Financing of small scale industries in India

Meaning and Concept of Small Scale Industry: In most of the developing countries like India, Small Scale Industries (SSI) constitutes an important and crucial segment of the industrial sector. They play an important role in employment creation, resource utilization and income generation and helping to promote changes in a gradual and phased manner. They have been given an important place in the framework of Indian planning since beginning both for economic and ideological reasons. The reasons are obvious. The scarcity of capital in India severely limits the number of non-farm jobs that can be created because investment costs per job are high in large and medium industries. An effective development policy has to attempt to increase the use of labour, relative to capital to the extent that it is economically efficient. Small scale enterprises are generally more labour intensive than larger organizations. As a matter of fact, small scale sector has now emerged as a dynamic and vibrant sector for the Indian economy in recent years. It has attracted so much attention not only from industrial planners and economists but also from sociologists, administrators and politicians.

Definition of Small Scale Industry: Defining small-scale industry is a difficult task because the definition of small-scale industry varies from country to country and from one time to another in the same country depending upon the pattern and stage of development, government policy and administrative set up of the particular country. Every country has set its own parameters in defining small-scale sector. Generally, small-scale sector is defined in terms of investment ceilings on the original value of the installed plant and machinery. But in the earlier times the definition was based on employment. In the Indian context, the parameter is as follows. The Fiscal Commission, Government of India, New Delhi, 1950, for the first time defined a small-scale industry as, one which is operated mainly with hired labour usually 10 to 50 hands. Fixed capital investment in a unit has also been adopted as the other criteria to make a distinction between small-scale and large-scale industries. This limit is being continuously raised up wards by government. The Small Scale Industries Board in 1955 defined, "Small-scale industry as a unit employing less than 50 employees if using power and less than 100 employees if not using power and with a capital asset not exceeding Rs.5 lakhs". 'The initial capital investment of Rs. 5 lakhs has been changed to Rs. 10 lakhs for small industries and Rs. 15 lakhs for ancillaries in 1975. Again this fixed capital investment limit was raised to Rs. 15 lakhs for

small units and Rs. 20 lakhs for ancillary units in 1980. The Government of India in 1985 has further increased the investment limit to Rs. 35 lakhs for small-scale units and 45 lakhs for ancillary units. Again the new Industrial Policy in 1991 raised the investment ceilings in plant and machinery to Rs. 60 lakhs for small-scale units and Rs. 75 lakhs for ancillary units. As per the Abid Hussain Committee's recommendations on small-scale industry, the Government of India has, in March 1997 further raised investment ceilings to Rs. 3 crores for small-scale and ancillary industries and to Rs. 50 lakhs for tiny industry. The new Policy Initiatives in 1999-2000 defined small-scale industry as a unit engage in manufacturing, repairing, processing and preservation of goods having investment in plant and machinery at an original cost not exceeding Rs. 100 lakhs. In case of tiny units, the cost limitation is up to Rs. 5 lakhs. Again, the Government of India in its budget for 2007-08 has raised the investment limit in plant and machinery of small-scale industries to 1.5 corers An ancillary unit is one which is engaged or proposed to be engaged in the manufacturing, production of parts, components, sub-assemblies, tooling or intermediaries or rendering services and the undertaking supplies or renders or proposes to supply or render not less than 50% of its production or services, as the case may be, to one or more other Industries undertakings and whose investment in fixed assets in plant and machinery whether held on ownership terms or lease or on hire-purchase does not exceed Rs. 75 lakhs. For small-scale industries, the Planning Commission of India uses terms 'village and small-scale industries'. These include modern small-scale industry and the traditional cottage and household industry.

Government Initiatives for Small Scale Industries 1 Taking into account the high potential for growth in the micro, small and medium enterprises (MSMEs) in terms of output, employment and exports, the role of the Ministry of Small Scale Industries is to strengthen MSMEs, to enable them to remain competitive in market-led economy and generate additional employment opportunities. 2 The mission of the Ministry is to support MSMEs by way of advocacy with the various organizations of the Government, by providing services to support the and development of these enterprises and by management of programmes through Government and Non-Government organizations, for their benefit. The objective is to promote, aid and foster the growth of MSMEs by providing them institutional support in the areas of marketing, export, technology up gradation, training and common facilities services. The mission aims at providing prompt services/training needs to citizens through our field agencies like Small Industry Development Organization and the National Small Industries Corporation, so that the growth of the MSMEs is enhanced, quality of production is improved and more employment opportunities are generated. 3 The Government created Ministry of Small Scale Industries and Agro and Rural Industries (SSI & ARI) in October, 1999 as the nodal Ministry for formulation of policy and co-ordination of Central assistance relating to promotion and development of the small scale industries in India. The Ministry of Small Scale Industries and Agro and Rural Industries (SSI & ARI) was bifurcated into two separate Ministries, namely, Ministry of Small Scale Industries and Ministry of Agro and Rural Industries in September, 2001. 4 The Ministry of SSI designs policies, programmes, projects and schemes in consultation with its organizations and various stakeholders and monitors their implementation with a view to assisting the promotion and growth of MSMEs. The Ministry also performs the function of policy advocacy on behalf of these enterprises with other Ministries/Departments of the Central Government and the State and Union Territories. 5 For achieving these objectives, the specific schemes / programmes undertaken by the organisations of this Ministry seek to facilitate / provide one or more of the following for the MSMEs: Adequate credit from financial institutions/banks; Funds for technology up gradation and modernization; Adequate infrastructural facilities; Modern testing facilities and quality certification laboratories; Modern management practices and skill up gradation through advanced training facilities; Marketing assistance; and

