Foundation Course

2017-2018

Entrepreneurship
 Editors
Prof. V. Chandra Sekhara Rao
&
Prof. Noor Basha Abdul
Dept. of Commerce & Business Administration
Acharya Nagarjuna University

Lesson Writers :

1. Prof. V. Chandra Sekhara Rao, Department of Commerce & Business

Administration, ANU
2. Prof. Noor Basha Abdul, Department of Commerce & Business
Administration, ANU
3. Dr Kadapa Lalitha
4. Dr. Jyothi Guntaka, Department of Travel and Tourism, ANU
5. G. David Raju, Department of MBA (Hospital Administration), ANU

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 PREFACE

Studying Entrepreneurship is more exciting. Across the world, young entrepreneurial

firms are creating new products and services that make our lives easier, enhance our
productivity at work, improve our health and entertain us in new ways. Some of the most
passionate and inspiring people you’ll ever meet are entrepreneurs. This is why successful firms
have started, literally in garages. It is typically the passion that an entrepreneur has about his or
her business idea, rather than fancy offices or other material things, that is the number one
predictor of a new ventures success. Conversely a lack of passion often leads to entrepreneurial
failure.

Those who want to start their own business must keep in mind the results of the research
studies which reveal that in the United States alone roughly 20 % of the new firms fail in the
first year while another 20% fail in the second year of their existence. These failure rates show
that while many people are motivated to start new firms, motivation alone is not enough; it must
be coupled with good information , a solid business idea, an effective business plan and sound
execution to maximize chances of success. In this book we tried to cover all these essentials of
entrepreneurial process..

The purpose of this book is to make the learner understand the essentials of
entrepreneurship and to create an awareness on the steps to be followed for successfully
launching and growing an entrepreneurial firm. Because of its importance , we place a special
emphasis on “Idea generation and Opportunity Assessment” in the second unit. It is significant
because history shows that many entrepreneurial firms struggle or fail not because the business
owners weren’t committed or didn’t work hard, but because the idea they were pushing to bring
to the market place wasn’t the required foundation for a successful business.

Plan of the Book : This book is divided into five units and presented in 16 lessons as shown
below:

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Unit – I : Understanding the essentials of entrepreneurship and choosing the required type
of business.

Unit II : Developing a successful business Idea and assessment of Opportunity

Unit III : Moving from Idea to preparation of Project report and Appraisal.

Unit IV: Knowing the Central and State level Institutional support for Small business units.

Unit V: Taking advantage of Government policy and Tax benefits to support Small Business.

Unique features of this book: At the beginning of each lesson success stories of well known
entrepreneurs are given which we hope will motivate young and enthusiastic entrepreneur to start
their own businesses.

This book also contains self-assessment questions consisting of short questions, essay questions
and model multiple choice questions for the benefit of the students.

The authors express their sincere thanks and gratitude to the authors of the material placed here.
This material is meant only for reading and reference of budding entrepreneurs.

Constructive and healthy suggestions for the improvement of this book will be gratefully
acknowledged.

Prof V. Chandra Sekhara Rao

Prof. Noor Basha Abdul

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 CONTENTS

Unit I: Essentials of Entrepreneurship

Lesson 1: Concept and Role of Entrepreneurship

Lesson 2: Forms of Business organizations

Unit II: Idea Generation and Opportunity Assessment

Lesson 3: Idea Generation and Sources of Idea

Lesson 4: Techniques of Idea Generation

Lesson 5: Opportunity Recognition

Unit III: Project Report and Appraisal

Lesson 6: Preparation of Project Report

Lesson 7: Appraisal Techniques of Project Report

Unit IV: Institutional Support for Small Business

Lesson 8: Central Level Institutions Supporting Small business –I : NABARD

Lesson 9: Central Level Institutions Supporting Small business –I I : SIDBI

Lesson 10: Central Level Institutions Supporting Small business –III : NSIC

Lesson 11: Central Level Institutions Supporting Small business –IV :KVIC & SIDO

Lesson 12: Central Level Institutions Supporting Small business –V : Others

Lesson 13: State Level Institutions Supporting Small Business

Unit V: Government Policy and Taxation Benefits

Lesson 14: Government policy for Small Business

Lesson 15: Policy Support for Women Entrepreneurs

Lesson 16: Tax and Non Tax Benefits for Small Business

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 LESSON 1: CONCEPT AND ROLE OF ENTREPRENEURSHIP

Objectives of the lesson:

After studying this lesson you should be ready to understand:

 The concept of entrepreneurship and its importance

 Discuss three main reasons for becoming entrepreneurs
 Identify four main characteristics of successful entrepreneurs
 Explain a five common myths regarding entrepreneurship
 Discuss the impact of entrepreneurial firm on society
 The importance of entrepreneurship in economic development.

Structure of the lesson:

1.0: Introduction
1.1: what is Entrepreneurship?
1.1.1: Economic Activity
1.1.2: Innovative Activity
1.2: who is an Entrepreneur?
1.2.1 Reasons for becoming entrepreneurs
1.3: Characteristics of Entrepreneur
1.4: Attributes of a successful Entrepreneur
1.4.1 Five common myths about Entrepreneurs
1.5: Entrepreneur Vs Manager
1.6: Entrepreneur Vs Intrapreneur
1.7: Classification of Entrepreneurs
1.7.1: Innovative Entrepreneurs
1.7.2: Adoptive or Imitating Entrepreneurs
1.7.3: Fabian Entrepreneurs
1.7.4: Drone Entrepreneurs
1.7.5: Other Types of Classification of Entrepreneurs
1.8: Role of Entrepreneurs in Economic Development
1.9: Summary
1.10 Case study of Rajendra
1.11: Self assessment Questions
1.12: Key words
1.13: Further Readings / Reference books

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 Exhibit - 1
Life Story of Dhirubhai Ambani
Dhirubhai Ambani was the most enterprising Indian entrepreneur.
His life journey is reminiscent of the rags to riches story. He is
remembered as the one who rewrote Indian corporate history and
built a truly global corporate group. Dhirubhai Hirachand Ambani, the founder of Reliance
Industries, came from a family of moderate means. He started his entrepreneurial career by
selling " pakora " to pilgrims in Mount Girnar over the weekends. When he was 16 years old, he
moved to Aden, Yemen. He worked with A. Besse & Co. for a salary of Rs.300. Two years later,
A. Besse & Co. became the distributors for Shell products, and Dhirubhai was promoted to
manage the company's filling station at the port of Aden. In 1962, he returned to India and
started the Reliance Commercial Corporation with a capital of Rs.15,000 . The primary business
of Reliance Commercial Corporation was to import polyester yarn and export spices. Ambani's
greatest achievement was that he showed Indians what was possible. With no Oxford or Yale
degree and no family capital, he achieved to build an ultramodern, profitable, global enterprise in
India itself. He created an equity cult in the Indian capital market. Reliance is the first Indian
company to feature in Forbes 500 list. Dhirubhai Ambani was named the Indian Entrepreneur of
the 20th Century by the Federation of Indian Chambers of Commerce and Industry (FICCI). A
poll conducted by The Times of India in 2000 voted him “greatest creator of wealth in the
century”.

1.0: Introduction
In this lesson you will study the concept of entrepreneurship and characteristic of
entrepreneur, besides the importance of entrepreneurship in economic development.
Generally speaking, entrepreneur refers to a person who establishes his own business or
industrial undertaking with a view to making profit. An entrepreneur is considered to be an
originator of a business venture. He takes the role of an organizer in the process of production.
The word ‘Entrepreneur’ is derived from the French word ‘Entreprendre’ meaning “to
undertake”. The word was originally used to describe people who “Take on the risk”, between
buyers and sellers or who “undertake” a task such as starting a new venture. Inventors and
entrepreneurs differ from each other. An inventor creates or invents something new. An
entrepreneur transforms the new invention into a commercially viable business proposition. An

6
entrepreneur assembles and integrates all the resources required – money, people and business
model, the strategy and the risk bearing ability – for converting the invention into a business.
In fact, in the 16th century, the Frenchmen who undertook military expeditions were referred to
as ‘Entrepreneurs.’ Later on, in the 18th century, this term got associated with persons who
started their own enterprises. Richard Cantillon, an Irish man living in France, was the first
economist who introduced the term ‘entrepreneur’ referring to the risk-taking function of
establishing a new venture.

1.1: what is Entrepreneurship?

Entrepreneurship is the process by which individuals pursue opportunities without regard
to resources they currently control. The essence of entrepreneurship is identifying opportunities
and putting useful ideas into practice. This requires creativity, drive and a willingness to take
risk. The founder of ebay, Pierre Omidyar, saw an opportunity to create a market place where
buyers and sellers could find each other online, he risked his career by quitting his job to work
on eBay fulltime, and he worked hard to build a profitable company that delivers a creative and
useful service to consumers.
Of the available perspectives, one definition captures the essence of entrepreneurship by
integrating its core elements. Entrepreneurship is “the process of creating value by bringing
together a unique combination of resources to exploit an opportunity” (Stevenson and Jarillo-
Mossi, 1986). This definition has four key elements. First, entrepreneurship involves a process.
This means, it is manageable, can be broken down into steps or stages, and is ongoing. Second,
entrepreneurs create value where there was none before, they create value within organizations
and they create value in the marketplace. Third, entrepreneurs put resources together in a unique
way. Unique combinations of money, people, procedures, technologies, materials, facilities,
packaging, distribution channels, and other resources represent the means by which
entrepreneurs create value and differentiate their efforts. Fourth, entrepreneurship is
opportunity- driven behavior. It is the pursuit of opportunity without regard to resources
currently controlled. The abilities to recognize new opportunities in the external environment,
evaluate and prioritize these opportunities, and then translate these opportunities into viable
business concepts which lies at the heart of the entrepreneurial process.

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 Timmons (2000) takes us further in elaborating on what entrepreneurs do. He views
entrepreneurship as the ability to create and build a vision from practically nothing.
Fundamentally, it is a human, creative act. It is the application of the energy to initiate a novel
concept or build an enterprise of venture, rather than just watching or analyzing. This vision
requires a willingness to take calculated risks- and then to do everything possible to reduce the
chances of failure. Entrepreneurship also includes the ability to build a team with complementary
skills and talents. It is the knack for sensing opportunity where others see chaos, contradiction,
and confusion. It possesses the knowhow to find, marshal, and employ resources- resources often
controlled by others.
Entrepreneurship is the tendency of a person to organize the business of his own and to
run it profitably using various traits like leadership, decision making managerial caliber etc. It is
a set of activities performed by an entrepreneur in a way entrepreneur precedes Entrepreneurship.
The main features of entrepreneurship are as under.
1.1.1: Economic Activity: Although classical economists like Adam smith and Richard
Cantillon and many others didn’t recognize entrepreneurship as an economic activity but
since last few decades entrepreneurship is catching up and is primarily becoming an economic
function because it involves creation and operation of an enterprise.
1.1.2: Innovative Activity: According to Schumpeter, entrepreneurship is essentially a creative
and an innovative activity. There are five ways of being innovative.
a) the introduction of a new good;
b) the introduction of a new method of production;
c) opening of a new market;
d) the conquest of a new source of supply of raw material; and
e) the creation of a new organization of an industry

1.2: who is an Entrepreneur?

An entrepreneur is defined as a person who innovates, organizes, operates, and assumes
the risk for a new business venture. A venture is a business enterprise involving risk in
expectation of gain.
The above definition of entrepreneur has four components, which highlight the facets of
an entrepreneur. Firstly, an Entrepreneur innovates, i.e. comes up with a new concept, product or

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service. Secondly, an entrepreneur organizes a new business venture, i.e. initiates or starts a new
business enterprise. Thirdly, an entrepreneur operates, i.e. runs a new business venture and
strives hard to sustain and grow it. Fourthly, an entrepreneur assumes the risk, i.e. takes the
responsibility of the (positive or negative) outcomes of a business enterprise.
“Whatever the type, everyone is an entrepreneur only when he actually carries out new
combinations, and loses that character as soon as he has built up his business, when he settles
down to running it as other people run their business. In contrast to this view Cantillion
described the entrepreneur as a rational decision- maker “who assumed the risk and provided the
management of the firm” .Thus, in this view the entrepreneur’s role encompasses the activity of
managing of the firm after having started it.
Some essential qualities for entrepreneurs are:
1) A strong desire to win. (NEED FOR ACHIEVEMENT): Most people dream of
success, but seldom do anything to implement it. In contrast, entrepreneurs have a strong desire
to continuously hit new goals and will not rest till they win.
2) An approach of never-say-die. (PERSEVERANCE): Once committed to a goal
and a course of action, entrepreneurs never retract. Difficulties do not deter them and they work
hard till the entire project is successfully accomplished.
3) Entrepreneurs prefer a middle-of-the-road strategy while handling tricky
situations. (MODERATE RISK TAKER): They don’t take high risks; they are not gamblers.
They prefer a moderate risk to a wild gamble, high enough to be exciting and containing a
reasonable winning chance.
4) Alert to opportunities and seizing them to their advantage. (ABILITY TO FIND
AND EXPLORE OPPORTUNITY): Entrepreneurs are innovative and can convert crisis into
opportunities. But they are realistic enough to ensure that the opportunity suitably dovetails into
realizing their goals.
5) They have a dispassionate approach to problems. (ANALYTICAL ABILITY):
Entrepreneurs will not let personal likes or dislikes come in the way of their taking a business
decision based on ground realities. They seek out experts for assistance rather than friends and
relatives. Their decisions are objective and not emotional or impulsive.
6) It is important for them to know how they are faring when they work on their
goals. (USING FEEDBACK): Entrepreneurs take immediate feedback on performance and

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prefer prompt and accurate data, irrespective of whether they are favourable or not.
Unfavourable news spurs them into making amends to attain their goals.
7) Entrepreneurs do not get deterred by unfamiliar situations but interesting
situations. (FACING UNCERTAINTY): Achievement-driven people are optimistic even in
unfamiliar situations. Even if they find the odds daunting, they see no reason why they can’t
succeed with their treasure of abilities. They march undeterred, making the best of the fine
opportunities that come their way even without guidelines. They quickly come to grips with the
new environment and present a picture of boldness and prudence. They apply their special
insight and skill. Applying their special insight and skill, they quickly understand the
environment and adjust to it.
8) They dislike working for others. (INDEPENDENCE): Entrepreneurs do not like to
work for others and therefore start off on their own. They wish to be their own masters and be
responsible for their own decisions.
9) They are flexible. (FLEXIBILITY): Successful entrepreneurs have an open mind
and do not hesitate to change their decisions, if after weighing the pros and cons, find that the
situation so demands.
10) Entrepreneurs think ahead of others and plan for the future. (PLANNER): Most
successful people set goals for themselves and plan to realize them in a time frame.
11) Entrepreneurs can deal with people at all levels. (INTERPERSONAL SKILLS):
An entrepreneur comes across all kinds of people. He has to make them work for him and with
him to help realize his objectives. He likes working with people and has skills to deal with them.
12) They can influence others. (MOTIVATOR): A successful entrepreneur can
influence others and motivate them to think and act in his way.
13) They can work for long hours and simultaneously tackle different problems.
(STRESS TAKER): As a key figure in his enterprise, the entrepreneur has to cope with several
situations simultaneously and take right decisions, even if it involves physical and emotional
stress. This is possible if one has the capacity to work long hours and still keep cool.
14) They know themselves. (POSITIVE SELF-CONCEPT): An achiever channelises
his fantasies into worthwhile, achievable goals and sets standards for excellence. He can do this
for he knows his strengths and weaknesses, as well as adopts a positive approach. He is seldom
negative.

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15) Entrepreneurs think ahead. (ORIENTATION FOR FUTURE): They have the
ability to look into the future. They won’t allow the past to bother them and think only of the
present and the future. “Bygones are bygones, what of now?” This is their usual response.
An individual may not have all these qualities, but most will have many. The first step for
a person aspiring to become an entrepreneur is to make an inventory of his traits. This self-
awareness and analysis will help him define his strengths and overcome weaknesses.

1.2.1 Reasons for becoming entrepreneurs: The three main reasons that people become
entrepreneurs and start their own firms are: ( 1) to be their own boss (2.) to pursue their own
ideas, and (3) to realize financial rewards.

Many entrepreneurs want to be their own boss, because either they have had a long time
ambition to own their own firm or they have become frustrated working in traditional jobs. There
are also people who want independence, a desire that can be satisfied by owning their own
business and being their own boss. If self-help is the best help, then self -employment is the best
employment and entrepreneurship, the most exciting level of self-employment. In employment
one works for others, one works as others want one to do. There is no scope for doing as you
wish, doing what you wish, doing how you wish. But entrepreneurship is the opposite of
employment. You work for yourself, achieve a target or a goal set by yourself and reap the
satisfaction of having achieved the goal yourself. As an entrepreneur, one is not only employed,
but creates employment for others- one is not only realizing the goal in his life but is also a
source of livelihood for so many. The pride of being a lord of one’s own destiny is coupled with
the satisfaction of being the benefactor of so many.
The second reason people start their own firms is to pursue their own ideas. Some people
are naturally alert and when they recognize ideas for new products or services they have a desire
to see those ideas realized. Because of their passion and commitment, some employees with
good innovative ideas chose to leave the firm employing them in order to start their own business
as the means to develop their own ideas. Some people, through a hobby, leisure activity or just
everyday life recognized the need for a product or service i.e. not available in the market place.
If the idea is viable enough to support a business, they commit tremendous time and energy to
convert their idea into a part time or full time business.

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 Finally, people start their own firms to pursue financial rewards. This motivation,
however, is typically secondary to the first two and often fails to live up to its hype.
Entrepreneurship is not a matter of heritage, it is entirely a manifestation of such potentialities
that any individual born in any caste, community and class can have. As such, any person having
a certain set of behavioral traits and mental aptitudes in him/her can become an entrepreneur.
Besides, there is no need for such a person to be groomed from the very childhood for becoming
an entrepreneur. Even if he is grown-up, has worked on a different line, and has developed these
traits or aptitudes, he or she can be groomed and developed as an entrepreneur through
counseling and motivational measures.

1.3: Characteristics of Entrepreneur

Four main characteristics of Successful Entrepreneurs: The following are the four most
important characteristics of a successful entrepreneur:
1. Passion for the business
2. Product / customer focus
3. Tenacity despite failure
4. Execution intelligence
1. Passion for the business: The number one characteristic shared by the successful
entrepreneurs is a passion for the business, whether it is in the context of a new firm or an
existing firm. In this passion stems from the entrepreneur’s belief that the business will
positively influence people’s life. This passion makes the people to life secure jobs and to start
their own firm. Passion is important for entrepreneurs because, although rewarding, the process
of starting and building a new firm is demanding. Entrepreneurship is not for the person who is
only partially committed. Investors carefully watch and try to determine an entrepreneur’s
passion for his business idea. However it is important to be enthusiastic about a business idea,
but it is also important to understand its potential flaws and risks. An entrepreneur must also
remain flexible enough to modify the idea when it is necessary to do so.
2. Product/Customer Focus: A second defining characteristic of successful entrepreneurs
is a product/customer focus. The two most important elements in any business are - products
and customers. While it’s important to think about the management, marketing, finance and the
like, none of these functions makes any difference, if a firm doesn’t have good products with the

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capacity to satisfy the customers. Most successful entrepreneurs are passionate in making
products that meet their customer’s needs. Michael Dell wrote that “We introduced technology
that meets the needs of our customers, rather than introducing technology for its own sake”.
Successful entrepreneurs create products that meet unfilled needs of the customers.
3. Tenacity despite failure: Because entrepreneurs are typically trying something new, the
failure rate associate with their effort is naturally high. Further, the process of developing a new
business is somewhat similar to what a scientist experiences in the laboratory. Developing a
new business idea requires certain degree of experimentation before success is attained.
Setbacks and failures inevitably occur during this process. The litmus test for entrepreneurs is
their ability to persevere through setbacks and failures.
4. Execution intelligence: The ability to convert a solid business idea into a viable business
is a key characteristic of successful entrepreneurs and is called “Execution Intelligence”. In
many cases execution intelligence is the major factor to determine whether a start-up is a
successful or failure one. A famous Chinese saying says “To open a business is very easy; but
to keep it open is very difficult”. The ability to execute a business idea means developing a
business model, creating a new venture team, raising money, establishing partnerships,
managing finances, leading and motivating employees and making arrangements for marketing
the product or service and so on. It also demands the ability to translate thought, creativity and
imagination into action and measurable results. Ideas are easy but execution is very hard.

1.4: Attributes of a successful Entrepreneur

 An Entrepreneur should be capable of acquiring the required technical skills.

 Have adequate shop floor experience to guide the machine operation in tool- setting
techniques or die-maker on the specific needs of his machine tools
 Be familiar with the raw materials, their specifications, quality, sources of availability,
price sheet etc.
 Have knowledge of marketing channels, distribution network, agency practices, transport
intricacies and the economics of packaging
 Know how to ensure the stipulated quality of his product
 Know taxation principles and laws governing SSIs

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  Be willing to put up with bureaucratic regulations and insults and move with the
situation
 Know how to avail himself of the various benefits available for the SSI
 Possess the following qualities-expertise, shrewedness, resourcefulness and perseverance
(No substitute for hard work).
 Have the guts to withstand the polluted climate in which he has to build his unit

1.4.1 Five Common Myths about Entrepreneurs: There are many misconceptions about who
entrepreneurs are and what motivates them to launch firms to develop their own ideas.

Myth 1: Entrepreneurs are born, not made.

Myth 2: Entrepreneurs are gamblers.

Myth 3: Entrepreneurs are motivated primarily by money.

Myth 4: Entrepreneurs should be young and energetic.

Myth 5: Entrepreneurs want public attraction.

Myth 1: Entrepreneurs are born, not made: This myth is based on the wrong belief that some
people are genetically prone to be entrepreneurs. Several studies on entrepreneurship revealed
that entrepreneurs are not genetically different from other people. No one is born to be an
entrepreneur; every one has the potential to become an entrepreneur. A studies also show that
people with parents who were self employed are more likely to become entrepreneurs. After
witnessing father’s or mother’s independence in the work place, a child may find it appealing.
However, there are personality traits, characteristics and qualities commonly associated
with entrepreneurs
A successful entrepreneur should have:

 Technical competence
 Initiative
 Good judgment
 Intelligence
 Leadership qualities

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  Creativeness
 Self confidence
 Energy
 Attitude
 Fairness
 Honesty
 Tactfulness, and
 Emotional stability

Myth 2: Entrepreneurs are gamblers: The second myth about entrepreneurs is that they are
gamblers and take big risks. The truth is that entrepreneurs are moderate risk takers like most of
the people
Myth 3: Entrepreneurs are motivated primarily by money: Studies also revealed that money
is rarely the primary reason for starting new firms by entrepreneurs. Entrepreneurs expect
rewards commensurate to their skills, knowledge and experience. If they feel that their salaries
and remuneration from employment are not sufficiently compensated, they try to establish their
own business ventures.
Myth 4: Entrepreneurs should be young and energetic: Entrepreneurs need not be young.
Even, aged people can also start business ventures. Hence, age is not a criteria for becoming an
entrepreneur. While it is important to be energetic, investors rely mainly on the strength of the
entrepreneur to fund new ventures. Venture capitalists express that they would rather fund a
strong entrepreneur with a mediocre business idea than fund a strong business idea and a
mediocre entrepreneur. The strength of an entrepreneur here means experience in the area of the
proposed business, skills and abilities required for the business, a solid reputation, a track record
of success and a passion about the business idea. The first four of these five qualities favor older
entrepreneurs than rather than younger entrepreneurs. One study reported that 32% early retirees
who return to work start their own businesses.
Myth 5: Entrepreneurs attract public attention: While some entrepreneurs are popular,
majority entrepreneurs do not attract public attention. In fact, many try to avoid public
appearance.
To be successful, what is needed is not luck, influence or high risk. What an

15
entrepreneur achieves is a result of his capabilities to work hard, to take moderate risk
and to take advantages of the opportunities. The skills and capability of a person decide
the probability of success as an entrepreneur. Though many external factors influence
any outcome, understanding and managing the environment with one’s own
entrepreneurial ability help achieve success. Many of those who have already become
successful entrepreneurs have reached this stage after a long struggle but with
determination. Most of them had started their ventures as small entrepreneurs and it is
mainly because of their own competence that they reached the top.

1.5: Entrepreneur Vs Manager

Many people are of the view that the terms entrepreneur and manager means the same. It
is wrong notion since one can find a lot of differences between these two as given below:
Entrepreneur Manager
1. Owner: An entrepreneur is the owner 1. Servant: A manager is acting in the
of the enterprise which he establishes capacity of a servant in the enterprise.
himself.
2. Profit: The reward for an entrepreneur 2. Salary: The reward for a manager is
is profit which is highly uncertain. salary and his salary is certain and
fixed.
3. Full risk bearing: As a owner, the 3. No risk bearing: As a servant, the
entrepreneur has to bear all risks and manager need not bear any risk
uncertainties involved in running the involved in the enterprise.
business.
4. All functions: An entrepreneur has to 4. Managerial functions only: A
perform many functions in order to run manager renders only the managerial
the enterprise successfully. services in an enterprise.
5. Innovator: An entrepreneur mainly 5. Executor: A manager mainly acts as an
acts as an innovator and prepares plans executor of plans prepared by the
for execution. entrepreneur.

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1.6: Entrepreneur Vs Intrapreneur
In recent times, a new brand of corporate entrepreneurs called “intrapreneurs” has come
into picture. Since they emerge within the frontiers of an existing enterprise, they are called
intrapreneurs. “In” refers to “within.” In big organisations, the top executives with
entrepreneurial talents are encouraged to generate new ideas and then covert them into products
through research and development carried out within the organization itself. If the talent inside
an organisation is regarded, the entrepreneur could avoid stagnation and decline in his enterprise.
The differences that exist between these two types of business leaders are given below:
Entrepreneur Intrapreneur
1. Independent: An entrepreneur is an 1. Dependent: On the other hand, an
independent person in his business intrapreneur is completely depending
operations. on the entrepreneur for everything in
the organisation. He cannot take any
decision by himself.
2. Need not be highly educated: It is not 2. Highly educated: An intrapreneur
necessary that an entrepreneur should enters into an existing organisation with
have a high education. He can learn a high education and qualification. He
everything by experience provided he is indeed a business specialist in the
has the basic qualities of a successful chosen field.
entrepreneur.
3. Fund raising: An entrepreneur himself 3. No fund raising: An intrapreneur is
raises funds necessary for starting and completely free from the botheration of
establishing his enterprise. raising funds.
4. Risk bearing: An entrepreneur has to 4. No risk bearing: An intrapreneur need
bear all the risks involved in the not bear any risk involved in the
business by himself. business.
5. Routine work: An entrepreneur is 5. Specialist: An intrapreneur acts as a
more concerned with doing routine specialist in his chosen field and serves
work and sometimes he may not know as an outside professional.
the important details of his own
business.

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 6. Operation from outside: An 6. Operation from inside: But, an
entrepreneur always operates from intrepreneur operates from within the
outside. The owner is different and the organisation itself. He is a part and
enterprise he owns is different. parcel of the organisation.
7. Strong authoritarian: Generally, an 7. Less authoritarian: On the contrary,
entrepreneur operates with a strong intrapreneur is less authoritarian. He is
authoritarian backup. more “adaptable” in the organisation.

1.7: Classification of Entrepreneurs

Entrepreneurs are classified under four major heads as shown in

Entrepreneur

Imitating or
Innovative Adoptive Fabian Drone
Entrepreneur
Entrepreneur Entrepreneur Entrepreneur

1.7.1: Innovative Entrepreneurs As per Schumpeter, only the innovating persons are
designated as entrepreneurs. The ordinary producers repeat the same production for years
whereas innovators produce new goods in new ways and enter into new markets by undertaking
new methods of organisation.
An innovative entrepreneur is one who always looks at providing an opportunity for
introducing a new technique of production process or a new commodity or a new market or
arranges reorganisation. Schumpeter’s concept of entrepreneur was of this type.

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Peter F. Drucker opines that the innovation has the following principles.

 Systematic and objective analysis of various opportunities, to explore the

possibilities of project ideas.
 For effective innovation, it has to be simple and easy. Otherwise, decisions would
be difficult.
 Complete, comprehensive trail of opportunities for better choice.
 Invention should be based on certain concepts.
 Innovation emerges from the deep and wide insight to problems.
 Innovation should result in a bundle of knowledge, a purposeful activity creating
profitability of the market.
1.7.2: Adoptive or Imitating Entrepreneurs: What these persons do is to just imitate the
successful entrepreneurs in techniques, technology innovated by others. Due to lack of funds,
technology and technical skills, the entrepreneurs in developing nations would find it most
convenient to imitate rather than to innovate and hence these persons imitate the successful
innovators of developed nations. Further, Innovation takes more time.
1.7.3: Fabian Entrepreneurs: These are traditionally bounded entrepreneurs who would
always be cautious and they neither introduce new changes nor adopt new methods innovated
by the most enterprising entrepreneurs. They are lazy, follow old customs, traditions, sentiments
etc. Hence they are totally uninterested in taking risk and imitating successful entrepreneurs.
1.7.4: Drone Entrepreneurs: These entrepreneurs never allow any change in their production
and the style of functioning. They never explore opportunities nor are prepared to take any risk.
They may even meet losses due to obsolete methods of production but do not change their
production methods and continue to adopt traditional ways in the production process. Also called
as ‘Laggards’, who would be pushed out of the market when the product losses its marketability.

1.7.5: Other Types of Classifications of Entrepreneurs

This can be on the following basis:

 According to the type of business handled
 According to the use of technology
 According to the motivation

19
  According to the growth
 According to the stage of development
 According to the area
 According to the sex and age
 Miscellaneous
Classifications of Entrepreneurs
Type Classification
Business  Business Entrepreneur  Corporate Entrepreneur
 Trading Entrepreneur  Agricultural Entrepreneur
 Industrial Entrepreneur Plantation-Dairy-
- Large-Small Horticultural- Forestry
- Medium-Tiny  Retail Entrepreneur
 Service Entrepreneur
Technology  Technical Entrepreneur  Low tech Entrepreneur
 Non-technical Entrepreneur
 Professional Entrepreneur
 High tech Entrepreneur
Motivation 
 Pure Entrepreneur Motivated Entrepreneur
 Induced Entrepreneur  Spontaneous Entrepreneur
Growth
 Growth Entrepreneur  Super Growth Entrepreneur
 First generation Entrepreneur  Classical Entrepreneur
Stage of
 Modern Entrepreneur
Development
 Urban Entrepreneur  Rural Entrepreneur
Area
 Men Entrepreneur  Women Entrepreneur
Sex and Age
-young, old, middle aged -young, old, middle aged

 Professional Entrepreneurs  Inherited Entrepreneurs

Miscellaneous
 Non – professional  Forced Entrepreneurs
Entrepreneurs  National Entrepreneurs
 Modern Entrepreneurs  International Entrepreneurs
 Traditional Entrepreneurs  Bureaucratic Entrepreneurs

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  Skilled Entrepreneurs  Intrapreneur Entrepreneurs
 Non- skilled Entrepreneurs  Immigrant Entrepreneurs
 Imitating Entrepreneurs

Classifications on the Basis of Type of Business

On the basis of type of business, the entrepreneurs can be classified as follows:
1. Trading Entrepreneur: An entrepreneur who undertakes trading activities only is
called trading entrepreneur. He identifies potential markets, and creates demand for his
chosen product line.
2. Industrial Entrepreneur: An entrepreneur is a product-oriented person who starts his
industrial unit for manufacturing some new products.
3. Business Entrepreneur: The business entrepreneur conceives idea for a new product
and create a business to materialize his idea into reality. He engages in both production
and marketing activities.
4. Corporate Entrepreneur: An entrepreneur who demonstrates his skills in organising
and managing a corporate undertaking is known as corporate entrepreneur.
5. Agricultural Entrepreneur: These entrepreneurs undertake agricultural activities.
They raise the productivity of agriculture through modernisation and application of
modern technology.

1.8: Role of Entrepreneurs in Economic Development

Entrepreneurs play an important role in the economic development of a region. From the
fall of Rome (AD 476) to the eighteenth century, there was virtually no increase in per capita
wealth generation in the West. With the advent of Entrepreneurship, however, per capita wealth
generation and income in the West grew exponentially by 20 percent in the 1700s, 200 percent in
the 1800s, and 740 percent in the 1900s (Drayton, 2004). The Figure shows the various ways in
which the Entrepreneurial activity results in economic development and growth.

21
 Create employment
Opportunities for others

Provide diversity Role of Inspire others towards

In firms Entrepreneurs Entrepreneurship
in Economic
Development

Augment the number Create Knowledge

Of enterprises, thus spillovers
Increasing competition

Figure: Role of Entrepreneurs in Economic Development

1.8.1: Create employment opportunities

By creating a new venture, entrepreneurs generate employment opportunities for others.
Unemployment is a major issue, especially in the context of developing economies like India.
Educated youth often are unable to get a suitable employment for themselves. Thus,
entrepreneurs do a Yeoman’s service by not only employing themselves into their
Entrepreneurial ventures, but also by employing others. Within the last 15 years, Fortune 500
companies and large corporations have endured major retrenchment and eliminated millions of
jobs, whereas discoveries in the Entrepreneurial sector have yielded new incorporations and
generated millions of job opportunities.
1.8.2: Inspire others towards entrepreneurship
The team created by an entrepreneur for his new venture often provides the opportunity
for the employees-cum-teammates to have a first-hand experience of getting involved in an
entrepreneurial venture. This often leads eventually for these employees to become entrepreneurs
themselves after being inspired by their earlier experience of working for an entrepreneur. Thus,
this process helps in forming a chain reaction of entrepreneurial activity which directly
contributes to the health of the economy.
1.8.3: Create knowledge spillovers

22
 When a scientist, an engineer, or a knowledge worker (i.e. an economic agent with
endowments of new economic knowledge) leaves an organization to create a new firm, he will
bring the expertise and experience from the old firm and spreads knowledge to his new firm.
Hence, entrepreneurship serves as a mechanism by which knowledge spills over to a new firm in
which it is commercialized. Naturally, the new firm gets benefited by the experience and
knowledge gained by founder in his/her erstwhile organization.
1.8. 4: Augment the number of enterprises
When new firms are created by entrepreneurs, the number of enterprises based upon new
ideas/ concepts/ products in a region (say, a city, state, or country) increases. Not only does an
increase in the number of firms enhance the competition for new ideas, but greater competition
across firms also facilitates the entry of new firms specializing in a particular new product niche.
Provide diversity in firms: Entrepreneurial activity in a region often results into creation of a
variety of firms in a region. These firms operate into diverse activities and it has been found that
it is this diversity in firms which fosters economic development and growth rather than
homogeneity. According to Jacobs (1969), it is the exchange of complementary knowledge
across diverse firms and economic agents that yields as important return on new economic
knowledge.
Importance of Entrepreneurship: Entrepreneurship’s importance to the economy and society
was first expressed by Joseph Schumpeter in his book “The Theory of Economic Development”.
He argued that entrepreneurs develop new products and technologies that over time make current
products and technologies absolute. Schumpeter calls this process creative destruction. Because
new products and technologies are typically better than those they replace and these improved
products and technologies increase consumer demand and simulates economic activity. The new
products and technologies may also increase the productivity of all elements of the society.
Small firms that practice this art are called “innovators” or “agents of change”.
Entrepreneurial firms are the firms that bring new products and services to market by
creating opportunities. Entrepreneurial firms stress innovations which have had a dramatic
impact on society. New products and services helped in making our lives easier, improved our
productivity, improved our health, develop better communication and entertain people in new
ways. Entrepreneurial firms contribute towards innovation, job creation and globalization.

23
1.9: Summary
Presently, the emerging economics are living in the age of entrepreneurial revaluation.
The entrepreneurs are challenging so many myths,that are hindering the growth and positive
mindset of the people. They are coming up with innovative ideas and creative thoughts and are
able to solve, so many unanswered problems and challenges, even at the Government level. The
entrepreneurs are omnipresent now- a- days and are making their mark not only in the corporate
business arena, but also in Social and domestic sectors. Their scope of functioning so beyond
that of the managers at the corporate or business level. While the inventors love and enjoy
inventions, entrepreneurs love and enjoy translating them into reality by superior skills in
execution.
Entrepreneurship is the process by which individuals pursue opportunities without regard to
resources they currently control. Corporate entrepreneurship is the conceptualization of
entrepreneurship at that firm level. Entrepreneurial firms are proactive, innovative, and risk
taking. In contrast, conservative firms take a more “wait and see” posture, are less innovative,
and are risk adverse.
Although reasons vary, the three primary reasons that people become entrepreneurs and start
their own firms are as follows: to be their own boss, to pursue their own ideas, and to realize
financial rewards.
The four main characteristics of successful entrepreneurs are passion for the business,
product/ customer focus, tenacity despite failure, and execution intelligence.
The five most common myths regarding entrepreneurship are that entrepreneurs are born, not
made; that entrepreneurs are gamblers; that entrepreneurs should be young and energetic; and
entrepreneurs love the spotlight.
Entrepreneurial firms are the firms that bring new products and services to market by
creating and seizing opportunities regardless of the resources they currently control.
Entrepreneurial firms stress innovation, which is not the case for salary- substitute and lifestyle
firms.
There is strong evidence that entrepreneurial behavior has a strong impact on economic
stability and strength. The areas in which entrepreneurial firms contribute the most are
innovation, job creation, and globalization.

24
 The innovations produced by entrepreneurial firms have had a dramatic impact on society.
It’s easy to think of new products and services that have helped make our lives easier, that have
made us more productive at work, that have improved our health, that have helped us better
communicate with each other, and that have entertained us in new ways.
In addition to the impact that entrepreneurial firms have on the economy and society,
entrepreneurial firms have a positive impact on the effectiveness of larger firms. There are many
entrepreneurial firms that have built their entire business models around producing products and
services that help larger firms become more efficient and effective.
1.10 Case Study of Rajendra:
You too can become a successful entrepreneur if you have a keen desire to succeed,
initiative and positive problem solving attitude and you identify a sound business opportunity.
Many young person’s like you have become successful entrepreneurs, even though they didn’t
have much money of their own or a business background. What they had was good
entrepreneurial capability. The following example will prove this statement and inspire
you............
After Rajendra’s graduation from a science college, his father, a government servant
wanted him to look out for a job. Though he did have some openings, Rajendra hesitated to
commit himself to a job. He was drifting without direction with only one though in his mind ‘I
want to do something’. Day by day he was getting more frustrated when it dawned on him that he
would have to search for an opportunity. He enthusiastically started surveying his environment
with the aim to find an appropriate project in which to pour his energies.
One day, while talking with his panwalla, Ramlal, he causally asked where
Ramlal purchased the dhanadal (corriander seeds) he stocked. Rajendra was surprised
when Ramlal told him that the dal was bought from a factory out of town. Rajendra
started asking more Panwallas and retailers of dhanadal and discovered that though there
was a high consumption of dhanadal there was not a single unit which produced it in
town.
He saw that, if he could produce the dhanadal, he would have an edge over the
other out- of-town manufacturers. He found the names of some manufacturers and went
to meet them. But not surprisingly, no one was prepared to even talk to him, leave alone
give him advice on how to produce the dhanadal. As he could not get into the unit he

25
decided to get the information from someone inside, so he started hanging around the
unit and talking to the workers when they came out for their tea breaks. He made
friendship with Rakesh, a dissatisfied employee of the unit and in between cups of tea
and casual talk he got information on where from the ‘whole dal’ can be procured, the
machinery and the names of their manufacturers, the production- process, the number o f
people employed in the unit etc. Then he roughly estimated the cost of the project and
the size of the shed in which to set- up the unit.
He came home elated. But the feeling was short-lived as his family started asking
him certain down-to-earth questions like where he was going to find the money to
implement his ‘fancy ideas’. Rajendra was certainly concerned about this major hurdle.
But so set was he on his plans that he decided to approach the nearby bank to get some
advice. The manager explained to him about the loan facilities extended, the formalities
he would have to undergo and the percentage of capital that he would be required to put
in. He was nice enough to guide him to meet another customer of the bank who had
premises near an industrial area.
Rajedra was happy to discover that this land-owner was willing to rent premises
to him and that the place was just right for his factory. He started writing to the
manufacturers and persuaded his family to part with the required capital from their
savings. Very soon he was busy co-ordinating the procurement of his loan, arranging the
delivery of machinery, talking to suppliers and customer etc. Within a short span of 10
months his factory was working and in another six months he was able to earn profit.
So if you have made the major decision of setting up an enterprise, check up on as
many details as possible, and pursue the idea vigorously.

1.11: Self assessment Questions

Short questions:

1. Meaning of Entrepreneur
2. Types of entrepreneurs
3. Role of entrepreneurs in Economic development
4. Drone entrepreneur

26
 5. Fabian Entrepreneur
6. Intrapreneur
7. Innovative Entrepreneur
8. Types of risks in business
9. Globalization.

Essay questions:
1. What is entrepreneurship? Explain its growing significance in the age of
globalization?
2. Entrepreneurship is growing around the world. Why do you think this is the case?
3. Which type of new business is more entrepreneurial: a business that is being started to
pursue a unique opportunity or a business that is being started out of necessity?
Explain your answer.
4. What is entrepreneurship? How can one differentiate an entrepreneurial firm from
any other type of firm?
5. What are the three primary reasons people become entrepreneurs?
6. Why is it that people who start their own firms to be independent typically do not
grow their firms beyond their immediate control?
7. What are the primary traits and characteristics of successful entrepreneurs?
8. Why is passion such an important characteristics of successful entrepreneurs? What
is it about passion that makes it particularly compatible with the entrepreneurial
process?
9. Why is a product/ customer focus an important characteristics of successful
entrepreneurs?
10. What are the five common myths of entrepreneurship?
11. Are entrepreneurs born or made? Defend your answer.
12. In general, are entrepreneurs high risk takers, moderate risk takers, or low risk takers?
13. Describe several examples of the impact that entrepreneurial firms have on society.
14. Explain the characteristics of an ideas entrepreneur?
15. Differentiate between an Entrepreneur- Intrapreneur and a Manager?
16. Classify the entrepreneurs and explain their specific characteristics?

27
 17. Assess the role of entrepreneur in economic development?

Multiple Choice Questions:

Question No: 1: Which of the following shows the process of creating something new?

A. Business model
B. Modeling
C. Innovation
D. Creative flexibility
Answer: Innovation, the act of introducing something new.

Question No: 2: Which one of the following gives suggestions for new product and also
help to market new products?
A. Existing products and services
B. Distribution channels
C. Federal government
D. Consumers
Answer: Distribution Channels: Members of distribution channels are excellent sources for
new ideas because they are familiar with the needs of the market. Not only do channel members
frequently have suggestions for new product, but they can also help in marketing the
entrepreneur’s newly developed products.

Question No: 3: Which of the following is used by entrepreneurs to acquire experience in

an international market before making a major commitment?
A. Merger
B. Joint venture
C. Minority interest
D. Majority interest
Answer: Minority interest

Question No: 4: The entrepreneur was distinguished from capital provider in:
A. Middle ages

28
 B. 18th century
C. 17th century
D. 19th and 20th century
Answer: 18th Century

Middle Ages: In this age the term entrepreneur was used to describe both an actor and a person
who managed large production projects. In such large production projects, this person did not
take any risks, managing the project with the resources provided. A typical entrepreneur was the
cleric who managed architectural projects.

18th Century: In the 18th century the person with capital was differentiated from the one who
needed capital. In other words, entrepreneur was distinguished from the capital provider.

17th Century: In the 17th century the entrepreneur was a person who entered into a contract
with the government to perform a service Richard Cantillon, a noted economist of the 1700s,
developed theories of the entrepreneur and is regarded as the founder of the term. He viewed the
entrepreneur as a risk taker who "buy[s] at certain price and sell[s] at an uncertain price,
therefore operating at a risk."

19th and 20th Centuries: In the late 19th and early 20th centuries, entrepreneurs were viewed
mostly from an economic perspective. The entrepreneur "contributes his own initiative, skill and
ingenuity in planning, organizing and administering the enterprise, assuming the chance of loss
and gain."

Question No. 5: A person who managed large project was termed as the entrepreneur in
the _________.
A. Earliest period
B. Middle ages
C. 17th century
D. 19th and 20th century
Answer: Middle Age

Earliest Period: In this period the money person (forerunner of the capitalist) entered into a
contract with the go-between to sell his goods. While the capitalist was a passive risk bearer, the
merchant bore all the physical and emotional risks.

29
Middle Ages: In this age the term entrepreneur was used to describe both an actor and a person
who managed large production projects. In such large production projects, this person did not take
any risks, managing the project with the resources provided. A typical entrepreneur was the cleric
who managed architectural projects.

17th Century: In the 17th century the entrepreneur was a person who entered into a contract with
the government to perform a service Richard Cantillon, a noted economist of the 1700s,
developed theories of the entrepreneur and is regarded as the founder of the term. He viewed the
entrepreneur as a risk taker who "buy[s] at certain price and sell[s] at an uncertain price, therefore
operating at a risk."

19th and 20th Centuries: In the late 19th and early 20th centuries, entrepreneurs were viewed
mostly from an economic perspective. The entrepreneur "contributes his own initiative, skill and
ingenuity in planning, organizing and administering the enterprise, assuming the chance of loss
and gain."

Question No: 6: What is the process by which individuals pursue opportunities without
regard to resources they currently control?
A. Startup management
B. Entrepreneurship
C. Financial analysis
D. Feasibility planning
Answer: Entrepreneurship
Entrepreneurship is a process by which individuals - either on their own or inside organizations -
pursue opportunities without regard to the resources they currently control. (Stevenson & Jarillo,
1990, p. 23). Stevenson's definition would be as follows: The continuous process by which
individuals pursue opportunities without regard to resources they currently control, with the
intent of increasing value and/or advantage. I have made the underlined additions because
entrepreneurship should never be considered a single event. It is a continuing, non–ending
process in search of increasing value and ever increasing advantage.
Question No: 7: Having less than 50 percent of equity share in an international venture is
called:
A. Minority interest
B. Joint venture
30
 C. Majority interest
D. Exporting
Answer: Minority interest - Having less than 50 percent ownership position
Question No: 8: Having more than 50% ownership position that provides the entrepreneur
with managerial control is called:
A. Joint venture
B. Majority interest
C. Horizontal merger
D. Diversified activity merger
Answer : Majority interest. Having more than 50 percent ownership position

Question No: 9:. Which one of the following is the process of entrepreneurs developing new
products that over time make current products obsolete?
A. New business model
B. Anatomization
C. Creative destruction
D. None of the given options
Answer: Joseph Schumpeter coined the term “Creative destruction” . Creative destruction occurs
when something new kills something older. A great example of this is personal computers. The
industry, led by Microsoft and Intel, destroyed many mainframe computer companies, but in
doing so, entrepreneurs created one of the most important inventions of this century

Question No: 10. Which of the following factors is the most important in forcing U.S
companies to focus on new product development and increased productivity?
A. Entrepreneurship
B. Hyper competition
C. Governmental laws
D. Organizational culture
Answer: Hyper competition has forced U.S. companies to focus on new product development
and increased productivity.

31
Question No: 11: Which of the following is alternatively called corporate venturing?
A. Entrepreneurship
B. Intrapreneurship
C. Act of stating a new venture
D. Offering new products by an existing company
Answer: Intrapreneurship, also called corporate venturing.

Question No: 12: Individuals influencing an entrepreneur’s career choice and style are
known as which of the following?
A. Role model
B. Moral-support network
C. Professional support network
D. Support system
Answer: Role models - Individuals influencing an entrepreneur’s career choice and style
Moral-support network: Individuals who give psychological support to an entrepreneur
Professional-support network : Individuals who help the entrepreneur in business activities

Question No: 13: The activity which occurs when the new venture is started is called:
A. Motivation
B. Business skills
C. Departure point
D. Goal orientation
Answer: Departure points - The activities occurring when the venture is started

Question No: 14: The level at which an individual is viewed by society is called:
A. Financial status
B. Qualification
C. Social status
D. Achievement
Answer: Social status The level at which an individual in viewed by society

32
Question No: 15: Which one of the following is the most important characteristic of a
successful business website?
A. Speed
B. Innovation
C. Graphics
D. Products
Answer: Speed
A successful website has three characteristics: speed, speed, and speed. Short download time
should be the primary concern of website developers.
Question No: 16: Gazelles are the firms with:
A. High growth rate
B. Moderate growth rate
C. Zero growth rate
D. Low growth rate
Answer: High growth rate - Gazelles - Very high growth ventures.
Question No: 17: Which of the following factor has allowed small companies to act like
they are big ones?
A. Technology
B. Customers
C. Economic development
D. Competition
Answer: Technology
A company needs to use technology to make itself faster and more flexible. Technology has
allowed small companies to act like they are big ones. Large companies can use technology
to make them responsive and flexible

Questions 18. All but which of the following is considered to be a myth associated with
entrepreneurship?
A) First ventures are always successful
B) Successful entrepreneurs are born but not made.
C) All entrepreneurs must significantly invest money.

33
 D) An entrepreneur faces extraordinary business risks.

Questions 19. Which of the following is not considered a common characteristic of an

entrepreneur?
A) External locus of control
B) Self confidence
C) Internal locaus of control
D) High need of achievement.
Questions 20.The entrepreneur who is committed to the entrepreneurial effort because it
makes good business sense is classed as a/an
A) Opportunist
B) Investor
C) Hacker
D) Craftsman

True or False Questions : Put a tick mark [√ ] to the word “True” if the statement is correct,
and to the word “False” if the statement is wrong.

1. Entrepreneurs are borne not made. True False

2. Only young people with rich financial support can become entrepreneurs. True False
3. Only male persons can become Entrepreneurs. True False

Activity 1: Identify four main characteristics of successful entrepreneurs.

--------------------------------------------------------------------------------------------

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34
Activity 2: Identify a local entrepreneur of your area and list out the unique attributes in
him/her.

--------------------------------------------------------------------------------------------

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Activity 3:
Mr. Pradeep has always wanted to be an entrepreneur. He is intelligent, works hard, and has
saved a substantial amount of money that would help him launch a firm. But he is hesitant
because his close friend once told him “Entrepreneurs are born not made”. If he asked you about
it what would you tell him?
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________

Activity 4: Why do some people choose to be an “entrepreneur” instead of being an

“employee”? Write three reasons to support your opinion.
__________________________________________________________________________
___________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________

35
______________________________________________________________________________
______________________________________________________________________________
_____________________

Analytical Question : State your main ideas/points clearly. Then, explain it in your own words
and in proper context.

Steve Jobs and his friend Steve Wozniak were self-taught engineers who created one of the most
popular, revolutionary, technology brand, “Apple”. Steve Jobs was not the first person to have an
idea to create a user-friendly computer, and he was not the first person to come up with an idea
about music players or smartphones, but he was the first person to implement them. He covered
potential ideas and then implemented them in ways that no one had ever dreamed of before.
Apple products, whether they be a computer, laptop, iPod, iPhone, iTunes, or otherwise, are
featured everywhere. Not only Apple products are of high quality technological items, but the
company also has superior branding and a strong company image making them, one of the most
popular and easily recognizable brands in the world.

A. From this example, identify and explain any four traits/characteristics of Steve Jobs that
helped him to be successful in his business.

______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
_________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________

36
 B. What are the factors/reasons that support the success of Apple Company?
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________

1.12: Key words:

Entrepreneur Intrapreneur; Innovative entrepreneur; Adoptive or Imitating

Entrepreneurs Fabian Entrepreneurs; Drone Entrepreneurs Creative destruction.

1.13: Further Readings / Reference books

1. Arya Kumar, Entrepreneurship, Pearson, Delhi, 2012.

2. Murthy.C.S.V, Entrepreneurship and Good Governance, Himalaya Publishing House,
New Delhi, 2010.
3. Kanishka Bedi, Management and Entrepreneurship, Oxford University Press, New
Delhi, 2009.
4. Michael H. Morris, Entrepreneurship and Innovation in corporations, Cengage
Learning, 2008.
5. Donald F. Kuratko & Richard M. Hodgetts, Entrepreneurship in the New Millennium,
Cengage Learning, 2007.

37
Acknowledgements: we owe our sincere thanks and gratitude to the authors of the material
placed here. These are only for reading and reference of budding entrepreneurs as well as
professionals engaged in promoting entrepreneurship.

38
 LESSON 2: FORMS OF BUSINESS ORGANISATIONS

Objectives of the lesson:

After studying this lesson you should be ready to understand different forms of businesses
open to an entrepreneur such as
 Sole Proprietorship
 Joint Hindu Family Business
 Partnership
 Cooperative Society
 Joint stock Company

Structure of the lesson:

2.0 : Introduction
2.1: Sole Proprietorship
2.1.1: Features
2.1.2: Advantages
2.1.3: Limitations
2.2: Joint Hindu Family Business
2.2.1: Features
2.2.2: Advantages
2.2.3: Limitations
2.3: Partnership
2.3.1: Features
2.3.2: Types of Partners
2.3.3 Types of partnership
2.3.4: Advantages
2.3.5: Limitations
2.5: Cooperative Society
2.5.1: Features
2.5.2: Types of Cooperative Society
2.5.3: Advantages
2.5.4: Limitations
2.6: Joint Stock Company
2.6.1: Features
2.6.2: Types of Companies
2.6.3: Advantages
2.6.4: Limitations
2.7: Choice of Forms of Business Organisation
2.8. Start Ups

39
 2.9: summary
2.10: Self Assessment Questions
2.11: Key Terms
2.12: Further Readings / Reference books

Exhibit - 2

10 Indian Startup Success Stories That Will Inspire You

They had an idea in mind. They left their cushy jobs. They worked hard. They created history.
India is witnessing a brand new generation of startups, making their presence felt not just in the
domestic sphere, but also globally. They’re inspiring success stories of people who have paved
their own roads of innovation and dreams.

1. Make My Trip

Brainchild of Deep Kalra, an IIM Ahmedabad alumnus, MakeMyTrip has revolutionized

the travel industry over the years. It was originally launched in the US market in 2000 to cater to
the needs of NRIs for their Indo-American trips. It launched its operations in India in 2005,
starting with flight tickets. After a few years, Make My Trip got listed in NASDAQ and in the
next year went on to make 3 acquisitions. It has got worldwide recognition and innumerable
rewards.

2. Flipkart

No one would be a stranger to this one! Flipkart achieved massive success a few years back
owing to its first mover advantage in the online market in India. Sachin and Binny Bansal, both
IIT-D alumni, worked with Amazon before, thus they introduced a similar concept into the
Indian market. They started with books in 2007 and now sell almost everything, from personal
care to jewellery, from CDs to stationery. It acquired Myntra for around INR 2000 crore.
Flipkart.com has made it to the top five global billion dollar start-up club with a valuation of $11
billion..

3. Zomato

Launched in 2008, Zomato hasn’t been anything less of a sensation. It covers over 331,200
restaurants in 19 countries. Started as Foodiebay.com, in two years, it was named the most
promising internet companies in India. In another two years, it went on to get international
recognition. Deepinder Goyal and Pankaj Chaddah, the co-founders always wanted to create
their own path, a path with its own obstacles. Zomato had no funding initially, their growth was
excruciatingly slow. However, tables turned very soon and it made Zomato what it is now.

4. redBus

Started in 2006, redBus has grown phenomenally over the past few years. An online bus
ticket booking and hotel booking site, this start-up achieved success for its innovative idea of
making bus ticket booking easier for the common man. Phanindra, Sudhakar and Charan, the
40
budding entrepreneurs from BITS Pilani initiated this idea, when one of them, Phanindra
couldn’t go home for Diwali because he didn’t get a bus ticket. All of them were working for
reputed MNCs at that time; it was a huge risk for them to start redBus.in. That risk, however paid
off and the rest, as they say, is history.

5. Housing.com

A Mumbai-based real estate search engine, Housing.com was co-founded by twelve IIT-B
graduates with the idea to introduce transparency in the real-estate market. What is commendable
about Housing.com is the exponential rate at which it has grown. It was just founded two years
ago and the response they’ve got is amazing. Despite many hurdles, Housing.com managed to
achieve enormous success. It has raised four rounds of funding since its founding in 2012.

6. InMobi

Founded in 2007, InMobi, a mobile ad network giant was a result of entrepreneurship

expertise and an innovative idea. Naveen Tewari, an alumnus of Harvard Business School, who
had previously worked at McKinsey, wanted to build something which he could call his own.
Before tasting success, it had its own set of problems. Since, it operated internationally, people
weren’t sure if an Indian company could achieve success. Despite the obstacles, it has had a great
reception around the world; it is now one of the largest mobile ad networks in China. Its growth
from a start-up to an MNC is certainly inspiring.

7. FreeCharge

An e-commerce website, FreeCharge was founded in 2010 by Kunal Shah and Sandeep
Tandon. It has made mobile recharge free by offering equal value back to the customers in form
of retailers’ coupons. It’s success to be credited to the fact that it’s a win-win situation for both
the customers and the retailers. Like any start-up, there were many hurdles that FreeCharge had
to face- everyone thought that it was too good to be true and weren’t too serious about it.Some
retailers felt that the concept of ‘free’ would harm their brand. However, FreeCharge has been
able to overcome most of its problems. Now, they have tied up with various production houses
like Sony Pictures, YRF, UTV etc.

8. Ola Cabs

Who would’ve thought that a few years back that booking cabs would be so much easier?
Thanks to Ola Cabs, travelling in a cab now costs less than travelling in an auto rickshaw.
Bhavish Aggarwal and Ankit Bhati who co-founded Ola Cabs were IIT-B graduates who were
working in MNCs before going on the uncertain path of entrepreneurship. This idea was formed
after a weekend trip on a rented car had gone bad for Bhavish. He wanted to bring transparency
and convenience to consumers in this area. Last year in october, Ola Cabs has raised around
$210 million at a valuation of nearly $1 billion, with this, it has joined the league of the most
valued start-ups in the country.

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9. Teach For India

A non-profit organization under the Teach For All global movement, Teach For India works
towards ensuring excellent education for all children. Founded by Shaheen Mistri in 2007, TFI
exists because of a deep belief that every child can and must attain an excellent education. For
the same, TFI has a fellowship, wherein it recruits college graduates and young professionals to
serve as full-time teachers in low-income schools for two years. Today, Teach For India is
present in 7 cities and have 910 Fellows and 660 Alumni working towards eliminating
educational inequity.

10. Make A Difference (MAD)

Michelle Obama dances with underprivileged children enrolled in the academic programme of
Make A Difference in Mumbai. MAD has justified its slogan- ‘Don’t Stop BELIEVING!’ in almost a decade
of its operations. It mobilizes young leaders to bridge the gap of education inequality. In 2005, MAD’s
founders – Jithin C Nedumala, Gloria Benny and Sujith Abraham Varkey decided to visit a boys’ Home in
Cochin to spend some time there. Children at shelter homes were talented and had aspirations and so
they felt that more needed to be done. Soon, they started going back regularly, just to spend time with
the children there. The MAD story started there. They have various programmes where various
volunteers are recruited to teach kids from disadvantaged backgrounds. Currently around 2100 MAD
volunteers teach close to 5200 children across India. It has received a lot of recognition from
international organizations for its successful operations.

*******

After studying this lesson, you should be able to: identify different forms of business
organisation; explain features, merits and limitations of select forms of business organisation;
distinguish between various forms of organisation; and analyse factors determining choice of an
appropriate form of business organisation.

2.0 Introduction
If one is planning to start a business or is interested in expanding an existing one, an
important decision relates to the choice of the form of organisation. The most appropriate form is
determined by weighing the advantages and disadvantages of each type of organisation against
one’s own requirements. Various forms of business organisations from which one can choose the
right one include:
(a) Sole proprietorship,
(b) Joint Hindu family business,
(c) Partnership,
(d) Cooperative societies, and

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(e) Joint stock company.
Let us start our discussion with sole proprietorship—the simplest form of business organisation,
and then move on to analysing more complex forms of organisations.

2.1: Sole Proprietorship

Do you often go to buy note books, pens, chart papers, etc., from a small neighborhood
stationery store? Well, in all probability in the course of your transactions, you have interacted
with a sole proprietor. Sole proprietorship is a popular form of business organisation and is the
most suitable form for small businesses, especially in their initial years of operation. Sole
proprietorship refers to a form of business organisation which is owned, managed and controlled
by an individual who is the recipient of all profits and bearer of all risks. This is evident from the
term itself. The word “sole” implies “only”, and “proprietor” refers to “owner”. Hence, a sole
proprietor is the one who is the only owner of a business. This form of business is particularly
common in areas of personalised services such as beauty parlours, hair saloons and small scale
activities like running a retail shop in a locality. payment of debts in case the assets of the
business are not sufficient to meet all the debts. As such the owner’s personal possessions such
as his/her personal car and other assets could be sold for repaying the debt. Suppose the total
outside liabilities of XYZ dry cleaner, a sole proprietorship firm, are Rs. 80,000 at the time of
dissolution, but its assets are Rs. 60,000 only. In such a situation the proprietor will have to bring
in Rs. 20,000 from her personal sources even if she has to sell her personal property to repay the
firm’s debts.
Sole trader is a type of business unit where a person is solely responsible for providing
the capital, for bearing the risk of the enterprise and for the management of business.
J.L. Hansen
The individual proprietorship is the form of business organisation at the head of which stands an
individual as one who is responsible, who directs its operations and who alone runs the risk of
failure.
L.H. Haney
2.1.1: Features
Salient characteristics of the sole proprietorship form of organisation are as follows:

43
 (i) Formation and closure: Hardly any legal formalities are required to start a sole
proprietary business, though in some cases one may require a license. There is no
separate law that governs sole proprietorship. Closure of the business can also be done
easily. Thus, there is ease in formation as well as closure of business.
(ii) Liability: Sole proprietors have unlimited liability. This implies that the owner
ispersonally responsible for
(iii) Sole risk bearer and profit recipient: The risk of failure of business is borne all alone
by the sole proprietor. However, if the business is successful, the proprietor enjoys all
the benefits. He receives all the business profits which become a direct reward for his
risk bearing.
(iv) Control: The right to run the business and make all decisions lies absolutely with the
sole proprietor. He can carry outhis plans without any interference from others.
(v) No separate entity: In the eyes of the law, no distinction is made between the sole
trader and his business, as business does not have an identity separate from the owner.
The owner is, therefore, held responsible for all the activities of the business.
(vi) Lack of business continuity: Since the owner and business are one and the same entity,
death, insanity, imprisonment, physical ailment or bankruptcy of the sole proprietor will
have a direct and detrimental effect on the business and may even cause closure of the
business.
Merits
2.1.2: Advantages
Sole proprietorship offers many advantages. Some of the important ones are as follows:
(i) Quick decision making: A sole proprietor enjoys considerable degree of freedom in
making business decisions. Further the decision making is prompt because there is no
need to of his/her efforts as he/she is the sole recipient of all the profit. The need to
share profits does not arise as he/she is the single owner. This provides maximum
incentive to the sole trader to work hard. consult others. This may lead to timely
capitalisation of market opportunities as and when they arise.
(ii) Confidentiality of information: Sole decision making authority enables the
proprietor to keep all the information related to business operations confidential and
maintain secrecy. A sole trader is also not bound by law to publish firm’s accounts.

44
 (iii) Direct incentive: A sole proprietor directly reaps the benefits
(iv) Sense of accomplishment: There is a personal satisfaction involved in working for
oneself. The knowledge that one is responsible for the success of the business not
only contributes to self-satisfaction but also instils in the individual a sense of
accomplishment and confidence in one’s abilities.
(v) Ease of formation and closure: An important merit of sole proprietorship is the
possibility of entering into business with minimal legal formalities. There is no
separate law that governs sole proprietorship. As sole proprietorship is the least
regulated form of business, it is easy to start and close the business as per the wish of
the owner.
2.1.3: Limitations
Notwithstanding various advantages, the sole proprietorship form of organisation is not
free from limitations. Some of the major limitations of sole proprietorship are as follows:
(i) Limited resources: Resources of a sole proprietor are limited to his/her personal
savings and borrowings from others. Banks and other lending institutions may
hesitate to extend a long term loan to a sole proprietor. Lack of resources is one of the
major reasons why the size of the business rarely grows much and generally remains
small.
(ii) Limited life of a business concern: In the eyes of the law the proprietorship and the
owner are considered one and the same. Death, insolvency or illness of a proprietor
affects the business and can lead to its closure.
(iii) Unlimited liability: A major disadvantage of sole proprietorship is that the owner has
unlimited liability. If the business fails, the creditors can recover their dues not
merely from the business assets, but also from the personal assets of the proprietor. A
poor decision or an unfavorable circumstance can create serious financial burden on
the owners. That is why a sole proprietor is less inclined to take risks in the form of
innovation or expansion.
(iv) Limited managerial ability: The owner has to assume the responsibility of varied
managerial tasks such as purchasing, selling, financing, etc. It is rare to find an
individual who excels in all these areas. Thus decision making may not be balanced
in all the cases. Also, due to limited resources, sole proprietor may not be able to

45
 employ and retain talented and ambitious employees. Though sole proprietorship
suffers from various shortcomings, many entrepreneurs opt for this form of
organisation because of its inherent advantages. It requires less amount of capital. It is
best suited for businesses which are carried out on a small scale and where customers
demand personalised services.

2.2: Joint Hindu Family Business

Joint Hindu family business is a specific form of business organisation found only in
India. It is one of the oldest forms of business organisation in the country. It refers to a form of
organisation wherein the business is owned and carried on by the members of the Hindu
Undivided Family (HUF). It is governed by the Hindu Law. The basis of membership in the
business is birth in a particular family and three successive generations can be members in the
business. The business is controlled by the head of the family who is the eldest member and is
called karta. All members have equal ownership right over the property of an ancestor and they
are known as coparceners. There are two systems which govern membership in the family
business, viz., Dayabhaga and Mitakash systems. Dayabhaga system prevails in West Bengal and
allows both the male and female members of the family to be co-parceners. Mitakashara system,
on the other hand, prevails all over India except West Bengal and allows only the male members
to be co-parceners in the business. Gender Equality in the Joint Hindu Family a Reality With the
introduction of the Hindu Succession (Amendment) Bill 2004 in Parliament on December 20,
2004, the Government has gone a step further in fulfilling its commitment towards gender
equality made in National Common Minimum Programme (NCMP).
The Bill to amend the Hindu Succession Act of 1956 gives women equal rights in the
inheritance of ancestral wealth, something reserved only for male heirs earlier. It, indeed, is a
significant step in bringing the Hindu Law of inheritance in accord with the constitutional
principle of equality. The enactment of the proposed legislation would also implement the
recommendations of the National Commission for Women (NCW) substantially to help bring
social change in society. The Bill seeks to remove the discrimination as contained in section 6 of
the Hindu Succession Act, 1956 by giving equal rights to daughters in the Hindu Mitakshara
coparcenary property as the sons have. In what is known as the Kerala model, the concept of
coparcenary was abolished and according to the Kerala Joint Family System (Abolition) Act,

46
1975, the heirs (male and female) do not acquire property by birth but only hold it as tenants as if
a partition has taken place. Andhra Pradesh (1986), Tamil Nadu (1989), Karnataka (1994) and
Maharashtra (1994) also enacted laws, where daughters were granted ‘coparcener’ rights or a
claim on ancestral property by birth as the sons. Equality for women is not just a matter of equity
for the so-called weaker sex, but a measure of the modernity of Indian society and the pragmatic
nature of our civilisation.
2.2.1: Features
The following points highlight the essential characteristics of the joint Hindu family business.
(i) Formation: For a joint Hindu family business, there should be at least two members
in the family and ancestral property to be inherited by them. The business does not
require any agreement as membership is by birth. It is governed by the Hindu
Succession Act, 1956.
(ii) Liability: The liability of all members except the karta is limited to their share of
coparcenery property of the business. The karta, however, has unlimited liability.
(iii) Control: The control of the family business lies with the karta. He takes all the
decisions and is authorised to manage the business. His decisions are binding on the
other members.
(iv) Continuity: The business continues even after the death of the karta as the next eldest
member takes up the position of karta, leaving the business stable. The business can,
however, be terminated with the mutual consent of the members.
(v) Minor Members: The inclusion of an individual into the business occurs due to birth
in a Hindu Undivided Family. Hence, minors can also be members of the business.
Merits
2.2.2: Advantages
The advantages of the joint Hindu family business are as follows:
(i) Effective control: The karta has absolute decision making power. This avoids
conflicts among members as no one can interfere with his right to decide. This also
leads to prompt and flexible decision making.
(ii) Continued business existence: The death of the karta will not affect the business as
the next eldest member will then take up the position. Hence, operations are not
terminated and continuity of business is not threatened.

47
 (iii) Limited liability of members: The liability of all the co-parceners except the karta is
limited to their share in the business, and consequently their risk is well-defined and
precise.
(iv) Increased loyalty and cooperation: Since the business is run by the members of a
family, there is a greater sense of loyalty towards one other. Pride in the growth of
business is linked to the achievements of the family. This helps in securing better
cooperation from all them.
2.2.3: Limitations
The following are some of the limitations of a joint Hindu family business.
(i) Limited resources: The joint Hindu family business faces the problem of limited
capital as it depends mainly on ancestral property. This limits the scope for expansion
of business.
(ii) Unlimited liability of karta: The karta is burdened not only with the responsibility
of decision making and management of business, but also suffers from the
disadvantage of having unlimited liability. His personal property can be used to repay
business debts.
(iii) Dominance of karta: The karta individually manages the business which may at
times not be acceptable to other members. This may cause conflict amongst them and
may even lead to break down of the family unit.
(iv) Limited managerial skills: Since the karta cannot be an expert in all areas of
management, the business may suffer as a result of his unwise decisions. His inability
to decide effectively may result into poor profits or even losses for the organisation.
The joint Hindu family business is on the decline because of the diminishing number
of joint Hindu families in the country.

2.3: Partnership

The inherent disadvantage of the sole proprietorship in financing and managing an

expanding business paved the way for partnership as a viable option. Partnership serves as an
answer to the needs of greater capital investment, varied skills and sharing of risks.

48
 The Indian Partnership Act, 1932 defines partnership as “the relation between persons
who have agreed to share the profit of the business carried on by all or any one of them acting for
all.” Partnership is the relation between persons competent to make contracts who have agreed to
carry on a lawful business in common with a view to private gain.
L H Haney
Partnership is the relation which subsists between persons who have agreed to combine
their property, labour or skill in some business and to share the profits there from between them.
The Indian Contract Act.
2.3.1: Features
Definitions given above point to the following major characteristics of the partnership form of
business organisation.
(i) Formation: The partnership form of business organisation is governed by the Indian
Partnership Act, 1932. It comes into existence through a legal agreement wherein the
terms and conditions governing the relationship among the partners, sharing of profits
and losses and the manner of conducting the business are specified. It may be pointed
out that the business must be lawful and run with the motive of profit. Thus, two
people coming together for charitable purposes will not constitute a partnership.
(ii) Liability: The partners of a firm have unlimited liability. Personal assets may be used
for repaying debts in case the business assets are insufficient. Further, the partners are
jointly and individually liable for payment of debts. Jointly, all the partners are
responsible for the debts and they contribute in proportion to their share in business
and as such are liable to that extent. Individually too, each partner can be held
responsible repaying the debts of the business. However, such a partner can later
recover from other partners an amount of money equivalent to the shares in liability
defined as per the partnership agreement.
(iii) Risk bearing: The partners bear the risks involved in running a business as a team.
The reward comes in the form of profits which are shared by the partners in an agreed
ratio. However, they also share losses in the same ratio in the event of the firm
incurring losses.
(iv) Decision making and control: The partners share amongst themselves the
responsibility of decision making and control of day to day activities. Decisions are

49
 generally taken with mutual consent. Thus, the activities of a partnership firm are
managed through the joint efforts of all the partners.
(v) Continuity: Partnership is characterised by lack of continuity of business since the
death, retirement, insolvency or insanity of any partner can bring an end to the
business. However, the remaining partners may if they so desire continue the business
on the basis of a new agreement.
(vi) Membership: The minimum number of members needed to start a partnership firm is
two, while the maximum number, in case of banking industry is ten and in case of
other businesses it is twenty.
(vii) Mutual agency: The definition of partnership highlights the fact that it is a business
carried on by all or any one of the partners acting for all. In other words, every
partner is both an agent and a principal. He is an agent of other partners as he
represents them and thereby binds them through his acts. He is a principal as he too
can be bound by the acts of other partners.
Merits
2.3.2: Types of Partners
A partnership firm can have different types of partners with different roles and liabilities. An
understanding of these types is important for a clear understanding of their rights and
responsibilities. These are described as follows:
(i) Active partner: An active partner is one who contributes capital, participates in the
management of the firm, shares its profits and losses, and is liable to an unlimited
extent to the creditors of the firm. These partners take actual part in carrying out
business of the firm on behalf of other partners.
(ii) Sleeping or dormant partner: Partners who do not take part in the day to day
activities of the business are called sleeping partners. A sleeping partner, however,
contributes capital to the firm, shares its profits and losses, and has unlimited liability.
(iii) Secret partner: A secret partner is one whose association with the firm is unknown
to the general public. Other than this distinct feature, in all other aspects he is like the
rest of the partners. He contributes to the capital of the firm, takes part in the
management, shares its profits and losses, and has unlimited liability towards the
creditors.

50
 (iv) Nominal partner: A nominal partner is one who allows the use of his/her name by a
firm, but does not contribute to its capital. He/she does not take active part in
managing the firm, does not share its profit or losses but is liable, like other partners,
to the third parties, for the repayments of the firm’s debts.
(v) Partner by estoppel: A person is considered a partner by estoppel if, through his/her
own initiative, conduct or behaviour, he/she gives an impression to others that he/she
is a partner of the firm. Such partners are held liable for the debts of the firm because
in the eyes of the third party they are considered partners, even though they do not
contribute capital or take part in its management.
(vi) Partner by holding out: A partner by ‘holding out’ is a person who though Minor as
a Partner Partnership is based on legal contract between two persons who agree to
share the profits or losses of a business carried on by them. As such a minor is
incompetent to enter into a valid contract with others, he cannot become a partner in
any firm. However, a minor can be admitted to the benefits of a partnership firm with
the mutual consent of all other partners. In such cases, his liability will be limited to
the extent of the capital contributed by him and in the firm. He will not be eligible to
take an active part in the management of the firm.
2.3.3 : Types of Partnerships

Partnerships can be classified on the basis of two factors, viz., duration and liability. On
the basis of duration, there can be two types of partnerships : ‘partnership at will’ and ‘particular
partnership’. On the basis of liability, the two types of partnership include: one ‘with limited
liability’ and the other one ‘with unlimited liability’. These types are described in the following
sections. Classification on the basis of duration
(i) Partnership at will: This type of partnership exists at the will of the partners. It can
continue as long as the partners want and is terminated when any partner gives a
notice of withdrawal from partnership to the firm.
(ii) Particular partnership: Partnership formed for the accomplishment of a particular
project say construction of a building or an activity to be carried on for a specified
time period is called particular partnership. It dissolves automatically when the
purpose for which it was formed is fulfilled or when the time duration expires.
Classification on the basis of liability

51
 (i) General Partnership: In general partnership, the liability of partners is unlimited and
joint. The partners enjoy the right to participate in the management of the firm and
their acts are binding on each other as well as on the firm. Registration of the firm is
optional. The existence of the firm is affected by the death, lunacy, insolvency or
retirement of the partners.
(ii) Limited Partnership: In limited partnership, the liability of at least one partner is
unlimited whereas the rest may have limited liability. Such a partnership does not get
terminated with the death, lunacy or insolvency of the limited partners. The limited
partners do not enjoy the right of management and their acts do not bind the firm or
the other partners. Registration of such partnership is compulsory.
2.3.4: Advantages
The following points describe the advantages of a partnership firm.
(i) Ease of formation and closure: A partnership firm can be formed easily by putting
an agreement between the prospective partners into place whereby they agree to
carryout the business of the firm and share risks. There is no compulsion with respect
to registration of the firm. Closure of the firm too is an easy task.
(ii) Balanced decision making: The partners can oversee different functions according
to their areas of expertise. Because an individual is not forced to handle different
activities, this not only reduces the burden of work but also leads to fewer errors in
judgements. As a consequence, decisions are likely to be more balanced.
(iii) More funds: In a partnership, the capital is contributed by a number of partners. This
makes it possible to raise larger amount of funds as compared to a sole proprietor and
undertake additional operations when needed.
(iv) Sharing of risks: The risks involved in running a partnership firm are shared by all
the partners. This reduces the anxiety, burden and stress on individual partners.
(v) Secrecy: A partnership firm is not legally required to publish its accounts and submit
its reports. Hence it is able to maintain confidentiality of information relating to its
operations.
2.3.5: Limitations
A partnership firm of business organisation suffers from the following limitations:

52
 (i) Unlimited liability: Partners are liable to repay debts even from their personal
resources in case the business assets are not sufficient to meet its debts. The liability
of partners is both joint and several which may prove to be a drawback for those
partners who have greater personal wealth. They will have to repay the entire debt in
case the other partners are unable to do so.
(ii) Limited resources: There is a restriction on the number of partners, and hence
contribution in terms of capital investment is usually not sufficient to support large
scale business operations. As a result, partnership firms face problems in expansion
beyond a certain size.
(iii) Possibility of conflicts: Partnership is run by a group of persons wherein decision
making authority is shared. Difference in opinion on some issues may lead to disputes
between partners. Further, decisions of one partner are binding on other partners.
Thus an unwise decision by some one may result in financial ruin for all others. In
case a partner desires to leave the firm, this can result in termination of partnership as
there is a restriction on transfer of ownership.
(iv) Lack of continuity: Partnership comes to an end with the death, retirement,
insolvency or lunacy of any partner. It may result in lack of continuity. However, the
remaining partners can enter into a fresh agreement and continue to run the business.
(v) Lack of public confidence: A partnership firm is not legally required to publish its
financial reports or make other related information public. It is, therefore, difficult for
any member of the public to ascertain the true financial status of a partnership firm.
As a result, the confidence of the public in partnership firms is generally low.

2.5: Cooperative Society

The word cooperative means working together and with others for a common purpose.
The cooperative society is a voluntary association of persons, who join together with the motive
of welfare of the members. Cooperative organisation is “a society which has its objectives for the
promotion of economic interests of its members in accordance with cooperative principles. The
cooperative society is compulsorily required to be registered under the Cooperative Societies
Act, 1912. The process of setting up a cooperative society is simple enough and at the most what

53
is required is the consent of at least ten adult persons to form a society. The capital of a society is
raised from its members through issue of shares. The society acquires a distinct legal identity
after its registration.
2.5.1: Features
The characteristics of a cooperative society are listed below.
(i) Voluntary membership: The membership of a cooperative society is voluntary. A
person is free to join a cooperative society, and can also leave anytime as per his
desire. There cannot be any compulsion for him to join or quit a society. Although
procedurally a member is required to serve a notice before leaving the society, there
is no compulsion to remain a member. Membership is open to all, irrespective of their
religion, caste, and gender.
(ii) Legal status: Registration of a cooperative society is compulsory. This accords a
separate identity to the society which is distinct from its members. The society can
enter into contracts and hold property in its name, sue and be sued by others. As a
result of being a separate legal entity, it is not affected by the entry or exit of its
members.
(iii) Limited liability: The liability of the members of a cooperative society is limited to
the extent of the amount contributed by them as capital. This defines the maximum
risk that a member can be asked to bear.
(iv) Control: In a cooperative society, the power to take decisions lies in the hands of an
elected managing committee. The right to vote gives the members a chance to choose
the members who will constitute the managing committee and this lends the
cooperative society a democratic character.
(v) Service motive: The cooperative society through its purpose lays emphasis on the
values of mutual help and welfare. Hence, the motive of service dominates its
working. If any surplus is generated as a result of its operations, it is distributed
amongst the members as dividend in conformity with the bye-laws of the society.
Merits
2.5.2: Types of Cooperative Societies
Various types of cooperative societies based on the nature of their operations are described
below:

54
 (i) Consumer’s cooperative societies: The consumer cooperative societies are formed
to protect the interests of consumers. The members comprise of consumers desirous
of obtaining good quality products at reasonable prices. The society aims at
eliminating middlemen to achieve economy in operations. It purchases goods in bulk
directly from the wholesalers and sells goods to the members, thereby eliminating the
middlemen. Profits, if any, are distributed on the basis of either their capital
contributions to the society or purchases made by individual members.
(ii) Producer’s cooperative societies: These societies are set up to protect the interest of
small producers. The members comprise of producers desirous of procuring inputs for
production of goods to meet the demands of consumers. The society aims to fight
against the big capitalists and enhance the bargaining power of the small producers. It
supplies raw materials, equipment and other inputs to the members and also buys
their output for sale.
(iii) Marketing cooperative societies: Such societies are established to help small
producers in selling their products. The members consist of producers who wish to
obtain reasonable prices for their output. The society aims to eliminate middlemen
and improve competitive position of its members by securing a favourable market for
the products. It pools the output of individual members and performs marketing
functions like transportation, warehousing, packaging, etc., to sell the output at the
best possible price. Profits are distributed according to each member’s contribution to
the pool of output.
(iv) Farmer’s cooperative societies: These societies are established to protect the
interests of farmers by providing better inputs at a reasonable cost. The members
comprise of farmers who wish to jointly take up farming activities. The aim is to gain
the benefits of large scale farming and increase the productivity. Such societies
provide better quality seeds, fertilisers, machinery and other modern techniques for
use in the cultivation of crops. This helps not only in improving the yield and returns
to the farmers, but also solves the problems associate with the farming on fragmented
land holdings.
(v) Credit cooperative societies: Credit cooperative societies are established for
providing easy credit on reasonable terms to the members. The members comprise of

55
 persons who seek financial help in the form of loans. The aim of such societies is to
protect the members from the exploitation of lenders who charge high rates of interest
on loans. Such societies provide loans to members out of the amounts collected as
capital and deposits from the members and charge low rates of interest.
(vi) Cooperative housing societies: Cooperative housing societies are established to help
people with limited income to construct houses at reasonable costs. The members of
these societies consist of people who are desirous of procuring residential
accommodation at lower costs. The aim is to solve the housing problems of the
members by constructing houses and giving the option of paying in instalments.
These societies construct flats or provide plots to members on which the members
themselves can construct the houses as per their choice.

2.5.3: Advantages
The cooperative society offers many benefits to its members. Some of the advantages
of the cooperative form of organisation are as follows.
(i) Equality in voting status: The principle of ‘one man one vote’ governs the
cooperative society. Irrespective of the amount of capital contribution by a member,
each member is entitled to equal voting rights.
(ii) Limited liability: The liability of members of a cooperative society is limited to the
extent of their capital contribution. The personal assets of the members are, therefore,
safe from being used to repay business debts.
(iii) Stable existence: Death, bankruptcy or insanity of the members do not affect
continuity of a cooperative society. A society, therefore, operates unaffected by any
change in the membership.
(iv) Economy in operations: The members generally offer honorary services to the
society. As the focus is on elimination of middlemen, this helps in reducing costs.
The customers or producers themselves are members of the society, and hence the
risk of mbad debts is lower.
(v) Support from government: The cooperative society exemplifies the idea of
democracy and hence finds support from the Government in the form of low taxes,
subsidies, and low interest rates on loans.

