UNIT-1

The Micro- Small and Medium Enterprises (MSMEs) are small sized entities, defined in
terms of their size of investment. They are contributing significantly to output, employment
export etc. in the economy. They perform a critical role in the economy by providing
employment to a large number of unskilled and semi-skilled people, contributing to exports,
raising manufacturing sector production and extending support to bigger industries by
supplying raw material, basic goods, finished parts and components, etc.
As per the ‘MSME at a Glance’ Report of the Ministry of MSMEs, the sector
consists of 36 million units and provides employment to over 80 million persons. The Sector
produces more than 6,000 products contributing to about 8% of GDP besides 45% to the total
manufacturing output and 40% to the exports from the country.
How MSMEs are classified?
The MSMEs are classified in terms of investment made in plant and machineries if they are
operating in the manufacturing sector and investment in equipment for service sector
companies.
Though the primary responsibility of promotion and development of MSMEs is of
the State Governments, the center has passed an Act in 2006 to empower the sector and also
has formed a Ministry (Ministry of MSMEs). It was the Micro, Small and Medium
Enterprises Development (MSMED) Act which was notified in 2006 that defined the three
tier of micro, small and medium enterprises and set investment limits.
Classification of the MSME
Ceiling on Investment in Plant and Machinery (in Rs)
Micro Below 25 lakhs
Small 25 lakhs to 5 crores
Medium 5 crores to 10 crores

Ceiling on Investment in Service Enterprises – ( in Rs)

Micro upto Rs. 10 Lakh
Small above Rs. 10 Lakh & upto Rs. 2 Crore
Medium above Rs. 2 Crore & upto Rs. 5 Crore
CHALLENGES/PROBLEMS OF MSME

Small and Medium Enterprises (SMEs) play a vital role for the growth of Indian economy by
contributing 45% of industrial output, 40% of exports, employing 60 million people, create
1.3 million jobs every year and produce more than 8000 quality products for the Indian and
international markets. SME’s Contribution towards GDP in 2011 was 17% which is expected
to increase to 22% by 2012. There are approximately 30 million MSME Units in India and 12
million persons are expected to join the workforce in the next 3 years.

Despite of the importance of the MSMEs in Indian economic growth, the sector is facing
challenges and does not get the required support from the concerned Government
Departments, Banks, Financial Institutions and Corporates which is proving to be a hurdle in
the growth path of the MSMEs. The list of the problems that are faced by existing/new
companies in SME sector are as under:.

 IPR related issues.

 Design as a market driver.
 Wasteful usage of resources/manpower.
 Energy inefficiency and associated high cost.
 Low ICT usage.
 Low market penetration.
 Quality assurance/certification.
 Standardization of products and proper marketing channels to penetrate new markets.
 The definition for MSMEs must be updated – considering inflation and availability of
better technologies since the last change in 2006.
 Absence of adequate and timely banking finance
 Limited capital and knowledge
 Non-availability of suitable technology
 Low production capacity
 Ineffective marketing strategy
 Constraints on modernisation & expansions
 Non availability of skilled labour at affordable cost
 Follow up with various government agencies to resolve problems due to lack of man
power and knowledge etc.
 Access to technology

STEPS TAKEN BY GOVT TO SOLVE MSME PROBLEMS

• National Manufacturing Competitiveness Programme (NMCP) Schemes Under XI Plan
• Micro & Small Enterprises Cluster Development Programme (MSE-CDP)
• Credit Linked Capital Subsidy Scheme for Technology Upgradation
• Credit Guarantee Scheme
• ISO 9000/ISO 14001 Certification Reimbursement Scheme
• Scheme of Micro Finance Programme
• Scheme of National Award
PROGRAMMES & SCHEMES OF THE MINISTRY OF MSME IMPLEMENTED
DIRECTLY BY MINISTRY
• Scheme of Surveys, Studies and Policy Research
• Guidelines of Scheme for Assistance to Training Institutions ( English/ Hindi)
• Scheme of Fund for Regeneration of Traditional Industries (SFURTI)
• Rajiv Gandhi Udyami Mitra Yojana (RGUMY)

Implemented through NSIC

• Marketing Assistance Scheme
• Performance and Credit Rating Scheme

Implemented through KVIC

• Guidelines of the Market Development Assistance (MDA) on Production Scheme
• Khadi Karigar Janashree Bima Yojana for Khadi Artisans
• Interest Subsidy Eligibility Certification (ISEC)
• Scheme for Enhancing Productivity and Competitiveness of Khadi Industry and Artisans

Workshed Scheme for Khadi Artisans

• Implemented through Coir Board
• Rejuvenation, Modernization and Technology Upgradation of the Coir Industry

SUPPORT FOR PARTICIPATION IN EXHIBITIONS

MSME MDA – The scheme offers funding up to 75% in respect of to and fro air fare for
participation by MSME Entrepreneurs in overseas fairs/trade delegations. The scheme also
provides for funding for producing packaging material (up to 25% of costs) Sector specific
studies (upto Rs. 2 Lakhs) and for contesting anti-dumping cases (50% upto Rs. 1 Lakh) – for
individual MSMEs & Associations.

» Participation in the International Exhibitions/ Fairs – For registered Small & Micro
manufacturing enterprises with DI/DIC.

» Financial Assistance for using Global Standards (GS1) in Barcoding – Recognized the
importance of Barcoding and avail financial assistance through the Office of DC (MSME).

» Purchase and Price Preference Policy – This is administered through the Single Point
Registration Scheme of NSIC. Under this, 358 items are reserved for exclusive purchase from
MSME by Central Government. Other facilities include tender documents free of cost,
exemption from earnest money and security deposit and 15% price preference in Central
Government purchases – for individual MSMEs
GOVERNMENT PROMOTION FOR MSME
Government Schemes for MSME
The government has undertaken numerous measures to obtain a solution to the problems
faced by Micro, Small and Medium enterprises (MSME) and permit them to play an efficient
and capable role in the country’s economy. These measures may be generally classified as the
following:

 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.

The article studies major initiatives taken by the government to develop the Micro, Small and
Medium Enterprises (MSME) sector, Credit Guarantee Scheme (CGTMSE Scheme) and
development of Micro, Small and Medium Enterprises, list of items and development of
MSME framework of institutional support services and incentives for small scale sector,
promotional measures by State Government for the development of MSME sector and
suggestions for the development of MSMEs.

The various promotional measures undertaken by State Government for the development of
micro, small and medium scale industry sector include:

o Industrial extension services

o Institutional support with reference to credit facilities
o Providing developed sites for the construction of sheds
o Providing training facilities
o Supply of machinery on the basis of hire-purchase terms
o Enabling Assistance for domestic marketing and exports
o Offering special incentives for creating enterprises in backward areas and so
on
o Offering technical consultancy and financial assistance for the purpose of
technological enhancement
INCENTIVES AVAILABLE TO MSME UNITS IN BACKWARD/RURAL
INDUSTRIES PROJECT AREAS

1. Land every state offers develops plots for setting up of industries. The term and
conditions may vary. Some states don’t charge rent in the initial years, while some
allow payment in instalments.
2. Power is supplied at a concessional rate of 50%, while some states exempt such units
from payment in the initial years.
3. Water is supplied on no profit no loss basis or with 50% concession or exemption
form water charges for a period of 5 years
4. Sales tax in all union territories, industries are exempted from sales tax, while some
states extend exemption for 5 years period.
5. Octoroi most states have abolished
6. Raw material units located in backward areas get preferential treatment in the matter
of allotment of scarce raw material like cement, iron, and steel..etc
7. Finance subsidy of 10-15% is given for building capital assets, Loans are also offered
at concessional rates.
8. Some states encourage setting up Industrial Estates
9. Tax holidays exemption from paying taxes for 5 or 10 years is given to industries
established in backward, hilly, and tribal areas.
 UNIT -2

The process of identifying a candidate idea for developing into a project is called Project
Identification. This is a systematic process and some times it may be a serendipitous act.

