also assists the SSI units such as Factoring and Leasing.
5. SIDBI helps in National small scale industries making Hire purchase, leasing and marketing activities.
6. SIDBI provides various soft loans like Mahila vikas nidhi, National enquiry fund, Mahila udayam Nidhi.
And also provides seed capital to the start ups.
7. SIDBI took a step ahead in order to renovate the SSI units by instituting advanced technology in their
operations.
INDUSTRIAL FINANCE CORPORATION OF INDIA (IFCI):

The industrial finance corporation of India (IFCI) was established in 1 July 1948 under an act of
parliament with the object of providing medium and long term credit to industrial concerns in India.
Objectives of IFCI:
1. To extend financial assistance to industries in Rupees as well as foreign currency as per the
necessary.
2. Direct subscription on shares and debentures of Industries.
3. Underwriting shares, debentures and issues of industries.
4. Financial assistance for purchase of e equipments.
5. Financing to leasing to leasing and hire purchase companies.
6. The project value more than Rs 300 lakhs are financed by IFCI. The lesser value project taken care
by the IDBI or SFC
7. Stand guarantee for loans taken by industries from commercial Banks or state cooperative banks.
8. Guaranteeing for deferred payments due from the industries in connection with purchase of capital
goods which may be local or imported.
9. Guarantying loans from outside of the country in foreign currency with approval from the central
government.

Functions of IFCI
1. Sanctioning loan to the companies or by buying their debentures. Maximum duration of both is
25 years.
2. Raising capital by issuing shares, debentures, bonds etc on behalf of company. Maximum
duration of the securities is 7 years.
3. Raising the capital of public limited companies by purchasing their securities ie debentures,
shares etc
4. Taking guarantee payments on behalf of those companies which make purchase of capital goods
within or outside the India.
5. Sanctioning loan to the companies on the directive of the central Government or World Bank.
6. To set up a new company.
7. To expand or diversify the existing companies.
8. To renovate and modernize the existing company.
9. To fulfill the requirements of Working capital and to settle the liabilities of existing companies
but only in exceptional situations.
COMMERCIAL BANKS:
Commercial banks or scheduled commercial banks are those banks which are listed in the second
schedule of RBI act 1943. There are various categories in which scheduled bank are divided ie
Nationalized banks, regional rural banks, Cooperative banks, private sector banks and foreign banks.
Functions of Commercial Banks:
1. Accepting deposits like fixed deposit and recurring deposits.
2. To open the current account for business people.
3. To open savings bank account for Savings.
4. To advancing loans
5. To granting loans and credits .banks also invest their surplus fund in Govt securities.
6. All the commercial banks provide cheque leaf to its customers for free or against nominal cost.
7. Banks transfer the fund from the one account to another.
8. Collecting the customer funds
9. Purchase and sale of shares and securities for its customers ex Demat Accounts.
10. Payment of premiums in proper intervals of time.

11. Banks acts as a trustee and the executor

12. Income tax consultant
13. Purchase and sale of foreign exchange
14. Financing internal and foreign trade.
15. To provide locker facility to the customers for their valuables.
16. Issuing the travelers cheque.
17. Giving information about its customer
18. Underwriting company’s shares and debentures.
19. Accepting bills of exchange on behalf of the customers.
20. Giving advice to the financial matters.
II. Non financial assistance:
Apart from the providing various financial assistance the various financial institutions are also
providing non financial assistance. The various no financial assistances are.
1. National Small Industries development Corporation(NSIDC)
2. District Industries Centre(DIC)
3. Small Industries Service Institution (SISI)
4. Small Scale Industries Board(SSIB)
5. Small scale industries development corporation(SSIDC)
6. Entrepreneurship development institutes of India (EDI)
7. Khadi Village industries commission(KVIC)
8. Association of Women entrepreneurs of Karnataka(AWAKE)
9. Technical consultancy organization(TCO)
10. Technical consultancy services of organizations of Karnataka(TESCOK)
11. Small Industries Development Organization(SIDO)
12. Consultancy Services.
1. National Small Industries development Corporation (NSIDC)

It was established in 1995 to promote and develop micro and small scale industries and enterprises
in the country. It was originally founded as an Government of India agency later made into fully owned
by Govt corporation.

