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Unit III (14 Hours)
Small Enterprises & Enterprise Launching Formalities
1. Introduction:
2. Concept: Definition of Small Scale; Rationale; Objective; Scope
3. Role of SME in Economic Development of India
4. SME:
Registration; NOC From Pollution Board; Machinery & Equipment Selection
First Online Test
5. Project Report: Preparation; Specimen of Project Report
6. Project Planning & Scheduling using Networking Techniques of PERT / CPM
7. Methods of Project Appraisal
Second Online Test
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Introduction
In India, the small-scale industrial (SSI) sector has acquired a prominentplace in the socio-economic development of the country during the past 50years. This sector constitutes 95% of the industrial units and contributes40% to the total industrial output of the country and 35% to direct export.According to the latest statistics, there are about 3.6 million SSI units inIndia and these employ approximately 19.3 million people, which is secondhighest next only to agriculture.
This achievement has been possible due to the consistent and sustainedpolicy support from the Government including policy of reservation,investment ceiling for the SSI sector and priority lending. The economicreforms started in 1991 in India provided the opportunity to SSIs to grow
big. However, the formation of WTO in 1995 has started posing a majorchallenge to the SSIs in India. There have been some sweeping changeswhich have taken place in the SSI sector in the last two years. The hithertoprotection of the SSI sector by way of reservations and quantitativerestrictions have been removed. More than 160 items which were reservedfor the SSI sector have been de-reserved.
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Introduction (Contd..)
The higher rate of growth of SSIs during 1991-2000 period, compared to the overall
industrial growth rate, does not offer much satisfaction in the immediate future, unlessconcrete remedial measures are taken. Indian industry does not face any immediate threatfrom developed countries but faces serious competition from neighbouring countriesparticularly from Chinese manufacturers where productivity is 60-100% more than theIndian companies.
It has been concluded through previous studies on the SSI sector that Indian SSIs shouldremain competitive in the era of globalisation. These studies have suggested thatcompetitiveness is possible only if there is a technology up-gradation and adoption of newtechnologies. There is a need to introduce new tools and equipments for production,changes in manufacturing process, improvement in the quality of products and qualityassurance, introduction of new designs and diversification, use of new raw materials andusage of modern management and IT tools. There could, however, be other factors besidestechnology which have impacted the growth of the SSIs.
There have been varied views which have been formed about the growth of the SSI sectorpost liberalisation and the features which have acted as contributors or inhibitors for thegrowth. The vulnerable areas as experienced by the SSIs have been cited as low capital base,difficulties in accessing technology, credit constraint, low access to business services,constraint of quality of human resources, low market awareness, low lobbying capacity,Inspector-raj and infrastructural constraints.
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Introduction (Contd..)
The factors which have been identified as aiding thegrowth of SSIs are advancement in generic
technology of computers and telecommunications,
rise in electronic commerce, multilateral tradingrules under agreements of World Trading
Organization (WTO), mergers and acquisitions,
liberalisation of services/ infrastructure and
sourcing out of activities to outside firms.
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Definitions of Micro, Small & Medium Enterprises
In accordance with the provision of Micro, Small & MediumEnterprises Development (MSMED) Act, 2006 the Micro, Small and
Medium Enterprises (MSME) are classified in two Classes:
(a) Manufacturing Enterprises- The enterprises engaged in themanufacture or production of goods pertaining to any industry
specified in the first schedule to the industries (Development andregulation) Act, 1951). The Manufacturing Enterprise are defined
in terms of investment in Plant & Machinery.
(b) Service Enterprises: The enterprises engaged in providing or
rendering of services and are defined in terms of investment inequipment.
The limit for investment in plant and machinery / equipment formanufacturing / service enterprises,
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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
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
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Definition:
Small Scale Industrial Undertakings
The following requirements are to be complied with byan industrial undertaking to be graded as Small Scale
Industrial undertaking w.e.f. 21.12.1999
An industrial undertaking in which the investment infixed assets in plant and machinery whether held on
ownership terms on lease or on hire purchase does notexceed Rs 10 million.
