Emerald’s Medium, Small & Micro Enterprise Management

Degree College

UNIT -I
INTRODUCTION TO MSMEs

MSME stands for Micro, Small, and Medium Enterprises. In accordance with
the Micro, Small, and Medium Enterprises Development (MSMED) Act in 2006,
the enterprises are classified into two divisions.
Manufacturing enterprises – engaged in the manufacturing or production of
goods in any industry
Service enterprises – engaged in providing or rendering services.

Objectives of MSMEs:
 To create more employment opportunities with less investment.
 To remove economic backwardness of rural and less developed regions of
the economy.
 To reduce regional imbalances.
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 To mobilize and ensure optimum utilization of unexploited resources of
the country.
 To improve standard of living of people.
 To ensure equitable distribution of income and wealth.
 To solve unemployment problem
 To attain self-reliance
 To adopt latest technology aimed at producing better quality products at
lower costs.
Importance of MSME:
MSME has introduced in the year 2006 in India. There is still some
service sector that was not yet included in this sector was included in the
definition of the Micro, Small and Medium-sized Enterprises making a historic
change to this Act. Therefore leveraging the scope of the sector even now
government simplified the MSME Registration online with the paperless work.
The further Importance of MSME in India has been described below:
1. It creates large-scale employment: Enterprises that are inclusive in this
sector require low capital to start up new business. Moreover, it creates a
vast opportunity for the unemployed people to avail. India produces about
1.2 million graduates per year out of which the total number of engineers are
around 0.8 million. There is no economy so far that could provide that large
number of fresher’s in one year only. MSME is the boon for the fresh talent
in India.
2. Economic stability in terms of Growth and leverage Exports: It is the
most significant driver in India contributing to the tune of 8% to GDP.
Considering the contribution of MSME to manufacturing, exports, and
employment, other sectors are also benefitting from it. Nowadays, MNCs are
buying semi-finished, and auxiliary products from small enterprises, for
example, buying of clutches and brakes by automobile companies. It is
helpful in creating a linkage between MSME and big companies even after
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the implementation of the GST 40% MSME sector also applied GST
Registration that plays an important role to increase the government revenue
by 11%.
3. Encourages Inclusive Growth: The inclusive growth is at the top of the
agenda of Ministry for Medium, and small and Medium-sized enterprises for
several years. On the other hand, poverty and deprivation are a deterrent to
the development of India. Besides, it includes marginalized sections of a
society which is a key challenge lying before the Ministry of MSME.
4. Cheap Labor and minimum overhead: While in the large-scale
organizations, one of the main challenge is to retain the human resource
through an effective human resource management professional manager.
But, when it comes to MSME, the requirement of labor is less and it does not
need a highly skilled laborer. Therefore, the indirect expenses incurred by the
owner is also low.
5. Simple Management Structure for Enterprises: MSME can start with
limited resources within the control of the owner. From this decision making
gets easy and efficient. On the contrary, a large corporation requires a
specialist for every departmental functioning as it has a complex
organizational structure. Whereas a small enterprise does not need to hire
an external specialist for its management. The owner can manage himself.
Hence, it could run single-handedly.
6. The main role in the mission of “Make in India”: The signature initiative
by the Prime Minister of India “Make in India” has been made easy with
MSME. It is taken as a backbone in making this dream a possibility. In
addition, the government has directed the financial institution to lend more
credit to enterprises in the MSME sector.
PROBLEMS OF MSMEs:
 Shortage of Funds
 Lack of Latest Technology
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 Shortage of Raw Materials
 Shortage of Power
 Labour Problem
 Marketing Problem
 Managerial Skills
 Quality
 Problem of Industrial Sickness
 Production Problems
 Technology Problems
 Financial Problems
 Personnel Problems
Measures taken by Govt to Protect MSMEs
 Protection Measures: These include measures that are designed to
protect small scale industries from the competition of existing large firms.
 Promotional Measures: These include measures which have been
undertaken for the promotion of the growth related to the small scale
sector in the country such as programs, guidelines, procurement of goods
and services and government grants.
 Institutional Measures: These are inclusive of measures which have
been undertaken by the government by setting up of several institutions
or related agencies for the provision of liberal and multifaceted assistance
to the small scale industry sector.
Protection Measures:
 Equitable allocation of raw materials, imported components and
equipment.
 Improvement in the methods and techniques of production.
 Provision for adequate finance.
 Marketing assistance.
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 Provision for industrial education and training.
Promotional Measures:
 Industrial extension services
 Institutional support with reference to credit facilities
 Providing developed sites for the construction of sheds
 Providing training facilities
 Supply of machinery on the basis of hire-purchase terms
 Enabling Assistance for domestic marketing and exports
 Offering special incentives for creating enterprises in backward areas and
so on
 Offering technical consultancy and financial assistance for the purpose
of technological enhancement
Institutional Measures:
1. Small industries development organization (SIDO):
SIDO was established in October 1973 now under Ministry of Trade,
Industry and Marketing. SIDO is an apex body at Central level for formulating
policy for the development of Small Scale Industries in the country, headed by
the Additional Secretary & Development Commissioner (Small Scale Industries)
under Ministry of Small Scale Industries Govt. of India. SIDO is playing a very
constructive role for strengthening this vital sector, which has proved to be one
of the strong pillars of the economy of the country. SIDO also provides extended
support through Comprehensive plan for promotion of rural entrepreneurship.
2.Management development Institute(MDI):
MDI is located at Gurgaon(Haryana). It was established in 1973 and is
sponsored by Industrial Finance Corporation of India, with objectives of
improving managerial effectiveness in the industry. It conducts management
development programs in various fields. In also includes the programmer for
the officers of IAS, IES, BHEL, ONGC and many other leading PSU‟s.
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3.Entrepreneurship development institute of India (EDI):
Entrepreneurship Development Institute of India (EDI), an autonomous
and not-for-profit institute, set up in 1983, is sponsored by apex financial
institutions – the IDBI Bank Ltd., IFCI Ltd., ICICI Bank Ltd. and the State Bank
of India (SBI). EDI has helped set up twelve state-level exclusive
entrepreneurship development centers and institutes.
4. All India Small Scale Industries Board(AISSIB):
The Small Scale Industries Board (SSI Board) is the apex advisory body
constituted to render advise to the Government on all issues pertaining to the
small scale sector. It determines the policies and programmes for the
development of small industries with a Central Government Minister as its
president and the representatives of various organization i.e. Central
Government, State Government, National Small Industries Corporations, State
Financial Corporation, Reserve Bank of India, State Bank of India, Indian Small
Industries Board, Non-government members such as Public Service
Commission, Trade and Industries Members.
5. National Institution of Entrepreneurship and Small Business
Development(NIESBUD), New Delhi.
It was established in 1983 by the Government of India. It is an apex body
to supervise the activities of various agencies in the entrepreneurial
development programme. It is a society under Government of India Society Act
of 1860.The major activities of institute are:
i.To make effective strategies and methods
ii.To standardize model syllabus for training
iii.To develop training aids, tools and manuals
iv.To conduct workshops, seminars and conferences.
v.To evaluate the benefits of EDPs and promote the process of Entrepreneurial
Development.
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vi.To help support government and other agencies in executing entrepreneur
development.
6.National Institute of Small Industries Extension Training:
It was established in 1960 with its headquarters at Hyderabad. The main
objectives of national Institute of Small Industries Extension Training are:
i.Directing and Coordinating syllabi for training of small entrepreneurs.
ii.Advising managerial and technical aspects.
iii.Organizing seminars for small entrepreneurs and managers.
iv.Providing services regarding research and documentation.
7.National Small Industries Corporation Ltd. (NSIC):
The NSIC was established in 1995 by the Central Government with the
objective of assisting the small industries in the Government purchase
programmes. The corporation provides a vast- market for the products of small
industries through its marketing network. It also assists the small units in
exporting their products in foreign countries.
8. Risk Capital and Technology Finance Corporation Ltd.(RCTF):
RCTFC was established in 1988 with an authorized capital of 15 crores
rupees. The main objectives of RCTFC are provision of risk capital for the
extension and expansion of entrepreneurial development and venture capital
for the projects with high techniques for technology development and transfer.
9. National Research and development corporation (NRDC):
NRDC was established in 1953 under Department of Science and
Industrial Research under Government of India. Its main objectives are:
i.Providing assistance in technology transfer
ii.Transfer of technology
iii.Establishing relations with various technology institutions and collecting
various indigenous techniques developed by them.
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10. Indian Investment Centre:
This is an autonomous organization established by Central Government.
Its main objective is to assist in promoting foreign cooperation with Indian
entrepreneurs and providing necessary information to foreign entrepreneurs.
11.Khadi and village industries Commission(KVIC):
Khadi and Village Industries Commission established by an Act of
Parliament in 1956.It is a service organization engaged in promotion and
development of Khadi and Village Industries.
Its main objectives are:
i.Providing employment in rural areas.
ii.Improvement of skills
iii.Rural Industrialization
iv.Transfer of Technology
v.Building strong rural community base and self-reliance among rural people.
12.Indian Institute of Entrepreneurship(IIE):
It was established by the Department of Small Scale Industries and Agro
and Rural Industries in 1953.It is autonomous organization with its
headquarters at Guwahati. Its main objective is to undertake research, training
and consultancy activities in the field of small industry and entrepreneurship.
13.National Alliance of Young Entrepreneurs(NAYE):
It has sponsored number of entrepreneurial development scheme in
collaboration with various public sector banks. The main objective of the
scheme is to encourage young entrepreneurs to explore investment and self –
employment opportunities. It arranges for their training and assists them in
procuring necessary finance. In 1975 NAYE also set up a Women’s Wing to
make women self-reliant and to raise their status.
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14.Centre for Entrepreneurial Development(CED) Ahmedabad:
It was sponsored by the Government of Gujrat and public financial
institutions operating in the State. It conducts entrepreneurial development
programmes at various centers. The important features of training programme
are:
i. Training programmes were conducted after survey for opportunities was
made.
ii. Appropriate linkage was established with supporting agencies supplying
finance, factory sheds, raw materials, etc.
iii. Behavioral tests were conducted to select the entrepreneurs.
iv. Training programmes covered theoretical and practical aspects.
v. Full time project leader took follow up action after the training was over.
15. Institute for Entrepreneurial Development (IED):
It was set up by the IDBI in association with other financial institutions,
public sector banks and the State Governments. The IEDs was set up to fulfil
the entrepreneurial development needs of the industrially backward States in
the country.
16.Technical Consultancy Organisation (TCOs):
A network of TCOs has been established by All India Financial
Institutions and State Government throughout the country. These
organizations have been set up to provide comprehensive package of services
to entrepreneurs in general and to small business entrepreneurs in particular.
Their main functions include the following:
i.Identifying potential industrial project.
ii.Preparing project reports, feasibility reports and pre-investment status.
iii.Identifying potential entrepreneurs.
iv.Providing technical and administrative support.
v.Conducting techno-economic studies of the projects.
vi.Conducting market research and surveys.
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vii.Rendering advice to set up laboratories and design centre.
17.Public Sector Banks.
Public sector banks in association with NAYE have been conducting
entrepreneurial development programmes. The main thrust of these banks has
been to identify potential entrepreneurs in rural and backward areas. For
example, Punjab National Bank started entrepreneurial assistance programme
in March 1977 in States of West Bengal and Bihar. Similarly, Bank of India
started entrepreneurial assistance programme since August 1972 in the States
of Punjab, Rajasthan, Himachal Pradesh, J& k and the Union Territories of
Chandigarh and Delhi.
18.Miscellaneous Organization:
In addition to above various organizations at all India level are assisting
and are engaged in entrepreneur development. These include ICICI, IFCI,
SIDBI, UTI, IDBI, IIBI etc.
B) Institutions set up at State Level:
Prominent among these are:
i.Small Industries Service Institute (SISI)
ii.State Financial Corporation (SFC)
iii.State Small Industries Corporation (SSIC)
iv.District Industries Centres(DIC)
v.Technical Consulting Organisation Ltd. (TCO)
vi.Industrial Directorates
vii.Commercial and Cooperative Banks
viii.State Industrial Development Corporation
ix.Industrial Estates
x.State Industries Corporation
The above mentioned State and Central Level Institutions have provided a
number of concessions and facilities to promote entrepreneur development in
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India. They have also played an important role in balanced industrial
development in the country.
Incentives provides to Backward area and development:
Himachal Pradesh: The districts of Chamba, Hamirpur, Kangra, Kinnaur,
Kulu, Lahul and Spiti, Sirmur, Solan and Una.
Jammu and Kashmir: The districts of Anantnag, Baramula, Doda, Jammu,
Kathua, Ladakh, Punch, Rajauri, Srinagar and Udhampur.
Incentives provided by the Government for industries in backward and hilly
areas are:
1) Land: It is provided by the government at concessional rates to people in the
backward region. Although the terms and conditions may vary, some
industries are charged with rent in the initial years and some are allowed to
pay in installments. This makes it easier to set up a business at a low cost.
2) Water: It is supplied for 5 years on a no-profit and no-loss basis with 50%
concession or exemption from water charges.
3) Power: It is an indispensable requirement for the functioning of industries.
Thus, it is supplied at 50% concessional rate, whereas some states may
exempt units from paying in the initial years.
4) Sales tax: Many states exempt industries from paying sales tax, while some
states extend exemption for five years.
5) Octroi: It is scrapped by many states.
6) Raw materials: Preference is given to backward areas with respect to
allotment of scarce resources.
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UNIT-II
PROJECT FORMULATION
A project is a complex of non-routine activities that must be completed with a
set amount of resources and within a set time interval.
Project formulation is a step-by-step investigation of resources and
development of project idea for achieving the objective of taking an investment
decision
Project formulation is a concise, exact statement of a project to set the
boundaries or limits of work to be performed by the project.
PROJECT IDENTIFICATION:
It is a process to assess each project idea and select the project with the highest
priority.
It is concerned with collection, compilation and analysis of economic data for
the eventual purpose of locating possible opportunities for investment
Some tools used in project identification:
 Situational and Environmental Analysis
 SWOT Analysis
 Problem and Opportunity Studies
 Resource Analysis
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Requirements or Elements of Project Formulation:
 Road map for the new venture.
 Capital investment.
 Government Regulations.
 Skilled Workforce.
 Technology.
Steps or stages in Project Formulation:
 General information.
 Product.
 Market potential.
 Plant and machinery.
 Location.
 Raw material.
 Utilities.
 Capital cost.
 Working capital.
 Manufacturing cost.
 Financial analysis.
FEASIBILITY STUDY:
A feasibility study is an analysis used in measuring the ability and
likelihood to complete a project successfully including all relevant factors. It
must account for factors that affect it such as economic, technological, legal
and scheduling factors. Project managers use feasibility studies to determine
potential positive and negative outcomes of a project before investing a
considerable amount of time and money into it.
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Importance of feasibility study