 Level playing field at par with the large industries sector. The Ministry of Small Scale Industries is implementing following Schemes/Programmes for promotion and development of MSMEs in the country: a. Surveys, Studies and Policy Research b. National Entrepreneurship Development Board Scheme (This scheme is being dropped from the next financial year i.e. 2007-08) c. International Cooperation d. Assistance for strengthening of Training Infrastructure of Existing and New Entrepreneurship Development Institutions 6 The implementation of policies and various programmes/projects/schemes for providing infrastructure and support services to small enterprises is under taken through its attached office, namely the Small Industry Development Organization (SIDO) and the National Small Industries Corporation (NSIC) Ltd., a public sector undertaking under the Ministry.

SMALL INDUSTRY DEVELOPMENT ORGANISATION (SIDO) The Small Industry Development Organization (SIDO) also known as the Office of the Development Commissioner (SSI) is an apex body for assisting the Ministry in formulating, coordinating, implementing and monitoring policies and programmes for the promotion and development of small scale industries in the country and is headed by the Development Commissioner (SSI). SIDO provides a comprehensive range of common facilities, technology support services, marketing assistance etc through its network of 30 Small Industries Service Institutes (SSIs), 28 Branch SISIs, & Field Testing Stations (FTS), 4 Regional Testing Centres, 2 Small Entrepreneur Promotion and Training Institutes (SEPTI) and 1 Hand Tool Design Development and Training Center. The SIDO also has a network of Tool Rooms, Processing-cum-Product Development Centres (PPDCs) and technology and training support institutes which are run as autonomous bodies registered as Societies under the Societies Registration Act, 1860.

NATIONAL SMALL INDUSTRIES CORPORATION (NSIC) LTD The National Small Industries Corporation Ltd. was set up with a view to promoting, aiding and fostering the growth of small scale industries in the country with focus on commercial aspects of these functions. NSIC continues to implement its various programmes and projects throughout the country to assist SSI Units. The Corporation has been assisting the sector through the schemes and activities such as Supply of both indigenous and imported machines on easy hire-purchase terms, Composite term loan scheme, Credit rating for small scale industries, Procurement, supply and distribution of indigenous and imported raw-materials, Marketing of small industries products, Export of small industries products and developing export-worthiness of small scale units, Enlisting competent units and facilitating their participation in government Stores Purchase Programme, Training in several technical trades, Sensitizing SSI units on technological upgradation through software Technology Parks and Technology Transfer Centres,

Mentoring & advisory service, Technology business incubators, Setting up small scale industries in other developing countries on turnkey basis, Other areas of international co-operation. NATIONAL INSTITUTE HYDERABAD. OF SMALL INDUSTRY EXTENSION TRAINING (NISIET),

The NISIET was setup as an apex institute in 1960 by the Government of India, with the Charter of assisting in the promotion, development, and modernization of small and medium enterprises (SMEs) to progress towards success and prosperity. With this vast expertise in the areas of entrepreneurship, policy, technology, management, and information services, the institute is consistently assisting the SMEs to face with confidence, the challenge bought about by globalization and the impact of IT on their businesses. As a global organization, NISIET's stellar role in positioning the SMEs on the growth trajectory has benefited not only the Indian SME sector, but also developing countries around the world, in promoting self-employment and enterprise development. The institute is constantly evolving with time, modifying is focus with the emerging need of SMEs, providing them solutions in the form of consultancy, training research, and education to retain their competitive edge in ever-hanging makers.

NATIONAL INSTITUTE FOR ENTREPRENUERSHIP AND SMALL BUSINESS DEVELOPMENT (NIESBUD), NOIDA The National Institute for Entrepreneurship & Small Business Development (NIESBUD) is a registered society under the Ministry of Small Scale Industries. The major activities of the institute include, development of model syllabi for training of various target groups, providing effective training strategies, methodology, manuals and tools, facilitating and supporting Central/State Governments and other agencies in executing programmes of entrepreneurship and small business development, maximizing benefits and accelerating the process of entrepreneurship development, conducting programmes for motivators, trainers and entrepreneurs which are commonly not undertaken by other agencies and organizing activities which help in developing an entrepreneurial culture in the society.

INDIAN INSTITUTE OF ENTREPRENEURSHIP (IIE), GUWAHATI With an aim to undertake training, research and consultancy activities in the small industry sector focusing on entrepreneurship development, the Indian Institute of Entrepreneurship (IIE) was established in the year 1993 at Guwahati by the erstwhile Ministry of Industry (now Ministry of Small Scale Industry), Government of India as an autonomous national institute. Indian Institute of Entrepreneurship (IIE), Guwahati, and an autonomous body under the administrative control of the Ministry is working towards strengthening the capacity in the field of entrepreneurship development, training, entrepreneurship education, research, consultancy, publication and sanitization of environment for promotion of entrepreneurship, enterprise creation and self-employment in the North Eastern Region. IIE, Guwahati has also taken initiatives for providing hand-holding and escort services to

the entrepreneurs in the North Eastern regions for which a Business Facilitation & Development Centre (BFDC) has been set up with a financial assistance from the Ministry.

