12 Chapter 4

CHAPTER IV
Incentives and
Assistance Available
for Small Scale
Industries
CHAPTER-IV
INCENTIVES AND ASSISTANCE AVAILABLE
FOR SMALL SCALE INDUSTRIES
The process of development of small scale industry requires the

development of infrastructure, creation of industrial facilities and provision of
incentives. Efforts in these directions have been started and continued in India
ever since the advent of planning.' The incentives are provided in the form of
concessions, assistance and subsidy by the Central and state Governments and
their agencies.
This chapter reviews the different incentives available to entrepreneurs

of small scale industrial units and the extent of utilisation of such incentives.
The various schemes of incentives were assistance from Central Government
and assistance by Government of Tamil Nadu. The Assistance from Central
Government includes finance and credit for small scale industries, Tax-Based
incentives for small scale industries, institutional support for entrepreneurs like
Small Industries Development Organisation (SIDO), Entrepreneurship
Development Institute of India (EDII), District Industries Centre (DIC), Small
Industries Development Bank of India (SIDBI), National Institute for
Entrepreneurship and Small Business Development (NIESBUD) and National
Institute of Small Industries Extension Training (NISIET). Assistance by the
Government of Tamil Nadu includes incentives and subsidies by the State
Industries Promotion Corporation of Tamil Nadu (SIPCOT), Tamil Nadu
Industrial Investment Corporation Limited (TIIC), Tamil Nadu Small
Industries Development Corporation (SIDCO), Tamil Nadu Industrial
Development Corporation Limited (TIDCO) and also covered the Profile of
Tamil Nadu State.
' Industrial Investment - '"Facilities and Incentives", Indian Investment Centre, New Delhi,
1979, P.l.
121
The information about various forms of incentives extended to small
scale units have been collected from the published documents of institutions
catering to the needs of small scale industrial units. Data, relating to the
quantum of assistance provided have been collected from the records of
Directorate of Industries and Commerce, Chennai, and the various Districts
Industries Centres in Tamil Nadu, i.e., Coimbatore, Erode, Sivaganga and
Ramanathapuram Districts. The packages of incentives namely financial and
non-financial are offered from the time of conceiving the project idea to the
completion and successful running of the industrial unit. Incentives have also
been provided for the revival of sick units.
Assistance from Central Government

Finance and credit for small scale industries, tax-based incentives for
small scale industries, institutional support for entrepreneurs are discussed as
under.
Finance and Credit for Small Scale Industries
Small scale industrial sector raises the term credit and working capital
required by it from Commercial banks. Co-operative banks. Regional rural
banks and State Financial Corporations. The banking system provides mainly
working capital and the State Financial Corporations cater mainly to
investment capital. Assistance in kind is available to the small scale industrial
sector from the National Small Industries Development Corporation, State
Small Industries Corporations (SSIDCs) which supplies machinery on hire
purchase basis. The Industrial Development Bank of India (IDBI), Industrial
Finance Corporation of India (IFCI), the National Bank for Agriculture and
Rural Development (NABARD), Small Industries Development Bank of India
(SIDBI), and the Industrial Reconstruction Bank of India (IRBI) provide
refinance facilities to banks and financial corporations for financing small scale
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industrial sector. The credit provided by banks to the small scale industrial
sector is treated as credit to 'priority sector'. The commercial banks are
required to lend 40 percent of their total loans to the 'priority sector' of which
15 percent to 16 percent is required to be in the form of direct agricultural
advances. The rest may be lent to small scale industries, small businesses,
small transport operators, indirect agricultural loans, etc.
Table 4.1 gives the position with regard to flow of credit to Small Scale
Industrial sector from all public sector banks since 1995.
Table 4.1
Flow of Credit to Small Scale Industrial Sector from
Public Sector Banks Since 1995
Year Net Bank Credit Credit to SSIs Percentage to Net
(at the end of (Rs. Crores) (Rs. Crores) Bank Credit /
March) Share of SSI
1995 169038 25843 15.29
1996 184381 29485 15.99
1997 189684 31542 16.60
1998 218219 38109 17.50
1999 246203 42674 17.30
2000 292943 45788 15.60
2001 340887 48445 14.20
2002 477954 49743 12.50
2003 477899 52988 11.10
2004* 558608 58277 10.10
*(p) Provisional
Source: IDBI Annual Report 1999-2000 and Report on Trend and Progress of Banking in
India, RBI (Various Issues)
Table 4.1 shows that quantum of advance increases from Public sector
Banks to Small Scale Industrial sector increased in absolute terms from
Rs. 25,843 Crores in 1995 to Rs. 52.988 Crores in 2003.
123
Chart 4.1
Financial Infrastructure for Small Scale Industry
S.No Bank/Institution Area of Assistance

1. Commercial banks -exclusive Finance -working capital term loans
small scale industry branches
2. State Financial Corporations Finance - term loans, soft loans for
(SFCs) technology up gradation and
modernisation, rehabilitation of sick
units.
3. National Bank for Refinance facilities for rural artisans.
Agriculture& Rural Village and cottage industries.
Development (NABARD)
4. Regional Rural Banks and Co- Credit support to small scale industry
operative banks. particularly village industries and tiny
units.
5. National Small Industries Supply of machinery on
Corporation (NSIC) and State hire - purchase basis and provision of
Small Industries Development technical and consultancy services
Corporations (SSIDCs) among other.
6. Venture capital funds/ Risk capital to small scale industries.
companies
7. Small Industries Development All round support: direct and indirect
Bank of India (SIDBI)-State finance ,technology gradation
level branches and small scale modernisation quality improvement,
industry cluster branches marketing support through exhibitions
etc
Source: Hundekar Mohan Das and Banerjee, "Challenges Before Small Scale
Industries"kWahdhad Horizon Publishers, 1988, PI61.
124
Tax-Based Incentives for Small Scale Industries
The primary responsibility for development of village and small scale

industries rests with the State Governments. With a view to attract
entrepreneurs to set up new units, each State has designed a package of
incentives/concessions in the State Industrial Policy which is within the policy
guidelines of the Central Government. However, the Government of India has
also introduced from time to time various incentive schemes/concessions and
support services for promotion of industries, particularly in backward areas,
no-industry districts and other special regions to reduce regional imbalances.
Some of the central incentive schemes served to accord protection to small
scale industries while others being tax-based were promotional in nature. The
tax-based incentives could be classified as Fiscal Incentives and Financial
Incentives.
Fiscal Incentives
Fiscal Incentives are provided in the form of exemption, rebate, refund
or postponement of direct or indirect taxes leviable on production or profits,
besides special tax concessions. Such measures include (a) Income Tax
Concessions, (b) Excise duty exemptions, (c) Cenvat Credit, (d) Duty free
imports, (e) Sales tax benefits and (t) Incentives for Electronics and
Information Technology.
Income Tax Concession: Under section lOA - a newly established industrial

undertaking in free trade zone (FIZ), Electronic Hardware Technology Park
(EHTP), Software Technology Park (STP) and Special Economic Zone (SEZ)
were allowed a deduction of 90 percent of export profits for first 10
consecutive years.
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Under section 80HH and 80HHA - a new SSI unit, to be setup under
factories act in backward areas and in specified backward areas were allowed a
deduction of 20 percent for 10 years.
Under Section 80-IB- the small scale industrial unit's commenced

production between April 01, 1995 and March 31, 2002 were allowed a
deduction of 25 percent of their profits (30 percent for Companies) for a period
of 10 years (12 years in case of Co-operative societies); those set up in
industrially backward States which began to manufacture or operate on or after
April 10, 1993 to March 31, 2004, 100 percent for first 5 years and 25 percent
for subsequent 5 years (30 percent in case of company) were allowed.
Excise Duty Exemptions: All industrial units irrespective of their investment

of number of employees are eligible for excise exemptions, if their annual
turnover in the previous year was less than Rs.3 crores and during the current
year also turnover is not likely to increase the limit of Rs. 3 crores. For more
than one factory under the same owners, the turnover of all the factories is
combined to determine the eligibility. According to the Government
Notifications No. 8/2002 and No. 9/2002, dated March 01, 2002, SSI units
whose annual turnover in the preceding financial year had not exceeded Rs. 3
crores were eligible for the excise concessions. If the SSI units do not avail
Central Value Added Tax (CENVAT) on inputs, turnover upto Rs. 1 crore is
fully exempted (Notification No.8/2002). If the SSI units avail inputs, they
have to pay 60 percent of normal duty upto a turnover of Rs. 1 crore
(Notification No. 9/2002).
CENVAT Credit: Modified Value Added Tax (Modvat) Scheme was

renamed as Central value Added Tax (CENVAT) Credit Scheme and a new set
of simplified and user friendly rules replaced the Modvat Rules w.e.f April 01,
2000. It is eligible only to the extent of the amount of duty actually paid on
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specific inputs and in the manufacture of specified end-products. It is allowed
in respect of Excise Duty or the Countervailing Duty of customs paid on capital
goods. The credit of duty paid on inputs is not eligible when end-products are
exempted from Excise Duty.
Duty Free Imports: 100 percent export oriented units are allowed duty free
import of capital goods, components, raw materials, spares, samples etc.
required for the manufacture of the products.
Sales Tax Benefits: For Inter-State trade (Sales) sales tax is governed by the
Central Sales Tax Act, 1956 (CST); though legislated by the Parliament, it is
administered by the States which also retain the revenue.
• No liability under State Sales Tax laws for import of the goods into
or export of goods out of the territory of India.
• All States and Union Territories to adopt uniform floor rates of Sales
Tax as 0 per cent, 4 percent, 8 percent and 12 percent besides two
special floor rates of 1 percent and 2 percent for the specified
categories of items.
Incentives for Electronics and Information Technology:

• Export earnings from Information Technology (IT) Products not be
taxed.
• Depreciation of IT products to be allowed at 60 percent.
• Units located in Electronics Hardware Technology Parks (EHTPs)
and Software Technology Parks (STPs) exempted from payment of
corporate income tax for 10 years.
• Under Section 80 HHE of the Income Tax Act, definition of
Computer Software has been widened to include transmission of
data.
127
New Fiscal Incentives announced in the Budget 2004-05:
• Direct Taxes : In order to promote agro-processing industries, 100
per cent deduction of profits for 5 years and 25 percent of profits for
the next 5 years will be allowed in the case of new agro-processing
industries set up to process, preserve and package fruits and
vegetables.
• Excise Duty: (i) General SSI excise Exemption Scheme has been
extended to watches, upto MRP of Rs.500; (i) excise duty on steel
has been enhanced from 8 percent to 12 percent. Excise duty on
Hand tools such as spades, shovels, sickles etc has been exempted;
(ii) in order to protect matches made in the non-mechanised sector,
excise duty on matches made in the mechanised/semi-mechanised
sector has been increased from 8 percent (without Cenvat credit) to
16 percent (with Cenvat credit); (iii) mandatory Cenvat duty has
been withdrawn from Handloom and Power loom sectors; (iv) excise
duty on gas stoves of Retail Sale Price (RSP) not exceeding Rs.2000
per unit has been reduced from 16% to 8%; and (v) RSP limit for
availing excise duty exemption on footwear has been raised from
Rs.l25toRs.250perpair.
• Customs Duties: Customs duty has been reduced on non-alloy steel

from 15 percent to 10 percent. Peak rate of customs duty on alloy
steel, copper, lead, zinc and base metals has been reduced to 15
percent.
128
Financial Incentives
Financial Incentives are financial concessions that include various types
of credit facilities at concessional rates, direct and indirect cash subsidies for
price advantage and direct cash subsidies for special promotional efforts.
Capital Subsidy under Prime Ministers Rozgar Yojana : The scheme was
launched on October 2, 1993 and initially was in operation in urban areas.
From April 1, 1994 onwards the scheme is being implemented throughout the
country. The objective of the scheme is to provide self-employment
opportunities to educated unemployed youth in the age group of 18 to 35 years.
In North-Eastem states the eligible age group is from 18-40. There is a 10-year
relaxation for SC / ST, ex-servicemen and physically handicapped & women,
in the upper age limit. To be eligible for assistance under the scheme the
family income of the beneficiaries shall not exceed Rs.40, 000/- per annum and
income of parents of the beneficiaries also shall not exceed Rs.40,000/-. The
banks have been allowed to make parents or Head of the family of unmarried
girl as co-borrower, with effect from November 21, 2002. The borrower
should be the resident of the area for more than 3 years. He should have passed
at least eighth standard. It has also been provided that the margin money and
subsidy amount would be 20 percent of the project cost.
Outright Capital Subsidy on the project at the rate of 15 percent of the

project cost subject to a ceiling of Rs.7500/- per entrepreneur is provided by the
Government. In case of partnership, subsidy is calculated separately for each
entrepreneur at the above rate and ceiling.
129
Table 4.2
Loan Sanctioned and Disbursed under
Prime Ministers Rozgar Yojana
Amount in Lakhs
Total Loan Sanctioned Total Loan Disbursed
Year No.of Account Amount No.of Account Amount
2001-02 7.019 5.465.23 2,778 1,848.27
2002-03 8.439 6.883.07 6,595 5,115.08
2003-04 12,129 8,636.87 7,368 5,471.86
2004-05 2,021 1,392.53 1,225 711.60
(upto January 2005)
Source: As reported by scheduled commercial banks.
Table 4.2 reveals that the loan sanctioned and disbursed under Prime
Ministers Rozgar Yojana was Rs.5,465.23 lakhs and 1,848.27 lakhs
respectively during 2001-02 and this went up Rs.8,636.87 lakhs and 5,471.86
lakhs during 2003-04 .
Quality Certification Cost Concession: For obtaining International Standard

ISO: 9000 or ISO: 14000 or an equivalent international quality standard for the
products manufactured by any SSI unit, the Office of the Development
Commissioner (SSI) provides financial assistance by way of reimbursement of
the cost equal to 75 percent subject to an upper ceiling of Rs.7500/-.
Capital Investment Subsidy: Capital Investment Subsidy Scheme (1997) has

been introduced and notified on .lune 01. 1998 for the North Eastern Region.
Under the Scheme, subsidy at the rate of 15 percent of the investment in plant
and machinery subject to a maximum ceiling of Rs. 30 lakhs is payable to an
industry located in the growth centers and to new industrial units and/ or their
substantial expansion in other identified areas in the Northern Eastern Region.
The Scheme is operated through the respective State Governments. The North
Eastern Development Financial Corporation (NEDFiC) has been designated as
130
Nodal Agency to release subsidy to the eligible units on the basis of
recommendations of the State Level Committee/State Government.
Transport Subsidy: Under the Transport Subsidy Scheme, subsidy ranging

from 50 percent to 90 percent is admissible on transport costs incurred on
movement of raw materials and fmished goods from designated rail heads/ports
upto the location of the industrial units and vice-versa.
Institutional Support for Entrepreneurs
There are many agencies rendering assistance to entrepreneurs not only

in training them to be entrepreneurs but also in specific areas like project
identification, financing and marketing. The major agencies and their areas of
assistance are briefly described in this section.
The following charts show the support agencies and specialised support
services for small scale industries as under.
Chart 4.2
Support Agencies for Small Scale Industries
CENTRAL STATE
GOVERNMENT GOVERNMENT
1. SSI Board 2.SID0 l.DIs
3. SISIs 4.PPDCS 2. DICs
5. RTCs 6.CFTIS 3. SFCs
7. EDIs 8.NSIC 4. SSIDCs
9. SIDBI 5. TCOs
OTHERS
1. Industry Associations
2. Non-Government
Organisations
131
Chart 4.3
Finance & Specialised Support Services for Small Scale industries
(At the Apex Level: SIDBI)
TECHNOLOGY
UPGRADATION
1. NSIC
2. SIDO
3. SISIs
4. RTCs INDUSTRIAL
FINANCE 5. PPDCS INPUTS
Apex 6. TBSE 1. NSIC
1. SIDBI 2. SSIDCs
Banks
3. DICs
1. Commercial bank
2. RRBs
3. Co-op Banks
State Level
1. SFCs
2. SIDCs INDUSTRIAL
3. SIICs INFRA-
4. SSIDCs STRUCTURE
1. SSIDCs
Other 2. SIDCS
1. NABARD 3. HUDCO
2. NSIC
TECHNICAL MARKETING ENTREPRENEURSHIP j

TRAINING 1. SIDO DEVELOPMENT \
2. NSIC 1. SIDO L
3. SSIDCs 2. Specialised f
1. SIDO
4. SISIs Institutes [
2. SISIs 3. EDII 1
5. EPCs
3. TCOs 6. SECs 4. NIESBUD 1
4. PPDCs 5. EDIs
5. DICs 6. SISIs .
6. RTCs
7. CFTIs
8. Tool rooms
Source: Small Industrial Development Bank of India. Annual Report 1999-2000, p.83
132
Small Industries Development Organisation (SIDO)
The office of the Development Commissioner (Small Scale Industries),

attached to the Ministry of Industry, is an apex body and is the nodal agency
for formulating, co-ordinating and monitoring the policies and programmes for
promotion and development of small scale industries in the country. It
maintains close liaison with Central Ministries, Planning Commission, State
Governments, Financial Institutions, Voluntary Organisations and other
agencies concerned with the development of small scale industries. It provides
a comprehensive range of facilities and services including consultancy in
techno-economic managerial aspects, training, common facility services,
common processing and testing facilities, cooling facilities, marketing
assistance, etc. to small scale units. Office of the DC (SSI) popularly called as
Small Industries Development Organisation (SIDO), provides these services
through a network of Small Industries Service Institutes, Extension Centers,
and Regional Testing Centers, Central Footwear Training Centers, Production
Centers and Field Testing Stations in the areas of concentration of specific
types of industries. In addition, there are also a few specialised institutions
functioning like the Central Institute of Tool Design under the guidance of
SIDO at Hyderabad, Central Tool Room and Training Centre at Ludhiana, and
Culcutta, Central Institute of Hand Tools, Jalandhar, Institute for Design of
Electrical Measuring Instruments (IDEMI), Bombay, Integrated Training
Centre, Nilokheri, National Institute of Small Industry and Extention Training
(NISIET), Hyderabad, National Institute for Entrepreneurship and Small
Business Development (NIESBUD), New Delhi, Product-cum-Process
Development Centers (Foundry and Forging at Agra and Sports Goods and
Leisure Time Equipment at Meerut) and Electronic Service and Training
Centre, Ramnagar. SIDO is thus an apex body organising the implementation
of governmental polices regarding small enterprises and also the policies
regarding development of entrepreneurs.
133
SIDO is actively involved in promoting tiny and small scale industries
in India by means of its promotional and developmental activities. To bring
about economic development of the country and to assist the small scale
entrepreneurs to become self reliant. SIDO offers the following schemes for the
SSI Sector."
Credit Guarantee Fund Scheme (CGFS): The Board of Trustees of Credit

