Entrepreneurship Development Notes

Gratulent Publications
UNIT - I
ENTREPRENEUR AND ENTREPRENEURSHIP
ENTREPRENEUR DEVELOPMENT
1) Evolution of the concept of Entrepreneur
2) Distinction between Entrepreneur and a Manager
3) Characteristics of Entrepreneur
4) Functions of Entrepreneur
5) Types of Entrepreneur
6) Concept of Intrapreneur
7) Growth of Entrepreneurship in India
8) Role of Entrepreneurship in Economic development
INTRODUCTION : The word entrepreneur is derived from the French word ‘Enterprendre’ it means “to undertake”
or go-between
• Entrepreneur is the person who brings together the factors of production and combines them into a product.
• He organizes and manages a business unit assuming the risk for profit.
• Entrepreneur is an individual who takes risk and starts something new.
ENTREPRENEUR, ENTREPRENEURSHIP AND ENTERPRISE :
Entrepreneur Entrepreneurship Enterprise
Person Process Objective
An Individual Sequences of Result of efforts

Activities of an entrepreneur
ENTREPRENEUR :
“Entrepreneur is one who always searches for change, respond to it and exploits it as an opportunity.
Innovation is a specific tool of entrepreneurs, the mean by which they exploit change as an opportunity for different
business or services, assuming the risk for the sake of profit.
Entrepreneur is an innovator, a visualizer, an initiator, a risk taker, a leader, an administrator, a planner, a
decision maker, an organizer. Entrepreneurship is the process of innovation in which entrepreneur takes initiative
in an organized manner and plans successful performance. He/she engages himself/herself in producing and
marketing an innovation.
Entrepreneurship is concerned with vision. It is the essence of leadership, planning and decision making
activity. Entrepreneur is someone who undertakes an enterprise. He/she is someone who starts a new business
or new organization or takes an existing organization. Entrepreneurship most commonly manifests in the form of
self-employment.
ENTREPRENEURSHIP : Entrepreneurship is the process of creating something new with value by devoting
necessary time and effort, assuming the accompanying financial, psychic, and social risks, and receiving the
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resulting rewards of monetary and personal satisfaction and independence It is the process of creating value by
bringing together a unique package of resources to exploit an opportunity.
Entrepreneurship is the process under which person should develop the ability, capability, and tendency to
perform the following activities :
1. Identify business opportunities
2. Manage a business effort which brings profit to the entrepreneur and the public
3. Obtain success and richness by fulfilling the society’s needs.
4. Take calculated risks
5. Manage & utilize the factors of production to bring economical development and enhance social welfare
6. Work hard and be prepared to make new changes that can increase production quantity and quality from time
to time.
ENTERPRISE : A project or an activity undertaken or especially one that is important or difficult and that require
energy or boldness to complete.
1) EVOLUTION OF THE CONCEPT OF ENTREPRENEUR :

The word ‘entrepreneur’ has been taken from the French Language where it cradled and originally meant
to designate an organizer of musical or other entertainments. Oxford English Dictionary ( in 1897 ) also defined
an entrepreneur in similar words as “the director or a manager of a public musical institution, one who ‘gets-up’
entertainment, especially musical performance”. In the early 16th century, it was applied to those who were
engaged in military expeditions. It was extended to cover civil engineering activities such as construction and
fortification in the 17th century. It was only in the beginning of the 18th century that the word was used to refer to
economic aspects. In this way, the evolution of the concept of entrepreneur is considered over more than four
centuries. Since then, the term ‘entrepreneur’ is used with various views. These views are broadly classified into
three group, namely, risk-bearer, organizer and innovator.
(i) Entrepreneur as a Risk-Bearer :

Mr. Richard Cantillon, an Irish man Eesiding in France, was the first who introduced the term ‘entrepreneur’
and his unique risk-bearing function in economics in the early 18th century. He defined entrepreneur as an agent
who buys factors of production at certain prices in order to combine them into a product with a view to sell it at an
uncertain price in future. He illustrated a farmer who pays out contractual incomes which are certain to the
landlords and labourers and sells at prices that are ‘uncertain’.
Knight also described entrepreneurs to be a specialized group of persons who bear uncertainty, is defined
as a risk which cannot be insured against and is incalculable. He, thus, draws a distinction between ordinary risk
and uncertainty. A risk can be reduced through the distribution of the outcome in a group of instances known. On
the contrary, uncertainty is the risk which cannot be calculated.
(ii) Entrepreneur as an Organiser :

Jean-Baptiste say, an aristocratic industrialist, with his unpleasant practical experiences developed the
concept of entrepreneur a little further which survived for almost two centuries. His definition associates
entrepreneur with the functions of coordination, organization and supervision. According, to him, an entrepreneur
is one who combines the land of one, the labour of another and the capital of yet another, and, thus, produces a
product. By selling the product in the market, he pays interest on capital, rent on land and wages to labourers and
what remains is his/her profit.
He further elaborates that in the course of undertaking besides a number of complex operations like
obstacles to be surmounted, anxieties to be suppressed, misfortunes to be repaired and expedients to be devised,
three more implicit factors are deemed to be essential. These are:
1. Moral qualities for work judgement, perseverance and a knowledge about the business world.
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2. Command over sufficient capital, and

3. Uncertainty of profits.
(iii) Entrepreneur as an Innovator :

Joseph A. Schumpeter, for the first time in 1934, assigned a crucial role of ‘innovation’ to the entrepreneur
in his magnum opus ‘Theory of Economic Development’. Schumpeter considered economic development as a
discrete dynamic change brought by entrepreneur by instituting new combinations of production, i.e., innovations.
The introduction, according to him , may occur in any one of the following five forms:-
1. The introduction of a new product in the market.
2. The instituting of a new production technology which is not yet tested by experience in the branch of manufacture
concerned.
3. The opening of a new market into which the specific product has not previously entered.
4. The discovery of a new source of supply of new material.
5. The carrying out of the new form of organization of any industry by creating of a monopoly or breaking up of it.
Schumpeter also made a distinction between an inventor and an innovator. An inventor is one who discovers
new methods and new materials. And, an innovator utilizes inventions and discoveries in order to make new
combinations.
Thus, an entrepreneur can be defined as a person who tries to create something new, organizes production and
undertakes risks and handles economic uncertainty involved in enterprise.
THE ENTREPRENEUR
DEFINITIONS :
‘’A person who introduces innovative changes is an Entrepreneur and he is an integral part of economic growth.”
- J.A. Schumpeter.
“All persons engaged in economic activity are Entrepreneurs”. - Richard Cantillon.
“The function of Entrepreneur is one that promotes ideas into business.” - Dewing.
CHARACTERISTICS OF AN ENTREPRENEUR :
1. Independence : Some entrepreneurs commence their own business because they do not like work under
anyone and prefer to be their own boss. They feel uncomfortable when they are given instruction or guided by
others and in such situations they are not able to give their total output.
2. Risk bearing : Business is one word , is all about taking risk. An entrepreneur should always be ready to take
decisions under uncertainty but An entrepreneur is not a gambler and hence he should not assume high risk. However
he must love a moderate risk situation, high enough to be exciting, but with a fairly reasonable chance to win.
3. Hard work : Willingness to work hard distinguishes a successful entrepreneur from unsuccessful one. Most of
the successful entrepreneur work hard endlessly, especially in the beginning and the same become their habit for
their whole life. an entrepreneur with his persistence and hard work can revive his business even from on the
verge of collapse
4. Desire for high achievement : The achievement motivation is the most important characteristic of an entrepreneur.
He must have a strong desire to achieve high goal in business. In fact this achievement motivation helps him to
overcome the obstacles, suppress anxieties, repair bad luck and work out plan for success.
5. Highly optimistic : Successful entrepreneur is always optimistic about his future and he is never disturbed by the
present problems he always expect a favourable situation for his business and hence he is able to run his business
successfully in case of temporary hurdles. He does not allow the past to grip him.
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6. Keen foresight : An entrepreneur must have keen foresight to predict the future business environment. He
has the capacity to visualize the likely changes to take place in the market, customer, attitude, technological
development, government policy etc. and take timely action accordingly
7. Good organizer : Various resources required for production are owned by different owners. Then it is the ability of
the entrepreneur who bring together all required resources for setting up an enterprise and then produces goods.
8. Innovative : Efficient entrepreneurs are good innovators. They are always looking for new change in the working
environment o help them in getting the job done in less time. They keep on introducing new machineries and new
technologies that improve the existing production and working condition in the enterprise.
9. Perseverance : One of the qualities of successful entrepreneurs is that they posses and exhibit tremendous
perseverance in their task. They do not give up their effort even if they fail. They undergo lots of failures but do not
become disheartened. Instead they take failure as learning experience and make more dedicated and serious
effort on the next time. And ultimate .become successful
10. Team spirit : The word team refers to T for together, E for everyone, A for achieves, and M for more. Team
result in synergy. Successful entrepreneur build team and work with teammates. Bringing people together is
beginning, keeping people together is progress, and working with people is success.
11. Leadership : The ability to lead and inspire other is called leadership. It is very important for all the entrepreneurs
to posses the leadership quality. They should be able to encourage their staff to work better and efficiently. An
entrepreneur should be able to guide them and assist them whenever necessary. But at the same time he should
be strict when the work is not being done properly.
12. Stress takers : Entrepreneurs are people who have the capability to work under pressure. Sometime problem
might arise and entrepreneur need to work under stress so as to complete project. They do not panic and work
calmly under pressure, giving perfect output.
13. Prudence : A successful entrepreneur must be prudent in all his dealing. He should have the ability to work
out the detail of the venture from all angles, and identify the favourable factors and pitfalls and take suitable
measure to overcome the pitfalls.
14. Ability to find and explore opportunities : Entrepreneurs are always looking for opportunities when new
opportunities come their way, they use their skill and innovation to turn them into a profit-making business.
DISTINCTION BETWEEN AN ENTREPRENEUR AND A MANAGER
Points Entrepreneur Manager

1. Motive The main motive of an entrepreneur is to start a venture The main motive of a manager is to render his services
by setting up an enterprise. He understands the venture in an enterprise already set up by someone else.
for his personal gratification.
2. Status An entrepreneur is an owner of an enterprise. A manager is the servant in an enterprise owned by
an entrepreneur.
3. Risk-bearing An entrepreneur being the owner of an enterprise A manager as a servant does not bear any risk involved
assumes all risks and uncertainty involved in running in the enterprise.
the enterprise.
4. Rewards The reward an entrepreneur gets for bearing risks A manager gets salary as reward for the services
involved in the enterprise is profit which is highly rendered by him in enterprise. Salary of a manager is
uncertain. certain or fixed.
5. Innovation An Entrepreneur himself thinks over what and how A manager, however, does only what he is asked to
to produce goods to meet the changing demands do. He is a mere servent and not an innovator.
of the customers. Hence, he acts as an
innovator also called a ‘change-agent’.
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6. Qualification An entrepreneur needs to possess qualities and On the contrary, a manager needs to posses
qualifications like high achievement motive, originality in distinct qualifications in terms of sound knowledge
thinking, risk-bearing ability and so on. in management theory and practice.
FUNCTIONS OF AN ENTREPRENEUR :
Functions of an Entreporencur
Idea Generation Determination of Objectives
Fund Raising Procurement of Raw Materials
Procurement of Machinery Market Research
Determination of Ownership Recruitment of Manpower
Project Implementation
TYPES OF ENTREPRENEUR
1) Idea Generation: Idea-generation is the process of building new ideas, bringing out the idea into an innovative
way, developing the process and converting the idea into reality. Broadly, it refers to the selection of a product and
identification of project. Ideas can be generated by following the entrepreneur’s vision, perception, experience,
observation, education, exposure and training. Generally, market study and environmental analysis tools are
used for idea generation. The major function of the entrepreneur is to select the best out of the many alternative
ideas such that it is most appropriate idea to be applied for the organisation.
2) Determination of Objectives: One of the main functions of the entrepreneur is to define the objectives of the
business. The business objectives should be laid-down clearly. Most appropriately, the entrepreneur must specify
few things in a clear manner :
i) The business nature, and ii) The business type.
The nature and type of business identifies the industry it belongs to i.e., manufacturing, trading or service. This
helps the entrepreneur to focus on the business more effectively keeping in view the objectives.
3) Fund Raising: Finance is the life-blood of any business. It is the function of the entrepreneur to arrange the
sources of funds for the business. There are two sources to raise funds, that is, internal and external sources.
Entrepreneur must be aware of formalities and guidelines to be followed for raising funds. Governmental assistance
can be provided in form of seed capital, fixed capital and working capital. There are several government schemes
also which are provided to the entrepreneurs such as Swarnajayanti Gram Swarozgar Yojana (SGSY), Prime
Minister’s Rozgar Yojana (PMRY), Rural Employment Generation Programme (REGP), etc. There are also various
financial assistances provided by banks and financial institutions.
4) Procurement of Raw Materials: The acquisition of quality raw materials is also one of the functions of the
entrepreneur. Entrepreneur must recognise and allocate economical and constant supply of raw materials. This
helps the business to reduce their production cost and increase their profit-margins against competitors.
5) Procurement of Machinery: Another function of entrepreneurs is to obtain the machinery and equipment
required for the production of goods and services. Before the procurement of machineries, entrepreneur must
consider following specifications:
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i) Technology description,
ii) Installed capacity of the machines,
iii) Description of manufacturers and suppliers,
iv) Origin of machines, whether indigenously made or foreign made,
v) After-sales service facilities, and
vi) Warranty period.
6) Market Research: Market research refers to process of gathering relevant information about products,
customers and target markets. Intensive research is to be made to ascertain the demand of the product which
the entrepreneur intends to manufacture, the estimated rate of consumption and also the existing suppliers if any.
If an entrepreneur has to manufacture a product, he must have a detailed market analysis of the product. The
information about a product must include demand and supply of a product, price, size of the target market, etc.
7) Determination of Ownership: There are mainly four forms of ownership, i.e., sole proprietorship, partnership,
joint stock company, and cooperative society. It is the role of an entrepreneur to find out the suitable form of
business depending upon the product (characteristics, types, quality), size of capital investment, types of operations,
human resources quality, etc. The legal title of assets is obtained on the basis of ownership by the entrepreneurs.
8) Recruitment of Manpower: An entrepreneur is also responsible for the manpower planning of the organisation.
During the recruitment procedure, an entrepreneur has to function the following activities:
i) Manpower forecasting.
ii) Outlining of selection process.
iii) Formulating scheme of compensation.
iv) Defining the rules of training and development.
9) Project Implementation: Entrepreneur has to prepare a detailed plan for execution of the project. It is a time
bound process. It is the function of the entrepreneur to execute the process from conception to commissioning
stage based on prepared agenda so as to evade extra cost, time and competition.
TYPES OF ENTREPRENEUR
According to the economic development of the country entrepreneurs are classified. The more developed
the country is the more innovative, enthusiastic, realistic, and dynamic an entrepreneur should be.They are
classified as:
1. Innovative Entrepreneur : An innovative entrepreneur is one who introduces new goods, inaugurates new
methods of production, discovers new market and reorganizes the enterprise. It is important to note that such
entrepreneurs can work only when a certain level of development is already achieved, and people look forward to
change and improvement.
2. Imitative Entrepreneurs : These are characterized by readiness to adopt successful innovations inaugurated
by innovating entrepreneurs. Imitative entrepreneurs do not innovate the changes themselves, they only imitate
techniques and technology innovated by others. Such types of entrepreneurs are particularly suitable for the
under-developed regions for bringing a mushroom drive of imitation of new combinations of factors of production
already available in developed regions.
3. Fabian Entrepreneurs : Fabian entrepreneurs are characterized by very great caution and skepticism in
experimenting any change in their enterprises. They imitate only when it becomes perfectly clear that failures to
do so would result in a loss of the relative position in the enterprise.
4. Drone Entrepreneurs : These are characterized by a refusal to adopt opportunities to make changes in production
formulae even at the cost of severely reduced returns relative to other like producers. Such entrepreneurs may even
suffer from losses but they are not ready to make changes in their existing production methods.
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5. Solo Operators : These are the entrepreneurs who essentially work alone and, if needed at all, employ a few
employees. In the beginning, most of the entrepreneurs start their enterprises like them.
6. Active partners : Active partners are those entrepreneurs who start/carry on an enterprise as a joint venture.
It is important that all of them actively participate in the operations of the business. Entrepreneurs who only
contribute funds to the enterprise but do not actively participate in business activity are called sleeping partners.
7. Inventors : Such entrepreneurs with their competence and inventiveness invent new products. Their basic
interest lies in research and innovative activities.
8. Challengers : These are the entrepreneurs who plunge into industry because of the challenges it presents.
When one challenge seems to be met, they begin to look for new challenge.
9. Buyers : These are those entrepreneurs who do not like to bear much risk. Hence, in order to reduce risk
involved in setting up a new enterprise, they like to buy the ongoing one.
10. Lifetimers : These entrepreneurs take business as an integral part to their life. Usually, the family enterprise
and businesses which mainly depend on exercise of personal skill fall in this type/category of entrepreneurs.
INTRAPRENEUR
A new breed of entrepreneurs is coming in large industrial organisations. They are called ‘Intrapreneur’. They
emerge from within the confines of an existing enterprise. In big organisations the top executives are encouraged
to catch hold of new ideas and then convert these into products through research and development activities
within the framework of organisation. The concept of intrapreneurship has become very popular in developed
countries like America. It is found that an increasing number of intrapreneurs is leaving their jobs in big organisations
and is starting own enterprises. Many of such intrapreneurs have become exceedingly successful in their ventures.
What is more that they are causing a threat to the organisations they are in. Such intrapreneurs breed to the
innovative entrepreneurs who inaugurate new products.
DISTINCTION BETWEEN AN ENTREPRENEUR AND AN INTRAPRENEUR
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GROWTH OF ENTREPRENEURSHIP IN INDIA
The entrepreneurial class in India has evolved through various phases. It can be traced down to the
Harappan culture of the Pre-Vedic era. The various phases of growth of entrepreneurial class and entrepreneurship
are described below:
I) Period I: Entrepreneurship in Ancient Period: If one looks at the ancient literature, it can be found that
ancient Indians were also involved in various commercial activities which are very much similar to the current
industrial and entrepreneurial activities.
The period when Aryan conquerors settled down in India by defeating non-Aryans can be seen as the initial phase
of the emergence of entrepreneurship. The products of village communities were appropriated by the Aryans and
therefore only a limited amount was left for the native people or villagers. This initiated the main conflict of ancient
Indian society. The issue of developing new crafts was now faced by Aryans. They also took to the division of
labour for new handicrafts, cattle breeding and land cultivation During the conquest of Aryans, such occupations
were not present. They resulted from the entrepreneurial activities.
2) Period II: Entrepreneuhjp in Pre-Independence Era before 1850 A.D. : Before independence, the main
activity of Indians was agriculture. Apart from this, the rural entrepreneurial sector was dominated by a category
of businessmen who were experts in trades like stone carving, metalworks, handicrafts, jewellery designing, etc.
This category of businessmen belonged to communities like Banjas (Hindu and Jam), Gujaratis, Chheriars,
Parsis, etc.
The foundation of entrepreneurship was actually laid by these communities of people since were involved
in trade and commerce activities in the beginning and established a number of manufacturing units later on. For
ease of transportation, most of these units were set up either near ports or river banks.
At that time, the different industries which were present are described below:
1) Cottage Industries: Cottage industries mostly involve jewellery designing, hornworks, ironworks, stone carvings,
production of woodcraft items and so on.
ii) Village Industries: Village industries were established in clusters. These mostly involve bell and brass metal
works, manufacturing of textile and handloom and so on.
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British colonialism adversely influenced the Indian handicrafts which were regarded as world’s finest. It
was after 1840 that the manufacturing entrepreneurship in India started developing.
Industrial entrepreneurship using factory system commenced in India with the introduction of railways in
1840. The first textile mill was opened in 1854 in India. Prior to this, a Nagar Brahmin by the name of R. Chotulal
thought of manufacturing textile through modern factory system in 1847.
A biased economic policy was adopted from the start by the British IOwards Indian entrepreneurs Due to
this, the industrial entrepreneurship in India got seriously affected.
3) Period III: Entrepreneurship During 1850-1947:
The path for the speedy industnalisation was paved in the mid-nineteenth century. When the railway was
introduced in India in 1853, the chances of industrialisation boosted quite substantially. India’s natural resources
were now being utilised by the l3ntishers for their own benefit and at the same time, they were involved in developing
infrastructural facilities like the railways, roadways, ports, etc. Over a period of time, a very conducive environment
for investment in both manufacturing and trading was developed due to the collaborative efforts of British and the
Indian mercantile class.
In fact, entrepreneurship in India from 1850-1947 can be seen as per the below scenarios:
i) Entrepreneurship in the east region of India, and
ii) Entrepreneurship in the west region of India.
In eastern India, Europeans were mainly involved in entrepreneurship and were mostly dealing in the
export of coal, tea, textile, jute, etc. But in Western India, Indians were mainly handling the activities of
entrepreneurship. This was the result of comparatively extended political independence and the benefits which
were enjoyed by the West Indian communities. There was no direct imposition of British exploitation.
There was no elimination of Indian merchants from finance and trade once the commercial and political
activities were initiated by East India Company.
I) Emergence of Parsis as Entrepreneurs: The arrival of British colonial rule preceded by the East India Company
is considered as the cause of the rise of manufacturing entrepreneurship in India by some social researchers. As
a result, a fresh impetus was provided to the business community by way of different changes in the economy
and fostering the imports of fmished products and the export of raw materials. In fact, the East India Company
had a huge influence on the Parsis. The relationship between the East India Company and Parsis strengthened
during this era.
ii) Swadeshi Movement and Birth of Indigenous Entrepreneurship: Swadeshi concept was taken up by
Indian leaders in 1905 as a means to boycott the discriminatory policY of British Government. This movement
was quite fruitful which motivated the people of India to engage in entrepreneurship. Consequently, the first iron
and steel industry was set up by Jamshedji Tata.
iii) Managing Agency System: After the period of war, some industrial activities were stimulated as a result of the
protection policies of the Government. The introduction of managing agency system can be seen as the notable
feature of this period. However, still a number of problems were being faced by the Indian entrepreneurs despite
their increasing number and success in steel and cotton textiles. Hence, there was a fast pace of development in
local entrepreneurship alongwith the rise of entrepreneur classes like Gujaratis, Parsis and Marwaris in India just
before its independence.
4) Period IV: Entrepreneurship in 1947 and Onwards — Post- Independence Period: After India’s
independence, a need for high- speed industrialisation was identified by the Government of India. In the opinion
of R.N. Tripathi and V.R. Gaikward, the growth of entrepreneurship is greatly affected by the socio-economjc
background of individuals. Thomash Timberg identified the development of entrepreneurship with reference to
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Marwaris, who was the top business community of India at that time. During this period, the Marwaris grew from
small merchants and shopkeepers to big industrialists and investors.
A mixed economic system involving both the private and public sector enterprises was adopted by India.
In fact, after India’s independence, the Government itself took the initiative to establish entrepreneurial ventures by
setting up new industries and enterprises.
There was a new dimension offered to Indian entrepreneurship which was initiated after the introduction of
Industrial Policy Resolution of 1956 in which the main focus was on the high speed industrial jsatjon which would
boost the socio-economjc environment of India. Entrepreneurship was also adopted by the new communities
The main reasons behind this were infrastructural development, import substitution, ‘export promotion,
foreign collaboration, technical and vocational knowledge alongwith the Indian Government’s favourable policies.
Some of the significant policy initiatives include the subsidies, incentives and various other inputs provided at
subsidised rates for encouraging the small scale enterprises.
ROLE OF ENTREPRENEURSHIP IN ECONOMIC DEVELOPMENT
Entrepreneurship helps the economic growth and development in following ways :
Relationship of Entrepreneurship with

