ED unit II

Entrepreneurial Environment
Entrepreneurial Environment
Introduction
• Environment means the surroundings, external objects,
influences or circumstances under which someone or
something exists.
• Business environment encompasses all those factors that
affect a company’s operations, including, customers
competitors, suppliers, distributors industry, trends,
substitutes, regulations, government activities the
economy, demographics, social & cultural factors
innovation & technological developments
• Davis Keith defines the business environment
environment as “the aggregate of all conditions, events,
and influences that surround and affect it”
• The success of every business depends on adapting itself
to the environment within which it functions.
• For example, when there is a change in the government
policies, the business has to make the necessary changes
to adapt itself to the new policies.
• Similarly, a change in the technology may render the
existing products obsolete, as we have seen that the
introduction of computer has replaced the typewriters;
• the colour television has made the black & white
television out dated.
• Again, a change in the fashion or customers’ taste, may
shift the demand in the market for a particular product,
• e.g., the demand for jeans reduced the sale of other
traditional wear.
• All these aspects are external factors that are beyond the
control of the business.
• So, the business units must have to adapt themselves to
these changes in order to survive and succeed in
business.
• Hence, it is very necessary to have a clear understanding
of the concept of business environment and the nature
of its various components.
Features of Business Environment
 A) Business environment is the sum total of all factors
external to the business firm and that greatly influence
their functioning.
 (b) It covers factors and forces like customers,
competitors, suppliers, government, and the social,
cultural, political, technological and legal conditions.
 (c) The business environment is dynamic in nature, that
means, it keeps on changing.
 (d) The changes in business environment are
unpredictable. It is very difficult to predict the exact
nature of future happenings and the changes in economic
and social environment.
  (e) Business Environment differs from place to place,
region to region and country to country. Political
conditions in India differ from those in Pakistan. Taste
and values cherished by people in India and China vary
considerably
Importance of Business Environment
 (a) Determining Opportunities and Threats: The
interaction between the business and its environment
would identify opportunities for and threats to the
business. It helps the business enterprises for meeting
the challenges successfully.
 (b) Giving Direction for Growth: The interaction with
the environment leads to opening up new frontiers of
growth for the business firms. It enables the business to
identify the areas for growth and expansion of their
activities.
 C) Continuous Learning: Environmental analysis makes
the task of managers easier in dealing with business
challenges. The managers are motivated to continuously
update their knowledge, understanding and skills to meet
the predicted changes in realm of business.
 (d) Image Building: Environmental understanding helps
the business organizations in improving their image by
showing their sensitivity to the environment within
which they are working. For example, in view of the
shortage of power, many companies have set up Captive
 Power Plants (CPP) in their factories to meet their own
requirement of power
 (e) Meeting Competition: It helps the firms to analyse
the competitors’ strategies and formulate their own
strategies accordingly.
 (f) Identifying Firm’s Strength and Weakness: Business
environment helps to identify the individual strengths
and weaknesses in view of the technological and global
developments.
COMPONENTS/TYPES OF BUSINESS ENVIRONMENT
 INTERNAL ENVIRONMENT
 Internal environment refers to environment within the
organization. It includes internal factors of the business
which can be controlled by business.
 Value system: - The value system of the founders, Board
of Directors, managers, workers of the organization
have important bearing on the strategies of the
organization.
 2. Mission & objectives of the business: - Firm’s
philosophies, priorities, development, policies are
guided by the mission & objectives of the organization,
mission & objective are the first steps in the
development of the organization
 3.Organisation Structure: - Organizational hierarchy is
the authority which flow of from top to bottom. Some
 management structure & styles delay decision making &
while other facilities quick decision making.
 4. Financial capability: - Financial factors like financial
policies, financial positions & capital structure etc. affect
corporate strategies & decision
 5.Human Resource Management: - The characteristics
of the Human resources like skill, quality, morale,
commitment, attitude, knowledge etc. could contribute
to the strength & weakness of an organization. Some
organizations final difficult to carry out restructuring or
modernization because of resistance from employees.
