Home | | Entrepreneurship Development | Government Policies for Small Scale Enterprises

Chapter: Business Science : Enterpreneurship Development : Entrepreneural Environment

Government Policies for Small Scale Enterprises

Small scale enterprises have been given an important place in the framework of Indian planning for both ideological and economic reasons.

Government Policies for Small Scale Enterprises


Small scale enterprises have been given an important place in the framework of Indian planning for both ideological and economic reasons.


Development of small scale enterprises has imbued with a multiplicity of objectives.


Important among these are


The  generation  of  immediate  employment  opportunity  with  relatively  low  investment  The promotion of more equitable distribution of national income


Effective mobilization of untapped capital and human skills


Dispersal of manufacturing activities all over the country, leading to growth of villages, small towns and far- ung economically lagging regions



So, the government of India has started various programmes for the development of small scale sector in India.


The governments objectives and intentions towards industry including SSI were announced through industrial policy resolutions (IPR).


Government Policy for Small Scale Enterprise


Nation is said to be far well to do if it has a much industry as it has industrial policy.


IPR 1948


The IPR 1948 for the rst time, accepted the importance of small scale industries in the overall industrial development in the country.


It was well realized that small scale industries are utilized most of the local resources and create employment opportunities.


Moreover, they have to face problems of raw materials, capital, skilled labour, marketing etc. since a long period of time.


Therefore, emphasis was laid in the IPR 1948 that these problems of small scale enterprises should be solved by the central government with cooperation of the state governments.


In nutshell, the main thrust of IPR 1948 as far as possible small scale enterprises were concerned was 'Protection'.


IPR 1956


The IPR 1948 set in the nature and pattern of industrial developments taken place in the country.


For example, planning has proceeded on an organized manner and the rst ve year plan 1951 - 1956 has been completed.


Industries development and Regulation Act (IDR Act), 1951 was also introduced to regulate and control industries in the country.


The Parliament had also accepted 'the socialist pattern of society' as the basic aim of social and economic policy during this period.


It was this background that the declaration of a new industrial policy resolution seemed essential. This came in the form of IPR 1956.


The IPR 1956 provided that along with continuing policy support to the small sector, it also aimed at to ensure that decentralized sector acquires su cient vitality to self-supporting and its development is integrated with that of large scale industry.


To mention, some 128 items were reserved for exclusive production in the small sector. Besides the SSIB constituted a working group in 1959 to examine and formulate a


development plan for small scale industries during the third ve year plan 1961 - 1966.


In the third ve year plan period, speci c development like 'Rural Industrial Projects' and 'Industrial Estates Projects' were started to strengthen the small sector.


Thus to the earlier emphasis of protection was added to development. The IPR 1956 for small scale industries aimed at 'Protection + Development'. The IPR 1956 initiated the modern SSI in India.


IPR 1977


The IPR 1977 classi ed small sector into three categories



     Cottage and household industries which provides self employment on a large scale.


     Tiny sector incorporating investment in industrial unit in plant machinery upto Rs.1 lakh and situated in towns with a population of less than 50,000 according to 1971 census.


     Small Scale Industries comprising of industrial unit with an investment of upto Rs.10 lakhs and in case of ancillary units with an investment of upto Rs.15 lakhs.


From the small scale sector was thus, to be 'protected, developed and promoted'.


IPR 1980


The government of India adopted a new industrial policy resolution (IPR) on July 23, 1980.


The main objectives of IPR 1980 was de ned as facilitating an increase of industrial production through optimum utilization of installed capacity and expansion of industries.


·        Introduction of the concept of nucleus plants to replace the earlier scheme of the district industry centre (DIC), in each industrially background district to promote the maximum small scale industries there.


·        Promotion of village and rural industries to generate economic viability in the villages well compatible with the environment.



Thus the IPR 1980 re-emphasized the spirit of 1956. The small scale sector still remained that the best sector to generating wage and self-employment based opportunities in the country.


IPR 1990


The IPR 1990 was announced during June 1990.As to the small sector the resolution continued to give increasing importance to small scale enterprises to serve the objective of employment generation.


The important elements included in the resolution to boost the development of small scale sector were as follows.