Guarantee Fund Trust for small industries have framed a scheme for providing
guarantee to a substantial extent, in respect of credit facilities to the borrowers
in the SSI sector without any collateral security or third party guarantee. The
scheme came into force from 1st August, 2000. Under the scheme, an
individual SSI unit can avail the collateral free loans upto a limit of Rs.25 lakh.
A contribution of Rs.I25 Crores made to the fund in 2000-01 (Rs.lOO crores
Government of India plus Rs.25 crores SIDBI). During 2001-02, the corpus
fund has been raised to Rs.200 crores. During 2002-03 the corpus fund was
enhanced by Rs.l27 crores as Government contribution. As on 31^' Jan. 2003,
7258 cases were provided guarantee cover under the scheme on loans
amounting to Rs.79.77 Crores.
Credit Linked Capital Subsidy Scheme for Technology Upgradation

(CLCSS): The purpose of the scheme is to facilitate technology up gradation
in the SSI sector in the specified products and sub sectors by providing 12
percent capital subsidy for induction of proven technologies approved under
the Scheme. Eligible borrowers under the scheme include all sole proprietors,
partnerships firms, and Co-operative societies, private and public limited
companies in the SSI sector. Under this scheme, Capital subsidy is available
only for such projects where term loans have been sanctioned by the eligible
Primary Lending Institutions on or after 1st, October, 2000. The revised
scheme aims at facilitating technology up gradation by providing 15 percent
http://www.smallindustryindia.com/scliemes/sidoscheme.htm
134
upfront capital subsidy with effect from the 29"" September, 2005 (12 percent
prior to 29.09.2005) to SSI units. The revised ceiling on loan amount for
availing the benefit under the scheme is Rs.lOO lakhs (Rs.40 lakhs prior to
29.09.2005).
Table 4.3
Credit Linked Capital Subsidy Extended
by Small Industries Development Organisation
Year Subsidy disbursed to SSI No. of Units

units (Rs. Lakhs) Benefited
2001-02 21.36 9
2002-03 96.80 47
2003-04 374.89 150
2004-05 (upto Dec. 2004) 785.00 289
Total 1278.05 495
Source: Records of Ministry of Sma I Scale Industries, Government of Indla.
Table 4.3 shows that the credit linked capital subsidy extended by small
industries development organisation and number of units benefited by them
was Rs.2I.36 lakhs and 9 units during 2001-02 and this went upto Rs.374.89
lakhs and 150 units during 2003-04.
Scheme for Market Development Assistance for SSI exporters (SSI-MDA):

The Scheme for Market Development Assistance for SSI exporters (SSI-MDA)
came into operadon w.e.f. 30th August, 2001. The basic objective of the
scheme was to encourage the exporters to tap and develop overseas exports. It
was expected that SIDOs participation in International Fairs coupled with the
presence of exporters, would help to augment export earnings. The scheme
offered funding upto 90% in respect of to and for air fare for participation by
SSI entrepreneurs in overseas fairs / trade delegations. The scheme also
provided for funding for producing publicity material (upto 25% of costs)
sector specific studies (upto Rs.2 lakhs) and for contesting antidumping cases
50% upto I lakh for individual SSI units and associations.
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Integrated Infrastructural Development Scheme (IID): The Integrated
Infrastructural Development Scheme (IID) was launched in March, 1994 with
the basic objective oF Facilitating growth oFcluster oFsmall scale and tiny units
so as to create employment opportunities and to promote exports. The IID
centers are to provide common service Facilities and technology back up
services to the SSI entrepreneurs. The thrust of the scheme is on creation /
upgradation of infrastructural facilities like power, water, telecommunication,
drainage, pollution control facilities, effluent treatment and disposal system,
road, banks, raw material depots, marketing outlets etc. in the new/existing
industrial centers. Assistance is upto 40% or Rs.2 Crores, whichever is less
for setting up industrial estates for SSI units.
Integrated Technology Up Gradation and Management Programme

(UPTECH): The Integrated Technology Upgradation and Management
Programme (UPTECH) was launched in 1998. The Scheme applies to any
cluster of industries where there is a commonality in the method of production,
quality control and testing, energy conservation, pollution control etc. among
the units of the cluster. The scheme aims at technology up-gradation,
improvement of productivity, energy conservation, pollution control, product
diversification their marketing and training needs, etc. The Scheme also has
provision For financial support For activities like conducting diagnostic study oF
the cluster, carrying out industries related Research and Development, setting
up of new technology demonstration plant, setting up oF common Facility
centers, organising Seminars, Workshops and training oF users. The proposals
For technology up gradation and modernisation oF a cluster are received From
various agencies like State Government, Industry Associations or Special
Institutions. The proposals are then discussed with the agencies and a
consensus is reached on the areas oF intervention in fields of technology up
gradation. The next step is to decide the implementing agency for carrying out
136
these technological interventions. A demonstration plant is then set up by the
pioneering unit (wherein the technological interventions are implemented).
For setting up of the demonstration plant, the pioneering unit has to bear 50%
of its cost. A Common Facility Centre, if required, can be supported under the
scheme. The amount of fmancial support under this scheme is not fixed but
varies from project to project as decided by the Steering Committee. The
Scheme is monitored by the Implementation Committee headed by the
Development Commissioner (SSI). The O/o DC, SSI is the nodal agency to
implement the scheme.
Incentive for ISO 9000 Certification: ISO-9000 is the synonym for

International Organisation for standardisation. The accreditation of ISO-9000 is
a qualification to sell the product globally. The Incentive Scheme of ISO-9000
Quality System launched in March, 1994 aims at encouraging technological
up-gradation & quality improvement in the SSI sector, thereby preparing the
sector to face global competition. Incentive scheme of reimbursement of
expenses for acquiring quality management system (QMS) ISO 9000
certification / environment management system (EMS) ISO / 4001 certification
to the extent of 75% or Rs.75000 whichever is lower for an individual unit,
ancillary, tiny and SSSBEs units. The scheme was extended up to the Tenth
Five Year Plan i.e. 31'' March, 2007.
Purchase and Price Preference Policy: This is administered through the

single point registration scheme of NSIC. Under this 358 items are reserved
for exclusive purchase from SSI by Central Government. Other facilities
include tender documents free of cost, exemption from earnest money and
security deposit and 15% price preference in central government purchases for
individual SSI units.
137
Entrepreneurship Development Institutes of India (EDII)
The EDII is the only one of its i<^ind in Asia and was set up in May 1983
at Ahmedabad by the Industrial Development Bank of India, the Industrial
Credit and Investment Corporation of India, the Industrial Finance Corporation
of India and the State Bank of India. The institute conducts result-oriented
entrepreneur development programmes, in a systematic and methodical
manner, taking into account the intellectual level and socio-economic
background of the target groups. EDII is well established to promote small
scale industries in industrially backward and rural areas and for developing
local and human resources. Special EDPs are conducted for science and
technology graduates, women, and existing entrepreneurs. The EDII also
provides expertise for the selection of entrepreneurs for Achievement
Motivation Training (AMT) and pre-programme promotional activities.
For strengthening, training infrastructure in EDIs, Assistance upto 50% or
Rs.50 lakhs whichever less was given to state governments.
District Industries Centre (DIC)
The District Industries Centre Programme was started during 1978 as a

centrally sponsored scheme to assist tiny, cottage and village sector industries
in the country and to generate larger employment opportunities in the rural and
backward areas. The DIC Programme is continued to be a centrally sponsored
scheme with the Government of India sharing its expenditure with the State
Governments on 50:50 basis. The DIC programme was intended on providing
all the services and support required by village and small entrepreneurs under a
single roof.
The District Industries Centers undertake economic investigation to find

out the potential for development in the districts including its raw material and
other resources, supply of machinery and equipment, provision of raw
materials, effective arrangement of credit facilities, marketing assistance.
138
quality control, research extension and entrepreneurial training. The DICs are
also functioning as operational machinery for according sanction and other
facilities for setting up industries in the rural areas and ensuring their continued
viable operation by developing close linkages with the rural development
blocks on the one hand and with the specialised developmental institutions on
the other.
Small Industries Development Bank of India (SIDBI)
SIDBI provides training and extension services support to entrepreneurs

according to their skills and socio-economic status extends financial assistance
on concessional terms to enable them to set up industrial units in the small
scale sector. The programmes for training, consultancy support, and extension
services for entrepreneurs are organised through designated agencies such as
Technical Consultancy Organisations, Entrepreneurship Development Institute
of India, Central / State Social Welfare Boards, Khadi and Village Industries
Commission (KVIC), and other recognised training and management institutes.
SIDBI offers the following schemes for the development of small entrepreneurs
through out the country.^ 1) General Scheme 2) Composite loan scheme 3)
Scheme for SC/ST and physically Handicapped entrepreneurs. 4) National
Equity fund scheme 5) Special scheme for assistance to ex-servicemen 6) Seed
capital scheme for technically or professionally qualified entrepreneurs 7)
Single window scheme 8) Scheme for women entrepreneurs for setting up SSI
units 9) Schemes of incentives for exports 10) Refinance scheme II) Scheme
for Small Road Transport Operators 12) Bills Discounting scheme 13) Bill
Rediscounting scheme 14) Schemes for infrastructure development 15)
Schemes for marketing acfivities 16) Schemes for medical profession 17)
Schemes for tourism related activities 18) Schemes for subcontracting units 19)
Schemes for specialised marketing agencies.
http://wwvv.smallindustryindia.com/schemes/sfnsb02z.htm
139
National Small Industries Corporation Ltd. (NSIC)
NSIC established in 1955 by the Government of India, provides vital

