UNIT SNAPSHOT

UGC NET MANAGEMENT

Unit 10

ENTREPRENEURSHIP DEVELOPMENT
Who is an entrepreneur?

In the words of JB Say, “An entrepreneur is one who brings together the factors of production
and combines them into a product.”
Peter F Drucker define an entrepreneur as “The one who always searches for change, responds
to it and exploits it as an opportunity.”
Characteristics of an entrepreneur:

➢ An entrepreneur brings about change in the society

➢ Entrepreneur Improves the technology, products and the society
➢ Entrepreneur is action oriented, highly motivated individual who takes risk to
achieve goals
➢ Entrepreneur is creative and result oriented
➢ Entrepreneur accepts responsibilities with enthusiasm and endurance
➢ Entrepreneur is both thinker and doer
➢ Entrepreneur can foresee the future
➢ Entrepreneur is achievement oriented
➢ Entrepreneur builds new enterprises
➢ Entrepreneurs create capital

Skills required for an entrepreneur:

➢ Conceptual skills – Refers to the ability to conceive new ideas and products and
the ability to think analytically

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 ➢ Technical skills – technical knowledge of work and the ability to apply the
knowledge in the practical work
➢ Human relation skills – ability to handle people and to influence their behaviour
➢ Communication skills – both written and oral communication skills with the ability
to listen to others and receive information from them.
➢ Diagnostic skill – ability to understand problems or smell impending problems
from the visible symptoms
➢ Decision making skill – ability to make clear decisions on the merit of the case
➢ Marketing skills – ability to develop new products and services to maintain its
distinctiveness in a competitive market.
➢ Project development skill – ability to conceive the project, to know the stage
through which he should go to establish it, the information which have to collect,
the factors which have to consider in taking investment decisions
➢ Management skill – it relates to the accounting and financial control, marketing,
production planning, and inventory control and to manage the people who work in
the enterprise.
➢ Other skills:
• Search skill
• Foresight computation skills
• Delegation skills
• Organisational skills

TYPES OF ENTREPRENEURS:

Based on the Type of Business:

1. Trading Entrepreneur:

• Trading entrepreneur undertake the trading activities.

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 • They procure the finished products from the manufacturers and sell these to the
customers directly or through a retailer.
• These serve as the middlemen as wholesalers, dealers, and retailers between the
manufacturers and customers.

2. Manufacturing Entrepreneur:

• The manufacturing entrepreneurs manufacture products.

• They identify the needs of the customers and, then, explore the resources and
technology to be used
• Manufacturing entrepreneurs convert raw materials into finished products.

Based on the Use of Technology:

1. Technical Entrepreneur:

• The entrepreneurs who establish and run science and technology-based industries
are called ‘technical entrepreneurs.
• They use new and innovative methods of production in their enterprises.

2. Non-Technical Entrepreneur:

• The entrepreneurs who are not technical entrepreneurs are non-technical

entrepreneurs
• They are concerned with the use of alternative and imitative methods of marketing
and distribution strategies

Based on Ownership:

1. Private Entrepreneur:

• A private entrepreneur is one who as an individual sets up a business enterprise.

• He / she it’s the sole owner of the enterprise and bears the entire risk involved in
it.
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2. State Entrepreneur:

• When the trading or industrial venture is undertaken by the State or the

Government, it is called ‘state entrepreneur.’

3. Joint Entrepreneurs:

• When a private entrepreneur and the Government jointly run a business enterprise,
it is called ‘joint entrepreneurs.’

Based on Gender:

1. Men Entrepreneurs:

• When business enterprises are owned, managed, and controlled by men, these
are called ‘men entrepreneurs.’

2. Women Entrepreneurs:

• Women entrepreneurs are defined as the enterprises owned and controlled by a

woman
• Or women having a minimum financial interest of 51 per cent of the capital and
giving at least 51 per cent of employment generated in the enterprises to women.

Based on Clarence Danhof Classification:

Clarence Danhof (1949), on the basis of his study of the American Agriculture, classified
entrepreneurs in the manner that, at the initial stage of economic development, entrepreneurs
have less initiative and drive and as economic development proceeds, they become more
innovating and enthusiastic.

Based on this, he classified entrepreneurs into four types:

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1. Innovating Entrepreneurs:

• Innovating entrepreneurs are one who introduce new goods, inaugurate new method of
production, discover new market and reorganise the enterprise.
• Such entrepreneurs can work only when a certain level of development is already
achieved, and people look forward to change and improvement.

2. Imitative Entrepreneurs:

• These are characterised by readiness to adopt successful innovations inaugurated by

innovating entrepreneurs.
• Imitative entrepreneurs do not innovate the changes themselves, they only imitate
techniques and technology innovated by others.
• They are also known as adoptive entrepreneur.

3. Fabian Entrepreneurs:

• Fabian entrepreneurs are characterised by very great caution and skepticism in

experimenting any change in their enterprises.
• They imitate only when it becomes perfectly clear that failure to do so would result in a
loss of the relative position in the enterprise.
• They are shy and lazy

4. Drone Entrepreneurs:

• These are characterised by a refusal to adopt opportunities to make changes in

production formulae even at the cost of severely reduced returns relative to other like
producers.

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 • They may even suffer from losses but they are not ready to make changes in their existing
production methods.

ENTREPRENEURSHIP:

Entrepreneurship is the symbol of business determination and achievement. It is a philosophy

of business and a philosophy of life.

Concept of Entrepreneurship:
The word “entrepreneur” is derived from the French verb enterprendre, which means ‘to
undertake’. This refers to those who “undertake” the risk of new enterprises. An enterprise is
created by an entrepreneur. The process of creation is called “entrepreneurship”.

Entrepreneurship is a process of actions of an entrepreneur who is a person always in search of

something new and exploits such ideas into gainful opportunities by accepting the risk and
uncertainty with the enterprise.

According to A H Cole “entrepreneurship is the purposeful activity of an individual or a group

of associated individuals undertaken to initiate, maintain, or organise a profit oriented
business unit for the production or distribution of economic goods and services”.

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Entrepreneurship is mathematically defined as follows:

Entrepreneurship = Entrepreneur + Enterprise

Here,

Entrepreneurship is a “Process”

Entrepreneur is a “Person”

Enterprise is an “Object”

Entrepreneur Entrepreneurship
Person Process
Organiser Organised form of initiative
Risk-taker Risk-taking activity
Innovator Process of innovation
Decision maker Decision making activity
Visualizer Vision itself

Types of entrepreneurship

1. Small Business Entrepreneurship

• Small businesses are grocery stores, hairdressers, consultants, travel agents,
internet commerce storefronts, carpenters, plumbers, electricians.
• They are anyone who runs his/her own business.
• They hire local employees or family. Most are barely profitable.

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 • Their definition of success is to feed the family and make a profit, not to take over
an industry or build a big business.

2. Scalable Startup Entrepreneurship

• These entrepreneurs start a company knowing from day one that their vision could
change the world.
• They attract investment from equally crazy financial investors – venture capitalists.
• They hire the best and the brightest.
• Their job is to search for a repeatable and scalable business model.

3. Large Company Entrepreneurship

• Large companies have finite life cycles.
• Most grow through sustaining innovation,
• They offer new products that are variants around their core products.
• Large company size and culture make disruptive innovation extremely difficult to
execute.

4. Social Entrepreneurship
• Social entrepreneurs are innovators who focus on creating products and services
that solve social needs and problems.
• Unlike scalable start-ups their goal is to make the world a better place

PROCESS OF ENTREPRENEURSHIP DEVELOPMENT:

Stage 1 - Clear View of the Objective of the Program

Stage 2 - Selecting the Potential Targets

Stage 3 - Identifying Local Talents and Markets

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Stage 4 - Choosing the Right Location

Stage 5 - Tying up with Institutions

Stage 6 - Develop the Entrepreneurship Program as Needed

Stage 7 - Analyze the Result for Future Development

Theories of Entrepreneurship:

Max Weber’s Theory of Social Change (Emphasis on Impact of Religion):

• Max Weber advocated a sociological explanation for the growth of entrepreneurship in
his theory of social change.
• He felt that religion had a profound influence on the growth of entrepreneurship.
• The religious belief and ethical value associated with the society plays a vital role in
determining the entrepreneurial culture.
• In this theory spirit of capitalism is a fundamental concept.