56
 (vi) Ease of formation: The cooperative society can be started with a minimum of ten
members. The registration procedure is simple involving a few legal formalities. Its
formation is governed by the provisions of Cooperative Societies Act 1912.

2.5.4: Limitations
The cooperative form of organisation suffers from the following limitations:
(i) Limited resources: Resources of a cooperative society consists of capital
contributions of the members with limited means. The low rate of dividend offered on
investment also acts as a deterrent in attracting membership or more capital from the
members.
(ii) Inefficiency in management: Cooperative societies are unable to attract and employ
expert managers because of their inability to pay them high salaries. The members
who offer honorary services on a voluntary basis are generally not professionally
equipped to handle the management functions effectively.
(iii) Lack of secrecy: As a result of open discussions in the meetings of members as well
as disclosure obligations as per the Societies Act (7), it is difficult to maintain secrecy
about the operations of a cooperative society.
(iv) Government control: In return of the privileges offered by the government,
cooperative societies have to comply with several rules and regulations related to
auditing of accounts, submission of accounts, etc. Interference in the functioning of
the cooperative organisation through the control exercised by the state cooperative
departments also negatively affects its freedom of operation.
(v) Differences of opinion: Internal quarrels arising as a result of contrary viewpoints
may lead to difficulties in decision making. Personal interests may start to dominate
the welfare motive and the benefit of other members may take a backseat if personal
gain is given preference by certain members.

2.6: Joint Stock Company

A company is an association of persons formed for carrying out business activities and
has a legal status independent of its members. The company form of organisation is governed by

57
the Companies Act, 1956. A company can be described as an artificial person having a separate
legal entity, perpetual succession and a common seal. The shareholders are the owners of the
company while the Board of Directors is the chief managing body elected by the shareholders.
Usually, the owners exercise an indirect control over the business. The capital of the company is
divided into smaller parts called ‘shares’ which can be transferred freely from one shareholder to
another person (except in a private company).
2.6.1: Features
The definition of a joint stock company highlights the following features of a company.
(i) Artificial person: A company is a creation of law and exists independent of its
members. Like natural persons, a company can own property, incur debts, borrow
money, enter into contracts, sue and be sued but unlike them it cannot breathe, eat,
run, talk and so on. It is, therefore, called an artificial person.
(ii) Separate legal entity: From the day of its incorporation, a company acquires an
identity, distinct from its members. Its assets and liabilities are separate from those of
its owners. The law does not recognise the business and owners to be one and the
same.
(iii) Formation: The formation of a company is a time consuming, expensive and
complicated process. It Joint stock company is a voluntary association of individuals
for profit, having a capital divided into transferable shares, the ownership of which is
the condition of membership.involves the preparation of several documents and
compliance with several legal requirements before it can start functioning.
Registration of a company is compulsory as provided under the Indian Companies
Act, 1956.

(iv) Perpetual succession: A company being a creation of the law, can be brought to an
end only by law. It will only cease to exist when a specific procedure for its closure,
called winding up, is completed.
2.6.2: Types of Companies
A company can be either a private or a public company. These two types of companies
are discussed in detail in the following paragraphs.
Private Company: A private company means a company which:

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 a. Restricts the right of members to transfer its shares;
b. Has a minimum of 2 and a maximum of 50 members, excluding the present and past
employees;
c. Does not invite public to subscribe to its share capital; and
d. Must have a minimum paid up capital of Rs.1 lakh or such higher amount which may
be prescribed from time-to-time.
It is necessary for a private company to use the word private limited after its name. If a private
company contravenes any of the aforesaid provisions, it ceases to be a private company and loses
all the exemptions and privileges to which it is entitled.

The following are some of the privileges of a private limited company as against a public limited
Company:
1. A private company can be formed by only two members whereas seven people are
needed to form a public company.
2. There is no need to issue a prospectus as public is not invited to subscribe to the shares of
a private company.
3. Allotment of shares can be done without receiving the minimum subscription.
4. A private company can start business as soon as it receives the certificate of
incorporation. The public company, on the other hand, has to wait for the receipt of
certificate of commencement before it can start a business.
5. A private company needs to have only two directors as against the minimum of three
directors in the case of a public company.
6. A private company is not required to keep an index of members while the same is
necessary in the case of a public company.
7. There is no restriction on the amount of loans to directors in a private company.
Therefore, there is no need to take permission from the government for granting the
same, as is required in the case of a public company.
Public Company: A public company means a company which is not a private company. As per
the Indian Companies Act, a public company is one which:
(a) has a minimum paid-up capital of Rs. 5 lakhs or a higher amount which may be prescribed
from time-to-time;

59
(b) has a minimum of 7 members and no limit on maximum members;
(c) has no restriction on transfer of shares; and
(d) is not prohibited from inviting the public to subscribe to its share capital or public deposits.
A private company which is a subsidiary of a public company is also treated as a public
company.
2.6.3: Advantages
The company form of organisation offers a multitude of advantages, some of which are
discussed below:
(i) Limited liability: The shareholders are liable to the extent of the amount unpaid on
the shares held by them. Also, only the assets of the company can be used to settle the
debts, leaving the owner’s personal property free from any charge. This reduces the
degree of risk borne by an investor.
(ii) Transfer of interest: The ease of transfer of ownership adds to the advantage of
investing in a company as the share of a public limited company can be sold in the
market and as such can be easily converted into cash in case the need arises. This
avoids blockage of investment and presents the company as a favourable avenue for
investment purposes.
(iii) Perpetual existence: Existence of a company is not affected by the death, retirement,
resignation, insolvency or insanity of its members as it has a separate entity from its
members. A company will continue to exist even if all the members die. It can be
liquidated only as per the provisions of the Companies Act.
(iv) Scope for expansion: As compared to the sole proprietorship and partnership forms
of organisation, a company has large financial resources. Further, capital can be
attracted from the public as well as through loans from banks and financial
institutions. Thus there is greater scope for expansion. The investors are inclined to
invest in shares because of the limited liability, transferable ownership and possibility
of high returns in a company.
(v) Professional management: A company can afford to pay higher salaries to
specialists and professionals. It can, therefore, employ people who are experts in their
area of specialisations. The scale of operations in a company leads to division of
work. Each department deals with a particular activity and is headed by an expert.

60
 This leads to balanced decision making as well as greater efficiency in the company’s
operations.

2.6.4: Limitations
(i) Lack of secrecy: The Companies Act requires each public company to provide from
time-to-time a lot of information to the office of the registrar of companies. Such
information is available to the general public also. It is, therefore, difficult to maintain
complete secrecy about the operations of company.
(ii) Impersonal work environment: Separation of ownership and management leads to
situations in which there is lack of effort as well as personal involvement on the part
of the officers of a company. The large size of a company further makes it difficult
for the owners and top management to maintain personal contact with the employees,
customers and creditors.
(iii) Numerous regulations: The functioning of a company is subject to many legal
provisions and compulsions. A company is burdened with numerous restrictions in
respect of aspects including audit, voting, filing of reports and preparation of
documents, and is required to obtain various certificates from different agencies, viz.,
registrar, SEBI, etc. This reduces the freedom of operations of a company and takes
away a lot of time, effort and money.
(iv) Delay in decision making: Companies are democratically managed through the
Board of Directors which is followed by the top management, middle management
and lower level management. Communication as well as approval of various
proposals may cause delays not only in taking decisions but also in acting upon them.
(v) Oligarchic management: In theory, a company is a democratic institution wherein
the Board of Directors are representatives of the shareholders who are the owners. In
practice, however, in most large sized organisations having a multitude of
shareholders; the owners have minimal influence in terms of controlling or running
the business. It is so because the shareholders are spread all over the country and a
very small percentage attend the general meetings. The Board of Directors as such
enjoy considerable freedom in exercising their power which they sometimes use even

61
 contrary to the interests of the shareholders. Dissatisfied shareholders in such a
situation have no option but to sell their shares and exit the company.

2.7: Choice of Forms of Business Organisation

After studying various forms of business organisations, it is evident that each form has
certain advantages as well as disadvantages. It, therefore, becomes vital that certain basic
considerations are kept in mind while choosing an appropriate form of organisation. The
important factors determining the choice of organisation are listed below:
1. Cost and ease in setting up the organisation: As far as initial business setting-up costs are
concerned, sole proprietorship is the most inexpensive way of starting a business. However, the
legal requirements are minimum and the scale of operations is small. In case of partnership also,
the advantage of less legal formalities and lower cost is there because of limited scale of
operations. Cooperative societies and companies have to be compulsorily registered. Formation
of a company involves a lengthy and expensive legal procedure. From the point of view of initial
cost, therefore, sole proprietorship is the preferred form as it involves least expenditure.
Company form of organisation, on the other hand, is more complex and involves greater costs.
2. Liability: In case of sole proprietorship and partnership firms, the liability of the
owners/partners is unlimited. This may call for paying the debt from personal assets of the
owners. In joint Hindu family business, only the karta has unlimited liability. In cooperative
societies and companies, however, liability is limited and creditors can force payment of their
claims only to the extent of the company’s assets. Hence, from the point of view of investors, the
company form of organisation is more suitable as the risk involved is limited.
3. Continuity: The continuity of sole proprietorship and partnership firms is affected by such
events as death, insolvency or insanity of the owners. However, such factors do not affect the
continuity of business in the case of organisations like joint Hindu family business, cooperative
societies and companies. In case the business needs a permanent structure, company form is
more suitable. For short term ventures, proprietorship or partnership may be preferred.
4. Management ability: A sole proprietor may find it difficult to have expertise in all functional
areas of management. In other forms of organisations like partnership and company, there is no
such problem. Division of work among the members in such organisations allows the managers
to specialise in specific areas, leading to better decision making. But this may lead to situations

62
of conflicts because of differences of opinion amongst people. Further, if the organisation’s
operations are complex in nature and require professionalised management, company form of
organisation is a better alternative. Proprietorship or partnership may be suitable, where
simplicity of operations allow even people with limited skills to run the business. Thus, the
nature of operations and the need for professionalised management affect the choice of the form
of organisation.
5. Capital considerations: Companies are in a better position to collect large amounts of capital
by issuing shares to a large number of investors. Partnership firms also have the advantage of
combined resources of all partners. But the resources of a sole proprietor are limited. Thus, if the
scale of operations is large, company form may be suitable whereas for medium and small sized
business one can opt for partnership or sole proprietorship. Further, from the point of view of
expansion, a company is more suitable because of its capability to raise more funds and invest in
expansion plans. It is precisely for this purpose that in our opening case Neha’s father suggested
she should consider switching over to the company form of organisation.
6. Degree of control: If direct control over operations and absolute decision making power is
required, proprietorship may be preferred. But if the owners do not mind sharing control and
decision making, partnership or company form of organisation can be adopted. The added
advantage in the case of company form of organisation is that there is complete separation of
ownership and management and it is professionals who are appointed to independently manage
the affairs of a company.
7. Nature of business: If direct personal contact is needed with the customers such as in the case
of a grocery store, proprietorship may be more suitable. For large manufacturing units, however,
when direct personal contact with the customer is not required, the company form of
organisation may be adopted. Similarly, in cases where services of a professional nature are
required, partnership form is much more suitable. It would not be out of place to mention here
that the factors stated above are interrelated. Factors like capital contribution and risk vary with
the size and nature of business, and hence a form of business organisation that is suitable from
the point of view of the risks for a given business when run on a small scale might not be
appropriate when the same business is carried on a large scale. It is, therefore, suggested that all
the relevant factors must be taken into consideration while making a decision with respect to the
form of organisation that should be adopted.

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2.8: Start-ups

What is a Start-up? : A Start- up company is an entrepreneurial venture which is typical, a

newly emerged, fast glowing business that aims to meet a market place need, by developing
a viable business model around an innovative product, service, process or a platform.
2.8.1 Types of Start-ups
Starting one’s own venture for the first time is a great shift from having a comfortable
and cushioned salaried job. Starting a venture requires taking up the reins of a project, that is
to say, becoming responsible for all the decisions regarding a project. The rewards for taking
risk and responsibility come by way of profits or loss, depending upon the success or failure
of a project. Therefore, it require specific acumen and tools to sail though the venture
successfully. Thus, start-ups are companies in their first stage of operations. These
companies are rolled out through promoters and friends or through seed fund support from
government organization or through banks. It has been found that because of limited funds
vis-à-vis requirements and small-scale operations, these companies face great challenges for
their sustainable growth.
The term ‘start-up’ become internationally very popular during the dot-com bubble when a
large number of dot-com companies were founded in a short span of time.
A high-tech start-up company is a start-up venture that specialize in technology-driven
solutions to address the pain points of customers. Normally, the term ‘start-up’ is associated
with high-technology and high-growth ventures. It has been observed that successful start-
ups are typically more scalable with limited resources than an established business.
Technology-driven start-up normally produce high returns to investors and their promoters,
for example, the case of Infosys, Google and Apple. For technology-bases start-ups, it is
important that owners get intellectual property rights in their favour to derive full advantage
from the technological innovation.
The news magazine The Economist estimated that up to 75 per cent of the value of US
public companies is now based on their intellectual property (up from 40 per cent in 1980). 1
Often, 100 per cent of a small start-up company’s value is based on its intellectual property.
As such, it is important for technology-oriented start-up companies to develop a sound

64
 strategy for protecting their intellectual capital as early as possible. 2 Simultaneously, it is
important to note that the failure rate of start-up companies is also very high.
Start-ups are classified, according to one classification, into three broad categories- (1)
lifestyle firm (2) foundation company and (3) gazelles. Lifestyle firms spend limited funds on
research and market potential. Their employee strengths grow to 30 to 40 after several years
of operations. They primarily exist for their owners and do have great opportunity to grow
and expend. They merely provide reasonable living to their founders. These ventures
normally have growth rates below 20 per cent per annum and are mainly funded through
internal funds and rarely with outside equity funds. This category comprises around 90 per
cent of start-ups.
Foundation companies have a backbone of investment on research and development,
which acts as a foundation for new businesses .This category of firms may grow to an
employee strength of 300 to 400 within a period of 10 years. These companies usually do not
go public and therefore attract the interest of private but not of venture capitalists.
Gazelles are start-ups having high potential for growth. These ventures attract a lot of
interest from investors, including venture capitalists. Their growth trajectory is unassuming,
although they start as a foundation company. These companies are major job providers and
are able to provide jobs to more than 500 people after 8 to 10 years of operation, which keeps
expanding. These are typically companies that contribute a great deal to the economic
development of an area in which they operate. A gazelle, according to Birch’s definition, is a
business entity having at least 20 per cent sales growth every year. Starting with a base of at
least $ 0.1 million. 3 Gazelles grow on the strength of their innovation. Which is a hallmark
of their growth. It has been found that ‘Gazelles produce twice as many product innovations
per employee as do larger firms’ and similarly ‘new and smaller firms obtain more patents
per sales dollar than do larger firms’ (Kuratoko and Hodgetts 2007).

2.9: summary
Business Organizations take different forms, depending upon the suitability to the
promoters, legal environment and societal conditions. The expected size and volume of
operations of the business enterprises also influence the form of organization. For example, a
business that is expected to serve the shopping needs of a village could be started in the form of a
sole trader only. Similarly, if the business needs to operate at a large scale where the need for

65
investments and capital is at a higher level, the promoters would opt joint stock company form.
However, various factors and parameters influence the option of different forms of organization.
Each form has its own merits and demerits. Entrepreneur plays a predominant role in all these
forms. He / She also play a significant role in startups and economic development

2.10: Self Assessment Questions

Short questions:
1. Sole trader
2. Partnership
3. Hindu Undivided family
4. Private limited company
5. Public limited company
6. Cooperative business

Essay Questions:

1. Explain the importance of sole or proprietorship form of business, even in the times of
corporate relating?
2. What are the features of partnership organization? How does it differ with the joint Hindu
family business.
3. How do you understand the scope and functions of a joint stock form of organization.
4. What are the factors influencing the selection of a form of business ?
5. What are the advantages and limitations of cooperative form of business?
6. What is a Star-Up? Explain its importance

Multiple choice questions:

1. The best definition of a sole trader form of business organisation is:
A. The business is owned by one person
B. The business employs only one person
C. The firm has a single customer
D. There is a single firm in the industry
2. One of the claimed advantages of a sole trader business is that:

66
 A. Owner is independent in taking decisions
B. Trader cannot sell shares in open market
C. Trader capital is limited
D. Has a right to transfer his liability.
3. Which of the following types of business organisation is owned by its customers?
A. A Consumer’s cooperative Society
B. A partnership
C. A public limited company
D. A franchise
4. Limited Liability means?
A. Share holders cannot be asked to share company’s debts
B. Shareholder has to bear company losses
C. A firm is likely to go into bankrupt
D. Employees have no right on their salaries.
5. CGT is an abbreviation for?
A. capital gains tax
B. cash generated tax
C. capital group tax
D. capital generated tax
6. The maximum number of shareholders allowed in a Public Limited Company is?
A. No maximum number
B. 20
C. 50
D. 100
7. The form of business organization that has the largest sales volume is the:
A. corporation
B. cooperation
C. Partnership
D. Sole Trader
8. Family business always interested to handover the change of his business to:
(a) Indian Administration Officers

67
 (b) Professional Managers
(c) Next generation
(d) None of the above
9. A partner who is not actually involved in the partnership but lends his name for public
relations purposes is a:
A. Nominal partner.
B. silent partner
C. general partner
D. dominant partner
10. Which of the following is probably the most important reason for starting a company?
A. Limited liability of shareholders.
B. More money for investment.
C. Increased flexibility.
D. Shared management.
11. Which of the following is an example of a non profit organization?
A. YMCA
B. Royal Bank
C. BCE
D. Air Canada
12. Which of the following is a characteristic of a co-operative?
A. Profits are not subject to income tax.
B. One vote per share.
C. dividends are paid on a per share basis
D. Liability of coparceners is limited.
13. Co-operatives play an important role in:
A. Agriculture
B. Manufacturing
C. Trading
D. Aerospace
14. Which of the following is not a feature of a private limited company?
A. Shares can be bought and sold on the Stock Exchange.

68
 B. Shares can be issued to raise capital.
C. All owners of the business have limited liability.
D. The business continues after the death of shareholders.
15. The main reason why the owners of many private limited companies convert into public
limited companies is because:
A. They want to raise additional capital to expand the business.
B. They want to keep the annual accounts secret
C. They want to gain the benefits of limited liability
D. They do not want to remain in the private sector.
16. Which of the company’s documents were called as the charter of the company?
A. Memorandum of association
B. Articles of association
C. Prospectus
D. Statement in lieu of prospectus.
17. Which one of the following is not the characteristic of Joint Hindu Family Business?
A. Membership by birth
B. Unlimited liability of Karta
C. Unaffected by death
D. Youngest member of family is Karta
18. Minimum number of members in a public limited company is:
A. 10
B. 02
C. 50
D. 07
19. Maximum number of members in private limited company is
A. 50
B. Unlimited
C. 2
D. 10

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20. Minimum number of members in a private limited company is
A. 2
B. 50
C. 7
D. 10

Activity 1 : In what ways a partnership firm is superior to a sole trader firm ?

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Activity 2: what are the additional advantages in starting a Public limited company than a
private limited company.
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Activity 3: study the various forms of business enterprises and suggest which form is
suitable for you and state the reasons for choosing that form.

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2.11: Key Terms

Sole trader; partnership; joint stock company; Cooperative society. Start- Ups; Mithakshari
School; Artificial Person.

2.12: Further Readings / Reference books

1. Michael H. Morris, Entrepreneurship and Innovation in corporations, Cengage Learning,
2008.
2. Donald F. Kuratko & Richard M. Hodgetts, Entrepreneurship in the New Millennium,
Cengage Learning, 2007.

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 LESSON 3: NEW IDEAS AND SOURCES OF NEW IDEAS

Objectives of the lesson:

After studying this lesson you should be ready to understand:
 Importance of a new Idea for starting of a new business unit;
 Sources of new ideas for enthusiastic entrepreneurs.

Structure of the lesson:

3.1: what is an Idea?

3.2 What is an Idea generation?
3.3 Idea generation-virgin company study
3.4. Activity
3.5 Idea fields
3.6: what are the Sources of New Ideas?
3.6.1: Consumers
3.6.2: Existing Products and Services
3.6.3: Distribution Channels
3.6.4: Government Policies and Priorities
3.5.5: Research and Development (R&D)
3.7. Idea Generation Process
3.7.1: Generation
3.7.2 Development
3.7.3: Execution
3.7.4: Evaluation
3.8 Activity
3.9: Summary
3.10: Self assessment Questions
3.11: Key Terms

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3.12. Further Readings / Reference books

Exhibit -1

Top 10 Young Entrepreneurs in India

India is a developing country and its development is truly the hard work of its people.
India has produced many great scholars, scientists, intellectuals and even entrepreneurs. The
sense of achieving is deep rooted in Indians and that’s the reason Indians are doing great works
in almost all countries. The young Indians are very enthusiastic and never settle for ‘just ok’.
They aspire for best in every field. They have surprised everyone with their business acumen.
We proudly present you the list of top ten young entrepreneurs of India:

1. Shravan Kumaran and Sanjay Kumaran -

Age 14 and 12 years Old Respectively

At a tender age of 14 and 12, most kids don’t even think

of venturing into fields usually occupied but Shravan and
Sanjay thought out of box and became the youngest entrepreneurs. These techie kids are the
founders of Go Dimensions.
2. Farrhad Acidwala - Age 23

Farrhand bought a domain name at the age of 16 with 500 INR he had
borrowed from his dad. He started a web community devoted to aviation
and sold it at a very good price when It became a hit. He is now CEO of his
new company Rockstah Media.

73
 3. Sameer Gehlaut - Age 40

An IITian from Delhi, Sameer started India’s first online brokerage

company in 2000, Indiabulls Group. The combined net worth of his
diversified company is $3.17 billion.

4. Arjun Rai - Age 20

Arjun was highly inspired by TV shows like ‘The Oprah Show’ and ‘The
Big Idea with Donny Deutsch’. He started working towards his company in
2009. Today he is CEO of OdysseyAds.
5. Amir Rao - Age 29
Amir is a studio director at Supergiant Games. He also a co-creator of role-
playing action video game Bastion which has won many awards and so far,
as sold around 2.2 million copies.

6. Kavita Shukla - Age 29

Kavita is the founder of FreshPaper which keeps the produces fresh for
longer hours than today’s conventional methods. She has patented her
innovation.

7. Neil Mehta - Age 29

Neil is the founder of Greenoaks Capital which is an investment firm. At
present, he is managing around $600 million by investing in various
industries ranging from insurance to e-commerce.

8. Pranav Yadav - Age 28

Pranav is the CEO of Neuro-Insight. It is a neuro-marketing firm that has designed and
developed brain mapping technology to understand and improve the quality of commercials on

74
 9. King Siddharth - Age 20
Multi-talented Siddharth is an entrepreneur, artist, designer and public
speaker. He dropped out of college to make his name known in the world
through his great work. He writes an e-magazine ‘Friendz’ and has written
books called ‘Law of Attraction’ and ‘Bhagvad Gita’.
10. Sandeep Maheshwari - Age 33
The founder of image bazaar, Sandeep, is a leading entrepreneur in the
field of collection of amazing images. His company is the largest
provider of images to various commercial companies. He also gives
lectures in renowned universities and colleges.

TV.

3.1: what is an idea?

An idea is the result of creative thinking. An idea thinks and designs sense thing new, in
order to solve problems in new and different ways. Idea looks at the problem as everyone else
but thinks the solution from an innovative, a simple and ubiquitous way. It could be a new design
for a mobile phone, a new way of publicity for a product/ service, a new arrangement for
accommodating a large member of people in a vehicle which would be appealing to customers,
so on.

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3.2 What is Idea Generation?

The starting point of any business organization is a powerful idea - an idea worth
thinking about, an idea worth enhancing and developing, and an idea worth converting in to a
business. Idea generation is the foundation of the process of discovering new sustainable
business opportunities. New ideas often arise from simple questions like ‘what is this?’, ‘what is
it for?’, and ‘what could it be for?’Questioning is the basic uses of utensils we use in everyday
life and common customs and rules opens up space for many new opportunities. Therefore,
looking at things from a different angle is the first step to innovate and invent new solutions.
This activity aims to boost participant’s creativity and help them to develop creative ideas that
make a difference.

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 3.3 Idea Generation – Virgin Company Study

______________________________________________________________________________

Virgin was founded in 1970 by Richard Branson and is classified as a holding company for
multiple ventures under the Virgin Group. When it comes to innovation Virgin is one of the top
companies in the world. What began as a mail order record company has evolved into one of the
most diverse companies in existence. Virgin invests in and builds companies that revolve around
delivering fantastic customer experience and change the scope of industries. They do everything
from space tourism to air travel, make comic books and video games. The company now holds
over 200 companies and operates in 29 countries.

How Virgin Does It

When Virgin picks ideas they want them to have the following requirements:

1. Champion the consumer

2. Offer value for money
3. Deliver a quality product or experience
4. Drive innovation
5. Be competitively challenging in the market place
6. Be something fun

They’ve found that the most successful ideas they get are the ones that are marketing, sales,
and customer focused, sit under the Virgin brand, have a well-defined and differentiated
customer offer and oftentimes are delivered in partnership with experts in their field.

Virgin takes the ideas it gets and boils them down into several categories. Anything that doesn’t
quite fit into an existing company gets sent to corporate development for review. They take the
time to read and respond to every proposal. They do not disclose how rewards are awarded but
there are substantial ones for good ideas that are implemented.

Internally Virgin also sources business plans and ideas from employees. Once a flight attendant
had an idea. It got presented to the CEO and before long she had a considerable role in starting

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up Virgin Brides (which beyond being a fantastic idea didn’t quite work out in the market place).
It’s incredible that a flight attendant can have an idea that makes it that far in a company.

3.5: Idea fields

The process of generation of ideas can be streamlined by developing an awareness of different

‘idea fields’. This will help the entrepreneur in enlarging the scope of thinking, at the same time
structuring the ideas according to convenient frames of reference.

1. Natural Resources Based Ideas. Ideas can be generated based on natural resources. A
product or service may be desired form forest resources, agriculture, horticulture, mineral,
marine or aqua mineral, animal husbandry, wind, sun and human resources. A further exercise
with a field may generate many useful product ideas. For instance, if a person getting ideas in the
field of forest resources, he can think of forest product, wood-based product, boi-fertilizer etc.
Similarly if it is horticulture, he generate a number of ideas for food preservation, canning,
freezing juices, squashes, pulp, jam, pickles etc.

2. Existing Products or Services Based Ideas. There is a constant and consistent effort on the
part of many entrepreneurs to improve the products and services already in the market. When
black and white computer screen came into use, many entrepreneurs started thinking of
introducing color monitors.

Thinking about existing products and services can generate a number of ideas to improve them
or to provide a cheaper substitute or to bring about a reduction in price. It can also help in
deciding whether similar projects can be established, products can be developed from the waste
or by products or existing units and whether there is scope for packaging and other services for
existing products. For example, when an automobile unit is established in an area, attempts can
be made to ascertain whether a few parts or components for the automobile can be produced in
the small scale sector. Similarly where a perfume unit starts functioning, there is scope for
growing and supplying aromatic plants. Or essential oil can repurchased from existing units and
final products (such as cosmetic products) may be manufactured. These types of backward and
forward linkages f existing business activates are a good source for generating new ideas.

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3. Market Driven Ideas. As we know, one important method for generating ideas is to curry
out a market research. Such a study yields valuable data about treads of supply, demand,
consumer preferences etc. Sometimes information related out routine market surveys. Whatever
may be the source of information about the market, it is a promising field for generation of ideas.

4. Trading Related Ideas. Local trade, imports and exports, e-commerce, have all made
trading a very wide area of enterprise. Trade in simple terms is baying goods and services and
selling them to consumers at a profit. The advantages that trading has over other types of
business is that it is easier to launch a trading firm and it is less risky.

An entrepreneur venturing into trading should be aware of the trends in the economy. With the
opening of the Markey to international companies, big departmental stores, chain shops and
umbrella markets have become ubiquitous-competition has become intense and to survive in the
market new entrants will have to acquire skills, competencies and knowledge required to launch,
manage and expand business opportunities. Further, if a business is to be successful, it must
satisfy some needs of enough number to consumers to generate profits. A trading enter price that
is based on this concept is more likely to be successful than an enterprise that is launched
without adequately studying the consumer needs.

5. Service Sector Ideas. Service sector is the most growing field these days the world over,
thanks to emerging knowledge society and advances in information Technology. So new
opportunities can be identified by understanding the linkages to different business activities. For
instance, with the existing industrial enterprises an entrepreneur think of several service-based
units like transport, workshop, maintenance, security, catering, recruitment, training,
communication etc. Similarly he can get ideas about linkages with commercial establishments
like photocopy, courier service, printing, book-keeping, computer center, telecom center,
advertisement etc. Many services that have the purpose of helping organizations satisfy their day
to day needs like bill collection, water supply, water tank cleaning, and travel.

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6. Creative Efforts of the Entrepreneur. Entrepreneurship is the ability to create and build
something from practically nothing. Fundamentally, it is creative activity sensing an opportunity
where others see chaos, contradiction, and confusion, Entrepreneurship can be viewed as a
creative and innovative response to the environment and an ability to recognizes, initiate and
exploit an economic opportunity.

7. Other Considerations Selecting a Product/Service Idea. While electing a project, an

entrepreneur may also have other considerations in mind. These include employment generation,
area development, community enlistment, environment preservation, poverty alleviation,
empowerment of women and so on. If most of the entrepreneurs follows these considerations, the
result will be sustainable development. It may be noted that sustainable development is process
of economic development which flutist the needs of the present generation without causing any
harm to the ability of the future generation to fulfill their needs.

3.6: what are the Sources of New Ideas?

Entrepreneurs need to be very clear about sources that can provide them good ideas.
Ideas that can make business sense are said be the foundation of any start-up venture. Basically,
doing what one enjoys doing is fundamental a pre-requisite but the idea on which someone is
working should result in a product or service that has a market backed up by willingness on the
part of customers to pay.

Some of the prominent sources for business ideas could be understanding the consumers
existing products and services, distribution channels and promotional techniques in use,
government policies and priorities, and research and development priorities and outcomes

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 Consumers

Existing Distribution
Products and Sources of
Channels
Services New Ideas

Government
Research and Policies and
Development Priorities

Fig 1.1 Sources of New Ideas

3.6.1: Consumers

Observing and studying consumers help potential entrepreneurs identify business ideas
that make meaning and serve the purpose of customers. It requires a clear understanding of the
psychology of a consumer, that is, the way they think, feel, reason and choose from among
different alternatives. It also depends on understanding the way a consumer is influenced by their
social, cultural, technological, legal competitive environments. Consumer choices about buying
goods and services are influenced by external and internal factors. The external factors that
govern their consumption are culture, demographics and social aspects, religious and regional
subcultures, families and households, and peer groups. The internal factors that influence their
decision to buy or not to buy a particular product and service are perception, learning, memory,
motives, personality, emotions and attitude.

3.6.2: Existing Products and Services

Looking for new business ideas could be through monitoring and evaluation of existing
manufactured products, the way these get distributed and the services are made available to
consumers. One can get ideas from existing products/ services and existing markets, and new
products/ services. The most difficult ideas come from new markets and new products/ services.
In case entrepreneurs focus attention on the simplest category, they get exposed to higher risks
associated with severe competition.

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3.6.3: Distribution Channels

The people involved in the distribution chain are an excellent source of new ideas. It is
this group of people who directly interact with the people chain after the product comes out of
the production system. These people come up with suggestions for introducing new products and
facilitate marketing of these products. To take advantage of the people involved in the
distribution channel, they need to be trained to be conscious and alert to questions such as ‘What
problems are your customers trying to solve when they buy from you?’; ‘Are there competitors
providing similar products, and if so, what are their unique features?’; ‘Are there complementary
services or products that come before or after they join?’ and ‘What other features in your
product or service can dramatically enhance value for the customer?’.

3.6.4: Government Policies and Priorities

Government policies and priorities and regulatory mechanisms clearly indicate the
opportunities that exist in any economy. Every government, irrespective of the political setup,
comes up with yearly and long-term plans for the growth and development of its economy. These
plans indicate the sources of money and the uses thereof in specific sectors and activities to
promote development.

The government has initiated, sustained and refined many programmes since
Independence to help the poor attain self-sufficiency in food production. Education, health and
rural development have been the key focus of these programmes for the last few years. Thus,
these sectors provide a scope for business ideas that can serve the need for ‘bottom of the
pyramid’ and avail benefits arising out of resource flow to these sectors.

3.6.5: Research and Development (R&D)

The greatest source for an entrepreneur to come up with new ideas is the entrepreneur’s
own research and development endeavors. These efforts could be of a formal nature within the
organization or taken up in association with industry, these also could be informal, wherein
entrepreneurs, on their own or with the help of a team, keep pursuing their research interests.
Even the research and development efforts being pursued by competitors in the industry provide
insights into where to focus efforts for product development.

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______________________________________________________________________________
:3.7. Idea Generation Process

Entrepreneurs, who tend to focus solely on their day-to-day work, tend to fall into a routine. The
creative spark often fades away when the stress and pressure of running a business takes over.
Thinking creatively is important in every level and stage of development of the company. By
inspiring forward thinking, the entrepreneurs create more cohesively-working teams of people,
who feel motivated to share their ideas and work together towards executing these ideas and
implementing them in the work process.

As the way to come up with new concepts varies from person to person, understanding the idea
generating process gives every entrepreneur the ability to improve this process in order to
successfully give rise to new innovative ideas.

To help busy entrepreneurs to monitor and encourage easier the generating, development and
implementation of their ideas in their business models, here we are highlighting the four main
steps to follow.

3.7.1Generation

Creative people have many ideas passing through their heads on daily basis. As not all of these
ideas are actually suitable to be evaluated, many of them later can come in hand. It is always a
good idea to write down your insights and to keep them in one place – on your Smartphone or in
a text book – it doesn’t matter. The important part is to have them all at one place and to go
through your notes regularly. You never know when something that has crossed your mind
months ago can actually be very useful at the moment.

3.7.2Development

In row form, the written idea may seem absurd, but if you look deeper in it, it is very likely to
discover its full potential. The process of development of an idea may take time. It is essential to
put a lot of thought, to do sufficient amount of research and to test the idea. Once you’ve done
your trial period and you have solid evidence to believe in the future success of the idea, it is
time to create a detailed execution plan to follow.

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3.7.3Execution

After you have crafted the thorough execution plan, it is time to start acting on it. The important
part here is to make sure that you’ve introduced appropriately and comprehensively the plan to
all the team members that are going to be involved in the work process. Plans are important, but
the devotion and dedication of the team members is what will actually be the key indicator of
success. Follow the steps of the execution plan, but also be flexible in your approach and be
ready to change direction and pivot if the circumstances require that or if you see better
opportunity in the new direction.

3.7.4 Evaluation

Many busy entrepreneurs overlook the importance of evaluating their work and the work of their
teams. It can be a vital mistake. Evaluation is a great source of information, no matter if the
project was successful or not. Failed projects can be a great source of important information that
can show clearly where the things went wrong. A project may fail for many reasons and knowing
these reasons can help the leaders to avoid certain mistakes with future tasks.

Successful implementation of the business ideas is also very important to evaluate. It is very
good and trustworthy source of valuable information about good practices that lead to the
generation of great results.

Each one of these four steps is extremely important and form one full and complete round that
should be followed. Entrepreneurs must focus on accelerating their businesses, but also should
be able to keep looking for ideas that can improve their work process, that can give them new
insight on the direction they are going and that can help them see and get closer to new
opportunities.

3.9: Summary

An Idea is the mother of innovation. Idea not only provides an immediate solution for so
many socio economic challenges and problems facing the people but also contributes
significantly for the economic development. Idea emerges from different sources right from
consumers who are already consumer the product or service or the Distributors, Government

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policies, Research and Development etc. it is the responsibility of the entrepreneur to make use
of all these sources an make the business and economy an effective and successful one.

3.10: Self assessment Questions

Short questions:

1. New idea
2. Invention & Innovation
3. Sources of new ideas

Essay questions:

1. What is an Idea? How does an Idea play a determining role in business organizations?
2. Explain the various sources of new Ideas.
3. Explain how Research and Development help in starting anew business
4. Explain how channels of distribution can be used to generate new ideas.

Multiple choice questions:

1. Which of the following shows the process of creating something new?

A. Innovation
B. business model
C. creative flexibility
D. modeling
2. Idea generation means
A. Discovering new business opportunities
B. Developing old ideas into new ones
C. Innovative practices
D. New model development
3. Members of distribution channels are excellent sources for new ideas because:
A. They are familiar with the needs of the market
B. They earn a handsome profit from new business
C. They do not bother if entrepreneur bears a loss
D. They have well-developed sales force

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 Answer: They are familiar with the needs of the market
4. Innovative small firms are more likely in:
A) Knowledge-based sectors
B) Biotechnology
C) Automobile manufacture
D) Aerospace manufacture
5. The creation of new firms is important because these new firms contribute to economic
development through benefits that include all of the following EXCEPT:
A) Product-process innovation
B) Increased tax revenues
C) Unemployment
D) Social betterment
6. The process of evaluating the project ideas with a view to select the best and promising
idea after eliminating the unprofitable ideas is called……………………….. Of the
project ideas.
A. Screening
B. appraisal
C. identification
D. none

Activity 1: “Innovative ideas are always high in entrepreneurship”. Briefly explain any
three methods to generate new ideas for business?

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2 Activity: What requirements do you need to set in order to receive business plans and ideas?
What kind of incentives can you give internal and external figures in your organization? When
you get the ideas rolling in what will you do with them? Will they just sit in a pile or will your
firm take action and do something with them? Can you convince top management to implement
this program or will even that be denied?

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3. Activity: Observe some of the new business initiatives of young entrepreneurs and try to
identify how they got the ideas to start their own business units.

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3.11: Key Terms

Innovation, Invention, Research and Development, Culture, Channels of Distribution.

3.12: Further Readings / Reference books

1. Arya Kumar, Entrepreneurship, Pearson, Delhi, 2012.

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 2. Murthy.C.S.V, Entrepreneurship and Good Governance, Himalaya Publishing House,
New Delhi, 2010.

LESSON-4: TECHNIQUES FOR GENERATING IDEAS

Objectives of the lesson:
After going through this lesson you are able to understand:
 Idea generation techniques
 Idea screening

Structure of the lesson:

4.1: Techniques for Generating Ideas

4.1.1: Understanding the problem
4.1.2: Towards Solving the Problem
4.1.3: Using Your Brain Effectively and Absurdly
4.1.4: Mind Mapping
4.1.5. SCAMPER
4.1. 6. Brainstorming
4.1.7. Synectics
4.1.8. Storyboarding :
4.1.9. Role playing
4.1. 10.Attribute listing
4.1. 11. Visualization and visual prompts
4.1. 12. Forced relationships
4.1. 13. Daydreaming

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 4.1. 14. Reverse thinking
4.1. 15. Brainwriting
4.1.16. Wishing
4.1. 17. Socializing
4.1. 18. Collaboration

4.2 IDEA SCREENING

4.3: Summary
4.4: Key Terms
4.5 Self assessment questions.
4.6: Further Readings / Reference books

13 Successful Indian College dropout entrepreneurs

Steve Jobs and Mark Zuckerberg! Everyone has heard the names of these wildly successful
founders of two equally revolutionary behemoths. Acknowledging their success, it is often
highlighted that they were college dropouts. So we decided to figure out what exactly makes a
college dropout stand out from the crowd, if at all? Is it their zeal to achieve or their out-of-the
box thinking which sets them on the path of success? Or were they just one-off coincidences as
are most successful startups and founders? We came up with a list of college dropouts turned
entrepreneurs from the Indian startup ecosystem who have taken the country by storm.
1. Varun Shoor

A self-taught programmer at 13 and web designer, he took a natural interest in the development
of web applications. Seeing a clear market gap for an easy to use, user centric approach to web-
based ticketed support and visitor engagement, Varun established Kayako in 2001. He serves as
Chief Executive Officer of Kayako Infotech Ltd. and oversees the overall direction as the leading
product architect, takes an active role in the design and development of the product line. He
started the company in 2001 when he was just 17 with its first office in Jalandhar after dropping
out of college.
2. Kailash Katkar

Born in a small village at Rahimatpur in Maharashtra, Kailash Katkar worked his way to the top
to be chairman and CEO of INR 200 Cr business. He is the man behind Quickheal

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technologies Pvt Ltd. He started with a job at local radio and calculator repair shop and later
went ahead in 1990 to start his own calculator repair business. In 1993 he started a new venture,
CAT computer services where around that time his younger brother Sanjay developed a basic
model of antivirus software which helped in solving the biggest problem of computer
maintenance at that time. Later in 2007 it was renamed as Quick Heal Technologies. He
achieved all this without any formal education.
3. Deepak Ravindran

A computer science dropout from LBS College Of Engineering in his 5th semester in 2007 end,
Deepak never let his ideas caged by book and syllabi, he broke all the bounds imposed by the
education system and followed his passion for computers which made him follow the
entrepreneurial way. He founded Quest technologies which let people answer someone else’s
question which has been asked by a text message. His primary company was Innoz
Technologies which was behind ‘SmsGyan’ handing internet’s knowledge to people via texts.
His latest venture is Lookup, which is a local commerce messaging app which lets users chat
with local businesses and shops.
4. Ritesh Agarwal

Ritesh Agarwal is the man behind the ‘Ola’ for rooms, OYO Rooms. The startup is a network of
technology – enabled budget hotels. This Gurgaon-based company, was founded by him in 2012.
It is backed by Lightspeed Ventures, Sequoia Capital and Green Oaks Capital and has more than
700 hotels under its brand. A college dropout who founded Oravel when he was 18 received its
share of fundings and accolades and later he rebranded it to OYO Rooms. He completed his
higher schooling at St. Johns Senior Secondary School.
5. Kunal Shah

Freecharge, the famous platform which revolutionized the online recharge system with three step
recharges along with providing offers of same value was the brainchild of Kunal Shah and
Sandeep Tandon. The company was founded in 2010 and was recently acquired by Snapdeal. He
did Bachelor of Arts in Philosophy from Wilson College and later went to Narsee Monjee
Institute of Management Studies from which he dropped out later.

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6. Mahesh Murthy

Mahesh has spent 29 years helping big brands with marketing counsel, and 13 years helping
startups with marketing counsel and funding too. 19 of these years have been in digital media.
Mahesh dropped out of Osmania University, sold vacuum cleaners door to door . He won
notoriety and awards as Creative Director on Unilever, The Economist, Pepsi and MTV for
whom he wrote and shot a series of top award-winning commercials. He is now the founder of
advertising company pinstorm which is an ad firm offering pay-for-performance solution to
companies across the world.
7. Azhar Iqubal

There must be something wrong with IIT, Delhi because this is second dropout who made
‘news’. He dropped out in his 4rd year of college(seventh semester). He made news by
introducing News in Shorts the one and only app which cuts to the chase delivering only vital
details in a news to all those lazy people and even to those who don’t have enough to go through
all of them. The app makes sure that each news is conveyed in less than 60 words. Got a minute
to spare? Keep up with the world with news in shorts. It started as a Facebook page and now it
has made its share of fame so well that it received INR25 Cr in funding three months back.
8. Rahul Yadav

The brain behind Housing.com’s rise, Rahul Yadav is one the co-founders of the company and a
dropout in his fourth year (seventh semester) from IIT Bombay. This didn’t deter him from
stopping what he wanted to achieve. He knew that he was building a brand and working to solve
a problem which no one ever tackled head on. Being in a mire of controversies, he has played it
cool, be it resigning or then taking it back or giving away half of his shares to his employees.
This guy has a brash attitude with a load of confidence.
9. Bhavin Turakhia

Bhavin Turakhia is the founder and CEO of Directi, an internet domain name registrar company
founded in 1998 by him and his brother, Divyank. He managed to have a vision about the
internet industry in India, which only a few have rivaled. He is credited for the impressive
growth of Directi into a global web products company, with a number of businesses and millions

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of customers worldwide! Though he is an engineering dropout who cut off from it after 12th, he
never stopped dreaming big. In his words, “Everything the Byte touches should be our kingdom”
is the vision that Directi is looking forward to.”
10. Pallav Nadhani

Pallav Nadhani is the co-founder and CEO of Fusion Charts and RazorFlow and CEO
at Collabion, seemingly a serial multi-tasker. He started this company in 2001 at the age of 16
from his bedroom as he found himself dissatisfied with Microsoft Excel’s charting capability
while completing his high school assignments. The company is a service provider of data
visualization products and owing to its success it was included in NASSCOM EMERGE 50
leaders in 2009. Even after he dropped out from University of Calcutta, this setback didn’t stop
him from achieving what he aimed for. He later earned his degree in Masters Of Computer
Science From University of Edinburgh.
11.Abhishek Gupta

He is an entrepreneur who loves to code and instill people with new ideas, being engrossed with
the idea of connecting people through web and mobile, he co-founded Frankly.me with Nikunj
Jain. Frankly is a platform which is based on the idea to expand the horizon of conversations that
people take part in. It has onboarded various celebs and many people have taken it to the
platform to ask anything from them and getting video answers in back. Prior to this he founded
Zumbl.com. Though an IIT,Delhi dropout where he was pursuing Computer Science, he wants to
increase the IQ of an average conversation on Internet.
12. Ankit Oberoi

Ankit Oberoi is co-founder of Adpushup, which provides optimization of ads so that publishers
and bloggers can benefit from their existing website traffic without the need for any coding
skills. The company uses A/B testing to compare between different ad variation like different
placements and different sizes. He dropped out from Maharaja Agrasen College in the first
semester because he found it was a waste of time, in his words, “You don’t have to be at the
college to learn something – Internet can teach you better”. His fascination with internet
made him find Tamranda Web Solution which provided web hosting, domain registration and
more. He served as director as Innobuzz before starting up adpushup.

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13. Amritanshu Anand

Amritanshu Anand is the co-founder of Retention.ai, which allows app developers and marketers
to track uninstalled users and understand their behaviours. It also enables companies to re-target
users who have uninstalled the app. He started his as an advisor at Entrepreneurship Cell at IIT
Kharagpur where he worked to foster spirit of entrepreneurship in India. Though, he dropped out
of IIT he didn’t let anything stop him from pursuing his interests which made him found his
company in May 2013.

4.1: Techniques for Generating Ideas

The trick to creativity is thinking ‘out of the box’, that is, keeping aside pre-conceived
notions, assumptions and prejudices. Edward de Bono propounded and developed the concept of
lateral thinking and highlighted the process in the five steps:

i. Escape from clichés and fixed patterns

ii. Challenge assumptions
iii. Generate alternatives
iv. Jump to new ideas and then see what happens
v. Find new entry points from which to move forward

The first step to channelize one’s creativity is to identify, understand and define the problem.
This is the first and foremost step in the process of coming up with unique solutions to existing
and future problems. Three key steps to solve a problem creatively are as follows (Fig. 1)

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 1.
Understan
ding the
problem

Steps -
Creative
Problem

3. Using your
2. Towards
Brain
Solving the
Effectively and
Probem
ababsurdly

Figure 1: Steps to Solve a Problem Creatively

4.1.1: Understanding the problem

Defining the problem in simple terms, without over-simplifying it, is very important. E.
F. Schumacher states: ‘Any intelligent fool can make things bigger, more complex and more
violent. It takes a touch of genius-and a lot of courage- to move in the opposite direction.’ Even
Albert Einstein stated, ’Everything should be made as simple as possible, but not simpler. As an
entrepreneur, one should be able to communicate things in a simple way. One simple, single
purpose of being in a business and what it means to them and to their prospective customers need
to be well-defined. One should not complicate things, no matter how trivial they are. It is
important to remember that simplicity has far more value proposition than complexity.

4.1.2: Towards Solving the Problem

While making an attempt to solve a well-defined problem, one should check all the major
assumptions and their implications. One should pose questions such as what, why, how, when,
where and who related to the problem under consideration. List the obstacles that seem to block
the path in solving the problem. List all possible to the problem with an open mind. Complete a
list of solutions that are feasible to work on with the resources at your disposal. Select the best

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salvation, keeping in view the yardstick to evaluate and concretize the implementation
programme, specifying dates or times for completion. Check the solution from all possible
angles and make sure that the plan chalked is workable and realistic. Take feedback during
implementation in the light of experience as you proceed.

4.1.3: Using Your Brain Effectively and Absurdly

While using creative problem-solving to come up with unique solutions, it is important to

understand the way the two hemispheres of the human brain work. The left side deals with logic
as enumerated through functions such as words, numbers and sequences, whilst the right side
deals with more imaginative and intuitive functions, such as spatial relationships, daydreaming,
music and art. To channelize our creative potential, we need to stimulate right-brain activity.
This can be done through a number of techniques as given in Fig. 1.3. Although some of these
techniques may seem vague, hazy, foolish and far remote from particular realities at first
instance, they are important and can really help in working effectively. One of the best
techniques is called mind mapping, pioneered by Tony Buzan. Mind Map is a registered
trademark of the Buzan organizing our thoughts and stimulating creativity. Another good
technique comes from Mindstore (1994), by Jack Black, which provides practical insights into
motivation, self-awareness and creativity.

4.1.4: Mind Mapping

Mind mapping is a pictorial way of giving a shape to ideas and concepts. It is a visual-
thinking technique that facilitates structuring information, better analysis and synthesis, quick
recollection of information and generation of new ideas. The tool has become powerful because
of its simplicity. In mind mapping, the information flow is structured more closely to the way our
brain actually works. As it is an activity that has both analytical and artistic facets, it allow flow
of thoughts from the brain by engaging it in a much richer way. Above all, in this technique, it is
fun coming up with worthwhile propositions to diagnose and solve problems. A mind map is
a diagram that is used to represent a central theme or idea through words, ideas and tasks linked
to, and arranged around, the idea. Mind maps are mainly used to create, visualize, structure and
classify ideas that facilitate in solving problems and making decisions by proper understanding.

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  Mind Mapping  Free Association
 Focus Groups  Forced Relationships
 Brainstorming  Attribute Listing
 Reverse  Reversal
Brainstorming  SCAMPER
 Synectics  Collective Notebook
 Gordon Method Method
 Scientific Method  Big Dream Approach
 Value Analysis
 Problem Inventory
Analysis

Figure 2 techniques for Creative Problem-solving

4.1.5. SCAMPER

SCAMPER is an idea generation technique that utilizes action verbs as stimuli. It is a well-
known kind of checklist developed by Bob Eberie that assists the person in coming up with ideas
either for modifications that can be made on an existing product or for making a new product.
SCAMPER is an acronym with each letter standing for an action verb which in turn stands for a
prompt for creative ideas.

 S – Substitute

 C – Combine

 A – Adapt

 M – Modify

 P – Put to another use

 E – Eliminate

 R – Reverse

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 4.1. 6. Brainstorming
This process involves engendering a huge number of solutions for a specific problem (idea) with
emphasis being on the number of ideas. In the course of brainstorming, there is no assessment of
ideas. So, people can speak out their ideas freely without fear of criticism. Even bizarre/strange
ideas are accepted with open hands. In fact, the crazier the idea, the better. Taming down is
easier than thinking up.

Frequently, ideas are blended to create one good idea as indicated by the slogan “1+1=3.”
Brainstorming can be done both individually and in groups. The typical brainstorming group
comprises six to ten people.

4.1.7. Synectics

Synectics is a creative idea generation and problem solving technique that arouses thought
processes that the subject may not be aware of. It is a manner of approaching problem-solving
and creativity in a rational manner. The credit for coming up with the technique which had its
beginning in the Arthur D. Little Invention Design Unit, goes to William J.J. Gordon and George
M. Prince.

The Synectics study endeavored to investigate the creative process while it is in progress.
According to J.J Gordon, three key assumptions are associated with Synectics research.

 It is possible to describe and teach the creative process

 Invention processes in sciences and the arts are analogous and triggered by the very same
“psychic” processes

 Group and individual creativity are analogous

4.1.8. Storyboarding :
Storyboarding has to do with developing a visual story to explain or explore. Storyboards can
help creative people represent information they gained during research. Pictures, quotes from the
user, and other pertinent information are fixed on cork board, or any comparable surface, to stand
for a scenario and to assist with comprehending the relationships between various ideas.

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 4.1.9. Role playing

In the role playing technique, each participant can take on a personality or role different from his
own. As the technique is fun, it can help people reduce their inhibitions and come out with
unexpected ideas.

4.10.Attribute listing

Attribute listing is an analytical approach to recognize new forms of a system or product by

identifying/recognizing areas of improvement. To figure out how to enhance a particular product,
it is broken into parts, physical features of each component are noted, and all functions of each
component are explained and studied to see whether any change or recombination would damage
or improve the product.

4.11. Visualization and visual prompts

Visualization is about thinking of challenges visually so as to better comprehend the issue. It is a

process of incubation and illumination where the participant takes a break from the problem at
hand and concentrates on something wholly different while his mind subconsciously continues to
work on the idea. This grows into a phase of illumination where the participant suddenly gets a
diversity of solutions and he rapidly writes them down, thereby creating fresh parallel lines of
thought.

4.12. Forced relationships

It is an easy technique involving the joining of totally different ideas to come up with a fresh
idea. Though the solution may not be strictly unique, it frequently results in an assortment of
combinations that are often useful. A lot of products we see today are the output of forced
relationships (such as a digital watch that also has a calculator, musical birthday cards and Swiss
army knife)..

4.13. Daydreaming

Though mostly not met with approval, daydreaming is truly one of the most fundamental ways to
trigger great ideas. The word “daydream” itself involuntarily triggers an uninhibited and playful

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thought process, incorporating the participant’s creativity and resourcefulness to play around
with the present problem. It enables a person to establish an emotional connection with the
problem, which is beneficial in terms of coming up with a wonderful idea.

4.14. Reverse thinking

As the term ‘reverse thinking’ itself suggests, instead of adopting the logical, normal manner of
looking at a challenge, you reverse it and think about opposite ideas. For example: ‘how can I
double my fan base?’ can change into ‘how do I make sure I have no fans at all?’ You may
notice that the majority of participants would find it easier to produce ideas for the ‘negative
challenge’ simply because it is much more fun.

4.15. Brainwriting

Brainwriting is easy. Instead of asking the participants to shout out ideas, they are told to pen
down their ideas pertaining to a specific problem or question on sheets of paper, for a small
number of minutes. After that, each participant can pass their ideas over to someone else. This
someone else reads the ideas on the paper and adds some new ones. Following another few
minutes, the individual participants are again made to pass their papers to someone else and so
the process continues. After about 15 minutes, you or someone else can collect the sheets from
them and post them for instant discussion.

4.16. Wishing

This technique can be begun by asking for the unattainable and then brainstorming ideas to make
it or at least an approximation of it, a reality. Start by making the wishes tangible. There should
be collaboration among the members of the team to produce 20 to 30 wishes pertaining to your
business. Everyone’s imagination should be encouraged to run wild – the more bizarre the idea,
the better. There should be no restrictions on thinking.

4.17. Socializing

If employees only hang around with colleagues and friends, they could find themselves in a
thinking rut. Let them utilize all those LinkedIn connections to begin some fantastic
conversations. Refreshing perspectives will assist with bringing out new thinking and probably,
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one or two lightning bolts. Socializing in the context of ideation can also be about talking to
others on topics that have nothing whatsoever to do with the present problem.

4.18. Collaboration

As the term indicates, collaboration is about two or more people joining hands in working for a
common goal. Designers frequently work in groups and engage in collaborative creation in the
course of the whole creative process.

_____________________________________________________________________________

4.2 IDEA SCREENING

Idea screening is a process that evaluates and contrasts new product ideas to get the most
promising ones for your business. Not every idea is relevant to your company. In order to screen
out a good idea from the not so good ones, there are certain criteria that should be followed like
technical problems, strategic fit, and several market opportunities. Due to scarcity of available
resources, it’s difficult to develop several products at the same time. Through a successful idea
screening process, it helps in focusing the whole product development process with a higher
possibility of achieving success.

The idea screening process helps to reduce the amount of irrelevant ideas into a convenient
amount which can further turned into prototypes. The purpose is to eliminate the number of ideas
without screening away the potential ones. During the idea screening process, the company must
focus on the following questions:
 Whether the target customers will benefit from the product?
• What will be the size and growth forecast of the target market?
• Is it technically possible to manufacture the product
• Is the product idea based on current market trend?
• Whether the product idea will be profitable when delivered to the target customers?

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Many companies suffer from a flood of generating new ideas when they are unable to prioritize
them. Quantitative idea screening helps to identify those ideas that distinguish between greatest
interest and greatest prospective for future growth of the business.
[large]The quantitative idea screening aims to filter out which ideas are worth considering and
emerging. This process involves a lot of testing of different ideas and themes and that’s how it
gets important to make certain that this is done cost effectively and efficiently. Therefore, most
companies perform idea screening online.

The purpose behind doing the idea screening is to determine the interest in those ideas and to
find out which segment of the whole population can be easily attracted towards the product idea.
For this step, a survey is conducted to ensure the uniqueness of the new idea which is associated
with the product and whether it will enable to generate any switching behavior. The advantage of
carrying out a survey is that it has a diagnostic element that allows the respondents to give
feedbacks on what they find appropriate and appealing in a new product idea. As a result, it is
essential to\reshape new ideas and reassess their appealing elements before elimination.
4.3: Summary

Idea is the result of innovative thinking. That idea will take forward the entrepreneur in
applying it for problem solving not only in business organizations but also in domestic sphere
also. The point is how does one get an idea? What are the various techniques for generating new
ideas? Simply, the most important technique shall be understanding and perceiving the problem
in its right direction and right time.

Similarly other techniques like using the brain effectively in the required direction would
also serve the purpose of idea generation. Depending upon the requirement and time, the
entrepreneur should use different techniques for idea generation.

4.4: Key Terms

Creativity; “ thinking out of the box” ; brain storming; value analysis; Idea generation-
Techniques- Mind Mapping.

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4.5 Self Assessment questions :

Short questions:

1. Mind mapping
2. Big dream approach
3. SCAMPER
4. Gordon Method

Essay Questions:

1. Explain the concept and steps of lateral thinking developed by Edward de Bono .
2. What are the steps in converting an idea into a commercially viable business proposition.

Multiple choice questions:

1. The first step in the process of developing a new-product must be

A. idea generation
B. idea screening
C. concept development and testing
D. business analysis

2. Which of the following are benefits of brainstorming when compared to nominal group
technique?
A. brainstorming is more fun
B. brainstorming can encourage talented and highly skilled employees to remain in
an organization
C. brainstorming can create a positive organizational climate
3. The first idea reducing stage is _____ , which helps spot good ideas and drop poor ones
as soon as possible.
A. idea screening
B. idea generation

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 C. test market
D. product image
4. The most cited source of new business ideas is
A. Brainstorming.
B. In-depth understanding of industry/profession.
C. A hobby.
D. Copying someone else. (ANSWER: B)
5. Before opening his own business, David was writing a report that details the specifics of
his ideas and future business operations. This document is known as
A. A SWOT analysis.
B. A business portfolio.
C. A business plan.
D. A competitive analysis (ANSWER: C)

Activity 1: recognizing a problem and proposing a solution to it is one way entrepreneurs

identify opportunities. Think about a serious problems felt by large number of people and
try to suggest a business idea.
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Activity 2: Google’s founders, Larry Page and Sergey Brin, are true entrepreneurs. Why
because they identified a problem and solved it. Frustrated with what existing search
engines such as yahoo and Lycos had to offer, these two Stanford University students
created a new and improved search engines. In fact, today Google is known for its speed,
reliability and ease of use.

List out four businesses that were created to solve problems.

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4.6: Further Readings / Reference books

1. Arya Kumar, Entrepreneurship, Pearson, Delhi, 2012.

2. Murthy.C.S.V, Entrepreneurship and Good Governance, Himalaya Publishing House,
New Delhi, 2010.

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 LESSON-5: OPPORTUNITY RECOGNITION AND FEASIBILITY ANALYSIS

Objectives of the lesson:

After going through this lesson you should be able to understand:

 How to recognize an Opportunity

 How to analyze and asses opportunities
 Importance of Trend Spotting for opportunity recognition
 Importance of Creative Process for opportunity recognition
 Role of Creativity and Innovations in opportunity recognition
 Relevance of knowledge of Intellectual Property Rights (IPRs)
 Explain what a feasibility analysis is and why it is important
 When to complete a feasibility analysis
 Need for a concept statement and its contents
 Four components of feasibility analysis
 Details of first component – Product/service feasibility analysis
 Purpose of second component – Industry/Market feasibility analysis
 Purpose of third component – Organization feasibility analysis
 The importance of fourth component - Financial feasibility

Structure of the lesson:

5.1: Opportunity Recognition

5.1.1: Opportunity-Definition
Entrepreneurial Opportunity
5.1.2: Opportunity Recognition
How to Recognize an Opportunity?
5.2: Steps in Tapping Opportunities
5.2.1: Seizing the Opportunity
5.2.2: Evaluating Opportunity
5.2.3: Understanding the Timeframe
5.2.4: Computing the Worth of an Opportunity
5.2.5: Establishing Need through Preliminary Market Research
5.3: Trend Spotting
5.3.1: Anticipate Change
5.3.2: See it coming
5.3.3: Distinguish between short-lived fads and long-term trends
5.3.4: Make sure your solutions are realistic
5.3.5: Create a competitive advantage
5.4 Creative Process
5.4.1: Idea generation
5.4.2: Preparation
5.4.3: Incubation
5.4.4: Illumination

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 5.4.5: Verification
5.5 Innovation and Invention
5.5.1 Invention Vs. Innovation
5.5.2 Steve Jobs: The Poster Boy of Innovation
5.6 Protection of Intellectual Property Rights
5.6.1: International Trademark Association (INTA)
5.6.2: World Intellectual Property Organisation (WIPO)
5.6.3: Agreement between WIPO and WTO
5.6.4: Paris Convention
5.6.5: Berne Convention
5.6.6: Madrid Protocol
5.7 Feasibility analysis
5.7.1 Product/Service Feasibility Analysis
5.7.2 Industry/Market Feasibility Analysis
5.7.2 Organisational Feasibility Analysis
5.7.3 Financial Feasibility Analysis
5.7.4
5.8: Summary
5.9: Activity
5.10: Self Assessment Questions
5.11: Key Terms
5.12: Further Readings / Reference books
Exhibit - 5
Patriotism plus passion: Stories of 20 entrepreneurs from small towns in India
The world’s largest company in value-added spices, one of the world’s Top 10 publishing
BPOs, India’s biggest exporter of hand-knotted carpets, largest machine tool manufacturer,
largest honey exporter, and largest leather exporter all started up in small towns in India, not the
big metros. Hunger for success, inspiration, diligence and persistence are also the hallmarks of
success of entrepreneurs in smaller towns, where glamour may be lacking but the quieter and
gentler way of life as well as the desire to hang on to local roots are assets in their own right.

1. Vinod Khutal grew up near Indore and studied architecture, before studying computer
science. An ad by game developer Gameloft on Naukri.com led him to a job in their Hyderabad
office, where he eventually became a game designer. In 2009, he founded Twist Mobile, with
apps such as Age Effect. He tied up with VServ to use their app-wrapper technology for ads
embedded in apps. Success stories included becoming the first Asian company with 10 million
downloads on Noki’s Ovi store. “Today’s killer app is tomorrow’s delete,” says Khutal, who has
now branched out into Android and iPhone apps.
2. Sriram Subramanya grew up in Pondicherry and started work in the auto ancillary business,
with postings in Chennai and Bangalore and training in Germany. He later moved into the
desktop publishing business, migrating from print designs to digital content. Sriram’s wife had to
sell her jewellery at one stage to fund the growth of the company, Integra. A tight focus on
quality, precision and business culture helped grow the company into one of the world’s Top 10
in publishing BPO. The company also won the Gender Inclusivity Award from NASSCOM.
3. Rohit Bhatt grew up in Udupi, Karnataka, and studied computer science. He started off with a
Japanese company making Mac products. Exposure to Japanese passion, determination, pride
and quality inspired him also to strike out on his own, in the area of Indian language computing.

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Rohit was also inspired by Taiwanese companies who started off with contract manufacturing
then branched out with their own brands such as HTC and Acer. His company, Robosoft, also
spawned product companies Global Delight (utility apps such as Camera Plus) and 99 Games
(such as Wordsworth and ‘Dhoom 3’ games).
4. Sanjay Vijaykumar, Sijo Kuruvilla George and Pranav Suresh were engineering students
in Trivandrum, and started off their first business by selling SIM card packages for students.
Their company MobME began with mobile content for movie and TV promotion. Investment
also came from wealthy Keralites in India and overseas. But their biggest idea was to amplify
their success via Startup Village: to create an innovation hub like YCombinator and ultimately
create a ‘Silicon Coast’ – which eventually found support from the government and private
sector. As a result, Kerala has become the first state in India with an official student
entrepreneurship policy.
5. Deepak Dhadotti grew up in Belgaum in an agricultural family, studied engineering and then
joined the UK company, Moog, in the area of servo-controls. He travelled extensively in Asia
and Europe, building deep experience – and also causing worry to his parents that he may marry
a foreign woman. They arranged a marriage for him with a local bride, and he moved back to
India eventually. Deepak started Servo Controls India with his brother, bagging orders from
HAL and then the steel and power industry. Tie-ups with Russian companies and the Tata group
have also proven lucrative.
6. Dilafrose Qazi grew up in Kashmir, and refined her business skills while studying in a
government college. She stared part-time courses for women, and eventually set up the SSM
College of Engineering, the first private engineering college in all of Kashmir. She ploughed on
ahead, despite having her brother and husband kidnapped and being attacked by militants. Qazi
even opened a sister college in Haryana for Kashmiris, helping ensure that the next generation
would have sources of livelihood.
7. Nand Kishore Chaudhary grew up in Churu, Marwar, and started off his carpet business with
weavers from the ‘chamar’ caste, regarded as untouchables. Today, Jaipur Rugs is India’s
biggest exporter of hand-knotted carpets. The company connects woven products directly to
global markets, and employs a range of weavers, including tribal women. A focus on local
inclusion and global trends led the company to be profiled as a case study by the late great Prof.
C.K. Prahalad.
8. C.V. Jacob grew up in Kolencherry, Kerala, with his father working in the construction
industry. He started off in the resin industry, when a trip to Japan exposed him to oleoresins, or
liquefied spice extracts. Jacob returned to India, picked up know-how from the Central Food
Technology Research Institute in Mysore, and started the firm Synthite. He later on set up joint
ventures in Europe and a factory in China, and his firm is now the world’s largest company in
oleoresins.
9. Parakramsinh Jadeja grew up in Rajkot and excelled in cricket and chess as a student. He
mastered lathe technology in school and eventually got into computerised numerical control
(CNC) machines. Partnership with Siemens and exposure to machine tool fairs in Paris led him
to master the tool business based out of India as Jyoti CNC, and the acquisition of a French
company turned out to be a win-win situation. As the largest manufacturer of machine tools in
India, Jyoti CNC is planning an IPO.
10. Jagjit Singh Kapoor’s parents were displaced from Pakistan during the Partition, and he
grew up in Doraha, Punjab. He started off in the wine business but then moved into beekeeping
and exporting of honey products. A trip to the UK to chase a non-paying customer ended up

107
opening his eyes to a whole new world of quality, processing and technology. Today, Kashmir
Apiaries is the largest exporter of honey from India, and Singh started the National Bee Board to
increase awareness and networking for beekeepers.
11. Mukhtarul Amin grew up in Kanpur and left college to work in the family’s leather
business. He tapped into the offshoring trend and partnered with European companies, importing
their technology. Superhouse Group is now India’s largest leather exporter. Amin also gave back
to society by starting schools and an engineering college to educate the next generation.
12. Vivek Deshpande and Kirit Joshi met as engineering students in Nagpur, and started off by
selling study materials for students as VK Publishers. They then set up a workshop for office
furniture, where exposure to Canadian and German companies led them to launch Spacewood, a
trend-setter in modular kitchen components.
13. Bahadur Ali grew up in Rajnandgaon in Madhya Pradesh. His father died at an early age,
and he got into the poultry business. That also led him into the poultry feed business and soya
bean processing, thus opening up the larger ‘protein’ market for his company, the India Broiler
Group, with a turnover of Rs 2,200 crores.
14. Chandubhai Virani and his brothers started selling chips in a local cinema in Rajkot, and
today their company Balaji Wafers has a 65% market share in five states, holding out against
local and MNC competitors. They first tried the fertiliser business and then running a hostel,
before settling on chips and snacks. Adherence to quality helped them get early customers,
followed by importing Japanese machines and taking loans to grow their factory.
15. Sandeep Kapoor grew up in Jodhpur, and worked in his grandfather’s photo studio. Later he
joined ITC, getting exposure to Russia and China in the perfume business. He realised the
potential of this sector in India, and returned to start Perfume Station. With a wide range of
pricing and open minded customer care, he first expanded in Tier 2 and 3 cities before moving
into the metros.
16. Srikumar Misra grew up in Bhubaneshwar, studied engineering in Pune, and joined Tata
Tea as part of the mergers & acquisitions team, criss-crossing the world in a jet-setting lifestyle.
But the startup bug bit him, and he joined TiE London to interact with entrepreneurs. He
returned to Orissa to set up a dairy company, Milk Mantra, plunging into the world of cows,
distributors and packaging.
17. Muruganantham grew up in Coimbatore, with little material wealth but lots of nature and
practical wisdom. In the face of criticism from his own family for acting like a ‘mad man,’ he
developed a machine to make low-cost sanitary napkins. In the sustainable business model of his
company, Jayashree Industries, machines are given to women entrepreneurs who make and sell
the napkins to others. Interest in the machines has been received from other parts of Asia and
Africa as well.
18. Chandrasekhar Sankurathri, a fisheries expert from Andhra Pradesh who became a well
known researcher in Canada, lost his parents when he was a child – and his wife and children to
the terrorist bombing of Air India’s Kanishka aircraft en route from Canada to the UK. Deep soul
searching led him to come back to Kakinada and set up the Srikiran Institute of Ophthalmology
(with inputs from Aravind Eye Hospital) and Sarada Vidayalam School. He eventually converted
his deep sense of anguish and loss into a force for successful social enterprise.
19. Vibhor Agrawal grew up in Meerut, studied in IIT Bombay and IIM Bangalore, worked
abroad and then returned to scale up the family’s engineering business, MultiMax. He has kept a
keen eye on the cycles of the product business: growth, commodification and decay.

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20. Abhijit Barooah grew up in Guwahati, studied in IIT Delhi and went to the US for graduate
school. He returned to set up Premier Cryogenics, succeeding in a volatile part of India thanks to
his business acumen and choice of customers like Oil India. India has never been in a better
position for entrepreneurship than where it is today and young people must definitely take
advantage of this, urges Barooah.

5.1: Opportunity Recognition

There exists a big difference between having a great idea and converting it into a great
opportunity. At times, due to over excitement to plunge into an entrepreneurial venture, an
entrepreneur may get confused between the two and miss a subtle difference between a great
idea and a great opportunity. Entrepreneurs must learn the art of identifying a particular idea
from amongst many ideas that could be said to be a genuine opportunity. As such, true
opportunities at a particular point of time are a great treasure and are highly valuable.
The entrepreneur may have an opportunity that may appear to be an excellent one, but
what matters the most is whether it can be converted into a profitable opportunity, which needs
to be thoroughly explored and doubly ensured. The fundamental difference between an idea and
an opportunity lies whether the entrepreneur can turn it into a product/service that would attract
customer’s attention and bring profits to the entrepreneur.
Thus, the fundamental difference between an idea and an opportunity lies in an idea
having a value that can make a business out of it (Fig.5.1). An opportunity is an idea that, if
successfully implemented, can yield a prosperous business. Therefore, opportunities are rare and
highly valuable compared to ideas.

Idea Opportunity-
Rare And Valuable

Value That Can

Make a
Business Out of It

Figure 5.1: Differences between an Idea and an Opportunity

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5.1.1: Opportunity-Definition
 Entrepreneurial Opportunity: The Oxford English Dictionary defines opportunity as
‘A time, juncture or condition of things favourable to an end of purpose, or admitting of
something being done or effected.’ An entrepreneurial opportunity, therefore, consists of
a set of ideas, beliefs and actions that enable the creation of future goods and services in
the absence of current markets for them (Venkataraman 1997). Shane (2003) describes an
entrepreneurial opportunity as ‘… a situation in which a person can create a new means-
end framework for recombining resources that the entrepreneur believes will yield a
profit’. This definition highlights two key aspects, namely an entrepreneurial event taking
place in the environment by using resources and individual at the back of it who steers it
through creation, recombination and their belief system. The word belief has a special
significance as ultimately all opportunities thought to be profitable may not turn out to be
profitable and secondly there are opportunities that are not pursued with a pure profit
motive.

5.1.2: Opportunity Recognition

 How to Recognize an Opportunity? Opportunity recognition is of central importance to

entrepreneurship (Baron 2007). The decision to found a new venture often arises from a
person’s belief that they have recognized an opportunity with profit potential, suggesting
that variance in the tendency of people to start business can be explained by the
difference between them in their tendency to recognize entrepreneurial opportunities
(Gaglio and Katz 2001). Opportunity recognition was perhaps best defined by
Christensen, Madsen and Petersenas (1989), ‘perceiving a possibility for new profit
through (1) the founding and formation of a new venture or (2) the significant
improvement of an existing venture’. From this opportunity recognition can be defined
broadly as an activity that can occur both prior to establishment of a firm and after
founding it (throughout the life of the firm and throughout the life of the entrepreneur)
(Singh, Hills and Lumpkin 1999).

A simple way to find prima facie whether an idea that one has would be an opportunity
lies in answering some of the following fundamental questions:

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  Does your business idea respond to someone’s pain, discomfort, displeasure, anxiety and
so on?
 Do you find a large market for your idea as could be assessed from having a large
number of people looking forward to relief from the aforementioned pains and
discomfort?
 Do these people from the assessed target market consisting of individuals, companies or
government have adequate money to pay for relieving themselves from their pain,
anxiety and discomfort?
 Do they need your product or service immediately or can their need be postponed?
 Does your idea have something unique in it so that it can avoid competition?

Answering these questions scientifically and backed up by facts and figures help in
opportunity recognition, which passes through the idea stage, concept stage, product/service
development stage, test marketing stage and the product/service launch stage. The real test of
an idea lies in the market testing stage that could be a litmus test for the success or failure of
a venture.

Product/Service
Test Marketing Launch Stage
Stage
Product/Service
Development Stage
Concept Stage

Idea Stage

Figure 5.2: Stages Involved in Opportunity Recognition

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 Opportunity recognition can take place both prior to launching a venture and after
launching throughout the life of a venture and throughout the life of an entrepreneur. A business
opportunity has two vital components, namely, an ‘idea’ and an ‘entrepreneurial opportunity’,
which have potential for generating profit in the future. Therefore, it is necessary to understand
that an idea per se does not necessarily lead to an entrepreneurial opportunity, although it is a
basic prerequisite and always at the heart of an opportunity

5.2: Steps in Tapping Opportunities

The greatest challenge that an entrepreneur faces is to identify the idea that can be said to
be an opportunity to be tapped that can ensure commercial success. It require a deep insight on
the part of an entrepreneur to take concrete steps to see to it that an opportunity is seized
successfully at the right time and right place.

Seizing the Evaluating Understanding

Opportunity Opportunity Time frame of an
Opportunity

Identifying Need Establishing Need, Computing the Worth

for Undertaking Of an Opportunity
Partners, If Any Market
Research

Managing the Identifying Resources

Venture Required and
Sources to Acquire

Figure 5.3: Steps Involved in Tapping an Opportunity

5.2.1: Seizing the Opportunity: Seizing an opportunity implies defining a set of criteria that
would give confidence to an entrepreneur that an opportunity is worthwhile to pursue. Pursuing
for opportunity will invariable require time and money and therefore one has to necessarily

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ensure seizing the opportunity at a right time so that one can fetch commensurate returns from
investment.

5.2.2: Evaluating Opportunity: Opportunity evaluation basically starts with customer pain
points or the needs that can be fulfilled. There should be concrete evidence backed up by a
customer’s responses to a proposed solution and its acceptance by the customer. This should help
in a clear identification of a target market for the product/service.

5.2.3: Understanding the Timeframe: Every opportunity has a time horizon for which it exists.
Opportunity does not exist before a particular time and ceases after a given time horizon.
Therefore, entrepreneurs need to be ready with delivery of their product/service exactly at a time
during which opportunity exists.

5.2.4: Computing the Worth of an Opportunity: Opportunity cost is defined as the cost related
to the next-best choice available to someone who has picked from among several mutually
exclusive choices. The notion of opportunity cost plays a crucial part in ensuring that scarce
resources are used efficiently. For example, the opportunity cost of going in for an MBA
programme after completing a BE would be two years of salary through a job plus expenses to
be incurred on doing the MBA programme.

5.2.5: Establishing Need through Preliminary Market Research: Entrepreneurs need to

precisely measure with facts and figures in quantifiable terms the need for the product or service.
This would require specific estimates for sales in physical units and financial terms leading to
expected return from the proposed product or service.

5.3. Trend Spotting

Many successful businesses were started by entrepreneurs with an ability to see a trend
before everyone else. They were able to take their insight and capitalize on it in a new and
creative way. Businesses from Uber, Ola, Airbnb and HomeAway are just some of the most
recent examples of entrepreneurs benefiting from emerging trends. But just because it’s been
done before doesn’t mean it is easy to see trends first and find ways to capitalize on them.

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 Smart entrepreneurs are always looking for an edge. They want to know how they can
identify trends and how they can use that skill to build and grow a business. Fortunately, there
are steps you can take develop this skill yourself. Here are five keys to spotting trends and
capitalizing on them before your competition does.

5.3.1 Anticipate change: Assume that change is coming and look for it. Change can be
either social -- as in the rise of socially responsible business -- or technological, as
exemplified by the growth of mobile commerce. Sometimes change can be both.
Social media is a great example of that.
Don’t forget the cyclical, up-and-down, back-and-forth nature of business while you
are looking. Change doesn’t have to be permanent to provide a viable opportunity for
business creation and growth. When the real estate crisis hit in 2008, construction
activity shrank, and many people were forced to make do with what they had. But
trend-spotting entrepreneurs were able to adjust their plans depending on the market.
For example, savvy interior designers marketed their services to those who wanted
something new but couldn’t find or afford a new home.
5.3.2 See it coming: The basic tools of the trend tracker are seeing, hearing, smell, taste and
touch. In other words, every sense that can be used to get information about the world
should be employed in looking for upcoming changes. Start by reading and watching
everything you can. That should include general interest news outlets, trade
publications, blogs, government reports and casual conversations overheard in
elevators. Be especially alert for problems people are talking about.
Consider using trend-tracking tools like Google Trends, Topsy and Trendhunter
to help you zero-in on trends that are worth investigating further. You won’t be the
only entrepreneur looking for business ideas on these platforms, but you can use them
to dig deeper to validate hunches.
5.3.3 Distinguish between short-lived fads and long-term trends: Strive to identify big
changes that create lasting problems that lots of customers will be happy to pay to
solve. The idea is to wind up with a business model in which revenues are much larger
than costs for a long period, not one that limps by on slender profit margins before
competitors take even that away.

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 To filter out fads, talk to the potential buyers of the solution to the problem. The more
frustrated they are, the more likely they are to pay for a solution. In extreme cases,
potential customers may be willing to fund the development of solutions. Also talk to
experts. While they may not be able to write checks, they can provide insights and
point to possible solutions that customers could not even imagine.
5.3.4 Make sure your solutions are realistic: Online retailer that aims to beat Amazon at
its own game is unlikely to show up on top of any fast-growing startup lists very soon.
Make sure the solution you envision is one you can realistically provide with features
and costs that will compare favorably to established alternatives. Again, it’s vital to
talk to potential customers. Don’t just brainstorm in-house. What you can do
conveniently and inexpensively may be of little value to customers. The sweet spot for
a trend-exploiting startup is at the intersection of business capability and customer
need.
5.3.5 Create a competitive advantage: To get the biggest benefit, be the first mover. It is
rare for any single entrepreneur to be the only one who sees an opportunity. Most will
hesitate and not move at all. Many others will not move swiftly enough. Lasting
competitive advantage usually goes to the first entrant to stake a market out and
capture customer loyalty. Those who come later usually have to settle for slimmer
profits and more competition.
Being first is not enough, of course. Business history is littered with well-financed
startups directed by well-regarded leaders who committed too much, too early and in
the wrong place. So test before committing. Again, look for revenues that overwhelm
costs and customers who are overjoyed.
For every trend that supports a future startup star, any number go ignored,
leaving potential customers searching for solutions and opportunities for established
companies to fill their needs. But it only takes timely identification of one trend to get
a startup in flight, and these techniques can point you to the one you need.

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5.4 Creative Process

Ideation (creative process) Ideation is the creative process of generating, developing,

and communicating new ideas, where an idea is understood as a basic element of thought that
can be either visual concrete, or abstract.
Stages in Creativity
According to Schumpeter: "Entrepreneurs need ideas to pursue but ideas hardly
materialise accidentally." Ideas normally pass through a long evolutionary process. In other
words, ideas evolve through a creative process whereby a person with imagination germinates
ideas, nurtures them and develops them successfully. There are five stage of the creative
process: (a) idea germination, (b) preparation, (c) incubation, (d) illumination and (e)
verification. It should be noted that these stages are different but interrelated. In fact, in each
stage a creative individual behaves differently to move an idea from the initial stage of
germination to the last stage, i.e., verification.
5.4.1. Idea Germination. The germination stage is the sowing stage of the process.
History reveals that most creative ideas can be traced to an individual's interest in or curiosity
about a specific problem or area of enquiry.
5.4.2. Preparation. Once a seed of curiosity has taken the shape of a focused idea, the creative
person will make a thorough search for appropriate answers. If it is a problem that has to be
solved, he would begin by seeking information about the problem and by looking at how others
have tried to solve the same problem in the past. If it is an idea for a new product or service there
is need to carry out appropriate market research. While scientists will carry out laboratory
experiments, designers will start engineering new product ideas and marketeers will study
consumer buying habits. An individual with an idea will thereafter think about it and concentrate
his energies on rational extensions of the idea and how this can be converted into a saleable
product or service.
5.4.3. Incubation. Creative people and people with vision often concentrate intensely on an idea,
but, in most cases, they simply allow ideas time to grow without international effort. Most ideas
evolve in the minds of people with imagination and foresight while they go about other
activities. The idea once sown and given substance through preparation is put on back-burner.
This means that the subconscious mind is given enough time to assimilate information collected
from diverse sources.
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Incubation is a stage of mulling it over while the subconscious intellect controls the whole
creative process. This is, no doubt, a crucial aspect of creativity because when imaginative
people consciously focus on a problem, they behave rationally in their search for systematic
solutions. In this context, one may refer to the art of synectics which means a joining together of
different and often unrelated ideas. This means that when a person has consciously worked to
resolve a problem without success, allowing it to incubate in the subconscious mind will often
lead to a resolution.
5.4.4. Illumination. Illumination occurs when a certain idea resurfaces as a realistic creation.
Most creative people normally pass through numerous cycles of preparation and incubation,
searching for full meaning of the idea. When a cycle of creative behavior fails to result in a
catalytic event, the cycle is repeated until the idea takes shape or disappears. This stage is most
crucial for entrepreneurs because ideas by themselves carry little practical living in a world of
illusion from creative people who find a way to creative value.
5.4.5. Verification. An idea illuminated in the mind of an individual still has little meaning until
verified as realistic and useful. The significance of entrepreneurial effort lies in the fact that it is
essential to translate an illuminated idea into a verified, realistic and useful application. In fact,
verification refers to the development stage of refining knowledge into application. During this
stage, many ideas will be rejected as they do not appear to be fruit-bearing or having practical
relevance. It is often found that a good idea has already been developed or the eager entrepreneur
finds that competitors already exist in the market. Inventors often face such a situation when they
seek patent protection only to discover similar inventions already registered.
5.5 Innovations and Inventions
Innovation implies doing new things or doing things that are already being done in new ways. It
may occur in the following forms:
(i) Introducing a new manufacturing process that has not yet been tested and commercially
exploited.
(ii) Introduction of a new product with which the consumers are not familiar or introducing
a new quality in an existing product.
(iii) Locating a new source of raw material or semi-finished product that was not
exploited earlier.