Economic Development
Balanced Regional Development

Increase in National Income
Bringing Change in Structure of

Business and Society New Products, New Services, and
Nes Business
Knowledge and Social Need Filling

Dispersal of Economic Power
Better Standards of Living

Creating Innovation
Production Evolution Process

Enhancing Welfare Amenities
1. Balanced Regional Development : The growth of industry and business leads to a lot of public benefits like
transport facilities, health, education, entertainment, etc. When the industries are concentrated in selected cities,
development gets limited to these cities. A rapid development, when the new entrepreneur grow at a faster rate, in
view of increasing competition in and around cities, they are forced to set-up their enterprises in the smaller towns
away from big cities. This helps in the development of backward regions.
2. Increase in National Income : National income consists of the goods and services produced in the country
and imported. The goods and services produced are for consumption within the country as well as to meet the
demand of exports. The domestic demand increases with increase in population and increase in standard of
living. The export demand also increases to meet the needs of growing imports due to various reasons. An
increasing number of entrepreneurs are required to meet this increasing demand for goods and services. Thus,
entrepreneurship increases the national income.
3. Bringing Change in Structure of Business and Society : New enterprise and new products change the way
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we do the business. The entrepreneurial activity gives a new direction to the business and the way it is done. The
classic example is that of India taking-up in a big way Information Technology (IT), Information Technology-Enabled
Services (ITES), Bio-Technology (BT), and Research and Development (R & D) Services. Such avenues or
services were not available 25 years ago. The new opportunities have been chosen by Indian entrepreneurs and
thus bringing changes in the structure of Indian business, economy, and the way the society looks at them.
4. New Products, New Services, and New Business : An entrepreneur brings new ideas for business, produc-
tion techniques, and services for horizontal, i.e., varieties and vertical, i.e., increase in volume and money growth
of business.
5. Knowledge and Social Need Filling : An entrepreneur does the job of iterative synthesis, i.e., the combined
role of social needs and product development process.
6. Dispersal of Economic Power : Industrial development normally may lead to concentration of economic
powers in a few hands. This concentration of power in a few hands has its own evils in the form of monopolies.
Developing a large number of entrepreneur helps in dispersing the economic power amongst the population.
Thus, it helps in weakening the harmful effects of monopoly.
7. Better Standards of Living : Entrepreneur plays a vital role in achieving a higher rate of economic growth.
Entrepreneur is able to produce goods at lower cost and supply quality goods at lower price to the community
according to their requirements. When the price of the commodities decreases the consumers get the power to
buy more goods for their satisfaction. In this way, they can increase the standard of living of the people.
8. Creating Innovation : An entrepreneur is a person who always looks for changes. Apart from combining the
factors of production, they also introduce new ideas and new combination of factors. They always try to introduce
newer and newer technique of production of goods and services. An entrepreneur brings economic development
through innovation.
9. Production Evolution Process : Entrepreneur understands and takes-up product evolution process. This is a
process where innovation develops and an entrepreneur commercialises th new products. Here an entrepreneur
combines different technologies and fuses them into products and services which turn into marketable items.
10. Enhancing Welfare Amenities : Innovative new enterprises serve society by providing healthcare facilities,
comforts, insurance, etc. Entrepreneurs by their own experience try to create products and services that can help
others. It is general perception that when individuals experience personal problems or tragedy, they may discover
a need for product or service that is not being met. These situations force the individuals to become innovative in
removing their suffering and at a later stage, this initiates ground for entrepreneurship.
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UNIT - II
ENTREPRENEURIAL GROWTH
INTRODUCTION :
The emergence and development of entrepreneurship is not a spontaneous one but a dependent
phenomenon of economic, social, political, psychological factors often nomenclatured as supporting conditions
to entrepreneurship development. These conditions may have both positive and negative influences on the
emergence of entrepreneurship. Positive influences constitute facilitative and conducive conditions for the
emergence of entrepreneurship, whereas negative influences create inhibiting milieu to the emergence of
entrepreneurship.
FACTORS AFFECTING GROWTH OF ENTREPRENEURSHIP :

The various factors affecting the entrepreneurial growth are as follows :
Factors Affecting Growth of

Entrepreneurship
Economic Factors Non-Economic Factors Government Action
Availability of Economic Social Factors

Resources Cultural Factors
Economic Conditions Personality Factors
Economic Policies Psychological and
Labour Policies Sociological Factors
Trade Policy Technological Factors
Tariff Policy Educational Factors
Incentives Motivation
Subsidies
I] Economic Factors : It is of multi-dimensional nature. It includes all those actions which make the economic
activities possible in the country.
1. Availability of Economic Resources : Availability of adequate quantity of natural and physical resources en-
courages entrepreneurs to undertake more entrepreneurial activities. It helped the entrepreneurs to earn more
profit and retain the profit for further expansion program.
2. Economic Conditions : Economic conditions govern the enterprise ability to remain viable. Inflation, interest
rates, unemployment, per capita income, consumer purchasing power, and exchange rates are some of the
important factors which provide sufficient symptoms about the conditions prevailing in the economy as a whole.
3. Economic Policies : Economic policies determine the direction and volume of the business. For example, in
socialist economies decisions with regard to what to produce, how to produce, for whom to produce, and how
much to produce are to be taken by the government or central planning system like Indian Planning Commission.
4. Labour Policies : Labour is an important and active factor for production or service process. Volume of produc-
tion and costs are governed by the productivity of labour to a large extent. If entrepreneurs think that labour policy
is favourable then they will be motivated to undertake entrepreneurial activity.
5. Trade Policy : The major objectives of trade policy are to ensure sufficient supply of goods and services in the
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country and controlling the adverse balance of payments. Entrepreneurs are motivated to install new plant or
initiate action for expansion, if trade policy formulated by the government, is going to increase the supply as per the
demand available in the market.
6. Tariff Policy : Effective tariff policy provides a base for entrepreneurs to undertake more entrepreneurial activi-
ties. High tariff rates affect demand level as well as margin available to the entrepreneurs.
7. Incentives : Incentives are necessary to encourage entrepreneurial activities in the country. It ensures a high
margin at low risk. Interest free loan, exemption from wealth tax, rebate to NRI’s, rebate to women entrepreneurs,
ta holiday.
8. Subsidies : Under this scheme, government creates favourable environment by participating in terms of eco-
nomic assistance in economic activities already undertaken by the entrepreneurs.
II] Non-Economic Factors : Non-economic factors include social factors, technological factors and so on. Psy-
chological and sociological factors view that the influence of economic factors on entrepreneurial emergence
largely depends upon the existenceof non-economic factors which are are as follows :
1. Social Factors : Social factors play a vital role in encouraging Entrepreneurship. A society, which is rational, in
decision-making would be favourable to entrepreneurial growth. In rational society, decisions regarding the uses of
resources and the process of production would be taken based on critical assessment of facts and on scientific
standards.
2. Cultural Factors : Entrepreneurial levels are highly influenced by culture. Religion is also highly influential, with
Protestant countries being more prone to entrepreneurial growth than other nations. This is due to the Protestant
“work ethic,” which emphasises the value of working.
Entrepreneurship would be appreciated and praised in a country with economically or monetarily oriented
culture and accumulation of wealth would be treated as a way of life.
3. Personality Factors : In the less developed / developing countries entrepreneur is viewed as an exploiter. This
greatly affects the personality of the entrepreneur. It is difficult for an entrepreneur to work in a planned economy, as
he has to adjust his attitudes and activities within the socio-economic framework set by the state.
4. Psychological and Sociological Factors : Psychological and sociological factors are not easily distinguish-
able and can be analysed together. Many entrepreneurial theorists have put forward theories of entrepreneurship
that specially concentrate psychological factors.
5. Technological Factors : Countries with high levels of technological growth also tend to have high levels of
entrepreneurial growth. This is because new technology offers people the opportunity to exploit these opportuni-
ties for commercial benefit.
6. Educational Factors : These are high levels of entrepreneurship in highly educated societies, as well as under-
educated countries. The distinct difference is the level of growth and success that entrepreneurs experience.
7. Motivation : Motivation is the act of stimulating someone or oneself to get a desired course of action, to push
the right button to get the desired results.
GOVERNMENT ACTIONS :
Government Actions in Entrepreneurship Development
The Central and State government play following roles for the entrepreneurship development:
1) Training: Basic training differs from product to product but will necessary involve sharpening of entrepreneurial
skills. Need-based technical training is provided by the government and state government technical institutions.
There are a number of government organisations as well as NGOs who conduct EDPs and MDPs. These EDPs
and MDPs are conducted by MSME’s, NIESBUD, NSIC, lIE, NISIET, entrepreneurship development institutes and
other state government developmental agencies.
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2) Marketing Assistance: There are governmental and nongovernmental specialised agencies which provide
marketing assistance. Besides promotion of MSME products through exhibitions, NSIC directly market the MSME
produce in the domestic and overseas market. NSIC also manages a single point registration scheme for
manufacturers for government purchase. Units registered under this scheme get the benefits of free tender documents
and exemption from earnest money deposit and performance guarantee.
3) Promotional Schemes: Government accords the highest preference development of MSME by framing and
implementing suitable policies and promotional schemes. Besides providing developed land and sheds to the
entrepreneurs on actual cost basis with appropriate infrastructure, special schemes have been designed for
specific purposes like quality upgradation, common facilities, entrepreneurship development, and consultancy
services at nominal charges.
Government of India has been executing the incentive scheme for Providing reimbursement of charges
for acquiring ISO 9000 Certification to the extent of 75% of the cost subject to a maximum of 75,00o in each case.
ISO 9000 is a mechanism to facilitate adopt0 of consistent management practises and production technique as
decided by the entrepreneur himself. This facilitates achievement of desired level of quality while keeping check
on Production process and management of the enterprise.
4) Concession on Excise Duty: MSME units with a turnover of I crore or less per year has been exempted from
payment of excise duty. Moreover there is a general scheme of excise exemption for MSME ght-out by the
Ministry of Finance which covers most of the items. Under this, units having turnover of less than 3 crore are
eligible for concessional rate of excise duty. Moreover, there is an exemption from excise duty for MSME units
producing branded goods in rural areas.
5) Credit Facility to MSME: Credit to micro-, small- and medium- scale sector has been covered under priority
sector lending by banks. Small Industries Development Bank of India (SIDB1) has been established as the apex
institution for financing the MSME. Specific schemes have been designed for implementation through SIDBI. SFCs,
scheduled banks, SIDCs, and NSIC, etc. Loans upto 5 lac are made available by the banks without insisting on
collaterals. Further Credit Guarantee Fund for micro-, small-, and medium-enterprises has been set-up to provide
guarantee for loans to MSME upto 25lac extended by commercial banks and some regional rural bank.
MEANING OF ENTREPRENEURIAL COMPETENCY OF TRAIT :