Sources of Project ideas

 Observation
 Trade and Professional magazines
 Bulletin of Research organizations
 Government sources

Project selection is a careful study of each project idea in detail and choosing one of them
for further consideration and development. A project idea is universal. However, a project
must be implemented in the background of factors such as
 Technology
 Equipment
 Investment
 Location
 Market

Project Formulation
The process of studying a selected project further with reference to investment decisions is
called project formulation. It considers issues such as relevance and feasibility of the project.
It involves a step-by-step procedure to investigate and develop project further.

What is a project report?

The project report is a document, which gives an account of the project proposal to ascertain
the prospects of the proposed plan/activity. The project report contains detailed information
about
1. Land & building required
2. Manufacturing Capacity per annum
3. Manufacturing Process
4. Machinery & equipment along with their prices and specifications
5. Requirements of raw materials
6. Power & Water required.
7. Manpower needs.
8. Marketing.
9. Cost of the project and production.
10. Financial analyses & economic viability of the project.

A project report is prepared with the help of prescribed guidelines available with MSMEDI's,
DIC's & financial institutions. Information about prices of machinery & equipment, raw
material and other various inputs required for setting up an enterprise need to be collected
from the market.
A model proforma for preparing the project report is available with MSMEDI's, DIC's &
financial institutions. Every institution has its own model proforma. However contents of all
the proforma are almost similar.

MSMEDIs, NSIC and State Govt. agencies viz. DICs, SFCs can help you in preparing the
Project Report. You can also prepare the Project Report yourself by collecting detailed
information on various points.

Details are required for preparation of Project Report

Information in detail is required about the technical process, requirements of plant and
machinery, raw materials, manpower requirement, market information and statutory
representations (like pollution control and public safety) etc. The details of power and water
tariff, land/shed/building and selling prices etc. needs to be collected as prevalent in the
market.

Agencies can be approached for obtaining information for preparation of the Project
Report

Entrepreneur can approach MSMEDIs and state Govt. agencies viz. Directorate of Industries,
SFCs, DICs and market channels for getting information.

GENERAL PROFORMA OF PROJECT REPORT

1. Land and Building

11. Plant and Machinery
111. Supporting Equipments
IV. Preliminary and Pre-operative Expense
V. Utilities
VI. Man Power Requirements
VII. Consumable Stores
VIII. Annual Repair and Maintenance Expenses
IX. Phased Revenue Programme
X. Computation of Working Capital and Margin Money Requirement
XI. Project Cost and Source of Finance
XII. Depreciation Staight Line Method
XIII. Depreciation Written Down Vakue Method
XIV. Profitability Estimates
XV. Computation of Income Tax
XVI. Cash Flow Statement
XVII. Projected Balance Sheet
XVIII.Internal Rate Of Return
XIX. Break Even Analysis
XX. Pay Back Period
PROJECT IDENTIFICATION
Introduction:
Project identification is the first step of a new venture. Project identification is concerned
with collection, compilation and analysis of economic data for the eventual purpose of
 locating possible opportunities for investment and with the development of such
opportunities. Opportunities according to Drucker are of three kinds: additive,
complementary and breakthrough.
Additive opportunities are those opportunities which enable the decision – maker to better
utilize the existing resources without in any involving a change in the character of business.
These opportunities involve minimum disturbance to the existing state of affairs and hence
the least risk. Complementary opportunities involve the introduction of new ideas and as such
do lead to a certain amount of change in the existing structure. Breakthrough opportunities on
the other hand involve opportunities involve fundamental changes in both the structure and
character of business. The element of risk is greater in the case of complementary
opportunities and is greatest in the case of breakthrough opportunities.
CRITERIA FOR SELECTING A PARTICULAR PROJECT:
1. Investment size: the investment size should be at least Rs.3 to 5 crore.
2. Location; A new entrepreneur should locate his project to the extent possible in and around
the state headquarters.
3. Technology: The first project should be for a product which requires high technology,
necessitating foreign technical collaboration. It is better to go in for product with a proven
technology that is indigenously available.
4. Equipment: The entrepreneur should select the best equipment as per advice of experienced
technical consultants. He should not compromise on the quality of the equipment.
5. Marketing: it is not advisable to get into a project particularly the first, which would mean
survival amidst cut – throat competition involving direct selling to the ultimate consumer.
One should to in for products with a limited number say 10 to 20 of industrial customers.

One major aspect while choosing a project idea should be a ascertain the extent of the
marketability of the product proposed to be manufactured, its general use, industries which
use it, its end – use and its buyers. You should therefore study the demand and supply of the
product over the last few years to estimate its future demand based on the past trend. While
doing so, the anticipated changes in fashions, technology and levels of income of the people.
If the product proposed to be manufactured has a market throughout the country the study
should take into account the demand and supply of the product for the whole country.
 PROJECT FEASIBILITY ANALYSIS/REPORT

A project feasibility analysis includes market analysis, technical analysis, financial

analysis and social profitability analysis.
The starting point of a project analysis is the establishment of objectives to be attained. The
next stage is the pre – selection stage – the advisability of having an in depth study. The
analysis stage consists mainly of three factors – market, technical and financial analysis. A
market analysis is a method of screening project ideas as well as means of evaluating a
project’s feasibility in terms of the market. A market analysis should cover the following
areas:

1. A brief market description including the market are, methods of transportation, existing
rates of transport, channels of distribution and general trade practices.
2. An analysis of past and present demand, determination of quantity value of consumption
and identification of the major consumers of the product.
3. An analysis of past and present supply, broken down as source (whether imported or
domestic) as well as information to assist in determining the competitive position of the
product such as selling process quality and marketing practices of competitors.

The technical analysis of a project feasibility study establishes whether project is technically
feasible or not, and whether if offers basis for the estimation of costs. Moreover it provides an
opportunity for a consideration of the effect of various technical alternatives on employment,
ecology, infrastructure demands, capital services, support of other industries, balance of
payments and other factors. A technical analysis should review the techniques or processes
to be applied and should incorporate.
1. A description of the product including specification relating to its physical, mechanical and
chemical properties, as well as the uses of the product.
2. A description of the selected manufacturing process, showing detailed flow charts and
presenting alternative processes which may have been considered and the justification for the
adoption of the selected process.
3. A determination of the plant size and production schedule which includes the expected
volume for a given time period on the basis of start up and technical factors.
4. Selection of machinery and equipment including specifications, equipment to be purchased
and its origin, quotations from suppliers, delivery dates, terms of payment and a comparative
analysis of alternatives in terms of cost reliability performance and spare parts availability.
5. An identification of plant’s location and as assessment of its desirability in terms of its
distance from raw material sources and markets. For a new project this part may include a
comparative study of different sites, indicating the advantages and disadvantages of each.
6. A design of the plant layout and an estimate of the cost of the erection of the proposed
buildings and land improvements.
7. A study of the availability of raw materials and utilizes including a description of physical
and chemical properties, quantities needed, current and prospective costs, terms of payment,
location of sources of supply and continuity of supply.
8. An estimate of labour requirements, including a detailed break – down of direct and indirect
labour requirements and the supervision required for the manufacture of the product.
9. A determination of the type and quantity of waste to be disposed of together with a
description of the waste disposal method, its costs and the necessary clearance from proper
authorities.
10. An estimate of the production cost of the product.

