Entrepreneur & Economic Development

Entrepreneur & Economic Development

• Schumpeter in “Capitalism, Socialism and Democracy “-

An entrepreneur :
 converts a new idea or Invention a successful innovation

 Creates new Products & Business Models through “Creative Destruction “

 Creates dynamism of industries and long-run economic growth.

Former Federal reserve chairman Alan Greenspan has described the

influence of creative destruction on economic growth as follows:
"Capitalism expands wealth primarily through creative destruction—the
process by which the cash flow from obsolescent, low-return capital is
invested in high-return, cutting-edge technologies."
 Entrepreneur & Economic Development

The difference between Economc Growth & Development

Economic Growth Economic Development

• Increase in Potential output • Increase in Human capital

• Increase in Asset +
• Measured in GDP • Increase in Social Capital

• Measured in Per-capita Income

 Entrepreneur & Economic Development

• New idea or Invention Innovation New Market

Economic Growth

Entrepreneurial process New Products & Business Models

Transfer of Surplus Human & Social capital from Low Technology Sector

Better Standard of Living

Economic Development
Role of entrepreneurs in Economic Development

• Promotion of capital formation.

• Immediate large-scale employment.
• Promotion of balanced regional
development.
• Reduced concentration of economic power.
• Encourages effective resource mobilization.
• Promotes export trade.
 Intrapreneur
Gifford Pinchot is an author, speaker and consultant on
innovation management. His best-selling book,
INTRAPRENEURING: Why You Don't Have to Leave the
Corporation to Become an Entrepreneur defined the ground
rules for an emerging field of enterprise

Persons who create something new , but

inside an existing company rather than
through founding new venture.
 Ultrapreneur

Persons who identify a business opportunity,

determine its viability form a company ,
develop it , produce and market and finally
sell the major interest. Their life long
challenge is to do it again % again and will
not pass on the company to next generation.
 Social Entrepreneurship Trends In India

• Former President Kalam’s vision of PURA

(Providing Urban Facilities in Rural Areas).
• SHAKTI – Hindustan Unilever Limited.
• Association of Women Entrepreneurs of Karnataka
– AWAKE.
 Types of Entrepreneurs
Type of Business Others Motivation
Business Imitating Pure
Trading Forced Induced
Industrial National/International Motivated
Corporate Intrapreneur Spontaneous
Agricultural Immigrant
Retail
Service
Franchise
Growth Stage of Development Use of Technology
Growth First generation Technical
Super Growth Modern Non-Technical
Classical Professional
High/Low Tech.
Gender Scale of Operation Area
Male, Female Small, Large Rural , Urban
 Types of Entrepreneurs contd.

Functional Characteristics Developmental angle Personality

Innovative Prime Mover Improver
Imitative Manager Advisor
Minor Innovator Superstar
Artist
Visionary
Analyst
Fireball
Hero
Healer
Small and Medium Enterprises

Chapter-3
Small & Medium
Enterprises
THE MICRO, SMALL AND MEDIUM
ENTERPRISES DEVELOPMENT ACT, 2006
Micro Industries
Enterprise means an industrial
undertaking or a business concern or
Small Industries any other establishment, by whatever
name called, engaged in the
Medium Industries manufacture or production of goods, in
any manner pertaining to any industry
specified in the First Schedule to the
Industries Development and Regulation
Act, 1951.
Small & Medium
Enterprises
THE MICRO, SMALL AND MEDIUM ENTERPRISES DEVELOPMENT ACT, 2006

Micro Industries
Type Micro Small Medium
Small Industries P&M P&M P &M
Manufacturing <=25 L > 25 <=500 >500< =1000

Medium Industries
Equip Equip Equip
Service <=10 >10<=200 >200<=500
Small & Medium
Enterprises
Important Acts: • Policies of the Government:
•THE MICRO, SMALL AND MEDIUM • Industrial Policy Resolutions (IPRs’)
ENTERPRISES DEVELOPMENT ACT, 2006
• IPR-1948
•Consumer protection Act
•Essential Commodities Act • IPR-1956
•Prevention of food Adulteration Act • IPR-1977
•The Sale of Goods Act • IPR-1980
•Factories act • IPR-1990
•The industrial disputes Act
• New Small Enterprise policy 1991
•The workmen’s Compensation Act
•The EPF Act
•The Payment of bonus Act
•The Minimum wages Act
•Income tax
•Sales tax
Small & Medium
Enterprises
 Dynamic Economy

Role of SMEs’  Socio-Economic Development

 Accounts for
35% – Industrial Production
40% - Export
60% - Employment
Small & Medium
Enterprises  Provide – Increased employment

 Require Low gestation period

Importance  Easy to set up in rural & backward areas

 Need Small market

 Encourage Local Entrepreneur

 Influence standard of living of people

Small and Medium Enterprises

Chapter-3
 Small & Medium Enterprises

• Protection  Promotion
1. Aim : Promotion & Strengthening of SMEs’