(Subject to the condition that the unit is not owned,controlled or subsidiary of any other industrial
undertaking
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Definition:Ancillary Industrial Undertakings
The following requirements are to be complied with by anindustrial undertaking for being regarded as ancillary industrial
undertaking: -
An industrial undertaking which is engaged or is proposed to be
engaged in the manufacture or production of parts, components,sub-assemblies, tooling or intermediates, or the rendering ofservices and the undertaking supplies or renders or proposes tosupply or render not less than 50 per cent of its production orservices, as the case may be, to one or more other industrial
undertakings and whose investment in fixed assets in plant andmachinery whether held on ownership terms or on lease or on
hire-purchase, does not exceed Rs 10 million.
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Definition:
Tiny Enterprises
Investment limit in plant and machinery in respect of tinyenterprises is Rs 2.5 million irrespective of location of theunit.
Definition:
Women Entrepreneurs
A Small Scale Industrial Unit/ Industry related service orbusiness enterprise, managed by one or more womenentrepreneurs in proprietary concerns, or in which she/ they
individually or jointly have a share capital of not less than51% as Partners/ Shareholders/ Directors of Private LimitsCompany/ Members of Cooperative Society.
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The opportunities in the small scale sector
are enormous due to the following factors :
- Less Capital Intensive
- Extensive Promotion & Support by the Government
- Reservation for Exclusive Manufacture by small scale sector
- Project Profiles
- Funding
s
- Finance & Subsidies
- Machinery Procurement
- Raw Material Procurement
- Manpower Training
- Technical & Managerial skills
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Tools & Tools utilisation support
- Reservation for Exclusive Purchase by Government
- Export Promotion
- Growth in demand in the domestic market size due to overall economic
growth
- Increasing Export Potential for Indian products
- Growth in Requirements for ancillary units due to the increase in number
of greenfield units coming up in the large scale sector.
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Rationale & Objectives of SME
Development
There are numerous arguments in favor of the small-scaleindustries which justify the rationale of small-scale industrydevelopment. The Industrial Policy Resolution 1956 has putforward four arguments in favor of small-scale industries
which emphasize the very rationale of small-scale industry inthe Indian economy. The arguments are:
Employment Generation
Balanced Regional Development
Equal Distribution Of Income and Wealth
Latent Resource utilization.
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Class Discussion
What may be the other objectives behind
setting up the Small and Medium Enterprises
in India??
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Scope of SME in India
In India the important areas of operation of
Small Business Enterprises are
Manufacturing
Services
Trading
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Role of SME in Economic Development
of India
The importance of Small Scale Industries are asfollows
Promotes Rural and Semi Urban GrowthFosters Women EmploymentDrives the Employment avenues of SemiSkilled People.
Acts as an aid to large scale enterprises.Promotes Rural Development and betterhabitat.
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SSI Registration
Small Scale and ancillary units (i.e. undertaking with investment in plant
and machinery of less than Rs. 6.0 million and Rs. 7.5 million respectively)should seek registration with the Director of Industries of the concerned
State Government.
Registering Your SSI Unit
The main purpose of Registration is to maintain statistics and maintain a rollof such units for the purposes of providing incentives and support services.
States have generally adopted the uniform registration procedures as perthe guidelines. However, there may be some modifications done by States.It must be noted that small industries is basically a state subject. States use
the same registration scheme for implementing their own policies. It ispossible that some states may have a 'SIDO registration scheme' and a
'State registration scheme'.
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Benefits of Registering
The registration scheme has no statutory basis. Units would normally get
registered to avail some benefits, incentives or support given either by the Centralor State Govt. The regime of incentives offered by the Centre generally contains
the following:- Credit prescription (Priority sector lending), differential rates of interest etc.
- Excise Exemption Scheme- Exemption under Direct Tax Laws.
- Statutory support such as reservation and the Interest on Delayed Payments Act.(It is to be noted that the Banking Laws, Excise Law and the Direct Taxes Law haveincorporated the word SSI in their exemption notifications. Though in many cases
they may define it differently. However, generally the registration certificate issuedby the registering authority is seen as proof of being SSI).