services for the promotion of SSIs. Its main objective is to promote aid and
foster the growth of SSIs in the country. With its various programmse and
projects to assist the SSI sector in the country. NSIC continues to remain at the
forefront of industrial development. For over five decades of transition and
growth in the SSI sector, NSIC had provided strength to it through a
progressive attitude of modernisation, upgradation of technology, quality
consciousness, strengthening linkages with large and medium scale enterprises
and boosting exports of products from small enterprises. The Corporation has
been able to provide leasing and hire purchase facilities and other services to
SSIs extensively. The following schemes are operated by NSIC such as,'*
Bill Financing: Bills drawn by small scale units for the supplies made to the
reputed well established enterprises and duly accepted by them financed /
discounted by NSIC for a maximum period of 90 days.
Working Capital Finance: Finance for augmenfing working capital of viable

and well managed units, on selective basis in case of emergent requirements, to
enable them to pay off their purchase of consumable stores, and spares and
production related overheads particularly electricity bills, statutory dues etc.
Export Development Finance: Finance for export development to export

oriented units for meeting their emergent requirements Pre and post shipment
finance shall also be provided to such units at usual terms and conditions.
The Equipment Leasing Scheme: The object of the leasing scheme is to

assist SSI units to procure industrial equipment for modernisation, expansion
and diversification of their industries. The maximum assistance provided is
Rs. 1 lakh subjected the investment nature of SSI.
http://www.sinallindustryindia.com/schemes/scnsic.htm
140
National Institute for Entrepreneurship and Small Business Development
(NIESBUD)
NIESBUD was established in the year 1983 as an apex body to

co-ordinate the activities of various agencies engaged in entrepreneurship
development and to organise, training programmes for motivators and
entrepreneurs, model syllabi for training various target groups of entrepreneurs,
undertake documentation and research, conduct seminars, workshops and
conferences and to act as a nodal agency in the field of entrepreneurship and
small business development in the country.
The Institute organises various types of training programmes like,

Trainers Training Programmes, Small Business Promoters Programme, Top
Executive Orientation Programmes and Central EDP's for women, etc. The
Institute also prepares training aids and materials, conducts research projects
and publishes newsletters.
National Institute of Small Industries Extension Training (NISIET)
The Government of India established an institute known as the Small

Industry Extension Training Institute (SIET) in 1960 under the Ministry of
Industry for promotion and development of small industries. The Institute has
been raised to the level of a National Institute and renamed as National Institute
of Small Industry Extension Training (NISIET) from 1984. The Institute
started its Guwahati Centre in 1979 to serve the North Eastern Region".
The Institute is conducting training programmes in the areas of

development, promotion, and management of small, rural, and artisan
industries including entrepreneurship development, preparation of feasibility
Ganesan S. "Status of Women entrepreneur in India", Kaniska Publications and

Distributors, New Delhi, 2003, PP.73-85.
141
reports, project reports, project management, financing, self-employment,
development of artisan enterprises, weaker sections infrastructural planning,
marketing, information, storage, and retrieval systems, training methods etc.,
works on liaison with State Government departments and organisations,
financial and other promotional institutions in their programmes for small
industry development.
Assistance by the Government of Tamil Nadu

Incentives and Subsidies
Incentives offered by the Government of Tamil Nadu towards Industrial
Development in the State are comparable to the best in the country. These
incentives have been proposed to enhance the competitiveness of the state and
also to speed up the pace of industrialisation. Capital subsidies, power tariff
concessions, generator subsidy and sales tax waiver or deferral are the major
incentives offered by Government of Tamil Nadu, to new industries or existing
industries undergoing substantial expansion or diversification.
By G.O M.S 41, (Industries) dated 18-03-1996, Government of Tamil

Nadu'' had declared 287 blocks in the State as Industrially backward (including
most backward) which are eligible for incentives like state capital subsidy, low
tension power tariff subsidy, generator subsidy, Interest free sales tax deferral
or waiver etc. The various kinds of subsidies are given as under.
Capital investment subsidy: The subsidy was provided at 15 percent on the

value of fixed assets subject to a maximum of Rs.l5 lakhs per unit for all SSI
industries set up in the backward areas. It was also available for existing SSI
Units undertaking substantial expansion or diversification, if the expansion or
diversification would increase production level by 25 percent in quantity on the
Small Industries '"Incentive available to Small Scale Industrial Units" Abstract, Government
of TamilNadu, 1996.
142
existing products and, if new products were taken up by way of diversification.
There should be an increase of 25 percent over the best annual production
achieved during the last three years.
This 15 percent investment subsidy was available to all registered SSI

units whether they are manufacturing or non-manufacturing units. This subsidy
was not available for conventional and resource based and power intensive
industries like cement, sugar, textiles, mining, rice mills, flour mills, edible
oils, solvent extraction units, distilleries, power intensive industries like iron
and steel smelting, aluminium smelting and calcium carbide. The subsidy was
not also given for assets like office, godown, store room, compound wall,
fencing and machinery spares.
Special State Capital Investment Subsidy: This was a special scheme meant
for selected categories of industries. The objective was to encourage these
specified categories of industries. They were: Leather, Electronics, Auto
Ancillaries, Drugs and Pharmaceuticals, Food Processing, Solar energy
equipments, Gold and Diamond jewellery for export only, Pollution Control
equipments. Sports goods and accessories, Cost effective building materials
like aluminium, PVC doors and windows, window frames etc, Jute processing
in six Taluks (Ambasamudram. Madurai, Musiri, Kumbakonam, Panruti
and Chengalpattu).
The special State Capital Investment Subsidy were allowed for

industries set up anywhere in Tamil Nadu and not necessarily in backward
taluks. For leather industries, the subsidy was 20 percent subject to a ceiling of
Rs.20 lakhs.
143
For the other industries, the subsidy was 20 percent subject to a ceiHng
of Rs.l5 lakhs. Existing tanneries which had already availed State Capital
Subsidy would also be eligible for Special Subsidy for setting up effluent
treatment plants, limited to 10 percent of the value of the assets or Rs.2 lakhs,
whichever was lower. It was available also for both new units and existing
units going in for expansion or diversification.
The industries might be new or those undertaking substantial expansion

or diversification. In the latter case, there should be an increase in capacity by
25 percent in quantity for existing products and in the case of new products, an
increase of 25 percent over the best annual production achieved during the last
three years.
For food processing industries, a subsidy of 10 percent subject to a

ceiling of Rs.l5 lakhs was allowed. Food processing included, cereal and
pulses production including instant mixes, meat and fish processing, fruit and
vegetable processing, nuts and oil seeds processing, protein foods, starch
derivatives and spices production. For Electronics Industry, subsidy was 15
percent or Rs.l5 lakhs which ever was less, for capital investment inclusive of
software.
144
Table 4.4
State Capital or Special Capital or Additional Capital Subsidy Extended
and Benefited to Small Scale Industrial units by Government of
Tamil Nadu
Year Amount Disbursed (Rs. No. of SSI units

in lakhs) Benefited
1991-92 853.09 707
1992-93 800.00 709
1993-94 900.00 746
1994-95 700.00 450
1995-96 1123.30 755
1996-97 2550.00 1638
1997-98 2303.74 1208
1998-99 2300.00 1106
1999-00 1700.00 576
2000-01 952.59 324
2001-02 316.63 101
2002-03 1000.00 267
2003-04 800.00 235
2004-05 539.00 127
Total 16838.35 8822
Source: Records of Directorate of Industries and Commerce, Government of Tamil Nadu.
Table 4.4 shows that the performance of Directorate of Industries and

Commerce, Chennai in extending capital investment subsidy or special capital
or additional capital subsidy to the Small Scale Industrial units. The subsidy
was provided to a maximum set up in the backward areas. The special state
capital investment subsidy was allowed for industries set up any where in
Tamil Nadu and not necessarily in backward taluk. For leather industries, the
subsidy was 20 percent subject to a ceiling of Rs.20 lakhs. For the other
industries, the subsidy was 20 percent subject to a ceiling of Rs.l5 lakhs. It
was observed that Rs.853.09 lakhs had been extended as state capital special
145
and additional capital subsidy during 1991-92 and maximum of Rs.2550.00
lakhs during 1996-97. It was reduced to Rs.316.63 lakhs during 2001-02.
Overall, capital subsidy of Rs. 16838.35 lakhs was disbursed and 8822 SSI units
benefited by the government from 1991-92 to 2004-05.
Power Tariff Subsidy: Tamil Nadu Government had a scheme to subsidise

power tariff for new units for the first three years. The subsidy was in the form
of lower tariff than the usual tariff. For lower tariff power Consumers: Subsidy
for three years from commencement of production was 30 percent, 20 percent
and 10 percent of the annual energy charges paid for the first, second and third
years respectively.
New Small Scale Industry units started after 20 January 1992 are
eligible for subsidy at the rates mentioned below:
1^' year; 40 percent of electricity charges payable.
2"'* year: 30 percent of electricity charges payable.
3'^' year: 20 percent of electricity charges payable.
Subsidy was allowed throughout the State except in areas of 15