In simple terms, a competence is an underlying characteristic of a person which leads to his / her effective
or superior performance in a job. A job competence is a good combination of one’s knowledge, skill, motive, etc.
which one uses to perform a given job well. It is important to mention that the existence of these underlying
characteristics may or may not be known to the person concern. This implies that the underlying characteristics
may be unconscious aspects of the person. The underlying characteristics possessed by entrepreneurs which
result in superior performance are called the entrepreneurial competencies or traits.
In order to have greater insight about entrepreneurial competencies, let us first understand its components,
i.e, knowledge, skill and motive. These are explained one by one.
KNOWLEDGE :
In simple terms, knowledge means collection and retention of information in one’s mind. Knowledge is
necessary for performing a task not sufficient. Let us explain this with an example. A person having the knowledge
of cricket could be in a position to describe how to play. But, mere description will not enable the listener to play
cricket unless something more than knowledge is there. We see in real life that people possessing mere knowledge
have miserably failed while actually performing the task.
What implies is that one also needs to have skills to translate the knowledge into action / practice.
SKILL :
Skill is the ability to demonstrate a system and sequence of behaviour which results in something observable
that one can see. A person with planning ability, i.e, skill can properly identify the sequence of action to be performed
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to win the cricket match. Remember, while knowledge of playing cricket could be acquired by reading, talking or so
on, skill to actually play cricket could be acquired by reading, by practice i.e, playing on a number of occasions. This
means both knowledge and skill are required to perform a task.
MOTIVE :
In simple terms, motive is an urge to achieve one’s goal what McClelland terms ‘Achievement Motivation’.
This continuous concern of goal achievement directs a person to perform better and better. Coming back to the
same example of cricket playing, one’s urge to become the best player helps him constantly practice and to look
out for ways and means to improving his play.
Thus, in order to perform any task effectively and successfully including establishing and running an
industrial unit, a person entrepreneur needs to possess a set of knowledge, skill and motive which could be
together labeled as competencies or traits.
MAJOR ENTREPRENEURIAL COMPETENCIES :

However, there prevails a controversy on what it takes to be a successful entrepreneur. Earlier, people
used to believe that entrepreneurs are born not made. In other words, persons with business family background
could become successful entrepreneurs. Subsequently, the sharpened knowledge of entrepreneurial competencies
over the last four decades made people to believe that entrepreneurs are made not born. According to this view,
persons possessing proper knowledge and skill acquired through education and experience can become
successful entrepreneurs.
In view of above controversy in order to understand clearly what it takes to be a successful entrepreneur,
research institutions and behavioural scientists, through their research studies, have tried to resolve the controversy
on what makes a successful entrepreneur. Here, we are presenting the findings of the representative institutional
and individual research studies on entrepreneurial competencies.
ENTREPRENEURSHIP DEVELOPMENT INSTITUTE OF INDIA (EDI) STUDY

Entrepreneurship Development Institute of India (EDI), Ahmedabad conducted a research study to identify
what makes an entrepreneur successful. The study was conducted under the guidance of professor David C.
McClelland, a well known behavioural scientist in three countries India, Malawi and Equador. The outcome of the
study has been identification of a set of entrepreneurial competencies or characteristics that result in superior
performance. The major finding of the study was that the possession of competencies is necessary for superior
performance. This was cross culturally valid.
Following is a list of major competencies identified by the study that leads to superior performance of the
entrepreneurs:
1. Initiative: An entrepreneur is one who initiates a business activity.
2. Looking for Opportunities: He looks for an opportunity and takes appropriate actions as and when it arises.
3. Persistence: He follows the Japanese proverb Fall seven times, stand up at the eight. He makes repeated
efforts to overcome obstacles that get in the way of reaching goals.
4. Information Seeker: Takes individual research and consults experts to get information to help reach the goal.
5. Quality conscious: He has always a strong urge to excel in order to beat the existing standards.
6. Committed to Work: Does every sacrifice to get the task completed.
7. Efficiency Seeker: Makes always tenacious efforts to get the task completed.
8. Proper Planning: Formulates realistic and proper plans and then executes rigorously to accomplish the task.
9. Problem Solver: Always tries to find out ways and means to tide over the difficult times.
10. Self Confidence: A strong believer in his strengths & abilities.
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11. Assertive: Good in asserting his issues with others for the cause of his enterprise.
12. Persuasive: Able to successfully persuade others to do what he actually wants from them.
13. Efficient Monitor: Personally supervises the work so that it is done as per the standards laid down
14. Employees Well Wisher: Has great concern and also takes necessary measures to improve the welfare of
the employees working in his enterprise. Treats employees as a factor of production having emotions and feelings.
DEVELOPING COMPETENCIES :
As mentioned earlier, competency results in superior performance. This is exhibited by one’s distinct
behaviour in different situations. The popular Kakinada experiment has proved beyond doubt that the entrepreneurial
competency can be injected in human minds through education and training. Competency finds expression in
human behaviour. How to develop and sharpen the entrepreneurial competency is suggested in the following
method or procedure.
The procedure involves four steps. These are:
1. Competency Recognition
2. Self-Assessment
3. Competency Application
4. Feed back
These are discussed one by one.
1. COMPETENCY RECOGNITION : Acquisition of a new behaviour begins with understanding and recognition
of what a particular behaviour means. In other words, the first step involved in developing a particular competence
is first to understand and recognize a particular competence.
2. SELF ASSESSMENT : Once the particular competence is understood and recognized, the next step towards
acquiring a particular behaviour / competence is to see whether one possesses the particular competence or
not. If yes, then to see how frequently one exhibits the same in his practical life.
Where one stands with respect to a particular competence or what is the level of one’s competence can
be ascertained by posing and answering relevant questions to a competence. Such questions, for example, are
given in questionnaire.
3. COMPETENCY APPLICATION : Having known where one stands with respect to a particular competency, one
needs to practice the same on continuous basis in various activities. In order to make a new behaviour a part of
one’s personality, the particular behaviour / competence needs to be applied frequently even in the simplest activities
that one performs in one’s day-to-day life. This is because “practice makes a man perfect”.
4. FEEDBACK : After understanding, internalizing and practicing a particular behaviour or competence, one
needs to make and introspection of the same in order to sharpen and strengthen one’s competency. This is
called feedback. In simple terms, feedback means to know the strengths and weaknesses of one’s new behaviour.
This helps one know how the new behaviour has been rewarding. This enables one to sustain or give up the
exhibition of a particular behaviour or competence in his future life.
ENTREPRENEURSHIP DEVELOPMENT PROGRAMMES (EDPs)
DEFINITION :
EDP may be defined as “a programme designed to help an individual in strengthening his entrepreneurial
motive and in acquiring skills and capabilities necessary for playing his entrepreneurial role effectively . It is
necessary to promote this understanding of motives and their impact on entrepreneurial values and behaviour for
this purpose.
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EDP has been also recognized as an effective HRD tool. An EDP is a training-cum-counseling programme.
It takes care of all the constraints and therefore it is proved to be one of the most effective tools for developing new
entrepreneurs. In a global business a layman can’t become an effective entrepreneur and run a business. He
must be with a specific vision and mission.
Following are critical constraints which prevent potential entrepreneur whether men or women from
becoming actual entrepreneurs.
1. Lack of confidence and motivation
2. Lack of knowledge about business opportunities
3. Lack of information regarding how to formulate a business plan including marketing survey.
4. Lack of information about procedure and sources of various types of assistance including finance,
5. Lack of knowledge about how to manage one’s own enterprise successfully.
NEED OF ED : In our country the need of ED arises due to the following reasons:
1. To identify, select and train potential entrepreneurs as per their requirements.
2. To develop necessary knowledge, and skills among the participants
3. To impart basic managerial understanding.
4. To provide post-training assistance
5. To gear and speed up the process of activating the factors of production.
7. To lead a higher rate of economic growth and development.
8. Scattering of economic activities in all the areas of the country.
9. To develop the backward and tribal areas.
10. To create more /additional employment opportunities for youth.
11. To ameliorate the living standard of weaker-section of the society.
12. To participate and involve all the sections of the society in the process of growth.
13. To utilize and explore the abundant natural resources of our country.
THE OBJECTIVES OF AN EDP MAY BE DIVIDED INTO TWO CATEGORIES :

A) Short-term objectives
B) Long-term objectives.
SHORT-TERM OBJECTIVES : Short-term objectives includes the objectives which are achieved immediately
after the completion of the programmer. Preparing a personality for the entrepreneurial venture, making him
competent to scan the environment and situation within the existing regulatory framework are some of the short-
term objectives.
LONG-TERM OBJECTIVES :
1. To enlarge the supply of entrepreneurs for rapid industrial development.
2. To develop small and medium enterprises sector which is necessary for generation of employment
3. To industrialize rural and backward regions
4. To provide gainful self-employment to educated young men and women
5. To diversify the sources of entrepreneurship, and
6. To improve performance of small scale industries by developing managerial skills among small entrepreneurs.
COURSE CONTENTS AND CURRICULUM OF EDPs : The course contents of an EDPs are selected in line
with the objectives of the EDPs. The training programme is usually of six weeks duration. It consists of the
following six inputs :
1. General Introduction to Entrepreneurship :- First of all, the participants are exposed to a general knowl-
edge of entrepreneurship such as factors affecting small-scale industries, the role of entrepreneurs in economic
development, entrepreneurial behaviour and the facilities available for establishing small-scale enterprises.
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2. Motivation Training :- The training inputs under this aim at inducing and increasing the need for achievement
among the participants. This is, in fact, a crucial input of entrepreneurship training. Effects are made to inject
confidence and positive attitude and behaviour among the participants towards business. It ultimately tries to
make the participants start their own business enterprise after the completion of the training programme. In order
to further motivate the participants, sometimes successful entrepreneurs are also invited to speak about their
experience in setting up and running a business.
3. Management Skills :- Running a business, whether large or small, requires the managerial skill. Since a
small entrepreneur cannot employ management experts to manage his/her business, he/she needs to be imparted
basic and essential managerial skills in the functional areas like finance, production and marketing. Knowledge of
managerial skills enables an entrepreneur to run his/her enterprise smoothly and successfully.
4. Support system and Procedure :- The participants also need to be exposed to the support available from
diferent institutions and agencies for setting up and running small-scale enterprises. This is followed by acquainting
them with procedure for approaching them, applying and obtaining support from them.
5. Fundamentals of Project Feasibility Study :- Under this input, the participants are provided guidelines on
the effective analysis of feasibility or viability of the particular project in view of marketing, organisation, technical,
financial and social aspects. Knowledge is also given how to prepare the ‘Project’ or ‘Feasibility Report’ for certain
products.
6. Plant Visits : In order to familiarise the participants with real life situations in small business, plant visits are
also arranged. Such trips help the participants know more about an entrepreneur’s behaviour, personality, thoughts
and aspirations. These influence him/her to behave accordingly to run his/her enterprise smoothly and successfully.
On the whole, the ultimate objective of entrepreneurship training programme is to make the trainees pre-
pared to start their own enterprise after the completion of the training programme. This is the measure of success
levels of the EDPs.
PHASES OF EDPs :
Phases of Entrepreneurial development programme consists of three stages: -
(1) Initial or Pre-training Stage.
(2) Training or Development stage.
(3) Post-training or Follow-up stage.
(1) INITIAL OR PRE-TRAINING STAGE : This stage includes the activities and the preparation required to
launch the training programme. Thus, it involves the identification and selection of potential entrepreneurs and
providing initial motivation to them.
The main activities are:
1. Creation of Infrastructure for training,
2. Preparation of training syllabus.
3. Tie up of guest faculties
4. Arrangement for inauguration of the programme.
5. Designing tools and techniques for selecting the trainees,
6. Formation of selection committee.
7. Publicity campaign for the programme
8. Development of Application form.
(2) TRAINING OR DEVELOPMENT STAGE : In this stage the training programme is implemented to develop
motivation and skills among the participants. The training of potential entrepreneurs covers special inputs such
as, behavioural inputs (achievement motivation) and business opportunity guidance, information and technical
inputs and managerial inputs. The trainers have to judge how much, and how far the trainees have moved in their
18
entrepreneurial pursuits. Most of the business inputs can be given through management/ professional consultants,
practitioners, business and industrial executives, experts of state industrial agencies, bankers, technical consultancy
institutions and small-scale entrepreneurs. Inhouse care teams can also be formed from the group of trainers or
experts where resource persons from industry and trade are not locally available. Field trips to selected industrial
units can also be arranged to expose trainees to actual operating conditions.
(3) POST-TRAINING OR FOLLOW-UP STAGE : This stage involves assessment to judge how far the objectives
of the programme have been achieved. Each group of entrepreneurs in an entrepreneurship programme can be
looked after by the entrepreneur trainer - motivator. This involves:-
1. follow-up on loan application for finance,
2. facilitating infrastructure such as land, factory shed, power, road, etc and finally,
3. trouble shooting.
FACTORS : Following are some of the factors, which facilitate the development of entrepreneurship.
1. Individuals - who initiate, establish, maintain, expand new enterprise.
2. Socio-political - economic conditions.
3. The availability of industrial technology and know-how,
4. State of art and culture of business and trading e.g., “Give a man orders, and he will do the task reasonably well.
But let him set his own targets, give him freedom and authority and his task will become a personal mission” -
This is the work culture of Ambuja Cement.
5. Existence of markets for products and services - creation and developing of new markets and demands.
6. Incentive and facilities available for starting new business and industry. Such incentive and facilities are provided
by Government and non-Government institution agencies, corporations, schemes, etc.
EVALUATION OF EDPs :
EDPs are most significant method which is used for the nation’s development. It is very essential to have
an analytical view of the number of candidates who have undergone the training sessions for start-up ventures.
Therefore, for this purpose evaluation of EDPs is done.
By evaluating the success in generating ‘need for achievement’ among the entrepreneurs, one can figure
out the effectiveness of EDPs. This is referred as ‘qualitative evaluation’ of EDPs. The following methods were
used by McClelland and Winter (1969) to estimate the potential of EDPs in inspiring the entrepreneurs:
1) Performance level of the respondents,
2) New ventures established,
3) Total amount of investments made,
4) Investments made in fixed assets.
5) Number of individuals employed,
6) Number of jobs opportunities,
7) Rise in profitability level,
8) Increase in sales,
9) Improvement in the quality of product/service, and
10) Faster reimbursement of loans.
Basis of Evaluation of EDPs

Various grounds on which the appraisal of EDPs can be performed are discussed below:
1) Programme Objectives: By analysing the main objectives or doctrine of programme, the appraisal of EDPs
can be done. The main objective behind the entrepreneurial development should be clear to the organisations.
These objectives can be employment generation. uplifting of specific people, improvement, in the production, etc.
When these objectives are well defined, it is quite easy to evaluate them.
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2) Selection Policies and Strategies: It is very difficult to impart training to every individual who wants to
become an entrepreneur. The candidates, who are having the potential to initiate and sustain these initiatives
successfully, should be given a chance to undergo the training programme. The selection of right candidate is
inevitable for the success of any EDP. Thus, it is very critical to assess the selection policy and strategy. The
selection of prospective candidates is done by Behavioural Science Centre (India), New Delhi on the basis of
positive self-concept, independence, initiative, time bound planning, ambition of success.
3) Training Module: The evaluation of EDPs can also be done through training programmes. This process
includes the inputs and improvements made by the curriculum and its module, faculty members who share their
practical experiences, the content of the training programmes and follow up. There are various aspects which are
considered while designing the curriculum such as nature
and duration of programme, schedule of the classes, syllabus of the programme and type of preparation. All
these aspects are essential in relation to both the students as well as teachers.
4) Organisational Structures and Policies: In most of the cases, EDPs are being conducted by various
organisations. The initiation, sponsorship and conduct of these programmes are mainly done by various local,
regional, national or international organisations. These organisations promote such EDPs. The objective of EDPs
cannot be achieved without the support of these organisations. Thus, appraisal of these EDPs can be analysed
by evaluating the efficiencies of these organisations with respect to funding, sponsoring and performance of
EDPs. The assessment also includes the evaluation of development needs and resources of agencies.
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UNIT - III
SMALL ENTERPRISES
DEFINITION : Small- scale industry comprises of a variety of undertakings. The definition of small-scale
industry (SSI) varies from one country to another and from one time to another in the same country depending
upon the pattern and stage of development, Government policy and administrative set up of the particular
country.
The Fiscal Commission, 1950, for the first time, defined a small- scale industry as one which is operated
mainly with hired labour usually 10 to 50 hands.
Small-Scale Industry
Modern Small Cottage Village Ancillary

Scale Industry Industry Industry Industry
TYPES OF SMALL-SCALE INDUSTRIES : Small-scale industries can be classified into five main types as
follows:
1. Manufacturing industries, industries producing complete articles for direct consumption and also processing
industries;
2. Feeder industries specializing in certain types of products and services, casting, electro-plating, welding, etc.
3. Serving industries covering light, repair, shops necessary to maintain mechanical equipment;
4. Ancillary to large industries, producing parts and components and rendering services; and
5. Mining or quarrying.
CHARACTERISTICS : “Small scale industry is beautiful” because of its following important characteristics:
1. A small scale unit is generally a one- man show. Even the small units which are run by a partnership firm or
company, the activities are mainly carried out by one of the partners or directors. In practice, the others are simply
as sleeping partners or directors who mainly assist in providing funds.
2. In case of small- scale industries, the owner himself/herself is a manager also. Thus, these units are managed
in a personalized fashion. The owner has first hand knowledge of what is actually going on in the business. He
takes effective participation in all matters of business decision taking.
3. Compared to large units, a small-scale industrial unit has a lesser gestation period, the period after which the
return on investment starts.
4. The scope of operation of small industrial undertakings is generally localized catering to the local and regional
demands.
5. Small units use indigenous resources and, therefore, can be located anywhere subject to the availability of
these resources like raw materials, labour etc.
6. Small industries are fairly labour intensive with comparatively smaller capital investment than the larger units.
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RELATIONSHIP BETWEEN SMALL AND LARGE UNITS :

