BHARATHIDASAN UNIVERSITY CONSTITUENT

COLLEGE OF ARTS AND SCIENCE

NAGAPATTINAM-611106

M.B.A
CORE COURSE - XVII
ENTREPRENERUIAL DEVELOPMENT

AUTHOR
Dr. J.JEYANTHI, M.B.A., M.Phil., NET,Ph.D
Head, Department of Business Administration,
Bharathidasan University Constituent College,
Nagapattinam – 611106

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Semester – IV 5 Hours / 5 Credit
CORE COURSE -XVII: ENTREPRENEURIAL DEVELOPMENT
Objectives of the course:
1. To provide a basic frame-work to start a small / medium scale business /
Industrial Unit.
2. Preparation of Project profile / Report on a line of manufacture / business
/ service unit of actual interest to the participant – bankable project report
taking into account technical feasibility, financial viability, requirements
of financial institutions / commercial banks etc.,
UNIT I
Entrepreneur - meaning - importance - Qualities, nature, types, traits, culture.
Similarities and differences between entrepreneur and
intrapreneur.Entrepreneurship and economic development - its importance - Role of
entrepreneurship - entrepreneurial environment.
UNIT II
Evolution of entrepreneurs - entrepreneurial promotion: Training and development.
Mobility of entrepreneurs - entrepreneurial change - occupational mobility - factors
in mobility - Role of consultancy organizations in promoting entrepreneurs - Forms
of business for entrepreneurs.
UNIT III
Project management: Sources of business idea - Project classifications -
identifications - formulation and design - feasibility analysis. Financial analysis -
project cost estimate - operating revenue estimate -Ratio analysis - investment
Process - B E analysis - Profit analysis - Social cost benefit analysis - Project
Appraisal methods. Preparation of Project Report and presentation.

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UNIT IV
Project finance: Sources of finance - Institutional finance - Role of IFC, IDBI, ICICI,
LIC,SFC, SIPCOT, Commercial Bank - Appraisal of bank for loans. Institutional
aids for entrepreneurship development - Role of DICS, SIDCO, NSICS, IRCI,
NIDC, SIDBI, SISI, SIPCOT, Entrepreneurial guidance bureau - Approaching
Institutions for Assistance .
UNIT V
Steps in setting SSI unit - Problems of entrepreneurs - Sickness in small industries -
reasons and remedies - Incentives and subsidies - Evaluating entrepreneurial
performance - Rural entrepreneurship - Women entrepreneurship.
Recommended Text book
1) For Unit I and III
Entrepreneurship ByRajee Roy Oxford University press – Chennai.
Email : [email protected]
2) For Unit II, IV, V
Entrepreneurship Text and cases By P. Narayana Reddy – cengage
learning. Email : [email protected]
3) For preparation of Project Report and Filling in Unit V
Management and Entrepreneurship ByKanishkaBedi Oxford University
press.
4) For Better Projects Through SWOT Analysis in Unit V
Entrepreneurial Management Edited volume by ShivaganeshBhargava –
contributed by N. Mani Mekalai and A. Mohamed Abdullah,
Bharathidasan University Trichy. Book published by Sage publications
Chennai. Email :[email protected]
5) Entrepreneurial Development ByJayshree Suresh, Margam publications,
Chennai.
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Suggested Readings
1) Entrepreneurship in The New MilleniumByKuralko and Hodgetts –
Cengage learning.
2) Entrepreneurship – Robert D Hisrich and others, Tata Mcgraw Hill Co.

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 CONTENTS
CHAPTER Topic Page No

1 Entrepreneurial development
Entrepreneurship & Economic
2
development
3 Entrepreneurial Environment

4 Evolution of entrepreneur

5 Entrepreneurial Training

6 Mobility of entrepreneurs
Role of consultancy organization in
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promoting entrepreneurs
8 Project management

9 Financial analysis

10 Ratio analysis

11 Investment process

12 BE analysis

13 Project appraisal
Preparation of project report and
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presentation
15 Project finance

16 Institutional finance
Institutional aids for entrepreneurial
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development
18 SSI units

19 Incentives and subsidies

20 Rural development

21 Women entrepreneur
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 UNIT – I
CHAPTER– 1
1.1 Introduction
1.2 Meaning
1.3 Definition of Entrepreneur
1.4 Definition of Entrepreneurship
1.5 Entrepreneurship Development
1.6 Importance of entrepreneurship development
1.7 Functions of an Entrepreneur
1.8 Qualities of Entrepreneur
1.9 Nature of Entrepreneur
1.10 Characteristics of successful entrepreneurs
1.11 Types of Entrepreneurs
1.12 Concepts of Entrepreneurial traits
1.13 Entrepreneurial culture
1.14 Promoting an entrepreneurial culture within the company
1.15 12 ways to foster a more entrepreneurial culture
1.16 Difficulties faced in establishing an entrepreneurial culture
1.17 Conclusion

ENTREPRENEURIAL DEVELOPMENT
1.1 Introduction
Entrepreneurship refers to all those activities which are to be carried out by
person to establish and to run the business enterprises in accordance with the
changing social, political and economic environments. Entrepreneurship includes
activities relating to the anticipation of the consumers likes and dislikes, feelings and
behaviors, tastes and fashions and the introduction of business ventures to meet out
all these expectations of the consumers.
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1.2 Meaning
Entrepreneurship is considered as a ‘new product’ that would enable
businessmen to develop new form of business organization and new business activities
catering to the changing needs of the society. The liberalization of cultural rigidities
is mainly due to this new product ‘entrepreneurship’. Entrepreneurship is the ability
of entrepreneurs to assess the risks and establish businesses which are risky but at the
same time suits perfectly to the changing scenarios of the economy.
The two major factors determine the entrepreneurship developments are:
❖ Risk taking ability of entrepreneurs
❖ Power of achievement of entrepreneurs
The other factors are:
❖ The performance of speculative functions to gain edge over others.
❖ Considering new factors of production, time, technology and quality for
success.
❖ Availing new sources of capital
❖ Performing functions of employer, master, merchant and undertaker.
❖ Supply goods and services which are hitherto unknown to consumers.
❖ Find a new market which is hitherto unexploited.
❖ Seizing new opportunities for exploitation.
❖ Developing the less developed countries and developing nations
❖ Decision making under uncertain situations.
Entrepreneurship development could be made through a collective approach of
the qualified individuals and the entrepreneurial role played by the Government and
other agencies. They strive for betterment and provide conducive infrastructure
including the technology that is unheard and unthought-of so far.
The essential Elements of Entrepreneurship Development are given in the following
exhibit.

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 Entrepreneur
The word Entrepreneur‟ has been taken from the
French word. It means Between Takers. Entrepreneur is
another name of Risk Taker. An entrepreneur is an individual
who takes moderate risks and brings innovation.
Entrepreneur is a person who organizes/ manages the risks in
his/her enterprise. “Entrepreneur is a individual who takes risks and starts something
new”
1.3 Definition of Entrepreneur
❖ An entrepreneur is one of the important segments of economic growth.
Basically, an entrepreneur is a person who is responsible for setting up a
business or an enterprise. In fact, he is one who has the initiative, skill for
innovation and looks for high achievements. He is a catalytic agent of change
and works for the welfare of people.
❖ The entrepreneur is a critical factor in the socio-economic change. He is the
key man who envisages new opportunities, new techniques, new lines of
production, new products and coordinates- all other activities.
❖ The term ‘entrepreneur’ is defined in different manners by differ-ent experts.
❖ “Entrepreneur is one who innovates, raises money, assembles inputs, chooses
managers and sets the organization going with his ability to identify them and
opportunities which others are not able to identify and is able to fulfill such
economic opportunities. Innovation occurs through i) Introduction of a new
quality in a product of ii) new product iii) discovery of fresh demand and fresh
sources of supply and iv) by change in the organization and management”.

1.4 Definition of Entrepreneurship

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 ❖ In a changing environment, the entrepreneurship development activities are
getting multiplied. Since the dawn of industrial revolution to till date, we
encountered certain drastic changes in the economic activities. Thus, it is not
an easy task to give a comprehensive definition for the word
‘entrepreneurship’. Despite that, relevant definitions of entrepreneurship are
listed here.
❖ “Entrepreneurship as the function of seeking investment and production
opportunity, organizing an enterprise to undertake a new production process,
rising capital, hiring labour, arranging the supply of materials, finding site,
introducing new techniques and commodities, discovering new sources of raw
materials and selecting top managers of day to day operations of the enterprise”.

1.5 Entrepreneurship Development

Entrepreneurship development could be made in all walks of the society and
in all fields of activities. The scope of entrepreneurship development encompasses
the following:
Definitions
❖ According to J.B.say, “Entrepreneur is an Economic agent to unites all the
means of production”
❖ An entrepreneur is an individual who takes moderate risks and brings
innovation.
❖ An entrepreneur is a person who has possession of a new enterprise, venture
or idea and assumes significant accountability for the inherent risks and the
outcome.
❖ An entrepreneur is "one who undertakes an enterprise, especially a contractor,
acting as intermediately between capital and labour."

Some facts about entrepreneurs and entrepreneurship:

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 ❖ E: Examine needs, wants, and problems to see how they can improve the way
needs and wants are metand problems overcome.
❖ N: Narrow the possible opportunities to one specific "best" opportunity.
❖ T:Think of innovative ideas and narrow them to the "best" idea.
❖ R:Research the opportunity and idea thoroughly.
❖ E:Enlist the best sources of advice and assistance that they can find.
❖ P:Plan their ventures and look for possible problems that might arise.
❖ R:Rank the risks and the possible rewards.
❖ E:Evaluate the risks and possible rewards and make their decision to act or
not to act.
❖ N:Never hang on to an idea, no matter how much they may love it, if research
shows it won't work.
❖ E:Employ the resources necessary for the venture to succeed.
❖ U:Understand that they will have to work long and hard to make their venture
succeed.
❖ R:Realize a sense of accomplishment from their successful ventures and learn
from their failures tohelp them achieve success in the future.
1.6 Importance of Entrepreneurship Development
The word ‘Entrepreneurship’ is very often confused with the word Entrepreneur’.
They look alike but carry different meanings. Entrepreneurship is nothing but all those
activities which are to be undertaken by an entrepreneur. The prevailing socio, political
and economic activities act as a propelling force for the aspiring personalities to become
entrepreneurs. Entrepreneurship development is the outcome of the entrepreneurs. In other
words, the entrepreneurs give birth to entrepreneurship. This statement is partially true
because certain activities of the entrepreneurs are due to the existing policies and
programmes of the Central as well as the state governments and not only by the
entrepreneurs themselves.

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 Under such circumstances, it is not the entrepreneurs who give birth to
entrepreneurship. Instead, it is the existing entrepreneurship development programmes
that give birth to entrepreneurs. The emergence of entrepreneurs and the level of
entrepreneurship development are also the far reaching changes that are taking place in
the social and political activities rather than changes taking place in the economic
activities.
Entrepreneur cannot emerge from the vacuum. Entrepreneurship development
depends upon the environment (both external and internal) within which the
entrepreneurs have to do their business. Entrepreneurs are closely associated with the
existing as well as the past entrepreneurial activities of the society. Business
opportunities are identified from the social, political and economic crisis and in turn
these crisis become the favourable climate for the entrepreneurs to innovate new
business ventures. From this perspective, it is true that entrepreneurial activities are the
resultant efforts of the prevailing entrepreneurship development programmes.
On the other hand, entrepreneurs keenly observe the society and its economic
activities and try to elicit innovative business opportunities. They try to make use of
the modern technology and manufacture new products which are hitherto unknown to
the market and induce the consumers to buy them and thereby improving their standard
of living. It is possible for entrepreneurs to find new market, new product and introduce
a new form of organization. Therefore, the entrepreneurship development is due to the
innovative thoughts and actions of the entrepreneurs. Thus the term entrepreneur and
entrepreneurship are different and complementary with each other. Let us see the need
and scope of entrepreneurship development in the forthcoming pages.

1.7 Functions of an Entrepreneur

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An entrepreneur is expected to perform the following functions.
1.Risk Absorption
The entrepreneur assumes all possible risks of business. A business risk also
involves the risk due to the possibility of changes in the tastes of consumers,
techniques of consumers, techniques of production and new inventions. Such risks are
not insurable. If they materialize, the entrepreneur has to bear the loss himself. Thus,
Risk-bearing or uncertainty-bearing still remains the most function of an entrepreneur.
An entrepreneur tries to reduce the uncertainties by his initiative, skill and good
judgment.
2. Formulate Strategic Business Decisions
The entrepreneur has to decide the nature and type of goods to be produced.
He enters the particular industry which offers from the best prospects and produces
whatever commodities he thinks will pay him the most employs those methods of
production which seem to him the most profitable. He effects suitable changes in the
size of the business, its location techniques of production and does everything that is
needed for the development of his business.
3. Execute Managerial Functions
The entrepreneur performs the managerial functions though the managerial
functions are different from entrepreneurial functions. He formulates production
plans, arranges finance, purchased, raw material, provides, production facilities,
organizes sales an assumes the task of personnel management. In a large
establishment these management functions are delegated to the paid managerial
personnel.
4. Adopt Innovation Function
An important function of an entrepreneur is “Innovation”. He conceives the
idea for the improvement in the quality of production line. He considers the
economic inability and technological feasibility in bringing about improve quality.
The introduction of different kinds of Electronic gadgets is an example of such an
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innovation of new products. Innovation is an ongoing function rather than once for
all, or possibly intermittent activity.
1.8 QUALITIES OF ENTREPRENEUR
Being an entrepreneur is about more than just starting a business or two, it is
about having attitude and the drive to succeed in business. All successful
Entrepreneurs have a similar way of thinking and posses several key personal
qualities that make them so successful in business. Successful entrepreneurs like the
ambitious Richard Branson have an inner drive to succeed and grow their business,
rather than having a Harvard Business degree or technical knowledge in a particular
field.
All successful entrepreneurs have the following qualities:
1. Inner Drive to Succeed
Entrepreneurs are driven to succeed and expand their business. They see
the bigger picture and are often very ambitious. Entrepreneurs set massive goals
for themselves and stay committed to achieving them regardless of the obstacles
that get in the way.
2. Strong Belief in themselves
Successful entrepreneurs have a healthy opinion of them and often have a
strong and assertive personality. They are focused and determined to achieve their
goals and believe completely in their ability to achieve them. Their self optimism
can often been seen by others as flamboyance or arrogance but entrepreneurs are
just too focused to spend too much time thinking about un-constructive criticism.
3. Search for New Ideas and Innovation
All entrepreneurs have a passionate desire to do things better and to improve
their products or service. They are constantly looking for ways to improve. They're
creative, innovative and resourceful.
4. Openness to Change

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 If something is not working for them they simply change. Entrepreneurs know
the importance of keeping on top of their industry and the only way to being number
one is to evolve and change with the times. They're up to date with the latest
technology or service techniques and are always ready to change if they see a new
opportunity arise.
5. Competitive by Nature
Successful entrepreneurs thrive on competition. The only way to reach their
goals and live up to their self-imposed high standards is to compete with other
successful businesses.
6. Highly Motivated and Energetic
Entrepreneurs are always on the move, full of energy and highly motivated.
They are driven to succeed and have an abundance of self-motivation. The high
standards and ambition of many entrepreneurs demand that they have to be
motivated!
7. Accepting of Constructive Criticism and Rejection
Innovative entrepreneurs are often at the forefront of their industry so they
hear the words "it can't be done" quite a bit. They readjust their path if the criticism
is constructive and useful to their overall plan, otherwise they will simply disregard
the comments as pessimism. Also, the best entrepreneurs know that rejection and
obstacles are a part of any leading business and they deal with them appropriately.
True entrepreneurs are resourceful, passionate and driven to succeed and
improve. They're pioneers and are comfortable fighting on the frontline The great
ones are ready to be laughed at and criticized in the beginning because they can
see their path ahead and are too busy working towards their dream.

1.9 Nature of Entrepreneur

1. Facilitating Character
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 An entrepreneur must build a team, keep it motivated, and provide an
environment for individual growth and career development. -
2. Self-Confidence
Entrepreneurs must have belief in themselves and the ability to achieve their
goals.
3. Work with Vision and Mission
An entrepreneur must be committed to the project with a time horizon of five
to seven years. No ninety-day wonders are allowed.
4. High Degree of Endurance
Success of an entrepreneur demands the ability to work long hours for
sustained period of time.
5. Trouble Shooting Nature
An entrepreneur must have an intense desire to complete task or solve a
problem. Creativity is an essential ingredient.
6. Initiative and Enterprising Personality
An entrepreneur must have initiative, accepting personal responsibility for
actions, and above all make good use of resources.
7. Goal Setter
An entrepreneur must be able to set challenging but realistic goals.
8. Calculated Risk-Taking Ability
An entrepreneur must be a moderate risk-taker and learn from any failures.
1.10 Characteristics of Successful Entrepreneurs
Entrepreneurs are different from each other, but successful entrepreneurs tend
to share certain characteristics. Not all of them have developed each of the following
to the same degree, but they tend to have developed most of them to some degree.
Here are some common characteristics of successful entrepreneurs.
Entrepreneurs tend to:
❖ Be passionate about achieving their goals
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 ❖ Have a spirit of adventure (in fact, the word "adventure" is derived from the
latin word meaning "to venture")
❖ Have a strong need to achieve and seek personal accomplishment
❖ Be self-confident and self-reliant
❖ Be goal-oriented
❖ Be innovative, creative, and versatile
❖ Be persistent
❖ Be hardworking and energetic
❖ Have a positive attitude
❖ Be willing to take initiative
❖ Have a strong sense of commitment
An eye for opportunity: Many entrepreneurs start by finding a need and quickly
satisfying it. Independence: Even though most entrepreneurs know how to work
within the framework for thesake of profits, they enjoy being their own boss.
An appetite for hard work: Most entrepreneurs start out working long, hard hours
with littlepay.
Self-confidence: Entrepreneurs must demonstrate extreme self-confidence in order
to cope withall the risks of operating their own business.
Discipline: Successful entrepreneurs resist the temptation to do what is unimportant
or the easiestbut have the ability to think through to what is the most essential.
Judgment: Successful entrepreneurs have the ability to think quickly and make a
wise decision. Ability to accept change: Change occurs frequently when you own
your own business, theentrepreneur thrives on changes and their businesses grow.
Make stress work for them: On the roller coaster to business success the
entrepreneur oftencopes by focusing on the end result and not the process of getting
there.
Need to achieve: Although they keep an "eye" on profits, this is often secondary to
the drivetoward personal success.
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Focus on profits: Successful entrepreneurs always have the profit margin in sight
and know thattheir business success is measured by profits. Is this your profile or
would you rather do your job, pick up your paycheck and leave the headaches to
someone else? Most of us, quite easily, choose the later.
1.11 Types of Entrepreneurs
Entrepreneurs are classified as under different heads as given below. This
helps the potential entrepreneurs to choose his own nature and style of
entrepreneurship.
I. According to the Type of Business
Entrepreneurs are found in various types of business occupations of varying
size. We may broadly classify them as follows:
1. Business Entrepreneur
Business entrepreneurs are individuals who conceive an idea for a new
product or service and then create a business to materialize their idea into reality.
They tap both production and marketing resources in their search to develop a new
business opportunity. They may set up a big establishment or a small business unit.
Trading entrepreneur is one who undertakes trading activities and is not concerned
with the manufacturing work. He identifies potential markets, stimulates demand for
his product line and creates a desire and interest among buyers to go in for his
product. He is engaged in both domestic and overseas trade.

2. Industrial Entrepreneur
Industrial entrepreneur is essentially a manufacturer who identifies the
potential needs of customers and tailors product or service to meet the marketing
needs. He is a product oriented man who starts in an industrial unit because of the
possibility of making some new product.
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3. Corporate Entrepreneur
Corporate entrepreneur is essentially a manufacturer who identifies the
potential needs of customers and tailors product or service to meet the marketing
needs. He is a product oriented man who starts in an industrial unit because of the
possibility of making some new product.
Corporate entrepreneur is a person who demonstrates his innovative skill in
organizing and managing a corporate undertaking. A corporate undertaking is a form
of business organization which is registered under some statute or Act which gives
it a separate legal entity.
4. Agricultural Entrepreneur
Agricultural entrepreneurs are those entrepreneurs who undertake such
agricultural activities as raising and marketing of crops, fertilizers and other inputs of
agriculture. According to the use of Technology.
5. Technical Entrepreneur
A technical entrepreneur is essentially an entrepreneur of “Craftsman type”.
He develops a new and improved quality of goods because of his craftsmanship. He
concentrates more on production than marketing. He does not care much to generate
sales by applying various sales promotional techniques. He demonstrates his
innovative capabilities in matters of production of goods and rendering services.

6. Non-technical Entrepreneur
Non-technical entrepreneurs are those who are not concerned with the
technical aspects of the product in which they deal. They are concerned only with
developing alternative marketing and distribution strategies to promote their
business.
7. Professional Entrepreneur
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 Professional entrepreneur is a person who is interested in establishing a
business but does not have interest in managing or operating it once it is established.

II. According to Motivation

Motivation is the force that influences the efforts of the entrepreneur to
achieve his objectives. An entrepreneur is motivated to achieve or prove his
excellence in job performance. He is also motivated to influence others by
demonstrating his power thus satisfying his ego.
Pure Entrepreneur
A pure entrepreneur is an individual who is motivated by psychological and
economic rewards. He undertakes an entrepreneurial activity for his personal
satisfaction in work, ego or status.
1. Induced Entrepreneur
Induced entrepreneur is one who is being induced to take up an entrepreneurial task
due to the policy measures of the government that provides assistance, incentives,
concessions and necessary overhead facilities to start a venture. Most of the
entrepreneurs are induced entrepreneurs who enter business due to financial,
technical and several other several other provided to them by the state agencies to
promote entrepreneurship.

2. Motivated Entrepreneur
New entrepreneurs are motivated by the desire for self-fulfillment. They come into
being because of the possibility of making and marketing some new product for the
use of consumers. If the product is developed to a saleable stage, the entrepreneur is
further motivated by reward in terms of profit and enlarged customer network.
3. Spontaneous Entrepreneur

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These entrepreneurs start their business out of their natural talents and instinct. They
are persons with initiative, boldness and confidence in their ability which motivate
them to undertake entrepreneurial activity.
4. Growth Entrepreneur
Growth entrepreneurs are those who necessarily take up a high growth industry.
These entrepreneurs choose an industry which has substantial growth prospects.
5. Super-Growth Entrepreneur
Super-growth entrepreneur are those who have shown enormous growth of
performance in their venture. The growth performance is identified by the liquidity
of funds, profitability and gearing.
III. According to Stages of Development
1. First-Generation Entrepreneur
A first generation entrepreneur is one who starts an industrial unit by means
of an innovative skill. He is essentially an innovator, combining different
technologies to produce a marketable product or service.
2. Modern Entrepreneur
A modern entrepreneur is one who undertakes those ventures which go well
along with the changing demand in the market. They undertake those ventures which
suit the current marketing needs.

3. Classical Entrepreneur
A classical entrepreneur is one who is concerned with the customers and
marketing needs through the development of a self-supporting venture. He is a
stereotype entrepreneur whose aim is to maximize his economic returns at a level
consistent with the survival of the firm with or without an element of growth.
4. Innovating Entrepreneurs
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 Innovating entrepreneurship is characterized by aggressive assemblage of
information and analysis of results, deriving from a novel combination of factors.
Men/women in this group are generally aggressive in experimentation who exhibit
cleverness in putting attractive possibilities into practice. One need not invent but
convert even old established products or services, by changing their utility, their
value, and their economic characteristics, into something new, attractive and
utilitarian. Therein lies the key to their phenomenal success. Such an entrepreneur is
one who sees the opportunity for introducing a new technique of production process
or a new commodity or a new market or a new service or even reorganization of an
existing enterprise.
5. Imitative Entrepreneurs:
Imitative entrepreneurship is characterized by readiness to adopt successful
innovations by innovating entrepreneurs. They first imitate techniques and
technology innovated by others.
6. Fabian Entrepreneurs
These categories of entrepreneurs are basically running their venture on the basis of
conventions and customary practices. They don’t want to introduce change and not
interested in coping with changes in environment. They have all sorts of inhibitions,
shyness and lethargic attitude. They are basically risk aversor and more cautious in
their approach.

7. Drone Entrepreneurs
Entrepreneurs who are reluctant to introduce any changes in their production
methods, processes and follow their own traditional style of operations. Though they
incur losses and loses their market potential, will not take any effort to overcome the
problem. Their products and the firm will get natural death and knockout.
8. Forced Entrepreneurs
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 Sometimes, circumstances made many persons to become entrepreneurs.
They do not have any plan, forward looking and business aptitude. To mitigate the
situational problem, they are forced to plunge into entrepreneurial venture. Most of
the may not be successful in this category due to lack of training and exposure.

1.12 CONCEPTS OF ENTREPRENEURIAL TRAITS

The three prevailing concepts of entrepreneurship are:
1. Psychological Traits
Entrepreneurship development is due to the ability of the individuals’ urge to
achieve something in their life. This concept was developed by McClelland.
According to him individuals have psychological urge to achieve something new.
Of course the degree of urge varies from one individual to another. Those who have
high degree of urge to achieve in their life become entrepreneurs and all the activities
enabling them to fulfill their urges are called entrepreneurship. McClelland’s
research results reveal that the entrepreneurship and its development are the results
of a combination of three needs of individuals viz.
➢ Low need for achievement.
➢ High need for power and
➢ Low need for affiliation.

2. Sociological Traits
Entrepreneurship development is also due to the sociological traits of the
individuals living in a particular place. Certain individuals would like to attain status
in the society by means of setting up of a new business or industry. However, they
are allowed to act within the constraints of the cultural norms and religious moves
that are customary in the society.
3. Economic Factors
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 Apart from the psychological and sociological factors, entrepreneurship
development is also due to the existing economic activities of the state where the
entrepreneurs live. Individuals learn from the existing economic activities as how
best to equip themselves for meeting the future challenges. They collect adequate
economic and technical information and decide as how best to introduce new
business that suits to the expectations of the Government and its revised economic
policies. Thus, the concept of entrepreneurship is very is widely changing and
entrepreneurship and its development is said to be in existence so long as the
humankind are in existence and the spheres of entrepreneurship activities are getting
multiplied every now and then due to the changes that have been taken place in the
liberalization, Privatization, and Globalization (LPG) era.
Ascertain the demand and Supply of Entrepreneurs
❖ It is true that the economic growth depends upon the existence of the technical
progress. The level of technical progress in turn depends upon the existence
of the entrepreneurs. In other words, the economic growth is the resultant
effect of the existing as well as future demand for and supply of entrepreneurs.
Disequilibrium between these two affects the economic growth.
❖ Excess supply of entrepreneurs over demand leads to exploitation of natural
resources beyond the required level. Of course it leads to ‘super development’.
❖ This is one side of argument. The other side of the argument is how to measure
the excess supply. If the measure it with the help of the variable’
development’, we can say that excess supply is found in all the industrially
advanced countries. In real life, what is advanced to-day in industrially
advanced countries becomes a common phenomenon tomorrow in all other
developing and less developed countries.
❖ If such is the case, it is proved that excess supply of entrepreneurs is only an
imagination and it will never become true. In other words the demand for
entrepreneur is a constant factor and is in existence for ever. The supply of
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 entrepreneurs could be enhanced through motivation. As propounded my
McClelland, any society with generally high level of achievement will
produce more real entrepreneurs who can accelerate the growth of the
economy. Max Weber suggested that entrepreneurship is the outcome of the
existing social conditions of the society. He was of the opinion that the
entrepreneurs’ personality has been determined and shaped by the existing
social customs and values of the society. The living conditions of the society
have been influenced by the existing cultural and religious norms, economic
status of the people, their castes and inter group relations.
❖ However it has been observed from the history that achievement of
individuals is always greater than the achievement of groups.
Entrepreneurship development too could be achieved more by individuals.
1.13 Entrepreneurial Culture

“Culture is one of the most precious things a company has,” said Herb
Kelleher, Founder, Southwest Airlines. “So you must work harder on it than
anything else.”For the entrepreneurial business, its culture begins from day one. The
culture is a reflection of the values the entrepreneur brings into the business.
Culture is important for an entrepreneurial venture because it is the
mechanism that institutionalizes the values of its founders. Culture serves to
socialize new employees. It helps them understand how they should treat the
customers, how they should treat each other, how they should act in their jobs, and
how to generally fit in and be successful within the business.
If managed properly, culture also improves the performance of the
business. Culture is an important part of the overall strategy of the business and
helps ensure a growing organization will continue to meet the expectations of
customers that were established by the entrepreneur during the early start-up of the
venture.
For many businesses their success has been built on the entrepreneurial
24
nature of the business. Since it is important to keep the entrepreneurial nature of the
business, as that is what has gotten the business this far, it is important to create a
culture of entrepreneurship.
“Building a culture that encourages autonomy, risk-taking, and
entrepreneurial behavior is challenging,” said Jennifer Prosek, CEO of CJP
Communications and the author of Army of Entrepreneurs: Create an Engaged and
Empowered Workforce for Exceptional Business Growth. “For companies that
want to out-think and out-pace the competition, an entrepreneurial culture isn't
optional: it's an absolute necessity.”
According to Prosek, the key to unleashing that creative energy is to create an
entrepreneurial culture based on four pillars.

1. Authenticity -- Demonstrate your sincerity by being enthusiastic about

entrepreneurial strategies and actions pursued by the business.
2. Commitment to People – “An entrepreneurial culture is based on the idea that
each individual can be a powerful force for change in the organization,” said
Prosek. Support the professional development of your staff, celebrate exceptional
work, and don't forget to have fun.
3. Commitment to the Business -- Align an individual's interests with those of the
business. “At my firm, we have a program called Commission for Life™,”
explains Prosek, “Which encourages new-business generation: Anyone who
books a meeting that results in a new client gets 5 percent of the revenue for the
life of the business.”
4. Continuous Effort -- The work of building a company’s culture never ends.
Sustaining an entrepreneurial culture starts with who you hire. It is essential
to carefully screen prospective employees to ensure that they will fit within your
culture. An entrepreneurial culture is also sustained by your reward system, by the

25
autonomy and respect you give to your employees and by consistent communication
about your ongoing entrepreneurial vision for the company.
Creating an entrepreneurial culture creates a business that will continue to
grow by adapting to change and by actively pursuing new opportunities in the market
1.14 PROMOTING AN ENTREPRENEURIAL CULTURE WITHIN THE
COMMUNITY
The conditions required for establishing an Entrepreneurial Culture are:
1. Identification and promotion of Role Models: Women entrepreneurs, for
example the ladies who lost their jobs in the textile sector and created ‘Charmin
Sud’, a rural women entrepreneur partnership. They came on television to explain
how being laid off from an ailing textile industry was for them a blessing in disguise.
It allowed them to unveil their entrepreneurial potential and leadership abilities.
2. Role of media: For instance, in the promotion of Entrepreneurship as a business
model. Until recently, the local TV ran a weekly documentary: ‘Portrait d’Elle’, in
which a local women entrepreneur was portrayed as to her new place in society as
an economic (and social) agent. Similarly, a few newspapers reserve a page regularly
to promote entrepreneurial initiatives.

3. The Education system: Entrepreneurship modules in the curriculum at different

levels. Entrepreneurship education is now beginning to be anchored in tertiary
education curricula. We have now moved past the old paradigm whereby
entrepreneurship was to be taught only in Business faculties. The present Super
GEM is a living example of the new paradigm whereby the subject is available to all
undergraduates from all fields. An IT student, a Fashion & Design student and all
the others in fact, need to know the basic business and entrepreneurship skills that
are required to start a business or to act entrepreneurially, to lead and innovate in
their employer organizations.

26
4. Period of Incubation: Entrepreneurship development programmes spread over a
period of time (and not one off initiatives). Initiatives like “La semaine de
l’Entrepreneuriat” are beneficial for general awareness, but the enthusiasm soon dies
away after the caravan has left. What is truly beneficial for culture change is a
planned process that uses all the avenues mentioned in this section over a longer
period with set objectives and performance targets. In Finland, entrepreneurship and
entrepreneurial culture developed as a result of a planned ‘Entrepreneurship decade’,
that is, ten years of cultural change. This can take the form of entrepreneurship
education starting at primary or secondary education level, targeting rural women
with a Microcredit scheme and so on.

5. Participation of leaders (political, business, opinion): Political and religious

leaders to promote entrepreneurship as a solution to current economic problems. As
mentioned earlier under ‘leadership’, a strong, charismatic leadership is required to
transform a community. To change the mentality from ‘qualifying to get a
government job’ to ‘taking charge of oneself by being self-employed’ requires
psychological ‘push’ that can be facilitated by people who can influence the
community. The first people to come to our mind are the political, social and
religious leaders.
1.15 12 WAYS TO FOSTER A MORE ENTREPRENEURIAL CULTURE

1. Hire Aspiring Entrepreneurs

It's no coincidence that aspiring entrepreneurs are attracted to the startup
environment. These types are eager to gain experience and tend to see opportunities
in markets or the industry where others don't. Bring them in, and empower them to
flex their entrepreneurial muscles within your organization.
2. Make Employees Feel like Partners

27
 Give everyone in your company equity, and motivate them to view your
company as their company. You really need to believe that everyone at your
company is your partner and treat them that way.

3. Empower and Encourage Employees

Empower your employees with more responsibilities, and encourage them to
make decisions on their own. Encourage creativity, reward your employees when
they make good business decisions and use their mistakes as learning opportunities.

4. Be Open to Micro-failures
I try to create an environment in which employees know that I am open to
micro-failures in the macro-pursuit of success. If people are afraid to take risks, then
we aren't going to grow as quickly or smartly as possible. But people don't always
believe that making mistakes is OK. I strive to give them proof that it is, so they can
let go of any fears and try new ways of getting the job done.

5. Give Incentives to Employees

What's in it for them? If they're proactive, go the extra mile and really impact
your company positively -- what do they get out of it? Incentives can include raises,
bonuses (time off, a paid holiday, etc.), stock options, promotions and even public
recognition of one's efforts.

6. Lead by Example
You need to lead by example, take a few risks, and then let those ideas
materialize. In some cases, your risks will fail; you need to show your team that
failure is OK. They should embrace it, fail fast and get back on it. The only way your
employees will feel like taking risks is if they know that failing will not be looked
at in a bad light. Just make sure each failure only happens once.

7. Give Employees a Voice

28
By giving employees voices, listening to their ideas and implementing them, you
can encourage a culture of "intrapreneurs." Seeing that they are an integral part of
the company -- whether it's saving money by using a different vendor or creating a
new process to streamline production -- will give them pride in the company.

8. Make It Safe to Share Ideas

Create a culture where new ideas are welcomed and not shut down. You want every
employee to feel like she can make a difference with her idea rather than depend on
the founder or management team for the next big idea. Encourage your team to share
often and openly to encourage intrapreneurship.

9. Give Employees Ownership

To create a culture of intrapreneurs, you have to give employees ownership of
projects and follow their recommendations. We encourage an entrepreneurial
mindset by having employees take turns being "Sensei" and leading a professional
development training session. Additionally, every employee is expected to take a
project from start to finish every quarter.

10. Ask Them for Their Recommendation

Nearly all employees can present information; rock stars will prepare a
recommendation.
When team members bring back information, ask them, "What do you think?" You'll
create a culture of thinking beyond the current step toward next steps and
implications. It's the first step toward creating intrapreneurs.

11. Create a Startup Culture

If you want to have intrapreneurs in your organization, you need to foster an
atmosphere of entrepreneurship. This can be done through articles you share with
the team, weekly meetings and, most importantly, mentorship. Creating a library of

29
books about entrepreneurship helps as well. If you create and promote the culture,
the entrepreneurial spirit within your employees will be empowered.

12. Make Hires Draw an Owl

There is a great Internet meme that we use as a hiring philosophy called "How to
Draw an Owl." Step one: Draw two circles. Step two: Draw the rest of the owl. We
need people who can self-direct and get things done, even if it isn't the way we'd
ideally do it.

1.16 Difficulties Faced in Establishing an Entrepreneurial Culture

• Ignorance: Where people fail to capture the important role of

entrepreneurship, for instance, in poverty alleviation.
• Laziness: For example in communities who have got used to being assisted.
• Fear: Risk aversion
• Religious/Cultural constraints: Communities/societies where business and
profit making are perceived as being against cultural/religious values.
1.17 Conclusion
During this lesson, you have been encouraged to examine some important
ideas about entrepreneurs and entrepreneurship, and perhaps to challenge some of
your own preconceptions.
You looked at how one entrepreneurial individual went about creating a
successful business venture at an early age, and how other entrepreneurs have made
use of informal ties with family and friends. In doing so, you also considered the
mixture of personal and social influences on entrepreneurial activity.
Questions

1. What is Entrepreneur? Explain the functions of entrepreneur.

2. What is entrepreneurial development? State the importance of entrepreneurial
development.
30
3. Explain the qualities of entrepreneur.
4. State the nature of entrepreneur.
5. What are the characteristics of entrepreneurs?
6. What are the types of entrepreneurs?
7. Explain the concept of entrepreneurial traits
8. What are the four pillars of entrepreneurial culture?
9. Promoting an entrepreneur culture within the community – Explain.
10. Explain the 12 ways to foster a more entrepreneurial culture.
11. What are Difficulties faced in Entrepreneurial Culture

CHAPTER – 2

2.1 Introduction
2.2 Entrepreneur, Enterprise and Entrepreneurship
2.3 Definition of Intrapreneur
2.4 Key Differences between Entrepreneur and Intrapreneur
2.5 Differences between Entrepreneurship and Intrapreneurship
2.6 Role of entrepreneur in economic growth
31
 2.7 Importance of Entrepreneur in economic development
2.8 Conclusion

ENTREPRENEURSHIP AND ECONOMIC DEVELOPMENT

2.1 Introduction
The concept of an entrepreneur is refined when principles and terms from a
business, managerial, and personal perspective are considered. In almost all of the
definitions of entrepreneurship, there is agreement that we are talking about a kind
of behaviour that includes:
▪ Initiative taking,
▪ The organizing and reorganizing of social and economic mechanisms to turn
resources and situations to practical account and
▪ Acceptance of risk or failure.
To an economist, an entrepreneur is one who brings resources, labour, materials, and
other assets into combinations that make their value greater than before, and also
one who introduces changes, innovations, and a new order. To a psychologist, such
a person is typically driven by certain forces; the need to obtain or attain something,
to experiment, to accomplish, or perhaps to escape the authority of others.
To one businessman, an entrepreneur appears as a threat, an aggressive competitor,
whereas to another businessman the same entrepreneur may be an ally, a source of
supply, a customer, or someone who creates wealth for others, as well as finds better
ways to utilize resources, reduce waste, and produce jobs others are glad to get.
Entrepreneur Vs Entrepreneurship
The major differences between these two terms are as follows.
Entrepreneurship is the function of seeking investment and production
opportunity organising an enterprise to undertake a new production process, raising
capital, arranging labour and raw materials, finding a site introducing a new

32
technique and commodities, discounting new sources for the enterprise.
Entrepreneur is one who combines capital and labour for the purpose of production.
2.2 Entrepreneur, Enterprise and Entrepreneurship
Entrepreneur
The word entrepreneur literally came from French language meaning
someone who undertakes an enterprise.
Enterprise
The word enterprise is attached to self-propelled, usually self-made
businessman who thinks about a venture, dreams it, starts it, works on it and grow
with it.
Entrepreneurship
Entrepreneurship could be defined as ability of an individual or a group of
individual to introduce changes or innovate like introduction of a new product or
service, opening of a new market and carrying out a new organisation. These are
indeed the early American thoughts an Entrepreneurship. Entrepreneur is a man who
invests and risks time, money and effort to start a business and make it successful.
Any undertaking / venture involving some economic activity which requires
risk taking ability, resources mobilization efforts, keen planning and organisation
and effective decision making skill in all types of decision situations. It has got a
separate entity and perpetual successions. It consists of people who work together
mainly for production and selling of goods and services so as to make some
economic gains. It may be of private or public, small or large, domestic or
international.
Thus Entrepreneur refers a person, entrepreneurship indicates the process
adopted by him and enterprise is the work place where in he adopts his
entrepreneurial skilled.
Intrapreneur
“Intrapreneurship is the entrepreneurship within an existing organization”
33
 -Hisrich and peters
2.3 Definition of Intrapreneur
An intrapreneur is nothing but an entrepreneur within the boundaries of the
organization. An intrapreneur is an employee of a large organization, who has the
authority of initiating creativity and innovation in the company’s products, services
and projects, redesigning the processes workflows and system with the objective of
transforming them into a successful venture of the enterprise.
2.4 Key Differences between Entrepreneur and Intrapreneur
❖ An entrepreneur is defined as a person who establishes a new business with
an innovative idea or concept. An employee of the organization who is
authorise to undertake innovations in product, service, process, system etc, is
known as intrapreneur.
❖ An entrepreneur is intuitive in nature, whereas an intrapreneur is restorative
in nature.
❖ An entrepreneur uses his own resources, i.e, man, machine, money etc. while
in the case of an intrapreneur the resources are readily available as they are
provided to him by the company.
❖ An entrepreneur raises capital himself conversely an intrapreneur does not
need to rise funds himself rather it is provided by the company.
❖ An entrepreneur works in a newly established company. On the other hand an
intrapreneur is a part of an existing organisation.
❖ An entrepreneur is his own boss, so he is independent to take decisions. As
opposed to intrapreneur, who works for the organisation, he cannot take
independent decisions.
❖ The entrepreneur works hard to enter the market successfully and create a
place subsequently. In contrast to intrapreneur, who works for organization
wide change to bring innovation, creativity and productivity.