In the financial analysis of this feasibility study, the emphasis is on the preparation of
financial statements, so that the project may be evaluated in terms of the different measures
of commercial profitability followed by the magnitude of financing which requires the
assembly of the market and also technical cost estimated in various proforma statements. If it
is necessary to have more information on which to base an investment decision a sensitivity
analysis or possibly a risk analysis may be conducted.

This financial analysis should include:

1. For projects that involve new companies, statements of total project cost, for initial capital
requirements and cash flows relative to the project schedule. For all projects financial
projections for future time periods including income statements, cash flows and balance
sheets.
2. For all projects supporting schedules for financial projection, stating the assumption made
as to the collection period of sales, inventory levels, payment period of purchases and
expenses and the element of production cost, selling, administrative and financial expenses.
3. For all projects a financial analysis showing returns on investments returns on equity , break
even volume and price analysis.
4. For all projects, if necessary a sensitivity analysis to identify which have a substantial
impact on profitability or possibly a risk analysis.

For the small entrepreneur, the studies conducted during the analysis stage of the project
provide the material for an assessment. If positive results are obtained, the entrepreneur in
seeking finance, will want to prepare an investment proposal. The planners or government
officials, however having obtained positive conclusions from the economic feasibility study
will want to evaluate the element of social profitability.
The purpose of the investment or loan application is to convince a lender ( financial
institution) that the project is a desirable investment; that it not only possesses the potential
for profit but that the proposed management team has the capability to achieve the potential.
The investment proposal normally contains:
1. General information on the product, company history, the nature of the industry and the
reputation and qualifications of the existing or proposed management.
2. A description of the project, which usually consists of extracts from economic feasibility
selected manufacturing methods ( with detailed indication of the cost of equipment and
operational expenses) and a financial statement.
3. Miscellaneous information such as the steps taken for the implementation of the project and
the qualifications of the technical partners envisaged or selected.

PROJECT FORMULATION
Project formulation is defined as taking a first a look carefully and critically at a project idea
by an entrepreneur to build up an all round beneficial to project after carefully weighing its
various components. It is formulated by the entrepreneur with the assistance of specialists or
consultants. The aim of project formulation is to achieve the project objectives with the
minimum expenditure and adequate resources. In other words it is to derive maximum
benefits from minimum expenses in a short span of time.
Sequential stages of project formulation:
 The process of project development has been categorized into seven distinct and sequential
stages. They are:
1. Feasibility analysis: This is the very first stage in project formulation. At this stage the
project idea is examined from the point of view of whether to go in for a detailed investment
proposal or not. As project for a detailed investment proposal or not. As project idea is
examined in the context of internal and external constraints three alternatives could be
considered. First the project idea seems to be feasible, second the project idea is not a feasible
one and third, unable to arrive at a conclusion for want of adequate data. If it is feasible we
proceed to the second step if not feasible we abandon the idea and if sufficient data are not
available, we make more efforts to collect the required data and design development.
2. Techno – economic analysis: In this step estimation of project demand potential and choice
of optimal technology is made.
3. Project Design and Network analysis: This important step defines individual activities
which constitute the project and their inter – relationship with each other. The sequence of
events of the project is presented. A detailed work plan of the project is prepared with time
allocation for each activity and presented in a network drawing. Project design is the heart of
the project entity. This paves the way for detailed identification and qualification of the
project inputs, an essential step in the development of the financial and cost – benefit profile
of the project.
4. Input analysis: The step process the input requirements during the construction of the
project and also during the operation of the project. In the earlier step a project was divided
into several activities. Now it is better to see the inputs required for each activity and sum it
up to get the total input requirements on qualitative and quantitative terms. Inputs include
materials, human resources.
5. Financial analysis: This stage mainly involves estimating the project costs, estimating its
operating costs and fund requirements. Financial analysis also help in comparing various
project proposals on a common scale, thereby aiding the decision maker. Some of the
analytical tools used in financial analysis are discounted cash flow, cost – volume – profit
relationship and ratio analysis.
6. Social cost benefit analysis: When we talk of cost benefit analysis we not only take in to
account the apparent direct costs and direct benefits of the project but also the costs which all
entities connected with the project have to bear and the benefits which will be enjoyed by all
such entities.
7. Pre – investment analysis: The project proposal gets a formal and final shape at this stage.
All the results obtained in the above steps are consolidated and various conclusions arrived at
to present a clear picture. At his stage, the project is presented in such a way that the project –
sponsoring body, the project – implementing body and the external consulting agencies are
able to decide whether to accept the proposal or not.

AN INDUSTRIAL ESTATE is a place where the required facilities and

factory accommodation are provided by the government to the entrepreneurs to establish their
industries there. In India, industrial estates have been utilised as an effective tool for the
promotion and growth of small-scale industries. They have also been used as an effective tool
to decentralise 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.

“An industrial estate is a group of factories, constructed on an economic scale in suitable sites
with facilities of water, transport, electricity, steam, bank, post office, canteen, watch and
ward and first-aid, and provided with special arrangements for technical guidance and
common service facilities”
Types of Industrial Estates:

I. On The Basis of Functions:

On the basis of functions, industrial estates are broadly classified into two types:
(i) General type industrial estates, and (ii) Special type industrial estates.

General Type Industrial Estate:

These are also called as conventional or composite industrial estates. These provide
accommodation to a wide variety and range of industrial concerns.

The Indian Industrial estates are mainly of this type:

II. Special Type Industrial Estate:
This type of industrial estates is constructed for specific industrial units, which are vertically
or horizontally independent.

On the basis of Organizational set-up:

On this basis, industrial estates are classified into following four types:
1. Government Industrial Estates,

2. Private Industrial Estates,

3. Co-operative Industrial Estates.

4. Municipal Industrial Estates

III. On the Basis of the Other Variants:
On the basis of other variants, industrial estates are classified into following three types:
(a) Ancillary Industrial Estates:
In such industrial estates, only those small- scale units are housed which are ancillary to a
particular large industry. Examples of such units are like one attached to the HMT,
Bangalore.

(b) Functional Industrial Estates:

Industrial units manufacturing the same product are usually housed in these industrial estates.
These Industrial estates also serve as a base for expansion of small units into large units.

(c) The Workshop -bay:

Such types of industrial estates are constructed mainly for very small firms engaged in repair
work.