1. Competitive : Small-scale industry cannot compete with large industry in certain circumstances and in selected
products. Examples of such industries are bricks and tiles, fresh baked goods and perishable edibles, preserved
fruits, foods requiring small engineering skill, items demanding craftsmanship and artistry.
2. Supplementary : Small industry can fill in the gaps between large scale production and standard outputs
caused by large scale units. This is due to this supplementary role of small units, a small tricycle factory sustained
and flourished alongside a large cycle factory in Chennai city. Under complementary relationship, small units
function under the tutelage of the large units and enjoy the advantage of protected market for their products.
Then, the flourishment of such small units remains beyond doubt.
3. Initiative : Attracted by the high profits of large units, small units can also take initiative to produce the particular
product. If succeeds, the small unit grows to large over a period of time. Staley quotes such initiation that many of
the automobile factories started this way in the United States of America. In our country too, the electronic industry
looks like following to this initiative pattern of development.
4. Servicing : Small industries do also install servicing and repairing shops for the products of large units. In the
case of India, such small servicing units can be seen proliferating in respect of large industries like refrigerators,
radio and television sets, watches and clocks, cycles and motor vehicles.
RATIONALE : The rationale of small-scale industries established can broadly be classified into four arguments.They
are:-
1) Employment : The increasing emphasis on SSIs in developing countries like India stems largely from the
widespread concern over unemployment hovering in the country. There are many research findings available
which well establish that small-scale units are more labour intensive than large units. In other words, small units
use more of labour per units of output than investment.
2) Equality Argument : One of the main arguments put forward in favour of small-scale industries is that they
ensure a more equitable distribution of national income and wealth. This is accomplished because of the two
major considerations:
(i) compared to the ownership of large scale units, the ownership pattern in S.S.I. is more widespread.
(ii) their more labour-intensive nature, on the one hand, and their decentralization and dispersal to rural and
backward areas, on the other, provide more employment opportunities to the unemployed. This results in more
equitable distribution of the produce of the small scale units.
3) Decentralisation Argument : Decentralisation of industrial enterprise will help tap local resources such as
raw materials, idle savings, local talents and ultimately improves the standard of living even in erstwhile backward
areas.
4) Latent Resources Argument : This argument suggests that small enterprises are capable of mopping up
latent and unutilized resources like hoarded wealth and ideal entrepreneurial ability. The emergence of
entrepreneurial class requires a conducive environment. The fact remains that small enterprises provide such
environment in which the latent talents of entrepreneurs find self expression. Our economic history bears this
evidence. The impressive growth in the number of small enterprises in the post-Independence period highlights
the same fact that providing the necessary conditions such as power and credit facilities, the latent resources of
entrepreneurship can be tapped by the growth of small enterprises the main objective of developing small enterprises
in India in a more orderly manner. They are:
1. To generate immediate and large scale employment opportunities with relatively low investment.
2. To eradicate unemployment problem from the country.
3. To bring backward areas too in the main stream of national development.
4. To ensure more equitable distribution of national income.
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5. To encourage effective mobilization of country’s untapped resources.

6. To promote balanced regional development in the whole country.
7. To improve the standerd of living of people in the country.
8. To encourage dispersal of industries to all over country covering small towns, villages and economically lagging
regions.
SCOPE : The scope for small-scale industries is quite vast covering a wide range of activities requiring less
sophisticated technology. The activities found successful in operating small scale are:
- Manufacturing activities - Servicing/ repairing activities
- Retailing activities - Financial activities
- Whole-sale business - Construction activities
Infrastructural activities like transportation, communication and other public utilities. In order to strengthen
the scope for small industry development in the country, the Government of India has, along with its other assistance
programmes, announced its reservation policy for small sector in the country.
The main objective of the reservation policy has been to insulate the small sector from unequal competition of
large industrial establishments, so that the sector can grow through expansion of existing units and the entry of new
firms. The important industries reserved for exclusive development in the small sector are:
Food and Allied Industries; Textile Products; Leather Products, including Footwears; Rubber Products;
Plastic Products; Chemical and Chemical Products; Natural Essential Oils.
Electrical Appliances; Electronic Equipments and Components; Clocks and watches, etc.
The noble intention of the reservation policy has been to insulate that small sector from unequal competition
of powerful large scale industrial units, so that the small sector can go through expansion of existing units, on the
one hand, and by the entry of new firms, on the other.
PROBLEMS OF SMALL-SCALE INDUSTRIES

1) Problems of raw Material - A major problem that the small-scale industries have to contend with is the
procurement of raw material. The problem of raw material has assumed the shape of an absolute scarcity, a poor
quality of raw materials, and a high cost. Earlier, the majority of small-scale units mostly produced items dependent
on local raw material.
Even the small units that depend on local resources for raw material requirements face the problem of other type. An
example of this type is handloom industry that depends for its requirement of cotton on local traders.
2) Problem of Finance - An important problem faced by small-scale industries in the country is that of finance.
The problem of finance in small-sector is mainly due to two reasons. Firstly, it is partly due to scarcity of capital in
the country as a whole. Secondly, it is partly due to weak creditworthiness of small units in the country. It is
necessary to further liberalise the rules and practices of banking in the country.
3) Problem of Marketing - One of the main problems faced by the small-scale units is in the field of marketing.
These small units often do not possess any marketing organisation. In consequence, their products compare
unfavourably with the quality of the products of the large-scale industries. Therefore, they suffer from comparative
disadvantages of large-scale units.
4) Problem of Under-Utilization of Capacity - The very integral to the problems of under-utilization of capacity
is power problem faced by small-scale industries. In short, there are two aspects to the problem:
One, power supply is not always available to the small units on the mere asking, and whenever it is available, it
rationed out, limited to a few hours in a day. Second, unlike large industries, the small-scale industries cannot afford to
go in for alternatives; like installing own thermal units, because these involve heavy costs.
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5) Other Problems - According to the Seventh Five Year Plan, these include technological obsolescence,
inadequate and irregular supply of raw materials, lack of organised market channels, imperfect knowledge of
market conditions, unorganized nature of operations, inadequate availability of credit facility, constraint of
infrastructure facilities including power etc. and deficient managerial and technical skills.
PROJECT IDENTIFICATION AND SELECTION (PIS)
DEFINITION OF PROJECT
• A Project is a one-shot, time limited, goal directed, major undertaking, requiring the commitment of varied
skills and resources. It has also been described as a combination of human and non human resources pooled
together in a temporary organization to achieve a specific purpose. The purpose and the set of activities which
can achieve that purpose distinguish one project form another.
- Project Management Institute, U.S.A
FEATURES OF A PROJECT
A project fixed set of objectives. Once the objectives have been achieved, the project ceases to exist.
It has a specific life span.
Project is a teamwork,
Project has a life cycle reflected by growth, maturity and decline similar.
Change is an intrinsic feature in any project affect its life.
Project is based on successive principle and hence it is difficult to learn fully the end results at any stage.
A project works for a specific set of goals with the complex set of diversified activities.
High level of sub-contraction of work can be done in a project.
Every project has risk and uncertainty associated with it.
Project needs feasibility any appraisal studies. So that the sponsors sweet dream becomes realizable.
PROJECT IDENTIFICATION
• Project identification refers to the process of finding out the most appropriate project from the several investment
opportunities. It is concerned with the collection, compilation and analysis of economic data for the purpose of
locating possible opportunities for investment.
• There are three kind of opportunities in every project.
• Additive opportunity : It enables an entrepreneur to utilise the existing resources without making any change.
Risk is less
• Complementary opportunity : It involve the introduction of new idea and result in a certain amount of change
in the existing business structure. Risk is greater
• Breakthrough opportunity : It involve a drastic and fundamental change in the existing business structure.
Risk is greatest.
A entrepreneur should keep in mind the above opportunities in choosing a suitable project.
PROCESS OF PROJECT IDENTIFICATION

A purposive recognition of a feasible product concept reasonably concentrating on art opportunity is related
with the identification process. Just like other ideas and new concepts, projects ideas also often take time to
instantly take any definite form.
Following are the four predominant stages into which project identification is divided:
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1) Conceptual Stage (Where Project Ideas are Generated): An organisation consists of various teams or
groups comprising of analytically and enterprisingly minded people, possessing sound knowledge and proficiency
to their domain. In this phase of project identification, several project ideas and concepts are developed through
interactions amongst the team members contributing towards new ideas. In this frame of reference, an individual
has to study the probabilities of development and the concerned matters, requirements and wishes of the people
in the related field.
For example, there are several factors to be taken into account while developing an Aerodrome project in the
proximity of developing city. They have to consider different problems that the residents of that city will encounter
because of the effect of traffic, noise pollution, eviction from that area to other underdeveloped area, etc.
2) Screening Stage (At Which Unviable Ideas are Eliminated): After the conceptual stage, the next stage is
screening stage. It is this level that the project ideas and concepts developed at the first level are checked and an
introductory practice is performed to eliminate the imperfect or unfeasible concepts. Hence, all the ideas generated
not clearing the screening or investigation test and only selected few getting shortlisted for further scrutiny is
comprehensible. The pre-feasibility studies elevation will take such shortlisted ideas and concepts into account.
Unimportant ideas, for instance, can be filtered with the assistance of cost-benefit analysis.
3) Identification Stage: The identification and the last stage of project identification process can be called as
investment opportunity study’. At this stage of the process, initial level scrutiny is conducted although on a
considerable level to review basic cogency of the project concept. This investigation also helps to consider the
different opportunities of the project. It has a finite intention of furnishing the designers with an option of project
possibilities from which they can make a choice. For example, an entrepreneur interested in setting up a business
in the field of decorations can opt for interior decoration as one of the options available as a feasible project.
4) Pre-Feasibility Stage: There are several crucial questions that prefeasibility study emphasises on answering
such as is it a right decision to go ahead with the suggested project concept? How much time is required to
perform the pre-feasibility study or the introductory examination with regards to the financial and other connected
economic facets of the project feasibility? What are the advantages and disadvantages of the suggested project
concept? All the departments of an organisation together strive towards collecting satisfactory answers to those
queries with a view to help prefeasibility studies.
The consultants hired by the organisation or the internal sources of the organisation begin a pre-feasibility
examination once they have acquired enough confidence and trust on the solutions furnished. In addition. a
thorough feasibility study can be performed to note a comprehensive project report on the fulfilment of pre-
feasibility report. For example. companies give their customers free services or free samples to examine the
feasibility of project concept.
PROJECT SELECTION :
INTRODUCTION :
Project selection starts from where project identification ends. After having some project ideas, these are
analysed in the light of existing economic conditions, the government policy and so on. A tool generally used for
this purpose is, what is called in the management jargon, SWOT analysis. The intending entrepreneur analyses
his/her strength and offered by each of the project ideas. On the basis of this analysis, the most suitable ideas out
of some projects is also described as the ‘zeroing in process’.
What follows from above analysis is that there is a time interval involved in between project identification
and project selection. But in some cases, there may be almost no time gap between the two.
Project identification and selection is half down in the process of establishing an enterprise. The
entrepreneur needs to analyse other related aspects also like raw material potential market, labour, capital,
location, forms of ownership etc. It is necessary to mention that each of these aspects has to be evaluated
independently and in relation to each other. This forms a continuous and ‘back and forth’ process.
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What is Project Selection?

• Project Selection is a process to assess each project idea and select the project with the highest priority.
Projects are still just suggestions at this stage, so the selection is often made based on only brief descriptions of
the project. As some projects will only be ideas, one may need to write a brief description of each project before
conducting the selection process.
• Selection of projects is based on:
Benefits: A measure of the positive outcomes of the project. These are often described as “the reasons why
you are undertaking the project”. The types of benefits of eradication projects include:
 Biodiversity
 Economic
 Social and cultural
 Fulfilling commitments made as part of national, regional or international plans and agreements.
Feasibility: A measure of the likelihood of the project being a success, i.e. achieving its objectives. Projects
vary greatly in complexity and risk. By considering feasibility when selecting projects it means the easiest projects
with the greatest benefits are given priority
When to Do?
• Undertake a Project Selection when one has more ideas than the number of projects one can undertake and
need to select the project that should be given priority.
• Note: If one only has 1 project in hands, it may still be useful to score the project against a set of criteria to
identify the strengths and weaknesses of the project. The results may be useful later in the Feasibility Study
Stage.
Who Should Be Involved?

• Agency Management:
 Set selection criteria to ensure the selection process aligns with agency strategies.
 Selection processes are often run as a management initiative before the implementing Project Manager (PM)
is assigned.
• Stakeholders:
 Stakeholder participation at the start of a project creates strong community ownership and support, and increases
the chances of a successful outcome.
 Stakeholder input should be included at the ideas stage; one should consult widely as one is developing the
ideas for projects as the community will be the source of many of the best project ideas.
 Stakeholders must be informed of the outcome of the Project Selection Stage.
• PM:
 Involving the PM in the Project Selection process will help build ownership in the project and support a successful
project in the long run.
A Diagram Overview
• Each project idea is scored against the selection criteria and a total project score is calculated. By ranking the
ideas in order of the highest score one is able to see which idea has the highest priority. This procedure gives one
the ability to take a number of possible projects and identify which project is most important to first move to the
Feasibility Study Stage. This Stage is not required if one only has one project idea. A diagram overview follows
below:
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• Criteria for project selection

• 1. Compatibility with the Promoter : The idea must be compatible with the interest, personality, and
resources of the entrepreneur. a real opportunity has three characteristics: i) It fits the personality of the entrepreneur
(abilities, training etc)
• ii) It is accessible to him
• iii) It offers him the rapid growth and high returns
• 2. Consistency with Governmental Priorities:
• i) Is the project consistent with national goals and priorities?
• ii) Are there any environmental effect contrary to governmental regulation?
• iii) Can the foreign requirements of the project be easily accommodated?
• iv) Will there be any difficulty in obtaining the licenses for the project?
• 3. Availability of Inputs:
• i) Are the capital requirements of the project within manageable limits?
• ii) Can the technical know-how required for the project can be obtained?
• iii) Are the raw materials required for the project available domestically at reasonable cost?
• iv) Is the power supply for the project reasonably obtainable from external sources?
• 4. Adequacy of the market
• i) Total present domestic market
• ii) Competitors and their market shares
• iii) Export market
• iv) Quality-price profile of the product vis-à-vis competitive product
• v) Sales and distribution system
• vi) Projected increase in consumption
• vii) Patent protection
• 5. Acceptability of Risk Level
• i) Vulnerability to business cycles
• ii) Technological Changes
• iii) Competition from substitutes
• iv) Competition from Imports
• v) Governmental control over price
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• 6. Socio-Demographic Sector
• i) Population trends
• ii) Income distribution
• iii) Educational Framework
• iv) Attitudes toward consumption and investment
PROJECT FORMULATION
• Project formulation is an investigating process, which involve pre- investment decisions. Its purpose is to
present relevant facts before the decision makes to enable acceptor reject the project. Project formulation and pre-
investment report (PIR) is the basis on which the investment decision is taken. Therefore, the project idea is
examined from the viewpoint of overall objectives, financial viability, technical feasibility and social impact.
On the other hand, detailed project report preparation is a post-investment decision. It involves
detailed specifications and design, engineering drawings, site investigation, foundations design and process
design as well as time schedules for project implementation. Detailed project report (DPR) serves
as the work plan for the implementation of a project whereas project formulation and pre-
investment report (PIR) is the basis on which the investment decision is taken. Thus, project formulation always
precedes detailed project report
MEANING OF PROJECT REPORT :

Project report or business plan is a written statement of what an entrepreneur proposes to take up. It is a
kind of guide force or course of action what the entrepreneur hopes to achieve. A project report can best be
defined as a well evolved course of action devised to achieve the specified objective within a specified period of
time.
SIGNIFICANCE OF PROJECT REPORT :

The project report serves the two essential functions. First and most important, the project report is like a
road map. It describes the direction the enterprise is going in, what its goals are, where it wants to be, and how it
is going to get here. It also enables an entrepreneur to know that he is proceeding in the right direction. Some hold
the view that without well spelled out goals and operational methods/tactics, most businesses flounder on the
rocks of hard times.
The second function of the project report is to attract lenders and investors. The preparation of project
report is beneficial for those small enterprises which apply for financial assistance from the financial institutions
and the commercial banks. It is on the basis of project report that the financial institutions make appraisal if the
enterprise requires financial assistance or not. If yes, how much. Similarly, other organizations which provide
various assistance such as work shed, raw material seed/margin money, etc. are equally interested in knowing
the economic soundness of the proposal.
CONTENTS OF A PROJECT REPORT : The project report needs to be prepared with great care and consideration.
A good project report should contain the following contents.
1. General Information: Information on product profile and product details.
2. Promoter: His/her educational qualification, work experience, project related experience.
3. Location: Exact location of the project, lease or freehold, locational advantages.
4. Land and Building: Land area, construction area, type of construction, cost of construction, detailed plan and
estimate along with plant layout.
5. Plant and Machinery: Details of machinery required, capacity, suppliers, cost, various alternatives available,
cost of miscellaneous assets.
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6. Production Process: Description of production process, chart, technical know how technology alternatives
available, production programme.
7. Utilities: Water, power, steam, compressed air requirements, cost estimates, sources of utilities.
8. Transport and Communication: Mode, possibility of getting, cost.
9. Raw Material: List of raw material required by quality and quantity, sources of procurement, cost of raw
material tie-up arrangements, if any, for procurement of raw material, alternative raw material if any.
10. Manpower: Manpower requirement by skilled and semi skilled, sources of manpower supply, cost of
procurement, requirement for training and its cost.
11. Products: Product mix, estimated sales, distribution channels, competitions and their capacities, product
standard, input-output ratio, product substitute.
12. Market: End users of product, distribution of market as local, national international trade practices, sales
promotion devices, proposed market research.
13. Requirement of Working Capital: Working capital required, sources of working capital, need for collateral
security, nature and extent of credit facilities offered and available.
14. Requirement of Funds: Break-up of project cost in terms of costs of land, building, machinery, miscellaneous
assets, preliminary expenses, contingencies and margin money for working capita arrangements for meeting the
cost of setting up of the project.
15. Cost of Production and Profitability of first ten years.
16. Break-Even Analysis
17. Schedule of Implementation
FORMULATION OF A PROJECT REPORT :