34
2.5 Differences between Entrepreneurship and Intrapreneurship
Points of Intrapreneurship Entrepreneurship
difference
Definition Intrapreneurship is the Entrepreneurship is the
entrepreneurship within an dynamic process of creating
existing organization incremental wealth
Core objective To increase competitive strength To innovate something new
and market sustainability of the of socio economic value.
organization.
Primary motives Enhance rewarding capacity of Innovation, financial gain tad
the organization and autonomy. independence.
Activity Direct participation, which is Direct and total participation
more that delegation of authority. in the process of innovation.
Risk Hears moderate risk Bears all types of risk
Status Organizational employee Free and sovereign person
expecting freedom in work. doesn’t bother with status.
Failure and Keeps risky projects secret unless Recognizes mistake and
mistakes it is prepared due to high concern failures so as to take new
for failure and mistakes. innovative efforts.
Decisions Collaborative decisions to Independent decisions to
execute dreams. execute dreams.
Family heritage May not have or a little Professional or small
professional post. business family heritage.
Relationship Authority structure delineates the Basic relationship based on
with others relation. interaction and negotiation.

35
Time orientation Self-imposed or There are no time bound.
organtzauonallystipulatied time
limits.
Focus of Technology and market. Increasing sales and
attention sustaining competition.
Attitude towards Follows self-style beyond given Adaptive self-style
destiny structure. considering structure as
inhabitants
Attitude towards Strong self-confidence and hope Strong commitment to self-
destiny for achieving goals. initiated efforts and goals.
Operation Operates from inside the Operates from outside the
organization. organization.
2.6 Role of entrepreneur in economic growth
❖ The position of the entrepreneur in modern production is like that of the
director of a play.
❖ The entrepreneur directs production and he must do whatever is necessary for
its success.
Role in modern economic development has at least three aspects.
a) The entrepreneur co-ordinates the other factors of production
Co-ordination involves selection of the right type of factors,
employment of each factor in the right quantity, use of the best technical
devices, division of labour, reduction of waste etc.
b) The entrepreneur takes risks

Insurable Non insurable

Risks

36
 c) The entrepreneur innovates
❖ The introduction of a new good or a new quality of a good.
❖ The introduction of a new method of production
❖ The opening of a new market
❖ The conquest of a new source of supply of raw materials.
❖ The carrying out of a new organization of any industry.

2.7 Importance of Entrepreneur in economic development

Entrepreneurship is the dynamic need of a developing nation and sustains the
process of economic development in the following ways
❖ Employment generation
❖ National income
❖ Dispersal of economic power
❖ Balanced regional development
❖ Harnessing locally available resources and entrepreneurship.
❖ Reducing invest and social tension amongst youth.
❖ Innovations in enterprises
❖ Improvement in living standards
❖ Economic independence

2.8 Conclusion
A positive interaction between growth and entrepreneurship is grounded on
the innovation activity that entrepreneurs convey.when he considers that one of the
two important axes in the field of entrepreneurship is the change an individual
undergoes when he introduces a value that is more or less new to the project he is
developing. But this displacement is mainly apparent through the steps he takes to

37
meet the actors who hold the resources necessary for the entrepreneurial project,
including resources that will be useful for its development.

Questions

1. Distinguish between entrepreneurship and intraperneurship

2. Difference between entrepreneurship and Entrepreneur.
3. What are the role of economic growth?
4. Explain the importance of entrepreneur in economic growth.

CHAPTER – 3
3.1 Introduction
3.2 Classification of Environment
3.3 Environmental Factors
3.4 Conclusion
ENTREPRENEURIAL ENVIRONMENT
3.1 Introduction
“Suitable Environment and intuition in grasping the essential facts promotes
entrepreneurship”
—Schumpter
38
 Entrepreneurial venture of any sort/nature is being influenced by complex
and varying mixture of financial, institutional, cultural and personality factors.
Economic system and other conditions in the environment determine the success of
commercial venture. Environment refers to the totality of all factors which are
external and beyond the control of the business enterprise. It determines how
entrepreneurship control and manage the unit. The entrepreneurial performance of
an enterprise is influenced by the value system of the society, the rules and
regulations made by the government, the monetary policies of the capital market,
foreign investments etc. If environment changes there will be a change in the
entrepreneurial performance also. Thus, the healthy environment promotes the
entrepreneurship in a larger scale by facilitating the business operations thereby
contributing to the growth of the unit.
3.2 Classification of Environment
Environmental factors are mostly dynamic in nature except few factors which
are of static nature. Mostly these factors can be conceptualized and quantified.
Sometimes they could be mentioned only in qualitative terms.
On the basis of its variability character with reference to point of time,
environment may be past, present and future.
On the basis of decision making situation it may be classified into Market and
Non-Market environment. If the business decisions of a business unit are influenced
by the market factors such as, demand, supply, competition, price etc. the
environment is said to be market environment. On the other hand, when the
Government, Law and Social customs and Conventions dominate entrepreneurial
decisions it is said to be Non-market environment.
Environment may be grouped in to two, viz, Economic and Non-Economic
environment. Environment formed by the economic factors like fiscal policy,
industrial policy, physical control of price-income, the economic system that
operates, the stage of economic development refers to economic environment.
39
 Then the non-economic environment refers to social, political, legal,
educational and cultural factors pertaining to business operations.
Thus, the different facets of entrepreneurial environment on the basis of
factors which form that situation are depicted in the following telescopic view of the
Facets of Entrepreneurial Environment.

3.3 ENVIRONMENTAL FACTORS

It is true that the entrepreneurs must have come from diverse economic, social
and geographical backgrounds which interlace influence entrepreneurial spirits. This
will enhance the entrepreneurial performance. The various factors which influences
the entrepreneurship may be categorized into two, viz, Internal and External
environment factors.
1.Internal Factors
The internal environmental factors are mainly the environment in which
entrepreneurs are born and brought up and work. Internal factors are those which
will stimulate the entrepreneurs from within to take up entrepreneurial venture.
Some of them are:
❖ Strong desire of entrepreneurs to do something independently in life.
❖ Technical know-how or manufacturing experiences acquired by them.
❖ Business experience in the same or related line.
❖ Family background including size, type and economic status of family.
❖ Occupational origins of the entrepreneurs. .
Factors are the main springs of action in entrepreneurs. In order to satisfy their
strong desire to do something independently in life, highly motivated persons take a
plunge in to industrial activity’ regardless of any other considerations. But, many a
time it is the: compulsion rather than the ambition that leads the man to success. The
reasons that might have compelled the entrepreneurs in putting them on the road to
40
industry are: The internal various other internal environmental factors that facilitate
the emergence of entrepreneurship are:
❖ Success stories of entrepreneurs
❖ Previous experience in manufacturing
❖ Previous employment in industry
❖ Property inherited
❖ Property acquired
❖ Encouragement of family members
❖ Encouragement of friends and relatives
❖ Acquire or inherited technical and professional skill
2.External Environment
The success of entrepreneurship in a region at any point of time depends on
the very many external environmental factors. These factors influence the
entrepreneurial operations and ultimately determine the effectiveness of
entrepreneurial performance also. These environmental factors can be grouped into:

3.Economic Environment
The different economic environmental factors which influence/ inhibit the
entrepreneurship are: Structure of the economy, Industrial Policy, Agricultural”
Policy, Growth pattern of National income, G.D.P., Savings and capital formation
in the country. Besides that, Balance of trade and balance of payments, trade and
tariff policy etc.
4.Legal Environment
Entrepreneur should know what the prevailing legal environment is by
knowing the latest position in legal enactments relating to various aspects of
entrepreneurial venture. Such as formation of the unit, collaboration, foreign

41
exchange, industrial dispute, labour management, social security benefits, consumer
protection etc.
5.Political Environment
The working political system in a country influences the entrepreneurial
growth by designing and implementing various policy matters pertaining to
promotion of entrepreneurship. Hence entrepreneurs and industrialists should have
representatives on various government bodies at all levels of policy formulation and
planning.
6.Socio-Cultural Environment
In the modem days a suitable entrepreneurial culture must be created by
developing healthy work environment and modem attitudes towards work giving
social recognition etc. These factors will give psychological stimulus which in turn
promotes innovation, inspiration, ethics and values which are very essential for a
successful entrepreneur.
The external environmental factors are:
❖ Financial assistance from institutional sources.
❖ Accommodation in industrial estates.
❖ Provision of consultancy to services on technical
❖ Market and financial aspects.
❖ Provision of subsides of different kinds.
❖ Arranging the institutional support for marketing the products/ services.
❖ Attitude of the Government to help new units.
❖ Encouraging the co-ordination between larger and smaller firms.
❖ Providing necessary infrastructural facilities continuously.
External environment determine the entrepreneurship in many occasions. Hence
presence of conducive business environmental climate is imperative for
entrepreneurship growth. External environment facilitates various functional areas
of business enterprise thereby promote entrepreneurship. The various factors that
42
impede the growth entrepreneurship arose mainly due to external environment.
Some of them are:
❖ Changes in governmental policy
❖ Political instability or hostile government attitude
❖ Improper co-ordination among different government agencies. Undue delay
and corruption in giving concurrences for various purposes
❖ Poor-infrastructural facilities such as supply of power, materials, finance etc.
❖ Rise in cost of inputs.
❖ Unfavourable market fluctuations etc.
7.Business Environment
The emergence and development of entrepreneurship is not a spontaneous one
but a dependent phenomenon of economic, social, political, psychological factor
often nomenclature as supporting condition to entrepreneurship development.These
factor may have both positive and negative influence on the emergence of
entrepreneurship. Negative influence create inhabiting milieu to the emergence of
entrepreneurship. For analytical purpose this conditions factor are grouped and
discussed under two categories (i.e.) Economic factor and non-economic factor
I.ECONOMIC FACTOR
1.Capital
Capital is one of the most important prerequisites to establish an enterprise. If
only a capital is available, entrepreneur can bearing land, machine and raw material
and together produce goods 'Capital is regarded as lubricants/fuel to the process of
production' Increase in capital investment,
capital output ratios tends to increase. This result in increase in profit.
Capital --------------output ratio------------Profit
This suggests that capital supply increases entrepreneurship also increases.
2.Labour

43
 Quantity rather quality of labour in uence the emergence of entrepreneurship
cheap labour is often less mobile or even immobile. Adam smith considers division
of labour as an important element in economic development. According to him
division of labour as an important element it depends. Up on the size of the market
leads to improvement in the productive capacities of labour due to an increase in the
dexterity (i.e.) improvement in skills, grace and cleverness) of labour. Ii appears that
labour problem clearly does not prevent entrepreneurship for emerging.
3.Raw material
The necessity of raw material hardly needs any emphasis for establishing any
industrial activity. In the absence of raw material neither any enterprises nor
entrepreneur can emerge. In some cases "technological innovations can compensate
for raw material inadequate. The Japanese case for example, witness that " Lack of
raw material clearly does not prevent entrepreneurship from emerging but in uence
the directions in which entrepreneurship took place". In fact, supply of raw materials
is not in uenced by themselves but became in uential depending upon the opportunity
conditions.
The more favourable these conditions are, the more likely is the raw material
to have it is in uenced on entrepreneurial emergence.
4.Market
Potential of the market constitutes the major determinant of provable rewards
from entrepreneurial function. The proof of pudding lies in eating, the proof of all
production lies in conceptions (i.e.) marketing. Both size and composition of market
in uence entrepreneurship in their own ways. Monopoly in a particular product in a
Particular market becomes in uential for entrepreneurship than a competitive market.
Lands hold the opinion that improvement in transportation are more benecial to
heavy industry than to light industry because of their on the movement of raw
materials.

44
 Wilken claims that instances of sudden rather than 'Gradual improvement in
market potential provide the clearest evidence of the in uence of entrepreneurship.
Germany and Japan as the prime examples where rapid improvement in market was
followed by rapid entrepreneurial appearance.
II. NON - ECONOMIC FACTOR
Sociologist and psychologist advocate that the in uence of economic factor on
entrepreneurial emergence largely depends upon the extends of non-economic factor
(i.e) social and psychological in the society.
1.Social Conditions
i.Legitimacy of entrepreneurship
The proponents of non-Economic factors gives emphasis to the relevance of
a system of norms and values with in socio culture setting for the emergence of
entrepreneurship. The social status of those playing entrepreneurial role has been
considered one of the most important content of entrepreneur legitimacy. To increase
the legitimacy of entrepreneurship scholar have purpose the need for change in the
traditional values, which are assumed to be opposite to entrepreneurship.
"McClelland had also pointed out that a complete change may not be
necessary for entrepreneurial appearance". Instead, they submit a re - interpretation
of the traditional values or its synthesis with the newer values to increase
entrepreneurial legitimacy.
ii.Social mobility
Social mobility involves degree of mobility, both social and geographical and
the nature of mobility channel with in a system. "social mobility is crucial for
entrepreneurial emergence is not unanimous". 'Average level of need achievement
in a society is relatively high; one could expect a relatively high amount of ED in
the society'.
To encourage the impact of motivation for achievement, many training
programs are organized by the SIEI - Small Industries Extension training Institute.
45
 The further postulates that with drawal of status of respect would give rise to
four personality types:
1. Retreatist: he who continues to work in a society but remains di erent to his
work and position.
2. Ritualist: he who adopts a kind of defensive behavior and acts in the way
accepted and approved in his society but no hopes of improving his position.
3. Reformist: he is a person who foments a rebellion and attempts to establish a
new society.
4. Innovator: he is a person who is creative individual and is likely to be an
entrepreneur.
Hagen maintains that once status withdraws has occurred, the sequence of
change information of personality is set in motion, he refers that 'Status with drawl
takes a long period of time as much as 4 or 5 generations to result in the emergence
of ED'.

Government Actions (Factors)

Government by its actions or failure to act does in uence both the economic
and non-economic factor for entrepreneurship. Any interested government in
economic development can help through its clearly expressed policies, promoting
entrepreneurship, creating basic facilities, utilities and services providing incentives
and concessions, providing good facilitative socio economic setting to minimize the
risks for entrepreneur.'To conclude, in the societies where the government was
committed to their economic development, entrepreneurship automatically
nourishes'.
The fact remains that the various factors are observed in the preceding pages
will cause emergence of entrepreneurship are integral, interlocking, mutually
dependent and mutually reinforcing.
46
3.4 Conclusion
Understanding the business environment and its components are very much
essential for an entrepreneur. Environmental aspects are not of static in nature and
hence watching the changes in the environment is immensely essential especially
for the budding entrepreneurs. Thus, developing a healthy environment is a pre-
requisite for growth of entrepreneurship.
Questions
1. Explain the environmental factors.
2. What are the classifications of environment?
3. What is entrepreneurial environment?

UNIT - II
CHAPTER – 4
4.1 Introduction
4.2 The evolution of Entrepreneurship
4.3 Characteristics
4.4 Historical development of entrepreneurs
4.5 Stages of evolution of entrepreneurship
4.6 Entrepreneurial promotion
4.7 Conclusion

EVOLUTION OF ENTREPRENEURS
4.1 Introduction
47
 This particular chapter begins with the definition and the proper introduction to
entrepreneurship. The chapter stresses the importance historically of
entrepreneurship. It provides a basic understanding of the beginning and the modern
economic definitions.
To be a successful entrepreneur, an individual must be an independent thinker
who is willing to take risks and to dare to be different. Personal initiative, ability to
consolidate resources, management skills, and risk taking are just a few of the
important qualities needed to be a successful entrepreneur.
The chapter continues to define and discuss ten specific myths associated with
entrepreneurship. The myths are present because of the lack of research within this
particular field. Also, the technology within this field is becoming more advanced
and more widely known.
An individual’s understanding may be increased by many approaches. Two
specific approaches are “macro” and “micro” views. Within each view, there are
three “schools of thought.” According to the chapter, the “schools of thought” are
considered to be a foundation for entrepreneurial theory.
Also, there are the process approaches: “integrative approach.” The Integrative
approach is built around the concept of input to the entrepreneurial process and
outcomes from the entrepreneurial process, which can determine the entrepreneurial
intensity. Entrepreneurial assessment approach involves qualitative, quantitative,
strategic, and ethical assessments in regards to the entrepreneur, the venture, and the
environment. The multidimensional approach provides fewer distinct categories,
giving it a more specific or detailed process approach to entrepreneurship. The
approach is divided into the individual, the environment, the organization, and the
process.
Evolution of the term “entrepreneurship.” The word “entrepreneur” is derived
from the French “entre prendre,” which means “to undertake.” Thus, it began as a
concept to identify one who undertakes to organize, manage, and assume the risks
48
of business.
4.2 The Evolution of Entrepreneurship
A. Taken from the French “entre prendre,” means “to undertake.”
B. An entrepreneur is an innovator or developer who recognizes and seizes
opportunities; converts those opportunities into workable/marketable ideas;
adds value through time, effort, money, or skills; assumes the risks of the
competitive marketplace to implement these ideas; and realizes the rewards
from these efforts.
4.3 Characteristics
l. Personal initiative
2. The ability to consolidate resources
3. Management skills
4. A tendency toward autonomy and risk taking
5. Competitive
6. Goal-oriented behavior
7. Aggressiveness
8. Ability to employ human relations skills
4.4 Historical developments of entrepreneurs
1. No single definition of entrepreneur exists.
2. Recognition of entrepreneurs dates back to eighteenth-century France.
3. Until 1950, the majority of definitions and references came from
economists.
4. Robert C. Ronstadt said, “Entrepreneurship is the dynamic process of
creating incremental wealth.”
5. In present day, the word entrepreneur has become closely linked with free
enterprise and capitalism.
6. Entrepreneurs serve as agents for change, provide creative, innovative ideas
for business enterprise, and help businesses grow and become profitable.
49
 7. Entrepreneurs are considered heroes of free enterprise.
8. Many people regard entrepreneurship as “pioneership” on the frontier of
business.
4.5 STAGES OF EVOLUTION OF ENTREPRENEURSHIP
The evolutionary process of entrepreneurship activities may be divided into
the following broad stages:
1. Hunting Stage: - The primary stage of the evolution of the economic life of man
was hunting stage. Wants were limited and very few in numbers. The family
members themselves satisfied problems of food, clothing and shelter. Producers
were the consumers also. Robinson Crusoe, living in the deserted island, satisfying
his own requirements had no knowledge of business. People in some parts of Africa
and India still lead this type of life. In this stage problems of production and
distribution were not complexed since wants were simple and limited.

2. Pastoral Stage: - With the progress of mankind gradually mental understanding

developed and people started realizing that instead of killing animals, they should
breed and rear them. Thus cattle breeding encouraged the use of milk, and they had
to think in terms of grazing areas for their cattle. The surplus milk, meat and other
related products were spared of exchange. This stage can be termed as the first stage
of economic development and the beginning of commerce.
3. Agricultural Stage: - In search of grazing areas, they further realized that they
should grow plants as food for animals. They started testing some grain products and
slowly developed a taste in plants and the land was used for cultivation. Groups of
persons started living together on their agricultural fields, which were subsequently
converted into small villages with their farms. Free exchange of goods was started
and the activities were also divided to the extent of division of labor at the village
level to complement the needs of each other. Initially each village was self-
sufficient, but later they began small trading activities on barter basis.
50
4. Handicraft Stage: - In the agricultural stage, people started learning the use of
cloth made of cotton products, and they developed the segments of the workers for
different activities. Cottage scale setup was developed at the village level to nearby
villages, and in exchange they brought requirements either to consume themselves
or for their village friends. Since the demand for gold coins, silver coins, skin and
hide etc increased the activities of cobblers, gold smiths, and blacksmiths, laborers
also rapidly increased, and caste system was also formed on the basis of activities
they did. Everybody selected their job according to their own choice and taste.
5. Present Industrial Stage:-The use of mechanical devices and the commonly
acceptable form of monetary system accelerated the growth of entrepreneurship
activities. The progress of science and the increase in the means of transportation
and communication enabled to travel widely and the markets were developed in the
country and abroad.
4.6 Entrepreneurial promotion
Most of the tips giving here are from my own area of expertise, which is marketing.
1.Brand Image:
The first thing to understand is that even if you, yourself, or your own business
have a Brand in every sense of the word, you must be clear about the following:
How do I position myself? What do I want people to say about me? What is the
personality of my brand? What product or service is on offer? What sets me apart
from the rest? Who is the target audience of my market?
The next part is to make an attractive visual image! So, you should also take
care of that aspect: a logo, corporate colors, a good photo, stationery, etc. Find a
specialist! It is worth investing a little about it as it will be your first impact.
2. Well defined product or service :
Take time to develop your product or service well, define the benefits you
offer your customers, the advantages and characteristics. Define your processes and
methodology of your work.
51
 Study your direct (other entrepreneurs) and indirect competition (companies),
research what they do, what they offer and how.
3.Material Sale
There is material that I consider essential for an entrepreneur to start their sales
efforts: Business cards that are attractive and original. Presentation of services or
professional products, compete with different types of people. Invest in a good
presentation; forget simple leaves in Word or Power Point. I would like a brochure
for your business, your brand.Website, domain, and hosting service. One of the most
economic and visible actions for independent entrepreneurs is a website. Invest in it
professionally, do not do it on free platforms.

4.Recommendations
You must understand that companies do business with people, i.e. hardly do
business with people who do not know or recommend them. This is the most
important face by an entrepreneur, no connections; no public relations will be a
difficult sell part. Start by creating a list of all the people you know and can
recommend their companies or acquaintances who require your services or products.
Think of friends, family, colleagues, former bosses, etc.
5.Public relations
Subscribe to business associations or chambers depending on your kind of
market. You should look into them to build relationships, meet people, introduce
yourself and offer your services. Take advantage of the breakfast, trainings and
meetings.
6.Conferences
Give free talks at various forums that go up your market. You should ideally
feature in Universities, Associations and Chambers to offer lectures on subjects in
which you are an expert.This will help you to meet new people and go positioning
yourself as an expert in this area of knowledge.
52
7.Interviews and Articles
Give interviews on media like radio and television approach these media and
promote your experience.Ask them to call you for help in a program or event. You
can also get closer to magazines or newspapers where you can offer to write notes
or items of interest to the readers on your workspace.
8.Alliances
Teamwork is always better than do it alone, look to independent entrepreneurs
who want to partner with you, professionals that complement your services and you
theirs. They can mutually promote and increase sales opportunities.
You can also get close to medium businesses that want to hire your services
independently so that through them you get work (freelance). Think of these
companies also as your potential customers.
9.Website
As I said, this is an indispensable tool in your promotional efforts. Open a
professional website; invest a little it will be worth in the end. I recommend you use
the wordpress.org platform and purchase your domain and hosting with Bluehost. If
you do not know much web design and have no budget to hire someone to the design,
you can buy a template on sites like Monster and Temple make yourself. However,
if you need to invest in a specialist is easy to design and optimize a website.
10.Blog
If you enjoy writing or researching on the internet a blog is the best tool to
generate traffic and online reputation. Let your potential customers know about your
experiences, thoughts, methodology and work through what you write. Share
valuable content related to your business, not just talking about that area of
knowledge.
If you don’t have much to write, you can create a newsletter and collect the
most important news in the industry and offers from the website. Find people who

53
visit your site to subscribe to your blog, then it is essential to work with them: sell
your services.
11.Social Media
Social media is a very interesting and unbeatable tool for independent entrepreneurs,
since entry is free and its impact can be huge if we use them wisely.

4.7 Conclusion
An individual’s understanding may be increased by many approaches. Two
specific approaches are “macro” and “micro” views. Within each view, there are
three “schools of thought.” According to the chapter, the “schools of thought” are
considered to be a foundation for entrepreneurial theory. Also, there are the process
approaches: “integrative approach.” The Integrative approach is built around the
concept of input to the entrepreneurial process and outcomes from the
entrepreneurial process, which can determine the entrepreneurial intensity.
Entrepreneurial assessment approach involves qualitative, quantitative, strategic,
and ethical assessments in regards to the entrepreneur, the venture, and the
environment. The multidimensional approach provides fewer distinct categories,
giving it a more specific or detailed process approach to entrepreneurship. The
approach is divided into the individual, the environment, the organization, and the
process.

Question
1. What do you mean by entrepreneurship?
2. Explain the stages of evolution of entrepreneurship.
54
 3. Explain the entrepreneurship promotion.

CHAPTER- 5
5.1Introduction
5.2 The general objectives
5.3 Need and importance of entrepreneurial development training programme
5.4 Stages in Entrepreneurial development programme
5.5 Conclusion
ENTREPRENEURIAL TRAINING
5.1Introduction
Entrepreneurship is about starting new business. Some people say that you are
born an entrepreneur and that it cannot be taught. Many entrepreneurs would argue
that to a certain extent this may be true, but many skills, which are needed for
success, can most definitely be learned.
Scores of entrepreneurs may wish that they had been given the opportunity!
The idea behind this curriculum is to give tomorrow's employers the training they
need to create new business prospects. Entrepreneur training is a relatively new
concept and courses vary widely between schools. You may learn about return on
investment, supply and demand, opportunity recognition, skills for success,
competition, cost/benefit analysis, sales and marketing, ethics, e-commerce, and
business law and tax.
55
5.2THE GENERAL OBJECTIVES
• Provide the knowledge, skills and attitudes in entrepreneurship skills training
in entrepreneurship skills
• Training in the Vocational and Technical education training that will best
meet the Ghanaian economy
• Develop positive attitude towards self employment, judicious use of material
and time in class and on the field

5.3NEED AND IMPORTANCE OF ENTREPRENEURIALDEVELOPMENT

TRAININGPROGRAMME
The traditional school of thought had been thinking that “entrepreneurs are
born and not made”. The modern observation has been that some entrepreneurs may
be born beta large number of them can be educated, trained and made. Learning by
trial and error method is altogether ruled out. It is necessary to encourage more
people to take up this field, to help them to equip themselves with training.
Need of entrepreneurial development training programme
The entrepreneurs play an important role in the economic development of any
country. entrepreneurs make use of the factors of production to the fullest advantage
of the society, generate employment, create innovation, improve standard of living,
develop backward areas, etc. all these leads to higher economic growth.
Entrepreneurial development is very essential for the economic development of a
country. The entrepreneurship development programmes has an important role to
play in solving the unemployment problem. "employment is demoralizing. It is the
major source of waste in our present economic system. The most alarming form of
unemployment today is educated unemployment. India is facing a chronic problem
of unemployment. Due to this frustration and discontent increases, the rate of crime
also increases. Instead of going after a government, people should make an effort to

56
get themselves by starting their own business. Under these circumstances
entrepreneurship development programme assumes much importance
Importance/Need of entrepreneurship development programme (EDP)
Importance of entrepreneurship development programme (EDP) is to enable
entrepreneurs initiating and sustaining the process of economic development in the
following ways-

1.Creation of Employment Opportunities

Unemployment is one of the most important problems confronting developing
and underdevelopment countries, EDP’s enable prospective entrepreneurs in the
setting up of their own units, thus enabling them to get self-employment. With the
setting up of more and more units by entrepreneurs, both on small and large scale,
numerous job opportunities are created for the others.
Entrepreneur in this way get an opportunity to lead an independent and
honorable life and at the same time they enable others in getting gainful employment.
Several schemes like Nehru RozgarYojna, National Rural Employment Programme
(NREP), Integrated Rural Development Programme (IRDP) etc. have been initiated
by the government, of India in this direction. The thrust of all these schemes is to
eliminate poverty and generate gainful employment opportunities for the
unemployed. Thus entrepreneur can play an effective role in reducing the problem
of unemployment.
2. Capital Formation
It is not possible to set up an enterprise without adequate funds. Entrepreneur
as an organizer of factors of production employs his own as well as borrowed
resources for the setting up of his enterprise. Entrepreneur mobilizes idle savings of
the public and put them to productive use. In this way he helps in capital formation,
which is so essential for the industrial and economic development of a country.
Various development banks like ICICI, IFCI, IDBI; SFCs, SIDCs take initiative in
promoting entrepreneurship through assistance to various agencies involved in EDP
and by providing financial assistance to new entrepreneurs.
57
3.Balanced Regional Development
Small scale units can be set up in industrially backward and remote areas with
limited financial resources. Successful EDP’s assist in accelerating the pace of
industrialization in the backward areas and reduce the concentration of economic
power in the hands of a few, Entrepreneurs feel like taking advantage of the various
concessions and subsidies offered by the state and central government.
Success story of entrepreneurs set right example for others to follow and this
accelerates the pace of industrialization in the backward areas. Setting up of more
units leads to more development of backward areas and balanced regional
development.
4. Use of Local Resources
In the absence of any initiative local resources are likely to remain unutilized.
Proper use of these resources can result in the progress or development of the area
and that too at lower cost. Alert entrepreneurs seize the opportunity and exploit it in
the best interests of the area and industry. Effective EDPs can help in the proper use
of local resources by providing guidance, assistance, education and training to the
prospective entrepreneurs.
5.Improvement in per Capital Income
Entrepreneurs are always on the lookout for opportunities. They explore and
exploit the opportunities. Entrepreneurs take lead in organizing various factors of
production by putting them into productive use through the setting up of enterprises.
More enterprises will lead to more production, employment and generation of wealth
in the form of goods and services. It will result in the increase in the overall
productivity and per capita income in the country. EDPs play a positive role in the
setting of more units and thus help in generation of more employment and income.
5.4 Stages in Entrepreneurial Development Programme:
An entrepreneurial development programmes consists of 3 stages:
1. Preliminary stage

58
2. Training and development hub and
3. The follow-up
1. Preliminary stage: This stage mainly focuses on creating awareness about their
entrepreneurial opportunities. It consists of activities and preparations required to
organize and conduct training programs.
2. Training and development hub: The second stage is the training of the potential
entrepreneurs. The training programmes which are mostly of six weeks duration, a
package of training inputs is provided to the new entrepreneurs. The three main
categories of training inputs are :
(I). Need for Achievement or Motivation training,
(II). Guidance in Business opportunities and support and
(III). Enhancing Management abilities.
3. The Follow up: The third stage is the follow up stage in which follow-up services
are undertaken for various activities like:
(I) Follow-up on loan application for finance
(II) Facilitating infrastructure such as, land, factory shed and power, etc..,
(III) Trouble shooting.
This continuous flow of follow-up programmes simply aims at finding out the
practical difficulties faced by the entrepreneurs while interacting with various
financial and promotional agencies. This activity will provide encouragement to the
entrepreneurs to continue their effort towards the achievement of their goal.
5.5 Conclusion
In recent decades the role of an entrepreneur has been considered of very great
significance in accelerating the pace of growth and economic development in both
the developed and developing countries. An entrepreneur is a person who perceives
opportunities, organizes the resources needed to exploit the opportunity and sets up
an enterprise. The process of setting up an enterprise is called entrepreneurship. An
enterprise is a business venture.
59
 It is an undertaking that involves uncertainty and risk as well as innovation.
An individual has the right to choose any income generating activity or self-
employment or entrepreneurship as a career option. Functionally income generating
and self-employment activities are the initial stages of entrepreneurship.
The qualities of entrepreneurship and management are present in varying
degrees in both managers as well as entrepreneurs. Yet entrepreneurs are different
from managers. They create opportunities for innovation, experimentation and
production. Once production begins 285 managers take over. They are more
concerned with organizing the routine day-to-day jobs. They do not prefer to take
risks.
Entrepreneurship is a discipline with a knowledge-based theory. A person can
learn and acquire the competencies of becoming an entrepreneur and start a venture
and make it grow. So the myth that entrepreneurs are born and not made can safely
be dispelled. Hence there exist various, governmental as well as non-governmental,
agencies to promote entrepreneurship development in turn to contribute for the
socioeconomic growth of its nation.
Question
1. What are the objectives of entrepreneurial training?
2. Explain the need &importance of entrepreneurial development training
programme?
3. Explain the importance and need of EDP?
4. State the stages of EDP?

60
 CHAPTER– 6
6.1 Introduction
6.2 Meaning of Mobility of Entrepreneurs
6.3 Entrepreneurial Change
6.4 Think-Do-Create
6.5 Excellent project management
6.6 Meeting social complexity
6.7 Occupational mobility
6.8 Significance of factors of mobility
6.9 Conclusion
MOBILITY OF ENTREPRENEURS
6.1 INTRODUCTION
Mobility is an Integral part of human life. There are two aspects of mobility;
movement and settlement. Movement caused by social, economic, political and
cultural factors. The most common movement brain drain is caused mostly due to
economic reasons. Entrepreneurs move from one place to another and one profession
to another one. Some communities are more mobile than others. Marwari, Panjabi,
Sindis are the example of more mobile communities. Movement of entrepreneurs
reduces the Regional Imbalance among different regions. The Multinational
Corporation (MNC) is the example of location mobility and intraprenurship as the
result of occupational mobility. There are distinct feature and factors in every type
of mobility. In the present study the researchers tried to figure out the distinct feature,
pace and pattern as well as the factors of entrepreneurial mobility in Sylhet Division-
one of the divisions of Bangladesh with distinct feature in peoples’ life style and
61
profession and tried to come on a conclusion and find out a fruitful way to utilize
this mobility for developing the base of entrepreneurship in this industrially back-
ward area.

6.2 Meaning of Mobility of Entrepreneurs

Knowledge-based theories of entrepreneurship infer transfer of knowledge
from the effect of labor mobility on entrepreneurial entry. Yet, simple selection or
situational mechanisms that do not imply knowledge transfer may influence
entrepreneurial entry in similar ways. We argue that the extent to which such
alternative mechanisms operate, labor mobility predicts entry but not subsequent
performance for entrepreneurs. Analyses of matched employee–employer data from
Sweden suggest that high rates of geographical and industry mobility increase
individuals’ likelihood of entrepreneurial entry but have no effects on their
entrepreneurial performance. This indicates that the relationship between labor
mobility and entrepreneurial entry do not necessarily imply knowledge transfer.
6.3 Entrepreneurial Change
The essence of change is proactive systemic change based on excellent project
management. Entrepreneurial Change looks at the value driven basis of an
organization and leads to a substantial transformations towards a culture of
continuous improvement and innovation. Organizations and people are unique. This
uniqueness holds the secret for successful change.
This is the basis of Entrepreneurial Change: It helps you envision and create
your own future based on today’s resources. Through our systemic understanding of
organizations and change, we include the technological, political and cultural
dimensions of social complexity to mobilize resources. By combining innovative
and proven models, methods and instruments – including real time strategic change,
systemic inquiry, future search, lean instruments, open space processes, among
others – we provide custom-made change.
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6.4 Think-Do-Create
The SE group is more than a Think-Tank. We bring the full power of a think
tank deeply rooted in systemic thinking, excellent project management and powerful
co-creation. This makes SE group a think-do-create-tank.
As such, we enable successful change with a well-balanced return on
investment, based on three critical success factors:
1. Next practice thinking
2. Excellent project management
3. Meeting social complexity
The concept of next practice looks at the real potential and possibilities of the
people and the organization. The most crucial and critical success factor in the
context of change is the interplay between the present practice and the specific
possible practices of the organization. Exploring the knowledge, the wisdom and the
ideas inside an organization creates a rich picture of future developments, of
improvement and innovation, which is based on the genuine resources and
motivation of the people in an organization.
6.5 Excellent project management
Knowing organizations and knowing change is very existential for successful
changemanagement. The other half is excellent project management. Our intensive
cooperation with leading bodies in the field of project management like the
International Centre for Complex Project Management has not only been awarded
on the scientific side, it had been more than beneficial for the change projects and
transformations we supported over time.
6.6 Meeting social complexity
If we look at change or other organizational issues we are always concerned
with three dimensions: a technological, a political and a cultural dimension.
Scientific management as we know it focuses mainly on the technological
dimension, while successful change management must include all dimensions.
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6.7 OCCUPATIONAL MOBILITY
Occupational mobility is the ease of movement of resources between jobs. For
example, a worker leaves a job as an accountant to takes a job as a computer
programmer. Some factors are highly mobile and thus are easily switched.

6.8 Significance of factors of mobility

Mobility enables different factor combinations to be made into use. For
instance, more capital and labour can only be used if either of these factors is mobile
to facilitate a change in the production technique. This enables the producers to
search for a least cost method of production.
Mobility of factors of production does facilitate the movement of factors of
production from surplus areas to deficit areas. This automatically elaborates that if
factors are sufficiently mobile, unemployment will consequently be avoided in
surplus areas as production will be enhanced in deficit areas. This leads to a more
efficient utilization of resources.
Mobility of factors of production thus enables the benefits of economic
growth of a country to be spread evenly throughout. Thus, many industries are
located in urban areas primarily because of the urban market and economies of scale.
If at all industries can be encouraged to locate in rural areas through incentives, then
the benefits of industrial development in a particular country can be spread more
evenly.
Mobility of factors of production equally enables the transfer of expertise to
areas where it is efficient and in demand. For instance, in the event of mobility
experienced, managers can contribute to the development of aspects of the firm
lacking in managerial expertise and in some cases they can transfer their skills
internationally.
The possibility of vertical occupational mobility of labour can have
motivational effects in that if workers perceive chances of being promoted for
64
outstanding work, they are in general likely to be more efficient at their work
therefore contributing to the overall efficiency of their business enterprise.

Mobility may also be deemed to be significant in that if workers are

occasionally allowed to perform various/different tasks and are capable of
performing them, then they are less likely to experience the monotony often
associated with specialization attributed by its accompanying negative effects.
Factor mobility is also significant in production in that factors of production
that are immobile occupationally and have no alternative use, are considered to have
no opportunity cost and are thus not regarded by economists as scarce resources.

Therefore, the above aspects of significance of factor mobility is as indicated below:

i. Unemployment
ii. Income distribution
iii. Regional disparities
iv. Flexibility in production
v. Utilization of the otherwise idle resources
vi. Incentive to investment – economic minimization of losses while maximizing
profits/ earnings.
6.9 CONCLUSION
The study of factors of entrepreneurial mobility is essential for pinpointing
the elements and techniques of entrepreneurial development program. Giving proper
importance to those factors can open the ways to effectively carry out entrepreneurial
development programs for specific regions. From the study of occupational mobility,
the classes to be given importance in entrepreneurship can be pinpointed for
effectively and similarly from the study of location mobility the factors of location
attractiveness can be rightly marked and be used by informing the prospective

65
groups for building up the entrepreneurial bases of a region and ultimately of a
country.

Question
1. What is occupational mobility?
2. What do you mean by mobility of entrepreneur?
3. What are the significance factors of mobility?