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(iv) Opening a new market, hitherto unexploited, where the company products were not sold
earlier.
(v) Developing a new combination of means of production.
Schumpeter has made a distinction between ‘an innovator’ and ‘an inventor’. An inventor
discovers new methods and new materials. On the other hand, an innovator is one who utilises or
applies inventions and discoveries to produce newer and better quality goods that give greater
satisfaction to tin- consumers and higher profits to the entrepreneur. An inventor produces ideas
and an innovator implements them for economic gain. An inventor adds to the knowledge of the
society while an innovator adds to their satisfaction by means of newer and better products and
services. It is an innovator who commercially exploits an invention.

5.5.1. INVENTION VS. INNOVATION: THE DIFFERENCE

In its purest sense, “invention“ can be defined as the creation of a product or introduction
of a process for the first time. “Innovation,” on the other hand, occurs if someone improves
on or makes a significant contribution to an existing product, process or service.
Consider the microprocessor. Someone invented the microprocessor. But by itself, the
microprocessor was nothing more than another piece on the circuit board. It’s what
was done with that piece — the hundreds of thousands of products, processes and services that
evolved from the invention of the microprocessor — that required innovation.

5.5.2. STEVE JOBS: THE POSTER BOY OF INNOVATION

If ever there were a poster child for innovation it would be former Apple CEO Steve
Jobs. And when people talk about innovation, Jobs’ iPod is cited as an example of innovation at
its best.
But let’s take a step back for a minute. The iPod wasn’t the first portable music device
(Sony popularized the “music anywhere, anytime” concept 22 years earlier with the Walkman);
the iPod wasn’t the first device that put hundreds of songs in your pocket (dozens of
manufacturers had MP3 devices on the market when the iPod was released in 2001); and Apple
was actually late to the party when it came to providing an online music-sharing platform.
(Napster, Grokster and Kazaa all preceded iTunes.)So, given those sobering facts, is the iPod’s
distinction as a defining example of innovation warranted? Absolutely.

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What made the iPod and the music ecosystem it engendered innovative wasn’t that it was
the first portable music device. It wasn’t that it was the first MP3 player. And it wasn’t that it
was the first company to make thousands of songs immediately available to millions of users.
What made Apple innovative was that it combined all of these elements — design, ergonomics
and ease of use — in a single device, and then tied it directly into a platform that effortlessly kept
that device updated with music .Apple invented nothing. Its innovation was creating an easy-to-
use ecosystem that unified music discovery, delivery and device. And, in the process, they
revolutionized the music industry.

5.6. Protection of intellectual Property Rights

Intellectual Property (IP) has been traditionally categorized into Industrial property and
Copyright. The term Industrial Property includes patents, trademarks, industrial designs, and
geographic indications of source. Copyright protection is granted to protect literary, artistic and
musical works.
There are a number of international organizations and agencies that promote the use and
protection of intellectual property:
1. International Trademark Association (INTA)
2. World Intellectual Property Organization (WIPO)
3. Paris Convention
4. Berne Convention (for the protection of literary and artistic works)
5. Madrid Protocol
6. North American Free Trade Agreement (NAFTA)
7. General Agreement on Tariffs and Trade (GATT)
5.6.1. International Trademark Association (INTA): The International Trademark
Association (INTA) is a worldwide not-for-profit advocacy association of trademark
owners and professionals dedicated to supporting trademarks and intellectual property in
order to protect consumers and to promote fair and effective global commerce.

2. INTA’s members are more than 6,500 organizations from 190 countries. The
Association's member organizations represent some 30,000 trademark professionals and
include brand owners from major corporations as well as small and medium-sized

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 enterprises, law firms and nonprofits. There are also government agency members as well
as individual professor and student members.

3. INTA undertakes advocacy work throughout the world to advance trademarks and offers
educational programs and informational and legal resources of global interest.

4. History: INTA, originally known as the United States Trademark Association (USTA),
was established in November 1878 in New York City by 17 merchants and manufacturers
to protect and promote the rights of trademark owners, secure useful legislation.

5. In 1908, the Association became a business corporation under the Business Corporation
Law of the State of New York, and it was given broad powers to act for the protection of
trademarks in the United States and around the world. In 1926, the USTA became a not-
for-profit member organization. In 1993, the Association changed its name to the
International Trademark Association.

6. Activities: INTA provides services to its members and the public in three main areas:
Global Trademark Resources, Programs & Events, and Policy & Advocacy.

5.6.2. World Intellectual Property Organization (WIPO):

World Intellectual Property Organization (WIPO), international organization designed to

promote the worldwide protection of both industrial property (inventions, trademarks, and
designs) and copyrighted materials (literary, musical, photographic, and other artistic works).
The organization, established by a convention signed in Stockholm in 1967, began operations in
1970 and became a specialized agency of the United Nations in December 1974. It is
headquartered in Geneva, Switzerland. WIPO currently has 188 member states, administers 26
international treaties.

Organization (WIPO), international organization designed to History: The origins of WIPO can
be traced to 1883, when 14 countries signed the Paris Convention for the Protection of Industrial
Property, which created intellectual-property protections for inventions, trademarks, and
industrial designs. The convention helped inventors gain protection for their works outside their
native countries. In 1886 the Berne Convention required member countries to provide automatic
protection for works that were produced in other member countries. The two organizations,

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which had established separate secretariats to enforce their respective treaties, merged in 1893 to
become the United International Bureau for the Protection of Intellectual Property (BIRPI),
which was based in Bern, Switzerland. In 1960 BIRPI moved its headquarters to Geneva.

Purpose: The purposes of WIPO are twofold: (1) to promote the protection of intellectual
property throughout the world through cooperation among states and, where appropriate, in
collaboration with any other international organization; and (2) to ensure administrative
cooperation among the unions.

5.6.3 Agreement between the WIPO and WTO: To facilitate the implementation of the
TRIPS Agreement, the Council for TRIPS concluded with WIPO an agreement on
cooperation between WIPO and the WTO, which came into force on 1 January 1996. As
explicitly set out in the Preamble to the TRIPS Agreement, the WTO desires a mutually
supportive relationship with WIPO. The Agreement provides cooperation in three main
areas, namely notification of, access to and translation of national laws and regulations,
implementation of procedures for the protection of national emblems, and technical
cooperation.

5.6.4.Paris Convention: The Paris Convention for the Protection of Industrial Property, signed
in Paris, France, on 20 March 1883, was one of the first intellectual property treaties. It
established a Union for the protection of industrial property. The Convention is currently still in
force. The Paris convention is based on the principle of reciprocity, so that foreign trademark and
patent owners may obtain in a member country the same legal protection for their marks and
patents as can citizens of those countries. It is administered by WIPO.After a diplomatic
conference in Paris in 1880, the Convention was signed in 1883 by 11 countries: Belgium,
Brazil, France, Italy, the Netherlands, and Portugal are six of them As of September 2014, the
Convention has 176 contracting member countries, which makes it one of the most widely
adopted treaties worldwide.

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5.6.5.Berne Convention:

The Berne Convention for the Protection of Literary and Artistic Works, usually known as
the Berne Convention, is an international agreement governing copyright, which was first
accepted in Berne, Switzerland, in 1886. It has 171 contracting parties. The United States
became a part to the Berne convention in 1989. It is administered by WIPO. And is based
on the percept that each member nation must treat nationals of other member countries like
its own nationals for purpose of copyright.

5.6.6.Madrid Protocol:
The Madrid Protocol (Protocol), an international treaty, was adopted in 1989 in order to
remove the difficulties that were deterring some countries from acceding to the Madrid
Agreement (Agreement), the 1891 treaty that established the system for the international
registration of trademarks. The Protocol, which has been in force since April 1, 1996, has
become a convenient and economical means of securing trademark registration in member
countries in Asia, Africa, Europe, and the Middle East, the Pacific Rim and the Western
Hemisphere and the like. Total Contracting Parties are 97.

5.7 : Feasibility analysis :

The next step after recognition of an opportunity is doing feasibility analysis. Many hasty
entrepreneurs take a business idea and race ahead with the development of a product or service
without conducting feasibility analysis and waste their scarce resources when negative feedback
from customers are received.

Feasibility analysis is the process of determining whether a business idea is viable or not.
It is a preliminary evaluation of a business idea., conducted for the purpose of determining
whether the idea is worth pursuing. The proper time to conduct a feasibility analysis is early in
thinking about the prospects for a new business idea. It follows opportunity recognition but
comes before the development of a business plan / project report.

The following are the four key areas in feasibility analysis:

1. Product / service feasibility

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 2. Industry / market feasibility
3. Organizational feasibility
4. Financial feasibility.

Before undertaking a feasibility analysis, a concept statement should be developed. A concept

Statement is a preliminary description of a business and includes the following:

a) Product: This section details the features of the product or service and may include a
sketch of it as well. A computer generated simulation of the functionality of the
product or service is also helpful.
b) Target Market: This section lists the business or people who will buy the product or
service.
c) The benefits of the product or service: How the product or service adds value
and/or solve a problem.
d) A description of how the product will be positioned relative to similar ones in the
market:
e) A description of how the product or service will be sold and distributed:

5.7.1 Product / Service feasibility Analysis: It is an assessment of the overall appeal of the
product or service being proposed. It requires two primary tests viz., (1) Concept
testing and (2) usability Testing.
Concept Testing: This requires showing a representation of the product or service to
potential users to judge customers reactions, interest, desirability , and purchase intent.
There are three main purposes for Concept testing as given below;
1. It helps in validating the underlying premises of a product or service idea that
an entrepreneur thinks is essential . To test his idea, an entrepreneur must ask
prospective customers and industry experts what they think about his idea.
2. It helps in further refining the idea based on feedbacks from customers creates
confidence in Entrepreneur that the product / service satisfies a defined need
of prospective customers.

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 3. It helps in estimating potential market share the product / service might
command. The number of people willing to buy will give an indication of the
degree of consumer interest in the firms’ product / service.

Usability Testing: a concept test is usually followed by the development of a prototype or

model of the product. The model of the product is refined and refined again until the
customer and designer agree on the final design. Normally, a basic prototype is
developed and is used to know the customer interest and to conduct usability testing.

Usability testing requires that users of a product perform certain tasks to measure the ease
of the product’s use and to know the user’s perception of the experience. Conducting
usability test is a good investment of an entrepreneur’s resources. There are many types
of usability tests. Some entrepreneurs with limited budget may develop a basic prototype
and ask friends and collegues to use the product, and get feedback. Other companies use
elaborate usability tests. Usability testing is particularly important for software and web
site design. According to one survey, in USA 36 percent of all web site owners conduct
usability tests.

5.7.2 Industry / market Feasibility Analysis: Industry / market feasibility analysis is an

assessment of the overall appeal of the market for the product or service being proposed.
There are three primary issues to consider in this analysis: (1) industry attractiveness (2)
market timeliness and (3) the identification of a niche market.

Industry attractiveness: Industries vary in terms of their growth rates.

A primary determinant of a new venture feasibility is attractiveness of the industry it chooses.

Most attractive industries are characterized by the following features:

a) Being large and growing

b) Being important to the customer: Customers “Must have” rather than “Would like to
have” these products.
c) Being fairly young rather than older or more matured.
d) Having high rather than low operating margins.

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 e) Not being crowded: A crowded market, with lots of competent will have fierce price
competition and low margins.

The entrepreneur should also conduct a thorough research about the industry to assess the
overall attractiveness of the industry he wants to enter

Market timeliness: The second consideration is the timeliness of the introduction of a

particular product or service. This depends on whether the product is a new product or an
improvement over the existing product. For new products there will be “first mover advantage”
to move into a new market.

The identification of a niche market: A niche market is a place within a larger market
segment that represents a narrower group of customers with similar interest. Most successful
entrepreneurial firms do not start by selling to broad markets. Instead most start by identifying
an emerging or underserved niche market within a larger market.

5.7.3 Organizational Feasibility Analysis: It is conducted to determine whether a proposed

business has sufficient management expertise, organizational competence and resources
to successfully launch the business.
a) Management Ability & Organisational Competence: The entrepreneur must make a
self-assessment of his ability to manage the new business. Managers with extensive
professional experience and social networks have an advantage.
b) Resource Competence: The entrepreneur has to determine whether the potential new
venture has sufficient resources to move forward and to successfully develop a new
product/service. Since financial feasibility is separately considered, non-financial
resources such as availability of office space, quality of labour pool, possibility of
obtaining intellectual property protection are important factors to be considered here.
5.7.4 Financial Feasibility Analysis: It is the final stage of a comprehensive feasibility analysis.
At this stage a quick financial assessment is usually sufficiently. More rigorous
assessment is not requirement at this stage. The most important issues to consider at this
stage are: Capital Requirements, Financial Rate of Return and Overall Attractiveness of
Investment. If the proposed new venture move beyond the feasibility stage, it will need

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 to prepare projected financial statements to show the firm’s financial viability for the
initial first, second or third years of existence.

5.8: summary

There exists a big difference between having a great idea and converting it into a great
opportunity. At times in over excitement to plunge into an entrepreneurial venture, an
entrepreneur may get confused between the two and miss a subtle difference between a great
idea and a great opportunity. Entrepreneurs must learn the art of identifying a particular idea
from amongst many ideas that could be said to be genuine opportunity. As such, true
opportunities at a particular point of time are a great treasure and are highly valuable.

The entrepreneur may have an opportunity that may appear to be an excellent one, but
what matters the most is whether if can be converted into a profitable opportunity, which needs
to be thoroughly explored and doubly ensured. The fundamental difference between an idea and
an opportunity lies in whether the entrepreneur can turn it into a product/service that would
attract customers’ attention and bring profits to the entrepreneur. Therefore, before plunging into
risk of investing money on an idea, the entrepreneur must analyse critically the various facts of
an idea to find out whether it would a worthwhile opportunity to convert it into a reality.

Trend spotting, technique for opportunity recognition is the ability to see a trend before
everyone else. Uber, Ola, Airbnb and HomeAway are examples of most recent businesses based
on trend spotting.

Another technique of opportunity recognition is creative process or ideation. Creative

process or ideation is the process of generating, developing and communicating new ideas. The
five stages in the creative process are: Idea Generation, Preparation, Incubation, Illumination and
Verification.

Shumpeter distinguished between invention and innovation. Invention is

creation/discovery of something new, whereas innovation is converting that into a viable
business proposition. According to him, an inventor discovers the new methods and new

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materials whereas; an innovator utilizes or applies inventions and discoveries to produce new
and better productions.

Intellectual Property (IP) has been traditionally categorized into Industrial property and
Copyright. The term Industrial Property includes patents, trademarks, industrial designs, and
geographic indications of source. Copyright protection is granted to protect literary, artistic and
musical works

Feasibility analysis is the process of determining whether a business idea is viable. It is a

preliminary evaluation of a business idea, conducted for the purpose of determining whether the
idea is worth pursuing.

The proper time to conduct a feasibility analysis is early in thinking through the prospects
for a new business idea. It follows opportunity recognition but comes before the development of
a business plan.

The feasibility analysis should be preceded by the development of a concept statement.

A concept statement is a preliminary description of a business. The concept statement should
include a description of the product or service being offered, the intended target market, the
benefits of the product or service, and description of how the product or service will be sold and
distributed.

Product/service feasibility analysis is an assessment of the overall appeal of the product

or service being proposed. Concept testing and usability testing are the two primary issues that a
proposed business should consider in this area.

There are three primary purposes for concept testing: to validate the underlying premises
behind a product or service idea, to help develop an idea rather than just test it, and to estimate
the potential market share the potential product or service might command.

Usability testing is a method by which users of a product or service are asked to perform
certain tasks in order to measure the product’s ease of use and the user’s perception of and
satisfaction with the experience.

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 Industry/market feasibility analysis is an assessment of the overall appeal of the market
for the product of service being proposed. For feasibility analysis, there are three primary issues
that a proposed business should consider: industry attractiveness, market timeliness and the
identification of a niche market.

Organizational feasibility analysis is conducted to determine whether a proposed business

has sufficient management expertise, organisatioin competence, and resources to successfully
launch its business. There are two primary issues to consider in this area: management prowess
and resource sufficiency

Financial feasibility analysis is a preliminary financial analysis of whether a business idea

is prudent. The most important issue to consider are capital requirements, financial rate or return
and overall attractiveness of the investment.

5.9: Activity
1. The following are some hypothetical statements pertaining to customer needs. Identify
the solutions to fulfill these needs by recognizing an opportunity behind each situation.
I. A going out of business signboard is placed in a local store.
II. 10 new working couples with young children in the age group of three to eight
years have just shifted to your locality.
III. 4,000 students in a residential college not liking their mess food.
IV. Faculty members living in university quarters are not finding gardeners to
maintain their garden.
2. Small and medium industries catering to local demand and are not able to afford
advertising and sales promotion. What specific opportunity can be recognized to satisfy
their need?

5.10: Self Assessment Questions

Short Answer questions:
1. Feasibility analysis
2. Prototype
3. First-mover advantage
4. Concept Statement

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 Concept Testing
5.
6. Usability Testing
7. Niche Market
8. Trend spotting
9. Opportunity Analysis
10. Innovation
11. Intellectual Property Rights.
Essay Questions
1. What is an opportunity? What are the qualities of an opportunity, and why is each
quality important?
2. Explain how “solving a problem” can create a business opportunity. Provide an example.
3. What is meant by opportunity recognition?
4. Define creativity. How does creativity contribute to the opportunity recognition process?
5. Briefly the describe the five stages of the creative process.
6. Explain the difference between an opportunity and an idea.
7. Describe the brainstorming process. Why is “no criticism” the number one rule for
brainstorming?
8. Describe how a focus group is set up and how it is used to generate new business ideas.
9. What is an opportunity? Explain the process that requires opportunity recognition?
10. Describe the various steps that are needed in recognition of opportunity
11. What is a feasibility analysis? What is it designed to accomplish?
12. Briefly describe each of the four areas that a properly executed feasibility analysis
explores
13. What is a concept statement? Why is it important to develop a concept statement before
initiating a feasibility analysis?
14. What is product/service feasibility analysis?
15. What is a concept test, and what does it accomplish? What are the three primary purposes
for it?
16. What is usability test, and what does it accomplish?
17. What is industry/market feasibility analysis?
18. Why is important for a new ventures to identify a niche market in which it can
participate?
19. What is financial feasibility analysis?
20. Briefly describe the three primary issues to consider when conducting a financial
analysis?

Multiple choice questions:

1. Innovation is defined as:

A. The commercialization of a new product or process.

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 B. The invention of a new product or process.
C. A new product or process idea.
D. The implementation of a new production method
2. Trend spotting means
A. Identification of new trends
B. commercialization of ideas
C. advertising an idea
D. Knowing more values of a product.

3. Intellectual Property Rights (IPR) protect the use of information and ideas that are of
A. Commercial value
B. Ethical value
C. Moral value
D. Social value
4. The following cannot be exploited by assigning or by licensing the rights to others
A. Trademark
B. Patents
C. Copyrights
D. Deigns
5. Why should an entrepreneur do a feasibility study for starting a new venture?
A. To see if there are possible barriers to success
B. To identify possible sources of funds
C. To estimate the expected sales
D. To explore potential customers

5.11: Key Terms

Opportunity Market Resources Concept test New venture team

Niche market core competency feasibility analysis first-mover advantage

Industry/market feasibility analysis prototyping second-mover advantage

Seed money usability testing

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5.12: Further Readings / Reference books

1. Arya Kumar, Entrepreneurship, Pearson, Delhi, 2012.

2. Murthy.C.S.V, Entrepreneurship and Good Governance, Himalaya Publishing House,
New Delhi, 2010.

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 LESSON 6: PREPARATION OF PROJECT REPORT

Learning Objectives:
After reading this lesson, you will be able to answer the following questions:

 What is a project?
 What is a Project report?
 What is the need, scope and significance of a project Report.
 What should be the contents of a project report?
 How to formulate a Project Report
 How to use the Format of a Business Plan for NSME
 What is ( Preliminary Project Report (PPR)

Structure of the lesson:

6.1: Definition of a Project

6.2: Meaning of a Project Report
6.3: Parties interested in Project Report
6.4: Scope of a Project Report
6.5: Need and Significance of Report
6.6: Contents of Project Report
6.7: business plan format for micro and small enterprises
6.8: Formulation of Project Report
6.9: Preliminary Project Report
6.10: Summery
6.11: Key Terms
6.12: Self Assessment Questions
6.13: Further Readings / Reference books

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Success stories of 5 Indian entrepreneurs who successfully started with almost nothing. These
stories hopefully will inspire you through your startup journey and will keep you motivated.

1. Patricia Narayan (Winner of this year’s ‘FICCI Woman Entrepreneur of the Year’ award is
amazing)

She started her career 30 years ago as an entrepreneur, selling eateries from a mobile cart
on the Marina beach amidst all odds — battling a failed marriage, coping with her husband, a
multiple addict, and taking care of two kids. Today, she has overcome the hurdles and owns a
chain of restaurants

“I started my business with just two people. Now, there are 200 people working for me in
my restaurants. My lifestyle has changed too. From travelling in a cycle rickshaw, I moved to
auto rickshaws and now I have my own car. From 50 paise a day, my revenue has gone up to Rs
2 lakh a day. The ‘Ficci entrepreneur of the year’ award is the culmination of all the hard work I
have put in over the last 30 years. It came as a surprise as this is the first time I have received an
award.

Advice to young entrepreneurs

“Do not ever compromise on quality. Never lose your self-confidence. Believe in
yourself and the product you are making. Third, always stick to what you know. When you
employ people, you should know what you ask them to do”.

2. Karsanbhai Patel - Man behind NIRMA

The ‘Nirma’ success story of how an Indian Entrepreneur took on the big MNCs and
rewrote the rules of business. It was in 1969 that Dr. Karsanbhai Patel started Nirma and went
on to create a whole new segment in the Indian domestic detergent market. During that time the
domestic detergent market only had the premium segment and there were very few companies ,
mainly the MNCs, which were into this business. Karsanbhai Patel used to make detergent
powder in the backyard of his house in Ahmedabad and then carry out door to door selling of his
hand made product. He gave a money back guarantee with every pack that was sold. Karsanbhai
Patel managed to offer his detergent powder for Rs. 3 per kg when the cheapest detergent at that
time was Rs.13 per kg and so he was able to successfully target the middle and lower middle
income segment.

Nirma became a huge success and all this was a result of Karsanbhai Patel’s
entrepreneurial skills. The best case of – Give your consumer what he wants, when he wants,
where he wants and at the price he wants, selling will be done quite automatically. This is the
marketing ‘mantra’ of Nirma.
The company that was started in 1969 with just one man who used to deliver his product from
one house to the other,today employs around 14 thousand people and has a turnover of more than
$ 500 million. In 2004 Nirma’s annual sales were as high as 800000 tonnes.According to Forbes
in 2005 Karsanbhai Patel’s net worth was $640 million and it’s going to touch the $1000 million
mark soon.

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3. Prem Ganapathy

The Dosawala Prem Ganapathy, was stranded at the bandra station,when the person
accompanying him left him and ran away. Prem had no local acquaintances or knowledge of the
language. Out of pity, a fellow Tamilian guided him to a temple and appealed worshipers to
contribute money for his return ticket to Chennai. Prem refused to go back and decided to work
in Mumbai and started cleaning utensils in a restaurant. He appealed to his owner, to let him
become a waiter as he was class 10 pass. The owner refused, because of regional politics and
Prem bided his time till a neighborhood dosa restaurant opened and offered him a job from a
dishwasher to a tea boy.

Prem became a huge hit with the customers because of his excellent customer service,
initiatives and relationship and brought business Rs. 1000 daily which was almost 3 times as
compared to other tea boys. The life was good. A customer made him an offer. He was planning
to open a tea shop in Vashi in Mumbai. He wanted Prem to be his 50 – 50 partner where the
owner would invest the money while Prem would run the shop. The shop started doing brisk
business when the owner became greedy. It hurt him to share 50 % of the profit with Prem and
he threw Prem out replacing him with an employee.

Prem was made of a different material and he was never going to be defeated. He took a
small loan from his uncle and with his brother, opened his own tea stall. Unfortunately the
neighbourhood residents objected. He then started a hand cart but that also did not work out. He
found a spot and set up a south Indian stall. He did not know a thing about dosas and idli but
learnt by observation, trial and error. The dosa stall was a huge hit and flourished during the 5
years from 1992-1997. But why was the tiny dosa stall was was so successful in spite of
competition from ubiquitous eateries prevalent in Mumbai. According to Prem it was its hygiene,
proper appearances of the waiters and fresh ingredients which stood out as a difference.

He saved a couple of lakhs of Rupees and instead of heading home he took the biggest
risk of his life and opened a new shop near Vashi station and named it as Dosa Plaza. His
Chinese plaza next to the Dosa Plaza flopped miserably and was shut down in 3 months.
Undaunted, Prem realized some lessons from it. He applied those lessons in making Chinese
cuisine in his dosas which worked very well. He got passionate and invented a variety of dosas
with Chinese style like American Chopsuey, Schezwan Dosa, Paneer chilly, Spring roll dosa etc.
The 108 types of Dosas in his menu gets him a lot of publicity. A chance encounter with a
customer who was part of the team setting up a food court in a mall in New Bombay advised him
to take a stall at the food court and again Prem was ready and willing to grow and expand. His
vision was to grow by better offerings and better customer service. He also went to ad agencies
to create the brand identity including the logo, brands, menu card, waiters dress etc.

He started getting a lot of offers for franchising and had to find out the meaning of
franchising and its modus operandi. Dosa Plaza currently has 26 outlets and 5 of them are
company owned. It has 150 employees and a turnover of 5 crore. All the branches are connected
and networked and there are training managers and proper manuals to maintain standard and
uniform product and services.

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4. Ramesh Babu, the barber who owns a Rolls Royce

Ramesh Babu, the barber who became a millionaire, did exactly this when he was
shaping his dazzling destiny. Stories of personal perseverance, the ones where heroes overcome
severe obstacles and achieve dizzying heights of success, have been around since the beginning
of time but they never get old. They inspire us and inflame our passions, making us believe we
too can follow suit.

Ramesh Babu bought a Maruti Van with his meagre savings in 1994. By 2004, he had a
fledgling car rental business with seven regular cars. In 2014 he has a fleet of 200 cars. What is
even more extraordinary is the 75 luxury cars on the fleet- a range of Mercedes, BMW’s, Audi’s,
five and ten seater luxury vans and, his ultimate pride, a Rolls Royce.

Building a successful business:

From 1994 onward I seriously got into the car rental business. The first company I rented
it out to was Intel because that’s where Nandini akka was working and she helped arrange it.
Gradually, I started adding more cars to the fleet. Till 2004, I only had about five to six cars. I
was focused on getting the saloon business off the ground, so this was not my priority. The
business was not doing well as the competition at this level was intense. Everyone had small
cars. I thought of getting into luxury cars because that is something that no one else was doing.

On Taking Risks:

When I was buying my first luxury car, in 2004, everyone told me that I was making a
big mistake. Forty lakhs in 2004 for a car, even a luxury car, was a very big deal. I was
extremely apprehensive, but simply had to take the chance. I told myself that I would sell off the
car if worse came to worst. Fortunately for me, the risk paid off remarkably. No other car rental
service had luxury cars of this stature. There were ones who had purchased second hand models
and the conditions of those cars were far from pristine. I was the first person in Bangalore to
invest in a brand new luxury car and it did very well.
5. Naina Lal Kidwai, 55, is presently the Group General Manager and Country Head of HSBC
India.

Naina has a Bachelor’s degree in Economics from Delhi university and an MBA from
Harvard Business school. In fact, Kidwai was the first Indian woman to graduate from Harvard
Business School. She started her career with ANZ Grindlays. Presently, she is also serving as a
non-executive director on the board of Nestle SA. Kidwai is also global advisor at Harvard
Business school. Indian government conferred Padma Shri award on Naina for her contributions
in the field of Trade and Industry.

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6.1: Definition of a Project
A project is a temporary endeavour undertaken to create a unique product or service
(Project Management Institute, 2004,p.5). A project can be considered to be achievement of a
specific objective, which involves a series of activities and tasks which consume resources
(Munns & Bjeirmi, 1996).

In the context of entrepreneurship, a project is a business venture. Let us closely look at

some of the keywords used in the above two definitions of a project.

 The term temporary endeavor indicates that the project would be over as soon as the
unique product or service gets created (which the project endeavoured to create). In the
case of entrepreneurship, the project is completed when the new venture gets started
and sees the light of the day.
 The word unique signifies that tasks undertaken on a day-to-day routine basis cannot be
considered as a project. There has to be some uniqueness in the tasks to constitute a
project.
 The term specific objective is important here because a clearly spelt-out objective is
imperative for a project, which the project term strives to achieve.
 The phrase series of activities and tasks implies that a project requires activities and
tasks to be undertaken in a sequence as per their precedence requirements.

6.2: Meaning of Project Report

In the Indian contest, a project report for an entrepreneurial venture is same as the
business plan. Many stage governments in India provide subsidies to the entrepreneurs in the
preparation of project report. Some of these states are Assam, Goa, Himachal Pradesh, Jammu &
Kashmir, Kerala, Maharashtra, Meghalaya, Manipur, and Tripura. The subsidies offered vary
from 100% to 50% with some ceiling on subsidies (Verma & Singh, 2002).
Soon after the identification of a project and its implementation, the project report is
formulated after examining various relevant aspects. Usually, the entrepreneur gets a project
report prepared before a project or investment is undertaken. That project report assesses the
demand of the proposed product to be produced, works out the costs of investment as well as

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operational costs and thus estimates the expected profitability of the proposed investment. It is
on this basis that not only the entrepreneur takes his decision on whether to proceed on the
proposed project, but also financial backers, banks and state departments involved in the project
base their decisions on the ways and the extent to which the help should be provided. If the
entrepreneur has to go to 'the money market to raise some risk capital for his venture, the project
report may serve as his main instrument in convincing the investors about the profitability of his
venture.

6.3: Parties interested in Project Report

Financial institutions and commercial bankers are the interested parties in the project
report which is prepared for direct submission to financial corporations, banks for getting loans.
It does hot contribute substantially to future operations.

The entrepreneur gets the report prepared by a consultant. As such, these parties
providing term loans go for the report because it spells out how production should be organised
to yield maximum results.

6.4: Scope of a Project Report

Project report includes information on the following aspects:

1. Economic Aspects: The project report should be able to present economic justification for
investment. It should present analysis of the market for the product to be manufactured.
Market analysis basically pertains to the following issues: (a) How big is the present market?
(b) How much is it likely to grow? (c) How much of the future market the proposed project
can capture after allowing a margin for future entrants? It provides an analysis of the
economics of production.
2. Technical Aspects: The appropriate report should give details about the technology needed,
equipments and machinery required and the sources of availability.

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3. Financial Aspects: The report should indicate the total investment required including
sources of finance and the entrepreneur's contribution. It should present a comparison of cost
of capital with the return on capital.
4. Production Aspects: It should contain a description of the product selected for manufacture
and the reasons for such selection. The report should also bring out the fact whether the
product is export worthy. It should also give details of the design of the product.
5. Managerial Aspects: The report should contain qualifications and experience of the persons
to be put on the management of the job. If the entrepreneur will look after management, the
report must emphasise as to how he is qualified to manage the venture.

6.5 : Need and Significance of Report

The following Figure enumerates the need and significance of the project report. Let us discuss
these points

For justifying the

viability of the
venture
For refining the For securing the
business idea and to equity venture
eliminate shortcomings capital
For seducing the best For securing
talent to join as employees Report bank finance
in the start-up venture

For providing a road- For attracting

map and direction joint venture
during implementation partners

For securing orders For obtaining clearances

from key potential and approvals from
customers government agencies

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  For refining the business idea and to eliminate shortcomings. The project report is a
means to put the business idea in black and white, to meticulously think-through the
various intricacies, and to eliminate any shortcomings in the business plan.
 For justifying the viability of the venture. The project report serves as a powerful
mechanism to justify the viability of the venture before the venture partners, family,
friends and relative willing to invest as equity partners in the venture. It become a good
reality-check before the process of convincing outsiders about the feasibility of project
commences.
 For securing the equity venture capital. There are angel investors and silent partners
who invariably require the business plan in the form of a project report before
considering sanction of equity venture capital for the project.
 For securing bank finance. The debt portion of the funding is to be secured from the
bank and financial institutions. The project report is a mandatory requirement for this
purpose.
 For attracting joint venture partners. In some instances, some existing firms may be
willing to partner with you to create a joint venture, for which they would require the
project report to assess the “fit” between the firms, intellectual property protection,
synergies which would be created, etc.
 For obtaining clearances and approvals from governmental agencies. In certain
industries, government clearances are required and the project report becomes an
essential document in such instances. For example, there are some environmental
clearances required for chemical industries.
 For securing orders from key potential customers. The risk involved in a new business
venture can be minimized up to a great extent if some potential key customers are willing
to commit orders at the outset. It is easier said than done unless the customers are indeed
convinced about the credibility and viability of the start-up venture. The project report
serves as an excellent tool in this regard.
 For providing a road-map and direction during implementation. The project report
becomes a major help during the project implementation stage to provide necessary
information to one and all about exactly what the original plan of the project is. This is

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 especially true for key employees and partners in the firm who join at a later stage when
the project is already under implementation.
 For securing the best talent to join as employees in the start-up venture. The best of
talent in the industry usually prefers to work for established firms and multinational
corporations rather than for start-up ventures, which of course have some degree of risk
involved in them. The entrepreneur may like to showcase the project report before
potential employees for key positions to convince and seduce them towards the merits of
joining the start-up firm.

6.6: Contents of Project Report

The contents of a project report would depend upon the kind of business being proposed.
However, in general, the contents would be more or less similar to the one listed below.
It is advisable that the entrepreneur should align the contents of the project report as per
the unique requirements of the new proposed venture rather than following a set standers format.

1. Cover Page
2. Table of Contents
3. Executive Summary
4. Company Information and Industry
5. Product of Services (Technical Plan)
6. Marketing Plan
7. Manufacturing/ Operations Plan
8. Management Team (Organizational Plan)
9. Project Timeline (Network Diagram)
10. Critical Risks and Assumptions
11. Social Plan
12. Exit Strategy
13. Financial Plan
14. Conclusion
15. Appendices

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  Cover Page: The cover page of the project report should contain the title of the project
on top and the name/ address (including phone numbers, website address and email ID)
so that the readers of the report (like investors) may easily content you when required.
 Table of contents: The table of contents are complied after the main body of the project
report is finalized. Each topic covered in the report should be enumerated in the table of
contents with page number of the starting page of the topic clearly mentioned against it.
The various appendices used in the report should also be enumerated with page numbers.
 Executive summary: The executive summary should be written after the main part of
the project report is ready. It should not be more than two pages in length, as the idea
here is to entice the usually time-poor reader (say, potential investors) to read the main
part of the report. Thus, the executive summary should briefly summarize the key issues
related to the project.
 Company information and industry: Here you should explain the ownership form of
your company, the reasons for venturing into the proposed business, how you plan to
satisfy the needs and expectations of the potential customers and the existing competitors
in the industry. A Strength-Weakness-Threat-Opportunity (SWOT) analysis, whereby
the strengths and weakness of the proposed venture in addition to the threats and
opportunities offered by the environment should be explained.
 Technical plan: In this section of the report, you should highlight the key factors of the
technical feasibility performed earlier during the feasibility analysis. You should justify
the choice of your product/service. It is important to highlight what
uniqueness/innovation the proposed product/service has compared to the ones already
existing in the marketplace, i.e. how your company would gain a competitive advantage.
 Marketing plan: This section of the report would draw heavily from the industry/
market feasibility study done earlier. Here, you would need to describe your pricing
policy, findings of the marketing research done, viz. how large is the market for your
proposed product/service, how you plan to promote the product (advertising strategy),
how you plan to sell the product (through departmental stores, direct selling through
sales force, etc.), and so on.
 Operations plan: Here you should describe the manufacturing/ service-delivery process
to be utilized for production/ rendering of the product/ service chosen. You should

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 explain about any innovations brought about in the process, which makes it better
compared to that of the competitors. The machinery and equipment to be utilized in the
process should be detailed out.
 Organizational plan: An impressive list of names that would be a part of your
management team, would increase the impact factor of your project report. You would
need to highlight how the technical skills and business management skills coupled with
suitable qualifications and experience of these people in the term would complement
each other’s profile. You should include the resumes of these people in the appendices of
the report. An organizational structure showing the various positions these people would
fill-in, should also be included in the appendices.

In addition, it should be highlighted as to why these people in the management

term are willing to take up these positions despite much lesser compensation than what
they can command in other established firms. This will make the case of your proposed
venture stronger, when senior people in the management team show confidence in joining
your start-up firm. This part of the report would bank heavily upon the organizational
feasibility study done earlier.
 Project timeline (network diagram): We shall study in the subsequent part of this
chapter about the creation of a network diagram for the proposed project. In this diagram,
various activities in a project are sequentially organized and the time duration required
for the execution of the project is arrived at by estimating the time duration of various
activities.
This diagram should be include in the appendices of the report and should be summarized
in this part to provide an overview to the reads about the timelines proposed to be
followed in the project. This will give a realistic idea to the readers about the gestation
period involved in the proposed business venture.
 Critical risks and assumptions: In a business plan, there are several assumptions made.
For example, the sales projections and forecasts of a new innovative product may be
based upon expert opinion rather than past sales data (which would not be available for
such new products which are yet to hit the market). Similarly, there may be many types
of risks like an established competitor reducing the price of its similar products
drastically to prevent you from entering the market.
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  Social plan: Social plan is assuming more and more importance in today’s times. In this
part of the report, you should explain how your project would result in employment
generation, skill development of local people, provision of goods and services produced
by the company to the local population, utilization of local raw material resources, etc.

The government agencies support projects in many ways which help in community
development, especially in rural and un-industrialized regions of the country. Many
financial institutions have a mandate from the government to fund such projects art
concessional interest rates.
 Exit strategy: This is a negative aspect of the proposed business venture, but is equally
important. Here you are expected to formulate a strategy for exiting the business in case
things go haywire. The investors are most interest to know about this strategy as to how
they would recover their money from a failed business venture.
You would need to present various possibilities here like divesting the business as a
going-concern to an established business house; in case there are no buyers for the
business, you may need to liquidate the various tangible assets of the firm and sell them
off to separate buyers, etc. A realistic exit strategy would instill a sense of security in the
minds of the lenders who are planning to invest in your venture.
 Financial plan: This is the most important part of the report, as the content of all the
previous sections would be integrated here to come up with numbers in monetary terms.
The possible sources and uses of capital for the venture, the projections of revenue and
costs in terms of rupees, the break-even analysis, etc. would be required her. Key
financial ratios should be arrived at, for example, the debt- equity ratio, etc. to present a
realistic picture of the financial aspects involved in the project.
 Conclusion: The conclusion of the report should summarize the key aspects of the report
in a concise manner. It should end the report on a positive note so the readers think
favourably for the proposed venture.
 Appendices: Appendices follow the conclusion of the report and contain the
supplementary data which is important, but cannot be incorporated in the main body of
the report as it would disrupt the flow of the storyline there. Appendices should be clearly

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 marked with letters like A, B, C,…, etc. with suitable titles of the content presented in
them.
6.7: business plan format for micro and small enterprises

A business plan helps the entrepreneur set out objectives, targets and benchmarks. It is also a
prerequisite to get credit from lending agencies like banks and State Financial Corporations, etc.
It is a blueprint or a road map for your business.

The purpose of a business plan is:

• to arrange thoughts logically
• to highlight resource needs and their sources
• to raise funds from a bank or other source
• to demonstrate viability of the business proposition and potential to repay credit
• to stimulate reality and anticipate pitfalls before they occur
Your business plan must answer these questions:
• What do you intend to do/how do you intend to do it/when do you intend to do it?
• How much do you wish to borrow?
• When will you repay it?
• Will you be able to pay the interest?
• Can your business survive a setback in its plans?
• What is the security available for lending?
• How many jobs will be created?
• Is the business proposal commercially viable?
• Will the business be profitable?
• Can the business cope with inflation?
Your business plan must include the following in sequential order:

• Summary of the Project/ Project at a Glance

(The purpose of the business plan, location, resource needs, volume of business, brief
note on market, customers, promoters and financial highlights)
• General information
(About the business and promoter’s qualification, training and relevant experience)
• Details of the Proposed Project

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 (Requirement of fixed and working capital, project cost and means of finance)
• Market Potential
(A note on marketing strategy, potential customers, competition, market size and future
prospects)
• Manufacturing Process
(Step-by-step description of the manufacturing process, plant capacity, expansion plans
and quality control procedures, etc)
• Production Programme/Sales Revenue
(Plant capacity, capacity utilization, quantity produced/sold and sale realization)
• Cost of Manufacturing
(Cost of raw material, utilities, manpower, repairs and maintenance, selling and
distribution expenses, administrative overheads, interest on loans availed, depreciation
and any other expenses)
• Profitability Projects
(Sales, cost of manufacturing, tax liabilities, repayments, retained profit/loss)

6.8: Formulation of Project Report

The following figure shows the steps in formulating a project report

Identify the Gather data Put thoughts Prepare a

objectives of and on paper rough draft
the project information
report

Submit the final Get the report Finalize the Perform data
report to relevant reviewed by business plan analysis
people experts

 Identify the objectives of the project report. A project report can have various
objectives. For example, an objective can be to secure funding from a venture capitalist.
The other objective can be to convince some potential business partners. Yet another

145
 objective can be to convince a potential client for placing an order. There is no harm in
having multiple objectives.
 Gather data and information. A good project report should contain reasoning backed
with data and therefore, it is imperative that the entrepreneur tries to collect data from all
possible sources. The data could be related to market trends, product pricing, customer
preferences, competitors and so on. At this stage of report formulation, the approach
should be to gather as much data and information as possible without worrying too much
about which data would be incorporated where in the final version of the report.
 Put though on paper. Having gathered enough data and information, it is time for
crystallizing the thoughts. At this stage, the sequence of thoughts is not important.
Whatever tentative structure for the business plan is in mind, the entrepreneur should put
thoughts on paper accordingly. The approach here should be to create enough content to
be critically examined at a later stage.
 Prepare a rough draft. At this stage, the content written earlier should be categorized
into sections and the sequence of such sections should be decided upon. The grammatical
and typological errors have to be corrected. If there are some information gaps here and
there, these should be removed by incorporating relevant data collected earlier.
 Perform data analysis. The data incorporated in the report has to be analyzed using
appropriate tools to convert it into useful information. Break-even analysis, revenue
projections, pro-forma financial statements, etc. should be done and suitably summarized
in the report. Care should be taken to avoid superfluous or unreliable data during the
analysis as it may reflect negatively upon the project later.
 Finalize the business plan. In this leg of formulation, the calculation in the data analysis
done earlier should be meticulously reviewed, the rough draft of the report should be
properly formatted, any typos and grammatical errors should be rectified and he data to
go in appendices should be decided upon. This is the time to write the executive summary
of the report, the table of contents and the cover page. It is necessary that the whole
report is reviewed a couple of times to identify any glitches which might have prevailed
before the printing of the report is done.
 Get the report reviewed by exports. It is always good to have views of others on your
project report. Therefore, you may take the helps of experts, friends, academicians ets. to

146
 review the report for you. The recommendations made by them should be carefully
considered by you and if necessary, changes should be incorporated in the report.
 Submit the final report to relevant people. The formulation of the report culminates in
submission of the report to the relevant people like the potential investors. In most
instances, people receiving the report would be experts in their own right. Therefore, their
comments at the end of the presentation would also be useful in further refining the report
for future presentations before another audience.

6.9: Preliminary Project Report:

As a prospective entrepreneur, you are required to decide at the outset the product that you have
to manufacture. If you decide to get into ‘service sector’, you must decide the type of ‘service
activity’ for your venture. Having made such a decision tentatively, you must answer certain
questions before you spend time and resources required to make a detailed study of the project
for getting financial assistance.

The questions that you have to answer are:

i) Can I do it?
ii) Can I sell it?
iii) Can I earn out of it?
1. What is a Preliminary Project Report?
Preliminary Project Report, in short PPR, is a simple brief data-sheet that gives
you an insight into the following:
i) How much money, manpower and material would be required to set up
the project?
ii) What type of machines would be required?
iii) What are the sources of technology that would be required? and
iv) What would be the economic gains from the project?
In short, PPR is a brief outline of the project that tells you quickly about the
viability of the project, so as to help you decide whether it is worth pursuing
further or not.
2. Why Preliminary Project Report?

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 At the stage of preparing a PPR you may have in mind not just one
venture/product, but 3 or 4 ideas to choose from. Since it calls for considerable time and
resources to prepare a Detailed Project Report (DPR) it would not be advisable to
prepare a DPR for every product idea that may be floating in your mind.
Even if you could prepare DPR for all the product idea that you have in mind, the
time required to do so would be so much that it would make the first DPR obsolete or
outdated by the time you complete all DPR.
Further, the money, time and information required to prepare DPRs for all the
product ideas that you have in mind only to examine their viability may make the very
exercise of DPR preparation unviable. This does not mean that PPR can substitute a
DPR. It only means that it is desirable to prepare a PPR prior to spending resources on
preparation of a DPR.
There are other advantages of preparing a PPR also:

i) You get enough data quickly to fill up the form required for provisional
registration of your unit with the state government. It is a must
before commencing various time consuming formalities connected with
planning and setting up of a small - scale unit.
ii) The data you get from PPR will help you in completing certain formalities
in anticipation of setting up a project. For example, if you want to set up
an electronic unit, you have to get your production programme approved
from the concerned State/Central Government department. For this, you
have to supply data about the projected production level and raw-material
requirement, which you could get from PPR.
iii) The data collected by preparing a PPR forms a good take-off point for
preparing a DPR when you desire to do so.
iv) It will help you identify in advance the infrastructural requirement for
your project and sound the concerned government agencies accordingly so
that you can get necessary facilities such as land/shed at the right time.
v) Finally, the major contribution of a PPR at the nascent stage of your
entrepreneurial career is that it instills confidence in you and motivates
you to start the time-consuming process of data collection and preparation

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 of a DPR.
3. How to Prepare a PPR?
To help you prepare a PPR systematically, a proforma is adjoined to this section
at Annexure -1. A quick perusal of the proforma will indicate that the information called
for could be collected and presented quickly as well as systematically.

6.10. Summery
Project report is an important step in any business organization, even before starting of a
business a business. It involves defining the purpose of objectives of business and various
activities or stages involved in achieving the ultimate purpose of the business. Therefore the
project report is the blue print of the project that takes shape in the future. It covers all this
functional areas of the business like finance, production, marketing and Human Resources
Planning. Therefore project report service the purpose of understanding all the activity of a
business. In this lesson the reader can also understand the contents of a project report and the
process of formulation of a project report.

Preliminary Project Report, in short PPR, is a simple brief data-sheet that gives
you an insight into the following:1. How much money, manpower and material would
be required to set up the project? 2. What type of machines would be required? 3.What
are the sources of technology that would be required? And 4. What would be the
economic gains from the project?
In short, PPR is a brief outline of the project that tells you quickly about the
viability of the project, so as to help you decide whether it is worth pursuing further or
not.

6.11: Key Terms

Project Report; Data Analysis; Appendices PPR

6.12: Self Assessment Questions

Short Questions
1. Project Report
2. Significance of Project Report

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 3. Contents of Project Report
4. Formulation of Project Report
5. PPR
6. DPR

Essay Questions
1. What is a project report? Explain about its contents?
2. What do you understand about the importance of a project report?
3. Explain the various steps in formulating a project report?
4. What is a preliminary project report (PPR) and what it contains?
5. How to prepare a PPR?

Multiple Choice Questions

1. The scope of a project report includes

(a) Economic aspects (b) Technical aspects
(c) Financial aspects (d) All of the above
2. The contents of a report includes
(a) Objectives and scope (b) Marketing plan
(c) Exit strategy (d) All of the above
3. Which of the following is a negative strategy of a project report?
(a) Social plan (b) Conclusion
(c) Exit strategy (d) Financial plan
4. Project is prepared by
a) Entrepreneurs b) Managers
c) Employees d) Managing directors
5. DPR is a
a) Action Plan b) Working Plan
c) Financial Plan d) Implementation Plan
6. Aspects of Project Evaluation is
a) Managerial Evaluation b) Information to Managers
c) Report to top management d) Technical evaluation

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7. Money spent on evaluation of a project is
a) Investment b) Expenditure
c) Cost benefit analysis d) wastage

Activity 1: Visit your local District Industries Centre (DIC) and study the project reports
available with them and identify a promising business venture.
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Activity 2: List out the five main aspects of a project report.

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6.13: Further Readings / Reference books

1. Kanishka Bedi, Management and Entrepreneurship, Oxford University Press, New
Delhi, 2009.
2. Michael H. Morris, Entrepreneurship and Innovation in corporations, Cengage
Learning, 2008.
3. Donald F. Kuratko & Richard M. Hodgetts, Entrepreneurship in the New Millennium,
Cengage Learning, 2007.

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 ANNEXURE – 1
PRELIMINARY PROJECT REPORT PROFORMA

1. . GENERAL

Name of the Entrepreneur ---------------------------------------------------------

Birth date----------------------------------------- Age ---------------------------

Project ----------------------------------------------------------------------------

Location ---------------------------------------------------------- Rented/Shed

Type of the organization: Proprietary/Partnership/------------------------

---------- Name of the Firm ---------------------------------------------------
--------------------
Address --------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------

Educational Qualification:

S.S.C. or Degree/Diploma Institute Major Subject Year of Passing

Below

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 Special Training

Training in Institution Duration Achievement

Work Experience (Past and Present)

Organization Position Nature of Work Duration

2.0 DETAILS OF PROPOSED PROJECT:MANUFACTURING/SERVICING

Production Programme:

Sr. Item Total Quantity Sales Year Capacity

No. Revenue/Year Utilization

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 Machineries/Equipments

Sr. Description Nos. required Price Total value Names and

No. Addresses
of the
suppliers

Total :

Raw Materials

Sr. Item Total Annual Requirements Source

No. Quantity Value Rs.

Total :

Utilities

Sr. Particulars Annual Total Annual Remarks

No. increments Expenses Rs.
1. Electricity
2. Water
3. Coal/Oil
4. Any Other
Total:

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 Man Power

Sr. Particulars No. Total wages & Remarks

No. salaries
Rs. (per year)
1. Skilled
2. Semi-skilled
3. Unskilled
4. Office staff
Total:

3.0 MARKET STUDY (INCLUDE DETAILS IN APPENDIX COST OF THE POJECT)

Fixed Capital

Sr. Item Valuable Rs.

No.
1. Land/Building
2. Machinery/Equipment
3. Furniture & Fixtures
Total:

Working Capital

Sr. Item Duration Quantity Value (Rs.)

No.
1. Raw Materials Stock
2. Semi-finished Goods
Stock
3. Finished Goods Stock
4. One month production
expenses
(Utilities+Wages+Salaries)
Total:

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 Total Cost of Project

Sr. Particulars Valuable Rs.

No.
1. Fixed Capital
2. Working Capital (Total of item No.4,2)
3. Preliminary and Pre-operative Expenses
Total:

Means of Finance

Sr. Particulars Value (Rs.) Remarks

No.
1. Term Loan
2. Working Capital Loan
3. Own Investment
4. Subsidy
5. Any other

Project Profitability Analysis

Sr. Description Valuable Rs.

No.
1. Sales Revenue
2. Manufacturing Expenses (2.3x2.4x2.5)
3. Selling & Distribution Expenses
4. Administration Expenses
5. Interest
6. Depreciation
7. Gross Profit (1-(2xx3x4x5x6)
8. Income Tax
9. Net Profit (7-8)

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 SUPPLEMENTARY DETAILS:

Do you own House/Property etc?

Own Insurance Policy

Any Interest in other firms:

Do you belong to S.C./S.T./O.B.C/General (Please Tick

which ever is applicable)

Present monthly income Rs.

6.0 References: -

Sr. Name Address Occupation

No.

Date
Place

:
Signature

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 LESSON 7: APPRAISAL TECHNIQUES OF PROJECT REPORT

Objectives of the lesson:

After reading this lesson you will be able to understand the following
 Meaning, definition and scope of a project appraisal.
 Issues involved in project appraisal
 Techniques of project appraisal

Structure of the lesson:

7.1 Meaning, Definition and Scope of a Project Appraisal

7.2 Appraising a project
7.3 Steps involved in project appraisal
7.4 Significance of project appraisal
7.5 Key issues in appraising a project
7.6 Checklist for project appraisal
7.7 Techniques of project appraisal
7.8 Summary
7.9 Key terms
7.10 Self Assessment Questions
7.11 Multiple Choice Questions
7.12 Further Readings / Reference Books

Success Story of an Inspiring Young Entrepreneur

India is in a run to achieve big heights in terms of economy and this change in Indian economy is
a reflection of young talents who come up with successful business ideas. Such startups are
predicted to be billion dollar companies within a span of time. Rithesh Agarwal is one among

158
many such talents. He started a new trend in standard budget hotel in India with his ‘OYO
rooms’ chain, reports NDTV.

Rithesh is born to a wealthy family in Orissa who runs their family business. He always
aspired to make his own identity and during college days he was never interested in studies as a
result he remains as a college drop out. At a very young age he traveled all over India and stayed
and experienced the different level of comfort most of the hotels are providing.

At the age of 18 he came up with the idea of budget hotel chain ‘Oravel stays’ which
provides bed and breakfast. But with more analysis of market he found out there are no basic
facilities provided for the budget traveler in most of the hotel, thus he converted his ‘Oravel
Stays’ to ‘OYO rooms’. Each and every room is provided with air-conditioning, Spotless linen,
complimentary breakfast, free wi-fi and hygienic washrooms.

During the early stage of setting up this business he has gone through a lot of struggle
even had to think of where to sleep at night. He never informed his family about the struggles due to the
fear of being called back to the family business. Now Rithesh has 350 hotels providing 4000 rooms with
500 employees. He is also the first resident Asian to ’20 under 20’ Thiel Fellowship in 2013.

7.1: Meaning, Definition and Scope of Project Appraisal

Meaning:
The exercise of project appraisal simply means the assessment of a project in terms of its
economic, social, and financial viability.
This exercise is critical as it calls for a multi-dimensional analysis of the project that is, a
complete scanning of the project.
Financial institutions and banks make a critical appraisal of projects which are submitted
to them by the entrepreneurs for getting loans. They have traditionally been accepting the data
provided by the entrepreneur as valid while assessing the project. In fact, the emphasis has
largely been on the cash-flow and financial viability of a project in assessing their suitability for
extending the loans.

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Definition
Project appraisal can be defined as the promoter taking a second look critically and
carefully at a project as presented by the promoter person who is in -no way involved in or
connected with its preparation and who is as such able to take an independent, dispassionate and
objective view of the project in its totality as also in respect of its various components. The
person who carries out appraisal of a project is usually an official from the financial institutions
or a team of institutional officials. Since all ending activities involve risk in a smaller or larger
measure, project appraisal aims at sizing up the quality of projects and their long-term
profitability aims at minimising the risk of lending by rectifying their weaknesses and improving
their quality by incorporating into them features / safeguards missed, by the promoters either
because of lack of knowledge or information.

Scope of Appraisal
The appraisal of a project is undertaken by the financial institutions with the twin
objectives of determining the market potential of a project and selecting an optimal strategy. The
methods of analysis vary from project to project. Nevertheless, certain common aspects of study
from the angle of technology and engineering are with a mention:
 Choice of technical process and/or appropriate technology;
 Technical collaboration arrangements, if any;
 Size and scale of operations;
 Locational aspects of the project and availability of infrastructural facilities;
 Selection of plant, machinery and equipment together with background, competence and
capability of machinery/equipment suppliers;
 Plant layout and factory buildings;
 Technical engineering services;
 Project design and network analysis for the assessment of project implementation schedule;
 Aspects relating to effluent disposal, management of entry, utilisation of by-products etc.;
 Project cost and its comparison with other similar projects, based on technology, equipment,
product mix and time spread;
 Determination of project cost estimates, profitability projections, etc.;
 Sensitivity analysis.

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 It must be remembered that the different aspects of a project are not independent endties
but are highly interrelated; and a meaningful project appraisal depends upon the appreciation of
this fundamental fact. For example, the size of the total market for a product as it exists now and
the year to year estimates of the future progressive call for expansion of demand would
determine planned capacity of the proposed unit and the phasing of production over the years.
These in turn would influence the project cost and profitability which would determine the
means of financing. The cost of the project and profitability are influenced to a significant extent
by its location. Over and above this, the management behind the project, has a decisive.role to
play in almost all aspects of the project.

7.2: Project Appraisal

Project Appraisal is a consistent process of reviewing a given project and evaluating its
content to approve or reject this project, through analyzing the problem or need to be addressed
by the project, generating solution options (alternatives) for solving the problem, selecting the
most feasible option, conducting a feasibility analysis of that option, creating the solution
statement, and identifying all people and organizations concerned with or affected by the project
and its expected outcomes. It is an attempt to justify the project through analysis, which is a way
to determine project feasibility and cost-effectiveness.
Project appraisal is the process of assessing, in a structured way, the case for proceeding
with a project or proposal, or the project's viability. It often involves comparing various options,
using economic appraisal or some other decision analysis technique. Project appraisal is an
exercise where by, a lending financial institution makes an independent and objective assessment
of various aspects of an investment proposition to arrive at the financial decision. Project
appraisal means the assessment of project in terms of its economic, social and financial viability.
It is a complete scanning of the project. Usually banks and financial institutions conduct a critical
appraisal of projects, which are submitted to them by the entrepreneur for getting loans. They
have been traditionally accepting the data provided by the entrepreneur as valid while assessing
the project. In fact the emphasis has largely been on the cash flow and financial viability of a
project in assessing their suitability for extending the loans. Project appraisal can be defined as
the promoter taking a second look critically and carefully at a project as presented by the
promoter person who is no way involved in or connected with its preparation and who is as such

161
able to take an independent dispassionate and objective view of the project in its totality as also
in respect of its various components.

But appraisal has been a source of confusion and difficulty for projects in the past. Audits of
the operation of Single Project Budget schemes have highlighted concerns about the design and
operation of project appraisal systems, including:

 Mechanistic, inflexible systems

 A lack of independence and objectivity
 A lack of clear definition of the stages of appraisal and of responsibility for these stages
 A lack of documentary evidence after carrying out the appraisal
It’s no surprise that audits or inspections aren’t impressed with the quality of appraisals, and are
specifically found with problems like;

 Individual appraisals which do not cover the necessary information or provide only a
superficial analysis of the project
 Particular problems in dealing with risks, options and value for money
 Appraisals which are considered too onerous/burdensome for smaller projects
 Rushed appraisals

7.3: Steps involved in project appraisal

Project appraisal is a scientific tool. It follows a specific pattern. First and foremost, an
analysis of a region's economy provides a general framework within which the assessment of any
project is made. This analysis indicates whether the project is in a potential environment which
enjoys priority for economic development of the region/state concerned. This exercise itself
usually involves the investigation of six different aspects: economic, technical, organisational,
managerial, operational, and financial. The relative importance of these different aspects can
vary considerably according to circumstances and type of project. The main stages of the system
of project appraisal are:

Step 1 - Economic Indicates priority use.

Step 2 - Technical Involves scale of the project and the process adopted.
Step 3 - Organisational Suitability is examined.

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Step 4 - Managerial Adequacy and competence are critically scrutinised.
Step 5 - Operational Capability of the project.
Step 6 - Financial Determines the financial viability for sound implementation and
efficient operations

7.4 Significance of Project Appraisal

 Appraisal justifies spending money on a project: Appraisal asks fundamental
questions about whether funding is required and whether a project offers good value for
money. It can give confidence that public money is being put to good use, and help
identify other funding to support a project. Getting it right may help a community make
its resources go further in meeting local need
 Appraisal is an important decision making tool: Appraisal involves the comprehensive
analysis of a wide range of data, judgments and assumptions, all of which need adequate
evidence. This helps ensure that projects selected for funding:
 Will help a partnership achieve its objectives for its area
 Are deliverable
 Involve local people and take proper account of the needs of people from ethnic
minorities and other minority groups
 Are sustainable
 Have sensible ways of managing risk.
 Appraisal lays the foundations for delivery: Appraisal helps ensure that projects will
be properly managed, by ensuring appropriate financial and monitoring systems are in
place, that there are contingency plans to deal with risks and setting milestones against
which progress can be judged.

 Getting the system right: The process of project development, appraisal and delivery is complex
and partnerships need systems, which suit local circumstances and organization. Good appraisal
systems should ensure that:

 Project application, appraisal and approval functions are separate

All the necessary information is gathered for appraisal, often as part of project
development in which projects will need support

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  Race/tribal equality and other equality issues are given proper consideration

 Those involved in appraisal have appropriate information and training and make
appropriate use of technical and other expertise
 There are realistic allowances for time involved in project development and appraisal
 Decisions are within a implementers’ powers
 There are appropriate arrangements for very small projects
 There are appropriate arrangements for dealing with novel, contentious or particularly
risky projects.

7.5: Key Issues in Appraising a project

Key issues in appraising projects include the following.
 Need, targeting and objectives: The starting point for appraisal: applicants should provide
a detailed description of the project, identifying the local need it aims to meet. Appraisal
helps show if the project is the right response, and highlight what the project is supposed
to do and for whom.
 Context and connections: Appraisal should help show that a project is consistent with
the objectives of the relevant funding program and with the aims of the local partnership.
Are there links between the project and other local programs and projects – does it add
something, or compete?
 Consultation: Local consultation may help determine priorities and secure community
consent and ownership. More targeted consultation, with potential project users, may
help ensure that project plans are viable. A key question in appraisal will be whether
there has been appropriate consultation and how it has shaped the project
 Options: Options analysis is concerned with establishing whether there are different
ways of achieving objectives. This is a particularly complex part of project appraisal, and
one where guidance varies. It is vital though to review different ways of meeting local
need and key objectives.

 Inputs: It’s important to ensure that all the necessary people and resources are in place to
deliver the project. This may mean thinking about funding from various sources and

164
 other inputs, such as volunteer help or premises. Appraisal should include the
examination of appropriately detailed budgets.
 Outputs and outcomes: Detailed consideration must be given in appraisal to what a
project does and achieves: its outputs and more importantly its longer-term outcomes.
Benefits to neighborhoods and their residents are reflected in the improved quality of life
outcomes (jobs, better housing, safety, health and so on), and appraisals consider if these
are realistic. But projects also produce outputs, and we need a more realistic view of
output forecasts than in the past.
 Value for money: This is one of the key criteria against which projects are appraised. A
major concern for government, it is also important for local partnerships and it may be
necessary to take local factors, which may affect costs, into account.
 Implementation: Appraisal will need to scrutinize the practical plans for delivering the
project, asking whether staffing will be adequate, the timetable for the work is a realistic
one and if the organization delivering the project seems capable of doing so.
 Risk and uncertainty: You can’t avoid risk – but you need to make sure you identify
risk (is there a risk and if so what is it?), estimate the scale of risk (if there is a risk, is it a
big one?) and evaluate the risk (how much does the risk matter to the project.) There
should also be contingency plans in place to minimize the risk of project failure or of a
major gap between what’s promised and what’s delivered.
 Forward strategies: The appraisal of forward strategies can be particularly difficult,
given inevitable uncertainties about how projects will develop. But is never too soon to
start thinking about whether a project should have a fixed life span or, if it is to continue
beyond a period of regeneration funding, what support it will need to do so. This is often
thought about in terms of other funding but, with an increasing emphasis on mainstream
services in neighborhood renewal, appraisal should also consider mainstream links and
implications from the first.
 Sustainability: In regeneration, sustainability has often been talked about simply in
terms of whether a project can be sustained once regeneration funding stops but
sustainability has a wider meaning and, under this heading, appraisal should include an
assessment of a project’s environmental, social and economic impact, its positive and
negative effects.

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 While appraisal will focus detailed attention on each of these areas, none of them
can be considered in isolation. Some of them must be clearly linked – for example, a
realistic assessment of outputs may be essential to a calculation of value for money. No
project will score highly against all these tests and considerations. The final judgment
must depend on a balanced consideration of all these important factors.

7.6: Checklist for project appraisal

Whether you are involved in a partnership with an appraisal system in place, or starting to
design one from scratch, these questions are worth asking.

 Are appraisals systematic and disciplined with a clear sequence of activities and operating
rules?
 Is there an independent assessment of the project by someone who has not been involved
with the development of the project?
 Does the appraisal process culminate in clear recommendations that inform approval (or
rejection) of the project?
 Is the approval stage clearly separate?
 Is the appraisal process well documented, with key documents signed, showing ownership
and agreement, and allowing the appraisal documentation to act as a basis for future
management, monitoring and evaluation?
 Does the appraisal system comply with any relevant government guidance
 Are the right people involved at various stages of the process and, if necessary, how can you
widen involvement?

7.7: Techniques of Project Appraisal?

7.4.1: Market Feasibility Analysis: since the success of any enterprise depends its ability to
market its products/services, the lending institution should first of all pay meticulous attention to
this aspect. The survival of any business depends upon its earning capacity which in turn
depends on the volume of sales. Again, marketing is the only activity which brings revenue
while all other activities involve expenditures. Hence, a detailed market analysis should be

166
undertaken estimating the supply and demand for the product. In fact, the potential of the market
constitutes the determinants of probable rewards for an entrepreneur.
The anticipated market for the proposed product can be estimated by adopting any one of
the methods:
1. Opinion Polling Method- collecting the opinion of ultimate users through:
(a) Compete enumeration survey
(b) Sample survey
(c) Sales experience method (sample market survey)
(d) Vicarious method (collecting dealer’s opinion about the customer’s opinion)
2. Life cycle segmentation analysis, i.e., estimating the sales of a product at various stages
of its life cycle like introduction, growth, maturity, saturation and decline.
Possible future changes in the volume and pattern of supply and demand should also be
estimated to assess the long run prospects of the unit. On the demand side the following factors
should be taken into account:
 the potentialities of export market
 the likely changes in income and price levels
 the probable expansion of the industries using the goods to be produced
 the multiple use of the product
 the consequent effect of globalisation
 the probable market share of the product
 the effect of advertisement and sales promotion measures to be launched, etc.
On the supply side also, the following factors should be taken into account:
 Competitive position of the proposed unit
 Existing and position of the proposed unit
 The extent of capacity utilisation
 Possibility of substitute products due to technological innovations and structural changes
 The type of distribution channel proposed
 Units’ cost advantages and disadvantages
 Provision for after-sales-service
 The proposed designing and packaging

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7.4.2: Technical Feasibility Analysis: Technical feasibility simply refer to the adequacy of the
proposed plant and equipment to produce the product as per the required norms. This aspect
requires a careful examination and a thorough assessment of the various inputs of the project like
land, machineries, trained labour, transportation, fuel, power, etc. It also requires the analysis of
the know-how, necessary to run the project and whether the entrepreneur possesses that
knowledge or whether he is going to procure from outside. Sometimes, a project may require
collaboration. In such a case, the terms and conditions of the collaboration should be examined.
In the case of foreign technical collaboration, the legal provisions prevailing in the country in
relation therein should also be analysed.
On the whole, technical analysis deals with the following aspects:
 Availability of land and site
 Location of the project
 Size and adequacy of the plant and factory layout
 Availability of inputs like water, power, transport, communication facilities, etc.
 Types of technology to be adopted
 Suitability of the technology
 Availability of servicing facilities like machine shops, repair shops, etc.
The lending institution may employ a technical consultant to study the projects on their
technical aspects.
7.4.3: Financial Feasibility Analysis: Finance is the most important prerequisite to establish an
enterprise. Hence, the appraisal of the financial viability of the project assumes much
importance in a project appraisal. This requires the scrutiny of the following:
(a) Cost of the project and means of financing
(b) Cash flow estimates
(c) Projected balance sheets.
(a) Cost of the project and means of financing: assessment of the financial requirements
both for fixed and working capital should be carefully made. In fact, the financial plan for
meeting the cost of the project depends upon the accurate estimates of the various coasts. The
cost of the project normally includes the following items:
 Cost of land and site development
 Cost of building, plant and machinery (including spare parts, erection charges, etc.)

168
  Technical know- how fees including consulting and engineering fees
 Preliminary and preoperative expenses
 Interest during construction
 Provision for contingencies
 Margin money for working capital
 Other fixed assets.
The tendency to underestimate the cost of production should be avoided. Having estimated
the cost of the project, the sources of finance should be identified. The usual sources of finance
are:
 Owned funds
 Share capital
 Issue of debentures
 Reserves and surplus and retained earnings
 Term loans and long-term borrowings
 Deferred payment guarantees
 Public deposits.
(b) Cash Flow Estimates: a cash flow estimate is nothing but a projection of the future
sources of cash and their application. Cash flow estimates are necessary to ascertain as to when
the project will need money for different purposes and from different sources. Moreover, this
statement helps to fix the repayment schedule on the basis of cash accruals shown in the
statement.
In a cash flow statement, profit is the most important source of inflow and this profit
actually depends on how accurately the cost of production and sales estimates have been made. It
also depends upon the management policies. For instance, a change in the method of valuation of
stock would affect the profit correspondingly.
The lending institution should pay a special attention to the debt service coverage ratio
which establishes the relationship between net profits and the repayment of term loans and
interest thereon. It is calculated as follows:

Debt Service NP after Tax  Interest on Term Loan  Depreciation

=
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Coverage Ratio Term Loan Instalment  Interest on Term Loan

The lending institution insists upon a ratio of 2:1 since it indicates that even if only 50%
of the net profits are earned, still repayment of term installments together with interest would not
pose a problem.
(c) Projected Balance Sheet: the projected balance sheet will reflect the financial
position of the concern in the future years during the entire period of the term loan. One can find
out the effect of the plan of operations on the assets, liabilities and capital of the business unit.
The lending institution should pay a special attention to the following:
 The procedure adopted for the valuation of assets
 The depreciation policy adopted
 The impact of term loan on the assets and liabilities
After sanctioning the term loan, the lending bank has to make a post-sanction inspection to
ensure:
 Whether the loan has been actually utilized for the purpose for which it was borrowed?
 Whether the terms and conditions of the loan have been complied with?
 Whether the value of the security is adequate?
 Whether there is any default in repayment?
To ascertain the financial feasibility, two more popular methods are used. They are:
(i) Simple Rate if Return Method
(ii) Pay Back Period Method.
(i) Simple Rate if Return Method: simple rate of return is nothing but the ratio of net profit
to the initial investment in a normal year in terms of both fixed and working capital. However, if
a person is interested in equity alone, the profitability of equity alone can be ascertained. The
simple rate of return can be ascertained with the help of the following formula:
F-Y
R=
I

F
Re =
Q

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Where, R = Simple rate of return on total investment

Re = Simple rate of return on equity alone

F = Net profit after depreciation, interest and taxes in a normal year

Y = Annual interest charges

I = Total investment including equity and debt

Q = Equity capital alone.

The simple rate of return is very helpful to ascertain the profitability position quickly
especially for projects with a short life.

(ii) Pay Back Period Method: it is an important tool to measure the number of years
required to recover a project’s total investment from the cash flows it generates. For instance, a
project with an investment from the cash flows it generates. For instance, a project with an
investment of 25,00,000 and an expected cash flow of 5,00,000 per year for 10 years.

Initial Investment Outlay

Pay Back Period =
Annual Cash Flow

25,00,000
=
5,00,000

= 5 years

It means that the project’s initial investment can be recovered in five years. It clearly
shows the liquidity aspect of a project. Shorter the pay back period, quicker is the recovery of
initial investment. Even if cash flows are not uniform, the pay back period can be ascertained
easily by adding together cash flows until the initial investment is recovered.

7.4.4: Economic Feasibility Analysis: It is absolutely essential to see that the project is
economically viable. The economic viability depends upon its profitability. A project without

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adequate profits cannot be commercially viable. Hence, the economic viability can be assessed
through projections of profitability for a period ranging from 3 to 10 years. The profitability of a
project should be established on a long-term basis. Thus, the economic feasibility analysis
includes the analysis of the requirements of raw materials, level of capacity utilization,
anticipated sales, anticipated expenses and the probable profits.

The economic feasibility analysis includes the following:

 Preparation of projected profitability statements for a period of 5 to 10 years.

 Calculation of certain ratios to ascertain economic viability like debt service coverage
ratio, pay back period, average rate of return, net present value, break-even sales and
internal rate of return.

7.8: Summary

After a project report is prepared in all its required form a content, the business has to
appraise the report for its validity, correctness and dependability. Because this project report
forms the basis for decision making by various stakeholders like consumer, investors and the
Government also. Various techniques are available for appraisal of projects, which all very
clearly discussed in this lesson. Each technique got its own merits and limitations.

7.9: Key Terms

Sustainability- Feasibility- Cash Flows; seed money, niche market, core competency

7.10: Self Assessment Questions

Short Questions

1. Steps involved in project appraisal

2. Significance of project appraisal

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 3. What are the key issues in project appraisal?
4. Market feasibility analysis
5. Technical feasibility analysis
6. Financial feasibility analysis
7. Economic feasibility analysis
8. Projected Balance Sheet
9. Cash flow statement
10. Pay Back Method
11. Accounting Rate of Return on Investment (AROROI)

Essay Questions

1. Explain the purpose and importance of project appraisal?

2. What do you understand about the various components of a check list for the project
appraisal?
3. Explain about the Market feasibility and financial feasibility?
4. What is feasibility analysis? What is it designed to accomplish?
5. What is industry/market feasibility analysis?
6. Why is it important for a new venture to identify a niche market in which it can
participate?
7. What is financial feasibility analysis?

Multiple Choice Questions

1. Which of the following is not a Project Cost Estimation Stage?

A. Estimation Stage.
B. Feasibility stage
C. Procurement stage
D. Promotion stage
2. Which of the following is not a component of feasibility report?
A. Profit margin
B. works cost
C. overheads

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 D. Pre-commission expenses.
3. Which of these is an issue while designing an appraisal programme?
A. What methods of appraisal are to be used
B. quality
C. Quantity
D. Cost analysis

4. First step in appraising process is

A. defining job
B. training session
C. feedback session
D. interview sessions

7.11: Further Readings / Reference books

1. Kanishka Bedi, Management and Entrepreneurship, Oxford University Press, New Delhi,
2009.
2. Michael H. Morris, Entrepreneurship and Innovation in corporations, Cengage Learning,
2008.
3. Donald F. Kuratko & Richard M. Hodgetts, Entrepreneurship in the New Millennium,
Cengage Learning, 2007.

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LESSON- 8: CENTRAL INSTITUTIONS SUPPORTING SMALL BUSINESS UNITS - I :
NABARD
Objectives of the lesson :
After studying this lesson, you should be ready to:
 Understand the need for Institutional support to small business.
 Know the list of various central level and state level Institutions
supporting Micro, Small and Medium Enterprises (MSME);
 Understand the formation of NABARD, its main functions and details of
government sponsored schemes for supporting MSME.

Structure of the Lesson : -

8.1 Institutional support to Small Business Entrepreneurs
8.2 NABARD
8.2.1 Main functions of NABARD
8.2.2 Government Sponsored Schemes
8.3 : Summary
8.4 : Self assessment Questions
8.5 : Key Terms
8.6 : Further Readings / Reference books
******

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 One of the reasons why Bill Gates is so
successful is that he isn’t afraid of what he
doesn’t know. Through his work with the Gates
Foundation, he is clearly passionate about
helping people all over the world lead healthy,
productive lives that aren’t hindered by a lack of
access, whether it be to clean water or an
education. Gates always takes to social media
and his blog to talk about the books that have
opened his eyes and taught him more about the
global issues that he is working to help solve.

Entrepreneurship is a multifaceted phenomenon, which has gained popularity around the

world. Becoming an entrepreneur is a challenging task, which requires various resources and
facilities. Small-scale enterprises find it difficult to have their own recourses. Finance has been
an important resource to start and run an enterprise. In addition to finance, a minimum built-up
space and other infrastructural facilities such as transport and communication are also needed to
start any enterprise. Creation of infrastructural facilities require huge funds, which the small
entrepreneurs do lack. The phrase, "whosoever has the gold makes the rule," brings out the
significance of the need for adequate finances for a small industry. The entrepreneur must clearly
know about his financial needs before actually setting up his unit. Considering the difficulties of
Small entrepreneurs , the Government of India, as a part of policy of promotion of Small Scale
sector in the country, has set up a host of institutions to meet the financial requirements of small
entrepreneurs.
This Chapter provides an insight into the support and facilities provided by various
Central and State level institutions to small business units in general and various schemes of
assistance extended to small units by National Bank for Agriculture and Rural Development
(NABARD) in particular.

8.1 Institutional support to Small Business Entrepreneurs

Small scale industries play a key role in our planned economy with their advantages of
low investment, high potential for employment generation, diversification of the industrial base
and dispersal of industries to rural and semi-urban areas. This sector has, therefore, been

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appropriately given a strategic position in our planned economy. It has a vital role to play in the
fulfillment of the socio-economic objectives, particularly, in achieving equitable growth.
As said above, the development of small scale industries depends upon various factors
like availability of raw-materials, skilled labour, advanced technical know-how adequate, easy
and cheap finance and right type of management. Among these, finance is crucial in the
development of small scale industries. Non-availability of finance at the right time and in right
quantities with low rate of interests poses a serious threat to the development of small scale
industries. With the availability of adequate finance, it is easy to run the unit successfully
without any hindrance.

The main sources of finance for small scale industries are funds of promoters,
institutional agencies, and non-institutional agencies. Because of their poor financial
background, the capacity of the promoters to invest in their respective units is limited. Likewise,
the non-institutional agencies are always reluctant to invest in these small scale industries, due to
their limited earning capacity as well as poor reputation of the entrepreneurs. There are different
financial institutions to cater to the long term financial needs of the small-scale industries and
commercial banks, regional rural banks (RRBs) and co-operative banks are providing most of
the working capital financial needs of these units.
In view of this, various Central and State Government institutions have come forward to
help small entrepreneurs in this regard by providing them various kinds of support and facilities
in order to facilitate the growth of the SSI sector. Financial assistance is available to the small
scale sector from the State Small Industries Development Corporations (SSIDCS) at the state
level and National Small Industries Corporation (NSIC) at the national level.

The Industries Development Bank of India (IDBI), the Small Industries Development
Bank of India (SIDBI), National Bank for Agriculture and Rural Development (NABARD) and
other national level development banks provide refinance facilities to banks and other grassroots
level agencies for financing small scale industries. The Deposit Insurance and Credit Guarantee
Corporation (DICGC) assists the small scale industries by guaranteeing advance to these
industries. Moreover, the Export-Import Bank of India (EXIM) facilitates external trade by
rediscounting the bills of these industries. Likewise, the Industrial Reconstruction Bank of India
(IRBI) assists in rehabilitating the sick units of these industries.

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 Further, the policy measures of the Government of India include the setting up of a
network of institutions to render assistance and to provide a comprehensive range of services and
common facilities for SSIs. The range of services cover consultancy in techno-economic and
managerial aspects, training, testing facilities and marketing assistance through the agencies
created for the specified functions. They provide infrastructure and support services to small
enterprises through Small Industries Development Organisation (SIDO), National Small
Industries Corporation (NSIC), National Institute of Small Industry Extension Training
(NISIET), Hyderabad, Indian Institute of Entrepreneurship (IIE), Guwahati and National
Institute for Entrepreneurship and Small Business Development (NIESBD), New Delhi.
Having discussed the basic information about financing schemes being operated by
various financial institutions or agencies, the details regarding the schemes of assistance
rendered by NABARD are explained in this chapter and other Institutions like SIDBI, NSIC,
KVIC, SIDO, IDBI, IFSI , SSIB DICGC, ExIm Bank, IRBI, NISIET, NIE, NIESBD and State
level institutions such as State Financial Corporations (SFCs), State Small Industries
Development Corporations (SSIDCS), District Industries Centre (DICs) etc are presented in the
subsequent five Chapters.

8.2 National Bank for Agriculture and Rural Development (NABARD) :

NABARD works towards integrated rural development and helps promote rural
businesses and small industries, agriculture and cottage industries. They offer various training
and development and consultancy services as well as credit facilities to support these businesses.
The importance of institutional credit in boosting rural economy has been clear to the
Government of India right from its early stages of planning. Therefore, the Reserve Bank of
India (RBI) at the insistence of the Government of India, constituted a Committee to Review the
Arrangements For Institutional Credit for Agriculture and Rural Development (CRAFICARD) to
look into these very critical aspects. The Committee was formed on 30 March 1979, under the
Chairmanship of Shri B. Sivaraman, former member of Planning Commission, Government of
India.

The Committee’s interim report, submitted on 28 November 1979, outlined the need for
a new organizational device for providing undivided attention, forceful direction and pointed

178
focus to credit related issues linked with rural development. Its recommendation was formation
of a unique development financial institution which would address these aspirations and
formation of National Bank for Agriculture and Rural Development (NABARD) was approved
by the Parliament through Act 61 of 1981. NABARD came into existence on 12 July 1982 by
transferring the agricultural credit functions of RBI and refinance functions of the then
Agricultural Refinance and Development Corporation (ARDC). It was dedicated to the service of
the nation by the late Prime Minister Smt. Indira Gandhi on 05 November 1982.
Set up with an initial capital of Rs.100 crore, NABARD’S paid up capital stood at Rs.
5,000 crore as on 31 March 2016. Consequent to the revision in the composition of share capital
between Government of India and RBI, the Government of India today holds Rs. 4,980 crore
(99.60%) while Reserve Bank of India holds Rs. 20.00 crore (0.40%).

8.2.1 Main functions of NABARD

NABARD initiatives are aimed at building an empowered and financially inclusive rural
India through specific goal oriented departments which can be categorized broadly into three
heads: (A)Financial, (B) Developmental and (c) Supervision.