2. Changes in Investment Limit

• Government 3. 24 % Equity Participation by other Companies

Policy Initiatives 4. Integrated Infrastructure development

5. Encouraging Industry associations

1991
6. Common Testing facility

7. Productivity Training
 Small & Medium Enterprises

1. Aim : Promotion of SMEs’

2. Changes in Investment Limit

3. De-reservation of items
• Government
4. Foreign participation
Policy Initiatives
5. Establishment of Growth centres
1999
6. Export promotion

7. Marketin assistance

8. Incentives for Quality Improvement

 Small & Medium Enterprises

1. THE MICRO, SMALL AND MEDIUM ENTERPRISES

DEVELOPMENT ACT – 2006 ( MSMED Act – 2006 )

2. NATIONAL MANUFACTURING COMPETITIVENESS

• Recent Policy PROGRAMME (NMCP)
Initiatives 3. PACKAGE FOR PROMOTION OF MICRO AND SMALL

2006 ENTERPRISES

4 . RESERVATION / DERESERVATION OF PRODUCTS FOR

MANUFACTURE IN THE SMALL SCALE SECTOR
 Small & Medium Enterprises
Recent Policy Initiatives
THE MICRO, SMALL AND MEDIUM ENTERPRISES DEVELOPMENT ACT, 2006

• PROMOTION
• Objective
• DEVELOPMENT and

• Enhancement of Competitiveness
 Small & Medium Enterprises
THE MICRO, SMALL AND MEDIUM ENTERPRISES DEVELOPMENT ACT, 2006

• Development of skill
• provisioning for technological
• PROMOTION upgradation
• DEVELOPMENT • providing marketing assistance or
and infrastructure facilities
• ENHANCEMENT of • Credit Facilities
Competitiveness • Measures against Delayed payments
through
 Small & Medium Enterprises
THE MICRO, SMALL AND MEDIUM ENTERPRISES DEVELOPMENT ACT, 2006

• Development of skill
• National Institute for small Industry
• PROMOTION Extension & Training - Hyderabad
( NISIET)
• DEVELOPMENT
• Indian istitute of Entrepreneurship ( IIE )
and
– Guwahati
• ENHANCEMENT of • National Institute for Entrepreneurship
Competitiveness & small Business Development –
Newdelhi ( NIESBUD )
through
• + 12 other Institutes
 Small & Medium Enterprises
THE MICRO, SMALL AND MEDIUM ENTERPRISES DEVELOPMENT ACT, 2006

• provisioning for technological

upgradation
• Small Industries Development
• PROMOTION
Organisation ( SIDO )
• DEVELOPMENT • National Small Industries Corporation
and Ltd. ( NSIC
• ENHANCEMENT of • National science and techonology
Entrepreneurship Deve)lopment Board
Competitiveness
( NSTEDB
through • National Productivity Council ( NPC )
 Small & Medium Enterprises
THE MICRO, SMALL AND MEDIUM ENTERPRISES DEVELOPMENT ACT, 2006

• providing marketing assistance or

infrastructure facilities
• PROMOTION

• DEVELOPMENT
Director of export Promotion ( DEP)
and
Director General of Supply & Disposal
• ENHANCEMENT of
Competitiveness ( DGSD )
through Rural Industrial & Marketing Corporation
( RIMCO )
 Small & Medium Enterprises
THE MICRO, SMALL AND MEDIUM ENTERPRISES DEVELOPMENT ACT, 2006

• Credit Facilities
• Commercial Banks
• PROMOTION • Counsil of Scientific & Industrial
• DEVELOPMENT Research
• Small industries Service Institute
and
• National Small industry Corporation
• ENHANCEMENT of
Competitiveness

through
 Small & Medium Enterprises
THE MICRO, SMALL AND MEDIUM ENTERPRISES DEVELOPMENT ACT, 2006

• Measures against Delayed payments

• PROMOTION
• Micro and Small Enterprises Facilitation
• DEVELOPMENT
Council
and
• ENHANCEMENT of • Arbitration and Conciliation Act 1996
Competitiveness

through • Courts
 Small & Medium Enterprises

• Recent Policy Initiatives - 2006

2. NATIONAL MANUFACTURING COMPETITIVENESSPROGRAMME (NMCP)

Objective : To support manufacturing enterprises to become Competitive

Schemes : 1. Support for Lean manufacturing (Without Waste & implementing flow )

2. Promotion of ICT in manufacturing ( Information communication Tech )

3. Setting up Mini Tool Rooms

4. Encouragement for Quality Management Standards & Tools

5. Campaign for investment in Intellectual property

 Small & Medium Enterprises
• Recent Policy Initiatives - 2006
3. PACKAGE FOR PROMOTION OF MICRO AND SMALL ENTERPRISES