66
 CHAPTER – 7
7.1 Introduction
7.2 Central government organizations/agencies and their functions
7.3 National Small Industries Corporation Limited
7.4 Bureau of Indian standards (bis) parwanoo, solan
7.5 Registrar of companies, Jalandhar, Punjab
7.6 Regional testing centre, okhlaindl. estate, new delhi-20
7.7 Kknitwear facility centre, focal point Ludhiana, Punjab
7.8 Bicycle and sewing machine research and development centre, focal point,
Ludhiana, Punjab
7.9 Food and nutrition board, dept. of food, ministry of agriculture, new delhi
7.10Electronics test &developmentcentre, chambaghat, solan, Himachal
Pradesh
7.11Controller of imports & exports, inderprasth, bhawan, New Delhi
7.12 Reserve bank of India,central vista, sector-17, Chandigarh
7.13 Small industries development bank of India, baddi&solan
7.14 Other specialized institutions in training and development
7.15 Agmark department of marketing and inspection, sub-office 112, 33-,
Chandigarhstate govt. department and organizations
7.16 Directorate of industries, bamloe, shimla, HimachalPradesh
7.17 Role and functions of MSME (micro, small, macro enterprise)
development organisation
7.18 Forms of business organization
7.19 Sole Proprietorship
7.20 Advantages of Sole Proprietorship
7.21 Disadvantages of Sole Proprietorship
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7.22 Partnerships
7.23 Advantages of Partnerships
7.24 Disadvantages of Partnerships
7.25 Types of Partnerships
7.26 Corporations
7.27 Advantages of Corporations
7.28 Disadvantages of Corporations
7.29 Non-profit
7.30 Conclusion

ROLE OF CONSULTANCY ORGANIZATIONS IN PROMOTING

ENTREPRENEURS
7.1 Introduction
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.
7.2 CENTRAL GOVERNMENT ORGANISATIONS/AGENCIES AND
THEIR FUNCTIONS:
Govt. of India has created following
Institutions/organization/corporation/boards to look into various aspects of
promoting and developing industries. They formulate policies, co-ordinate and
monitor the progress of industrial products falling under their purview.
➢ Khadi& Village Industries Commission
➢ All India Handicraft Board
➢ All India Handlooms Boards
➢ Central Silk Board
➢ Coir Board
➢ Jute Board
68
 ➢ All India Power looms Board
All these Commissions/Boards promote only specific industries coming under
their purview as is clear from the name of Commission/Board. These corporations
frame policies and make programmes for the development of products/industries
falling under their purview and coordinate these programmes and monitor the
progress of these industries. Beside these commissions and boards, there are certain
other Agencies/Institutions at Central level which render service/assistance to
industries in their respective fields.
7.3 NATIONAL SMALL INDUSTRIES CORPORATION LTD.:
National Small Industries Corporation Ltd., has its Head Office in New Delhi.
It has four regional offices located in Mumbai, Kolkata, Chennai and New Delhi. To
avail the facility provided by the NSIC, H.P State is attached with its branch office
located at SCO -378, Sector 32-D, Chandigarh. Their main functions are as below:-
✓ Supply of machinery on hire purchase basis
✓ Registration of units for participation in purchase programme of central
and State Govt. and other Institutions. This scheme is popularly known
as Single Point Registration
✓ Marketing assistance (Internal and export)
✓ Development of prototype of machines and equipment etc.
7.4 BUREAU OF INDIAN STANDARDS (BIS) PARWANOO, SOLAN:
It is Central Govt. Department which specifies quality standards for different
products. It helps in selecting appropriate machinery and equipment for installing
quality facilities. It helps in setting up testing laboratories in units premises and also
authorizes units to use ISI mark which manufacture products as per specified
standards.
❖ The Patent Sub-Office-112,33-C, Chandigarh
It registers the “Trade Mark” of interested units and provides legal protection
in case of imitation by others.
69
 H.P. Patent Information Centre, State Council for Science Technology &
Environment, Kusumpti, Shimla-9
It creates awareness and facilitates in registration of Patent/Trade Mark / Copy
Rights etc.
7.5 REGISTRAR OF COMPANIES, JALANDHAR, PUNJAB:
In case a unit wants to opt for ‘Company as a form of ownership’ it has to
register with Registrar of Companies of respective area. Companies formed in
Himachal Pradesh need to be registered with the office located at Jalandhar.
7.6 REGIONAL TESTING CENTRE, OKHLA INDL. ESTATE, NEW
DELHI-20:
It has its head office at New Delhi and four Regional Centers located at Mumbai,
Calcutta, Chennai and New Delhi. Its main function is to provide testing facilities
to industrial units at nominal charges.
7.7 KNITWEAR FACILITY CENTRE, FOCAL POINT LUDHIANA,
PUNJAB:
Its main function is to assist units manufacturing hosiery goods in obtaining
quality mark (wool mark) and testing their products.
7.8 BICYCLE AND SEWING MACHINE RESEARCH AND
DEVELOPMENT CENTRE, FOCAL POINT, LUDHIANA, PUNJAB:
Its main function is to produce quality products in bicycles and sewing
machines. It provides testing and training facilities in these areas.
7.9 FOOD AND NUTRITION BOARD, DEPPTT. OF FOOD, MINSITRY OF
AGRICULTURE, NEW DELHI:
Its main function is to provide testing assistance to units producing quality
foodproducts. It provides information on laboratory and machinery requirements for
getting FPO license.

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7.10 ELECTRONICS TEST & DEVELOPMETN CENTRE,
CHAMBAGHAT, SOLAN, HIMACHAL PRADESH:
Its main function is to provide testing facilities, commercial facilities etc, to
units manufacturing electronics products and also provides training in electronics
and development of new electronic products.
7.11 CONTROLLER OF IMPORTS & EXPORTS, INDERPRASTH,
BHAWAN, NEW DELHI:
Its main function is to assist units in import of raw materials and export of
final products to other countries.
7.12 RESERVE BANK OF INDIA,CENTRAL VISTA, SECTOR-17,
CHANDIGARH:
Its main function is to provide guidelines to lending Institutions like IDBI,
IFCI, ICICI, SIDBI, and Financial Corporations & Banks in lending money to
industrial sectors and control money supply.
7.13 SMALL INDUSTRIES DEVELOPMETN BANK OF INDIA, BADDI &
SOLAN:
It provides finance to small scale industries through its various refinance
schemes. It provides refinance through State Financial Corporations, Banks etc at
concessional rates.
7.14OTHER SPECIALISED INSTITUTIONS IN TRAINING AND
DEVELOPMENT:
∞ Central Tool Room, Ludhiana, Delhi, Calcutta and Bangalore
∞ Central Institute of hand Tools, Jalandhar
∞ Central food Technology Research Institute, Mysore
∞ Central institute of tool Designs, Hyderabad
∞ Institute for Designs of Electrical Measuring Instruments (IDEMT), Mumbai
∞ Central Machine Tools Institute, Bangalore.
∞ Central Institute for Plastic Engg. & Tools Chennai and Ahmadabad.
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 ∞ National Institute for Foundry and Forge Technology, Post Office, Hatia ,
Ranchi- 34003
∞ National Institute for Micro, Small & Medium Enterprises (NI-MSME),
Hyderabad
∞ Entrepreneurship Development Institute of India, Ahmadabad, Lucknow,
Patnaand Bhopal.

7.15 AGMARK DEPARTMENT OF MARKETING AND INSPECTION,

SUB-OFFICE 112, 33-, CHANDIGARHSTATE Govt. DEPARTMENT AND
ORGANISATIONS:
In addition to Institutional support by Central Govt. for promoting industries,
Govt. of Himachal Pradesh has also created the following Institutions/Departments
to promote industries. Their functions, roles etc. are given below in brief:
7.16 DIRECTORATE OF INDUSTRIES, BAMLOE, SHIMLA, HIMACHAL
PRADESH:
❖ Registration of MSEs and recommendation of medium and large scale
industries
❖ to appropriate authority.
❖ Technical consultancy / general consultancy.
❖ Financial assistance, recommendation of cases to financial Institutions/ Banks
for loan under PMEGP Scheme.
❖ Computation of statistics
❖ Liaison with and feed back to Central Govt.
❖ Providing all incentives to industries given by both Central and State Govt.

HP SMALL INDUSTRIES DEVELOPMENT CORPORATION, HIMRUS

BUILDING,SHIMLA:
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  Plan and develop Industrial Estate and Industrial Areas.
 Participation in equity of medium and large units.
HP STATE SMALL INDUSTRIES AND EXPORT CORPORATION,
KISHORE BHAWAN, SHIMAL, HIMACHAL PRADESH:
 Supply of scarce raw materials through raw materials depots.
 Machinery on hire purchase
 Assistance in exports
 Marketing assistance
HP ELECTRONICS DEVELOPMENT CORPORATION, KHALINI,
SHIMLA:
Promotion of industries in the field of Electronic Sector including in joint and
public etc.
HP KHADI & VILLAGE INDUSTRIES BOARD, CHAURA MAIDAN,
SHIMLA:
 Development of Khadi& Village Industries in the State.
 Provides financial assistance at concessional rate.
 Provides marketing assistance by selling the product of KVI through its own
show rooms.

HP HANDLOOM AND HANDICRAFTS CORPORATION, KUSUMPTI,

SHIMLA:
 Promote and develop handloom and handicraft products.
 Provides training in handlooms and handicraft.
 Assist Entrepreneurs in setting up units in their product.
 Render marketing assistance by selling handloom and handicrafts products of
local entrepreneurs through show rooms.
HIMACHAL CONSULTANCY ORGANISATION, BRIDGE VIEW HOTEL,
SHIMLA:
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Render consultancy to entrepreneurs starting from project identification to
marketing of their products.
Development of Entrepreneurship through conducting Entrepreneurship
development programmes.
HP STATE FINANCIAL CORPORATION, HIMRUS BUILDING, SHIMLA:
 Provides term loan as well as working capital loan to small and medium scale
units under its various schemes.
 Provides loan for expansion and Modernization of existing units.H. P.
Pollution Control Board (Kings Way Hotel, Shimla)
 It assists units in installing necessary pollution Control devices and grant
necessary permission.
7.17 ROLE AND FUNCTIONS OF MSME (Micro, Small, Macro Enterprise)
development ORGANISATION:
MSME Development Organization, formally known as Small Industries
Development Organization (SIDO) which is an apex body and nodal agency for
formulating co-ordinating and monitoring the policies and programmes for
promotion and development of MSMEs in the country was established in 1954 on
the recommendation of an international Planning team sponsored by Ford
foundation. It maintains close liaison with Central Ministries, Planning Commission,
State Govt., Financial institutions and other agencies concerned with the
development of MSMEs. It also provides comprehensive range of facilities, training,
testing, tooling and common facilities etc. to small scale units through a net work of
30 MSME-DI’s, 29 Branch Institutes, 4 Regional Testing Centers, 1 Product-cum
Process Development Centre, 2 Footwear Training Centers, 4 Productivity Centers.
In addition to this there are certain specialized institutions which provide
training and technical services in specialized fields. Micro, Small &Medium
Enterprises Development Institute (MSME-DI), Electronic Complex, Chambaghat,
Solan(H.P.) 173213 Under the MSME Development Organization an Extension
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Centre was opened at Chambaghat, Solan (HP) in 1960 with an objective to provide
training in industrial Thermometers, Clinical Thermometers and Glass Blowing . In
addition, to this it alsoprovided common facilities in mercury filling in
thermometers.
This Extension Centre was converted into branch institute in the year 1973
which was headed by Deputy Director In charge. Keeping in view, the requirement
of Industrial Development in Himachal Pradesh, it was converted into a full-fledged
Institute headed by Director in 1976.At present this Institute has competent technical
officers in different trades such as Food, Electrical & Electronics, Mechanical,
Leather technology, Glass & Ceramic and Economic Investigation. The Institute has
a good library containing books on different technical trades, managements, volumes
of different project profiles and other general field of interest for the benefit of
MSMEs. Besides, number of technical journals and magazines are also available in
the library for the visitors. The Institute provides following services to the existing
and prospective entrepreneurs:
1.ECONOMIC INFORMATION AND CONSULTANCY SERIVCE:
 Educate Entrepreneurs about the incentives and facilities being provided by
both Central and State Govt. to MSMEs.
 Conducts Industrial Potential surveys of different distt./Areas:-
 Collect, Compile and disseminate information on MSMEs.
 Educate entrepreneurs about scope of industries in different areas.
 Conduct market surveys for various products.
 Inform Entrepreneurs about the schemes and programmes of various
developmental agencies. Conducts studies and surveys about the problems
of MSMES in the state.
 Educate Entrepreneurs about Govt. Single Point Registration scheme.
 Motivates entrepreneurs to participate in different National and International
Level Fairs
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  Encourage entrepreneurs to apply for National Awards Scheme.
2.TECHNICAL CONSULTANCY SERIVCE:
Prepare project profiles on products as per the need of prospective entrepreneurs.
Solve technical problems of MSMEs.
Educate entrepreneurs about the latest technology and available raw materials.
Help entrepreneurs in selecting suitable machinery and raw materials.
Educate and help entrepreneurs in producing quality products.
Prepare design and drawings of tools, jigs fixtures and machinery.
Give demonstration to Entrepreneurs on manufacturing of small scale industries
products.
Conducts in plant studies of small scale units and suggest for improvement and
modernization.
Assess the capacity of the small scale units for NSIC registration
3.MANAGEMENT CONSULTANCY SERVICES:
Provides consultancy to SSI entrepreneurs on personnel/ marketing/ financial
management.
Provides consultancy to entrepreneurs for reducing production costs. Proper
inventory management and improvement in quality of products.
4.MANAGEMENT AND TECHNICAL TRAINING:
Organize Industrial Motivation Campaign to motivate the educated unemployed
youths towards self employment.
Organize Entrepreneurship Development Programme to develop entrepreneurship
among various sections of society.
Conducts Industrial Management Training Programmes on personnel, marketing,
production, financial and export management etc. for the benefit of existing
entrepreneurs.
Conducts skill oriented Entrepreneurship development programme.

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 Conduct various other awareness/educational programmes viz. programme on
Energy conservation, Export packaging/Export promotion, promotion of ISO-9000,
Vendor Development Programme, Bar Coding and Trade mark/ Patent etc for the
benefit of MSMEs in the state of Himachal Pradesh.
7.18 FORMS OF BUSINESS ORGANIZATION
One of the first decisions that you will have to make as a business owner is
how the business should be structured. All businesses must adopt some legal
configuration that defines the rights and liabilities of participants in the business’s
ownership, control, personal liability, life span, and financial structure. This
decision will have long-term implications, so you may want to consult with an
accountant and attorney to help you select the form of ownership that is right for
you. In making a choice, you will want to take into account the following:

•Your vision regarding the size and nature of your business.

•The level of control you wish to have.
•The level of “structure” you are willing to deal with.
•The business’s vulnerability to lawsuits.
•Tax implications of the different organizational structures.
•Expected profit (or loss) of the business.
•Whether or not you need to re-invest earnings into the business.
•Your need for access to cash out of the business for yourself.
An overview of the four basic legal forms of organization: Sole Proprietorship;
Partnerships; Corporations and Limited Liability Company follows.
7.19 Sole Proprietorship
The vast majority of small businesses start out as sole proprietorships. These firms
are owned by one person, usually the individual who has day-to-day responsibility
for running the business. Sole proprietorships own all the assets of the business and
the profits generated by it. They also assume complete responsibility for any of its
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liabilities or debts. In the eyes of the law and the public, you are one in the same
with the business.
7.20 Advantages of a Sole Proprietorship
• Easiest and least expensive form of ownership to organize.
• Sole proprietors are in complete control, and within the parameters of the law, may
make decisions as they see fit.
• Profits from the business flow-through directly to the owner’s personal tax return.
• The business is easy to dissolve, if desired.
7.21 Disadvantages of a Sole Proprietorship
• Sole proprietors have unlimited liability and are legally responsible for all debts
against the business. Their business and personal assets are at risk.
• May be at a disadvantage in raising funds and are often limited to using funds from
personal savings or consumer loans.
• May have a hard time attracting high-caliber employees, or those that are motivated
by the opportunity to own a part of the business.
• Some employee benefits such as owner’s medical insurance premiums are not
directly deductible from business income (only partially as an adjustment to
income).

7.22 Partnerships
In a Partnership, two or more people share ownership of a single business.
Like proprietorships, the law does not distinguish between the business and its
owners. The Partners should have a legal agreement that sets forth how decisions
will be made, profits will be shared, disputes will be resolved, how future partners
will be admitted to the partnership, how partners can be bought out, or what steps
will be taken to dissolve the partnership when needed; Yes, its hard to think about a
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“break-up” when the business is just getting started, but many partnerships split up
at crisis times and unless there is a defined process, there will be even greater
problems. They also must decide up front how much time and capital each will
contribute, etc.
7.23 Advantages of a Partnership
• Partnerships are relatively easy to establish; however time should be invested in
developing the partnership agreement.
• With more than one owner, the ability to raise funds may be increased.
• The profits from the business flow directly through to the partners’ personal tax
return.
• Prospective employees may be attracted to the business if given the incentive to
become a partner.
• The business usually will benefit from partners who have complementary skills.
7.24 Disadvantages of a Partnership
• Partners are jointly and individually liable for the actions of the other partners.
• Profits must be shared with others.
• Since decisions are shared, disagreements can occur.
• Some employee benefits are not deductible from business income on tax returns.
• The partnership may have a limited life; it may end upon the withdrawal or death
of a partner.

7.25 Types of Partnerships that should be considered:

i. General Partnership
Partners divide responsibility for management and liability, as well as the shares of
profit or loss according to their internal agreement. Equal shares are assumed unless
there is a written agreement that states differently.
ii. Limited Partnership and Partnership with limited liability
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“Limited” means that most of the partners have limited liability (to the extent of their
investment) as well as limited input regarding management decision, which
generally encourages investors for short term projects, or for investing in capital
assets. This form of ownership is not often used for operating retail or service
businesses. Forming a limited partnership is more complex and formal than that of
a general partnership.
iii. Joint Venture
Acts like a general partnership, but is clearly for a limited period of time or a single
project. If the partners in a joint venture repeat the activity, they will be recognized
as an ongoing partnership and will have to file as such, and distribute accumulated
partnership assets upon dissolution of the entity.

7.26 Corporations
A Corporation, chartered by the state in which it is headquartered, is considered by
law to be a unique entity, separate and apart from those who own it. A Corporation
can be taxed; it can be sued; it can enter into contractual agreements. The owners of
a corporation are its shareholders. The shareholders elect a board of directors to
oversee the major policies and decisions. The corporation has a life of its own and
does not dissolve when ownership changes.

7.27 Advantages of a Corporation

• Shareholders have limited liability for the corporation’s debts or judgments against
the corporation.
• Generally, shareholders can only be held accountable for their investment in stock
of the company. (Note however, that officers can be held personally liable for their
actions, such as the failure to withhold and pay employment taxes.
• Corporations can raise additional funds through the sale of stock.
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• A Corporation may deduct the cost of benefits it provides to officers and
employees.
• Can elect S Corporation status if certain requirements are met. This election
enables company to be taxed similar to a partnership.
7.28 Disadvantages of a Corporation
• The process of incorporation requires more time and money than other forms of
organization.
• Corporations are monitored by federal, state and some local agencies, and as a
result may have more paperwork to comply with regulations.
• Incorporating may result in higher overall taxes. Dividends paid to shareholders
are not deductible from business income; thus this income can be taxed twice.
7.29 Nonprofit
Some of the most profitable corporations in this country are nonprofits. The
classification as a nonprofit does not mean that the business does not make a profit
nor does it mean that it tried but failed to make a profit. It simply means that the
Internal Revenue Service has determined that it has filed for and meets the
requirements as an organization that provides a service to the community for certain
purposes. These purposes may be religious, charitable, scientific, testing for public
safety, literacy, educational, fostering a national or international amateur sports
competition, or the prevention of cruelty to children or animals.
Nonprofits are prohibited from distributing Net Income to owners, members,
directors, or officers but they may pay fair compensation to their employees.
Contributions to nonprofits are tax deductible by the donor, which is a great
advantage in raising funds.
Form a nonprofit in compliance with appropriate state laws and then seek IRS
classification.
Nonprofits are controlled just as other corporations by a board of directors,
but they have no stockholders. A nonprofit does not pay income tax, but it does file
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informational returns. Just as with profit corporations, the nonprofit offers insulation
from liability to its board, officers, and employees.
Since it is not always easy to determine whether a business concept will be
eligible under state and federal regulations for nonprofit status, you should contact
a lawyer to learn more about nonprofit organizations.
The Reality Checks Legal Structures and Costs of Selecting and Forming a
Business Structure should give you a good starting point so you can engage your
attorney and accountant in a thoughtful discussion. You and they will certainly want
to consider other aspects of your business structure than those suggested here, but
these will give you some idea of what’s most important. Don’t delay making that
critical decision.
7.30 Conclusion
India has a large, demographically diverse population, with many young
people seeking employment. The country is on a path to growth, but the rate of
growth has been slow. The government has realized the roots of the basic problems
and made appropriate reforms, mainly in the areas of administration, economy, and
labour, as it tries to free itself from negative aspects of its colonial legacy. There has
been a substantial thrust toward science, technology, and innovation in past 20 years,
and many initiatives have been undertaken in that direction.
However, the investments in science, technology, and innovation are not yet
translating into the desired reality. Realizing that the innovation-led
entrepreneurship development holds promise for growth, the government has taken
major policy initiatives with a strong innovation agenda.

Questions

1. Explain the functions of central government to the entrepreneurs.

2. State the role and functions on MSME development organization.
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 3. Explain the forms of business organization.

UNIT - III
CHAPTER - 8
8.1 Introduction
8.2 MEANING OF PROJECT
8.3 The Project Life Cycle (Phases)
8.4 FEASIBILITY ANALYSIS
8.5 PROJECT CLASSIFICATION
8.6 PROJECT IDENTIFICATION
8.7 Five Areas of Project Feasibility
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8.8Benefits of Conducting a Feasibility Study
8.9 Conclusion
PROJECT MANAGEMENT
8.1 Introduction
Project management is the discipline of initiating, planning, executing,
controlling, and closing the work of a team to achieve specific goals and meet
specific success criteria. A project is a temporary endeavor designed to produce a
unique product, service or result with a defined beginning and end (usually time-
constrained, and often constrained by funding or deliverables) undertaken to meet
unique goals and objectives, typically to bring about beneficial change or added
value.
8.2 MEANING OF PROJECT
An entrepreneur takes numerous decisions to convert his business idea into a
running concern. His /Her decision making process starts with project/product
selection. The project selection is the first corner stone to be laid down in setting up
an enterprise. The success or failure of an enterprise largely depends upon the
project. The popular English proverb “well began is half done” applies to project
selection also indicates the significant of good beginning.
Project Objective
The project objective describes the project’s outcomes: intended and direct,
short- and medium-term effects on the target group. The project objective must lie
within the scope of the project, and one must be able to directly attribute the effects
to the project. The project objective is often formulated in terms of the project’s
utility for the target group: “Better… higher…” It also makes sense to formulate the
project objective as a situation to be achieved in the future.
The project objective ought also to describe an outcome, meaning the effect or
change that the project is supposed to cause for the target group. In practice it is
often not quite so simple to distinguish outcomes from outputs, i.e. the project’s
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products and deliverables. Well-formulated, genuine outcome (and impact)
objectives are therefore of great importance if the outcome and impact assessment
is to have any significance.
A well-formulated project objective
• Provides a concrete description of the project’s effect at the outcome level;
• Was developed in a participatory process;
• Is accepted by the target group and other stakeholders;
• Is clear and concise.
8.3 The Project Life Cycle (Phases)
The project manager and project team have one shared goal: to carry out the
work of the project for the purpose of meeting the project’s objectives. Every project
has a beginning, a middle period during which activities move the project toward
completion, and an ending (either successful or unsuccessful). A standard project
typically has the following four major phases (each with its own agenda of tasks and
issues): initiation, planning, implementation, and closure. Taken together, these
phases represent the path a project takes from the beginning to its end and are
generally referred to as the project “life cycle.”
1. Initiation Phase
During the first of these phases, the initiation phase, the project objective or need is
identified; this can be a business problem or opportunity. An appropriate response
to the need is documented in a business case with recommended solution options. A
feasibility study is conducted to investigate whether each option addresses the
project objective and a final recommended solution is determined. Issues of
feasibility (“can we do the project?”) and justification (“should we do the project?”)
are addressed.
Once the recommended solution is approved, a project is initiated to deliver the
approved solution and a project manager is appointed. The major deliverables and
the participating work groups are identified, and the project team begins to take
85
shape. Approval is then sought by the project manager to move onto the detailed
planning phase.
2. Planning Phase
The next phase, the planning phase, is where the project solution is further developed
in as much detail as possible and the steps necessary to meet the project’s objective
are planned. In this step, the team identifies all of the work to be done. The project’s
tasks and resource requirements are identified, along with the strategy for producing
them.
This is also referred to as “scope management.” A project plan is created outlining
the activities, tasks, dependencies, and timeframes. The project manager coordinates
the preparation of a project budget by providing cost estimates for the labor,
equipment, and materials costs. The budget is used to monitor and control cost
expenditures during project implementation.
Once the project team has identified the work, prepared the schedule, and
estimated the costs, the three fundamental components of the planning process are
complete. This is an excellent time to identify and try to deal with anything that
might pose a threat to the successful completion of the project. This is called risk
management. In risk management, “high-threat” potential problems are identified
along with the action that is to be taken on each high-threat potential problem, either
to reduce the probability that the problem will occur or to reduce the impact on the
project if it does occur. This is also a good time to identify all project stakeholders
and establish a communication plan describing the information needed and the
delivery method to be used to keep the stakeholders informed.
Finally, you will want to document a quality plan, providing quality targets,
assurance, and control measures, along with an acceptance plan, listing the criteria
to be met to gain customer acceptance. At this point, the project would have been
planned in detail and is ready to be executed.

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3.Implementation (Execution) Phase
During the third phase, the implementation phase, the project plan is put into motion
and the work of the project is performed. It is important to maintain control and
communicate as needed during implementation. Progress is continuously monitored
and appropriate adjustments are made and recorded as variances from the original
plan. In any project, a project manager spends most of the time in this step. During
project implementation, people are carrying out the tasks, and progress information
is being reported through regular team meetings. The project manager uses this
information to maintain control over the direction of the project by comparing the
progress reports with the project plan to measure the performance of the project
activities and take corrective action as needed. The first course of action should
always be to bring the project back on course (i.e., to return it to the original plan).
If that cannot happen, the team should record variations from the original plan and
record and publish modifications to the plan. Throughout this step, project sponsors
and other key stakeholders should be kept informed of the project’s status according
to the agreed-on frequency and format of communication. The plan should be
updated and published on a regular basis.
Status reports should always emphasize the anticipated end point in terms of
cost, schedule, and quality of deliverables. Each project deliverable produced should
be reviewed for quality and measured against the acceptance criteria. Once all of the
deliverables have been produced and the customer has accepted the final solution,
the project is ready for closure.

4. Closing Phase
During the final closure, or completion phase, the emphasis is on releasing the
final deliverables to the customer, handing over project documentation to the
business, terminating supplier contracts, releasing project resources, and
communicating the closure of the project to all stakeholders. The last remaining step
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is to conduct lessons-learned studies to examine what went well and what didn’t.
Through this type of analysis, the wisdom of experience is transferred back to the
project organization, which will help future project teams.

8.4 FEASIBILITY ANALYSIS

Feasibility study involves taking a judgment call on whether a project is
doable. The two criteria to judge feasibility are cost required and value to be
delivered.

A well-designed study should offer a historical background of the business or

project, a description of the product or service, accounting statements, details of
operations and management, marketing research and policies, financial data, legal
requirements and tax obligations. Generally, such studies precede technical
development and project implementation.
Major sources of business ideas
Business ideas are thoughts that when implemented can lead to income
generalization. Entrepreneurs must first come up with ideas from different sources
that should lead them to starting a well-planned business. Here some of the resources
of business ideas.
a) Surveys: Business ideas can be generated from market surveys indicating
or showing which sector is viable or possibly void of products. People can
check the market to come out with appropriate conclusions on which sectors
are not flooded or occupied.
b)Training: Business ideas can be acquired through training individuals where
they are equipped with necessary skills and knowledge from schools and such
other institutions of training.

88
c) Experience: An idea can also be generated from experience. Experience in
itself comes from constant touch on a particular aspect. For instance, an
individual might have an experience in accounting through his or her occasional
involvement with accounting issues.
d). Hobbies: Hobbies are what one is fond of doing most of his or her time. At
least each and every one finds something interesting and comfortable doing
every time. Well, that might be a source of business ideas.
e). Talents: A business idea can also come from individual talents. You are best
in what you are talented in and this might form a good base for starting a
business if you spot an idea in that area.
For instance, if you are talented to play football, you might spot an idea in
supplying football kits to customers in the market.
f). Strengths of an individual: An individual's strength can also serve as a
source of idea which is tuned to an idea for carrying out business. For instance,
if you have a particular strength in helping out clients through consultations,
that could form a base to start a business.
g) Market gaps (niche): Spotting a gap in the market can also form an idea.
A market gap in this case is used to mean some important area that is not
occupied. Sometimes, a particular area in the market may be empty with nobody
really providing some goods or services needed by customers. This is what can
be formed to an idea.
h). Events: A business can also be generated through attending events in which
new ideas are exchanged. For instance, an event that is scheduled in some other
place can be very good opportunity to find out what is missing in that particular
place and by providing such products, you satisfy customers’ needs which is
one of the reasons of doing business.
i). Media An idea can also come from the media. Reading magazines,
newspapers and such published materials that contain business related issues
89
 can help one generate an idea. An idea can still come from the other media
sources like television stations and radios. Discussions related to business
topics can be very useful in generation of an idea.
j) Shows and exhibitions: An idea can also be extracted from shows and
exhibitions. By seeing what other people presents in the shows and exhibitions,
an individual can come up with an idea of providing something like what he or
she has seen others do.

k). Recognizing needs : An idea can also be generated from recognition of

what customers need in the market. If for instance customers are frequently
demanding maize flour instead of maize itself, one can come in to provide the
maize flour demanded by customers.
l). Merging existing Businesses: Business people can also come up together to
merge their business as a new development towards achieving or getting more
customers or for provision of better services to customers.
m). Listening to what people say: A business idea can also be generated
through listening from other people's thoughts. This is more so important when
you socialize with great minds or such people who have tried out businesses or
those who actually are in businesses.
8.5 PROJECT CLASSIFICATION
Project classification helps in expressing and highlighting the essential
features of project. Different authorities have classified projects differently. The
following are some of the important classification of projects.
(1) Quantifiable and Non-Quantifiable Projects: Quantifiable projects are those
in which possible quantitative assessment of benefits can be made. Non-quantifiable
projects are those where such assessment is not possible. Projects concerned with
industrial development, power generation, mineral development fall in the first
90
category while projects involving health, education and defense fall in the second
category.
(2) Sectional Projects
Here the classification is based on various sectors like
● Agriculture and allied sector
● Irrigation and power sector
● Industry and mining sector
● Transport and communication sector
● Information technology sector
●Miscellaneous
This system of classification has been found useful in resource allocation at macro
level.
(3) Techno-Economic Projects :Classification of projects based on techno-
economic characteristic fall in this category. This type of classification includes
factors intensity-oriented classification, causation oriented classification as
discussed below.
(a) Factor intensity-oriented classification: Based on this projects may be
classified as capital intensive or labor intensive if large investment is made in plant
and machinery the project will be termed as capital intensive. On the other hand
project involving large number of human resources will be termed as “labor
intensive”.
(b) Causation-oriented classification: On the basis of causation, projects can be
classified as demand based and raw material based projects. The availability of
certain raw materials, skills or other inputs makes the project raw-material based and
the very existence of demand for certain goods or services make the project demand-
based.

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(c) Magnitude-oriented classification: This is based on the size of investment
involved in the projects, accordingly project are classified into large scale, medium-
scale or small-scale projects.
The selection of a project consists of two main steps: Project identification and
project selection.
8.6 PROJECT IDENTIFICATION
Often indenting entrepreneurs always are in search of project having a good
market but how without knowing the product coat they determine market whose
market they find out without knowing the item i.e. product? Idea generation about a
few projects provides a way to come out of the above tangle.

IDEA GENERATION
The process of project selection starts with idea generation. In order to select
most promising and profitable project, the entrepreneur has to generate large number
of ideas about the possible projects he can take. The project ideas can be discovered
from various internal and external sources. These may include:
(i) Knowledge of potential customer needs.
(ii) Personal observation of emerging trends in demand for certain products.
(iii) Scope for producing substitute product.
(iv) Trade and professional magazines which provide a very fertile source of project
ideas.
(v) Departmental publications of various departments of the government.
(vi) Success stories of known entrepreneurs or friends or relatives.
(vii) A new product introduced by the competitor.
(viii) Ideas given by knowledgeable persons.
All these sources putting together may give few ideas about the possible
projects to be examined among which the project must be selected. After going

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 through these sources if an entrepreneur has been able to get six project ideas, one
project idea will be finally selected going through the following selection process.
Internal Constraints
At the organizational level, internal control objectives concern
the reliability of financial reporting, timely feedback on the achievement of
operational or strategicgoals, and compliance with laws and regulations. With this
in mind, we can summarize internal constraints as anyone or any combination of the
following:
• Equipment: The way equipment is used limits the ability of the system to produce
more salable goods/services.
• People: Lack of skilled people limits the system; mental models also cause negative
behaviors that become constraints.
• Policy: A written or unwritten policy prevents the system from making more
goods/services. The list of potential internal constraints is long: employees may not
have the proper skills to use specific types of equipment, policy may organize the
processes in an imperfect manner, equipment may depreciate faster than expected,
employees may be absent or inefficient, policy may limit resource allocation to
inventory and warehousing, etc. Internal constraints are a constant concern for the
managers who must try to minimize them by continually optimizing the system. For
example, if employees lack specific skills, management may want to refine its hiring
policies.

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Internal control system
External Constraints
In their attempts to maximize existing profits, business managers must
consider both the short- and long-term implications of decisions made within the
firm and the various external constraints that could limit the firm's ability to achieve
its organizational goals. These constraints can be organized into three categories:

• Scarcity
• Contracts
• Legalities
The first external constraint, resource scarcity, refers to the limited availability
of essential inputs (including skilled labor), key raw materials, energy, specialized
machinery and equipment, warehouse space, and other resources. Moreover,
managers often face constraints on plant capacity that are exacerbated by limited
investment funds available for expansion or modernization.
Contractual obligations also constrain managerial decisions. Labor contracts,
for example, may constrain managers' flexibility in worker scheduling and work

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assignments. Labor contracts may also restrict the number of workers employed at
any time, thereby establishing a floor for minimum labor costs.
Finally, laws and regulations have to be observed. Legal restrictions can
constrain production and marketing decisions. Examples of laws and regulations that
limit managerial flexibility include: minimum wage, health and safety standards,
fuel efficiency requirements, anti-pollution regulations, and fair pricing and
marketing practices.
A feasibility study aims to objectively and rationally uncover the strengths
and weaknesses of an existing business or proposed venture, opportunities and
threats present in the environment, the resources required to carry through, and
ultimately the prospects for success. In its simplest terms, the two criteria to judge
feasibility are cost required and value to be attained.
A well-designed feasibility study should provide a historical background of
the business or project, a description of the product or service, accounting
statements, details of the operations and management, marketing research and
policies, financial data, legal requirements and tax obligations. Generally, feasibility
studies precede technical development and project implementation.

A feasibility study evaluates the project's potential for success; therefore,

perceived objectivity is an important factor in the credibility of the study for potential
investors and lending institutions. It must therefore be conducted with an objective,
unbiased approach to provide information upon which decisions can be based
8.7 Five Areas of Project Feasibility:
1. Technical Feasibility - assessment is centered on the technical resources
available to the organization. It helps organizations asses if the technical
resources meet capacity and whether the technical team is capable of
converting the ideas into working systems. Technical feasibility also

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 involves evaluation of the hardware and the software requirements of the
proposed system.
2. Economic Feasibility - helps organizations assess the viability, cost, and
benefits associated with projects before financial resources are allocated.
It also serves as an independent project assessment, and enhances project
credibility, as a result. It helps decision-makers determine the positive
economic benefits to the organization that the proposed system will
provide, and helps quantify them. This assessment typically involves a
cost/ benefits analysis of the project.
3. Legal Feasibility - investigates if the proposed system conflicts with
legal requirements like data protection acts or social media laws.
4. Operational Feasibility - this involves undertaking a study to analyze
and determine whether your business needs can be fulfilled by using
the proposed solution. It also measures how well the proposed system
solves problems and takes advantage of the opportunities identified
during scope definition. Operational feasibility studies also analyze how
the project plan satisfies the requirements identified in the requirements
analysis phase of system development.
5. To ensure success, desired operational outcomes must inform and guide
design and development. These include such design-dependent
parameters such as reliability, maintainability, supportability, usability,
disposability, sustainability, affordability, and others.
6. Scheduling Feasibility is the most important for project success. A
project will fail if not completed on time. In scheduling feasibility, we
estimate how much time the system will take to complete, and with our
technical skills we need to estimate the period to complete the project
using various methods of estimation.
8.8 Benefits of Conducting a Feasibility Study
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 Conducting a feasibility study is always beneficial to the project as it gives you
and other stakeholders a clear picture of your idea. Below are the key benefits of
conducting a feasibility study:
• Gives project teams more focus and provides an alternative outline.
• Narrows the business alternatives.
• Identifies a valid reason to undertake the project.
• Enhances the success rate by evaluating multiple parameters.
• Aids decision-making on the project.
8.9 Conclusion
This chapter helped you understand the concept of feasibility study better. To
learn more about similar project management concepts. In recent decades the role of
an entrepreneur has been considered of very great significance in accelerating the
pace of growth and economic development in both the developed and developing
countries. An entrepreneur is a person who perceives opportunities, organizes the
resources needed to exploit the opportunity and sets up an enterprise. The process of
setting up an enterprise is called entrepreneurship. An enterprise is a business
venture. It is an undertaking that involves uncertainty and risk as well as innovation.

An individual has the right to choose any income generating activity or self-
employment or entrepreneurship as a career option. Functionally income generating
and self-employment activities are the initial stages of entrepreneurship. The
qualities of entrepreneurship and management are present in varying degrees in both
managers as well as entrepreneurs. Yet entrepreneurs are different from managers.
They create opportunities for innovation, experimentation and production. Once
production begins managers take over. They are more concerned with organizing the
routine day-to-day jobs. They do not prefer to take risks. Entrepreneurship is a
discipline with a knowledge-based theory. A person can learn and acquire the
competencies of becoming an entrepreneur and start a venture and make it grow. So

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the myth that entrepreneurs are born and not made can safely be dispelled. Hence
there exist various, governmental as well as non-governmental, agencies to promote
entrepreneurship development in turn to contribute for the socioeconomic growth of
its nation.

Questions
1. What do you mean by project?
2. What are the objectives of project?
3. Explain the phases of Project Life cycle.
4. What is feasibility analysis?
5. What are the major sources of business ideas?
6. What is the importance of project classification?
7. How do you identify projects
8. Explain the areas of project feasibility.
9. What are the benefits of feasibility study?

CHAPTER - 9
9.1 Introduction
9.2 Meaning
9.3 Goals of Financial analysis
9.4 Project cost estimation
9.5 Important role in cost estimation accuracy
9.6 Methods of project estimation
9.7 Conclusion
Financial analysis

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9.1 Introduction
Financial analysis is the process of evaluating businesses, projects, budgets
and other finance-related entities to determine their performance and suitability.
Typically,financial analysis is used to analyze whether an entity is stable, solvent,
liquid or profitable enough to warrant a monetary investment.
9.2 Meaning
Financial analysis (also referred to as financial statement
analysis oraccounting analysis or Analysis of finance) refers to an assessment of the
viability, stability and profitability of a business, sub-business or project.
It is performed by professionals who prepare reports using ratios that make use of
information taken from financial statements and other reports. These reports are
usually presented to top management as one of their bases in making business
decisions. Financial analysis may determine if a business will:
• Continue or discontinue its main operation or part of its business;
• Make or purchase certain materials in the manufacture of its product;
• Acquire or rent/lease certain machineries and equipment in the production of its
goods;
• Issue stocks or negotiate for a bank loan to increase its working capital;
• Make decisions regarding investing or lending capital;
• Make other decisions that allow management to make an informed selection on
various alternatives in the conduct of its business.
9.3 Goals of financial analysis
Financial analysts often assess the following elements of a firm:
1. Profitability - its ability to earn income and sustain growth in both the short- and
long-term. A company's degree of profitability is usually based on the income
statement, which reports on the company's results of operations;
2. Solvency - its ability to pay its obligation to creditors and other third parties in the
long-term;
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3. Liquidity - its ability to maintain positive cash flow, while satisfying immediate
obligations;
Both 2 and 3 are based on the company's balance sheet, which indicates the financial
condition of a business as of a given point in time.
4. Stability - the firm's ability to remain in business in the long run, without having
to sustain significant losses in the conduct of its business. Assessing a company's
stability requires the use of the income statement and the balance sheet, as well as
other financial and non-financial indicators. etc.