The Uncertainty-Bearing Theory of Knight

• According to the theory, the entrepreneur earns pure profits for bearing the uncertainty.
• The probability of uncertainty or non-insurable risks cannot be statistically estimated.
• Entrepreneurs undertake risks of varying degrees according to their ability ad inclination.
The theory suggests that the more risky the nature of enterprise, the higher level of profit
earned by the entrepreneurs.
• Profit is the reward of the entrepreneur for bearing uncertainties and risks. Hence, it
should be a part of the normal cost.
• The reward of the entrepreneur is uncertain. Entrepreneur guarantees interest to lender
of capital, wages to workers and rent to the landlord.

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 • The level of uncertainty in business can be reduced by applying the technique of
consolidation.

Schumpeter’s Theory of Innovation:

• Joseph Schumpeter propounded the well-known innovative theory of entrepreneurship.
• Schumpeter takes the case of a capitalist closed economy which is in stationary
equilibrium.
• He believed that entrepreneurs disturb the stationary circular flow of the economy by
introducing an innovation and takes the economy to a new level of development.
• Innovations of entrepreneurs are responsible for the rapid economic development of any
country.
• Schumpeter had assigned the role of innovator to the entrepreneur, who is not a man of
ordinary managerial ability, but one who introduces something entirely new.

Innovation could involve any of the following:

• Innovation of new products.
• Innovation in novel methods or processes of production.
• The opening up of a new market.
• Entrepreneurs might find new source of supply of raw materials
• Innovation in management. This means reorganization of an industry.

Schumpeter had differentiated between invention and innovation.

➢ The inventor is the one who invents new materials and new methods.
➢ The innovator is the one who utilizes these inventions and discoveries in
order to make new combinations.

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Theory of Frank Young (Emphasis on Changes in Group Level Pattern):
• It emphasizes that the entrepreneurial initiatives are conditioned by group level pattern.
• Young rejected the psychogenic interpretations of entrepreneurship.
• He considered the solidarity groups responsible for building entrepreneurship.
• Entrepreneurial characteristics are observed in clusters, ethnic groups, occupational
groups and groups with political orientation
• The entrepreneur functions as a member of a group.

Frank Young deduced the group level pattern behaviour exhibited by the entrepreneurs on the
basis of his test known as Thematic Appreciation Test (TAT) on groups of entrepreneurs.

Economic Theory of Entrepreneurship:

• G.F. Papanek (1962) and J.R. Harris (1970) were of the view that economic incentive is
the main factor that influences entrepreneurial activities.
• Economic gains spontaneously develop the willingness among the entrepreneurs to
undertake diverse entrepreneurial initiatives
• Entrepreneurship development and economic growth takes place whenever certain
economic conditions are favourable.

Mark Casson Theory (Economic Theory):

• Mark Casson’s theory is an original synthesis of other approaches.
• According to Mark Casson the Entrepreneur might be a property developer, a small
businessman or just someone who knows how to ‘turn a fast buck’.
• Mark Casson felt that there was no established economic theory of the entrepreneur.
• The entrepreneur is defined as someone who specializes in taking judgmental decisions
about the coordination of scarce resources.

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Kunkel’s Theory (Emphasis on Entrepreneurial Supply):
• John H. Kunkel had built up his theory on the edifice of entrepreneurship supply.
• He was of the opinion that the sociological and psychological factors influence the
emergence of entrepreneurs.
• Supply of entrepreneurs has a functional relationship with the social, political and
economic structure.

Hoselitz’s Theory (Emphasis on Marginal Groups):

• Hoselitz’s theory emphasized that the cultural factors and the role of culturally marginal
groups in entrepreneurial development.
• Hoselitz had highlighted the importance of the culturally marginal groups in
development of entrepreneurship and their contribution to economic development of
the economy.
• The marginal groups are the minorities in the society and they yearn to elevate their
conditions and in the process promote economic development.
• Hoselitz opined that the marginal men placed in an ambiguous position and therefore
they are best suited to make creative adjustments in situations of change.

Cochoran’s Theory:
• Thomas Cochran in his theory had tried to discuss the supply of entrepreneurship from
the sociological point of view.
• An entrepreneur represents a society’s model personality.
• Cochran had suggested that the cultural values of a society, social expectations and role
expectations play an important role in determining the supply of entrepreneurs.

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E. E. Hagen’s Theory (Emphasis on Withdrawal of Status Respect):
• E. Hagen in his theory had accredited the withdrawal of status respect of a group as the
starting point for entrepreneurship development process
• His theory viewed the entrepreneur as a trouble shooter who contributes to economic
development.
• Hagen had suggested the events that could create as well as indicate withdrawal of status
respect of a social group.

There are four possible reactions to the withdrawal of status respect which relates to four
different personality types:
(i) The retreatist – An individual who works in the society but is indifferent to the work and
position.
(ii) The ritualist – An individual who works in the manner accepted and approved by the
society but has no hopes of improving his/her position.
(iii) The reformist – An individual who fights against the injustice and tries to rebels against
the established society in order to form a new society.
(iv) The innovator – An individual who endeavours to bring about new changes and utilizes
all opportunities. This personality reflects the personality of an entrepreneur.

Leibenstein’s Theory (Emphasis on X-Efficiency):

• The concept of X-efficiency was introduced by Harvey Leibenstein a noted economist
in1966 in his article titled “Allocative efficiency vs. X-efficiency”.
• This is also referred to as X-inefficiency.
• It refers to the difference between the optimal efficient behaviour of business in theory
and the observed behaviour is practice which occurs owing to different factors.

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 • X-efficiency refers to the effectiveness with which a given set of inputs are used to
produce outputs.

M. Kirzrier’s View on Entrepreneurship:

• The basis of Kirzner’s idea of entrepreneurship is spontaneous learning.

Baumol’s View on Entrepreneurship:

• Baumol’s approach to entrepreneurship within the economy shows that the entrepreneur is
basically nonexistent in the models of economics. He stated that the entrepreneur has been
read out of the model because the economic models are based on well-defined variables like
output and price.

Peter Drucker’s View on Entrepreneurship:

• Peter Drucker viewed the entrepreneur as a unique agent of change. Drucker writes that
“the entrepreneur always searches for change, responds to it, and exploits it as an
opportunity.”

ENTREPRENEURAL JUDO:
Entrepreneurial organizations engage in “entrepreneurial judo” when competing with resource
rich organizations. Entrepreneurial judo is opportunity driven regardless of the firm’s resource
constraints.
Three key elements of an entrepreneurial judo strategy are,
• Agility,
• Flexibility, and
• Leverage.
Drucker notes three situations where entrepreneurial judo may work best, namely,

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 ➢ in a rapidly changing environment,
➢ in a situation where a market leader may not find an opportunity worthwhile, or
➢ in a situation where the market leader refuses to make their current products or
processes obsolete or refuses to creatively destroy existing competencies and construct
new ones.
Entrepreneurial judo enables firms with limited resources to compete with established
market leaders. “Hits them where they aren’t”; that is, an entrepreneurial judo hits the
competitors in their weak areas before the competitors become aware of their competitive
challenges.

Developing entrepreneurial competencies:

The competency results in superior performance. This is exhibited by one’s distinct behaviour
in different situations. The popular Kakinada experience conducted by McClelland and winter
(1969) has proved beyond doubt that the entrepreneurial competency can be injected and
developed in human minds through proper education and training. Competency finds
expression in human behaviour.

Steps in developing entrepreneurial competencies:

1. Competency Identification and Recognition: The first step involved in
developing the entrepreneurial competency is to identify and recognize the set of
competencies required to effectively behave like an entrepreneur.

2. Competency assessment: Here the actual competencies possessed by an

entrepreneur are examined against the required set of competencies to effectively
behave or act like an entrepreneur.