Small-scale enterprises do not include sophisticated technique which is used for preparing project reports
of large scale enterprises. Within the small scale enterprises too, all the information may not be homogeneous for all
units. In fact, what and how much information will be given in the project report depends upon the size of the unit as
well as nature of the production. By Vinod Gupta in his study on “Formulation of a Project Report” project formulation
divides the process of project development into eight distinct and sequential stages. These stages are :
1. General information. 2. Project Description.
3. Market potential. 4. Capital Costs and Sources of Finance.
5. Assessment of Working Capital Requirements. 6. Other Financial Aspects.
7. Economic and Social Variables. 8. Project Implementation.
The nature of information to be collected under each of these stages has been given below:
1. General Information : The information of general nature given in the project report include the following.
Bio-data of Promoter : Name and address of entrepreneur, the qualifications, experience and other capabilities
of the entrepreneur, if these are partners, state these characteristics of all the partners individually.
Industry Profile : A reference of analysis of industry to which the project belongs, e.g, past performance, present
status, its organization, its problems etc.
Constitution and Organization : The constitution and organizational structure of the enterprise; in case of
partnership firm, its registration with the Registrar of Firms; application for getting Registration certificate from the
Directorate of Industries/District Industry Centre.
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Product Details : Product utility, product range; product design, advantages to be offered by the product over its
substitutes, if any.
2. Project Description : A brief description of the project covering the following aspects is given in the project
report.
i) Site: Location of enterprise; owned or lease-hold land industrial area, No Objection Certificate from the Municipal
Authorities if the enterprise location falls in the residential area.
Physical Infrastructure : Availability of the following items of infrastructure should be mentioned in the project
report:
(ii) Raw Material : Requirement of raw material, whether inland or imported, sources of raw material supply.
(iii) Skilled Labour : Availability of skilled labour in the area, arrangements for training labourers in various skills.;
Utilities: These include :
(i) Power : Requirement for power, load sanctioned, availability of power.
(ii) Fuel : Requirement for fuel items such as coal, coke, oil or gas, state of their availability.
(iii) Water : The sources and quality of water should be clearly stated in the project report.
3. Market Potential : While preparing a project report, the following aspects relating to market potential of the
product should be stated in the project report.
After- Sales Service:- Depending upon the nature of the product, provisions made for after-sales service should
normally be stated in the project report.
Transportation:- Requirement for transportation means indicating whether public transport or entrepreneur’s
own transport should be mentioned in the project report.
4. Capital Costs and Sources of Finance : An estimate of the various components of capital items like land and
buildings, plant and machinery, installation cost, preliminary expenses, margin for working capital should be given
in the project report. The present probable sources of finance should also be stated in the project report. The
sources should indicate the owner’s funds together with funds raised from financial institutions and banks.
5. Assessment of Working Capital Requirements : The requirement for working capital and its sources of
supply be carefully and clearly mentioned in the project report. It is always better to prepare working capital
requirements in the prescribed formats designed by limits for requirement. It will minimize objections from the
banker’s side.
6. Other Financial Aspects : In order to adjudge the profitability of the project to be set up, a projected profit and
Loss Account indicating likely sales revenue, cost of production, allied cost and profit should be prepared. A
projected Balance Sheet and Cash Flow Statement should also be prepared to indicate the financial position and
requirements at various stages of the project.
7. Economic and Social Variables : The abatement cost, i.e., the costs for controlling the environmental damage
should be stated in the project.
8. Project Implementation : A time-table for his project to ensure the timely completion of all activates involved in
setting up an enterprise. Delay in project implementation jeopardizes the financial viability of the project, on the one
hand and props up the entrepreneur to drop the idea to set up an enterprise, on the other. Hence, there is a need to
draw up an implementation schedule for the project and then to adhere to it.
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PLANNING COMMISSION’S GUIDELINES FOR FORMULATING A PROJECT REPORT :

In order to process investment proposals and arrive at investment decisions, the Planning Commission of
India has also issued some guide-lines for preparing and formulating realistic industrial project. So far feasibility
report is concerned, it lies in between the project formulating stage and the appraisal and sanction stage. The
project formulation stage involves the identification of investment options by the enterprise and in consultation
with the administrative Ministry, the Planning Commission, and other concerned authorities, Realizing the usefulness
of these guidelines, we now are presenting these guidelines in a summarized manner.
General Information : The feasibility report should include an analysis of the industry to which the project belongs.
It should deal with the past performance of the industry. The description of the type of industry should also be
given, i.e., the priority of the public sector, allocation of investment of funds, choice of technique, etc. This should
also contain information about the enterprise submitting the feasibility report.
Preliminary Analysis of Alternatives : This should contain present data on the gap between demand and supply
for the output which are to be produced, data on the capacity that would be available from the project that are in
production or under implementation at the time the report is prepared, a complete list of all existing plants in the
industry, giving their capacity and level of production actually attained, a list of all project for which letters of
intents/licenses have been issued and a list of proposed projects. All options that are technically feasible should
be considered at this preliminary stage. The location of the project as well as its implications should also be
looked into. An account of the foreign exchange requirement should also be taken. The profitability of different
options should also be given. The rate of return on investment should be calculated and presented.
Project Description : The feasibility should provide a brief description of the technology / Process chosen for the
project. Information relevant to determining optimality of the locations chosen should also be included. To assist
in the assessment of the environmental effects of a project, every feasibility report must present the information
on specific points, i.e population, water, air, land, flora and fauna, effects arising out of project pollution, other
environmental discretions etc. The report should contain a list of the operational requirements of the plant,
requirements of water and power, requirements of personnel, organizational structure envisaged, transport costs,
activity-wise phasing of construction and factors affecting it.
Marketing Plan : It should contain the following:
Data on the marketing plan
Demand and prospective supply in each of the areas to be served.
The method and data used for main estimates of domestic supply and selection of the market areas should be
presented. Estimates of the degree of price sensitivity should be resented. It should contain an analysis of past
trends in prices.
Capital Requirements and Cost : The estimates should be reasonably complete and properly estimated.
Information on all items of costs should be carefully collected and presented.
Operating Requirements and Costs : Operating costs are essentially those costs which are incurred after the
commencement of commercial production. Information about all items of operating cost should be collected;
operating costs relate to the cost of raw materials and intermediates, fuel, utilities, labour, repair and maintenance,
selling expenses and other expenses.
Financial Analysis : The purpose of this analysis is to present some measures to assess the financial viability of
the project. A proforma Balance Sheet for the project data should be presented. Depreciation should be allowed
for on the basis specified by Bureau of Public Enterprises. Foreign exchange requirements should be cleared by
the Department of Economic Affairs. The feasibility report should take into account income-tax rebates for priority
industries, incentives for backward areas, accelerated depreciation, etc. The report analysis should also be
presented. The report must analyse the sensitivity of the rate of return of change in the level and pattern of product
prices.
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Economic Analysis : Social profitability analysis needs some adjustment in the data relating to the costs and
returns to the enterprise. One important type of investment involves a correction in input and costs, to reflect the
true value of foreign exchange, labour and capital. The enterprise should try to assess the impact of its operation
on foreign trade. Indirect costs and benefits should also be included in the report. If they can – not be qualified,
they should be analyzed and their importance emphasized.
Miscellaneous Aspects : The preceding three areas are deemed appropriate to almost every new small enterprise.
Notwithstanding, depending upon the size of the operation and peculiarities of a particular project, other items
may be considered important to be applied out in the project report. To mention, probable use of minicomputers
of other electronic data processing services, cash flow statements, method of accounting etc., may be of great
use in some small enterprises.
COMMON ERRORS IN PROJECT FORMULATION : Project formulation is as important is not so easy. However,
the entrepreneurs often make errors while formulating project reports and business plans. Here, we are highlighting
the errors widely noticed in project formulation.
1. Product Selection : It is noticed that some entrepreneurs commit mistakes by selecting a wrong product for
their enterprises. They select the product without giving due attention to product related other aspects such as
size of the product markets, its future demand, competitive position, lifecycle, availability of required labour, raw
material and technology. Hence, when you are selecting a product, take a comprehensive view.
2. Capacity Utilization Estimates : The entrepreneurs usually make over optimistic estimates are based on a
completely false premise. The estimates made in complete disregard of present enterprise performance, prevailing
market conditions, competitive atmosphere, the technical jugglery. Hence, avoid such temptations while estimating
capacity utilization for your enterprise.
3. Market Study : Product production is ultimately meant for eventual sale. Hence, market study of the product
assumes importance. Market study continues to be a grey area. But, there are some entrepreneurs who pass by
this component of their business plan completely. Based on their proposed product, they conclude that market is
just there waiting to be tapped. This is a wrong block. Avoid it.
4. Technology Selection : The requirement for technology differs from product to product depending upon the
nature of products. Swayed by the reported profit margins, the entrepreneurs sometimes plan for a technology
not possible to set up within limited financial resources. Thus, in the absence of technological feasibility, enterprise
is fore-doomed to failure. Hence, make sure your technological feasibility.
5. Location Selection : The entrepreneur often makes two types of errors while selecting location for their
enterprise. First, they are completely swayed by the Government offer of financial incentives and concessions to
establish industries in a particular location. This becomes their sole and overriding concern completely disregarding
other factors like market proximity, availability of raw materials, manpower and infrastructural facilities. Second,
the entrepreneurs select a location in their home town or they own ancestral land there which is, however, not an
appropriate location. Make sure you do not fall prey to such temptations.
6. Selection of Ownership Form : Many enterprise fail merely because the ownership form of enterprises in not
suitable. Hence, select a suitable form of ownership taking a comprehensive view of the factors affecting the
selection of form of ownership.
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PROJECT APPRAISAL
CONCEPT OF PROJECT APPRAISAL :

Simply speaking, project appraisal means the assessment of a project. Project appraisal is made for both
proposed and executed projects. In case of former, project appraisal is called ‘ex-ante analysis’ and in case of
later ‘post-ante analysis’. Here project appraisal relates to a proposed project.
Project appraisal is a cost and benefits analysis of different aspects of proposed project with an objective
to adjudge its viability. Thus project appraisal helps select the best project among available alternative projects.
For appraising a project, its economic, financial, technical, market, managerial and social aspects are analyzed.
CONCEPT OF PROJECT APPRAISAL

Project appraisal means the assessment of a project. Project appraisal is made for both proposed and
executed projects. In case of former, project appraisal is called ‘ex-ante analysis’ and in case of later ‘post-ante
analysis’. Here project appraisal relates to a proposed project.
• Project appraisal is a cost and benefits analysis of different aspects of proposed project with an objective to
adjudge its viability. Thus project appraisal helps select the best project among available alternative projects.
For appraising a project, its economic, financial, technical, market, managerial and social aspects are analyzed.
Significance: -
 It helps in arriving at specific and predicted results.
 It evaluates the desirability of the project.
 It provides information to determine the success or failure of a project.
 It employs existing norms to predict the rate of success or failure of the project.
 It verifies the hypothesis framed for the project.
Factors Considered while Appraising a Project : -
 Technical Factors
 Financial Factors
 Economic Factors
 Social Factors
 Commercial Factors
 Managerial Factors
Social Aspects
 What will be the effect of the project on different groups? At
 Individual
 Household and
 Community levels
 How will the project impact on women and men?
 Will the social benefits of the project be greater than the social costs over the life of the investment when
account is taken of time?
Technical Appraisal
 Will the project Work?
 Availability of the required quality and quantity of raw material.
 Availability of utilities like power and water etc
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 Follows anti pollution laws

Financial Appraisal
 Can the project be financed properly?
 Will there be sufficient funds to cover the expenditure requirements during the life of the project?
 Means of financing
Economic Appraisal
 Impact of the project one the distribution of income in the society
 Impact of project on the level savings and investment in the society and socially desirable objectives like self
sufficiently, employment etc.
 Contribution of project
Managerial Competence/ Managerial Analysis

Managerial analysis/feasibility involves the capabilities of the infrastructure of a process to achieve and
sustain process improvement. Management support, employee involvement, and commitment are key elements
required to ascertain managerial feasibility.
Managerial feasibility studies objectively and rationally uncover the strengths and weaknesses of an existing
business or proposed venture, opportunities and threats which are presented by the environment, the resources
required to carry through, and ultimately the prospects for success. In its simplest terms, the two criteria to judge
feasibility are cost required and value to be attained.
Managerial feasibility study is an analysis of the viability of an idea. The managerial feasibility study focuses
on helping answer the essential question of “should we proceed with the proposed project idea?” All activities of
the study are directed toward helping answer this question.
Managerial feasibility studies aim to objectively and rationally uncover the strengths and weaknesses of
an existing business or proposed venture, opportunities and threats as presented by the environment, the resources
required to carry through, and ultimately the prospects 101 success. Managerial feasibility is the study of whether
or not a project IS worth doing.
Manageriaj feasibility identifies the business structure and business founders. The managerial feasibility
involves the capability of the infrastructure of a process to achieve and sustain process improvement.
Management support, employee involvement and commitment are the key elements required to ascertain
managerial feasibility. This analysis tells about the amount of personnel required in various departments, their
eligibility criteria and description of various technical and managerial skills required and other related issues.
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UNIT - IV
INSTITUTIONAL AND FINANCIAL SUPPORT TO ENTREPRENEURS

INTRODUCTION :
The term institutional support refers to the part of economic environment of industry and business. It
consisting of authorities and institutions whose decisions and active support in form of laws, regulation, financial
and non-financial help brings a lot of changes in the functioning of any business.
The institutions could be government owned, statutory, semi autonomous or autonomous. It is the
government or government supported institutions authorized to take up certain activities - financing, marketing,
project preparation, training the to promote industrial activities in the state.
There are three stages of promotion - inception stage, operational stage and expansion or diversification
stage. The Government through its plans and policies assisted the business houses in facilitating in the above
stages through various specialised institutions set up as per the law. An entrepreneur who needs to set up a
business unit of his own or with his friends and relatives is supposed to know the various institutions or organizations
working as per the law for the purpose. Dissemination of information in this regard can only help them in achieving
the very dream of becoming a successful entrepreneur.
In order to pace-up the small industries development along with the industrial development of the country,
Government at Central and State levels has set up a number of development agencies/institutions. These institutions
motivate a person to start his/her own unit or industry. Financial and non-financial assistance, guidance and
counseling on many matters to start a business unit have been providing continuously by various institutions.
These institutions provide different types of assistance. It means that one institution will not provide all the types
of assistance. One has to contact different institutions for different types of assistance.
Need for Institutional Support

A big role is played by various government institutions in promoting 8nd helping small entrepreneurs.
Start-ups and new business ventures jequire the infusion of large capital which is often a daunting task for many
small entrepreneurs. The various kinds of institutional help that are provided to the entrepreneurs are as follows:
1) To make feasibility reports and project appraisal reports for the entrepreneur.
2) To take up labour surveys so that immediate information can be offered on raw material, labour and other aspects.
3) To perform market research on the products that are designed so that the entrepreneur knows the market
potential and is also clear on how he/she has to market the products in the future.
4) To specifically conduct export research and consultancy by making use of technology for the ventures that
are export-oriented.
5) To conduct EDPs which seek to create and develop the entrepreneurial spirit in the entrepreneu
6) To specifically help small business enterprises in marketing their products.
7) To offer trading and consuhancy services which are oriented towards creating a competitive edge.
8) To introduce new and latest technology in place of old and outdated equipment and tools.
9) To help with infrastructure and accommodation needs.
10) To offer financial assistance so that small businesses could expand, modernize and automate.
11) To offer assistance in improving the quality and environmental friendly practices.
12) To provide financial assistance in the form of instalments, leasing credit deferred credit, etc.
13) To act as a guarantor when loan is sought from private entities.
14) To offer financial help for the promotion of rural-based ertakings. village and cottage based industries and
urban service centres.
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15) To offer financial help regarding activities of transportation and tourism.