9.4 PROJECT COST ESTIMATION

A cost estimate is the approximation of the cost of a program, project, or
operation. The cost estimate is the product of the cost estimating process. The cost
estimate has a single total value and may have identifiable component values.
Project underestimation of resources and costs is one of the most common
contributors to project failure. As such, project managers should be knowledgeable
of and consider the various industry techniques and tools in the definition and
execution of project cost estimation. As defined by the Project Management Body
of Knowledge (PMBOK), cost estimation is the iterative process of developing an
approximation of the monetary resources needed to complete project activities.
Project teams should estimate costs for all resources that will be charged to the
project. This includes but is not limited to:
• Labor
• Materials
• Equipment
• Services
• Software
• Hardware
• Facilities
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• Contingency Costs
The following list includes common tools and techniques used in project cost
estimation:
• Expert Judgment – use of knowledge gained from past project management
experience. Expert judgment, in conjunction with objective estimation techniques,
provides valuable information about the organizational environment and
information from prior comparable projects.
• Analogous Estimating – use of the metrics from a previous, similar project as the
basis of estimation for the current project. Analogous estimating takes the actual cost
of previous, similar projects as a baseline and then adjusts for known differences
(such as size, complexity, scope, duration, etc.).
• Parametric Estimating – use of a statistical relationship between historical data
and other variables (for example, lines of code in software development) to calculate
an estimate for activity parameters, such as scope, cost, budget, and duration. Used
correctly, this technique can produce high levels of accuracy.
• Bottom-Up Estimating – estimating all individual work packages/activities with
the greatest level of detail, summarizing higher-level estimates with the combination
of the individual estimates. The accuracy of bottom-up estimating is optimized when
individual work packages/activities are defined in detail.
• Three-Point Estimates – use of three estimates to determine a range for an
activity’s cost: the best-case estimate, the most likely estimate, and the worst-case
estimate.
• Reserve Analysis – determination of contingency reserves to account for cost
uncertainty.
• Project Management Estimating Software – use of project management cost
estimating software applications, computerized spreadsheets, simulation, and
statistical tools. Such tools can allow for rapid consideration of multiple cost
estimate alternatives.
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• Vendor Bid Analysis – determination of what the project should cost based on a
review of vendor bids/proposals. This technique may be used in conjunction with
other cost estimation techniques to ensure that cost estimates are comprehensive.

9.5 IMPORTANT ROLE IN COST ESTIMATION ACCURACY

• Quality Management – If team members do not agree clearly upon deliverable
quality criteria early in the project, they may take longer to meet expectations,
unnecessarily resulting in a schedule delay and corresponding cost overruns.
• Communications Management – If team members do not clearly understand their
roles and responsibilities on the project, project work may take longer to complete,
thus delaying the schedule and increasing costs.
• Scope Management – If requirements are ambiguous, team members may deliver
products that do not meet expectations, resulting in unnecessary rework, schedule
delays, and corresponding cost overruns.
• Human Resource Management – If team personnel do not possess the required
skills or experience to perform project work, it may take them longer to complete
the work, causing schedule delays and cost overruns.
• Risk Management – If team members do not proactively conduct risk
management, cost impacting issues that could have been prevented may emerge.
• Procurement Management – If procurements do not include terms and conditions
that proactively mitigate State risk (such as fixed-price contracts and deliverable
acceptance criteria), the project may experience increased costs later in the project
due to changing project and market conditions.
• Time Management – If team members do not accurately estimate the time to
perform activities, the project may experience schedule delays and cost overruns.

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9.6 METHODS OF PROJECT ESTIMATION
Estimating projects is hard. Why? Because the only time you know precisely
how long it takes to complete a project is when it’s done. Up to the point of delivery,
teams use educated guesswork to predict the future. And the bigger and more
complex a project is, the hazier that future is. Faulty estimates mean missing
deadlines and breaking budgets—two of the main symptoms of project failure.
Being a skilled estimator is a crucial part of setting schedules, establishing
budgets, managing resources and running a thriving team and business. Using the
best online project management software for the job is a huge help, but knowing the
methods and learning how to do them well is how you become a great estimator.
There are a number of estimation methodologies to choose from—and here we’re
going to look at five tried-and-trusted ones that work for all types of projects.
1. Expert judgment
This is probably the most common way people get an estimate. Talk to the men and
women with the best hands-on experience and understanding of the project
requirements. Just make sure that everyone has the same understanding of what
needs to be delivered. And try to find experts who will actually be working on the
project.

2. Comparative or analogous estimation

If your current project is similar to past ones, take the data from previous work and
extrapolate it to provide your estimates for the new job. Before proceeding, make
sure to check whether those projects were successful!

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3. Top-down
Using a high-level work breakdown structure and data from previous projects, you
can add estimates for each project work item to determine the overall effort and cost.
The top-down method lacks detailed analysis, which makes it best suited for a quick
first-pass at a prospective project to assess its viability.
4. Bottom-up
This method uses a detailed work breakdown structure, and is best for projects
you’re committed to. Each task is estimated individually, and then those estimates
are rolled up to give the higher-level numbers. (If you use the right project
management software, it will roll up the estimates for you). This process makes you
think about what’s required in order to take a step back to see if the big picture still
makes sense. You’ll receive more accurate results than the top-down method, but
it’s also a greater investment of time.
5. Parametric model estimating
This is a more scientific method that essentially auto-calculates estimates using
detailed data from previous activities. Let’s say you have data from your last three
office network installation projects. You can use this to get a days-per-workstation
value or something similar. You then plug in the number of workstations for your
new installation and out pop the estimates.

9.7 Conclusion

Financial analysis can be an important tool for small business owners and
managers to measure their progress toward reaching company goals, as well as
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toward competing with larger companies within an industry. When performed
regularly over time, financial analysis can also help small businesses recognize and
adapt to trends affecting their operations. It is also important for small business
owners to understand and use financial analysis because it provides one of the main
measures of a company's success from the perspective of bankers, investors, and
outside analysts.

Questions
1. What do you mean by financial analysis
2. Explain the goals of financial analysis
3. What is project cost estimation?
4. What are the tool and techniques used in project cost estimation?
5. What is the important role of cost estimation?
6. State the methods of project cost estimation.

CHAPTER – 10
10.1 Introduction
10.2 Meaning
10.3 Classification of ratios
10.4 Limitations
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10.5 Uses of ratio analysis
10.6 Types of financial ratios
10.7 Problems with financial statement analysis
10.8 Conclusion
RATIO ANALYSIS
10.1 Introduction
Ratio Analysis is a form of Financial Statement Analysis that is used to obtain
a quick indication of a firm's financial performance in several key areas.
The ratios are categorized as Short-term Solvency Ratios, Debt Management Ratios,
Asset Management Ratios, Profitability Ratios, and Market Value Ratios.
10.2 Meaning
Ratio analysis is the process of determining and interpreting numerical
relationships based on financial statements. A ratio is a statistical yardstick that
provides a measure of the relationship between two variables or figures.
This relationship can be expressed as a percent or as a quotient. Ratios are
simple to calculate and easy to understand. The persons interested in the analysis of
financial statements can be grouped under three heads,
i) owners or investors
ii) creditors and
iii) financial executives.

Although all these three groups are interested in the financial conditions and
operating results, of an enterprise, the primary information that each seeks to obtain
from these statements differs materially, reflecting the purpose that the statement is
to serve.
Investors desire primarily a basis for estimating earning capacity. Creditors are
concerned primarily with liquidity and ability to pay interest and redeem loan within
a specified period. Management is interested in evolving analytical tools that will
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measure costs, efficiency, liquidity and profitability with a view to make intelligent
decisions.
10.3 Classification of Ratios:
Financial ratios can be classified under the following five groups:
1) Structural
2) Liquidity
3) Profitability
4) Turnover
5) Miscellaneous.
1. Structural group:
The following are the ratios in structural group:
i) Funded debt to total capitalization: The term ‘total’ capitalization comprises
loan term debt, capital stock and reserves and surplus. The ratio of funded debt to
total capitalization is computed by dividing funded debt by total capitalization. It
can also be expressed as percentage of the funded debt to total capitalisation. Long
term loans
Total capitalisation (Share capital + Reserves and surplus + long term loans)
ii) Debt to equity: Due care must be given to the; computation and interpretation of
this ratio. The definition of debt takes two foremost. One includes the current
liabilities while the other excludes them. Hence the ratio may be calculated under
the following two methods:
Long term loans + short term credit + Total debt to equity = Current liabilities and
provisions Equity share capital + reserves and surplus (or)
Long-term debt to equity = Long – term debt / Equity share capital + Reserves and
surplus
iii) Net fixed assets to funded debt: This ratio acts as a supplementary measure to
determine security for the lenders. A ratio of 2:1 would mean that for every rupee of

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long-term indebtedness, there is a book value of two rupees of net fixed assets: Net
Fixed assets funded debt
iv) Funded (long-term) debt to net working capital: The ratio is calculated by
dividing the long-term debt by the amount of the net working capital. It helps in
examining creditors’ contribution to the liquid assets of the firm.
2. Liquidity group:
It contains current ratio and Acid test ratio.
i) Current ratio: It is computed by dividing current assets by current liabilities. This
ratio is generally an acceptable measure of short-term solvency as it indicates the
extent to which he claims of short term creditors are covered by assets that are likely
to be converted into cash in a period corresponding to the maturity of the claims.
Current assets / Current liabilities and provisions + short-term credit against
inventory
ii) Acid-test ratio: It is also termed as quick ratio. It is determined by dividing
“quick assets”, i.e., cash, marketable investments and sundry debtors, by current
liabilities. This ratio is a bitterest of financial strength than the current ratio as it
gives no consideration to inventory which may be very a low- moving.

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3. Profitability Group: It has five ratio, and they are calculated as follows:

4. Turnover group: It has four ratios, and they are calculated as follows:

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5. Miscellaneous group: It contains four ratio and they are as follows:

10.4 Limitations:
The following are the limitations of ratio analysis:
1. It is always a challenging job to find an adequate standard. The conclusions drawn
from the ratios can be no better than the standards against which they are compared.
2. When the two companies are of substantially different size, age and diversified
products,, comparison between them will be more difficult.
3. A change in price level can seriously affect the validity of comparisons of ratios
computed for different time periods and particularly in case of ratios whose
numerator and denominator are expressed in different kinds of rupees.
4. Comparisons are also made difficult due to differences of the terms like gross
profit, operating profit, net profit etc.
5. If companies resort to ‘window dressing’, outsiders cannot look into the facts and
affect the validity of comparison.
6. Financial statements are based upon part performance and part events which can
only be guides to the extent they can reasonably be considered as dues to the future.

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7. Ratios do not provide a definite answer to financial problems. There is always the
question of judgment as to what significance should be given to the figures. Thus,
one must rely upon one’s own good sense in selecting and evaluating the ratios.
10.5 Uses of ratio analysis
Ratios calculated from the information in financial statements help investors in three
ways:
• They simplify financial statements: Ratio analysis simply information given in
companies’ financial statements. Investors can easily obtain data from a few
ratios instead of trying to understand entire statements.
• They help detect a problematic trend: Each type of ratio analysed over a long
period can point to a defect in the functioning of a business. The analysis can
also predict the future performance of a company in a particular aspect of
business.
• They facilitate comparisons: Ratios not only help analyse the performance of
one company but also facilitate a comparison of the performances of two or more
companies within an industry or a sector.
For example, two companies in the traditional manufacturing sector can be
compared on the basis of their current ratios. A company with a current ratio of
3:1 can more easily clear its current debts than one with a current ratio of 1.5:1,
for example.
These ratios can be compared with the general standard current ratio for
companies in this sector, which may be 2:1.
10.6 TYPES OF FINANCIAL RATIOS
In the area of financial statement analysis, financial ratios are classified into the
following broad categories: liquidity, solvency, efficiency, profitability, and
valuation.

1. Liquidity ratios: Liquidity ratios show the cash availability of a company and its
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ability to meet short-term dues. In other words, liquidity ratios are an indicator of a
company’s capacity to clear its current liabilities (liabilities that need to be cleared
in a year). They indicate not only the levels of cash but also assets that can be quickly
converted into cash for meeting its obligations.
Examples of Liquidity ratios: Quick ratio (acid-test ratio) and working capital ratio
(current ratio).
The quick ratio, or the acid-test ratio, measures the capacity of a company to
clear its current liabilities using only its “quick assets” (assets that can be converted
into cash within 90 days, including cash itself, besides short-term investments,
marketable securities, etc).
Ratio Analysis Formula: The quick ratio is calculated by adding all the current assets
and dividing this figure by current liabilities.
2. Solvency ratios: Solvency ratios indicate a company’s viability in the long
term—whether it can meet its long-term obligations to creditors and sustain itself.
These ratios compare the debt of a company with its equity, earnings, and assets.
Example of Solvency ratio: Debt-to-equity ratio.
The debt-to equity ratio relates the amount of debt taken on by a company to
its equity. It shows how much of its funds have come from banks and other creditors
compared with how much from its shareholders.
Formula for debt-to-equity ratio: The debt-to-equity is calculated by dividing
the total liabilities by the total equity.
What does it mean to investors? The lower the debt-to-equity ratio, the better
is the company’s health, since funding by shareholders and other investors is often
seen as better than funding by banks and other creditors.

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3. Efficiency ratios: Efficiency ratios show how efficiently a company uses its
assets to make profits or convert its inventories into cash. These ratios measure how
promptly a company is able to collect cash from its clients for goods or services
delivered to them on credit.
In other words, the efficiency ratios indicate how efficiently the managers in
charge of day-to-day operations are manufacturing and selling products to make
profits.
Example of Efficiency ratio: Accounts receivable turnover ratio.
4. Profitability ratios: Profitability ratios demonstrate how effectively a company
is using its assets to gain profits.
Example of Profitability Ratio: Return-on-assets ratio.
The return-on-assets ratio relates the total net income of a company to the
investment in its total assets during a period. It is an important index, since the ratio
includes capital assets, often the largest investment for most businesses.
5. Valuation ratios: Valuation ratios help investors measure the value of a company
stock and decide whether to buy, hold, or sell its shares. These ratios also enable
them to predict the future of the stock and what returns to expect from it.
Example of Valuation Ratio: Price earnings ratio.
The price earnings (PE) ratio is a valuation ratio that relates the price paid for a share
to the earnings from it. It shows the stock market’s assessment of the value of a share
of a company based on the share earnings declared.
10.7 PROBLEMS WITH FINANCIAL STATEMENT ANALYSIS
While financial statement analysis is an excellent tool, there are several issues
to be aware of that can interfere with your interpretation of the analysis results. These
issues are:
1. Comparability between periods. The company preparing the financial
statements may have changed the accounts in which it stores financial
information, so that results may differ from period to period.
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 For example, an expense may appear in the cost of goods sold in one period,
and in administrative expenses in another period.
2. Comparability between companies. An analyst frequently compares the
financial ratios of different companies in order to see how they match up
against each other. However, each company may aggregate financial
information differently, so that the results of their ratios are not really
comparable. This can lead an analyst to draw incorrect conclusions about the
results of a company in comparison to its competitors.
3. Operational information. Financial analysis only reviews a company's
financial information, not its operational information, so you cannot see a
variety of key indicators of future performance, such as the size of the order
backlog, or changes in warranty claims. Thus, financial analysis only presents
part of the total picture.
10.8 Conclusion
Ratios are a powerful tool in the interpretation of the accounts and can
discover issues and problems not immediately evident from the accounts and
financial information provided in the annual report. The can provide the basis for
inter-firm comparisons allowing managers to benchmark the performance and
efficiency of the firm against its competitors. Trends can then be examined and
analyzed. Stakeholders may use ratios to support their decision making. Employees,
for example may use profit ratios to support pay claims and creditors can use
liquidity ratios to evaluate whether debts will be repaid.
Questions
1. What is ratio analysis?
2. Classify the financial ratios.
3. Explain the limitation of ratios
4. What are the uses if financial ratio
5. Explain the types of financial ratio
6. Explain the problems with financial statement analysis.
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 CHAPTER – 11
11.1 Introduction
11.2 Meaning of Investment
11.3 Stages of investment process
11.4 Investment style/ Policy
11.5 Investment analysis
11.6 Investment valuation
11.7 Right mix of investments
11.8 Steps of investment management process
11.9 Conclusion

INVESTMENT PROCESS
11.1 Introduction
For most of the investors throughout their life, they will be earning and
spending money. Rarely, investor’s current money income exactly balances with
their consumption desires. Sometimes, investors may have more money than they
want to spend; at other times, they may want to purchase more than they can afford.
These imbalances will lead investors either to borrow or to save to maximize the
long-run benefits from their income.
When current income exceeds current consumption desires, people tend to
save the excess. They can do any of several things with these savings. One possibility
is to put the money under a mattress or bury it in the backyard until some future time
when consumption desires exceed current income. When they retrieve their savings
from the mattress or backyard, they have the same amount they saved.

11.2 MEANING OF INVESTMENT

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 Investment is the employment of funds with the aim of getting return on it. In
general terms, investment means the use of money in the hope of making more
money. In finance, investment means the purchase of a financial product or other
item of value with an expectation of favorable future returns.
Investment of hard earned money is a crucial activity of every human being.
Investment is the commitment of funds which have been saved from current
consumption with the hope that some benefits will be received in future. Thus, it is
a reward for waiting for money. Savings of the people are invested in assets
depending on their risk and return demands.
Investment refers to the concept of deferred consumption, which involves
purchasing an asset, giving a loan or keeping funds in a bank account with the aim
of generating future returns. Various investment options are available, offering
differing risk-reward tradeoffs. An understanding of the core concepts and a
thorough analysis of the options can help an investor create a portfolio that
maximizes returns while minimizing risk exposure.
11.3 Stages of investment process
There are 4 stages –
1. Investment style / policy
2. Investment analysis
3. Valuation process
4. Right mix of investments
11.4 INVESTMENT STYLE / POLICY
This stage involves taking decisions. It involves finding answers to the following
questions.
• What’s the risk you’re willing to take? Risk and returns are closely related. The more
risk you’re willing to take, the more returns you’d expect.
• Where do you stand – are you a moderate risk taker or a heavy gambler? Or are you
a really risk averse person?
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• How much money can you set aside to invest?
• With the money you have, what are the assets in which you can invest?
• How much time can you wait for your investments to grow?
• What are your financial objectives? Do you think that you will be able to achieve
your objectives with the money you have decided to invest? If yes, have you arrived
at that decision by calculating the returns at a reasonable rate?
• If your answer to the above question is ‘no’, how would you strike a balance? Will
you bring down your financial goals by cutting off certain goals or would you try to
increase your investable fund?
• If you decide to invest in different assets like shares, real estate, gold etc.. How much
are you willing to allocate to each type of assets and why?
• Would you like your investments to be actively managed? That is, would you like
to utilize the services of investments experts who would do their best to extract
maximum gains for you using their expertise and experience? Are you willing to pay
for their services?
• If you’ve decided to take the stock market route, would you adopt a growth
investment strategy or a value investing strategy? Or would you try to strike a
balance in between? Whatever may be the style you adopt, would you prefer to invest
in a mix largecaps,mid-caps and small caps or would you like to stick with one
category?
Finding answers to the above questions would reveal your preferred investment
style.

11.5 INVESTMENT ANALYSIS

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 A Comparative analysis of your chosen mix of investments. This would help
you to decide whether the mix is optimal to achieve your goals.
• At the base level it includes the analysis of your chosen investment asset – equity,
debentures, bonds, commodities, real estate etc..
• Broader level analysis would include analysis of the economy and industry,
qualitative and historical analysis.
11.6 INVESTMENT VALUATION
This is the most important part of investment. Valuation is the process of
estimating what the assets is actually worth. Valuation can be done for all assets. It
is an attempt to determine the ‘reasonable price’ at which an asset can be bought so
that it increases in value over a period of time. It is quite different from the ‘market
price’ which is what a willing and able buyer is prepared to pay.
For example – if a builder offers an apartment for 65 lakhs, would you blindly
buy it without analyzing the builder’s track record and the facilities offered? Won’t
you try to find out why he charges 65 lakhs for that apartment? Finally you would
buy that apartment only if you find it attractive at that price. It is an individual
decision after considering all the factors.
The same process needs to be done in any form of investment – whether it’s shares
or mutual funds or commodities. You have to make sure that the asset you get is
worth the money you spend.
11.7 RIGHT MIX OF INVESTMENTS
Putting all the eggs in one basket is not a good idea. There are some people
who think that putting it all in one is better since they can concentrate on it and
escape from the trouble of carrying multiple baskets at the same time. That’s a very
wrong approach in investments and it needs to be corrected.

For example – if you put your money in real estate alone, should the real estate
prices crash- as we saw 3 years back, you’re locked up with no other options. Instead,
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if you had your money diversified in stocks, gold, real estate etc you’d be better off
since when your money goes down in some, you gain in another and thereby reduce
the risk of losing all your money.
Deciding the right mix is technically called ‘portfolio’ and managing it to achieve
maximum results- in terms of risk reduction, capital preservation and returns is
called ‘portfolio management’.
11.8Steps of Investment Management Process
Before investing, investment management should be done. Investment Management
is a five step process. Following are the 5 steps of investment management:-
1- Setting the Investment Objectives:-The first and the basic step for investment
is that the investor should set his investment objectives. These investment objectives
vary from person to person. For example for an individual the objective may be to
optimize the rate of return.
2- Establishing Investment Policy:-Establishing investment policy refers to the
allocation of asset amongst the major allocated assets in the capital market. The
range of allocated asset is from equities, debt, fixed income securities, real estate,
and foreign securities to currencies. Restraint of environment and that of investor
should be kept in mind while establishing the investment policy.
3- Selecting the Portfolio Strategy:-The portfolio strategy selected should be in
accordance and in conformity with the investment objectives and investment
policies. If these are not in accordance with each other then the whole investment
management process will collapse.
4- Selecting the Assets:-The assets to be placed in the portfolio have to be selected
by the investor. This is the point where real creation of portfolio will take place after
the selection of assets in which to invest by the manager or investor. That asset will
be selected which will give best return in available resources and which involves
lowest risk. The assets can be shares, stocks, art objects, securities, gold, property
etc.
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5- Measuring and Evaluating Performance:-In this step the performance of the
portfolio will be measured in comparison to the realistic benchmark or the standard
set by the investor. Risk and return will be evaluated by the manager. Measuring and
evaluating the portfolio will give the feedback to the investor and will in turn help
the investor to improve the quality as well as the performance of the portfolio of
investment.

11.9 Conclusion
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 Investment decisions are never easy. Cash flows, whether they are positive or
negative, are fraught with uncertainty. Selecting the appropriate discount rate is
never easy, but it has a dramatic influence on the go/no-go decision. Technical
analysis using discounted cash flow techniques does not alleviate the uncertainty and
does not permit hunches and intuition. One student noted that his presentation in
another class was marked down because he had a hunch that a company should
invest in a project, even though the NPV analysis was unfavorable. After discussing
the issue for a short time, I let him in on the great secret that was revealed to me by
one of my mentors after I had spent days trying to justify a modest expenditure using
return on investment calculations. He told me to tinker with the numbers until they
fit the desired outcome. Investment in emerging technologies and a new product line
rarely result in positive NPVs unless the data have been cooked. Real options when
combined with the development of a product and project portfolio can bring truth,
beauty, and enlightenment into the investment process.

Questions
1. What is investment analysis?
2. What are the steps involved in investment management process?

CHAPTER– 12
12.1 Introduction
12.2 Break - even analysis variables
12.3 Break - even point
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12.4 Advantages
12.5 Disadvantages
12.6 Formulas
12.7 Benefits
12.8 Profit analysis
12.9 Components of profit analysis
12.10 Assumptions in profit analysis
12.11 Applications of profit analysis
12.12 Limitations of profit analysis
12.13 Social cost benefit analysis
12.14Monetizing effects
12.15 Decision’s SCBA expertise
12.16 Spatial economics
12.17 Conclusion

BREAK EVEN ANALYSIS

12.1 Introduction
Break-even analysis entails the calculation and examination of the margin of
safety for an entity based on the revenues collected and associated costs. Analyzing
different price levels relating to various levels of demand, an entity uses break-even
analysis to determine what level of sales are needed to cover total fixed costs. A
demand-side analysis would give a sellout greater insight regarding selling
capabilities.

12.2 Break-even analysis depends on the following variables:

1. Selling Price per Unit: The amount of money charged to the customer for each
unit of a product or service.

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 2. Total Fixed Costs: The sum of all costs required to produce the first unit of a
product. This amount does not vary as production increases or decreases, until
new capital expenditures are needed.
3. Variable Unit Cost: Costs that vary directly with the production of one
additional unit.
Total Variable Cost The product of expected unit sales and variable unit cost,
i.e., expected unit sales times the variable unit cost.
4. Forecasted Net Profit: Total revenue minus total cost. Enter Zero (0) if you
wish to find out the number of units that must be sold in order to produce a
profit of zero (but will recover all associated costs)
Each of these variables is interdependent on the break-even point analysis. If any
of the variables changes, the results may change.
Total Cost: The sum of the fixed cost and total variable cost for any given level of
production, i.e., fixed cost plus total variable cost.
Total Revenue: The product of forecasted unit sales and unit price, i.e., forecasted
unit sales times unit price.
12.3 Break-Even Point: Number of units that must be sold in order to produce a
profit of zero (but will recover all associated costs). In other words, the break-even
point is the point at which your product stops costing you money to produce and sell,
and starts to generate a profit for your company.
One may use the JavaScript to solve some other associated managerial decision
problems, such as:
• setting price level and its sensitivity
• targeting the "best" values for the variable and fixed cost combinations
• determining the financial attractiveness of different strategic options for your
company

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 The graphic method of analysis (below) helps you in understanding the concept
of the break-even point. However, the break-even point is found faster and more
accurately with the following formula:
Q = FC / (UP - VC)
where:
Q = Break-even Point, i.e., Units of production (Q),
FC = Fixed Costs,
VC = Variable Costs per Unit
UP = Unit Price
Therefore,
Break-Even Point Q = Fixed Cost / (Unit Price - Variable Unit Cost)
You may like using the JavaScript for performing some sensitivity analysis on the
above parameters to investigate their impacts on your decision-making

12.4 Advantages and Uses

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Break-even analysis enables a business organization to:
1. Measure profit and losses at different levels of production and sales.
2. Predict the effect of changes in sales prices.
3. Analyze the relationship between fixed and variable costs.
4. Predict the effect of cost and efficiency changes on profitability.
12.5 Disadvantages
Even with its advantages and uses, there are also several demerits of break-even
analysis.
1. Assumes that sales prices are constant at all levels of output.
2. Assumes production and sales are the same.
3. Break even charts may be time consuming to prepare.
4. It can only apply to a single product or single mix of products.
12.6 Formulas
There are two ways to calculate the break-even point, in units and in sales revenue.
1. The first way is to divide the fixed cost by the contribution per unit. This gives
the result in units.
2. Divide the fixed cost by the contribution-to-sales ratio. This gives the sales
revenue.The contribution-to-sales ratio is given by dividing the contribution per
unit by the selling price per unit.
12.7 BENEFITS:
The following are the benefits out of break-even analysis:
1. Make or buy decision: The C-V-P analysis assists in making a choice between
two courses of action to make versus to buy. If the variable cost is less than the price
that has to be paid to an outside supplier, it may be better to manufacture than to
buy.
2. Production planning: The C-V-P analysis helps in planning the production of
items giving maximum contribution towards profit and fixed costs.

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3. Cost control: As a cost control device, the C-V-P analysis can be used to detect
insidious upward creep of costs that might otherwise go unnoticed.
4. Financial structure: Break-even analysis provides an understanding of the
behaviour of profits in relation to output. This understanding is significant in
planning the financial structure of a company.
5. Conditions of uncertainty: When some reasonable basis for subjective
extrapolation is available, the breakeven analysis provides the financial management
with information helpful in its decision-making activities.
12.8 PROFIT ANALYSIS
In managerial economics, profit analysis is a form of cost accounting used for
elementary instruction and short run decisions. A profit analysis widens the use of
info provided by breakeven analysis. An important part of profit analysis is the point
where total revenues and total costs are equal.
12.9 Components of Profit Analysis
The key components involved in profit analysis include:
• Selling price per unit
• Level or volume of activity
• Total fixed costs
• Per unit variable cost
• Sales mix
12.10 Assumptions in Profit Analysis
The profit analysis incorporates the following assumptions:
• Unvarying sales price,
• Unvarying variable cost per unit,
• Unvarying total fixed cost,
• Unvarying sales mix,
• Units sold equal units produced.

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 These are largely linear zing and simplifying assumptions, which are frequently
presumed in elementary discussions of costs and profits. In more advanced
accounting treatments, costs and revenue are non linear thus making the analysis
more complicated.
12.11 Applications of Profit Analysis
The profit analysis is helpful in simplifying the calculation of breakeven in
breakeven analysis. Besides, it is generally helpful in simple calculation of Target
Income Sales. Moreover, it also simplifies the process of analyzing short run trade-
offs in operational decisions.
Method adopted for Profit Analysis
The main method adopted to carry out profit analysis is the profit volume ratio
which is calculated by dividing the shareholders contribution by the sales and then
multiplying it by 100 as follows:
Profit Volume Ratio = (Shareholders contribution / Sales) * 100
12.12 Limitations of Profit Analysis
The profit analysis is a short run and marginal analysis which presumes the
unit variable costs and the unit revenues to be constant. This is, however, appropriate
for small deviations from current production and sales. Besides, the profit analysis
also presumes a neat division between variable costs and fixed costs, though in the
long run, all costs are variable. Therefore, for longer term profit analysis considering
the complete life-cycle of a product it is preferable to carry out activity-based costing
or throughout accounting.
12.13 SOCIAL COST BENEFIT ANALYSIS (SCBA)
A social cost benefit analysis is a systematic and cohesive method to survey
all the impacts caused by an (urban) development project or other policy measure.

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 It comprises not just the financial effects (investment costs, direct benefits like
profits, taxes and fees, et cetera), but all the societal effects, like: pollution,
environment, safety, travel times, spatial quality, health, indirect (i.e. labour or real
estate) market impacts, legal aspects, et cetera. The main aim of a social cost benefit
analysis is to attach a price to as many effects as possible in order to uniformly weigh
the above-mentioned heterogeneous effects. As a result, these prices reflect the value
a society attaches to the caused effects, enabling the decision maker to form an
opinion about the net social welfare effects of a project.
The social cost benefit analysis calculates the direct (primary), indirect (secondary)
and external effects:
• Direct effects are the costs and benefits that can be directly linked to the
owners/users of the project properties (e.g., the users and the owner of a building,
recreational area, wind energy park, or highway).
• Indirect effects are the costs and benefits that are passed on to the producers and
consumers outside the market with which the project is involved (e.g., the owner
of a bakery nearby the new building, or a business company located near the
newly planned highway, recreational area, indirect tax incomes, etc.).
• External effects are the costs and benefits that cannot be passed on to any
existing markets because they relate to issues like the environment (noise,
emission of CO2, etc.), safety (traffic, external security) and nature
(biodiversity, dehydration, etc.).
12.14 Monetizing effects
As model engineers, we at Decisio try to quantify and monetize as much
effects as possible. Effects that cannot be monetized are presented in a such a way
that they can be compared.

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 This way, policymakers can include these effects in their final judgment if an
urban planning project (or a particular variation) is worth investing in, which
components of the project are causing positive or negative impacts on society and
how costs and benefits are divided amongst stakeholders. The method of monetizing
effects can also influence the outcome of a social cost benefit analysis and
predictions will always remain uncertain. Therefore, the results of a social cost
benefit analysis are not absolute. Nevertheless, it is a good instrument to investigate
the strong and weak points of the different alternatives. We also always give insights
in the impact of changes in the most influential assumptions to stress the robustness
of outcomes.
The result of a social cost benefit analysis are:
• An integrated way of comparing the different effects. All relevant costs and
benefits of the different project implementations (alternatives) are identified and
monetized as far as possible. Effects that cannot be monetized are described and
quantified as much as possible.
• Attention for the distribution of costs and benefits. The benefits of a project do
not always get to the groups bearing the costs. A social cost benefit analysis
gives insight in who bears the costs and who derives the benefits.
• Comparison of the project alternatives. A social cost benefit analysis is a good
method to show the differences between project alternatives and provides
information to make a well informed decision.
• Presentation of the uncertainties and risks. A social cost benefit analysis has
several methods to take economic risks and uncertainties into account. The
policy decision should be based on calculated risk.

12.15 Decision’s SCBA expertise

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Some recent examples of social cost benefit studies performed by Decisions are:

I Cycle
• Analysis on public and private investment in cycling. Assigned by the Borough
of Merton (within the EU-program Cycle Cities)
• Workshop on social cost benefit analysis for cycling investments in Piraeus,
Greece. Assigned by the EU Cycle Cities program
• Developing a social cost benefit analysis methodology for cycling investments.
Assigned by the Dutch Ministry of Infrastructure and the Environment
• Social cost benefit analysis of a bicycle high way between Nijmegen, Mook and
Cuijk in the east of the Netherlands. Assigned by the City region of Arnhem &
Nijmegen
II Other infrastructure
• Social cost benefit analysis of the Utrecht – Breda railway. Assigned by the
Dutch Ministry of Transport, Public Works and Water Management)
• Social cost benefit analysis of the implementation of the European Rail Traffic
Management System (ERTMS) in the Netherlands. Assigned by the Dutch
Ministry of Transport, Public Works and Water Management
• Cost benefit analysis of several waterway infrastructure projects. A comparison
between different investments in several waterways. Assigned by the Ministry
of Transport, Public Works and Water Management
• Social cost benefit analysis on the concept of Distance Related Road Charging
(ABvM) in the northern wing of the Randstad (the area around Amsterdam and
Utrecht). Assigned by the Dutch Ministry of Transport, Public Works and Water
Management. In association with Rebel Group
• Social cost benefit analysis of Highway A27. Assigned by
RijkswaterstaatNoord-Brabant (part of the Dutch Ministry of Transport, Public
Works and Water Management)
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• Social cost benefit analysis of a toll project and so-called ‘speeding’ projects that
intend to improve the mobility on Dutch highways. Assigned by the Dutch
Ministry of Transport, Public Works and Water Management (ABvM)
• Social cost benefit analysis of the N33 (regional highway). Assigned by the
Dutch Ministry of Transport, Public Works and Water Management
• Social cost-benefit analysis of ‘The Sustainable Highway’ in Rotterdam.
Assigned by ROM Rijnmond, dS+V and Rijkswaterstaat-IPL (part of the Dutch
Ministry of Transport, Public Works and Water Management)
• Social cost benefit analysis of the so-called Undisturbed Logistics Connection
(OLV) that intends to connect three Amsterdam Connecting Trade (ACT)
business locations with the cargo transshipment terminal at Amsterdam Airport
Schiphol. Assigned by the Provincial Government of Noord-Holland. In
association with GoudappelCoffeng, Buck consultants, Tauw, ATOS
Consulting and Stratagem
• Cost benefit analysis of infrastructural investments in the ‘IJmeer-connection’,
a bridge between the cities of Amsterdam and Almere. Assigned by the Regional
government of Amsterdam (ROA)
• Social cost benefit analysis of infrastructure investments (highway) in the
corridor Schiphol – Amsterdam – Almere. Assigned by the Dutch Ministry of
Transport, Public Works and Water Management
• Social cost benefit analysis for the Dutch National Centre of Biodiversity.
Assigned by the NCB (National Centre of Biodiversity)

12.16 Spatial economics

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• Social cost benefits analysis on options for sustainable energy ecology, tourism
and transport on the Afsluitdijk (Enclosure Dam). Assigned by
RijkswaterstaatIJsselmeergebied (part of the Dutch Ministry of Transport,
Public Works and Water Management)
• Social cost effectiveness analysis of offshore wind energy parks in the North
Sea. Assigned by the implementing body of the Dutch Ministry of Transport,
Public Works and Water Management
• Social cost benefits analysis of an investment in the central theatre/congress area
in The Hague. Assigned by the City of The Hague
• Social cost benefit analysis of the investment project in tourism, ecology and
coastal security ‘Waterdunen’, located in the dune area in the Province of
Zeeland. Assigned by the provincial government of Zeeland

12.17 Conclusion
Investment decisions are never easy. Cash flows, whether they are positive or
negative, are fraught with uncertainty. Selecting the appropriate discount rate is
never easy, but it has a dramatic influence on the go/no-go decision. Technical
analysis using discounted cash flow techniques does not alleviate the uncertainty and
does not permit hunches and intuition. One student noted that his presentation in
another class was marked down because he had a hunch that a company should
invest in a project, even though the NPV analysis was unfavorable. After discussing
the issue for a short time, I let him in on the great secret that was revealed to me by
one of my mentors after I had spent days trying to justify a modest expenditure using
return on investment calculations. He told me to tinker with the numbers until they
fit the desired outcome.
Investment in emerging technologies and a new product line rarely result in
positive NPVs unless the data have been cooked. Real options when combined with

132
the development of a product and project portfolio can bring truth, beauty, and
enlightenment into the investment process.

Questions
1. What is BE analysis?
2. What are the variable depends on BE analysis?
3. Explain the Advantages & disadvantages of Break Even Analysis
4. What are the benefits of BE analysis?
5. What are the components of profit analysis?
6. What are the applications of profit analysis?
7. What is SCBA?
8. How is the SCBA calculated?

CHAPTER – 13
13.1 Introduction
13.2 Meaning
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13.3 Objectives of project appraisal
13.4 Significance / Usefulness / Importance of Project Appraisal
13.5 Steps to a Project Appraisal
13.6 Essential Characteristics of an Effective Appraisal System
13.7 Project appraisal methods
13.8 Conclusion

PROJECT APPRAISAL
13.1 Introduction
When an organization wants to find a solution to a particular business problem
and identify the best way for implementing that solution, it needs to plan and develop
a project that might provide an effective action plan for addressing the problem
through implementing the solution. This organization will need to give an appraisal
of the potential project to make sure the project is really effective because it supports
the right solution and solves the required problem. In this context, project appraisal
management serves as the major process of analyzing and approving the project. In
this article, I am going to write about the project appraisal process and its key steps.
I hope my article will help you learn how to evaluate and appraise projects. At the
end of the article I give a link to the project appraisal template, which is a more
structured way of explaining the appraising process.
13.2 Meaning
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 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
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solving the problem, selecting the most feasible option. Conducting a feasibility
analysis of that option, creating yhe 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.
13.3 Objectives of Project Appraisal:
1. To extract relevant information for determining the success or failure of a
project.
2. To apply standard yardsticks for determining the rate of success or failure of
a project.
3. To determine the expected costs & benefits of the project.
4. To arrive at specific conclusions regarding the project.
13.4 Significance / Usefulness / Importance of Project Appraisal
1. It helps in arriving at specific & predicted results.
2. It evaluates the desirability of the projects.
3. It provides information to determine the success or failure of a project.
4. It employs existing norms to predict the rate of success or failure of a project.
5. It verifies the hypothesis framed for the project.
13.5 Steps to a Project Appraisal
A 360-degree appraisal can supplement traditional performance appraisal
systems when evaluating a project's time, costs and quality factors. It is an evaluation
approach that focuses on gathering data, information and opinions from different
sources.
This includes feedback from the project manager, project team members,
partners, vendors, clients, customers and end-users. One of the strengths identified
with this approach is that it provides a better-rounded picture of performance and
can assist project stakeholders become more aware of strengths and weaknesses for
purposes of best-practice development.
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1.Time Management
In addition to traditional evaluations of scheduling charts and report estimates
against actual performance, time management assessments may include giving
project team members surveys and questionnaires to assess the effectiveness of
project scheduling and time-scale performances. Project feedback questionnaires
may also evaluate the strengths and weaknesses with time management techniques
used to develop project milestones and schedule other project components.
2.Project Budgets
Traditional budget tracking techniques include variance analysis, which assesses
differences between budget estimations against final project expenditures. The 360-
degree appraisal supplements may solicit additional feedback from project team
members related to budget allocations. Additionally, a project-end survey can be
developed to provide a cost-benefit analysis that evaluates the perceived value or
rate of return for each element of the project budget.
3.Team Performance
When auditing project staffing, a key question is whether the people assigned to the
project were qualified. This includes the project manager and project team members.
Project team members can complete a group assessment and self-assessment related
to key project performance areas. For example, a self-assessment can give project
members an opportunity to evaluate the effectiveness of project assignments. Also,
project end-users, customers, clients and vendors can give feedback on team member
performance based on their contact with the project manager and project team
members.
4.Vendor Management
Vendor performance is also a part of a project audit. The level of vendor involvement
in a project will vary widely from one project to another. There may be a formal set
of procedures in place related to vendor performance expectations. If so, develop a
performance metric survey from the procedures that can be completed by the project
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manager to evaluate timeliness, quality and costs factors. Also, project team
members with direct contact with certain vendors can provide input on vendor
performance.