The main objectives of the establishment of industrial estates are to:

1. Provide infrastructure and accommodation facilities to the entrepreneurs;
2. Encourage the development of small-scale industries in the country;
3. Decentralise 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.
Karnataka Industrial Areas Development Board (KIADB) is a wholly
ownedinfrastructure agency of Government of Karnataka, set up under Karnataka Industrial
AreasDevelopment Act of 1966.This Board functions as per statutory provisions, rules and
regulations enacted there under. TheBoard comprises of senior government officers in their
ex-officio capacities. The Board of members meet regularly to take decisions and monitor the
functions. KIADB holds pride in being the first government organisation in Karnataka to
obtain ISO 9001 certification in the year 1997.
Aims and Objectives :
1. Promote rapid and orderly development of industries in the state.
2. Assist in implementation of policies of government within the purview of KIAD Act.
3. Facilitate for establishing infrastructure projects.
4. Function on corporate lines, with No Profit No Loss policy.
Functions :
 Acquire land and form industrial areas.
 Provide all infrastructure to such industrial areas.
 Acquire land for Single Unit Complexes.
 Acquire land for Government agencies for their schemes and infrastructure projects
KIADB has also acquired lands to cater the specific needs of individual industrial units
(SingleUnit Complexes). The Board also acquires land for infrastructure projects of the
Government.We promote projects of public importance in joint venture with organizations of
internationalrepute . The vision of KIADB and world class infrastructure has made investors
all over the world take notice of Karnataka as the premier destination for their startups and
ventures . Till date, KIADB has formed 95 industrial areas spread all over the State, and
acquired land for nearly 290 Single Unit Complexes ensuring balanced industrial
development in all regions withwell thought of infrastructures and unique features.
Infrastructures in Industrial Area Few prominent industrial areas:
Peenya, Electronic City, Export Promotion Industrial Park (EPIP) in Bangalore.
Hebbal in Mysore.
Baikampady in Mangalore.
Tarihal in Dharwar.
Kakati in Belgaum.
Auto Complex in Shimoga.

World's leading Companies have rose up in glory on the infrastructure set by KIADB. This
apart,KIADB has envisaged several innovative projects up its sleeve like Agro -Tech Parks,
ApparelPark, Auto Parks, Hardware Park, Bio-Tech Park, EPIPs, Special Economic Zones
etc

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

1. Raw materials
2. Credit facilities
3. Marketing assistance

vii. Cottage industries

Objectives of District Industries Centre (DIC):

1. Accelerate the overall efforts for industrialization of the district.

2. Rural industrialization and development of rural industries and handicrafts.
3. . Attainment of economic equality in various regions of the district.
4. Providing the benefit of the government schemes to the new entrepreneurs.
 5. Centralization of procedures required to start a new industrial unit and minimization-
of the efforts and time required to obtain various permissions, licenses, registrations,
subsidies etc.

Functions of District Industries Centre (DIC):

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

2. Prepares the industrial profile of the district with respect to
3. Statistics and information about existing industrial units in the district in the large,
Medium, small as well as co-operative sectors.
4. Opportunity guidance to entrepreneurs.
5. Compilation of information about local sources of raw materials and their availability.
6. Manpower assessment with respect to skilled, semi-skilled workers.
7. Assessment of availability of infrastructure facilities like quality testing, research and
development, transport, prototype development, warehouse etc.
8. Organizes entrepreneurship development training programs.
9. Provides information about various government schemes, subsidies, grants and
assistance available from the other corporations set up for promotion of industries.
10. Gives SSI registration.
11. Prepares techno-economic feasibility report.
12. Advices the entrepreneurs on investments.
13. Acts as a link between the entrepreneurs and the lead bank of the district.
14. Implements government sponsored schemes for educated unemployed people like
PMRY scheme, etc.
15. Helps entrepreneurs in obtaining licenses from the Electricity Board, Water Supply
Board, No Objection Certificates etc.
16. Assist the entrepreneur to procure imported machinery and raw materials.
17. Organizes marketing outlets in liaison with other government agencies.

PROCEDURE FOR REGISTRATION

Features of the present procedures are as follows:

1. A unit can apply for PRC for any item that does not require industrial license which
means items listed in Schedule-III and items not listed in Schedule-I or Schedule-II of
the licencing Exemption Notification. Units employing less than 50/100 workers
with/without power can apply for registration even for those items included in
Schedule-II.
2. Unit applies for PRC in prescribed application form. No field enquiry is done and
PRC is issued.
3. PRC is valid for five years. If the entrepreneur is unable to set up the unit in this
period, he can apply afresh at the end of five years period.
4. Once the unit commences production, it has to apply for permanent registration on the
prescribed form.

The following form basis of evaluation:

1. The unit has obtained all necessary clearances whether statutory or administrative.
e.g. drug license under drug control order, NOC from Pollution Control Board, if
required etc.
 2. Unit does not violate any locational restrictions in force, at the time of evaluation.
3. Value of plant and machinery is within prescribed limits.
4. Unit is not owned, controlled or subsidiary of any other industrial undertaking as per
notification.

A Feasibility Study Report (FSR) is a formally documented output of feasibility study that
summarizes results of the analysis and evaluations conducted to review the proposed solution
and investigate project alternatives for the purpose of identifying if the project is really
feasible, cost-effective and profitable. It describes and supports the most feasible solution
applicable to the project.

The report gives a brief description of the project and some background information.
Formally this document is the starting point for running the Pre-Charter Sub-Phase. In
practice, it signifies that the sponsor can proceed with deciding on project investment and
make necessary assignments to the project manager.

FSR Importance

The process to write the report is called feasibility study reporting. Often it is a responsibility
of the project manager to control such a process. The importance of writing the report
consists in providing legal and technical evidence of the project’s vitality, sustainability and
cost-effectiveness. The reporting process allows the senior management to get the necessary
information required for making key decisions on budgeting and investment planning. A
well-written feasibility study report template lets develop solutions for:

 Project Analysis because an example of FSR helps link project efficiency to budgeted
costs.
 Risk Mitigation because it helps with contingency planning and risk treatment
strategy development.
 Staff Training because the report can be used by senior management to identify
staffing needs as well as acquire and train necessary specialists.

The process of reporting is the trigger to run the project investing process through
underpinning the business case document, stating the reasons for undertaking the project, and
analyzing project costs and benefits.

STEPS IN FSR

Write Project Description

At this step, you need to collect background information on your project to write the
description. For example, your company needs to increase online sales and promote your
products/services on the Web. Then in the first part of your report you could write the next
description:

“This project is website development to promote the products/services in Internet and

increase online sales through encouraging customers to visit the website and make
online bargains.”
Describe Possible Solutions

In order to take this step to write a feasibility study report template, you’ll need to perform an
alternatives analysis and make a description of possible solutions for your project. For
example, in your FSR template your e-commence project might have the following solutions
description:

“This project can be undertaken by the implementation of the two possible solutions: 1)
Online Shop; 2) Corporate Website. Each of the solutions is carefully analyzed, and
necessary information required for making the final decision is available for the management
team.”

List Evaluation Criteria

Now it’s time to set and define evaluation criteria for possible solutions. This step of
feasibility study report writing requires you to investigate the solutions and put them against a
set of evaluation criteria. For example, you could add the following criteria to your report:

“The possible solutions of this project are evaluated and compared by the following criteria:
1) Concept Spec.; 2) Content Audit; 3) Technical Design Spec.; 4) Launch Schedule & Time-
frames.”

Propose the Most Feasible Solution

Once the criteria are used to evaluate the solutions, your next step for writing a feasibility
study report is to determine the most economically reasonable and technically feasible
solution which lets the company 1) keep to optimal use of project resources and 2) gain the
best possible benefit. For example, your report might include:

“After the evaluation of the possible solutions, the most feasible solution for this project is
identified and selected, so the project turns to be cost-effective, vital and practical.”

Write Conclusion

The final step of the feasibility study reporting process requires you to make a conclusion by
summarizing the project’s aim and stating the most feasible solution. For example, the
conclusion of your FSR might be:

“This project’s purpose is to develop a sophisticated and original design of the website that
will contribute to online sales increasing, attract the target customer’s attention, and be cost-
effective. The most feasible solution for the project has been chosen and approved and now is
ready for further elaboration.”
Unit-III: Management Functions in Small and Medium Enterprises –Finance function:
Capital Estimation, Sources of finance - Subsides and Incentives, Venture Capital -
Marketing and Human Resource Management functions.