 6. Marketing capability
 7. Operational capability
 8. Managerial policies
 9. Brand Image & corporate Image
 10.Research & development capability
EXTERNAL ENVIRONMENT
 External environment refers to external aspects of the
surroundings of business enterprise which have
influence on the functioning of business
 External environment has two types i.e., Micro
environment ii. Macro environment
 Micro Environment: - The micro environment of a
company consists of elements that directly affect the
 company. It includes suppliers, customers, market
intermediaries, competitors & customers etc.
 Micro environment includes
 1. Customers: - Customers are the people money to
acquire an organization’s products. A consumer
occupies the central position in the marketing
environment. The marketer has to closely monitor &
analyze changes in consumer tastes & preferences &
their buying habits.
 2. Competitors - Competitors are the other business
entities that compete for resources. A study of the
competitive scenario is essential for the marketer,
particularly threats from competition. In modern age an
absolute monopoly is very rare thing. Most of the firms
have to work in some type of competition such as
monopolistic competition or oligopoly.
 3.Suppliers: - Suppliers provide raw materials,
equipment, services & so on. Suppliers with their own
bargaining power affect the cost structure of the
industry. They constitute a major force, which shapes
competition in the industry
 4. Market Intermediaries: - It includes agents & brokers
who help the company to find customers. It is a link
between the company & the consumer. The chain
incorporates the stockiest, the wholesalers, the
distributors, the retailers etc.
 5. Public: - Public is any group that has actual or
potential interest in the business. The prospects of firm
depend upon the society in which it has to work & sell
its products. In a homogenous society, the job of the
firm is easy.
 Macro Environment: - Macro environment forces that
creates opportunities & pose threats to the business
units. The macro environment consists of
 1. Economic Environment: -
 It refers to those economic factors which have impact
on the working of business.
 It consists of economic factors that influence the
business in a country.
 These factors include gross national product, corporate
profit, inflation rate, employment, balance of payments,
interest rates consumer income etc.
A. Economic conditions: -
 Economic conditions include income level, distribution
of income, demand & supply trends etc. if the company
is in boom condition, it positively affects demand &
market share.
 On the other hand, if the economy is in depression, it
will have negative effects on the business.
B. Economic Polices: - Economic policies are framed by the
government. These policies establish relationship between
business & government.
 The effect of these policies may be favorable or
unfavorable. Some of the policies are
 a. Industrial Policy:
 The Industrial policy of the government covers all those
principles, policies, rules, regulations and procedures,
which direct and control the industrial enterprises of the
country and shape the pattern of industrial
development.
 b. Fiscal Policy:
 It includes government policy in respect of public
expenditure, taxation and public debt.
c. Monetary Policy:
 It includes all those activities and interventions that aim
at smooth supply of credit to the business and a boost
to trade and industry.
 d. Foreign Investment Policy:
 It includes all those activities and interventions that aim
at smooth supply of credit to the business and a boost
to trade and industry.
 e. Export –Import Policy (EXIM Policy):
 It aims at increasing exports and bridges the gap
between expert and import.
 Through this policy, the government announces various
duties/levies.
  The focus now-a-days lies on removing barriers and
controls and lowering the custom duties.
 The government keeps on changing these policies from
time to time in view of the developments taking place in
the economic scenario, political expediency and the
changing requirement.
C. Economic system: - Different economic systems prevails
in different countries. These systems affect the business.
The world economy is primarily governed by three types of
economic systems i.e., i. Capitalist economy ii. Socialist
Economy iii. Mixed economy
D. Economic Growth: - The stage of economic growth of
the economy has direct impact on the business strategies.
Increased economic growth rate result in increase in
consumption expenditure, lower the general pressure within
an industry & offers more opportunities than threats
E. The rate of interest: - The rate of interest affects the
demand for the products in the economy, particularly when
general goods are to be purchased through borrowed
finance. Low interest rated provides opportunities to the
industries to expand whereas rising interest pose a threat to
this institution.
F. Currency Exchange: - current exchange rates have
direct impact on the business environment. When the rupee
was devalued in 1991, it was to make Indian products
cheaper in the world market & consequently boost India’s
exports.
2. Non-economic Environment
 Social Environment:
 The social environment of business includes social
factors like customs, traditions, values, beliefs, poverty,
literacy, life expectancy rate etc.