13.6 Essential Characteristics of an Effective Appraisal System

Performance appraisal system should be effective as a number of crucial decisions
are made on the basis of score or rating given by the appraiser, which in turn, is
heavily based on the appraisal system. Appraisal system, to be effective, should
possess the following essential characteristics:
1. Reliability and validity
Appraisal system should provide consistent, reliable and valid information
and data, which can be used to defend the organization – even in legal challenges. If
two appraisers are equally qualified and competent to appraise an employee with the
help of same appraisal technique, their ratings should agree with each other. Then
the technique satisfies the conditions of inter-rater reliability. Appraisals must also
satisfy the condition of validity by measuring what they are supposed to measure.
For example, if appraisal is made for potential of an employee for promotion, it
should supply the information and data relating to potentialities of the employee to
take up higher responsibilities and carry on activities at higher level.
2. Job relatedness
The appraisal technique should measure the performance and provide
information in job related activities/areas.

3.Standardization
Appraisal forms, procedures, administration of techniques, ratings, etc.,
should be standardized as appraisal decisions affect all employees of the group.
4.Practical viability

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 The techniques should be practically viable to administer, possible to
implement and economical to undertake continuously.
5.Legal sanction
Appraisals must meet the laws of the land. They must comply with provisions
of various acts relating to labor.
6.Training to appraisers
Because appraisal is important and sometimes difficult, it would be useful to
provide training to appraisers viz., some insights and ideas on rating, documenting
appraisals and conducting appraisal interviews. Familiarity with rating errors can
improve rater's performance and this may inject the needed confidence in appraisers
to look into performance ratings more objectively.
7. Open communication
Most employees want to know how well they are performing the job. A good
appraisal system provides the needed feedback on a continuing basis. The appraisal
interviews should permit both parties to learn about the gaps and prepare themselves
for future. To this end, managers should clearly explain their performance
expectations to their subordinates in advance of the appraisals period. Once this is
known, it becomes easy for employees to learn about the yardsticks and, if possible,
try to improve their performance in future.
8.Employee access to results
Employees should know the rules of the game. They should receive adequate
feedback on their performance. If performance appraisals are meant for improving
employee performance, then withholding appraisal result would not serve any
purpose.
Employees simply cannot perform better without having access to this information.
Permitting employees to review the results of their appraisal allows them to detect
any errors that may have been made. If they disagree with the evaluation, they can
even challenge the same through formal channels.
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9.Due process
It follows then that formal procedures should be developed to enable
employees who disagree with appraisal results (which are considered to be
inaccurate or unfair). They must have the means for pursuing their grievances and
having them addressed objectively.
13.7 PROJECT APPRAISAL METHODS
Project appraisal methodologies are methods used to access a proposed
project's potential success and viability. These methods check the appropriateness of
a project considering things such as available funds and the economic climate. A
good project will service debt and maximize shareholders' wealth.

1. Net Present Value:A project's net present value is determined by summing the
net annual cash flow, discounted at the project's cost of capital and deducting the
initial outlay. A decision criterion is to accept a project with a positive net present
value. Advantages of this method are that it reflects the time value of money and
maximizes shareholder's wealth. Its weakness is that its rankings depend on the cost
of capital; present value will decline as the discount rate increases.
2.Payback Method:A company chooses the expected number of years required to
recover an original investment. Projects will only be selected if initial outlay can be
recovered within a predetermined period. This method is relatively easy since the
cash flow doesn't need to be discounted. Its major weakness is that it ignores the
cash inflows after the payback period, and does not consider the timing of cash
flows.

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3.Internal Rate of Return: This method equates the net present value of the project
to zero. The project is evaluated by comparing the calculated Internal rate of return
to the predetermined required rate of return. Projects with Internal rate of return that
exceed the predetermined rate are accepted. The major weakness is that when
evaluating mutually exclusive projects, use of Internal rate of return may lead to
selecting a project that does not maximize the shareholders' wealth.
4.Profitability Index: This is the ratio of the present value of project cash inflow to
the present value of initial cost. Projects with a Profitability Index of greater than 1.0
are acceptable. The major disadvantage in this method is that it requires cost of
capital to calculate and it cannot be used when there are unequal cash flows. The
advantage of this method is that it considers all cash flows of the project.
13.9 Conclusion
A performance appraisal is one of the most important factors in any
organization and also a great tool used to record productivity. Every organization
has to have goals and objectives established and every employee has to be involved
in the process. Also conducting a performance appraisal will improve productivity
and also the morale of the employees. Appraisals are a positive way for a manager
to let the employees know how well they are performing the duties that are assigned
to them. Sometimes we get caught up in our job and do not realize what all the
company strives to do for employees. Whether the reward is a lousy employee dinner
and or a simple thank you card, your work is being recognized. Also, employees
should be thankful for any job they may have, because the company did not have to
hire on any means.
Question
1. What do you mean by project appraisal?
2. Explain the major steps of project appraisal
3. What are the essential characteristics of effective appraisal system?
4. Explain the methods of project appraisal
CHAPTER– 14

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14.1 Introduction
14.2 Meaning
14.3 Format for project reports
14.4 Components of project reports
14.5 Conclusion

PREPARATION OF PROJECT REPORT AND PRESENTATION

14.1 Introduction
The project report is the formal record of the entire process you undertook to
complete your Personal Project.
The report is the place where you bring together and summarise your thinking,
process and creation that helped you to complete your product. You plan and
organise the information, your Process Journal will be extremely important at this
point as it will contain all the information you need to complete the report, if you
have used it consistently.
14.2 Meaning
A project at the outset must bear a logical appearance, which it can get only
after the feasibility test. Project report is a document, which clearly narrates the
various aspects of project in a prescribed form. Project report preparation is a post
investment decision exercise.
It involves the preparation of detailed specifications and designs for the
project premises, detailed design of the process or other equipment and time
schedules for the implementation of the project. Hence, the detailed project report is
the work plan for the implementation of a project once an investment decision is
arrived at. A project report is meant to provide the necessary information, which
may be required for the purpose of processing and assessing the proposal for getting
the financial assistance from the financial institutions.
14.3 FORMAT FOR PROJECT REPORTS
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 The project reports should be like conference papers: concise and focusing on
what you did.
Format: Use 1 inch margins (left and right), 1 inch margins (top and bottom), 11
point time’s font for the main text, and use 10 point courier font for computer code.
Use your judgment for other situations (for example indented, italics, and 10 point
courier font for quotations). Single space your text. Make the text fully-justified
(where the letters are aligned on both the left and right). The text should be in 2-
columns, with 3/8 of an inch of space between columns. Your paper should be 4
pages long. Having only 3 pages is fine, as long as the content is good. Anything 6
pages or longer will not be graded.
If you want to use Latex, here are two examples with the formatting already done.
You can just remove the text that you do not need. You will also need either
the ieee.cls class file or the IEEEconf.cls class file. Just download both class files
until you decide which one you like.
1. Example final report, journal style .tex file and its output.
2. Example final report, conference style .tex file and its output.
You are allowed to have appendices, as needed. Appendices are mainly for code
or mathematical derivations. Appendices do not count in the page count. For
example, if you have 4 pages of report, you may also turn in an appendix that is as
long as you like. The appendix should be like a separate document, with your
name(s) on it. Attach it physically to the report, e.g. with a binder clip.
Yes, your code should be in the appendix, monospaced, single column. You do
not have to turn in all code used in your experiment; use your best judgment. You
may want to include only relevant sections of code. For example, you should not
include code that someone else wrote, unless you made major modifications. If your
code is 100 pages, you should not print all of it. If your code is 6 pages, then you
should print all of it.

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 If you include a work-log, you can put it in the appendix. Or you could
incorporate it into one of the sections of the report, if it is appropriate. The references
must be in the same 2-column format as the rest of your paper.
You can use this PDF example, but follow the instructions below. If you want to
use LaTeX, here are directions and an example file you can use as a template.
• Under authors' names, instead of address put the Class name, number, date,
and instructor
• Abstract should be no more than 150 words.
The abstract is a short summary of the paper. If you had to re-state what your
paper says in 150 words or less, what would you say?
For a conference paper, most people will read the abstract to see if they find
it interesting enough to read the whole paper. This makes a lot of sense if you go
to a conference in a topic that interests you, but find that there are 100+ other
papers.
The abstract LAST, since it is easier this way.
• Introduction
o Why your topic is important (convince us!)
o Where is it used? Applications
o What you will talk about/do
o Overview of the rest of your paper (section 2 covers...section 3
presents...)
• Background
o Any relevant and specific info
e.g. hardware statistics, equipment used
o What other people had to say on this topic(s)
(be sure to cite your references, and quote as appropriate)

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 o You are expected to discuss the books and papers that you include in
your references. You must also cite them. If nothing else, include a brief
rationale explaining why you thought it was useful.
o What other people did on this topic (or related topics)
o Problems and shortcomings of their work
o How your work is different and better
• Project
o Your approach to the problem
o What you did
o Design
- what you already had (and where it came from)
-What you added/ changed
- for parts, include close-up drawings (e.g. Magic screenshots)
o What did/didn't work?
o Include graphs, equations, pictures, etc. as appropriate
o Results
Include relevant observations, measurements, and statistics. For
example, for the VLSI Class: Include statistics such as timing
information if available by simulation, or if not, your own analysis
about critical path, delays, and clock cycles. Be sure to include size
information: the total size of the circuit measured (X lambda by Y
lambda), and the transistor count.
• Summary
o Try to draw together the intro, background, and project sections.
o How do they all relate together? (They may appear to be disjoint
sections to an unfamiliar reader).
o Restate important results

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 • Conclusions
o What was accomplished / learned
o What you would have done differently
o Future work

• References
o You should include a number of books and papers that were useful. If
no number if specified, then include at least 5 books or papers. (If this
is a group project, include at least 5 per person.) WebPages do not count
toward this minimum number. Wikipedia is not appropriate, and you
will be penalized if you include it.
o Cite the papers/books that you used
o Anything you found useful
o Include textbooks from class if you want
Each team member must submit an individual report. It is possible to refer to
someone else's report, such as a team member. But you must document that report
like you would any other source. You can quote from it, as long as you enclose it in
double-quotes, and put the citation after it.
Things to include in the report:
• Pictures
• Your observations and measurements
• Equations
• Graphs
• Figures
• Simulation, model (E.g. our design took 200 cycles to do task #1. We ran it
10 times, and the time for each run is: 12, 15, 16, 14, 13, 15, .. Therefore, we
expect the second task, which is twice as long, to take about 30 sec).

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Note: If you use color graphs, make sure you use a color printer when printing the
report! I have seen several reports that say things like "the blue dots represent ...,
while the red ones represent...", only to have the figure printed in grey-scale.

14.4 COMPONENTS OF PROJECT REPORT

The following are the important headings under which the complete information on
relevant aspects should be included for a small scale industry’s project report.
1. General information
2. Rationale
3. Project description
4. Market potential
5. Capital expenditure and sources of finance
6. Assessment of working capital requirements
7. Other financial factors
8. Government and other statutory approvals
9. Economic and social variables
1. General Information
The following aspects should be given in the stage, which are of general Nature
• Name and address of the entrepreneur

• The qualifications, experience and other capabilities of the entrepreneur. If it

is a partnership firm, these information of other members should also be given.

• A small reference of analysis of industry to which the project belongs e.g. past
performance, present status, the way of organization, the problems etc.

• The organizational structure of the enterprise

• The utility of the product and the range of products to be manufactured

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2. Rationale
As mentioned earlier a project may have several objectives subsidiary to the
prime objective of making profit. As a first step in project evaluation, it is essential
that one looks at the broad rationale of the project proposal to ensure that the project
is appropriate and justified. As an example, one could say that modernization or
pollution control may be fully justified on grounds of survival and environmental
protection even if, in the short-term, the project expenditure may adversely affect
the financial criteria of project evaluation. On the other hand, a project which would
improve the earnings per share or the debt service cover or the production efficiency
may not necessarily be justified if all this is to be achieved at the expense of national
interest or public interest.
3. Project Description
A brief description of the project covering the following aspects should be
given in the project report.
SITE: Location (Town, Complete address) whether owned or leasehold land,
whether the site is approved industrial area? Is it suitable for the product under
review.
4. Input Factors
Raw materials: What are the sources of raw materials? Are they locally available?
Whether imported raw material is also required? If so, whether license has been
obtained? Is it suitable to get quality raw materials continuously at reasonable
prices? The availability, quality critically and quality compatibility of the raw
material with the technology as well as the plant and machinery are important factors
to be clearly understood while evaluating a project especially those in hi-tech area.
This element is also intimately linked to many other elements in a project and
can force necessary changes in them to ensure the viability of the project.

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 As a simple example, one can easily surmise that a raw material with a high
volume to weight ratio will indicate the plant is located near the source of raw
material. e.g. Cement, power (coal based).
On the other hand, if the value added in such a case is very high, then it may
be possible or even necessary to locate the plant away from the source of raw
materials. Textiles, power (gas based of oil based), processed foods like snack foods,
ice creams are some the pertinent examples. The characteristics of the raw materials
are multivariate and not just on the volume weight ratio. It is imperative therefore
that this element gets a careful consideration while assessing a project. The market,
the management, and the utility needs of the projects also influence the locational
decisions.
Labour: What is the type of labour required? Whether skilled or unskilled? Are they
available in that area? If not, what arrangements have been made to recruit and train
the labour in various skills?
Power: Inadequate supply and high cost of electricity is a major problem now-a-
days. So, the project report should contain the information regarding the power
requirements, the load sanctioned, stability of supply of power and the price at
different consumption level.
Fuel & water: Whether the fuel systems like coal, coke, oil or gas are required and
if yes, then state their availability position. Similarly water is an important factor.
The source and the quality of water should be clearly stated.
Waste discharge: Most of the plants produce waste material or emissions that may
result in many health problems to the public. The emissions and discharge may be
various types like (a) gaseous (smoke, fumes, dust etc.) by physical (noise, hear,
vibration etc.) or (c) liquid or solid discharged through pumps and sewers. Hence, it
should be clearly stated that the arrangements made from these things.

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Communication and Transport Facilities
Availability of communication facilities like telephone, telex and post and
telegraph department, should be stated in the report. Similarly, transport is a basic
necessity for industries. Raw materials as well as finished products have to reach
destination only through a good transport systems available. So, the various transport
facilities available in that should be clearly stated. Similarly availability of facilities
like machine shops, welding shops and electrical repair shops etc., should also be
stated.
List of Machinery &Equipment
A complete list of items of machinery and other equipment’s indicating their
type, size and cost should be stated. Source of supply of capital equipment and the
construction services should also be given.
The source of plant and machinery as also the specification for the same can
often make or break a project. It is, therefore, equally important to evaluate the plant
and machinery which is to be installed at the project. The reputation of the supplier
and references to place where such/similar plant and machinery are installed is a
good starting point while assessing this element.
i. Capacity & Technology
The installed and licensed should be stated and the number of shifts likely to
follow should be stated. Similarly, Is the technology up to date and appropriate?
Which other units are using the same technology and with what results? How the
required know-how is proposed to be arranged?
The level of technology in terms of its “state of art” or obsolescence,
adaptability to the local conditions, maintenance and reparability, sophistication in
management and control are elements which have a significant impact on the quality
and quantity of production that is envisaged in the project. It is thus necessary to
have a clear understanding about the technology which is to be utilized in the project.

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 It is pertinent to note that there are no hard and fast rules but “appropriateness”
and “relevance” are the two key operative words while assessing a technology
proposed for the project. It is ridiculous to propose a highly sophisticated, push
button control technology in a place where electricity supply follows its own rules
or where a simpler technology is better understood and more manageable. Equally,
it would be disastrous to recommend an obsolete technology on account of its
durability or time tested proof of performance when everyone else is fast discarding
it.
This technology element is linked to every other element in the project
proposal and these linkages also need to be looked into as an essential step in
assessing the technology. One of the technologies available may necessitate creation
of large capacity not necessarily advisable given the current raw material supply or
the market size for the product.
For example, a capacity of 100 tpa for manufacture of peer starting from pulp
or even hard wood or bamboo could be considered an or even the “minimum
economic” size leading to acceptance of a particular technology which gives
maximum efficiency at 10 tpa. But if raw material proposed is “agricultural waste”
a whole lot of new considerations starting from collection and storage or raw
materials come into play necessitating appropriate changes in the plant size and even
perhaps the technology. Similar situations can arise in linkages of technology to
management, availability of utilities, and cost of the project.
ii.Quality Control
What is the system arranged for to check the quality of products on continuous
basis? The quality marks like ISI, Agmark will enhance the values of the product as
well as confidence among the consumers. If it is desired to get quality markings, the
fact should be included in the project report.

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5. Market Potential
i. Estimation of Demand & Supply:Facts regarding the anticipated demand for
product and the level of supply, should be clearly stated. An estimate of
manufacturing and administrative expenses together with the price expected along
with the margin of profit should be stated.
ii.Marketing strategy: What is the strategy adopted for marketing the product
should be stated. Whether the products are to be supplied to the reputed sellers
directly or distributors? Is there any possibility of getting a contract from the reputed
concerns should also be stated in this project report. Similarly whether after sales
service has been arranged and how to fill the gap of demand if there is fluctuations
in the sales seasonal demand arrangements made for warehousing the products.
6. Capital Expenditure and Sources of Finance

Cost of the project: Since each project is profit motivate it is important that
cost of the project is carefully assessed and evaluated. One of the most important
factors in this assessment is the level of accuracy in the cost estimates, which in
addition to proper data collection also depends upon the approach and the attitude of
the evaluator himself. Some evaluators tend to see all cost estimates as “too high”
leading to unnecessary under estimation of the project cost and consequent problems
in project implementation and even project viability. On the other hand some
evaluators tend to provide “cushions” at all levels of cost estimates which may erode
the viability of the project on paper leading to a wrong decision on the issue of
project selection and implementation.
An estimate regarding this various capital inputs required by the industry should
be given. Those capital items include the following:

1. Land & Building

2. Plant and machinery
3. Preliminary expenses

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 4. Miscellaneous assets
5. Price escalation
6. Working capital limit
Means of financing: Having established the cost of a project as justified and
reasonable, it is necessary to evolve the means of financing the project. It should be
acceptable within the framework of the financial system and sufficiently attractive/or
safe enough for the investor lender to come forward and extend the necessary
assistance.
During the last decade, financial scenario in India has undergone substantive,
qualitative as well as quantitative change almost amounting to a metamorphosis. As
a result the project prosperity has a fairly wide range of means of finance available
to him to choose from. Instead of a standard debt-equity ratio of 2:1, the promoter
taking up 50% to 75% of the equity, the balance being offered to the public and the
financial institutions and banks picking up the tap for the debt component.
The promoter can now think of a variety of instruments like equity cumulative
convertible preference shares fully or partly or non-convertible debentures, as means
of financing and also many other sources of funds like mutual funds, venture finance
and lease finance. A clear understanding of the various elements and the various
institutions operating in the financial system would help to assess the
appropriateness of the means of finance. The cost of raising and servicing funds, and
other terms and conditions accompanying funds, as all these have a direct impact on
the viability of the project. At this juncture, it is worthwhile nothing that the project
evaluation should also pay due attention to the ethics of fund raising especially if the
means of finance involves premium carrying instruments.

7. Assessment of Working Capital Requirements

Many industries fail due to improper estimate of working capital
requirements. It is very crucial to an entrepreneur. The unit could function only if
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the working capital limit is maintained properly. So, the working capital
requirements should be very carefully calculated and stated in the project report.
8. Other Financial Aspects
It should be found out that the product taken up for production is profitable.
For this, profit & Loss A/c an estimated one should be prepared, which shows sales
revenue, cost of production and other costs and profit. Similarly a projected balance
sheet and cash flow statement should be prepared to indicate financial position and
financial requirements.
There should be always availability of funds for the smooth functioning of the
unit. Next the break-even analysis must be given break-even point is that level of
production sales where the industrial enterprise shall make no profit no loss. This
break even analysis facilitates knowing the gestation period and the likely
moratorium required for repayment of loan.
The return from a project is a very essence of evaluating a project especially
as the prime motive for setting up a project is its profitability. The project return is
to be assessed in terms of cost of production realizable selling price, financial
charges, depreciation taxes and host of other financial and non-financial variables.
9. Government and Other Statutory Approvals
The project is not put up in a vacuum but in the real world which is subject
not only to procedural requirements but also to policy guidelines and stipulations.
These requirements, guidelines and stipulation could begin with the very permission
to establish a project and go across various economic statutes of a country governing
several aspects of a project.
The project evaluation must take all these into account, not merely as an
element of feasibility or otherwise of setting up the project but as part of the plan
extending over the economic life of the project.
10. Economic and Social Variables

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 Among other things, what will be the abatement costs to control pollution and
treating for the effluents and emissions, should be stated. Added to this, whether the
project derives home some social benefits like the following:
It promotes an increases the employment potential in that area
It promotes an encourages smaller units (tiny sector) to grow
It effects overall development of that area
Economic and National Significance of the Project
Many projects have an economic and/or a national significance especially if they are
in the area of hi-tech, import substitution, export orientation, defense and/or involve
substantive outflow of foreign currency either for technology know-how or for raw
materials. It is necessary to evaluate the economic and the national significance of a
project is to be made acceptable in the prevalent economic scenario.
Social and Environmental Consideration
While setting up a project, issues not necessarily connected with the financial
profitability of the project but to the environment and society as a whole have
become important in more than one case. These issues relate to environmental
pollution and safety as also different segments of the society coming in contact with
the activities of the project.
Two models of project report are given at the end of this lesson.
Project Report Vs. Feasibility Report
The detailed project report differs from feasibility report in the following
manner:
Objective: Feasibility report’s aim is to serve the top management in arriving at
feasible and viable project alternatives. Detailed Project Report’s focus is to
communicate formally about the project sponsor’s decision on a specific project to
the government departments and financial institutions for seeking their approvals
and funding.

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Scope of information Management: The interests of the management can be met
by collecting relevant information in vital areas of technical, economic, commercial
and environmental areas at the onset. However, about 70-80% information may be
collected and analysed in feasibility studies based on which certain reliable forecasts
are made and decisions are taken by the management.
14.5 Conclusion
The conclusions section provides an effective ending to your report. The
content should relate directly to the aims of the project as stated in the introduction,
and sum up the essential features of your work. Now it is time to draw conclusions.
Include your suggestions that you think can solve the problem. You should not
generalise your observations/conclusions or derive big conclusions as you are
working in a small area with a small sample size.
Thus, Project report is a precise formal document of commitment prepared
and presented by sponsors of a project. On the basis of this report, the Project
Investment Board and Cabinet Committee on economic affairs of the concerned
Ministry Proffer their exoneration of the project proposals. The preparation of
detailed project report is the preliminary phase of a project life cycle. The
preparation of project report starts only after the investment decision is made on the
basis of the technical, economic and financial feasibility studies, so that expensive
efforts involved in the preparation of report are not wasted.
Question
1. What is project report?
2. State the format for project report
3. What are the components of project report?
4. Distinguish between project report and feasibility report?
UNIT – IV
CHAPTER– 15
15.1 Introduction
15.2 Meaning
15.3 Project Finance - Key Concepts
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15.4 Off- Balance Sheet
15.5 Non- Recourse Financing
15.6 Sources of Finance
15.7 Conclusion
PROJECT FINANCE
15.1 Introduction
Project finance is the financing of long-term infrastructure,
industrial projects and public services based upon a non-recourse or limited
recourse financial structure, in which project debt and equity used
to finance the project are paid back from the cash flow generated by the project.
15.2 Meaning
Project finance is the long-term financing of infrastructure and industrial
projects based upon the projected cash flows of the project rather than the balance
sheets of its sponsors. Usually, a project financing structure involves a number
of equity investors, known as 'sponsors', a 'syndicate' of banks or other lending
institutions that provide loans to the operation. They are most commonly non-
recourse loans, which are secured by the project assets and paid entirely from project
cash flow, rather than from the general assets or creditworthiness of the project
sponsors, a decision in part supported by financial modeling.[1] The financing is
typically secured by all of the project assets, including the revenue-producing
contracts. Project lenders are given a lien on all of these assets and are able to assume
control of a project if the project company has difficulties complying with the loan
terms.

15.3 Project Finance - Key Concepts

One of the primary advantages of project financing is that it provides for off-
balance-sheet financing of the project, which will not affect the credit of the
shareholders or the government contracting authority, and shifts some of the project

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risk to the lenders in exchange for which the lenders obtain a higher margin than for
normal corporate lending.
• Typical Project Finance Structure
• Off-Balance-Sheet
• Non-Recourse Financing

Typical Project Finance Structure

The typical project financing structure (simplified for these purposes) for a build,
operate and transfer (BOT) project is shown below. The key elements of the structure
are:

• Special purpose vehicle (SPV) project company with no previous business or

record;
• Sole activity of project company is to carry out the project – it then
subcontracts most aspects through construction contract and operations
contract;
• For new build projects, there is no revenue stream during the construction
phase and so debt service will only be possible once the project is on line
during the operations phase (parties therefore take significant risks during the
construction phase);
• Sole revenue stream likely to be under an off-take or power purchase
agreement;
• There is limited or no recourse to the sponsors of the project (shareholders of
project company are generally only liable up to the extent of their
shareholdings);
• Project remains off-balance-sheet for the sponsors and for the host
government.

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 As can be seen, there are a number of contracts and the arrangements are
complex. The interrelation between the different parties needs to be carefully
provided in the agreements.

15.4 Off-Balance-Sheet
Project financing may allow the shareholders to keep financing and project
liabilities off-balance-sheet. Generally, project debt held in a sufficiently minority
subsidiary is not consolidated onto the balance sheet of the respective shareholders.
This reduces the impact of the project on the cost of the shareholder’s existing debt
and on the shareholder’s debt capacity, allowing the shareholders to use their debt
capacity for other investments. Clearly, any project structure seeking off-balance-
sheet treatment needs to be considered carefully under applicable law and
accountancy rules.
To a certain extent, the government can also use project finance to keep
project debt and liabilities off-balance-sheet, taking up less fiscal space. Fiscal space
indicates the debt capacity of a sovereign entity and is a function of requirements
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placed on the host country by its own laws, or by the rules applied by supra- or
international bodies or market constraints, such as the International Monetary Fund
(IMF) and the rating agencies. Those requirements will indicate which project
lending will be treated as off-balance-sheet for the government.
Keeping debt off-balance sheet does not reduce actual liabilities for the
government and may merely disguise government liabilities, reducing the
effectiveness of government debt monitoring mechanisms. As a policy issue, the use
of off-balance-sheet debt should be considered carefully and protective mechanisms
should be implemented accordingly. For more on management of government risks
and contingent liabilities, go to Management of Government Risks.

15.5 Non-Recourse Financing

Recourse financing gives lenders full recourse to the assets or cash flow of the
shareholders for repayment of the loan in the case of default by the SPV. If the
project or SPV fails to provide the lenders with the repayments required, the lenders
will then have recourse to the assets and revenue of the shareholders, with no
limitation.
Project financing, by contrast is “limited” or “non-recourse” to the
shareholders. In the case of non-recourse financing, the project company is generally
a limited liability special purpose project vehicle, and so the lenders' recourse will
be limited primarily or entirely to the project assets (including completion and
performance guarantees and bonds) in the case of default of the project company. A
key question in any non-recourse financing is whether there will be circumstances
in which the lenders do have recourse to part or all of the shareholders' assets.
The type of breach of covenant or representation which gives rise to this
would typically be a deliberate breach on the part of the shareholders. Applicable
law may also restrict the extent to which shareholder liability can be limited, for
example liability for personal injury or death is typically cannot be limited.

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These are five areas where financial institutions can use unique innovative data
sets to improve their business:
1) Cost efficiencies
Reducing cost, or doing more with the same number of employees, is on
everyone’s mind these days. Look at the tasks your team performs and determine
which ones are repetitive. Are they searching for information when they could be
spending time analyzing it? Does the information come right to them, when they
need it, in a customizable way?
2) Driving more revenue
You can drive a more complete understanding of your clients and prospects
by understanding the whole picture. By combining the account information you may
already have, you can use what is going on in the broader market to see what
companies are doing. If you are in wealth management, money flows can be seen by
company acquisitions, stock sales, and compensation changes. For corporate
bankers, company intentions (even those of competitors) can be detected.
Companies often publish their intentions far in advance of acting which, when
known, is a topic for discussion. You can also use data to know your clients faster.
Heading into a client meeting? Don't be caught flat-footed offering to handle the deal
that they did that morning. Be informed. Get the information sent right to your
mobile device.
3) Compliance
Regardless of the specific regulatory laws you may be facing, my experience
- both with data and when I was in banking - suggests being proactive has great
benefits when working with regulators.
One way you can be proactive is to adopt new datasets and new ways of
leveraging that data. Produce a report before they ask. Look at something from a
different angle, and explain why this gives additional perspective. Document and
communicate those thoughts.
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4) Risk Management
We never expect machines and software to replace human thought in any area,
especially risk management. However, great efficiencies can be achieved by easy
and current access to data. Leveraging a new dataset that you didn’t have before
gives you additional visibility or a new way of looking at a risk.
5) Innovation
Institutions that are in the middle of broad restructurings and rethinking big
parts of their business are some of the most innovative ones we work with. Not
surprising, I suppose, since they need to think completely differently. Are they
missing patterns and trends in data because they are trying to read it all manually,
when they could automate that and speed up the process? Are there insights on
companies, industries, or key words that they can learn from these data trends and
patterns? That is how they will serve their clients better and outperform the
competition.
15.6 SOURCES OF FINANCE
Project finance may come from a variety of sources. The main sources include
equity, debt and government grants. Financing from these alternative sources have
important implications on project’s overall cost, cash flow, ultimate liability and
claims to project incomes and assets.
Equity is provided by project sponsors, government, third party private
investors, and internally generated cash. Equity providers require a rate of return
target, which is higher than the interest rate of debt financing. This is to compensate
thehither risks taken by equity investors as they have junior claim to income and
assets of the project.

Leaders of debt capital have a senior claim on income and assets of the project.
Generally, debt finance makes up the major share of investment needs(usually about
70 to 90 per cent) in PPP projects. The common forms of debt are:
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 • Commercial loan
• Bridge finance
• Bonds and other debt instruments(for borrowing from the capital market)
• Subordinate loans
Commercial loans are funds lent by commercial banks and other financial
institutions and are usually the main source of debt financing. Bridge financing is a
short – term financing arrangement (e.g. for the construction period or for an initial
period) which is generally used until a long – term financing arrangement can
beimplemented. Bonds are long – term interest bearing debt instruments purchased
either through the capital markets or through private placement (which means direct
sale to the purchaser, generally an institutional investors – see below). Subordinate
loans are similar to commercial loans but they are secondary or subordinate to
commercial loans in their claim on income and assets of the project.
The other sources of project finance include grants from various sources,
supplier’s credit, etc. Government grants can be made available to make PPP(Public
Private Partnership) projects commercially viable, to reduce the financial risks of
private investors, and to achieve socially desirable objectives such as to induce
economic growth in lagging or disadvantaged areas. Many governments have
established formal mechanisms for the award of grants to PPP projects. Where
grants are available, depending on government policy they may cover 10 to 40 per
cent of the total project investment.

15.7 Conclusion
This chapter concludes project financing stating that it facilitates the
development of large infrastructure projects, which are often critical to a country’s
economic growth. The book presents the many advantages of project financing. It
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describes the circumstances in which project financing might be beneficial to a
firm’s shareholders, and emphasizes that a project financing must be designed to
serve a community of interests among several parties to a project. Consequently, no
single rationale can completely explain why firms employ project financing clever
corporate financial engineers continue to find new applications of project financing.
As the financial environment continues to evolve, project financing continue to
enjoy a prominent place among the most important financing techniques in the
global economy.
Questions
1. What is project finance?
2. What are the key concepts of project finance?
3. What are the 5 areas of financial institutions to improve their Business?
4. What are the sources of finance?

CHAPTER– 16
16.1 Introduction
16.2 Meaning
16.3 Reserve Bank of India (RBI)

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16.4 Commercial bank in India
16.5 Credit rating agencies in India
16.6 Securities and exchange board in India (SEBI)
16.7 Specialized financial institutions in India
16.8 WHAT FACTORS ARE IMPORTANT IN BUILDING A STABLE
FINANCIAL SYSTEM
16.9 Types of Financial Institutions
16.10 Functions
16.11 MOTIVATING INSTITUTIONS FOR ENTREPRENEURS
16.12 Industrial Financial Corporation of India (IFCI)
16.13 Main resources of IFCI
16.14 Functions of Industrial Finance Corporation of India (IFCI)
16.15 Financial Assistance Sanctioned and Disbursed by IFCI
16.16 Industrial Development Bank of India (IDBI)
16.17 Functions of IDBI
16.18 Industrial Credit Investment Corporation of India (ICICI)
16.19 Objectives of ICICI
16.20 Life insurance corporation (LIC)
16.21 Main Features of LIC
16.22 State Financial Corporation’s (SFCs)
16.23 Assistance provide by SFCs
16.24 SIPCOT (State Industries Promotion Corporation of Tamilnadu Ltd)
16.25 Objectives of SIPCOT
16.26 Commercial Bank
16.27 Role of Commercial Bank
16.28 Bank Reserves
16.29 Services by Product
16.30 Types of loan
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16.31 Conclusion

INSTITUTIONAL FINANCE
16.1 Introduction
Institutional finance means finance raised from financial institutions other
than commercial banks. These financial institutions act as an intermediary or link
between savers and investors. They provide finance and financial services in areas
which are outside the purview of traditional commercial banking.
16.2 Meaning
The term institutional support refers to the part of economic environment of
industry and business. It consisting of authorities and institutions whose decisions
and active support in form of laws, regulation, financial and non-financial help
brings a lot of changes in the functioning of any business.
The institutions could be government owned, statutory, semi autonomous or
autonomous. It is the government or government supported institutions authorized
to take up certain activities - financing, marketing, project preparation, training to
promote industrial activities in the state.
There are three stages of promotion - inception stage, operational stage and
expansion or diversification stage. The Government through its plans and policies
assisted the business houses in facilitating in the above stages through various
specialized institutions set up as per the law. An entrepreneur who needs to set up a
business unit of his own or with his friends and relatives is supposed to know the
various institutions or organizations working as per the law for the purpose.
Dissemination of information in this regard can only help them in achieving the very
dream of becoming a successful entrepreneur.
Financial institutions are government-regulated or private entities that offer
financial services to their customers. These institutions control the flow of cash from
an investor to a company and vice versa within and outside a country. Financial
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institutions cater to clients ranging from individuals to big organizations, depending
on their size and the services offered. Broadly speaking, financial institutions deal
in the sectors pertaining to mortgage, automobile, homeowner, personal business
and corporate finance.
The Financial Institutions in India mainly comprises of the Central Bank
which is better known as the Reserve Bank of India, the commercial banks, the credit
rating agencies, the securities and exchange board of India, insurance companies and
the specialized financial institutions in India.
16.3 Reserve bank of India (RBI)
The Reserve Bank of India was established in the year 1935 with a view to
organize the financial frame work and facilitate fiscal stability in India. The bank
acts as the regulatory authority with regard to the functioning of the various
commercial bank and the other financial institutions in India. The bank formulates
different rates and policies for the overall improvement of the banking sector. It issue
currency notes and offers aids to the central and institutions governments.
16.4 Commercial bank in India
The commercial banks in India are categorized into foreign banks, private
banks and the public sector banks. The commercial banks indulge in varied activities
such as acceptance of deposits, acting as trustees, offering loans for the different
purposes and are even allowed to collect taxes on behalf of the institutions and
central government.

16.5 Credit rating agencies in India

The credit rating agencies in India were mainly formed to assess the condition
of the financial sector and to find out avenues for more improvement. The credit
rating agencies offer various services as:
✓ Operation Up gradation
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 ✓ Training to Employees
✓ Scrutinize New Projects and find out the weak sections in it
✓ Rate different sectors
The two most important credit rating agencies in India are:
✓ CRISIL
✓ ICRA
16.6 Securities and exchange board in India (SEBI)
The securities and exchange board of India, also referred to as SEBI was
founded in the year 1992 in order to protect the interests of the investors and to
facilitate the functioning of the market intermediaries. They supervise market
conditions, register institutions and indulge in risk management.

16.7 Specialized financial institutions in India

The specialized financial institutions in India are government undertakings
that were set up to provide assistance to the different sectors and thereby cause
overall development of the Indian economy. The significant institutions falling
under this category includes:
➢ Board for Industrial & Financial Reconstruction
➢ Export-Import Bank Of India
➢ Small Industries Development Bank of India
➢ National Housing Bank

16.8 WHAT FACTORS ARE IMPORTANT IN BUILDING A STABLE

FINANCIAL SYSTEM
1. First, financial system architecture should be carefully planned. Different stages
of financial development require adequate institutional processes to be in place.
Here, one can refer to the sequencing laid out by IMF in recent years and to the

167
European experience with opening and gradually liberalizing the financial sector
during the 1980s and 1990s.
2. Second, a solid micro supervision of the financial sector and individual institutions
should be in place.
3. Third, close co-operation and exchange of information between the central bank
and supervisory authorities is warranted at all times and especially in periods of
financial stress. I will refer to this more extensively in a moment.
4. Fourth, there are several, complementary public policies that are typically needed
to sustain or build up confidence in financial institutions.
• Fiscal policy. If fiscal authorities, as in the euro area, are restricted in their
ability to run deficits or accumulate large debts, an important source of
financial market stress and financial instability is removed.
• Monetary policy. As is now widely accepted, monetary authorities should in
the first place try to guarantee price stability, being the best possible
contribution it can make to growth in the medium to long-term. Indirectly, this
should also be conducive to supporting financial stability, as the economy will
have less macro uncertainties to deal with, when allocating resources.
However, it goes without saying that the central bank should take an active
interest in monitoring financial sector developments, given the importance of
the sector, also from a monetary policy (transmission) perspective, and given
its importance in the economic system (intermediation between lenders and
borrowers).
• In some cases, when financial stability is threatened, monetary policy may be
used as a tool to support the financial sector. This support may come not only
through interest rate policy, but also and most powerfully through the central
bank's role as a lender of last resort, that is, in providing final liquidity when
solvent commercial banks suffer liquidity strains.
16.9Financial Institutions: Types
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 Financial institutions can be categorized into the following types, based on
the services offered by them:
* Commercial banks: These institutions offer services such as insurance, mortgages,
loans and credit banks.
* Credit banks: They are cooperative financial institutions, generally controlled by
members who have accounts in the firm. These unions offer direct debits, direct
deductions from payroll, cheaper insurance facilities and standing order facilities.
* Savings and loan association: These associations offer loans, mortgages,
insurance, credit cards and interest to their clients.
* Stock brokerage firms: These firms help individuals and corporate invest in stock
market. Stock brokerage firms also offer insurance, mortgages, credit cards,
securities, loans, check writing and money market services to clients.
* Insurance companies: Insurance companies provide a cash cover in lieu of
premium to policyholders. Services such as insurance, securities, mortgages, loans,
credit cards and check writing are offered by these firms.
* Retailers: They offer services such as insurance, securities, mortgages, loans,
credit cards and cash management.
16.10 Functions
Financial institutions provide services as intermediaries of financial markets.
Broadly speaking, there are three major types of financial institutions:
1. Depository institutions – deposit-taking institutions that accept and manage
deposits and make loans, including banks, building societies,credit
unions, trust companies, and mortgage loan companies;
2. Contractual institutions – insurance companies and pension funds
3. Investment institutions – investment banks, underwriters, brokerage firms.
16.11 MOTIVATING INSTITUTIONS FOR ENTREPRENEURS:-
In order to pace-up the small industries development along with the industrial
development of the country, Government at Central and State levels has set up a
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number of development agencies/institutions. These institutions motivate a person
to start his/her own unit or industry.
Financial and non-financial assistance, guidance and counseling on many
matters to start a business unit have been providing continuously by various
institutions. These institutions provide different types of assistance. It means that
one institution will not provide all the types of assistance. One has to contact
different institutions for different types of assistance.
The institutions which are motivating potential entrepreneurs to start their
own ventures are here classified into two parts, viz.
(i) Financial institutions
(ii) Non-financial institutions.
Financial Institutions means the institution, which is providing various types
of financial assistance to the entrepreneurs. Whereas non-financial institution means
the institution which is providing the assistance other than in terms of financial.
Motivating Institutions can also be classified into three parts viz.
(i) District level institutions
(ii) State level institutions
(iii) All India Institutions.