Future Prospects of HRM in SMEs

Until recent past, it was only the big firms investing in HRM but with time even the SMEs
are considering HR functions seriously. The need for organized HR practices is well rea lized
by most SMEs today and they are even ready to implement HRM into their organizations.
But the proble m they face relates to shortage of funds and expertise required to implement
HRM. The solution can take any of the two forms: either outsource the HRM function for a
short span till required expertise is gained, or to manage from the available resources for
implementing HRM. If HRM is outsourced, though it requires investment in money, the
entrepreneurs get enough time to concentrate on strategic issues rather looking after routine
HR systems. But if the firm cannot adopt this option, the SMEs can do the following:
i. Recognize the right talent for the organization; may not be the best but which suits the
needs of the job and organization.
ii. Follow employee engagement practices so that employee retention improves.
iii. Re-emplo yment of retired employees who are ready to join at low salary.
iv. Developing a culture of accepting challenges and offering career growth in the
organization.
v. Minimize the hierarchy so that emp loyees feel a part of the organization.
vi. Design practices like flexible working hours and work from home to facilitate work-life
balance.

SOURCES OF FINANCING FOR MSMES:

The MSMEs in India largely depend on self-finance. As per the fourth census of MSME
sector 87.23% of all enterprises were found in the category of taking “self-finance/No
finance”. This high percentage of units depending on “self-finance/No finance” can be a
result of high proportions of units falling in “Micro enterprises” category. Micro enterprises
comprise 94.94% of all the MSME units in India, whereas the share of small enterprises is
4.89% and that of medium enterprises is only 0.17%.
Financing of MSMEs
MSMEs require timely and adequate capital infusion through term loans and working capital
loans, particularly during the early and growth stages. Historically the MSMEs have relied on
following sources for financing their needs:
• Retained earnings, funding through sale of assets
• Ancestral capital, personal savings, loans from relatives, loans from unregulated market
• Institutional financing from scheduled commercial banks
• Venture capital funds/ seed funds

Among the formal financial institutions, commercial banks constitute the largest source of
financial assistance for the MSME sector at about 87% as of 31st March 2011. The
outstanding MSE credit by SCBs recorded a strong growth of 34% in FY 2011 on a strong
base of 3,62,291 crore INR as of 31st March 2010. The traditional and emerging options for
financing MSMEs in the eastern states of West Bengal, Bihar, Odisha, Jharkhand and
Chhattisgarh.
GOVERNMENT ASSISTANCE :
a. Technical assistance: The Technical assistance and guidance are provided by various
organisations such as NSIC, through TTC, SIDO, through Small Industries Service Institutes
and Extension Centres. These institutes are manned by experts in different fields/
trades/industries. These experts visit these industries, study their problems on the spot and
give technical assistance and guidance.
b. Assistance for obtaining raw materials: Every registered small unit, on obtaining the
registration certificate is required to submit all the requirements to the Directorate of
Industries (DoI) for procuring essential raw materials. Many organizations are also lending a
helping hand in this regard such as NSIC and others
c. Cash Assistance: Government provides cash assistance under the self employment scheme
to the rural youth (entrepreneurs). Similarly, it is also made available to scheduled
castes/tribes and women entrepreneurs.
d. Supply of plant and machinery on hire-purchase basis: There are organizations like
National Small Industries Corporation (NSIC) or State level Small Industries Corporations
who give financial assistance to purchase plant and machinery to the entrepreneurs on their
own or on hire-purchase basis. They also provide 100% finance to facilitate SSIs in
diversification and technology upgradation. Entrepreneurs can also avail tax rebate on full
year rentals.
e. Marketing Assistance: This assistance is very important for a small scale unit. For
availing this, the units have to be registered with the NSIC under the single point registration
scheme. The objectives of this programme are to ensure fair margin to producers of goods, to
maintain standardization and quality control with testing facilities, to market products under
the common brand name, to provide publicity to SSI products etc.
f. Assistance to small entrepreneurs: The NSIC has developed five financial centres at New
Delhi, Mumbai, Ahmedabad, Bangalore and Goa to provide finance to small entrepreneurs
for activities related to marketing, bills discounting, raw materials, purchases and exports. To
train and equip the entrepreneurs, the government has developed various training institutes in
the field of entrepreneurial activities/entrepreneurship. The NISIET (Hyderabad), NIESBUD
(New Delhi), Integrated Training Centres (Nilokheri) are the main training institutes which
function under the administrative control of SIDO.
g. Rural Industrial Project Assistance: The Rural Industrial programme (RIP) of SIDBI
provides a cohesive and integrated package of basic inputs like information, motivation,
training and credit, backed by appropriate technology and market linkages. For these
purposes, SIDBI has identified implementing agencies such as NGOs, development
professionals, and technical consultancy organizations (TCO), and these agencies are
assigned the task of developing RIP at a fee given by the bank.
GOVERNMENT INCENTIVES :
The following are the incentives available to the small units:
a. Subsidy relating to investment: Government has initiated a different scheme of
investment subsidy for the benefits of entrepreneurs so that they may be encouraged to
establish more and more SSI units. These schemes are capital investment subsidy, transport
subsidy, power generations subsidy, special investment scheme for women entrepreneurs,
provision for seed capital, subsidy for technical/feasibility study etc. SIDBI, besides being an
apex bank for the SSI sector, is also arranging equity type assistance, venture capital scheme
etc. to accelerate the pace of investment in small scale sector.
b. Export/Import subsidies and Bounties: 100% export-oriented units (EOUs) and units in
the export processing zones (EPZs) enjoy a package of incentives and facilities, which
include duty free imports of all types of capital goods, raw materials, and consumables in
addition to tax holidays against exports.
c. Subsidy relating to Research and Development: To encourage continuous research and
development activities in the small scale sector, government provides subsidy by keeping
aside certain amount of money toward research so that more encouragement is given to small
scale entrepreneurs.
d. Subsidy relating to taxes: The Central Government as well as the State Government is
trying to encourage entrepreneurs through tax subsidy schemes enabling them to accelerate
the pace of establishment of industrial units. These are exemption from estate duty, tax relief
to NRIs, rebate in income-tax, interest-free sales tax loan, sales tax subsidy, exemption from
sales tax etc.
e. Subsidy relating to resources: small industries are given a lot of subsidies relating to
resources such as purchase of testing tools, subsidy for industrial estates and parks, allotment
of land and buildings at concessional rates, supply of water at concessional rates,
arrangement of developed or constructed production sheds, arrangement of raw materials at
concessional / controlled rates etc.
f. Capital subsidy scheme for Technology Upgradation: This scheme facilitates
technology by induction of proven technologies in respect of specified products/sub-sectors.
This would apply to the introduction of the latest technology, improvement of productivity,
quality of production and environmental conditions and installation of improved techniques
as well as anti-pollution measures and energy conservation. However, for availing this
scheme, the entrepreneur has to fulfill certain conditions such as replacement of the existing
equipment/technology with a new one. The same equipment or technology would not qualify
for the scheme and it is also not applicable to units going for the upgradation with second-
hand machinery.