Objectives of NSIDC:
1. To get registration under this scheme for participating in govt and public sector undertakings
tenders.
2. NSIDC continuously gets updated with the latest specific information on business leads,
technology and policy issues.
3. NSIDC helps in acquiring raw materials for SSI at convenient and flexiable terms.
4. NSIDC facilitates sanctions of term loan and working capital credit limit of Small enterprise
from Banks.
5. NSIDC provides marketing assistance and participates in government tenders on behalf of SSI
to produce order from them.
2. District Industrial Centre (DIC)

The district industrial center (DIC) was established on 8th may 1978. With a view to provide
integrated administrative frame work at the district level for promotion of Small Scale Industries.
Objectives of DIC:
1. To accelerate the overall efforts for industrialization of the district
2. To develop the rural industries and handicrafts and promotes rural industrialization.
3. To have balance economic development all over the district
4. Providing the benefits of the government to the new entrepreneurs.
5. Centralization of procedures required to start a new industrial unit and minimization of the
efforts and time required to obtain various permissions, Licenses, registrations, subsidies etc.
Functions of District Industrial Centers:

1. It monitors the registration of MSMEs
2. It provides infrastructural assistance to entrepreneurs in form of grievance redressel through the
district level clearances’ committees of industries.
3. The DIC organizes entrepreneurship development training programs.
4. It provides required information about local sources of raw materials and their availability.
5. It sanctions SSI registration
6. It prepares techno-economic feasibility report.

7. It provides opportunity guidance to entrepreneurs.

8. It guides entrepreneur with regard to manpower assessment with respect to skilled and semi
skilled workers.
9. It provides information about various Govt schemes, subsidies ,grants and assistance available
from the other corporations set up for promotion of industries.
10. Helps entrepreneurs in obtaining sponsored schemes licences from the Electricity Board, Water
Supply Board, no objection certificates etc.
11. Implements government sponsored schemes for educated unemployed people like PMRY
scheme. Jawahar Rojgar yogana etc.
12. It acts as link between entrepreneurs and Bank and also organizing marketing outlets in liaison
with other government agencies.
3. Karnataka state Industrial development corporation: (KSIDC)

KSIDC is another financial institution which extends financial support to SSI s in Karnataka. This
organization of Karnataka has no specific financial programmes for adaptation of pollution control etc. but
provides medium and long term loans, equipment financing and direct equity participation.
The Role of KSIDC in the up lifting of SSI

1. KSIDC estates are provided with required amenities like training institute, P&T office,
dispensary, community garden banks canteen.
2. KSIDC provides ready to occupy sheds for immediate starting of industries and also provide
gowdown for storage of its materials.
3. KSIDC being a Government organization is transparent and of the prices of land/ building. The
prices so fixed are accepted by financial institutions for quick approval of loans.
4. KSIDC estates , once declared as notified area are free from local taxes and Octroi.
5. KSIDC provides a unique opportunities to entrepreneur cluster benefits related to raw material .

6. KSIDC provides special services in a acquiring and allotting land to SSI entrepreneurs.
7. KSIDC allots land on top priority basis to start industry by SC/ST SEDC applicants, further
needy SC&ST units of backward areas will be paid subsidy amount and also reduced payment
of EMD/application/Scrutiny fee.
8. KSIDC estate provides ISI testing units to help SSI units to process quality products.
4. Small Industries Services Institutions (SISI):

The small industries service institutes have been set up in state capitals and other places all over the
country to provide consultancy and training to small entrepreneurs.
The main objectives of SISI :

1. To serve as interface between central and state government.
2. To render technical support services.
3. To conduct entrepreneurship development programmes.
4. To initiate promotional programmes.
5. To assist potential entrepreneurs.
6. To prepare industrial profile of the state
7. To conduct update survey on the potential survey of the industries in the district.
8. To organize management skill development programmmes
9. To work in the direction of skill development of entrepreneurs.
10. To prepare the project profiles.
Functions of SISI:
1. It Assists existing and prospective entrepreneurs.
2. To conduct EDP s all over the country
3. It acts as advising agency
4. It conducts market survey
5. It provides assistance in quality Control.
6. It helps to get financial support