It may be classified into three categories

(i) Advisory bodies
(ii) Government institutions
(iii) Corporate institutions
The assistance provided by some of the institutions are explained below:-
Financial Institutions:
16.12 Industrial Financial Corporation of India (IFCI):
The Industrial Finance Corporation of India (I.F.C.I.) was established in 1948 by our
Government with the object of providing medium and long-term credit to industrial
170
concerns in India. IFCI transformed into a corporation from 21 May, 1993 to provide
greater flexibility to respond to the needs of the rapidly changing financial system.
To meet the long-term finance needs of entrepreneurs several commission and
committees such as "Industrial Commission (1916-18), the External Capital
Committee (925) and the Indian Central Banking Enquiry Committee (1929-31) had
stressed the need for setting up of such
Institutions, but no action was taken by the Government. But the greater need to
finance the over-worked units during the Second World War period forced the
Government to set up Industrial Finance Corporation of India, which came into
existence on the 1st July 1948. The Corporation came into existence with an aim to
provide medium and long term credit to large scale industries, organized as public
limited companies or cooperative societies in India, engaged or proposing to engage
in manufacturing, preservation or pricing of goods, mining, generation and
distribution of electric power or any other source of power, shipping and hotel
industries in India particularlyin circumstance when normal banking
accommodation is inappropriate or resource to capital issue method is impracticable.
IFCI is the first term-financial Institution which was set up in July 1948 by
the Government of India under the IFCI Act 1948 with objective of providing
medium and long-term loans to largest small Industrial concerns in the private
sector.' However, joint and public sector also have been made eligible for its
assistance. It provide direct rupee and foreign currency loans for new industrial
projects and for expansion, diversification, renovation andmodernization of existing
units, It also underwriter and directly subscribe to industrial security, provided
financial guarantees merchant banking services and leave finance.
16.13 Main resources of the IFCI are;
(a) Loan from RBI,
(b) Share capital,
(c) Repayment of loans,
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(d) Retained earning,
(e) Loan from Government,
(f) Lines of credit from foreign lending agencies; and
(g) Commercial borrowings in international capital market.
It has introduced a number of financial promotional schemes on its own. The
letter includes eight consultancy fee subsidy schemes, and two entrepreneurship
development schemes. It has formed IFCI Financial limited.
The constitution of IFCI was changed in 1993 from a statutory corporation to
a company under the Companies Act to encase greater flexibility. In future the IFCI
Ltd. would lay emphasis to cater the needs of small & medium enterprises and serve
as a mid-corporate specialist. As an end-March 2003, the principal holders of the
total paid-up capital of IFCI Ltd. along with share were IDBl (18.96%) Nationalized
Banks (19.89%) SBI (9.69%) LIC (5.02%) GIG site subsidiaries (5.97%) and so on.

16.14 Functions of Industrial Finance Corporation of India (IFCI):

The Corporation performs the following functions:
(1) Underwriting the shares, bonds or debentures of industrial enterprises; provided
such stocks, shares or debentures are disposed of by the Corporation within a period
of seven years from the date of acquisition,
(2) Granting loans or subscribing to the debentures of industrial undertakings
repayable within aperiod not exceeding 25 years,
(3) Guaranteeing loans traded in the public market by the industrial concerns,
repayable within 25 years or raided from scheduled banks or State co-operative
banks,
(4) Subscribing directly to the stock or shares of any industrial concerns,
(5) Guaranteeing deferred payments in respect of import of capital goods' by
industrial concerns who are able to make such arrangements with foreign
172
manufacturers or in connection with the purchase of capital goods manufacturing in
India,
(6) Guaranteeing loans raised from any banks or financial institutions in and country
outside India,
(7) Acting as the agent of the Central Government and IDBI in respect of loans
sanctioned by them to industrial concerns,
(8) Undertaking Merchant Banking Operations,
(9) Providing technical and administrative assistance to any industrial concern for
the promotion,management by expansion of any industry, and
(10) Undertaking research and surveys for evaluating or dealing with marketing or
investments and undertaking and carrying out techno-economic studies in
connection with the development of industry.

16.15 Financial Assistance Sanctioned and Disbursed by IFCI

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Source: RBI
16.16 Industrial Development Bank of India (IDBI):
For coordinating the activities of the existing financial institutions, it became
necessary to set up a new financial institution. Hence, a decision was taken by the
Government of India in pursuance of the above object, to set up a new institution to
be called Industrial Development Bank of India.
The Government of India introduced the IDBI Bill in Parliament in February
1964 initiating discussion on the Bill, the then Finance Minister emphasized the need
for an institution like Development Bank to arrange medium and long-term loans for
industries.

174
 The IDBI was set up as wholly - owned subsidiary of the RBI on July 1, 1964,
under an act of Parliament. In February 1976, the IDBI was declined from the RBI
and since then, it has become apex institution in the field of industrial finance. The
Bank was taken over by the Government ofIndia in 1976.
The main object of setting up this institution have been to bridge the gap
between demand and supply of finance by providing direct financial assistance to
industrial concerns wherever necessary and to bring into existence an apex body to
coordinate activities of various financial institutions providing term finance to
industries. Therefore, IDBI has been created not only as a financial agency but also
for the purpose of integrating activities of all the financial institutions providing
short, medium and long-term benefits for the industry.
16.17 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 public sector.
Financial assistance is provided either directly or through special financial
institutions.
(a) Direct Assistance: IDBI assists Industrial unit directly by way project loan,
underwriting of and direct subscription to industries securities (Share & Debentures)
soft loans, technical development fund loans and equipment finance loan. IDBI
provides direct assistance for project costing more than Rs. 3 Crore under the Project
finance scheme.
(b) Indirect Finance:IDBI Indirect assistance is provided basically to tiny, small
and medium enterprises mainly.
(i) By way of refinance of Industrial loan granted by SFCs, SIDCs, and commercial
banks, co-operative banks an RRB.
(ii) Rediscounting of bills arising out of safe of Indigenes machinery a deferred
payment basis.

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(iii) Seed Capital assistance to new enterprise never generally through SFCs &
SIDCs.
(c) Special Assistance: IDBI Act 1964, provide Development Assistance fund. This
find to be used by the IDBI to assist those Industrial concerns which are not able to
secure funds in the normal course either because of heavy investment or low rate of
returns both.
(d) Direct Assistance to Industries:The IDBI has been empowered to finance
industrial concerns directly under the following structural arrangements:
(i) To grant financial accommodation up to a 16 year period for export of capital
goods and other commodities,
(ii) To grant loans or to subscribe to the shares and debentures of industrial concerns.
Such loans, advances, and debentures can be convened into equity shares at the
option of the Bank,
(iii) To underwrite new issues of Industrial concerns and accept, discount or
rediscount bonafide commercial bills or promissory notes of industrial concerns,
(iv) To guarantee deferred payment due from industrial concerns for loan raised by
them in themarket or from scheduled banks etc.
(e) Assistance to other financial institutions: IDBI has carried out the following
refinancing functions: IDBI can refinance term advances of 3 to 25 years maturity
made to industrial concerns by IFCI, SFCs and other financial institutions which
may be notified by the Government. It can similarly refinance term loans of 3 to 10
years maturity made by scheduled banks and State Co-operative Banks. It can also
refinance export credit of 15 years' maturity where primary lending institutions grant
loans to person in India and to parsons outside India repayable within a period of 12
years.
(f) Creation of Development of Assistance funds:The Bank created a development
assistance fund in 1965 with an initial contribution from Central Government.

176
This fund is intended to provide assistance for industries which for various reasons
like, heavy investment involved or low anticipated return on capital, may not be able
to obtain funds in the normal course. The prior approval of the Central Government
is necessary for any assistance from the Fund.
(g) Soft loan scheme: The soft loan scheme came into existence in November 1976
for financing the modernization programme of five selected industries, namely,
cotton, textiles, jute, cement, sugar and specified engineering industries. The scheme
aims at modernization, replacement and renovation of industry which has become
necessary to achieve a more economic level of production in order to enhance their
competitiveness in domestic and international markets.
(h) Technical Development Fund Scheme: Technical Development Fund Scheme
was introduced in March 1979 with the object of promoting fuller capacity
utilization, technologies up gradation, and export development. The fund can
provide foreign exchange for small value imports with the object of procuring
technical know- how, foreign consultancy service, drawings and designs.
(i) Automatic Refinancing Scheme:The main features of Automatic refinancing
scheme are as follows:
(a) Sanction and disbursement of refinance in respect of loans upto Rs. 5 lakhs from
the eligible institutions to small scale industries including those in the tiny sector
which are normally covered under the IDBI Credit Guarantee Scheme,
(b) The IDBI will not levy commitment charges on credit institutions in respect of
refinances under the ARS
(c) Only one general agreement will be taken from the eligible institution covering
drawls of refinance under different schemes of the IDBT
(j) Rediscounting:IDBI has introduced a scheme for rediscounting of bills against
the sale of machinery to enable the indigenous machine manufacturing industry to
purchase equipment on deferred payment basis.

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The following table Showing Financial Assistance Sanctioned and Disbursed by
IDBI

16.18 Industrial Credit Investment Corporation of India (ICICI):

ICICI was established on the recommendation of World Bank team in 1954
and it started functioning from 5th June 1955 with an authorized 17 capital of Rs. 25
crores and paid up capital of Rs 22 5 crores.
16.19 Objectives of ICICI:
The objectives of the Corporation are as follows:
1. To encourage and promote the participation of foreign capital, both internal and
external, in industrial concerns.
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2. To ensure rapid expansion of the investment markets and to promote private
ownership of industrial investments
3. To assist in the expansion, modernization and creation of private enterprises.
Showing Financial Assistance Sanctioned and Disbursed by ICICI

16.20 Life insurance corporation (LIC)

Life Insurance Corporation of India (LIC) was established in 1956 to spread
the message of life insurance in the country and to mobilize people's savings for
nation-building activities.
16.21 MAIN FEATURES OF LIC
The main features of LIC are given below:
1. Saving Institution: Life insurance both promotes and mobilizes saving in the
country. The income tax concession provides further incentive to higher income
persons to save through LIC policies. The total volume of insurance business has
also been growing with the spread of insurance-consciousness in the country.

179
The total new business of LIC during 1995-96 was Rs. 51815 crore sum assured
under 10.20 lakh policies.
The LIC business can grow at still faster speed if the following improvements
are made:
The organizational and operational efficiency of the LIC should be increased.
(i) New types of insurance covers should be introduced.
(ii) The services of LIC should be extended to smaller places.
(iii) The message of life insurance should be made more popular.
(iv) The general price level should be kept stable so that the insuring public does not
get cheated of a large amount of the real value of its long-term saving through
inflation.
2. Term Financing Institution: LIC also functions as a large term financing
institution (or a capital market) in the country. The annual net accrual of investible
funds from life insurance business (after making all kinds of payments liabilities to
the policy holders) and net income from its vast investment are quite large. During
1994-95, LIC's total income was Rs. 18,102.92crore, consisting of premium income
of Rs. 1152,80crore investment income of Rs. 6336.19crore, and miscellaneous
income of Rs. 238.33crore.
3. Investment Institutions: LIC is a big investor of funds in government securities.
Under the law, LIC is required to invest at least 50% of its accruals in the form of
premium income in government and other approved securities.
LIC funds are also made available directly to the private sector through investment
in shares, debentures, and loans. LIC also plays a significant role in developing the
business of underwriting of new issues.
4. Stabilizer in Share Market: LIC acts as a downward stabiliser in the share
market. The continuous inflow of new funds enables LIC to buy shares when the
market is weak.

180
However, the LIC does not usually sell shares when the market is overshot. This is
partly due to the continuous pressure for investing new funds and partly due to the
disincentive of the capital gains tax.
Defects
The development banks in India suffers from a number of defects as discussed
below:
1. Dependence on Institutional Sources of Finance:
The capital resources of development banks mainly come from institutional
sources. They have not been able to raise funds directly from public as is done by
the banks, insurance companies, etc. Dependence on the institutional sources has
enabled the development banks to get funds at low yield rates. But, the low yield
structure has come in the way of the popularly of development banks. They could
not make their bonds and debentures popular in the market and raise sufficient funds
from the public.
2. Defects of Loan Finance:
The development banks mostly provide assistance in the form of debt capital,
particularly in term loans. No doubt, loan financing assures a stable return on funds
and do not involve such managerial problems as are faced during equity
participation.
But the loan financing has its own drawbacks:
(a) Loan financing has distorted the capital structure of the borrowing industrial
concerns in favour of loan capital. The burden of fixed interest payments is
too*heavy and is one of the reasons for the industrial sickness in the country,
(b) The government loses potential corporation tax because for the tax purposes,
interest is considered as a cost item while estimating corporate profits,
(c) The industrial concerns also prefer loans to debentures because default on loans
are not made public and can be negotiable with the lending agency,
(d) Loan financing has limited the development of the corporate bond market.
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3. Small Industries Ignored:
An important objective of the development banks in India is to provide
financial assistance to new enterprises, small arid medium industrial units on priority
basis. But in reality, the major part of the assistance has been granted to the large
and established industrial concerns. New and small entrepreneurs are generally
ignored by these banks.
4. Cheap Finance to Big Industries:
The big industrial houses not only receive large and growing, but also
organized, assured and cheap amounts of finance from development banks. In fact,
the big industry sector has become over-dependent on the development banks for
meeting their financial needs. Organizednature of financial resources of the
development banks enables them to grant cheap credit.
5. More Loans to Developed Areas:
The development banks are expected to reduce regional disparities by
extending greater financial assistance to the backward areas. But, experience has
shown that these banks have contributed more to the industrial concerns in the
developed regions. About half of the total assistance has been sanctioned for the four
industrially advanced states of Maharashtra, Gujarat, Tamil Nadu and West Bengal.
6. Problem of Overdoes:
The development banks, particularly, the State Finance Corporations are
facing serious problem of over dues. The over dues restrict the recycling of funds of
the financial institutions and limit their capacity to lend. The development banks also
suffer from the defect of procedural delays in sanctioning and disbursing loans.

16.22 State Financial Corporation’s (SFCs):

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 The State Financial Corporation (SFCs) are state level financial institutions
playing an important role in the development of small & medium enterprises in their
respective state in tandem with national priorities. There are 18 SFCs at present.
Seventeen (17) of them have been set up under State Financial Corporation Act
1951, by the respective state govt, as region of institution. The Tamil Nadu Industries
Investment Corporation Ltd. set up in 1949 under companies Act as Madras
Industrial Investment Corporation also functions as SFC. They play an effective role
in the development of small and medium enterprises and bringing about
regionallybalanced economic growth.
16.23 Assistance Provide by SFCs:
SFCs aim at wider dispersion of small scale industries within each state they
meet term credit needs of such units. SFCs provide assistance to small scale
industries by way of soft loans, direct subscription to equity share /debenture
guarantees, discounting of bills of exchange and seed capital /special capital. Their
main objectives are to finance and promote these industries in the state for achieving
the balanced growth. The activities of SFCs were under the overall control and
supervision of the IDBI and RBI till about 1990 after which the SIDBI and RBI have
been performing the overseeing function.
SFCs operate a number of schemes of refinance and equity type assistance on
behalf of IDBI/SIDBI. Besides, they also have special scheme for artisans and
special target groups such as SC/ ST women, ex-servicemen, physically handicapped
etc. Over the year, they have diversifiedtheir activities and increased the scope and
coverage of their assistance. The annual growth rates of their sanctions and
disbursements have been quite high (13 to 45 percent) most of the year. Under the
single window scheme of SIDBI, SFCs have alsoextending the working capital along
with term loan to mitigate the difficulties faced by SSIs in obtaining the working
capital limits on time.
16.24 SIPCOT (State Industries Promotion Corporation of Tamilnadu Ltd)
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 SIPCOT was established in 1971 and has been acting as catalyst in the
development of Medium and Large Scale Industries in Tamil Nadu. Working in line
with the State Government’s Progressive Industrial policies, SIPCOT helps faster
industrial development in backward and underdeveloped areas. SIPCOT as totally
committed to assist the entrepreneurs provides institutional finance with refinance
assistance from Industrial Development Bank of India and Small Industries
Development Bank of India for meeting fixed capital investment in Industries. It also
provides financial services like, Lease Finance Scheme for Capital Goods, Term
Loan assistance for Industrial projects. SIPCOT is also involved in formation and
managing of Industrial complexes/Parks and allotment of developed plots for
location of industries
16.25 Objectives of SIPCOT
SIPCOT transformed numerous backward and under developed areas to
become important industrial hubs of the State.
The agency has developed over 6400 acres of industrial land in different parts
of the state to cater to the growing demands of investors, with another 2150 acres
under development. Plans have been drawn up for developing 20,000 acres in new
sites. The agency also draws up plans and implements schemes to improve the
infrastructure requirements of industrial areas to ensure higher levels of
competitiveness.
Apart from providing an entrepreneur with the complete infrastructure for
growth and development, SIPCOT also extends financial assistance under Industrial
Development Bank of India (IDBI) and Small Industries Development Bank of India
(SIDBI) line of credit scheme. SIPCOT's wide-ranging assistance to entrepreneurs
includes features like :
* Setting-up of industrial complexes to function as growth centres.
* Providing financial assistance to medium and large scale sectors.
* Channelizing incentives for industries from State Government.
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* Monitoring of Letter of Intent and providing Escort Services to medium and large
scale industries.
16.26 COMMERCIAL BANK
A commercial bank is a type of financial institution that provides services
such as accepting deposits, making business loans, and offering basic investment
products. Commercial bank can also refer to a bank, or a division of a large bank,
which more specifically deals with deposit and loan services provided to
corporations or large/middle-sized business - as opposed to individual members of
the public/small business - retail banking, or merchant banks.
16.27 ROLE OF COMMERCIAL BANK
The general role of commercial banks is to provide financial services to
general public and business, ensuring economic and social stability and sustainable
growth of the economy.
In this respect, "credit creation" is the most significant function of commercial
banks. While sanctioning a loan to a customer, they do not provide cash to the
borrower. Instead, they open a deposit account from which the borrower can
withdraw. In other words, while sanctioning a loan, they automatically create
deposits, known as a "credit creation from commercial banks".
Primary functions
• Commercial banks accept various types of deposits from public especially from
its clients, including saving account deposits, recurring account deposits, and
fixed deposits. These deposits are returned whenever the customer demands it or
after a certain time period
• Commercial banks provide loans and advances of various forms, including
an overdraft facility, cash credit, bill discounting, money at call etc. They also
give demand and term loans to all types of clients against proper security.

Regulations
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 In most countries central banks are responsible for the oversight of the
commercial banking system of their respective countries. They will impose a
number of conditions on the banks that they regulate such as keeping bank
reserves and to maintain minimum capital requirements.
16.28 Bank reserves
Bank reserves or "central bank reserves" are banks' holdings of deposits in accounts
with their central bank (for instance the European Central Bank or the Federal
Reserve, in the latter case including federal funds), plus currency that is physically
held in the bank's vault ("vault cash"). Some central banks set minimum reserve
requirements, which require banks to hold deposits at the central bank equivalent to
at least a specified percentage of their liabilities such as customer deposits. Even
when there are no reserve requirements, banks often opt to hold some reserves —
called desired reserves— against unexpected events such as unusually large net
withdrawals by customers or bank runs.
16.29 Services by Product
Commercial banks generally provide a number of services to its clients, these
can be split into core banking services such as deposits and loans and other services
which are related to payment systems and other financial services.
Core products and services
• Accepting money on various types of Deposit accounts
• Lending money in the form of Cash: by overdraft, installment loan etc.
• Lending money in Documentary form: Letters of
Credit, Guarantees, Performance bonds, securities, underwriting commitments,
issuing Bank drafts and Bank cheques, and other forms of off-balance sheet
exposure.
• Inter- Financial Institutions relationship
• Cash management
• Treasury management
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• Private Equity financing
• Processing payments via telegraphic transfer, EFTPOS, internet banking, or
other payment methods.
Other functions
Along with core products and services, commercial banks perform several
secondary functions. The secondary functions of commercial banks can be divided
into agency functions and utility functions.
Agency functions include:
• To collect and clear cheques, dividends and interest warrant.
• To make payments of rent, insurance premium, etc.
• To deal in foreign exchange transactions.
• To purchase and sell securities.
• To act as trustee, attorney, correspondent and executor.
• To accept tax proceeds and tax returns.
Utility functions include:
• To provide safety locker facility to customers.
• To provide money transfer facility.
• To issue traveler’s cheque.
• To act as referees.
• To accept various bills for payment: phone bills, gas bills, water bills, etc.
• To provide merchant banking facility.
• To provide various cards: credit cards, debit cards, smart cards, etc.
16.30 TYPES OF LOAN
All the loans in the Commercial banking, irrespective of the particular type of
bank product, are subject to be "secured" or "unsecured".

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Secured loans
A secured loan is a loan in which the borrower pledges some asset (e.g., a car
or property) as collateral for the loan, which then becomes a secured debt owed to
the creditor who gives the loan. The debt is thus secured against the collateral in the
event that the borrower defaults, the creditor takes possession of the asset used as
collateral and may sell it to regain some or the entire amount originally lent to the
borrower, for example, foreclosed a portion of the bundle of rights to specified
property. If the sale of the collateral does not raise enough money to pay off the debt,
the creditor can often obtain a deficiency judgment against the borrower for the
remaining amount. The opposite of secured debt/loan is unsecured debt, which is not
connected to any specific piece of property and instead the creditor may only satisfy
the debt against the borrower rather than the borrower's collateral and the borrower.

Unsecured loan
Unsecured loans are monetary loans that are not secured against the borrower's
assets (no collateral is involved). There are small business unsecured loans such as
credit cards and credit lines to large corporate credit line. These may be available
from financial institutions under many different guises or marketing packages such
as:
• Bank overdrafts
• Corporate bonds
• Credit card debt
• Credit facilities or lines of credit

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16.31 CONCLUSION
This chapter studies role, objectives, functions and progress of various financial
institutions, organizations and institutions in the development of entrepreneurship
and Micro, Small and Medium Enterprises (MSMEs).

Questions
1. What is institutional finance?
2. Explain importance in building a stable financial system.
3. What is SEBI?
4. State the types of financial institution.
5. Explain the functions of financial institution.
6. What are the motivational institutional for entrepreneurs?
7. Explain IFCI
8. Explain the functions of IFCI
9. Explain the function of ICICI
10. State the objectives of ICICI
11. What is LIC? Explain the main features of LIC
12. Explain the defects of LIC
13. What is SFC? What are the assistance provided by SFC?
14. What is SIPCOT? Explain the objectives of SIPCOT.
15. What is commercial Bank? Explain the types of loan provided by commercial
banks.

CHAPTER – 17

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17.1 Introduction
17.2 District Industries Centre (DICS)
17.3 Activities of District Industries Centre (DIC)
17.4 Objectives of District Industries Centre (DIC)
17.5 The important functions of DIC
17.6SMALL INDUSTRIES DEVELOPMENT CORPORATIONS (SIDCO)
17.7Need for Small Industries Development Corporation (SIDCO)
17.8 Objectives of SIDCO
17.9Functions of SIDCO
17.10 NATIONAL SMALL INDUSTRIES CORPORATION LIMITED
(NSIC)
17.11 INDUSTRIAL RECONSTRUCTION CORPORATION OF INDIA
(IRCI)
17.12 Functions
17.13Working of the Corporation an Evaluation
17.14 National industrial development corporation limited (NIDC)
17.15 Small Industries development bank of India (SIDBI)
17.16 Origin of SIDBI
17.17 Capital of SIDBI
17.18 Objectives of SIDBI
17.19 SIDBI Associates
17.20 SIDBI subsidiaries
17.21 Functions of SIDBI
17.22 Small Industries service institutes (SISIS)
17.23 Main Functions of Small Industries service institute (SISIs)
17.24 Technical advisory service
17.25 State Industries promotion corporation of Tamilnadu limited (SIPCOT)
17.26 Objectives of SiPCOT
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17.27Industrial complexes developed by SIPCOT
17.28 Functions
17.29 Conclusion

INSTITUTIONAL AIDS FOR ENTREPRENEURSHIP DEVELOPMENT

17.1 Introduction
Rural development is more than ever before linked to entrepreneurship.
Institutions and individuals promoting rural development now see entrepreneurship
as a strategic development intervention that could accelerate the rural development
process. Furthermore, institutions and individuals seem to agree on the urgent need
to promote rural enterprises: development agencies see rural entrepreneurship as an
enormous employment potential; politicians see it as the key strategy to prevent rural
unrest; farmers see it as an instrument for improving farm earnings; and women see
it as an employment possibility near their homes which provides autonomy,
independence and a reduced need for social support. To all these groups, however,
entrepreneurship stands as a vehicle to improve the quality of life for individuals,
families and communities and to sustain a healthy economy and environment.

The entrepreneurial orientation to rural development accepts entrepreneurship

as the central force of economic growth and development, without it other factors of
development will be wasted or frittered away. However, the acceptance of
entrepreneurship as a central development force by itself will not lead to rural
development and the advancement of rural enterprises. What is needed in addition
is an environment enabling entrepreneurship in rural areas. The existence of such an
environment largely depends on policies promoting rural entrepreneurship.

17.2 District Industries Centre (DICS)

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 The ‘District Industries Centre’ (DICs) programme was started by the central
government in 1978 with the objective of providing a focal point for promoting
small, tiny, cottage and village industries in a particular area and to make available
to them all necessary services and facilities at one place. The finances for setting up
DICs in a state are contributed equally by the particular state government and the
central government. To facilitate the process of small enterprise development, DICs
have been entrusted with most of the administrative and financial powers. For
purpose of allotment of land, work sheds, raw materials etc., DICs functions under
the ‘Directorate of Industries’. Each DIC is headed by a General Manager who is
assisted by four functional managers and three project managers to look after the
following activities :
17.3 Activities of District Industries Centre (DIC):
1. Economic Investigation
2. Plant and Machinery
Research, education and training
1. Raw materials
2. Credit facilities
3. Marketing assistance
17.4 Objectives of District Industries Centre (DIC):
The important objectives of DICs are as follow :
➢ Accelerate the overall efforts for industrialization of the district.
➢ Rural industrialization and development of rural industries and handicrafts.
➢ Attainment of economic equality in various regions of the district.
➢ Providing the benefit of the government schemes to the new entrepreneurs.
➢ Centralization of procedures required to start a new industrial unit and
minimization- of the efforts and time required to obtain various permissions,
licenses, registrations, subsidies etc.

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 The DIC is an institution set up at the District Level, which provides wide range
of services and support to the entrepreneurs/educated unemployed youth for setting
up of small, tiny and cottage industries.
DIC extends their wide services in establishing new industries to obtain various
clearances/permission through a system called Industrial Guidance Bureau (IGB)
where the entrepreneur/industrialists have been taken care in all respects in the
course of obtaining permission/clearance/license for setting up of new industries
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.
17.5 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.
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.
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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:

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 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.
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.
17.6 SMALL INDUSTRIES DEVELOPMENT CORPORATIONS (SIDCO)
Small Industries Development Corporations (SIDCO) are state-owned
companies or agencies in the states of Indiawhich were established at various times
under the policy of Government of India for the promotion of small scale industries
In Tamilnadu, India, Small Industries Development Corporation (SIDCO)
was set up in 1971. The prime function of SIDCO was to identify potential growth
centres in various parts of Tamilnadu. There is a network of 76 industrial estates in
the State which are maintained by SIDCO. 32 of these were formed by the
government initially and subsequently handed over to SIDCO. The remaining 44
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estates were set up by SIDCO itself. Source (SIDCO – TAMILNADU SMALL
INDUSTRIES DEVELOPMENT CORPORATION LIMITED) It has set up these
estates in rural and most backward areas to ensure balanced industrial development.
A few of the SIDCOs are:
• Kerala Small Industries Development Corporation Limited
• Small Industries Development Corporation of Jammu and Kashmir.
• Tamil Nadu Small Industries Development Corporation Limited (TANSIDCO).
17.7 Need for Small Industries Development Corporation (SIDCO)
In many state governments, for the promotion of small scale industries, a
separate corporation has been set up which is known as Small Industries
Development Corporation. 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.
In short, they provide infrastructure facilities to small scale industries. Due to
the assistance provided by SIDCO, many backward areas in most of the states have
been developed. So, SIDCO has also been responsible in spreading the industrial
activity throughout several states.
17.8 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 objectives 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.
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17.9 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.
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, PragatiMaidan so
that the products of small scale industries of Tamilnadu are displayed.
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 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:
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.
In addition to SIDCO, there are various corporations that assist in the
promotion of small scale industries such as, Small Industries Promotion Corporation
of Tamilnadu (SIPCOT), Tamilnadu Small Industries Corporation (TANSI),
Industrial and Technical Consultancy Organisation of Tamilnadu (ITCOT) and
Tamilnadu Industries Investment Corporation (TIIC).
17.10 NATIONAL SMALL INDUSTRIES CORPORATION LIMITED
(NSIC)
The NSIC was set up in 1955 with the objective of supplying machinery and
equipment to small enterprises on a hire-purchase basis and assisting them in
procuring Government orders for various items of stores. NSIC provides a wide
range of promotional services to small scale units
The Corporation's Head Office is at Delhi and it has four regional offices at
Delhi, Bombay, Madras and Calcutta, and eleven branch offices. It has one central
liaison office at Delhi and depots and sub-centres.
The main functions of NSIC are:
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(1) To develop small scale units as ancillary units to large-scale industries:
(2) To provide SSIs with machines on hire-purchase basis;
(3) To assist small enterprises to participate in the stores purchase programme of the
Central Government:
(4) To assist small industries with marketing facilities:
(5) To distribute basic raw materials through their depots:
(6) To import and distribute components and parts to actual small scale users in
specific industries: and
(7)To construct Industrial estates and establish and run prototype production-cum-
training centres.
(8) To develop small scale industries in other developing countries on turn key basis
The NSIC has taken up the challenging task of promoting and developing small
scale industries almost from scratch and has adopted an 'integrated approach' to
achieve the socio-economic objectives.
NSIC, in consultation with Rating Agencies and Indian Banks Association,
has formulated Performance & Credit Rating Scheme for Small Industries.
The Scheme is aimed to create awareness amongst small enterprises about the
strengths and weakness of their existing operations and to provide them an
opportunity to enhance their organizational strengths and credit worthiness.
NSIC acts as a facilitator to promote marketing efforts and enhance the
competency of the small enterprises for capturing the new market opportunities by
way of organizing participating in various domestic & international exhibitions/trade
fairs, buyers-seller meets, intensive campaigns seminars and consortia formation.
NSIC helps small enterprises to participate in International/national
exhibitions/trade fairs at the subsidized rates to exhibit and market their products,
participation in these events provides small enterprises an exposure to the
national/international markets.

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 Buyer Seller Meets are being organized to bring bulk buyers/government
departments and micro & small enterprises together at one platform. This enables
micro & small enterprises to know the requirements of bulk buyers on the one hand
and help the bulk buyers to know the capabilities of micro & small enterprises for
their purchases. Intensive campaigns and seminars are organized all over the country
to disseminate/propagate about the various schemes for the benefit of the small
enterprises and to enrich the knowledge of small enterprises regarding latest
developments, quality standards etc.
17.11 INDUSTRIAL RECONSTRUCTION CORPORATION OF INDIA
(IRCI):
The Industrial Reconstruction Corporation of India was established as a public
limited company in April, 1971 under the control of Reserve Bank of India and the
Central Government.
The basic objective of this corporation is to assist rehabilitation of sick
industrial units or rehabilitation of units likely to face closure, but showing promise
of viability.
The down fall of the units may be due to frequent strikes, mismanagement,
shortage of raw materials, general recession etc. Their closure will result in
unemployment and dislocation of productive activities.
So, in order to protect them, the IRCI has been set up. This corporation aims at
providing financial, technical or managerial assistance so that they can be put up
again as viable units.
17.12 Functions:
While accomplishing its main objective, the corporation performs the following
functions.
1. Restructuring of the management.
2. Providing technical and managerial guidance either through its own staff or by
procuring the suitable personnel from the market.
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3. Helping in getting assistance from other banks and financial institutions and
Government agencies.
4. Restructuring the financial base of the assisted companies.
5. Finding out viable solutions to the labour problems.
6. Advising the management with regard to product mix and other allied matters.
Besides the corporation also makes a close follow up of the course of reconstruction.
The corporation has an authorized capital of Rs. 25 crores out of which Rs. 10
crores have been issued to and subscribed by IDBI, IFCLICICI, Life Insurance
Corporation of India, State Bank of India and the 14 nationalized banks. The
Corporation has received Rs. 10 crores from Govt, of India and has raised Rs. 11
crores by issuing bonds to the public.
It is managed by the board of directors whose members shall not be less than 9 and
more than 15. Three directors are appointed by IDBI. It has also constituted an
executive committee to consider the grant of restructuring loans up to the extent of
Rs 5 lakhs in any single case. The repayments period varies from 4 to 12 years.
17.13 Working of the Corporation an Evaluation:
The IRCI started its operations at a time when the industrial and political
climate in the State of West Bengal was too unhappy and problems like management
indifference, labour unrest and unemployment have grown in gigantic proportions.
Many units have been lying closed and several others were on the verge of closure.
In the beginning, the progress was very slow.
The corporation actually, gave assistance only to 72 applicants out of 418
which applied for. However, after 1976-77, the number of units assisted by the
corporation is increasing year after year. The year 1981-82 witnessed a phenomenal
rise in the provision of assistance by the corporation.
The total assistance sanctioned during that year alone was the order of Rs.
46.88 crores. During the year 1989-90, it sanctioned and disbursed total assistance
of Rs. 146.6 crores and 141.1 crores in the last year.

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 Upto 31st March sanctioned and disbursement stood at Rs. 1029.8 crores 1990
the cumulative and Rs. 765.2 crores respectively. The cumulative term loan
assistance made to various individual units situated in notified backward areas up to
31st March 1990 was amounted to Rs. 206 crores to 229 crores.
The corporation has been rendering yeoman service in reviving and
revitalizing the ailing and closed units. Besides providing financial assistance, it has
helped sick and closed units in a variety of ways, such as arranging for the timely
supply of raw- materials, helping to improve the quality of the products, marketing
the products, restructuring the management etc. Thus, it is really playing a very
significant role in the revival of the industrial economy of the country.
By a notification issued on March, 1985, the government converted the IRCI
(which was a company registered under the companies Act) into a statutory
corporation to be called the Industrial Reconstruction Bank of India (IRBI) with a
view to overcoming the inherent difficulties which had been faced by IRCI in its
efforts to rehabilitate sick industrial units. The authorised capital of IRBI is Rs. 200
crore; with a paid up capital of Rs. 50 crores.
17.14 NATIONAL INDUSTRIAL DEVELOPMENT CORPORATION
LIMITED (NIDC)
The MIDC was established on 20th October 1954 by the Central Government
which has been regarded mainly as the instrument to achieve a balanced
development of Industries in the private as well as the public sector.
The NIDC plans and formulates projects for setting up new Industries or for
developing new lines of production. It undertakes establishment of such
undertakings which in the opinion of the central government would contribute to the
industrial development of the country.
The main objective of the corporation is promotion of industries rather than
granting of finance. It builds up industrial schemes of its own or collaborates with
the private industry. It can also render assistance for the modernisation of industries.

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 The corporation was set up with the authorized capital of Rs. 1 crore out of
which Rs. 10 lakhs have been issued and paid up by the government which was
increased to 50 lakhs by the end of March 1963. It can also borrow from the
government. It is also empowered to issue shares and debentures to enlarge its
financial base.
The NIDC has been started for providing assistance to cotton, jute, and sugar
industries for modernization. It has established a consultancy in private and public
sector. In the year 1970 it rendered consultancy services worth Rs. 69 lakhs.
The services of the MIDC are being availed of by Indian and foreign
entrepreneurs as well as by United Nations organization. The management of the
NIDC is entrusted to a board of directors consisting of 8 members including the
chairman and a managing director. All the appointments are made by the central
government.
Resources of the National Industrial Development Corporation Limited
• Multi talented work force of battle hardened professionals
• Technologically advanced computer software and hardware instruments
• Collaborations with both national and international companies, development bodies,
research cells, universities, national
• laboratories, and Indian Institutes of Technology
Wide spectrum of services offered by the National Industrial Development
Corporation Limited
• Project engineering
• Industrial management and planning
• Energy management
• Project management and construction management
• Procurement, expedition and inspection
• Quality and technical audit
• Industrial and social infrastructure
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• Human resources development and management
• Environmental engineering
• Development of application software and information technology
- See more at: http://business.mapsofindia.com/sectors/public/national-industrial-
development-corporation-limited.html#sthash.5W74CLx7.dpuf
17.15 SMALL INDUSTRIES DEVELOPMENT BANK OF INDIA (SIDBI)

Small Industries Development Bank of India is an independent financial

institution aimed to aid the growth and development of micro, small and medium-
scale enterprises (MSME) in India. Set up on April 2, 1990 through an act of
parliament, it was incorporated initially as a wholly owned subsidiary of Industrial
Development Bank of India. Currently the ownership is held by 34 Government of
India owned / controlled institutions. Beginning as a refinancing agency to banks
and state level financial institutions for their credit to small industries.

It has expanded its activities, including direct credit to the SME through 100
branches in all major industrial clusters in India.Besides, it has been playing the
development role in several ways such as support to micro-finance institutions for
capacity building and on lending. Recently it has opened seven branches christened
as Micro Finance branches, aimed especially at dispensing loans up to 5 lakh.

It is 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 in similar activities.

SIDBI has also floated several other entities for related activities. Credit
Guarantee Fund Trust for Micro and Small Enterprises provides guarantees to banks
for collateral-free loans extended to SME. SIDBI Venture Capital Ltd. is a venture
capital company focused at SME. SME Rating Agency of India Ltd. (SMERA )
provides composite ratings to SME. Another entity founded by SIDBI is ISARC -
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India SME Asset Reconstruction Company in 2009, as specialized entities for NPA
resolution for SME.
17.16 Origin of SIDBI
In order to promote small scale industries in the country, a special Act was
passed in Parliament in April 1990 for starting of Small Industries Development
Bank of India. SIDBI is a wholly owned subsidiary of IDBI. It is providing
assistance to all those institutions which are promoting small scale industries.
17.17Capital of SIDBI
SIDBI has an authorized capital of Rs. 1000 crores which can be increased to
Rs. 1000 crores. The RBI has also allocated INR 10,000 Crores to SIDBI for various
venture capital activities and company startups in 2015. The entire operations of
IDBI connected with small scale industries are now handed over to SIDBI.

17.18 Objectives of SIDBI

1. To promote marketing of products of small scale sector.
2. To upgrade technology and also undertaking modernization of small scale units.
3. To provide more financial assistance to small scale ancillary and tiny sector.
4. To encourage employment oriented industries.
5. To coordinate all the other institutions involved in the promotion of small scale
industries.
17.19 SIDBI Associates
• CREDIT GUARANTEE FUND TRUST FOR MICRO AND SMALL
ENTERPRISES
• INDIA SME TECHNOLOGY SERVICES LTD.
• SME RATING AGENCY OF INDIA LTD. (SMERA)
• INDIA SME ASSET RECONSTRUCTION COMPANY LTD
• SIDBI VENTURE CAPITAL LIMITED (SVCL)
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 • SIDBI TRUSTEE COMPANY LIMITED (STCL)
17.20 SIDBI Subsidiaries
SIDBI provides direct, indirect and micro finance facilities.
• Direct Finance: In the form of Term Loan Assistance, Working Capital
Assistance, Support against Receivables, Foreign Currency Loan, Scheme of
Energy Saving for MSME sector, equity support etc.
• Indirect Finance: The Indirect assistance in the form of Refinance is
provided to Primary Lending Institutions (PLIs), comprising banks, State
Level Financial Institutions, etc. having a wide network of branches all over
the country. The main objective of Refinance Scheme is to increase the
resource position of PLIs which would ultimately facilitate the flow of credit
to MSME sector.