NATIONAL COMMISSION FOR ENTERPRISES IN THE UNORGANIZED SECTOR. The National Commission for Enterprises in the Unorganized Sector was constituted in September 2004. The Commission will recommend measures considered necessary for bring about improvement in the productivity of the informal sector enterprises, generation of large scale employment opportunities on a sustainable basis, particularly in the rural areas, enhancing the competitiveness of the sector in the emerging global environment, linkage of the sector with institutional framework in areas such as credit, raw material, infrastructure, technology upgradation, marketing and formulation of suitable arrangements for skill development.

Q. (1) what is the procedure for SSI Registration? Ans.: The registration of the SSI units is done by the respective Directors of Industries and DICs and NSIC. SIDOs (Office of the DCSSI) Facilitation Counter or NSIC may be contacted for complete guidance in this respect. Q. (2) what is the role of Ministry of SSI? Ans.: Ministry of SSI designs policies, programmes, projects and schemes in consultation with its organization and various stakeholder and monitors their implementation with a view to assisting the promotion and growth of small scale industries. The Ministry also performs the function of policy advocacy on behalf of the SSI sector with other Ministries/ Departments of the Central Government and the State and Union Territories. Q. (3) what are the various avenues for financial assistance to the SSI sector? Ans.: The small enterprises may approach public sector banks and SIDBI for bankable and viable projects for necessary assistance. National Small Industries Corporation (NSIC), a PSU of the Ministry is also engaged in providing financial assistance for purchase of machinery, assistance in credit rating certification for the units in order to have faster assistance from Banks, etc. Q. (4) what are the promotional schemes being operated by the Ministry for the SSI Sector? Ans.: The Ministry is involved in providing assistance under the following schemes: a) Survey, Studies and Policy Research b) International Cooperation c) National Entrepreneurship Development Board (NEDB) Scheme (The scheme is being dropped from the next financial year, i.e. 2007-08) d) Entrepreneurship Development Institutions (EDI) Scheme Q. (5) whom should we approach for technical inputs and advice? Ans.: The entrepreneurs are advised to avail the services of the various Institutions like Tool Rooms, Training Centres and SISIs which comes under the Small Industries Development Organization (SIDO), through its offices located all over India. The details of these offices/ organisations are available at the website of the SIDO www.laghuudyog.com.

Problems faced by Small Scale Industries Small scale industries are at distinct disadvantage as compared to large scale industries. The scale of operations, availability of finance, ability to use modern technology, procurement of raw materials are some of these areas. This gives rise to several problems. Most of these problems can be attributed to the small size of their business, which accrue to large business organisations. However, the problems faced ae not similar to all the categories of small businesses. For instance, in the case of small ancillary units, the major problems include delayed payments, uncertainty of getting orders from the parent units and frequent changes in production processes. The problems of traditional small scale units include remote location with less developed infrastructural facilities, lack of managerial talent, poor quality, traditional technology and inadequate availability of finance. The problems of exporting small scale units include lack of adequate data on foreign markets, lack of market intelligence, exchange rate fluctuations, quality standards and pre-shipment finance. In general the small businesses are faced with following problems. Finance: One of the severe problems faced by SSIs is that of no availability of adequate finance to carry out its operations. Generally a small business begins with a small capital base. Many of the units in the small sector lack the credit worthiness required to raise as capital markets. As a result, they heavily depend on local financial resources and are frequently the victims of exploitation by the money lenders. These units frequently suffer from lack of adequate working capital, either due to delayed payment of dues to them or locking up of their capital in unsold stocks. Banks also do not lend money without adequate collateral security or guarantees and margin money, which many of them are not in a position to provide. Raw material: Another major problem of small business is the procurement of raw materials. If the required materials are not available, they have to compromise on the quality or have to pay a high price to get good quality materials. Their bargaining power is relatively low due to the small quantity of purchases made by them. Also, they cannot afford to take the risk of buying in bulk as they have no facilities to store the materials. Because of general scarcity of metals, chemicals and extractive raw materials in the economy, the small sector suffers the most. This also means a waste of production capacity for the economy and loss for units. Managerial Skills: Small business is generally promoted and operated by a single person, who may not possess all the managerial skills required to run the business. Many of small business entrepreneurs possess sound technical knowledge but are less successful in marketing the output. Moreover, they may not find enough time to take care of all functional activities. At the same time they are not in a position to afford professional managers. Labour: Small business firms cannot afford to pay higher salaries to the employees, which affects employee willingness to work hard and produce more. Thus, productivity per employee is relatively low and employee turnover is generally high. Because of lower remuneration offered, attracting talented people is a major problem in small business organisations. Unskilled workers join for low remuneration but training them is a time consuming process. Also, unlike large organisations, division of labour cannot be practiced, which results in a lack of specialization and concentration.