Feasibility Studies Show the Viability of Your Proposal
Every groundbreaking proposal or development has started with an idea,
and while some have defied the odds set against them, those ideas rarely went
to work without first being evaluated. By looking at the landscape that
surrounds your project, including where your potential customers would come
from and who you are competing with to gain then, you’ll be able to gauge the
likelihood of achieving your goals. It’s important to note that feasibility studies
can also help you determine the costs required to successfully launch a project.
So if a proposal is not realistic initially, adjustments can be made to increase
its viability.
Feasibility Studies Help Define Your Goals
Ideas are great, but they are only as great as their execution. A feasibility
study will help you see what goals you need to put in place to be successful by
providing benchmarks for a project’s viability. For example, if your community
would like to build an indoor/outdoor sports facility, you may not have a clear
picture of the construction costs. A feasibility study helps you understand your
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facility’s costs as well as its revenue earning potential. With this information in
hand you can either attain the resources needed to complete your project or
“right-size” your project based on available resources.
Feasibility Studies Help You Develop A Plan
Like ideas, goals are only useful when they are put to work. As you define
your goals, with the help of your feasibility study, they will give you a better
understanding of what steps you need to take. You can then take those steps
and create a plan for the development of your facility.
Feasibility Studies Help Execute That Plan
Arguably the greatest benefit of a feasibility study is that they give you
specific information about what a project requires for it to be sustainable. By
understanding development costs, the competitive landscape, where potential
customers will come from, and revenue potential, you’ll have a feel for what
resources must be procured and what actions your team must take to achieve
success. The feasibility study will serve as a road map describing the most
optimal path to creating a new complex.
Feasibility Studies Will Give You an Identity
When planning a new sport, recreation, or entertainment facility, you’ll
have a general idea of who you are targeting. However, to attain this valued
audience, you must understand their needs as well as the competitive
landscape. How can you stand apart from competitors? A feasibility study will
help you understand their offerings. This is an important component of building
your identity.
Project Report:
A Project Report is a document which provides details on the overall
picture of the proposed business. The project report gives an account of the
project proposal to ascertain the prospects of the proposed plan/activity.
Project Report is a written document relating to any investment. It contains
data on the basis of which the project has been appraised and found feasible.
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It consists of information on economic, technical, financial, managerial and
production aspects. It enables the entrepreneur to know the inputs and helps
him to obtain loans from banks or financial Institutions
Contents of a Project Report:
1. General Information: A project report must provide information about the
details of the industry to which the project belongs to. It must give information
about the past experience, present status, problems and future prospects of the
industry. It must give information about the product to be manufactured and
the reasons for selecting the product if the proposed business is a
manufacturing unit. It must spell out the demand for the product in the local,
national and the global market. It should clearly identify the alternatives of
business and should clarify the reasons for starting the business.
2. Executive Summary: A project report must state the objectives of the
business and the methods through which the business can attain success. The
overall picture of the business with regard to capital, operations, methods of
functioning and execution of the business must be stated in the project report.
It must mention the assumptions and the risks generally involved in the
business.
3. Organization Summary: The project report should indicate the organization
structure and pattern proposed for the unit. It must state whether the
ownership is based on sole proprietorship, partnership or joint stock company.
It must provide information about the bio data of the promoters including
financial soundness. The name, address, age qualification and experience of
the proprietors or promoters of the proposed business must be stated in the
project report.
4. Project Description:
A brief description of the project must be stated and must give details about
the following:
 Location of the site,
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 Raw material requirements,
 Target of production,
 Area required for the work shed,
 Power requirements,
 Fuel requirements,
 Water requirements,
 Employment requirements of skilled and unskilled labour,
 Technology selected for the project,
 Production process,
 Projected production volumes, unit prices,
 Pollution treatment plants required.
5. Marketing Plan
The project report must clearly state the total expected demand for the
product. It must state the price at which the product can be sold in the market.
It must also mention the strategies to be employed to capture the market. If
any, after sale service is provided that must also be stated in the project. It
must describe the mode of distribution of the product from the production unit
to the market. Project report must state the following:
 Type of customers,
 Target markets,
 Nature of market,
 Market segmentation,
 Future prospects of the market
 Sales objectives,
 Marketing Cost of the project,
 Market share of proposed venture,
 Demand for the product in the local, national and the global market,
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6. Capital Structure and operating cost : The project report must describe
the total capital requirements of the project. It must state the source of finance,
it must also indicate the extent of owner’s funds and borrowed funds. Working
capital requirements must be stated and the source of supply should also be
indicated in the project. Estimate of total project cost, must be broken down
into land, construction of buildings and civil works, plant and machinery,
miscellaneous fixed assets, preliminary and preoperative expenses and working
capital. Proposed financial structure of venture must indicate the expected
sources and terms of equity and debt financing. This section must also spell
out the operating cost.
7. Management Plan
The project report should state the following.
a) Business experience of the promoters of the business,
b) Details about the management team,
c) Duties and responsibilities of team members,
d) Current personnel need of the organization,
e) Methods of managing the business,
f) Plans for hiring and training personnel,
g) Programmes and policies of the management.
8. Financial Aspects
In order to judge the profitability of the business a projected profit and
loss account and balance sheet must be presented in the project report. It must
show the estimated sales revenue, cost of production, gross profit and net profit
likely to be earned by the proposed unit. In addition to the above, a projected
balance sheet, cash flow statement and funds flow statement must be prepared
every year and at least for a period of 3 to 5 years. The income statement and
cash flow projections should include a three-year summary, detail by month for
the first year, and detail by quarter for the second and third years. Break-even
point and rate of return on investment must be stated in the project report. The
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accounting system and the inventory control system will be used is generally
addressed in this section of the project report. The project report must state
whether the business is financially and economically viable.
9. Technical Aspects
Project report provides information about the technology and technical
aspects of a project. It covers information on Technology selected for the project,
Production process, capacity of machinery, pollution control plants etc.
10. Project Implementation
Every proposed business unit must draw a time table for the project. It
must indicate the time within the activities involved in establishing the
enterprise can be completed. Implementation schemes show the timetable
envisaged for project preparation and completion.
11. Social responsibility
The proposed units draw inputs from the society. Hence its contribution
to the society in the form of employment, income, exports and infrastructure.
The output of the business must be indicated in the project report.
Importance of Project Report:
It is a written statement of what an entrepreneur proposes to take up. It
is one kind of course of action about what the entrepreneur hopes to achieve in
his business and how is he going to achieve it.
An objective without a plan is a dream. This is why the preparation of
the project report is very important for an entrepreneur. Anyway, a project
report or business plan is important for the following reasons:
(1) A roadman: The project report is like a road map. It describes the direction
the enterprise is going in, what its goals are, where it wants to be, and how it
is going to get there.
(2) Shows the right direction: A project report enables an entrepreneur to
know that he is proceeding in the right direction.
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(3) Attract lenders and investors: Through the help of project report, any
person can easily know the details, information about any enterprise. Thus, it
helps lenders and investors to invest in the right enterprise.
(4) Financial assistance: A project report or business plan must be submitted
to the financial institutions and commercial banks to take a loan from them.
On the basis of that report, the financial institutions judge the entrepreneur
and his enterprise.
(5) Tools of control: On the basis of a project report, an entrepreneur can
measure and evaluate the performance of his enterprise. It also helps an
entrepreneur in taking necessary corrective actions.
(6) Help in preparing budget: Project report or business plan gives an
entrepreneur necessary guidance for preparing a budget for his enterprise.
(7) Source of information: Project, report or business plan acts as a source of
information not only for the entrepreneurs but also for the external parties.
(8) Others: Project report or business plan also helps in taking the right
decision, proper coordination, proper utilization of resources, reducing costs
and wastages, taking strategies.
So, these are the various reasons for preparing a business plan.
Location of Units:
Location is the place where a firm decides to site its operations. Location
decisions can have a big impact on costs and revenues.
A business needs to decide on the best location taking into account factors such
as:
 Customers - is the location convenient for customers?
 Staff - are there sufficient numbers of local staff with the right skills
willing to work at the right wage?
 Support services - are there services offering specialist advice, training
and support?
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 Cost - how much will the premises cost? Those situated in prime
locations (such as city centres) are far more expensive to rent than edge-
of-town premises.