7. It initiates technical assistance

8. Ancillary development
5. Small Industries Development Organization (SIDO):
SIDO is an apex body at Central level for formulating policy for the development of SSI in the country.
Functions of SIDO:
1. Framing of policies pertaining ot SSI sectors.
2. Coordinate with different agencies in the SSI sectors.
3. Monitoring policy implementation
4. Industrial Development
5. Extension services
6. To encourage exporters
7. SIDO provides exhibition space and shipment of exhibits EX Mumbai free of cost for this
purpose.
8. Encourages participation in international fairs /Exhibition
9. Conducts training programmes on packaging for exports, with a view to render assistance to SSIs.
10. Technical and managerial consultancy services are provided to SSIs through a net work of field
offices so as to ensure higher level of production and generation of higher exports.
11. National award for quality products are given to outstanding units, who have made a significant
contribution .
12. SIDO has regional testing centers which are equipped with basic testing facilities for raw
materials ,semi finished goods , finished goods.
6. Association of Women entrepreneurs of Karnataka (AWAKE):

Association of Women entrepreneurs of Karnataka(AWAKE) is a Nonprofit . Non Governmental
organization, established in 1983. It aims to promote entrepreneurship among women and thereby
empower them to join the economic mainstream.
Services of AWAKE:

1. It conducts Entrepreneurship Development Program(EDP) for women and youth intending to start a
business in urban and rural areas.
2. 2.AWAKE conducts need based skill development programmes for women in various sectors like
food processing, handicrafts, tailoring, embroidery, garments, artificial jewellary, candle making ,
herbal products, housekeeping ,beautician training etc
3. 3.AWKE will conducts the progamme for both in rural and urban areas considering the business
opportunities and market trend of the environment.
4. AWAKE to encourage the women interested in food processing established a business incubator for
food processing at Bangalore.
5. AWAKE owes the success of its EDPs because to its holistic approach in including all
developmental agencies. Both the Govt and NGO.
6. AWAKE provides special assistance to women entrepreneurs.
7. Business counseling is conducted for potential entrepreneur aspiring to start her own business
enterprises.
8. 8.Under this programme AWAKE informs and creates awareness amongst women entrepreneurs.
9. AWAKE in association with various government and non governmental agencies provides a
platform for its members and trainees for marketing their products and build their business network.
10. 10.It conducts various programs and workshops on various topics such as Finance, Tax planning,
Computer skills, Information technology, packing in marketing, Export/import, communication
skills and HRM.
7. Technical Consultancy Organization: (TCO)

Technical consultancy organizations (TCO) were created for facilitating technical consultancy for
industrial projects. TCO were established by financial institutions like ICICI, IFCI, IDBI,SFC etc in
collaboration with state level financial institutions and commercial bank to cater to the consultancy
needs for small and medium enterprises.
It functions includes:
1. Giving advice on technical aspects of business
2. Preparing project profiles and feasibility reports.
3. Technical collaborations and technology transfer.
4. Technical consultancy to new entrepreneurs.

5. .Financial Potential survey

6. Advice on industrial Management
7. .Market research and survey for specific product.
8. .Offering merchant banking facilities.
9. Conduct EDP programmes
10. Conducting survey on behalf of central and state governments on issues like power needs,
modernization of plant, rehabilitation of sick industry.
8. Technical consultancy services organization of Karnataka ( TESCOK)

Technical consultancy services organization of Karnataka( TESCOK) is a Government of
Karnataka organization and it provides the following range of services to the entrepreneurs.
1. Identification of project ideas and selection of investment opportunities.

2. Selection of suitable locations for setting up industrial units.
3. Conduct market surveys.
4. Preparation of detailed techno-economic feasibility report.
5. Trunkey assistance.
6. Assistances in obtaining necessary licenses and clearances.
7. Energy audit and conservation.
8. Modernization studies
9. Dissemination of information on industrial policies.
10. Coordinating and conducting management development programme.
11. Identification and development of ancillary industries.
12. Assistance to government in providing information about new policies , programmes and schemes.
9. Khadi and village Industries Corporation (KVIC):

Khadi and village Industries Corporation (KVIC) established under the khadi and village
industries corporation in the year 1957

Objectives of KVIC:
1. Generating employment avenues for rural unemployed people through its different schemes.
2. Developing entrepreneurship ability among the rural unemployed youths.
3. Achieving the goal of rural industrialization.
4. Preserving the traditional arts and crafts in India.
5. Equipping artisans and craftsmen to take up the challenges of the modern market.
6. Promoting handicrafts, Khadi ,village and cottage industries facilitating them with the necessary
inputs like Raw materials, equipments, capital etc.
7. Developing market for KVIC products.
8. Bringing about regional balance in assisting cottage industries.
9. Introducing the products even in the international markets.
10. To promote and encourage cooperative efforts among the manufacturer of khadi or persons engaged
in village and cottage industries.
Functions of KVIC:
1. To plan and organize training of persons employed in KVIC.
2. To build up the reserves of raw materials and implement the supply them to kvic
3. To promote the sale and marketing of khadi or products , handicrafts .
4. To undertake through other agencies studies of the problems of KVIC.
5. To provide financial assistance directly or through specified agencie to institutions.
Financial Incentives and Industrial Estates
Financial incentives foster industrial development in a balanced manner. It includes concession, priority
and aid.
Differential Rate of Interest scheme