 For example, during festive seasons there is an increase
in the demand for new clothes, sweets, fruits, flower,
etc.
 Due to increase in literacy rate the consumers are
becoming more conscious of the quality of the products.
 Due to change in family composition, more nuclear
families with single child concepts have come up.
 This increases the demand for the different types of
household goods.
 It may be noted that the consumption patterns, the
dressing and living styles of people belonging to
different social structures and culture vary significantly
 Political Environment:
 This includes the political system, the government
policies and attitude towards the business community
and the unionism.
 All these aspects have a bearing on the strategies
adopted by the business firms. The stability of the
government also influences business and related
activities to a great extent.
 It sends a signal of strength, confidence to various
interest groups and investors.
 You may be aware that Coca-Cola, a cold drink widely
used even now, had to wind up operations in India in
late seventies.
 Again, the trade union activities also influence the
operation of business enterprises.
 Most of the labour unions in India are affiliated to
various political parties. Strikes, lockouts and labour
disputes etc. also adversely affect the business
operations
 Legal Environment:
 This refers to set of laws, regulations, which influence
the business organizations and their operations. E
 very business organization has to obey, and work within
the framework of the law.
 The important legislations that concern the business
enterprises include: (i) Companies Act, 1956 (ii) Foreign
Exchange Management Act, 1999
 (iii) The Factories Act, 1948 (iv) Industrial Disputes Act,
1972
 (v) Payment of Gratuity Act, 1972 (vi) Industries
(Development and Regulation) Act, 1951
 (vii) Prevention of Food Adulteration Act, 1954 (viii)
Essential Commodities Act, 2002
 (ix) The Standards of Weights and Measures Act, 1956
(x) Monopolies and Restrictive Trade Practices Act, 1969
(xi) Trade Marks Act, 1999
 (xii) Bureau of Indian Standards Act, 1986 (xiii)
Consumer Protection Act, 1986
 (xiv) Environment Protection Act (xv) Competition Act,
2002
 Technological Environment:
 Technological environment includes the methods,
techniques and approaches adopted for production of
goods and services and its distribution.
 The varying technological environments of different
countries affect the designing of products.
 For example, in USA and many other countries electrical
appliances are designed for 110 volts.
 But when these are made for India, they have to be of
220 volts.
 In the modern competitive age, the pace of
technological changes is very fast. Hence, in order to
survive and grow in the market, a business has to adopt
the technological changes from time to time.
 Demographic Environment:
 This refers to the size, density, distribution and growth
rate of population. All these factors have a direct
bearing on the demand for various goods and services.
 For example, a country where population rate is high
and children constitute a large section of population,
then there is more demand for baby products.
 Similarly, the demand of the people of cities and towns
are different than the people of rural areas.
 The high rise of population indicates the easy availability
of labour. These encourage the business enterprises to
use labour intensive techniques of production.
 Moreover, availability of skill labour in certain areas
motivates the firms to set up their units in such area. For
example, the business units from America, Canada,
Australia, Germany, UK, are coming to India due to easy
availability of skilled manpower.
 Natural Environment:
 The natural environment includes geographical and
ecological factors that influence the business
operations.
 These factors include the availability of natural
resources, weather and climatic condition, location
aspect, topographical factors, etc. Business is greatly
influenced by the nature of natural environment.
 For example, sugar factories are set up only at those
places where sugarcane can be grown.
 It is always considered better to establish manufacturing
unit near the sources of input.
  Further, government’s policies to maintain ecological
balance, conservation of natural resources etc. put
additional responsibility on the business sector.

ETP: ENTREPRENEURSHIP TRAINING PROGRAMME

Introduction
• It has been told that entrepreneurs are not born, they
are made.
• Entrepreneurship does not emerge and develop of its
own.
• Its emergence and development depend upon an
environment in which entrepreneur can learn and
discharge his/her assigned responsibility in an efficient
manner.
• The government play a positive role in the emergence
and development of entrepreneurship by providing
training, incentives, concessions etc., and by creating an
environment conducive for the growth of
entrepreneurship
Meaning:
 EDP is a programme meant to develop entrepreneurial
abilities among the people. Thus, the concept of
entrepreneurship development programme involves
equipping a person with the required skills and
knowledge needed for starting and running the
enterprise.