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. In India, industrial estates have been utilized
as an effective tool for the promotion and growth of small-scale industries. They
have also been used as an effective tool to decentralize industrial activity to
rural and backward areas. Industrial estates are also known by different
names, e.g. industrial region, industrial park, industrial area, industrial zone,
etc.
DEFINITION OF INDUSTRIAL ESTATE
According to P.C. Alexander, “An industrial estate is a group of factories,
constructed on an economic scale in suitable sites with facilities of water,
transport, electricity, steam, bank, post office, canteen, watch and ward and
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first-aid, and provided with special arrangements for technical guidance and
common service facilities”.

Objectives:
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.
Importance of Industrial Estates:
1. Mutual Co-Operation: All industrial units located in an industrial estate
face common problems and seek to achieve common objectives.
2. Balanced Regional Development: It is possible to secure a balanced
regional development by developing industrial estates in industrially backward
areas.
3. Economies of Scale: It arises because all the industrial units enjoy common
infrastructural facilities like water, roads, etc. As the size of the industrial unit’s
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increases, the costs of estate development and administration per unit of each
facility decrease.
4. External Economies: Several industrial units are clustered together in an
industrial estate. This enables them to enjoy the benefits of agglomeration and
external economies like improved transport facilities, availability of trained
labor, repair facilities, power, and water, etc.
5. Saving of Time and Effort: An individual entrepreneur is relieved of the
trouble of searching for suitable space.
6. Entrepreneurial Development: Industrial estates reduce risks and increase
profitability through internal and external economies.
7. Low Investment: Even a small entrepreneur can acquire an industrial plot
or shed on rent or hire purchase basis.
8. Fewer Risks: Since all units enjoy common facilities and low capital
investment, risks are relatively low.
KARNATAKA INDUSTRIAL AREAS DEVELOPMENT BOARD
Karnataka Industrial Areas Development Board (KIADB) is a statutory
body, constituted under sec.5 of Karnataka Industrial Areas Development Act
(KIAD Act)-1966 vide order No. Cl 67 GMI 66 dated 20th June 1966 to promote
rapid and orderly establishment and development of industries and for
providing industrial infrastructural facilities and other amenities in Industrial
areas in the State of Karnataka. KIAD Act-1966, a special Act, provides for
expeditious acquisition of lands for industrial and infrastructure purposes.
Aims and objectives:

Promote rapid and orderly development of industries in the state.

Assist in implementation of policies of Government within the purview of KIAD Act.

Facilitate in establishing infrastructure projects.

Function on “No Profit – No Loss” basis.

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Acquire land and form industrial areas in

the state.

Provide basic infrastructure in the

industrial areas.

Acquire land for Single Unit Complexes.

Acquire land for Government agencies for

their schemes and infrastructure projects.