Kilometres from Chennai Metropolitan Authority and 8 km from the towns of
Coimbatore, Madurai, Trichy and Salem.
Application for this power tariff subsidy should be made within three
months from commencement of production to District Industries Centre for
obtaining eligibility certificate. For claiming the actual subsidy, units should
apply to District Industries Centre before 31st August for months Jan-Jun and
before 28 February for months Jul-Dec.
146
Table 4.5
Power Subsidy Extended and Benefited to Small Scale Industrial Units by
Government of Tamil Nadu
Year Amount Disbursed No. of SSI units

(Rs. in lakhs) Benefited
1991-92 77.87 2403
1992-93 125.00 2842
1993-94 100.00 2216
1994-95 100.00 1504
1995-96 491.74 3372
1996-97 500.00 3451
1997-98 750.00 3573
1998-99 750.00 3229
1999-00 800.00 3123
2000-01 797.03 2733
2001-02 301.32 1681
2002-03 1000.00 2374
2003-04 650.00 1728
2004-05 650.00 1083
Total 7092.96 34232
Source : Records of Directorate of Industries and Commerce, Government of Tamil Nadu.
Table 4.5 shows that industries which are located eight kilometers
beyond urban areas are eligible to avail subsidy on the power consumption
charges at 40 percent, 30 percent and 20 percent for the V\ 2"^* and 3'^'^ year
respectively. Extension of power subsidy was Rs.77.87 lakhs during 1991-92
and maximum of Rs. 1000 lakhs during 2002-03 and it was reduced to Rs.650
lakhs during 2004-05. Overall power subsidy of Rs.7092.92 lakhs was
disbursed and 34232 SSI units were benefited by the government from 1991-92
to 2004-05.
147
Subsidy for the purchase of Generator Sets: It was allowed for all industries
consuming higher tariff or lower tariff power. Subsidy was 15 percent on the
cost of new power generator set purchased for captive use. ceiling being Rs.5
lakhs, only for brand new equipments. Generator should have been purchased
from the manufacturer or a dealer accredited by the manufacturer. The
generator might be purchased by availing term loan or hire purchase scheme
from banks or financial institutions. Subsidy would be paid directly to the bank
or financial institution. Permission of Tamil Nadu Electricity Board should be
obtained for the installation of generator.
Subsidy for generators purchased in replacement of old generators was

permitted. When more than one generator was purchased, the one purchased in
replacement of the old one would be disallowed. When a new generator with a
higher capacity was purchased, proportionate basis will be adopted.
148
Table 4.6
Generator Subsidy Extended and Benefited to Small Scale Industrial units
by Government of Tamil Nadu
Year Amount Disbursed (Rs. No. of SSI units

in lakhs) benefited
1991-92 24.09 110
1992-93 25.00 115
1993-94 25.00 99
1994-95 25.49 109
1995-96 30.82 114
1996-97 100.00 296
1997-98 70.00 156
1998-99 70.00 159
1999-00 70.00 156
2000-01 70.01 159
2001-02 21.16 41
2002-03 34.65 97
2003-04 31.81 85
2004-05 10.80 21
Total 608.83 1696
Source: Records of Directorate of Industries and Commerce, Government of Tamil Nadu.
Table 4.6 shows that barring power intensive and textile units and all the
other SSI units with valid permanent SSI certificates are eligible to avail 15
percent subsidy on the purchase of brand new generators to be used by these
units. Sanction of generator subsidy was Rs.24.09 lakhs during 1991-92 and
maximum of Rs.lOO lakhs during 1996-97. It was reduced to Rs.10.80 lakhs
during 2004-05. Overall, generator subsidy of Rs.608.83 lakhs was disbursed
and 1696 SSI units were benefited by the government from 1991-92 to
2004-05.
149
Sales Tax Concessions: The concessions under sales tax were either in the
form of total waiver of dues or in the form of interest-free sales tax loan.
For new industries set up in the 31 most backward taluks and also in the
three Tamil Nadu Small Industries Promotion Corporation (SIPCOT)
complexes at Manamadurai, Pudukottai and Cuddalore - full waiver of sales tax
was allowed for dues for five years up to a ceiling of the total investment made
in fixed assets.
This waiver was also available for existing industries which went in for
expansion or diversification. Other concessions were also available for
industries to be started in the other backward taluks i.e., taluks other than the
most backward.
For new units: a) deferral of sales tax for nine years subject to a ceiling
of total investment made in fixed assets, b) For existing units undertaking
expansion or diversification, deferral for nine years subject to 80 percent of the
additional investment made in fixed assets, c) Industries in the most backward
areas can opt for either full waiver of sales tax for five years or for deferral of
Sales tax for nine years as applicable to industries in backward taluks. Deferral
are available not only to small scale industries, but also to major and medium
industries, d) Application for sales tax deferral should be filed before the
appropriate sales tax authority before the commencement of waiver.
For existing units undertaking expansion diversification; the project

should envisage a minimum of 15 percent increase in the value of production.
150
Anna Marumalarchi Pudhia Thittam by Government of Tamil Nadu
Government of Tamil Nadu in 2002 announced tiie Anna Marumalarchi
Pudhia Thittam for the promotion of Agro-based or Food Processing Industries
in rural areas to improve rural economy by synchronising agriculture with
industry. Under the scheme, the incentives are Special Capital Subsidy : 15
percent on Plant and Machinery subject to a maximum of Rs.l5 lakhs per
block, Additional Capital Subsidy: 5 percent subject to a maximum of Rs.5
lakhs for the units women who should be employing more than 50 percent of
their workforce, Generator Subsidy : 15 percent on the Cost of the Generator
with a maximum Ceiling limit of Rs.5 lakhs. Low Tension Power Tariff
Subsidy (LTPT): 30 percent, 20 percent, and 10 percent respectively for the
first 3 years from the date of Commencement of production or from the date of
power connection which ever is later.
The government in December 2003, introduced these schemes with the

objective of reducing the interest burden on SSI and tiny units for loans availed
such as. Term loans obtained for technology upgradation or modernisation.
National Equity Fund Scheme, ISO Certification or Research and Development
activities leading to patent registration obtained by finy units. National Small
Industries Corporation, Small Industries Development Corporation Consortium
Scheme., Composite Term Loan and loan obtained by Tiny Industries under
the Credit Guarantee Fund Trust Scheme.
As on 30.06.2005. 1,346 projects with a total project cost of Rs.839.99

crores covering all the 385 blocks in the State were cleared by the State Level
Coordination Committee (SLCC) under the scheme. Of these, 402 projects
covering 242 blocks with a total project cost of Rs.260.32 crores commenced
production giving employment opportunities to 14.084 persons including 9,698
women, 212 projects with a total project cost of Rs.112.03 crores are under
^ http://www.taiinilnaduinclcom.org
151
various stages of implementation: and 227 projects with a total project cost of
Rs. 153.99 crores are awaiting sanction of loan by various financial institutions.
So far, Rs.824.86 lakhs has been disbursed towards Special Capital Subsidy
and Low Tension Power Tarift subsidy under the scheme.
The State Industries Promotion Corporation of Tamil Nadu (SIPCOT)
SIPCOT was set up in 1971, as a public limited company wholly owned

by the Government of Tamil Nadu. Its main objectives were to play a catalytic
role in the promotion and development of medium and major industries in the
private sector and also to hasten the industrial dispersal in backward and
underdeveloped areas of the state. It has thus, stimulated entrepreneurship in
the state. The main functions of SIPCOT are provisions of financial assistance
on liberal terms to medium and major industries, implementation of a package
scheme of incentives for the benefit of entrepreneurs, development of potential
growth centers and provision of development of developed lands at reasonable
costs on easy terms of payment and provision of various ancillary services for
the entrepreneurs.
As a promotional insfitution SIPCOT helps in project identification and

also supplies project profiles particularly in backward regions and thus helps in
rapid industrial growth and dispersal of industries. For this purpose it has a
separate project investigation section. It has prepared project profiles for a
number of feasible projects and they are made available to entrepreneurs at a
nominal cost. An entrepreneur who likes to set up a new industry requires
various data as also procedural guidance for the implementation of the selected
project. For this purpose SIPCOT has built up a data bank containing classified
information on various procedures to be gone through, forms to be filled up and
compliance with various regulations for setting up the industries. It also assists
in evaluating the merits of alternatives with regard to: (a) sources of raw
** http://www.tn.gov.in/policynoles/performance_budjet/pb_sind_2005-06.pdf
152
material (b) Market potential and available facilities etc. This department
guides entrepreneurs in applying for licences and registrations, approval on
collaboration, import licence, allocation of scarce raw materials, and clearance
from local authorities or financial institutions. It also helps entrepreneurs to get
necessary commitment for supply of power and construction materials required
for the project.
Tamil Nadu Industrial Investment Corporation Limited (TIIC)
TIIC is sponsored by the Government of Tamil Nadu and has the