 EDP may be defined as a programme designed to help
an individual in strengthening his/ her entrepreneurial
motive and in acquiring skills and capabilities necessary
for playing his/ her entrepreneurial role effectively.

NEED
 Entrepreneurs possess certain competencies or traits.
 These competencies or traits are the underlying
characteristics of the entrepreneurs which result in
superior performance and which distinguish successful
entrepreneurs from the unsuccessful ones.
 Role and relevance of Entrepreneurial Development
Programme (EDP) in the process of economic
development and growth of a nation is immense.
 Various EDPs are designed to develop and improve
entrepreneurial skills and behavioural adjustment
needed to go through the stresses of initial stages.
 Different programmes are designed for different trades,
industries and big projects.
 the EDPs are meant to train and develop new
entrepreneurs who act as catalytic agents in the process
of industrialization and economic growth.
 It is the entrepreneur who organises and puts to use
capital, labour and technology in the best possible
manner for the setting up of his enterprise.
 The entrepreneur with his vision and ability to bear the
risk can transform the economic position of the country.
 They play a vital role in initiating and sustaining the
process of economic development of a nation.
 It is the EDP, through which the entrepreneurs learn the
required knowledge and skill for running the enterprise
successfully which ultimately contribute towards
economic progress in the following ways:
 1.Creates Employment Opportunities:
 Acute unemployment has been a chronic problem of
most of the underdeveloped and developing nations of
the world.
 EDPs help in solving the problem of unemployment by
creating adequate employment opportunities in setting
up of their own small and big industrial unit where the
unemployed are absorbed.
 EDPs help the unemployed to opt for self - employment
by choosing entrepreneurship as a career.
 EDPs help the entrepreneur to get an opportunity to
lead on independent and respectable life in the society
and enable others to get gainful employment.
 Various programmes, schemes like Prime Minister’s
Rozgar Yojana, NREP (National Rural Employment
Programme) and IR (Integrated Rural Development
Programme) etc. have been initiated by Government of
 India to eliminate poverty and solve the problem of
unemployment.
 2. Helps in achieving Balanced Regional Development:
Successful EDP’s assisting accelerating the pace of
industrialisation in the backward areas and helps in
reducing the concentration of economic power in the
hands of an individual.
 Government encourages to set up industries in the
backward areas to remove wide gap of income and
wealth between the rich and poor.
 The various concessions and subsidies offered by the
State and Central Governments prompted the
entrepreneurs to build their own small and medium
industrial units in the rural and backward areas.
 EDP’s in setting up industrial units in the backward areas
lead to the development of rural sector which helps in
achieving balanced regional development.
 3. Prevents Industrial Slums:
 The towns and cities are highly congested and
overcrowding due to the growth of industrial slums
which results in overburdening of civic amenities and a
lot of problems including adverse impact on the health
of the people.
 EDP’s help in solving the above problems by preventing
the growth of industrial slums through dispersal of
industrial units in different parts of the country including
backward and rural areas.
 EDP’s help entrepreneurs to know about the various
schemes, incentives, subsidies and infrastructural
requirements for setting up their enterprises,
particularly in backward and rural areas.
 This checks migration of rural people to urban sector
and thus controls the growth of industrial slums.
 4.Use of Local Resources:
 Lots of available resources remain unutilized due to
absence of initiative and lack of adequate knowledge by
the entrepreneurs.
 Proper use of these resources will help to create a
healthy base, for rapid industrialisation and sound
economic growth.
 EDP’s can help in the proper use of locally available
resources by providing proper training, guidance and
education to the potential entrepreneurs.
 5.Easing Social Tension:
 EDP’s help in channelizing on right lines, the talent and
energies of unemployed youth, feel frustrated after
completing their education without a job or source of
livelihood.
 Unemployment and frustration amongst the young and
educated people lead to social unrest and tension.
 EDPs help in diverting the talent of the youth towards
self-employment careers by establishing their own
 enterprises and thus creating employment opportunities
for the unemployed.
 In this way, EDPs are able to defuse the social tension
and unrest among the youth.
