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.
STATE GOVERNMENTS INCENTIVES FOR INVESTORS
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.
INCENTIVES FOR SETTING UP BUSINESS IN BACKWARD
AREAS
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.
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