Marketing: Marketing is one of the most important activities as it generates revenue. Effective marketing of goods requires a thorough understanding of the customers needs and requirements. In most cases, marketing is a weaker area of small organizations. These organizations have, therefore, to depend excessively on middleman, who at times exploit them by paying low prices and delayed payments. Further, direct marketing may not be feasible for small business firms as they lack the necessary infrastructure. Quality: Many small business organizations do not adhere to desired standards of quality. Instead they concentrate on cutting the cost and keeping the prices low. They do not have adequate resources to invest in quality research and maintain the standards of the industry, nor do they have adequate the expertise to upgrade technology. In fact maintain quality is their weakest point, when competing in global markets. Capacity utilization: Due to lack of marketing skills or lack of demand, many small business firms have to operate below full capacity due to which their operating costs tend to increase. Gradually this leads to sickness and closure of the business. Technology: Use of outdated technology is often stated as serious lacunae in the case of small industries, resulting in low productivity and uneconomical production. Sickness: Prevalence of sickness in small industries has become a point of worry to both the policy makers and the entrepreneurs. The causes of sickness are both internal and external. Internal problems include lack of skilled and trained labour and managerial and marketing skills. Some of the external problems include delayed payment, shortage of working capital, inadequate loans and lack of demand for their products. Global Competition: Apart from the problems stated above small businesses are not without fears, especially in the present context of liberalization, privatization and globalization (LPG) policies being followed by several countries across the world. The following are the areas where small business feel threatened with the onslaught of global competition. Competition is not only from medium and large industries, but also from multinational companies which are giants in terms of their size and business volumes. Opening up of trade results in cut throat competition for small scale units. It is difficult to withstand the quality standards, technology skills, financial creditworthiness, managerial and marketing capabilities of the large industries and multinationals. There is limited access to markets of developed countries due to the stringent requirements of quality certification like ISO 9000.

SMALL SCALE INDUSTRY

INTRODUCTION

The definition for small-scale industrial undertakings has changed over time. Initially they were classified into two categories- those using power with less than 50 employees and those not using power with the employee strength being more than 50 but less than 100. However the capital resources invested

on plant and machinery buildings have been the primary criteria to differentiate the small-scale industries from the large and medium scale industries. An industrial unit can be categorized as a small- scale unit if it fulfils the capital investment limit fixed by the Government of India for the small-scale sector. As per the latest definition which is effective since December 21, 1999, for any industrial unit to be regarded as Small Scale Industrial unit the following condition is to be satisfied: Investment in fixed assets like plants and equipments either held on ownership terms on lease or on hire purchase should not be more than Rs 10 million. However the unit in no way can be owned or controlled or ancillary of any other industrial unit. The traditional small-scale industries clearly differ from their modern counterparts in many respects. The traditional units are highly labor consuming with their age-old machineries and conventional techniques of production resulting in poor productivity rate whereas the modern small-scale units are much more productive with less manpower and more sophisticated equipments. Khadi and handloom, sericulture, handicrafts, village industries, coir, Bell metal are some of the traditional small-scale industries in India. The modern small industries offer a wide range of products starting from simple items like hosiery products, garments, leather products, fishing hook etc to more sophisticated items like television sets, electronics control system, various engineering products especially as ancillaries to large industrial undertakings. Nowadays Indian small-scale industries (SSIs) are mostly modern small-scale industries. Modernization has widened the list of products offered by this industry. The items manufactured in modern Small-scale service & Business enterprises in India now include rubber products, plastic products, chemical products, glass and ceramics, mechanical engineering items, hardware, electrical items, transport equipment, electronic components and equipments, automobile parts, bicycle parts, instruments, sports goods, stationery items and clocks and watches.

HISTORY OF SMALL SCALE INDUSTRY

Ministry of Agro and Land Rural Industries and Ministry of SSI have been merged into a single namely, Ministry of Micro Small & Medium Enterprises. The President under Notification 9th May 2007 has amended the Government of India (Allocation of business) Rules 1961, Pursuant to this amended Ministry of Agro and rural Industries (Krishi Evam Gramin Udyog Mantra lay) and ministry of SSI (Laghu Udoyag Mantralay) have been merged into a single Ministry, namely, Ministry of Micro Small & Medium Enterprises (Suksham Laghu Aur Medium Udyam Mantralay)

CONCEPT & DEFINATION OF SSI

In most parts of the world the nomenclature used is small and Medium Enterprises (SMEs) and the criteria for defining include the number of employees and /or the turnover. In India the Small Scale Industry evokes different meanings for different agencies and the financial institution. For example for the purpose of excise and sales Tax Exemption, the turnover alone is the determining criterion. However in broader terms, currently, an SSI is defined in terms of investment ceiling on the original value of instilled plant and machinery. 7.65 The small scale sector has played a very important role in the socio-economic development of the country during the past 50 years. It has significantly contributed to the overall growth in terms of the Gross Domestic Product (GDP), employment generation and exports. The performance of the small scale sector, therefore, has a

direct impact on the growth of the overall economy. The performance of the small scale sector in terms of parameters like number of units (both registered and unregistered), production, employment and exports is given in Table 7.15. 7.66 During the one year period i.e., 2000-01 Over 1999-2000, the number of SSI units is estimated to have increased by 1,58,000, production at current prices by Rs. 72,609 crore and at constant prices by Rs. 33,714 crore. Employment increased by 7,14,000 persons, while exports were higher by Rs. 5,778 crores. 7.67 According to projections made by the Ministry of Small Scale Industries during 2000-01, the SSI sector recorded growth in production of 8.09 per cent over the previous year. The small scale industries sector has recorded higher growth rate than the industrial sector as a whole (4.9 per cent during 2000-01). It contributed about 40 per cent towards the industrial production as a whole and 35 per cent of direct exports from the country. 7.68 The Government has been taking various measures from time to time in order to enhance The productivity, efficiency and competitiveness of the SSI sector. In pursuance of the comprehensive policy package announced last year, the major developments that have taken place in the SSI sector during 2001-02

THE SMALL SCALE INDUSTRIAL UDERTAKING An industrial undertaking in which the investment in plant and machinery, whether held on ownership terms or on lease/hire-purchase basis, does not exceed Rs.10 million (Rs.1 crore) is regarded as a small scale undertaking. These include manufacturing and service units. Status of Small Scale Industries Undertaking a) Ancillary Industries Undertaking :- Engaged in manufacture of parts, component Sub-assemblies, The investment in fixed assets doesnt exceed 1 crore. b) Tiny Industries :- All small scale units, which investment on plant & machinery

(excluding land & building) up to Rs.25 Lakhs. c) Export Oriented Units: - All small scale units, which export more than 50% of Their output.