Through these initiatives NABARD could touch almost every aspect of rural economy.
From providing refinance support to building rural infrastructure; from preparing district level
credit plans to guiding and motivating the banking industry in achieving these targets; from
supervising Cooperative Banks and Regional Rural Banks (RRBs) to helping them develop
sound banking practices and onboarding them to the CBS platform; from designing new
development schemes to the implementation of GoI’s development schemes; from training
handicraft artisans to providing them a marketing platform for selling these articles.

Over the years, NABARD’s initiatives have touched millions of rural lives across the
country. The SHG Bank Linkage Project launched by NABARD in 1992 has blossomed into the
world’s largest micro finance project. Kisan Credit Card, designed by NABARD has become
source of comfort for crores of farmers. NABARD financed one fifth of India’s total rural
infrastructure. It is the pioneer in the field of watershed development as a tool for sustainable
climate proofing.

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8.2.1 (A). Financial Initiatives of NABARD

(A). Financial Initiatives of NABARD : Under the financial initiatives, NABARD provides
both Direct finance and Refinance Assistance.

Direct finance:-

The following activities come under Direct finance :

1.Loans for food parks and food processing Units.
2. Loans to Ware houses, cold Storage and Cold chain Infrastructure
3. Credirt Facilities to Marketing Federations
4. Rural Infrastructure Development Fund
5. Direct Refinance to Cooperative Banks.
6. Financing and supporting Producer organizations
7. Alternative Investment Funds
8. More Direct Finance

Refinance Schemes of NABARD:

Refinance Schemes of NABARD include (i)Short Term Refinance and (ii) Long Term
Refinance.

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Short Term Refinance
Modern agriculture, as distinguished from traditional cultivation, involves substantial
investment of recurring nature for using high yielding varieties of seeds, fertilisers, insecticides
and costly agricultural implements. In such a situation, arrangements for credit should go much
beyond the simple provision of credit and must be linked operationally with productivity and
other services. Production and productivity, marketing and raising the level of surplus and
savings must, therefore, be the major functions of credit. The benefit of modern technology, the
advantages of institutional credit, infrastructural arrangements etc., should accrue to all classes of
farmers. Besides, on the supply side, there must be an arrangement for assessing the
requirements of funds on the basis of actual cost and raising the resources there for. It was in this
context, the crop loan system or the production oriented system of lending was evolved and
conceived as the most appropriate mechanism for mass disbursement of production credit.
(i) Short Term (Seasonal Agricultural Operations)
Refinance is provided for production purposes at concessional rate of interest to State
Cooperative Banks (SCBs) and Regional Rural Banks (RRBs) by way of sanction of credit
limits. Each withdrawal against the sanctioned credit limit is repayable within 12 months.

(ii) Short Term (Others):

The Short Term ( Others ) consist of different purposes viz. Agriculture and Allied
Activities, Marketing of crops, Fisheries Sector, Industrial Cooperative Societies (other than
weavers), Labour Contract and Forest Labour Cooperative Societies including collection of
Minor Forest produce. Rural artisan including weavers members of PACS/LAMPS/FSS,
Purchases, Stocking and Distribution of Chemical Fertilisers and other Agricultural Inputs on the
basis of bank wise RLP for respective purposes. The limit is sanctioned to SCBs and RRBs.

(iii) Short Term (Weavers) :

Refinance support is available under Weavers as under:
1. Working Capital requirement of Primary/Apex/Regional Weavers Coop Society -
through State Coop Banks/DCCBs
2. Working Capital requirement of Primary Weavers Coop Society – through Scheduled
Commercial Bank

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3. Working Capital requirement of State Handloom Development Corporation – through
Scheduled Commercial Banks & State Cooperative Banks
4. Working Capital and Marketing requirement of Individual Weavers, Handloom Weavers
Groups, Master Weavers, Mutually aided Coop Societies, Societies outside Coop fold
and Producer Group Companies – through Scheduled Commercial Banks & RRBs.
Long Term Loans :
Investment credit leads to capital formation through asset creation. It induces
technological upgradation resulting in increased production, productivity and incremental
income to farmers and entrepreneurs. NABARD provides Long Term and Medium Term
Refinance to banks for providing adequate credit for taking up investment activities by farmers
and rural artisans etc. It is intended to create income generating assets in the following sectors:
 Agriculture and allied activities
 Artisans, small scale industries, Non-Farm Sector (Small and Micro Enterprises),
handicrafts, handlooms, powerlooms, etc.
 Activities of voluntary agencies and self help groups working among the rural poor
Eligible schemes for Refinance under Off-Farm Sector
Automatic Refinance Facility (ARF) : Automatic Refinance Facility (ARF) will be
extended to the Commercial Banks/State Coop Banks/ Regional Rural Banks/Primary Urban
Coop Banks/DCCBs/ ADFCs/NEDFi/NBFCs without any upper ceiling on quantum of
refinance, bank loan or TFO for all kinds of projects under Farm Sector (FS) & Non Farm Sector
(NFS). However, ARF will be extended to the SCARDBs for projects with TFO up to 50.00
lakh for all kinds of projects under Farm Sector (FS) and Non- Farm Sector (NFS).
The various schemes formulated over the years have been categorized into five distinct and
compact schemes.
 A. Composite Loan Scheme (CLS) : Under this scheme, refinance is given to meet the
block and /or working capital requirements of small/micro enterprises. Maximum
refinance available is Rs. 10 lacs per unit.
 B. Integrated Loan Scheme (ILS) : Under this scheme, refinance is given to block
capital and working capital for one operating cycle. Maximum refinance available is Rs.
15 lacs per borrower.

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  C. Self-Employment Scheme for Ex-servicemen (SEMFEX) :The scheme has been in
operation since 15 January 1988. SEMFEX is specially designed to provide a
comprehensive package of credit for encouraging ex-servicemen to undertake agricultural
and allied activities or to set up off-farm units in rural areas to earn their livelihood and
lead a dignified life. NABARD provides refinance assistance under Automatic Refinance
Facility (ARF) to eligible banks for a wide spectrum of manufacturing, processing and
service sector activities under RNFS (Investment Credit).
D. Soft Loan Assistance for Margin Money (SLAMM):The scheme is to provide
financial assistance to prospective entrepreneurs who have the requisite talent and skill of
entrepreneurship but lack necessary monetary resources to meet the margin requirements
stipulated under relevant refinance schemes of NABARD.
 E. Small Road and Water Transport Operators (SRWTO) : Under this scheme,
financial assistance is provided for acquisition of transport vehicles, which are to be used for
transportation of farm produce/industrial products to rural/urban marketing centers, including
passenger transport vehicle and water transport units. Margin money assistance will be
extended on a very selective basis, up to 10% of the cost of the vehicle.
(B) DEVELOPMENTAL ACTIVITIES OF NABARD : Assistance to the following activities
are covered under the developmental activities of NABARD :

“Institutional Development (ID) initiatives” : NABARD is responsible for regulating

and supervising the functions of Cooperative Banks and RRBs in the country. As part of its
“Institutional Development (ID) initiatives”, NABARD supports the following institutions:

• Rural Credit Cooperatives

• State Cooperative Banks (StCBs)
• Central Cooperative Banks (CCBs)
• Primary Agricultural Credit Societies (PACS)
• State Cooperative Agriculture and Rural Development Banks (SCARDBs)
• Primary Cooperative Agriculture and Rural Development Banks (PCARDBs)
Farm Sector Development;

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 Off Farm Sector assistance for reducing rural India’s over dependence on agriculture by
providing alternate livelihood options and thereby curbing large-scale migration of small and
marginal farmers and agricultural laborers to urban areas;

Financial Inclusion to ensure access to financial services and timely and adequate credit
where needed by vulnerable groups such as weaker sections and low income groups at an
affordable cost ;

Micro Credit Innovation: Acting as facilitator and mentor of microfinance initiatives ;

Rendering Research & Development support;
Extending Core Banking Solution To Co-Operative Banks;
Climate Change : NABARD has taken various initiatives in addressing the challenges posed by
Climate Change particularly in the areas of agriculture and rural livelihood sectors.
(C) SUERVISORY ACTIVITIES OF NABARD: Section 35(6) of the Banking Regulation
Act, 1949 empowers NABARD to conduct inspection of State Cooperative Banks (StCBs),
Central Cooperative Banks (DCCBs) and Regional Rural Banks (RRBs). In addition, NABARD
has also been conducting periodic inspections of state level cooperative institutions such as state
Cooperative Agriculture and Rural Development Banks (SCARDBs), Ape Weavers Societies,
Marketing Federations etc., on a voluntary basis.
Government Sponsored Schemes of NABARD :

The following schemes are covered under this category:

Dairy Entrepreneurship Development Scheme

The Department of Animal Husbandry, Dairying and Fisheries (DAHD&F), GoI

launched a pilot scheme titled “Venture Capital Scheme for Dairy and Poultry” in the year 2005-
06. The main objective of the scheme was to extend assistance for setting up small dairy farms
and other components to bring structural changes in the dairy sector. The scheme was revised
with effect from 1 September 2010. Objectives of the scheme are (i). to promote setting up of
modern dairy farms for production of clean milk; (ii). to encourage heifer calf rearing, thereby
conserving good breeding stock; (iii). to bring structural changes in the unorganised sector so
that initial processing of milk can be taken up at the village level itself; (iv). to upgrade the

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quality and traditional technology to handle milk on a commercial scale; and (v). to generate
self-employment and provide infrastructure mainly for unorganised sector. Farmers, individual
entrepreneurs, NGOs, companies, groups of organised and unorganised sectors, etc. Groups of
organised sector include Self-help Groups (SHGs), dairy cooperative societies, milk unions, milk
federations, etc. are eligible to apply under this scheme. An individual will be eligible to avail
assistance for all the components under the scheme but only once for each component. More
than one member of a family can be assisted under the scheme provided they set up separate
units with separate infrastructure at different locations. The distance between the boundaries of
two such farms should be at least 500 metres.
Capital Investment Subsidy Scheme for Commercial Production Units for organic/
biological Inputs

Under National Project on Organic Farming, a Capital Investment Subsidy Scheme for
Commercial Production Units for organic/ biological Inputs has been introduced. The scheme is
being implemented by the Department of Agriculture & Cooperation through National Centre of
Organic Farming (NCOF) in collaboration with NABARD or National Cooperative
Development Corporation (NCDC). The scheme is being implemented since 2004-
05. Objectives of the Scheme are (i). to promote organic farming in the country by making
available organic inputs, such as biofertilisers, biopesticides and fruit & vegetable market waste
compost and thereby generate better return for the produce; (ii). to increase agricultural
productivity while maintaining soil health and environmental safety; (iii). to reduce the total
dependence on chemical fertilizers and pesticides by increasing the availability and improving
the quality of biofertilisers, biopesticides and composts in the country; (iv). to convert organic
waste into plant-nutrient resources; and (v). to prevent pollution and environment degradation by
proper conversion and utilization of organic waste. Biofertilisers and biopesticides production
Units, Fruit & vegetable waste compost units, individuals, group of farmers/growers, proprietary,
and partnership firms, Co-operatives, fertilizer industry, Companies, Corporations, Non-
Governmental Organizations (NGOs), Agricultural Produce Market Committees (APMCs) and
Municipalities and Private entrepreneurs are eligible to apply under this scheme.
Agriclinic and Agribusiness Centres Scheme

The scheme aims to promote the establishment of Agri-Business Centres (ACABC) all
over the country. Agri-Business Centres are commercial units of agri-ventures established by
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trained agriculture professionals. Such ventures may include maintenance and custom hiring of
farm equipment, sale of inputs and other services in agriculture and allied areas, including post-
harvest management and market linkages for income generation and entrepreneurship
development. The scheme covers full financial support for training and handholding, provision
of loan and credit-linked back ended composite subsidy. Objectives of the scheme are (i). to
supplement efforts of public extension by necessarily providing extension and other services to
the farmers on payment basis or free of cost as per business model of agripreneur, local needs
and affordability of target group of farmers; (ii). to support agricultural development; and (iii). to
create gainful self-employment opportunities for unemployed agricultural graduates, agricultural
diploma holders, intermediate in agriculture and biological science graduates with Post
Graduation in agri-related courses.
The scheme is open to the (i). Graduates in agriculture and allied subjects from State
Agriculture Universities (SAUs)/Central Agricultural Universities/Universities recognized by
ICAR/UGC; (ii). Diploma (with at least 50% marks)/Post Graduate Diploma holders in
Agriculture and allied subjects from State Agricultural Universities, State Agriculture and Allied
Departments and State Department of Technical Education; (iii). Biological Science Graduates
with Post Graduation in Agriculture & allied subjects; (iv). Degree courses recognised by UGC
having more than 60 percent of the course content in Agriculture and allied subjects; (v).
Diploma/Post Graduate Diploma courses with more than 60 percent of course content in
Agriculture and allied subjects, after B.Sc. with Biological Sciences, from recognised colleges
and universities; and (vi). Agriculture related courses at Intermediate (i.e. plus two) level, with at
least 55% marks.
Solar Schemes

The Ministry of New and Renewable Energy (MNRE), Government of India has
launched a new scheme to support 30000 solar pumping units per year which is effective from 3
November 2014. Main objective of the scheme is to replace diesel pumpsets with solar pumpsets
as also to reduce dependence on grid power. The solar pumpsets are environment-friendly and
offer tremendous benefits to farmers. They involve very low operating cost and provide
uninterrupted power supply to farmers enabling increase in agriculture production and income.
Subsidy under the scheme is available only for solar systems that are procured from empanelled
manufacturers/entrepreneurs by MNRE, GoI for solar water pumping programme. Individuals,

186
group of individuals, SHGs, JLGs, NGOs, Farmers’ Clubs, Farmers Producer Organisation and
Farmers Producer Company are eligible to apply under this scheme. Private/Public Limited
Companies/Corporates are not eligible.
8.3 : Summary :
Several Central and State level Institutions have been established to cater to the financial ,
technical and marketing requirements of micro, small, and medium enterprises considering their
relative importance in the economy in terms of low investment, high potential for employment
generation, diversification of industrial base and dispersal of industries to rural and semi urban
areas.
NABARD is one among such premium institutions that came into existence on 12 July,
1982 for fostering rural prosperity. It aims at promoting sustainable and equitable
agricultural and rural development through participative financial and nonfinancial
interventions, technology and institutional development for securing prosperity. It renders
financial support, both direct and refinance, developmental assistance and supervisory
help for building an empowered and financially inclusive rural India. It supports several
government sponsored schemes for providing self-employment for Farmers, individual
entrepreneurs, NGOs, companies, groups of organised and unorganised sectors, etc.
8.4 : Self assessment Questions
Short Question
1. Write short notes on automatic Refinance facility of NABARD?
2. Write short notes on rural infrastructure development fund of NABARD?
3. Write short notes on Alternative Investment Fund (AIF) of NABARD?
Essay Questions:
1. Write an essay on the functions of NABARD?
2. Write on essay on direct finance and refinance assistance of NABARD?
Multiple choice questions:
1. Banks can avail refinance against loans made to industrial units from
A. IDBI
B. NABARD
C. DICGC
D. ECGC

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2.NABARD ( National Agricultural Bank for Rural Development ) was established in the year:
A. July12th,1982
B. June 20th 1976
C. May 28th 1956
D. October 12th ,1986.
3. Which is the apex institution to provide credit facility to agriculture and rural development?
A. NABARD
B. State Bank of India
C. Reserve Bank of India
D. D.National cooperative bank of India.
4. What is the NABARD pilot project for digitization of SHGs called?
A. e-Shakti
B. e-Samriddhi
C. e-Shanti
D. e-Samraksha
5. Refinance schemes of NABARD
A. Short term and medium term loans
B. Long term and capital loans
C. Short and Long term loans
D. credit facilities

Activity1: List out various Central Level Institutions supporting small Business
Units in India.

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 Activity 2: Interact with an official of NABARD and make a report on its assistance
to food parks and food processing units

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Activity 3: Write a brief note on NABARDs assistance to ex-servicemen

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Activity 4: write a brief note on “Government Sponsored Schemes of NABARD”

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8.5 : Key Terms

SSIDCS; IDBI; SIDBI; NABARD; DICGC; EXIM; IRBI; SIDO; NSIC; NISIET; NIE;
NIESBD; KVIC; IFSI; SSIB; SFCs; DIC; RIDF; AIF; LTIF; Working Capital; RRBs;
State Co-operative Banks(StCBs); ADFCs; NBFC; SCARDBs; DCCBs; ARF; SEMFEX;
SLAMM; SRWTO;

8.6 : Further Readings / Reference books:

2. https://www.nabard.org
3. INSTITUTIONAL SUPPORT FOR MSMEs - Shodhganga
shodhganga.inflibnet.ac.in/bitstream/10603/27524/11/11_chapter%204.pd These policies
cannot be fulfilled without the support of the institutional system governing MSMEs.
The Institutional support system is necessary to provide all help needed by the small scale
the CentralGovernment as well as the ...

189
 4. Central level institutions supporting entrepreneurs - SlideShare
https://www.slideshare.net/.../central-level-institutions-supporting-entrepreneurs-1353... Jul 3,
2012 - Central level institutions supporting entrepreneurs Presentations By Rajendran Ananda
Krishnan, https://www.facebook.com/ialwaysthinkprettythings. ... It undertakes various
programmes of training, consultancy, evaluationfor needs of SSI and development of industrial
estates. All these functions are taken ...
5. Institutional support to small and medium enterprises - SlideShare
https://www.slideshare.net/.../institutional-support-to-small-and-medium-enterprises
Jun 27, 2012 - INSTITUTIONAL SUPPORT TOSMALL AND MEDIUMENTERPRISES. ...
Three dimensions of institutional support system are: Central Government State Government
Non-government Support System; 4. ... Provides assistance for: Setting up of new SSI units,
small hotels, hospitals and so on.
5. MSME msme.gov.in/

Ministry of Micro, Small & Medium Enterprises (M/o MSME) envision a vibrant MSME sector
by promoting growth and development of the MSME Sector, including Khadi, Village and Coir
Industries, in cooperation with concerned Ministries/Departments, State Governments and other
Stakeholders, through providing support ...
6. Policies - DC-MSME
www.dcmsme.gov.in/policies/policies.htm While most of the institutional support services and
some incentives are provided by the CentralGovernment, others are offered by the state
governments in varying degrees to attract investments and promote small industries in varying
degrees to attract investments and promote small industries with a view to enhance ...
7. Development Commissioner Ministry of Micro, Small ... - Dc Msme
dcmsme.gov.in/msme-do/sidonetwork.htm The office also maintains liaison
with Central Ministries and other Central/State Government agencies/organisations
financial institutions. ... National Small Industries Corporation (NSIC) for technology and
marketing support; Small Industries Development Bank of India (SIDBI) an apex bank set up to
provide direct/indirect ...
8. INSTITUTIONAL SUPPORT: MSME Development Institute, Solan
www.msmedihimachal.nic.in/pages/view/146/206-institutional-support NSTITUTIONAL
SUPPORT. Print. CHAPTER-8. INSTITUTIONAL UPPORT. Central Government as well
as State Govt. has established a number of institutions for the promotion of industries whose
decisions and functions influences industrial activities in the country/region/State. The role and
functions of these institutions ...
9. Financial Institutional Assistance and Support to Small-scale ...
https://www.omicsonline.org/.../financial-institutional-assistance-and-support-to-smalls...
SSI has limited access to financial sources from banks and other financial institutions. Even
today major financing of SSI is done from sources other than institutional mechanism.

190
Financing from own sources and borrowings. Reserve bank of India. In a country's credit system,
the central bank plays a very important role.
10. Micro, Small & Medium Enterprises
msmetraining.gov.in/ The Scheme envisages financial assistance for establishment of
new institutions (EDIs), strengthening the infrastructure of the existing EDIs and
for supporting entrepreneurship and skill development activities. The main objectives of the
scheme are development of indigenous entrepreneurship from all walks of life for ...
11. Institutions Supporting SME Growth - Small Enterprise India
www.smallenterpriseindia.com/index.php/.../496-institutions-supporting-sme-growth Feb 27,
2011 - Institutions Supporting SME Growth. Sunday ... Over the years, the
National Institutefor Micro , small and medium enterprise , an organization of the Ministry
of MSME, Government of India, has gained ... Facilitate and support central and state and
other agencies in organizing entrepreneurship programmes.

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 Lesson – 9: CENTRAL INSTITUTIONS - II : SIDBI

Objective of the lesson :

After studying this lesson , you should be ready to:
Know about the formation of SIDBI;
Understand its objectives and activities;
Know its schemes of Assistance to small scale industries in India
Structure of the Lesson :
9.0 Small Industries Development Bank of India (SIDBI)

9.1 Business Domain of SIDBI

9.2 Objectives of SIDBI

9.3 activities of SIDBI

9.4 SIDBI initiatives in the recent past

9.4 Summary
9.5 Self assessment Questions
9.6 Key Terms
9.7 Further Readings / Reference books

13 SUCCESS STORIES OF ENTREPRENEURS SUPPORTED BY SIDBI

1. Mrs. Bector’s CREMICA: Way back in 1978, Mrs. Rajni Bector started an enterprise
unveiling her love for baking, Swirling remarkable ice-creams, breads and biscuits.
Cremica began its journey on the foundation of quality, freshness and taste. The small
enterprise in due course of time has become a huge food product conglomerate known as
Cremica. It is known for its innovative offerings, packaging and its commitment to
quality. Keeping up with changing consumer preferences, the company has also
introduced a health range for the health-conscious consumers.
In 2015-16, the company has achieved a turnover of Rs.561 cr with a net profit of Rs.27
cr. The company was rated A+ by ICRA(report dated August 05, 2015) on the long term
scale.

2. UEW: United Engineering Works (UEW) has been promoted by a Women

entrepreneur Mrs. Ambalal Kalidas Panchal, now aged 71. UEW is a first generation

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 women entrepreneur and customer of SIDBI since December 2008. While it was setup in
1986 it operated in a small shop. When it approached SIDBI in 2008, SIDBI supported it
to go for technological up gradation under CGTMSE coverage. UEW has taken 4 loans in
past out of which one has been fully repaid with impeccable repayment record. It has
consistent record of growth in top line and bottom line. A small unit starting from scratch
has crossed turnover of Rs.6 crore. It started in one small shop followed by scattered
small units. SIDBI has recently supported it to set up a state of art manufacturing unit. It
stated recently that SIDBI has made it to realise its dreams.

3. AJANTHA PAACKS : Ajantha Packs is a partnership firm, promoted by Smt. N.

Subhashini and Smt. P. Kalavathi in July 2013, for manufacture of corrugated boxes. Smt
Subhashini is a postgraduate in Commerce and the Chief Promoter of the unit. Smt.
Kalavathi has only formal school education, but has experience in the line of activity. In
July 2013 SIDBI extended financial assistance of R. 25 lakh for part-financing the
establishment of the set up along with Rs. 25 1akh for working capital. Started from
scratch the unit has recorded a turnover of Rs.1 crore plus in the first full year of its
operations with a decent 10% net profit. The unit is also servicing the debt promptly.

4. DOCTORS ONLINE: Company provides integrated solutions in the healthcare sector

through internet and mobile platform.
Post SIDBI assistance: revenue of the company grew from Rs.7 Lakh in FY2012 to
Rs.5.38 crore in FY2014.

5. SOFTTECH (EMPOWERING TRANSFORMATION): Company is into software

development for AEC (Architecture, Engineering and Construction) space.
Post SIDBI assistance: revenue of the company grew from Rs.7.50 crore in FY2009 to
Rs. 25.75 crore in FY2014.

6. COMMTEL NETWORKS: Company provides solutions in telecom space.

Post SIDBI assistance: company’s revenue grew from Rs.20.64 crore in FY2010 to
Rs.99.47 crore in FY2014.

7. AUTOCOP (AUTOCOP (INDIA) PVT. LTD): Company is into manufacturing &

marketing of car accessories.
Post SIDBI assistance, revenue of the company grew from Rs.140 crore in FY2010 to
Rs.400 crore in FY2014.

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 8. FLASH (FLASH ELECTRONICS (INDIA) PVT. LTD): Flash Electronics (India)
Private Limited (Flash) is engaged in the manufacture of auto electrical and electronics
accessories for two wheeler industry.
Post SVCL investment: the turnover of the company has increased from & 21 crore in
FY 2007 to R 350 crore in FY 2014.

9. Bill Desk (ALL YOUR PAYMENTS – SINGLE SOLUTION): Indiaideas.com Pvt

Ltd, the promoter of “Billdesk.com’ is engaged in payments solutions which has
facilitated the growth of e-commerce business in India.
Post SVCL investment: last year, “Billdesk’ has been valued at over Rs.1400 crore the
largest company of its kind with a substantial share of the Indian market.

10. KRAFT POWERCON: Kraft Powercon India Pvt Ltd is engaged in rectifier market
with a range of products for pollution control, water purification, uninterruptible power
supply devices etc.
Post SVCL investment, the turnover of the company has increased from Rs.25 crore in
FY2008 to Rs.400 crore in FY2014 besides setting up manufacturing facilities in Sweden
and China.

11. GIBSS : Company provides green building solutions.

Post SIDBI assistance: revenue of the company grew from Rs.2.75 crore in FY2012 to
Rs.9.35 crore in FY2014. Rs.9.57 crore in FY2015 and poised to reach Rs.20plus crore in
FY2016.

12. WILDCRAFT: Company provides backpacks, bags and other travel accessories.
Post SIDBI assistance: company’s revenue has grown from Rs. 4.81 crore (FY2009) to
Rs. 106 crore (FY2014). Recently, Sequoia Capital invested Rs. 70 crore in the company.

13. KEJRIWAL BEE CARE INDIA (PVT.) LTD : Company is engaged in processing
and exporting of Honey.
Post SIDBI assistance: revenue of the company grew from Rs.40.65 crore in FY2009 to
Rs.131.81 crore in FY2014.

9.0 Small Industries Development Bank of India (SIDBI) :

Small Industries Development Bank of India (SIDBI), set up on April 2, 1990 under an

Act of Indian Parliament, acts as the Principal Financial Institution for the Promotion, Financing

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and Development of the Micro, Small and Medium Enterprise (MSME) sector and for Co-

ordination of the functions of the institutions engaged in similar activities. As the name suggests,

SIDBI was primarily set up to provide financial assistance to small scale industries in India. It is

one of the leading government bodies that provides various financial schemes across a range of

industries and services.

Some of the schemes are Direct Assistance Scheme, Indirect Assistance Scheme,

Promotional and Development Activities, National Equity Fund Scheme, Technology

Development and Modernization Fund Scheme, Single Window Scheme, Mahila Udyam Nidhi

(MUN) Scheme and Equipment Finance Scheme. The SIDBI has been regularly fulfilling its

commitments like assistance to up gradation and modernisation, marketing the products of SSIs

and creating employment opportunities in the rural belt thereby preventing exodus of workers

from country to town.

The SIDBI's financial assistance to SSIs is channelized through the Development

Corporations, Commercial Banks and Regional Banks. The SIDBI also provides financial

support to National Small Industries Corporations for providing leasing, hire purchase and

marketing support to the industrial units in the SSI sector. SIDBI is created “To facilitate and

strengthen credit flow to MSMEs and address both financial and developmental gaps in the

MSME eco-system". It emerged as a single window for meeting the financial and developmental

needs of the MSME sector to make it strong, vibrant and globally competitive.

9.1 Business Domain of SIDBI:

The business domain of SIDBI consists of Micro, Small and Medium Enterprises
(MSMEs), which contribute significantly to the national economy in terms of production,
employment and exports. MSME sector is an important pillar of Indian economy as it
contributes greatly to the growth of Indian economy with a vast network of around 5.1 crore

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 units, creating employment of about 11.7 crore, manufacturing more than 6,000 products,
contributing about 45% to manufacturing output and about 40% of exports in terms of value,
about 37% of GDP.
The business strategy of SIDBI is to address the financial and non-financial gaps in

MSME eco-system. Financial support to MSMEs is provided by way of (a) Indirect / refinance to

banks / Financial Institutions for onward lending to MSMEs and (b) direct finance in the niche

areas like risk capital, sustainable finance, receivable financing, service sector financing, etc. As

on March 31, 2017, SIDBI has made cumulative disbursements of about `4.80 lakh crore

benefitting about 350 lakh persons. By this way, SIDBI would be complementing and

supplementing efforts of banks/ FIs in meeting diverse credit needs of MSMEs.

9.2 Objectives of SIDBI

Four basic objectives are set out in the SIDBI Charter. They are: Financing, Promotion,
Development and co-ordination for orderly growth of industry in the small scale sector. The
Charter has provided SIDBI considerable flexibility in adopting appropriate operational strategies
to meet these objectives. The activities of SIDBI, as they have evolved over the period of time,
now meet almost all the requirements of small scale industries which fall into a wide spectrum
constituting modern and technologically superior units at one end and traditional units at the other.
Promotion and Development activities of SIDBI: In order to promote and develop the MSME
sector, SIDBI adopts a ‘Credit Plus’ approach, under which, besides credit, SIDBI supports
enterprise development, skill up-gradation, marketing support, cluster development, technology
modernization, etc., These P&D support have benefitted more than 2.3 lakh persons in the MSME
sector, created more than 1.5 lakh employment and helped in setting up more than 80,000 units,
mostly rural enterprises.
Co-ordination and Understanding: As an apex institution, SIDBI makes use of the network of
the banks and state level financial institutions, which have retail outlets. SIDBI supplements the
efforts of existing institutions through its direct assistance schemes to reach financial assistance to
the ultimate borrowers in the small scale sector. Refinancing, bills rediscounting, lines of credit and
resource support mechanisms have evolved over the period of time to route SIDBI's assistance

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through the network of other retail institutions in the financial system. Improved levels of co-
ordination for development of the small scale sector is also achieved through a system of dialogue
and obtaining feedback from the representatives of institutions of small scale industries who are on
the SIDBI's National Advisory Committee and Regional Advisory Committees.

9.3 activities of SIDBI

INSTILLING INCLUSIVE AGENDA : Being the Principal Financial Institution for

MSMEs, SIDBI has dedicated its resources to evolve a vibrant MSMEs eco system. SIDBI's
initiatives have remained aligned to the national goals of poverty alleviation, employment
generation, kindling entrepreneurship and fostering competitiveness in MSME sector. It has also
been equipping MSMEs to align with global expectations and be responsive to the Millennium
Development Goals.

SIDBI had nurtured institutions like Bandhan Bank for several years through loan, equity
andcapacity building support. The institution is one of the two institutions issued licence in 2014 by
RBI for forming an universal bank. Thus, Bandhan is now transforming itself into an universal bank
with rich domain knowledge to cater mainly to micro enterprises. 9 out of 10 SIDBI
nurtured/supported MFIs/NBFCs have got license for small finance banks.

MISSING MIDIDILE PROGRAMME : The segment which missed the credit link pertained to
those micro finance beneficiaries in unorganised sector who were looking up the value chain and
intended to convert into MEs but could not due to lack of credit history and formal channel not
entertaining them. SIDBI has been spearheading Missing Middle programme aimed at infusing
energy in this segment.

POOREST STATE INCLUSIVE GROWTH (PSIG) PROGRAMME : Supported by the UK

Aid from the Department for International Development (DFID), since April 2012, SIDBI is
implementing this six year programme aimed at expanding access to a range of financial services
(savings, credit, micro insurance, micro pension etc.) for poor in the 4 low income States (Bihar,
Odisha, Madhya Pradesh and Uttar Pradesh). PSIG programme has provided loans of Rs.39.50 crore
to 15 MFIs, which is also recycled by them. Out of loans to 50834 clients, outreach to 12708 clients

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belonging to SC/ST has been made. Quantum of loans to OBC/SC/ST/Minorities works out to
Rs.27.96 crore.

PSIG States are amongst the lowest in terms of Gender Development Index (GDI)
including economic marginalization, mobility restrictions due to cultural norms, poor health
conditions, etc. PSIG focuses on women's empowerment through microfinance interventions
including financial literacy programme and capacity building of women clients on social, gender
and legal rights and entitlement. The project has undertaken 1st Pilot project on Financial Literacy
(FL) & Women Empowerment (WE) in select 14 Districts Uttar Pradesh and Bihar. It adopts
Training of Trainers (ToT) approach for creating a cadre of 90 community resource persons
reaching out to 60,000 women clients of 7 MFIs. 2nd & 3rd Pilot project on Financial Literacy and
Women empowerment is being undertaken in Madhya Pradesh (MP) and Odisha. The pilotaims to
build a cadre of 42&70 community resource persons (Master Trainers) in the States of MP and
Odisha respectively. In turn, target is to reach out to 80000 women clients of select partner MFIs in
MP and Odisha. The projects are in inception and strategy development stage. PSIG is also working
on addressing other women empowerment issues like legal rights through the Legal Rights
Awareness Programme (LRAP) in Madhya Pradesh. The project implemented in slums of Bhopal
was successful in raising awareness of 600 women clients of the partner MFI. Evaluation of pilot
has also pointed towards change in perception and knowledge of women clients through the
training.

SOFT INFRASTRUCTURE SUPPORT : Under its promotional and developmental

supportprogrammes, SIDBI has been supporting unemployed to be employable and those
employed being gainfully employed. Several innovative initiatives have promoted rural
enterprises, self employed ventures generating employment opportunities, especially targeting less
privileged sections of the society like women, SC/ST, minorities and rural poor. EDPs supported
by the Bank since inception for various target groups was 3097 benefiting about 77,000
participants.

SIDBI supports the holistic development of North Eastern region by sponsoring EDPs,
cluster development programmes etc. SIDBI has been supporting MicroEnterprises Promotion
Programme (MEPP) aimed at promoting viable micro enterprises in semiurban/rural India.
Cumulatively 41,500 enterprises have been supported.

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 Under MSME Financing and Development project (MSMEFDP) with support of World

Bank, DFID, KfW & Giz and under the guidance of DFS, MoF, GoI, SIDBI took illustrative

steps to attend to both financial and non financial services. It not only ensured Credit

Dispensation through credit facility but also supported Credit Supplementation (by building

capacity on creditinformation and rating including green rating, risk sharing facility etc.) but

also took concerted steps on Credit Enhancement (through capacity building of institutions,

credit gap mapping of clusters, instituting downscaling pilot-how to do small loan profitably). It

pioneered the ‘Making Market Work for MSMEs' in India. SIDBI undertook this unique cluster

development programme in 20 clusters which attended to cluster development from soft side.

By fostering availability of sustainable Business Development Service (BDS) providers at local

level, it endeavoured to complement the hard infrastructure (physical infrastructure) and found

it a validated tool for enhanced growth of MSMEs. This internationally awarded approach

introduced new models of BDS delivery by laying thrust on skill, finance, environment, quality

& marketing. The project adopted innovative tools of Voucher, BDS clinic, BDS Bazaar, BDS

on Wheel, BDS Consortium, MSME Mentor and so on. One of the targeted segments was

women centric interventions. The project reached out to around >2200 women beneficiaries

mainly in the areas of training & skill upgradation, technology improvement, fatigue reduction,

market linkages, product development and so on. As per independent impact assessment

studies, soft infrastructure support led to 13% increase in employment of MSMEs with 100%

increase (6% to 14%) in the number of women employees in MSMEs in the intervention

clusters within 3 years. This was better than the control group which did not reap advantages of

such connect. Various initiatives not only improved the working conditions of women but

induced them towards entrepreneurial aspirations.

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9.4 SIDBI initiatives in the recent past :

SIDBI has taken illustrative steps under the guidance and direction of Government of India.

Some of the key initiatives include

Mission MSME Alignment Initiatives

Digital India Web based solutions connecting stakeholders and making MSMEs realize their
aspirations
Funding the • MUDRA for loans from Rs.50000 to Rs.10 lakh in collaboration with 154
unfunded partners • Intensifying Poorest State Inclusive Growth Programme for promoting
social entrepreneurship • Serving the Missing Middle
Start-Up • India Aspiration Fund- Rs.2000 crore serving as fund of funds and commitment
India already reached to R1100 crore with potential to catalyse R10000 crore of risk
capital mobilisation • Startup assistance scheme under direct dispensation to
boost innovative and technology led enterprises • Supporting Incubation centres
(IIT Kanpur and KIT Bhubaneshwar) for incubating Ideas • Enabler for MSME
for listing on SME exchange • SRIJAN- a TIFAC-SIDBI Technology Innovation
programme fostering innovation
Make in • Make in India scheme for term loan and working capital requirements • SMILE
India scheme for both term loan and Risk Capital with GoI/RBI fund support
Clean India - • Schemes for climate change/clean/green energy efficient MSMEs • 4 E scheme
Greening under World Bank GEF project • Zero Defect and Zero Effect solutions
MSMEs
Small • Nine out of 10 of SIDBI nurtured/ supported MFIs and NBFCs have got Small
Finance Finance Bank licence. • SIDBI has taken lead to handhold their emergence and
Banks positioning of service model.
Skill India • Renewed thrust on the thematic/targeted EDPs • Capacity building of
Associations to upgrade the skill sets of their members/MSMEs/office
bearers/potential workforce

Other initiatives of SIDBI: SIDBI is committed to align the institution to strengthen the
entrepreneurial ecosystem. The key pillars of SIDBI financial and developmental support would
include the following:

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 Attending to Base of the Pyramid : SIDBI thrust is on funding the unfunded,
mainstreaming those excluded, skilling entrepreneurial India, enabling ease of access to credit
and non credit services and helping the last mile connect.

Kindling Startups and Fostering Innovation : SIDBI has laid thrust for funding innovative
businesses directly as well through other channel partners including its subsidiary SIDBI Venture
Capital Ltd. This has ensured channelising (directly/ indirectly) Venture capital/quasi-equity
assistance, mezzanine finance to MSMEs. SIDBI has also been acting as Fund of Funds to
provide risk capital by way of Venture Capital / Seed financing through VC funds, banks,
NBFCs, as also directly. SIDBI shall continue supporting innovative start-ups at both pre
revenue and post revenue stage. SIDBI shall keep upgrading the Virtual Mentor - www.smallbin
(a website for credible information to first generation and also for existing entrepreneurs) as per
demands and aspirations of MSMEs. SIDBI remain committed to spread more Smile in the entire
value chain.

Sustainable MSMEs :Under responsible financing agenda, SIDBI provides sustainable finance
which lays thrust on fostering green, clean and energy efficiententerprises. SIDBI is dedicated to
further this agendaby aligning it to SWACHH BHARAT ABHIYAAN’ to ensure enterprises who
would respect environment, social fabric, high governance levels, transparency in procurement
and following ethical business practices. SIDBI shall continue thrust on Make in India scheme
called SMILE where in both term loan and soft loan is being provided to enterprises in identified
25 sectors with a view to making them globally competitive.

Digital Enterprises : Over the years, SIDBI has been able to address several thematic
initiatives including acquisition of state-of- art technologies. SIDBI is pioneer in several e-based
solutions including Credit Rating and Appraisal Tool (for faster dispensation of credit to
MSMEs) has reduced turn around time. SIDBI shall remain engaged with MSME eco system
and enhance their capabilities in leveraging such opportunities. Trade Receivables Discounting
System (TReDS) shall lay emphasis on solving the problem of delayed payments and also
enabling price discovery.

Fostering Balanced Development: MSMEs thrive when hard (physical) infrastructure is

supported by soft (access to business services ensuring handholding and mentoring)

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infrastructure. SIDBI has seen that the participative involvement of stakeholders such as industry
associations, academic and research institutions, community organisations etc. is a must for
replicability benefits. SIDBI will be furthering this agenda.

TURNING CHAILLENGES INTO OPPORTUNITIES : SIDBI has always been

working with the credit plus approach. Besides credit, SIDBI has been focusing on Credit
Supplementation under various schemes viz. Micro Credit, Energy Efficiency, equity type
products etc. SIDBI has taken lead in offering additionally, bridging the gaps, complementing
institutions, developmental orientation, acting as enabler and fulcrum to address the concerns and
expectations of MSMEs. Attending to problems and challenges of MSMEs so as to enable them
to convert such problems and challenges into opportunities through our customized schemes,
institutional solutions and collaborations with multilateral and bilateral institutions have been our
value added offerings. SIDBI assisted enterprises have supplied consumables for landmark
achievements of the country like Mangal Yaan.

VIBRANCY AT THE BOTTOM OF PYRAMID : Through a comprehensive range of

financial and non-financial assistance, SIDBI has worked with and through a large number of
Micro Finance Institutions (MFIs) who have been incubated, nurtured and strengthened to reach
out to rural pockets. SIDBI is committed to attain the national goal of a broad-based equitable
and inclusive growth by providing micro credit through MFIs for on-lending to the bottom-of-the
pyramid segment of the society with special thrust on un-served and under-served regions of the
country.

SIDBI, had initiated micro finance activities in the year 1994 with the objective of
providing revolving fund assistance to select well-managed Non-Governmental Organisations
(NGOs) for on-lending to the poor including ST/ST/OBCs/Minorities/Women for setting up
micro enterprises. The cumulative assistance including loans, equity and quasi equity (but
excluding assistance under India Microfinance Equity Fund) disbursed under SIDBI's micro
finance initiatives upto March 31, 2015 aggregated Rs.9366 crore benefitting 3.32 crore persons,
mostly women, with a majority of beneficiaries belonging to SC, ST, OBC and Minority
community.

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 The longitudinal Impact Assessment Study commissioned by SIDBI for its Micro

Finance programme observed that “among various social groups, clients belonging to backward

classes have the highest share (45%) in the sample, followed by Scheduled Castes (26%) and

Schedule Tribes (1.9%)”. Taking the above findings of the study as a basis, caste/category wise

beneficiaries under SIDBI's microfinance programme is estimated for SC/ST and OBCs at 0.86

crore, 0.06 crore and 1.49 crore respectively.

GoI has committed support of Rs.150 crore under Portfolio Risk Fund (PRF)

Scheme, which is being utilised by the Bank for meeting 7.5% of the term loan towards security

cover (against the normal requirement of 10%) of the MFIs requirements under Micro Credit

Scheme for providing loan assistance to MFIs in the underserved states and underserved pockets/

districts in other States (with emphasis on SC, ST, Minority, OBC and women). So far,

surpassing the targets, over 77.11 lakh persons have been benefitted under PRF. With effect from

FY2011, componentwise allocation has been earmarked for SC, ST, and NER clients. This has

enabled credit flow of R2361.37 crore, benefitting about 10.47 lakh SC/ST beneficiaries.

Under GoI supported “India Microfinance Equity Fund” (IMEF) of Rs.300 crore, the

primary emphasis has been on providing equity and quasi equity to smaller MFIs to help them

maintain growth and achieve scale and efficiency in their operations. Under the Fund, an amount

of Rs.162.25 crore has been committed to 56 MFIs as on March 31, 2015. It is expected that the

Fund would benefit more than 1.4 million additional clients, mostly women and economically

weaker sections, including SC/ST & OBCs.

GLANCE ON ACHIEVEMENTS : - While serving MSMEs for 25 years, SIDBI has

channelised cumulative assistance of around Rs.3.90 lakh crore.

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– SIDBI has reached out to over 346 lakh persons/enterprises through its direct offices (80

offices) as also leveraging network of banks/institutions (having more than 1.25 lakh branches)

- In micro finance we have extended loans, equity and quasiequity aggregating K9366 crore

benefiting 332 lakh disadvantaged people, mostly women.

- SIDBI has deepenedits outreach by nurturing and evolving more than 150 MFIs who have

emerged as strong and viable financial intermediaries serving the unserved.

- SIDBI has supported more than 1.16 lakh budding and existing entrepreneurs by infusing skills

and reskilling. The performance linked support to EDPs on thematic and targeted support (to less

privileged section such as women, minorities and SC /ST) have success rate of around 55% in

settingup enterprises.

- SIDBI has been in profit and has been declaring dividend 25% since inception. - As on

31/03/2015, the banks overall outstanding portfolio stands at R55343 crore with 99.22% standard

assets.

- SIDBI has a passionate pool of 1000+ professionals with 22% women and 40% belonging to

SC/ST and OBCs category.

9.4 Summary of the Lesson. :

Government of India set up SIDBI in 1990 as the principal financial institution for the

promotion, financing and development of Micro, Small and Medium Enterprises sector and for

the coordination of the functions of the institutions engaged in similar activities. SIDBI was

primarily set up to provide financial assistance to small scale industries in India. It is one of the

leading government bodies that provides various financial schemes across a range of industries

204
and services. Some of the schemes are Direct Assistance Scheme, Indirect Assistance Scheme,

Promotional and Development Activities, National Equity Fund Scheme, Technology

Development and Modernization Fund Scheme, Single Window Scheme, Mahila Udyam Nidhi

(MUN) Scheme and Equipment Finance Scheme. Several entrepreneurs have succeeded in their

business with the support of SIDBI.

9.5 Self assessment Questions

(A) Write short notes on the following :
12. Micro, Small and Medium enterprises
13. Mahila Udyam Nidhi scheme of SIDBI
14. Objectives of SIDBI
15. PSIG Program of SIDBI
16. Soft Infrastructure support program of SIDBI
17. SIDBI assistance under Digital India

(B) 1. Write an essay on SIDBI assistance under Make in India

2. Write an essay on SIDBI assistance under Skill India
3. write an essay on SIDBI assistance under schemes for Climate Change
/clean/green energy efficient MSMEs
4. write an essay on SIDBI assistance under “Start up India”

Multiple choice questions:

1. 1.SIDBI caters to the requirement of
A. Small scale sector
B. Large scale sector
C. Medium scale sector
D. Agricultural sector

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 2. Small Industries Development Bank of India (SIDBI) was established in :
A. 1989
B. 1988
C. 1987
D. 1986
3. SIDBI Main function is:
A. to provide assistance to small scale industries
B. to provide assistance to large industries
C. to provide assistance to medium industries
D. to provide assistance to capital good industries
4. SlDBI was set up in as a wholly owned subsidiary of
A. lDBI
B. IFCI
C. RRBI
D. ExlM
5. Which one among the following has not started commercial banking?
A. SIDBI
B. IDBI
C. ICICI
D. UTI

Activity 1: Write a note on the basic objectives of the SIDBI

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Activity 2: Contact your local SIDBI office and collect information about its support to
‘Make in India Scheme’

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Activity 3: Visit your nearest SIDBI office and collect information on its assistance under
‘Start Up India programme”

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9.6 Key Terms:

Climate Change; Digital India; Green Energy; IMEF; LRAP; Make in India; MEPP;
MSMEFDP; PSIG; Skill India; Start Up India; Women empowerment;

9.7 Further Readings / Reference books:

1. https://www.sidbi.in/

2. Main Functions of Small Industries Development Bank of India (SIDBI)

www.yourarticlelibrary.com › Bank Read this article to learn about the main functions of Small
Industries Development Bank of India (SIDBI) ! With a view to ensuring larger flow of financial
and non-financial assistance to the small-scale sector, the Government of India set up the Small
Industries Development Bank of India (SIDBI) under a special Act of the ...
3. What are the objectives and functions of Small Industries Development ...
www.preservearticles.com/201012291886/objectives-functions-of-sidbi.html It is the principal
institution for promotion, financing and development of industries in the small-scale sector. It
also coordinates the functions of institutions engaged in similar activities. For this
purpose,SIDBI has taken over the responsibility of administrating Small Industries Development
Fund and National Equity Fund from ...
4. Small Industries Development Bank of India - Wikipedia
https://en.wikipedia.org/wiki/Small_Industries_Development_Bank_of_India It is headquartered
in Lucknow. It is an institution for the promotion, financing and development of the Micro,
Small and Medium Enterprise (MSME) sector and for co-ordination of the functions of the

207
institutions engaged in similar activities. SIDBI has also floated several other entities for related
activities.
5. Objectives and functions of SIDBI in development of industry
www.papertyari.com/general.../small-industries-development-bank-india-sidbi/ Jan 31, 2015 -
Functions of SIDBI. SIDBI refinances loans extended by the primary lending institutions to
small scale industrial units, and also provides resources support to them. SIDBI discounts and
rediscounts bills arising from sale of machinery to or manufactured by industrial units in the
small scale sector.
6. SIDBI | Origin | Need | Objectives and functions
https://accountlearning.com/sidbi-origin-objectives-and-functions/ Origin history of SIDBI,
Need and importance of SIDBI, Objectives and functions, its operation, authorized capital and
various financial activities are explained in this post.
7. Need for SIDBI Functions of SIDBI
Small Industries Development Bank of India (SIDBI) – Objectives and ...
competitivestudy.siteblogs.net/.../small-industries-development-bank-of-india-sidbi-o...
Mar 1, 2015 - Small Industries Development Bank of India (SIDBI) – Objectives and Functions.
T he Small Industries Development Bank of India (SIDBI in short) was established in the year
1990 (Date : 2nd April 1990) under the Small Industries Development Bank of India Act 1989 as
a subsidiary of Industrial ...
8 . [PDF]small industries development bank of india (sidbi ... - Shodhganga
shodhganga.inflibnet.ac.in/bitstream/10603/63540/14/14_chapter%205.pdf
Chapter-5. SMALL INDUSTRIES DEVELOPMENT BANK. OF INDIA (SIDBI): GROWTH,.
DEVELOPMENT AND ROLE IN THE. PROMOTION OF ENTREPRENEURSHIP IN.
UTTAR PRADESH (U.P.). ••• Introduction. •:• Function of SIDBI. • Role of SIDBI. •:•
Objectives of SIDBI. • Problems, Progress and Growth of SIDBI.
9. About SIDBI :: Small Industries Development Bank of India
https://www.sidbi.in/About_SIDBI.php Small Industries Development Bank of India (SIDBI),
set up on April 2, 1990 under an Act of Indian Parliament, acts as the Principal Financial
Institution for the Promotion, Financing and Development of the Micro, Small and Medium
Enterprise (MSME) sector and for Co-ordination of the functions of the institutions engaged ...
10. Functions of SIDBI | Entrepreneurship | Loans - Scribd
https://www.scribd.com/document/217502425/Functions-of-SIDBI It performs a series
of functions in collaboration with voluntary organisations, non-governmental organisations,
consultancy firms and multinational agencies to enhance the overall performance of the small
scale sector. The important functions of SIDBI are discussed as follows: (i) Initiates steps for
technology adoption, ...

208
LESSON – 10: CENTRAL INSTITUTIONS - III: NATIONAL SMALL INDUSTRIES
CORPORATION (NSIC)
Objective of the lesson :

After studying this lesson , you should be ready to:

 Know about the formation of National Small Industries
Corporation (NSIC)
 Understand its objectives and activities;
 Know its schemes of Assistance to small scale industries in India

Structure of the Lesson :

10.0 National Small Industries Corporation (NSIC)

10.1 Mission and Vision of NSIC

10.2 Schemes of NSIC

10.2.1 Marketing support

10.2.2Finance support
10.2.3 Technology Support
10.2.4 Other support services
10.3 Summary
10.4 Self assessment Questions
10.5 Key Terms
10.6 Further Readings / Reference books

209
 Oprah Winfrey at Su`nday's Golden Globes
show won the Cecil B. DeMille award, the Hollywood
Foreign Press Association’s version of a lifetime
achievement award. Midway through the broadcast,
Winfrey got up on stage and gave a rousing speech
that had the audience alternately tearing up and
jumping to their feet.

Winfrey hosted the highest rated daytime talk show in history for 25 years. The self-made
billionaire’s career trajectory is truly iconic, but any entrepreneur looking to make an impact
can draw from her example to be an effective leader.

Continuity : Winfrey understands that strong leaders do not succeed without the work of
those who came before.

Compassion : Winfrey understands that success is nothing if you do not use your influence
to make a difference.

Consistency: A strong leader knows that you can accomplish great things when you truly
believe in what you are doing.

10.0 National Small Industries Corporation (NSIC)

NSIC was Set up with the objective to boost small scale industries in India, NSIC helps

import machines on easy hire purchase terms; procure and distribute imported raw materials;

export products from small scale industries, etc. They have also started a new scheme to help

small businesses understand credit ratings and the importance of maintaining good financial

track record. National Small Industries Corporation (NSIC), is an ISO 9001-2008 certified

Government of India Enterprise under Ministry of Micro, Small and Medium Enterprises

(MSME). NSIC has been working to promote, aid and foster the growth of micro, small and

medium enterprises in the country. NSIC operates through countrywide network of offices and

Technical Centres in the Country. To manage operations in African countries, NSIC operates

210
from its office in Johannesburg, South Africa. In addition, NSIC has set up Training cum

Incubation Centre managed by professional manpower.

10.1 Mission and Vision of National Small Industries Corporation (NSIC)

Mission : To enhance the Competitiveness of Micro, Small and Medium Enterprises by

providing integrated support services encompassing, Marketing, Finance, Technology and other

Services.

Vision : To be premier organization fostering the promotion & growth of Micro, Small and

Medium Enterprises in the country.

10.2 Schemes of NSIC:

NSIC facilitates Micro, Small and Medium Enterprises with a set of specially tailored scheme to

enhance their competitiveness. NSIC provides integrated support services under Marketing,

Finance , Technology and other Support service.

10.2.1 marketing support:

Marketing has been identified as one of the most important tool for business development. It is

critical for the growth and survival of MSMEs in today's intensely competitive market. NSIC

acts as a facilitator and has devised a number of schemes to support enterprises in their

marketing efforts, both domestic and foreign markets. These schemes are briefly described as

under :

1. GOVERNMENT STORES PURCHASE PROGRAMME : The Government is the

single largest buyer of a variety of goods. With a view to increase the share of purchases
from the small-scale sector, the Government Stores Purchase Programme was launched in
1955-56. NSIC registers Micro & small Enterprises (MSEs) under Single Point
Registration scheme (SPRS) for participation in Government Purchases.

211
Benefits of Registration : The units registered under Single Point Registration Scheme of NSIC
are eligible to get the following benefits under Public Procurement Policy for Micro & Small
Enterprises (MSEs) Order 2012 as notified by the Government of India, Ministry of Micro Small
& Medium Enterprises, New Delhi vide Gazette Notification dated 23.03.2012:

 Issue of the Tender Sets free of cost;

 Exemption from payment of Earnest Money Deposit (EMD),
 In tender participating MSEs quoting price within price band of L1+15 per cent
shall also be allowed to supply a portion upto 20% of requirement by bringing
down their price to L1 Price where L1 is non MSEs.
 Every Central Ministries/Departments/PSUs shall set an annual goal of minimum
20 per cent of the total annual purchases of the products or services produced or
rendered by MSEs. Out of annual requirement of 20% procurement from MSEs,
4% is earmarked for units owned by Schedule Caste /Schedule Tribes (as per PPP
Order dated 23.03.2012 overall procurement goal shall be mandatory w.e.f.
01/04/2015)

 In addition to the above, 358 items are also reserved for exclusive purchase from

SSI Sector .

2. NSIC-CONSORTIA AND TENDER MARKETING SCHEME : Small Enterprises in

their individual capacity face problems to procure & execute large orders, which deny
them a level playing field vis-a'-vis large enterprises. Promotion of the products of Micro
and Small Entrepreneurs is one of the major objective of the Corporation. In the present
competitive scenario it is essential to facilitate Micro and Small Enterprises to market
their goods / services individually or collectively through ‘Consortium’. Accordingly, the
scheme for promoting the products of the MSEs has been reviewed in 2011 & named as
“Consortia and Tender Marketing Scheme”.

NSIC forms consortia of Micro and Small units manufacturing the same product,
thereby pooling in their capacity. NSIC applies the tenders on behalf of single MSE/Consortia of
MSEs for securing orders for them. These orders are then distributed amongst MSEs in tune with
their production capacity.

212
The special features of the scheme:-

(i) The scheme will cover Micro & Small Enterprises registered with NSIC under
its Single Point Registration Scheme (SPRS). It would also cover Micro &
Small Enterprises who apply to get themselves registered with NSIC under the
SPRS along with all required documents in terms of the scheme and their
factory is inspected before filing of tender in terms of the Tender Marketing
Scheme. The scheme shall not cover unit(s) engaging in ‘trading activities’
without value addition/packing/ branding.
(ii) The scheme also covers the method of selection of the units for participation in
the open tenders and single tenders on nomination basis.
(iii) The scheme takes cares of providing EMD and security deposit on back to
back basis.
(iv) The scheme inter alia includes the procedures for formation of Consortium,
Capacity Building of MSEs by formation of consortia of the units
manufacturing similar products, participation in tenders on behalf of units in a
‘consortia’ to secure orders in ‘bulk’ quantities, distribution of orders amongst
units in a ‘consortia’ as per their capacities, facilitate the ‘consortia’ members
in meeting their raw materials requirements & facilitating ‘Credit’ for the
supplies made.
(v) To accommodate provisions of this scheme, the legal document such as
individual agreement by the units, agreement to be executed by the
consortium, board resolution, power of attorney and other related document
have been revised and simplified.
(vi) For facilitating promotion and development of Micro & Small Enterprises, the
Government of India, Ministry of MSME vide Gazette Notification No. S.O.
581(E) dated 23rd March, 2012 has circulated the Public Procurement Order
2012 for MSME. In the above Public Procurement Order, the Govt. of India
has mentioned that that “Annual goal of procurement also include sub-
contracts to Micro and Small Enterprises by large enterprises and consortia of
Micro and Small Enterprises formed by National Small Industries
Corporation”.

213
 (vii) NSIC formed Consortia of Micro & Small Enterprises under its Consortia &
Tender Marketing Scheme and is supplying the required stores / items and
rendering the services as required by the Govt. Depts. / PSUs. NSIC offices
continuously monitor the consortia and form new ones depending upon the
requirements.

3. MSME Global Mart B2B Web Portal for MSMEs : With increase in competition and
melting away of international boundaries, the demand for information is reaching new
heights. NSIC, realizing the needs of MSMEs, is offering Infomediary Services which is
a one-stop, one-window bouquet of aids that will provide information on business &
technology and also exhibit the core competence of Indian MSMEs. B2B Webportal is
offering following benefits to the members of Infomediary Services.
 Interactive database of MSMEs
 Self web development tool
 National Tenders on email
 Centralized mail system
 Popular Products Section
 Unlimited global Trade Leads
 Trust Seal of NSIC
 MSME Web Store
 Multiple Language Support
 Discussion Board
 Call Centre Support & Live Chat
 Other Value added Services
 Payment Gateway for membership subscription
4. Marketing Intelligence : Collect and disseminate both domestic as well as international
marketing intelligence for the benefit of MSMEs. This cell, in addition to spreading
awareness about various programmes / schemes for MSMEs, will specifically maintain
database and disseminate information.
5. Exhibitions and Technology Fairs : To showcase the competencies of Indian SSIs and
to capture market opportunities, NSIC participates in select International and National

214
 Exhibitions and Trade Fairs every year. NSIC facilitates the participation of the small
enterprises by providing concessions in rental etc. Participation in these events exposes
SSI units to international practices and enhances their business prowess.
6. Buyer-Seller meets : Bulk and departmental buyers such as the Railways, Defence,
Communication departments and large companies are invited to participate in buyer-
seller meets to enrich small enterprises knowledge regarding terms and conditions,
quality standards, etc required by the buyer. These programmes are aimed at vendor
development from MSMEs for the bulk manufacturers.

10.2.2 Finance support

1. Bank Credit Facilitation Scheme: To meet the credit requirements of MSME units NSIC
has entered into a Memorandum of Understanding with various Nationalized and Private Sector
Banks. Through syndication with these banks, NSIC facilitates MSME in accessing credit
support (fund based or non-fund based limits) from the banks. NSIC assists MSMEs in
completion of the documentation for submitting the proposals to the banks and also does the
follow up with the banks. These handholding support are provided by NSIC without any cost to
the MSMEs.

2. Bill Discounting Scheme : The Scheme covers purchase / discounting of bills arising out of
genuine trade transactions i.e. purchase of supplies made by small scale units to reputed Public
Limited Companies / State and Central Govt. Departments / Undertakings.

3. Credit Support : NSIC facilitates credit requirements of small enterprises in the following
areas
3.1 Financing for procurement of Raw Material (Short term): NSIC's Raw Material
Assistance Scheme aims at helping Small Enterprises by way of financing the purchase of Raw
Material (both indigenous & imported). The salient features are
1. Financial Assistance for procurement of Raw Materials upto 90 days.
2. Bulk purchase of basic raw materials at competitive rates.
3. NSIC facilitates import of scares raw materials.
4. NSIC takes care of all the procedures, documentation & issue of letter of credit in case of
imports.

215
3.2 Financing for Marketing Activities (Short term) : NSIC facilitates financing for marketing
actives such as Internal Marketing, Exports and Bill Discounting.
3.3 Finance through syndication with Banks : In order to ensure smooth credit flow to small
enterprises, NSIC is entering into strategic alliances with commercial banks to facilitate long
term / working capital financing of the small enterprises across the country. The arrangement
envisages forwarding of loan applications of the interested small enterprises by NSIC to the
banks and sharing the processing fee.

3.4 Performance and Credit Rating Scheme for small industries :Need of a Performance and
Credit Rating Mechanism for Micro and Small Enterprises) was highlighted in Union Budget’04-
05. A scheme for Micro and Small Enterprises has been formulated in consultation with Indian
Banks’ Association (IBA) and Rating Agencies. NSIC has been appointed the nodal agency for
implementation of this scheme through empanelled agencies.
Benefits of Performance and Credit Rating : An independent, trusted third party opinion on
capabilities and credit-worthiness of Micro and Small Enterprises
 Availability of credit at attractive interest
 Recognition in global trade
 Prompt sanctions of Credit from Banks and Financial Institutions
 Subsidized rating fee structure for Micro and Small Enterprises
 Facilitate vendors/buyers in capability and capacity assessment of Micro and Small
Enterprises
 Enable Micro and Small Enterprises to ascertain the strengths and weaknesses of their
existing operations and take corrective measures.

10.2.3 Technology Support

1. Technology Support : Technology is the key to enhancing a company's competitive
advantage in today's dynamic information age. Small enterprises need to develop and implement
a technology strategy in addition to financial, marketing and operational strategies and adopt the
one that helps integrate their operations with their environment, customers and suppliers.

216
NSIC offers small enterprises the following support services through its Technical Services
Centres.
1. Advise on application of new techniques
2. Material testing facilities through accredited laboratories
3. Product design including CAD
4. Common facility support in machining, EDM, CNC, etc.
5. Energy and environment services at selected centres
6. Classroom and practical training for skill upgadation

NSIC Technical Services Centres are located at the following places

Name of the Centre Focus area
Chennai Leather & Footware
Howrah General Engineering
Hyderabad Electronics & Computer Application
New Delhi Machine Tools & related activities
Rajkot Energy Audit & Energy Conservation activities
Rajpura (Pb) Domestic Electrical Appliances
Aligarh (UP) Lock Cluster & Die and Tool making

2. Software Technology Cum Business Parks : NSIC has established Software Technology
cum Business Parks at New Delhi and Chennai for providing the space to small and medium
enterprises in software development and to IT/ITES/MSME units not regd. with STPI or the
units that are falling under the overall definition of MSME as per the guidelines of Ministry of
Micro, Small and Medium Enterprises. Units other than MSME such as Banks/PSUs/Financial
Institutions, corporate sector etc. would also be considered for allotment on a case-to-case on
merit with the approval of Competent Authority. NSIC Software Technology cum Business
Parks, New Delhi is located in a prime location at Okhla Industrial Area adjacent to NSIC
Bhawan with a total b uilt up area of approx.53000 sq.ft. This location is in the near vicinity to
Nehru Place. (the commercial centre of computer industry). NSIC Software Technology cum
Business Parks, Chennai is located in a prime location at Guindy Industrial Estate (Jawahar Lal

217
Nehru Statue) with a total built area of 48,000 Sq. Ft. This location is in the near vicinity to
domestic and international Airports.
3. Incubation of unemployed youth for setting up of New Micro & Small enterprises : This
programme facilitates setting up of new enterprises all over the country by creating self-
employment opportunities for the unemployed persons. The objective of this scheme is to
facilitate establishment of new small enterprises by way of providing integrated services in the
areas of training for entrepreneurial skill development, selection of small projects, preparation of
project profiles/reports, identification and sourcing of plant, machinery and equipments,
facilitating sanction of credit facility and providing other support services in order to boost the
development of small enterprises in manufacturing and services sectors.
4. Infomediary Services : Infomediary Services Information today is becoming almost as vital
as the air we breathe. We need it every minute of our working lives. With increase in
competition and melting away of international boundaries, the demand for information is
reaching new heights. NSIC, realizing the needs of MSMEs, is offering Infomediary Services
which is a one-stop, one-window bouquet of aids that will provide information on business,
technology and finance, and also exhibit the core competence of Indian SMEs. The corporation
is offering Infomediary Services through its MSME Global Mart www.msmemart.com; which is
aBusiness to Business (B2B) compliant web portal. The services are available through Annual
Membership.
10.2.4 Other support services
1. International Cooperation : NSIC facilitates sustainable international partnerships. The
emphasis is on sustainable business relations rather than on one-way transactions. Since its
inception, NSIC has contributed to strengthening enterprise-to-enterprise cooperation, south
south cooperation and sharing best practices and experiences with other developing countries,
especially those in the African, Asian and Pacific regions. The features of the scheme are:
 Exchange of Business / Technology missions with various countries.
 Facilitating Enterprise to Enterprise cooperation, JVs, Technology Transfer & other form
of sustainable collaboration.
 Explore new markets & areas of cooperation:
 Identification of new export markets by participating in sector- specific exhibitions all
over the world.

218
 Sharing of Indian experience with other developing countries
2. International Consultancy Services : For the last five decades, NSIC has acquired various
skill sets in the development process of small enterprises. The inherent skills are being
networked to offer consultancy services for other developing countries. The areas of consultancy
are as listed below:
1. Capacity Building
2. Policy & Institutional Framework
3. Entrepreneurship Development
4. Business Development Services
10.3 Summary of the Lesson:

National Small Industries Corporation (NSIC), is an ISO 9001-2008 certified

Government of India Enterprise under Ministry of Micro, Small and Medium Enterprises

(MSME).

NSIC was Set up with the objective to boost small scale industries in India, NSIC helps

import machines on easy hire purchase terms; procure and distribute imported raw materials;

export products from small scale industries, etc. NSIC also started a new scheme to help small

businesses understand credit ratings and the importance of maintaining good financial track

record. NSIC facilitates Micro, Small and Medium Enterprises with a set of specially tailored

schemes to enhance their competitiveness. NSIC provides integrated support services under

Marketing, Finance , Technology and other Support service.

NSIC has been working to promote, aid and foster the growth of micro, small and

medium enterprises in the country. NSIC operates through countrywide network of offices and

Technical Centres in the Country. To manage operations in African countries, NSIC operates

from its office in Johannesburg, South Africa. In addition, NSIC has set up Training cum

Incubation Centre managed by professional manpower.

219
10.4 Self assessment Questions
(A) Write short notes on the following :
1. Single point registration scheme (SPRS) of NSIC
2. Consortia and tender marketing scheme of NSIC
3. Marketing support schemes of NSIC
4. Finance support schemes of NSIC
5. Technology support schemes of NSIC
(B) 1. Write an essay on functions and support provided by NSIC to small units
Multiple choice questions:
1. National Small Scale Indusries Enterprise comes under the ministry of
A. MSME
B. SME
C. SIDBI
D. NSIC
2. Name the scheme for promoting the products of the MSEs…..
A. Consortia and Tender Marketing Scheme.
B. Product Procurement scheme
C. Single Point Registration Scheme
D. Entrepreneurship development scheme.
3. Single Point Registration Scheme main objective is:
A. To avoid multiple registrations
B. To procure goods at cheaper rates
C. To increase the share of Government purchase
D. To strengthen MSME
4. Which of the following has been the Nodal Agency for Performance and Credit
Rating Scheme for small industries?
A. NSIC
B. SME
C. SBI
D. MSME
Activity 1: How NSIC is rendering market support services to small units

220
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Activity 2: What are the financial support schemes of NSIC for small business?

10.5 Key Terms: Consortia; credit rating; incubation.

10.6 Further Readings / Reference books:

1. NSIC: Functions and Support Provided by National Small Industries ...

www.yourarticlelibrary.com › Finance NSIC provides a wide range of services, predominantly
promotional in character, to small-scale industries. Its main functions are to: ... Provide
machinery on hire-purchase scheme to small-scale industries.

2. What are the functions of National Small Industries Corporation Ltd

www.preservearticles.com/.../functions-of-national-small-industries-corporation-ltd.ht...
Jan 20, 2011 - The National Small Industries Corporation Ltd (NSIC) was set up in 1955 as a
central government undertaking, the main aim of which is to fulfill the requirement of machinery
and equipment for the development of the small entrepreneurs. ... NSIC is established to cater to
this need of ...
3. What are the main functions of National Small Industries Corporation ...
www.publishyourarticles.net/eng/articles2/what-are-the...functions-of...nsic/2794/
What are the main functions of National Small Industries Corporation (NSIC)?. Article shared
by. TheNSIC was set up in 1955 with the objective of supplying machinery and equipment to
small enterprises on hire purchase basis and assisting them in procuring government orders for
various items of stores with a view to ...
4.National small industries corporation ltd. (nsic) - SlideShare
https://www.slideshare.net/.../national-small-industries-corporation-ltd-nsic
Nov 30, 2012 - About NSIC and its Functions. ... NATIONAL SMALLINDUSTRIES
CORPORATION LIMITED (NSIC) ESBM PRESENTATION by Ankush Kumar Rana ESBM;

221
 3. INTRODUCTION The National Small Industries Corporation Ltd., (NSIC), is an ISO 9001
certified company. Established in 1955 H. P. Kumar ...
5. National Small Industries Corporation - Wikipedia
https://en.wikipedia.org/wiki/National_Small_Industries_Corporation As such they established
National Small Industries Corporation with objectives to provide machinery on hire purchase
basis and assisting and marketing in exports. Further, SSI's registered with NSIC were exempted
from paying Earnest money and provided facility of free participation in government tendered
purchases.

6. [PDF]National Small Industries Corporation Limited - MSME

www.msme.nic.in/Chapter%204-Eng_200708.pdf
The National Small Industries. Corporation Ltd., (NSIC), an ISO 9001 certified company, since
its establishment in. 1955, has been working to fulfil its mission of promoting, aiding and
fostering the growth of small enterprises in the country. With passing of the Micro, Small and
Medium Enterprises. Development ...
7. Small Scale Industries: Management of small scale industries
https://books.google.co.in/books?isbn=817022991X Mookkiah Soundarapandian - 2002 - Small
business
In order to develop SSI the Government of India established NSIC. The objectives of the study
are: 1 . To study the organisational structure of National Small Industries Corporation in
Dindigul District. 2. To study the aim and functions of NSIC in Dindigul District. 3. To study
the types of Entrepreneur training programmes of ...
8. explain the functions of national small industries corporation ...
https://www.meritnation.com › Ask & Answer
1.
Jan 23, 2017 - Dear student, The following are the major functions of National Small Industries
Corporation: 1. Supplying latest technology machines on easy terms. 2. Supplying and
distributing raw materials. 3. Helping in the export of the products of small business units. 4.
Providing advisory services to small business.
9. [PDF]ROLE OF FINANCIAL INSTITUTIONS IN THE ... - Shodhganga
shodhganga.inflibnet.ac.in/bitstream/10603/63540/12/12_chapter%203.pdf
Apr 1, 1981 - Functions of Industrial Finance Corporation of India (IFCI). • National ...
Industries Corporation (NSIC) etc. which are discussed as under: .... Functions of IDBI: The
main function of the Industrial Development Bank of India, as its name itself suggest is to
finance Industrial enterprises in both private and.
10. Explain the objectives and functions of national small scale industry
https://eduladder.com/.../Explain-the-objectives-and-functions-of-national-small-scale...
Explain the objectives and functions of TECSOK and KIADB 5BDEC/2011 1 Answer Write
notes on any two Dec 12Jan13 i Small Industries Development Organization SIDO ii National
Small Industries Corporation limited NSIC iii Small Industries Development Bank of India
SIDBI? 1 Answer What all are the government ...
Searches related to nsic functions

222
Lesson – 11 : CENTRAL INSTITUTIONS - IV : KVIC & SIDO

“It is my conviction that a day will come when all will see that for India
there is no way other than village industries to develop "
Mahatma Gandhi.

Objective of the lesson :

After studying this lesson , you should be ready to:
 Understand the main functions of KVIC and SIDO and the details of
government sponsored schemes offered by them for supporting MSME.

Structure of the Lesson : -

11.I The Khadi and Village Industries Commission (KVIC)
11.I.1 Village Industries under KVIC's purview
11.I.2 Programme for Promotion of Village Industries(VI) Cluster- Rural Industry Service
Centre (RISC) for Khadi and V.I. Activity
11.I.3 Prime Minister’s Employment Generation Programme (PMEGP)
11.I.4 Performance and Credit Rating Scheme
11.I.5 Credit Guarantee Trust Fund for Micro & Small Enterprises (CGTMSE)
11.I.6 Interest Subsidy Eligibility Certificate (ISEC)
11.I.7 Development of Khadi, Village and Coir Industries
11.II Small Industries Development Organisation (SIDO)
11.II.1 SIDO Schemes for Promotion of SSIs
11.III Summary
11.IV Self assessment Questions
11.V Key Terms
11.VI Further Readings / Reference books

223
224
 4 Success Stories of Rural Employment Generation Programme of KVIC

1. Smt. Bharati Gaind

First it was her husband Shri Bharat Bhutan who used to mould beautiful statues and
decorative articles from Plaster of Paris (PoP) at his residence on a small scale. As his
professional skills didn't bring in enough, his wife Bharati joined him in the
entrepreneurship. Her aptitude for some creative activity seemed to be the only input in
the beginning.

When Shri H.P. Joshi, Supervisor, KVIC, Ambala on a fine morning happened to see
those statues lined up for drying outside their house, he asked the couple to submit a
suitable project for sanction under REGP. Overwhelmed by the never expected
motivation, that too from someone quite stranger to the couple, Smt. Bharati arranged
for a piece of land in the Village Jandli near Ambala. Punjab National Bank was a next
step, which gladly considered the project and sanctioned Rs.6.87 lakhs. Smt. Bharati
arranged Rs.36,000/- from her own savings. Bharti Arts and Crafts is a sign board now
that makes the passers-by to peep into the shop and eye those nicely moulded and
painted statues. Some even bow before them with great respect as if they are true Gods!

Smt. Bharati is quite proud of her success. She says “I hardly expected that our
creativity so easily would be an economically viable activity and settle us with enough
to feed the family; these dumb statues have brought smiles on the faces of the 11 others
and their families. Our Bhakti to our creative work has paid us much more than we ever
imagined”. It's just the truth. The Bhakti Arts & Crafts supplies statues all over India.
Its books show a record of demands for statues worth Rs. 8.00 lakhs accomplished and
those at the receiving end are proud to own those beautiful Shilpas.
Those dumb statues have now a job to do. They are campaigning for the REGP
programme under KVIC that taught them to speak! Shri Shiv Khera says ‘Success
comes not to those who do different things; but to those who do things differently'.

2. Smt.Vandana (W/o. Shri Vinit Agrawal) - Ideal for Rural Industrialisation

Mrs.Vandana Agrawal right from her childhood was having urge either to join in
Government sector or to start own business. But as she was from middle class society,
after graduation, she got married to one C.A. After a few years of her marriage when
she became little free from her responsibilities, she expressed her wish to start some
work. Her husband supported her idea and as he was C.A. he was aware of the Rural
Employment Generation Programme of KVIC and suggested her to start Steel Furniture
manufacturing unit. She got the loan within a short time.

She started manufacturing work but for marketing she had to compete with Delhi
products. As she was local, she was able to develop confidence among the people and
the quality of her products was good. This has benefited her a lot and she could
overcome the marketing problem. As business started expanding her husband and elder
son also started helping her. This enterprise has improved her socio-economic status.

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 At present 30 employees are working with her. She became free of her all worries.
According to her, Rural Employment Generation Programme of KVIC is a very good
means for rural industrialization. She desires that all the ladies of Chhattisgarh area
should come out of all traditions and should become self sufficient.

3. Shri L. Ngamboi - Tribal Girls in Front of CPU

In the hilly and tribal inhibited areas in Churachandpur town which is a district place as
well, one comes across a small Offset Printing Press owned and operated by Shri L.
Ngamboi who himself belongs to a scheduled tribe. His M/s. Marantha Offset-cum-
Stationery Shop became a reality when he was conferred with a loan of Rs. 9.81 lakhs
by Punjab National Bank under REGP. He set for meeting orders for the printed
material and stationery from nearby offices and institutions.

With a turn over of Rs.3.00 lakhs in the first year, Shri Ngamboi's unit has now become
a talk-of-the-hill-town. His firm now is a supplier of documents, books of accounts,
note and exercise books, letter heads, VCs, etc. to the educational institutions.
The unit is now a breadwinner for ten including Shri Ngamboi and his wife .He has two
girls trained in DTP on his pay roll. The success of the Press lies in the fact that it has
cleared the loans drawn from the bank under the scheme. The owner says, "I've paved
way for younger generation to get self employed”. He must be having those two girls in
front of the Computer trying their fingers on the keyboard on his mind in the backward
and tribal hilly area in the North-Eastern corner.

4. Shri Kamlesh Trivedi

Shri Kamlesh Trivedi has attended training on Non-Edible Oils Soap from Gujarat
Rajya Khadi & V.I.Board. He was enquiring from many quarters as to how to start his
own business and at the advice of his well known friend, he reached office of the
Gujarat Rajya Khadi & V.I.Board. To get more details he reached S.O. of the
Commission and met Shri Savarkar who gave him full details of the scheme. Not only
this his project was sponsored to SBI, Athav Branch who has accorded him Bank
Finance under Gramodyog Rojgar Yojana. He had to struggle initially for marketing
his product but now he is easily marketing his Krishi Soap for which he profoundly
thanks KVIC and the Bank. He has employed 6 persons in his project.

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11.I The Khadi and Village Industries Commission (KVIC)

The Khadi and Village Industries Commission (KVIC) is a statutory body established by

an act of Parliament in April 1957. It took over the work of former All India Khadi and Village

Industries board.

OBJECTIVES : The broad objectives of KVIC are :

 The social objective of providing employment.

 The economic objective of producing saleable articles.

 The wider objective of creating self-reliance amongst the poor and building up of

a strong rural community spirit.

Functions : Some of the major functions of KVIC are :

 The KVIC is charged with the planning, promotion, organisation and implementation of

programs for the development of Khadi and other village industries in the rural areas in

coordination with other agencies engaged in rural development wherever necessary.

Its functions also comprise building up of a reserve of raw materials and implements for

supply to producers, creation of common service facilities for processing of raw materials as

semi-finished goods and provisions of facilities for marketing of KVI products apart from

organisation of training of artisans engaged in these industries and encouragement of co-

operative efforts amongst them. To promote the sale and marketing of khadi and/or products of

village industries or handicrafts, the KVIC may forge linkages with established marketing

agencies wherever feasible and necessary.

The KVIC is also charged with the responsibility of encouraging and promoting research

in the production techniques and equipment employed in the Khadi and Village Industries sector

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and providing facilities for the study of the problems relating to it, including the use of non-

conventional energy and electric power with a view to increasing productivity, eliminating

drudgery and otherwise enhancing their competitive capacity and arranging for dissemination of

salient results obtained from such research.

 Further, the KVIC is entrusted with the task of providing financial assistance to

institutions and individuals for development and operation of Khadi and village industries and

guiding them through supply of designs, prototypes and other technical information.

In implementing KVI activities, the KVIC may take such steps as to ensure genuineness of the

products and to set standards of quality and ensure that the products of Khadi and village

industries do conform to the standards.

The KVIC may also undertake directly or through other agencies studies concerning the

problems of Khadi and/or village industries besides research or establishing pilot projects for the

development of Khadi and village industries. The KVIC is authorized to establish and maintain

separate organisations for the purpose of carrying out any or all of the above matters besides

carrying out any other matters incidental to its activities.

VILLAGE INDUSTRIES : Any industry located in a rural area which produces any goods or renders

any service with or without the use of power and in which the fixed capital investment per head

of an artisan or a worker does not exceed [one lakh rupees] or such other sum as may, by

notification in the Official Gazette, be specified from time to time by the Central Government

Provided that any industry specified in the Schedule and located in an area other than a rural area

and recognised as a village industry at any time before the commencement of the Khadi and

Village Industries Commission (Amendment) Act, 1987 shall, notwithstanding anything

contained in the sub-clause, continue to be a village industry under this Act

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11.I.1 VILLAGE INDUSTRIES under KVIC's purview

The KVIC has broadly re-grouped various village Industries under seven heads for the

purpose of implementation of its programmes. The list of industries is as under:

1. Mineral Based Industry : Pottery , Lime

2. Agro Based & Food Processing Industry (ABFPI) : Pulses & Cereals

Processing Industry, Gur & Khandsari Industry : 3. Palmgur Industry 4. Fruit &

Vegetable Processing Industry; 5. Village Oil Industry.

3. Polymer & Chemical Based Industry (PCBI) : Leather Industry; Non Edible

Oils & Soap Industry; Cottage Match Industry; Plastic Industry.

4. Forest Based Industry (FBI) : Medicinal Plants Industry; Bee Keeping Industry;

Minor Forest Based Industries;

5. Hand Made Paper & Fibre Industry (HMPFI) : Hand Made Paper

Industry, Fibre Industry

6. Rural Engineering & Bio Technology Industry (REBTI) : Bio-technology;

Carpentry & Blacksmithy; Electronics

7. SEP/Service Industry: Village Industries Co-ordination

The Khadi & V. I. Commission is working since last 50 years and providing Technical

and Financial support to the rural artisans and generated the employment’s to the unemployed

youths presently.

11.I.2 PROGRAMME FOR PROMOTION OF V.I. CLUSTER - RURAL

INDUSTRY SERVICE CENTRE (RISC) FOR KHADI AND V.I. ACTIVITY:

Title of the Programme : Programme for promotion of Village Industries (V.I) Cluster-

Rural Industry Service Centre (RISC) for Khadi and V.I. activity.
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Objectives of the Programme : 1. Provide backward forward linkages to Khadi & V.I.

activities in a cluster. 2. To provide services like raw material support, skill up-gradation,

training, Quality Control, Testing facilities, marketing promotion, design & product development

in order to strengthen the rural clusters.

Implementing Agency : 1. KVIC and State KVIBs. 2. National level / State level Khadi and

V.I. Federations 3. Khadi and V.I. Institutions affiliated to KVIC and KVIBs. 4. NGO who have

already worked in implementation of programme relating to development of rural artisans in

activities excluding the negative list of KVIC with financial assistance at least for 3 projects

from any Ministry of State / Central Government, CAPART, NABARD and UN agencies.

Rural Industry Service Centre (RISC): “Rural Industry Service Centre (RISC) is the Common

Facility Unit which aims to provide infrastructural support and necessary services to the local

units to upgrade their production capacity, skill upgradation and market promotion.”

One of the following services must be covered by the Rural Industry Service Centre

(RISC): (a) Provide testing facilities by establishing laboratory to ensure quality of the products.

(b) Provide improved machinery/equipment to be utilised as common utility facilities by the

nearby unites /artisans to enhance production capacity or value addition of the product

(c)Provide attractive and appropriate packaging facilities and machineries to the local unties /

artisans for better marketing of their products.

In addition of the above facilities RISC can also cater to following services:

i. Provide training facilities to upgrade artisan’s skill in order to increase their earnings.

ii.Provide new design or new product, diversified product in consultation with experts

/agencies for a value addition of rural manufacturing units.

iii. Provide raw material support which mainly depend on seasonal procurement.