Under this rate of interest scheme, loans upto Rs 6500 as term loans and Rs 1500 as working capital are
provided by the commercial banks to the weaker section at a concessional rate of interest of 4% per annum.
This scheme was introduced in 1972 with a view to increase the credit flow to the weaker sections for
various productive purposes.
The eligible borrowers under this scheme are identified in relation to income concept i.e. Rs 2000 per
family per annum in rural areas and Rs 3000 per family per annum in urban areas.

Special Capital Scheme of Industrial Development Bank of India (IDBI)
The IDBI is operating a special capital scheme for extending equity of assistance to such entrepreneur who
Possess the necessary skill and experience but do not have adequate financial resources to set up projects,
Primarily in the small scale and tiny sector.
1. The maximum assistance admissible under the scheme is 20% of the project cost of Rs 4lakhs,
whichever less.
2. The assistance is interest free and carries only a service charge of 1% per annum.
3. Grace period for repayment of interest and upto 5 years for payment of instalments.
4. The scheme is operated by the IDBI through the State Financial Corporation
Taxation Benefits for SSI

1. In most developing countries, the taxation policy aims at the promotion of agriculture and
industry. Industrial development may however be stimulated by means of a reduction in the
normally applicable tax
2. liability in the form of either an exemption from income tax on the amount invested or a
concession in the tax rate
3. Government has provided a number of taxation benefits for Small Scale industries development
programmes.
4. In fact special tax concessions to SSI are desirable for the accumulation of capital and for
directing it into right channels.
Tax Benefits relates to the following

1. Income Tax
2. Excise Duty
3. Sales Tax
4. Octroi
Apart from these small scale industries are entitled to Central capital and transport subsidies.

Taxation Support for Small-Scale Sector

Concession in matters of taxation for industries have three supportive roles like
 Marketing Support
 Investment support
 Raw material support
 Concession in profit tax/dividend tax
Every year the department formulates pre-budget proposals in consultation with the technical division
of the same department and appropriate suggestions/ modifications in respect of direct and indirect taxes
are sent to the Ministry of Finance for their consideration.
Tax Holidays
1. New industrial undertakings include small industries are exempted from payment of income tax
under 80 J of the Act on their profits up to 6 % per annum of the capital employed.
2. The deduction at the rate of 6% from the total income is allowed in the assessment year in
which the unit begins to manufacture, provided that the conditions specified in section 80 J are
fulfilled by small scale industries.
3. This concession is for five years from the commencement of production.

4. Small scale units should satisfy the following conditions before they become eligible for tax
benefits:
5. They should not have been formed by the splitting or reconstitution of an existing unit;
6. They should employ 10 or more workers in a manufacturing process with power or 20 or more
persons without power
Industrial Estates
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. industrial region, industrial
park, industrial area, industrial zone, etc.

ROLE INDUSTRIAL ESTATES
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.
Objectives of Industrial Estates
1. To encourage the growth of small-scale industries
2. To shift small-scale industries from congested areas to estate premises with a view to increase their
productivity
3. To achieve decentralized development in small town and large villages
4. To encourage growth of ancillary industries in the townships, surrounding major industrial
undertaking, both in public and private sector
5. To foster the development of industry as well as entrepreneurship by providing economies and
incentives.
Types of Industrial Estates
I. On the basis of functions
 Conventional (General): This type of industrial estate provides accommodation to wide variety
and range of industrial concerns. In India general type estate are very popular.
 Special Type: This type of estate attempts the establishment of industrial units, which are vertically
or horizontally interdependent
II. On the basis of the organizational set up

 Government
 Private
 Co-operative
 Municipal estate

III. On the basis of functions, industrial estates are broadly classified into two types:
 General type industrial estates, and

 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.
IV. 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.
II. Special Type Industrial Estate:
This type of industrial estates is constructed for specific industrial units, which are vertically or
horizontally independent.
V. On the basis of Organizational set-up:
On this basis, industrial estates are classified into following four types:
a. Government Industrial Estates,

b. Private Industrial Estates,
c. Co-operative Industrial Estates.
d. Municipal Industrial Estates