distinction of being the first state level financial institution in the country. It
was incorporated in March 1949. Its authorised capital was Rs. 40 crores and
the paid up capital up to march 1985 was Rs. 29.94 crores. Government of
Tamil Nadu holds more than 53 percent of the shares and the IDBI,
government of Pondicherry and other public institutions hold the rest. Since its
incepfion it has played a very significant role catalysing the industrial
development of the state. It has quickly responded to the overall national and
socio-economic objectives like the development of backward areas, assistance
to priority sector etc. it has been emphasising on the assistance for the
development of small scale industries, which generate larger employment
opportunities. Over the years, it has evolved new scheme to assist technocrats,
educated unemployed and to promote self-employment. Throughout the state it
has 6 regional offices and 31 branches. It provides long term loans for
acquisition of land, building, plant and machinery, to eligible tiny, small and
medium scale units. TIIC offers long and medium term financial assistance in
the following forms: Term Loans, Term Loan and working capital assistance
under the Single Window Scheme, Lease financing for machinery/equipments,
Factoring i.e. Bill discounting. Short Term Loan. TIIC provides term loan
assistance upto maximum of Rs.800 lakhs. TIIC has 6 regional offices and 31
branches in Tamil Nadu. Branch Offices have been delegated with power to
153
sanction loans upto Rs.30 lakhs. Loans above Rs.30 lakhs are considered by
head office.
The rate of interest for the tcnn loan is in the range of 11.5 percent to
18.75 percent per annum based on the quantum of loan, nature of industry and
scheme of loan. A rebate of 1 percent per annum will be allowed for prompt
payment at the end of the every year, and another 1 percent per annum at the
end of the account closing subject to the unit being prompt throughout the loan
period.
Tamil Nadu Small Industries Development Corporation (SIDCO)
SIDCO was established in 1970 as a private limited company. In 1971

it was converted into a public limited company. It was sponsored by the Tamil
Nadu Government, with the main objective of developing and assisting small
industries in the state, provision of infra-structural facilities to small scale
industries like sheds and developed plots in industrial estates, assistance in
procuring some scarce key rav/ materials like iron and steel, paraffin wax,
potassium chlorate, fatty acids, etc. through its various distribution centers,
financial assistance in the fonn of subsidies to industrial units in backward
areas like Central Investment subsidy and state capital subsidy. Interest free
sales tax loans, power tariff subsidy and margin money assistance for the
rehabilitation of sick SSIs, and marketing assistance to small entrepreneurs.
The most important form of assistance provided by SIDCO is the

provision of infrastructural facilities. Though the industrial estate programme
was sponsored by the Central Governments, its actual implementation is
delegated to the State Governments and to their respective Industrial
Development Corporations. Distribution of raw materials is another
littp://wwvv.tamilnaduri.com/tn/support/tiic.htm
" http://www.tiic.org/interest.iitml
154
meaningful way of helping the SSI units. This scheme has been in operation
since 1970-71. In 1984-85 SIDCO supplied raw materials worth Rs.l972
lakhs. To ensure smooth supply of raw materials it has established business
dealings with major public sector undertakings like SAIL, Coal India.
Hindustan Zinc, MRL, STC. etc. It has arranged to import scarce raw material
whenever required. The scheme of rendering marketing assistance to SSI units
in 1985-86 touched Rs.lOOO Crores. SIDCO is the agent of Central and State
Governments for sanction of subsidies and their disbursement.
Tamil Nadu Industrial Development Corporation Limited (TIDCO)
TIDCO was started for the exclusive purpose of promoting industrial

concerns in Tamil Nadu. It was started as principal industrial promotional
Organisation. It is continuing its strides for the accelerated growth of medium
and large scale industries in Tamil Nadu. The main objectives and functions
are managing the core industries like cement, steel explosives etc., through its
subsidiaries, playing an entrepreneurial institutional role by providing training
facilities for new and young entrepreneurs, making use of joint sector concept
as an effective mode of fostering industrial growth in Tamil Nadu, sponsoring
projects in the joint sector as well as the private sector, providing an impetus
for boosting up total investment in industrial activities in Tamil Nadu,
generating employment opportunities for persons with entrepreneurial skill and
ability, identifying projects with large employment potentials for young,
educated, unemployed youth, providing facilities for choice of technology,
preparation of various studies, sponsoring projects on core industries, and
initiating proposals to set its equity stake in the sick companies. The TIDCO
plays an entrepreneurial role by making use of joint sector concept as an
effective mode fostering industrial growth in Tamil Nadu. It has successfully
sponsored 93 projects loan assistance aggregating to Rs.372 millions as on
155
March 31 2002. This has also been extended to the company by the
Government of Tamil Nadu.
Profile of Tamil Nadu State
Tamil Nadu State is situated at the South Eastern extremity of the Indian
Peninsula bounded on the north by Karnataka and Andhra Pradesh on the east
by Bay of Bengal, on the South by the Indian Ocean and on the West by Kerala
State. It lies between 8-5' and 13-35' of northern latitude and 76-15' and 80-20'
of eastern longitude with an area of 1,30,058 square kilo metres. It is the llth
State in India in area forming 4.11 percent of the Union areas.
The population of India (2001 Census) is 102.70 Crores comprising of

53.13 Crores males and 49.57 Crores females. The population of Tamil Nadu
stood at 6.21 Crores comprising of 3.13 Crores males and 3.08 Crores females.
The population of Tamil Nadu constitutes 6.05% of the India's population. It
ranks 6th among the States/Uts. The population, which was 5.58 Crores in
1991, has gone up by 0.62 Crores over the last ten years. This represents an
increase of 11.19% during the period 1991-2001 as against the growth rate of
15.39% during the period 1981-91. The density of population per Sq. Km is
478 in 2001 as against 429 in 1991. Literacy standard in Tamil Nadu State as
per 2001 census is 73.47% as against 62.66% in 1991 census. This shows the
good growth rate in literacy. This growth rate is in tune with All India growth
rates and literacy population is 65.38% in 2001 Census as against 52.21% in
1991 Census.
The Tamil Nadu has an equatorial, tropical climate in the inland and an
equatorial, maritime climate in its coastal regions. In the inland, the
temperature may go to extreme in some places while it tends to be moderate in
the coastal areas. By and large, the average temperatures for most parts of the
" http://www.tamilnadunri.com/tn/support/tidco.htm
156
state range between 28^ C and 40° C in the summer season and between 18° C
and 26° C in the short-lived winter seasons. In the more hilly terrain, the
maximum temperature may be as low as 26" C and the minimum temperature
may go down to 3" C. The normal rainfall is 945.0 mm.
The State of Tamil Nadu is divided into 29 administrative districts,

which in turn are further bifurcated into smaller divisions and sub-divisions,
including a total of 16,317 villages. The state capital, Madras now renamed, as
Chennai is the fourth largest city in the Indian Sub-continent and 30th largest
city in the world. It extends over an area of 174 sq. km. Tamil Nadu is one of
the well developed states in terms of industrial development. In the post-
liberalisation era, Tamil Nadu has emerged as one of the front-runners by
attracting a large number of investment proposals particularly in recent times.
Today, Tamil Nadu is the third largest economy in India and its current State
Domestic Product is well over US $ 23 billion.
Directorate of Industries and Commerce: The Directorate of Industries and

Commerce is the nodal Government agency responsible for planning and
implementation of various programmes for small scale and tiny industries. In
the past, the role of the Directorate was most statutory and regulatory in nature,
sanctioning licence, and issue of raw materials during time of scarcity. It has
acquired a development orientation now. Most of the operational powers have
been delegated to the General Managers of District Industries Centers and time
limits have been prescribed for various Go\ ernment clearances necessary to an
industry. In order to provide escort services to the SSI units effectively,
District Industries Centre have been reorganised and separate ESCORT support
system has been introduced in each of the District Industries Centre.
157
The various activities undertaken by the Directorate are as follows:
• Registration and promotion of small scale, cottage & handicraft

industries and Industrial Co-operative Societies.
• Sanction and disbursement of various subsidies and incentives such
as State Capital Subsidy, Generator Subsidy, Power tariff subsidy.
Interest Free Sales Tax deferral / Waiver for existing units, Margin
Money Assistance for sick unit among small scale industries.
• Offering various testing facilities for chemicals, metals,
metallurgical, electrical, electronic gadgets and appliances.
• Implementation of Centrally sponsored schemes like self-
employment programme for the educated unemployed youth under
Prime Minister's Rozgar Yojana Scheme (PMRY).
• Conducting of Entrepreneur Development Programme (EDP).
• Creating awareness of the various policies and programmes of the
Government through seminars and dissemination meets.
• Proving Escort Services to the Entrepreneurs.
• Maintenance of Special purpose Industrial Estates for Electrical and
Electronics Industries.
• Providing entrepreneurial guidance through Data Bank and
Information Centers and Technical Information Section attached to
the DICs.
• Identification of new areas with growth potential and providing
familiarisation and Incubator facilities to promising entrepreneurs.
• Conducting of Techno-economic surveys.
• Conducting of sample and comprehensive surveys.
• Training facilities in the filed of light engineering tool and die
designing.
• Identification, Declaration and Assistance to sick units.
158
• Assistance for import of capital goods, machinery and scarce raw
materials.
• Implementation of Quality Control Act on Electrical Household
appliances, etc.
• Supervision of implementation of Special assistance schemes
announced by Government in favour of small and tiny sector units.
District Industries Centers: The District Industries Centers (DICs) are

functioning in 28 Districts of Tamil Nadu, except Chennai District where a
Regional Joint Directorate is set up, to render all help to the entrepreneurs to
set up Small Scale Industries. DICs administer the various incentive
programmes such as capital subsidies, fiscal incentives, raw material
allocations, power subsidies and the like. The DICs are expected to function as
key conduits for information flowing from various channels for dissemination
to local enterprises.
To facilitate smooth running of small scale units and to reduce

procedural wrangles, the Government has launched Single Window Scheme.
The entrepreneurs are assisted in getting clearances from Local Bodies, Town
Planning, Pollution Control Board, Public Health, Factories and Other
Departments and getting power connection by the Single Window Authority.
SSI Registration: The Primary objective of the Small Scale Industrial Policy
approach of the Tamil Nadu Government is to deregulate the sector with a view
to removing all impediments in its growth and to ensure that the procedures
and formalities do not affect the interests of the Small and Rural Enterprises.
The SSI registration forms have also been simplified for this purpose. The
Registration procedures have been simplified and provisional registration can
be secured even across the table on furnishing certain minimum required
159
details. Lengthy process, hitherto insisted for issue of permanent Registration
certificate, has also been rationalised.
The term SSI is applied to units in which the total investment in plant
and machinery does not exceed Rs.lOO lakhs. In the case of Ancillary units,
i.e., which are engaged in the manufacture of parts, components, etc., or
rendering of services to the extent of not less than 50% of their production or
services to one or more industrial undertakings, the limit on investment in plant
and machinery also shall be Rs.lOO lakhs.
Location of the Study area