• Micro Finance: SIDBI provides micro finance i.e. credit to small

entrepreneurs and businessmen for establish their business.
17.21 Functions of SIDBI
1. SIDBI refinances loans extended by the primary lending institutions to small
scale industrial units, and also provides resources support to them.
2. SIDBI discounts and rediscounts bills arising from sale of machinery to or
manufactured by industrial units in the small scale sector.
3. To expand the channels for marketing the products of Small Scale Industries
(SSI) sector in domestic and international markets.
4. It provides services like leasing, factoring etc. to industrial concerns in the
small scale sector.
5. To promote employment oriented industries especially in semi-urban areas to
create more employment opportunities and thereby checking migration of
people to urban areas.

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 6. To initiate steps for technological up-gradation and modernisation of existing
units.
7. SIDBI facilitates timely flow of credit for both term loans and working capital
to SSI in collaboration with commercial banks.
8. SIDBI Co-Promotes state level venture funds in association with respective
state government.
9. It grants direct assistance and refinance loans extended by primary lending
institutions for financing exports of products manufactured by small scale
units.
17.22 SMALL INDUSTRIES SERVICE INSTITUTES (SISIS)
Established in 1956 this institute—one in each State has been rendering very
useful service to small scale industries. The assistance rendered by the institute and
its extension centres in Tamilnadu may be listed as follows :
1. Technical Consultancy and Advisory Service: This relates to selector of
profitable small enterprises, choice of appropriate machinery and equipment,
appraisal of the technique of" manufacture, processing of raw materials, adoption
of recognised standards of testing, quality performance of the small industry
products and encouraging small units to participate in Governments stores Purchase
Programme. The Institute explores the possibility of setting up small scale units to
supply parts/components to large scale industries.
2. Common Facility Service: This includes supply of designs and drawings and
provision of workshop facilities for the manufacture of dies, tools, jigs and fixtures
and components.
3. Training Facilities: Training is provided to workers in basic trades in the
workshops attached to this Institute and its extension centres, to increase their
productivity and this helps to encourage development of small scale industries in
rural areas.

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Training in various aspects of industrial and business management is also provided
for the benefit of small industrialists.
A training course in small industries entrepreneurship and management to
young engineers with emphasis on the practical aspects of small industries
management Is conducted. This has been Instrumental in creating a new class of
qualified entrepreneurs.
4. Testing Facilities: Basic testing facilities (both physical and chemical) are
provided in the laboratories and workshops attached to this institute at concessional
rates.
5. Marketing Assistance: Economic information on the nature and extent of the
market for specific products is collected and furnished to small industrialists at their
request.
The institute offers export promotion service bycounseling on export procedures
and trends in foreign markets.
Market survey for specific products of small enterprises is also undertaken on
a regional basis to enable a small industrialist to increase the sales of his products in
the region.
The special information bureau, called the Tamilnadu Sub Contract Exchange,
is a Central Information Centre where machine capacities of small scale industries
are registered and enquiries from large industries for the manufacture of different
components are passed on to registered small scale units having spare capacity, so
as to enable them to feed the requirements of large scale units. The institute conducts
economic surveys of particular areas to ascertain their industrial potential.
17.23 MAIN FUNCTIONS OF SMALL INDUSTRIES SERVICE INSTITUTE
(SISI’S)
1. To assist existing and prospective entrepreneurs through technical and managerial
counseling such as help in selecting the appropriate machinery and equipment,
adoption of recognized standards of testing, quality performance etc;
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2. Conducting EDPs all over the country;
3. To advise the Central and State governments on policy matters relating to small
industry development;
4. To assist in testing of raw materials and products of SSIs, their inspection and
quality control;
5. To provide market information to the SISI’s;
6. To recommend SSI’s for financial assistance from financial institutions;
7. To enlist entrepreneurs for partition in Government stores purchase programme;
8. Conduct economic and technical surveys and prepare techno-economic feasible
reports for selected areas and industries.
9. Identify the potential for ancillary development through sub-contract exchanges;
10. Organize seminars, Workshops and Industries Clinics for the benefit of
entrepreneurs.
The Small Industries Service Institutes have been generally organizing the
following types of EDPs on specialized courses for different target groups like
energy conservation, pollution control, Technology up-gradation, Quality
improvement, Material handling, Management technique etc. as mentioned earlier.
General EDP for educated unemployed youth, ex-service personnel etc. for a
duration of four weeks. In these programmes, classroom lectures and discussions are
held on issues such as facilities and assistance available from State and Central
government agencies, banks, financial institutions and National Small Industries
Corporation.
Apart from this, exposure is given information regarding market survey,
product identification and selection, technologies involved, management of small
enterprises, particularly in matters relating to financial management, marketing,
packaging and exports.

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 The participants also interact with successful small scale entrepreneurs as a
part of their experience sharing Information of quality; possibilities of diversification
and expansion are also given.
The entrepreneurs are helped to prepare Project Reports based on their own
observations and studies for obtaining financial assistance as may be required. Such
courses have benefitted many entrepreneurs to set up units of their own choice.
SISI and Their Role in the Development of SME’s:
17.24 Technical Advisory Service-
➢ To assist small units in the manufacture of quality &standardised product.
➢ To prepare designs & drawings for special equipment such as dies, jigs,
fixtures etc.
➢ To provide workshops & laboratory facilities to small-scale units & to
demonstrate the use of modern technical process on different machines
&equipments.
➢ To guide small units on the selection & use of raw materials & substitutes.
2. Management Consultancy Services-
➢ To conduct complete implant studies of individual small-scale units.
➢ To guide small units in proper methods of industrial management, including
finance, accounts, production management etc.
➢ To provide special tech-managerial advise on cost reduction & economy in
the use of raw materials, quality improvement etc.
➢ To provide ad-hoc managerial advice on special problems to small scale units.
3. Economic Advisory Services-
➢ To guide small units on the sources of availability of finance from different
agencies.
➢ To conduct economic surveys of different agencies & suggest programmes
for their future developments.

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 ➢ To conduct industrial surveys of backward areas & suggest scope for
development of small industries based on locally available raw material.
➢ To provide relevant economic & commercial information on different
industries.
4. Managerial Services-
➢ To conduct export promotion training courses for small entrepreneurs.
➢ To conduct technical training courses for supervisors & artisans in various
technical subjects.
➢ To conduct ad-hoc training courses in other areas of interests to small units.
➢ To conduct small industrial management training courses & other courses in
specialized subjects, for the benefit of small-scale units.

17.25 STATE INDUSTRIES PROMOTION CORPORATION OF

TAMILNADU LTD (SIPCOT)
To give main thrust to area development activities, the organization involves
in the formation of industrial complexes by providing basic and comprehensive
infrastructure facilities for the industries to set up their units. SIPCOT has so far
developed 20 Industrial Complexes in 12 districts and Six Sector Specific Special
Economic Zones (SEZs) across Tamil Nadu. SIPCOT also acts as a Nodal Agency
of Government of Tamil Nadu in the sanction / disbursement of Structured Package
of Assistance to large industrial units.
17.26 Objectives of SIPCOT
The main objective of SIPCOT is to identify the backwards areas were
industries can be promoted and to develop industrial areas in that place. SIPCOT has
established many industrial complexes and industrial parks in many places in the
State of Tamil Nadu. Qualitative assistance is provided by SIPCOT. As a nodal

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agency instead of crowding the already developed area they are working towards
promotion of industries in backward areas.
Advantages of working with SIPCOT are, getting an already developed industrial
complex with project assistance, statutory clearances within a short period and
assistance in marketing too.
17.27 Industrial Complexes developed by SIPCOT
SIPCOT has developed many industrial complexes across Tamil Nadu. Some
of the locations are Bargur, Cheyyar, Cuddalore, Gangaikondan, Gummidipoondi,
Hosur, Irungattukottai, Manamadurai, Nilakkottai, Oragadam, Perundurai,
Pudikkottai, Ranipet, Siruseri, Sriperumpudur, and Thoothukudi.

17.28 Functions
The Functions of State Industries Promotion Corporation of Tamil Nadu Limited
(SIPCOT) are:
• Development of industrial complexes/parks/industrial estate in Nallamballi Road
growth centres with basic infrastructure facilities
• Establishing sector-specific Special Economic Zones (SEZs);
• Implementation of Special infrastructure Projects;
17.29 CONCLUSION
The entrepreneur with his vision and ability to bear risk can transform the
economic scene of the country. They play a vital role in initiating and sustaining the
process of economic development of a nation. The overall aim of an entrepreneurial
development programme is to stimulate a person for adopting entrepreneurship as a
career and to make him able to identify and exploit the opportunities successfully
for new ventures.
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Questions
1. What is DIC? Explain the objectives and functions of DIC?
2. What are Needs of SIDCO?
3. State the objectives and functions of SIDCO.
4. Explain the functions of NSIC?
5. What are the functions of IRCA?
6. State the function of NIDC.
7. Explain the objectives of SIDBI?
8. State the function of SIDBI.
9. What is the assistance rendered by the SISI?
10. What are the main functions of SISI?
11. State the role or SISI.
12. State the functions of SIPCOT.

UNIT – 5
CHAPTER – 18
18.1 Introduction
18.2 Problems of Entrepreneurs
18.3 Sickness in small industries
18.4 Industrial sickness in India
18.5 Causes of sickness in small scale industry
18.6 Suggested remedies
18.7 Conclusion
SSI UNITS
18.1 Introduction
Small Scale Industries are those industrial undertakings having a fixed
investment in plant and machinery, whether held on an ownership basis or a lease
basis or a hire purchase basis and not exceeding Rs.1 crore. It has a larger

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contribution to the growth of an economy. However, this investment money is varied
by the Government from time to time.
A small scale unit is normally a one-man show and even in the case of a
partnership the activities are mainly carried out by the active partner and the rest are
sleeping partners. The area of operation of small units is localized, catering to the
local or regional demand. Small industries are fairly intensive with comparatively
smaller capital investment than the larger units. Therefore, these units are more
suited for economics where capital is scarce, and there is an abundant supply of
labor. The Ministry of Small Scale Industries has now merged with the Ministry of
Agro and Rural Industries to form the Ministry of Micro, Small, and Medium
Enterprises (MSME).
Procedures for Setting up of a Small Scale Business

Small Scale Business provides more independence than the large scale business
and through this type of business one can fulfill their dream to become an
entrepreneur. It eliminates much of the overhead expense and extensive planning
required in larger business ventures. One can set up small-scale industries by
following the simple procedures, which are as follows:
1. Decision Making: First of all, you need to prepare the
description for the small scale industry you want to set up. It
is necessary to decide whether you wish to set up a
corporation, proprietorship or partnership. The potential
entrepreneur has to analyze his strength, weakness while
deciding for entrepreneur career. This analysis helps in knowing what type
and size of business would be the most suitable.
2. Scanning Of Business Environment: Before setting up your industry, it is
always essential to study and understand the prevailing business environment in
which they operate particularly the industrial policy, economic policy, licensing
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policy, legal environment, and technological environment. The environment impacts
a lot in setting up a proper industry.
3.Product Selection: You need to decide the product you wish to manufacture or
the service you wish to offer. While choosing the product or service you want to
offer, you must conduct a good market research and learn about the prevailing
competition in the market.
4.Location: You need to choose a location to set up your small scale industry. While
choosing the location such factors such as nearness to market, sources of material
availability of raw materials, labor, transportation services, modern infrastructural
facilities and other things are considered. Location determines the success or failure
of the enterprise.

5.Technology: To manufacture any item, technology is

used. The entrepreneur should collect information on all
available technologies, and the most suitable one should be
identified. This will also be useful to determine the type of
machinery and equipment to be installed.
6.Project: Project appraisal means the assessment of a project. It is a technique for
ex-ante analysis of a scheme or project while preparing to set up an enterprise; the
entrepreneur has to appraise the project carefully from the standpoint of economic,
financial, technical, market, social and managerial aspects to arrive at the most
socially-feasible enterprise.
7.Finance: Finance is the lifeblood of the enterprise. So, the next big step is to
arrange for finance. No business can be created, with zero capital. If you don’t have
enough finance and then the best way is to borrow or take a loan.

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 8.Provisional Registration: It is always worthwhile to get
the unit registered with the government. The entrepreneur
has to obtain the prescribed application from DIC or
Directorate of Industries. After having duly filled in the
application form, he has to submit the application with all
relevant documents in the local DIC or Directorate of Industries.
9.Production Management: Production management is the next step, once you can
start your small scale industry. This includes allocating space for different operations
and choosing your production methods. You are required to purchase machinery and
hire employees and workers for different departments.
10.Power And Water Connection: The sites where the enterprise will be located
should either have adequate power connections, or it should be arranged. The
entrepreneur can calculate the total power requirement and determine the nearest
pole from which power will be given to the enterprise, as it can materially affect the
installation cost.
11.Installation of Machinery: Once the above formalities have been completed; the
next step is to procure machinery and begin its installation as per the plant layout.
12.Insurance: It is necessary to have adequate insurance for fixed assets at this stage
and later on for the current assets as well.
13.Recruitment of Manpower: Once machines are installed, the need for
manpower arises to run them. So, the quantum and type of manpower are to be
decided. The sources of getting desired labor are also important. This follows the
recruitment, training, and placement.
14.Production: The unit established should have an
organizational set-up. To operate optimally, the organization
should employ its manpower, machinery, and methods
effectively. There should not be any wastage of manpower, machinery, and

216
materials. If items are exported, then the product and its packaging must be
attractive.
15.Marketing: Marketing is the most important activity as far as the entrepreneurial
development is concerned. Marketing and business advertising form the next big
step of setting up a small scale industry. Online business directories and various
traditional forms of advertising can gain exposure for your business. Prices for your
products or services are decided to keep in mind the profit margin.
16.Quality Assurance: Before marketing, the product quality certification from BIS
(Bureau of Indian Standard)/ AGMARK/HALLMARK, etc., should be obtained
depending upon the product. If there are no quality standards specified for the
products, the entrepreneur should evolve his quality control parameters.

17.Permanent Registration: After the small scale unit goes into production and
marketing, it becomes eligible to get permanent registration based on its provisional
registration from the DIC or Directorate of Industries.
18.Market Research: Once the product or service is
introduced in the market, there is strong need for
continuous market research to assess needs and areas for
modification, up gradation and growth.
Monitoring: Periodical monitoring and evaluation not
only of markets but also production, quality, and profitability help in knowing where
the firm stands in comparison to performance envisaged in the business plan. It also
identifies the direction of future growth. Therefore, planning is a useful aspect of
setting up a small scale. According to business, at every stage, you are required to
improve your plan.
18.2PROBLEMS OF ENTREPRENEURS
Introduction
217
 The lure of independence, profit and opportunity lead many to choose
entrepreneurial pursuits. The avenues open to entrepreneurs today are greater than
ever as the Internet has opened a new field of Web-based business opportunities.
Just because there are plenty of opportunities do not mean that starting a profitable
business is easy. Financial issues, management problems and marketing failures are
issues that many startups face.
The following problems are faced by the entrepreneurs:
1. Insufficient Capital
Lack of capital plagues many startup firms, and many close because of it. In
addition to a lack of capital, insufficient cash flow compounds the problem. In the
early days of its life, a startup company may have no cash flow. When product is
available to sell, pricing may be difficult.
Set the price too low and not enough revenue is generated; set it too high and
the resulting slow sales have a negative impact on revenue. The Jumpstart Our
Business Startups, or JOBS, Act of 2012 addressed some of the problems of small
business finance, opening the door for private investors through angel financing and
crowd funding.
2.Weak Management
The knowledge and skills of a creative entrepreneur do not necessarily equate
to being an effective manager. This dichotomy can surface in several ways. A
product that is beautiful to its inventor may not be viewed that way by others, and if
the entrepreneur cannot recognize that, no amount of management expertise is going
to help. Even with a successful product, the founding entrepreneur may not
relinquish the management reins to a person more adept at managing a startup. A
weak manager is likely to hire a weak management team with the result being an
inadequate business plan and poor operational performance.

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3.Ineffective Marketing
While a small business startup may have a unique product with potentially
significant market appeal, it must be able to advertise in a cost-effective manner.
Without adequate market research, an entrepreneur has no clue if the timing is right
to introduce a new product or if the market is large enough to support the business.
Without a clear understanding of the market, the entrepreneur may spend too much
to acquire new customers. If the cost to acquire them is greater than the revenue the
customer generates, then the firm cannot earn a profit.

18.3 SICKNESS IN SMALL INDUSTRIES

Introduction
Industrial sickness is defined in India as "an industrial company (being a
company registered for not less than five years) which has, at the end of any financial
year, accumulated losses equal to, or exceeding, its entire net worth and has also
suffered cash losses in such financial year and the financial year immediately
preceding such financial year"
18.4 INDUSTRIAL SICKNESS IN INDIA
Industrial sickness specially in small-scale Industry has been always a demerit
for the Indian economy, because more and more industries like
– cotton, Jute, Sugar, Textiles small steel and engineering industries are being
affected by this sickness problem.
As per an estimate 300 units in the medium and large scale sector were either
closed or were on the stage of closing in the year 1976. About 10% of 4 lakhs unit
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were also reported to be ailing. And this position also remains same in the next
decades. At the end of year 1986, the member of sick units in the portfolio of
scheduled commercial banks stood at 1.47,740 involving an outstanding bank credit
of Rs. 4874 crores.
• Where the total numbers of large Industries which are sick were 637 units at the
end of year 1985 increased to 714 units in the end of next year 1986.
• Likewise on the other hand the numbers of sick small scale units were also
increased 1.18 lakhs at the end of 1985 to 1.46 lakhs at the end of 1986.
• The bank amount which was outstanding in case of large industries for the same
period also increased from Rs.2,900 crores to Rs. 3287 crores at the end of year
1986
• Dues of Small Scale sector also increased from Rs.1071 crores to Rs.1306 crores
at the end of the year 1986.
• Of the 147, 740 sick industrial units which contains large medium as well as
small scale involving the total bank loan(credit) of Rs. 4874 at the end of the year
1986.
18.5 CAUSES OF SICKNESS IN SMALL SCALE INDUSTRY
The different types of industrial sickness in Small Scale Industry (SSI) fall under
two important categories. They are as follows:
I . Internal causes for sickness
We can say pertaining to the factors which are within the control
of management. This sickness arises due to internal disorder in the areas justified
as following:
a) Lack of Finance: This including weak equity base, poor utilization of assets,
inefficient working capital management, absence of costing & pricing, absence of
planning and budgeting and inappropriate utilization or diversion of funds.
b) Bad Production Policies : Another very important reason for sickness is wrong
selection of site which is related to production, inappropriate plant & machinery, bad
220
maintenance of Plant & Machinery, lack of quality control, lack of standard research
& development and so on.
c) Marketing and Sickness : This is another part which always affects the health of
any sector as well as SSI. This including wrong demand forecasting, selection of
inappropriate product mix, absence of product planning, wrong market research
methods, and bad sales promotions.
d) Inappropriate Personnel Management: Another internal reason for the
sickness of SSIs is inappropriate personnel management policies which includes bad
wages and salary administration, bad labour relations, lack of behavioural approach
causes dissatisfaction among the employees and workers.
e) Ineffective Corporate Management: Another reason for the sickness of SSIs is
ineffective or bad corporate management which includes improper corporate
planning, lack of integrity in top management, lack of coordination and control etc.
II. External causes for sickness
a) Personnel Constraint: The first for most important reason for the sickness of
small scale industries are non-availability of skilled labour or manpower wages
disparity in similar industry and general labour invested in the area.
b) Marketing Constraints: The second cause for the sickness is related
to marketing. The sickness arrives due to liberal licensing policies, restrain of
purchase by bulk purchasers, changes in global marketing scenario, excessive tax
policies by govt. and market recession.
c) Production Constraints: This is another reason for the sickness which comes
under external cause of sickness. This arises due to shortage of raw material,
shortage of power, fuel and high prices, import-export restrictions.
d) Finance Constraints: Another external cause for the sickness of SSIs is lack of
finance. This arises due to credit restrains policy, delay in disbursement of loan by
govt., unfavorable investments, fear of nationalization.

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18.6 SUGGESTED REMEDIES:
Some of the effective measures which may be taken for revival of sick units
are technical help, professional counseling and improved management. Also, the
role of professionals and experienced management becomes more important in times
of sickness.
In addition to technical and professional consultants, no sick industry will ever be
able to recuperate without sufficient, timely and soft finance. Bankers are the key to
the problem. The role of the bankers needs to be redefined and a new direction needs
to be given to support aid and lift sick industrial units from the situations that befall
them. It is also the level of service and support in terms of financial advice, assistance
in related matters of insurance, release of hypothecated assets and timely finance.

The Sick Industrial Companies (Special Provisions) Bill, 1997, passed by

LokSabha, introduced encouraging changes. It suggested that a time-bound
procedure was to be adopted within which the scheme has to be sanctioned and BIFR
would play the role of a mediator and not a court.
Technical obsolescence and financial mismanagement are also important
factors that lead to industrial sickness. As per the new provisions, an opportunity
will be given to get an unanimous consent to a scheme from all concerned, failing
which secured creditors will attempt to form a scheme and, if all this fails, the
undertaking would be sold off. Only if it is not possible to do that, the BIFR may
order winding up of the company.
18.7 Conclusion
If you are starting a small business -- or just considering it -- you face great
odds and opportunities. While some of the challenges cannot be anticipated or
avoided, many can. Lack of capital, management problems and marketing issues can
be addressed before they arise. Learn from others. Numerous sources of information
are available to you. Check with the continuing education department of a local
222
college or call the Small Business Administration for assistance. Work with SCORE,
formerly Service Corps of Retired Executives, to develop a solid business plan.
SCORE volunteers can give you advice from those who have experience.
Questions
1. What is SSI units?Explain the causes of sickness in small scale industry
2. What is provisional registration?
3. How do you choose a location for SSI units?
4. Explain the procedures for setting up of a small scale business.
5. What are the problems faced by the entrepreneurs?

CHAPTER– 19
19.1 Introduction
19.2 Meaning
19.3 Advantages of providing Incentives to Entrepreneurs
19.4 Subsidy schemes

INCENTIVES AND SUBSIDIES

19.1 Introduction
Incentives, subsidies and complementary services can include gifts, rewards,
or monetary assistance that not only promote the use of financial services, but make
them more affordable. When these incentives and services are well-designed (i.e.,
‘smart’) they are valuable tools in not only attracting new clients, but also retaining
and empowering young customers. However, the sustainability component is often
more challenging.
19.2 Meaning
Incentive: The term “incentive” generally means encouraging productivity.
It is a motivational force, which encourages an entrepreneur to take a right decision
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and act upon it. The objective of providing incentives is to motivate an
entrepreneur to set up a new venture in the larger interest of the nation and the
society.
Subsidy: Subsidy is a financial assistance or a sum of money provided by a
government, to an industry for public welfare or interest. It is any financial aid, grant,
or contribution.
“Subsidy” means a single lump sum of money that is given by a Government to an
entrepreneur to cover the cost.
Bounty: The term “bounty” denotes a bonus or financial aid given to an
industry to help it to compete with other units established in country or in a foreign
market.

Incentives available for encouraging Entrepreneurship under different

schemes of Govt. Of India

• Agricultural and Processed Food Products Export Development Authority

(APEDA) mission is to develop agricultural commodities and processed food
to promote exports. APEDA provides financial support for packaging
development, export promotion and market development etc.
• Ministry of Food Processing Industries (MoFPI) covers setting up technology
up gradation, modernization of food processing industries in fruits &
vegetables, pulses etc. The scheme provides 25% of the cost of plant &
machinery and technical civil works subject to a maximum of Rs.50 lakhs in
general areas and 33% up to Rs.75 lakhs in difficult areas like NER.
• National Horticulture Board (NHB) provides financial support for land
development, cultivation expenses, poly house or shade nets, farm tools etc.
• AmbedkarHastshilpVikasYojana (AHVY) wherein the main thrust is on a
projectiles, need based approach for integrated development of potential
handicrafts clusters with participation of the craft persons at all stages for

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 implementation of the scheme. AHVY extends financial support for
development & supply of improved modern tools, design & technical
development workshops, training, organizing seminar & exhibitions etc.
• Market Access Initiative (MAI) scheme is an Export Promotion Scheme
formulated on focus product- focus country approach to evolve specific
strategy for specific market and specific product through market studies/
survey. MAI provides financial support for opening showroom & warehouses,
display in international departmental stores, publicity campaign and branch
promotion etc.
• Tea Board extends support towards plantation, irrigation, transport vehicle,
exhibitions, advertisement etc.
• Coffee Board extends support towards replantation, water augmentation,
quality up gradation etc.
• Coconut Development Board provides financial support for production &
distribution of planting material, integrated farming for productivity
improvement, market promotion, coconut palm insurance scheme etc.
• Coir Board provides financial support for skill up gradation, organizing
workshop & seminars, exposure tour and quality improvement programme.
Mahila Coir Yojana (MCY) is the first woman oriented self-employment
scheme by giving subsidy of 75% of the cost of purchase of rats to the trained
women artisans.
• Rubber Board provides financial support for production & distribution of
planting material, integrated farming for productivity improvement, market
promotion etc.
19.3 Advantages of providing Incentives to Entrepreneurs
1. Decentralization of economic power:
Incentives encourages prospective entrepreneurs to take up industrial ventures
and results in decentralization of economic power in few hands.
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2. Balanced regional development
Incentives are given to entrepreneurs establishing industries in backward
areas. Hence, it results in the dispersal of industries over India’s geographical area
and contributes to regional balanced development.
3. Transformation of Technology
Incentives help in the transformation of traditional technology into modern
technology. Traditional technology is characterized by low skill; low productivity
and low wages, whereas modern technology is subsequently characterized by
improved skills, high productivity, raising wages and a higher standard of living.
4. Overcomes Difficulties
The package of incentives and concessions are given to entrepreneurs for
setting up units both in backward as well as developed districts. But generally it is
given for setting up units in backward area. It is provided to offset the disadvantages
prevailing in such places.
5. Generates Industrialization
Industrial policy uses incentives both to correct the market imperfections and
to accelerate the process of industrialization in the country. Regional balances can
also lead to effective utilization of regional resources, removal of disparities in
income and levels of living and contribute to a more integrated society.
6. Encourages Entrepreneurship
The new entrants in the field face many obstacles on account of inadequate
infrastructures. The new entrepreneur is supported by the government agencies
through various incentives. Being a new entrant, an entrepreneur may lack marketing
and entrepreneurial skills. An entrepreneur requires support from government
agencies to compete with competitors. The subsidies and concessions motivate the
entrepreneur both financially and non-financially and promotes entrepreneurship in
the country by removing economic constraints.

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7. Helps to Overcome Competition
Incentives help the entrepreneur to survive and compete with the competitors.
Some of the incentives are concerned with the survival and growth of industries.
Several incentives are confined to the first few years of the establishment of the unit
while a few of them are made available over a long period.
19.4 SUBSIDY SCHEMES
To promote the development of the industrial sector, especially MSME sector,
the government has introduced various schemes that provide financial subsidy to the
eligible enterprises.
Some of these subsidy schemes are specifically for certain industrial sectors,
while some of them like CLCSS are available for a wide range of industries.Some
of the major subsidy schemes of the government and public institutions are provided
below. These can be categorized as follows:
Subsidy Schemes for Specific Industries
1.Textile Industry - Technology Upgradation Fund Scheme (TUFS)
Ministry of Textiles introduced the Technology upgradation fund scheme (TUFS)
for textiles and jute industry in April 1999 to facilitate induction of state-of-the- art
technology by the textile units.
The benefits under the scheme include:
• 5% interest reimbursement of the normal interest charged by the lending
agency on RTL, or
• 5% exchange fluctuation (interest & repayment) from the base rate on FCL,
or
• 15% credit linked capital subsidy for SSI sector, or
• 20% credit linked capital subsidy for powerloom sector (An option for ‘front
ended’ subsidy provided w.e.f. 1st October, 2005), or
• 5% interest reimbursement plus 10% capital subsidy for specified processing
machinery.
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 IDBI, SIDBI and IFCI were the nodal agencies for Non-SSI textile sector, SSI
textile sector and Jute sector respectively. However, w.e.f. 1st October, 2005, 13
additional nodal banks have been appointed under TUFS for determining eligibility
& releasing the subsidy for the cases financed by them.

2.Food Processing Industry - Scheme for Technology Upgradation/

Establishment/ Modernization for Food Processing Industries
This Scheme covers the following activities: Setting up/expansion/modernization of
food processing industries covering all segments viz fruits & vegetable, milk
product, meat, poultry, fishery, oil seeds and such other agri-horticultural sectors
leading to value addition and shelf life enhancement including food flavours and
colours, oleoresins, spices, coconut, mushroom, hops. The assistance is in the form
of grant subject to 25% of the plant & machinery and technical civil work subject to
a maximum of Rs. 50 lakh in General Areas and 33.33% upto Rs. 75 lakh in difficult
areas.
3.Leather Industry – Integrated Development of Leather Sector (IDLS)
The scheme is aimed at enabling existing tanneries, footwear, footwear
components and leather products units to upgrade leading to productivity gains,
right-sizing of capacity, cost cutting, design and development simultaneously
encouraging entrepreneurs to diversify and setup new units.
The financial assistance under the Scheme will be investment grant to the
extent of 30% of cost of plant and machinery for SSI and 20% of cost of plant and
machinery for other units (i.e. non small scale units) subject to ceiling of Rs.50 lakh
for technology up gradation /modernization and/or expansion and setting up a new

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 unit. The rate of assistance would be @ 20% for all units (both SSI and Non-SSI)
above Rs.50 lakhs subject to ceiling of Rs.2 crore.
The nodal agency for release of assistance, monitoring and interface and
coordination with FIs, Banks and the Government is SIDBI.
4.Coir industry
The Coir Board runs various subsidy schemes for the coir sector, as provided below:

• Rejuvenation, Modernization and Technology Upgradation of the Coir

Industry
A Central Sector Scheme on Rejuvenation, Modernization & Technology Up
gradation of the Coir Industry was launched during 2007-08, on a pilot basis, to
facilitate the sustainable development of the Spinning and Tiny/Household Weaving
Units of the coir industry by providing proper work sheds and enabling replacement
of traditional age old ratts with motorized ratts in the Spinning sector and
replacement of traditional looms with the mechanized looms in the Tiny/Household
sector in the first phase, during XI Plan. The main objectives of the scheme include
modernization of Coir industry by adoption of modern technology in production and
processing of Coir in the spinning and weaving sectors; Upgradation of the
production and processing technology for improving the productivity and quality;
and increasing the efficiency and productivity for enhancing the earnings of the
workers and income of spinners/ tiny-household sectors, among others.
The norms of assistance are as below:
o Spinning unit: The financial assistance or government grant/subsidy would be 40%
of the project cost subject to a maximum of Rs. 80,000 (Rupees eighty thousand
only) per unit.
o Tiny/ household unit: The financial assistance or government grant/subsidy would
be 40% of the project cost subject to a maximum of Rs. 2,00,000 (Rupees two lakh
only) per unit.
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5.Extension of Financial Assistance to Coir units in the Brown Fibre sector
The Coir Board runs a scheme for financial assistance to the coir units in the
brown fiber sector. The rate of financial assistance under the scheme is 25% of the
cost of equipment’s and infrastructural facilities subject to certain ceiling limits
based on the type of unit.

Scheme for Extension of Financial Assistance for Generator Set / Diesel Engine
The purpose of the scheme is to give one time subsidy to fibre/ curled coir
production units in the brown fibre sector to carry out production at periods of power
cut/ low voltage and to ensure supply of brown fibre and curled coir to meet the
requirements of rubberized coir products, coir rope, yarn and mats and matting
sectors.
The quantum of subsidy for one unit will be 25% of the cost of generator set
subject to a maximum of Rs.50,000/-. This will be a one-time financial assistance
and will be granted on the basis of expenditure incurred by the unit.
6. Other Subsidy Schemes of the Central Government
Credit Linked Capital Subsidy Scheme for Technology Upgradation (CLCSS)
The Scheme was launched in October, 2000 and revised w.e.f. 29.09.2005. The
revised scheme aims at facilitating Technology Upgradation of Micro and Small
Enterprises by providing 15% capital subsidy (12% prior to 2005) on institutional
finance availed by them for induction of well established and improved technology
in approved sub-sectors/products. The admissible capital subsidy under the revised
scheme is calculated with reference to purchase price of Plant and Machinery.
Maximum limit of eligible loan for calculation of subsidy under the revised scheme
is also been raised Rs. 40 lakhs to Rs. 100 lakh w.e.f. 29-09.2005.
The Small Industries Development Bank of India (SIDBI) and the National Bank for
Agriculture and Rural Development (NABARD) will continue to act as the Nodal
Agencies for the implementation of this scheme.
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7.Quality Upgradation/Environment management for small scale sector
through incentive for ISO 9000 /ISO 14001 /HACCP Certifications
In order to enhance the competitive strength of the small scale sector, the
Government introduced an incentive scheme for their technological
upgradation/quality improvement and environment management. The scheme
provides incentive to those small scale/ ancillary undertaking who have acquired
ISO 9000/ISO 14001/HACCP certifications. The scheme for ISO 9000
reimbursement in operation since March, 1994 has now been enlarged so as to
include reimbursement of expenses for acquiring ISO 14001 certification also.
The Scheme envisages reimbursement of charges of acquiring ISO-9000/ISO-
14001/HACCP certifications to the extent of 75% of the expenditure subject to a
maximum of Rs. 75,000/- in each case. The Scheme is valid upto 31st March 2012.
8.Market Development Assistance Scheme for Micro, Small & Medium
Enterprises
The scheme offers funding for participation by manufacturing Small & Micro
Enterprises in International Trade Fairs/ Exhibitions under MSME India stall; sector
specific market studies by Industry Associations/ Export Promotion Councils/
Federation of Indian Export Organisation; initiating/ contesting anti-dumping cases
by MSME Associations and reimbursement of 75% of one time registration fee
(w.e.f. Ist January 2002); and 75% of annual fees (recurring) (w.e.f. Ist June 2007)
paid to GSI (Formerly EAN India) by Small & Micro units for the first three years
for bar code.
The permissible subsidy is as below:

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• The Govt. of India will reimburse 75% of air fare by economy class and 50% space
rental charges for Micro & Small manufacturing enterprises of General category
entrepreneurs.
• For Women/SC/ST Entrepreneurs & Entrepreneurs from North Eastern Region
Govt. of India will reimburse 100% of space rent and economy class air fare.
• The total subsidy on air fare & space rental charges will be restricted to Rs.1.25 lakhs
per unit.
9. Financial Assistance on Bar Code
The basic objective of financial assistance is to enhance the marketing
competitiveness of Micro & Small Enterprises (MSEs) by way of:
• Providing 75% of one-time registration fee and annual recurring fee (for first three
years) paid by MSEs to GS1 India.
• Popularizing the adoption of bar codes on large scale amongst MSEs, and
• Motivating and encouraging MSEs for use of bar codes through conducting seminars
on Bar Code, etc.
10. Subsidy Schemes of NSIC
i. Raw Material Assistance
Raw Material Assistance Scheme aims at helping Small Scale Industries/Enterprises
by way of financing the purchase of Raw Material (both indigenous & imported).
This gives an opportunity to SSI to focus better on manufacturing quality products.
The benefits of the scheme include:
Financial Assistance for procurement of Raw Material upto 90 days.
• SSI helped to avail Economics of Purchases like bulk purchase; cash discount etc
• NSIC takes care of all the procedures, documentation & issue of Letter of credit in
case of imports.
ii. Marketing Assistance

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 Under the Scheme, marketing support is provided to Micro, Small & Medium
Enterprises through National Small Industries Corporation (NSIC) to enhance
competitiveness and marketability of their products, through following activities:
• Organizing International Technology Exhibitions in Foreign Countries by NSIC and
participation in International Exhibitions/Trade Fairs
• Organizing Domestic Exhibitions and Participation in Exhibitions/ Trade Fairs in
India
• Support for Co-sponsoring of Exhibitions organized by other organisations/ industry
associations/agencies
• Buyer-Seller Meets
• Intensive Campaigns and Marketing Promotion Events
• Other Support Activities
10.11. Performance and Credit Rating
A scheme for performance and credit rating for SSIs 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.
Reimbursement of Performance and Rating Fee under this scheme is as below:

Turn Over of SSI Reimbursement of Fee through NSIC

Upto Rs 50 Lacs 75% of the fee or Rs 25000/- (Whichever is less)

Above Rs 50 to 200 lacs 75% of the fee or Rs 30000/- (Whichever is less)

More than Rs 200 lacs 75% of the fee or Rs 40000/- (Whichever is less)

Questions
1. What is incentives?
2. What do you mean by subsidy?