INFRASTRUCTURAL SUPPORT SCHEMES

The Industrial Estate Programme was launched in India following the recommendations
of the International planning team (Ford Foundation Team)11 to promote a rapid
development of small industries and to promote the decentralization and dispersal of
industries in rural, semi-urban and backward areas.
The Integrated Infrastructural Development Scheme (IID) is meant for augmenting
infrastructural facilities in the rural and backward areas with a special emphasis on the
linkages between the agriculture and industry. The criteria to be followed for the selection of
a site for IID centres are preceded by a comprehensive industrial potential survey, indicating
the potentialities for SSIs and tiny units.
The Small Industry cluster may be defined as a sectoral and geographical concentration of
enterprises. It may be a local agglomeration of enterprises, which produce and sell a range of
related and complementary products and services. These clusters enable the SSIs to derive
their strength through a unique state of togetherness. The economy of agglomeration ensures
a network of suppliers that provide raw materials, equipment, machinery, repairs, and other
services to units, which would otherwise have been difficult.
Industrial Growth Centre Scheme was launched in 1980 for the promotion of industries in
the backward areas. The main objective of this growth centre is to provide best possible
infrastructural facilities, to avail institutional finance etc for their overall development.12
Export Processing Zones (EPZs) are industrial areas which form enclaves from the
nation’s customs territory of a country. Normally, they are developed in the nearby area of
seaports or airports. These zones are under obligation to export the entire production of its
units. Each zone is provided with the basic infrastructural facilities at reduced rates and
includes other incentives provided by the State Government as well.
Integrated Industrial Parks (IIPs) may be defined as self-contained islands providing high
quality infrastructural facilities. They include the specialized industrial clusters both for the
domestic and the export market. These parks are an ideal vehicle for providing integrated
infrastructural facilities and are an essential requirement for industrialization in the
developing countries. They are usually targeted at small and medium scale industries with a
focus on high value-added output.
Venture Capital for MSMEs
Venture Capital is emerging as an important source of finance for small and medium-sized
firms, especially for starting the business and business expansion. An entrepreneur usually
starts the business with his own funds, and those borrowed from banks. It is during expansion
that they find it difficult to raise funds. SMEs have traditionally been dependent on Bank
finance for expansion and working capital requirements. However, in the recent past, bankers
have curtailed lending to SMEs due to the greater risk of non-performing assets (NPAs) in a
downturn. Thus, even though many SMEs have profitable projects and expansion plans, they
find it difficult to get finance for their projects, as bankers may not be willing to fund high
risk projects.

In order to provide financial support to such entrepreneurial talent and business skills, the
concept of venture capital emerged. Venture capital is a means of equity financing for
rapidly-growing private companies. Finance may be required for the start-up, expansion or
purchase of a company. Venture capitalists comprise of professionals in various fields. They
provide funds (known as Venture Capital Fund) to these firms after carefully scrutinizing the
projects. Their main aim is to earn higher returns on their investments, but their methods are
different from the traditional moneylenders. They take active part in the management of the
company as well as provide the expertise and qualities of a good bankers, technologists,
planners and managers.
VENTURE CAPITAL FOR MSMES IN INDIA
Traditionally, Venture Capitalists in India have shied from the MSME sector. The non-
corporate structure and small size of majority of MSMEs in India makes the Venture
Capitalists and Private Equity Players reluctant to investing in them due to higher transaction
costs and difficulties in exits out of such investments. However, the VC scenario in India is
rapidly changing. Alternative funding like VC is picking up in the India, including in the
MSME sector. Moreover, the VCs are expanding their reach into areas besides the traditional
VC sectors like Information Technology (IT); nowadays interest in sectors like clean energy,
healthcare, pharmaceuticals, retail, media, etc. is also growing.
In recent years, the government controlled financial institutions have initiated positive and
progressive measures to provide MSMEs access to funds at a reasonable and affordable costs
and without any usual hurdles. Venture capital funding institutions have been floated to
induct fund at low cost, share the risk and to provide management and technology
upgradation support to these enterprises. Government-funded schemes exist at both the
national and the state levels. They tend to be relatively small — they typically do not exceed
US$ 5 million.
The Small Industries Development Bank of India (SIDBI) is the main public financial
institution involved in VC funding operations. SIDBI operates through wholly owned
subsidiary, SIDBI Venture Capital Limited (SVCL). It co-finances state-level funds, and
sometimes co-invests with private sector VCs on a case-by-case basis.
Since 2006, some new VCs are also operating at the SME level, such as Helion Venture
Partners, Erasmic Venture Fund (Accel India Venture Fund), SeedFund, and Upstream
Ventures. While technology remains the most sought after investment fields, interest has been
shifting from internet companies to other types of operations—especially ICT enabled
services and bio-technology.
A few VCs also operate at the early-stage, including Erasmic Venture Fund, Seed Fund,
Infinity Venture, IFI sponsored facilities such as Swiss Tech VCF, and the government
schemes such as SIDBI VC and Gujarat VF. Early stage VCs seek smaller deals, typically in
the US$ 1 - 3 million range. However, they rarely go below the half million dollar mark,
where there is a strong appetite for financing, but very few opportunities. Possible sources of
smaller investments are represented by local public-sector facilities, business angels, business
incubators funds, and isolated cases of seed VCFs, such as the microventure schemes like
Aavishkaar India Micro Venture Capital Fund (AIMVCF).
Benefits of VC over other Funding Methods
Venture capital has a number of advantages over other forms of finance:
It injects long term equity finance which provides a solid capital base for future growth.
The venture capitalist is a business partner, sharing both the risks and rewards. Venture
capitalists are rewarded by business success and the capital gain.
The venture capitalist is able to provide practical advice and assistance to the company based
on past experience with other companies which were in similar situations.
The venture capitalist also has a network of contacts in many areas that can add value to the
company, such as in recruiting key personnel, providing contacts in international markets,
introductions to strategic partners, and if needed co-investments with other venture capital
firms when additional rounds of financing are required.
Venture Capital Funds in India
In India, venture capital funds (VCFs) can be categorized into the following groups:-
Promoted by the Central Government controlled development finance institutions, for
example:
 SIDBI Venture Capital Limited (SVCL)
 IFCI Venture Capital Funds Limited (IVCF)

Promoted by State Government controlled development finance institutions, for example:

 Gujarat Venture Finance Limited (GVFL)
 Kerala Venture Capital Fund Pvt Ltd.
 Punjab Infotech Venture Fund
 Hyderabad Information Technology Venture Enterprises Limited (HITVEL)

Promoted by public banks, for example:

 Canbank Venture Capital Fund
 SBI Capital Markets Limited
 To find more VCFs of Indian Banks, click here.