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 3. Competency Mapping: Now, the actual competencies possessed by an
entrepreneur are compared with the competencies required to become a
successful entrepreneur to ascertain the gap in the entrepreneurial competencies
of an entrepreneur (Cooper 2000). This is called in the human resource training
and development lexicon as ‘Competency Mapping.’ A popular performance tool
used to map the (entrepreneurial) competency is based on “Skill to Do / Will to Do’
chart.”

4. Development Intervention: After understanding, internalising and practicing a

particular behaviour or competence, one needs to make an introspection of the
same in order to sharpen and strengthen one’s competency. This is called
‘feedback’.

INTRAPRENEUR:

Concept

Intrapreneur is a person who focuses on innovation and creativity and who transforms a dream
or an idea into a profitable venture, by operating within the organizational environment.
Intrapreneurs, by definition, embody the same characteristics as the entrepreneur, conviction,
passion, and drive. If the company is supportive, the intrapreneur succeeds. When the
organization is not, the Intrapreneur usually fails or leaves to start a new company.

According to Gifford Pinchot “intrapreneurs are entrepreneurs within an already

established organisation” they can be described as internal entrepreneurs or entrepreneurial
managers.

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Intrapreneurship differs from entrepreneurship in that:

• Intrapreneurs constantly must overcome barriers and negotiates obstacles and

have opportunities to work with greater financial, technological, and human
resources offered by an established company.
• In contrast, entrepreneurs largely work independently and often lack the
resources of large companies. People with entrepreneurial skills also may
choose to work within a company because they value job security, would like to
practice launching a new business inside a company before launching one outside,
and wish to take advantage of a company's established marketing channels.

The intrapreneurial process:

• It begins with a new idea or an innovation,
• Development,
• Implementation, and
• Modification.

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 Intrapreneurs may conceive of an innovation serendipitously or deliberately. After
intrapreneurs have an idea for an innovation they must begin to develop it—whether a
product, service, procedure, or company—by determining its feasibility. They assess the
market and need for the innovation to determine if implementing it will pay off. Once
intrapreneurs are certain they can feasibly introduce the innovation, they make general plans
to execute the innovation, develop the innovation, and test it.

Example of Intrapreneurship:

➢ Ramzi Haidamus, president of Nokia Technologies, decided to do away with

individual offices within three months of starting his job in 2014.
➢ He believed an open office led to more sharing of ideas and added greater
value to the organization.
➢ Haidamus interviewed over 100 engineers individually to determine which
technologies had the greatest chance of being successful in the marketplace at
the time.
➢ As of 2016, he is growing the company’s digital media business to become a leader
in virtual reality.

Women entrepreneurship:

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The Government of India has defined women entrepreneurs based on women participation in
equity and employment of a business enterprise. Accordingly, the Government of India
(GOI2006) has defined women entrepreneur as “an enterprise owned and controlled by a
women having a minimum financial interest of 51 per cent of the capital and giving at least 51
per cent of the employment generated in the enterprise to women.”

Women entrepreneurs in India are broadly divided into the following categories:

1. Affluent Entrepreneurs:

• Affluent women entrepreneurs are those women entrepreneurs who hails from
rich business families.
• They are the daughters, daughter-in laws, sisters, sister-in-laws and wives of
affluent people in the society. Many of them are engaged in beauty parlour, interior
decoration, book publishing, film distribution and the like.
• The family supports the above type of entrepreneur in carrying out their
responsibilities

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2. Pull Factors:

• Women in towns and cities take up entrepreneurship as a challenge to do

something new and to be economically independent.
• They belong to educated women who generally take up small and medium
industries where risk is low.
• Under this category, women usually start service centres schools, food catering
centres, restaurants, grocery shops etc.

3. Push Factors:

• There are some women entrepreneurs who accepts entrepreneurial activities

to overcome financial difficulties.
• The family situation forces them either to develop the existing family business or
to start new ventures to improve the economic conditions of the family.

4. Self-employed Entrepreneur:

• Poor and very poor women in villages and town rely heavily on their own
efforts for sustenance.
• They start tiny and Small enterprises like brooms making, wax candle making,
providing tea and coffee to offices, ironing of clothes knitting work, tailoring firm
etc.

5. Rural Entrepreneurs:

• Women in rural areas/villages start enterprises which needs least organising

skill and less risk.
• Dairy products, pickles, fruit juices, pappads and jagger making are coming under
this category of Rural entrepreneur.

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Main problems faced by the women entrepreneurs:-

• Shortage of finance
• Shortage of raw material
• Inadequate marketing facilities
• Keen competition
• High cost of production
• Family responsibilities
• Social attitudes
• Lack

Some of the Government Schemes for women entrepreneurs are:-

• Annapurna Scheme
• Sthree Shakti Package For Women entrepreneurs.
• Bharatiya Mahila Bank Business Loan
• Dena Shakti Scheme
• Udyogini Scheme
• Cent Kalyani Scheme.
• Mahila Udyam Nidhi Scheme.
• Mudra Yojana Scheme For Women.

RURAL ENTREPRENEURSHIP:

Rural entrepreneurs are those who carry out entrepreneurial activities by establishing
industrial and business units in the rural sector of the economy. In other words, establishing
industrial and business units in the rural areas refers to rural entrepreneurship. In simple words,
rural entrepreneurship implies entrepreneurship emerging in rural areas.

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 According to KVIC (Khadi and Village Industry Commission), "village industries or Rural
industry means any industry located in rural areas, population of which does not exceed
10,000 or such other figure which produces any goods or renders any services with or
without use of power and in which the fixed capital investment per head of an artisan or a
worker does not exceed a thousand rupees".

Types of Rural Industries:

All the village industries come under the following broad categories:

• Agro Based Industries: like sugar industries, jaggery, oil processing from oil seeds,
pickles, fruit juice, spices, diary products etc.

• Forest Based Industries: like wood products, bamboo products, honey, coir
industry, making eating plates from leaves.

• Mineral based industry: like stone crushing, cement industries, red oxide making,
wall coating powders etc.

• Textile Industry: like spinning, weaving, colouring, bleaching.

• Engineering and Services: like agriculture equipments, tractors and pumpsets

repairs etc.

INNOVATION IN BUSINESS:

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Innovation is the process of making (something) new or doing something in a new way. In
business, innovation also has to include the concept of improvement; to innovate in business is
not just to do something differently, but to do or make something better.

Key steps towards business innovation:

1. Conduct an analysis of the trends in the market environment, your customers’ wants and
needs and your competitors.
2. Consult with customers and employees for ideas on improving processes, products and
services both internally and externally. Find out more about connecting with customers
for ideas.
3. Seek advice. Use available resources such as business advisors, grants and assistance to
drive innovation in your business. This may include seeking Intellectual Property (IP)
protection to commercialise your ideas. Learn more about local collaboration and
international collaboration with researchers.
4. Be open to new ideas and adaptive to change.
5. Develop a strategic, responsive plan, which promotes innovation as a key business
process across the entire business. Learn about creating an innovative business culture
and developing a strategy for innovation.

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 6. Train and empower your employees to think innovatively from the top down.

Models of innovation:

Business innovation can be grouped in various categories, or models. Some are self-explanatory,
such as product or process innovations. Other types, and what they mean, include:

• Business model innovation: the development and implementation of new, unique concepts
supporting an organization's financial viability, including its mission.

• Industry model innovation: the creation of a new industry or an organization's move into a
new industry.

• Revenue model innovation: improvements and/or changes to an organization's framework

for generating revenue, a goal also encompassed in the term, business model innovation.

Types of innovation:

Incremental Innovation

• Incremental Innovation is the most common form of innovation.

• It utilizes your existing technology and increases value to the customer (features, design
changes, etc.) within your existing market.

• Almost all companies engage in incremental innovation in one form or another.

Examples include adding new features to existing products or services or even removing
features (value through simplification). Even small updates to user experience can add value,

Disruptive Innovation

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 • Disruptive innovation, also known as stealth innovation, involves applying new
technology or processes to your company’s current market.

• It is stealthy in nature since newer tech will often be inferior to existing market
technology. This newer technology is often more expensive, has fewer features, is harder
to use, and is not as aesthetically pleasing

There are quite a few examples of disruptive innovation, one of the more prominent being
Apple’s iPhone disruption of the mobile phone market.