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 iv. Prepare product catalogue.

Types of Khadi & Village Industries to be covered under Rural Industry Service Centre

(RISC) :

 Khadi & Poly Vastra post weaving value addition facilities.

 Herbal products: Cosmetics and Medicines.
 Edible Oil,
 Detergents & Soaps.
 Honey
 Hand Made Paper
 Food processing
 Bio-Fertilizer / Bio-Pesticides / Bio Manure
 Potteries
 Leather
 Woodwork
 All other V.I. except those which are in the negative list.

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 Financial Pattern NE Other
States areas
a) KVIC’s Share 90% 75%
b) Own Contribution or Loan from 10% 25%
Bank/Financial Institutions

In case of North Eastern States 90% of project cost will be provided by KVIC upto a project cost

of Rs.5.00 lakhs.

OPERATIONALISATION AND PROGRAMME IMPLEMENTATION : For the

purpose of establishing Rural Industry Service Centre (RISC), it may be ensured that the number
of artisans / Village Industries units shall not be less than 25 individual artisans or 5 REGP units
/ VI Institutions / Societies for projects upto Rs.5.00 lakhs. The implementing agency /
Organisation should have its own land where the Rural Industry Service Centre (RISC) will be
established. The period of setting of project should not be more than 6 months. After submission
of the proposal by the implementing agency to set up Rural Industry Service Centre (RISC),
State / Regional Director shall conduct technical feasibility and place the proposal with his
recommendations before State Level Committee. Technical feasibility may done either by DIC
or by State Office or State Board. The funds shall be released based on the progress of work
report received periodically from State / Regional Director and based on activities of the project
and also within a specific time frame for timely completion of the project. The State / Regional
Director of the concerned state where the project is located shall ensure monitoring and
evaluation and timely completion of project. After obtaining approval by the State Level
Committee for setting up of project State/Regional Director will intimate to concerned Industry
Programme Directors at Central Office of the Commission

11.I.3 Prime Minister’s Employment Generation Programme (PMEGP)

The scheme is implemented by Khadi and Village Industries Commission (KVIC) as the
nodal agency at the national level. At the state level, the scheme is implemented through State
KVIC Directorates, State Khadi and Village Industries Boards (KVIBs) and District Industries
Centres (DICs) and banks. The Government subsidy under the scheme is routed by KVIC
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through the identified banks for eventual distribution to the beneficiaries/entrepreneurs into their
bank accounts. The maximum cost of the project/unit admissible in manufacturing sector is
Rs.25 lakhs and in business/service sector is Rs.10 lakhs. Any individual above 18 years of age
can apply. The beneficiary must have passed at least VIII standard for projects costing above
Rs.10 lakh in the manufacturing sector, and above Rs.5 lakh in the business/service sector. Only
new projects are considered for sanction under PMEGP. SHGs (including those belonging to
BPL, provided that they have not availed benefits under any other scheme), Institutions
registered under Societies Registration Act, 1860; Production Co-operative Societies, and
Charitable Trusts are also eligible. Existing units (under PMRY, REGP or any other scheme of
Government of India or State Government) and units that have already availed Government
subsidy under any other scheme of Government of India or State Government are not eligible.
The State/Divisional Directors of KVIC in consultation with KVIB and Director of Industries of
the respective states (for DICs) will give advertisements locally through print & electronic media
inviting applications along with project proposals from prospective beneficiaries desirous of
establishing the enterprise/starting of service units under PMEGP.

KVIC having track record of providing employment to about 47 lakhs Rural populace are

determined and want to reach every household in rural area and provide additional employment

of 37 lakhs persons by the end of 2011-12 through PMEGP, the new scheme of employment

generation launched on 15th August,2008 to ensure inclusive society identifying the potential

entrepreneurs, preparing project profiles and ensuring hassle free loans by Banks. KVIC is

transforming the rural scenario in many ways.

Activity : Log on to www.kvic.org.in and write a brief note on one of the model projects that
suits to your interest.

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11.I.4 Performance and Credit Rating Scheme

This scheme seeks to establish independent, trusted third party opinion on capabilities

and credit-worthiness of MSEs, and makes credit available at attractive interest rates. It

endeavours to enable MSMEs recognition in global trade, ensure prompt sanctions of credit from

banks and financial institutions, subsidized rating fee structure for MSEs, facilitate

vendors/buyers in capability and capacity assessment of MSEs, enable the MSEs to ascertain the

strengths and weaknesses of their existing operations and take corrective measures. The scheme

is a combination of credit and performance factors including operations, finance, business and

management risk, allowing uniform rating scale for all empanelled rating agencies. MSEs have

the liberty to choose from the empanelled rating agencies. The fee structure is turn-over based.

Partial re-imbursement of rating fee may be obtained through National Small Industries

Corporation (NSIC). Any Micro or Small enterprise wishing to apply for rating will have to fill

up the prescribed application form and submit the same to the nearest branch of NSIC.

11.I.5 Credit Guarantee Trust Fund for Micro & Small Enterprises (CGTMSE)

Ministry of Micro, Small and Medium Enterprises, GoI and Small Industries

Development Bank of India (SIDBI), established a Trust named Credit Guarantee Fund Trust for

Micro and Small Enterprises (CGTMSE) to implement Credit Guarantee Fund Scheme for Micro

and Small Enterprises. The corpus of CGTMSE is being contributed by GoI and SIDBI. Nature

of assistance include Collateral free loans up to a limit of Rs.50 lakh - for individual MSEs.

Both existing and new enterprises are eligible under the scheme. Candidates meeting the

eligibility criteria may approach banks/financial institutions, which are eligible under the

scheme, or scheduled commercial banks and select Regional Rural Banks.

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235
11.I.6 Interest Subsidy Eligibility Certificate (ISEC)

The Interest Subsidy Eligibility Certificate (ISEC) Scheme is an important mechanism of

funding khadi programme undertaken by khadi institutions. It was introduced to mobilize funds
from banking institutions for filling the gap between the actual fund requirements and
availability of funds from budgetary sources. Under the ISEC Scheme, credit at a concessional
rate of interest of 4% per annum for working capital, is made available as per the requirement of
the institutions. The difference between the actual lending rate and 4% is paid by the Central
Government through KVIC to the lending banks. The Khadi institutions, having valid Khadi
certificate and sanctioned khadi programme.The Institutions registered with the KVIC/State
Khadi and Village Industries Boards (KVIBs) can avail of financing under the ISEC Scheme, the
Scheme supports only the khadi and the polyvastra sector. The Khadi institutions will apply to
the financing bank for working capital alongwith the ISEC certificate issued by KVIC. Based on
the working capital sanctioned, financing bank will raise the reimbursement claim to the nodal
branch for the differential interest rate over and above 4%.

11.I.7 Development of Khadi, Village and Coir Industries

1. Science and Technology Scheme : The Scheme envisages extension of the outcomes of

research at the laboratory level for application at the field level and extension of testing and

service facility. The Research and Development activities of the Board are carried out through

the twin research institutes: the Central Coir Research Institute, Kalavoor and Central Institute of

Coir Technology, Bangalore. Nature of assistance includes Technology Transfer, Incubation,

Testing and Service Facilities. The research outcomes are beneficial to the coir industry and

trade in India and abroad. Traders/ Manufactures/ Entrepreneurs/Coir Workers can approach

Research Centre in order to avail of assistance in Technology Transfer, Incubation, Testing and

Service Facilities.

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2. Market Promotion & Development Scheme (MPDA) : The Market Promotion and

Development Assistance Scheme (MPDA) has been launched as a unified scheme by merging

different schemes implemented by the Khadi sector including publicity, marketing, market

promotion and marketing development assistance. Further, grant/subsidy will also be available

for construction of Khadi plazas. The overall objective of the scheme is to ensure increased

earnings for artisans.

The Khadi institutions, having valid Khadi certificate and categorised as A+,A,B and C
only are eligible to avail MMDA grant from KVIC. The total amount of MMDA on production
will be claimed by the producing Institution from the KVIC and will be distributed amongst the
stakeholders viz., spinners and weavers, producing Institutions and selling Institutions in the
ratio 40%, 20% and 40% respectively. Producing Institutions shall submit quarterly claim of
MMDA based on the actual production achieved during the preceding quarter of the financial
year. The difference, if any, would be adjusted in the last quarter of the financial year on the
basis of accounts audited by a Chartered Accountant. The MMDA, preferably, shall be
reimbursed electronically by the State/Divisional office of the KVIC on a quarterly basis.

3. Revamped Scheme of Fund for Regeneration of Traditional Industries (SFURTI)

The main objectives of the scheme are to :

 To organize the traditional industries and artisans into clusters in order to make them,
competitive and provide support for their long term sustainability;
 To provide sustained employment for traditional industry artisans and rural entrepreneurs;
 To enhance marketability of products of such clusters by providing support for new products,
design intervention and improved packaging and also the improvement of marketing
Infrastructure;
 To equip traditional artisans of the associated clusters with the improved skills and
capabilities through training and exposure visits;
 To make provision for common facilities and improved tools and equipments for artisans;

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 To strengthen the cluster governance systems with the active participation of the
stakeholders, so that they are able to gauge the emerging challenges and opportunities and
respond to them in a coherent manner;
 To build up innovative and traditional skills, improved technologies, advanced processes,
market intelligence and new models of public-private partnerships, so as to gradually
replicate similar models of cluster- based regenerated traditional industries.

The project outlay for various clusters is as follows: Heritage cluster (1000-2500 artisans)
amounting Rs. 8 cr; Major cluster (500-1000 artisans) amounting Rs. 3 cr; and Mini cluster (Up
to 500 artisans) amounting Rs. 1.5 cr. For North Eastern Regions/Jammu & Kashmir and Hill
States, there will be 50% reduction in the number of artisans per cluster.

Non-Government Organizations (NGOs), Institutions of the Central and State

Governments and, Semi-Government institutions, field functionaries of State and Central Govt.,
Panchayati Raj institutions (PRIs), and similar agencies, with suitable expertise to undertake
cluster development, can apply for the scheme. The above eligible agency/organization has to
submit the proposal to the State Office, KVIC and the proposed is to be scrutinized at State Level
and Zonal Level before being submitted onwards to the Scheme Steering Committee for
approval.

4. Coir Udyami Yojana (CUY)

This is a credit-linked subsidy scheme for setting up of coir units with project cost up to
Rs.10 lakh plus one cycle of working capital, which shall not exceed 25% of the project cost.
Working capital will not be considered for the purpose of subsidy. Maximum admissible cost of
the project is Rs.10 lakhs plus working capital, which shall not exceed 25% of the project cost.
Beneficiary’s contribution shall be 5% of the project cost. Bank credit Rate is fixed at 55%. Rate
of Subsidy is fixed at 40% of the project cost.
Individuals, Companies, Self Help Groups, Non Governmental Organizations,
Institutions registered under Societies Registration Act 1860, Production Co-operative Societies,
Joint Liability Groups and Charitable Trusts are eligible to apply for the scheme. The
applications can be collected from Coir Board Offices, District Industries Centres, Coir Project
Offices, Panchayati Raj Institutions and the Nodal Agencies approved by the Board for this
purpose and shall be submitted directly to the Coir Board Field Offices or through the DICs.
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5. Coir Vikas Yojana (CVY)
The interventions under the CVY Scheme envisage a wide range of activities like skill
development of artisans, mahila coir yojana, supporting the setting up of production
infrastructure, promoting the domestic as well as export market, providing of trade and industry
related functional support services, and welfare of coir workers.

5.1. Skill Upgradation & Mahila Coir Yojana (MCY)

Skill Up-gradation & Mahila Coir Yojana (MCY) is one of the key schemes under the
Scheme Coir Vikas Yojana. Earlier it was known as Coir Plan (General) Scheme whose
objectives were to provide development of domestic and export markets, skill development and
training, empowerment of women, employment/entrepreneurship creation and development,
enhanced raw material utilization, trade related services and welfare activities for the coir
workers amongst others. The Mahila Coir Yojana (MCY), in particular, aims at women
empowerment through the provision of spinning equipment at subsidized rates, after providing
appropriate skill development training.

The stipend per trainee for the skill development programmes will be limited to Rs.1000/-
per month and, in the case of training programmes of less than one month duration, the stipend
will be disbursed on prorata basis. The honorarium for the trainer will be limited to Rs.6,000/-
per month. An amount of Rs.400/- per head per month will be provided as financial assistance to
the training sponsoring agency to meet the operational cost of the training for raw material,
power charges and other incidentals. Under MCY, the Coir Board provides 75% cost of
motorised Ratt/motorised traditional Ratt as one time subsidy, subject to a ceiling of Rs.7,500 in
the case of motorised Ratt and Rs.3,200 for motorised traditional and Electronic Ratt. Rural
women artisans in regions producing coir fibre are eligible to apply under the scheme. Selection
of trainees for in-house training at NCT&DC will be made by inviting applications through
advertisements in print and electronic media and through recommendation from the authorities of
the coir producing States. The Officer in charge of the Regional Extension Centre will handle
selection of trainees for training programmes conducted at the Regional Extension Centres.

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Trade Associations, Unit Owners, NGOs, Co-operatives and Industries Department will sponsor
such candidates and recommend them for training.

5.2. Development of Production Infrastructure (DPI)

Coir Board is implementing the plan ‘Development of Production Infrastructure’ with the
objective of providing modern infrastructure facilities to coir production units that should result
inimprovement of productivity and quality, and also in creation of employment opportunities,
especially for women in the rural areas. It also aims at the establishment of new “State of the
Art” Coir Processing Units, spread of the industry to potential areas, enhanced utilization of
available raw materials, attracting new generation entrepreneurs to the industry, modernisation of
existing units, production of high value customer oriented products, making the Coir Industry
competitive, adoption of eco friendly production techniques and achieving the target of a
pollution free coir industry with technological advancements.

Under the DPI scheme, the Coir Board financial assistance is available for setting up of
coir units with a project cost up to Rs.10 lakhs in the country. Successful applications will be
eligible for subsidy @ 25% of the project cost, subject to a maximum of Rs.6 lakhs, for setting
up of De-fibering Unit, Rs.4 lakh for Automatic Spinning Unit and Rs.5 lakh for others,
including Coir Pith Unit. For a Composite or a Multiple Unit, the maximum monetary ceiling of
assistance would be Rs.9 lakhs. For calculation of subsidy amount, the cost of building will be
restricted to a maximum of Rs.8 lakh for De- fibering and coir pith units, and Rs.6 lakhs for
others including Automatic Spinning Unit.

All new coir processing units registered with Coir Board under Coir Industry
(Registration) Rules, 2008, and registered with the DIC of the respective region of the entire coir
sector of the country with project cost exceeding Rs.10 lakhs each or more than the ceiling fixed
in Coir UdyamiYojana Scheme, are eligible for assistance under the scheme. The unit shall
submit the application, in the prescribed format for grant of financial assistance for new units
under the scheme, within 6 months from the date of commencement of production of the unit.
The date of commencement of production should be supported by a certificate issued by the
General Manager/DIC of the respective area.

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5.3. Domestic Market Promotion Scheme
Domestic Market Promotion is one of the major functions envisaged under the Coir
Industry Act 1953. The Board implements various measures under the scheme in order to
popularize coir and coir products and expand domestic markets. The activities undertaken by the
Board for the purpose include (i). Establishment and Maintenance of Showrooms & Sales Depots
and (ii). Participation in Domestic Exhibitions.

The Scheme proposes to provide financial assistance to the Apex Co-operative Societies,
Central Co-operative Societies, Primary Co-operative Societies, Public Sector Enterprises in the
coir industry and the Showroom and Sales Depots of the Coir Board. The MDA is granted at the
rate of 10% of their average annual sales turnover of coir products, including coir yarn and
rubberized coir goods, during the preceding three financial years. This Assistance will be shared
on 1:1 basis between the Central Government and the concerned State/Union Territory
Government. The disbursement of Central share of MDA will be subject to the budgetary outlay
available with the Coir Board under the relevant schemes. Apex societies, Central Co-operative
Societies, Primary Cooperatives, Public Sector Enterprises, Showrooms & Sales Depots of the
Board are eligible to apply under this scheme. The MDA application form can be obtained from
the Coir Board HO and it also can be downloaded from the website of coir board.

5.4. Export Market Promotion

Coir Board is implementing the Central Sector Scheme of Export Market Promotion with
a view to improve the export performance of Indian Coir Sector through various export market
promotion activities such as sponsoring delegations; participation in seminars and conferences;
organising participation in international fairs; undertaking generic publicity abroad; extending
financial assistance to Micro, Small and Medium Enterprises and Exporters; presenting Coir
Industry Awards on an annual basis to recognize the outstanding performance in the areas of
export; domestic trade; R&D and functioning of units and societies.

Nature of assistance includes 1. Delegation, Consultancy & Information Sourcing 2.

Participation in seminars and conferences 3. Participation in international fairs/buyer-seller

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meets 4. Publicity abroad 5.External Market Development Assistance 6. Coir Industry Awards.
Manufacturers, Entrepreneurs and Exporters of Coir are eligible to apply under this scheme. The
application forms can be had either from the Coir Board HO or it can be downloaded from the
website http://coirboard.gov.in/

5.5. Trade and Industry Related Functional Support Services (TIRFSS)

Collection of statistical data pertaining to various aspects like production, productivity,
labour infrastructure, raw material, marketing and other parameters is mandatory for providing
feedback to the trade and Industry. It is also necessary for formulating appropriate policy for the
overall organized and systematic development of the Coir Board. One of the objectives is
introduction of e-governance system in order to assess the schemes and services of the Coir
Board by the public easily and to ensure transparency in all its activities. The scheme also
envisages HRD programs for Coir workers to help them upgrade their knowledge in all spheres.

The Scheme provides accessible export data such as name of exporting countries and
quantum of export from each country. Survey & Study reports of various sectors are available for
the Coir Industry. HRD Program can be utilised by coir workers for the betterment of their
knowledge in tune with modern technology. Coir workers and new entrepreneurs can avail of
HRD program organized under the scheme. The Entrepreneurs/Coir Workers can approach
Regional Offices of the Board in order to participate in the HRD programs organized from time
to time in different regions.

11.II SMALL INDUSTRY DEVELOPMENT ORGANISATION (SIDO)

The Small Industries Development Organization (SIDO) is the national SME
Development Agency of India. It is a major constituent of the Ministry of Small Scale Industries
of the Government of India. Central Small Industry Organisation (CSIO) is the heart of all
agencies dealing with the development of small industry — renamed as Small Industries
Development Organisation (SIDO). The office of the Development Commissioner, SSIs is also
known as the Small Industries Development Organisation (SIDO). A senior official of the
Government of India, who is designated as the Development Commissioner for Small Scale
Industries (DCSSI), heads SIDO. He is also the ex-officio Additional Secretary in the Ministry of

242
Small Scale Industries; that is, he is second in command in the bureaucratic hierarchy of the
Ministry. Set up in 1954, SIDO provides services to small industry throughout the country by
implementing a broad program of activities and services including the following:

 Entrepreneurship Development
 Tool Room Services
 Testing Centres
 Extension Services
 R&D Services
 Consultancy Services
 Policy Development

The strength of SIDO lies in its countrywide spread of almost 100 offices/service centres, which
employ over 2500 staff, mostly technical. SIDO partners and networks with other national
providers of support and financial services to SMEs such as the Small Industries Development
Bank of India (SIDBI), the National Small Industries Corporation (NSIC), the Bureau of Indian
Standards (BIS), the Reserve Bank of India (RBI) (India's Central Bank) and relevant agencies of
the Governments of the 28 States of the country. The Government of India essentially funds
SIDO but, of late, some its activities (such as Tool Rooms, Testing Centres and Consultancy
Services) are becoming increasingly self-sustaining.

It has 21 autonomous bodies under its management. These autonomous bodies include Tool
Rooms, Training Institutions and Project-cum-Process Development Centres.
Various Services provided by SIDO to the SMEs:-
 facilities for testing, toolmenting, training for entrepreneurship development
 preparation of project and product profiles
 technical and managerial consultancy
 assistance for exports
 pollution and energy audits
SIDO also provides economic information services and advises Government in policy
formulation for the promotion and development of SSIs. The field offices also work as effective
links between the Central and the State Governments.

243
 It is a policy-making, co-ordinating and monitoring agency for the development of SSI
entrepreneurs. It is the nodal agency that advises the Ministry of Industry and other Ministries in
formulating policies and programmes for the development of SSIs. It also overseas the 'package
of services' rendered by the SISIs at field level and provides comprehensive range of consultancy
services and technical, managerial and marketing assistance to SSI units. The MO provides
common facilities, technology support services, marketing assistance and entrepreneurial
development support through its network of 30 Small Industries Service Institutes (SISIs), 28
Branch SISIs, 4 Regional Testing Centres (RTCs), 7 Field Regional Testing Centres (RTCs), 2
Small Entrepreneur Promotion and Training Institutes (SEPTIs) and 1 Hand Tool Design
Development and Training Centre. The SIDO also has a network of Tool Rooms and Process-
cum Product Development Centres (PPDCs) to provide technology and training support SIDO
performs functions such as, conducting training courses through SISIs and Extension Centres;
organising EDPs and motivational campaigns for rural artisans, educated unemployed, women
entrepreneurs and physically handicapped persons; securing reservations of certain products for
SS's; assisting and encouraging entrepreneurs to set up industrial units in rural areas and
estimating the requirements of raw materials of SSIs. All SSIs except those falling within the
specialised boards and agencies like KVIC, Coir Boards and Central Silk Board fall under the
purview of the SIDO.
11.II.1 SIDO SCHEMES AND MEASURES FOR PROMOTION OF SSIs :
SIDO offers various schemes and measures for the development and promotion of SSIs in the
country: The Advertising and Publications Division of SIDO disseminates information about
Government policies and programmes; incentives and facilities and institutional support services
available to the SSI. Laghu Udyog Samachar, a quarterly journal in 69 English and Hindi and
Information and Facilitation Counter (IFC) in the office of the DC (SSI) are disseminating
updated information for the benefit of the prospective and existing entrepreneurs. It provides
speedy and easy access to information to the public on the services and activities of SIDO and
related institutions in the area of SSI promotion and development. Small Enterprise Information
and Resource Centre Network (SENET) was launched in April 1997 to facilitate networking
among the information seekers, concerning SSI, including Central/State Governments,
Government agencies engaged directly or indirectly in the promotion and development of the

244
SSI, National and State level industry associations and NG0s. SIDO maintains libraries at its
headquarters and in all its field offices. These libraries make available technical information
required for the development of the SSI.

SIDO conducts Intellectual Property Rights ([PR) Awareness Programmes, which help in
preventing competitors from copying or closely imitating a company's products or services, in
creating a corporate identity through a trademark and branding strategy and in increasing the
market value of the company. During 2004-05, six of such programmes have been conducted.7
A Biotechnology cell has been set up for the development and promotion of biotechnology in the
SSI sector. During 2004-05, two one-day senstisation programmes on biotechnology were
conducted. A three-day advanced training programmes on biotechnology for a group of 30
officers from the SISIs was held in January, 2005.8 Four Regional Testing Centres at New Delhi,
Mumbai, Chennai and Kolkata provide testing facilities to SSI units for raw materials, semi-
finished products and finished products manufactured by them. In order to provide testing
facilities in the areas of industry clusters, the Government of India has set up Field Testing
Stations at Jaipur, Bhopal, Kolhapur, Hyderabad, Pondichery, Chenganacherry and Bangalore.
WTO cell was set up in the SIDO headquarters in 1999 to co-ordinate the latest
developments with regard to World Trade Organisation. The objective of this cell is to
disseminate information to SSI associations and other stakeholders on various aspects of WTO
agreements and their likely implications for the SSI, assisting policy formulation for SSIs in
conformity with the provisions of WTO agreements and organising workships/seminars for the
SSI to create awareness.

11.III Summary:

The Khadi and Village Industries Commission (KVIC) was established in April 1957.

Its main objectives are: providing employment, producing saleable articles and creating self-

reliance amongst the poor and building up of a strong rural community spirit. Some of the major

functions of KVIC are : planning, promotion, organisation and implementation of programs for

the development of Khadi and other village industries in the rural areas in coordination with

245
other agencies engaged in rural development; building up of a reserve of raw materials and

implements for supply to producers, creation of common service facilities for processing of raw

materials as semi-finished goods and provisions of facilities for marketing of KVI products apart

from organisation of training of artisans engaged in these industries and encouragement of co-

operative efforts amongst them; promoting the sale and marketing of khadi and/or products of

village industries or handicrafts.

The KVIC is also charged with the responsibility of encouraging and promoting

research in the production techniques and equipment employed in the Khadi and Village

Industries sector and providing facilities for the study of the problems relating to it, including the

use of non-conventional energy and electric power with a view to increasing productivity,

eliminating drudgery and otherwise enhancing their competitive capacity and arranging for

dissemination of salient results obtained from such research.

Further, the KVIC is entrusted with the task of providing financial assistance to

institutions and individuals for development and operation of Khadi and village industries and

guiding them through supply of designs, prototypes and other technical information.

In implementing KVI activities, the KVIC may take such steps as to ensure genuineness of the

products and to set standards of quality and ensure that the products of Khadi and village

industries do conform to the standards.

The Small Industries Development Organization (SIDO) is the national SME

Development Agency of India. It is a major constituent of the Ministry of Small Scale Industries
of the Government of India. SIDO provides services to small industry throughout the country by
implementing a broad program of activities and services including the following:
Entrepreneurship Development; Tool Room Services ; Testing Centres; Extension Services;
R&D Services; Consultancy Services and Policy Development.

246
 Various Services provided by SIDO to the SMEs: facilities for testing, toolmenting,
training for entrepreneurship development; preparation of project and product profiles; technical
and managerial consultancy; assistance for exports; pollution and energy audits.SIDO also
provides economic information services and advises Government in policy formulation for the
promotion and development of SSIs. The field offices also work as effective links between the
Central and the State Governments.

11.IV Self Assessment Questions :

Short Questions
1. Main objectives of KVIC
2. Main functions of KVIC
3. Village Industries
4. PMEGP
6. SIDO objectives
7. SIDO schemes for SSIs

Essay Questions:
1. Explain the measures taken by KVIC for the promotion and development small scale
industry
2. Explain the contribution of KVIC for the development of village industries
3. What are the schemes and measures of SIDO for the promotion of small industries.

Multiple choice questions

1. KVIC has launched an e-commerce portal. What other agreement has it entered into?
A. Agreement with Raymond to promote Khadi as a fashion garment in India
and abroad
B. Agreement with Siyaram to promote Khadi as a fashion garment in India and
abroad
C. Agreement with Mafatlal to promote Khadi as a fashion garment in India and
abroad

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 D. None of the above
2. Who was appointed as the Chief Executive Officer of Khadi and Village
A. Arun Kumar Jha
B. Prasada rao
C. Arup Roy Choudary
D. Satya Nadendlla
3. The Khadi and Village Industries Commission (KVIC) :
1. was established by an act of parliament
2. comes under ministry of rural development
3. Was established with basic objective to provide employment in rural areas
which among the above is / are correct?
A. Only 1 & 3
B. [B] Only 2 & 3
C. [C] Only 3
D. [D] 1, 2 & 3
4. KVIC Head office is at
A. Mumbai
B. Chennai
C. Hyderabad
D. Noida
5. Under KVIC...the schemes and programmes included are Prime Ministers Employment
Generation Program (PMEGP),.Interest Subsidy Eligibility Certification Scheme
(ISEC),Rebate Scheme..Under the Rebate Scheme, the rebate on sales of Khadi and
Khadi products is made available by the Government so as to make the price of Khadi
and Khadi products competitive with other textiles. Normal rebate 10 per cent all through
the year and an additional special rebate of 10 per cent for how many days in a year, is
given to the customers
A. 108 days
B. 105 days
C. 100 days
D. 90 days

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11.V key wards
RISC; PEMEGP; SIDO;

11.VI References / further reading

1. (PDF]PMEGP - Khadi and Village Industries Commission

www.kvic.org.in/PDF/PMEGPscheme.pdf
Scheme will be routed by KVIC through the identified Banks for eventual ... (2) The maximum
cost of the project/unit admissible under business/service sector is ..... assistance is not available.
(q) Margin Money (subsidy) assistance is available only for new projects sanctioned specifically
under the PMEGP. Existing units.
11. [PDF]Khadi & Village Industries Commission (KVIC) - MSME
www.msme.nic.in/AR2008-09-Eng-Chapter-5.pdf
units. This Scheme is being implemented through KVIC/KVIBs; National level/. State level
Khadi and VI Federations;. Khadi and VI Institutions affiliated to. KVIC and KVIBs and NGOs
which have already worked for the implementation of the programmes relating to rural
industries. Under this scheme, financial assistance for ...
12. [PDF]chapter-4 institutional network and support agencies for ... - Shodhganga
shodhganga.inflibnet.ac.in/bitstream/10603/43085/10/10_chapter-4.pdf
institutions in the country supporting the development and sustenance of micro and small village
enterprises and ... various central government agencies for support of SSI are SSI board, KVIC,
SIDO,. NSIC, NSTEDB, NPC ..... identifying the needs of SSI units coordinating and
monitoring the policies and programmes for ...
13. PM Employment Generation Program and other Credit Support Schemes
msme.gov.in/.../pm-employment-generation-program-and-other-credit-support-sche...
In such cases KVIC routes government subsidy through designated banks for eventual disbursal
to the beneficiaries / entrepreneurs directly into their bank accounts. Nature of assistance, The
maximum cost of the project/unit admissible in manufacturing sector is ₹ 25 lakhs and in the
business/service sector, it is ₹ 10 lakhs.
14. MSME-DO ONLINE - Dc Msme
dcmsme.gov.in/schemes/scpnpp.htm The importance of the cottage and small scale industries to
the National Economy was recognised by the Government as early as in 1948 under the
Industrial Policy ... The marketing assistance to the small scale units through preferential
purchase by the Central and State Purchase Organisations was emphasised.
15. KVIC - Industries
belgaumdic.gov.in/kvic.htm

249
KVIC ' S. MARGIN MONEY SCHEME. 1.0 INTRODUCTION : Government of India through
Khadi and Village Industries Commission has introduced Margin Money Scheme ( MMS) in
order to create large ... i) This scheme is applicable for units coming up in rural areas only for
establishing village industry projects. Rural Area ...
16. EOi invited from NGOs for Selection of Suppliers for both Apis mellifera ...
ngobox.org/full_rfp_eoi_EOi-invited-from-NGOs-for-Selection-of-Suppliers-for-bot...
Jul 14, 2017 - ... Government of India attaches significant support to this sector. Minimum
Eligibility Conditions. Bidders should-. Registered Indian company/firm / SSI Unit registered
with MSME and NGO/ Cooperative Society /PMEGP/REGP Units of KVIC / KVIB engaged in
manufacturing bee boxes and maintaining bee ...
17. KVIC giving subsidy for small-scale units - KARNATAKA - The Hindu
www.thehindu.com/todays-paper/tp-national/.../KVIC...units/article14739320.ece
CHITRADURGA: The Khadi and Village Industries Commission (KVIC) is giving subsidy of
up to 30 per cent to set up small-scale or cottage industries, said V.K. Shukla deputy ... The
commission provided training to people and helped them get financial assistance from banks to
set up businesses in villages, he said.
18. [PDF]Evaluation Study on Khadi and Village Industries Programme
planningcommission.gov.in/reports/peoreport/peoevalu/kvic_fin.pdf
The study received constant support and encouragement from Deputy. Chairman, Minister of
State for Planning, ... the functioning of the KVI institutions/units and their linkage with KVIC.
(S.P.Pal). Adviser (Evaluation) ...... KVIC and Ministry of Small Scale Industries equate 30% of
part- time employment as one full-time ...
19. Interest Rate Benefits | smallB
https://smallb.sidbi.in/%20/fund-your-business%20/additional.../interest-rate-benefits
The difference between the actual lending rate and 4 per cent is paid by the Central Government
through KVIC to the lending bank and funds for this purpose ... This scheme provides
financialassistance to SSI units to undertake various activities necessary to increase their sales
turnover in the domestic and export markets.
20. Main Functions of Small Industries Development Organisation (SIDO)
www.yourarticlelibrary.com/finance/main-functions-of-small...sido/41010
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 ... To collect data on
consumer items imported and then, encourage the setting of industrial units to produce these
items by giving coordinatedassistance,.
21. Financial Institutional Assistance and Support to Small-scale ...
https://www.omicsonline.org/.../financial-institutional-assistance-and-support-to-smalls...
SIDO is the nodal agency for formulating, co-ordinating and monitoring the policies and
programmes for promotion and development of small-scale industries in the country. It
250
maintains close liaison with the central ministries, Planning Commission, State Governments,
financial institutions, voluntary organizations and other ...
22. lesson 4 small industries development organisation (sido)
https://sol.du.ac.in/mod/book/view.php?id=1239&chapterid=888
It provides a comprehensive range of consultancy services and technical, managerial, economic
and marketing assistance to SSI units. It has a network of 28 Small Industries Service Institutes,
30 branch SISIs, 37 Extension Centres, four Regional Testing Centres, one Product and Process
Development Centre, three ...
23. Importance of Small Industries Development Organization (SIDO) for ...
www.publishyourarticles.net/eng/articles2/importance-of-small...sido-for.../2792/ Image Source:
theapphome.com/wp-content/uploads/2013/08/Growth.jpg. Thus realizing the importance of this
sector, government has come forward with extending many a facilities and supports for the
development of SSI in the country. SIDO is one amongst them. International Perspective
Planning Team in 1955 made its ...
24. Policy Package for Small Scale Industries India - Dc Msme
www.dcmsme.gov.in/sido/policypkg.htm Aug 31, 2000 - SIDO provides services through its
network for small-scale industries. ... Comprehensive policy package for Small Scale
Industries and Tiny Sector ... 2.0 Policy Support. 2.1 The investment limit for the Tiny Sector
will continue to be Rs. 25 lakhs. (Annexure-III). 2.2 The investment limit for the SSI sector
will ...
25. Laghu-udyog.com - SIDO Online - SSI Policies Statement - Dc Msme
www.dcmsme.gov.in/policies/ssipolicy.htm
Aug 6, 1991 - 2.2 Service sub-sector is a fast growing area and there is need to
provide support to it in view of its recognised potential for generating employment. Hence all
Industry-related service and business enterprises, recognised as small scale industries and their
investment ceilings would correspond to those of ...
26. [PDF]7.2 SMALL INDUSTRIES DEVELOPMENT ORGANIZATION (SIDO)
www.navodayaengg.in/wp-content/uploads/2015/10/Lecture-41.pdf
(b) Industrial development activities of SIDO: (1) Develop import substitutions for components
and products based on the data available for various volumes-wise and value-wise imports. (2)
To give essential support and guidance for the development of ancillary units. (3) To provide
guidance to SSIunits in terms of costing ...
18. [PDF]SIDO Schemes - MSME - Development Institute, Kolkata
sisikolkata.gov.in/forms/sido.pdf
SIDO Schemes. SIDO is actively involved in promoting tiny and small scale industries in India
by means of its promotional and developmental activities. To bring ... However, the
subsidy support is limited to the loan amount indicated below: Sl. No. Existing Investment
Limit. Maximum Ceiling of. Loan eligible for support. 01.

251
 19. Programmes for Small Scale Industries India | SIDO Programmes for ...
laghu-udyog.gov.in/sido/press/pressrel.htm The objective of the Programme is to identify
persons with entrepreneurial quality, to motivate them and to train them through a structured
training course so as to enable them to set up their tiny and small scale industrial ventures with
the assistance available from different agencies.
20. [PDF]chapter-4 institutional network and support agencies for ... - Shodhganga
shodhganga.inflibnet.ac.in/bitstream/10603/43085/10/10_chapter-4.pdf
various central government agencies for support of SSI are SSI board, KVIC, SIDO,. NSIC,
NSTEDB, NPC, NISIET etc. The state government agencies are DI, DIC, SFC,. SIDC, SIIC,
SSIDC etc. The aim here is to present an overview of the Institutional framework for the
development of cottage, small and village industries in ...

252
 LESSON 12

CENTRAL LEVEL INSTITUTIONS SUPPORTING SMALL BUSINESS-V: Others

Objectives of the Lesson:

After studying this lesson you should be ready to know about the objectives, functions and
Schemes of support to SSI units by Institutions like:

 Industrial Development bank of India (IDBI),

 Industrial Finance Corporation of India (IFSCI),
 Small Scale Industries Board (SSIB),
 Deposit Insurance and Credit Guarantee Corporation (DICGC),
 Export Import Bank (EXIM Bank),
 Industrial Reconstruction Bank of India (IRBI),
 National Institute for Small Industries Extension Training (NISIET),
 Indian Institute of Entrepreneurship (IIE)

Structure of the Lesson:

12.1 IDBI
12.2 IFSCI,
12.3 SSIB,
12.4 DICGC,
12.5 EXIM Bank,
12.6 Industrial Reconstruction Bank of India (IRBI)
12.7NISIET,
12.8 IIE
12.9Summary
12.10 Self assessment Questions
12.11 Key Terms
12.12 Further Readings / Reference books

253
 Future of Start Ups In India

By 2020, India will be home

to 10,500 start-ups, and will emerge
as the third largest base for start-ups
in the country behind the US and the
UK. About 80% of India’s start-ups
are in Bengaluru, Delhi, Mumbai,
Hyderabad, Chennai and Pune.
Delhi, Bengaluru and Mumbai get
93% of such investments, according
to a Nasscom-Zinnov report.

Nassscom believes that “the start-up landscape in the country is becoming the epitome
of innovation, with companies bringing out solutions that are aimed at solving locally
relevant issues.”

Going forward, entrepreneurship is going to be crucial for India’s economic

development as it aspires to become a future world leader. Start-ups alone will employ
210,000 people in the country. In order to become an economic superpower, the country
can no longer afford to ignore the Tier-II, Tier-III and rural areas.

Today, more than ever, semi-urban and rural development is linked very closely to
entrepreneurship. While the government has launched campaigns such as Smart City,
Startup India and Standup India, it is essential that such campaigns stretch their wings
to Tier-II and Tier-III cities. Lack of awareness and acceptability, dearth of talented
professionals, lack of internet bandwidth and insufficient power supply plague Tier-II
and Tier-III cities.

Here are the top three reasons why it is critical for Startup India to focus more on
Bharat:

Direct impact on Tier II, Tier III Cities: Amrita Therapeutics, Wittyfeed, InfoSoft
Global etc. are great examples of start-ups based out of Tier-II and Tier-III cities and
which have come up with world-class products and services that people need, while
also providing employment opportunities. In addition to being drivers of local growth
and job creation, start-ups play an increasingly important role in addressing urgent
development challenges particularly related to sustainability and service delivery.

When the startups grew, the cities that housed them also grew. Take, for example, the
rise of Jaipur in the start-up industry. Initially, there was no ecosystem and the city was
happy to just piggy-back its IIT-alumni. Today, there are so many mentoring and

254
 funding institutions for entrepreneurs like TiE, Jaipur Angels, RAIN and Startup Oasis.

Democratization of Entrepreneurship: It is time that people in rural areas are

encouraged to pursue entrepreneurship as it would help them build sustainable
livelihoods. If the idea is good and the product is of global quality, then it does not
matter where the location is.

This will be crucial to develop a vibrant economy as it will help distribute and sustain
growth across the country from Madurai to Mohali, from Jaipur to Bhubaneswar. There
are about 500 new start-ups in Rajasthan. Odisha and Kerala are giving a big boost to
entrepreneurship in their respective states by opening start-up villages. The growth, of
course, is not at the level of what is seen in Tier-I cities as there is a very nascent level
of mentoring and support for new ventures in smaller cities.

Lower Cost of Operating a Business: The investors’ reluctance to travel to smaller

towns and limited clientele base, not so matured markets are issues that plague
investments in Tier-II, Tier-III cities. However, since the cost of living is low, it will
also bring down the overall cost of the business. The rate of attrition is also
comparatively lower, ensuring an assured talent base.

According to the latest report released by Cushman & Wakefield (C&W), Ahmedabad,
Bhubaneswar, Chandigarh, Coimbatore, Jaipur, Kochi, Indore, Nagpur, Vadodara and
Vishakhapatnam were identified as the next most promising business destinations
offering a long-term investment potential. The volume of investment by various
companies in these 10 cities has increased by over seven times in the past two years.

It is the right time for startups and entrepreneurs to make the best use of these
endeavours and strive to find the right solutions to pertinent problems with the right
technology and make India great again.

12.1 Industrial Development Bank of India (IDBI)

Prior to the setting up of the IDBI, a fairly wide network of Financial Institutions (FIs)
have emerged in India as a result of deliberate and purposive efforts made by Government and
RBI after independence. Though these institutions have served with a degree of success to meet
the growing requirements of the expanding industrial sector, but they didn’t adequately meet the
requirements of long term finance and of rendering promotional services to the industry.
Statutory obligations and the traditions of these financial institutions were serious constraints in
this regard. Moreover, their overlapping services created confusion in the minds of borrowers
and there was no effective mechanism to co-ordinate and integrate the functioning of the diverse
institutions in the field. Thus, there was the need for “a co-ordinating machinery which could

255
establish working relationship with other financial institutions and build up a pattern of inter-
institutional cooperation that can facilitate the evaluation of a rational and cohesive structure of
financial institutions, adapted to the changing needs of emerging industrial structure with its
growing complexity of inter-relationship. Further, a central development institution was essential
to provide dynamic leadership in the task of promoting a widely diffused and diversified yet
viable process of industrialization”. It was against this background that IDBI was established in
July 1964.

It is functioning as an apex institution co-ordinating and supplementing the operations of

Financial Institutions providing long term finance to industry and as an agency for giving direct
finance assistance to fill in the gaps. IDBI was established as a wholly owed subsidiary of RBI,
but it was delinked from Reserve Bank Act 1976. IDBI is empowered to undertake
considerably broader range of functions as compared with other financial institutions. IDBI Act
permit full operational flexibility and freedom to meet any problem related to industrial
development in general and industrial finance in particular. This covers all kinds of industrial
organisations, both in the public and private sector and there is no upper or lower limit with
regard to the amount of assistance or the size of project which it can finance. There is no
restrictive provision in the IDBI act regarding the nature and type of security to be obtained.

Functions of IDBI : The main functions of IDBI, as its name suggests, is to finance industrial
enterprises such as manufacturing, mining, processing, shipping and other transport industries
and hotel industry. Broadly, the functions of IDBI can be classified into the following
categories: a) Co-ordinating function b) Financing function c) Promotional function

a) Co-ordinating Function : According to George Terry “Co-ordination deals with the

task of binding efforts in order to ensure successful attainment of an objective. It is
accomplished by means of planning, organizing, actuating and controlling”. Co-ordination is
like a thread in a garland and therefore, its presence is felt in all the activities and functions
management” Co-ordination is the effort to ensure a smooth interplay of the functions and
forces of all the different institutions doing the same work so that its purpose will be realized
with a minimum of friction and a maximum of collaborative effectiveness. “It makes diverse
elements and sub systems of organizations to work harmoniously towards the realization of
common objectives”. “Co-ordination is the process whereby an Apex institution develops an

256
orderly pattern & group effort among his subordinates and secures unity of action in the pursuit
of common purpose”.

Co-ordination is a conscious and rational process of pulling together the different parts
of an organization and unifying them into a team to achieve predetermined goals in an effective
manner. According to Henry Fayol – “To co-ordinate is to harmonise all the activities of
different concerns so as to facilitate the working and success. In a well co-ordinated team, each
institution works in harmony with others and is fully informed of its role in the organization.
The working schedules of various institutions are constantly tuned to circumstances.” The
IDBI co-ordinates the functions and operations of all the financial institutions, including the
IFCI, the ICICI, the LIC, GIC and the UTI into as single integrated financial structure so that
each may contribute to the total effect – the growth of the economy. To serve as the apex
institution for term finance for industry, to co-ordinate the working of institutions engaged in
financing, promoting or developing industries and to assist in the development of these
institutions. The IDBI is vested with the responsibility of co-ordinating the working institutions
engaged in financing, promoting or developing industries. It has evolved an appropriate
machinery for this purpose. The appraisal and supervision of projects assisted on a consortium
basis one co-ordinated to avoid duplication work and delay

b) Financing Function : The main function of IDBI, as its name suggests, is to finance
industrial enterprise such as manufacturing, mining, processing, shipping and other transport
industries and hotel industry. As an industrial financier, the IDBI would assist all the deserving
projects (regardless of their size), which experience enormous problems in assembling funds
from normal channels. Its endeavour in this regard is to ensure that no worthwhile project,
however, small, is allowed to languish for want of, or insufficiency of, institutional support. The
bank can assist a project, directly and indirectly.

Financial assistance sanctioned by IDBI consists of broadly two groups: i) Direct

Assistance ii) Indirect Assistance i) Direct Assistance /Finance Direct financial assistance to
industrial projects are given by IDBI in similar ways in which other financial institutions
normally provide. It grants direct assistance by way of project loans, under writing of and direct
subscription to industrial securities, soft loans, technical refunds loans and equipment finance
loans. It subscribes to purchase and underwrites the issue of stocks, shares and bonds of

257
debentures. The loans and advances which IDBI makes to any industrial concern may be
converted into equity stocks and shares at a later date by IDBI. The bank is also empowered to
guarantee loans raised by industrial concerns in the open market from scheduled banks, the
state co-operative banks, IFCI and other ‘notified financial institutions. IDBI can also accept,
discount or rediscount bonafide commercial bills or promising notes of industrial concern. In
direct lending the bank resembles IFCI and ICICI. However, it has greater freedom of
operation and can endeavour to secure collaboration of other institutions in the fields of
technical scrutiny and financial partnership. IDBI also grants export finance in the form of direct
loans and guarantee to exporters in participation with banks refinancing of medium term export
credit granted by banks and overseas buyer’s credit. Direct assistance is usually granted for the
acquisition of fixed assets for new units as well as for expansion, modernization or renovation
of existing units. It is usually provided to large scale and medium sized projects which have not
been able to obtain their full requirements from other term financing institutions. Since the IDBI
has been created to supplement and not to supplant other activities of other financial institutions,
it normally prefers not to assist projects whose needs can be met by other institutions. ii)
Indirect Assistance /Finance The Industrial Development Bank of India (IDBI) can assist
industrial concerns in an indirect manner also, i.e. through other institutions.

IDBI assistance to other institution also includes its rediscounting scheme. Firstly, it
can refinance term loans to industrial concerns, repayable within 3 to 25 years given by the
IFCI, the state Financial Corporations and other Financial Institutions. Secondly, it can
refinance term loans repayable between 3 and 10 years given by scheduled banks or state co-
operative banks. Thirdly, it can refinance export credit given by the Scheduled banks and State
co-operative banks. Thus, IDBI finances those banks and financial institutions which are
lending to industrial concerns. Finally, IDBI has subscribed to the stocks, shares, bonds and
debentures of I.F.C.I., the State Financial Corporations and other “notified” financial institutions
so as to increase their financial resources and enable them to provide larger assistance to
industry.

Composition of Assistance : Financial assistance sanctioned by IDBI consists of broadly two

groups: i) Direct Assistance, and ii) Indirect Assistance

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 i) Direct Assistance : IDBI, approach with regard to direct financial assistance
has been governed by its apex character, its vantage position for assisting the financing of
industry in participation with other financial institutions and the special responsibility vested in
it to fill the gaps in the industrial structure and to develop certain vital and strategic sectors of
the economy. As the lender of the last resort, it endeavours not only to fill in the gaps that
remain after taking into account the assistance provided by other financial institutions, but also
takes lead in the appraisal of the project and in arranging for the necessary quantum of financial
assistance. IDBI’s direct assistance to industry is extended mainly under its project finance
scheme in the form of loans, underwriting of and direct subscription to shares and debentures
and guarantees and to a Limited extend under the Technical Development Fund Scheme.
Assistance under the Textile Modernisation Fund, Venture Capital Fund, Technology
Upgradation and Equipment Finance for Energy Conservation Schemes also included under the
project finance scheme.

Direct assistance sanctioned by IDBI to industrial concerns consists of four different

forms as follows : a) Grant term loans and advances b) Underwriting and Direct Subscription
c) Guarantees, and d) Technical Development Fund. a) Grant Term Loans and Advances
IDBI generally provides loans to industrial concerns directly for periods ranging between ten to
twelve years inclusive of grace period of 2-3 years. Loans constitutes the single most important
component of IDBI’s direct assistance. b) Underwriting and Direct Subscription IDBI also
finances industrial concerns through underwriting and direct subscription to shares and
debentures issued by them, but their magnitude has been limited. IDBI like other financial
institutions such as IFCI, SFS, etc. acts primarily as a term lending agency and its underwriting
and investment activity is at a miserably low level. Despite this, IDBI has emerged as the most
important development bank in the sphere of underwriting in India next only to ICICI. A notable
feature is that its underwriting operations are reflecting the accent on ‘promotional’ aspects as a
major share of its underwriting operations pertains to issues of risk capital. Equally important is
the fact that the issues of capital by new companies occupy a permanent place in IDBI’s
underwriting operations. c) Guarantees Guarantee the differed payments due from industrial
concerns to third parties and the loans raised by them in the pan market or from financial
institutions.

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 Apart from loans and underwriting, IDBI also grants direct assistance to industries in the
form of guarantees for loans and deferred payments. In fact, IDBI seems to have discontinued
the practice of extending guarantees facility to industrial concerns since 1974-75. d) Technical
Development Fund IDBI providing working capital to projects assisted by the Bank. Since
1976, IDBI also provided direct assistance to industrial enterprises under the technical
Development Assistance Scheme. The Government of India in March 1976 created a special
fund called Technical Development Fund, in order to promote fuller utilization of capacity,
technical upgradation and export development. Technical Development Fund provides foreign
exchange for imports of small value balancing equipment, technical know-how, foreign
consultancy services and drawings and designs. Over the years, IDBI is taking an increasing
interest in the Technical Development Assistance Scheme. This is a healthy development.

ii) Indirect Assistance : IDBI provides a significant part of its total assistance to
industrial concerns indirectly through other financial institutions like SFCs, SIDCs, Commercial
banks and cooperative banks, etc. There has been continuous increase in the amount of indirect
assistance sanctioned by IDBI, but the rate of increase of assistance has varied from year to year.
It is clear that in consonance with its evolving role as apex development bank, IDBI has been
adapting its operational policies as a natural concomitant of which more emphasis has
progressively come to be placed on indirect assistance for financing of industrial enterprises.

IDBI extends its indirect assistance basically through four important way. They are : a)
Refinancing of Industrial Loans b) Rediscounting Assistance c) Subscription of Shares and
Bonds of Financial Institutions. d) Seed Capital Assistance. Since 1976-77, IDBI is providing
indirect assistance in a limited amount through its Seed Capital Assistance Scheme also. a)
Refinance of Industrial Loans A major proportion of IDBI’s indirect assistance to industrial
sector is provided by way of refinance of industrial loans, its refinance facility is available to
IFCI, SFCs, commercial banks, cooperative banks and SIDCs, SIICs. Regional Rural Banks are
also eligible to avail of refinance assistance from, IDBI. The loans to be refinanced must have a
maturity of 3 to 25 years in case of IFCI and SFCs and 3 to 10 years in the case of commercial
and cooperative banks. Generally IDBI provides 80 percent of the loans given by financial
institutions, but in case of small enterprises and units located in backward areas it can be upto

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100 percent of the loans given by financial institutions. Refinance assistance has been single
most important form of indirect assistance of IDBI.

A notable feature of IDBI’s refinance assistance is that about two-third of its total
refinance assistance has gone to the small scale sector. IDBI is providing assistance to small
sector indirectly through SFCs, SIDCs/ SIICs, commercial banks, cooperative banks and
regional rural banks which are the major beneficiaries of refinance assistance of IDBI.
Institution-wise refinance assistance has undergone significant changes over the years. Though
SFCs continue to get the largest share in the total refinance assistance of IDBI, but their relative
share has declined significantly. b) Rediscounting Assistance/ Bills Finance There are two
schemes viz. Bills Rediscounting Scheme and Direct Discounting of Bills Scheme through
which IDBI grants bills finances to industrial concerns. Bills Rediscounting Scheme was
introduced in April 1965 to help the use of indigenous machinery. Under the scheme, IDBI
rediscounts bills of exchange/ promissory notes covering instalments payment basis. Originally
scheme was applicable to only six industries, namely, cotton, jute, silk, cement, sugar and paper
machinery. But, over the years, scheme has been considerably expanded in scope and now it
covers all machinery manufacturing industries in India. Since 1968 it has been extended to
cover purchase – users in the public sector such as State Electricity Boards, State Road
Transport Corporations and Government companies.

Direct Discounting of Bills Scheme has been introduced by IDBI in June 1988. Under
the scheme, IDBI directly discounts bills promissory notes to machinery manufacturers who
have been in production for a minimum period of five years with a good track record. Scheme
has initially been extended on a selective basis. Under the Bills Rediscounting Scheme, there
has been sharp increase in the absolute amount sanctioned by IDBI. Other industries assisted
under the scheme were food manufacturing, jute, chemicals transport equipment, paper, etc., but
their share is very low. IDBI’s bills rediscounting assistance is mainly concentrated to four
industries viz. electricity generation, textiles, road transport and machinery. This is not a healthy
trend and assistance should be spread to other industries too. c) Subscription to Shares and
Bonds of Financial Institutions.

As a purveyor of supplementary resources, IDBI has provided financial assistance to

other financial institutions through subscription to their share capital and bond issues. Financial

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institutions to which such assistance has been extended are IFCI, ICICI, IRBI, UTI, SFCs,
SIDCs and NSIC, etc. Despite increase in the absolute amount of IDBI’s resources support to
other financial institutions, its relative importance has declined over the years. This should not
be surprising as these subscriptions are intended only to strengthen the financial position of
financial institutions so that their lending capacity is increased. 81 d) Seed Capital
Assistance Since 1976, IDBI has introduced Seed Capital Assistance Schemes. The objective
of these schemes is to help such entrepreneurs who have technically feasible and economically
viable projects and possess the enterprise but lack adequate financial resources to put in the
promoter’s contribution. Thus, Seed Capital Assistance Scheme is intended to make-up or
supplement promotor’s contribution. IDBI should reverse this trend and take active part to help
the new entrepreneurs to set-up new projects and accelerate the pace of industrial development
in the country.

Special Assistance : The industrial Development Bank of India Act, 1964, has
provided for creation of a special fund known as the Development Assistance Fund. This fund is
used to assist those industrial areas which are not able to secure finances in the normal course
because of low rate of return.

Foreign Currency Requirements : IDBI raises foreign funds from international money
markets and international funding organizations and makes them available to Indian industrial
units. It is interesting to note that unlike the other existing statutory financial corporations,
IDBI has no restrictions imposed regarding the nature and type of security which it should
accept. IDBI provides direct loans to industrial concerns, refinance of industrial loans and
export credits, rediscounting of bills, underwriting of and direct subscription of shares and
debentures of industrial units and direct loans for exports. Till 2000-01, IDBI became the most
important institution assisting industrial units.

Assistance to Backward Areas : With a view to promote industrial development in

backward areas, IDBI announced in July 1969 a scheme for assistance to small and medium
projects in such areas on softer terms, such as concessional rates of interest, longer grace and
repayment periods. IDBI adopted several measures to encourage flow of institutional finance to
the small scale sector. The scheme was revised and liberalized later. Under the liberalized
scheme, IDBI in participation with IFCI and ICICI gave concessional rupee assistance up to Rs.

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2 crores and underwriting assistance up to Rs. 1 crore. The IDBI’s concessional assistance and
refinance of loans for backward areas increased steadily in terms of number of applications and
amounts sanctioned and utilized. Refinance facilities by IDBI. IDBI took over the Refinance
Corporation of India in November 1964 and was providing refinance facilities to industrial units
through member banks. As an apex institution, the IDBI assists State Financial Corporations, the
IFCI, Leasing Companies and others working in the field of industrial finance by subscribing to
their shares and bonds. IDBI also participates in loans and guarantees to supplement the
refinance operations as a measure of risk sharing with other institutions.

Assistance to Small Scale Sector : IDBI extends assistance to small scale industries and small
road transport operators indirectly through State Level Institutions and commercial Banks by
way of refinance of industrial loans. IDBI introduced a scheme to cover promissory notes
arising out of sales of new trucks and jeeps to road transport operators in the private sector. The
IDBI’s assistance to small scale industries and small road transport operators was picking up
very fast. IDBI launched the National Equity Fund Scheme in 1988 for providing support, in
the nature of equity to tiny and small scale industrial units engaged in manufacturing cost not
exceeding Rs. 5 lakhs. The scheme was administered by IDBI through nationalized banks. IDBI
introduced the single window scheme for grant of term loans and working capital assistance to
new tiny and small scale 84 units. Finally, IDBI set up a Voluntary Executive Corps Cell
(VECC) to utilize the services of experience professionals for counseling small units, tiny and
cottage units and for providing consultancy support in specific areas.

The Government of India set up the Small Industries Development Bank of India
(SIDBI) under SIDBI Act, 1989 as a wholly-owned subsidiary of IDBI. SIDBI started
functioning from April 1990 and has taken over the responsibility of administering small
industries Fund and National Equity Fund which were formerly administered by IDBI. SIDBI
has become the principal financial institution for promotion, financing and development of small
scale industries.

Balanced Regional Development : Since 1970 IDBI had initiated certain promotional and
developmental activities to meet the twin objectives of balanced regional development and
accelerated industrial growth. In co-operation with other term-lending institutions. IDBI had
completed industrial potential surveys in all States and Union Territories.

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Soft Loan Scheme : IDBI introduced in 1976 the soft loan scheme to provide financial
assistance to productive units in selected industries, viz., cement, cotton textiles, jute, sugar and
certain engineering industries on concessional terms to enable them 85 to overcome the backlog
in modernization, replacement and renovation of their plant and equipment so as to achieve
higher and more economic levels of production. The scheme was administered by IDBI with
financial participation by IFCI and ICICI. The basic criterion for assistance under the scheme
was the weakness of the units on account of obsolescence of machinery. The rate of interest
was 7.5 percent and the period of loan was 15 years. The pace of disbursement was very slow as
the soft loan scheme was not attractive to the private sector units because of the convertibility
clause. In January 1984, the soft loan scheme was modified – now called Soft Loan Scheme for
Modernisation so as to cover deserving units in all industries. Under the modified scheme,
assistance is available to production units for financing modernization primarily aimed at
upgradation of process, technology and product, export orientation, import substitution, energy
saving, prevention of pollution, recycling of wastes and by-product etc. Other changes and
relaxations were also made to make the scheme attractive and popular.

IDBI permitted by SEBI to carry out merchant banking activities which cover
professional advice and services to industry for raising capital from the market, acquisition of
assets on lease, mergers/ take-over of existing units etc. The Merchant Banking Division of
IDBI, in the first 2 years of its existence had lead-managed 118 issues and had helped to
mobilize Rs. 12,340 crores from the market.

c). Promotional Function : Promotional function under this category includes such activities
as marketing and investment research and surveys as well as technological studies. It can also
provide technical and administrative assistance to any industrial concern for promotion
management or expansion. IDBI also plans, promotes and develops industries to fill gaps in the
industrial structure of the country. During the many years of its operations, IDBI evolved
number of innovative scheme of assistance and under look various promotional activities to
meet the growing needs of the industrial sector. Since 1970, IDBI has taken several measures to
step up pace of industrialization in the relatively backward regions of the country. The IDBI is
authorized to perform promotional activities with a view to bringing about a viable industrial
development especially in the less developed areas. These promotional activities are oriented

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towards meeting the dual objectives of balanced regional development and acceleration in
industrial growth. The activities directed towards the first objective include the identification
and follow-up of projects located in backward areas. These directed towards fulfilling the
second objective include efforts at building up an appropriate framework for industrial
development.

In fulfilment of its developmental role, IDBI continues to perform a wide range of

promotional activities relating to developmental programmes for new entrepreneurs,
consultancy services for small and medium enterprises and programme designed for accredited
voluntary agencies for economic upliftment of the under privileged. This includes
entrepreneurship development, self employment and wage employment in industrial sector for
weaker sections of the society through voluntary agencies. Support to science and Technology
Entrepreneurs’ Parks, Energy Conservation and Common Quality Testing Centres for small
industries.

IDBI has contributed to the creation and widening of the entrepreneurial base and
building up the requisite infrastructure to support this process through a range of activities. In
particular, it has set up, in participation with other financial institutions, a network of institutes
like Entrepreneurship Development Institute of India (EDII) at Ahmedabad, which also acts as
the principal agency to co ordinate the activities of various agencies in this field, and Institutes
of Entrepreneurship Development (IED) with the objectives to foster 88 the spread of
Entrepreneurship development, initiating surveys and studies to identify industrial potential etc.
Thus we see that IDBI has been doing its best since 1964 for the promotion and development of
industries in the country. It has been the most important financial institution meeting the
different needs of industries through its operations since inception. The above and many other
schemes of assistance of IDBI are designed to promote industrial development in the country.
IDBI also plays an important role in under taking export guarantees which constitute a major
support for achieving contracts abroad. The focus of IDBI’s promotional thrust during these
years has been to strengthen the existing institutional network, including the inter-institutional
co-ordination, and to evolve appropriate strategy for the development of industries in backward
areas.

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RTGS solution from IDBI Bank Ltd. : When time is of the essence, IDBI Bank Ltd.
launches its latest offering, Real Time Gross Settlement (RTGS) payment, a solution for faster
and most efficient settlement of esteemed customers. This payment mechanism will enable funds
to be received recipient intraday rather than the net settlement system exchanges that occur and
coined the banking hours.

The RTGS product would enable beneficiary the following:

a. Speed – Guaranteed & Fast settlement of transactions.

b. High Liquidity – Lowering interest cost.
c. Better Funds Management – Ensures optimum planning and utilization of funds.
d. Hassel free HV settlement – Elimination of collections through physical HV clearing.
e. Reduces Paper work and improve efficiency.
f. Reduces operational risk & systematic risk. IDBI Bank Ltd. offers the beneficiary the
following RTGS product solution competitive terms. Products
g. Single Transaction/ Regular Transaction
h. Bulk Payment Product Transaction Initiation By Customer For Outward Payouts
i. The customer fills in the RTGS Application form in duplicate giving the particular
Beneficiary and authorizes the Remitting branch of IDBI Bank to remit a specified
amount the beneficiary by raising a debit to the customer’s (remitter’s) account.
j. After verification, IDBI Bank will debit the customer account.
k. If all the details of beneficiary are correct, the transaction will successfully procure the
funds which will be transferred to the beneficiary’s bank branch.
l. Each message thus set will have a Unique Transaction Reference Number which will be
given to customer and can be used as a reference for future enquiry. Inward Receipts by
IDBI Bank through RTGS on behalf of (Company Name)
m. Inward Payment messages once received at IDBI Bank’s PI, will be credited to the
account after matching the account name and account number.

12.2 : INDUSTRIAL FINANCE CORPORATION OF INDIA (IFCI)

At the time of independence in 1947, India's capital market was relatively under-
developed. Although there was significant demand for new capital, there was a dearth of

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providers. Merchant bankers and underwriting firms were almost non-existent and commercial
banks were not equipped to provide long-term industrial finance in any significant manner.

It is against this backdrop that the government established The Industrial Finance Corporation of
India (IFCI) on July 1, 1948, as the first Development Financial Institution in the country to cater
to the long-term finance needs of the industrial sector. The newly-established DFI was provided
access to low-cost funds through the central bank's Statutory Liquidity Ratio or SLR which in
turn enabled it to provide loans and advances to corporate borrowers at concessional rates.

Liberalization - conversion into company in 1993

By the early 1990s, it was recognized that there was need for greater flexibility to respond to the
changing financial system. It was also felt that IFCI should directly access the capital markets for
its funds needs. It is with this objective that the constitution of IFCI was changed in 1993 from a
statutory corporation to a company under the Indian Companies Act, 1956. Subsequently, the
name of the company was also changed to "IFCI Limited" with effect from October 1999.

Indian Economy and IFCI: Since its inception on 1st July 1948 as a Public Financial
Institution, IFCI has made a significant contribution to the modernization of Indian industry,
export promotion, import substitution, pollution control, energy conservation and generation
through commercially viable and market-friendly initiatives. Some sectors that have directly
benefited from IFCI include:

 Agro-based industry (textiles, paper, sugar)

 Service industry (hotels, hospitals)
 Basic industry (iron & steel, fertilizers, basic chemicals, cement)
 Capital & intermediate goods industry (electronics, synthetic fibres, synthetic plastics,
miscellaneous chemicals) and Infrastructure (power generation, telecom services)

IFCI's Economic Contribution

1. IFCI has played a key role in the development of cooperatives in the sugar and textile
sectors, besides acting as a nodal agency in both sectors. 371 cooperative societies in
these sectors have been assisted by IFCI.

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 2. IFCI has promoted Technical Consultancy Organizations (TCOs), primarily in less
developed states to provide necessary services to the promoters of small and medium-
sized industries in collaboration with other banks and institutions.
3. IFCI has also provided assistance to self-employed youth and women entrepreneurs
under its Benevolent Reserve Fund (BRF) and the Interest Differential Fund (IDF).
4. IFCI has founded and developed prominent institutions like:

o Management Development Institute (MDI) for management training and

development
o ICRA for credit assessment rating
o Tourism Finance Corporation of India (TFCI) for promotion of the hotel and
tourism industry
o Institute of Leadership Development (ILD) for rehabilitation and training of
displaced and retrenched labor force
o Rashtriya Gramin Vikas Nidhi (RGVN) for promoting, supporting and developing
voluntary agencies engaged in uplifting rural and urban poor in east and northeast
India.
5. IFCI, along with other institutions, has also promoted:

o Stock Holding Corporation of India Ltd. (SHCIL)

o Discount and Finance House of India Ltd. (DFHI)
o National Stock Exchange (NSE)
o OTCEI
o Securities Trading Corporation of India (STCI)
o LIC Housing Finance Ltd.
o GIC Housing Finance Ltd.
o Biotech Consortium India Ltd. (BCIL)
6. IFCI has also set up Chairs in reputed educational/management institutions and
universities.

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 7. A major contribution of IFCI has been in the early assistance provided by it to some of
today's leading Indian entrepreneurs who may not have been able to start their enterprises
or expand without the initial support from IFCI.

The Government of India converted its OCDs worth Rs. 923 crores into equity in December
2012 and further acquired preference shares of Rs. 60 crores from PSU Banks in April 2015.
IFCI has become a Government of India Undertaking with effect from 7th April 2015.

The Govt. of India has placed a Venture Capital Fund of Rs. 200 crore for Scheduled
Castes (SC) with IFCI with an aim to promote entrepreneurship among the Scheduled Castes
(SC) and to provide concessional finance. IFCI has also committed a contribution of Rs.50 crore
as lead investor and Sponsor of the Fund. IFCI Venture Capital Funds Ltd., a subsidiary of IFCI
Ltd., is the Investment Manager of the Fund. The Fund has been operationalized during FY
2014-15 and IVCF is continuously making efforts for meeting the stated objective of the scheme.

Further, Government of India has recently designated IFCI as a nodal agency for “Scheme of
Credit Enhancement Guarantee for Scheduled Caste (SC) Entrepreneurs” in March, 2015 with an
objective to encourage entrepreneurship in lower strata of the societies. Under the Scheme IFCI
would provide guarantee to banks against loans to young and start-up entrepreneurs belonging to
scheduled castes.

Financial Products: IFCI offers a wide range of products to the target customer segments to
satisfy their specific financial needs. The product mix offering varies from one business/industry
segment to another. IFCI customizes the product-mix to maximize customer satisfaction. It's
domain knowledge and innovativeness make the product-mix a key differentiator for building,
enduring and sustaining relationship with the borrowers.

Debt Segment: IFCI structures its Debt products based on the specific requirements of the
corporate. Some of our products are :

1. Short-term Loans for different short term requirements including pre-operative project
expenses, meeting temporary cash flow mismatch, general corporate purposes,
requirement of holding/ investment companies of good corporate for their investment
requirements including subscription to right issue, purchase of warrants etc., funding

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 working capital gap pending sanction by banks, refinancing high cost debt, meeting cost
overrun in projects etc.
2. Medium Term Loans for Project Finance for new industrial/ infrastructure projects,
business expansion, technology up-gradation, modernization projects, R&D expenditure,
general corporate requirements, supplementing long term working capital requirements,
acquisition financing, securitization of debt, structured products, etc.
3. Long Term Loans (more than 8 years) in Infrastructure Projects/ new Manufacturing
Industries. IFCI shall also provide term loans in other sectors on selective basis based on
strong ratings for Long Term facilities to reputed corporates. IFCI also provide Project
Loans to meet the fund requirements of Greenfield projects, expansions/ modernization
projects etc. across all industry.
4. IFCI has also introduced products like Loans against future Lease Rentals, Loan against
shares for top rated corporates etc.

Equity Segment:

 Investment in IPO, Right issue, Qualified Institutional Placement (QIP), Warrants etc as
well as in the secondary markets for listed companies.
 Strategic investment in unlisted companies.
 Trading in the secondary market including equity derivatives.

The IFCI extends financial assistance to the industrial sector through rupee and foreign currency
loans, underwriting / direct subscriptions to shares / debentures and guarantees and also offers
financial services through its facilities of equipment procurement, equipment finance, buyers'
and suppliers' credit, equipment leasing and finance to leasing and hire-purchase companies. It
also provides merchant banking with its Head Office in Delhi and a bureau in Bombay. In recent
years, the IFCI has started new promotional schemes, such as interest subsidy scheme for women
entrepreneurs consultancy fee subsidy schemes for providing marketing assistance to SSIs,
encouraging the modernisation of tiny, small-scale ancillary units and control of pollution in the
small and medium-scale industries IFCI has shown growing concern in the development of
backward districts.

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12. 3 SMALL SCALE INDUSTRIES BOARD (SSIB)

The Small Scale Industries Board (SSI Board) is the apex advisory body constituted to
render advise to the Government on all issues pertaining to the small scale sector. The Board is
reconstituted every two years and is headed by the Minister In charge of Small Scale Industries
in the Government of India. The Board comprises among others State Industry Ministers, some
Members of Parliament, Secretaries of various Departments of Government of India, financial
institutions, public sector undertakings, industry associations and eminent experts in the field.
The Additional Secretary and Development Commissioner(SSI) is the Member Secretary of the
Board. The Board is serviced by the Board and Policy Division in the office of the DC(SSI).

The range of development work in the small scale sector involves several Departments /
Ministries and several agencies of Central / State Governments. Though a non statutory body, the
SSI Board provides an effective platform for informed debate and facilitates coordination and
inter - institutional linkages .

12.4 Deposit Insurance and Credit Guarantee Corporation (DICGC)

Deposit insurance contributes to the stability of the financial system and protects
depositors’ interests. In India, DICGC – a wholly owned subsidiary of the Reserve Bank –
provides insurance cover to deposits in all commercial banks including LABs, payment banks,
small finance banks, RRBs and cooperative banks.
With the present limit of `0.1 million, the number of fully protected accounts (1,737
million) as on March 31, 2017 constituted 92.1 per cent of the total number of accounts (1,885
million) as against the international benchmark of 80 per cent. In terms of amount, the total
insured deposits at `30.5 trillion at end-March 2017 constituted 29.5 per cent of the assessable
deposits at `103.5 trillion as compared with the international benchmark of 20-30 per cent.
The Corporation builds its Deposit Insurance Fund (DIF) through transfer of surplus, that
is, excess of income (mainly comprising premia received from the insured banks, coupon income
from investments and cash recovery out of assets of failed banks) over expenditure (payment of

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depositors’ claims and related expenses) net of taxes. DIF stood at `701.5 billion as on March 31,
2017, yielding a higher reserve ratio (DIF to insured deposits) of 2.3 per cent vis-à-vis 2.1 per
cent at end-March 2016. During 2016-17, the corporation sanctioned total claims of `0.6 billion
as against `0.5 billion during the preceding year.
The Corporation has improved the quality of information disseminated through its
website by updating FAQs and guidelines for liquidators. It has also published a primer on
deposit insurances and placed on the website. With a view to accelerating the resolution of
outstanding issues, DICGC held several meetings with liquidators and also requested chief
secretaries of states to expedite the appointment of liquidators. The Corporation will continue to
focus on adherence to core principles on effective deposit insurance systems in 2017-18. The
Financial Resolution and Deposit Insurance Bill, 2017, which was introduced in the Lok Sabha
on August 10, 2017, prescribes setting up of a Resolution Corporation (RC) to ensure observance
of the Financial Stability Board’s Key Attributes on resolution of financial firms by addressing
the gaps in the current resolution mechanism in India in terms of legal framework, resolution
tools, liquidation, coverage of entities, cross-border cooperation and the oversight framework.
The proposed RC will subsume DICGC which at present performs the ‘pay box’ function, that is,
reimbursement of insured amounts to the depositors of failed banks. DICGC also participates in
merger schemes approved by the Reserve Bank involving payment to the depositors of transferee
bank. RC is being established for protection of consumers of specified service providers and of
public funds for ensuring stability and resilience of the financial system.
12.5 The Export-Import Bank of India

The Export-Import Bank of India, commonly known as the EXIM bank, was set up on
January 1, 1982 to take over the operations of the international finance wing of the IDBI and to
provide financial assistance to exporters and importers to promote India’s foreign trade. It also
provides refinance facilities to the commercial banks and financial institutions against their
export-import financing activities.

The important functions of the EXIM Bank are as follows:

1. Financing of export and import of goods and services both of India and of outside India.

2. Providing finance for joint ventures in foreign countries.

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3. Undertaking merchant banking functions of companies engaged in foreign trade.

4. Providing technical and administrative assistance to the parties engaged in export and import
business.

5. Offering buyers’ credit and lines of credit to the foreign governments and banks.

6. Providing advance information and business advisory services to Indian exports in respect of
multilaterally funded projects overseas.

During the year 1994-95, the EXIM Bank introduced the ‘Clusters of Excellence’ programme for
up-gradation of quality standards and obtaining ISO 9000 certification in various parts of the
country.

The Bank also entered into framework cooperation agreement with European Bank for
Reconstruction and Development (EBRD) for acquiring advance information on EBRD funded
projects in order to enter into co-financing proposals with EBRD in Eastern Europe and CIS.

With a view to promote exports, EXIM Bank has introduced the following three schemes:
1. Production Equipment Finance Programme

2. Export Marketing Finance

3. Export Vendor Development Finance

Over the period, expansion /diversification programme has claimed the maximum share (54.3%)
of EXIM Bank’s sanctions, followed by new projects, (33.2%) and modernisation /acquisition of
equipment (12.5%).

12.6 Industrial Reconstruction Bank of India (IRBI)

Industrial Reconstruction Corporation of India (IRCI) was set up in 1971 with a share
capital of Rs. 10 crores to provide financial assistance as well as to revive and revitalise sick

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industrial units in public/private sectors. In March 1985, it was converted into a statutory
corporation called the Industrial Reconstruction Bank of India (IRBI), with an authorised capital
of Rs. 200 crores and a paid-up capital of Rs. 50 crores.

The following functions were laid down for the IRBI:

i. To provide financial assistance to sick industrial units.

ii. To provide managerial and technical assistance to sick industrial units,

iii. To secure the assistance of other financial institutions and government agencies for the
revival and revitalisation of sick industrial units,

iv. To provide merchant banking services for amalgamation, merger, reconstruction, etc.,

v. To provide consultancy services to the banks in the matter of sick units, and

vi. To undertake leasing business.

IRBI functions as the principal credit and reconstruction agency for industrial revival and co-
ordinate the activities of other institutions engaged in the revival of industries and also to assist
and promote industrial development and rehabilitation of industrial concerns.

The IRBI is empowered to take over the management of assisted sick industrial units, lease them
out or sell them as running concerns or to prepare schemes for reconstruction-by scaling down
the liabilities with the approval of the Government of India.

Activities of IRBI: IRBI provides term loans and working capital finance to medium, large,
sick, small and tiny sector units. It also provides ancillary services, such as consultancy,
preparation of schemes of amalgamation, merger, sale, reconstruction, equipment leasing,
merchant banking etc. IRBI has full power to take any step to remove industrial sickness.

12.7 National Institute for Small Industries Extension Training NISIET:

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 The NISIET, since its inception in 1960 by the Government of India, has taken gigantic
strides to become the premier institution for the promotion, development and modernization of
the SME sector. An autonomous arm of the Ministry of Small Scale Industries and Agro and
Rural Industries (SSI & ARI), the Institute strives to achieve its avowed objectives through a
gamut of operations ranging from training, consultancy, research and education, to extension and
information services.

It was in 1984 that the UNIDO had recognised SIET as an institute of meritorious
performance under its Centres of Excellence Scheme to extend aid. Subsequently, it was also
accorded national status and SIET Institute became NISIET in the same year.

For the past Four decades NISIET has been engaged in conducting national and
international programmes covering the Asian, Afro-Asian regions and Pacific rim countries.
India being a forerunner to almost all developing countries, its capacity development
programmes are of great relevance to organisations in other countries, leading to a greater flow
of technology, investment, know-how and trade among developing countries and a stronger SME
sector globally.

NISIET is totally market-driven, and is quick to update its product mix, approach, methodology
and systems to adapt them to other countries’ requirements. Its endeavour is to concentrate on
ongoing programmes, while orienting the system towards serving the government and private
sector more effectively.

NISIET introduced several innovative national and international programmes while

updating the time-tested and well-received ones, to prove conclusively that it can respond to the
changing environment. These programmes have been designed keeping in mind the requirements
of individuals, industries, promotional agencies and other institutions – both government and
private – and the far-reaching impact of internationalisation on business.

NISIET has developed many software programmes such as Policy Research for SMEs
Database sponsored by UNESCO, International Participants Database with respect to country
profiles, Stress Kit, Civil Servants Help Mate, Mailing List Database, Library Management
System, Hospitality Management System, Concurrent Evaluation Of Chief Minister’s
Empowerment of Youth programmes, Youth Association Information System, Coaches
Performance, Current Information Services, etc.

275
 The institute functions through the six activities of training, consultancy, research,
education, information and extension services. NISIET is also running many programmes in IT
related areas, offering consultancy services to public and private sector undertakings.

NISIET has been playing a pivotal role in putting the small scale industry on the growth
trajectory. NISIET’s interventions have benefited not only the Indian SME sector but also the
developing world in promoting self-employment and enterprise development in their countries.

NISIET has had many turning points in the forty years of its existence: in fact, the first
entrepreneurship model was developed at NISIET through Prof. McClelland’s famous Kakinada
Experiment. It is the first Indian organisation to organise entrepreneurship related training for
participants from abroad, and was recognised as a Centre of Excellence in 1984.

NISIET’s recent milestones include a customised programme on UNESCO chair on

SME Policy (1997), Enterprise Development and Government Effectiveness (EDGE) for the Sri
Lankan diplomats (1998), path-breaker training programme on Industrial Policy Options (1999)
and, more recently, a programme in collaboration with AIIS, Chennai to facilitate the visit of a
group of American students led by 5 professors from Vassar College, USA (2000).

The Institute is highly reputed for its customised programmes with diverse focus. NISIET
has a sophisticated Business Information Bureau (BIB) at its Small Enterprise National
Documentation Centre, which takes care of the changing information needs of MSMEs. In tune
with the sweeping winds of IT, the institute has become IT - driven in all its functions and has
devised a number of customised IT and other interventions for a wide variety of clientele. The
Institute has already made a debut in formal academics through long-term educational
programmes.

NISIET produces a spectrum of publications. The quarterly periodical SEDME Journal is

a well sought after research journal and a forum for studies and exchange of ideas on SMEs. The
management of the Institute rests with the Governing Council appointed by the Government of
India.

Keeping pace with the emerging trends the Institute is now offering state of the art information
services to the MSME sector. In the new millennium, the Institute is constantly

276
 NISIET will facilitate TECHNOLOGY TRANSFER between potential partners, by identifying
technologies, products and services through conduct of Due Diligence, Appraisals and
Evaluations.

12.8. Indian Institute of Entrepreneurship

Indian Institute of Entrepreneurship (IIE) is an autonomous organization under the

Ministry of Skill Development & Entrepreneurship. The main aim of the Institute is to
provide training, research and consultancy activities in Small and Micro Enterprises (SME),
with special focus on entrepreneurship development.
The Indian Institute of Entrepreneurship (IIE) registered under the Societies Registration
Act,1860 was established in the year 1993 in Guwahati by the erstwhile Ministry of Industry
(now the Ministry of Micro, Small and Medium Enterprises), Government of India. The Institute
began operating from April 1994 with the North East Council (NEC), Governments of Assam,
Arunachal Pradesh and Nagaland and SIDBI as its other stakeholders. IIE has been transferred to
the Ministry of Skill Development & Entrepreneurship on 22nd May’2015.The headquarter of
IIE is at Guwahati.

OBJECTIVES
1. To promote and develop entrepreneurship.
2. To conduct research and provide consultancy for entrepreneurship development.
3. To coordinate and collaborate with other organizations in undertaking training,
research and other activities to increase outreach of the institute.
4. To provide consultancy and monitoring service to MSMEs/ potential entrepreneurs
and enhancing employability of participants.
5. To promote greater use of information technology in the activities/ functions of the
IIE.
6. To comply with statutory responsibility.
FUNCTIONS
1. Designing and organising training activities for different target group and undertaking research
in the relevant to entrepreneurship.

277
2. Improving the efficiency, effectiveness and delivery of the change agents and development
practitioners i.e. trainers, support organizations engaged in enterprise building. etc.
3. Provide consultancy service to the prospective and existing entrepreneurs.
4. Increasing the outreach of activities of the institute through collaborative activities and
increasing their effectiveness through use of different tools of information technology.

The major activities of the Institute, inter alia, include: The policy, direction and guidance
to the Institute is provided by its Governing Council whose Chairman is the Minister of MSME.
The Executive Committee consisting of Secretary (Micro, Small & Medium Enterprises) as its
Chairman and Director General of the Institute as its Member-Secretary, executes the policies
and decisions of the Governing Council through its whole-time Director General.

Training:

training programmes, orienting and motivating youth towards entrepreneurship.

re of
entrepreneurship among different strata of society in the country.

indirectly engaged in developing and promoting entrepreneurship and self employment in the
Country.

Consultancy:

advice and consultancy to other Institutions engaged in entrepreneurial training either in the
Government or in the Private Sector.

ptualizing, designing and standardizing course curriculum for entrepreneurship and

skill development programmes.

278
indirectly engaged in developing and promoting entrepreneurship and self employment in the
Country.

Research & Development:

MSME sector. Undertaking documentation and disseminating information related to

entrepreneurship/ enterprise development;

entrepreneurship/enterprise development/ MSMEs;

mainly through seminars, workshops, conferences etc;

accelerating the process of entrepreneurship development culminating in establishment of new

economic ventures; The Institute’s training activities are focused on areas of stimulation, support
and sustenance of entrepreneurship development. The programmes initiated/sponsored by
NIESBUD are constantly evaluated and revised to enable it to adapt to the changing needs of
entrepreneurship and small business development. The Institute is engaged in creating an
environment conducive to the development of entrepreneurship and in creating a favorable
attitude amongst the general public in support of those who opt for an entrepreneurial career by
removing the prevalent myth and misconceptions that entrepreneurs are born.