Promoted by private sector companies, for example:

 IL&FS Trust Company Limited
 Infinity Venture India Fund

Overseas venture capital fund, for example:

 Walden International Investment Group
 SEAF India Investment & Growth Fund
 BTS India Private Equity Fund Limited
Unit-IV: Sickness in Small and Medium enterprises - Causes of sickness, Prevention of
sickness, and Remedial measures for sickness.
DEFINITION OF SICKNESS
In common parlance, a sick industry is one which is not healthy. A healthy unit is one which
earns a reasonable return on capital employed and which builds up reserves after providing
reasonable depreciation.
Meaning:
One of the adverse trends observable in the corporate private sector of India is the growing
incidence of sickness. It is causing considerable concern to planners and policymakers. It is
also putting a severe strain on the economic system, particularly on the banks.
There are various crite-ria of sickness. According to the criteria accepted by the Reserve
Bank of India “a sick unit is one which has reported cash loss for the year of its operation and
in the judgment of the financing bank is likely to incur cash loss for the current year as also in
the following year.”
Signals and Symptoms Of Sickness
Sickness is a gradual process with distinct stages taking from 5 to 7 years to corrode the
health of a unit beyond cure. It starts with downturn in the industry whose continuation leads
to setting in of industrial sickness. The process of industrial sickness can be presented in the
following table.
PROCESS OF INDUSTRIAL SICKNESS

CAUSES AND CONSEQUENCES OF SICKNESS IN MSMES

The causes of sickness are basically related to the disorder in any one or more of the
functional systems within the unit, viz., Production, Finance, Marketing and Personnel. The
various causes of industrial sickness are classified into both internal and external. The
internal causes are concerned with choice of location under estimation of cost of capital,
overestimation of demand, mismanagement, and failure to introduce proper control
techniques and tools, poor maintenance of machinery and equipment and poor public
relations. External factors relate to the environment in which the industry works and over
which the industry has no control, for example , government policies regarding production,
prices, and distribution, inadequate supply of essential inputs like raw material ,power, and
transport etc., Sickens cannot be attributed to a single factor alone. In fact, it is the ultimate
result of the cumulative effect of many factors/causes working simultaneously which may be
closely inter-related or even independent of each other. In view of the origin of the causes of
industrial sickness, these are broadly classified into two categories:
1. External or Exogenous Causes, and
2. Internal or Endogenous Causes.
Internal Causes for Sickness
Internal causes are the factors which are within the control of management. This sickness
arises due to internal disorder in the areas as follow;
a. Lack of finance: This includes weak equity base, poor utilization of assets, inefficient
working capital management, absence of costing & pricing, absence of planning and
budgeting and inappropriate utilization or diversion of funds.
b. Bad production policies: The another very important reason for sickness is wrong
selection of site which is related to production, inappropriate Plant & Machinery, bad
maintenance of Plant & Machinery, lack of quality control & lack of standard research &
development .
c. Marketing and sickness: This is another part which always affects the health of any sector
as well as SSI. This including wrong demand forecasting, selection of inappropriate
production mix, absence of product planning, wrong market research method and bad sales
promotions.
d. Inappropriate personnel management: The another internal reason for the sickness is
inappropriate personnel management policies which include bad wages and salary
administration, bad labour relations, lack of behavioral approach causes dissatisfaction
among the employees and workers.
e. Ineffective corporate management: Another reason of sickness is ineffective or bad
corporate management which includes improper corporate planning, lack of integrity in top
management, lack of co-ordination and control etc.

External Causes of Sickness

The external causes are those which affect industrial group as a whole and on these the
industry has no direct control. Following are some external causes:
a. Personnel constraints: The first and most important reason for the sickness are non
availability of skilled labour or manpower, wages disparity in similar industry and general
labour invested in the area.
b. Marketing constraints: The second cause for the sickness is related to marketing. The
sickness arrives due to liberal licensing policies, restrain of purchase by bulk purchasers,
changes in global marketing scenario, excessive tax policies by government and market
recession.
c. Production constraints: This is another cause of sickness which comes under external
cause of sickness. This arises due to shortage of raw material, shortage of power, fuel and
high prices, import-export restrictions.
d. Finance constrains: The another external cause for sickness is credit restrains policy,
delay in disbursement of loan by government, unfavourable investments & fear of
nationalization.

REMEDIAL MEASURES TO OVERCOME SICKNESS

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
centres etc., infrastructural problems can be solved by improving the roadways, waterways,
establishing telecommunication systems.
4. Technology Up-gradation
Funds may be provided by the financial institutions for adoption of advanced technology.
Similarly, some sort of training may be provided for use of the latest technology to overcome
technological problems. Technological up-gradation can help to overcome technological
obsolescence.

5. Marketing assistance
Marketing assistance may be provided to entrepreneurs for marketing the goods produced by
them. Government must help to market the goods. Government and Non Government
Organizations (N.G.Os) can come forward for marketing the goods produced by the SSI
sector. The problem of poor marketing of the products can be solved by coordinated efforts of
entrepreneurs and promotional agencies.
6. Liquidation
It is better to wind up the business when there is no possibility to revive the unit.
7. Government Interventions
Interventions must be made by the government to prevent sickness. Periodic review of
financial statements can help to identify and prevent sickness at initial stage.
8. Training
A proper environment must be created where an entrepreneur will be educated and will have
a proper knowledge, skill and experience about internal and external environment of business
to compete with large-scale industries and multinational companies.
9. Rehabilitation
Potentially viable sick units should be dealt well for the purpose of rehabilitation.
Rehabilitation is a remedy considered for industrial units, which have already become sick
and for the units that are on the verge of collapse.
Under the provisions of SICA, 1985, the Government of India has established Board for
Industrial and Financial Reconstruction (BIFR) in January 1987 for determining the
preventive, ameliorative, remedial and other measures which are required to be taken in
respect of sick industrial company and for expeditious enforcement of rehabilitation schemes.
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
4. 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 lakh 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.
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.
Unit-V Ancillary Industries, Rural Industries and Artisans. Role of SIDO, SSIDC, SISI,
DIC. Prospects for small-scale industries.

Ancillary Industries:

These are industrial undertakings having fixed investment in plant and machinery not
exceeding Rs. 1 crore engaged in or proposed to engage in,

(a) The manufacture of parts, components, sub-assemblies, tooling or intermediaries, or

(b) The rendering of services supplying 30 percent of their production or services as the case
may be, to other units for production of other articles.

Ancillary industries are those which manufacture parts and components to be used by larger
industries. Eg- Companies like GE (ancillary) produce engines for the aircraft industry. The
programme of ancillarisation includes motivation of public and private sector units to offload
production of components, parts, sub-assemblies, tools, intermediates, services etc., to
ancillary units. The programme of ancillary development has specific advantages both for
large as well as small industries and also for the total economy of the country. The large scale
units have the advantages in the form of savings in investments, inventories, employment of
labour, etc. and getting the items of the desired specifications, while the small scale units
have the advantage of getting assured market for their products, availability of technical
assistance and improved technology from the parent units.

Small Industry Development Organisation (SIDO) is a nodal agency of the Central

Government and Ancillary Division at Headquarters continued its function for the promotion
of ancillarisation programme in the country. Constant liaison has been maintained with
Administrative Ministries both at Central & State Levels, Department of Public enterprises,
public/private sector undertakings and other industrial developmental agencies through
various programmed such as Vendor Development Programmes, Buyer- Sellers Meet,
Ancillary Exhibition, Seminars, Workshops, State Level Ancillary Advisory Meetings, Plant
Level Committee Meetings and PSUs and visit to public/private sector undertakings for the
promotion of small ancillary & sub-contracting units. Sub-contracting exchanges are
functioning as a part of major SISIs in the country at important cities for the promotion of
fruitful and lasting contracts between large & medium undertakings and small scale ancillary
units. The spare capacity for different facilities as available with the competent small scale
units are registered with these SCXs. These SCXs also obtain such items from large units
which are required by them and can be manufactured in the small scale sector. These SCXs
organise contacts between Buyers & Sellers by way of organising Vendor Development
Programmes, Buyers & Sellers Meet and Exhibition, etc.
VILLAGE INDUSTRIES/RURAL INDUSTRIES

1. Village industries have a central place in rural development programmes. Diminishing

opportunities for gainful employment account to some extent for the reduction in the standard
of life of. some sections of the rural population. Products of large-scale industries have
increasingly limited the market for several classes of artisans. Their occupations now give
them only partial employment, so that they tend to join the ranks of agricultural workers.
Development outside the rural sector has not been rapid enough to arrest the increasing
pressure of population on the land. The development of village industries should, therefore,
be as much a matter of State action as the increase of agricultural production. Indeed, one
cannot be separated from the other, for, increase in agricultural production presupposes fuller
utilisation of the available manpower and release of surplus workers for other occupations.
Village industries, therefore, call for programmes which will develop a great deal of lofcal
initiative and co-operation, and an economic environment in which they have a reasonable
chance of succeeding. If the measures to be undertaken are to be effective in dealing with so
difficult a problem, it is essential that they should be commensurate with its size and
importance.