Architectural Innovation

• Architectural innovation is simply taking the lessons, skills and overall technology and
applying them within a different market.

• This innovation is amazing at increasing new customers as long as the new market is
receptive.

• Most of the time, the risk involved in architectural innovation is low due to the reliance
and reintroduction of proven technology.

Radical innovation

• It gives birth to new industries (or swallows existing ones) and involves creating
revolutionary technology.

• The airplane, for example, was not the first mode of transportation, but it is revolutionary
as it allowed commercialized air travel to develop and prosper.

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INNOVATIVE OPPORTUNITY:

An innovative opportunity is here defined as ‘‘the possibility to realize a potential economic

value inherent in a new combination of resources and market needs, emerging from changes in
the scientific or technological knowledge base, customer preferences, or the interrelationships
between economic actors’
The 7 sources of innovative opportunity were listed by Peter Drucker in his book “Innovation
and Entrepreneurship.

• INDUSTRY AND MARKET DISPARITIES

Industry and market disparities describe situations when the current supply for
something does not meet the demand. There are times when companies are not
accustomed to providing things that people really desire. They can thrive if you figure out
how to give the people what they truly want in these situations

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• THE UNEXPECTED
Opportunities frequently come from unexpected sources

• INCONGRUITIES
Incongruities describe inconsistencies between customer desires and what a business
believes the customer desires.

• PROCESS VULNERABILITIES
Drucker’s phrase “process vulnerabilities” simply describes any gaps in the way things
happen. These gaps keep the experience from being all it could be for the end user.

• DEMOGRAPHIC SHIFTS
Intelligent companies pay attention to changes in demographics. Companies continually
study demographics to understand the best manner to reach their desired audience.

• CHANGES IN PERCEPTION
There are times when people are not quite ready to embrace a new idea. Innovative
organizations recognize times when consumer perception changes and they are ready to
implement their fresh ideas.

• NEW KNOWLEDGE
Breakthroughs in science and technology are clearly a source of opportunity which
creates new knowledge.

Schumpeter’s innovation theory:

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According to Schumpeter, consumer preferences are already given and do not undergo
spontaneously. It means that they cannot be cause of the economic change. Moreover,
consumers in the process of economic development play a passive role. In theory of
economic development and further work Schumpeter described development as historical
process of structural changes, substantially driven by innovation which was divided by him
into five types,

1. Launch of a new product or a new species of already known product.

2. Application of new methods of production or sales of a product (not yet proven
in the industry);
3. Opening of a new market (the market for which a branch of the industry was not
yet represented);
4. Acquiring of new sources of supply of raw material or semi-finished goods;
5. New industry structure such as the creation or destruction of a monopoly
position.
Schumpeter argued that anyone seeking profits must innovate. That will cause the different
employment of economic system’s existing supplies of productive means

Screening of business ideas:

Idea screening is a process that evaluates and contrasts new product ideas to get the most
promising ones for your business. Not every idea is relevant to the company. In order to screen
out a good idea from the not so good ones, there are certain criteria that should be followed
like technical problems, strategic fit, and several market opportunities.

The idea screening process helps to reduce the amount of irrelevant ideas into a convenient
amount which can further turned into prototypes. The purpose is to eliminate the number of
ideas without screening away the potential ones. During the idea screening process, the
company must focus on the following questions:
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 ➢ If the target customers will benefit from the product?
➢ What will be the size and growth forecast of the target market?
➢ The current and future competitive pressure for the product idea?
➢ Is it technically possible to manufacture the product
➢ Is the product idea based on current market trend?
➢ Whether the product idea will be profitable when delivered to the target customers?
➢ The most identifiable needs/wants of the customers.
➢ Product’s improvement or modification required.
➢ The scope of the research and development needed.
➢ Whether it fits best with business’s objective.

BUSINESS PLAN AND FEASIBILITY ANALYSIS

Feasibility Study Vs Business Plan

1. A feasibility study is carried out with the aim of finding out the work-ability and
profitability of a business venture. On the other hand, a business plan is developed only
after it has been established that a business opportunity exist and the venture is about
to commence. This simply means that a business plan is prepared after a feasibility study
has been conducted.

2. A feasibility report is filled with calculations, analysis and estimated projections of a

business opportunity. While a business plan is made up of mostly tactics and strategies to
be implemented in other to start and grow the business.

3. A feasibility study is all about business idea viability. Business plan deals with business
growth plan and sustainability.

4. A feasibility study report reveals the profit potential of a business idea or opportunity to
the entrepreneur. A business plan helps the entrepreneur raise the needed start-
up capital from investors.

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MARKET ANALYSIS:

A market analysis studies the attractiveness and the dynamics of a special market within a
special industry. It is part of the industry analysis and thus in turn of the global environmental
analysis. Through all of these analyses, the strengths, weaknesses, opportunities and threats
(SWOT) of a company can be identified. Finally, with the help of a SWOT analysis, adequate
business strategies of a company will be defined.

A market analysis consists of four parts:

➢ Industry overview: It describes the current state of the industry and where it is
headed.
➢ Target market: Who are the actual customers? This step details how many of
them are there, what their needs are, and describe their demographics.
➢ Competition: Describe the competitors’ positioning, strengths, and weaknesses.
➢ Pricing and forecast: Pricing will help determine the position of the company in
the market, and the forecast will show what portion of the market you hope to get.

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FINANCIAL ANALYSIS:

Financial statement analysis (or financial analysis) is the process of reviewing and analyzing a
company's financial statements to make better economic decisions. Historical information
combined with a series of assumptions and adjustments to the financial information may be
used to project future performance.

Procedure of Financial Statement Analysis:

1. Objective of Analysis: The objective of analysis is differing from one interested party to
another. In other words, the user of financial statement analysis fixes or determines the
objectives of analysis.
2. Decide the Extent of Analysis: The extent of analysis is also decided by the interested
party. For example: Shareholder considers long term solvency of the business concern.
The debenture holder considers short term solvency of the business concern.
3. Scope of Analysis: It means that an analyst should determine the depth of the analysis.
This can be decided depending upon the nature of problem.
4. Going Through the Financial Statements: The analyst should go through every item of
the financial statements. If not so, the hidden facts cannot be found out through analysis.
5. Pooling of Relevant Data: The analyst should collect relevant data from the financial
statements. If not so, he/she can get relevant information from the published financial
statements.
6. Rearrangement of Financial Data: The contents of the financial statements are
rearranged before making actual analysis and interpretation. Under this step,
approximation of figures, consolidation of items etc. is done.
7. Understanding: The analyst should go through financial documents and other documents
for clearly understand the problem.

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 8. Classification: After understanding the problem, the collected relevant data are to be
classified according to the needs of the problem to find out a correct solution.
9. Analysis: After making above preparation, actual analysis is done. Any one of the tools or
techniques of financial statement analysis can be used.
10. Interpretation and Conclusion: The interpretation is made and the inferences are drawn
only on the basis of analysis.
11. Report Form: All the inferences and interpretation should be presented in a report form
to the management.

TECHNICAL ANALYSIS:

In technical feasibility the following issues are taken into consideration.

• Whether the required technology is available or not

• Whether the required resources are available –
- Manpower- programmers, testers & debuggers
- Software and hardware

Once the technical feasibility is established, it is important to consider the monetary factors
also. Since it might happen that developing a particular system may be technically possible but
it may require huge investments and benefits may be less. For evaluating this, economic
feasibility of the proposed system is carried out.

MICRO AND SMALL SCALE INDUSTRIES IN INDIA

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In accordance with the provision of Micro, Small & Medium Enterprises Development
(MSMED) Act, 2006 the Micro, Small and Medium Enterprises (MSME) are classified in two
Classes:

1. Manufacturing Enterprises:- the enterprises engaged in the manufacture or production of

goods pertaining to any industry specified in the first schedule to the industries (Development
and regulation) Act, 1951) or employing plant and machinery in the process of value addition to
the final product having a distinct name or character or use. The Manufacturing Enterprise is
defined in terms of investment in Plant & Machinery.

2. Service Enterprises:-The enterprises engaged in providing or rendering of services and are

defined in terms of investment in equipment.