Tiny Enterprises
A unit is treated as a tiny enterprises where investment in plant and machinery does not exceed Rs.2.5 million (Rs.25 Lakhs) irrespective of the location of the unit. Many shops,

Export Oriented Unit [Eou]

A unit with an obligation to export at least 30 percent of its annual production by the end of the third year of commencement of production and having an investment ceiling up to Rs.10 million (Rs.1 crore) in plant and machinery is termed as an export oriented SSI unit. In India no separate definition of medium enterprises exists and as such there is no specific definition of Small and Medium Enterprises [SMEs.] Administratively, in the Indian context, the industry universe is divided into three major segments. Modern Small Scale Industries These cover SSI units [both in the factory and Non /Factory sectors] and power loom units. Such units mostly use power driven machinery and possess superior production techniques. Units in this sub-sector are generally located in close proximity to large industrial centers or urban areas. These industries are moving away from the traditional products to knowledge-based products. Traditional Small Scale Industries This sector comprises tiny and cottage industry segments like handlooms, Khadi and Village Industries, handicrafts, sericulture and silk, rubber and coir. These units are labor- intensive, are generally located in rural and semi-urban areas and are artisan based. Usually the capital invested is also nominal.

How a person can start a small scale industries in Indian Scenario.

1. For starting a Small Scale Industry other than the industries identified as those of highly polluting nature by Pond cherry Pollution Control Committee (PPCC), entrepreneurs have to first apply to the Directorate of Industries and Commerce, Pond cherry, Branch office at Karaikal, Sub-office at Mahe and Yanam, depending on the location of the unit for Provisional SSI Registration in the form prescribed. In case of industries identified as those of highly polluting nature by PPCC, entrepreneurs will have to first get clearances from the Pondicherry Pollution Control Committee through the Directorate of Industries and Commerce and then approach for provisional SSI registration after its clearance.

2. All proposals for setting up of H.T. Industries will be referred to the Electricity Department for getting initial advice regarding the availability of power for the unit. In the case of such industries provisional registration / NOC will not be issued unless the initial advice is received from the Electricity Department. 3. All the entrepreneurs irrespective of their size of investment, may approach the `Single Window Committee` (Functioning in the District Industries Centre) for getting the requisite clearances expeditiously. 4. The regional office of the District Industries Centre will make available to the entrepreneurs/ Industrialists, the prescribed application forms for obtaining clearances/ permissions from the following Departments (Photocopies and computerized forms in the format required by the concerned Department will also be accepted): (a) Municipality /Commune Panchayat, in whose jurisdiction the industry is proposed to be set up. (b) Chief Inspector of Factories; (c) Town and Country Planning Department; (d) Revenue Department; (e) Agriculture department; and (f) Electricity Department. 5. Duly filled in application forms in prescribed format along with required copies of the site, building & machinery layout plans and other relevant documents shall be submitted to the District Industries Centre or its regional office for obtaining Clearances / Permissions from the various Departments. The District Industries Centre or its regional office on receipt of the applications will forward the same to the concerned Department within three days of the receipt of the applications. 6. After installing machinery. Entrepreneurs have to get licenses from the concerned Municipality/ Commune Panchayat, License from Inspectorate of Factories and consent orders from the PPCC for operation of the unit. 7. After commencement of regular production, the entrepreneurs have to apply for Permanent SSI Registration to the Directorate of Industries and Commerce.. II Procedure for obtaining change in location, inclusion of additional activities in case of Small Scale Industries. Before commencement of production:- In case of Small Scale Industries the industrial unit has to submit a requisition letter to this effect along with the original certificate to the Directorate of Industries and Commerce/ branch office at Karaikal/ Sub- office at Mahe and Yanam, depending on the location of the unit. Then the changes have to be effected in the Permissions/NOC issued by Municipality / Commune Panchayat, Inspector of Factories and PPCC. 2. After commencement of production:- Initially the unit has to obtain NOC from the Directorate of Industries and Commerce to this effect and amendment in the Permanent Registration Certificate. These changes have to be effected in the licenses issued by Municipality / Commune Panchayat, Inspector of Factories and PPCC.After

obtaining

those

changes,

Industries

Department

will

make

INSTITUTE OF SKILLS DEVELOPMENT & TRAINING OF SSI

National Entrepreneurship Development Institute National Institute for Entrepreneurship and Small Business Development (NIESBD) Noida. National Institute of Micro Small and Medium Entrepreneur (NIMSME) Hyderabad.

Formally National Institute of Small Industry Extension Training (NISIEI) Indian Institute of Entrepreneurship (IIE) Guwahati.