 6. Economic Independence:
 The entrepreneurs through EDP’s are able to achieve
economic independence of a country by producing a
variety of better-quality goods and services at
competitive prices.
 They also through export promotion and import
substitution able to earn and save the foreign exchange
which is essential for the growth and development of
any economy.
 7. Improves the Standard of Living and Per Capita
Income:
 EDP’s provide the necessary support to entrepreneurs
by educating them about the test innovation and
techniques of production to produce a large variety of
quality goods and services at competitive prices.
 EDPs also help in establishing more enterprises which
provide employment opportunities and help in
increasing the earning of the people.
 It will result in increase in per-capita income and helps
in the improvement of standard of living of the people
 8. Helps in the Overall Development of the Nation:
Entrepreneur acts as a catalyst which helps in enhancing
the various activities involved a business enterprise.
 In recent years, EDP package have become a vital
strategy for harnessing the vast untapped human skills,
and put them into industrial development.
 It results in the emergence of entrepreneurial
opportunities in various fields which leads to all-around
development in a country.
OBJECTIVES
 To identify and train potential entrepreneurs.
 To develop necessary knowledge and skills among the
participants.
 To help in analysing the various options to select the
most appropriate product suiting to the entrepreneur
and the market.
 To give a clear picture about the process and procedures
involved in setting up a small-scale Industrial unit or a
bigger unit.
 To develop and strengthen entrepreneurial quality and
motivation or need for achievement.
 To motivate the entrepreneurial instinct.
 To impart the basic managerial skills and understandings
to run the project efficiently and effectively.
 To analyse the environmental issues to be addressed
relating to the proposed project.
 To develop various business-related skills of marketing,
quality management production, distribution and
human resource management etc.
 To make the potential entrepreneurs know about the
possible risks and failures of the project and make them
learn how to overcome these problems.
 To enable the entrepreneurs to communicate clearly
and effectively.
 To develop team building, technology up-gradation,
growth and above all broad vision about the business.
 To develop a passion for integrity, honesty and
industrial discipline.
 To make him learn the basics of Industrial Laws,
Factories Act and workers’ rights and expectations. So,
that he can easily overcome the legal problems.
 To formulate the detailed Project Report or projects for
the products.
Course Contents and Curriculum:
• The training programme is usually for six week’s
duration and also programs range from three weeks to
six months.
Contents of Training Programme:
• There are different kinds of participants having different
back grounds and qualities to attend the
entrepreneurial development programme.
• 1. General Introduction to Entrepreneurship:
• First of all, the participants are exposed to a general
knowledge of entrepreneurship, factors affecting small-
scale industries, the role of entrepreneur in economic
development, entrepreneurial behaviour and the
facilities available for establishing small- scale
enterprises
• 2. Achievement Motivation Training:
• Development of achievement motive is essential to
develop human resources.
• The main aim of achievement motivation training is to
develop the need and desire to achieve, risk-taking,
initiative, personal behavioural qualities, the self-
awareness, self-confidence, to think positively and
realistically.
• The training aims at enhancing the need for
achievement among the participants.
• It is an important input of entrepreneurship training.
• It tries to make the participants to start their own
business enterprise after the completion of the training
programme.
• Motivation training help the participants to expand
their business activities and business venture.
• 3. Managerial/Management Skill:
• Running a business or starting an enterprise requires
managerial skills.
• To be imparted with basic and essential managerial skills
in the functional area like finance, production,
marketing etc.,
• It should involve all the managerial factors such as
planning, organization, coordination, leadership,
supervision, control etc.,
• 4.Support Systems and Procedures:
• The training relating to support systems and procedure
should be imparted to participants.
• The participants must be able to understand the
functioning of various agencies like commercial banks,
financial institutions, industrial service corporations and
institutions dealing with supply of raw materials,
equipment, marketing etc.,
• 5.Market Survey:
• An opportunity to conduct market survey and to select
the project is provided to participants. This will help
them to understand the actual situation of the market.
• 6.Fundamentals of Project Feasibility Study and
Business Plan Development:
• The participants are provided with guide lines on the
effective analysis of feasibility of the particular project in
 light of marketing, organization, technical, financial and
social aspects.