Services render by KIADB

 Land allotment letter
 Confirmation letter
 Possession certificate
 Execution of Lease
 Deed and Plan approval
TECSOK:
TECSOK is a multidisciplinary management consultancy organization
promoted by the Government of Karnataka to provide reliable consultancy
services in India. TECSOK has been excelling its expertise in a wide range of
services. The package of services includes feasibility studies, market research,
valuation of assets, environment impact studies, energy management and
audit, etc. in all related areas. Of late, TECSOK is also concentrating on studies
relating to Cleaner Production technologies and methods.
TECSOK has been considered by the Government of Karnataka,
Government of India, State & Central Financial Institutions, Commercial
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Banks, Asian Development Bank and a host of other institutions of the
Government and Private as the recognized consultancy agency.
The TECSOK consultancy is driven by top-notch professionals from
different disciplines; engineers, management experts, economists and
financial consultants. TECSOK partners with reputed national and
multinational consultants, outsourcing expertise for professional synergy.
ROLES OF TECSOK
 Location Specific identification of investment opportunities.
 Assistance in obtaining statutory and procedural clearances.
 Feasibility studies and environment impact studies.
 Preparation of detailed project reports as per investment norms and
financial norms.
 Market survey and research.
 Project implementation and turnkey assistance.
 Reorganization and restructuring of enterprises.
 Valuation of assets, man power planning & budgetary control system.
 Energy management & audit, corporate plan, technology transfer.
 Diagnostic studies and rehabilitation of sick industries.
 Designing and organizing training programs
 Since its inception, TECSOK has catalyzed a large number of industries
throughout the province.
 Management studies, company formation, corporate plan,
enterprise restructuring.
 Port tariff study and related areas.
 Consultancy for agro-base industries as a Nodal Agency of Government
of India.
 Consultancy for merger/takeovers.
 Infrastructure development project reports.
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REGISTRATION WITH DIC:
DIC-SSI REGISTRATION:
Small Scale and ancillary units (i.e. undertaking with investment in plant
and machinery of less than Rs. 10 million) should seek registration with the
Director of Industries of the concerned State Government.
REGISTERING YOUR SSI UNIT:
The main purpose of Registration is to maintain statistics and maintain
a roll of such units for the purposes of providing incentives and support
services.
States have generally adopted the uniform registration procedures as per
the guidelines. However, there may be some modifications done by States. It
must be noted that small industries are basically a state subject. States use the
same registration scheme for implementing their own policies. It is possible that
some states may have a 'SIDO registration scheme' and a 'State registration
scheme'.
OBJECTIVES OF THE REGISTRATION SCHEME
They are summarized as follows:
1. To enumerate and maintain a roll of small industries to which the package
of incentives and support are targeted.
2. To provide a certificate enabling the units to avail statutory benefits mainly
in terms of protection.
3. To serve the purpose of collection of statistics.
4. To create nodal centers at the Centre, State and District levels to promote
SSI.
Features of the Scheme:
1. DIC is the primary registering center registration is voluntary and not
compulsory.
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2. Two types of registration is done in all States. First a provisional
registration certificate is given. And after commencement of production,
a permanent registration certificate is given.
3. PRC is normally valid for 2 years and permanent registration is given in
perpetuity.
Provisional Registration Certificate (PRC)
 This is given for the pre-operative period and enables the units to obtain
the term loans and working capital from financial institutions/banks under
priority sector lending.
 Obtain facilities for accommodation, land, other approvals etc.
 Obtain various necessary NOCs and clearances from regulatory bodies such
as Pollution Control Board, Labour Regulations etc
 Permanent Registration Certificate
Enables the unit to get the following incentives/concessions:
1. Income-Tax exemption and Sales Tax exemption as per State Govt. Policy.
2. Incentives and concessions in power tariff etc.
4. Price and purchase preference for goods produced.
5. Availability of raw material depending on existing policy.
6. Permanent registration of tiny units should be renewed after 5 years.
Provisional Registration Certificate (PRC)
 This is given for the pre-operative period and enables the units to obtain the
term loans and working capital from financial institutions/banks under
priority sector lending.
 Obtain facilities for accommodation, land, other approvals etc.
 Obtain various necessary NOCs and clearances from regulatory bodies such
as Pollution Control Board, Labour Regulations etc.
 Permanent Registration Certificate
Enables the unit to get the following incentives/concessions:
1. Income-Tax exemption and Sales Tax exemption as per State Govt. Policy.
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2. Incentives and concessions in power tariff etc.
3. Price and purchase preference for goods produced.
4. Availability of raw material depending on existing policy.
5. Permanent registration of tiny units should be renewed after 5 years.
Which are the classes of enterprises that may qualify for Registration?
All classes of enterprises, whether Proprietorship, Hindu
undivided family, Association of persons, Co-operative society, Partnership
firm, Company or Undertaking, by whatever name called can apply for the
registration and get qualified for the benefits provided under the Act. Printing
of MSMED Registration/EM Number on the letter heads, invoices etc.
The Micro and Small Enterprises should mention/get printed on
their letter heads, supply order sheets, invoices, bills and other relevant
documents, the MSMED Registration/Entrepreneurs Memorandum (EM)
Number allotted by a competent authority, so that there remains an
identification of being a MSE supplier
Whether the Registration is mandatory / compulsory...?
A Medium enterprise engaged in the manufacture or production of goods
has to compulsorily register under the MSMED Act. For other Enterprises the
registration is discretionary or optional.
Benefits of SSI / MSME Registration
The registration scheme has no statutory basis. Units would normally get
registered to avail some benefits, incentives or support given either by the
Central or State Govt. Benefits available under the MSMED Act Registration of
Micro, Small and Medium (MSM) Enterprises under MSMED Act is a very
powerful medium to enjoy the regime of incentives offered by the Centre
generally contains the following:
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Micro and Small Enterprises:
 Easy finance availability from Banks, without collateral requirement
 Protection against delay in payment from Buyers and right of interest on
delayed payment
 Preference in procuring Government tenders,
 Stamp duty and Octroi benefits,
 Concession in electricity bills
 Reservation policies to manufacturing / production sector enterprises
 Time-bound resolution of disputes with Buyers through conciliation and
arbitration
 Reimbursement of ISO Certification Expenses
 Credit prescription (Priority sector lending), differential rates of interest etc.
 Excise Exemption Scheme
 Exemption under Direct Tax Laws.
 Stamp duty and Octroi benefits,
 Statutory support such as reservation and the Interest on Delayed
Payments Act.
 Subsidy on ISO Certifications
 Subsidy on NSIC Performance and Credit ratings
 Participation in Govt Purchase registrations
 Regsiattion with NSIC
 Counter Guarantee from Govt of India through CGSTI
 Waiver in Earnest Money (Security Deposit) in Govt tenders
 Stamp duty and Octroi benefits,
 15% weightage in price Preference.
 Reduction in rate of Interest from banks (Subject to ratings)
 Free of Cost Govt tenders
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UNIT-III
MANAGEMENT FUNCTIONS INSMALL AND MEDIUM ENTERPRISES
Finance functions:
The Finance Function is a part of financial management. Financial
Management is the activity concerned with the control and planning of financial
resources.
In business, the finance function involves the acquiring and utilization of
funds necessary for efficient operations. Finance is the lifeblood of business
without it things wouldn’t run smoothly. It is the source to run any
organization, it provides the money, it acquires the money.
Finance function has been classified into three:
 Long-Term Finance– This includes finance of investment 3 years or
more. Sources of long-term finance include owner capital, share
capital, long-term loans, debentures, internal funds and so on.
 Medium Term Finance– This is financing done between 1 to 3 years,
this can be sourced from bank loans and financial institutions.
 Short Term Finance – This is finance needed below one year. Funds
may be acquired from bank overdrafts, commercial paper, advances
from customers, trade credit etc.
Major Financial Functions
1. Financial planning here business man use capital budgeting
techniques.
2. Forecasting cash inflows and outflows;
3. Raising funds;
4. Allocation of funds;
5. Effective use of funds; and
6. Financial control (budgetary and non-budgetary).
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Sources of Finance:

Concept of venture capital:

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Features of venture capital:
1. Finance new ventures
2. High risk
3. Lack of liquidity
4. Equity participation
5. Long term horizon
6. Participation in management
The process of Venture Capital Financing:
 Deal Origination
 Screening
 Evaluation
 Deal Negotiation
 Post Investment Activity
 Exit Plan
The above-mentioned steps are explained in details below:
Deal origination:
Origination of a deal is the primary step in venture capital financing. It is
not possible to make an investment without a deal therefore a stream of deal is
necessary however the source of origination of such deals may be various. One
of the most common sources of such origination is referral system. In referral
system deals are referred to the venture capitalist by their business partners,
parent organizations, friends etc.
Screening:
Screening is the process by which the venture capitalist scrutinizes all
the projects in which he could invest. The projects are categorized under certain
criterion such as market scope, technology or product, size of investment,
geographical location, stage of financing etc. For the process of screening the
entrepreneurs are asked to either provide a brief profile of their venture or
invited for face-to-face discussion for seeking certain clarifications.
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Evaluation:
The proposal is evaluated after the screening and a detailed study is done.
Some of the documents which are studied in details are projected profile, track
record of the entrepreneur, future turnover, etc. The process of evaluation is a
thorough process which not only evaluates the project capacity but also the
capacity of the entrepreneurs to meet such claims. Certain qualities in the
entrepreneur such as entrepreneurial skills, technical competence,
manufacturing and marketing abilities and experience are put into
consideration during evaluation. After putting into consideration all the factors,
thorough risk management is done which is then followed by deal negotiation.
Deal negotiation:
After the venture capitalist finds the project beneficial he gets into deal
negotiation. Deal negotiation is a process by which the terms and conditions of
the deal are so formulated so as to make it mutually beneficial. The both the
parties put forward their demands and a way in between is sought to settle the
demands. Some of the factors which are negotiated are amount of investment,
percentage of profit held by both the parties, rights of the venture capitalist and
entrepreneur etc.
Post investment activity:
Once the deal is finalized, the venture capitalist becomes a part of the
venture and takes up certain rights and duties. The capitalist however does not
take part in the day to day procedures of the firm; it only becomes involved
during the situation of financial risk. The venture capitalists participate in the
enterprise by a representation in the Board of Directors and ensure that the
enterprise is acting as per the plan.
Exit plan:
The last stage of venture capital investment is to make the exit plan based
on the nature of investment, extent and type of financial stake etc. The exit plan
is made to make minimal losses and maximum profits. The venture capitalist
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may exit through IPOs, acquisition by another company, purchase of the
venture capitalists share by the promoter or an outsider.

Important Functions of Marketing:

1. Gathering and Analyzing Market Information:
Gathering and analyzing market information is an important function of
marketing. Under it, an effort is made to understand the consumer thoroughly
in the following ways:
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2.Marketing Planning:
In order to achieve the objectives of an Organisation with regard to its
marketing, the marketer chalks out his marketing plan. For example, a
company has a 25% market share of a particular product.
The company wants to raise it to 40%. In order to achieve this objective, the
marketer has to prepare a plan in respect of the level of production and
promotion efforts. It will also be decided as to who will do what, when and how.
To do this is known as marketing planning.
3. Product Designing and Development:
Product designing plays an important role in product selling. The
company whose product is better and attractively designed sells more than the
product of a company whose design happens to be weak and unattractive.
In this way, it can be said that the possession of a special design affords
a company to a competitive advantage. It is important to remember that it is
not sufficient to prepare a design in respect of a product, but it is more
important to develop it continuously.
4. Standardization and Grading:
Standardization refers to determining of standard regarding size, quality,
design, weight, color, raw material to be used, etc., in respect of a particular
product. By doing so, it is ascertained that the given product will have some
peculiarities.
This way, sale is made possible on the basis of samples. Mostly, it is the
practice that the traders look at the samples and place purchase order for a
large quantity of the product concerned. The basis of it is that goods supplied
conform to the same standard as shown in the sample.
Products having the same characteristics (or standard) are placed in a
given category or grade. This placing is called grading. For example, a company
produces commodity – X, having three grades, namely A’. ‘B’ and ‘C’,
representing three levels of quality; best, medium and ordinary respectively.
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Customers who want best quality will be shown ‘A’ grade product. This
way, the customer will have no doubt in his mind that a low grade product has
been palmed off to him. Grading, therefore, makes sale-purchase easy. Grading
process is mostly used in case of agricultural products like food grains, cotton,
tobacco, apples, mangoes, etc.
5. Packaging and Labelling:
Packaging aims at avoiding breakage, damage, destruction, etc., of the
goods during transit and storage. Packaging facilitates handling, lifting,
conveying of the goods. Many a time, customers demand goods in different
quantities. It necessitates special packaging. Packing material includes bottles,
canister, plastic bags, tin or wooden boxes, jute bags etc.
Label is a slip which is found on the product itself or on the package
providing all the information regarding the product and its producer. This can
either be in the form of a cover or a seal.
For example, the name of the medicine on its bottle along with the
manufacturer’s name, the formula used for making the medicine, date of
manufacturing, expiry date, batch no., price etc., are printed on the slip thereby
giving all the information regarding the medicine to the consumer. The slip
carrying all these is details called Label and the process of preparing it as
Labelling.
6. Branding:
Every producer/seller wants that his product should have special identity
in the market. In order to realize his wish, he has to give a name to his product
which has to be distinct from other competitors.
Giving of distinct name to one’s product is called branding. Thus, the
objective of branding is to show that the products of a given company are
different from that of the competitors, so that it has its own identity.
For instance, if a company wants to popularize its commodity – X under
the name of “777” (triple seven) then its brand will be called “777”. It is possible
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that another company is selling a similar commodity under AAA (Triple ‘A’)
brand name.
Under these circumstances, both the companies will succeed in
establishing a distinct identity of their products in the market. When a brand
is not registered under the trade Mark Act, 1999, it becomes a Trade Mark.
7. Customer Support Service:
Customer is the king of market. Therefore, it is one of the chief functions
of marketer to offer every possible help to the customers. A marketer offers
primarily the following services to the customers:
1. After-sales-services
2. Handling customers’ complaints
3. Technical services
4. Credit facilities
5. Maintenance services
Helping the customer in this way offers him satisfaction and in today’s
competitive age customer’s satisfaction happens to be the top-most priority.
This encourages a customer’s attachment to a particular product and he starts
buying that product time and again.
8. Pricing of Products:
It is the most important function of a marketing manager to fix price of a
product. The price of a product is affected by its cost, rate of profit, price of
competing product, policy of the government, etc. The price of a product should
be fixed in a manner that it should not appear to be too high and at the same
time it should earn enough profit for the Organisation.
9. Promotion:
Promotion means informing the consumers about the products of the
company and encouraging them to buy these products. There are four methods
of promotion: (i) Advertising, (ii) Personal selling, (iii) Sales promotion and (iv)
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Publicity. Every decision taken by the marketer in this respect affects the sales.
These decisions are taken keeping in view the budget of the company.
10. Physical Distribution:
Under this function of marketing the decision about carrying things from
the place of production to the place of consumption is taken into account. To
accomplish this task, decision about four factors are taken. They are: (i)
Transportation, (ii) Inventory, (iii) Warehousing and (iv) Order Processing.
Physical distribution, by taking things, at the right place and at the right time
creates time and place utility.
11. Transportation:
Production, sale and consumption-all the three activities need not be at
one place. Had it been so, transportation of goods for physical distribution
would have become irrelevant. But generally it is not possible. Production is
carried out at one place, sale at another place and consumption at yet another
place.
Transport facility is needed for the produced goods to reach the hands of
consumers. So the enterprise must have an easy access to means of
transportation.
Mostly we see on the road side’s private vehicles belonging to Pepsi, Coca
Cola, LML, Britannia, etc. These private carriers are the living examples of
transportation function of marketing. Place utility is thus created by
transportation activity.
12. Storage or Warehousing:
There is a time-lag between the purchase or production of goods and their
sale. It is very essential to store the goods at a safe place during this time-
interval. Go downs are used for this purpose. Keeping of goods in go downs till
the same are sold is called storage.
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KEY FUNCTIONS OF HUMAN RESOURCE MANAGEMENT
 Human resource planning
 Recruitment
 Performance management
 Learning & development
 Career planning
 Information sharing
 Rewards & recognitions
 Compensation & benefits
 Industrial relations
 Policy formulation
 Health and safety
 Personal well-being
 Employee engagement
 Compliance
 Administrative responsibilities
1) Human resource planning
The principal function of HR is to know the future needs of the company.
What sort of individuals does the company need, and how many?
Understanding this will shape the recruitment, determination, execution of the
executives, learning & development, and all other functions of HRM.
2) Recruitment
The second function of HR includes recruiting people to work for the
organization and selecting the best suitors. Recruiting individuals generally
begins with an employer brand. Being an alluring employer has many
advantages and vice versa. For instance, a tobacco business that battles to pull
in talent because of its tainted reputation. With a reliable employer brand and
the privilege of sourcing policies, you’re almost halfway there. When candidates
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apply, the selection process is an HR’s instrument to pick the best qualified and
most potential candidates.
3) Performance management
Performance management is essential in ensuring that workers stay
productive and engaged. Good performance management includes sound
leadership, clear goal-setting, and welcoming feedback. Performance
management tools include the (bi)annual performance evaluation, in which
their manager reviews the performance of the employee. It also incorporates
360-degree feedback tools in which peers, directors, subordinates, and even
clients evaluate the employee’s performance. Performance management is
additionally an instrument to close the gap between the workforce you have
today and the one you will need tomorrow. Probably the ideal approach to build
your future workforce is through Learning & Development (L&D). Performance
management is one of the vital functions of the HR department.
4) Learning & development
Empowering representatives to build the skills they require in the future
is one of the fundamental functions of HRM. Every organization understands
the value of investing in the reskilling of its employees. It is one of the vital
functions of the HR department to lead these efforts in the right direction.
5) Career planning
One of the vital functions of HRM includes career planning, guidance,
and growth for employees. Guiding employees about how their aspirations can
align with the organization’s objectives helps to engage and retain them.
6) Information sharing
One of the essential functions of human resource management is sharing
information with employees; this can be through a newsletter to keep everyone
up to date with the latest news. It likewise involves safety procedures,
announcements of layoffs, mergers, or acquisition, or any other significant
occasion applicable for employees. Clear, straightforward, and ideal
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information sharing is critical in building and keeping up help and successful
organizational change.
7) Rewards & recognitions
Recognition & rewards, one of the many functions of HRM, is to
appreciate employees’ efforts and to sustain notable talent. Rewards and
recognition make employees feel worthy of their work as the appreciation serves
as motivation. They can be financial or non-monetary rewards.
8) Compensation & benefits
This function of HR requires continual observation of industry pay
benchmarks and keeping up with the industry standards, including new and
variable payment parameters in salary, simple pay expectations, and faster
processes. Money is the prime motivation that drives individuals to work.
Nonetheless, to retain individuals, this function is very important.
9) Industrial relations
Another crucial function of HR is managing and cultivating relationships
with labor unions, other forums, and their members.
10) Policy formulation
Policies are the backbone functions of Human Resource Management. An
organization needs policies that are tried and tested as much as it needs policies
that are more up to date and sensitive. A reasonable and well-defined policy
framework structure covers all the minute aspects of a company and its
operations. Policies can control activities like better participation, standardized
methods, procedures & implementation, and proper communication, to name
a few.
11) Health and safety
Devising and implementing health and safety regulations are one of the
significant functions of HRM.
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12) Personal well-being
Supporting and taking care of employees when they’re having personal
problems that affect their performance is a key function of HR. Emotional well-
being is about helping employees when circumstances don’t go as planned.
13) Employee engagement
Employee engagement, as one of the essential functions of human
resource management, has gained much attention over recent years affecting
employee turnover positively to a considerable extent. Furthermore,
introducing exciting employee engagement initiatives can acquire new and
brilliant talent in the company. Organizations are putting significant sums in
employee engagement to convince employees that they matter.
14) Compliance
As an HR professional, seeing that your organization is complying with
labor laws is one of the crucial functions of HR. The HR management
department understands these legal concerns and ensures that the employee
and the organization are protected. Compliance comprises the estimation of
leave, payroll legalization, govt. and tax reporting, etc.
15) Administrative responsibilities
One of the crucial functions of human resource management includes
administrative responsibilities. Operations like relocations, further upskilling,
promotions, illness, leaves, and many more come under this function.
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UNIT-IV
Major Causes of Sickness in Small Scale Industries
Small Scale Industries (SSIs) play vital role in the economic development of a
country. Some SSIs turn out to be sick due to various reasons. Some of the
major causes for sickness in small scale industries are dealt in brief.
1. Inadequacy of working capital
Some units turn out sick due to inadequacy of working capital. There may
exists delay in sanction of working capital by financial institutions. Industrial
units find it difficult to meet out day to day operations due to the time gap
between sanction of term loan and working capital needs. Shortage of Working
Capital is one of the main reasons for sickness.
2. Non-availability of credit
Sickness in SSI sector may be attributed to non-availability of credit. Delay
in getting loans may result in stoppage of work or lead to production loss. Low
production may lead to reduced sales which in turn may lead to financial loss.
3. Poor and obsolete technology
Some industrial units use technology which is outdated. Out dated
technology may affect the quantity and quality of production. This results in
production loss and reduces demand for the goods.
4. Non availability of raw material
Some units may require raw material which are scarcely available.
Sometimes, the raw material required by the unit may not be available in
abundance. Hence, this affects the production and the sales of the goods. If
the raw material is not abundantly available, then the industrial units have to
spend a large amount of money to buy them. This may result in financial loss.
5. Marketing problems
Sometimes, the industrial units may not know as to how to create demand
for the products. Lack of marketing knowledge may result in less demand for
the goods. Similarly, there may be less demand for the goods produced by the
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SSI due to competition or change in the taste of the buyers.
For example, lot of units producing dyes and ceramics have been found sick
in Gujarat and Tripura.
6. Erratic power supply
Shortage in power supply affects the industries. This results in delay in
production of goods and leads to financial losses.
7. Labour problems
The relationship between the employer and the employees may not be
cordial. Some of the labour problems such as strike, lay off, lock out may lead
to industrial sickness.
8. Poor Management
The entrepreneur must be a good planner, organizer and a manager. If the
Industrial Unit promoters lack managerial skills, then it may lead to several
problems.
9. Inadequate attention to R&D
Industries have to allocate a part of money in research and development to
survive and compete with competitors. Failure to focus on the above may lead
to industrial sickness
10. Diversion of resources
If the employer utilizes the funds obtained for the business for any personal
purposes, then diversion of funds will lead to industrial sickness. The funds
used for personal purposes cannot be regenerated and hence it may result in
delay in payment of loans or financial crisis for the borrower of the loan.
11. Globalization
Small scale industrial units may find it very difficult to compete with large
scale industries and foreign competitors. Inability of the units to face growing
competition due to liberalization and globalization may lead to industrial
sickness.
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12. Dispute among partners
There may arise dispute between the partners or family members running
the unit.
This results in stoppage of work and leads to industrial sickness.
13. Overambitious projects
The project may not be technically feasible, such an overambitious project
is one of the reasons for industrial sickness.
PREVENTION OF SICKNESS
Proper project planning
 Location of project
 Availability of raw material
 Availability of labor & technical staff
 Availability of finance at reasonable rates.
Proper Market Analysis
 Demand forecasting
 Study of opportunities & threats of environment
 Consumer tastes & preferences
 Availability of reliable distributors
Prevention of Sickness by Owners and Management
As prevention of sickness is concerned, the essentials are obvious: competent
management of various functions like general management, marketing,
operations, personnel, and finance; and a good performance reporting System
designed to provide top management/owners timely information on critical
parameters such as sales, production, profits, cost variance, profit variance,
etc.
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REMEDIAL MEASURES FOR SICKNESS
Remedial measures to overcome Sickness
Some of the remedial measures to curb and overcome sickness in industrial
undertakings are as follows:
1. Identifying sickness at initial stage
Sickness in Small Scale Industries are not a sudden phenomenon but it is a
gradual process taking 5 to 7 years eroding the health of a unit beyond cure.
Therefore, the identification and detection of the sickness at incipient stage is
the first and foremost measure to detect and reduce industrial sickness.
Sickness must be identified at initial stage.
2. Financial assistance
Lending agencies need to relax their lengthy process and other norms for
extending credit to the SSIs. To combat the incidence of sickness financial
institutions should grant credit without delay to SSI sector.
A number of initiatives can be undertaken to overcome credit problems such as:
1. Increasing Working capital limit.
2. Enhancing the powers of bank managers of specialized bank branches in
offering credit to SSI.
3. Strengthening the mechanism for discounting bills.
4. Reduced rate of interest.
These measures would improve the flow of credit and keep a check on
the incidence of sickness.
3. Improving Infrastructure
Infrastructure facilities can be improved by setting up industrial estates.
Common testing centers etc., infrastructural problems can be solved by
improving the roadways, waterways, establishing telecommunication systems.
4. Technology Up-gradation
Funds may be provided by the financial institutions for adoption of advanced
technology. Similarly, some sort of training may be provided for use of the
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latest technology to overcome technological problems. Technological up-
gradation can help to overcome technological obsolescence.
5. Marketing assistance
Marketing assistance may be provided to entrepreneurs for marketing the
goods produced by them. Government must help to market the goods.
Government and Non-Government Organizations (N.G.Os) can come forward
for marketing the goods produced by the SSI sector. The problem of poor
marketing of the products can be solved by coordinated efforts of
entrepreneurs and promotional agencies.
6. Liquidation
It is better to wind up the business when there is no possibility to revive
the unit.
7. Government Interventions
Interventions must be made by the government to prevent sickness. Periodic
review of financial statements can help to identify and prevent sickness at
initial stage.
8. Training
A proper environment must be created where an entrepreneur will be
educated and will have a proper knowledge, skill and experience about
internal and external environment of business to compete with large-scale
industries and multinational companies.
9. Rehabilitation
Potentially viable sick units should be dealt well for the purpose of
rehabilitation. Rehabilitation is a remedy considered for industrial units,
which have already become sick and for the units that are on the verge of
collapse.
Under the provisions of SICA, 1985, the Government of India has
established Board for Industrial and Financial Reconstruction (BIFR) in
January 1987 for determining the preventive, ameliorative, remedial and
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other measures which are required to be taken in respect of sick industrial
company and for expeditious enforcement of rehabilitation schemes.
The main objective of SICA is to determine sickness and expedite the
revival of potentially viable units or closure of unviable units (unit here in
refers to a Sick Industrial Company). It was expected that by revival, idle
investments in sick units will become productive and by closure, the locked
up investments in unviable units would get released for productive use
elsewhere.
The measures taken by BIFR are
1. Legal
2. Financial restructuring
3. Managerial
Rehabilitation Programmes
Taking into consideration the many sick micro, small and medium
(MSM) industries, the MSM policy has provided a separate package for
rehabilitation of such industries in India.
The policy proposes to set up a rehabilitation fund for sick industries,
which will be managed by the Industries Commissioner and the Director of
Industries and Commerce. Funds will be infused into the committee based on
the recommendation of a State-Level Rehabilitation Committee (SLRC).
The rehabilitation fund, among other things, will be used for meeting
75 percent of the cost of the cause that made the industry unviable, and to
sanction an interest subsidy of 4 per cent for two years on
rehabilitation/bridge loans up to Rs.15 lakhs to the sick MSM industries.
The rehabilitation measures would ensure that most units under lockout
would be able to open at an early date and appealed to MSM units to avail of
the facilities the government was providing them.
The rehabilitation programme involves the following depending upon
the nature of sickness.
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1. Change of Management
2. Development of a suitable management information system
3. Settlement with the creditors for payment of their dues in a phased
manner, taking into account the expected cash generation as per viability
study.
4. Determination of the sources of additional funds needed to refinance.
5. Modernization of plant and equipment or expansion of an existing
programme or even diversification of the products being manufactured.
6. Concession or relief or assistance allowed by the state level corporation,
financial institutions and Central Government.
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UNIT-V
ANCILLARY INDUSTRIES
The ancillary industry is an industry that has fixed investment in plants
and machines that do not exceed 1 crore rupees.
The industries which make parts and components used by big industries to
assemble their final products are known as ancillary industries. For example: -
Industries which manufacture automobiles, railway engines, tractors, etc. are
ancillary industries.
Characteristics of Ancillary industries are:
 It is engaged in the manufacture or production of parts, components, sub-
assemblies, tooling or intermediates.
 It proposes to supply 50 per cent of its production or services to one or more
other industrial undertakings.
 They have fixed investment in plant and machinery not exceeding Rs. 1 crore.
Top six companies in the Auto Ancillary industry in India:
 Amtek India: ...
 Aditya Gears Limited: ...
 Brakes India Limited: ...
 Dynamatic Technologies Limited: ...
 Goodyear India Limited: ...
 Tube Investments of India Limited:
Rural Industries
The Ministry of Agro and Rural Industries (MoARI) in India was established
in September, 2001 with the aim to develop the Rural Industries in the Indian
Economy. The main objectives of this initiative were to ameliorate the supply
chain management, upgrade skills, introduce innovative technologies and
expand markets of the entrepreneurs and artisans. A wide range of programs,
schemes, projects and policies have been formulated to carry out various
activities in the rural sector in India. Also, the Government of India has also
ensured employment generation program in the rural regions under Rural
Employment Generation Program (REGP) and the Prime Minister's Rozgar Yojana
(PMRY) in association with of State Governments, Reserve Bank of India (RBI)