·                 The investment ceiling in plant and machinery for small scale industries was ( xed in 1985) raised from Rs.35 lakshs to Rs.60 lakshs and correspondingly for ancillary units from Rs.45 lakhs to Rs.75 lakhs.


·                 Investment ceiling for tiny units has been increased from Rs.2 lakhs to Rs.5 lakhs provided the unit is located in the area having a population of 50,000 as per 1981 causes.


·                 As many as 836 items was reserved for exclusive manufacture in small scale sector.


·                 A new scheme of initial investment subsidy exclusively for small scale sector in rural and backward areas capable of generating more employment at lower cost of capital had been mooted and implemented.


·                 A new scheme of initial investment, with a vireo to improve the competitiveness of the products manu-factured in the small scale sector, programmes of technology up graduation will be implemented under the umbrella of an apex Technology development centre in small industries development organization (SIDO).


·                 Greater emphasis on training of women and youth under EDP (entrepreneurship development


pro-gramme) and to establish a special call in SIDO for the purpose. New Small Enterprise Policy 1991


The government of India, for the rst time, tabulated the new small enterprise policy titled 'Policy measures for promoting and strengthening small, tiny and village enterprises' in the parliament on August 6, 1991.


The main thrust of New small enterprise policy is to impact more vitality and growth impetus to the sector which enable it to contribute its mite fully to the economy , particularly in terms of growth of output, employment and exports.


Salient features of the new small enterprise policy


The investment limit has been increased in plant and machinery of tiny enterprises from Rs.2 lakh to Rs.5 lakh based on their location.


Inclusion of industry related service and business enterprises, based on their location as SSI. To limit the nancial liability of the new entrepreneurs to the capital investment. A new partnership act has been introduced.


Introduction of a scheme of integrated infrastructural development including technological backup services for small scale industries.


An factoring services have to be introduced to solve the problems of delayed payment to smallsector.


Market promotion of small scale industries products through cooperative/ public sector institu-tions, order specialized professional and the consortium approach.




In the small industries development organization (SIDO) an export development centre (EDC) has to be set up.


To widen the scope of National Enquiry Fund (NEF) to enlarge the single window scheme and also to associate commercial banks with provision of composite loans.


Important points on the New small enterprise policy are;


The new policy is founded on a proper understanding of the fundamental problems of small sector and the measure proposed it are well directed to mitigate the various handicaps that faces their sector.


The new policy provides for continuous support to the tiny sector like easier access to institutional nance, preference in government purchase and relaxation of certain labour laws. Since tiny sector is the nursery of the traditional skill, the proposed package of incentives for tiny sector will help its grow with more vitality.


One important feature is the introduction of new legal form of organization of business, namely restricted (or) limited partnership. As per this form the liability of atleast one partner is unlimited and the liability of other partner is limited to their invested capitals.


This can be considered as a welcome provision. It will attract equity capital from friends and relatives who were earlier reluctant to advance their funds due to the limited liability of the partners.


The important plan proposal (1992-1999)


The main function of the eighth ve year plan has been employment generation as the motive for economic growth to ful ll these objectives, small and village industries have been assigned for an extremely important role.


The important plan proposal in the year 1992-1997 are;


·        The plan has reiterated that timely and adequate availability of credit is of more importance than concessional credit. So with the establishment of SIDBI, sanction of composite loans under 'Single Window Concept' concessional loan to state corporations for infrastructure development and provision of factory services have been introduced. It proposes to establish appropriate tool rooms and training institution to upgrade technology.


·        The growth centre approach has been established to measure industrial disputes and is under imple-mentation. In the year 1992-1997, to growth centres are developed and completed.


·        An integrated centre approach has been established in the eighth plan.



New policy initiative in 1997-2000 for the small scale sector



o   Announcement of a new credit insurance scheme in the year (1999-2000), particularly exported oriented & tiny units.


o   The working capital limit for SSI unit is determined by the bank on the basis of 20 percent of their annual turnover.


o   Exemption from excise duty, as given to SSI units, will be extended to goods bearing a brand name of another manufacturer in rural area.


o   A national programme for rural industrialization has been announced, with a mission to setup 100 rural clusters per year, to give a boost to rural industrialization.


o  Cotton yarn has been introduced in the general exercise exemption scheme for SSIs.


o       The investment limit for small scale and ancillary undertakings has been reduced from Rs.3 Crores to Rs.1 Crore.


o   Small job workers, engaged in printing of glazed titles, have been exempted from excise duty.