16) To organise EDPs and workshops/seminars for budding entrepreneur
17) To offer assistance in domestic marketing and export of products manufactured by small scale sector.
18) To Utilise the services of quality oriented small scale enterprises for the Purchase of the Government and
allied stores.
The institutions which are motivating potential entrepreneurs to start their own ventures are here classified
into two parts, viz.
(i) Financial institutions : Financial Institutions means the institution, which is providing various types of financial
assistance to the entrepreneurs.
(ii) Non-financial institutions : Whereas non-financial institution means the institution which is providing the
assistance other than in terms of financial.
MIDC
INTRODUCTION :
Maharashtra Industrial Development Corporation is the nodal industrial infrastructure development agency
of the Maharashtra Government with the basic objective of setting up Industrial areas with a provision of industrial
infrastructure all over the state for planned and systematic industrial development. MIDC is an innovative,
professionally managed, and user friendly organization that provides the World Industrial Infrastructure. MIDC
has played a vital role in the development of industrial infrastructure in the state of Maharashtra. As the state steps
into the next millennium, MIDC lives up to its motto ‘Udyamat Sakal Samruddhi’ i.e., Prosperity to all through
industrialization.
OBJECTIVE OF MIDC :
1. Development of industrial areas by acquiring land.
2. Preparing layout with suitable grouping of plots of various sizes and allotment of plots on leasehold basis.
3. Construction of roads, drainage system and provision of street lights in the industrial areas.
4. Planning, implementation and managing water supply schemes.
5. Establishing common facility centers (CFC) by providing accommodation for bank, post office, telecom facilities,
police station, fire station, medical facility, canteen, etc.
6. Establishment of effluent collection and disposal systems for chemicals zones.
7. Implementing government/semi government projects.
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ROLE OF MIDC
MIDC acts as the Maharashtra Government’s agent for conducting .ctivities under the rules and Act of
MID. There are mainly 3 categories under which these roles and activities can be classified:
1) Acquisition and Disposal of Land: Government of Maharashtra acquires the industrial land under MID Act of
1961. MIDC then takes up this land for setting up industrial areas. Similarly, any Government land is also taken up
by the Corporation. The government funds are used for the payment of private land acquisition. The land is leased
out for 95 years by the Corporation which is also responsible to plan and develop plots in that land. In order to do
this, the premium lease money is recovered by the Corporation the rates of which are different for different
industrial areas. Apart from this, the Flatted units and Sheds are also constructed by the corporation and then
these are sold out to the various prospective entrepreneurs along with the land under the lease clause.
2) Provision of Infrastructure Facilities: Infrastructural facilities such as street lighting, roads, facilities of
water supply and drainage. telegraph and posts, telephone, canteen and banks are required to be provided by the
Corporation under the provisions of MID Act 1961, and the relationships a.s described by the government. The
premium lease money obtained from the allottees is used by the corporation to meet the expenses of such tasks.
Once the area is completely developed, it must be returned to the Government or any other agencY or authority
as directed by the State Government after removing the concerned account of the industrial area. The State
Government his to either pay for the deficit or enjoy the surplus derived from these activities. Interim annual
payments on certain scale have also be prescribed by the Government since it is its immediate objective develop
industrial areas which takes a long time.
In this regard, it can be said that the Corporation has the power to decide the premium rates for various
industrial area lands.
A policy of cross-subsidisatjon rate structure on A B C D zones pattern is adopted by the Corporation
since its prime objective is to have a balanced development of Maharashira especially developing its backward
areas. In this respect, the premium rates of backward and developing areas of the State are less than the rates in
semi-developed and developed areas.
Providing of Services: The industrial areas developed by the Corporation are provided with the below-
mentioned services:
i) Assured Water Supply: One special feature of MIDC is the guaranteed supply of pure water. As on 31st March
2002, MIDC made an investment of more than 73 1.30 crores on the water supply scheme (Head works) which
had the capacity to supply 1941 million litres of water per day. More than 375.96 crores of revenue is generated
from water. A financial and legal relationship between the Government & corporation has been established by
Government of Maharashtra in order to manage the operations of the water supply of the corporation. This
relationship has the following features:
a) MIDC assumes the ownership of the Centralised water supply scheme where water is supplied to more than
one industrial area in a grid pattern. Whereas the Govehiment takes the ownership of the Localised water supply
scheme which mainly covers only one industrial area. The industrial area is also owned by the Government.
b) Irrespective of the water supplied by any of the above schemes, it is considered as it is made on behalf of
Government. It is also the Government which enjoys the revenue collected from the schemes.
c) Centralised Water supply scheme’s operating expenditure is debited to the Income & Expenditure account of
the corporation. On the other hand, the Localised water supply scheme’s operating expenditure is debited as the
agency function to the Government account.
d) Only that much water revenue is kept by the Corporation which will be enough for meeting its net operating
expenses and other various costs. Each year this is done at a bulk rate which is determined by dividing the net
cost debited to the Income and Expenditure Account of the Corporation by the total water supplied under the
Centralised water supply scheme.
e) Government accounts for any kind of surplus or deficit which arises out of the total operations of water supply.
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Thus in this regard, it must be noted that despite the total water revenue is to be credited in the agency
function to the account of Government, the surplus generated, however, from the operations of water supply is
not stipulated to be paid to the Government. Thus, it can be stated there is an implied authority of Corporation to
reinvest the surplus in its operations.
ii) Maintenance of Industrial Areas: These are mainly municipal operations which require the Corporation to
ensure the proper maintenance of street lights, roads, fire stations etc. These are conducted during the transition
phase up to the time the Government or any other body decides to take the responsibility of these operations.
Section 56 of MID Act, describes the exit policy once the main objectives of industrial development as prescribed
in the act are accomplished.
But in the absence of any other ancillary body which can take care of these services, this provision has
been rarely implemented apart from some special cases like Pimpri Chinchwad, Wagale Estate, Marol and so on
where only the street lights and roads were handed over to the local municipality by the Corporation. While in
remaining areas, the corporation is obligated to perform this function. In order to fulfil this, a service charge is
levied by the Corporation to recover the costs associated with these services.
iii) Drainage (effluent disposal) and CETP Schemes: An effluent Disposal (Drainage) scheme is adopted by
the Corporation in some specified locations where chemical factories are located. The treated effluents are collected
and discharged under these schemes. In order to recover the expenses incurred in maintaining these services
and to recover some part of the capital cost, a drainage cess is charged by the Corporation. Some schemes such
as Common Effluent Plants and HazardouS Waste Management have been initiated by the Corporation in order to
curb pollution. Assistance of some local industrY associations has been taken in this regard.
iv) Other Services: Offering and maintaining common facilitY centres such as Post and Telegraph, Banks, etc.
come under ill0 category of services. Although any kind of cess is not levied c’ these services, some rentals are
charged for using the buildings. The maintenance cost of CFCs and other associa costs are recovered with the
help of these rentals and different types of income generated from the area.
Schemes of MIDC
The main focus of Government of Maharashtra is now on structural changes and offering incentives
which will be helpful in promoting the industries and the balanced regional development of the state. At the same
time, the industry faces new challenges in the form of increased competition and rapid changes in technology.
In this regard, the Industrial Policy of 2001 was framed in which the main focus was on employment and
sustainable growth and development. This further boosted the provisions of the various sector policies particularly
the IT sector. from 1 April 2001 up to 31 March 2006 the elements of new Package Scheme of Incentives had
been in effect:
1) Exemption from Electricity duty: The duty on electricity for a period of 15 years will not be paid by any new
industries which are going to be set up in C, D, and D+ areas or No Industry Districts. While in the remaining
regions of the state, the duty on electricity for a period of 10 years will be exempted for units of BioTechnology
(BT), Information Technology (IT), 100% Export Oriented Units (EOUs), industries setting-up in Special Economic
Zones (SEZs) and electronic hardware technology parks.
2) Waiver of Registration Fees and Stamp Duty: No stamp duty and registration fee were charged from IT units
in public IT parks till 31k’ March 2006. But now, no stamp duty and registration fees will be charged from the industrial
units and expansions (alongwith BT and IT units) up to which are being established in No Industry District(s) and C,
D and D+ areas up to 315t March 2006. But IT units which are established in other IT parks, in the state in “A” and “B”
categories and in talukas/areas will have to pay 50% of the stamp duty and registration fees.
3) Octrol Refund: The new scheme will include the refund scheme of octroi which was prescribed under the
Package Scheme of centives, 1993. This will up to 31-3-2006 and on the similar Outline. In the places where in
place of octroi, account-based cess or other levy is charged, they can also claim for refund.
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MICRO, SMALL AND MEDIUM ENTERPRISES (MSME)

For a country to grow, the government should actively promote business enterprises. Among business
enterprises, the Micro, Small and Medium Enterprises (MSME) deserve special attention. Though MSMEs are
small investment enterprises, but their contribution to the Indian economy is very significant.
What are MSMEs?

Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 which was notified on October 2, 2006,
deals with the definition of MSMEs. The MSMED Act, 2006 defines the Micro, Small and Medium Enterprises
based on
1. the investment in plant and machinery for those engaged in manufacturing or production, processing or
preservation of goods and
2. the investment in equipment for enterprises engaged in providing or rendering of services.
OBJECTIVES FOR THE MSME SECTOR :

1. Promoting competitiveness and productivity in the MSME space.
2. Making the MSME sector innovative, improving technology and depth.
3. Enabling environment for promotion and development of MSMEs.
4. Strong presence in exports.
5. Improved managerial processes in MSMEs.
The guidelines with regard to investment in plant and machinery or equipment as defined in the MSMED Act, 2006
are: The investment in plant and machinery is the original cost excluding land and building and other items
specified by the Ministry of Small Scale Industries vide its notification no. S.O. 1722 (E) dated 05.10.2006.
List of enterprises that are engaged in providing or rendering services
1. Small road and water transport operators (original investment in vehicles up to Rs.200.00 lacs under Priority sector)
2. Retail trade (with credit limits not exceeding Rs.20.00 lakhs)
3. Small business (whose original cost price of the equipment used for the purpose of business does not exceed
Rs.20.00 lakhs
4. Professional and self-employed persons (whose borrowing limits do not exceed Rs.10.00 lakhs of which not
more than Rs.2.00 lakhs should be for working capital requirements except in case of professionally qualified
medical practitioners setting up of practice in semi-urban and rural areas, the borrowing limits should not exceed
Rs.15.00 lakhs with a sub-ceiling of Rs.3 lakhs for working capital requirements)
SIGNIFICANCE OF MSMED :
1. To generate large scale employment : In India, capital is scarce and labor abundant. MSMEs are thought to
have lower capital-output and capital-labour ratios than large-scale industries, and therefore, better serve growth
and employment objectives. The MSME sector in India has grown significantly since 1960 – with an average
annual growth rate of 4.4% in the number of units and 4.62% in employment (currently employing 30 million). Not
only do MSMEs generate the highest employment per capita investment, they also go a long way in checking
rural-urban migration by providing people living in isolated areas with a sustainable source of employment.
2. To sustain economic growth and increase exports : Non-traditional products account for more than 95% of
the MSME exports (dominating in the export of sports goods, readymade garments, plastic products etc.). Since
these products are mostly handcrafted and hence eco-friendly, there exists a tremendous potential to expand the
quantum of MSME led exports. Also, MSMEs act as ancillary industries for Large Scale Industries providing them
with raw materials, vital components and backward linkages e.g. large scale cycle manufacturers of Ludhiana
rely heavily on the MSMEs of Malerkotla which produce cycle parts.
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3. Making Growth Inclusive : MSMEs are instruments of inclusive growth which touch upon the lives of the
most vulnerable and marginalized. For many families, it is the only source of livelihood. Thus, instead of taking a
welfare approach, this sector seeks to empower people to break the cycle of poverty and deprivation. It focuses
on people’s skills and agency. However, different segments of the MSME sector are dominated by different social
groups.
CHALLENGES OF MSME :
1. Most of the unregistered MSMEs would predominantly comprise micro enterprises, particularly confined to
rural India, operating with obsolete technology, limited access to institutional finance etc. And there is a need to
transform the huge unregistered MSME into registered MSME.
2. Need to improve the competitiveness of the overall MSME sector.
3. Access to technology.
4. IPR related issues.
5. Design as a market driver.
6. Wasteful usage of resources/manpower.
7. Energy inefficiency and associated high cost.
8. Low ICT usage.
9. Low market penetration.
10. Quality assurance/certification.
11. Standardization of products and proper marketing channels to penetrate new markets.
12. The definition for MSMEs must be updated – considering inflation and availability of better technologies since
the last change in 2006.
MAHARASHTRA CENTRE FOR ENTREPRENEURSHIP DEVELOPMENT (MCED)
INTRODUCTION :
MCED has been a pioneer in espousing social and economic entrepreneurship since 1988. It is a training institute
in the core area of entrepreneurship development. It works as a facilitator and guide for the creation and cultivation
of the entrepreneurial spirit and the concept of employment. At MCED, there is always the humble buzz of people
discussing, brainstorming, making plans and revamping shelved ideas. The thrum of work and the exciting buzz
of activity is an indelible part of the work culture. MCED is also an incredibly technology savvy organization which,
not surprisingly, is amongst the few offices to enforce the paperless office concept.
OBJECTIVES OF MCED :
1. To promote entrepreneurship in the backward region of Maharashtra State.
2. To organize lectures, discussion, exhibitions and training programs to promote entrepreneurship.
3. To promote entrepreneurship among the young graduate, women, schedule caste, schedule tribes and minorities.
4. To organize EDP programs in the rural areas to search latent entrepreneurship qualities of young men.
ACTIVITIES AND PROGRAMMES CARRIED OUT BY MCED:
1. Pre-feasibility study training.
2. Training of submission of the proposal to the sponsoring agency.
3. Programme announcement in local newspapers.
4. Meeting with DIC officials / local associations.
5. Banks for assistance in identification of the participants \identification of faculty / guest faculty for EDPs.
6. Visits to various organizations by course coordinator.
7. Programme publicity through supporting of organizations.
8. Circular / letters to various organizations.
9. Radio announcement / Cable TV.
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10. Hand bills and pamphlets.

11. Identification of viable ventures.
12. Preparation of course / instructional material in local language.
13. Fixing venue / other infrastructure facilities for conduct of EDPs
14. Visit to technical institutions and employment exchanges
15. Finalizing the units for field visits.
DISTRICT INDUSTRIES CENTRES (DICS) :

The District Industries Centres (DICs) programme was started on May 8, 1978 with a view to provide integrated
administrative framework at the district level for promotion of small-scale industries in rural areas. The DICs are
envisaged as a single window interacting agency with the entrepreneur at the district level. Services and support to
small entrepreneurs are provided under a single roof through the DICs. They are the implementing arm of the
Central and State Governments of the various schemes and programmes.
The organisational structure of DICs consists of one General Manager, four Functional Managers and
three Project Managers to provide technical service in the area relevant to needs of district concerned. Management
of the DIC’s is done by the State Governments.
The DICs role is mainly promotional and developmental.
Objectives of DICs
DICs have the following objectives:
1) To increase the efforts and speed-up the process of industrial development of districts.
2) To establish mechanical industries and handicrafts in rural areas and to help them grow.
3) To achieve evenness among the economy of all the regions of a district.
4) To assist the new businessmen of the district in availing the benefits of all the government schemes.
5) To amalgamate all the essential procedures and formalities of setting up a new unit in order to minimise the
time and efforts needed to procure various licences, permits, authorisations, etc.
Role of DICs
The roles performed by DICs are as follows:
1) Identification of Entrepreneurs: DICs orgapise entrepreneurial motivation programmes in the entire district to
identify potential entrepreneurs and to develop them. Institutional and Financial Support to Entrepreneurs (Unit 4)
2) Selection of Projects: DICs counsel the prospective entrepreneurs and help them to choose the appropriate
project to start.
3) Proyjsjonaj Registration under SSI: After choosing the appropriate project the entrepreneurs have to get
themselves registered with SSI provisionally, It is an obligation if the entrepreneur wants any financial institution to
assist them.
4) Purchase of Fixed Assets: DIC takes the guarantee of loan applications made by SSI unit holders to SIDCO,
TIIC, and other banks for the purpose of building and land purchases. The money left after this is generally
approved to other financial agencies under the scheme of Rural Industries Project Loan so that SSI unit holders
can easily make the purchases of machinery and other fixed assets.
5) Clearances from Various Departments: DICs help the entrepreneurs in getting various permits from
government departments. They also help them in getting the electricity connection as soon as possible.
6) Assistance to Raw Material Supplies: DICs also assist the entrepreneurs by recommending them the
suppliers of raw materials of their need. It also certifies them to import the machinery and raw materials.
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7) Assistance to Village Artisans and Handicrafts: Persons who are engaged in handicrafts and other skilled
works are also provided. Lfinancial assistance by DICs. DICs arrange these funds with the help of natjonaljsed
banks of that particular area.
8) Interest-Free Sales Tax (IFST) Loan: IFST loans are sanctioned to those SSI units which are established in
rural areas, and the authority to sanction these loans lies with DIC. The amount of IFST loan should not exceed 8
per cent of the amount of fixed assets from Small Industries Development Corporations (SIDCO). Recommendation
of SSIs for the registration in Government Purchase Programme is also made by DIC.
9) Subsidy Schemes: SSI unit holders and workers, who are engaged in handicrafts and other skilled works, are
assisted by DICs to avail various governmental and non-governmental subsidies such as, interest subsidy, power
subsidy, etc.
10) Training Programmes: DICs impart training not only to entrepreneurs but they also assist those institutions
which train the smal I-scale entrepreneurs.
SMALL SCALE INDUSTRIES BOARD (SSIB) :

The Government of India constituted a Board called the Small Scale Industries Board (SSIB) in 1954 to
advise on development of small scale industries in the country. The SSIB is also known as Central Small Industries
Board. The range of developmental work in small scale industries involves several departments/ministries and
several organs of the Central/State Governments. Hence, to facilitate co-ordination and inter-institutional linkages,
the Small Scale Industries Board has been constituted. It is an apex advisory body constituted to render advice to
the Government on all issues pertaining to the development of small-scale industries.
Union Industry Minister Chairman