• Knowledge is imparted to know, how to prepare the
Project or Feasibility Report for certain products.
• The aim of any EDP should be such that, all the
participants, at end of the programme, have a business
plan in their hand prepared by themselves under the
guidance of the trainer, mentors and local
entrepreneurs
• 7. Technical Knowledge and Skills:
• After the choice of a particular organisation by a
potential entrepreneur, the in-depth knowledge about
the technical aspect of the trade should be imparted to
him, which would enable him to understand the process
of manufacturing and trading.
• 8.Plant Visits:
• In order to familiarise the participants with real life
situations in business, plant visits are also arranged.
• Such visits help the participants to know about an
entrepreneur’s behaviour, personality, thoughts and
aspirations.
• No of field trips to industrial units are helpful to
understand the economic aspects of the technology.
• 9. Meet an entrepreneur:
• One of the important contents of EDP should be ‘Meet
an entrepreneur’. The local entrepreneur should be
 invited to share his/ her experience with the trainees,
which would encourage and motivate the entrepreneur.
• For developing the course content and curriculum, the
course organisers should begin with a clear
understanding of the feasibility and objectives of the
programme, focusing on the development of ventures
with the potential for rapid growth.
• 10. Develop Criteria to Select the Target Group:
• The selection of those entrepreneurs should be based
on clear and transparent criteria.
• Normally, potential entrepreneurs would show
initiative, ambition, business sense, foresight, and
decisive
Different Phases of EDP’S
 An Entrepreneurship Development Programme consists
of the following three phases:
 1. Initial or Pre-training Phase
2. Training or Development Phase
 3. Post-Training or Follow – up Phase
 These phases require different roles to be played by the
entrepreneurship development training providers.
 1. Initial Phase: This phase includes the activities and
the preparations required to launch the training
programme.
 The main activities of this phase are:
 (a) Arrangement of Infrastructure for training (b)
Preparation of training syllabus and application form
 (c) Tie up of guest faculty (d) Designing tools and
techniques for selecting the trainees
 (e) Formation of selection committee
 2. Training Phase: In this phase the training programme
is implemented to develop motivation and skills among
the participants.
 The objective of this phase is to bring desirable changes
in the behaviour of the trainees.
 The trainers have to judge how much, and how far the
trainees have moved in their entrepreneurial pursuits.
 A trainer should see the following changes in the
behaviour of participants. (a) Is there any change in his
entrepreneurial outlook, role and skill? (b) Is he
motivated to plunge for entrepreneurial venture and
risk that is expected of an entrepreneur? (c) What kind
of entrepreneurial behaviour does the trainee lack? (d)
Does he possess the knowledge of technology,
resources and other related entrepreneurial
knowledge? (e) Is he skilful in choosing the right project,
mobilising the right resources at the right time?
 3. Post-Training or Follow-up Phase: Under this phase it
is assessed that how far the objectives of the
programme have been achieved. Monitoring and follow
up reveals drawbacks in the earlier phases and suggest
guidelines, for framing the future policy. In this phase
 infrastructural support, counselling and assistance in
establishing new enterprise and in developing the
existing units can also be reviewed. Selection of
Potential Entrepreneurs
Evaluation of Entrepreneurship Development
Program
 1. Program Objectives:
 Evaluation of an EDP may be done with the suggest
central objectives of the program.
 The objective may be to increase production, to
generate employment, to uplift certain people, etc.
 It becomes easier to assess the goals when they are
clearly defined.
 2. Selection Strategy and Procedure:
 The success of an EDP depends on proper selection of
trainees.
 Therefore, evaluation of selection strategy and
procedure is necessary.
 Hence, Evaluation is done on the basis of selection of
potential entrepreneurs, positive self-concept, initiative,
independence, problem solving, hope of success,
searching environment, and time bound planning.
 3. Training Program:
 Next, evaluation can be done on the basis of training
program.
  This covers the contribution of the curriculum and its
design, the content of the program, practical
experiences of the faculty and the follow-up.
 Curriculum design deals with issues like natural and
duration of the program, class schedule, components of
the program, the type of preparation required on the
part of the students and the faculty.