Others
MSME Development Institute Tools Rooms Central Footwear Training Center- Agra & Chennai Fragrance and Flower Development Center- Kannauj Procer-Cum Product Development center- Agra Electronics service & Training Center- Ram Nagar. Institute for Design Electrical Measumg Instrument- Mumbai.

NEED OF FINANCE IN SSI

For running business finance is necessary. Owners of SSI need finance for fixed assets installation to start business & working capital for keep the running condition. Financial requirements of small scale industries can be classified into two heads: Equity Capital: - This is the investment by the owner of the small unit for setting Up a unit. At the time of establishing business it is very much required that the

Owner contributes his own capital & then he collects funds from loan. it is preferable To purchase all fixed assets from owner funds as the chances of success as high in That case. On the other hand depending upon interest beariy to outsiders loan acurRing fixed assets result to maximum payment to outsiders in from of interest and Very less amount left for entrepreneur as profit.

Loan Capital: - In real condition entrepreneur doesnt have adequate funds for Sting in The units, so the owner requires long term and short loan. Long term loans For purchase of fixed assets and short term loan for making day to day expenses. A Financial structure will be that whatere more investments are from own (equity) Capital. But as the loan from outsider also important so the amount of outsider fund Should be less than or equal to owners fund.

FINANCING OF SSI
`Government has recognized the important role of entrepreneurs in the industrial development of the economy, especially through the small-scale industries (SSIs). SSI is essential for Indian economy in terms of employment generation, foreign exchange earnings, and its share in industrial output, and contribution to national income. The government of India and state governments provides a number of special facilities and incentives. The incentives not only motivate entrepreneurs to set up industries in the small-scale sector, but also strengthen the entrepreneurs base in the economy. Of all the elements that go into a business, credit is the

perhaps the most crucial. the best plans can come to naught if adequate finance is not available at right time. SSIs need credit support not only for running the enterprise & operational requirements but also for diversification, modernization / up gradation of facilities, capacity expansion etc. In respect of SSIs, the problem of credit becomes all the more critical whenever any episodic event occurs such as a large order, rejection of consignment, inordinate delay in payment etc. In general, SSIs operate on tight budgets, often financed through owners own contribution, loans from friends and relatives and some bank credit. Government of India recognized the need for a focused credit policy for SSI in the early days of promotion of SSIs and RBI has been instrumental in devising a multi-stage approach / financial system for credit dispensation to different sectors of the economy, for example, agriculture, industry, exports, SSIs etc. This section focuses on the role of SIDBI, SFCs and commercial banks in granting credit to small scale and tiny sector.

FINANCIAL INSTITUTION WHICH SUPPORTS DEVELOPING OF SSI 1 National Small Industries Corporation (NSIC) Set up in 1955 to promote S.S.I. Corporate Term Loan Scheme to acquire land & building & working capital.

Hire-Purchase Scheme to supply of indigenous & imported machinery & equipment. Equipment Leasing to expand these capacities or diversify or upgrade their technology. Working Capital Finance. Bill Financing

Bills drawn by small scale units for the supplies made to the reputed and well established
Enterprises and duly accepted by them will be financed / discounted by NSIC for a maximum period of 90 days. Working Capital Finance Finance for augmenting working capital of viable and well managed units, on selective basis in case of emergent requirements, to enable them to payoff their purchases of consumable stores and spares and production related overheads particularly electricity bills, statutory dues, etc. Export Development Finance Finance for export development to export oriented units for meeting their emergent requirements. Pre and post shipment finance shall also be provided to such units at usual terms & conditions. Equipment Leasing Scheme The object of the Leasing Scheme is to assist SSI Units to procure industrial equipment for modernization, expansion and diversification of their industries. Hire Purchase Scheme Supply of indigenous and imported machinery and equipment on easy financial terms with special focus on women entrepreneurs, weaker sections, handicapped and ex-servicemen and SC/ST entrepreneurs

BENEFITS 100% financing at very liberal terms with easy repayment schedule. Simple formalities and speedy sanction. Single window system for imported equipment. The Corporation undertakes to complete formalities like procuring import license, opening of Letter of Credit etc. Tax rebate on full 5 year lease rental.

2 Small Industries Service Institute (SISI)

The scheme was launched on the auspicious day of 2nd October, 1993. the birth Anniversary of Mahatma Gandhi all over the country the main objective of the PMRY scheme was to provide easy subsidized financial assistance to educated unemployed youth for starting their own enterprises in manufacturing, business and service and trade

sectors initially the scheme was aimed at providing self-employment to one million educated unemployed youth in the country by setting up 7 lakh micro enterses through inducting service and business ventures over a period of 21/2 yers. The scheme was a stupendous success and caught the imagination of the youth. Overwhelmed with the response and ever-increasing need, the government has decided to mark it a permanent scheme and framed modalities and guidelines for its successful implementation and fulfil the purpose for which it designed. Salient Features of PMRY Scheme y y y y y y This is centrall sponsored scheme The development commissioner (Small-Scale industries) under ministry of Small Scale and Rural Agro, Industries Government of India is the apex body for this scheme. The respective commissioner/director of industries implements the scheme at the state level except the four metropolitan cities, with an overall monitoring by the concerned Secretaries of industries. The implementation agencies at the grass root level are District Industries Centre (DIC) who would be instrumental for the grounding of the units. Small Industries Service Institute (SISI) located in the four Metropolitan cities of Delhi, Kolkata, Mumbai and Chennai are the implementing agencies of this scheme. The DCSSI has setup a special PMRY division in the headquarters under the able guidance of an IAS officer. DCSSI formulates the rules, regulations and guideline instruction and provides clarifications on all the matters pertaining to PMRY scheme. It has also devised complete feedback information by the means of getting monthly, quarterly and annual progress reports from all the states to closely monitor the implementation and progr ess of the scheme. Similarly at the state level, State level PMRY committee meetings monitors the progress of the scheme every quarter. The yearly target for number of beneficiaries for each state is fixed by DCSSI.