Location of the study area was covered for four Districts in Tamil Nadu
State in this study. The study of the district of Tamil Nadu was Coimbatore,
Erode (industrially advanced), Sivaganga and Ramanathapuram (industrially
backward).
Coimbatore District: Coimbatore district is an important inland district, lying

in the north western part of Tamil Nadu. The geographical location and
industrial and agricultural climate enabled the District to emerge as one of the
most important districts in Tamil Nadu. Coimbatore District is bounded by the
Nilgiris on the north. Erode district on the east, Dindugul District on the south
and Kerala State on the west. Coimbatore District consists of three revenue
divisions, sub-divided into nine taluks. The average rainfall of the district is
202.4 mm (South West Monsoon) and 312.11 mm (North East Monsoon). It
has a land area of 7.49 lakhs-hectares. The population of the district as per the
2001 census was 42.71 lakhs. Male population was 21.76 lakhs and Female
population was 20.95 lakhs.
Coimbatore District has a well developed infrastructure in terms of

roads, railways, airways, favourable climate and enterprising and hard working
160
people for the conducive growth of enterprises when compared to other
districts in Tamil Nadu. In the power front, the power supply is drawn from the
Tamil Nadu Electricity Board, fhere are three Hydro Electric Power Station at
Nelliturai in Mettupalayam Taluk. The tributaries of the river Cauvery namely,
Bhavani, Noyyal, Amaravathy and the Aliyar rivers also flow through the
district. Parambikulam Aliyar Project, after its execution, has promised a vast
scope for the agro-economic advancement. It is also the reason for increased
availability of water and raw materials to industries as well as sizeable addition
to hydro electric generation in the district.
Coimbatore District is termed as the Manchester of South India since it

is known for its textile industries. The humid climate is one of the factors
responsible for the growth of textile industries. The growth of textile industries
led to the growth of numerous small scale and ancillary units. Coimbatore
District is a heaven for small scale industries. There has been a high growth
rate in small scale industries, especially for the last 25 years. The abundance of
industries in the large medium and small scale sectors has ensured the
development of investing tendency of people in Coimbatore District. In
addition, the Coimbatore District of Tamil Nadu is the most industrially
developed and provides forward and backward linkages to the primary sector.
Investment potentials and opportunities are growing day by day thereby
encouraging more and people to venture in to newer areas of industry, trade
and commerce.
" Chinnaiyan. P and R. Nandagopal, "Accessibility of Bank finance by SSI : A case study''
Southern Economist March I, 2005 p.24.
161
Table 4.7
Subsidy Extended By District Industries Centre, Coimbatore
Amount in Lakhs
Year State Capital Power Generator Total
Subsidy Subsidy Subsidy Subsidy
1996-97 401.47 67.38 23.47 492.32
1997-98 676.23 65.78 20.51 762.52
1998-99 400.64 135.34 26.43 562.90
1999-00 111.44 88.02 7.44 206.41
2000-01 66.02 84.48 14.85 165.35
2001-02 28.00 89.24 3.02 119.76
2002-03 33.14 97.98 5.88 137.00
2003-04 73.06 27.85 5.77 106.68
2004-05 61.67 28.11 2.51 92.29
Source: Records of District Industries Centre, Coimbatore.
The performance of District Industrial Centre, Coimbatore in extending
incentives or subsidies to the SSI is presented in table 4.7 It receives
applications from permanent SSI units set up in backward taluks and industrial
Estates. Processes and sanctions to the industrial units 15 percent of the capital
subsidy on total investment made on fixed assets such as land, building and
machinery. It was observed that Rs.401.47 lakhs had been extended as capital
subsidy during 1996-97 and maximum of Rs.676.23 lakhs during 1997-98. It
was reduced to Rs.61.67 lakhs during 2004-05. The Government of Tamil
Nadu declared limited area as backward block it accounted as the main
criteria for receiving capital subsidy.
'Blocks refer to compact areas identified as community Development blocks with the aim of
promoting local initiative and collective efforts for the socio economic development of the
population of the area.
162
Industries which are located, eight kilometers beyond urban areas are
eligible to avail subsidy on the power consumption charges at 40 percent, 30
percent and 20 percent for the l", 2"'' and 3"* year respectively. DIC receives
application from units having permanent SSI certificates and sanctions the
subsidy to the eligible units. Extension of power subsidy was Rs.67.38 lakhs
during 1996-97 and it was Rs.28.11 lakhs during 2004-05 which indicated that
there was continuous support for rural small scale enterprises.
Barring power intensive textile units, all the other SSI units with valid
permanent SSI certificates are eligible to avail 15 percent subsidy on the
purchase of brand new generators to be used by these units. DIC receives
application from the SSI units and sanctions the subsidy to eligible units.
Udlisafion of generator subsidy had fallen from Rs.23.47 lakhs during 1996-97
to 5.51 lakhs in 2004-05.
163
Exhibit 4.4
Location of the Study Area
I Tamil Nadu
^ ANDHRA PRADESH
Districts of Tamilnadu
hennal
ladras)
0 StataCaplal
^ Stilt Boundaiy
— Oiatrlet Boundaiy
CopyrigM (C) Compare Infobase

Pvt. Ltd. 1888-68 OCEAN
Industrially Advanced Districts
Industrially Backward Districts
164
Erode District: The Erode District formerly known as Periyar District was
formed on 15th March 1985, after trifurcating the composite Coimbatore
District into Coimbatore. Salem and Trichirapalli District. The headquarters of
the district is Erode. Erode District is surrounded by Karnataka State in North-
west, Coimbatore in the West. Dindugul District and Karur District in the
South; Salem and Namakkal District in the East. The District is lying between
10-35' and 11-60' of North Latitude and 76.49' and 77-58' of East longitude
and 171-91 meters above the mean sea level. The river Cauvery flows on the
north and eastern part of the district.
Erode district has seven taluks and 20 blocks. This district has 539
revenue villages. The population of the district as per the 2001 census was
14.93 lakhs; male population was 7.59 lakhs and female population was 7.33
lakhs. The district has a total geographical area of 8.16 sq. km. Out of the
geographical area of 8.16 lakh ha; about 2.90 lakh ha; constitutes cultivated
area forming 35.5 percent of the total geographical area. Forest cover is about
2.29 lakh ha. and accounts for 28.1 percent of the total geographical area of the
district.
The district forms part of Cauvery River Basin and is blessed with a
network of rivers viz., Bhavani. Noyyal, Amaravathi and their tributaries. The
river Cauvery flows along the eastern border of the district. The normal rainfall
in the district is 717 mm. Erode District has a place of unique importance in
the industrial map of Tamil Nadu. Industries and Trade naturally occupy a
place of prominence in the economy of the district. Industries that flourished in
early days in the area were hand loom weaving, carpet manufacturing cart
manufacturing, oil pressing, brass vessel manufacturing, tannery, screen
printing, oil refinery, plastic, chemical electric industries, etc.
165
The district is well connected by road and rail transport. It is one of the
districts in Tamil Nadu, which is rich in cattle wealth and progressive in
outlook with specialised intensive development in agriculture and industrial
sector. So this district is termed as industrially advanced district.
Table 4.8
Subsidy Extended By District Industries Centre, Erode
Rs. in Lakhs
1996-97 300.74 54.04 2.16 356.94
1997-98 177.69 101.49 6.24 285.42
1998-99 181.61 80.81 4.00 266.42
1999-00 29.05 86.44 3.24 118.73
2000-01 13.99 136.59 2.45 153.03
2001-02 NA 8.65 0.62 9.27
2002-03 75.24 112.19 1.49 188.92
2003-04 10.45 219.05 1.57 231.07
2004-05 NA 34.54 0.39 34.93
Source : Records of District Industries Centre, Erode.
The performance of District Industrial Centre, Erode in extending

incentives or subsidies to the SSI is presented in table 4.8 It receives
was reduced to Rs. 10.45 lakhs during 2003-04.
"' * -'NABARD, Potential Jinked credit Plan. Erode District, Tamil Nadu 2001". Five Year Plan
period 2002-2007, Chennai 2001.
166
eligible to avail subsidy on the power consumption charges at 40 percent. 30
percent and 20 percent for the V\ 2"'' and 3"' year respectively. DIC receives
Utilisation of generator subsidy had fallen from Rs.2.16 lakhs during 1996-97
to 0.39 lakhs in 2004-05.
Sivaganga District: The Sivaganga district formerly known as Parumpon