Entrepreneurial Initiatives in India- “Government and Non Government Support”


Delhi Technical University announced the setting up of water technology and management centre with the support of UNESCO.


The Entrepreneurship Development Cell (EDC) of University School of management Studies, Guru Gobind Singh Indraprastha University (GGSIPU) has launched a one month business skill development programme in association with the Ministry of Micro, Small and Medium Enterprises. Representatives from KVIC, NABARD will share their knowledge.


NASSCOM has signed a Memorandum of Understanding (MoU) with University Grants Commission (UGC), for


Faculty Development Programme (FDP) Re-skilling the faculty in IT


Framework for co-operation to catalyze industry-academia interface




The Role of Government in Supporting Entrepreneurship


Small and Medium-sized Enterprises (SMEs) in market economies are the engine of economic development. Owing to their private ownership, entrepreneurial spirit, their flexibility and adaptability as well as their potential to react to challenges and changing environments, SMEs contribute to sustainable growth and employment generation in a significant manner.


SMEs have strategic importance for each national economy due a wide range of reasons. Logically, the government shows such an interest in supporting entrepreneurship and SMEs. There is no simpler way to create new job positions, increasing GDP and rising standard of population than supporting entrepreneurship and encouraging and supporting people who dare to start their own business. Every surviving and successful business means new jobs and growth of GDP.


Therefore, designing a comprehensive, coherent and consistent approach of Council of Ministers and entity governments to entrepreneurship and SMEs in the form of government support strategy to entrepreneurship and SMEs is an absolute priority. A comprehensive government approach to entrepreneurship and SMEs would provide for a full coordination of activities of numerous governmental institutions (chambers of commerce, employment bureaus, etc.) and NGOs dealing with entrepreneurship and SMEs. With no pretension of defining the role of government in supporting entrepreneurship and SMEs, we believe that apart from designing a comprehensive entrepreneurship and SMEs strategy, the development of national SME support institutions and networks is one of key condition for success. There are no doubts that governments should create different types of support institutions:


i) To provide information on regulations, standards, taxation, customs duties, marketing issues;


ii) To advise on business planning, marketing and accountancy, quality control and assurance;


iii)  To create incubator units providing the space and infrastructure for business beginners and innovative companies, and helping them to solve technological problems, and to search for know-how and promote innovation; and


iv)To help in looking for partners. In order to stimulate entrepreneurship and improve the business environment for small enterprises.


Policies And Schemes For Promotion Of MSME Implemented By State Governments


All the State Governments provide technical and other support services to small units through their Directorates of Industries, and District Industries Centres. Although the details of the scheme vary from state to state, the following are the common areas of support.


1.     Development and management of industrial estates


2.     Suspension/deferment of Sales Tax


3.     Power subsidies


4.     Capital investment subsidies for new units set up in a particular district


5.     Seed Capital/Margin Money Assistance Scheme


6.     Priority in allotment of power connection, water connection.


7.     Consultancy and technical support


Government of India runs a scheme for giving National Awards to micro, small and medium scale entrepreneurs providing quality products in 11 selected industry groups of consumer interest. The winners are given trophy, certificate and a cash price of Rs. 25000/- each.


Government accords the highest preference to development of MSME by framing and implementing suitable policies and promotional schemes like policies and promotional schemes, providing incentives for quality upgradation, concession on excise duty and provides technical supportive services. Thus Government play supportive role in developing entrepreneurs.




Many state governments are offering incentives to attract investment in their states. Many state governments in India offer attractive incentive packages which include incentives such as:


Land at subsidized prices or Industrial sheds to set up small scale industrial units.


Tax concessions for a number of years. These may include exemption from sales tax etc for a set period of time.


Electric power supply at a reduced tariff.


Loans and subsidies at very attractive rates of interest.




The Government of India as well as several State Governments provides several benefits and incentives to promote industrialization of backward areas. Both the central and state governments share the cost of some of the incentives provided. The purposes of such incentives are to develop backward areas and increase employment for local inhabitants of such areas.