y y

3 NSIC
NSIC assist and promotes SSI sector through various schemes. A composite term lone scheme assists existing and prospective entrepreneurs to acquire land and building, machinery, equipment and working capital at one place. Machinery and equipment are provided through hire purchase and leasing on easy financial terms and full financing. Working capital finance and off the shelf availability of scarce materials are also provided. SSI units can get registered with NSCI to avail benefits of local /global tender and also for Government Store Purchase Programme. NSIC also does bill discounting up to a specified limit. The 5 NSIC Technical Service Centers and a number of extension centers provide technically trained manpower testing facilities and prototype modification. The Technology Transfer Centre provides on-line data on latest technology. The NSIC-STP complex provides packaged infrastructure facilities for software export units to be set up in the complex NSIC also provides various marketing facilities (e.g. exhibitions, BSM, etc.). It also operates an Indo-Italian Line of Credit for select sectors. NSIC is also working out a programme for development of SSI sector in the North-Eastern Region. Once approved in principle, NSIC will implement a scheme a Mentoring / Advisory services for SSI sector in select clusters. Technocrats and successful firm owners will provide the service to SSI units on a payment basis, which will be supported by the scheme NSIC has offices all over.

FINANCIAL INSTITUTIONS WHICH GIVES FINANACIAL SUPPORT TO SSI 1. Small Industries Development Bank Of India (SIDBI) The SIDBI was established in 1990 as the apex refinance bank. The SIDBI is operating different programmers and schemes through 5 Regional Office and 33 Branch Offices. The financial assistance of SIDBI to small scale sector is canalized through the two routes- direct and indirect.

a). Indirect Assistance

a) SIDBIs financial assistance to small sector is primarily canalized through the Existing credit delivery system, which consists of state level institution, rural and Commercial banks. b) SIDBI provides refinance to and discounts bills of Primarily Lending Institution (PLI) c) The Assistance is Available for i. Marketing of SSI product. ii. Setting up of new venture. iii. Availability of working capital. iv. Expansion. v Modernization. vi. Human Resource Development . vii. Diversification Of existing units for all activities.

b). Direct Assistance

a) The loans are available for new ventures, diversification technology up gradation, modernization and expansion of well run small scale enterprises. Assistance is also available for private sector. b) Small scale sector is eligible for maximum debt-equity ratio of 3:1. c) Foreign currency loan for import of equipment are also available to export oriented small scale enterprises. d) SIDBI also provide venture capital assistance to the entrepreneurs for their innovative ventures if they have a sound management team, long term competitive advantages and a potential for above average leading to attractive return on investment. New Initiatives of SIDBI a) Two Subsidiaries viz. SIDBI Venture Capital Limited and SIDBI Trustee company Limited formed to oversee Venture Capital. b) Technology Bureau for Small Enterprise formed to oversee Technology Transfer, March making Service, Finance Syndication and facilitating Joint Ventures. c) SIDBI Foundation for Micro Credit has been launched to provide financial assistance to the poor to meet emerging needs of the micro finance sector especially in the rural areas.

PERFORMANCE OF SIDBI SIDBI's efforts have resulted in increased flow of credit to SSI sector since inception as indicated below:
Year 1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 Sanction 2410 2847 2909 3357 4706 6066 6485 7484 Disbursement 1839 2028 2146 2672 3390 4801 4585 5241

2 Industrial Finance Corporation of India (IFCI) IFCI was set up for the purpose of assisting the medium and long term projects for capital expenditure on projects, expansion, and modernization and technological up gradation etc. it plays promotional and developmental role, particularly in relation to the small and medium scale entrepreneurs. Main function is providing: Underwriting and guaranteeing facilities to the industrial concerns. Term loan and foreign currency loans are through foreign credit lines from foreign banks and cooperative societies engaged in a. Manufacturing, preservation and processing of goods b. Shipping c. Mining d. Hotel Industry e. Electricity generation and distribution etc. It concentrates mostly on medium and large scale projects .by an agreement with other Financial Institution and IDBI; the IFC specializes in financing of certain industries like jute, cement, sugar etc.

3 Industrial Development Bank of India (IDBI)

IDBI Bank Limited. General Code of Conduct and Ethics (COCE) for IDBI Bank Ltd, Directors, Officers and Employees IDBI is the leader in the Indian Capital Market. It has both regulatory and development functions. The role of IDBI in the market is to promote and develop industries as per the planned projection of the Governmen that, to provide technical and assistance for the expansion and modernization of the industry and for rediscount and refinance facilities to financial institution. IDBI as the leader in the market coordinates guides and Monitors the credit facilities by all India and State level financial institution and development corporations. It undertook the responsibility the promoting and financing the small and cottage industries and also the import-export trade of the country until separate bodies namely Exim Bank and Small Industries Development Bank of India (IDBI) were set up.

i. Textile Modernization Fund Scheme for the purpose of promoting modernization of Jute and cotton textile industries. ii. Venture capital Fund Scheme for developing new ventures and promoting risky Ventures by new technicians and new entrepreneurs. iii. Technology up gradation Scheme for the purpose of upgrading technology in Selected capital goods industries. iv. Energy conservation Scheme for the purpose of financing energy saving proposals Of industries and. v. Seed Capital Scheme for the purpose of providing initial seed capital in the form of promoters contribution to new ventures. The IDBI operates direct assistance schemes whereby project appraisal and financing for medium and large scale projects is undertaken. It provides refinancing under the Industrial Loans Scheme for the loans extended by commercial and operators and units in the backward areas etc. IDBI also borrows abroad and secures funds under arrangements with foreign financial institution, foreign banks and foreign governments and operates foreign lines of credit, secured by the Government.