Manufacturing Sector
Enterprises Investment in plant & machinery
Micro Enterprises Does not exceed twenty five lakh rupees
Small Enterprises More than twenty five lakh rupees but does not exceed five crore
rupees
Medium Enterprises More than five crore rupees but does not exceed ten crore rupees
Service sector
Enterprises Investment in equipments

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 Micro Enterprises Does not exceed ten lakh rupees:
Small Enterprises More than ten lakh rupees but does not exceed two crore rupees
Medium Enterprises More than two crore rupees but does not exceed five core rupees

Union cabinet recently approved a proposal to redefine micro, small and medium enterprises,
or MSMEs, based on their annual revenue, replacing the current definition that relies on self-
declared investment on plant and machinery. According to the government’s new definition,
businesses with revenue of as much as Rs5 crore will be called a micro enterprise, those with
sales between Rs5 crore and Rs75 crore will be deemed as small and those with revenue
between Rs75 crore and Rs250 crore will be classified as medium-sized enterprises.

Characteristics of Small-Scale Industries:

(i) Ownership: Ownership of small scale unit is with one individual in sole-
proprietorship or it can be with a few individuals in partnership.
(ii) Management and control: A small-scale unit is normally a one man show and
even in case of partnership the activities are mainly carried out by the active
partner and the rest are generally sleeping partners.
(iii) Area of operation: The area of operation of small units is generally localised
catering to the local or regional demand.
(iv) Technology: Small industries are fairly labour intensive with comparatively
smaller capital investment than the larger units.
(v) Gestation period: Gestation period is that period after which teething problems
are over and return on investment starts. Gestation period of small scale unit is
less as compared to large scale unit.
(vi) Flexibility: Small scale units as compared to large scale units are more change
susceptible and highly reactive and responsive to socio-economic conditions.

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 (vii) Resources: Small scale units use local or indigenous resources and as such
can be located anywhere subject to the availability of these resources like
labour and raw materials.
(viii) Dispersal of units: Small scale units use local resources and can be dispersed
over a wide territory.

ROLE OF GOVERNMENT IN PROMOTING SSI:

1. Create incentives for risk capital. Establish policies (e.g. reduced capital gains taxes) and
programs (e.g. matching funding with the private sector such as the SBIR from the US
government) to ensure the availability of risk capital.
2. Establish incentives for small and large businesses to co-innovate together. Create a tax
and IP incentive for large businesses to invest, partner and support the innovations
created by small businesses. Small businesses need the size and scale of large businesses
to bring their ideas to market while at the same time, large businesses need the
breakthrough innovations coming from small businesses.
3. Encourage entrepreneurs to invest in R&D. Eliminate the negative incentives such as the
US governments AMT that wipes out any R&D tax credit for most small businesses.
4. Build leverage into innovation programs. Establish incentives (reduced red tape, special
infrastructure investment, hiring and training incentives, etc) to invest in common areas
thereby creating an ecosystem of participants (university, investors, entrepreneurs, large
businesses).
5. Commit to graduating workers prepared for the creative/innovation economy. Embed
creativity and innovation training into each subject taught in the classroom. Make
creativity/innovation just as important as the other core subjects.
6. The Central Government has notified Public Procurement Order 2012 which makes it
mandatory for central agencies to procure at least 20% of their purchases from MSEs.
The policy also stipulates 4% procurement from SC/ST entrepreneurs.

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 Dereservation of items for small scale industry:

The government recently removed the remaining 20 items from the original list
of over 800 items reserved for exclusive production by the MSME sector, thus
bringing to an end a policy regime being followed since the 1960s to promote
and facilitate the small sector, considered a big employment generator. The de-
reservation is being done “to encourage greater investment, incorporate better
technologies, standard and branch building and enhance competition in Indian
and global markets for these products.

Important Schemes of Ministry of Micro, Small and Medium Enterprises:

Khadi Reform & Development Programme (ADB Assistance)

➢ Department of Economic Affairs, Ministry of Finance has tied up financial aid from
Asian Development Bank (ADB) amounting to US$150 million over a period of
three years for implementing a comprehensive Khadi Reform Programme worked
out in consultation with ADB and KVIC.
➢ Under this Reform Package, it is proposed to revitalize the Khadi sector with
enhanced sustainability of Khadi, increased incomes and employment to artisans,
increased artisans welfare and to enable KVIC to stand on its own with gradually
decreasing dependence on Government Grants.
➢ Initially, the programme will be implemented in 300 khadi institutions keeping in
mind the needs of regional balance, geographical spread and inclusion of
backward areas.

Market Promotion and Development Assistance scheme (MPDA)

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 ➢ The MDA scheme of KVIC has been modified as Market Promotion and
Development Assistance scheme (MPDA)
➢ This is formulated as a unified scheme by merging different schemes/sub-
schemes/components of different Heads implemented in the 11th Plan,
namely, Market Development Assistance, Publicity, Marketing and Market
promotion.
➢ A new component of Infrastructure namely setting up of Marketing
Complexes/Khadi Plazas has been added to expand the marketing net worth of
Khadi & VI products.

Scheme of Fund for Regeneration of Traditional Industries (SFURTI)

➢ Government, in the Union Budget for 2013-14, has announced setting up of
800 clusters of Khadi, Village Industries and Coir during XII Plan with an outlay of
Rs. 850.00 crore to cover around 4 lakh artisans.
➢ Ministry of MSME under Phase-I has approval to set up 71 clusters (including coir)
Mini-59, Major-10 & Heritage-2 with coverage of 44500 artisans (approx.).

Coir Vikas Yojana

➢ Coir Board, a statutory body established under the Coir Industry Act, 1953 takes
up many activities for promoting overall development of the coir industry and
improving the living condition of the workers engaged in this traditional industry.
➢ The activities include undertaking scientific, technological and economic research
and development activities; developing new products & designs; and marketing of
coir and coir products in India and abroad.

Coir Udyami Yojana

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 ➢ The Ministry through Coir Board is implementing a central sector Scheme of
Rejuvenation, Modernization and Technology Up gradation of Coir Industry
(REMOT).
➢ Under this scheme, financial assistance is provided for replacement of outdated
ratts/looms and for construction of worksheds so as to increase
productivity/production and earnings of workers.

A Scheme for Promotion of Innovation, Rural Industry and entrepreneurship (ASPIRE)

➢ The Ministry of Micro, Small & Medium Enterprises has launched a new scheme
namely, ASPIRE (A Scheme for Promoting Innovation, Rural Industry and
Entrepreneurship) on 18.3.2015 to accelerate entrepreneurship and to promote
start-ups for innovation and entrepreneurship in agro-industry.
➢ Under ASPIRE, 80 Livelihood Business Incubation (LBI) centres are to be set up
in which a total of 104000 incubates will be trained and 30 (10 new & 20 existing)
Technology Business Incubation (TBI) centres

National Manufacturing Competitiveness Programme (NMCP)

➢ The programme covers Credit Linked Capital Subsidy Schemes, ISO 9000/14001
reimbursement schemes, ZED Maturity Model (ZMM), schemes of National
Manufacturing Competitiveness Programme (six Schemes) viz.
➢ Lean Manufacturing Scheme, Promotion of ICT Tools, Quality Management
Standards and Quality Technology Tools, Technology up gradation Quality
Certification (TEQUP), Incubation Centre, Intellectual Property Rights (IPR) and
Bar Code.

Prime Ministers Employment Generation Programme (PMEGP)

➢ A credit linked subsidy scheme titled Prime Ministers Employment Generation
Programme (PMEGP) was launched in 2008-09 through merger of the erstwhile

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 schemes of Prime Ministers Rozgar Yojana (PMRY) and Rural Employment
Generation Programme (REGP).

Interest Subsidy Eligibility Certificate for Khadi and Polyvastra (ISEC)

➢ ISEC scheme is the major source of funding for Khadi programme introdced in
May 1977 to mobilize funds from banking institutions to fill the gap in the actual
fund requirement and its availability from budgetary sources.
➢ Under the Scheme, implementing agencies can avail of bank loan as per the ISEC
issued by the KVIC on payment of only 4 percent of interest and difference
between the actual interest charged by the bank and 4 percent is borne by KVIC
as interest subsidy.