Other activities of the Institute : The announcement of various employment generation

schemes by the Government, aimed at creating employment opportunities for the unemployed
youth, both in rural as well as urban areas, has thrown up new challenges for the Institute to
demonstrate its crucial role in propagating self- employment by bringing out Model Syllabi,
Manuals for Beneficiaries and Instructors, preparation of innovative training aids materials,
organizing Training of Trainers etc. to achieve the challenging goals.

Keeping in tune with the changing times and in consonance with the Government’s
policy, the Institute through concerted efforts has been able to achieve and sustain financial self-

279
sufficiency through organizing various programmes; enhancing the conduct of market driven
fee-based training activities; increasing sales of training materials and reducing relative
administrative

The Institute has provision of faculty who are quite senior and experienced professionals
with specialization in areas such as Entrepreneurial Competency & Motivation; Project
Identification & Formulation; Finance and Credit; Small Enterprise Management; Women
Entrepreneurship; Intellectual Property Rights; Marketing Management & Entrepreneurial
Education, E-Learning Modules, Networking of Developmental Stakeholders on a web platform
i.e. www.virtualcluster.in extending post-training support by way of handholding and incubation
for setting up enterprises and also match making between employers and jobseekers by
developing www.niesbudnaukri.com, a job portal for skilled persons.

The Institute is operating from an integrated Campus in Sector-62, NOIDA, NCR of

Delhi. It is about 20 km away from the city centre of Delhi. It is established in an area of 10,000
sq. meters with about 40,000 sq. feet of built up area. It has 8 class rooms, 1 auditorium, and 1
conference hall, besides library. There is also a hostel consisting of 32 rooms, and other
facilities.

Th. NIESBUD has provided training to 10,94,529 persons as of March 31, 2017 through
41,483 different training programmes since inception. This includes 4,080 international
participants hailing from more than 141 countries throughout the globe.

12.9 Summary

IDBI : IDBI was established in July 1964. It is functioning as an apex institution co-
ordinating and supplementing the operations of Financial Institutions providing long term
finance to industry and as an agency for giving direct finance assistance to fill in the gaps..
IDBI is empowered to undertake considerably broader range of functions as compared with other
financial institutions. IDBI Act permit full operational flexibility and freedom to meet any
problem related to industrial development in general and industrial finance in particular. This
covers all kinds of industrial organisations, both in the public and private sector and there is no
upper or lower limit with regard to the amount of assistance or the size of project which it can
finance. There is no restrictive provision in the IDBI act regarding the nature and type of
security to be obtained.
280
 IDBI extends assistance to small scale industries and small road transport operators
indirectly through State Level Institutions and commercial Banks by way of refinance of
industrial loans. IDBI introduced a scheme to cover promissory notes arising out of sales of new
trucks and jeeps to road transport operators in the private sector. The IDBI’s assistance to small
scale industries and small road transport operators was picking up very fast. IDBI launched the
National Equity Fund Scheme in 1988 for providing support, in the nature of equity to tiny and
small scale industrial units engaged in manufacturing cost not exceeding Rs. 5 lakhs. The
scheme was administered by IDBI through nationalized banks. IDBI introduced the single
window scheme for grant of term loans and working capital assistance to new tiny and small
scale 84 units. IDBI set up a Voluntary Executive Corps Cell (VECC) to utilize the services of
experience professionals for counselling small units, tiny and cottage units and for providing
consultancy support in specific areas.

IFCI : Since its inception on 1st July 1948 as a Public Financial Institution, IFCI has made
a significant contribution to the modernization of Indian industry, export promotion, import
substitution, pollution control, energy conservation and generation through commercially viable
and market-friendly initiatives. Some sectors that have directly benefited from IFCI include:
Agro-based industry (textiles, paper, sugar); Service industry (hotels, hospitals); Basic industry
(iron & steel, fertilizers, basic chemicals, cement); Capital & intermediate goods industry
(electronics, synthetic fibres, synthetic plastics, miscellaneous chemicals) and Infrastructure
(power generation, telecom services)

The Small Scale Industries Board (SSI Board) is the apex advisory body constituted to render
advise to the Government on all issues pertaining to the small scale sector. The range of
development work in the small scale sector involves several Departments / Ministries and several
agencies of Central / State Governments. Though a non statutory body, the SSI Board provides
an effective platform for informed debate and facilitates coordination and inter - institutional
linkages .
DICGC : Deposit insurance contributes to the stability of the financial system and protects
depositors’ interests. In India, DICGC provides insurance cover to deposits in all commercial
banks including LABs, payment banks, small finance banks, RRBs and cooperative banks.

281
The Export-Import Bank of India, commonly known as the EXIM bank, was set up on
January 1, 1982 to take over the operations of the international finance wing of the IDBI and to
provide financial assistance to exporters and importers to promote India’s foreign trade. It also
provides refinance facilities to the commercial banks and financial institutions against their
export-import financing activities.

The important functions of the EXIM Bank are as follows: 1. Financing of export and
import of goods and services both of India and of outside India. 2. Providing finance for joint
ventures in foreign countries. 3. Undertaking merchant banking functions of companies engaged
in foreign trade. 4. Providing technical and administrative assistance to the parties engaged in
export and import business. 5. Offering buyers’ credit and lines of credit to the foreign
governments and banks. 6. Providing advance information and business advisory services to
Indian exports in respect of multilaterally funded projects overseas.
Industrial Reconstruction Bank of India (IRBI),: Industrial Reconstruction Corporation of
India (IRCI) was set up in 1971 to provide financial assistance as well as to revive and revitalise
sick industrial units in public/private sectors. In March 1985, it was converted into a statutory
corporation called the Industrial Reconstruction Bank of India (IRBI) to discharge the following
functions: i. To provide financial assistance to sick industrial units. ii. To provide managerial and
technical assistance to sick industrial units, iii. To secure the assistance of other financial
institutions and government agencies for the revival and revitalisation of sick industrial units, iv.
To provide merchant banking services for amalgamation, merger, reconstruction, etc., v. To
provide consultancy services to the banks in the matter of sick units, and vi. To undertake leasing
business.

IRBI also functions as the principal credit and reconstruction agency for industrial revival
and co-ordinate the activities of other institutions engaged in the revival of industries and also to
assist and promote industrial development and rehabilitation of industrial concerns. The IRBI is
empowered to take over the management of assisted sick industrial units, lease them out or sell
them as running concerns or to prepare schemes for reconstruction-by scaling down the liabilities
with the approval of the Government of India.

282
The NISIET, is a premier institution for the promotion, development and modernization of the
SME sector. Its operations ranging from training, consultancy, research and education, to
extension and information services.

For the past Four decades NISIET has been engaged in conducting national and
international programmes covering the Asian, Afro-Asian regions and Pacific rim countries.
India being a forerunner to almost all developing countries, its capacity development
programmes are of great relevance to organisations in other countries, leading to a greater flow
of technology, investment, know-how and trade among developing countries and a stronger SME
sector globally.

Indian Institute of Entrepreneurship (IIE) is an autonomous organization under the Ministry

of Skill Development & Entrepreneurship. The main aim of the Institute is to provide training,
research and consultancy activities in Small and Micro Enterprises (SME),with special focus
on entrepreneurship development.

283
 12.10 Self assessment Questions
Short notes:

1. Financing function of IDBI

2. Direct Assistance and indirect assistance of IDBI
3. IDBI assistance to Small Scale sector
4. Economic contribution of IFCI
5. Objectives of SSIB
6. Functions of EXIM bank
7. Functions of IRBI
8. Major activities of NISIET
9. Role of IIE for development of entrepreneurship.
10. Major activities of IIE.
Essay Questions :
1. Contribution of IDBI for the development of MSME sector in India
2. Write an essay on IFCI assistance to self-employed youth and women entrepreneurs
under Benevolent Reserve Fund (BRF) and the Interest Differential Fund (IDF).
3. Explain the salient features of IFCI Venture Capital Funds Limited (IVCF).
4. Explain the functions and working of DICGC.
5. Explain EXIM Bank’s financial assistance for Indian Exports, Indian Imports, Pre-
shipment credit and promoting foreign trade of India.
6. What are the functions of Industrial Reconstruction Bank of India (IRBI) ?
7. Explain the contribution of NISIET and IIE for providing training to entrepreneurs.
Multiple choice questions:
1. Indian Institute of Entrepreneurship (IIE) is at
A. Guwahati
B. Noida
C. Hyderabad
D. Chennai
2. IFCI was established on
A. 1948
B. 1956

284
 C. 1967
D. 1959
3. NISIET, is a premier institution for the promotion, development and modernization of
A. SME sector
B. MSME
C. Mme
D. SMCE
4. Industrial Reconstruction Bank of India (IRBI) main objective is
A. To revitalize sick industries
B. To promote small and medium enterprises
C. To provide financial assistance
D. To promote rural credit
5. EXIM Bank was set up in
A. January 1st 1982
B. June 7th 1990
C. December 18th 1995
D. February 9th 1997

12.11 Key Terms

IDBI; IFCI; ICICI; LIC; GIC; UTI; SFS; SFCs; SIDCs; SIICs; IRBI; NSIC; SIDBI;
SEBI; IED; EDII; RTGS;

13 urther Readings / Reference books

2. MSME Banking | IDBI Bank MSME Loan

https://www.idbi.com/msme-banking.asp
IDBI bank offers MSME banking solutions, IDBI bank believes that the Micro, Small and
Medium Enterprises will drive future growth in India and Abroad. Agri Banking MSME
Finance IDBI MUDRA Loan
3. Small Business Loans | SME Finance| IDBI Bank MSME Finance
https://www.idbi.com › MSME Finance IDBI Bank introduces a range of attractive products
with MSME Finance facility for the micro, small and medium business and takes care of the
funding needs for our SME customers.
285
3 Restructuring / Rehabilitation Policy | SME Policy | IDBI Bank ...
https://www.idbi.com/restructuring-rehabilitation-policy.asp
The MSME restructuring/rehabilitation policy of the Bank aims at a timely and transparent
mechanism for restructuring the debts of potentially viable Micro, ... timely
financial assistance as per established need and also helping the unit in sorting out difficulties
which are non-financial in nature or requiring assistance from ...
4 Service Sector Assistance :: Small Industries Development Bank of India
https://www.sidbi.in/Service_Sector_Assistance.php Who is it for. Existing Small and Medium
Service Sector Enterprises in need of Loan/Capital for Growth Existing promoters with
experience in the similar activity for setting up new projects. Your current area of operation
could be in any of the Service Sector Businesses listed below: Hospitality & Tourism related
activities ...
5. IDBI Bank | smallB
https://smallb.sidbi.in/financial-institution/idbi-bank IDBI Bank ... The Product aims to cater to
the needs of MSME segment and other small corporate customer by way of providing loan
against their existing commercial and residential properties. Read more about Property ...
Financial assistance is offered to the MSMEs by way of pre-approved composite loan. Read
more ...
6. Bank Schemes | smallB
https://smallb.sidbi.in/bank-schemes?field_bank_scheme2_tid_2=All...tid... Term & Working
Capital Schemes, IDBI Bank, SME Smart Line of Credit. Financial assistance is offered to
the MSMEs by way of pre-approved composite loan. Link to Bank's Scheme. Aug 28 2013 -
12:54. Term & Working Capital Schemes, IDBI Bank, Property Power. The Product aims to
cater to the needs of MSME ...
7. [PDF]Scope of MSMEs and Role of the Public Sector Banks - Shodhganga
shodhganga.inflibnet.ac.in/bitstream/10603/43831/7/07_chapter3.pdf production
and assisting in satisfying the requirement of medium and large scale industries. .... In addition,
providing assistance and support for the ..... 7) IDBI Bank. IDBI Bank has been actively
engaged in providing a major thrust to financing of MSMEs. With a view to improving the credit
delivery mechanism and shorten ...
8. IDBI Bank to finance MSMEs with SIDBI - The Hindu
www.thehindu.com/business/IDBI-Bank-to...MSMEs...SIDBI/article15765193.ece Oct 2, 2010
- Common documentation would be done under pari passu basis, which would
facilitateMSME clients to get funds smoothly. Financial assistance would be given where
working capital would be provided by IDBI Bank and term loan by SIDBI (beyond a certain
level by IDBI Bank). IDBI Bank has extended ...
9. FAQ | Ministry of Micro, Small & Medium Enterprises - MSME
msme.gov.in/faq?page=4 Through these FLCs, banks provide assistance to the MSE
entrepreneurs in regard to financial literacy, operational skills, including accounting and finance,
business ... UCO Bank18.Union Bank of India19.United Bank of India20.Vijaya Bank21.State
Bank of Mysore22.Corporation Bank23.I.D.B.I.24.State Bank of Patiala25.

286
 10. Financial Institutional Assistance and Support to Small-scale ...
https://www.omicsonline.org/.../financial-institutional-assistance-and-support-to-smalls...
The role of the Ministry of Micro, Small and Medium Enterprises is mainly to assist the States in
their effort to promote growth and development of MSMEs and to ..... The IFCI extends
financial assistanceto the industrial sector through rupee and foreign currency loans, under
writing/ direct subscription to shares / debentures.
11. [PDF]chapter-6 the role of financial institutions in ssi ... - Shodhganga
shodhganga.inflibnet.ac.in/bitstream/10603/40772/13/13_chapter_06.pdf Jul 19, 1976 - 1.2
Industrial Finance Corporation of India ltd (IFCI ltd):. It was the first development finance
institution set up in 1948 under the IFCI. Act in order to provide long term institutional credit to
medium and large industries. Its objectives is to provide financial assistance to industry by way
of rupee and foreign ...
12. [PDF]Role of State Financial Corporations in the Development of Micro ...
www.caluniv.ac.in/dj/BS-Journal/vol-30/Role_of_state_financial.pdf of providing
financial assistance to MSMEs in the stale of West Bengal. ... of MSME sector. Key words :
Micro, Small and Medium Enterprises (MSMEs); State Financial Corporations; West Bengal.
Financial Corporation (WBFC); ..... Corporation of India (IFCI) was set up under the Industrial
Finance Corporation Act I 948. The.
13. Indian Economy and IFCI | IFCI
https://www.ifciltd.com/?q=content/indian-economy-and-ifci
IFCI has also provided assistance to self-employed youth and women entrepreneurs under its
Benevolent Reserve Fund (BRF) and the Interest Differential Fund (IDF). IFCI has founded and
developed prominent institutions like: Management Development Institute (MDI) for
management training and development; ICRA for ...
14. [PDF]Financing for MSMEs The eastside story - PwC India
https://www.pwc.in/assets/pdfs/publications/2013/msme.pdf This CII-PwC report focuses on
financing solutions for MSMEs in east India and .... MSMEs needing financial assistance can
approach the banks for aid as per the specific schemes constituted for different types of
financial aid. These schemes offered by multiple banks are ..... IFCI Venture Capital Funds
Limited (IVCF).

15. Small Scale Industries Board India | SSI Board Meeting India | Small ...
dcmsme.gov.in/archive/sidoboard.htm The Small Scale Industries Board (SSI Board) is the apex
advisory body constituted to render advise to the Government on all issues pertaining to the
small scale sector. The Board is reconstituted every two years and is headed by the Minister In
charge of Small Scale Industries in the Government of India.

287
 16. Micro Small Scale Industries Board India | Micro SSI Board Meeting ...
dcmsme.gov.in/sido/RTS-FTS_Contact.htm SIDO provides services through its network
for small-scale industries. Specialized services of Marketing, Export promotion and
International co-operation are also available through a series of schemes and incentives.
17. [PDF]Introduction DEFINITIONS OF SMALL SCALE INDUSTRIES-
shodh.inflibnet.ac.in:8080/jspui/bitstream/123456789/271/2/02_introduction.pdf
Thus, the development of small scale industries is an integral part of the overall economic, social
and industrial development of a country. DEFINITIONS OF SMALL SCALE INDUSTRIES-.
A. The Small Scale Industries Board(1955) –. “A unit employing less than 50 persons if using
power and less than 100 persons without.
18. [PDF]Evolution of small- Scale industries in India - Shodhganga
shodhganga.inflibnet.ac.in/bitstream/10603/4912/8/08_chapter%202.pdf Based on the
recommendations of the Industrial Conference held during 1947, the Small-
ScaleIndustrial Board was formed in 1952. This Board was vested with the power of overall
control ofindustries in the country. Later during 1955, the National Small Industries.
Corporation (NSIC) was started to assist small-scale units.
19. Financial Institutional Assistance and Support to Small-scale ...
https://www.omicsonline.org/.../financial-institutional-assistance-and-support-to-smalls...
The Small-Scale Industries (SSI) board was setup by central Government in 1954 to facilitate
co-ordination and inter-institutional linkages and to render advice to the government on various
policy matters concerning the development of SSI sector. The term of the SSI Board is for two
years. IndustryAssociations provide ...
20. [PPT]small scale industries board(ssib - SNS Courseware
www.snscourseware.org/snsce/files/CW_5959c1897f460/institutionalsupport-ppt.ppt
State Small Scale Industries development Corporation (SSIDC). 3. District Industries Centers
(DICs). 4. State Finance Corporations(SFCs). 5. Technical Consultancy Organization(TCOs). 6.
State Industrial Area Development Board (SIADB). 2. Dr.P.Saradhamani Professor. Central
Government Institutions. 1. Department of ...
21. Small and Medium Enterprises, SMEs, SSI, global economic ...
www.banknetindia.com/banking/ssi1.htm The organisational structure for SSIs was set up in the
1950s with the establishment of a Small Scale Industries Board in 1954. Other important
institutions at the national level were the Department of Small Scale Industries and Agricultural
& Rural Industries and the Small Industries Development Organisation (SIDO) which ...
22. dicgc - Reserve Bank of India - Frequently Asked Questions
https://rbi.org.in/scripts/FAQView.aspx?Id=64 In the event of a bank failure, DICGC protects
bank deposits that are payable in India. The DICGC insures all deposits such as savings, fixed,
current, recurring, etc. except the following types of deposits.

288
 23. DICGC
https://www.dicgc.org.in/ 58th Meeting of the Audit Committee held on December 21, 2017.
Meeting with RCS and Liquidators of Maharashtra State at CAB Pune on 17 and 18 Nov 2017.
Meeting of the Audit Committee of Board ofDICGC was held on September 26, 2017 at
Mumbai. Meeting of the Board of Directors of DICGC held on September ...
24. DICGC - For Depositors - A Guide to Deposit Insurance
https://www.dicgc.org.in/FD_A-GuideToDepositInsurance.html Commercial Banks : All
commercial banks including branches of foreign banks functioning in India, local area banks and
regional rural banks are insured by the DICGC. Cooperative Banks : All State, Central and
Primary cooperative banks, also called urban cooperative banks, functioning in States / Union
Territories which ...
25. DICGC - About Us - Profile
https://www.dicgc.org.in/AU_Profile.html The functions of the DICGC are governed by the
provisions of 'The Deposit Insurance and Credit Guarantee Corporation Act, 1961' (DICGC Act)
and 'The Deposit Insurance and Credit Guarantee Corporation General Regulations, 1961'
framed by the Reserve Bank of India in exercise of the powers conferred by sub-section ...
26. [PDF]AN OVERVIEW OF DICGC
https://www.dicgc.org.in/pdf/AnnualReports/2006-2007/AnnualrEnglish/Profile.pdf The
functions of the DICGC are governed by the provisions of “The Deposit Insurance and Credit.
Guarantee Corporation Act, 1961” (DICGC Act) and. “The Deposit Insurance and Credit
Guarantee. Corporation General Regulations, 1961” framed by the Reserve Bank in exercise of
the powers conferred by sub-section (3) of ...
27. DICGC - About Us - History
https://www.dicgc.org.in/AU_History.html The concept of insuring deposits kept with banks
received attention for the first time in the year 1948 after the banking crises in Bengal. The
question came up for reconsideration in the year 1949, but it was decided to hold it in abeyance
till the Reserve Bank of India ensured adequate arrangements for inspection of banks.
28. DICGC : Functions and Working | Bank Exams Today
www.bankexamstoday.com/2016/10/dicgc-functions-and-working.html Oct 9, 2016 - DICGC -
Deposit Insurance and Credit Guarantee Corporation DICGC is a statutory Body. Established –
15 July 1978.
29. Deposit Insurance in India - General Knowledge Today
https://www.gktoday.in/gk/deposit-insurance/ Apr 23, 2011 - In India, the bank deposits are
covered under the insurance scheme provided by Deposit Insurance and Credit Guarantee
Corporation (DICGC), a wholly owned subsidiary of the Reserve Bank of India. DICGC is a
statutory body, created by an act of parliament in 1961. Contents. Which banks are covered ...
30. Deposit Insurance and Credit Guarantee Corporation (DICGC)
https://www.affairscloud.com/deposit-insurance-and-credit-guarantee-corporation-dic...

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Jan 25, 2016 - DICGC is one of the wholly owned subsidiary of the Reserve bank of India (RBI).
It was established on 15 July 1978 under Deposit Insurance and Credit Guarantee Corporation
Act, 1961 for the purpose of providing insurance of deposits and guaranteeing of credit facilities
to the customers of banks.
31. bout Us - Exim Bank
https://www.eximbankindia.in/about-us Guiding the export-import businesses of India. Export-
Import Bank of India is the premier export finance institution of the country that seeks to build
value by integrating foreign trade and investment with the economic rise of India. The Bank has
been guided by expertise at the ...
32. Exim Bank: Home
https://www.eximbankindia.in/ Welcome to the official website of Export-Import Bank of
India. EXIM Bank provides financial assistance for Indian Exports, Indian Imports, Pre-
shipment credit and promoting foreign trade of India.
33. Export-Import Bank of India (EXIM Bank) | Department of Financial ...
financialservices.gov.in/banking...and.../Export-Import-Bank-of-India-(EXIM-Bank) Export-
Import Bank of India (EXIM Bank) is a specialized financial institution, wholly owned by
Government of India, set up in 1982, for financing, facilitating and promoting foreign trade of
India. Including the share capital of ` 1,300 crore received during the year from Government of
India, the paid up capital as on March 31, ...
34. The FACTS About EXIM Bank | EXIM.gov
https://www.exim.gov/about/facts-about-ex-im-bank The Export-Import Bank of the United
States (EXIM) is an independent, self-sustaining agency with an 82-year record of supporting
American jobs by financing the export of U.S. goods and services. In the last decade, EXIM has
supported more than 1.7 million jobs in all 50 states. In 2016, due to a lack of quorum on the ...
35. Export-Import Bank of India: Management, Functions and Activities of ...
www.yourarticlelibrary.com › Banking Export-Import Bank of India: Management, Functions
and Activities of Exim Bank! The Export-Import Bank (Exim bank) was set up on January 1,
1982 to take over the operations of international finance wing of the IDBI and to provide
financial assistance to exporters and importers and to function as a head financial institution ...
36. The Export-Import Bank of India | Asian EXIM Bank Forum
www.asianeximbanks.org/content/institutions/export-import-bank-india
Name, Export - Import Bank of India. Managing Director, Mr. David Rasquinha. Established In,
March, 1982. Head Office, Mumbai, India. Domestic Offices, Ahmedabad, Bangalore,
Chandigarh, Chennai, Guwahati, Hyderabad, Kolkata, New Delhi, Pune. Overseas Offices,
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37. The Most overlooked facts about EXIM bank is revealed? - Jagran Josh
https://www.jagranjosh.com/.../all-you-should-know-about-exim-bank-1459854693-...

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Apr 5, 2016 - In IBPS and other banking interview, it is obvious that selection panel may like to
ask you about the EXIM bank. How does it function? What are activities that are carried by it?
And what is the importance of EXIM bank in International Market?
38. Functions of Industrial Reconstruction Bank of India (IRBI)
www.yourarticlelibrary.com › Banking Functions of Industrial Reconstruction Bank of India
(IRBI)!. To provide financial assistance as well as to revive and revitalise sick industrial units in
public/private sectors, an institution called the Industrial Reconstruction Corporation of India
(IRCI) was set up in 1971 with a share capital of Rs. 10 crores.
39. Industrial Reconstruction Bank of India - Your Article Library
www.yourarticlelibrary.com/banking/industrial-reconstruction-bank-of.../23509 IRBI provides
term loans and working capital finance to medium, large, sick, small and tiny sector units. It also
provides ancillary services, such as consultancy, preparation of schemes of amalgamation,
merger, sale, reconstruction, equipment leasing, merchant banking etc. IRBI has full power to
take any step to remove ...
40. IRBI - Scribd
https://www.scribd.com/presentation/81432969/IRBI IRBI has been vested with wide powers to
take any steps to curb industrial sickness under the Act.yIRBI provides term loans and working
capital finance to medium. small and tiny sector units. It also provides ancillary services. sale. .
equipment leasing. merchant banking etc. reconstruction. merger. preparation of schemes ...
41. The Industrial Reconstruction Bank Of India Act, 1984 - Indian Kanoon
https://indiankanoon.org/doc/1617937/ THE INDUSTRIAL RECONSTRUCTION BANK OF
INDIA ACT, 1984. ACT NO. 62 OF 1984 [ 11th September, 1984.] An Act to provide for the
establishment of the Industrial Reconstrucson Bank of India, and for the transfer to, and vesting
in, the tiaid Reconstruction Bank, of the undertaking of the Corporation known as the ...
42. Industrial Reconstruction Bank of India - How is Industrial ...
https://acronyms.thefreedictionary.com/Industrial+Reconstruction+Bank+of+India
IRBI - Industrial Reconstruction Bank of India. Looking for abbreviations of IRBI? It is
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43. IRB Infrastructure Developers Ltd (IRBI.NS) Quote| Reuters.com
https://www.reuters.com/finance/stocks/overview/IRBI.NS Connect to the most current
information on stocks and bonds on Reuters.com for IRBI.NS.
44. End of the road for a 10-year-old bank? | Business Line
www.thehindubusinessline.com/todays-paper/tp-money...a.../article1751024.ece
Nov 7, 2006 - IIBI was formed by converting IRBI (Industrial Reconstruction Bank of India).
And there were avatars previous to that. "The IRCI (Industrial Reconstruction Corporation of
India Ltd), set up in 1971 for rehabilitation of sick industrial companies, was reconstituted
as IRBI in 1985 under the IRBIAct, 1984," says ...

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 45. National Institute for Small Industries Extension Training (NISIET)
https://www.indcareer.com/.../national-institute-small-industries-extension-training-nis...
Subsequently, it was also accorded national status and SIET Institute became nisiet in the same
year.... The broad functional areas of the Institute include research, consultancy, extension,
education and information services, apart from training. ... National Institute for Small ...
46. National Institute of Small Industry Extension Training (NISIET)
https://www.indcareer.com/.../national-institute-small-industry-extension-training-nisie...
Get Complete Details about National Institute of Small Industry Extension Training (NISIET) -
Know more about Admissions, Results and lots more.
47. National Institute for Micro, Small and medium Enterprises (ni-msme)
www.nimsme.org/ Subsequently, it was also accorded national status and SIET Institute
became nisiet in the same year. To cope with the precut of globalization, the Government of
India has enacted Micro, Small, Medium Enterprises Development (MSMED) Bill in the
Parliament which was commenced on 2nd October 2006. Accordingly, the ...
48. Nisiet - SlideShare
https://www.slideshare.net/preetombose/nisiet
Mar 7, 2015 - Nisiet. 1. NATIONAL INSTITUTE OF SMALL INDUSTRIES EXTENSION
TRAINING; 2. THIS PRESENTATION IS PREPARED BY:- •ARVIND KUMAR •ATUL
KUMAR •ALOK KUMAR SINGH •TANMAY BISWAS & •PREETOM BOSE OF
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49. National Institute for Small Industries Extension Training (NISIET ...
https://www.university-directory.eu › Institutes in India Welcome to National Institute for Small
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50. (NISIET), Hyderabad - IndiaStudyCenter.com
www.indiastudycenter.com › ... › Telangana › Hyderabad › Distance Education
IndiaStudyCenter.com - National Institute of Small Industry Extension, Hyderabad.
51. National Institute for Small Industries Extension Training (NISIET) in ...
https://www.mapsofindia.com/whitepages/educational-institutes/...and.../nisminds Oct 17, 2012
- National Institute for Small Industries Extension Training (NISIET) located at , Hyderabad
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52. National Institute of Small Industry Extension Training in Hyderabad ...
www.india9.com/.../National-Institute-of-Small-Industry-Extension-Training-47961.h... Dec 13,
2017 - National Institute of Small Industry Extension Training (NISIET) was established in
1960 under the Ministry of Small Scale Industries. Located at Hyderabad, the institute offers post

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graduate diplomas in information technology, tourism, fashion design, bio-informatics, digital
graphic arts and animation, ...
53. National Institute for Small Industries Extension Training (NISIET ...
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AICTE/UGC approval of National Institute for Small Industries Extension Training (NISIET)
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(NISIET) is situated in Hyderabad (Secundrabad)
54. National Institute for Small Industry Extension Training (NISIET)
ecoursesonline.iasri.res.in/mod/page/view.php?id=73731 Apr 24, 2012 - The NISIET, since its
inception in 1960 by the Government of India, has taken gigantic strides to become the premier
institution for the promotion, development and modernization of the SME (Small and Medium
Scale Enterprises) sector. An autonomous arm of the Ministry of Small Scale Industries (SSI),
the ...
55. About Us: About Us - Indian Institute of Entrepreneurship
iie.nic.in/pages/display/2-about-us Indian Institute of Entrepreneurship (IIE) is an autonomous
organization under the Ministry of Skill Development & Entrepreneurship. The main aim of the
Institute is to provide training, research and consultancy activities in Small and Micro
Enterprises (SME),with special focus on entrepreneurship development. The Indian ...

56. Why IIE - Institute of International Education

https://www.iie.org/Why-IIE For nearly a century, IIE has been a world leader in international
education. We work to build more peaceful and equitable societies by advancing scholarship,
building economies and promoting access to opportunity. As a not-for-profit with 18 offices and
affiliates worldwide, IIE collaborates with a range of corporate, ...
57. IIE - Ministry of Skill Development And Entrepreneurship
www.skilldevelopment.gov.in/IIE.html The Indian Institute of Entrepreneurship (IIE) was
established in the year 1993 in Guwahati by the erstwhile Ministry of Industry (now the Ministry
of Micro, Small and Medium Enterprises), Government of India as an autonomous national
institute with an aim to undertake training, research and consultancy activities in small ...
58. SME Smart Line of Credit - IDBI Bank
https://www.idbi.com/sme-smart-line-of-credit.asp Availability of timely and adequate credit
has always been a matter of concern for the MSME Sector.MSMEs stand to lose out on
emerging business opportunities, due to lack of want of access to credit, when needed. Keeping
that in view, IDBI Bank has introduced this Product in which financial assistance pre-
approved ...

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 Lesson 13: STATE LEVEL INSTITUTIONS SUPPORTING SMALL BUSINESS

After going through this lesson, you should be able to understand the role of various State level Financial
Institutions in supporting SSI units, such as :

 State Finance Corporations;

 Small Industries Development Corporation ( SIDCO);
 Small Industries Development Organisation ( SIDO);
 State Directorates of Industries;
 District Industries Centers ( DICs)

Structure of the Lesson :

13.1 State Financial Corporations

13.1.1 Functions of State Financial Corporations
13.1.2 State Financial Corporations in the Country
13.1.3 A.P. State Financial Corporation
13.2 Small Industries Development Corporation ( SIDCO)

13.3 Small Industries development Organisation ( SIDO)

13.4 State Directorates of Industries

13.5 District Industries Centers ( DICs)

13.6 Summary
13.7 Self assessment Questions
13.8 Key Terms
13.9 Further Readings / Reference books

******

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 10 Start ups with $ one Billion valuation

In the start up world, cracking a $1 billion valuation is the most coveted status of
success. Due to the rarity of this event, such companies have been dubbed “unicorns” and
receive the highest level of admiration among their peers. These are the 10 companies which
reached unicorn status faster than any others.
1. WB21

Time to Unicorn: 2.08 years

Latest Valuation: $2.2 billion

Total funding to date: $23.73 million

Business activities: WB21 is a digital banking platform that launched just about one year
ago. Over that span, WB21 saw crazy growth, reaching over 1 million users in September.

2. DidiChuxing

Time to Unicorn: 2.43 years

Latest Valuation: $35 billion

Total funding to date: $7.44 billion

Business activities: Didi is the “Uber of China” and recently partnered with Uber when the
ride-hailing startup decided to withdraw from its costly battle with Didi over the Asian
market.

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3. Twitter

Time to Unicorn: 2.32 years

Latest Valuation: $13.34 billion

Total funding to date: Public

Business activities: As one of the top 10 largest websites and social networks in the world,
Twitter has suffered a decrease in traction, valuation, and usership in recent years. Jack
Dorsey, the founder and CEO, was brought back into the company to try to solve these
problems.

4. Yello Mobile

Time to Unicorn: 2.28 years

Latest Valuation: $4 billion

Total funding to date: $202 million

Business activities: This conglomeration of over 70 startups which has raised $100 million
from Formation 8, aims to acquire small startups in order to grow in market size.

5. Pinterest

Time to Unicorn: 2.46 years

Latest Valuation: $11 billion

Total funding to date: $1.3 billion

Business activities: Pinterest is the niche social media site with over 50 million active users
in the United States alone. The network allows users to “pin” pictures and is predominantly
used for fashion, design, travel pictures, and recipes.

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6. Calient Technologies

Time to Unicorn: 2.02 years

Latest Valuation: $247 million

Total funding to date: $428 million

Business activities: Calient produces hardware for data centers. They saw exponential
growth in the late 1990’s reaching unicorn status, but in the following decade lost about 75%
of their valuation.

7. Xiaomi

Time to Unicorn: 1.71 years

Latest Valuation: $45 billion

Total funding to date: $1.4 billion

Business activities: Xiaomi is a Chinese consumer technology company producing a

majority of the Chinese smartphone market. They are sometimes referred to as the Apple of
China due to the mass appeal and sleek design.

8. Akami Technologies

Time to Unicorn: 1.58 years

Latest Valuation: $11.28 billion

Total funding to date: Public

Business activities: Akami Technologies went public in 1999 and reportedly manages 30%
of internet connections, which equates to around 2 trillion daily connections.

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9. Groupon

Time to Unicorn: 1.46 years

Latest Valuation: $2.19 billion

Total funding to date: Public

Business activities: Groupon is a social platform for ecommerce, touting over 45 million
active users and reported revenue over $3 billion annually.

10. Slack

Time to Unicorn: 1.25 years

Latest Valuation: $3.8 billion

Total funding to date: $540 million

Business activities: Slack is a B2B communication platform. The software allows

companies to divide group messages into pertinent clusters and includes features to keep
organizations talking effectively.

*******

The Micro, Small & Medium Enterprises (MSMEs) sector is one of the fastest growing industrial
sectors in the world economy; the Indian scenario is no different. The contribution of MSMEs to
our national economy in terms of creating a vibrant manufacturing sector, winning the global
market through increased exports, employment generation etc., is quite significant. Since finance
is the major requirement and also a constraint for SSI units, financing of the MSMEs sector has
become the utmost priority of the government since independence. A multi-level institutional
structure exists for financing of small enterprises and non-farm enterprises in India. Credit to
small enterprises comes under priority sector lending programme of banks.

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13.1 State Financial Corporations in India

In order to provide medium and long-term credit to industrial units, Industrial financial
Corporation of India (IFCI) was set up under the Industrial Finance Corporation Act 1948. The
objective was mainly to provide the credit to those undertakings, which fall outside the normal
banking activity. The state governments also expressed their desire to set up similar corporations
in the state to supplement the activities of the IFCI. Main intention of state governments that
time was to provide financial assistance to small and medium scale industries within the state but
outside the activities of the IFCI. To implement the views expressed by the State Governments,
the State Financial Corporation Bill was introduced in Parliament in the year 1951.

The establishment of State Financial Corporations was, one of the steps taken, at the
official level to promote the growth of small and medium-scale industries. The State Financial
Corporation Act passed in 1951 and empowered each state and union territory to establish State
Financial Corporation for the purpose of meeting the long-term financial requirements of small
and medium industries by providing credit to them. It provides loan to sole trading concern,
partnership firm, private limited companies and public limited companies. At present, there are
19 State Financial Corporations in India. Out of these 17 were set up under the State Financial
Corporations Act (SFCs) 1951. The Tamil Nadu Industrial Investment Corporation Ltd.
established in 1949 under the Companies Act as Madras Industrial Investment Corporation, also
functioning as SFC. Apart from the above SFCs, State Industrial Development Corporations
(SIDCs) also act as SFCs for providing assistance to MSMEs in some states and union territories.
The following states and union territories have SIDCs viz. Andaman & Nicobar, Arunachal
Pradesh, Daman & Diu and Dadra & Nagar Haveli, Goa, Manipur, Meghalaya, Mizoram,
Nagaland, Tripura., Pondichery, and Sikkim.

The State Financial Corporations Act, 1951 : The main features of the Act are as follows:—

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 1. It provides that the State Government may, by notification in the Official Gazette,
establish a Financial Corporation for the State.

2. The share capital shall be fixed by the State Government but shall not exceed Rs. 2
crores. The issue of the shares to the public will be limited to 25 per cent, of the share
capital and the rest will be held by the State Government, the Reserve Bank, Scheduled
Banks, Insurance Companies, Investment Trusts, Co-operative Banks and other
Financial Institutions.

3. Shares of the Corporation will be guaranteed by the State Government as to the re-
payment of principal and the payment of a minimum dividend to be prescribed in
consultation with the Central Government.

4. The Corporation will be authorised to issue bonds and debentures for amounts which
together with the contingent liabilities of the Corporation shall not exceed five-times the
amount of the paid-up share capital and the reserve fund of the Corporation. These
bonds and debentures will be guaranteed as to the payment of the principal and the
payment of interest at such rate as may be fixed by the State Government.

5. The Corporation may accept deposits from the public repayable after not less than five
years, subject to the maximum not exceeding the paid-up capital.

6. The Corporation will be managed by a Board consisting of a majority of Directors

nominated by the State Government, the Reserve Bank and the Industrial Finance
Corporation of India.

7. The Corporation will be authorised to make long-term loans to industrial concerns and to
guarantee loans raised by industrial concerns which are repayable within a period of not

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 exceeding 25 years. The Corporation will be further authorised to underwrite the issue of
stocks, shares, bonds or debentures by industrial concerns, subject to the provision that
the Corporation will be required to dispose of any shares, etc., acquired by it in
fulfilment of its underwriting liability within a period of 7 years.

8. Until a reserve fund is created equal to the paid-up share capital of the Corporation and
until the State Government has been repaid all amounts paid by them, if any, in
fulfilment of the guarantee liability, the rate of dividend shall not exceed the rate
guaranteed by the State Government. Under no circumstances shall the dividend exceed
5 per cent, per annum and surplus profits will be re-payable to the State Government.

9. The Corporation will have special privileges in the matter of enforcement of its claims
against borrowers.

13.1.1 Functions of SFCs

1. The SFCs grant loans mainly for acquisition of fixed assets like land, building, plant and
machinery.

2. The SFCs provide financial assistance to industrial units whose paid-up capital and
reserves do not exceed Rs. 3 crore (or such higher limit up to Rs. 30 crore as may be
specified by the central government).

3. The SFCs underwrite new stocks, shares, debentures etc., of industrial concerns.

4. The SFCs provide guarantee loans raised in the capital market by scheduled banks,
industrial concerns, and state co-operative banks to be repayable within 20 years.

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13.1.2 SFCs in the Country : At present there are 19 state finance corporations (out of which 17
SFCs were established under SFC Act 1951) in the country. These are ;

1. Andhra Pradesh State Financial Corporation (APSFC) : Andhra Pradesh State

Financial Corporation (APSFC) is a term lending Institution established in 1956 for promoting
small and medium scale industries in Andhra Pradesh under the provisions of the Sate Financial
Corporation' Act, 1951. The corporation has many entrepreneur - friendly schemes to provide
term loans, working capital term loans, special and seed capital assistance to suit the needs of
various categories of entrepreneurs. The Corporation has 45 years of expertise in industrial
financing engaged in the business of financing tiny, small and medium scale sector units and
thriving for balanced regional development of the state.

2. Arunachal Pradesh Industrial Development and Financial Corporation (APIDFC) :

Arunachal Pradesh Industrial Development and Financial Corporation (APIDFC) was
incorporated in the year 1978 as company under Companies Act, 1956 for promotion of
industries in Arunachal Pradesh. It is performing the twin role of State Industrial Development
Corporation and State Financial Corporation.

3. Assam Financial Corporation (AFC) : Assam Financial Corporation (AFC) was

established under the Central Act, viz., The State Financial Corporations Act, 1951, with the
basic objective of promoting and developing small scale and medium scale industries in the State
with a special focus on spreading industrial culture in the rural, semi-urban and backward areas
of the States. The corporation is owned by the Assam state government jointly with IDBI and is
functioning under the administrative control of the state government. The Chairman and
Managing Directors of AFC are senior IAS officers appointed by the state government in
consultation with IDBI. The Board of Directors of AFC are highly professional in character and
consist of senior executives of the state government, a representative each from RBI, IDBI and
SIDBI, besides other interests like Co-operatives, Life Insurance, entrepreneurs are also

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represented on the Board. AFC employs highly professional and technical personnel to carry on
the business operations such as M.B.As., C.As., engineers, marketing experts, etc.

4. Bihar State Financial Corporation (BSFC) : Bihar State Financial Corporation (BSFC) is
the main state level institution providing term lending facilities to industrial entrepreneurs. Banks
have also shown increasing interest in term lending to industrial units. BSFC will be restructured
and strengthened to meet the growing financial and mercantile needs of entrepreneurs. Although
the Government has nominated representatives of Associations of industrial enterprises and
Chambers of Commerce in the Board of this Institution a need has been felt to further strengthen
the Board with induction of greater number of competent professionals and representative of
Chambers and Industries with proven track record. Specific criteria will be laid down for
choosing professionals. Representatives of Financial Institutions will also be inducted in the
Board of BSFC. BSFC will also provide services such as financial leasing, loan syndication,
consultancy, Merchant Banking, entrepreneurial skill development and support for technology
upgradation to the industries in the State. The corporation would also be encouraged to establish
a Venture Capital Fund for the entrepreneurs in the state.

5. Delhi Financial Corporation (DFC) : The Delhi Financial Corporation has been rendering
yeoman service to small scale entrepreneurs in Delhi and Chandigarh. It has made finance
available to existing and prospective entrepreneurs at very reasonable terms. The corporation
has devised suitable schemes for catering the needs of different categories of entrepreneurs.

6. The Economic Development Corporation (EDC) of Goa : The Economic Development

Corporation (EDC) of Goa, established in 1975 has been the State Financial Institution. It has
been incorporated as an SIDC and a limited company. However, it has also been accorded twin
status of SFC by IDBI/SIDBI. Area of Operation - The Corporation has been extending
financial assistance mainly for the development of industries and service sector in the State of
Goa and Union Territory of Daman & Diu, Dadra and Nagar Haveli. The Corporation now
intends to widen up its area of operations in the surrounding areas of Goa as well as Mumbai.

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7. Gujarat State Financial Corporation (GSFC) : Gujarat State Financial Corporation
(GSFC) incorporated under the State Financial Corporations Act of 1951, is a trend setter and
path breaker in the field of industrial finance. It plays a major role in the development and
industrialization of Gujarat by extending credit assistance to suit individual requirements.
Gujarat State Financial Corporation established with main object for development activities to
contribute to social upliftment, regional dispersal of industrial activities and to adding to Gross
Stock Domestic Products. Also for promoting economic growth, balanced regional development
and widening of entrepreneurial base by financing small enterprises. GSFC a premier, regional
development bank set up by Government of Gujarat, to provide finance to new industrial units,
for acquisition of Fixed Assets, Expansion, Modernization, Diversification, Renovation etc. The
Industrial concern must set up in the state of Gujarat and the Union Territories of Diu, Dadra and
Nagar Haveli.

8. Haryana Financial Corporation (HFC) : It has been set up under an Act of Parliament
known as State Financial Corporation's Act. 1951 and the working is governed by this Act. The
Head Office of the Corporation is at Chandigarh and branch offices at each district headquarter
of Haryana. HFC meets the credit needs of small/medium scale industrial units by advancing
term loans & working Capital. The loans are advanced primarily for acquiring fixed assets such
as land, building, plant & machinery, raw material etc.

9. Himachal Pradesh Financial Corporation (HPFC) : Himachal Pradesh Financial

Corporation (HPFC) was established in the State under the Central Act, viz. The State Financial
Corporations Act, 1951, with the basic objective of promoting and developing small scale and
medium scale industries in the State with a special focus on spreading industrial culture in the
rural, semi-urban and backward areas of the State. The Corporation is owned by the State
Government jointly with IDBI and is functioning under the administrative control of the State
Government.

10. Corporation (J&KSFC) : The Jammu & Kashmir State Financial Corporation (J&KSFC)

304
was established to act as a Regional Development Bank with the aim of boosting economic
development in the State for providing financial assistance in the shape of loans to prospective
entrepreneurs for development of Industries. It was incorporated under The SFCs Act 1951 on
2nd December 1959 as a Development Bank for promotion of Small Scale Industries, hotels,
houseboats and transport sector in Jammu & Kashmir.

11. Karnataka State Financial Corporation (KSFC) : The focus of Karnataka State Financial
Corporation (KSFC) has always been on the small scale sector, artisans, tiny units and
disadvantaged groups. KSFC has been the main term lending institution in most of the districts
for first generation entrepreneurs.

12. Kerala Financial Corporation (KFC): Kerala Financial Corporation (KFC) was
established in the State under the Central Act, viz.. The State Financial Corporations Act, 1951,
with the basic objective of promoting and developing small scale and medium scale industries in
the state with a special focus on spreading industrial culture in the rural, semi-urban and
backward areas of the State. The Corporation is owned by the State Government jointly with
IDBI and is functioning under the administrative control of the State Government.

13. Madhya Pradesh Financial Corporation (MPFC) : Madhya Pradesh Financial

Corporation (MPFC) is the premier institution of the State engaged in providing financial
assistance and related services to small to medium sized industries. Also, it is registered as
Category-I Merchant Banker with Securities Exchange Board of India and setup a separate
Merchant Banking Division in the name of MPFC Capital Markets.

14. Maharashtra State Financial Corporation (MSFC) : The Maharashtra State Financial
Corporation (MSFC) has been set up under the 'State Financial Corporations Act, 1951. The
Corporation operates in State of Maharashtra from 1962 and in State of Goa and Union Territory
of Daman & Diu since 1964.

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15. Orissa State Financial Corporation (OSFC): The Orissa State Financial Corporation
(OSFC) is the primary state level financing institution incorporated in the year 1956 under the
State Financial Corporations Act, 1951. The Corporation extends term loan for acquiring fixed
assets like land, building, plant and machinery, equipment and margin money for working capital
for setting up of industries. OSFC also provides working capital assistance under Single Window
Scheme. Priority is given to small and tiny sector industrial units in backward areas.

16. Punjab Financial Corporation (PFC) : The Punjab Financial Corporation (PFC) has been
established under the State Financial Corporation Act, 1951, for providing medium and long
term loans to small and medium scale industrial undertakings in the State of Punjab. It generally
grants term loans for creation/ acquisition of fixed assets like land, building, plant & machinery,
provides guarantee against deferred payments for the purchase of capital goods and offers
underwriting facility on issue of stocks and shares to companies. The Corporation also provides
financial assistance for setting up of hotels, nursing homes/small hospitals, development of
industrial estates and purchase of transport vehicles, etc.

17. Rajasthan Financial Corporation (RFC) : Since its very inception, the Rajasthan
Financial Corporation (RFC) has been striving incessantly towards its goal- that of extending a
helping hand to a varied entrepreneurial section of society for their financial requirements. A
goal, ultimately aimed at sparring the process of industrialization of its parent State. For the
fulfillment its prime objective, it operates various loan schemes for tiny, small and medium scale
industries, many of them tailor-made for specific entrepreneurial classes.

18. Uttar Pradesh Financial Corporation (UPFC) : Uttar Pradesh Financial Corporation
(UPFC ) was established in 1954 under the State Financial Corporation Act, 1951 with its Head
Office at Kanpur. The UPFC took a humble step for the industrial development of the State of
Uttar Pradesh by providing term loan assistance to small and medium scale units. Several units
nurtured by UPFC have now become large enterprises.

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19. West Bengal Financial Corporation (WBFC) : West Bengal Financial Corporation
(WBFC) was established under the State Financial Corporation Act, 1951. The WBFC provides
loans, assistance and term finance to small and medium scale industries. Technical guidance is
given to entrepreneurs for project formulation and organisation, restructuring etc. WBFC has
formed Entrepreneurs Assistance Cell which holds regular meetings with commercial banks,
WBSEB, WBSIC, SISI, WEBCON etc. to render services to the units seeking working capital
assistance. The Cell also renders other services like arranging for various inputs like power,
industrial sheds, working capital finance etc.

13.1.3 A.P. State Financial Corporation

Andhra Pradesh State Financial Corporation [APSFC] is a term lending Institution

established in 1956 for promoting small and medium scale industries in Andhra Pradesh under
the provisions of the Sate Financial Corporations Act, 1951.The corporation came into existence
on 1-11-1956 by merger of Andhra State Financial Corporation and Hyderabad State Financial
Corporation. The corporation has launched many entrepreneur-friendly schemes to provide term
loans, working capital term loans, special and seed capital assistance to suit the needs of various
categories of entrepreneurs. The Corporation has completed six decades of dedicated service in
industrial financing of tiny, small and medium scale sector units and contributing to the balanced
regional development of the state.

Objectives of APSFC :

 To industrialise the State through balanced regional development and dispersal of

industries
 To support promotion and development of tiny, small and medium scale industries and
service sector units by extending need based credit to them.
 Nurtures entrepreneurship and encourages first generation entrepreneurs

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  To act as a catalyst for generation of employment

Functions & Duties of APSFC : The APSFC, subject to the provisions of SFCs Act, will
carry on and transact any of the following kinds of business viz.,

a) Guaranteeing, on such terms and conditions as may be agreed upon – (i) Loans raised by
industrial concerns which are repayable within a period not exceeding twenty years, and
are floated in the public market; (ii) loans raised by industrial concerns from scheduled
banks or State co-operative banks or other financial institutions;
b) guaranteeing, on such terms and conditions as may be agreed upon, deferred payments
due from any industrial concern in connection with its purchase of capital goods within
India;
c) underwriting of the issue of stock, shares, bonds or debentures by industrial concerns;
d) transferring for consideration any instruments relating to loans and advances granted by
its to industrial concerns;
e) acting as agent of the Central Government or the State Government or the Development
Bank or the Small Industries Bank or the IFCI Limited formed and registered under the
Companies Act, 1956, or any other financial institution notified in this behalf by the
Central Government in respect of any matter connected with, or arising out of, the grant
of loans or advances any matter connected with, or arising out of, the grant of loans or
advances to an industrial concern, or subscription to debentures of an industrial concern
or relating to the business of the Development Bank, Small Industries bank, IFCI Limited
or financial institution;
f) subscribing to, or purchasing of, the stock, shares, bonds or debentures of an industrial
concern or any other concern;
g) retaining as part of its assets any stock, shares, bonds or debentures which it may acquire
by subscription or in fulfillment of its underwriting liabilities and disposing of the stock,
shares, bonds or debentures so acquired;

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 h) granting loans or advances to, or subscribing to debentures of, an industrial concern,
repayable within a period not exceeding twenty years from the date on which they are
granted or subscribed to, as the case may be:
i) accepting or discounting promissory notes and bills of exchange made, drawn, accepted
or endorsed by industrial concerns or by any person selling capital goods manufactured
by one industrial concern to another industrial concern;
j) undertaking research and surveys for evaluating or dealing with marketing or investments
or undertaking and carrying on techno-economic studies or other activities in connection
with the development of any industry;
k) providing technical and administrative assistance to any industrial concern or any person
for the promotion, management or expansion of any industry.
l) planning and assisting in the promotion and development of industries.
m) providing consultancy and merchant banking services.
n) acting as trustee for the holders of debentures or other securities.
o) leasing, sub-leasing or giving on hire purchase of industrial plant, equipment, machinery
or any other asset.
p) factoring
q) providing export related credit and services
r) undertaking money market relative activities;
s) setting up of mutual funds and undertaking assets management activity;
t) promoting, forming or conducting or assisting in the promotion, formation, or conduct of
companies, subsidiaries, societies, trusts or such other associations of persons as it may
deem fit;
u) opening or confirming or endorsing letters of credit and negotiating or collecting bills and
other documents drawn there under;
v) doing such other business as the Small Industries Bank may authorize, and or generally
the doing of such acts and things as may be incidental to or consequential upon, the
exercise of its powers or the discharge of its duties under this Act.

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 The Financial Corporation is entitled to receive, in consideration of any of the services
mentioned above, such commission, brokerage, interest, remuneration or fees as may be agreed
up on.

Products & Services offered by APSFC :

Products (Fund Based Activities) : Andhra Pradesh State Financial Corporation (APSFC) extends
financial assistance for setting up industrial units in Small & Medium Scale, Service enterprises in the
state of Andhra Pradesh. The Corporation extends finance basically through two products the Term Loans
and the Working Capital Term Loans.

Term Loan : The Corporation extends financial assistance up to Rs 500 lakhs per project normally for
acquiring fixed assets viz., Land, Building and machinery through Term Loan. In extremely deserving
cases the Corporation extends financial assistance up to Rs2000 lakhs . The loan period normally ranges
from 5 to 8 years.

Medium Term Loan: The Corporation extends financial assistance for existing units with good
working results. The loan period is upto 6 years. The Corporation in consortium with Leading
Commercial Banks, with which it is having a MOU, extends higher working capital loans to deserving
units.

Services (Non Fund Based Activities)

1. Marketing of Insurance Products (Life & Non Life)

i. Life Insurance Products in Collaboration with Life Insurance Corporation of India

ii. General Insurance Products in Collaboration with United India Insurance Company Ltd.

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 iii. Cumulative Deposits with a minimum deposit of Rs.20,000/- Interest is paid on maturity
iv. Non-Cumulative Deposits with a minimum deposit of Rs.40,000/- Interest is paid
Quarterly

2. Counseling MBA Students in preparation of Project Reports :

Counseling services are provided to the students of MBA by helping them in choosing
the topics, arranging awareness programme on report writing skills, allotment of resource person
for each group of 5 students etc. Large number of students are immensely satisfied with these
service. An amount of Rs.3,000/- will be charged towards fee for each student.

3. Valuation of Assets

The Corporation, leveraging its rich experience, will also provide property valuation service at an
affordable fee. Being in the business of financing, APSFC knows the value of assets of all kinds much
better than many. We can take up valuation of both tangible and intangible assets to reflect their true and
fair value.

4. Internal Audit Services

APSFC is offering internal audit service to industries and service sector enterprises at an affordable fee.
The Corporation, with its pool of highly experienced professionals, is eminently qualified to take up
independent, objective and systematic internal audit of small, medium or large enterprises in all sectors.

5. Interaction Scheme for Professional Colleges / Institutions

Industry-Academia Interaction is a desirable goal. It is a wonderful partnership with an invaluable

purpose. This also helps in enhancing employability while improving perspectives and horizons of the
participants. APSFC is eminently suited to play this role. APSFC has been imparting training to
practicing managers besides providing guidance and mentoring support to existing and potential
entrepreneurs.

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To achieve this mission

 APSFC provide entrepreneurship educational training and ongoing support to educators.

 APSFC partner with universities, schools and community-based organizations.
 APSFC offer EDP support to the youth and prospective entrepreneurs.
 APSFC help to bridge the gaps in existing curricula.

Training : Training is an article of faith at APSFC. The ISO Manual of the Corporation has adequate
emphasis on training as a proactive and continuous activity. Besides training our own staff, we are
conducting SIDBI sponsored training programmes for the benefit of officers of other SFC's in the
country. APSFC also conduct specially designed training programmes for managers of SME sector,
Finance professionals and entrepreneurs.

Thrust Areas for availing loan through APSFC

a) Food processing and Agro based Industries

b) Information Technology / IT related activities / Services
c) Bio-Technology oriented projects
d) Agro based Industries
e) Drugs, Pharmaceuticals
f) Automobile Components
g) Infrastructure Development Projects
h) Hospitals, Nursing Homes, Assistance to Practising Doctors
i) Service Oreneted Activities
j) Export Oriented Activities
k) Tourism Related Activities
l) Apparels / Textile Industries
m) Super Bazaars

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Loan availing procedure through APSFC

Andhra Pradesh State Financial Corporation is the Premier Term Lending Institution in
the State which provides adequate and timely financial assistance to its customers and ultimately
contributing for the industrial promotion in the State. In addition to the customer satisfaction, the
prime object of the Corporation, it is also the endeavor of the Corporation to give quick service
to the entrepreneurs.

The Corporation sanctions loans on the security of primary as well as collateral security.
After receipt of the sanction letter, the entrepreneur has to complete the legal formalities securing
the loan sanctioned as stipulated in the Sanction letter. After completion of legal formalities,
funds will be released as per eligibility. Procurement of papers pertaining to the properties being
offered by the borrowers in favour of the Corporation will take considerable time.

Requirements and Guidelines for the sanction and disbursement of loans:

The following type of Institutions can avail financing from SFC: (1) Sole Proprietary Concern, (2)
Partnership Firm, (3) Private Limited/Limited Companies, (4) Societies.

1. In case of Sole Proprietary Concern

 Bio-data of the proprietor by way of copies of PAN Card/ Passport/ Voters

identity card/ Bio-data with photo and signature attestation by Gazetted
Officer/Bank Manager.

2. In case of Partnership Firm –

a. Copy of Partnership Deed;

b. Copy of Firm Registration Certificate;
c. Extract of Form-A from Registrar of Firms (for old firms and in case of
additional loans) regarding existing partners as on date;
d. Bio-data of partners by way of copies of PAN card/passport/voters identity
card/bio data with pass port photograph and signature duly attested by
Bank Manager/Gazetted Officer;

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3. In case of Companies

a. Memorandum & Articles of Association.

b. Bio-data of Promoter Directors affixing colour photo and duly attested by Bank
Manager/Gazetted Officer/Copies of PAN Card/Copies of Passport./voters
identity card.
c. Resolution of Board of Directors of the company authorising two directors to
raise loans from APSFC and sign necessary loan security documents and affix
common seal thereof.
d. Copy of certificate of incorporation if it is a Private Limited Co.
e. Copy of Certificate of Incorporation and Commencement of Business in the case
of Limited companies.
f. Copy of General Body Resolution u/s.293 (i) (d) of Companies Act in case of
Limited Companies, permitting the company to borrow in excess of paid-up
capital and free reserves and Resolution u/s.293 (1) (a) of Companies Act for
mortgaging the fixed assets of the company in favour of the Corporation.
g. Consent letters from the Directors about furnishing of their personal guarantee
with copies of property documents.
h. Search Report from CA/Extract of register of charge from ROC in case of
existing companies and companies seeking additional loans.

4. In case of Societies

a) Registration Certificate of the Co-operative Society.

b) Bye-laws of the Society, duly certified to be true and upto date.
c) List showing the names and addresses of the members of the Governing
body/Executive Committee of the Co-operative society along with Biodatas by
way of copies of PAN Card/ Passport/ Voters Identity Card/ Biodata with
Photograph, duly attested by any Bank Manager/Gazetted Officer.
d) Certified copy of the resolution of the co-operative society that it is authorized to
raise loan on the mortgage of the properties in favour of the Corporation as per

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 the Bye-laws of the Society, duly authenticated by the signature of the Chairman
of the meeting in which, the resolution was passed.
e) Certified copy of the resolution authorizing the Governing body / Executive
Committee to raise loan from the Corporation and to execute the necessary loan
security documents to the Corporation for completion of legal formalities.
f) Necessary permission from the Registrar of the Co-operative Societies for raising
the loan from the Corporation.

B. Primary Security:

The primary security can be either leasehold interest or freehold interest . If the unit is going to be
started in a leasehold premises, it is called leasehold and if the unit is going to be started in own premises,
it is called freehold.

In case unit is coming up in a leasehold premises, the Corporation will insist for equitable
mortgage of leasehold interest. If there is no loan on civil works, the lease period shall be
repayment period plus two years. If loan is provided on the civil works then lease shall be for a
period of 30 years. Please note that lease for any period is compulsorily registerable affixing
required stamp duty. Then the documents that are required are as under:

a. Registered Lease Deed in the standard format given by APSFC for the period
prescribed in the sanction letter i.e. loan period plus two years if no loan is
provided on civil works and if loan is sanctioned on civil works, 30 years lease
deed is required.
b. Copy of lessor title deed in proof of ownership and in the absence of title deed,
revenue records or ownership certificate issued by local Government or property
tax receipts.

Requirements for creation of equitable mortgage in case of freehold interest in land and
buildings:

If vacant land is acquired and buidings are to be constructed:

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 a. Original Regd. title deed in the name of the Proprietor/ Firm / Company along
with certified copy having clear approach road.
b. Pattadar Pass Book/title deed issued by MRO/RDO in the name of the
proprietor/firm/company/society.
c. Original/Copies of link documents (Vendor’s title deed) pertaining to the property
under the scheme along with copies of Pass Book and Title Deed reflecting the
sale entry. If pass book and title deeds are not issued, a certificate from MRO to
that effect is required.
d. Extracts of revenue records i.e. Khasra Pahani for 1954-55 along with Pahanies in
Telangana Area and 10 (1) along with Adangals in Andhra Area for the last 13
years.
e. No PT Certificate in case of Telangana Area.
f. E.C for 13 years (or) from the date of document if title deed is of beyond 13 years
to the date of deposit disclosing all transactions.
g. ULC permission u/s.26/exemption under ULC Act as the case may be in case the
land is within urban agglomeration.
h. Permission from Urban Development Authority/ Building Plans if the site is
within the Master Plan of Urban Development Authority.
i. Affidavit by promoters to the effect that there are no court cases pending against
the property under the scheme.

If the unit is coming up in APIIC land:

a. Original Regd. Sale Deed.

b. Original Regd. Sale Agreement.
c. Possession handing over letter and Allotment letter.
d. No dues Certificate and NOC to mortgage the lands allotted with the Corporation.

C. COLLATERAL SECURITY:

Generally, the Corporation insists for Collateral Security and the percentage of Collateral
Security is dependent upon the location and the nature of industry and the nature of loan. Also

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the Corporation insists for preferably urban immovable property towards Collateral Security and
preferably belonging to the borrowers. The Collateral Security can be either in the form of vacant
land, house, apartment, fixed deposits, Bank Guarantee.

If it is vacant land:

a. Original Regd. title deed in the name of the surety along with certified copies.
b. Original link documents (Vendor’s title deed).
c. Extracts of revenue records i.e. Khasra Pahani for the year 1954-55 along with
Pahanies in Telangana Area and 10 (1) along with Adangals in Andhra Area for
the last 13 years.
d. No PT Certificate in case of Telangana Area.
e. E.C for 13 years from the date of document and in case title deed is beyond 13
years from the date of document to the date of deposit disclosing all transactions.
f. ULC permission u/s.26/exemption under ULC Act as the case may be in case the
land is within urban agglomeration.
g. Copy of the Approved Layout/Sketch drawn by Mandal Surveyor demarcating the
site/plot with Sy.No and boundaries and a land mark for identification.

If it is house:

a) Original Regd.Conveyance Deed along with certified copy.

b) All the relevant Link Documents.
c) EC for 13 years (or) from the date of document in case title deed is beyond 13 years to the
date of deposit disclosing all transactions.
d) Tax Demand & Receipt/Ownership Certificate/ Extract of property tax demand register for
the last 13 years.
e) Approved building plans from Competent Authority.

If it is an Apartment:

a. Original Registered Sale deed in the name of the surety.

b. Copy of the development agreement and link documents.

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 c. Copy of the approved building plan.
d. Encumbrance Certificate for the last 13 years.
e. It shall be established that the original title deeds of the project are not mortgaged
to bank or any financial institution availing project finance, by way of declaration
from Builder/Landlord.
f. Mutation in favour of the surety.
g. Tax Demand and Receipt / Ownership certificate/ EPPDR.

If it is FDR:

a) The beneficiary/payee of fixed deposit should give a consent letter for pledging the fixed
deposit with the Corporation as Collateral Security in consideration of sanction of loan to the
unit to which the security is being offered.
b) The beneficiary/payee of the fixed deposit should also assign the proceeds of fixed deposit in
favour of the Corporation by a proper endorsement by the concerned bank.
c) A discharge voucher from the beneficiary/payee of fixed deposit duly affixing necessary
revenue stamp (without mentioning the date) on the backside of the FDR.
d) A letter addressed to bank by the beneficiary/payee authorising banker to pay the proceeds to
the APSFC as and when the fixed deposit is presented by the APSFC.

If it is Bank Guarantee:

The collateral security can be offered by the borrower by way of Bank guarantee also in such a
case the following documents shall be submitted:

1. Bank guarantee executed by the concerned Bank on required stamp paper by the
authorized signatories of the Bank affixing their rubber stamp containing the serial
number of the signatory as per the Bank rules.
2. A confirmation copy shall be forwarded by the Bank Manager to the Corporation in a
sealed cover by post.
3. A letter from the Bank that they will pay the amount in case the Bank guarantee is
invoked in time.

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 4. If the amount guaranteed is Rs.1.00 lakh and above, the Guarantee Agreement shall be
signed by 2 Authorised Officers of the Bank.

D. GENERAL GUIDELIENS:

a) If the borrower is proposing to purchase the property standing in the name of

minor, permission from the Court shall be obtained.
b) For purchase of land, which is an Inam land, occupancy certificate/Form-B patta
from competent authority shall be obtained.
c) Assigned lands should not be purchased without prior written permission of RDO.
d) For purchase of joint family property, the borrower should ensure that all the co-
parceners of the vendor family join in the execution of the sale deed.
e) For purchase of lands covered under Master Plan of the respective Urban
Development Authority, the borrower shall ensure that the proposed land is
falling within the Industrial Zone.
f) If the borrowers are seeking loans on land & buildings, the borrower shall
purchase the lands in the name of proprietor/firm/company/ society as the case
may be.
g) Generally, the Corporation will not accept third party collateral security.

The following are the loan security documents to be executed by the borrowers in favour
of the Corporation and the required documents for a particular loan are to be taken from amongst
the documents mentioned below:

1. Deed of Hypothecation
2. Memorandum of Deposit of Title Deeds
3. Guarantee Agreement
4. Loan Agreement
5. Promissory Note
6. Assignment of Development Rights

The applicable documents from out of the above shall be executed by the borrowers in favour of
the Corporation.

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The borrower shall pay the necessary stamp duty that is to be payable and applicable in the State
of Andhra Pradesh on the security documents.

The above list is not exhaustive and after scrutiny of the documents that are submitted, if some
more documents are required for establishing a valid marketable title for the properties being
offered as security for the loan sanctioned by the Corporation, the entrepreneurs have to submit
the same. For any clarifications, you may contact the Legal Officer in the Branch or Legal
Department in the Head Office.

Sanction

 Brief project report

 Copy of SSI registration certificate
 Bio-data of proprietor / partners / directors with 2 passport size colour photographs as per
Performa along with copies of certificates regarding academic qualifications, experience
etc.
 Solvency declaration of proprietor / partners / directors as per proforma (on rs.20 non-
judicial stamp paper)
 C0py of partnership deed & firm registration in respect of firms/memorandum and
articles of association & certificate of incorporation in respect of companies.
 Copy of land sale deed/ sale agreement / allotment letter of APIIC ltd.
 Building plans (approved plans in respect of hotels/nursing homes/commercial &
residential complexes proposals)
 Civil estimates
 Letter from the Lessor expressing willingness to let out the building and execution of
regd. Lease agreement for 7 years in the unit is proposed in leasehold buildings with
rough plan.
 Quotations for machinery and equipment from standard suppliers along with comparative
quotations.
 Copy of Panchayat / municipal approval.
 Copy of power feasibility letter from A.P.Transco.
 Copies of collateral security property documents.

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  Working results (audited balance sheets and profit & loss accounts) for the last 3 years in
respect of existing units and the provisional for the current year with all schedules.
 Working results (audited balance sheets and profit & loss accounts) for the last 3 years of
associated concerns of promoters.
 Particulars of available assets (land, buildings, machinery) in respect of existing unit.
 Other details such as raw material & market tie-ups, technology tie-up with background
of technical consultant etc.
 Other details such as raw materials and slaes invoices, list of major customers, particulars
of orders on hand etc.
 Service charge @ 0.5% of loan applied + 12.36% service tax on the service charges at the
time of filing the application.
 Upfront fee @ 0.5% of the loan sanctioned + 12.36% service tax on upfront fee at the
time of first disbursement.

Guidelines for Disbursement of Loan

Before disbursement of loan, the loanee is required to :

 Obtain legal formalities completion(LFC) certificate by completing hypothecation of title both in

respect of primary and collateral security from legal section.
 Comply with the various terms & conditions and specific stipulations of sanction and to raise the
required capital / long terms loans and create fixed assets to the extent stipulated for Initial
capital.

1. The Corporation generally reimburses the amount incurred on creation of fixed assets i.e. land,
building & machinery
2. Release against building is made in stages depending upon the progress of building as per
approved scheme.
3. For release against plant & machinery the loanee is required to submit original invoices, payment
receipts, bank statement confirming realisation of cheques, performance guarantee
4. Alternatively, direct payment can be released by the Corporation to the machinery supplier on the
basis of proforma invoice if the supplier is registered with the Corporation or is a standard

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 supplier after the entrepreneur has deposited the required margin money with the
supplier/Corporation and produces confirmatory letter that the machinery is ready for delivery.
5. If the supplier is not registered with the corporation or is not a standard / reputed supplier
commitment letter will be issued to the supplier and on delivery of the machinery payment will be
made to the supplier. If the supplier so opts he can negotiate the documents through any
commercial bank and get the payment released by dispatching the machinery through a reputed
transport agency.
6. The Corporation issues letter of commitment in favour of the bankers of the borrowers in cases
where L.C. is to be opened by the commercial banks. On presentation of certified set of
documents, the Corporation releases the permissible amount to the bank for discharge of
documents after fulfilling the terms and conditions stipulated in the commitment letter issued by
the Corporation.
7. Release up to 50% against material bills in case of self – fabricated machinery is made. After
completion of erection the balance eligible amount will be released retaining 10%/15% of eligible
amount for satisfactory performance.

Limits of Financial Assistance

Constitution Max. Limit per project

Proprietary & Partnership Joint Hindu families Rs.800 Lakhs

Limited companies Co-operative societies Rs.2000 Lakhs

14 SMALL INDUSTRIES DEVELOPMENT CORPORATION (SIDCO)

Need for Small Industries Development Corporation (SIDCO) :

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In many state governments, a separate corporation has been set up which is known as Small Industries
Development Corporation(SIDCO) for the promotion of small scale industries. They undertake all kinds
of activities for the promotion of small scale industries. Right from the stage of installation, to the stage of
commencing production, these Corporations help small scale industries (SSI) in many ways and also
provide infrastructure facilities to small scale industries. SIDCO has been responsible in spreading the
industrial activity throughout in several states. Due to the assistance provided by SIDCO, many backward
areas in most of the states have been developed.

Objectives of SIDCO

The following are the main objectives of SIDCO

1. The main objective of SIDCO is to stimulate the growth of industries in the small scale sector
2. To provide infrastructure facilities like roads, drainage, electricity, water supply, etc is one of the
primary objective of SIDCO.
3. To Promote industrial estates which will provide industrial sheds of different sizes with all basic
infrastructure facilities.
4. To Provide technical assistance through training facilities to the entrepreneurs.
5. To Promote skilled labor through the setting up of industrial training institutes.

Functions of SIDCO

1. SIDCO supplies scarce raw materials:

Some of the scarce raw materials are procured by the corporation either from the domestic market or from
abroad and are provided to the needy small scale industries. For this purpose, SIDCO has a number of raw
material depots and these depots are procuring various scarce raw materials, as per the requirements of
small scale industries in the state.

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 2. SIDCO provides marketing assistance:

In order to provide an efficient marketing support to small scale industries, the corporation has taken up
various schemes. In fact, the corporation participates in the tenders floated by the state government
departments and also with the DGS & D (Director General of Supplies and Disposal). SIDCO makes
advance payments for obtaining orders and distribute them among the various small scale units. SIDCO
also arranges for buyer — seller meets frequently.

3. SIDCO assists in Bills discounting:

When small scale units supply goods to government departments, there is a delay in receiving payments.
In such a situation, the bills drawn on government departments will be discounted by SIDCO and upto
80% of the bill value is given to the supplier. This helps the SSI units in solving their working capital
crisis.

4. SIDCO provides Export marketing assistance:

To promote export marketing among the small scale industries, SIDCO has developed websites because
of which it is able to display the products of the small scale industries in foreign markets and obtain
export orders. Once an export order is obtained, the Common export manager of SIDCO will make
arrangements for extending various services for export of the product. SIDCO also helps in the small
scale units taking part in the international trade fair at New Delhi, Pragati Maidan so that the products of
small scale industries of Tamilnadu are displayed.

5. SIDCO set up Captive power plants:

In order to provide uninterrupted and good quality power supply, SIDCO has taken up a plan to set up
captive power plants in major industrial estates. It is now planning to set up these plants in 10 industrial
estates.

6. SIDCO promotes skill development centres:

In an effort to supply skilled laborers to various small scale industries, skill development centres are being
set up in various industrial estates which will be training workers in varied industrial activities and they
will be trained in modern skill.

7. SIDCO promotes women entrepreneurs:

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In addition to the above, in order to promote women entrepreneurs, a separate industrial estate for women
has been set up at Tirumullaivoyal, near Chennai, where women entrepreneurs are trained in various
fields of small scale industries.

14.1SMALL INDUSTRIES DEVELOPMENT ORGANISATION (SIDO)

SIDO is a policy-making, coordinating and monitoring agency for the development of

small scale entrepreneurs. It maintains a close liaison with government, financial institutions and
other agencies which are involved in the promotion and development of small scale units. It
provides a comprehensive range of consultancy services and technical, managerial, economic
and marketing assistance to SSI units. It has a network of 28 Small Industries Service Institutes,
30 branch SISIs, 37 Extension Centres, four Regional Testing Centres, one Product and Process
Development Centre, three Footwear Training Centres and five Production Centres and ten Field
Testing Centres.

Functions

The main functions of the SIDO are coordination, industrial development and industrial
extension service. Some important functions are:

(1) To assess the requirements of indigenous and imported raw materials and components
for the small scale sector and to arrange their supplies;

(2) To collect data on consumer items which are imported, and encourage the setting up
of new units by giving them coordinated assistance;

(3) To prepare model schemes, project reports and other technical literature for
prospective entrepreneurs;

(4) To secure reservations of certain products for the SSIs.

(5) To provide consultancy and training services and marketing assistance to improve
the competitive strength of small scale units.

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(6) To evolve a national policy for the development of SSIs and coordinate thepolicies
and programmes of various State Governments SIDO is now Known as Micro, Small and
Medium Enterprises Development Organisation.

13.4 DIRECTORATES OF INDUSTRIES OF THE STATE GOVERNMENTS

The small-scale Industries is a State subject and. therefore, the development and implementation
of the schemes of assistance to SSIs is the primary responsibility of the State Government.
Directorates of Industries in each State do the work relating to the development of industries in
general and small scale industries in particular. Each directorate is stalled with administration
and technical officers at State headquarters and by a District Industries Officer with supporting
staff in each district. The State Directorates run various training schemes, production schemes
and common facilities schemes. They also provide facilities of developed industrial land and
factory sheds in industrial estates, allocate quotas of scarce raw materials, certify import
requirements and organise industrial cooperatives. Their functions are varied and have grown
with the development and diversification of the small scale sector.

14.2 District Industries Centers (DICs)

District Industries Centers (DICs) have emerged since 1978 as the model agency for development of
small and village industries. they provide all the support services needed for development of SSI in the
country. The DICs were established with a view to provide integrated administrative framework at the
district level with professionally qualified personnel in technology, marketing, credit, economic
investigation, raw materials, so that DICs would be the ‘single window’ raw materials, through which all
type of assistance would be channeled to the small-scale sector. They are virtually acting as per the plans
and programmes of both central as well as state government for the implementation of various
promotional measures from grass root level to develop SSI in the country. The entrepreneurs can get
assistance from DIC for setting up and running an industry.

Up to1991, 422 DICs were in operation in the country, almost one for each district. These DICs have
assisted more than 1.5 lakh units generating employment for more than 10.3 lakh persons. The four
metropolitan cities Mumbai, Chennai, Delhi and Kolkata have been kept outside the preview of DICs.

Functions of DICs:

326
The DICs arte funded by the State concerned and the Centre jointly. The Government has provided
substantial assistance to the DICs which can be spent by DICs on construction of an office building,
expenditure on furniture, fixtures, equipment, vehicles and other recurring expenses.

With this basis facility, DICs in the district level undertakes various promotional measures with a view to
bring all out development of SSI in the district. In starts from exploration of potential entrepreneurs to
marketing the products produced by the SSIs.

The DICs provide and arrange a package of assistance and facilities for credit guidance, raw materials,
training, marketing etc. including the necessary help to unemployed educated young entrepreneurs in
general.

Thus it may be said that DIC extends promotional, technical, physical, financial, marketing and all other
type of services, required for growth and development of SSI. The important functions of DIC are
discussed as follow:

1. Identification of entrepreneurs:

DICs develop new entrepreneurs by conducting entrepreneurial motivation programmes throughout the
district particularly under SEEUY scheme. DICs also take association of SIS’s and TCOs for conducting
EDPs.

2. Provisional registration:

Entrepreneurs can get provisional registration with DICs which enable them to take all necessary steps to
bring the unit into existence.

The entrepreneur can get assistance from term lending institutions only after getting provisional
registration. The provisional registration is awarded for two years initially and can be renewed every year
but only for two times.

3. Permanent registration:

When the entrepreneur completes all formalities required to commence the production like selection of
site, power connection, installing machinery etc he can apply to DIC for permanent registration.

327
It is only after getting the permanent registration that the entrepreneur can apply for supply of raw
materials on concessional rates. Permanent registration is essential to avail all types of benefits extended
by the government from time to time.

328
4. Purchases of fixed assets:

The DICs recommend loan applications of the prospective entrepreneur to various concerned financial
and developmental institutions e.g. NSIC, SISI etc. for the purchase of fixed assets. It also recommend to
the commercial banks for meeting the working capital requirement of SSI to run day to day operations.

5. Clearances from various departments:

DIC takes the initiative to get clearances from various departments which is essential to start a unit. It
even takes follow up measures to get speedy power connection.

6. Assistance to Village Artisans and Handicrafts:

In spite of inherent talent and ability village artisans are not better up because they lack financial strength
to strive in the competitive market. DIC in support with different lead banks and nationalized banks
extends financial support to those artisans.

7. Incentives and subsidies:

DIC helps SSI units and rural artisans to subsidies granted by government under various schemes. This
boost up the moral as well as the financial capacity of the units to take further developmental activities.

The different types of subsidies are power subsidy, interest subsidy for engineers and subsidy under IRDP
etc. from various institutions.

8. Interest free sales tax loan:

SIDCO provides interest free sales tax loan up to a maximum limit of 8% of the total fixed assets for SSI
units set up in rural areas. But the sanction order for the same is to be issued by DIC.

The DIC recommends the case of SSI units to National Small Industries Corporation Limited for
registration for Government purchase programme.

9. Assistance of import and export:

Government is providing various types of incentives for import and export of specific goods and services.
These benefits can avail by any importer or exporter provided the same is routed through the concerned
DIC.

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Export and import license is also issued to the importer or exporter only on the basis of recommendation
of DIC.

10. Fairs and exhibitions:

The DICs inspires and facilities the SSI units to participate in various fairs and exhibitions which are
organized by the Government of India and other organizations to give publicity to industrial products.

DICs provide free space to SSIs for the display of their products and attitudes financial assistance for the
purpose.

11. Training programmes:

DIC organizes training programs to rural entrepreneurs and also assists other institutions or organization
imparting training to train the small entrepreneurs.

12. Self-employment for unemployed educated youth:

The DICs have launched a scheme to assist the educated unemployed youth by providing them facilities
for self employment. The youth should be in the age group of 18 to 35 years with minimum qualification
of Metric or Middle with I.T.I. in engineering or Technical Trade. Technocrats and women are given
preference.

13.6 Summary

MSME sector is contributing quite significantly to the national economy. However, finance is
the major requirement and also a constraint for these units. Keeping this in view, a number of
institutions for the support of MSME units are created at the state level such as SFCs, SIDCO,
SIDO, DIs, and DICs.
The State Financial Corporation Act, passed in 1951, empowered each state and union
territory to establish State Financial Corporation for the purpose of meeting the long-term
financial requirements of small and medium industries by providing credit to them. It provides
loan to sole trading concern, partnership firm, private limited companies and public limited
companies. At present, there are 19 State Financial Corporations in India.

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 Functions of SFCs: (1) The SFCs grant loans mainly for acquisition of fixed assets like land,
building, plant and machinery.(2) The SFCs provide financial assistance to industrial units whose paid-up
capital and reserves do not exceed Rs. 3 crore (or such higher limit up to Rs. 30 crore as may be specified
by the central government). (3) The SFCs underwrite new stocks, shares, debentures etc., of industrial
concerns. (4) The SFCs provide guarantee loans raised in the capital market by scheduled banks,
industrial concerns, and state co-operative banks to be repayable within 20 years.

Andhra Pradesh State Financial Corporation (APSFC) : Andhra Pradesh State Financial Corporation
(APSFC) is a term lending Institution established in 1956 for promoting small and medium scale
industries in Andhra Pradesh under the provisions of the Sate Financial Corporation' Act, 1951. The
corporation has many entrepreneur - friendly schemes to provide term loans, working capital term loans,
special and seed capital assistance to suit the needs of various categories of entrepreneurs. The
Corporation has 45 years of expertise in industrial financing engaged in the business of financing tiny,
small and medium scale sector units and thriving for balanced regional development of the state.

SIDCO : In many state governments, a separate corporation has been set up which is known as Small
Industries Development Corporation(SIDCO) for the promotion of small scale industries. They undertake
all kinds of activities for the promotion of small scale industries. Right from the stage of installation, to
the stage of commencing production, these Corporations help small scale industries (SSI) in many ways
and also provide infrastructure facilities to small scale industries. SIDCO has been responsible in
spreading the industrial activity throughout in several states. Due to the assistance provided by SIDCO,
many backward areas in most of the states have been developed.

Directorates of Industries: The development and implementation of the schemes of assistance

to SSIs is the primary responsibility of the State Government, since the small-scale Industries is a
State subject. Directorates of Industries in each State do the work relating to the development of
industries in general and small scale industries in particular. Each directorate is stalled with
administration and technical officers at State headquarters and by a District Industries Officer
with supporting staff in each district. The State Directorates run various training schemes,
production schemes and common facilities schemes. They also provide facilities of developed
industrial land and factory sheds in industrial estates, allocate quotas of scarce raw materials,
certify import requirements and organise industrial cooperatives. Their functions are varied and
have grown with the development and diversification of the small scale sector.