State Industry Ministers Members
Selected Members of Parliament Members
Secretaries of departments concerned Members
Selected Public Enterprises Members
Financial Institutions Members
Industry Associations Members
Eminent Experts in the field Members
Objectives of SSIB
Following are the objectives of SSIB:
1) To develop small scale industries of India.
2) To advise, counsel and guide the Government regarding various issues relating to the small scale sector.
3) To enable coordination, consultation and inter-relation among various ministries and departments of the State
and the Central Government.
Role of SSIB
1) It is the topmost advisory body meant to counsel the Government regarding the development of small scale
industries in India.
2) The board meeting is held from time to time for discussing the issues related to policies and programmes.
3) The development in small-scale industries needs the involvement of various departments/ministries of the
Central and State Governments. A common platform is offered by SSIB for ensuring interaction, coordination and
interrelation with an objective to give advice to the government on policy matters and other associated issues
related with developing and promoting the small-scale sector in the country.
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The Industries Minister of the Government of India is the Chairman of the SSIB. The SSIB comprises of 50
members including State Industry Minister, some Members of Parliament, Secretaries of various Departments of
Government of India, financial institutions public sector undertakings, industry associations and eminent experts
in the field.
MAHARASHTRA SMALL SCALE INDUSTRIESDEVELOPMENT CORPORATION (MSSIDC)
INTRODUCTION :
The Maharashtra Small Scale Industries Development Corporation Ltd., popularly known as MSSIDC,
was established on October 19, 1962 with a view to giving a new orientation and strength to the development of
Small Scale Industries in the State of Maharashtra.
OBJECTIVE / ROLE :
1. To aid, counsel, assist, finance, protect and promote the interests of Small Industries.
2. The Corporation renders assistance to approximately 30000 SSI units in the State.
3. MSSIDC plays a vital role in revival, development and growth of traditional handicrafts of Maharashtra by
responding to the diversified need s of rural artisans and marketing their products in India as well as abroad.
4. Over the years, MSSIDC has grown to become Indias leading Small Scale Industries Development Corporation,
continuously responding to the expanding and diversified needs of Small Scale Industries
5. Village and Cottage Industries, providing support services like Training and Entrepreneurship Development
Programme.
FUNCTION :
1. MSSIDCs in Marketing : Maharashtra has a rich tradition of excellence in manufacturing. The different
products manufactured by the Small Scale Industry (SSI) Units from Maharashtra are second.
• MSSIDC gives a complete support right from how to set up a SSI unit to selling the products in the market to
arranging an appropriate finance. Thus, MSSIDC provides a tailor-made service to fulfill the specific needs of
Small Scale Units.
• There is a steady growth in marketing turnover from 2005-06 onwards. More than 1200 units are registered with
MSSIDC for Marketing assistance. During the year 2008-09, assistance was provided to 465 nos. of units. The total
turnover for marketing activity during year 2008-09 was Rs. 181.01 Crore (i.e. Rs.1.81 billion).
2. RAW MATERIALS SUPPLY ASSISTANCE TO SSI UNITS :

• Raw Materials such as Steel and Coal are important for uninterrupted production. Small Scale Units require
assured and consistent supply of these critical Raw Materials to ensure the quality of their products, in-time
production and maintaining the delivery schedules. MSSIDC procures raw materials from main producers and
supplies the same to SSI units. At present Corporation is supplying following raw material to the Small Scale
Industries:
1. Iron & Stee 2. Coal
• SSI units requiring above raw materials have to apply to MSSIDC and complete registration procedure with IDC
and MSSIDC.
• MSSIDC procures the raw materials only from Central Government or State Government Public Sector
Corporations& Undertakings.
3. Commercial Warehousing : Commercial Warehousing is another important activity of MSSIDC. Under this
activity MSSIDC makes available their godowns located at various places to the Government organizations, Public
Sector Undertaking, Small Scale Industries, other industries for storing their products for the benefits of Industrial
units. MSSIDC also undertakes the handling of the material, if desired by the customer.
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4. Handicrafts Exhibition : Exhibitions are best vehicles to showcase the products. It is a place to have a direct
interface with buyers any wherein the world. It offers great opportunities for business development and marketing
of products and services. MSSIDC regularly participates in the Handicraft Exhibition organized by the Development
Commissioner in India and abroad. It acts as a nodal agency on the behalf of the Government of Maharashtra and
thus provides a national and international forum for the SSI Units to market their products.
E:g Craft Bazar Nashik, Kolhapuri Chappal - Leather Footwear -
BOARD FOR INDUSTRIAL AND FINANCIAL RECONSTRUCTION
(BIFR) :
INRODUCTION :
• The Board for Industrial and Financial Reconstruction (BIFR) was an agency of the Government of India, part of
the Department of Financial Services of the Ministry of Finance. Set up in January 1987 by the Rajiv Gandhi
government.
• On 1 December 2016, the Modi government dissolved BIFR and referred all proceedings to the National Company
Law Tribunal (NCLT) and National Company Law Appellate Tribunal (NCLAT) as per provisions of Insolvency and
Bankruptcy Code.
STRUCTURE :
The Board has a Chairman and from two to fourteen other members, all to be qualified as High Court
judges or else to have at least fifteen years of relevant professional experience.
The Board only handles large or medium-sized sick industrial companies in which large amounts have
been sunk.
Under the Sick Industrial Companies Act, the Board of a sick industrial company is legally obliged to report
it to the BIFR, and the BIFR has the power to make whatever inquiries are needed to determine if the company is
in fact sick.
ROLE / OBJECTIVE / FUNCTION :

1. To determine sickness of industrial companies .
2. To assist in reviving those that may be viable.
3. To revive sick industrial companies and release public funds. and shutting down the others.
4. If a company is found to be sick, the BIFR can give the company reasonable time to regain health (bring total
assets above total liabilities) or it can recommend other measures.
5. The board can take other actions including changes to management, amalgamation of the sick unit with a
healthy one, sale or financial reconstruction.
6. The BIFR was intended to bridge the legal gap between sickness and revival.
7. It would impose time schedules for revival related activities to be completed, oversee their implementation and
conduct periodic reviews of sick accounts.
8. The BIFR would provide a forum for sharing views, coordinating effort and developing a unified approach to
dealing with sick companies, speeding up the start of corrective action.
9. The BIFR was meant to either turn companies around within six months or order closure.
THE INDUSTRIAL DEVELOPMENT BANK OF INDIA (IDBI) :

The Industrial Development Bank of India (IDBI) st was established on 1 July , 1964 under the Industrial
Development Bank of India Act, as a wholly owned subsidiary of the Reserve Bank of India. In terms of the Public
Financial Institutions Laws (Amendment) Act, 1975, the ownership of the IBDI has been th transferred to the
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Central Government with effect from 16 February 1976. The IDBI has been assigned the role of principal financial
institution for co-coordinating, in conformity with national priorities, the activities of the institutions engaged in
financing, promotion or developing industry.
OBJECTIVES AND FUNCTIONS :

(i) To serve as an apex institution for term finance for industry, to co-ordinate the working of institutions engaged
in financing, promoting or developing industries and to assist in the development of these institutions.
(ii) To plan, promote and develop industries to fill gaps in the industrial structure in the country.
(iii) To provide technical and administrative assistance for promotion, management or expansion of industry.
(iv) To undertake market and investment research and surveys as also technical and economics studies in
connection with development of industry.
(v) To act as lender of last resort and to finance projects that are in conformity with national priorities.
IDBI’S SCHEME : IDBI is having the following schemes for the benefit of enterprises and entrepreneurs in the
small and medium scale sector:-
DIRECT ASSISTANCE : Project Finance Scheme (Loans, underwriting, direct subscription and guarantees);
1. Modernization Assistance scheme for all industries
2. Textile Modernization Fund scheme
3. Technical Development Fund Scheme
4. Technology Upgradation scheme
5. Venture capital fund scheme
6. Energy Audit subsidy scheme
7. Equipment finance for energy conservation scheme
8. Foreign currency assistance scheme
INDIRECT ASSISTANCE :
1. Refinance scheme for industrial loans for small and medium industries.
2. Refinance scheme for modernization and rehabilitation of small and medium industries.
3. Equipment Refinance Scheme
4. Bills Discounting / Re-discountingscheme
5. Seed capital scheme
6. Scheme for concessional assistance for Development of Noindustry District and other backward areas
7. Scheme for concessional assistance for Manufacture and Installation of Renewable Energy systems o Scheme
for Investment in shares and bonds of other financial institutions.
IDBI assists industry through a wide range of financial products. It has made continuous efforts to respond to the
financial needs of Indian Industry by extending its range of products and services. Currently, it provides the
following:
 Fund-based products
 Fee-based services
FUND-BASED PRODUCTS TERM :
 Underwriting/Direct subscription to equity and debt instruments
 Guarantees
 Venture capital
 Equipment leasing
 Bills finance
 Refinance to state - level institution /banks.
45
FEE-BASED SERVICES :
Merchant Banking : Issue management, loan syndication, projects counseling, merchant appraisal, capital
restructuring, amalgamations and mergers.
Forex services : Spot and forward purchases of currencies for letter of credit and debt servicing, placement of
deposits abroad, swaps, forward exchange rate agreements and other derivatives.
Debenture Trusteeship :
Debenture trustee for holders of debentures issued by companies as also to the non-convertible debenture
issues subscribed by financial institutions, banks and mutual funds on private placement basis.
INDUSTRIAL FINANCE CORPORATION (I.F.C.I.) : The Industrial Finance Corporation of India (I.F.C.I.) was
established in 1948 by our Government with the object of providing medium and long-term credit to industrial
concerns in st India. IFCI transformed into a corporation from 21 May, 1993 to provide greater flexibility to respond
to the needs of the rapidly changing financial system.
Financial assistance provided by IFCI can be in one or more of the following forms:
1. Rupee and foreign currency term loans
2. Underwriting of share and debenture issues
3. Direct subscription to equity
4. Guarantees
5. Acting as an agent
6. Soft loans
7. Equipment financing
SCHEMES OF MOTIVATION :
CONSULTANCY SCHEMES :
1. Scheme of subsidy to small entrepreneurs in the rural, cottage, tiny and small sectors for meeting cost of
Feasibility studies, etc.
2. Scheme of subsidy for consultancy to Industries relating to Animal Husbandry, Dairy Farming, Poultry, Farming
and Fishing.
3. Scheme of subsidy for promotion of ancillary and small-scale industries.
4. Scheme of subsidy to New Entrepreneurs for meeting cost to market Research /Surveys.
5. Scheme of subsidy for providing marketing Assistance to small-scale units.
6. Scheme of subsidy for consultancy on use of nonconventional sources of energy and energy conservation
measures.
7. Scheme of subsidy for control of pollution in the village and small industries sector.
INTEREST SUBSIDY SCHEMES :
1. Scheme of interest subsidy for self-development and selfemployment of unemployed young persons.
2. Scheme of interest subsidy for women Entrepreneurs.
3. Scheme of interest subsidy for encouraging quality control measures in small scale sector.
4. Scheme of interest subsidy for encouraging the adoption of indigenous technology.
ENTREPRENEURSHIP DEVELOPMENT SCHEME :

1. Scheme for encouraging Entrepreneurship Development in Tourism and Tourism related activities
2. Scheme for encouraging self-employment amongst persons rendered jobless due to retrenchment or
rationalization in a sick industrial unit in the organized sector undergoing a process of rehabilitation / revival.
STATE FINANCIAL CORPORATIONS (SFCs) :

The Industrial Finance Corporation of India (IFCI) set up in 1948 used to provide financial assistance to
only large-sized industrial undertaking. The management of the State Financial Corporation is similar to that of the
46
IFCI. It has a board of directors, a Managing Director and an Executive Committee. An SFC can open its offices
at different places within the State.
The main functions of SFCs has been to provide long-term finance to small and medium sized industrial
units organised as proprietary, partnership, co-operative, public or private company concerns. Its other functions
are to undertake the issue of stock, shares, bonds or debentures of industrial concerns and to grant loans and
advance to industrial concerns repayable within a period not exceeding 20 years.
Total assistance sanctioned by SFCs during 1994-95 aggregated Rs. 2760 crores. Disbursements
amounted to Rs. 2005 crore.
The methods through which SFCs assist the companies are term loans, buying the securities of company,
buying the promissory notes, taking guarantee on behalf of company, etc. Generating
employment Opportunities speeding up the investment, increasing the sharehoIde etc., are some of the prime
motives of SFCs. SFC5 also assist the new and emerging businesses such as, poultry farming, tissue culture,
floricultw-e, etc. In India, 18 SFCs are operative which are as follows:
1) Andhra Pradesh State Financial Corporation (APSFC),
2) Himachal Pradesh Financial Corporation (HPFC),
3) Madhya Pradesh Financial Corporation (MPFC),
4) North Eastern Development Finance Corporation (NEDFI),
5) Rajasthan Finance Corporation (RFC),
6) Tamil Nadu Industrial Investment Corporation Limited,
7) Uttar Pradesh Financial Corporation (UPFC),
8) Dethi Financial Corporation (DFC),
9) Gujarat State Financial Corporation (GSFC),
10) Economic Development Corporation of Goa (EDC),
11) Haryana Financial Corporation (HFC),
12) Jammu and Kashmir State Financial Corporation (JKSFC).
13) Karnataka State Financial Corporation (KSFC),
14) Kerala Financial Corporation (KFC),
15) Maharashtra State Financial Corporation (MSFC),
16) Orissa State Financial Corporation (OSFC),
17) Punjab Financial Corporation (PFC), and
18) West Bengal Financial Corporation (WBFC).
Functions of SFCs
Following are the ways in which SFCs can provide financial assistance:
1) Sanctioning loans to the enterprises; provided that the payback period is not more than 20 years.
2) Buying the debentures of enterprises in order to raise their capital; provided that the repayment period of
debenture is not more than 20 years.
3) Taking guarantee of loans taken by enterprises; provided that the repayment period of loan is not more than 20
years.
4) Raising capital by issUing shares, debentures, bonds, etc.. on behalf of the company; provided that the maximum
duration of the securities is 7 years.
5) Taking guarantee of payments on behalf of those companies which make purchases of capital goods within
India.
6) Sanctioning loans to the companies on the directive of the Central or State Government or the IFCI.
47
STATE INDUSTRIAL DEVELOPMENT CORPORATIONS (SIDCs)

The main functions of SIDCs are to provide assistance in the form of term-loans, underwriting direct
subscription to shares/ debentures and guarantees. They also undertake a variety of promotional activities like
preparation of feasibility reports, conducting industrial potential surveys, entrepreneurship development
programmes and developing industrial estates.
SMALL INDUSTRIES DEVELOPMENT BANK OF INDIA (SIDBI)

With a view to ensuring larger flow of financial and non-financial assistance to the small-scale sector, the
Government of India set up the Small Industries Development Bank of India (SIDBI) under a special Act of the
Parliament in October 1989 as a wholly-owned subsidiary of the IDBI. The Bank commenced its operations from
April 2, 1990 with its head office in Lucknow. The SIDBI has taken over the outstanding portfolio of the IDBI relating
to the small-scale sector worth over the outstanding portfolio of the IDBI relating to the small-scale sector worth
over Rs. 4,000 crores. The authorised capital of SIDBI is Rs. 250 crores with an enabling provision to increase it
to Rs. 1,000 crores.
The important functions of SIDBI are as follows :
1) To initiate steps for technological upgradation and modernisation of existing units.
2) To expand the channels for marketing the products of SSI sector in domestic and international markets.
3) To promote employment oriented industries especially in semi-urban areas to create more employment
opportunitites and thereby checking migration of people to urban areas.
During the year 1994-95, the EXIM Bank introduced the ‘Clusters of Excellence’ programme for upgradation
of quality standards and obtaining ISO 9000 certification in various parts of the country. The Bank also entered
into framework co-operation agreement with European Bank for Reconstruction and Development (EBRD) for
acquiring advance information on EBRD funded projects in order to enter into co-financing proposals with EBRD
in Eastern Europe and CIS.
With a view to promote exports, EXIM Bank has introduced three schemes. These are :
i) Production Equipment Finance Programme.
ii) Export Marketing Finance.
iii) Export Vendor Development Finance.
Small Industries Development Bank of India (SIDBI) SIDBI is a development bank dedicated for the
betterment of small- scale industries, It was incorporated in 1990 and is undertaken by Central Government of
India. Providing financial assistance and worthy factors of production in order to improve and encourage the
small-scale industries is the main objective behind the establishment of SlOB!. SIDBI is the chief financial institution
for providing finances, encouraging and improving the small-scale industries, It is responsible for directing all
those commercial banks and financial institutions which provide financial assistance to small-level businessmen.
The objective of SIDBI is to make MSME sector capable of generating employment, contributing the growth of
economy, and in bringing evenness in industrial development in different regions.
Functions of SIDBI
SIDBI performs various functions. Some of the main functions are as follows:
1) Re-Financing: SIDBI refmances the credits and loans granted by financjaj institutions to small-scale industries,
It also assists financial institutions by providing them fmance and other resources so that they can sufficiently
help the small-scale industhes to grow and develop.
2) Discounting and Re-Discounting: STDBI also serves the function of discounting and re-discounting of bills
of the small scale industrial units. Bills can either be of purchases made by any small-scale unit or by the purchases
of products produced by any small-scale unit.
3) Direct Assistance: Other than the re-financing of loans granted by credit institutions, SlOB! also extend direct
assistance to the small- scale industrial sector for exporting of goods.
48
4) Soft Loans and Seed Capital: There are various schemes of SIDBI, by which it provides soft loans, i.e., loans
which can be availed on very lenient terms and conditions. Some of them are Mahila Vikas Nidhi, National Equity
Fund, Mahila Udyam Nidhi, etc. In the same way, through the specific credit agencies, SIDBI also provides schemes
of seed capital.
5) Support to SSIDCs: The two most important difficulties that are often faced by the companies of small-scale
sector are procuring the scarce resources, and marketing and selling of the finished goods. The financial assistance
needed to carry out these two activities is given by SIDBI, not directly but through one of its agencies, named as
State Level Small Industries Development Corporations (SSIDC).
6) Other Services: Alongwith all the aforementioned functions, SIDBI also assists the small-scale industrial
units in services such as factoring, leasing, etc.
7) Help to NSIC: National Small Industries Corporation (NSIC) is a body that helps small-scale industrial units in
making hire- purchases, leasing, marketing activities, etc. The SIDBI assists NSIC financially, so that the latter
can perform its functions effectively.
8) Technological Upgradation In the era of globalisation. technology and its regular updation is becoming a necessity
for all the sectors and same applies to small-scale industrial sector. This is the reason why SIDBI took a step
ahead in order to renovate the small-scale industrial units by instituting advanced technology in their operates.
Financial Schemes Offered by SIDBI