Mathuramalinga Thevar (PMT) District was formed on 15th March, 1985 after
trifurcating of the composite Ramanathapuram district into Ramanathapuram,
Kamarajar and PMT district. The headquarters of the district is at Sivaganga.
The district has a total geographical area of 4045.26 sq.km. It is bound

by Pudukottai district on the north. Pudukottai and Ramanathapuram district on
north-east and east, Kamarajar district on the South-West and Madurai district
on the west.
Sivaganga district has two revenue divisions comprising six taluks. It is

divided into 12 community development blocks, 3 municipalities, 6 town
panchayats and 437 village panchayats. The population of the district as per
the 2001 census was 11.55 lakhs. Male population was 5.66 lakhs and Female
population was 5.88 lakhs.
167
Out of the total geographical area of 4.38,827 hectares, the net area
sown for agricultural purpose was 1.30,071 hectares. More than two third of
the work force in the district are engaged in agricultural activity. There are no
perennial rivers in the district. The river Vaigai enters the district near
Tiruppuvanam and flows through Sivaganga Taluk; the main source of
irrigation is ponds and tanks.
Sivaganga district is treated as an industrially backward district for the

purpose of extending concessional finance. The important factors hindering the
growth of industries in the district are lack of adequate water supply, proper
transport facilities, lack of mineral resources and industrial raw materials. The
major industries include a few spinning / textile mills.
Table 4.9
Subsidy Extended By District Industries Centre, Sivaganga
Amount in Lakhs
1996-97 73.75 17.76 3.00 94.51
1997-98 31.34 29.60 0.96 61.90
1998-99 12.68 19.29 0.44 32.41
1999-00 3.00 14.18 1.76 18.94
2000-01 0.55 23.49 NA 24.04
Source : Records of District Industries Centre, Sivaganga
The performance of District Industrial Centre, Sivaganga in extending

incentives or subsidies to the SSI is presented in table 4.9. It receives
168
was reduced to Rs.0.55 lakhs during 2000-01
percent and 20 percent for the l'\ 2"'' and 3"* year respectively. DIC receives
subsidy to the eligible units. Extension of power subsidy was Rs. 17.76 lakhs
Utilisation of generator subsidy had fallen from Rs.3.00 lakhs during 1996-97
toRs.I.761akhsin 1999-2000.
Ramanathapuram District: Ramanathapuram District in its present form

came into existence from 15"^ March, 1985 trifurcating the composite
Ramanathapuram District. It is surrounded by Pudukottai District to the North,
Sivaganga and Virudhunagar districts on the North West and West. Tirunelveli.
Tuticorin districts and Gulf of Mannar on the south and Palk Strait on the East.
The district has been divided into 7 taluks and 11 community development
blocks. There are 429 Panchayats with 400 revenue villages consisting of 197
small villages and hamlets. There are 9 town Panchayats and two
municipalities. The Collectorate is located at its headquarters at
Ramanathapuram.
169
The total population of the district as per the 2001 census was 11.87
male population was 5.83 and female population was 6.04 lakhs. The district
has a geographical area of 408957 hectares, with a nonnal net sown area of
183651 hectares. The district is the most backward district in the state. ' Most
of the soils found throughout the district are not suitable for agriculture. This
district is also treated as an industrially backward district for the purpose of
extending concessional finance. The important factors hindering the growth of
industry in the district are lack of adequate water supply, proper transport
facilities, lack mineral resources, and industrial raw materials. The major
industries include a few coconut fiber and cold storage for fishing industries.
Table 4.10
Subsidy Extended By District Industries Centre, Ramanathapuram
Amount in Lakhs
Year State Capital Power Generator Total Subsidy
Subsidy Subsidy Subsidy
1996-97 9.31 9.47 0.84 19.62
1997-98 3.06 09.06 NA 12.12
1998-99 4.71 12.60 NA 17.31
1999-00 4.51 11.60 NA 16.11
2000-01 3.58 15.70 NA 19.28
2001-02 3.36 20.50 NA 23.86
Source: Records of District Industries Centre. Ramanathapuram.
The performance of District Industrial Centre, Ramanathapuram in

extending incentives or subsidies to the SSI is presented in table 4.10. It
receives applications from permanent SSI units set up in backward taluks and
15
hii^'.lI WWW. Agro-Climate Zone Profile-Profile ofRamnadDist-Chapter III.com
170
industrial Estates. Processes and sanctions to the industrial units 15 percent of
the capital subsidy on total investment made on tlxed assets such as land,
building and machinery. It was observed that Rs.9.31 lakhs and been extended
as capital subsidy during 1996-97 and maximum of Rs.4.71 lakhs during 1998-
99. It was reduced to Rs.3.36 lakhs during 2001-02.
Industries which are located eight kilometers beyond urban area are
percent and 20 percent for the V\ 2"'' and 3'^'^ year respectively. DIC receives
Barring power intensive textile units and all the other SSI units with
valid permanent SSI certificates are eligible to avail 15 percent subsidy on the
Utilisation of generator subsidy was Rs.0.84 lakhs during 1996-97 and
information for the remaining period was not available.
171
REFERENCE
1. Industrial Investment - -'Facilities and Incentives ", Indian Investment

Centre, New Delhi. 1979. P. 1.
2. http://vvww.smallindustryindia.com/schemes/sidoscheme.htm
3. http://www.smallindustryindia.com/schemes/sfnsb02z.htm
4. http://www.smallindustryindia.com/schemes/scnsic.htm
5. Ganesan, S."Status of Women entrepreneur in India", Kaniska

Publications and Distributors, New Delhi, 2003, PP.73-85.
6. Small Industries ''Incentive available to Small Scale Industrial Units''

Abstract, Government of TamilNadu, 1996.
7. http://www.tamilnaduindcom.org
8. http://www.tn.gov.in/policynoles/performance_budjet/pb_sind_2005-
06.pdf
9. http://www.tamilnaduri.com/tn/support/tiic.htm
10. http://www.tiic.org/interest.html
11. http://www.tamilnadunri.com/tn/support/tidco.htm
12. Chinnaiyan. P and R. Nandagopal, "Accessibility of Bank finance by SSI

: A case study" Southern Economist March I, 2005 p.24.
13. Blocks refer to compact areas identified as community Development

blocks with the aim of promoting local initiative and collective efforts
for the socio economic development of the population of the area.
14. "NABARD, Potential linked credit Plan, Erode District, Tamil Nadu
2001". Five Year Plan period 2002-2007, Chennai 2001.
15. htip://www.Agro-Climate Zone Profile-Profile of Ramnad Dist-Chapter

Iir.com
172

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CHAPTER IV

The process of development of small scale industry requires the

This chapter reviews the different incentives available to entrepreneurs

Assistance from Central Government

Finance and Credit for Small Scale Industries

S.No Bank/Institution Area of Assistance

The primary responsibility for development of village and small scale

Income Tax Concession: Under section lOA - a newly established industrial

Under Section 80-IB- the small scale industrial unit's commenced

Excise Duty Exemptions: All industrial units irrespective of their investment

CENVAT Credit: Modified Value Added Tax (Modvat) Scheme was

Incentives for Electronics and Information Technology:

• Customs Duties: Customs duty has been reduced on non-alloy steel

Outright Capital Subsidy on the project at the rate of 15 percent of the

Quality Certification Cost Concession: For obtaining International Standard

Capital Investment Subsidy: Capital Investment Subsidy Scheme (1997) has

Transport Subsidy: Under the Transport Subsidy Scheme, subsidy ranging

Institutional Support for Entrepreneurs

There are many agencies rendering assistance to entrepreneurs not only

TECHNICAL MARKETING ENTREPRENEURSHIP j

The office of the Development Commissioner (Small Scale Industries),

Credit Guarantee Fund Scheme (CGFS): The Board of Trustees of Credit

Credit Linked Capital Subsidy Scheme for Technology Upgradation

Year Subsidy disbursed to SSI No. of Units

Scheme for Market Development Assistance for SSI exporters (SSI-MDA):

Integrated Technology Up Gradation and Management Programme

Incentive for ISO 9000 Certification: ISO-9000 is the synonym for

Purchase and Price Preference Policy: This is administered through the

District Industries Centre (DIC)

The District Industries Centre Programme was started during 1978 as a

The District Industries Centers undertake economic investigation to find

Small Industries Development Bank of India (SIDBI)

SIDBI provides training and extension services support to entrepreneurs

NSIC established in 1955 by the Government of India, provides vital

Working Capital Finance: Finance for augmenfing working capital of viable

Export Development Finance: Finance for export development to export

The Equipment Leasing Scheme: The object of the leasing scheme is to

NIESBUD was established in the year 1983 as an apex body to

The Institute organises various types of training programmes like,

National Institute of Small Industries Extension Training (NISIET)

The Government of India established an institute known as the Small

The Institute is conducting training programmes in the areas of

Ganesan S. "Status of Women entrepreneur in India", Kaniska Publications and

Assistance by the Government of Tamil Nadu

By G.O M.S 41, (Industries) dated 18-03-1996, Government of Tamil

Capital investment subsidy: The subsidy was provided at 15 percent on the

This 15 percent investment subsidy was available to all registered SSI

The special State Capital Investment Subsidy were allowed for

The industries might be new or those undertaking substantial expansion

For food processing industries, a subsidy of 10 percent subject to a

Year Amount Disbursed (Rs. No. of SSI units

Table 4.4 shows that the performance of Directorate of Industries and

Power Tariff Subsidy: Tamil Nadu Government had a scheme to subsidise

Subsidy was allowed throughout the State except in areas of 15

Year Amount Disbursed No. of SSI units

Subsidy for generators purchased in replacement of old generators was

Year Amount Disbursed (Rs. No. of SSI units

For existing units undertaking expansion diversification; the project