Objective : To Competitiveness to face competition

Package : 1. Legislative backup

2. Credit support

3. Tech & Quality up gradation support

4. Marketing support

5. Empowerment of women entrepreneur

6. PM ‘s Rozkar Yojana
 Small
•
& Sickness
Medium in SMEs’
Enterprises
• Sickness Definition :
• The definition of sickness in SME sector has been changing over time.
The Third Census on SSI Sector
Kohli Committee:
"A small scale industrial unit is considered as sick when
if any of the borrowal accounts of the unit remains substandard for more than six months, i.e., principal or interest, in respect of any of its
borrowal accounts has remained overdue for a period exceeding one year will remain unchanged even if the present period for classification of
an account as substandard is reduced in due course;
OR
There is erosion in the net worth due to accumulated losses to the extent of 50 per cent of its net worth during the previous accounting year,
and
The unit has been in commercial production for at least two years."
 Small
•
& Sickness
Medium in SMEs’
Enterprises

• Criteria to identify sickness/ incipient sickness

In the Third Census, the following criteria were adapted to identify sick/ incipient sick units.

1. Continuous decline in gross output compared to the previous two financial years;
2. Delay in repayment of loan from institutional sources, for more than 12 months; and
3. Erosion in the net worth to the extent of 50 per cent of the net worth during the previous accounting year.

• Units satisfying one or more of the above criteria have to be treated as Sick unit
 Small & Medium Enterprises

Sickness in SMEs’- Causes

• Internal • External

• Anatomical causes 1. Shortage of supply in inputs

2. Rise in raw material cost
1. Underestimation of Project cost 3. Radical change in govt. policy
2. Old Technology 4. Recession in Industry
3. Wrong Site 5. Foreign exchange fluctuations
4. Unwanted investment in Fixed assets
5. Defective Plant & Machinery
• Operational causes

1. Defective Financial planning

2. No R&D planning
3. Incapable Management
 Small & Medium Enterprises
• Sickness in SMEs’ - Symptoms
At Implementation Stage
 Undue delay in implementation
 Lack of coordination with various agencies
When the project has started operation
 Increase in level of inventories
 Increase in rejection rate of finished goods
 Irregularity in payment of loan
 Industrial relations Problem
Position of cash credit account
 Cash credit or overdraft account has been overdrawn or frequently drawn
 Returned unpaid cheques
 Long pending unpaid bills
 Pledged stocks are overvalued to obtain fund from government
 Uninsured stocks
 Small & Medium Enterprises
• Sickness in SMEs’ - Cures
• Discover new Products & Markets

• Enhance accessibility to market Information

• More thrust on R & D
• More Professionalism

• Planned training
• Modernising Operation
• More attention to Marketing
• Frequent use of advertisement
• Efforts to collect dues from buyers
 Small & Medium Enterprises
Sickness in SMEs’ – Role of BIFR
• Under Sick Industries Companies Act -1985 , Board for Industrial and
Financial Reconstruction ( BIFR ) was setup to make the sick companies
viable.
 The BIFR can direct a financial institution to prepare a scheme for revival of
sick companies.
 The scheme could provide for
1. Financial reconstruction of the company
2. Proper management of sick company by change or takeover the
management
3. Amalgamation of sick company with other company
4. Sale or lease of the sick company
 Based on the scheme provided by financial institution BIFR will take action
in line with the High court proceedings.
 Small & Medium Enterprises
Incentives for SMEs’
Export Incentives: Incentives for backwrad areas:
 Import Replenishment Licenses (REP)  Investment Subsidy:
Importers are eligible for REP to import Category –’A’ Districts – up to 25 Lakhs
raw materials and spares which are Category –’B’ Districts – up to 15 Lakhs
used to produce export items. Category –’C’ Districts – up to 10 Lakhs
 Deemed Export Benefits  Tax Holidy:
Producers who supply the inputs to final  Tax deduction upto 6% of profit –
exporters are deemed to be exporters 80J for 5 years from production
and are eligible for REP date
 Import Export Pass Book Scheme  EOU, EPZ – exempt fro corporate
Exportes having good track record are income tax upto 5 yrs.
eligible to import duty free raw  CST exemption for Khadi & Village
materials. industries for 5 yrs.
Excise Concession:  100% CST exemption for Tiny,small
Up to 30 Lakhs for Ssis. & large scale industries for 3 – 5
yrs. in different zones
 Small & Medium Enterprises
Incentives for SMEs’ …….Contd.
Other Incentives: Incentives for
 Interest free loans  Handicapped
 Price preference  NRIs’
 Allotment of developed shed, raw  Retired defence personnel
material  Women Entrepreneurs
 Land & building at concessional rates
Exemptions from:
Subsidy for  Income tax
 Artisans, handlooms  Property tax
 Buying test equipments  Stamp duty
 Capital investment  Sales tax
 Interest
 Market / Feasibility studies
 Power generation
 R&D works
 Transport
 Technical consultancy