The growth and development of industrial units is hampered by various factors such as, lack of basic infrastructure,
absence of appropriate market places, insufficient working capital of companies, untimely realisation of bills, etc.
In the view of all such hindrances, SIDBI includes following provisions in its several schemes:
1) Extend credit facilities to those institutions which provide marketing opportunities or markets to the small-scale
entrepreneurs.
2) Extend credit facilities in order to renovate and technologicallY upgrade the subsidiary units.
3) Extend credit facilities to those institutions which provide infrastructure and other basic facilities, and also
create the growth opportunities for SSI units.
4) Extend credit facilities to National Small Industries Corporation.
5) Extend credit facilities to those companies which provide their services on contractual basis.
VENTURE CAPITAL
WHAT IS VENTURE CAPITAL:
It is a private or institutional investment made into early-stage / start-up companies (new ventures). As
defined, ventures involve risk (having uncertain outcome) in the expectation of a sizeable gain. Venture Capital is
money invested in businesses that are small; or exist only as
an initiative, but have huge potential to grow. The people who
invest this money are called venture capitalists (VCs). The
venture capital investment is made when a venture capitalist
buys shares of such a company and becomes a financial partner
in the business.
Venture Capital investment is also referred to risk capital
or patient risk capital, as it includes the risk of losing the money
if the venture doesn’t succeed and takes medium to long term
period for the investments to fructify.
Venture Capital typically comes from institutional
investors and high net worth individuals and is pooled together
by dedicated investment firms.
49
It is the money provided by an outside investor to finance a new, growing, or troubled business. The venture
capitalist provides the funding knowing that there’s a significant risk associated with the company’s future profits
and cash flow. Capital is invested in exchange for an equity stake in the business rather than given as a loan.
Venture Capital is the most suitable option for funding a costly capital source for companies and most for
businesses having large up-front capital requirements which have no other cheap alternatives. Software and
other intellectual property are generally the most common cases whose value is unproven. That is why;
Venture capital funding is most widespread in the fast-growing technology and biotechnology fields.
FEATURES OF VENTURE CAPITAL INVESTMENTS

 High Risk
 Lack of Liquidity
Long term horizon
Equity participation and capital gains
Venture capital investments are made in innovative projects
Suppliers of venture capital participate in the management of the company
METHODS OF VENTURE CAPITAL FINANCING

Equity
participating debentures
conditional loan
The venture capital funding process typically involves four phases in the company’s development:
Idea generation
Start-up
Ramp up
Exit
Step 1: Idea generation and submission of the Business Plan

The initial step in approaching a Venture Capital is to submit a business plan. The plan should include the below
points:
There should be an executive summary of the business proposal
Description of the opportunity and the market potential and size
Review on the existing and expected competitive scenario
Detailed financial projections
Details of the management of the company
There is detailed analysis done of the submitted plan, by the Venture Capital to decide whether to take up the
project or no.
Step 2: Introductory Meeting

Once the preliminary study is done by the VC and they find the project as per their preferences, there is a one-to-
one meeting that is called for discussing the project in detail. After the meeting the VC finally decides whether or
not to move forward to the due diligence stage of the process.
Step 3: Due Diligence

The due diligence phase varies depending upon the nature of the business proposal. This process involves
solving of queries related to customer references, product and business strategy evaluations, management
interviews, and other such exchanges of information during this time period.
50
Step 4: Term Sheets and Funding

If the due diligence phase is satisfactory, the VC offers a term sheet, which is a non-binding document
explaining the basic terms and conditions of the investment agreement. The term sheet is generally negotiable
and must be agreed upon by all parties, after which on completion of legal documents and legal due diligence,
funds are made available.
TYPES OF VENTURE CAPITAL FUNDING

The various types of venture capital are classified as per their applications at various stages of a business. The
three principal types of venture capital are early stage financing, expansion financing and acquisition/buyout financing.
The venture capital funding procedure gets complete in six stages of financing corresponding to the periods of a
company’s development
1. Seed money : Low level financing for proving and fructifying a new idea
2. Start-up : New firms needing funds for expenses related with marketing and product development
3. First-Round : Manufacturing and early sales funding
4. Second-Round : Operational capital given for early stage companies which are selling products, but not
returning a profit
5. Third-Round : Also known as Mezzanine financing, this is the money for expanding a newly beneficial company
6. Fourth-Round : Also called bridge financing, 4th round is proposed for financing the “going public” process
A) Early Stage Financing : Early stage financing has three sub divisions seed financing, start up financing and
first stage financing.
Seed financing is defined as a small amount that an entrepreneur receives for the purpose of being eligible for
a start up loan.
Start up financing is given to companies for the purpose of finishing the development of products and services.
First Stage financing: Companies that have spent all their starting capital and need finance for beginning business
activities at the full-scale are the major beneficiaries of the First Stage Financing.
B) Expansion Financing : Expansion financing may be categorized into second-stage financing, bridge financing
and third stage financing or mezzanine financing.
Second-stage financing is provided to companies for the purpose of beginning their expansion. It is also
known as mezzanine financing. It is provided for the purpose of assisting a particular company to expand in a major
way. Bridge financing may be provided as a short term interest only finance option as well as a form of monetary
assistance to companies that employ the Initial Public Offers as a major business strategy.
C) Acquisition or Buyout Financing : Acquisition or buyout financing is categorized into acquisition finance and
management or leveraged buyout financing. Acquisition financing assists a company to acquire certain parts or
an entire company. Management or leveraged buyout financing helps a particular management group to obtain a
particular product of another company.
Advantages of Venture Capital

1. They bring wealth and expertise to the company
2. Large sum of equity finance can be provided
3. The business does not stand the obligation to repay the money
4. In addition to capital, it provides valuable information, resources, technical assistance to make a business
successful
51
Disadvantages of Venture Capital

1. As the investors become part owners, the autonomy and control of the founder is lost
2. It is a lengthy and complex process
3. It is an uncertain form of financing
4. Benefit from such financing can be realized in long run only
Exit route : There are various exit options for Venture Capital to cash out their investment:
IPO
Promoter buyback
Mergers and Acquisitions
Sale to other strategic investor
52
NIR/KW/18/5560
Bachelor of Business Administration (B.B.A.) Semester-V Examination
ENTREPRENEURSHIP DEVELOPMENT
Compulsory Paper-1
Time : Three Hours] [Maximum Marks : 80
N.B. :— ALL questions are compulsory and carry equal marks.
1. (a) Explain the important characteristics of an entrepreneur. 8

(b) What are the different functions of an entrepreneur ? 8
OR
(c) Write a note on growth of entrepreneurship in India. 8
(d) What are the different types of entrepreneurship ? 8
2. (a) What are the non-economic factors contributing entrepreneurial growth ? 8

(b) What are the major entrepreneurial competencies ? 8
OR
(c) Appreciate the need for entrepreneurship development programs. 8
(d) Explain the course contents of entrepreneurship development programme. 8
3. (a) Explain the different features of Small Scale Industries. 8

(b) What are the different opportunities for entrepreneurial career ? 8
OR
(c) What are the different steps in the process of Project Identification ? 8
(d) Explain the different methods of Project Appraisal. 8
4. (a) Explain in detail the need for institutional support to entrepreneurs. 8

(b) Explain in detail the contribution of MCED and DIC in supporting the entrepreneurs in India. 8
OR
(c) Write short note on BIFR and SFC. 8
(d) What is venture capital ? Explain its features in detail. 8
5. Write short notes on :

(a) Economic factors affecting entrepreneurial growth. 4
(b) Evaluation of EDP. 4
(c) Problems of SSI. 4
(d) Write a short note on IFCI. 4
53
NRT/KS/19/5560
Bachelor of Business Administration (B.B.A.) Semester–V Examination
Compulsory Paper–1
Time : Three Hours] [Maximum Marks : 80
N.B. :— (1) All questions are compulsory.

(2) All questions carry equal marks.
1. (a) What do you mean by ‘entrepreneur’ ? State its characteristics. 8

(b) Explain the role of entrepreneurship in economic development. 8
OR
(c) Explain the evolution and functions of entrepreneur. 8
(d) Explain the types of entrepreneurs. 8
2. (a) State the economic and noneconomic factors influencing entrepreneurial growth. 8
(b) Explain the term ‘Entrepreneurial Competencies’. 8
OR
(c) Write the objectives and contents of EDP (Entrepreneurship Development Programme). 8
(d) Explain phases of EDP (Entrepreneurship Development Programme). 8
3. (a) Explain features and problems of Small Scale Industries (SSI). 8

(b) Explain the meaning and contents of Project Report. 8
OR
(c) What do you mean by ‘Project Appraisal’ ? What are its methods ? 8
(d) Explain the relationship between Small & Large units. State the role of small enterprises in development of
entrepreneurial career. 8
4. (a) Explain role of MIDC and MSME in the development of enterprise. 8

(b) Discuss functions of MSSIDC. 8
OR
(c) Explain objectives and role of SSIB and MSME. 8
(d) Discuss functions of SFC. 8
5. (a) Differentiate between an entrepreneur and a manager. 4

(b) Write Govt’s role in entrepreneurial growth. 4
(c) Write the characteristics of SSI. 4
(d) What do you mean by ‘Venture Capital’ ? 4
54
NOTES
55
ENTREPRENEURSHIP
DEVELOPMENT
For
BBA - III
SEMESTER - V
Compiled by
Prof. Avinash Sahu

B.Pharm, MBA (Marketing), NET,
GP
88, New Ramdaspeth, Near Lendra Park,
Nagpur - 440 010 Phone - 0712 - 2563689
56
© - Gratulent Publications
1st Edition - July, 2018
2nd Edition - July, 2019
3rd Edition - July, 2020
4th Edition - July, 2021
Published By - Gratulent Publications
Printed by - Shree Graphic
Price -
Available in all leading book stalls
No part of this publication should be stored in a retrieval system or transmitted in any form
or any means, electronic, mechanical, photocopying, recording and/or otherwise without the
prior written permission of the publication.
57
ENTREPRENEURSHIP
DEVELOPMENT
BBA - III
SEMESTER - V
INDEX
SR. NO. TOPICS PAGE NO.
UNIT - I ENTREPRENEUR & ENTREPRENEURSHIP 01 - 11
UNIT - II ENTREPRENEURIAL GROWTH 12 - 20
UNIT - III SMALL ENTERPRISES 21 - 34
UNIT - IV INSTITUTIONAL & FINANCIAL SUPPORT TO

ENTREPRENEURS 35 - 52
UNIVERSITY QUESTION PAPER 53 - 54
58
SYLLABUS
BBA - III
Semester - V
Unit I : Entrepreneur & Entrepreneurship: Evolution of the Concept of Entrepreneurs, Characteristics

of an Entrepreneur, Distinction Between an Entrepreneur and a Manager; Functions of an Entrepreneur,
Types of Entrepreneurs, Concept of Intrapreneurs; Growth of Entrepreneurship in India, Role of
Entrepreneurship in Economic Development,.
Unit II : Entrepreneurial Growth: Factors - Economic Factors, Non-Economic Factors, Government

Actions; Entrepreneurial Competencies – Meaning, Major Competencies, Developing Competencies;
Entrepreneurship Development Programs (EDPs) - Need, Objectives, Course Content of EDPs, Phases
of EDPs, Evaluating EDPs.
Unit III : Small Enterprises: An Introductory Framework: Definition, Characteristics, Relationship Between
Small and Large Units, Rationale, Objectives, Scope, Opportunities for Entrepreneurial Career, Problems
of SSIs; Project Identification and Selection (PIS) - Meaning of Project, Project Identification, Project Selection,
Contents of Project Reports, Formulation of Project Reports; Project Appraisal - Concept, Methods, Economic
Analysis, Financial Analysis, Market Analysis, Technical Feasibility, Managerial Competence.
Unit IV : Institutional & Financial Support to Entrepreneurs: Need for Institutional Support, Various
Institutions Supporting Entrepreneurship in India – MIDC, MSME, MCED, DIC, SSIB, MSSIDC, BIFR;
Financial Support to Entrepreneurs: Commercial Banks, Other Financial Institutions – IDBI, IFCI, SFCs,
SIDBI, Venture Capital.
59
BBA - III
SEMESTER - V
QUESTION PAPER PATTERN
Question No. Unit Nature Nature
1 I a. Theory Question 8 Marks

b. Theory Question 8 Marks
OR
c. Theory Question 8 Marks
d. Theory Question 8 Marks
2 II a. Theory Question 8 Marks

OR
3 III a. Theory Question 8 Marks

OR
4 IV a. Theory Question 8 Marks

OR
5 I Short Answer Theory Question 4 Marks Each

II Short Answer Theory Question
III Short Answer Theory Question
IV Short Answer Theory Question
TOTAL MARKS 80
60

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ENTREPRENEUR, ENTREPRENEURSHIP AND ENTERPRISE :

Entrepreneur Entrepreneurship Enterprise

Person Process Objective

An Individual Sequences of Result of efforts

1) EVOLUTION OF THE CONCEPT OF ENTREPRENEUR :

(i) Entrepreneur as a Risk-Bearer :

(ii) Entrepreneur as an Organiser :

2. Command over sufficient capital, and

(iii) Entrepreneur as an Innovator :

DISTINCTION BETWEEN AN ENTREPRENEUR AND A MANAGER

Points Entrepreneur Manager

Idea Generation Determination of Objectives

Fund Raising Procurement of Raw Materials

Procurement of Machinery Market Research

Determination of Ownership Recruitment of Manpower

DISTINCTION BETWEEN AN ENTREPRENEUR AND AN INTRAPRENEUR

GROWTH OF ENTREPRENEURSHIP IN INDIA

ROLE OF ENTREPRENEURSHIP IN ECONOMIC DEVELOPMENT

Entrepreneurship helps the economic growth and development in following ways :

Relationship of Entrepreneurship with

Balanced Regional Development

Bringing Change in Structure of

Knowledge and Social Need Filling

Better Standards of Living

Production Evolution Process

FACTORS AFFECTING GROWTH OF ENTREPRENEURSHIP :

Factors Affecting Growth of

Economic Factors Non-Economic Factors Government Action

Availability of Economic Social Factors

MEANING OF ENTREPRENEURIAL COMPETENCY OF TRAIT :

MAJOR ENTREPRENEURIAL COMPETENCIES :

ENTREPRENEURSHIP DEVELOPMENT INSTITUTE OF INDIA (EDI) STUDY

ENTREPRENEURSHIP DEVELOPMENT PROGRAMMES (EDPs)

THE OBJECTIVES OF AN EDP MAY BE DIVIDED INTO TWO CATEGORIES :

Basis of Evaluation of EDPs

Modern Small Cottage Village Ancillary

RELATIONSHIP BETWEEN SMALL AND LARGE UNITS :

5. To encourage effective mobilization of country’s untapped resources.

PROBLEMS OF SMALL-SCALE INDUSTRIES

PROJECT IDENTIFICATION AND SELECTION (PIS)

PROCESS OF PROJECT IDENTIFICATION

What is Project Selection?

Who Should Be Involved?

• Criteria for project selection

MEANING OF PROJECT REPORT :

SIGNIFICANCE OF PROJECT REPORT :

FORMULATION OF A PROJECT REPORT :

PLANNING COMMISSION’S GUIDELINES FOR FORMULATING A PROJECT REPORT :

CONCEPT OF PROJECT APPRAISAL :

CONCEPT OF PROJECT APPRAISAL

 Follows anti pollution laws

Managerial Competence/ Managerial Analysis

INSTITUTIONAL AND FINANCIAL SUPPORT TO ENTREPRENEURS

Need for Institutional Support

15) To offer financial help regarding activities of transportation and tourism.

MICRO, SMALL AND MEDIUM ENTERPRISES (MSME)

What are MSMEs?

OBJECTIVES FOR THE MSME SECTOR :

MAHARASHTRA CENTRE FOR ENTREPRENEURSHIP DEVELOPMENT (MCED)

10. Hand bills and pamphlets.

DISTRICT INDUSTRIES CENTRES (DICS) :

SMALL SCALE INDUSTRIES BOARD (SSIB) :