331
District Industries Centers (DICs) have emerged since 1978 as the model agency for development of
small and village industries. they provide all the support services needed for development of SSI in the
country. The DICs were established with a view to provide integrated administrative framework at the
district level with professionally qualified personnel in technology, marketing, credit, economic
investigation, raw materials, so that DICs would be the ‘single window’ raw materials, through which all
type of assistance would be channeled to the small-scale sector. They are virtually acting as per the plans
and programmes of both central as well as state government for the implementation of various
promotional measures from grass root level to develop SSI in the country. The entrepreneurs can get
assistance from DIC for setting up and running an industry.

13.7 Self assessment Questions ;

Short Questions:
1. SFCs in India
2. Functions of SFCs
3. AP SFC
4. Types of financial assistance provided by APSFC
5. SIDCO
6. SIDO
7. State Directorates of Industries
8. DICs
9. Functions of DICs
Essay Questions:
1. Explain the schemes of Institutions supporting the MSME units at the state level for
their growth and development.
2. Explain the procedure, requirements and guidelines for obtaining financial assistance
from APSFC.
3. Explain how SIDCO is assisting small business units
4. Explain the role of SIDO in the promotion of SSI sector
5. Explain how the DICs are assisting enthusiastic entrepreneur to start their own
business.
Multiple choice questions:

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1. State Financial Corporation has been established by

A. State govt.

B. Central govt.

C. Any pvt org

D. None of these

2. SFCs provide finances to

A. Small and medium scale industries
B. Large scale industries
C. Cottage industries
D. Village Industries.
3. SIDBI caters to the requirement of

A. Small scale sector

B. Large Scale sector
C. Medium scale sector
D. Agriculture sector
4. SFC is prohibited from granting financial assistance to any company whose aggregate paid up capital
exceed____

A. 1 crore.
B. 1.5 crores.
C. 2 crores.
D. 2.5 crores.

Activity 1: Contact your local APSFC office and Collect information on the schemes of Assistance
to Entrepreneurs to develop their business.

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Activity 2: What are the SIDCO schemes of Assistance to Entrepreneurs?

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Activity 3: Explain how SIDO is assisting Entrepreneurs.

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Activity 4: visit your local DIC office and Collect information on the schemes of Assistance to
Entrepreneurs to start their own business.

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13.8 Key Terms

SFCs; APSFC; collateral security; bank guarantee; SIDCO; SIDO; DIs; DICs

13.9 Further Readings / Reference books :

1. www.apsfc.com/
2. https://en.wikipedia.org/wiki/Small_Industries_Development_Corp
oration
3. https://accountlearning.com/sidco-need-objectives-functions/
4. www.wipo.int/sme/en/best_practices/india.htm
5. msme.gov.in/
6. www.ap.gov.in/department/organizations-2/industries-and-commerce

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 LESSON 14

GOVERNMENT POLICY FOR MICRO, SMALL AND MEDIAM ENTERPRISES

Objectives of the Lesson:

After studying this lesson you should be able to know about:
1. The policy support of government for Micro, Small and Medium Enterprises in various
Industrial policy resolutions (IPRs)
2. Special schemes offered for employment generation and credit support.
3. Schemes for the development and promotion of Khadi, Village and Coir Industries.
4. Support to MSME for technology up gradation and quality certification.
5. Marketing promotion schemes for MSME.
6. Schemes for development of Entrepreneurship and skill development for MSME.
7. Schemes for the development of Infrastructure for MSME.
Structure of the lesson:
14.1. Government Policy support for MSME in various Industrial Policy resolutions

1. Industrial Policy Resolution (IPR) 1948,

2. Industrial Policy Resolution (IPR) 1956,
3. Industrial Policy Resolution (IPR) 1977,
4. Industrial Policy Resolution (IPR) 1980 and
5. Industrial Policy Resolution (IPR) 1990.
Prime Minister Employment Generation Programme and Other Credit Support
14.2 Schemes

Micro Units Development and Refinance Agency Ltd. [MUDRA]

14.3 Development of Khadi, Village and Coir Industries

14.4 Technology Up-gradation and Quality Certification

1. Financial Support to MSMEs in ZED Certification Scheme

2. A Scheme for Promoting Innovation, Rural Industry & Entrepreneurship

(ASPIRE)

3. National Manufacturing Competitiveness Programme (NMCP)

3.1 Credit Linked Capital Subsidy for Technology Upgradation

3.2 ISO 9000/ISO 14001 Certification Reimbursement

3.3.Marketing Support/Assistance to MSMEs (Bar Code)

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 3.4 Lean Manufacturing Competitiveness for MSMEs

3.5 Design Clinic for Design Expertise to MSMEs

3.6 Technology and Quality Upgradation Support to MSMEs

3.7 Entrepreneurial and Managerial Development of SMEs through Incubators

3.8 Enabling Manufacturing Sector to be Competitive through QMS&QTT

3.9 Building Awareness on Intellectual Property Rights (IPR)

14.5 Marketing Promotion Schemes

1. International Cooperation

2. Marketing Assistance Scheme

3. Marketing Assistance & Technology Upgradation (MATU)

4. MSME Market Development Assistance (MDA)

14.6 Entrepreneurship and Skill Development Programme
1. Assistance to Training Institutions

14.7 Infrastructure Development Programme

1. Micro & Small Enterprises Cluster Development Program (MSE – CDP)

14.8 Summary:
14.9 Key Terms
14.10 Self Assessment Questions:
14.11 References:

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 Six inspirational stories of entrepreneurs who made it big

The rags-to-riches stories of many entrepreneurs across India will serve as an inspiration for
those hoping to make it big in the start-up world. ET profiles six success stories of people who
made it big from the scratch.
1. Shashank Paranjape's Rs 1,500 crore Paranjape Schemes
Shashank Paranjape's Paranjape Chemicals started
operations with nine people on board. However, six
months into the business his luck ran out and he was duped
by his friend.

In 1987, Paranjape came to know of someone who owned a

vacant plot in Pune measuring 10,000 sq ft. He expressed
his wish to construct a multi-storey building and the person
readily agreed. Paranjape paid him Rs 1 lakh and got into
an agreement to give him two flats on completion of the
project. Paranjape the new company Paranjape Schemes (Construction).

Paranjape's approach was simple. He would reinvest every bit of the profit back into the
business to expand operations. Last financial year his company registered a turnover of Rs
1,500 crore and made Rs 225 crore in net profit (2013-14). This year he has a target of Rs
2,000 crore.
2. Dinesh Agarwal's IndiaMart
Seed Capital: Rs 40,000

After acquiring a B.Tech degree in computer science from

the Harcourt Butler Technological Institute, Kanpur, Dinesh
Agarwal took up a job as systems analyst at HCL
Technologies.

Finally, he settled on building a platform for businesses to

display products via dedicated Web pages. He named the venture, IndiaMart InterMesh. The
idea was to help the small and medium enterprises in the country market their products and
services. Convincing customers to first buy computers, which, in turn, would help in the
promotion of their business was quite a task.

As business started growing, he had to deal with several issues and the most irksome among
these was looking for bigger office space. In 2007, he invested Rs 7 crore to purchase a two
acre plot in Noida and build a new office. He has around 1 crore products and almost 15 lakh
suppliers. In 2013-14, the company generated a turnover of around Rs 200 crore.

338
 3. Nitin Shah's Rs 1000 crore fire protection company
Seed Capital: Rs 500

Nitin Shah did not have even Rs 20 to start out with. He took a loan of
Rs 500 from some of his friends and started working at a friend's auto
garage. This was in January 1984. By then I had completed a diploma
in mechanical engineering.

While working with my father, he built useful contacts. One of them was a senior advisor to
the Department of Atomic Energy. He told Shah about a maintenance contract for fire
extinguishers at the department. The contract required repair and maintenance of firefighting
cylinders.

Within 6-7 months, he had saved enough to buy a 1,200 sq. ft space at Ghatkopar for around
Rs 20 lakh. The company was named Nitin Fire Protection Industry. Based on work for the
DEA, he got a maintenance contract for ONGC in 1986.

On June 5, 2007 he went public to fund expansion plans. The size of initial public offering
(IPO) was Rs 65 crore. Shah's company is now the world's only company to offer all types of
fire protection products including inert gases, chemical gases and water. He is aiming to be a
$1-billion firm in the next five years.
4. Dheeraj Gupta's vada pav chain Jumbo King
Seed Capital: Rs 2 lakh

After Dheeraj Gupta completed his MBA in hotel

management in 1998, he decided to start his own venture.
The idea was to establish a sweets manufacturing and
distribution business. Within two years, he lost around Rs 50
lakh.

What caught his attention, in particular, was how successful

food chains such as McDonalds, Dominos and Subway
primarily focused on one product — burger, pizza,
sandwiches — and, yet, had a huge customer base.

Vada pav is a spicy Maharashtrian snack. He found that there were hundreds of vendors
selling the snack on the city streets. The market was huge but unorganised. he decided to get
into the vada pav snacks business.

Gupta somehow managed to raise around Rs 2 lakh to start the business. He leased space for
an outlet just outside Malad railway station. The idea was to outsource the manufacturing of
the patties to a vendor for a small fee. We would fry them in the store and concentrate on
sales. Last year, Jumbo King crossed a turnover of Rs 25 crore and Gupta is hopeful of
revenues of Rs 45 crore in 2014-15.

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 5. Ajjay Agarwal's Maxx Mobile
When Agarwal was 15 years old, he dropped out of school to join his
father's electronic trading business in Mumbai. He launched his own
company in January 2002.

Agarwal began with a seed capital of Rs 10 lakh, which came from

his savings. The first step was to have his proprietorship firm
registered in the name of Max Mobiles and Phone Accessories; it was only in 2004 that he set
up Maxx Mobile as a company. Initially, he would stamp my brand name on imported mobile
phone batteries and sell them to dealers in Mumbai.

At the beginning of 2004, he figured that he should set up his own manufacturing unit for
mobile phone batteries. The next obvious move was to expand the operations.

The next crucial year was 2008, when he started importing mobile phones and selling them
under the brand name Maxx Mobile. In 2009, he signed on M S Dhoni as the brand
ambassador and the advertising campaign during the T20 World Cup helped get eyeballs.
Next on the cards is the manufacturing of Android mobile phones. In the meantime, he is
looking forward to a turnover of Rs 1,500 crore by end-2017.
6. Pardeep Jain's Karbonn
Seed Capital: Rs 5 lakh

In the mid-1990s, mobile phones were just beginning to

make a foray in the country, so Pardeep Jain decided to
make the most of it.

In April 1996, he opened a small showroom at Kailash

Colony and started dealing in mobile phones from top
companies, such as Nokia and Samsung. Two years later, he went into an expansion mode by
opting for national distributorship. By 2005, he had a team of 150 spread across the country
and became the India distributors for players like HTC, LG and Motorola.

Having a huge dealer network in place, he was able to keep track of the market pulse and this
is how he realised that the time was ripe to introduce his own brand. He joined hands with
Bangalore-based United Telecoms Limited (UTL) to launch his own brand of cell phones,
Karbonn.

These handsets are manufactured in Shanghai, Taiwan and Korea, though the product
designing and testing is conducted in India.

********

340
Introduction:

The Ministry of Small Scale Industries and Agro and Rural Industries (SSI&ARI) was

created in October 1999. In September 2001, the ministry was split into the Ministry of Small

Scale Industries (SSI) and the Ministry of Agro and Rural Industries (ARI). The Ministry of

Small Scale Industries merged with the Ministry of Agro and Rural Industries to form

the Ministry of Micro, Small and Medium Enterprises in 2007. The Ministry of Micro, Small

and Medium Enterprises (MSME), aims primarily to assist the States/Union Territories in their

efforts to promote growth and development of MSMEs. The main focus of the schemes/

programmes undertaken by the organisations of the Ministry is thus to provide/facilitate

provision of a wide range of services and facilities required for accelerating the growth of

MSMEs. The schemes/programmes generally focus on capacity building in State/ Regions;

nevertheless, there are a few schemes/programmes, which are individual beneficiary oriented.

Definition of Micro, Small & Medium Enterprises as per MSMED Act 2006: It is important

to understand the classification and to avail the benefits accordingly, as some of the sectors are

specifically reserved for Small and Medium-sized Enterprises (SMEs) and there are also priority

sector lending from Banks which helps some of the sector specific SMEs to avail loans relatively

easily and at lower interest rates. Under the Micro, Small and Medium Enterprises Development

Act, 2006, the meaning of the terms Micro, Small and Medium enterprise is understood with

respect to the investment made in the plant and machinery/equipment.

As per the Act, the Micro, Small and Medium Enterprises (MSME) are classified in two

Classes:

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

Micro Enterprise: with an investment in Plant and Equipment Up to Rs 25 lakhs;

Small Enterprise: More than 25 lakhs and up to Five Crore investment in Plant and
equipment;

Medium Enterprises: More than Five Crores and upto 10 crores investment in plant
and equipment.

2. Service Enterprises:-The enterprises engaged in providing or rendering of services and

are defined in terms of investment in equipment.

Micro Enterprise: with an investment in Equipment Up to Rs 10 lakhs;

Small Enterprise: More than Rs. 10 lakhs and up to Rs. Two crores investment in
equipment;

Medium Enterprises: More than Two Crores and upto 5 crores investment in
equipment.

. The investment limit for each enterprise is as follows:

Investment Limit (in INR)

Plant and Machinery Equipment
(if manufacturing or (if providing or rendering
producing goods) services)

Micro Enterprise Not more than 25,00,000 Not more than10,00,000

(Rupees Twenty Five Lakhs (Rupees Ten Lakhs only).
only).

Small Enterprise Between 25,00,000 (Rupees Between 10, 00, 000

Twenty-Five Lakhs only) (Rupees Ten Lakhs only)
to 5,00,00,000 (Rupees Five and 2,00,00,000 (Rupees
Crores only). Two Crores only).
Medium Enterprise Between Between 2,00,00,000
5,00,00,000 (Rupees Five (Rupees Two Crores only)

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 Crores only) to 10,00,00,000 and Rs. 5,00, 00,000
(Rupees Ten Crores only). (Rupees Five Crores only).

In case of the manufacturing enterprises, investment in plant and machinery is the original cost

excluding land and building and the items specified by the Ministry of Small Scale Industries,

vide its notification No. S.O. 1722(E) dated October 5, 2006.

Benefits available to micro, small or medium enterprise : The major benefit for MSMEs is
the reservation policy, which reserves certain items, for exclusive manufacture by these
enterprises, thus, protecting their interests, as well as providing impetus to the society by
generating employment opportunities.

1. The Government has put in place policies and has reserved three hundred fifty (350)
items for purchase from MSMEs, under the Government Stores Purchase Programme.

2. To encourage the small-scale units, the SEZs are required to allocate 10 per cent space
for the small-scale units.

3. Under the MSMED Act, protections are offered in relation to timely payment for goods
and services by buyers to MSMEs.

4. Furthermore, the Government has been encouraging and supporting the sector through
policies for preferential access to credit, preferential purchase policy, etc.

5. It has been offering packages of schemes and incentives through its specialized
institutions in the form of assistance in obtaining finance; help in marketing; technical
guidance; training and technology upgradation, etc.

6. Further, an enterprise, whose post-issue face value does not exceed INR 25,00,00,000
(Rupees Twenty Five Crores only), is entitled to certain exemptions from the eligibility
requirements under the ICDR Regulation.

Procedure to be followed for classification as a Micro, Small or Medium Enterprise :

For the purposes of registration, the two part Entrepreneurs Memorandum has to be submitted to

the concerned District Industries Centre. Filing of an Entrepreneurs Memorandum is optional for

a micro or small enterprise, or a medium enterprise engaged in providing services. However, a

medium enterprise engaged in the manufacture or production of goods has to mandatorily file

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Part I of the Entrepreneurs Memorandum. There is no processing fee for processing the

memorandum. Thereafter, on the commencement of production/activity, Part II of the

Entrepreneurs Memorandum has to be filled up and submitted to the District Industries Centre.

However, it must be filed within two (2) years of the filing of Part I.

Implication of exceeding the limits prescribed for classification as a micro, small or

medium enterprises: If a Micro or a small Enterprise crosses the permissible investment limits,
they would have to re-file part II of the Entrepreneurs Memorandum. If the investment limit in a
Medium enterprise exceeds the permissible limit, it will become liable for de-registration and
would not be eligible for preferred treatment reserved for the MSMEs.

Sectors specifically reserved for these enterprises: The list of items exclusively reserved for

production by MSEs is limited to twenty (20) items. Some examples of reserved items are

pickles and chutneys, bread, mustard oil, ground nut oil, exercise books and registers, wooden

furniture and fixtures, candles, laundry soap, safety matches, fireworks, agarbattis, glass bangles,

steel almirahs and stainless steel and aluminum utensils. Though reserved exclusively for

MSMEs, these items can also be manufactured by Large/Medium units provided they undertake

to export a minimum of 50 per cent of the new or additional annual production of the MSE

reserved items within a maximum period of three years from the date of commencement of

commercial production of such reserved items.

priority sector with respect to lending: MSE sector now has greater access to credit as a
result of its classification as a priority lending sector. The banks are required to compulsorily
ensure that specified percentage (currently 40 per cent and 32 per cent of adjusted net bank credit
or credit equivalent amount of off-balance sheet exposure, whichever is higher, for domestic
commercial banks and foreign banks, respectively) of their overall lending is made to priority
sectors as classified by Government, thus ensuring credit to these sectors. The priority sectors
include agriculture, small enterprises, retail trade, etc. While for domestic commercial bank,
advances to small enterprises sector is reckoned for its overall priority sector target, for foreign
banks, such lending would be counted towards 10 per cent of adjusted net bank credit or credit
equivalent amount of off-balance sheet exposure, whichever is higher, irrespective of whether

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the finance is for export or domestic activities.
Out of the total advances to small enterprise sector, 60 per cent is reserved for micro enterprises
and the balance 40 per cent for the small enterprises. Out of this 60 per cent quota,
1. 40 per cent of the total advances to MSE sector is reserved for micro (manufacturing)

enterprises having investment in plant and machinery up to INR 5,00,000 (Rupees Five

Lakhs only) and micro (service) enterprises having investment in equipment up to INR

2,00,000 (Rupees Two Lakhs only); and

2. 20 per cent of the total advances to MSE sector should go to micro (manufacturing)

enterprises with investment in plant and machinery above INR 5,00,000 (Rupees Five

Lakhs only) and up to INR 25,00,000 (Rupees Twenty Five Lakhs only), and micro

(service) enterprises with investment in equipment above INR 2, 00,000 (Rupees Two

Lakhs only) and up to INR 10, 00,000 (Rupees Ten Lakhs only).

Lending to medium enterprises is not considered to be a priority sector lending. Micro and small

enterprises are also entitled to collateral free loan up to INR 10, 00,000 (Rupees Ten Lakhs

only), which may go up to INR 25, 00,000 (Rupees Twenty Five Lakhs only), with the approval

of the appropriate authority.

Activity: Identify the difference among Micro, Small and Medium enterprises and list out the

benefits available to them.

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14.1. Government Policy support for MSME in various Industrial Policy resolutions:

The Small Scale Industrial Sector has emerged as a dynamic and vibrant sector of the

economy during the eighties. The primary objective of the Small Scale Industrial Policy during

the nineties would be to impart more vitality and growth-impetus to the sector to enable it to

contribute its mite fully to the economy, particularly in terms of growth of output, employment

and exports. The sector has been substantially de-licensed. Further efforts were made to

deregulate and de-bureaucratise the sector with a view to remove all fetters on its growth

potential, reposing greater faith in small and young entrepreneurs. All statutes, regulations and

procedures were reviewed and modified, wherever necessary, to ensure that their operations do

not militate against the interests of the small and village enterprises.

Since Independence, India has launched various Industrial Policies and a brief review of
India’s Industrial Policies for the development and promotion of small-scale enterprises in the
country are presented below:

1. Industrial Policy Resolution (IPR) 1948:

The IPR, 1948 for the first time, accepted the importance of small-scale industries in the overall
industrial development of the country. It was well realized that small-scale industries are
particularly suited for the utilization of local resources and for creation of employment
opportunities.

However, they have to face acute problems of raw materials, capital, skilled labour, marketing,
etc. since a long period of time. Therefore, emphasis was laid in the IPR, 1948 that these
problems of small-scale enterprises should be solved by the Central Government with the
cooperation of the State Governments. In nutshell, the main thrust of IPR 1948, as far as small-
scale enterprises were concerned, was ‘protection.’

2. Industrial Policy Resolution (IPR) 1956:

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The main contribution of the IPR 1948 was that it set in the nature and pattern of industrial
development in the country. The post-IPR 1948 period was marked by significant developments
taken place in the country. For example, planning has proceeded on an organised manner and the
First Five Year Plan 1951-56 had been completed. Industries (Development and Regulation) Act,
1951 was also introduced to regulate and control industries in the country.

The parliament had also accepted ‘the socialist pattern of society’ as the basic aim of social and
economic policy during this period. It was this background that the declaration of a new
industrial policy resolution seemed essential. This came in the form of IPR 1956.

The IPR 1956 provided that along with continuing policy support to the small sector, it also
aimed at to ensure that decentralised sector acquires sufficient vitality to self-supporting and its
development is integrated with that of large- scale industry in the country. To mention, some 128
items were reserved for exclusive production in the small-scale sector.

Besides, the Small-Scale Industries Board (SSIB) constituted a working group in 1959 to
examine and formulate a development plan for small-scale industries during the, Third Five Year
Plan, 1961-66. In the Third Five Year Plan period, specific developmental projects like ‘Rural
Industries Projects’ and ‘Industrial Estates Projects’ were started to strengthen the small-scale
sector in the country. Thus, to the earlier emphasis of ‘protection’ was added ‘development.’ The
IPR 1956 for small-scale industries aimed at “Protection plus Development.” In a way, the IPR
1956 initiated the modem SSI in India.

3. Industrial Policy Resolution (IPR) 1977:

During the two decades after the IPR 1956, the economy witnessed lopsided industrial
development skewed in favour of large and medium sector, on the one hand, and increase in
unemployment, on the other. This situation led to a renewed emphasis on industrial policy. This
gave emergence to IPR 1977.

The Policy Statement categorically mentioned: “The emphasis on industrial policy so far
has been mainly on large industries, neglecting cottage industries completely, relegating small
industries to a minor role. The main thrust of the new industrial policy will be on effective
promotion of cottage and small-scale industries widely dispersed in rural areas and small towns.

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It is the policy of the Government that whatever can be produced by small and cottage industries
must only be so produced.”
The IPR 1977 accordingly classified small sector into three broad categories:
1. Cottage and Household Industries which provide self-employment on a large scale.
2. Tiny sector incorporating investment in industrial units in plant and machinery up to Rs. 1
lakh and situated in towns with a population of less than 50,000 according to 1971 Census.

3. Small-scale industries comprising of industrial units with an investment of upto Rs. 10 lakhs
and in case of ancillary units with an investment up to Rs. 15 lakhs.

The measures suggested for the promotion of small-scale and cottage industries included:
(i) Reservation of 504 items for exclusive production in small-scale sector.

(ii) Proposal to set up in each district an agency called ‘District Industry Centre’ (DIC) to serve
as a focal point of development for small-scale and cottage industries. The scheme of DIC was
introduced in May 1978. The main objective of setting up DICs was to promote under a single
roof all the services and support required by small and village entrepreneurs.

What follows from above is that to the earlier thrust of protection (IPR 1948) and development
(IPR 1956), the IPR 1977 added ‘promotion’. As per this resolution, the small sector was, thus,
to be ‘protected, developed, and promoted.’

4. Industrial Policy Resolution (IPR) 1980:

The Government of India adopted a new Industrial Policy Resolution (IPR) on July 23, 1980.
The main objective of IPR 1980 was defined as facilitating an increase in industrial production
through optimum utilization of installed capacity and expansion of industries.

As to the small sector, the resolution envisaged:

(i) Increase in investment ceilings from Rs. 1 lakh to Rs. 2 lakhs in case of tiny units, from Rs.
10 lakhs to Rs. 20 lakhs in case of small-scale units and from Rs. 15 lakhs to Rs. 25 lakhs in case
of ancillaries.

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(ii) Introduction of the concept of nucleus plants to replace the earlier scheme of the District
Industry Centres in each industrially backward district to promote the maximum small-scale
industries there.

(iii) Promotion of village and rural industries to generate economic viability in the villages well
compatible with the environment.

Thus, the IPR 1980 reimphasised the spirit of the IPR 1956. The small-scale sector still remained
the best sector for generating wage and self-employment based opportunities in the country.

5. Industrial Policy Resolution (IPR) 1990:

The IPR 1990 was announced during June 1990. As to the small-scale sector, the resolution
continued to give increasing importance to small-scale enterprises to serve the objective of
employment generation.

The important elements included in the resolution to boost the development of small-scale sector
were as follows:
(i) The investment ceiling in plant and machinery for small-scale industries (fixed in 1985) was
raised from Rs. 35 lakhs to Rs. 60 lakhs and correspondingly, for ancillary units from Rs. 45
lakhs to Rs. 75 lakhs.

(ii) Investment ceiling for tiny units had been increased from Rs. 2 lakhs to Rs. 5 lakhs provided
the unit is located in an area having a population of 50,000 as per 1981 Census.

(iii) As many as 836 items were reserved for exclusive manufacture in small- scale sector.

(iv) A new scheme of Central Investment Subsidy exclusively for small-scale sector in rural and
backward areas capable of generating more employment at lower cost of capital had been
mooted and implemented.

(iv) With a view, to improve the competitiveness of the products manufactured in the small-scale
sector; programmes of technology up gradation will be implemented under the umbrella of an
apex Technology Development Centre in Small Industries Development Organisation (SIDO).

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(v) To ensure both adequate and timely flow of credit facilities for the small- scale industries, a
new apex bank known as ‘Small Industries Development Bank of India (SIDBI)’ was established
in 1990.

(vi) Greater emphasis on training of women and youth under Entrepreneurship Development
Programme (EDP) and to establish a special cell in SIDO for this purpose.

(vii) Implementation of delicencing of all new units with investment of Rs. 25 crores in fixed
assets in non-backward areas and Rs. 75 crores in centrally notified backward areas. Similarly,
delicensing shall be implemented in the case of 100% Export Oriented Units (EOU) set up in
Export Processing Zones (EPZ) up to an investment ceiling of Rs. 75 lakhs.

Activity: Briefly mention the provisions of latest IPR for supporting Micro, Small and Medium
enterprises.
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14.2 Prime Minister’s Employment Generation Programme (PMEGP) and Other Credit
Support Schemes

The scheme is implemented by Khadi and Village Industries Commission (KVIC) as the nodal
agency at the national level. At the state level, the scheme is implemented through State KVIC
Directorates, State Khadi and Village Industries Boards (KVIBs) and District Industries Centres
(DICs) and banks. The Government subsidy under the scheme is routed by KVIC through the
identified banks for eventual distribution to the beneficiaries/entrepreneurs into their bank
accounts. The maximum cost of the project/unit admissible in manufacturing sector is Rs.25
lakhs and in business/service sector is Rs.10 lakhs. Any individual above 18 years of age can
apply. The beneficiary must have passed at least VIII standard for projects costing above Rs.10
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lakh in the manufacturing sector, and above Rs.5 lakh in the business/service sector. Only new
projects are considered for sanction under PMEGP. SHGs (including those belonging to BPL,
provided that they have not availed benefits under any other scheme), Institutions registered
under Societies Registration Act, 1860; Production Co-operative Societies, and Charitable Trusts
are also eligible. Existing units (under PMRY, REGP or any other scheme of Government of
India or State Government) and units that have already availed Government subsidy under any
other scheme of Government of India or State Government are not eligible. The State/Divisional
Directors of KVIC in consultation with KVIB and Director of Industries of the respective states
(for DICs) will give advertisements locally through print & electronic media inviting
applications along with project proposals from prospective beneficiaries desirous of establishing
the enterprise/starting of service units under PMEGP.

Please refer to Lesson 11 for details of credit rating scheme; credit guarantee trust fund;
and interest subsidy eligibility certificate scheme.

Activity: Contact your nearest office of DIC or State KVIC Directorate or State KVIB and

know about Prime Minister’s Employment Generation Programme (PMEGP):

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14.2.1 Micro Units Development and Refinance Agency Ltd. [MUDRA]: Micro Units
Development and Refinance Agency Ltd. [MUDRA] is an NBFC supporting development of
micro enterprise sector in the country. MUDRA provides refinance support to Banks / MFIs for
lending to micro units having loan requirement upto 10 lakh. MUDRA provides refinance to
micro business under the Scheme of Pradhan Mantri MUDRA Yojana. The other products are
for development support to the sector. The bouquet of offerings of MUDRA is depicted below.
The offerings are being targeted across the spectrum of beneficiary segments.

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 MUDRA Offerings:

Pradhan Mantri MUDRA Yojana:

Under the aegis of Pradhan Mantri Mudra Yojana (PMMY), MUDRA has created products /
schemes. The interventions have been named 'Shishu', 'Kishor' and 'Tarun' to signify the stage of
growth / development and funding needs of the beneficiary micro unit / entrepreneur and also
provide a reference point for the next phase of graduation / growth to look forward to :

 Shishu : covering loans upto 50,000/-

 Kishor : covering loans above 50,000/- and upto 5 lakh
 Tarun : covering loans above 5 lakh and upto 10 lakh

It would be ensured that more focus is given to Shishu Category Units and then Kishor and
Tarun Categories. Within the framework and overall objective of development and growth of

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micro enterprises sector under Shishu, Kishor and Tarun, the products being offered by MUDRA
are so designed, to meet requirements of different sectors / business activities as well as business
/ entrepreneur segments.

The funding support from MUDRA are of four types :

 Micro Credit Scheme (MCS) for loans upto 1 lakh finance through MFIs.
 Refinance Scheme for Commercial Banks / Regional Rural Banks (RRBs) /
Scheduled Co-operative Banks
 Women Enterprise programme
 Securitization of loan portfolio

Micro Credit Scheme:

Micro Credit Scheme is offered mainly through Micro Finance Institutions (MFIs), which deliver
the credit upto Rs.1 lakh, for various micro enterprise activities. Although, the mode of delivery
may be through groups like SHGs/JLGs, the loans are given to the individuals for specific
income generating micro enterprise activity. The MFIs for availing financial support need to
enroll with MUDRA by complying to some of the requirements as notified by MUDRA, from
time to time.

Refinance Scheme for banks:

Different banks like Commercial Banks, Regional Rural Banks and Scheduled Cooperative
Banks are eligible to avail of refinance support from MUDRA for financing micro enterprise
activities. The refinance is available for term loan and working capital loans, upto an amount
of 10 lakh per unit. The eligible banks, who have enrolled with MUDRA by complying to the
requirements as notified, can avail of refinance from MUDRA for the loan issued under Shishu,
Kishor and Tarun categories.

Women Enterprise Programme:

In order to encourage women entrepreneurs the financing banks / MFIs may consider extending
additional facilities, including interest reduction on their loan. At present, MUDRA extends a
reduction of 25bps in its interest rates to MFIs / NBFCs, who are providing loans to women
entrepreneurs.

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Securitization of Loan Portfolio:

MUDRA also supports Banks / NBFCs / MFIs for raising funds for financing micro enterprises
by participating in securitization of their loan assets against micro enterprise portfolio, by
providing second loss default guarantee, for credit enhancement and also participating in
investment of Pass Through Certificate (PTCs) either as Senior or Junior investor.

Purposes of MUDRA Loan

Mudra loan is extended for a variety of purposes which provide income generation and
employment creation. The loans are extended mainly for :

1. (i) Business loan for Vendors, Traders, Shopkeepers and other Service Sector activities.
2. (ii) Working capital loan through MUDRA Cards.
3. (iii) Equipment Finance for Micro Units.
4. (iv) Transport Vehicle loans.

Following is an illustrative list of the activities that can be covered under MUDRA loans:

1. Transport Vehicle : Purchase of transport vehicles for goods and personal transport such
as auto rickshaw, small goods transport vehicle, 3 wheelers, e-rickshaw, passenger cars,
taxis, etc.
2. Community, Social& Personal Service Activities: Saloons, beauty parlours,
gymnasium, boutiques, tailoring shops, dry cleaning, cycle and motorcycle repair shop,
DTP and Photocopying Facilities, Medicine Shops, Courier Agents, etc.
3. Food Products Sector: Activities such as papad making, achaar making, jam / jelly
making, agricultural produce preservation at rural level, sweet shops, small service food
stalls and day to day catering / canteen services, cold chain vehicles, cold storages, ice
making units, ice cream making units, biscuit, bread and bun making, etc.
4. Textile Products sector: Handloom, powerloom, khadi activity, chikan work, zari and
zardozi work, traditional embroidery and hand work, traditional dyeing and printing,
apparel design, knitting, cotton ginning, computerized embroidery, stitching and other
textile non garment products such as bags, vehicle accessories, furnishing accessories,
etc.

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 5. Business Loans for Traders and Shopkeepers: Financial support for on lending to
individuals for running their shops / trading & business activities / service enterprises and
non-farm income generating activities with beneficiary loan size of upto 10 lakh per
enterprise / borrower.
6. Equipment Finance Scheme for Micro Units : Setting up micro enterprises by
purchasing necessary machinery / equipments with per beneficiary loan size of upto 10
lakh.
7. Activities Allied to Agriculture: 'Activities allied to agriculture', e.g. pisciculture, bee
keeping, poultry, livestock, rearing, grading, sorting, aggregation agro industries, diary,
fishery, agriclinics and agribusiness centres, food & agro-processing, etc.(excluding crop
loans, land improvement such as canal, irrigation and wells) and services supporting
these, which promote livelihood or are income generating shall be eligible for coverage
under PMMY in 2016-17.
8. MUDRA Card: MUDRA Card is an innovative product which provides working capital
facility as a cash credit arrangement. MUDRA Card is a debit card issued against the
MUDRA loan account, for working capital portion of the loan. The borrower can make
use of MUDRA Card in multiple withdrawal and credit, so as to manage the working
capital limit in a most efficient manner and keep the interest burden minimum. MUDRA
Card will also help in digitalization of MUDRA transactions and creating credit history
for the borrower. National Payment Corporation of India (NPCI) has given RuPay
branding to MUDRA Card and also separate BIN / IIN for the same, by which credit
history can be tracked. MUDRA Card can be operated across the country for withdrawal
of cash from any ATM / micro ATM and also make payment through any ‘Point of Sale’
machines. The design of the MUDRA card as approved by DFS, GoI and NPCI is given
below. Banks can customize the same by incorporating their logo and name.
9. Portfolio Credit Guarantee: Traditional financing in Indian context adopts an Asset
Based lending approach with emphasis on collaterals. Micro units, most of the times, are
unable to provide the comfort of collaterals. Hence MUDRA loans i.e. loans upto Rs.10
lakh, have been made collateral free, as per the RBI norms in this regard. To mitigate the
issue of collaterals, MUDRA is offering a Credit Guarantee Product. MUDRA Credit
Guarantee is extended by creation of a Fund called “Credit Guarantee Fund for Micro

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 Units” [CGFMU] and the scheme has been notified by GoI vide its notification dated
April 18, 2016. Accordingly, all eligible micro loans sanctioned since April 08, 2015 is
covered under the Scheme. The Scheme is being managed by National Credit Guarantee
Trustee Company Ltd. [NCGTC], an agency promoted by the GOI. Further, given the
context of the industry /segment, since the individual loan sizes would expectedly be
small and number of loans will be large, Mudra Credit Guarantee scheme provide a
Portfolio Guarantee. Under this, Credit Guarantee or Risk Sharing is provided for a
portfolio of homogenous loans instead of a Scheme for individual loan - by - loan
guarantee. This is expected to create administrative efficiencies and increase
receptiveness for the Credit Guarantee product. The Guarantee product is one of the key
interventions proposed with the objective of bringing down the cost of funds for the end
beneficiary to improve its creditworthiness.
10. Creation of Resources for Credit Enhancement / Guarantee facility: The corpus
proposed for the Credit Guarantee Scheme would be regularly augmented with a charge
on the outstanding loans under refinance. The same would be utilized for providing first
loss guarantee / credit enhancement for securitized portfolio loans. . Credit enhancement :
Facilities offered to cover probable losses from a pool of securitized assets in the form of
credit risk cover through a letter of credit, guarantee or other assurance from the
originator / co-originator or a third party to enhance investment grade in any
securitization process. First loss facility is the first level of credit enhancement offered as
part of the process in bringing the securities to investment grade. Second loss facility
provides the second / subsequent tier of protection against potential losses.
11. Development and Promotional Support: Besides the credit constraints, the NCSBs face
many non-credit challenges, like,

 Skill Development Gaps

 Knowledge Gaps
 Information Asymmetry
 Financial / Business Literacy
 Lack of growth orientation

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To address these constraints, MUDRA will adopt a credit- plus approach and offer
Developmental and Support services to the target audience. It will act as a market maker and
build –up an ecosystem with capacities to deliver value in an efficient and sustainable manner.

Imparting Financial / Business Literacy: Financial / business literacy or financial education

can broadly be defined as 'providing familiarity with and understanding of financial market
products, especially rewards and risks, in order to make informed choices.'

Financial Inclusion and Financial / business Literacy are twin pillars. While Financial Inclusion
acts from supply side providing the financial market / services that people demand, Financial
Literacy stimulates the demand side – making people aware of what they can demand.
Supporting the financial literacy drive will contribute substantially from the demand side to the
national agenda of financial inclusion.

Imparting Financial / Business Literacy :

357
This apart, the micro enterprise segment also needs business literacy which will help them in
acquiring knowledge on running / managing business, keeping accounts, working out ratios, etc.

Promotion and Support of Grass Root Institutions: One of the major focus areas will be to
formalize and institutionalize the last mile financiers / grass root institutions so that a new
category of financial institutions viz. Small Business Finance Companies can be created and
ecosystem developed for their growth. Rural innovations at micro enterprise / unit level would
also be one of the key areas for intervention and support. Support to Micro units by way of the
facility of incubators would be taken up. This would ensure that at the most grass root levels in
the country, there is climate for promotion of innovation as well as incubation of ideas from
educated rural youths which would germinate in viable micro enterprises.

Creation of frame work for “ Small Business Finance Entities: An enabling framework for
support to "Small Business Finance Entities" would be created leading to formalization of the
economy which is presently included in the informal sector.

Synergies with “Make in India” Campaign : Government of India has initiated several steps
for encouraging enterprise creation in our country. The major one is “Make in India” movement.
Make in India is a major national programme designed to facilitate investment, foster innovation,
enhance skill development, project intellectual property and build best in class manufacturing
infrastructure. This coupled with Start-up India and Stand-up India campaign, has created a
conducive environment of enterprise creation in different scales. MUDRA, being an initiative for
promoting micro enterprises, fits well with Make in India initiative for supporting these micro
enterprises.

Synergies with National Rural Livelihoods Mission / National Urban Livelihood Mission :
The National Rural Livelihoods Mission [NRLM] is set up "To reduce poverty by enabling the
poor households to access gainful self-employment and skilled wage employment opportunities,
resulting in appreciable improvement in their livelihoods on a sustainable basis, through building
strong grassroots institutions of the poor." To achieve the above, NRLM Mission inter alia
follows a demand driven strategy for continuous capacity building, imparting requisite skills and
creating linkages with livelihood opportunities for the poor, including those emerging in the
organized sector.

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Similarly, the Deendayal Antodaya Yojana [DAY] National Urban Livelihood Mission is
another progamme which is aimed at reducing Urban poverty through creation of micro
enterprises, individually and group mode.

MUDRA, being an initiative for promoting micro enterprises, would make all efforts to draw
synergies between NRLM, NULM and MUDRA interventions for supporting micro enterprises
and creating sustainable livelihood opportunities for the poor.

Synergies with National Skill Development Corporation : NSDC is already engaged in the
process of skill development at a National scale. Synergizing with NSDC will help MUDRA in
augmenting the skill sets of the sectoral players.

Working with Credit Bureaus : With the growth of responsible lending practices, Credit
Bureaus (CB) have gained increasing level of acceptability in the micro finance sector. The CB
culture will help in creating credit history over a period of time which will facilitate faster credit
dispensation as the system evolves.

Working with Rating Agencies : Accreditation / rating of MFI entities is one of the roles
earmarked for MUDRA. Further, a segment of financial intermediaries for the non corporate
small business sector is envisaged to emerge in the financing architecture. MUDRA would work
in coordination with Rating Agencies so that appropriate rating framework (s) which take into
account sector specific features are devised for various sector participants. In the longer run,
availability of rating for sector participants would facilitate formalization and further flow of
capital to the sector.

The MUDRA Pricing : Access to finance is critical and equally critical is the cost of finance to
the NCSB/ultimate beneficiary. The funds mobilized by micro units from the informal sources
are at a high cost. There is scope for cost rationalization. However, the rationalization is
intricately linked with the cost of funds for the last mile MFIs.

GOI while announcing the formation of MUDRA also announced a refinance corpus for
MUDRA at 20000 crores, to be allocated by RBI from the Priority Sector lending shortfall.
Accordingly, RBI has provided the allocation which helps in bringing down the cost of lending
at the ultimate borrower level as MUDRA refinance will reduce the average borrowing cost of
the lending institutions

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The NBFC-MFIs are presently regulated by Reserve Bank of India and RBI has already
prescribed detailed guidelines for margin cap in respect of MFIs. The margin cap has been
pegged at 10% for MFIs having loan portfolio of more than 100 crore and 12% for smaller MFIs
having loan portfolio of less than 100 crore or 2.75 times the average base rate of five major
commercial banks, whichever is less. In the backdrop of these guidelines and the fact that MFI
sector has been constantly trying to reduce its costs, MUDRA would also help MFIs reduce their
cost to bring down the overall cost to the end beneficiaries. Further, at the time of appraisal,
MUDRA would be studying / assessing individual MFIs on this as well as other related
parameters and suitably price its assistance based on such assessment.

In the case of Banks, RBI has also put a cap on the interest rate at Base rate/ MCLR for lending
micro units by Commercial Banks by availing of MUDRA refinance. Similarly, the RRBs and
Cooperatives have been given a interest cap of 3.50% over and above MUDRA refinance rate,
while lending to MUDRA loan by availing of MUDRA refinance.

In case of NBFCs, RBI has also stipulated a interest cap of 6% over and above MUDRA
refinance while their lending to MUDRA segment.

All these are expected to have a positive impact on the pricing of MUDRA loans in the country
whereby the Micro enterprises will be able to avail of credit at a affordable interest rate. But, first
and foremost objective is to ensure accessibility of credit.

Activity: Carefully study the MUDRA Scheme and write how it will help you.

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14.3 Schemes for the Development of Khadi, Village and Coir Industries

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 1. Science and Technology Scheme
2. Market Promotion & Development Scheme (MPDA)
3. Revamped Scheme of Fund for Regeneration of Traditional Industries
(SFURTI)
4. Coir Udyami Yojana (CUY)
5. Coir VikasYojana (CVY)
5.1 Skill Upgradation & Mahila Coir Yojana (MCY)
5.2 Development of Production Infrastructure (DPI)
5.3 Domestic Market Promotion Scheme
5.4 Export Market Promotion
5.5 Trade and Industry Related Functional Support Services (TIRFSS)

Refer to Lesson 11 for details of the above schemes.

14.4 Technology Upgradation and Quality Certification

1. Financial Support to MSMEs in ZED Certification Scheme

The objectives of the scheme include inculcating Zero Defect & Zero Effect practices in
manufacturing processes, ensure continuous improvement and supporting the Make in India
initiative. The ZED Certification scheme is an extensive drive to create proper awareness in
MSMEs about ZED manufacturing and motivate them for assessment of their enterprise for ZED
and support them. After ZED assessment, MSMEs can reduce wastages substantially, increase
productivity, expand their market as IOPs, become vendors to CPSUs, have more IPRs, develop
new products and processes etc.

The scheme envisages promotion of Zero Defect and Zero Effect (ZED) manufacturing
amongst MSMEs and ZED Assessment for their certification so as to
 Develop an Ecosystem for Zero Defect Manufacturing in MSMEs.
 Promote adaptation of Quality tools/systems and Energy Efficient manufacturing.
 Enable MSMEs for manufacturing of quality products.
 Encourage MSMEs to constantly upgrade their quality standards in products and
processes.
 Drive manufacturing with adoption of Zero Defect production processes and without
impacting the environment.
 Support ‘Make in India’ campaign.
 Develop professionals in the area of ZED manufacturing and certification.

Nature of assistance includes assessment & rating/re-rating/gapanalysis/handholding.

The subsidy provided by the Government of India for Micro, Small & Medium Enterprises will
be 80%, 60% and 50% respectively. There shall be an additional subsidy of 5% for MSMEs
owned SC/ST/women and MSMEs located in NER and J&K.

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2. A Scheme for promoting Innovation, Rural Industry & Entrepreneurship (ASPIRE)

The main objectives of the scheme are to (i) Create new jobs and reduce unemployment
(ii) Promote entrepreneurship culture in India (iii) Boost Grassroots economic development at
district level (iv) Facilitate innovative business solution for un-met social needs, and (v) Promote
innovation to further strengthen the competitiveness of the MSME sector.

Nature of assistance includes NSIC/KVIC or Coir Board or any GoI or State Government
agency to set up 80 Livelihood Business Incubators for the period 2014 to 2016. The objectives
are: Promotion of Innovation, Entrepreneurship and Agro-Industry organisation of the M/o
MSME, and one-time grant of 100% of cost of Plant & Machinery other than the land and
infrastructure, or an amount up to Rs 100 lakhs, whichever is less is to be provided. In case of
incubation centres to be set up under PPP mode with NSIC, KVIC or Coir Board or any other
Institution/agency of GoI/State Government, one- time grant of 50% of cost of Plant &
Machinery, other than the land and infrastructure, or Rs 50.00 lakhs, whichever is less is to be
provided.

The Scheme aims to implement the Incubation and Commercialisation of Business Ideas
Programme through technical / research institutes, including those in the field of agro based
industry. These would be designated as Knowledge Partners and would incubate new/existing
technologies for their commercialisation. The scheme also provides funds for the
incubator/incubation and creates necessary synergy between this scheme and the Livelihood
Business Incubators/Technology Business Incubators and Incubation schemes of MSME / NSIC
/ KVIC / Coir Board / Other Ministries/Departments as well as Private incubators. Application
can be sent to Aspire Scheme Steering Committee of the Ministry of MSME. The Scheme
Steering Committee will be responsible for overall policy, coordination and management
support. The Council will be chaired by Secretary, Ministry of MSME.

3. National Manufacturing Competitiveness Programme (NMCP):

The following schemes are aiming at improving the competitiveness of the

manufacturing units:

3.1. Credit Linked Capital Subsidy for Technology Upgradation (CLCSS)

CLCSS provides 15% subsidy for additional investment up to Rupees one cr for
technology upgradation by MSEs. Technology upgradation would ordinarily mean induction of
state-of-the-art or near state-of-the- art technology. Units looking to replace existing
equipment/technology with the same equipment/technology will not qualify for subsidy under

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this scheme. Similarly, units upgrading with used machinery would not be eligible under this
scheme.

The scheme aims at facilitating technology upgradation by providing 15% up front

capital subsidy to MSEs, including tiny, khadi, village and coir industrial units, on institutional
finance availed by them for induction of well established and improved technologies in specified
sub-sectors/products approved under the scheme. Any MSE unit is eligible to apply under the
scheme. MSME units meeting the eligibility criteria may approach 12 nodal banks / agencies.
These are SIDBI, NABARD, SBI, BoB, PNB, BOI, SBBJ, TIIC, Andhra Bank, Corporation
Bank, Canara Bank and Indian Bank.

3.2. ISO 9000/ISO 14001 Certification Reimbursement

In order to enhance the competitive strength of SMEs, the scheme provides incentives to
those SMEs/ancillary undertakings that have acquired ISO 9000/ISO 14001/HACCP
certification. The scheme is enlarged so as to include reimbursement of expenses in the
acquisition of ISO 14001 certification. The scheme envisages reimbursement of charges
incurred for acquisition of ISO-9000/ISO-14001/HACCP certification to the extent of 75% of
expenditure, subject to a maximum of Rs.75,000 in each case. The scheme is applicable to
MSEs/ancillary/SSSB units that have already acquired ISO-9000/ISO-14001/ HACCP
certification.

3.3. Marketing Support/Assistance to MSMEs (Bar Code)

Under this scheme the Ministry conducts seminars and reimburses registration fees for
bar coding in order to encourage MSEs to use bar-codes. Nature of assistance include
reimbursement of registration fee (one time and recurring for 3 years) for bar coding. Financial
assistance for reimbursement of 75% of one-time registration fee (Under MSE-MDA) and 75%
of annual recurring fee for first three years (Under NMCP) paid by MSEs to GS1 India for the
use of bar coding. The scheme applies only to MSEs with and registration with GS1 India for
use of barcode.

3.4. Lean Manufacturing Competitiveness for MSMEs

The objective of the scheme is to enhance the manufacturing competitiveness of MSMEs

through the application of various Lean Manufacturing (LM) techniques. Financial assistance is
provided for implementation of lean manufacturing techniques, primarily the cost of lean
manufacturing consultant (80% by GoI and 20% by beneficiaries).

Lean manufacturing consultants (LMCs) will raise bills for services provided to Special
Purpose Vehicle (SPV). SPV will, in turn, pay the first installment of 20% to the LMC and will

363
obtain reimbursement from the National Monitoring and Implementing Unit (NMIU). Thereafter,
Ministry of MSME will transfer funds to the NMIU. SPV payments to LMC will be on a
milestone basis in 5 tranches, each of 20% of the amount fixed.

The scheme is open to all manufacturing MSEs. The units are required to form MC,
ideally of 10 units each with a minimum 6, by signing among themselves a Memorandum of
Understanding an MoU to participate in the scheme. A group of SMEs can apply for the
scheme. Either a recognised SPV can apply on its own, or a mini cluster can be formed by a
group of 10 or more such units. The SPV can apply to the National Monitoring and
Implementing Unit (National Productivity Council for the Scheme) in the given format.

3.5. Design Clinic for Design Expertise to MSMEs

The scheme is for increasing competitiveness of MSMEs through adoption of design and
its learning. Nature of assistance includes funding support of (1) Rs.60,000 per seminar and 75%
subject to a maximum of Rs.3.75 lakhs per workshop, (2) To facilitate MSMEs to develop new
Design strategies and or design related products and services through project interventions and
consultancy.
Expert agencies (Industry Associations, Technical Institutions or other appropriate
bodies), for conducting seminars and workshops, MSMEs or groups of MSMEs, Academic
Institutes/ design companies/ design consultants, etc., applying as co-applicants along with a
designated MSME are eligible to apply. Expert agencies can directly apply to design clinic
centres expressing intent to conduct workshops and seminars. MSMEs can apply alone or along
with a design company or a design consultant/academic institute for design projects by
submission of a proposal to the Design Clinic Centre or through the internet by making an online
application. Applicants can apply online at http://www.designclinicsmsme.org/or download the
form from http://www.dcmsme.gov.in/schemes.

3.6. Technology and Quality Upgradation Support to MSMEs

The scheme advocates the use of energy efficient technologies (EETs) in manufacturing
units so as to reduce the cost of production and adopt clean development mechanism. Nature of
assistance includes capacity building of MSME clusters for energy efficiency/clean development
and related technologies. Expert organisations like PCRA, BEE, TERI, IITs, NITs, etc., State
Govt. agencies like MITCON, GEDA, etc.
Cluster/industry based associations of MSMEs, NGOs and Technical Institutions are eligible to
apply.

3.7. Entrepreneurial and Managerial Development of SMEs through Incubators

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 The objective of the scheme is to provide early stage funding to nurture innovative
business ideas (new indigenous technology, processes, products, procedures, etc.) that could be
commercialised in a year. The scheme provides financial assistance for setting up business
incubators. Nature of assistance includes funding support for setting up of ‘Business Incubators
(BI)’: The cost may vary from Rs 4 to 8 lakh for each incubatee/idea, subject to overall ceiling of
Rs 62.5 lakh for each BI.

Any individual or MSME with innovative ideas ready for commercialisation can apply to
the host institution (e.g., IITs, NITs, technical colleges, research institutes, etc.) in order to obtain
fund support. Any technical institution (as given in the EoI) that wants to become a host
institution can apply to the office of the Development Commissioner-MSME or their nearest
MSME-DI for funding support. Application can be made by the technical institution desirous of
becoming the host institution, once a Request for Proposal (RFP)/ Expression of Interest (EoI) is
released. Any individual or MSME can apply directly to their nearest host institution.

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3.8. Enabling Manufacturing Sector to be Competitive through QMS&QTT

The scheme endeavours to sensitize and encourage MSEs to understand and adopt latest
Quality Management Standards (QMS) and Quality Technology Tools (QTT). Nature of
assistance includes funding support for introduction of appropriate course modules in technical
institutions through expert organisations. Funding support up to Rs 79,000/- per programme for
conducting QMS/QTT awareness campaign for MSEs through expert organisations. Funding
support up to Rs 2.5 lakh per unit for implementation of QMS and QTT in selected MSMEs
through expert organisations

Expert organisations like Quality Council of India (QCI), National Recruitment Board for
Personnel and Training, Consultancy Development Corporation, National Productivity Council,
Standardisation, Testing & Quality Certification (STQC, a Society under the Ministry of IT),
IIQM (Indian Institute of Quality Management), Industry Associations that have taken active
interest in QMS/QTT, Technical Institutions, Engineering Colleges, Tool Rooms and similar
bodies and MSEs can apply for assistance under this scheme. MSEs or clusters may contact
Office of the DC- MSME. The DC office will finalise the MSME clusters for conducting the
Awareness Programme on Quality Management Standards and Quality Technology Tools
(QMS/QTT).

3.9. Building Awareness on Intellectual Property Rights (IPR)

The purpose of the scheme is to enhance awareness among the MSMEs about Intellectual
Property Rights, to take measures for protecting their ideas and business strategies. Effective
utilisation of IPR tools by MSMEs would also assist them in technology upgradation and
enhancement of their competitiveness. Nature of assistance includes conducting
awareness/sensitization programmes on IPR (Applicants in this case are MSME organisations
and expert agencies) GoI assistance of Rs 1 lakh per awareness programme; conducting pilot
studies for selected clusters/groups of industries (Applicants in this case are MSME
organisations, competent agencies and expert agencies); GoI assistance of Rs 2.5 lakh per pilot
study; Funding support for conducting interactive seminars / workshops (Applicants in this case
are MSME organisations and expert agencies); Funding support for conducting specialised
training on IPR (Applicants – Expert agencies); Funding support in the form of Grant on
Patent/GI Registration (Applicants in this case are MSME units and MSME organisations);
Funding support for setting up IP Facilitation. Registered MSME units, association, consultancy
firms, expert agencies etc. are eligible to apply under this scheme.

Activity: list out the Schemes for improving the manufacturing competitiveness of MSME
units.

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14.5 Marketing Promotion Schemes :

In spite of the vast domestic market, marketing remains a problem area for small

enterprises. Mass consumption labour intensive products are predominently being marketed by

the organised sector. The small scale sector will be enabled to have a significant share of such

markets. In addition to the existing support mechanism, market promotion would be undertaken

through cooperative/public sector institutions, other specialised/professional marketing agencies

and consortia approach, backed up by such incentives, as considered necessary.

National Small Industries Corporation (NSIC) would concentrate on marketing of mass

consumption items under common brand name and organic links between NSIC and MSMEDCs

would be established.

Government recognises the need to widen and deepen complementarity in production

programmes of large/medium and small industrial sectors. Parts, components, sub-assemblies,

etc. required by large public/private sector undertakings would be encouraged for production in a

techno-economically viable manner through small scale ancillary units. Industry associations

would be encouraged to establish sub-contracting exchanges, in addition to strengthening the

existing ones under the SIDO. Emphasis would also be laid on promotion of a viable and

competitive ‘component’ market.

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 Though the Small Scale Sector is making significant contribution to total exports, both

direct and indirect, a large potential remains untapped. The SIDO has been recognised as the

nodal agency to support the small scale industries in export promotion. An Export Development

Centre would be set up in SIDO to serve the small scale industries through its network of field

offices to further augment export activities of this sector.

Some of the Schemes for marketing promotion are given below :

1. International Cooperation (IC) : The scheme covers the following activities:

a. Deputation of MSME business delegations to other countries to explore new areas of

technology fusion / upgradation; facilitation of joint ventures; improvement of markets
for MSMEs products and promote foreign collaborations amongst others.
b. Participation by Indian MSMEs in international exhibitions, trade fairs and buyer-seller
meets in foreign countries as well as in international trade meets in India.
c. To hold and promote international conferences and seminars on topics and themes of
interest to MSMEs.

IC scheme provides financial assistance for airfare and space rent in exhibitions for
entrepreneurs for going in a delegation abroad. Industry Associations can file applications
industry associations with the Ministry of MSME giving details of the delegation, visit,
organisation and other details.

2. Marketing Assistance Scheme :

The marketing assistance scheme provides assistance for the following activities:

a) Organisation of exhibitions abroad and participation in international exhibitions/ trade fairs

b) Co-sponsoring of exhibitions organised by other organisations/industry associations/

agencies;

c) Organising buyer-seller meets, intensive campaigns and marketing promotion activities.

Nature of assistance includes financial assistance of up to 95% of the air-fare and space
rent is made available to entrepreneurs on the basis of size and type of the enterprise; Financial
assistance for co-sponsoring an event would be limited to 40% of the net expenditure, subject to
a maximum amount of Rs 5 lakh. MSMEs, Industry Associations and other organisations related

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to MSME sector are eligible to apply. Applications/proposals seeking assistance under the
scheme should be submitted to the Branch Manager of the nearest office of the National Small
Industries Corporation, with full details and justification in support of the application.

3. Marketing Assistance & Technology Upgradation (MATU)

The scheme assists in providing marketing platform to manufacturing MSMEs through

participation in state/district level exhibitions/trade fairs organized by State/District
Authorities/Associations. Nature of assistance includes funding for participation of MSMEs in
state/district level exhibitions/trade fairs with a funding support maximum Rs 30,000/- per
exhibition/ fairs; funding support (in the form of reimbursement) to MSMEs for adopting
corporate governance practices maximum Rs 45,000/- per MSME unit; funding support (in the
form of reimbursement) to MSMEs for acquiring ISO18000/22000/27000 Certification
maximum of Rs 1.00 lakh in each case. All MSMEs are eligible to apply under this scheme.
The applicant MSME will submit its claim along with required documents to the local MSME-
DI office for reimbursement in the prescribed format.

4. MSME Market Development Assistance (MDA)

As part of a comprehensive policy package for MSMEs, MSMEMDA scheme has been
announced with a view to increasing the participation of international & domestic fair and
adoption of bar coding. MDA is offered in three forms as mentioned below:

1. Participation in international exhibitions/ fairs for registered small & micro

manufacturing enterprises with DI/DIC;
2. Financial assistance for using Global Standards (GS1) in bar-coding; and,
3. Recognise importance of barcoding and avail financial assistance through Office
of the Development Commissioner Micro, Small and Medium Enterprises (DC -
MSME).

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 funding for
publicity material (up to 25% of costs), sector specific studies (up to Rs.2 lakh) and for
contesting anti-dumping cases (50% up to Rs.1 lakh), specifically targeting individual MSMEs &
associations. Individual MSMEs & industry associations are eligible to apply. MSEs meeting
the eligibility criteria may send their applications to O/o DC, MSME through concerned MSME-
DI.

Activity: Mention the Schemes available for MSME units for marketing their products

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14.6 Entrepreneurship and skill Development Programme:

Government will continue to support first generation entrepreneurs through training and

will support their efforts. Large number of EDP trainers and motivators will be trained to

significantly expand the Entrepreneurship Development Programmes (EDP). Industry

Associations would also be encouraged to participate in this venture effectively.

EDP would be built into the curricula of vocational and other degree level courses.

Women entrepreneurs will receive support through special training programme.

1. Assistance to Training Institutions (ATI) Scheme:

The assistance is provided to National level training institutions operating under the
Ministry of MSME, namely, NIMSME, KVIC, Coir Board, Tool Rooms, NSIC & MGIRI in the
form of capital grant for the purpose of creation and strengthening of infrastructure and support
for entrepreneurship development and skill development training programmes. Assistance is also
provided to those State level EDIs that enter into partnership with NIMSME for capacity
development for undertaking studies & research on MSME issues. The scheme also provides
research grant upto Rs 15.00 lakh on MSME issues. MSME chair are also sanctioned in premier
National academic institutions.

Revenue grant is provided to institutions on annual basis for the MSME chair. State level
EDIs that enter into partnership with NIMSME are provided total grant upto Rs 2.5 cr. Select
State level EDIs that enter into partnership with NIMSME and national level premier academic
institutions are eligible to apply for the MSME chair.

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14.7 Infrastructure Development Programme:

The Ministry of MSME has adopted cluster development approach for enhancing productivity
and competitiveness as well as capacity building of MSEs and introduced Micro & Small
Enterprises Cluster Development (MSE-CDP) scheme:

Micro & Small Enterprises Cluster Development (MSE-CDP)

The scheme provides financial assistance to special purpose vehicles companies set up by
cluster units for common facility canter, infrastructures, skill training, quality upgradation etc.

The Ministry of Micro, Small and Medium Enterprises (MSME), Government of India (GoI) has
adopted the Cluster Development approach as a key strategy for enhancing the productivity and
competitiveness as well as capacity building of Micro and Small Enterprises (MSEs) and their
collectives in the country. A cluster is a group of enterprises located within an identifiable and as
far as practicable, contiguous area and producing same / similar products / services. The essential
characteristics of enterprises in a cluster are (a) Similarity or complementarity in the methods of
production, quality control and testing, energy consumption, pollution control, etc (b) Similar
level of technology and marketing strategies / practices (c) Similar channels for communication
among the members of the cluster (d) Common challenges and opportunities.

Objectives of the Scheme

i. To support the sustainability and growth of MSEs by addressing common issues such as

improvement of technology, skills and quality, market access, access to capital, etc.

ii. To build capacity of MSEs for common supportive action through formation of self help

groups, consortia, upgradation of associations, etc.

iii. To create/upgrade infrastructural facilities in the new/existing industrial areas/ clusters of

MSEs, including setting up of Flatted Factory Complexes.

iv. To set up common facility centres (for testing, training centre, raw material depot,

effluent treatment, complementing production processes, etc.)

Components:

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(i) Setting up of CFCs: Creation of tangible “assets” as Common Facility Centers (CFCs) like

Common Production/Processing Centre (for balancing/correcting/improving production line that

cannot be undertaken by individual units), Design Centres, Testing Facilities, Training Centre,

R&D Centres, Effluent Treatment Plant, Marketing Display/Selling Centre, Common Logistics

Centre, Common Raw Material Bank/Sales Depot, etc. The Government of India grant will be

restricted to 70% of the cost of project of maximum Rs 15.00 crore. GoI grant will be 90% for

CFCs in NE & Hill States, Clusters with more than 50% (a) micro/ village (b) women owned (c)

SC/ST units.

(ii) Infrastructure Development: Consist of projects for infrastructural facilities like power

distribution network, water, telecommunication, drainage and pollution control facilities, roads,

banks, raw materials storage and marketing outlets, common service facilities and technological

backup services for MSEs in the new/ existing industrial estates/areas. The GoI grant will be

restricted to 60% of the cost of project of Rs 10.00 crore. GoI grant will be 80% for projects in

NE & Hill States, industrial areas/ estates with more than 50% (a) micro (b) women owned (c)

SC/ST units.

Physical & Financial Achievement & Status of Projects :

Year Achievements
Financial (Rs crore) Physical (in Nos.)
BE / RE Exp CFCs ID Projects
2014-15 93.00 / 84.60 63.18 5 9
2015-16 100 / 102.95 81.14 - 4
2016-17 135 / 123 121.69 5 5
2017-18 184/ 124.30 8 10
(Upto Sep -2017)

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State-wise Status of Projects approved under MSE-CDP:

`Infrastructure Grand
`Common Facility Development (ID) Total
Centres (CFCs) Projects (CFC+ID)
S. STATE/UT App- On- Com- App- On- Com-
No roved going pleted roved going pleted
CFCs ID
Centres
1 Andhra Pradesh 2 1 1 5 1 4 7
2 Arunachal Pradesh 0 0 0 1 1 0 1
3 Assam 1 0 1 15 2 13 16
4 Bihar 1 0 1 0 0 0 1
5 Chattisgarh 0 0 0 5 1 4 5
6 Goa 1 0 1 0 0 0 1
7 Gujarat 2 1 1 2 2 4
8 Haryana 7 7 0 28 4 24 35
9 Himachal Pradesh 0 0 0 1 0 1 1
10 Jammu & Kashmir 1 0 1 6 2 4 7
11 Jharkhand 0 0 0 0 0 0 0
12 Karnataka 10 7 3 5 1 4 15
13 Kerala 13 4 9 10 2 8 23
14 Madhya Pradesh 0 0 0 15 3 12 15
15 Maharashtra 16 7 9 5 0 5 21
16 Manipur 0 0 0 6 3 3 6
17 Meghalaya 0 0 0 0 0 0 0
18 Mizoram 0 0 0 2 0 2 2
19 Nagaland 0 0 0 1 0 1 1
20 Odisha 4 3 1 3 0 3 7
21 Punjab 1 1 0 2 0 2 3
22 Rajasthan 1 1 0 15 2 13 16
23 Sikkim 0 0 0 0 0 0 0
24 Tamilnadu 30 16 14 32 3 29 62
25 Telangana 0 0 0 3 3 0 3
26 Tripura 0 0 0 4 3 1 4
27 Uttar Pradesh 7 5 2 11 3 8 18
28 Uttarkhand 0 0 0 3 0 3 3
29 West Bengal 11 9 2 5 1 4 16
30 A&N Islands 0 0 0 0 0 0 0

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31 Chandigarh 0 0 0 0 0 0 0
32 Dadra and Nagar Haveli 0 0 0 0 0 0 0
33 Daman and Diu 0 0 0 0 0 0 0
34 Delhi 0 0 0 0 0 0 0
35 Lakshadweep 0 0 0 0 0 0 0
36 Puducherry 0 0 0 0 0 0 0
Total 108 62 46 185 35 150 293

There are several special schemes offered by various Central and State level agencies,
Commercial banks and also Associations of women entrepreneurs for the promotion of women
entrepreneurs in India and a detailed presentation is given in Chapter 15.

Summary:

The Small Scale Industrial Sector has emerged as a dynamic and vibrant sector of the

economy during the eighties. The primary objective of the Small Scale Industrial Policy during

the nineties would be to impart more vitality and growth-impetus to the sector to enable it to

contribute its mite fully to the economy, particularly in terms of growth of output, employment

and exports. The sector has been substantially de-licensed, deregulated and de-bureaucratised,

with a view to remove all fetters on its growth potential, reposing greater faith in small and

young entrepreneurs. All statutes, regulations and procedures were reviewed and modified,

wherever necessary, to ensure that their operations do not militate against the interests of the

small and village enterprises. Since Independence, India has launched various Industrial Policies

for the development and promotion of small-scale enterprises in the country.

FINANCIAL SUPPORT MEASURES : Efforts would be made to ensure both adequate flow

of credit on a normative basis, and the quality of its delivery, for viable operations of this sector.

To provide access to the capital market and to encourage modernisation and technological

upgradation, it has been decided to allow equity participation by other industrial undertakings in

the MSME, not exceeding 24 per cent of the total shareholding. This would also provide a

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powerful boost to ancillarisation & sub-contracting, leading to expansion of employment

opportunities.

For solving the problem of delayed payments to small industries , ‘factoring’ services through

Small Industries Development Bank of India (SIDBI) was set up.

Prime Minister’s Employment Generation Programme (PMEGP): The maximum cost of the
project/unit admissible in manufacturing sector is Rs.25 lakhs and in business/service sector is
Rs.10 lakhs. The scheme is implemented by Khadi and Village Industries Commission (KVIC)
as the nodal agency at the national level. At the state level, the scheme is implemented through
State KVIC Directorates, State Khadi and Village Industries Boards (KVIBs) and District
Industries Centres (DICs) and banks.

Performance and Credit Rating Scheme : This scheme seeks to establish independent, trusted

third party opinion on capabilities and credit-worthiness of MSEs, and makes credit available at

attractive interest rates.

Credit Guarantee Trust Fund for Micro & Small Enterprises (CGTMSE) : Ministry of

Micro, Small and Medium Enterprises, Government of India and Small Industries Development

Bank of India (SIDBI), established a Trust named Credit Guarantee Fund Trust for Micro and

Small Enterprises (CGTMSE) to implement Credit Guarantee Fund Scheme for Micro and Small

Enterprises.

Interest Subsidy Eligibility Certificate (ISEC) Scheme: The Interest Subsidy Eligibility

Certificate (ISEC) Scheme is an important mechanism of funding khadi programme undertaken

by khadi institutions. It was introduced to mobilize funds from banking institutions for filling the

gap between the actual fund requirements and availability of funds from budgetary sources.

Under the ISEC Scheme, credit at a concessional rate of interest of 4% per annum for working

capital, is made available as per the requirement of the institutions.

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MUDRA is an NBFC supporting development of micro enterprise sector in the country.

MUDRA provides refinance support to Banks / MFIs for lending to micro units having loan

requirement upto 10 lakh. MUDRA provides refinance to micro business under the Scheme of

Pradhan Mantri MUDRA Yojana. The other products are for development support to the sector.

Science and Technology Scheme for Coir industry : The Scheme envisages extension of the

outcomes of research at the laboratory level for application at the field level and extension of

testing and service facility. Nature of assistance includes Technology Transfer, Incubation,

Testing and Service Facilities. The research outcomes are beneficial to the coir industry and

trade in India and abroad.

The Market Promotion and Development Assistance Scheme (MPDA) : This Scheme has
been launched as a unified scheme by merging different schemes implemented by the Khadi
sector including publicity, marketing, market promotion and marketing development assistance.
Further, grant/subsidy will also be available for construction of Khadi plazas. The overall
objective of the scheme is to ensure increased earnings for artisans.

Revamped Scheme of Fund for Regeneration of Traditional Industries (SFURTI): Non-

Government Organizations (NGOs), Institutions of the Central and State Governments and,

Semi-Government institutions, field functionaries of State and Central Govt., Panchayati Raj

institutions (PRIs), and similar agencies, with suitable expertise to undertake cluster

development, can apply for the scheme.

Coir Udyami Yojana (CUY): This is a credit-linked subsidy scheme for setting up of coir units

with project cost up to Rs.10 lakh plus one cycle of working capital, which shall not exceed 25%

of the project cost. Individuals, Companies, Self Help Groups, Non Governmental

Organizations, Institutions registered under Societies Registration Act 1860, Production Co-

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operative Societies, Joint Liability Groups and Charitable Trusts are eligible to apply for the

scheme.

Coir VikasYojana (CVY): The interventions under the CVY Scheme envisage a wide range of

activities like skill development of artisans, Mahila Coir Yojana, supporting the setting up of

production infrastructure, promoting the domestic as well as export market, providing trade and

industry related functional support services, and welfare of coir workers.

Financial Support to MSMEs in ZED Certification Scheme : The objectives of the scheme

include inculcating Zero Defect & Zero Effect practices in manufacturing processes, ensure

continuous improvement and supporting the Make in India initiative. The ZED Certification

scheme is an extensive drive to create proper awareness in MSMEs about ZED manufacturing

and motivate them for assessment of their enterprise for ZED and support them. After ZED

assessment, MSMEs can reduce wastages substantially, increase productivity, expand their

market as IOPs, become vendors to CPSUs, have more IPRs, develop new products and

processes etc.

A Scheme for promoting Innovation, Rural Industry & Entrepreneurship (ASPIRE) : The
main objectives of the scheme are to (i) Create new jobs and reduce unemployment (ii) Promote
entrepreneurship culture in India (iii) Boost Grassroots economic development at district level
(iv) Facilitate innovative business solution for un-met social needs, and (v) Promote innovation
to further strengthen the competitiveness of the MSME sector.

National Manufacturing Competitiveness Programme (NMCP): Under this Programme,

various schemes like CLCSS; Reimbursement of ISO certifications; Bar Coded for marketing

support; LMC for MSME; Design clinic for MSME; Technology and quality up gradation

support to MSME; Incubators for entrepreneurial and managerial development; QMS and QTT ;

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Building awareness on IPRs. are aiming at improving the competitiveness of the manufacturing

units:

Marketing Promotion Schemes: Mass consumption labour intensive products are

predominantly being marketed by the organised sector. The small scale sector will be enabled to

have a significant share of such markets. In addition to the existing support mechanism, market

promotion would be undertaken through cooperative/public sector institutions, other

specialised/professional marketing agencies. National Small Industries Corporation (NSIC)

would concentrate on marketing of mass consumption items under common brand name and

organic links between NSIC and MSMEDCs would be established.

Some of the Schemes for marketing promotion are :

1. International Cooperation (IC) ;

2. Marketing Assistance Scheme ;
3. Marketing Assistance & Technology Upgradation (MATU);
4. MSME Market Development Assistance (MDA).

Entrepreneurship and skill Development Programme: Government will continue to support

first generation entrepreneurs through training and will support their efforts. Large number of
EDP trainers and motivators will be trained to significantly expand the Entrepreneurship
Development Programmes (EDP). Industry Associations would also be encouraged to participate
in this venture effectively. Women entrepreneurs will receive support through special training
programme.

Assistance to Training Institutions (ATI) Scheme: The assistance is provided to National

level training institutions operating under the Ministry of MSME, namely, NIMSME, KVIC,
Coir Board, Tool Rooms, NSIC & MGIRI in the form of capital grant for the purpose of creation
and strengthening of infrastructure and support for entrepreneurship development and skill
development training programmes. Assistance is also provided to those State level EDIs that
enter into partnership with NIMSME for capacity development for undertaking studies &
research on MSME issues. The scheme also provides research grant upto Rs 15.00 lakh on
MSME issues. MSME chair are also sanctioned in premier National academic institutions.
Infrastructure Development Programme: The Ministry of MSME has adopted cluster
development approach for enhancing productivity and competitiveness as well as capacity

378
building of MSEs and introduced Micro & Small Enterprises Cluster Development (MSE-
CDP) scheme.

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14.9 Key Terms

IPR; PMEGP; CGTMSE; ISEC; MPDA; SFURTI; CUY; CVY; MCY; DPI; TIRFSS; ASPIRE;
NMCP; CLCSS; ISO 9000; Bar Code; Design Clinic; QMS & QTT; IPR; MATU; MDA; MSE-
CDP.

14.10 Self Assessment Questions

A . Short notes:
1. Prime Minister Employment Generation Programme.
2. Credit Linked Capital Subsidy for Technology Up gradation
3. Entrepreneurship and Skill development programme
4. Cluster development programme of MSME
5. Marketing assistance to MSME.

B. Essay questions :

1. Briefly explain the government policy for the promotion and development
of MSME in recent times.
2. Narrate various schemes for the promotion of Khadi, Village and Coir industries.
3. write an essay on the salient features of MUDRA Scheme
4. What provisions are made to support MSME units to market their products.

5. Narrate the Government Schemes for improving the manufacturing

competitiveness of MSME units.

6. Explain how Pradhan Mantri MUDRA Yojana (PMMY) scheme is beneficial to

entrepreneurs in India.

Multiple choice questions:

1. Industrial Policy of 1948 was the first industrial policy statement by the Government which
gave importance to (i). Small scale industry (ii). Private sector
A. (i) only
B. (ii) only
C. both (i) and (ii)
D. None
2. Which of the following was not an objective of the 1956 industrial policy?

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 A. Development of small scale sector
B. Expansion of public sector
C. Develop heavy and machine making industries
D. None of the above (Ans: D)
3. Which of the following industries are to be given compulsory licensing?
A. Alcohol
B. Tobacco
C. Drugs and pharmaceuticals
D. All the above ( Ans: D)
4.MUDRA means:
A. Micro Units Development and Refinance Agency Ltd
B. Macro units development and refinery Agency
C. Mudra loan online apply
D. a symbolic hand gesture used in Hindu ceremonies .
5. What is the MSME Public Procurement Portal called?
A. MSME Sambandh
B. MSME Samjhauta
C. MSME Sandesh
D. MSME Sampark
6. A performance and credit rating scheme has been launched by the MSME Ministry to
asses credit worthiness and capabilities of industries in the sector. What is it called?
A. Performance and Credit Rating Scheme
B. Zero Defect Zero Effect Certification
C. Performance and Economy Rating Scheme
D. None of the above
7. Scheme for promoting Innovation, Rural Industry & Entrepreneurship objective is
A. To promote entrepreneurship culture in India
B. To promote rural development in India
C. To promote innovative nature among youth
D. To promote small scale sector in India.

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14.11Reference:

1. msme.gov.in

4. Mudra Offerings - Micro Units Development & Refinance Agency Ltd.

https://www.mudra.org.in/Offerings
Micro Units Development and Refinance Agency Ltd. [MUDRA] is an NBFC supporting
development of micro enterprise sector in the country. MUDRA provides refinance support to
Banks / MFIs for lending to micro units having loan requirement upto 10
lakh. MUDRA provides refinance to micro business under the Scheme ...
5. [PDF]mudra loan scheme - salient features - Micro Units Development ...
https://www.mudra.org.in/Default/.../MudraLoan-SalientFeatures-English.pdf

Repayment. Term Loan :- To be repaid in suitable installments with suitable moratorium period
as per cash flow of the business. OD & CC Limit : Repayable on demand. Renewal and Annual
Review as per internal guidelines of the Bank. 12. Availability of the loan. Mudra loan under
PMMY is available at all bank branches ...
6. Mudra Loan | Pradhan Mantri Mudra Loan Yojana (PMMY) Details ...
pmjandhanyojana.co.in/pradhan-mantri-mudra-yojana-bank/

With this initiative from the PM office, the scheme is said to take care of this part as well and
thus help both financial institutions and needy small business owners come on one single
platform. You can Download Mudra application Form. Mudra bank Aplication Form for
Shishu. Mudra Loan Yojana Interest Rate. Many people ...
7. Pradhan Mantri Mudra Yojana - ICICI Bank
https://www.icicibank.com/Personal-Banking/.../pradhan-mantri-mudra-yojana.page

Under the aegis of Pradhan Mantri MUDRA Yojana (PMMY), MUDRA has created three
products i.e. 'Shishu', 'Kishore' and 'Tarun' as per the stage of growth and funding needs of the
beneficiary micro unit. These schemes cover loan amounts as below: Shishu: covering loans up
to ₹50,000; Kishore: covering loans above ...
8. Mudra Bank Loan Eligibility, Interest rates, Calculator - BankBazaar.com
https://www.bankbazaar.com › Personal Loan

Mudra Bank Loan (Pradhan Mantri Mudra Yojana). What is Mudra Loan? Pradhan
Mantri MudraYojana is a new scheme under Micro Units Development and Refinance Agency
for developing and refinancing activities that are relating to micro units. This scheme was
announced while presenting the budget for the 2016 ...

382
7.Mudra Loan Interest Rates in India - 14 Jan 2018 (Updated)
https://www.bankbazaar.com › Personal Loan
Mudra Loan Interest rates. What is PMMY? Pradhan Mantri Mudra Yojana is a
special scheme set up by the Government of India through an institution named Micro Units
Development & Refinance Agency Limited (MUDRA) in order to provide financing aid through
loans to the non-corporate non-farm sector income ...
9. Micro Units Development and Refinance Agency Bank - Wikipedia
https://en.wikipedia.org/.../Micro_Units_Development_and_Refinance_Agency_Bank

The MUDRA banks were set up under the Pradhan Mantri MUDRA Yojana scheme. It will
provide its services to small entrepreneurs outside the service area of regular banks, by using last
mile agents. About 5.77 crore (57.6 million) small business have been identified as target clients
using the NSSO survey of 2013.
10. Mudra Loan | Loans | Personal | Bank of Baroda, India's International ...
https://www.bankofbaroda.com/mudra-loan.htm
Sep 28, 2017 - PRADHAN MANTRI MUDRA YOJANA (PMMY), a flagship scheme of
Government of India, was launched on 8th April, 2015 by the Hon'ble Prime Minister to “fund
the unfunded” by bringing such enterprises to the formal financial system and extending
affordable credit to them. Key Benefits; Eligibility ...
11. [PMMY[ Mudra Scheme | Avail Mudra Bank Loan -Eligibility/Procedure ...
www.pradhanmantriyojana.in/mudra-bank-loan-scheme-application-form-details-of-p...

Complete details of Pradhan Mantri Mudra Yojana or Mudra Loan scheme. Find out how to
apply for PMMY. Types of loans and interest rates being offered.
12. Has Mudra scheme been successful? - Livemint
www.livemint.com › Money › Mark to Market

Mar 28, 2017 - Loan disbursements under Pradhan Mantri Mudra Yojana, the government's
micro loans scheme, are at only 62% of the target for 2016-17.

383
 Lesson 15 : POLICY SUPPORT FOR WOMEN ENTREPRENEURS

Objectives of the Lesson :

After going through this Lesson you should be able to understand:

1. The role of Ministry of Micro, Small and Medium Enterprises (MSME) for the promotion
of women entrepreneurship;
2. Training programmes available for the promotion of Women Entrepreneurs
3. Features of Stand-up India Scheme for women entrepreneurs to facilitate bank loans;
4. Mudra Yojana Scheme for Women launched by government of India;
5. Ministry of Women and Child Welfare, Government of India, scheme of “Support to
Training and Employment Programme for Women (STEP)” ;
6. Self Help Group (SHG)-Bank Linkage Programme of NABARD for supporting Women
entrepreneurs;
7. TREAD (Discontinued)
8. Mahila Coir Yojana – the first women oriented self employment scheme;
9. Micro & Small Enterprises Cluster Development Programme (MSE-CDP)
10. Credit Guarantee Fund Scheme
11. Support for Entrepreneurial and Managerial Development
12. Exhibitions for women under promotional package for Micro & Small Enterprises
approved by CCEA under marketing support

13. SIDBI Marketing Fund for Women

14. Schemes of various Banks for promoting women entrepreneurs in India;
15. Contribution of various Women Entrepreneur Associations

Structure of the Lesson

15.1 Introduction
15.2 Role of the Ministry of Micro, Small and Medium Enterprises (MSME)
15.3 Training of Women Entrepreneurs
15.4 Stand Up India Scheme
15.5 Mudra Yojana Scheme for Women
15.6 Support to Training and Employment Programme for Women (STEP)

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 15.7 NABARD Self Help Groups (SHGs)-Bank Linkage Programme
15.8 Trade Related Entrepreneurship Assistance and Development (TREAD)
15.9 Mahila Coir Yojana
15.10 Micro & Small Enterprises Cluster Development Programme (MSE-CDP)
15.11 Credit Guarantee Fund Scheme
15.12 Support for Entrepreneurial and Managerial Development
15.13 Exhibitions for women under promotional package for Micro & Small
Enterprises approved by CCEA under marketing support
15.14 SIDBI Marketing Fund for Women (MFW)
15.15Schemes of various Banks for promoting women entrepreneurs in India;

1. Annapurna Scheme
2. Stree Shakti Package for Women Entrepreneurs
3. Bharatiya Mahila Bank Business Loan
4. Dena Shakti Scheme
5. Udyogini Scheme
6. Cent Kalyani Scheme
7. Mahila Udyam Nidhi Scheme
8. Orient Mahila Vikas Yojana Scheme

15.16Women Entrepreneur Associations

1. Federation of Indian Women Entrepreneurs (FIWE)
2. Consortium of Women Entrepreneurs of India
3. Association of Lady Entrepreneurs of Andhra Pradesh
4. Association of Women Entrepreneurs of Karnataka (AWAKE)
5. Self-Employed Women's Association (SEWA)
6. Women Entrepreneurs Promotion Association (WEPA)
7. The Marketing Organisation of Women Enterprises (MOOWES)
8. Mahakaushal Association of Woman Entrepreneurs (MAWE)
9. SAARC Chamber Women Entrepreneurship Council
10. Women Entrepreneurs Association of Tamil Nadu (WEAT)
11. TiE Stree Shakti (TSS)
12. Women Empowerment Corporation (WEC)

15.17 Summary
15.18 Self Assessment
15.19 Key Terms
15.20 Further Readings / Reference books

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 1. Kiran Mazumdar Shaw : Born in Bangalore, she did her
Bachelors in Zoology from Mount Carmel and PG from Ballarat
College, Melbourne in Malting and Brewing. She is the Chairman
and Managing Director (CMD) of Biocon Limited. Under her
leadership, the company has evolved as a leading player in
biomedicine research with a focus on diabetes and oncology. She is also a member of
the board of governors of the prestigious Indian School of Business and IIT,
Hyderabad. She was awarded Padma Shri (1989) and Padma Bhushan (2005) by the
Indian government.