Credit Support Programme

➢ This Programme covers two schemes namely Credit Guarantee Scheme and India
Inclusive Innovation Fund. The Credit Guarantee Scheme for Micro Small and
Enterprises is operational and through this scheme, the guarantee cover is
provided for collateral free credit facility extended by Member Lending Institutions
(MLIs) to the new as well as existing Micro and Small enterprises on loans up to
Rs. 100 lakh.

Rajiv Gandhi Udyami Mitra Yojana (RGUMY)

➢ The objective of Rajiv Gandhi Udyami Mitra Yojana (RGUMY) is to provide
information, support, guidance and as well as other existing entrepreneurs through
an Udyami Helpline (a Call Centre for MSMEs on toll-free number 1800-180-
6763), to guide them regarding various promotional schemes of the Government,
procedural formalities required for setting up and running of the enterprise and
running of the enterprise and not function of a Helpline.

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Technology Up-gradation Scheme for Micro Small and Medium Enterprises (MSMEs)
Objectives of the scheme
➢ Sensitize and encourage the manufacturing MSME sector in India to the use of
Energy Efficient Technologies and Manufacturing Processes so as to reduce cost
of production and emissions of GHGs.
➢ Create awareness and encourage the MSMEs to acquire Product Certification/
Licenses from National/ International Bodies.
➢ To provide Financial Assistance in the form of subsidy to the extent of 25% of the
project cost for implementation of Energy Efficient Technology (EET). The
maximum amount of subsidy will be Rs. 10 Lakh for project cost of Rs. 40 Lakhs.
This activity is implemented through various nodal banks.
➢ To provide subsidy to MSME units to the extent of 75% of the actual expenditure
incurred by them for obtaining Product Certification Licences. The maximum GoI
assistance allowed per MSME is Rs. 1.5 lakh for obtaining licencing/ marking to
national standards and Rs. 2.00 lakh for obtaining international Certification.
➢ The scheme was in operation upto 30.09.2017 and is not an ongoing scheme.

Other Important organisations w.r.t. MSME Sector:

The Office of the Development Commissioner [O/o DC (MSME)]: This is an attached office of
the Ministry, headed by the Additional Secretary & Development Commissioner (AS & DC),
MSME.

National Institute for Micro, Small and Medium Enterprises (NIMSME): NIMSME was originally
set up as Central Industrial Extension Training Institute (CIETI) in New Delhi in 1960 under the
then Ministry of Industry and Commerce, Government of India. The Institute was shifted to
Hyderabad in 1962 as a registered society in the name of Small Industry Extension Training
Institute (SIET).

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Mahatma Gandhi Institute of Rural Industrialisation (MGIRI): The existing Jamnalal Bajaj
Central Research Institute (JBCRI), Wardha was revamped with the help of IIT, Delhi as a national
level institute under the Ministry of MSME in October 2008 called Mahatma Gandhi Institute
for Rural Industrialization (MGIRI).

The National Science & Technology Entrepreneurship Development Board (NSTEDB):

The National Science & Technology Entrepreneurship Development Board (NSTEDB) was
established by the Government of India in 1982 with a broad objective of promoting gainful self-
employment amongst the Science and Technology (S&T) manpower in the country and to set
up knowledge based and innovation driven enterprises. NSTEDB functions under the aegis of
the Department of Science & Technology.

National Institute of Entrepreneurship and Small Business Development (NIESBUD): National

Institute for Entrepreneurship and Small Business Development is a society under the Ministry
of Micro, Small and Medium Enterprises engaged in Training, Consultancy, Research and
Publication, in order to promote entrepreneurship. The institute has been financially self
sufficient since 2007-08. The Institute is operating from an integrated Campus in A-23, Sector-
62, Noida, Uttar Pradesh.

Important training institute under the ministry of MSME

➢ CENTRAL TOOL ROOM & TRAINING CENTRE, (CTTC), BHUBANESWAR
➢ INDO DANISH TOOL ROOM, (IDTR), JAMSHEDPUR
➢ CENTRAL TOOL ROOM & TRAINING CENTRE, (CTTC), KOLKATA
➢ TOOL ROOM & TRAINING CENTRE (TRTC), GUWAHATI
➢ INDO GERMAN TOOL ROOM, (IGTR), AURANGABAD
➢ INDO GERMAN TOOL ROOM, (IGTR), INDORE

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 ➢ INDO GERMAN TOOL ROOM, (IGTR), AHMEDABAD
➢ CENTRAL INSTITUTE OF HAND TOOLS (CIHT), JALANDHAR
➢ CENTRAL INSTITUTE OF TOOL DESIGN (CITD), HYDERABAD
➢ INSTITUTE FOR DESIGN OF ELECTRICAL M EASURING INSTRUMENTS (IDEMI),
M UMBAI
➢ ELECTRONICS SERVICE & TRAINING CENTRE (ESTC), RAMNAGAR
➢ PROCESS AND PRODUCT DEVELOPMENT CENTRE (PPDC), AGRA
➢ FRAGRANCE & FLAVOUR DEVELOPMENT CENTRE (FFDC), K ANNAUJ
➢ CENTRE FOR THE DEVELOPMENT OF GLASS INDUSTRY (CDGI), FIROZABAD
➢ CENTRAL FOOTWEAR TRAINING INSTITUTE (CFTI) AGRA
➢ CENTRAL FOOTWEAR TRAINING INSTITUTE (CFTI) CHENNAI
➢ PROCESS CUM PRODUCT DEVELOPMENT CENTRE (PPDC), M EERUT
➢ CENTRAL TOOL ROOM (CTR), LUDHIANA

SICKNESS IN SMALL INDUSTRIES:

Industrial sickness is defined all over the world as "an industrial company (being a company
registered for not less than five years) which has, at the end of any financial year, accumulated
losses equal to, or exceeding, its entire net worth and has also suffered cash losses in such
financial year and the financial year immediately preceding such financial year".

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A Micro or Small Enterprise (as defined in the MSMED Act 2006) may be said to have become
Sick, if:

1. Any of the borrower accounts of the enterprise remains NPA for three months or
more OR
2. There is erosion in the net worth due to accumulated losses to the extent of 50%
of its net worth during the previous accounting year.

Units becoming sick on account of wilful mismanagement, wilful default, unauthorized diversion
of funds, disputes among partners / promoters, etc. should not be classified as sick units and
accordingly should not be eligible for any relief and concessions.

Tiwari Committee on Industrial Sickness:

• The Reserve Bank of India (RBI) was entrusted with the task of monitoring and managing
the problem of industrial sickness in the economy. RBI initiated several steps and
constituted a study group, known as Tandon Committee, in 1975.
• Again, in 1976, the RBI constituted a new committee, popularly known as H N Ray
committee, to study and suggest measures for mitigating the problem of industrial
sickness. Apart from these study groups, nationalization of banks and certain other
measures were taken to counter the problem.

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 • In the year 1981, a new committee, known as Tiwari Committee, was constituted. The
committee submitted its report to the Government in September 1983 and suggested to
pass a special legislation and set-up an exclusive quasi-judicial body to handle the cases of
industrial sickness.
• This recommendation ultimately resulted into passing of the Sick Industrial Companies
Act (SICA) in 1985. Soon, in keeping with the recommendation of the Tiwari Committee,
an exclusive quasi-judicial body in the name of Board for Industrial and Financial
Reconstruction (BIFR) was created.
• BIFR started functioning in India in 1987 for determining the preventive, ameliorative,
remedial and other measures which are required to be taken in respect of sick industrial
company and for expeditious enforcement of rehabilitation schemes.