Government Assistance for Obtaining Raw Material Machinery Land and Buildings and
Technical Assistances

Questions:
Section A (2 marks)
1. Write a note on export finance scheme

2. Explain the different types of industries
3. What are the benefits of taxation?
4. What is seed money?
5. What is venture capital?
6. What is hire purchase?
7. What do you mean by leasing finance?
8. What do you mean by margin money?
9. What do you mean by financial assistance?
10. What do you mean by industrial estate?
11. Expand : SIDBI, IFCI , SIDO ,TECSOK, TCO, EDI,SISI, AWAKE, KVIC, IDBI, NABARD,
DIC, SSIDC, CREED, SFC, NSIC, SSIC, SIETI, STC, EPC,KSFC, KSSIDC
Section B (6 Marks)
1. What are the benefits/ importance of industrial estates.

2. Write a brief note on institutional support to SSI
Section C (14 marks)

1. Explain the different financial & non financial benefits provided to SSI.


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Entrepreneurship Development- Chapter no.

According to A.H.Cole “Entrepreneurship is a purposeful activity of an individuals or group of

Enterprise simply means an economic Organization or activity. Thus enterprise is an integrated

FUNCTIONS OF ENTREPRENEUR (DR ASIMO)

Gowtham Kumar C. K M.Com, KSET Page 2

QUALITIES/ CHARACTERISTICS OF ENTREPRENEUR

(MCC HIT PGS BHC)

o Mental Ability: Mental Ability consists of intelligence and creative thinking. An

o Clear Objectives: An entrepreneur should have a clear objective. A Successful entrepreneur

o Communication Ability: An entrepreneur who can effectively communicate with customers,

o Technical Knowledge: An entrepreneur must have a reasonable level of technical Knowledge.

o Persistent problem –solver: An entrepreneur must have an intense desire to complete a

Gowtham Kumar C. K M.Com, KSET Page 3

PROS AND CONS OF BEING AN ENTREPRENEUR

Advantages (Pros): (ABC BBC OB)

Competition: By adapting innovative ideas of entrepreneur the product/service can be produced at a

Disadvantages (Cons): ( MET RB)

Gowtham Kumar C. K M.Com, KSET Page 4

Role of Entrepreneurs in Economic Development of India

2. Balanced Regional Development

3. Mobilization Of Local Resources

Gowtham Kumar C. K M.Com, KSET Page 5

of the consumers without creating a shortage for goods.

8. Increase per capita income

10. Growth of capital market

11. Growth of infrastructure

12. Development of Trader

13. Economic Integration

14. Inflow of Foreign Capital

Gowtham Kumar C. K M.Com, KSET Page 6

Distinguish Between ENTREPRENEUR And MANAGER

Meaning An entrepreneur is a person who is Manager has a primary motive of getting

Gowtham Kumar C. K M.Com, KSET Page 7

Gowtham Kumar C. K M.Com, KSET Page 8

Classification on the Basis of Ownership:

Public entrepreneurship: In the underdeveloped countries government will take the

Gowtham Kumar C. K M.Com, KSET Page 9

Classification Based on the Scale of Enterprise:

Gowtham Kumar C. K M.Com, KSET Page 10

10. Induced Entrepreneurs:

11. Motivated Entrepreneurs:

12. Spontaneous Entrepreneurs:

13. Growth and Super growth Entrepreneurs:

14. First Generation Entrepreneurs:

15. Modern Entrepreneurs:

16. Classical Entrepreneurs:

17. Innovative Entrepreneurs:

18. Institutional Entrepreneurs:

19. Forced Entrepreneurs:

Gowtham Kumar C. K M.Com, KSET Page 11

20. Inheritance Entrepreneurs:

PROBLEMS FACED BY WOMEN ENTREPRENEURS

Following are the problems faced by women entrepreneurs.

Access to start-up finance

Managing working capital

Lack of marketing skills

Marketing skills of women entrepreneurs are considered to be weak as compared to

Access to technology and production process

Coordinating factors of production is a real challenge for women entrepreneurs they

Administrative and regulatory issues

Gowtham Kumar C. K M.Com, KSET Page 12

Lack of management skills

ASSOCIATIONS PROMOTING WOMEN ENTREPRENEUR:

1. Self – Help Groups (SHG’S)