2. Village industries are concerned, in the main, with the processing of local raw materials for
local markets and with simple techniques. The scope for such industries depends, in part, on
their relation to the corresponding large-scale industry, in part, on the development of
agriculture and the growth of rural amenities. As agriculture becomes more intensive, there
will be greater demand for certain articles of consumption and tools and implements which
could be met by village industries. Amenities in rural life such as supply of pure drinking
water, street lighting, sanitation, hospitals, recreation grounds, community centres and roads
increase the field for village industries. The possibility of turning waste i nto wealth, for
instance, production of gas from cow dung and other refuse of the village through gas plants
in so far as the operations prove economic, production of bone manure through bone
digesters, soap making out of non-edible oils, etc., will further provide scope for the
development of village industries.

3. We may refer here also to rural arts and crafts which have both social and economic
signifi-ance. Village printing, embroidery and pottery and the crafts of tribal people, for
instance, have not only a long tradition but have also been essential-elements in the organic
unity and culture of the villages. In any programme for the revival of village industries, these
crafts which have suffered much from the economic development of the past few decades,
will deserve special attention.

4. If village industries are to be developed, it is necessary to deal with the deficiencies which
have led to their decline. These relate to (i) Organisation, (2) State policy, (3) Finance, (4)
Raw materials, (5) Research, (6) Technical guidance, (7) Supply of equipment, and (8)
Marketing.
Village Industry Programmes

Below the programmes which have been drawn up by the Planning Commission in
consultation with a number of experts, for the following village industries :

(i) village oil industry (6) leather industry

(2) soap-making with neem oil (7) woollen blankets
(3) paddy husking (8) high-grade hand-made paper
(4) palm gur industry (9) bee-keeping, and
(5) gur and khandsari (10) cottage match industry.
Govt launched schemes to promote work of RURAL ARTISANS
To generate rural employment and to promote the entrepreneurs in the rural areas of the
country, Ministry of MSME is implementing schemes through Khadi and Village Industries
Commission (KVIC) and Coir Board.

Prime Minister's Employment Generation Programme (PMEGP) is a credit linked subsidy

scheme, for setting up of new micro-enterprises and to generate employment opportunities in
rural as well as urban areas of the country through KVIC, State Khadi & Village Industries
Board (KVIB) and District Industries Centre (DIC).

General category beneficiaries can avail of margin money subsidy of 25% of the project cost
in rural areas and 15% in urban areas.

Scheme of Fund for Regeneration of Traditional Industries (SFURTI) was launched in 2005-
06 for making Traditional Industries more productive and competitive by organizing the
Traditional Industries and artisans into clusters.

A Scheme for Promoting Innovation, Rural Industry and Entrepreneurship (ASPIRE) was
launched on 18.3.2015 to promote Innovation & Rural Entrepreneurship through rural
Livelihood Business Incubator (LBI), Technology Business Incubator (TBI) and Fund of
Funds for start-up creation.
Market Promotion Development Assistance (MPDA) scheme of KVIC has been modified as
MPDA scheme formulated as a unified scheme by merging different schemes/ sub-
schemes/components of different Heads implemented in the 11th Plan, namely, Market
Development Assistance, Publicity, Marketing and Market Promotion.

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 Centres, 3 Product-cum -Process
Development Centres, and 4 Production Centres.

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.

State Small Industries Development Corporation (SSIDC)

The State Small Industries Corporation (SSIDC) were set up in various States under the
Companies Act,1956, as State Government Undertakings to cater to the primary
developmental needs of the small, tiny and village industries in the State/ Union Territories
under their jurisdiction. The important functions of the SSIDC includes—

i) To procure and distribute scarce raw materials.

ii) To supply machinery on Hire Purchase System.
iii) To provide assistance for marketing of the products of small scale industries.
iv) To construct industrial estates/ sheds/ providing allied infrastructure facilities
and their maintenance.
v) To extend seed capital assistance on behalf of the State Government concerned.
vi) To provide management assistance to production units.
MSME (Micro Small & Medium Enterprises) Development Institutes (Old
Name- SMALL INDUSTRIES SERVICE INSTITUTE (SISI))

The Micro Small and Medium Enterprises (MSME) Institutes are set up to provide
consultancy and training to both existing and prospective small entrepreneurs. The activities
of MSMEs are coordinated by the Industrial Management Training Division of the DCSSIs
office. There are 28 MSMEs and 30 Branch MSMEs set up in the State Capital and other
places all over the country.

The main functions of MSMEs are- to serve as interface between Central and State
Governments, to render technical support services, to conduct Entrepreneurship Development
Programmes and to initiate promotional programmes.

Besides, the MSMEs also render assistance in regard to - economic consultancy, information,
EDP consultancy, trade and market informations, project profiles, state industrial potential
survey, district industrial potential surveys, modernization and inplant studies, workshop
facilities and training in various trade or activities.

In Assam, the MSME, Guwahati has been set up by the Government of India to supplement
the activities of the State Government for promotion or development of small scale industries.
The MSMEs network in the state of Assam, Meghalaya and Arunachal Pradesh is a part of
the national network under the Small Industries Development Organisation (SIDO) - which is
an apex body administered by the Ministry of Industry. The Institute provides assistance and
renders various Extension services for the growth and development of small-scale ventures in
the state of Assam, Meghalaya and Arunachal Pradesh.

District Industries Centre (DIC)

The District Industries Centre (DIC) programme was started on May, 1978 with a view to
provide integrated administrative framework at the district level for the promotion of small-
scale industries in rural areas. But now it is renamed as District Industries and Commerce
Centre (DICC) .Services and support to small entrepreneurs are provided under a single roof
through the DIC. DIC is the implementing arm of the Central and State Governments of the
various schemes and programmes, specially meant for employment generation. Besides,
registration of small scale industries is also done at the district industries centres. The DIC
help the small entrepreneurs in the following respects -

i) Identification of suitable Schemes.

ii) Preparation of feasibility reports.
iii) Arrangements for supply of machinery and equipments.
iv) Provision of raw materials, credit facilities and inputs.
v) Marketing of the products.

DIC is headed by a General Manager. He is assisted by a team of specialists in economic

investigation, machinery and equipment, research extension and training, raw materials,
credit facilities, marketing and cottage industries. Moreover, the Credit Specialists or the
Credit Manager has been deputed by the Bank to the District Industries Centre. These
specialists provide the necessary guidance, assistance and support required by the
entrepreneurs in procuring credit at the right time on right terms from right Institutions. DIC
makes appraisal of the credit proposals of the small entrepreneurs and the sponsor them to the
credit institutions with the recommendations of the Credit Manager. Of course, the credit
managers do not have the power to sanction loans. However, they considerably facilitate and
speed up the process of providing credit to the small entrepreneurs because of their expertise
in their respective area.