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and other banks.
Some of the major sectors in rural economy of India have been listed below:
Rubber Business in India-
Rubber is one of the significant commercial crops in India. Rubber Industry
in India has accounted for a production of 6.49 lakh tons for the year 2006.
Places in India where rubber is cultivated include areas of southwest Konkan
and Malabar Coast in Kerala and in some areas of Tamil Nadu.
Fisheries in Rural India-
The fish production rate in India has witnessed a remarkable growth since
1995-96. The National Program of Developing Fish Seeds, Fish Farmers'
Development Agencies and Brackish Water Fish Farmers' Development Agencies
have been the major contributors to the growth in fisheries in rural India. A
diversified range of fishing methods along with processed fish products have been
introduced in the Indian rural market through an Integrated Fisheries Project.
Poultry Business in India-
Poultry Business is one of the major contributors to the growing economy
of rural and semi-urban India. India has witnessed a remarkable growth in the
egg and poultry meat industry in the recent period. States of Andhra Pradesh,
Karnataka, Kerala and Tamil Nadu contribute to around 45 percent of the total
egg production in India whereas the eastern and central parts of India contribute
to around 20 percent of the same. India is the seven largest poultry producer all
over the world.
Tobacco Business in India-
India is one of the most predominant producers as well as consumers of
tobacco in India. It ranks third in terms of tobacco production around the world.
Tobacco leaves are highly exported in the overseas countries which has
accounted for a 99 percent increase in the revenue from exports.
Jute Business in India-
Jute is one of the most prime products in terms of exporting to the
overseas nations and it brings in maximum foreign exchange earnings. The delta
of the river Ganges in West Bengal is perfect for jute cultivation. A wide range of
gunny bags, shopping bags, handicrafts, carpets, and many more other items are
made from Jute. Horticulture Business in India-

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India has a diverse soil and climate which provides a promising
opportunity for horticulture. Some of the crops cultivated in the horticultural
sector comprise of fruits, vegetables, root and tuber crops, flowers, ornamental
plants, medicinal and aromatic plants, spices, condiments, plantation crops and
mushrooms.
Sericulture Business in India-
Sericulture is one of the rural based agro industries in India. Silk
production activity has accounted for a total income from export production of
more than USD 600 million. Sericulture offers agro based, ecologically and
economically sustainable activity for the poor, small and marginal farmers which
also include women. 60 percent of the pre-cocoon and post-cocoon sector
activities are carried out by women.
Tea Business in India-
The tea business has been ruling Indian economy for the past 170 years.
The chief areas of tea production in India include rural hills and backward
areas of Northeastern and southern states like Assam, West Bengal, Tamil Nadu
and Kerala. India mainly manufactures tea variants such as CTC, Orthodox tea
and green tea.
NATURE OF RURAL INDUSTRIES
Rural industries can be broadly classified into three groups, viz.,
1) cottage industries,
2) agro-based industries, and
3) small industries.
Cottage industries: These are generally associated with agriculture as a part
time or whole-time occupation in rural and semi-urban areas.
Agro-based, agro-processing industries:
These industries are based on the processing of agricultural produce, or are
linked to the input needs of agriculturists. Rural agro-based industries are
generally organized either on cottage or on small-scale basis.
Small-scale industries: These industries are owned by persons with enough
means for their own subsistence, though not always sufficient to run the
industrial units on a profitable level. Small industries are distinguished from
large industries by including under the former those industrial units which

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employ capital valued at less than Rs.1 crore. Most of the small industries
situated in the rural areas are what can be identified as ‘tiny’ industries. In official
jargon, these are those units that employ a capital of less than Rs.25 lakhs.
ROLE OF RURAL INDUSTRIES:
Employment potential:
These industries provide the maximum employment per unit of capital
invested; the labour-capital ratio in these industries is higher than in large-scale
industries. In a country where labour is surplus and capital scarce, it is only to
be expected that the production process should be decentralized and should be
divided into smaller units.
Local availability of raw materials: Most of the raw materials required by these
industries are available in the rural areas. If the production process can be
carried to the villages, transportation expenses will be minimum. Also, in the
rural areas many of the resources still remain unexploited, by establishing these
industries, such resources will be utilized.
Economic equality:
These industries, by increasing employment among the rural masses, lead
to an increase in their purchasing power which at present to a large extent is
confined only to urban areas. The centralized structure can pave the way for an
equitable society.
Problem of agricultural laborers:
These industries can solve the problem of landless agricultural laborers by
providing employment to them at their own places during the on-season in the
form of off-farm employment and during off season in the form of whole-time job.
This would create, on the one hand, employment opportunities for the
unemployed and the underemployed agricultural workers and on the other it
would supplement the meagre income of the rural population.
Mobilization of savings:
Savings of people remain idle because of lack of proper financial
institutions in villages. On the contrary, these are frittered away in unproductive
consumption and unnecessary litigation. These can be invested in productive
channels if rural industries are established.