States/UTs have their own package of facilities and incentives for small scale. They
relate to development of industrial estates, tax subsidies, power tariff subsidies,capital investment subsidies and other support. Both the Centre and the State,whether under law or otherwise, target their incentives and support packages
generally to units registered with them.
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Objectives of The Registration Scheme
They are summarised as follows:
- To enumerate and maintain a roll of small industries to which the package ofincentives and support are targeted.
- To provide a certificate enabling the units to avail statutory benefits mainly interms of protection.
- To serve the purpose of collection of statistics.- To create nodal centres at the Centre, State and District levels to promote SSI.
Features of The Scheme
Features of the scheme are as follows:- DIC is the primary registering centre
- Registration is voluntary and not compulsory.- Two types of registration is done in all States. First a provisional registrationcertificate is given. And after commencement of production, a permanent
registration certificate is given.- PRC is normally valid for 5 years and permanent registration is given in perpetuity.
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Provisional Registration Certificate (PRC)
- This is given for the pre-operative period and enables the units to obtainthe term loans and working capital from financial institutions/banks under
priority sector lending.- Obtain facilities for accommodation, land, other approvals etc.
- Obtain various necessary NOCs and clearances from regulatory bodiessuch as Pollution Control Board, Labour Regulations etc.
Permanent Registration Certificate
Enables the unit to get the following incentives/concessions:- Excise exemptions
- Income-Tax exemption and Sales Tax exemption as per State Govt. Policy.- Incentives and concessions in power tariff etc.- Price and purchase preference for goods produced.
- Availability of raw material depending on existing policy.
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Procedure For Registration
Features of the present procedures are as follows:- A unit can apply for PRC for any item that does not require industrial license which meansitems listed in Schedule-III and items not listed in Schedule-I or Schedule-II of the licencingExemption Notification. Units employing less than 50/100 workers with/without power can
apply for registration even for those items included in Schedule-II.- Unit applies for PRC in prescribed application form. No field enquiry is done and PRC is
issued.
- PRC is valid for five years. If the entrepreneur is unable to set up the unit in this period, hecan apply afresh at the end of five years period.- Once the unit commences production, it has to apply for permanent registration on the
prescribed form.
The following form basis of evaluation:- The unit has obtained all necessary clearances whether statutory or administrative. e.g.drug license under drug control order, NOC from Pollution Control Board, if required etc.
- Unit does not violate any locational restrictions in force, at the time of evaluation.- Value of plant and machinery is within prescribed limits.
- Unit is not owned, controlled or subsidiary of any other industrial undertaking as pernotification.
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NOC From Pollution Board
As per the provisions of the Water (Prevention & Control ofPollution) Act, 1974 and Air (Prevention & Control ofPollution) Act, 1981, any entrepreneur desirous ofestablishing a new industry or expansion of its existing unit isrequired to obtain consent to establish (NOC) from the Board
before taking any steps for establishment/expansion of thesaid industry. The Board has categorized the small scaleindustrial units into two categories namely
Green Categoryand Red Categorytaking into consideration
their pollution potential loads. The Board has laid down verysimple procedure for obtaining consent to establish (NOC)for the said categories of industries.
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Machinery & Equipment Selection
You must know the different types of machinery andequipment that are needed to set up your enterprise.
Make a listing of the leading dealers/suppliers where the
machinery is available. The following factors determine thetype of machines you will need:
Capacity of the proposed unit
Minimum scale of production which is economical
Expected performance standards
Productivity Waste
Minimization Availability of spare parts for the new
machinery
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Project Report
What is a project report?
The project report is a document, which gives an account of the projectproposal to ascertain the prospects of the proposed plan/activity. The projectreport contains detailed information about:
Land & building required
Manufacturing Capacity per annum Manufacturing Process
Machinery & equipment along with their prices and specifications
Requirements of raw materials
Power & Water required.
Manpower needs
Marketing
Cost of the project and production.
Financial analyses & economic viability of the project.
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How is a Project Report Prepared?
A project report is prepared with the help of prescribed guidelines available withMSMEDI's, DIC's & financial institutions. Information about prices of machinery &equipment, raw material and other various inputs required for setting up anenterprise need to be collected from the market.