Causes of Industrial Sickness:

1. Inadequacy of working capital

2. Non-availability of credit
3. Poor and obsolete technology
4. Non availability of raw material
5. Marketing problems
6. Erratic power supply
7. Labour problems
8. Poor Management
9. Inadequate attention to R&D
10.Diversion of resources
11.Globalization
12.Dispute among partners
13.Overambitious projects

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Remedial measures to overcome Sickness
Some of the remedial measures to curb and overcome sickness in industrial undertakings are as
follows:

1. Identifying sickness at initial stage

2. Financial assistance: A number of initiatives can be undertaken to overcome credit problems
such as:
➢ Increasing Working capital limit.
➢ Enhancing the powers of bank managers of specialized bank branches in
offering credit to SSI.
➢ Strengthening the mechanism for discounting bills.
➢ Reduced rate of interest
3. Improving Infrastructure
4. Technology Up-gradation
5. Marketing assistance
6. Liquidation
7. Government Interventions
8. Training
9. Rehabilitation
Timely and adequate assistance to MSEs and rehabilitation effort should begin on a proactive
basis when early signs of sickness are detected. This stage would be termed as ‘handholding
stage’ as defined below. An account may be treated to have reached the ‘handholding stage’; if
any of the following events is triggered:

1. There is delay in commencement of commercial production by more than six

months for reasons beyond the control of the promoters;

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 2. The company incurs losses for two years or cash loss for one year, beyond the
accepted timeframe;
3. The capacity utilization is less than 50% of the projected level in terms of quantity
or the sales are less than 50% of the projected level in terms of value during a
year.

The Sick Industrial Companies Act (SICA)

➢ It was a key piece of legislation dealing with the issue of rampant industrial sickness
in India. SICA was enacted in India to detect sick or potentially sick companies
owning industrial undertakings, and their revival, if possible, or their closure, if not.
This measure was taken to release investment locked up in sick companies for
productive use elsewhere.
• An important SICA provision was establishing two quasi-judicial bodies – the Board
for Industrial and Financial Reconstruction (BIFR), and the Appellate Authority for
Industrial and Financial Reconstruction (AAIFR).
• BIFR was set up as an apex board to spearhead handling the industrial sickness
issue, including reviving and rehabilitating potentially sick units and liquidating non-
viable companies.
• AAIFR was set up to hear appeals against BIFR orders.
• SICA was repealed and replaced by the Sick Industrial Companies (Special
Provisions) Repeal Act of 2003, which diluted some SICA provisions and plugged
certain loopholes.
• A key change in the new act was that apart from combating industrial sickness, it
aimed to reduce its growing incidence by ensuring that companies did not resort
to a sickness declaration merely to escape legal obligations and gain access to
concessions from financial institutions.
• The repeal of SICA came into full effect on December 1, 2016.

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INSTITUTIONAL FINANCE TO SMALL INDUSTRIES:

Some of the important institutions financing small scale industries and their functions are
discussed below.

Small Industries Development Bank of India (SIDBI)

➢ The Government of India set up the Small Industries Development Bank of India
under a special Act of Parliament in 1989 as a wholly owned subsidiary of the
Industrial Development Bank of India with the objective of ensuring larger flow of
financial and non-financial assistance to the small scale sector.
➢ The Bank commenced its operations from April 2, 1990 with its Head Quarters at
Lucknow.
➢ In pursuance of the SIDBI (Amendment) Act 2000 and as approved by the
Government of India, 51 per cent of equity shares of SIDBI subscribed and held by
IDBI has since been transferred to the public sector banks, Life Insurance
Corporation, General Insurance Corporation and other institutions owned and
controlled by Central Government.

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Commercial Banks
➢ The scheduled commercial banks in the country comprise the State Bank of India
and its associated banks, Nationalised Banks, Private Sector Banks, Regional
Rural Banks and Foreign Banks.
➢ For a long period, commercial banks did not come forward to extend financial
assistance to the small scale industries because of the SSI's weak economic base.
➢ The first lead in this regard was taken by the State Bank of India in consultation
with the Reserve Bank of India in March 1956 by setting up a pilot scheme for the
provision of credit for small scale industries.
➢ The commercial banks started taking initiation in financing small scale
industries in a greater way only after the bank nationalisation in July 1969.

Regional Rural Banks Regional Rural Banks (RRBs)

➢ It provides institutional credit to farmers and artisans in rural areas.
➢ Initially five regional rural banks were set up on October 2, 1975, two in Uttar
Pradesh and one each in Rajasthan, Madhya Pradesh and West Bengal.
➢ These banks were sponsored by the Syndicate Bank, State Bank of India and
the Punjab National Bank, United Commercial Bank and United Bank of India
respectively.
➢ Each regional rural bank has an authorised capital of Rs.l crore and issued and
paid up capital of Rs.25 lakhs.
➢ The share capital of RRB is subscribed by the Central Government (50 per
cent), the State Government concerned (15 per cent) and the sponsoring
Commercial Bank (35 per cent).

Co-operative Banks
➢ Co-operative Banks combine the advantages of private ownership and public
good.

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 ➢ Co-operation is considered as an instrument of economic development
especially in the rural areas.
➢ The merits of co-operation are their non exploitative character, voluntary nature of
membership, the principle of one man one vote, decentralised decision making
and voluntary curbs on profits.
➢ Co-operative banks provide loans to agriculturists and rural artisans at low rates
of interest and protect them from the clutches of money lenders.
➢ The organisation of co-operative societies in India has a three-tier structure with
primary co-operative societies at the village level, Central co-operative societies at
the district level and State co-operative banks or apex banks at the state level.

State Financial Corporations (SFCs)

➢ The Government of India passed the State Financial Corporations Act in 1951
and made it applicable to all the states.
➢ The authorised capital of a SFC is fixed by the State Government within the
minimum and maximum limits of Rs.50 lakhs and Rs.5 crores and is divided into
shares of equal value which are taken by the respective State Governments, the
Reserve Bank of India, scheduled banks, co-operative banks, other financial
institutions such as insurance companies and investment trusts and private
parties

The functions of the SFCs are to:-

(i) Guarantee loans raised by industrial concerns which are repayable within a
period not exceeding 20 years and which are floated in the public market.
(ii) Underwrite the issue of stocks, shares, bonds or debentures of industrial
concerns.
(iii) Grant loans or advances to industrial concerns repayable within a period not
exceeding 20 years.

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 (iv) Subscribe to debentures floated by industrial concerns.
(v) Directly subscribe to shares and debentures. –
(vi) Refinance on behalf of SIDBI.
(vii) Discount bills of exchange and
(viii) Act as agents of both Central and State Governments, SIDBI, Industrial Finance
Corporation of India, World Bank and other financial institutions in matters
connected with the grant of loans or advances or subscription to debentures.

The SFCs have been entrusted with International Development Association (IDA) credit for
assisting small and medium units. The bulk of the assistance granted by SFCs is to small scale
industries including road transport operators. The SFCs have continued to extend liberal
financial assistance on concessional terms to industrial units in the specified backward areas.

State Industrial Development Corporations (SIDCs):

➢ The State Industrial Development Corporations were set up under the Companies
Act, 1956 as wholly owned undertakings of the State Governments.
➢ The objectives of SIDCs are to promote and develop medium and large industries
in their respective states or union territories.
➢ SIDCs extend financial assistance in the form of rupee loans, underwriting and
direct subscriptions to shares and debentures, guarantees and inter-corporate
deposits.
➢ SIDCs undertake a number of feasibility reports, conducting industrial potential
surveys, entrepreneurship training and development programmes and developing
industrial estates.
➢ Some SIDCs offer a package of developmental services that include technical
guidance, assistance in plant location and co-ordination with other agencies.
➢ SIDC are involved in the setting up of industrial growth centres with a view to
providing infrastructural facilities for the establishment of industrial units.

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State Small Industries Development Corporations (SSIDCs):
State Small Industries Development Corporations were established under the Companies Act,
1956 as State Government undertakings with the specific objectives of promoting and
developing small, tiny and village industries in the states and union territories.

SSIDCs perform the following functions:-

(i) Procurement and distribution of raw materials.
(ii) Supply of machinery on hire purchase basis.
(iii) Providing assistance for marketing of the products of small scale units.
(iv) Construction of industrial estates/sheds, providing allied infrastructure facilities
and their maintenance.
(v) Extending seed capital assistance on behalf of the state Governments
concerned and
(vi) Providing management assistance on behalf of the state Governments
concerned.

National Bank for Agriculture and Rural Development (NABARD)

➢ The National Bank for Agriculture and Rural Development was set up on July 12,
1982 by an act of the Parliament.
➢ It is an apex development bank for promotion and development of agriculture,
small scale industries, cottage and village industries, handicrafts and other allied
economic activities in rural areas.
➢ The objective of NABARD is to promote integrated rural development necessary
for the overall prosperity of rural areas in the country.