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 3. What is bounty?
4. How the entrepreneurs are encourage by incentives schemes provided
by the Govt. of India.?
5. What are the basic objective of financial assistance is to enhance the
marketing competitiveness of Micro & Small Enterprises
CHAPTER- 20
20.1 Introduction
20.2 Rural entrepreneurship in India
20.3 Rural entrepreneurship in changing environment
20.4 Effect of Globalization on Rural Entrepreneurship
20.5 Challenges faced by rural entrepreneurship in India
20.6 Problem of rural entrepreneurship
20.7 Conclusion

Rural Entrepreneurship
20.1 Introduction
Rural entrepreneurship is now a days a major opportunity for the people who
migrate from rural areas or semi - urban areas to Urban areas. On the contrary it is
also a fact that the majority of rural entrepreneurs is facing many problems due to
not availability of primary amenities in rural areas of developing country like India.
Lack of education, financial problems, insufficient technical and conceptual ability
it is too difficult for the rural entrepreneurs to establish industries in the rural areas.
This paper makes an attempt to find out the Problems and Challenges for the
potentiality of Rural Entrepreneurship. It also focuses on the major problems faced
by rural entrepreneurs especially in the fields of Marketing of products, financial
amenities and other primary amenities, i.e. availability of electricity, water supply,
transport facilities and required energy etc

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20.2 Rural Entrepreneurship in India
Who should be capable of making use of the government policies and schemes
for the betterment of rural people? Some individuals who happen to be local leaders
and NGOs and who are committed to the cause of the rural people have been
catalytic agents for development.
Though their efforts need to be recognized yet much more needs to be done
to reverse the direction of movement of people, i.e. to attract people in the rural
areas. It means not only stopping the outflow of rural people but also attracting them
back from the towns and cities where they had migrated. This is possible when young
people consider rural areas as places of opportunities. Despite all the inadequacies
in rural areas one should assess their strengths and build on them to make rural areas
places of opportunities. This is much to do with the way one sees the reality of the
rural areas. The way a survivor or job seeker would see things would certainly be
different from those who would like to do something worthwhile and are ready to
go through a difficult path to achieve their goals. It isn't that there is a dearth of
people with such a mindset. But with time they change their minds and join the
bandwagon of job seekers due to various compilations. Enabling them to think
positively, creatively and Entrepreneurship purposefully is most of the development
of rural areas. Young people with such perspective and with the help of rightly
channelized efforts would usher in an era of rural entrepreneurship.
The basic principles of entrepreneur which applied the rural development are:
➢ Optimum utilization of local resources in an entrepreneurial venture by rural
population - Better distributions of the farm produce results in the rural
prosperity.
➢ Entrepreneurial occupation rural population to reduce discrimination and
providing alternative occupations as against the rural migration.
➢ To activate such system to provide basic '6 m'- manpower, money , material,
machinery, management and market to the rural population.
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20.3 Rural Entrepreneurship in changing Environment
The changing global environment raises questions about the ability of
traditional, small-scale businesses in rural areas to share the potential benefits
offered by the changing environment.
The rapid (though declining) population growth, coupled with even faster
urbanization, creates increasing demands. In India, urban populations in general
grow about twice as fast as the overall total, and by 2020 they may exceed the size
of rural populations. Such a major demographic trend challenges the capacities of
some traditional small-scale businesses to cope with the increasing demands.
20.4 Effect of Globalization on Rural Entrepreneurship
Since globalization is a macro-concept and rural entrepreneurship is a micro-
concept, occurring in a very limited area, it is very difficult to establish causal
linkages, or to quantify the specific effects of globalization on rural
entrepreneurship. However, it is possible to identify a range of different channels
through which various aspects of globalization can be expected to change the welfare
of rural entrepreneurship in India.
1) Productivity and efficiency effect
Globalization is often said to result in higher productivity, due to the access
to global markets, abilities to specialize, and to take advantages of economies of
scale and scope. Exposure to the global competition can result in high levels of
productivity and efficiency. However, it is less crucial for large economies like
India. Again, the potential gains to rural entrepreneur are also large, because
globalization enhances countries’ abilities to exploit comparative advantages arising
from differing natural and ecological conditions. At the level of national policy,
these arguments seem to favour globalization. Still, it is very easy to see how the
rural entrepreneur could still lose out. This is true in most case duet the lack of
affordable facilities in rural areas. There are many other factors which place rural
entrepreneurs at a disadvantage. Most of them, lack access to the technologies and
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market information that would enable them to comply with quality specifications
and effectively respond to emerging opportunities. They rarely have access to credit
and the other financial services necessary to compete in the modern world.
Many face high transportation and input costs that further reduce their ability
to compete. Additionally, there are some whose cultures place greater value on the
maintenance of traditional ways of life, rather than on material success in a
competitive world. Apart from these disadvantages, there is the wider question of
whether the economic and institutional infrastructures, and the structure of policies,
are favorable for small enterprises to succeeding international competition. In short,
globalization presents real dangers to the rural entrepreneur, to set against the
possible advantages for the wider economy.
2) Economic growth effect
As already noted, the argument in favour of globalization is the positive link
between globalization and rural entrepreneurship in India. Because the potential
benefits include improved access to foreign technology and managerial expertise.
There have been varied views concerning the connection between trade openness
and rural entrepreneurship growth, and this has given rise to a large body of
empirical literature, suggesting a positive relationship between trade openness and
rural entrepreneurship growth.
Emergence of the WTO and the series of deliberations under the Uruguay
round have changed the world economic order. Indian Government has shelved the
earlier protectionist policies and opened up the economy to the world market.
Undoubtedly, this has helped the Indian economy to recoup its strength with the flow
of international capital and technology resulting in a robust economic position. The
economy is moving steadily with more than 6 per cent DGP growth rate for the last
two decades or so. However, the new economic order has posed severe challenges
to the agricultural and rural sectors of the economy. Overall, it indicates that
openness promotes faster growth. Still, the question remains as to what this might
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do for the rural enterprises, particularly as little FDI flows into agriculture, least of
all small-scale agriculture. The effect of globalization on rural enterprises depends
upon the changes in GDP and changes in income distribution. The evidence suggests
that the rural entrepreneur overall are substantially included as beneficiaries from
economic growth. However, the extent of inclusion varies internationally.
3) Technological effect
Transfer of technology is one of the prominent features of globalization and
one of the major reasons for predicting improved growth. Many formerly small rural
entrepreneurs saw major improvements in their businesses, but the improvements
were in a very limited area and to a very limited number of entrepreneurs.
The focus today is on the potentials and dangers of biotechnology. In
principle, the benefits here too may be large. The benefits may be from raising
productivity, reduced risks of drought and pests, as well as lower food prices.
Biotechnology research has been more relevant to the problems of high-
income countries. The benefits tend to be specific to particular environments,
conditions or markets. As mall number of multinational corporations is also carrying
out much of the research.
There has been a general focus upon the problems of rural entrepreneurs in rich
countries, with little attention being paid to developing countries’ like India’s basic
food crops and the problems of their small farmers.
4) Distributional Effect
It is not possible to gauge the overall effect of globalization on the level of
inequality; the effect on women entrepreneur in rural area is less ambiguous. Many
rural women entrepreneurs are hampered from benefiting from the changes arising
from globalization. They have less access than men to education and training, less
time to devote to productive activities, less command over important resources such
as land, credit and capital.

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 Income developing countries, the sexual division of labor precludes women
from income derived from cash crops. In addition, they also have less incentive to
respond to economic signals, since they are likely to have less control over any
income.
5) Transformational and insecurity effect
Rural entrepreneurship is not always directly related to income. It can also
refer to an intense level of insecurity. Many times those who have managed to
improve their position are pressed back down again by natural disasters, inflation
and other shocks.
Some aspects of globalization increase such problems. Globalization is
generally associated with the accelerated pace of change in economic life and
increased competitive pressures. This requires a speedy adaptation, which may
simply be outside the range of those with few modern skills or other assets. As
indicated earlier, globalization is linked to increased specialization, but this, for all
its advantages, increases risks for rural entrepreneurs by pushing them to ‘play all
their cards’. These factors are further compounded by the transformational and
insecurity effect due to volatile environment.
6) Policy
Government of India has, in a sense, discriminated against agriculture and
those enterprises that depend upon it. This ‘discrimination’ has typically taken the
form of overvalued exchange rates, state trading monopolies for domestic and
external marketing of agricultural commodities. Additionally, the revenues from
commodity exports have been used for the growth of civil services and urban
development, rather than reinvestment in agriculture.

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20.5CHALLENGES FACED BY RURAL ENTREPRENEURSHIP IN INDIA
1. Family Challenges: Convincing to opt for business over job is easy is not an easy
task for an individual. The first thing compared is – Will you make more money in
the business of your choice or as a successor of family business. This is where it
becomes almost impossible to convince that you can generate more cash with your
passion than doing what your Dad is doing.
2.Social Challenges: Family challenges are always at the top because that is what
matter the most but at times social challenges also are very important. Let us say you
and your friend graduated at the same time. You opted for entrepreneurship and your
friend opted for a job. He now has a flat, car and what not because he could easily
get those with a bank loan but you still have nothing to show off and this is where
the challenge comes.
3.Technological Challenges: Indian education system lags too much from the Job
industry as a whole but then it lags even more when it comes to online
entrepreneurship. What technology would be ideal and how to use that technology
effectively?
4. Financial Challenges: (Difficulty in borrowing fund): Financial challenges are a
lot different in India especially for online entrepreneurs. When you are starting out
as an entrepreneur you don’t opt for venture funding but try to go to funding for
small to medium business people. Many such non-technical business people don’t
understand the online business models as a whole and so getting an initial business
funding from them becomes challenging. The other option you can think of is a loan
but bank loan is not at all an option in India for new online entrepreneurs.
5.Policy Challenges: Now and then there is lots of changes in the policies to change
in the government.

Problems of TRIPS and TRIMS. Problems of raising equity capital, Problems of

availing raw-materials, Problems of obsolescence of indigenous technology
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Increased pollutions Ecological imbalanced. Exploitation of small and poor
countries etc.
A. Opportunities
1. Free entry into world trade.
2. Improved risk taking ability.
3. Governments of nations withdrawn some restrictions
4. Technology and inventions spread into the world.
5. Encouragement to innovations and inventions.
6. Promotion of healthy completions among nations
7. Consideration increase in government assistance for international trade.
8. The establishment of other national and international institutes to support
business among the nations of the world.
9. Benefits of specialization.
10. Social and cultural development
B. Challenges for Rural Entrepreneurs
1. Growth of Mall Culture
2. Poor Assistance-
3. Power Failure
4. Lack of Technical know how
5. Capacity Utilization
6. Infrastructure Sickness
C. Opportunities for Rural Entrepreneurs
1. Crashed Scheme for Rural Development
2. Food for Work Program
3. National Rural Employment Program
4. Regional Rural Development Centers
5. Entrepreneurship Development Institute of India
6. Bank of Technology
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 7. Rural Innovation Funding
8. Social Rural Entrepreneurship.

D. Need for Creating Indian Entrepreneurs- A Snapshot:

A recent Mckinsey& Company-Nasscom report estimates that India needs at
least 8,000 new businesses to achieve its target of building a US$87 billion IT sector.
In the next 10 years, 110-130 million Indian citizens will be searching for jobs,
including 80-100 million looking for their first jobs.
In today’s knowledge based economy is fertile ground for entrepreneurs, in
India. It is rightly believed that India has an extraordinary talent pool with virtually
limitless potential to become entrepreneurs. Therefore, it is important to get
committed to creating the right environment to develop successful entrepreneurs. To
achieve this, India must focus on the following area.
• Create the Right Environment for Success
• Ensure that Entrepreneurs have access to the Right Skill
• Ensure that Entrepreneurs have access to “Smart Capital‟
• Enable Networking and Exchange
• Government Support: Both the Central and State Governments should take more
interest in promoting the growth of entrepreneurship
20.6 PROBLEM OF RURAL ENTREPRENEURSHIP
Entrepreneurs are playing very important role in the development of economy. They
face various problems in day to day work. As the thorns are part of roses, similarly
every flourishing business has its own kind of problems. Some of the major
Problems faced by rural entrepreneurs are as under.

Financial Problems
• Paucity of Funds : Most of the rural entrepreneurs fail to get external funds
due to absence of tangible security and credit in the market. The procedure to avail
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the loan facility is too time-consuming that its delay often disappoints the rural
entrepreneurs. Lack of finance available to rural entrepreneurs is one of the biggest
problems which rural entrepreneur is born now days especially due to global
recession. Major difficulties faced by rural entrepreneurs include low level of
purchasing power of rural consumer so sales volume is insufficient, lack of finance
to start business, reduced profits due to competition, pricing of goods and services,
Financial statements are difficult to be maintained by rural entrepreneur, stringent
tax laws, lack of guarantees for raising up of loans, difficulty in raising capital
through equity, dependence on small money lenders for loans for which they charge
discriminating interest rates and huge rent and property cost. These all problems
create a difficulty in raising money through loans. Landlords in Punjab proved to
be a major source of finance for rural entrepreneurs but the rates of land are reduced
due to global recession so they also lack hard cash nowadays.
Lack of Infrastructural Facilities
The growth of rural entrepreneurs is not very healthy in spite of efforts made by
government due to lack of proper and adequate infrastructural facilities.
• Risk Element :Rural entrepreneurs have less risk bearing capacity due to lack of
financial resources and external support.
Marketing Problems
• Competition : Rural entrepreneurs face severe completion of large sized
organizations and urban entrepreneurs. They incur the high cost of production due
to high input cost. Major problems faced by marketers are the problem of
standardization and competition from large scale units. They face the problem in
fixing the standards and sticking to them. Competition from large scale units also
creates difficulty for the survival of new ventures.
New ventures have limited financial resources and hence cannot afford to spend
more on sales promotion. These units are not having any standard brand name under
which they can sell their products. New ventures have to come up with new
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advertisement strategies which the rural people can easily understand. The literacy
rate among the Problems Faced by Rural Entrepreneurs and Remedies to Solve It
rural consumer is very low. Printed media have limited scope in the rural context.
The traditionally bounded nature, cultural backwardness and cultural barriers add to
the difficulty of communication. People in rural areas mostly communicate in their
local dialects and English and Hindi are not understood by many people. It has been
seen in the recent past that in spite of enough food stocks with government
warehouses, people are dying of starvation. This indicates a problem with the public
distribution system. The producers are not collective in their approach for marketing
their products because they are too widely scattered and uneducated.
• Middlemen
Middlemen exploit rural entrepreneurs. The rural entrepreneurs are heavily
dependent on middlemen for marketing of their products who pocket large amount
of profit. Storage facilities and poor mean of transport are other marketing problems
in rural areas. In most of the villages, farmers store the produce in open space, in
bags or earthier vessels etc. So these indigenous methods of storage are not capable
of protecting the produce from dampness, weevils etc. The agricultural goods are
not standardized and graded.
MANAGEMENT PROBLEMS
• Lake of Knowledge of I.T
Information technology is not very common in rural areas. Entrepreneurs rely
on internal linkages that encourage the flow of goods, services, information and
ideas.
The intensity of family and personal relationships in rural communities can
sometimes be helpful but they may also present obstacles to effective business
relationships. Business deals may receive less than rigorous objectivity and
intercommunity rivalries may reduce the scope for regional cooperation. Decision

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making process and lines of authority are mostly blurred by local politics in rural
areas.
• Legal formalities
Rural entrepreneurs find it extremely difficult in complying with various legal
formalities in obtaining licenses due to illiteracy and ignorance
• Procurement of Raw Materials
Procurement of raw materials is really a tough task for rural entrepreneurs.
They may end up with poor quality raw materials, may also face the problem of
storage and warehousing.
• Lack of Technical Knowledge
Rural entrepreneurs suffer a severe problem of lack of technical knowledge.
Lack of training facilities and extensive services crate a hurdle for the development
of rural entrepreneurship.
• Poor Quality of Products
Another important problem is growth of rural entrepreneurship is the inferior
quality of products produced due to lack of availability of standard tools and
equipment and poor quality of raw materials.
HUMAN RESOURCES PROBLEMS
• Low Skill Level of Workers
Most of the entrepreneurs of rural areas are unable to find workers with high
skills. Turnover rates are also high in this case. They have to be provided with on
the job training and their training is generally a serious problem for the entrepreneur
as they are mostly uneducated and they have to be taught in the local language which
they understand easily.
The industries in rural areas are not only established just to take advantage of
cheap labor but also to bring about an integrated rural development. So rural
entrepreneurs should not look at rural area as their market, they should also see the
challenges existing in urban areas and be prepared for them. Rural entrepreneurs are
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generally less innovative in their thinking. Youths in rural areas have little options
“this is what they are given to believe”. This is the reason that many of them either
work as farm or migrate to urban land.
• Negative Attitude
The environment in the family, society and support system is not conducive
to encourage rural people to take up entrepreneurship as a career. It may be due to
lack of awareness and knowledge of entrepreneurial opportunities. The young and
well educated mostly tend to leave. As per circumstances, rural people by force may
be more self-sufficient than their urban counterparts, but the culture of
entrepreneurship tends to be weak.
20.7 Conclusion
Continuous motivation is needed in case of rural employee which is sometime
difficult for an entrepreneur to Problems In Rural Entrepreneurship Entrepreneurs
are playing very important role in the development of economy. They face various
problems in day to day work. As the thorns are part of roses, similarly every
flourishing business has its own kind of problems.
Questions
1. What is rural entrepreneurship?
2. What are the basic principles of entrepreneurship in rural development?
3. How the rural entrepreneurship is changing the environment?
4. What are the effects of globalization in rural entrepreneurship?
5. What are the challenges faced by rural entrepreneurship in India?
6. Explain the problems of rural entrepreneurship?

CHAPTER– 21
21.1 Introduction
21.2 Concept of Women entrepreneur
21.3 Functions of Women entrepreneur
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21.4 Problems/Challenges faced by women entrepreneurs
21.5 Developing women entrepreneurs
21.6 Schemes for women entrepreneurs
21.7 STEPS TAKEN BY GOVERNMENT FOR THE DEVELOPMENT OF
WOMEN ENTREPRENEURS
21.8 Conclusion

WOMEN ENTREPRENEURS
21.1 Introduction
Women Entrepreneurs may be define as the women or a group of women who
commence and operate a business venture. . Like a male entrepreneurs a women
entrepreneur has many functions. They should explore the prospects of starting new
enterprise; undertake risks, introduction of new innovations, coordination,
administration and control of business and providing effective leadership in all
aspects of business. Government of India has described women entrepreneurs as an
enterprise/venture owned and controlled by women having at least financial interest
of 51% of the capital and giving at least 51% of employment generated in the
organization to women.
21.2 Concept of women Entrepreneur
Women entrepreneur may be defined as the women or group of women who
take initiative to set up a business enterprise and to run it smoothly.
According to Schoumpeter’sconcept, “women who innovate, imitator adopt
a business activity are known as women entrepreneur”.
Government of India, based on women participation in equity and
employment of a business enterprise has defined women entrepreneurs as “an
enterprise owned and controlled by a women having a minimum financial interest
of 51% of a capital and giving atleast 51% of the employment generated in the
enterprise to women”.
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 However the definition of Government of India has been criticized by many
on the condition of employment of atleast 51% of women worker.
To conclude, we can define “women entrepreneurs are those who generated
business idea, set up an organization, combined the factors of production, operate
the unit undertake risks and handle problems involved in operating a business
enterprise.
21.3 FUNCTIONS OF WOMEN ENTREPRENEUR
Being an entrepreneur woman also should perform all the functions, which an
entrepreneur is expected to, perform in establishing an enterprise. Functions of
entrepreneurs generally involve idea generation and screening, determination of
objectives, preparation of project, analyzing product, deciding the form of
organization, promoting and enterprise, rising funds, recruiting men, arranging for
machines, materials etc. and running the business.
Decides, whether men or women, an entrepreneur is expected to perform the
functions brought under the following three categories
1. Risk bearing
2.organisation, and
3. Innovations.
Frederick Harbison in his article has enumerated the following as the
functions of a women entrepreneur:
1. Exploring the prospects of starting new enterprise.
2. Undertaking of risks and the handling of uncertainties.
3. Introduction of new innovations.
4. Imitation of successful ones in existence.
5. Coordination, administration and control of business activities.
6. Supervising and leading in all aspects of the business
21.4PROBLEMS/CHALLENGES FACED BY WOMEN ENTREPRENEURS

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 Being successful entrepreneur is so difficult because it is not easy to research,
plan, organize, launch and manage an entrepreneurial venture successfully. Besides,
due to race/gender, entrepreneurs face some additional challenges. Especially,
minority and women entrepreneurs face all sorts of challenges.
1. Problem of Finance
The main challenge, which women entrepreneurs face, is getting the funding
they need to start and grow their businesses. Access to capital is a serious issue for
minority and women entrepreneurs. A study by the Federal Reserve System of Small
– business Financing Patterns found that minority small – business owners have an
extremely hard time in getting credit.
Studies have shown that they have lower levels of available credit than do
their male counterparts. So, the capital problem is definitely real and very serous.
Access to capital to start and grow their entrepreneurial ventures is an extremely
difficult barrier for women entrepreneurs.
2. Conflict between Work and Family
Another challenge that women entrepreneurs, particularly, face is the conflict
between work and family. Although this issue can, and does, arise for male
entrepreneurs also, it is especially acute for women because many child – rearing
and family responsibilities fall on them. Being an entrepreneur can be a 24 X 7( 24
hours a day, 7 days a week) commitment. Running a successful business often
means finding a healthy balance between work and family levels.

3. Shortage of Raw Material

Scarcity of raw materials is yet another challenge that women entrepreneurs
face. They suffer from higher prices and lower discount rates.
4. Stiff Competition

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 Women entrepreneurs face intense competition for their goods from organized
sector and male entrepreneurs. This is because they do not have enough funds to
spend on advertisement; canvassing, and publishing their products.
5. Limited Mobility
In our country, mobility of women is highly limited on account of various
reasons. They cannot travel freely from one place to another for business reasons.
In order to set up an organization, an entrepreneur has to get sanctions at varied
levels from various government departments all of which require free mobility. This
is not possible in India.
6. Low Literacy Rate among women
Rate of literacy among women is very low in India. Education is important
for a person to be aware of latest technology, business trends, market knowledge etc.
this creates additional problem for women entrepreneurs in setting up and running
business enterprises.
7. Male – Dominated Society
Male – domination is still the order of the day in our country. Equality
between sexes is only on paper, speeches, constitution etc. In practice, still women
are considered weak in all aspects. Men in the society dominate the business world
and men in the families do not permit female members to start their ventures. The
reputation of the family, the sense of prestige etc. come to the forefront. Discipline
and integrity are demanded from the women. Their legitimate freedom and right to
self – development and independent pursuit are denied. This acts as another barrier
to women entrepreneurship.

8. Lack of Motivation
Feat to failure is too much in women than men. This far creates no motivation
in them. Hence, lack of motivation among women entrepreneurs is considered as
another barrier, which stands in the development of women entrepreneurs.
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 9. Low Achievement Need.
Need for achievement is the most important pre-requisite for success in
entrepreneurship. In India, urge to achieve is lacking. It acts as another barrier to
succeed in their venture.
10. Low Risk – bearing Capability
Generally, women in India are confined to the four walls of the house. They
are less educated and thus, economically backward. This reduces their risk – bearing
capability while running the enterprise.

11. Discrimination in Upbringing

Right from early childhood, girls are taught not to be aggressive or
independent. Initially they depend upon parents, later upon husbands and in old age
upon sons. They are discouraged to move out of the family and take up their
business. Such type of conservative attitude of the family members makes the
women weak and passive in their approach. Normally others take decisions for them.
12. Marketing Problems
Marketing is another area, which very often proved to be the graveyard of
many small scale women entrepreneurs. It has been found the small scale
entrepreneurs, owing to the high achievement orientation. Generally set higher goals
in terms of marketing of their products or services but later on find them difficulty
to achieve because of heavy competition, incurring huge advertisement cost and
many other extraneous factors.
13. Occupational Mobility Problems.
Occupational mobility, such as shifting from one product line to another is an
area where women entrepreneurs generally found to be more at a disadvantageous
position than their male counterparts.
14. Government Assistance Problems

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 The women entrepreneurs were exasperated by the indifferent attitude of
government officials of all the small industry related departments like taxation,
labour, power, etc. i.e., when the authorities come to know that the unit is being run
by a women, they discourage allotting sale tax number and giving electricity
connection. Above all they have ignorance about various procedures, laws and
complicated bureaucratic set up while dealing with entrepreneurial support
organizations.
15. Production Problems
Production in a manufacturing enterprise involves coordination of a number
of activities. While some of these activities are in the control of entrepreneur there
are others over which she has little control. Improper coordination or unintended
delay in execution of any activity is going to cause production problems in the
industry.
16. Personnel problems
Efficient management of human resources is an important factor in
determining the growth and prosperity of business enterprise; this is particularly true
in case of small industry where the owners have to forge a close and more personal
association with their employees. The women entrepreneurs also expressed their
inability to change the negative attitude of labour force while some of them
complained of unionism amongst them. Moreover the women entrepreneurs
admitted the lack of experience and self – confidence on their part to deal with
personnel working in their organizations.
17. Cut – throat competition with other group of men and established self –
sufficient entrepreneurs
Women entrepreneurs do not have a proper organizational set – up to pump
in a lot of money for canvassing and advertisements. Thus they have to face a stiff
competition with the men entrepreneurs who easily involve in the promotion and
development area and carry out easy marketing of their products with both the
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organized sector and their male counterpart. Such a competition ultimately results in
the liquidation of women entrepreneurs.
18. Absence of proper support and back – up for women by their own family
members and the outside world people
Many a times their own family members are not supporting and cooperating
as well as having encouraging attitude to dare to enter into the entrepreneurship field.
They are always making many pessimistic feelings to be aroused in their
minds and making them feel that family and not business is a place meant for them.
Due to such limited scope of help and cooperating from family and other people,
they drop the idea of excelling in the enterprise field.
Besides women entrepreneurs face the challenges of managing business growth
successfully, finding and keeping qualified employed, and keeping up with
technology and other market changed. These are the challenged that all
entrepreneurs face. However, due to society’s slowly changing attitudes toward
women entrepreneurs, they often face additional problems in handling these issues.
Some people may question whether women entrepreneurs may have to prove
themselves before some people will do business with them. Although these attitudes
may seem out of place in today’s multicultural and increasingly tolerant society,
these issues are real of women entrepreneurs. However, even with the additional
challenges they face, women entrepreneur are “Making it”.
Apart from the above discussed problems there may occur other series of
serious problems faced by women entrepreneurs are improper infrastructural
facilities, high cost of production, attitude of people of society towards the women,
modern business outlook, low needs of achievement and socio – economic
constraints often put s women behind in the field of enterprise.

Solution for solving the above discussed problems

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1. There should be a continuous attempt to inspire, encourage, motivate and co-
operate women entrepreneurs.
2. Attempts should be made to enhance the standards of education of women in
general well making effective provisions for their training, practical
experience and personality development programmes, to improvise their
overall personality standards.
3. Attempts to establish for them proper training institutes for enhancing their
level of work – knowledge, skills, risk – taking abilities, enhancing their
capabilities.
4. Attempts to bring about a society attitude change, generation of awareness
and consciousness on the policy of self – development of women
entrepreneurs.
5. Attempts by various NGO’s and government organizations to spread
information about policies, plans and strategies on the development of women
in the field of industry, trade and commerce.
6. Establishing various policies to offer easy finance schemes for economically
strengthening the position of women.
7. Forming a cooperative association of women entrepreneurs to mobilize
resources and pooling capital funds, in order to help the women in the field of
industry, trade and commerce.
8. Offering seed capital, up – liftmen schemes, women entrepreneurs fund etc.
to encourage the economically.
9. To extend concessional rates facilities and schemes for women entrepreneurs
to prosper in the field in the enterprise.
10. To establish all India forums to discuss the problems, grievances, issues, and
filling complaints against constraints or shortcomings towards the economic
progress path of women entrepreneurs and giving suitable decisions in the
favour of women entrepreneurs and taking strictly stand against the policies
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 or strategies that obstruct the path of economic development of such group of
women entrepreneurs. Thus by adopting the following aforesaid measures in
letter and spirit the problems associated with women can be solved.
21.5 Developing women entrepreneurs
Following efforts can be taken into account for effective development of
women entrepreneurs.
1. Consider women as specific target group for all developmental programmers.
2. Better educational facilities and schemes should be extended to women folk
from government art.
3. Adequate training programme on management skills to be provided to women
community
4. Encourage women’s participation in decision – making
5. Vocational training to be extended to women community that enables them to
understand the production process and production management
6. Skill development too be done in women’s polytechnics and industrial
training institutes. Skills are put to work in training – cum – production
workshops.
7. Training of professional competence and leadership skill to be extended to
women entrepreneurs.
8. Training and counseling on a large scale of existing women entrepreneurs to
remove psychological causes like lack of self – confidence and fear of success.
9. Counseling through the aid of committed NGO’s psychologists, managerial
experts and technical personnel should be provided to existing and emerging
women entrepreneurs.
10. Continuous monitoring and improvement of training programmers.
11. Activities in which women are trained should focus on their marketability and
profitability
12. Making provision of marketing and sales assistance from government part.
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13. To encourage more passive women entrepreneurs the women training
programme should be organized that taught to recognize her own
psychological needs and express them.
14. State finance corporations and financing institutions should permit by statute
to extend purely trade related finance to women entrepreneurs.
15. Women’s development corporations have to gain access to open – ended
financing
16. The financial institutions should provide more working capital assistance both
small scale venture and large scale ventures
17. Making provisions of micro credit system and enterprise credit system to the
women entrepreneurs at local level.
18. Repeated gender sensitization programmers should be held to training
financiers to treat women with dignity and respect as persons in their own
right.
19. Infrastructure, in the form of industrial plots and sheds, to set up industries is
to be provided by state run agencies.
20. Industrial estate could also provide marketing outlets for the display and sale
of products made by women
21. A Women Entrepreneur’s Guidance cell should be set up to handle the various
problems of women entrepreneurs all over the state.
22. District Industries Centers and Single Window Agencies should make use of
assisting women in their trade and business guidance.
23. Programmers for encouraging entrepreneurship among women are to be
extended at local level/
24. Training in entrepreneurial attitudes start at the high school level through well
– designed courses, which build confidence through behavioural games.
25. More governmental schemes to motivate women entrepreneurs to engage in
small scale and large scale business ventures.
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 26. Involvement of Non – Governmental Organizations in women entrepreneurial
training programmes and counseling.
21.6 Schemes for women entrepreneurs
Government, bank, and financial institutions have introduced different
schemes for the development of women entrepreneurs in India. Of them important
schemes are discussed below:
1. Development of women and children in Rural Areas (DWCRA)
DWCRA is a scheme introduced by Government of India for the
encouragement of women entrepreneurship. Generally a woman is unable to
start a venture (independently) due to various reasons. The concept of
teamwork has been introduced to make them courageous enough to start their
own enterprises. This idea has been incorporated into a scheme and the
Government implemented the scheme known as “The Development of women
and children in Rural Areas (DWCRA)”
2. Schemes of IDBI
a. Interest subsidy scheme: IDBI has formulated this scheme to encourage
entrepreneurial development among women. IDBI provides training and post 0
training follow up expenditure upto Rs. 10,000.
Successful trained are eligible for interest subsidy up to Rs. 25,000 for one year
if their start small scale unit. If the unit is medium scale, interest subsidy payable
is Rs. 50,000
b. Refinance scheme: IDBI extends refinance facilities to banks and state
financial corporation’s for their credits to women entrepreneurs. It is 100% in
case of SFCs, and 75% n case of commercial banks.
c. MahilaUdyamNidhi (MUN): The IDBI has set up a special fund called
MahilaUdyamNidhi with a corpus of Rs. 5 crores in order to provide seed capital
assistance to women entrepreneurs who proposed to set up projects in SSI sectors.

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 The scheme is implemented by SIDBI. Here the following norms are followed
by SIDBI
i. Debt equity ration should be 3: 1
ii. Seed capital assistance is provided in the form of soft loan up to a maximum
of 15% of the fixed cost
iii. Minimum promoter’s contribution is 10% of the fixed cost
iv. Service charge of 1% per annum is charged
v. Repayment period is 10 years including an initial moratorium period of 5
years
vi. Seed capital assistance is provided without insisting on security.
d. MahilaVikaNidhi (MVN) :This scheme extends assistance to the voluntary
agencies that are engaged in extending to the entrepreneurs training in production
methods, management and skill upgradation. Under this scheme women are giving
loan to start their venture in the field like spinning, weaving, embroidery products,
block printing, handlooms handicraft, bamboo products etc.
e. Indirect loan :IDBI has introduced another scheme under which it grants
indirect loans. It is called indirect loans because loans are granted through state
finance corporations and state industrial development corporations. The scheme
is now transferred to small industries development bank of India.
3. Scheme of Karnataka SFC
With a view to encourage women entrepreneurs to start enterprises, the
corporation grants loans u to Rs. 60 lakhs for private and public limited companies,
and up to Rs. 30 lakhs to proprietorship and partnership concerns. Interest rates are
12% for backward areas, and 13% for all places of Karnataka other than Bangalore
metropolitan area, and North and south Taluks of Bangalore. In case of prompt
repayment is to be made within a period of 8 years.
4. Scheme of IFCI: Industrial Finance Corporation of India grants interest
subsidy up to Rs. 20,000 to industrial units set up by women entrepreneurs.
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 5. Rajasthan Financial Corporations Scheme: In order to promote enterprises
by women entrepreneurs, Rajasthan Financial Corporation grants loans up to Rs. 10
lakhs. Contribution towards share capital by the entrepreneurs is 10% of the project
cost. It allows seed capital assistance up to 15% of the project cost.
6. SBI StreeShakthi Package: The Stree Shakti Package is a unique scheme
run by the SBI, aimed at supporting entrepreneurship among women by providing
certain concessions. An enterprise should have more than 50% of its share capital
owned by women to qualify for the scheme.
The concessions offered under the Stree Shakti Package are:
• The margin will be lowered by 5% as applicable to separate categories.
• The interest rate will be lowered by 0.5% in case the loan exceeds Rs 2 lakh.
• No security is required for loans up to Rs 5 lakh in case of tiny sector units.
7. SIDBI’s Assistance for women entrepreneurs: The Small Industries
Development Bank of India (SIDBI) has designed schemes for providing financial
assistance to women entrepreneur’s These schemes aim at the following objectives.
i. Providing training and extension services according to their small socio –
economic status
ii. Providing financial assistance at concessional terms to help them in setting
up tiny and small units.
8. Bank of India’s PriayadarshiniYojana: With a vision to make powerful the
women by offering loans to women industrialist, a proposal named as
‘PriyadarshiniYojana’ was started in the year of 1989 in India. In this
‘PriyadarshiniYojana’ women industrialist are comprehensive loan services at
liberal conditions & at concessional fee of interest, for financial actions. The
prominent features of the proposal currently are as listed below:-
Eligibility
Women entrepreneurs should be there and she must be havinghold of not fewer than
fifty one percent the fiscal holding.
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Purpose
For financial actions such as:
i) Buy apparatus, machinery, means of transportation, fixtures / furniture etc.
required for assets investment & working resources requirements
ii) Farming and Allied actions
iii) Education credit
Loan Amount
Loan amount depends on the need and project expenditure/ earnings etc.
9. Some Microfinance options available to under – privileged women:
Microfinance is a type of banking service which provides access to financial and
non-financial services to low income or unemployed people. Microfinance is a
powerful tool to self-empower the poor people especially women at world level and
especially in developing countries. Microfinance activities can give them a means to
climb out of poverty. From early 1970's women movement in number of countries
increasing to alleviate poverty through microfinance programs. The problem of
women less access to credit was given a particular concentration at First
International Women Conference in Mexico in 1975. The evolution of microfinance
is from Bangladesh since late 1970s and a very successful project.

But in Pakistan, the movement of microfinance sector started from Agha Khan Rural
Support Program (AKRSP) and Orangi Pilot Project (OPP). With the passage of time
microfinance becomes NGO activity and five microfinance banks have been started
under State Bank of Pakistan (SBP) ordinance. Microfinance services lead to women
empowerment by positively influencing women’s decision making power at
household level and their overall socioeconomic status. By the end of 2000,
microfinance services had reached over 79 million of the poorest of the world. As
such microfinance has the potential to make a significant contribution to gender
260
equality and promote sustainable livelihood and better working condition for
women. (ILO Geneva) It has been well documented that an increase in women
resources or better approach for credit facilities results in increased well being of the
family especially children.
Presently, in most of the developing countries like India higher emphasis is
being laid upon the development of women as an entrepreneurs and their active
participation in the development process of their country. Women can be successful
and better entrepreneurs if given the much needed conducive environment and
provided with enough resources most importantly the required amount of capital.
The studies of rural women have proved their business excellence. They have been
found to be better in credit utilisation than men but because of lack of access to assets
they are often more vulnerable to poverty than males.
10. Dena Bank :This bank has special schemes to finance women entrepreneurs.
Some incentives offered are 5% concession in the interest rate, no processing fee,
easy payment options and no penalty for repayment. The loan amount is up to 5
lakhs for women entrepreneurs who are professionals. The loan is also extended to
artists, small and medium cottage industries run by women.
11. Canarabank :This is a loan to meet the financial needs of women, who may
be house wives, working women or self-employed women. It can be used to buy
house hold articles, gold, jewelry computers etc. Women between the ages of 18 to
55 can avail this loan. For the salaried and self-employed as well as for women with
a family income of 1.5 lakhs, the loan limit is 50,000 INR.
12. Union bank of India :
Name of the loan: VIKLANG MAHILA VIKAS YOJANA This is a special
scheme for handicapped women for starting their own ventures. Physically
handicapped women are identified and after providing vocational training according
to their aptitude, financial assistance of 25,000 is offered to start the new venture.

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13. UCO bank :This scheme is to provide financial assistance to salaried women
.Concession is offered on interest and the repayment is in 5years in equated
installments.
14. Central Bank of India
Name of the loan :Cent Kalyani : This scheme is specially introduced to offer
financial assistance to Women Entrepreneurs for economic pursuits in Industry,
Agricultural and Allied Activities, Business or Profession. The Bank with a network
of branches spread throughout the country welcomes women entrepreneurs to avail
financial assistance for pursuing vocations of their choice.
15. Oriental Bank of Commerce :In this special scheme for the benefit of
woman entrepreneurs, the loan amount offered is between 2 and 10 lakhs, with a 2
percent concession in interest. Loans above 10 lakhs are also offered at 1 percent
concession. Enterprises consisting of all units managed by women and where they
have a share of 51 percent are eligible for this loan. In case of term loans, the
repayment period is up to seven years with a maximum grace period of 12 months
depending on the nature of the activity.

16. ICICI Bank :

Name of the loan : Women Account This is a scheme formulated by the new
generation bank for women. Under the scheme any woman, with any relative having
an account in the bank can open an account without any documentation.
21.7 STEPS TAKEN BY GOVERNMENT FOR THE DEVELOPMENT OF
WOMEN ENTREPRENEURS
1. Steps taken in Seventh Five-Year Plan: In the seventh five-year plan, a special
chapter on the “Integration of women in development” was introduced by
Government with following suggestion:
(i) Specific target group: It was suggested to treat women as a specific target groups
in all major development programs of the country.
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(ii) Arranging training facilities: It is also suggested in the chapter to devise and
diversify vocational training facilities for women to suit their changing needs and
skills.
(iii) Developing new equipment: Efforts should be made to increase their
efficiency and productivity through appropriate technologies, equipment and
practices.
(iv) Marketing assistance: It was suggested to provide the required assistance for
marketing the products produced by women entrepreneurs.
(v) Decision-making process: It was also suggested to involve the women in
decision-making process.
2. Steps taken by Government during Eight Five-Year Plan: The Government of
India devised special programs to increases employment and income-generating
activities for women in rural areas. The following plans are lunched during the Eight-
Five Year Plan:
(i) Prime Minister RojgarYojana and EDPs were introduced to develop
entrepreneurial qualities among rural women.
(ii) ‘Women in agriculture’ scheme was introduced to train women farmers having
small and marginal holdings in agriculture and allied activities.
(iii) To generate more employment opportunities for women KVIC took special
measures in remote areas.
(iv) Women co-operatives schemes were formed to help women in agro-based
industries like dairy farming, poultry, animal husbandry, horticulture etc. with full
financial support from the Government.
(v) Several other schemes like integrated Rural Development Programs (IRDP),
Training of Rural youth for Self-employment (TRYSEM) etc. were started to
alleviated poverty.30-40% reservation is provided to women under these schemes.
3. Steps taken by Government during Ninth Five-Year Plan: Economic
development and growth is not achieved fully without the development of women
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entrepreneurs. The Government of India has introduced the following schemes for
promoting women entrepreneurship because the future of small scale industries
depends upon the women-entrepreneurs:
(a) Trade Related Entrepreneurship Assistance and Development (TREAD) scheme
was lunched by Ministry of Small Industries to develop women entrepreneurs in
rural, semi-urban and urban areas by developing entrepreneurial qualities.
(b) Women Comkp0onent Plant, a special strategy adop0ted by Government to
provide assistance to women entrepreneurs.
(c) SwarnaJayanti Gram SwarozgarYojana and
SwaranJayantiSekhariRozgarYojana were introduced by government to provide
reservations for women and encouraging them to start their ventures.
(d) New schemes named Women Development Corporations were introduced by
government to help women entrepreneurs in arranging credit and marketing
facilities.
(e) State Industrial and Development Bank of India (SIDBI) has introduced
following schemes to assist the women entrepreneurs. These schemes are:
(i) MahilaUdyamNidhi
(ii) Micro Cordite Scheme for Women
(iii) MahilaVikasNidhi
(iv) Women Entrepreneurial Development Programmes
(v) Marketing Development Fund for Women
4. Consortium of Women entrepreneurs of India provides a platform to assist the
women entrepreneurs to develop new, creative and innovative techniques of
production, finance and marketing.
There are different bodies such as NGOs, voluntary organizations, Self-help
groups, institutions and individual enterprises from rural and urban areas which
collectively help the women entrepreneurs in their activities.
5. Training programmes:
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The following training schemes specially for the self-employment of women are
introduced by government:
(i) Support for Training and Employment Programme of Women (STEP).
(ii) Development of Women and Children in Rural Areas (DWCRA).
(iii) Small Industry Service Institutes (SISIs)
(iv) State Financial Corporations
(v) National Small Industries Corporations
(vi) District Industrial Centres (DICs)
6. MahilaVikasNidhi:
SIDBI has developed this fund for the entrepreneurial development of women
especially in rural areas. Under MahilaVikasNidhi grants loan to women are given
to start their venture in the field like spinning, weaving, knitting, embroidery
products, block printing, handlooms handicrafts, bamboo products etc.
7. RashtriyaMahilaKosh: In 1993, RashtriyaMahilaKosh was set up to grant micro
credit to pore women at reasonable rates of interest with very low transaction costs
and simple procedures.
21.8 Conclusion: Entrepreneurship among women, no doubt improves the wealth
of the nation in general and of the family in particular. Women today are more
willing to take up activities that were once considered the preserve of men, and have
proved that they’re second to no one with respect to contribution to the growth of
the economy. Women entrepreneurship must be moulded properly with
entrepreneurial traits and skills to meet the changed in trends, challenges global
markets and also be competent enough to sustain and strive for excellence in the
entrepreneurial arena.
Questions:
1. Explain the concept of women entrepreneurs.
2. Explain the function of women entrepreneurs.
3. What are the problems faced by women entrepreneurs?
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4. How to solve the problems of women entrepreneurs?
5. How do we develop the women entrepreneurs?
6. What are the schemes are available for women entrepreneurs?
7. What are the steps taken by the Government for the development of
women entrepreneurs?

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