Is there any standard model for preparing the project report?
A model proforma for preparing the project report is available with MSMEDI's,DIC's & financial institutions. Every institution has its own model proforma.However contents of all the proforma are almost similar.
Is a model project report available?
Yes, Model project profiles are available with the MSMEDIs(formerly SmallIndustries Service Institute's) & DIC's for the guidance of entrepreneurs.. However,these project profiles have to be recast in accordance with specific needs of theentrepreneurs and the current prices of inputs.
Which agency assists in preparation of Project Report?
MSMEDIs, NSICand State Govt. agencies viz. DICs, SFCs can help you in preparingthe Project Report. You can also prepare the Project Report yourself by collectingdetailed information on various points.
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Home Assignment
Refer to a specimen of a Project Report and try
drafting it on your own for a new manufacturing
or service enterprise.
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Project Planning & Scheduling using
Networking Techniques
PERT, the Project Evaluation and Review Technique, is a network-based aid for planningand scheduling the many interrelated tasks in a large and complex project. It was
developed during the design and construction of the Polaris submarine in the USA in the
1950s, which was one of the most complex tasks ever attempted at the time. Nowadays
PERT techniques are routinely used in any large project such as software development,
building construction, etc. Supporting software such as Microsoft Project, among others,
is readily available. It may seem odd that PERT appears in a book on optimization, but it isfrequently necessary to optimize time and resource constrained systems, and the basic
ideas of PERT help to organize such an optimization.
PERT uses a network representation to capture the precedence or parallel relationships
among the tasks in the project. As an example of a precedence relationship, the frame of
a house must first be constructed before the roof can go on. On the other hand, some
activities can happen in parallel: the electrical system can be installed by one crew at the
same time as the plumbing system is installed by a second crew.
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Pert Chart
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Project Planning & Scheduling using Networking
Techniques
CPM(Critical Path Method)
Has some common characteristics with PERT
Defined by activities and events
An activity is a time-consuming effort that is required to
complete part of a project. Shown as an arrow on the
diagram
An event is denoted by a circle and defines the end of one
activity and beginning of the next. An event may be a
decision point.
Activity Event
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Critical Path Method
CPM Example
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Project Appraisal
Project appraisalis a generic term that refers to theprocess of assessing, in a structured way, the case
for proceeding with a project or proposal. In short,
project appraisal is the effort of calculating a
project's viability. It often involves comparing
various options, using economic appraisal or some
other decision analysis technique
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Project Appraisal Criteria
Technical: will the project work? Has due attention been paid to technical factors
affecting the project design? Given the human and material resources identified,can the project activities be undertaken and outputs achieved within the timeavailable and to the required standards?
Financial: can the project be financed? Will there be sufficient funds to coverthe expenditure requirements during the life of the project?
Economic: will the nation and society at large be better off as a result of theproject? Will the project benefits be greater than the project costs over the life ofthe investment when account is taken of time (namely, is the Net Present Value ofthe project positive at the test discount rate)?
Social and gender: what will be the effect of the project on different groups, atindividual, household and community levels? How will the project impact onwomen and men? How will they participate in various stages of the project cycle?Will the social benefits of the project be greater than the social costs over the lifeof the investment when account is taken of time?
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Project Appraisal Criteria
Institutional: are the supporting institutions in place? Can theyoperate effectively within the existing legislative and policyenvironment? Has the project identified opportunities forinstitutional strengthening and capacity building?
Environmental: will the project have any adverse effects on theenvironment? Have remedial measures been included in theproject design?
Political: will the project be compatible with government
policy, at both central and regional levels?
Sustainability and risk: will the project be exposed to anyundue risks? Will the project benefits be sustainable beyond thelife of the project?
P j A i l T h i / S d d
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Project Appraisal Techniques/Standard
Methods Of Project Appraisal
Traditional MethodsPay back Period Method
Accounting Rate of Return
Profitability Index (post Pay back)
Time Adjusted Methods
Net Present Value Approach
Internal Rate of Return
Profitability Index
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