FUNCTIONS

       

NATIONAL INTREST FINANCIAL REPORTING AND RECORDS CARPORATE DISCLOSURE PARTIES COMPETETION EQUAL RIGHTS PROHIBITED BUSINESS CORPORATE OPPORTUNITY ETHICAL STANDARDS

4 State Development of Corporation (SIDc)

Sources of Funds Issue of bonds and debentures in the market, fixed deposits from the public, borrowings from RBI, IDBI, state government etc. These bodies assist small scale industries, units in backward areas, new entrepreneurs etc. Industrial Development Corporation, Industrial Investment corporation were set by some states for promotion, infrastructural development, and financial, managerial and entrepreneurial guidance to the industrialists, provision of industrial sheds/ plots for setting units up of small units etc.

5 Commercial Bank
In India, the banks are major sources of finance, are encouraged in several ways to extend export fianance, to achive the objectives of foreign trade policy. Credit requirement of SSIs is basically of two types- Long Term Loans and working Capital. Commercial banks with their extensive network of branches operating nation wide are primary channels for working capital requirement. Banks are required to compulsory ensure that defined percentage (currently 40%) of their overall lending is made to priority sectors as classified by RBI. These sector their include agriculture, small industries, export etc. The inclusion of small industries in this list makes them eligible for this earmarked credit. With the liberalization of the Indian economy, greater emphasis was placed on meeting the credit needs of SSIs. This was manifest through the following initiatives taken by RBI.

a) Credit for tiny sector has been earmarked within overall lending to small industries. In order to ensure that credit is available to all segments of SSI sectors RBI has issued instruction that out of the funds normally available to SSI sector, 40% be given to units with investment inplant & machinery up to Rs. 5 lakhs, 20% for units with investment between 5 lakhs to Rs. 25 lakhs and remaining 40% for other units. b) Public sector banks have been advised to operationalise more specialized SSI branches at centers where there is a potential for financing many SSI borrowers. As on March 2002, 391 specialized SSI branches are working in the country. c) Single Window Scheme was extend to all districts to meet the financial requirements (both term loan & working capital) of SSIs. d) Laghu Udyami Credit Card (LUCC) Scheme was launched by the public sector banks for providing simplified & borrowed friendly Credit facilities to SSI, tiny enterprises retail traders & artisans. e) Composite loan limit was enhanced to Rs.50 lakhs from Rs.25 lacks.

6 Indigenous Bankers Or Money Lender

As the funds from bank required lot of paper work, security & has combusome procedure the small entrepreneur have to borrow late of interest charged by money landers are high. The money lenders dont have specified interest rate, security condition and term of loan. It keeps on verify as per the goodwill of borrower.

7 Public Deposits
Public deposit means collecting funds by general public by issuing public deposit certificate. The small scale unit need not to keep any security against funds collected by public deposit, but rate of interest is higher than the interest rate provide by commercial bank. IDBI also borrows abroad and secures funds under arrangements with foreign financial institution, foreign banks and foreign governments and operates foreign lines of credit, secured by the Government.

SSIs AS CREATOR OF THE JOBS

Small Scale Industries (SSIs) have always been regarded for their high employment intensity. SSIs today employ over 192 lakh persons and this is targeted to grow at 4% per annum during the 10th Plan period of 2002-2007. Though often described as ideal vehicles for promotion creation of jobs in the economy, at the same time, it is also true that the nature of employment in the sector is undergoing change. Employment generation figure declined from 6.3 persons per SSI in 1987-88 (2nd Census) to 3.6 persons per SSI in 1999-2000 (Sample Survey). Expert committees which have looked at this issue have also come up with different sets of recommendations. The Task Force on Employment Opportunities under Shri Montek Singh Ahluwalia had identified SSIs as an important source of employment and as an important incubator for entrepreneurship. The Task Force however called for a shift in policy from protection to promotion. The Task Force felt that almost 70% of the total employment opportunities generated over the next 10 years were likely to be in the services sector. On the other hand, a Special Group on Employment for creation of 10 million employment opportunities per year over the 10th Plan under Dr. S.P. Gupta has recommended that since more than 92% of employment generation in the economy is coming from small and medium enterprises, including agriculture - commonly defined as the unorganized sector, there is need to give special focused attention for meeting the requirements of small and medium enterprises to enable them to create more jobs in the future. During the 1990s, jobs in the organized sector grew at less than 1% per annum while jobs in the SSI sector increased by 3.5% every year. In the changing scenario, on account of globalization and liberalization, what shall be the impact on the creation of new jobs by SSIs? Does increase in capital intensity of SSIs, as they go in for technological up gradation