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 ➢ The NABARD maintains two funds - the National Rural Credit (Long term
operations) Fund and the National Rural Credit (Stabilisation) Fund.
➢ The Central and State Governments contribute to the funds.
➢ The NABARD operates throughout the country through its regional offices located
in the capital of all major states.

NABARD performing the following functions:

(i) It extends credit support by way of refinance to eligible institutions namely, State
Co-operative Agriculture and Rural Development Banks, Commercial Banks,
RRBs, and Primary Co-operative Banks for farm as well as nonfarm sectors.
(ii) NABARD provides long term investment credit to farm sector for agricultural
and allied activities.
(iii) It extends medium term credit facilities to State Co-operative Banks and RRBs
for agricultural purposes.
(iv) Short term credit facilities are extended to State Co-operatives and RRBs.
(v) Refinance is made to nonfarm sectors up to Rs. 0.15 crores to State
Cooperative Banks, Primary Co-operative Banks and Commercial Banks
enabling them to provide investment credit to rural enterprises.
(vi) Short term credit facilities are extended to RRBs for financing non agricultural
activities.
(vii) NABARD extends refinance to banks for financing development of non
conventional energy sources and Government programmes like
Swarnajayanthi Rozgar Yojana, Prime Ministers Rozgar Yojana (PMRY) etc.

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 NABARD (Amendment) Bill, 2017

Parliament has passed the National Bank for Agriculture and Rural Development
(Amendment) Bill, 2017 with the approval of Rajya Sabha.
Lok Sabha already had passed the bill in August 2017.

Key Features of the Bill

• The Bill allows Union Government to increase capital of NABARD from Rs. 5000
crore to Rs 30,000 crore.
• It allows Union Government to increase the capital more than Rs 30,000 crore
in consultation with the Reserve Bank of India (RBI), if necessary.
• The Bill provides that Union Government alone must hold at least 51% capital
share of NABARD.
• It transfers share capital held by RBI valued at Rs. 20 crore to Union
Government. Currently RBI holds 0.4% of paid-up capital of NABARD and
remaining 99.6% is held by Union government and this causes conflict in RBI’s
role as banking regulator and shareholder in NABARD.
• The Bill replaces terms ‘small-scale industry’ and ‘industry in tiny and
decentralised sector’ with terms ‘micro enterprise’, ‘small enterprise’ and
‘medium enterprise’ as defined in MSME Development Act, 2006.
• It allows NABARD to provide financial assistance to banks if they provide loans
to the MSMEs.
• The Bill substitutes references to provisions of the Companies Act, 1956 with
references to the Companies Act, 2013.
• It includes provisions dealing with definition of a government company and
qualifications of auditors.

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National Small Industries Corporation (NS1C):

➢ The National Small Industries Corporation Ltd. was established in 1955 by the
Government of India as per the recommendations of the International Planning
Team of Ford Foundation, its objectives are to aid, assist, counsel, finance, protect
and promote the industries in the country.
➢ The NSIC assists small scale industries through its various schemes such as
hire purchase, equipment leasing, marketing, export, raw material assistance and
single point registration scheme.

The vision of NSIC is “To be premier organization fostering the growth of Micro, Small and
Medium Enterprises in the country.”

The main functions of the National Small Industries Corporation are:

(i) To provide small scale industries with modern machines on a hire purchase
basis.
(ii) To assist small enterprises to participate in the stores purchase programme of
the Central Government
(iii) To develop small scale industries as ancillary units to large industries.
(iv) To arrange the marketing of products of small industries and promoting.
(v) To import and distribute components and parts to specific small scale units and
(vi) To construct industrial estates and establish and run prototype production cum-
training centres.

Industrial Reconstruction Bank of India

• The Government of India set up the Industrial Reconstruction Corporation of India (IRCI)
in April 1971, under the Indian Companies Act

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 • It was established mainly to look after special problems of sick units’ and provide
assistance for their speedy reconstruction and rehabilitation, if necessary, by undertaking
the management of the units and developing infrastructure facilities like those of
transport, marketing etc.
• In 1984, the Government of India passed an Act converting the Industrial Reconstruction
Corporation of India (IRCI) into the Industrial Reconstruction Bank of India (IRBI).
• IRBI was established in March 1985 to take over IRCI.
• With a view to converting the institution into a full-fledged development financial
institution, IRBI was incorporated under the Companies Act 1956, as Industrial
Investment Bank of India Ltd. (IIBI) in March 1997.

The following functions were laid down for the IRBI:

(i) To provide financial assistance to sick industrial units.

(ii) To provide managerial and technical assistance to sick industrial units,
(iii) To secure the assistance of other financial institutions and government
agencies for the revival and revitalisation of sick industrial units,
(iv) To provide merchant banking services for amalgamation, merger,
reconstruction, etc.,
(v) To provide consultancy services to the banks in the matter of sick units, and
(vi) To undertake leasing business.

Federation of Associations of Small Industries of India

• FASII is the apex body of micro, small, village, cottage and rural enterprises
in the country.
• FASII was ushered into existence in the year 1959 under the sponsorship of the
Government of India in response to the recommendation of the “Ford Foundation
Team” which visited India in the year 1953.

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 • FASII’s Headquarter at Delhi was inaugurated by Dr. Radhakrishnan, the then
President of India in the year 1963.
• Owing to its dense membership strength FASII is given representation in all the
councils and committees connected with Micro and Small Enterprises of the Centre
as well as State governments.
• Minister of State for External Affairs is the “Patron-in-Chief” of the Federation
of Association of Small Industries of India (FASII).

MICRO FINANCE:

Microfinance, also known as microcredit, is a financial service that offers loans, savings and
insurance to entrepreneurs and small business owners who don't have access to traditional
sources of capital, like banks or investors. The goal of micro financing is to provide individuals
with money to invest in themselves or their business.

Micro financing institutions

Microfinance is available through microfinance institutions, which range from small non-profit
organizations to larger banks. These institutions include for-profit companies, like General
Electric Consumer Finance and Citi Microfinance, as well as non-profit organizations, such as
Kiva, Accion and BRAC. They offer small loans and help set up and maintain a savings account,
and they assist borrowers in obtaining insurance for a variety of needs, such as death, illness or
loss of property.

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Micro Units Development & Refinance Agency Ltd (MUDRA)

Micro Units Development & Refinance Agency Ltd. (MUDRA) is a new institution set up by
Government of India to provide funding to the non-corporate, non-farm sector income
generating activities of micro and small enterprises whose credit needs are below ₹10 Lakh.

MUDRA has been initially formed as a wholly owned subsidiary of Small Industries
Development bank of India (SIDBI) with 100% capital being contributed by it. Presently, the
authorized capital of MUDRA is 1000 crores and paid up capital is 750 crore, fully subscribed by
SIDBI. More capital is expected to enhance the functioning of MUDRA.

Agency would be responsible for developing and refinancing all Micro-enterprises sector by
supporting the finance Institutions which are in the business of lending to micro / small business
entities engaged in manufacturing, trading and service activities. MUDRA would partner with
Banks, MFIs and other lending institutions at state level / regional level to provide micro finance
support to the micro enterprise sector in the country.

Pradhan Mantri Mudra Yojana (PMMY)

Pradhan Mantri Mudra Yojana (MUDRA) has been launched by the Hon’ble Prime Minister
on 8th April, 2015 to provide loans to Micro Enterprises /units those are in manufacturing,

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 trading and Services sector including allied agricultural activities with credit limits of up to
Rs.10 Lakhs.

Under the aegis of Pradhan Mantri MUDRA Yojana (PMMY), MUDRA has created three
products i.e. 'Shishu', 'Kishore' and ‘Tarun’ as per the stage of growth and funding needs of
the beneficiary micro unit. These schemes cover loan amounts as below:

• Shishu: covering loans up to ₹50,000

• Kishore: covering loans above ₹50,000 and up to ₹5,00,000
• Tarun: covering loans above ₹5,00,000 and up to ₹10,00,000

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