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Improvement in the standard of living:
Indian villages have so far remained very backward. These industries will raise
the standard of rural masses by the following processes:
(i) by providing employment to rural workers in their own homes
(ii) by offering consumer goods at comparatively cheaper rates; and
(iii)by encouraging the construction of social and economic overhead capital such
as roads, and electricity supply, and establishment of educational and financing
institutions, etc. In this way, these industries are helpful in the all-round
development of our villages and thereby of the masses of the entire country.
Other advantages:
These industries will save us from many evil effects of industrialization
such as pollution, over-urbanization and associated evils of urban life. These
advantages of decentralized rural industries had been recognized as early as in
the Industrial Policy Resolution of 1948, and have been reiterated in every
subsequent policy statement
ARTISANS:
An artisan (from French: artisan, Italian: artigiano) is a skilled craft worker
who makes or creates material objects partly or entirely by hand. These objects
may be functional or strictly decorative, for example, furniture, decorative art,
sculpture, clothing, food items, household items and tools and mechanisms such
as the handmade clockwork movement of a watchmaker. Artisans practice a craft
and may through experience and aptitude reach the expressive levels of an artist.
Artisans are the backbone of India’s non-farm rural economy, engaged in
craft production to earn a livelihood. However, propelled by loss of markets,
declining skills and difficulty catering to new markets, the number of Indian
artisans has been rapidly decreasing. Crafting a Livelihood calls for re-

investment in India’s artisans to safeguard history, culture and an important

source of livelihood.
While historically crafts received royal and aristocratic patronage, they
have slowly lost relevance as India industrialized. Over the past 30 years, the
number of Indian artisans has decreased by 30% and the vast majority of artisans
operate in informal work settings. Investing in the crafts sector offers tremendous

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opportunity to improve the economic, environmental and social conditions of
rural communities, by tapping into the global market, the environmental benefit
of low polluting industries, and the economic and social empowerment of many
rural households.
As outlined by Crafting a Livelihood, harnessing the potential of this sector
requires different types of investments to preserve traditional crafts, strengthen
the sector, and improve the incomes of artisans. One recommendation is to
strengthen individual artisans engaged in production by generating awareness
among artisans about the value of their skill, and train artisans continuously to
upgrade their skills and product offerings. Another key recommendation is to
increase demand for crafts and strengthening market linkages. There is also need
to provide business support and leverage technology for information and process
innovations to increase efficiencies in craft production and enable artisans to
produce more.
ROLE OF SIDO,
Small Industries Development Organization (SIDO) is a subordinate office
of the Department of SSI & Auxiliary and Rural Industry (ARI). It is an apex body
and nodal agency for formulating, coordinating and monitoring the policies and
programmes for promotion and development of small-scale industries.
Development Commissioner is the head of the SIDO. He is assisted by various
directors and advisers in evolving and implementing various programmes of
training and management, consultancy, industrial investigation, possibilities for
development of different types of small-scale industries, industrial estates, etc.
The main functions of the SIDO are classified into:
(i)Co-ordination,
(ii)Industrial development, and
(iii)Extension.
These functions are performed through a national network of institutions
and associated agencies created for specific functions. At present, the SIDO
functions through 27 offices, 31 Small Industries Service Institutes (SISI), 37
Extension Centers, 3 Product- cum -Process Development Centers, and 4
Production Centers.

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All small-scale industries except those falling within the specialized boards
and agencies like Khadi and Village Industries (KVI), Coir Boards, Central Silk
Board, etc., fall under the purview of the SIDO.
The main functions performed by the SIDO in each of its three categories
of functions are:
Functions Relating to Co-ordination:
a) To evolve a national policy for the development of small-scale industries,
b) To co-ordinate the policies and programmes of various State Governments,
c) To maintain a proper liaison with the related Central Ministries, Planning
Commission, State Governments, Financial Institutions etc., and
d) To co-ordinate the programmes for the development of industrial estates.
Functions Relating to Industrial Development:
a) To reserve items for production by small-scale industries,
b) To collect data on consumer items imported and then, encourage the
setting of industrial units to produce these items by giving coordinated
assistance,
c) To render required support for the development of ancillary units, and
d) To encourage small-scale industries to actively participate in Government
Stores Purchase Program by giving them necessary guidance, market
advice, and assistance.
Function Relating to Extension:
a) To make provision to technical services for improving technical process,
production planning, selecting appropriate machinery, and preparing
factory lay-out and design,
b) To provide consultancy and training services to strengthen the competitive
ability of small-scale industries.
c) To render marketing assistance to small-scale industries to effectively sell
their products, and
d) To provide assistance in economic investigation and information to small-
scale industries.
SSIDC
State Small Industries Development Corporations (SSIDC) are state-owned
companies or agencies in the states of India which were established at various

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times under the policy of Government of India for the promotion of small scale
industries.
A few of the SIDCOs are:
 Kerala Small Industries Development Corporation Limited
 Small Industries Development Corporation of Jammu and Kashmir.
 Tamil Nadu Small Industries Development Corporation Limited
(TANSIDCO).
SISI
The small industries service institutes (SISI’s) are set-up one in each state
to provide consultancy and training to small and prospective entrepreneurs. The
activities of SISs are co-ordinate by the industrial management training division
of the DC, SSI office (New Delhi). In all there are 28 SISI’s and 30 Branch SISI’s
set up in state capitals and other places all over the country.
SISI has wide spectrum of technological, management and administrative
tasks to perform.
Functions of SISI
1. To assist existing and prospective entrepreneurs through technical and
managerial counseling such as help in selecting the appropriate machinery
and equipment, adoption of recognized standards of testing, quality
performance etc.;
2. Conducting EDPs all over the country;
3. To advise the Central and State governments on policy matters relating to
small industry development;
4. To assist in testing of raw materials and products of SSIs, their inspection
and quality control;
5. To provide market information to the SISI’s;
6. To recommend SSI’s for financial assistance from financial institutions;
7. To enlist entrepreneurs for partition in Government stores purchase
programme;
8. Conduct economic and technical surveys and prepare techno-economic
feasible reports for selected areas and industries.

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DIC:
The 'District Industries Centre' (DICs) programme was started by the
central government in 1978 with the objective of providing a focal point for
promoting small, tiny, cottage and village industries in a particular area and to
make available to them all necessary services and facilities at one place. The
finances for setting up DICs in a state are contributed equally by the particular
state government and the central government. To facilitate the process of small
enterprise development, DICs have been entrusted with most of the
administrative and financial powers. For purpose of allotment of land, work
sheds, raw materials etc., DICs functions under the 'Directorate of Industries'.
Each DIC is headed by a General Manager who is assisted by four functional
managers and three project managers to look after the following activities:
Activities of District Industries Centre (DIC):
i. Economic Investigation
ii. Plant and Machinery
iii. Research, education and training
iv. Raw materials
v. Credit facilities
vi. Marketing assistance
vii. Cottage industries
Objectives of District Industries Centre (DIC):
The important objectives of DICs are as follow:
i. Accelerate the overall efforts for industrialization of the district.
ii. Rural industrialization and development of rural industries and
handicrafts.
iii. Attainment of economic equality in various regions of the district.
iv. Providing the benefit of the government schemes to the new entrepreneurs.
v. 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 Industries Centre (DIC):
i.Acts as the focal point of the industrialization of the district.
ii.Prepares the industrial profile of the district.

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iii.Statistics and information about existing industrial units in the district in
the large, Medium, small as well as co-operative sectors.
iv.Opportunity guidance to entrepreneurs.
v.Compilation of information about local sources of raw materials and their
availability.
vi.Manpower assessment with respect to skilled, semi-skilled workers.
vii.Assessment of availability of infrastructure facilities like quality testing,
research and development, transport, prototype development, warehouse etc.
viii.Organises entrepreneurship development training programs.
ix.Provides information about various government schemes, subsidies, grants
and assistance available from the other corporations set up for promotion of
industries.
x.Gives SSI registration.
xi.Prepares techno-economic feasibility report.
xii.Advices the entrepreneurs on investments.
xiii.Acts as a link between the entrepreneurs and the lead bank of the district.
PROSPECTS FOR SMALL SCALE INDUSTRIES
The Micro, Small and Medium Enterprises (MSMES) have always been
considered as growth engine of the Indian economy. MSMES are well known for
its lower investment and technology requirement. After agriculture, this sector
holds second position in generating employment opportunities in Indian
economy. MSMES also enhance industrialization in rural and backward area
thereby reduce regional imbalances and assure equitable distribution of national
income and wealth.
1.Employment generation: There are large opportunities in the field of
manufacturing and service rendering of MSME’s. In the field of retail and
manufacturing sector, MSMEs are generating different and ample amount of
employment.
2. Focus on customer satisfaction: Primarily, MSMEs manufacturing goods
focus on test and preferences, liking and disliking of the consumer. But now a
day they produce goods according to the needs or expectations of the customers.
So the MSMEs can be more customer satisfaction oriented.

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3.Minimization of regional imbalance: The MSMEs will utilize the manpower
of rural areas so such areas of the nation can equally develop through the
running of MSME units in rural areas. So this is helpful to minimize or remove
the regional imbalance.
4.Development of Export: In the international market, there will be a large
demand of Indian product like wooden items, other handmade articles etc. So
MSMEs have the potential to improve the export of India.
5.Attraction of Foreign Investment: The Indian MSMEs are the growing
sectors and their growth rate and return on investment is satisfactory. This
sector can attract foreign investment in India, so their growth rate increasing
drastically.

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