2. Shahnaz Husain :She is known as the “Queen of Herbal Beauty Care”. She was married
off at the age of 16. But her interest in beauty and cosmetic made her
discover Shahnaz Herbals Inc. The company is best known for its
herbal cosmetics particularly skin care products ‘without animal
testing’. The company has over 400 Franchise clinics across the world
covering 138 countries. She has been bestowed with the ‘Padma Shri’
award by the Government of India in 2006 and ‘World’s Greatest Woman Entrepreneur’
award by 1996 Success Magazine.

3. Ravina Raj Kohli

She was the Head of Content and Communication at Sony
Entertainment Television and the CEO at the Kerry Packer
owned Channel 9 on the Doordarshan platform. Later, she worked
with Star news as the CEO. She has a Diploma from the London
School of Journalism and Bachelor’s Degree in Psychology,
Economics and Literature from Bangalore University. Her company JobCorp Company
Pvt. Ltd. works toward empowerment of women. Her name has featured among the top 20
female professionals in India. She is also Indian television’s first woman CEO.

4. Rashmi Sinha
Born in Lucknow, India Rashmi owns a PhD in neuropsychology from
the Brown University. Prior to that, she completed her B.A. and M.A.
from Allahabad University. In 2006, she co-founded SlideShare along
with her husband, a site to share presentations online. The site received
tremendous response and was acquired by LinkedIn for $100 million
in 2012. She was ranked No.8 in the Fortune’s Most Powerful Women
Entrepreneurs list and named one of the World’s Top 10 Women Influencers in Web 2.0 by
Fast Company.

386
387
5. Shradha Sharma
Aspiring Women Entrepreneurs really look up to her. Shradha is
the Founder and Chief Editor of YourStory, a website
dedicated to entrepreneurs and startups. She hails from Patna and
holds degrees from St.Stephens College, Delhi and MICA,
Ahmedabad. She has also worked with Times of India and
CNBC TV18. She was selected among the 500 LinkedIn
influencers across the world and awarded with the L’Oreal Paris
Femina Award for Online Influence in 2015.

6. Sabina Chopra
It would be incorrect if we don't include Sabina Chopra in our
successful Indian women entrepreneurs list. She is the co-founder of
Yatra.com, an online travel website. She holds a Bachelor’s of Art
degree fromi Delhi University and landed her first job with a Japan
Airlines. Later, she headed India’s operation of eBookers, Europe’s
leading online travel company. In 2010, she was felicitated with the
Women Leaders of India. Under her guidance, the company has
enhanced its customer base and earned recognition.

7. Swati Bhargava
She is the CEO and Co-founder of CashKaro, an Indian
cashback site. She graduated from London School of Economic
(LSE) with an Honours in Mathematics and Economic. She later
bagged a summer internship at Goldman Sachs in London and
worked there for four years. She started Pouring Pounds, a
cashback business in UK with her husband. They raised double
funds and started a similar activity in India in the name of
CashKaro.

8. Suchi Mukherjee

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 She is the founder of Limeroad, a portal for women to share
and shop lifestyle products. She holds a Bachelor’s of Art
specializing in Economics & Maths from the University of
Cambridge and a Master’s Degree in Finance & Economics
from the London School of Economics. She first worked at
Lehman Brothers Inc for 5 years. She then worked with some of
the prestigious companies such as Virgin Media, eBay, Skype
and Gumtree. She is transforming the fashion industry on the
digital platform of India.

9. Radhika Ghai Aggarwal

She is the Co-founder and CMO of ShopClues, a marketplace
that connects buyers and sellers online. She has studied MBA
from Washington University in St.Louis and a post graduate
degree in Advertising and Public Relations. Prior to that, she
worked with Nordstrom, Seattle and Goldman Sachs, USA. She
has a remarkable 14 years marketing experience and has been
one of the driving forces behind ShopClues success.

10. Sakshi Tulsian

She is the Co-founder of Posist, a cloud based restaurant
management platform which access information for table orders,
deliveries, expenses and recipes etc. She completed her graduation
from Bharati Vidyapeeth College of Engineering, New Delhi. She
earlier worked as a software developer at Sapient for around two
years, project manager at TechnoApex Software Pvt. Ltd. and
business head at WebSanchaar Solutions.

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15.1 Introduction

Women constitute almost 50% of Indian Population and as such, women empowerment
becomes a must at the peripheral level and at the core, it becomes an imperative for economic
and social progress for societal values of equity and equality. Women Entrepreneurship plays a
prime role in industrial development. Women Entrepreneurs can be seen everywhere in the
startup-up ecosystem of India. It is estimated that women entrepreneurs comprise about 10 per
cent of the total entrepreneurs in India. Women too are seen leaving their high-profile jobs as
well as some stepping out of the four walls of their homes and joining the pool of
Entrepreneurship in India. The major factor to jumpstart the entrepreneurial journey is capital
and various banks offer specialized loans for women entrepreneurs that have slightly different
and more flexible set of terms and conditions pertaining to collateral security, interest rates, etc.

The Micro, Small & Medium Enterprises Development Organisation (MSME-DO), the
various State Small Industries Development Corporations (SSIDCs), the nationalised banks and
even NGOs are conducting various programmes including Entrepreneurship Development
Programmes (EDPs). To cater to the needs of potential women entrepreneurs, who may not have
adequate educational background and skills, MSME-DO has introduced process/product oriented
EDPs in areas like TV repairing, printed circuit boards, leather goods, screen printing etc. A
special prize to "Outstanding Women Entrepreneur" of the year is being given to recognise
achievements made by and to provide incentives to women entrepreneurs. The Office of DC
(MSME) has also opened a Women Cell to provide coordination and assistance to women
entrepreneurs facing specific problems.

The Small Industries Development Bank of India (SIDBI) has been implementing two
special schemes for women namely Mahila Udyam Nidhi which is an exclusive scheme for
providing equity to women entrepreneurs and the Mahila Vikas Nidhi which offers
developmental assistance for pursuit of income generating activities to women. The SIDBI has
also taken initiative to set up an informal channel for credit needs on soft terms giving special
emphasis to women. Over and above this, SIDBI also provides training for credit utilisation as
also credit delivery skills for the executives of voluntary organisations working for women.
Grant for setting up a production unit is also available under Socio-Economic Programme of
Central Social Welfare Board.

In addition to the special schemes for women entrepreneurs, various government schemes
for MSMEs also provide certain special incentives and concessions for women entrepreneurs.
Further, various banks and institutions extend their financial support in the form of incentives,
loans, and schemes etc. to aspiring women entrepreneurs.

390
 Some of agencies assisting women entrepreneur in India are presented below.

15.2 Role of the Ministry of Micro, Small and Medium Enterprises (MSME)

The role of the Ministry of Micro, Small and Medium Enterprises (MSME), Government
of India is primarily to assist the States/Union Territories in their efforts to promote growth and
development of MSMEs. The main focus of the schemes/ programmes undertaken by the
organisations of the Ministry is thus to provide/facilitate provision of a wide range of services
and facilities required for accelerating the growth of MSMEs. The schemes/programmes
generally focus on capacity building in State/ Regions; nevertheless, there are a few
schemes/programmes, which are individual beneficiary oriented. While, there are no specific
reservations for women, in the latter, there are some concessions/incentives available under these
programmes for the benefit of women entrepreneurs.

In respect of entrepreneurship / skill development training programmes, under the

National Awards for Entrepreneurial Development (Quality Products) and Trade Related
Entrepreneurship Assistance & Development (TREAD) Programme for Women, the necessary
guidelines have been issued and specific reservation provided for women. Similarly, under two
employment generation programmes being implemented by the Ministry, namely, Rural
Employment Generation Programme (REGP) and Prime Minister’s Rozgar Yojana (PMRY),
some concessions have been provided for women beneficiaries. Besides, the Coir Board is
implementing the Mahila Coir Yojana which is a women oriented self-employment programme.

15.3 Training of Women Entrepreneurs

The industrial policies of the Government announced from time to time, have laid
considerable emphasis on promotion of women entrepreneurship, particularly among first
generation women entrepreneurs, through various training and support services. Special attention
is being given by organising exclusive Entrepreneurship Development Programmes (EDPs) for
women.

The Field Institutes of MSME-DO conduct need based entrepreneurship / skill

development programmes for existing and prospective entrepreneurs. The autonomous bodies
under MSME-DO also conduct various short-term/long-term training programmes in footwear
technology, tool and dye-making and other allied industries. No fee is being charged from
women participants. Besides, MSME-DIs/Br. DIs are also giving stipend @ Rs.500/- per month
to the participants belonging to disadvantaged groups including women. In addition to
programmes / schemes of MSME-DO, NSIC, KVIC and Coir Board, relating to conduct of EDPs
& SDPs for benefit of potential women entrepreneurs, three national level entrepreneurship
development institutes set up by the Ministry, particularly, Indian Institute of Entrepreneurship

391
 (IIE), Guwahati, are also undertaking training programmes for skills and entrepreneurship
development for women.

15.4 Stand Up India Scheme

The Stand Up India scheme is based on recognition of the challenges faced by SC, ST
and women entrepreneurs in setting up enterprises, obtaining loans and other support needed
from time to time for succeeding in business. The objective of the Stand Up India scheme is to
facilitate bank loans between Rs.10 lakh and Rs.1 Crore to at least one Scheduled Caste (SC) or
Scheduled Tribe (ST) borrower and at least one woman borrower per bank branch for setting up
a greenfield enterprise. This enterprise may be in manufacturing, services or the trading sector.
In case of non-individual enterprises at least 51% of the shareholding and controlling stake
should be held by either an SC/ST or Woman entrepreneur. The scheme endeavours to create an
eco system which facilitates and continues to provide a supportive environment for doing
business. The scheme, which covers all branches of Scheduled Commercial Banks, will be
accessed in three potential ways: (1) Directly at the branch or (2) Through Stand Up India portal
(www.standupmitra.in) or(3) Through the Lead District Manager (LDM).

The portal will be the crucial interface layer for parameters/metrics of the borrower
(obtained through a set of about 8-10 questions listed below) and will provide information and
feedback to such borrowers. A potential borrower will have the option of registering on the
portal right away or simply visiting it and registering later. This portal may be accessed at home,
at Common Service Centres (CSCs), through a bank branch (through the nodal officer for
MUDRA at the branch) or through the LDM. In branches where internet access is restricted, the
branch will guide the potential borrower to an internet access point.

The approach of the Stand Up India portal, for handholding is based on obtaining
answers to a set of relevant questions at the initial stage. These would typically be:

1. Location of the borrower

2. Category – SC/ ST/ Woman
3. Nature of business planned
4. Availability of place to operate the business.
5. Assistance needed for preparing a project plan
6. Requirement of skills/training (technical and financial).
7. Details of present bank account.
8. Amount of own investment into the project
9. Whether help is needed to raise margin money

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 10. Any previous experience in business

Based on the response, the portal provides relevant feedback and helps categorise the
visitor to the portal as a Ready Borrower or a Trainee Borrower.

Ready Borrower : In case the borrower requires no handholding support, then registration on
the portal as a Ready Borrower starts the process of application for the loan at the selected bank.
At this stage an application number will be generated and information about the borrower shared
with the bank concerned, the LDM (posted in each district) and the relevant linked office of
NABARD/ SIDBI. The offices of SIDBI and NABARD shall be designated Stand Up Connect
Centres (SUCC). The loan application will now be generated and tracked through the portal.

Trainee Borrower : In cases where the borrower indicates a need for hand holding, then
registration as a Trainee Borrower on the portal will link the borrower to the LDM of the
concerned district and the relevant office of SIDBI/ NABARD. This process which would be
electronic, could be done at the borrower’s home by himself/ herself or at a CSC or through a
bank branch by the officer dealing with MUDRA.

Stand Up India Connect Centres : SIDBI (80 offices) and NABARD (419 offices) as Stand
Up India Connect Centres will then arrange for support for such trainee borrowers as requested
in any of the following ways:

1. For financial training – at the Financial Literacy Centres (FLCs)

2. For skilling – at skilling centres ( Vocational Training Centres - VTPs/Other Centres -OCs)
3. For EDPs – at MSME DIs/ District Industries Centres (DICs)/ Rural Self Employment
Training Institutes (RSETIs)
4. For work shed – DICs
5. For margin money – offices related to margin money support schemes e.g. State SC Finance
Corporation, Women Development Corporation, State Khadi & Village Industries Board
(KVIB), MSME-DIs etc.
6. For mentoring support from established entrepreneurs – DICCI, Women Entrepreneur
Associations, Trade bodies. Credible, well established NGOs can also be used for extending
hand holding support.
7. For utility connections – Offices of utility providers
8. For DPRs – Project profiles available with SIDBI/ NABARD/ DICs

At any time, even after the loan has been sanctioned, any borrower may access the
services of the Stand Up Connect Centres.

The LDM will monitor the process and work with local offices of SIDBI and NABARD
for problem solving and easing bottlenecks. Based on the progress being achieved in each case
and prima facie viability, the LDM will sensitise the concerned bank branch on potential cases

393
likely to come up. Once this is done, SIDBI/ NABARD will meet concerned bank officials for
further follow up. These organisations will also work with other organisations who are
stakeholders such as the Dalit Indian Chambers of Commerce and Industry (DICCI), Women
Entrepreneur Associations etc.

Once hand holding requirements are adequately met to the satisfaction of the LDM and
the trainee borrower, then a loan application will be generated through the portal.

Stand Up India Portal (www.standupmitra.in) : The Stand Up India Portal is interactive. It

hosts information about various entities providing hand holding support to the borrower. This
includes:

– Training : Technical or/ and Financial

– DPR preparation
– Margin money support
– Shed / workplace identification
– Raw material sourcing
– Bill discounting
– E-com registration
– Registration for taxation

The Portal is designed to obtain application forms, gather and provide information,
enable registration, provides links for handholding, assists in tracking and monitoring. As more
facilities become available it shall be further refined into an end to end solution. The Stand Up
India scheme endeavours to create an eco system to make borrowers ready. This system is now
meant for supporting Stand Up Borrowers but will be extended in due course to other schemes.

Nature of Loan : The loan shall be a Composite Loan i.e. to meet requirements of assets
such as plant and machinery and working capital. It is expected to cover 75 % of project cost
and the rate of interest would be lowest applicable rate of the bank for that category (rating) not
to exceed (base rate (MCLR) + 3%+ tenor premium). It shall be repayable in up to 7 years with a
moratorium of up to 18 months. A Rupay card will be issued to enable operation of the working
capital component. (The stipulation of the loan being expected to cover 75% of the project cost
would not apply if the borrowers contribution along with convergence support from any other
scheme exceeds 25% of the project cost)

Credit Guarantee/ Collateral : The Stand Up India Scheme provides for collateral free
loans to the applicants. The scheme known as Credit Guarantee Scheme Stand Up India (CGSSI)
has since been notified and shall be channelised through National Credit Guarantee Trustee
Company (NCGTC).

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Margin Money : The Scheme envisages 25% margin money which can be provided in
convergence with eligible Central / State schemes. While such schemes can be drawn upon for
availing admissible subsidies or for meeting margin money requirements, in all cases, the
borrower shall be required to bring in minimum of 10% of the project cost as own contribution.
To illustrate, if a State scheme supports a borrower with 20% of the project cost as subsidy, then
the borrower will be required to contribute at least 10% of the project cost. Any subsidy received
by a unit which was not foreseen during loan appraisal will be credited to the loan account. In
cases where a subsidy was included during appraisal but received after commissioning, the same
may be released to the borrower to repay any loan taken for arranging margin money. A list of
Central / State wise subsidy/incentive schemes will be provided on the Portal. New schemes will
be added as they become available.

District Level Consultative Committee : The District Level Consultative Committee (DLCC)
under the Collector with the LDM as Convener shall periodically review cases of both types of
borrowers, meeting at least once each quarter. SIDBI and NABARD officers will join the review
meetings.

Assistance after Loan Disbursement : Events will be organised at District level, as

frequently as necessary and at least once in each quarter, involving stakeholders to share best
practices, review, problem solving and guide potential entrepreneurs. These events will also
provide means for facilitating registration for bill discounting services, e-market places, taxation
etc. NABARD will organise these events with the support of SIDBI.

Grievance Redressal: Provision has been made in the portal for redressal of grievances of
the borrower. The portal provides contact details of the officers/agencies in each bank designated
to attend to grievances. A system for online submission of complaints and their subsequent
tracking through the portal shall be developed. Feedback on disposal of the complaint is to be
made available to the customer by the bank concerned.

Banks may determine requirements such as stock statements, insurance of assets created
& reasonable processing fees.

Stand Up Connect Centres (SIDBI/ NABARD)

SIDBI NABARD
1. To operate and maintain the Stand Up 1. Training of Trainers, LDMs, Bank
India web portal officers for Stand Up India
2. Arrange for hand holding support for 2. Arrange for hand holding support for
Trainee Borrowers trainee borrowers

395
3. Liaise with banks for follow up in 3. Liaise with banks for follow up in
potential cases through LDM/SLBC potential cases through the LDM
4. Coordinate with LDM for easing 4. Coordinate with LDM for easing
bottlenecks bottlenecks
5. Assist the SLBC and DLCC in 5. Assist the SLBC and DLCC in
reviews and monitoring reviews and monitoring
6. Participate in Stand Up events 6. Organise events, as frequently as
organised by NABARD. necessary and at least once in each
quarter, for experience sharing etc.
amongst stakeholders.

1. LDMs

1. Monitor progress of cases

2. Serve as contact point for SIDBI/NABARD for easing bottlenecks.
3. Sensitise bankers on potential borrowers.
4. Follow up with concerned regional/zonal office of the respective bank to ensure timely
processing/ sanction of loans as per time frame specified in Code of Bank’s Commitment
to Micro and Small Enterprises.
5. Ensure that borrower’s requirement of handholding support is satisfied to the extent
possible.
6. Convene DLCC meetings in the specified periodicity.
7. Participate in quarterly events with stakeholders organised by NABARD.

2. DLCC

1. DLCC under the Collector to review progress periodically

2. Grievance redressal at district level
3. Assist in resolving issues, if any, relating to public utility services and work space for
potential borrowers

4. Bank Branches

1. Help potential borrowers in accessing the portal

2. Process loan applications received online or in person
3. Process loans within the timeframe as stipulated in Code of Bank’s Commitment to SME
borrower (Application for loan upto Rs.5 lakh within 2 weeks, between Rs.5 – 25 lakh in
3 weeks, above Rs.25 lakh in 6 weeks, from the date of receipt of application provided
the application is complete in all respects and is accompanied by documents required)
4. In case of rejection, reason to be made known to borrower as stipulated in the Code of
Bank’s Commitment to Customers.

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5. Grievance redressal at the bank level should be done in 15 days at the bank level as per
Code of Bank’s Commitment to Customers.
6. Banks to put in place an internal mechanism for monitoring of scheme performance.

5. Borrowers

1. Access the portal or visit a bank branch and answer a short set of questions
2. If categorised as a Trainee Borrower, then go through the sequence of handholding
support, as applicable
3. Arrange/provide requisite documentation as required by the bank branch
4. Attend quarterly events on experience sharing, best practices, problem solving etc.
5. Set up and run the unit with due diligence.
6. Make repayments in due time.

15.5 Mudra Yojana Scheme for Women

This scheme has been launched by the Govt. of India for individual women wanting to
start small new enterprises and businesses like beauty parlors, tailoring units, tuition centres, etc.
as well as a group of women wanting to start a venture together. The loan doesn’t require any
collateral security and can be availed as per 3 schemes –

i. Shishu – loan amount is limited to Rs.50,000 and can be availed by those businesses that
are in their initial stages.

ii. Kishor – loan amount ranges between Rs.50,000 and Rs.5 lakhs and can be availed by
those who have a well-established enterprise.

iii. Tarun – loan amount is Rs.10 lakhs and can be availed by those businesses that are well
established but require further funds for the purpose of expansion

If the loan is granted, a Mudra card will be given to you which functions the same way as
a credit card however the funds available are limited to 10% of the loan amount granted.

15.6 Support to Training and Employment Programme for Women (STEP)

The Ministry of Women & Child Development, Government of India has been
administering ‘Support to Training and Employment Programme for Women (STEP) Scheme’
since 1986-87 as a ‘Central Sector Scheme’. The STEP Scheme aims to provide skills that give
employability to women and to provide competencies and skill that enable women to become
self-employed/entrepreneurs. The Scheme is intended to benefit women who are in the age group
of 16 years and above across the country. The grant under the Scheme is given to an institution/

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 organisation including NGOs directly and not the States/ UTs. The assistance under STEP
Scheme will be available in any sector for imparting skills related to employability and
entrepreneurship.

Objectives of the STEP Scheme : The scheme has two fold objectives, viz. ,

a. To provide skills that give employability to women.

b. To provide competencies and skills that enable women to become self-
employed/entrepreneurs.

Target Groups Of STEP : The scheme is intended to benefit women who are in the age group
of 16 years and above.

Eligible Organizations/ Project Implementing Agencies (PIAs) : Grants-in-aid under

the STEP programme may be given to an institution having a distinct legal entity as under:

i. Institutions or organizations set up as Autonomous Organization under a specific statute

or as a Society registered under the Societies Registration Act, 1860 or Indian Trusts Act, 1882
(Not for profit) or other statutes.

ii. Voluntary Organizations or Non-Government Organizations registered under the

Societies Registration Act, Indian Trust Act carrying out activities which promote the objectives
of the STEP programme, with adequate financial and other resources, credibility and experience
of the type of activities to be undertaken.

iii. Co-operative Societies

Trades Covered Under STEP : (i) Assistance under the STEP Scheme will be available in any
sector for imparting skills related to employability and entrepreneurship as identified by the
Ministry of Skill Development & Entrepreneurship (MSDE) including but not limited to the
following :

a. Agriculture
b. Horticulture
c. Food Processing
d. Handlooms
e. Traditional crafts like Embroidery, Zari etc
f. Handicrafts
g. Gems & Jewellery
h. Travel & Tourism,
i. Hospitality

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ii. Soft skills (which would include computer literacy, language and workplace inter-
personal skills relevant for the sector/trade) would be an integral part of the skills training
process and must be suitably integrated into the course modules.

iii. All Skill Development courses offered under the scheme framework must conform to the
National Skill Qualification Framework (NSQF)

15.7 NABARD Self Help Groups (SHGs)-Bank Linkage Programme

Self Help Groups (SHGs) are novel and innovative organizational setup in India for the
women upliftment and welfare. All women in India are given chance to join any one of SHGs for
training and development, so as to be prospective entrepreneur and skilled worker. The SHGs are
promoted by the Government since majority of women in India may not be resourceful enough
to become entrepreneurs.

What is a Self Help Group? : A self help group is defined as a "self governed, peer controlled
information group of people with similar socio-economic background and having a desire to
collectively perform common purpose". Self help groups are formed voluntarily by the rural and
urban poor to save and contribute to a common fund to be lent to its members as per group
decision and for working together for social and economic upliftment of their families and
community. Self help groups have been able to mobilize small savings either on weekly or
monthly basis from persons who were not expected to have any savings. They have been able to
effectively recycle the resources generated among the members for meeting the productive and
emergent credit needs of members of the group.

SHG-Bank Linkage Programme : Today, the SHG - Bank Linkage Programme (SHG - BLP)
is the largest microfinance programme in the world because of its sheer size and population it
touches. What is equally remarkable is that it is also the most widely participated developmental
programme in the country and perhaps in the world for the large number of channel partners,
their grass root workers, Govt agencies and banking outlets involved.

The extent of participation can be gauged by the fact that at present more than 100
Scheduled Banks, 349 DCCBs, 27 State Rural Livelihood Missions and over 5000 NGOs are
engaged in promoting Self Help Groups. The programme owes this level of involvement to its
ability to mobilise masses of rural people, impress upon the Government machinery and draw
developmental agencies of all hues and continue to draw upon the synergies with aplomb even
today.

Till the 1990’s large section of the rural population was unbanked and austerely
overlooked by the mainstream banking institutions. Most of them had to take recourse to

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informal sources for credit because as compared to formal sources, the informal sources have
highly flexible terms and it is easy to obtain loans for consumption needs and also for marriage
and other purposes. With least documentation and accessibility as well as availability at any
time, the village money lenders are the last resort to many ruralites whose needs are emergent
and they don’t hesitate to agree to pay exorbitant interest rates during the hour of crisis without
realising the deleterious consequences that will follow at a later date like coercive recovery and
taking over of the productive assets thereby throwing them into abyss of poverty. Despite the
relentless efforts of Government of India and RBI in creating and supporting enabling
environment for increasing the outreach of formal financial services to cover the marginalised
population, informal sector continued to rule the roost till quite some time. The major cause was
the information asymmetry that plagued the formal banking system vis-à-vis the village money
lender. What was needed was to break the monopoly of door-step availability of credit by the
informal sources at the time of crisis. That’s where the Self Help Group concept scored. It
combined the flexibility and availability of informal sources with the transparency of
institutional credit.

After extensive trial and research the pilot programme was launched Twenty Five years
ago in 1992 by the NABARD. The Self Help Group - Bank Linkage Programme (SHG-BLP)
was an innovation harnessing the synergy of flexibility of informal system with the strength and
affordability of formal system. Three radical innovations were introduced through the
RBI/NABARD guidelines on SHG-BLP: Acceptance of informal groups as clients of banks –
both deposit and credit linkage Introduction of collateral free lending, and Permission to lend to
group without specification of purpose/ activity/project This savings led and door step credit
delivery mechanism based on social collateral started making immediate inroads backed by an
enabling policy environment and support from some national level institutions and multilateral
agencies. NABARD’s experiment in SHG-BLP established the credibility of groups as a
bankable proposition and rural people capable of financial discipline. It created a new set of
clientele with untapped appetite leading to several NGOs acting as financial intermediaries for
on-lending to groups buoyed by the success of SHG-BLP. A new breed of micro lenders was
born, the Micro Finance Institutions.

Progress of SHG - Bank Linkage Programme : SHG - Bank Linkage Programme has
traversed twenty-five years of unabated journey towards empowering the rural poor, in general
and rural women in particular. Taking a big leap from a pilot in 1992, SHG Bank Linkage
Programme has now become the largest community based microfinance initiative with 85.77
lakh SHGs as on 31 March 2017 covering more than a hundred million rural households. There
was a net addition of 6.73 lakh savings linked SHGs during 2016-17, a major portion (70.4%)
from priority States indicating the urge for connecting the poor households in less developed
States with the development process through SHG-BLP. Coordinated efforts by NABARD and
NRLM to enhance the coverage of eligible SHGs under NRLM fold has resulted in a net addition

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of nearly 2.9 lakh SHGs under its fold during the year. The domain of SHGs consists of 85.4%
women groups and is the mainstay programme for empowerment of the poor rural women in the
country.

SHG - Bank Linkage Programme is a strong intervention in economic enablement and

financial inclusion for the bottom of the pyramid. A proven platform initially conceived for
increasing the outreach of banking services among the poor has since graduated to a programme
for promotion of livelihoods and poverty alleviation. All the major parameters viz. the number of
SHGs with savings bank accounts, amount of credit disbursed during the year, the bank loans
outstanding as well as the quantum of savings outstanding had shown positive growth during the
past three years.

15.8 Trade Related Entrepreneurship Assistance and Development (TREAD)

Government of India launched a scheme entitled "Trade Related Entrepreneurship

Assistance and Development" (TREAD) for the benefit of women during the 9th plan period. The
scheme envisages economic empowerment of women through trade related training, information
and counseling extension activities related to trades, products, services etc. The TREAD
programme was discontinued w.e.f.,27-7-2017.

15.9 Mahila Coir Yojana

With more than 80% workforce engaged in coir industry being women, the industry is a
women oriented traditional industry. It is rural based and the workers engaged in the industry are
mostly below the poverty level. Spinning sector is one of the vulnerable sectors of the industry
employing predominantly women who derive their primary income from spinning coir yarn. The
traditional method of spinning using ratt involves drudgery, strain and low returns because of
low productivity. Mahila Coir Yojana is the first women oriented self employment scheme being
implemented by the Coir Board for the empowerment of women artisans in the coir sector. The
scheme facilitates proliferation of the industry into new regions where raw material potential
exists. The scheme was first introduced in 1994 during the IXth Five Year Plan. It is well
accepted not only in traditional coir producing States but elsewhere even. The scheme has been
in operation during the Xth Five Year Plan also. For the successful implementation of the
scheme and to encourage more women artisans to coir spinning activity, Coir Board under its
training programme provides training to women artisans in spinning on motorised/ motorised
traditional ratts. The scheme envisages providing motorised ratts/ motorised traditional ratts to
women artisans at 75% subsidised rate after providing them the necessary skill in its operation
through field level training.

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 Coir Board provides 75% cost of the motorised/ motorised traditional ratts as one time
subsidy subject to a ceiling of Rs.7,500/- in the case of motorised ratt and Rs.2,925/- for
motorised traditional ratts. During Xth plan period, 31,270 numbers of motorised ratts/ motorised
traditional ratts have been distributed by expending a total amount of Rs.9.52 crores towards
Board's subsidy in the States of Kerala, Tamil Nadu, Andhra Pradesh, Orissa, Karnataka,
Jharkhand, West Bengal and Goa. The working and living conditions of the beneficiaries have
improved to a marked extent as a result of the implementation of the programme. This scheme
could be successfully implemented in all coir producing States like Kerala, Tamil Nadu,
Karnataka, Andhra Pradesh, Orissa, Pondicherry, West Bengal and Lakshadweep. During the
training programme, which is normally of two months duration, a monthly stipend of Rs.500/- is
provided to the women artisans. In the case of traditional areas where workers are already in
spinning sector, a tailor made programme of short duration is on implementation. The training is
imparted through the National Coir Training and Design Centre and the Field Training Units
established by the Regional Offices in various coir producing States. In most cases, training in
spinning coir yarn is organised with the active involvement of the concerned State Govts.
through their sponsored field training units with the active co-operation of NGOs, SHGs,
Cooperatives and other Voluntary Organisations.

15.10 Micro & Small Enterprises Cluster Development Programme (MSE-CDP)

A cluster is defined as a group of enterprises, normally 20 or more producing

same/similar products/services. The Cluster Development Programme (CDP) being implemented
envisages diagnostic study of identified clusters of traditional skill-based MSEs to identify
appropriate technologies and their providers and to facilitate adoption of available technology
meeting the specific needs of the end users. The Cluster Development aims at enhanced
competitiveness, technology improvement, adoption of best manufacturing practices, marketing
of products, employment generation etc. The scheme provides assistance for capacity building,
common facilities, marketing etc. the delivery, assimilation and diffusion of the identified
technology from its producers to the recipient user/cluster of small enterprises.

Type of interventions

1 Soft Interventions – capacity building activities in the cluster where no fixed assets is
acquired or formed. Soft interventions, inter alia, include

7) Diagnostic study
8) Forming association-Trust building & Developing Identity
8) Capacity building,
9) Organising workshops, seminars,

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10) Training & Exposure visits,
11) Market development,
12) Launch of Website,
13) Common procurement,
14) Common/complementary sales and branding;

In the past depending upon the type of cluster, assistance available for soft interventions
has varied in the range of Rs.25 – 35 lakh per cluster. Currently we have an internal ceiling of
Rs.10 lakh for soft intervention under this Scheme, which we are trying to bring upwards.
Clusters of women’s enterprises are entitled up to 90% assistance for soft interventions.

2 Hard Interventions

These are tangible “assets” like

Setting up of Common Facility Centre (CFCs),
Mini Tool Rooms,
Design Centres,
Testing Facilities,
Training Centre,
R&D Centres,
Common Raw Material Bank/Sales depot, etc.

There can be other tangible assets that could be set up by the women’s Clusters, as long
as they are put to common use. For hard interventions, it is necessary to form a Special Purpose
Vehicle (SPV) which could be a registered society, or a cooperative society, or company, or a
trust or any other legal entity — in which at least 20 to 30 members of the Cluster contribute and
participate. Other Cluster members who do not join this SPV could also sign up as Users.

The Common Facility Centre that is set up by the SPV as a hard intervention is entitled to
the highest level of assistance from the MSME Ministry i.e. upto 90% of the Project Cost. This
covers the cost of machinery, plant, equipment, laboratory and other tangible assets. The balance
10% of the project cost would have to be contributed by the SPV or by the State government or
the Local government. But land and building are not covered under this “Project Cost” and will
have to be provided by the SPVs of the Women’s Enterprises Clusters or by the State
government or by some other agency.

Infrastructure Assistance : Infrastructure assistance includes the construction of basic

amenities like power, approach roads, drainage, water supply and storage and the like. MSME
Ministry’s assistance for this component is presently limited to 40% of the total cost — though
we are trying to increase this level. Only one element of Infrastructure Assistance i.e. Display or
Exhibition Centres (which could consist of show-rooms with attached stores) are entitled to a
higher level of assistance in so far as Women’s Clusters are concerned, i.e. 90%. This

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Display/Exhibition Centre could be built by the Women’s Clusters, SPV within the Cluster, or
near the Cluster or even in adjoining Markets of Towns — as long as they exhibit and market the
products manufactured by the Women’s Clusters.

15.11 Credit Guarantee Fund Scheme

The Government introduced the Credit Guarantee Fund Scheme for Small Industries in
May, 2000 with the objective of making available credit to SSI units, particularly tiny units, for
loans up to Rs. 25 lakh without collateral/ third party guarantees. The Scheme is being operated
by the Credit Guarantee Fund Trust for Small Industries (CGTSI) set up jointly by the
Government of India and SIDBI. The Scheme provides for collateral free credit facility (term
loan and / or working capital) extended by eligible lending institutions to new and existing SSI
units/ Small Scale Service and Business (industry related) Enterprises (SSSBEs) including
Information Technology and Software Industry up to Rs. 25 lakh per borrowing unit. In the case
of women enterprises, the guarantee cover is up to 80% of the credit subject to maximum
guarantee limit of Rs. 20 lakh. The member lending institutions (MLI) availing of guarantee
from the Trust have to pay a one-time guarantee fee of 1.5% of the credit facility (comprising
term loan and / or working capital) sanctioned by the lending institution to the borrower and
annual service fee of 0.75% per annum on the amount of credit facility extended by the MLI,
which is covered under the scheme. The entrepreneurs whose bank finance is approved by the
lending bank may ask the bank to obtain guarantee from the Credit Guarantee Trust Fund. This
facility is available online to the lending banks and clearance from the Trust is conveyed in a day
or two.

15.12 Support for Entrepreneurial and Managerial Development

MSME DIs regularly conduct EDPs/MDPs for existing and prospective entrepreneurs and
charge fee for such courses. To encourage more entrepreneurs from among the SC/ST, women
and physically challenged groups, it is proposed that such beneficiaries will not be charged any
fees but, instead paid a stipend of Rs.500/- per capita per month. 50,000 entrepreneurs will be
trained in IT, Fashion Technology, Catering, Agro & Food Processing, Pharmaceutical,
biotechnology etc. through specialized courses run by MSME DIs. 20% of courses conducted by
these Institutions shall be exclusively for women.

15.13 Exhibitions for women under promotional package for Micro & Small Enterprises
approved by CCEA under marketing support

DC (MSME) has formulated a scheme for women entrepreneurs to encourage Small &
Micro manufacturing units owned by women in their efforts at tapping and developing overseas
markets, to increase participation of representatives of small/micro manufacturing enterprises

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under SIDO stall at International Trade Fairs/Exhibitions, to enhance export from such units.
Under this scheme participation of women entrepreneurs in 25 international exhibitions is
envisaged during the 11th Plan.

15.14 SIDBI Marketing Fund for Women (MFW)

1 Objective : The assistance under the Fund is available to women entrepreneurs and
organisations involved in marketing of products manufactured by women entrepreneurs to
increase their reach, both in domestic and international markets

2 Eligible Borrowers:

i. SSI units managed by women entrepreneurs.

ii. Marketing related service providers Organisations / units in the corporate / co-operative /
NGO sectors which are providing support services like internet, trade related information,
advertising, marketing research, warehousing, common testing centres, etc. to enterprises
owned and managed by women.

Marketing related service providers Organisations / units in the corporate / co-operative /

NGO sectors which are providing support services like internet, trade related information,
advertising, marketing research, warehousing, common testing centres, etc. to enterprises owned
and managed by women.

3 Consortia

Organisations / Associations / Women Groups / Marketing Consortia that have an

exclusive marketing mandate and have, as their vendor base, a wide range of small and tiny units
owned and managed by women entrepreneurs. While the terms and conditions for sanction of
assistance would be flexible, they would essentially depend upon the soundness of the
management, track record of performance and viability of future operations.

4 Development Assistance

Besides providing financial assistance as mentioned above, SIDBI could also consider,
on a selective basis, developmental assistance by way of soft loans/grants for organising group
activities and programmes such as trade fairs, exhibitions, buyer-seller meets, seminars,
workshops, training programmes, etc. to promote marketing of products manufactured by women
entrepreneurs.

15.15 Schemes of various Banks

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1.Annapurna Scheme:
This scheme is offered by the State Bank of Mysore for those women entrepreneurs who
are setting up food catering industry in order to sell packed meals, snacks, etc. The amount
granted as a loan under this scheme can be used to fulfill the working capital needs of the
business like buying utensils and other kitchen tools and equipment. Under this loan, a
guarantor is required along with the assets of the business being pledged as collateral security.
Further, the maximum amount of money that is granted is Rs.50,000 which has to re-paid in
monthly installments for 36 months, however, after the loan is sanctioned, the lender doesn’t
have to pay the EMI for the first month. The interest rate is determined depending upon the
market rate.

2 Stree Shakti Package for Women Entrepreneurs

This scheme is offered by most of the SBI branches to women who have 50% share in the
ownership of a firm or business and have taken part in the state agencies run Entrepreneurship
Development Programmes (EDP). The scheme also offers a discounted rate of interest by 0.50%
in case the amount of loan is more than Rs.2 lakhs.

3 Bharatiya Mahila Bank Business Loan

This loan is a support system for budding women entrepreneurs looking to start new
ventures in the fields of the retail sector, loan against property, MICRO loans, and SME loans.
The maximum loan amount under this loan goes up to Rs.20 crores in case of manufacturing
industries and also a concession is available to the extent of 0.25% on the interest rate and
interest rates usually range from 10.15% and higher.
Additionally, under the Credit Guarantee Fund Trust for Micro and Small Enterprises
(CGTMSE), there is no requirement of collateral security for a loan of up to Rs.1 crore.

4 Dena Shakti Scheme

This scheme is provided by Dena bank to those women entrepreneurs in the fields of
agriculture, manufacturing, micro-credit, retail stores, or small enterprises; who are in need of
financial assistance. The interest rate is also decreased by 0.25% along with the maximum loan
amount being Rs.20 lakhs for retail trade; education and housing whereas Rs.50,000 under the
microcredit.

5 Udyogini Scheme

This scheme is offered by Punjab and Sind Bank so as to provide women entrepreneurs
involved in Agriculture, retail and small business enterprises to get loans for business at flexible
terms and concessional interest rates. The maximum amount of loan under this scheme for

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women between the age bracket of 18-45 years is Rs.1 lakhs but your family income is also
taken into consideration and is set at Rs.45,000 per annum for SC/ST women.

6. Cent Kalyani Scheme

This scheme is offered by the Central Bank of India with the aim of supporting women in
starting a new venture or expanding or modifying an existing enterprise. This loan can be availed
by women who are involved in village and cottage industries, micro, small and medium
enterprises, self-employed women, agriculture and allied activities, retail trade, and government-
sponsored programs. This scheme requires no collateral security or guarantor and charges no
processing fees. And the maximum amount that can be granted under the scheme is Rs. 100
lakhs.

7 Mahila Udyam Nidhi Scheme

This scheme is launched by Punjab National Bank and aims at supporting the women
entrepreneurs involved in the small scale industries by granting them soft loans that can be
repaid over a period of 10 years. Under this scheme there are different plans for beauty parlors,
day care centres, purchase of auto rickshaws, two-wheelers, cars, etc. the maximum amount
granted under this scheme is ₹10 lakhs and the interest depends upon the market rates.

8 Orient Mahila Vikas Yojana Scheme

This scheme is provided by Oriental Bank of Commerce to those women who hold a 51%
share capital individually or jointly in a proprietary concern. No collateral security is required for
loans of Rs.10 lakhs up to Rs.25 lakhs in case of small-scale industries and the period of
repayment is 7 years. A concession on the interest rate of up to 2% is given.

15.16 Women Entrepreneur Associations

The efforts of government and its different agencies are supplemented by NGOs and
associations that are playing an equally important role in facilitating women empowerment. The
following women associations are actively supporting women entrepreneurship in India.

1. Federation of Indian Women Entrepreneurs (FIWE)

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2. Consortium of Women Entrepreneurs of India (CWEI)
3. Association of Lady Entrepreneurs of Andhra Pradesh
4. Association of Women Entrepreneurs of Karnataka (AWAKE)
5. Self-Employed Women's Association (SEWA)
6. Women Entrepreneurs Promotion Association (WEPA)
7. The Marketing Organisation of Women Enterprises (MOOWES)
8. Mahakaushal Association of Woman Entrepreneurs (MAWE)
9. SAARC Chamber Women Entrepreneurship Council
10. Women Entrepreneurs Association of Tamil Nadu (WEAT)
11. TiE Stree Shakti (TSS)
12. Women Empowerment Corporation (WEC)

15.17 Summary

Women Entrepreneurship plays a pivotal role in industrial development of any country.

Women Entrepreneurs can be seen everywhere in the startup-up ecosystem of India. It is
estimated that women entrepreneurs comprise about 10 per cent of the total entrepreneurs in
India. The major factor to jumpstart the entrepreneurial journey is capital and various banks offer
specialized loans for women entrepreneurs .
The Micro, Small & Medium Enterprises Development Organisation (MSME-DO), the
various State Small Industries Development Corporations (SSIDCs), the nationalised banks and
even NGOs are conducting various programmes including Entrepreneurship Development
Programmes (EDPs).
The Stand Up India scheme is based on recognition of the challenges faced by SC, ST and
women entrepreneurs in setting up enterprises, obtaining loans and other support needed from
time to time for succeeding in business. The objective of the Stand Up India scheme is to
facilitate bank loans between Rs.10 lakh and Rs.1 Crore to at least one Scheduled Caste (SC) or
Scheduled Tribe (ST) borrower and at least one woman borrower per bank branch for setting up
a greenfield enterprise.
Mudra Yojana scheme for women has been launched by the Govt. of India for individual
women wanting to start small new enterprises and businesses like beauty parlors, tailoring units,
tuition centres, etc. as well as a group of women wanting to start a venture together. The loan
doesn’t require any collateral security.
The Ministry of Women & Child Development, Government of India has been administering
‘Support to Training and Employment Programme for Women (STEP) Scheme’ since

408
1986-87 as a ‘Central Sector Scheme’. The STEP Scheme aims to provide skills that give
employability to women and to provide competencies and skill that enable women to become
self-employed/entrepreneurs. The Scheme is intended to benefit women who are in the age group
of 16 years and above across the country. The grant under the Scheme is given to an institution/
organisation including NGOs directly and not the States/ UTs. The assistance under STEP
Scheme will be available in any sector for imparting skills related to employability and
entrepreneurship.
SHG - Bank Linkage Programme has traversed twenty-five years of unabated journey towards
empowering the rural poor, in general and rural women in particular. Taking a big leap from a
pilot in 1992, SHG Bank Linkage Programme has now become the largest community based
microfinance initiative with 85.77 lakh SHGs as on 31 March 2017 covering more than a
hundred million rural households.
Mahila Coir Yojana is the first women oriented self employment scheme being implemented by
the Coir Board for the empowerment of women artisans in the coir sector. The scheme facilitates
proliferation of the industry into new regions where raw material potential exists.
MSE-CDP Programme: The Cluster Development Programme (CDP) being implemented
envisages diagnostic study of identified clusters of traditional skill-based MSEs to identify
appropriate technologies and their providers and to facilitate adoption of available technology
meeting the specific needs of the end users. The Cluster Development aims at enhanced
competitiveness, technology improvement, adoption of best manufacturing practices, marketing
of products, employment generation etc. The scheme provides assistance for capacity building,
common facilities, marketing etc. the delivery, assimilation and diffusion of the identified
technology from its producers to the recipient user/cluster of small enterprises.
The Government introduced the Credit Guarantee Fund Scheme for Small Industries in May,
2000 with the objective of making available credit to SSI units, particularly tiny units, for loans
up to Rs. 25 lakh without collateral/ third party guarantees. The Scheme is being operated by the
Credit Guarantee Fund Trust for Small Industries (CGTSI) set up jointly by the Government of
India and SIDBI. The Scheme provides for collateral free credit facility (term loan and / or
working capital) extended by eligible lending institutions to new and existing SSI units/ Small
Scale Service and Business (industry related) Enterprises (SSSBEs) including Information
Technology and Software Industry up to Rs. 25 lakh per borrowing unit. In the case of women

409
enterprises, the guarantee cover is up to 80% of the credit subject to maximum guarantee limit of
Rs. 20 lakh.
MSMEDIs: regularly conduct EDPs/MDPs for existing and prospective entrepreneurs and
charge fee for such courses. To encourage more entrepreneurs from among the SC/ST, women
and physically challenged groups, it is proposed that such beneficiaries will not be charged any
fees but, instead paid a stipend of Rs.500/- per capita per month.
DC (MSME) has formulated a scheme for women entrepreneurs to encourage Small & Micro
manufacturing units owned by women in their efforts at tapping and developing overseas
markets, to increase participation of representatives of small/micro manufacturing enterprises
under SIDO stall at International Trade Fairs/Exhibitions, to enhance export from such units.
SIDBI Marketing Fund for Women:The assistance under the Fund is available to women
entrepreneurs and organisations involved in marketing of products manufactured by women
entrepreneurs to increase their reach, both in domestic and international markets.
In addition to above various banks and associations of women entrepreneurs have also
been supporting by offering several schemes for the promotion of women entrepreneurship in
India.

15.18 Self Assessment

Short Questions:
1. Start up India Scheme for Women entrepreneurs
2. Training programmes for Women Entrepreneurs
3. SIDBI’s support to women entrepreneurs
4. MUDRA Yojana Scheme for women
5. STEP programme for women entrepreneurs
6. Mahila Coir Yojana for women
7. SWALAMBAN
8. Rashtriya Mahila Kosh
9. Swashakti project
10. SAWP
11. WEDS
12. WCP

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 13. TDUPW scheme
14. Cluster Development programme

Essay questions:

1. What are the special schemes framed by government of India and various institutions to
support women entrepreneurs in India.
2. List out the schemes of assistance provided by various banks for women entrepreneurs in
India.
3. Explain how women entrepreneurs can benefit from STEP program
4. Explain the details of training programs available for women entrepreneurs
5. List out the schemes supporting women entrepreneurs for marketing their products.
6. What are loan schemes in India for women to start their business units.
7. List out various Government schemes that can help women entrepreneurs to grow their
business operations.
8. What are the Steps Taken By Government to Develop Women Entrepreneurs in India

Multiple choice questions:

1. The stand up scheme provides assistance to woman entrepreneurs of
A. S.C and S.T.
B. B.C
C. O.C
D. Others
2. The main objective of Mudra Yojana Scheme
A. Provide assistance to start small business enterprises
B. Provide assistance to medium enterprises
C. Provide assistance to long term enterprises
D. d Provides assistance to village industries.
3. SHG Means
A. Self Help Groups
B. Small Housing Groups

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 C. Short term housing grant
D. Shortage of Housing grant
4. Support to Training and Employment Programme (STEP) scheme is a
A. Central Sector Scheme
B. State Sector Scheme
C. Both central and State Sector Scheme
D. International scheme
5. Annapurna scheme is offered by
A. State Bank of Mysore
B. State Bank of India
C. State Bank of Travancore
D. State Bank of Hyderabad
Activity 1: Explain the Role of Banks in assisting women entrepreneurs in India.
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Activity 2: Briefly mention the type of assistance Rendered by various Women

Entrepreneur Associations, for promoting women entrepreneurship in India.

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15.19 Key Terms

Mahila Udyam Nidhi; Mahila Vikas Nidhi; Stand Up India; Mudra Yojana ; STEP; SHG-Bank
Linkage Programme; Mahila Coir Yojana; Swalamban; Annapurna Scheme; Stree Shakti
Package of SBI;

15.20 Further Readings / Reference books

1. (www.standupmitra.in)

2. Nine Schemes For Women Entrepreneurs In India - News18.com

www.news18.com/.../work-and-career-9-schemes-for-women-entrepreneurs-in-india-... Sep 19,
2017 - Annapurna Scheme. Stree Shakti Package For Women Entrepreneurs. Bharatiya Mahila
Bank Business Loan. Dena Shakti Scheme. Udyogini Scheme. Cent Kalyani Scheme. Mahila
Udyam Nidhi Scheme. Mudra Yojana Scheme For Women.
3. Here're 9 Schemes For Women Entrepreneurs In India
https://www.indianweb2.com/2017/09/.../herere-9-schemes-women-entrepreneurs-ind... Sep 23,
2017 - In order to provide women stepping into the entrepreneurial world a helping hand when it
comes to capital, there are various schemes and loans programmes exclusively structured for
businesswomen. Here's a list of 9 schemes meant for women entrepreneurs in India: 1) Stree
Shakti Package: The Stree ...
4. Women Entrepreneurship | smallB
https://smallb.sidbi.in/%20/fund-your-business%20/.../women-entrepreneurship
Small Industries Development Bank of India (SIDBI) has also been implementing
special schemes forwomen entrepreneurs. ... Self employment loan programmes; Educational
loan schemes; Single women benefit schemes; Job oriented training programmes;
Marketing support for women entrepreneurs; Autorickshaw ...
5. Top 6 Women Entrepreneur Loan Schemes In India - Muvsi
muvsi.in/women-entrepreneur-loan-schemes-india/
Govt. policies and loan schemes for female entrepreneurs. A list of women
entrepreneur loanschemes in India for financial assistance and women empowerment. ...
flexibly and collaborate seamlessly. In India, there are certain women
entrepreneur loan schemes that are designed tosupport only female entrepreneurs.
6. 8 Startup India Schemes That Benefit Women- SheThePeople TV
www.shethepeople.tv/news/8-startup-india-schemes-that-benefit-women/
Jan 6, 2017 - Here are eight schemes of Startup India that could be really useful to women.
School Programmes. Often, right from the onset young girls are told that a career in science and

413
technology is a man's domain. Atal Innovation Mission. Funding Support. Tax Exemptions.
Startup Fests. Self-Certification. Legal Support.
7. Government schemes that can help women entrepreneurs grow their ...
https://www.tomorrowmakers.com › Articles › Women Nov 2, 2017 - And as a way of
encouraging such businesses, the Indian Government offers a financial boost specifically
designed for women entrepreneurs. Here are ... This scheme aims at providing
financial support to women entrepreneurs who want to open a day-care centre, beauty salon or a
similar small venture.
8. Step Taken By Government to Develop Women Entrepreneurs in India
www.publishyourarticles.net/eng/articles2/...women-entrepreneurs-in-india/2735/
Therefore, a congenial environment is needed to be created to enable women to participate
actively in the entrepreneurial activities. There is a need of Government, non-Government,
promotional and regulatory agencies to come forward and play the supportive role in promoting
the women entrepreneur in India.
9. What are loan schemes in India for women to start their business ...
https://www.quora.com/What-are-loan-schemes-in-India-for-women-to-start-their-bus... This
bank supports and encourages women entrepreneurs to start their new ventures. This bank offers
loans for the retail sector, loan against property, MICRO loans, and SME loans. 4. Dena
ShaktiScheme. This scheme offered by Dena Bank and aims at providing financial assistance
to women entrepreneurs. Women ...
10. [PDF]policy framework supporting women entrepreneurs in india
shodhganga.inflibnet.ac.in/bitstream/10603/62233/7/chapter%204.pdf

This chapter represents the policy framework for the women entrepreneurs in India including
government policy on women, promotion of entrepreneurship by women, and the assistance to
rural women, schemes for women empowerment, institutional support to women
entrepreneurs and the like. Indian Economic Planning ...

11. Indian Government Schemes For The Women Entrepreneurs Of Today ...
https://community.kredx.com › business
Dec 29, 2017 - Schemes That Encourage Today's Business Women. Bharatiya Mahila Bank
Business Loan. This loan is set up with the sole intent of supporting women entrepreneurs in their
respective ventures. With a concession rate of 0.25, the interest rates for this loan starts from
10.15. Capital as large as 20 crores ...

12. List Of Women Entrepreneurs - Search List Of Women Entrepreneurs

www.zapmeta.ws/Search
13. Women Entrepreneurs India
www.about.com/Women+Entrepreneurs+India

414
 LESSON 16: TAX AND NON TAX BENEFITS AND LEGAL FRAMEWORK FOR
SMALL BUSINESS

Objective of the lesson:

After studying this lesson, you should be ready to:
 Understand various tax benefits offered to MSME units under Income Tax
Act
 Know the exemptions and benefits offered to start ups
 Understand the GST advantages to Small business units
 Legal requirements for Business Units under various Acts

Structure of the Lesson:

16.1 Tax Holiday

16.2 Depreciation
16.3 Rehabilitation Allowance
16.4 Expenditure on Scientific Research
16.5 Amortization of Certain Preliminary Expenses
16.6 Deduction of 20% to Small Scale unit established in backward areas
16.7 Deduction of 20% to Small Scale unit established in rural areas
16.8 Expenditure on Acquisition of Patents and Copyrights:
16.9 Profits from Business of Publication of Books:
16.10 other Deductions under Income Tax Act.
16.11 Tax exemption and benefits for budding entrepreneurs for Startups
16.12 Presumptive taxation scheme
16.13 GST Advantages for Startups and Small Businesses
16.14 Legal requirements for Business enterprises under various Acts
16.15 : Summary

16.16 Self assessment Questions

16.17 Key Terms
16.18 Further Readings / Reference books

*******

415
 These success stories of entrepreneurs are bound to inspire you

Being an entrepreneur is no easy task- in fact it is the most difficult and the most
fulfilling job in the world. Granted, you make millions once your startup takes off and we
mostly seem to focus on that, but what we forget to acknowledge is the years of hard work and
perseverance that went behind making that success story. And, we present to you two most
inspiring success stories of entrepreneurs that's bound to leave you inspired.

1. Jack Ma: Jack Ma, who founded Alibaba and is its

Executive Chairman was rejected from as many as 30 jobs,
including a job at KFC before he became the richest man in
China. His e-commerce company, Alibaba attracts 100
million shoppers a day and his real time net-worth is a
whopping $21.9 billion. But, being the richest person in
China didn't come easy to Ma. He went through a lot of
rejection before seeing all the unprecedented success.

For starters, Ma revealed in a recent interview that he failed

a college entrance exam three times. Unfortunately, it didn't just end there. Ma faced more
obstacles when he founded Alibaba in 1998. The brand didn't turn profitable for the first three
years, and Ma had to get creative.

One of the company's main challenges was that it had no way to do payments and no banks
would work with him. This is when he decided to start his own payment program called Alipay.
The program transfers payments of different currencies between international buyers and
sellers.

"So many people I talked to at that time about Alipay, they said, 'this is the stupidest idea you've
ever had,'" he said. "I didn't care if it was stupid as long as people could use it."

Today, 800 million people use Alipay.

Kevin Systrom: Instagram's CEO Kevin Systrom will go

down history as one of the greatest Silicon Valley success
stories of this generation. Systrom who was responsible for
introducing the photo-sharing app to the world had infact
no formal engineering training. While working in the
marketing department at Nextstop, which Facebook
acquired in 2010, he would spend his evenings learning to
program. According to Systrom, small projects included
combining elements of Foursquare with Mafia Wars.

********

416
 India’s corporate tax rate, at 34.6% with cess and surcharge, is steep compared with the
global average. India would need to speed up direct tax reforms to attract investors. Most
countries have chipped away at corporate tax rates to woo investments and the new US
administration has vowed to cut corporate tax rate to 15%.

Union Budget 2017 announced Concessions to small scale units. It proposed to reduce
the income-tax rate for micro, small and medium enterprises to 25% from 30% previously. It
also allowed credit for minimum alternate tax (MAT) to be carried forward for up to 15 years
instead of 10 years. With the reduced rate for the MSME sector, 96% of India’s companies will
benefit from lower taxation. “25% rate for 96% of the companies in the country.. Loss carryover
of 15 years under MAT is a welcome measure. The CII’s suggestion to lower the tax rate to a flat
18% without exemptions would have put all businesses on the same level. “The reduction in the
tax rate of MSMES provides them a level playing field with foreign companies,” said Kaushik
Mukerjee, a partner at PwC.

Some of the tax benefits available to Small-Scale Industries in India are as follows:

16.1 Tax Holiday:

Under section 80J of the Income Tax Act 1961, new industrial undertakings, including small-
scale industries, are exempted from the payment of income- tax on their profits subject to a
maximum of 6% per annum of their capital employed. This exemption in tax is allowed for a
period of five years from the commencement of production.

A small-scale industry has to satisfy the following two conditions to avail of this tax exemption
facility:

1. The unit should not have been formed by the splitting or reconstruction of an
existing unit.

2. The unit should employ 10 or more workers in a manufacturing process with the
power or at least 20 worker without power.

16.2 Depreciation:

Under Sec.32 of the Income Tax Act, 1961, a small scale industry is entitled to a deduction on
depreciation account on block of assets at the prescribed rate. Small enterprise is allowed for
depreciation on plant and machinery on the diminishing balance method. In case of an asset
acquired before the accounting period, depreciation is calculated on its written down value. For
plant and machinery that are used in manufacturing in double or triple shift, an additional
allowance called ‘Extra Shift Allowance’ is also available. A small-scale industry should satisfy
the following conditions before it becomes eligible for deduction in depreciation:

1. The assets must be owned by the assessee.

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2. The assets must actually be used for the purpose of the assessee’s business or profession.

3. It should be used during the relevant previous year

4. Depreciations allowance or deduction is allowed on tangible as well as intangible assets.

Tangible assets are building, machinery, plant or furniture. Intangible assets acquired after
March 31, 1998 such as know –how, patents, copyrights, trade marks, licenses, franchises or
any other business or commercial rights of similar nature.

20% Additional Depreciation [Section 32 (1) (iia)]: in the case of any new machinery or plant
which has been acquired and installed after 31-3-2005 by an assessee engaged in the business
of manufacture or production of any article or power a further some equal to 20% of the actual
cost of the machinery or plant shall be allowed as deduction.

35% additional Depreciation in Andhra Pradesh, Bihar, Telangana and West Bengal: if
new plant and machinery is acquire for setting of enterprise during April 1,2015, to March 31,
2020, in a notified area in these states 35% additional depreciation is allowed.

16.3 Rehabilitation Allowance:

A rehabilitation allowance is granted to small-scale industries under Section 33-B of the Income
Tax Act, 1961 whose business is discontinued on account of the following reasons:

1. Flood, typhoon, hurricane, cyclone, earthquake, or other natural upheavals;

2. Riot or civil disturbance;

3. Accidental fire or explosion; and

4. Action by an enemy or action taken in combating an enemy.

The rehabilitation allowance should be used for business purposes within three years of unit’s re-
establishment, reconstruction, or revival .The rehabilitation allowance is allowed to the unit
equivalent of 60 per cent of the amount of the deduction allowable to the unit. This deduction is
not allowed with effect from assessment year 1985-86.

16.3 Investment Allowance:

The investment allowance under Section 32 A of the Income Tax Act, 1961 is allowed at the rate
of 25 per cent of the cost of acquisition of new plant or machinery installed.

Although the investment allowance has been made available for the articles or things except
certain items of low priority, yet as per the Eleventh Schedule to the Income Tax Act 1961, a
special dispensation has been provided for the plant and machinery installed in small-scale
industries. In comparison with other industries, small-scale industries are at an advantage in
claiming a deduction of investment allowance. A small-scale industry can avail of investment

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allowance provided it has put to use machinery or plant either in the year of installation or in the
immediate following year failing which the benefit will be forfeited.

16.4 Expenditure on Scientific Research:

Under Section 35 of the Income Tax Act, 1961, the following deductions in respect of
expenditure on scientific research are allowed:
1. Any revenue expenditure incurred on scientific research related to the business of the assessee
in the previous year.

2. Any sum paid to a scientific research association or a university, college, institution or to a

public company which has its object, the undertaking of a scientific research.

3. Any capital expenditure incurred on scientific research related to the business of the assessee
subject to the provision of Section 35(2) of the Income Tax Act, 1961.

In case of any unabsorbed capital expenditure incurred on scientific research, the provision of the
Income Tax Act allow to carry it forward for adjustment against the profits earned by the
business in the subsequent years for an indefinite time period.

16.5 Amortization of Certain Preliminary Expenses:

The Indian companies and resident persons, under Section 35D of the Income Tax Act 1961, are
allowed to write off the preliminary and developmental expenses incurred by them in connection
with the setting up of a new industrial unit or expansion of an existing industrial unit.

The examples of preliminary expenses are:

a. Expenses incurred in connection with the preparation of a feasibility report necessary
for their business;

b. Engineering expenses related to the business; and

c. Legal charges, if any, for drafting agreements.

The writing off of the preliminary expenses is allowed against subject to a maximum of ten
annual installments beginning with the previous year in which the new unit commences its
production or expansion of an existing unit is completed. The aggregate amount of expenditure
allowed be deducted is limited to 2.5 per cent of the total cost of the project.

16.6 Deduction of 20% to Small Scale unit established in backward areas

The Planning Commission of India, in 1970-71, declared 247 districts out of 435 districts as
backward areas with a view to provide them special incentives and concessions to establish
industries in these backward areas. The newly established small-scale industries in these areas
specified in the Eighth Schedule to the Income Tax Act, 1961 are entitled to a deduction of 20%
of their profits and gains from their gross total income.

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This deduction is allowed for a period of 10 years beginning with the year of commencement of
manufacture or production. However, if a small-scale industry has already been established in a
non-backward area and later shifted to backward area, the unit will be allowed this deduction on
the profits earned from the undertaking after shifting in the backward area for a period of 10
years. A small-scale industry established in backward area but engaged in mining activity is not
entitled to such deduction benefit.

A small-scale unit established in a backward area, under Section 80-HH, is allowed a deduction
of 20 per cent on its profits and gains provided the unit satisfies the following conditions:
a. The unit began its production after 31st December 1970 in any backward area of the
country;

b. It is a newly established unit in a backward area. It is neither split nor reconstituted out
of a business already in existence in any backward area;

c. It has not been formed by the transfer to a new business plant or machinery which was
previously used for any purpose in any backward area; and

d. It employs 10 or more workers in a manufacturing process with power or 20 or more

workers without power.

16.7 Deduction of 20% to Small Scale unit established in rural areas

The Finance (No.2) Act of 1977 inserted a new Section 80-HHA in the Income Tax Act, 1961.
The tax payers, under this Section 80-HHA, are entitled to a deduction of 20 % of the profits and
gains derived by running small-scale industries in the rural areas.

The deduction is allowed for a period of 10 years from the year of commencement of
manufacturing activity after 30th September 1977. For this purpose, the expression rural area
means any area as defined under the Explanation to Section 35 CC (I) of the Income Tax Act,
1961. However, this tax deduction benefit is not allowed to the small-scale units engaged in
mining activity.

The small-scale industry can avail of this tax deduction only after fulfilling the following
conditions:
1. The small-scale unit is not formed by splitting or reconstruction of a business already in
existence.

2. ‘It is not formed by the transfer to a new business of machinery or plant previously used
for any purpose.

3. The accounts of the unit are audited by a chartered accountant.

4. It employs 10 or more workers in manufacturing process carried on without the aid of

power.

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 5. The unit does not claim a simultaneous deduction under Section 80-HH of the Income
Tax Act, 1961.

16.8 Expenditure on Acquisition of Patents and Copyrights:

Under Section 35-A of the Income Tax Act, 1961, any expenditure of capital nature incurred in
acquiring a patent and copyright by a small-scale industry is deductible from its income. But the
expenditure should be incurred after 28th February 1966. The expenditure can be deducted in 14
equal installments beginning with the previous year in which the expenditure was incurred in
acquiring patents and copyrights for the unit.

16.9 Profits from Business of Publication of Books:

Under Section 80-1A of the Income Tax Act, 1961 which has replaced Section 80-1 w.e.f. the
assessment year 1991-92, 20% of the profits earned by a small- scale industry from the business
of publication of books is deductible from its gross total income. The deduction benefit is
available for total period of five years beginning with the assessment year 1992-93.

16.10 other Deductions under Income Tax Act.

In addition, deductions are also available in respect of:

1. Royalties from any company in India (Under Section 80 M)

2. Royalties from any certain foreign companies (Under Section 800)

3. Inter-corporate Dividends (Under Section 80 M)

4. Income of Co-operative Societies (Under Section SOP)

5. Carry forward and set -off business losses (Under Section 72)

16.11 Tax exemption and benefits for budding entrepreneurs for Startups

The taxation policies of the government for startups underwent a drastic change with the Union
Budget of 2016-17. These changes, made under the ‘StartUp India’ Policy, are touted to result in
a large number of concessions and exemptions.

Here’s a look at the highlights of the startup tax in India. startup lawyers help the
entrepreneurs to figure out the best way to make full use of the policy changes.

1. 100% Tax Exemption for First Three Years: “It is proposed to provide a deduction of 100%
of the profits and gains derived by an eligible startup from a business involving innovation,

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development, deployment or commercialisation of new products, processes or services driven by
technology or intellectual property,” said Finance Minister Arun Jaitley while announcing the
Union Budget 2016-17 in Parliament.

In order to give budding entrepreneurial ventures a much-needed boost, the government has
decided to do away with taxing them for the first three years of their operation. It was declared in
the Budget Session of the Parliament that startups will not incur any taxes on profits incurred in
their first three years except MAT. MAT stands for ‘Minimum Alternate Tax’ and is calculated
on ‘book profit’.

2. Abolition of ‘Angel Investment Tax’: As a form of further relief, the government has also done
away with the ‘Angel Investment Tax,’ introduced in 2012.

Under this, angel investors, i.e., family and friends and domestic funds not registered as VC
funds, which one raises from venture capital firms set up for the very purpose of backing such
ventures, will not be taxed on these investments. They have the liberty to issue shares to
investors at rates higher than fair value without any taxation hassles. This was brought into being
by amending Section 56(2)(vii)(b) of the Income-Tax Act.

However, there are some restrictive terms here. Only startups which fulfill the conditions
specified by the Department of Industrial Policy and Promotion (DIPP) are eligible for this
startup tax exemption. In order to avail this concession, a startup will have to attain a certificate
stating its eligibility from the ‘inter-ministerial board of certification.’

3. Setting up of a ‘Fund of Funds’ for Startups: In order to help startups in their initial stage by
providing them with the necessary financial boost, the government has decided to set up a fund
with an initial corpus of Rs. 2,500 crore and a total corpus of Rs. 10,000 crore over a four year
period.

The fund will come under ‘Fund of Funds (FoF)’ which won’t invest directly in startups but will
be directed through SEBI registered venture funds, as the action plan suggests.

A board of professionals from diverse areas will be set up to manage this fund. Life Insurance
Corporation of India will be an investor in this fund which will support a whole range of sectors
like manufacturing, agriculture, health, etc.

4. Exemptions in Capital Gains Tax: The government has also recently made provisions for an
exemption of 20% capital gains tax. Capital gains tax is the tax charged on profits from sale of
capital assets, such as stocks, bonds, etc. This was a long-pending demand and is deemed to
prove highly lucrative for startups as before, overseas venture capital investors were forced to
route their investment through Mauritius.

Before this provision, most investments in Indian startups were routed through Mauritius as
capital gains tax on investment from there was waived following provisions in the Double Tax
Avoidance Treaty.

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5. Other Tax Adjustments and Fund Allocations to Boost Startups: Some other important
adjustments and allocations made in this area to boost startups are as follows:

o Setting up of provisions to support entrepreneurs belonging to Scheduled Caste and

Scheduled Tribes.
o Allocation of Rs. 500 crore for SC/ST and women entrepreneurs under Startup India.
o Lowering long-term capital gains for unlisted firms from three to two years.
o Amendment in the Motor Vehicles Act to enable entrepreneurship in the road transport
sector.
o Raising of the eligibility for the presumptive tax scheme for small businesses. This is
done by allowing businesses with a turnover of up to Rs. 2 crore from the earlier Rs. 1
crore to enjoy coverage under it.
o Provision for ‘Employee Provident Fund’ for the first three years. This is thought to save
12 % of the costs for the startups and provide security benefits for the employees.
o Providing relief to entrepreneurs living in rented houses away from their native places,
because of the effect of the area on the success of startups, by raising the 80GG deduction
from Rs. 24,000 to Rs. 60,000.

These policies under the “Startup India” scheme of the government as proposed in the Union
Budget 2016-2017 seem to be made with the purpose of providing impetus to all budding
ventures. It is also a subsidiary of the ‘Make In India’ scheme as it aims to create more jobs
within the country so that the youth doesn’t have to look to other countries for employment.

This startup tax policy and other provisions are sure to go a long way in providing new startups
the boost they need.

16.12 Presumptive taxation scheme :

Presumptive taxation scheme under section 44AD of the Income Tax Act is available for small
and medium enterprises i.e non corporate businesses with turnover or gross receipts not
exceeding one crore rupees. At present about 33 lakh small business people avail of this benefit,
which frees them from the burden of maintaining detailed books of account and getting audit
done. It is proposed to increase the turnover limit under this scheme to Rupees two crores which
will bring big relief to a large number of assesses in the MSME category.

under section 44AD of the Income Tax Act is available for small and medium enterprises i.e non
corporate businesses with turnover or gross receipts not exceeding one crore rupees. At present
about 33 lakh small business people avail of this benefit, which frees them from the burden of
maintaining detailed books of account and getting audit done. It is proposed to increase the
turnover limit under this scheme to Rupees two crores which will bring big relief to a large
number of assesses in the MSME category.

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16.13 GST Advantages for Startups and Small Businesses

The Goods and Services Tax (GST) – GST Bill was passed in Lok Sabha on 6th May, 2016. The
concept of GST in India has been mooted and evolved for over a decade now. Some of the major
advantages of GST implementation in India for startups and small businesses are presented
bellow :

GST Overview: GST or Goods and Services Tax is a value added tax, levied at all points in the
supply chain with credit allowed for any tax paid on inputs acquired for use in making the
supply. Therefore, it is the end consumer who bears this tax as the last person/entity in the supply
chain. The introduction of GST in India is expected to result in major simplification of indirect
tax structure at both Centre and State levels – replacing the multiple layers of complex taxation
currently existing in India.

GST will Improve Ease of Starting a Business in India: While starting a new business in
India, businesses currently have to get VAT registration from the State’s Sales Tax department.
Since, each State has different procedures and fees for VAT registration, it is hard for businesses
operating in multiple States to obtain and maintain compliance with VAT regulations.

With the implementation of GST in India, the procedure for GST registration would be
centralized and standardized similar to service tax registration. Under GST regime, business
would no longer have to obtain multiple VAT registration – as a single GST registration would
be applicable across India. The procedure for obtaining GST registration would also be
standardized, thereby improving the ease of starting a new business in India.

Integration of Multiple Taxes in GST: Currently goods and products are taxed under the
VAT regime implemented by State Government and services are taxed under the service
tax regimen implemented by the Central Government. As VAT is implemented by State
Governments, each of the State has different VAT rates, VAT regulations and VAT
procedures – leading to complications. Further, in addition to VAT and Service Tax, there
are various other tax regulations that businesses must comply with like Central Sales Tax
(CST), Additional Customs Duty, Purchase Tax, Luxury Tax, etc.,
Under GST regime, many of the taxes would be subsumed and made into one tax. The following
taxes are subsumed under GST:

Central Taxes subsumed under GST

 Central Excise Duty (including additional excise duties)
 Service tax
 Additional customs duty (CVD)
 Special Additional Duty of Customs (SAD)
 Central surcharges and cesses

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 State Government Taxes subsumed under GST
 Value Added Tax
 Central Sales Tax
 Octroi and Entry Tax
 Purchase Tax
 Luxury Tax
 Taxes on lottery, betting & gambling
 State cesses and surcharges
 Entertainment tax

GST Exemption for Startups and Small Businesses: Earlier, VAT registration and VAT
payment is mandatory once a business crosses an annual turnover of Rs.5 lakhs in some States
and Rs.10 lakhs in a few other States. The multiple VAT legislation enacted by each State
creates confusion and complexities. With the introduction of GST, businesses with a turnover of
less than Rs.10 lakhs per annum would not have to register for GST nor collect GST. Further,
businesses with an annual sales turnover of Rs.10 lakhs to Rs.50 lakhs may have to pay GST
only at a lower rate. Therefore, with the introduction of GST, thousands of startups and small
businesses currently having an annual sales turnover of Rs.5 lakh – Rs.10 lakh would be out of
the tax net providing relief to them from collection and filing of GST returns.

GST will Improve Ease of Doing Business in India: Earlear , businesses like restaurants or
computer sales and service – which sell goods and provide services as a package have to comply
with both VAT and Service Tax regulations. This creates complexity for the business and they
have to calculate taxes for the transaction based on different rates for different items. With the
introduction of GST, the distinction between Goods and Services will be gone – thereby making
compliance easier. Further, invoicing will be easier for businesses as only one rate would be
adopted.

16.14 Legal requirements for Business Enterprises under various Acts

All industrial activities are governed by certain legal provisions that come in to force from time
to time. A few of them are given here with brief explanation for your understanding. These could
be divided into ‘general’ and ‘Food Processing Industry specific’.

GENERAL LEGALITIES

Factories Act, 1948 : This is applicable to enterprises where the number of employees is:

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- Ten or more and where power is used; or
- Twenty or more and power is not used

The enterprises covered under the Act are required to keep certain records:
 Muster Roll
 Workers Register
 Overtime Register
 Advance Register
 Register for Fine
 Register for Deductions
 Register of Wages
 Register of Accidents and Dangerous Occurrences
 Bond Inspection Book
 Register of Cleaning and White Washing
 Record of Examination of Parts of Machinery

There is another Act known as Shops and Establishment Act which is applicable to shops and
business undertakings employing 5 or more persons.

Employees Provident Fund & Miscellaneous Provisions Act, 1952 : The Act applies to
every factory or establishment employing 20 or more employees. It, however, exempts a factory
or establishment for an initial period of 3 years from commencement of business if the number of
employees is more than 50 and for an initial period of 5 years if the number of employees is less
than 50.

Contribution : The minimum contribution payable by the employer is 12% of the basic
salary and Dearness Allowance. The employee also makes an equal contribution. The Act,
however, does not specify a maximum contribution.

Employees’ State Insurance Act : It provides benefits to employees in case of sickness,

maternity and employment injury and for certain other matters in relation thereto. The Act also

426
provides for payment of contributions by employers and employees at the rates specified in the
First Schedule of the Act. The existing rates of employee’s contribution vary according to wages
and the employer’s contribution is exactly double the employee’s contribution. It shall apply to
factories employing 20 or more people.

Payment of Wages Act, 1936 : This Act is applicable to factories and establishments,
which come under The Factories Act. The act is restricted in its application to the class of
workers whose wages range upto to Rs. 1,600/- per month.

Minimum Wages Act, 1948 : The employer has to pay minimum wages to employees in
certain scheduled industries. At present the minimum wages act is applicable in 44 scheduled
industries.

The Indian Partnership Act, 1932 :The Indian Partnership Act, which was amended in 1932,
provides for rules relating to foundation of a legal partnership. It states the rights and duties of
the partners among themselves and outside, and lays down rules regarding the dissolution of
partnership.

The Income Tax Act, 1961 : The Act governs the levy of income tax in India. If defines various
terms and expressions and states the liability of a person to pay income tax. The rates and pattern
of taxation, however, are changed from time to time.

The Pollution Control Act : The State Air and Water Pollution Control Board is the body
responsible for implementing this Act. The act is applicable to all kinds of industry.

FOOD PROCESSING SPECIFIC LEGALITIES : In addition to the general legal

requirements, there are a few legal requirements that are specific to Food Processing Industries.
A food processing enterprise has to comply with several compulsory legal requirements.
Implementation of these norms with regard to Small and Medium enterprises is relatively
stringent while cottage and household level units sometimes tend to compromise on such
stipulations. These laws include:

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a. Prevention of Food Adulteration Act (1954): This is the basic statute to protect consumers
against supply of adulterated food. ‘The Central Committee for Food Standards’ under the
Directorate General of Health Services, Ministry of Health and Family Welfare, has specified the
Standards.

b. Milk and Milk Products Order (MMPO): This order regulates milk and production of milk
products in the country. The order requires no permission for units handling less than 10,000
liters of liquid milk per day or milk solids upto 500 tpa.

c. Fruit Products Order (1955): This order that regulates manufacture and distribution of all
fruit and vegetable products, sweetened aerated waters, vinegar, and synthetic syrups. The
license is issued by Regional Director of MoFPI located at Mumbai, Delhi, Kolkatta, Chennai
and Guwahati, based on the satisfaction of the concerned officer with regard to quality of
production, sanitation and hygiene, machinery and equipment, and work area standards.

d. Standard of Weights and Measures (Packaged Commodities) Rules, 1977: These rules
lay down certain obligations for all commodities in packed form with respect to their quality
declaration. The Directorate of Weights and Measures under the Ministry of Food and Civil
Supplies enforces these rules.

e. Export (Quality Control and Inspection) Act, 1963: The Export Inspection Council is
responsible for operation of this Act under which many exportable commodities have been
notified for compulsory pre-shipment inspection unless specifically requested by the importer
not to do so.

f. Voluntary Standards: They are regulated by organizations involved with voluntary

standardization and certificates systems concerning quality parameters in food. They are the
Bureau of Indian Standards (BIS) and Directorate of Marketing and Inspection (DMI). The food
processing industries sector as a whole involves other legislations.

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g. Oils, Deoiled Meal and Edible Flour Control Order 1967 and Vegetables Products
Control Order, 1976: These orders control the production and distribution of solvent
extracted oils, deoiled meals, edible oil seed flours, and hydrogenated vegetable oils (vanaspati).

h. Meat Food Products Control Order, 1973: This order regulates manufacture, quality,
and sale of all meat products and is operated by the Directorate of Marketing and Inspection.

16.15 Summary :

India’s corporate tax rate, at 34.6% with cess and surcharge, is steep compared with the
global average. India would need to speed up direct tax reforms to attract investors. Most
countries have chipped away at corporate tax rates to woo investments and the new US
administration has vowed to cut corporate tax rate to 15%.

Union Budget 2017 announced Concessions to small scale units. It proposed to reduce
the income-tax rate for micro, small and medium enterprises to 25% from 30% previously. It
also allowed credit for minimum alternate tax (MAT) to be carried forward for up to 15 years
instead of 10 years. With the reduced rate for the MSME sector, 96% of India’s companies will
benefit from lower taxation. “25% rate for 96% of the companies in the country. Loss carryover
of 15 years under MAT is a welcome measure. The CII’s suggestion to lower the tax rate to a flat
18% without exemptions would have put all businesses on the same level. The reduction in the
tax rate of MSMES provides them a level playing field with foreign companies.

MSME units can avail the following Tax benefits under Income Tax Act 1961;
Tax Holiday; Depreciation allowance; Rehabilitation Allowance; Expenditure on Scientific
Research; Amortization of Certain Preliminary Expenses; benefits for setting up of Small Scale
units in backward areas and rural areas; expenditure on acquisition of patents and copyrights;
Profits from Business of publication of books. Benefits are also available for budding
entrepreneurs for start ups. Exemptions are available under GST for Star ups and small
businesses.

16.16 Self assessment Questions

Short Questions
1. Concessions to Business Units in Union Budget 2017

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2. Tax holidays
3. Depreciation allowance
4. Rehabilitation allowance
5. Benefits of setting up of units in backward areas and rural areas
6. Presumptive tax
7. GST and small business
Essay Questions
1. Write an essay on tax benefits available to small business units under Income Tax Act 1961.
2. Write an essay on the benefits to small business units under the newly introduced GST in
India.
Multiple choice questions:
1. A tax holiday means
A. elimination of tax by the government
B. b.exception of tax
C. Avoiding tax
D. evasion of tax
2. The following cannot be exploited by assigning or by licensing the rights to others.
A. Trademark
B. Patents
C. Designs
D. Copy rights
3. In ‘quid-pro-quo’, quo stands for
A. monopoly granted for the term of the patent
B. knowledge disclosed to the public
C. exclusive privilege of making, selling and using the invention
D. None of the above.
4. Employees Provident Fund & Miscellaneous Provisions Act, 1952 applies to
A. To an establishment employing more than 20 employees
B. To a factory employing technical personnel
C. To an establishment employing more than 50 workers
D. To an establishment employing more than 100 workers

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5. Rehabilitation allowance is available in between
A. 16-67 years of age
B. 16-25 years of age
C. c.16-60 years of age
D. 16-35 years of age

Activity 1: List out the benefits offered to MSME Units in the recent budget

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Activity 2: What are the tax and other benefits offered to StartUp Units.

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Activity 3: What are the advantages of GST for Startups and Small Business units?

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16.17 Key Terms
Tax holiday; Depreciation; Investment allowance; Rehabilitation allowance; Preliminary
expenses; Amortization; Backward areas; Patents and copyrights; Startups; Capital gains tax;
GST;
16.18 Further Readings / Reference books
1. Income Tax Act 1961
2. Vinod K Singhania and Moncia Singhania, “Student’s Guide to Income Tax”, Taxmann
Publications, New Delhi.

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