The bulk of new industries prefer areas with an established infrastructure and this is why incentives are offered to entice new ventures to start up in areas that need development. Incentives offered depend on the specific area chosen.


Some of the incentives offered are:




Transportation subsidies to promote industries in areas that are not easily accessible, like remote hilly areas. A subsidy of 50% to 90% on transportation costs is available under this scheme.


A Subsidy at the rate of 15% of the investment amount in plant and machinery is given under the capital investment subsidy scheme.


A subsidy for interest relief is also provided at a rate of 3% for new industrial units in some areas.


While in the past setting up an industry in India was not an easy task because of bureaucratic requirements that needed to be fulfilled. However both the central and state governments have now made efforts to improve some things.

Industrial Unit Startup Information for NRIs


For Non Resident Indians returning to India to start up industrial units. They will find that there is plenty of talent available in India. Hiring the right kind of person can make things quite easy to go through the maze of Indian regulations.


While the government no doubt is trying to bring out reforms to make things easier for foreign investors, the attitude of some officials is difficult to change.


Those who encounter problems should use the several channels available now to report clerks use delaying tactics for personal gain.


Returning NRI's who can tolerate the initial adjustment setbacks in establishing themselves when they return to India will ultimately find the rewards well worth the effort. India offers investors tremendous opportunities and is presently one of the most sought locations for industrial investment.


Loans available for starting Industrial venture in India


There are two main financial institutions available for loans for entrepreneurs on the (federal/ all India level).


1.Industrial Development Bank of India(IDBI)


2.Industrial Finance Corporation of India (IFCI)


The Industrial Development Bank of India is the head institution in the area of long term industrial finance. It was established under the IDBI Act 1964 as a wholly owned subsidiary of RBI and started functioning on July 01, 1964. Under Public Financial Institutions Laws (Amendment) Act 1976, it was delinked from RBI. IDBI is engaged in direct financing of the industrial activities


The objectives of the Industrial development bank of India are to create a principal institution for long term finance, to coordinate the institutions working in this field for planned development of industrial sector, to provide technical and administrative support to the industries and to conduct research and development activities for the benefit of industrial sector.


On the State level finance is available loans can be availed from


·              State Financial Corporation (SFC)


2.         State Industrial  Development  Corporation (SIDC).


Criteria for Business loans:


   Technical assessment of project


   Experience of the entrepreneurs


   Financial & commercial practicality of the project


   Conformity to environmental laws


Economic viability of the project


How to apply for business loans in India – Loan application procedure


The first step is to submit a detailed project report (business plan)to the financial institution to IDBI, IFCI or any other financial institution from where the loan sanction is sought. In case a license is a requirement for the project, the license should be provided with the project report.


The financial institution after scrutinizing the project report. If the financial institution requires additional information or clarifications, they usually ask for this in a few days of receipt of project report.


Representative from the financial institution will arrange to inspect the site etc to make certain the suitability of the project. At this stage discussions on various aspects of the project are discussed and final project costs are calculated.


The financial institution gives its approval if they find the project feasible.


Loans provided for business ventures can be for equipment and fixed assets as well as working capital.


While there is no hard and fast rule that is revealed by financial institutions. I would say that if a project is viable and the entrepreneur has approximately 25% of his own funds. Then 75% can be financed. In addition to this loans can be availed for working capital also.


In case you can provide proof of your expertise in the project there is always the possibility that your loans may be sanctioned with a lesser amount of cash investment on your part. Projects costing up to Rupees 5 crores can normally be financed on the state level.


Financial institutions follow guidelines such as debt-equity ratio, entrepreneur‟s contribution to the project etc when deciding on loans. It is not uncommon for applicants to inflate their contributions in an attempt to invest the least amount of their own funds.


Study Material, Lecturing Notes, Assignment, Reference, Wiki description explanation, brief detail
Business Science : Enterpreneurship Development : Entrepreneural Environment : Government Policies for Small Scale Enterprises |

Privacy Policy, Terms and Conditions, DMCA Policy and Compliant

Copyright © 2018-2024 BrainKart.com; All Rights Reserved. Developed by Therithal info, Chennai.