 4. Organizational Policies and Structures:
 Evaluation can be done on the basis of the assessment
of policies, strategies, community needs, training
courses, the structure and process of the organization.
 Creative and flexible structures and processes may set
an example to the trainees.
 The dynamics of the organization and its working have
to be evaluated to see, whether it has requisite self-
renewing characteristics.
Problem faced by EDP
 Trainer - motivations are not found up to the mark in
motivating the trainees to start their own enterprises.
 ED organization lack in commitment and sincerity in
conducting the EDPs.
 Non-conducive environment and constraints make the
trainer - motivators role in-effective.
 The attitude of the supporting agencies like banks and
financial institutions serves as a block to the success of
EDPs.
  Selection of wrong trainees also leads to low success
role of EDPs
Institutional support to small entrepreneurs
• 1) SIDO (Small Industries Development Organisation)
• SIDO is a subordinate to the department of SSI and
Auxiliary and Rural Industry (ARI).
• It is an apex body and monitoring the policies for
formulating, coordinating and monitoring the policies
and programmes for promotion and development of
small-scale industries.
• The main functions of SIDO are classified into
• (i) Co-ordination - To evolve national policies, to
coordinate between various govts.
• (ii) Industrial development: -
• To reserve items for production by small scale
industries,
• To render required support for the development of
ancillary units
• To collect data on consumer items and encourage the
industrial units to produce these items by giving the
assistance.
• 2) NSIC (National Small Industries Corporation Ltd)
NSIC an enterprise under the union ministry of
industries, was set up in 1955: -
• To promote, aid and foster the growth of small-scale
industries in the country,
• To provide machinery on hire- purchase scheme to SSI,
• To provide equipment leasing facility,
• To help in export marketing of the provided products of
SSI,
• To participate in bulk purchase programme of the
Government,
• To impart training in various industrial trades,
• To undertake the construction of industrial estates
• 3) SSIB (Small Scale Industries Board)
The government of India constituted a SSIB in 1954 to
advice on development of small-scale industries in the
country.
• SSIB is also known as central small industries board.
• SSIB is created to facilitate coordination and inter
institutional linkages.
• It is an apex advisory body to render service, advice to
the government to all issues pertaining in the
development of SSI.
• 'Industrial minister is the Chairman’ for SSIB.
• 4) SSIDC (State Small Industries Development
Corporations): -
• SSIDC were set up in various states under the companies
act 1956, as state government undertaking: -
• To cater to the primary developmental need of the tine,
village industries in the state union territories under this
jurisdiction.
• Important functions are: -
• (i) To procure and distribute scarce raw materials
• (ii) To supply machinery on hire-purchase system
• (iii) To provide assistance for marketing of the products
of SSI.
• (iv) To construct industrial estates/ sheds, providing
allied infrastructure facilities and their maintenance.
• 5) SISIs (Small Industries Service Institutes): -
• The SISIs are set up to provide consultancy and training
to small entrepreneurs both existing and prospective.
• The main functions are: -
• To serve as interface between central and state
government to render technical support services.
• To supply promotional programmes.
• To conduct EDP programmes
• The Small-Scale Industries have provided opportunities
for self-employment to educated young men and
experienced technicians from the middle level of society
and contributed full to the growth of industrial
entrepreneurship in our country.
• Today small-scale industries are regarded as power tool
for balanced regional economic development.
• These achievements are primarily due to the dynamic
enterprising spirit of the small-scale industrialists
themselves.
• 6) DICs (The District Industries Centres)
• DICs was started on May 8, 1978 with a view to provide
integrated administrative framework at the distinct level
for promotion of small-scale industries in rural areas.
• Functions:
• The DICs role is mainly promotional and development.
• There are 14 (fourteen) District Industries Centres
(DICs), one each in the 14 districts of the state.
• There are currently 31 DICs functioning in Tamil Nadu
which is headed by the General Manager in every
District.
• The primary objective of the District Industries Centre
is to generate employment by promoting Micro, Small
and Medium Enterprises, Cottage and Handicrafts
Industries.
• To achieve the objective of employment generation,
District Industries Centres implement a variety of
programmes.
• 7) TCO (Technical Consultancy Organisation)
A network of technical consultancy organizations was
established by the All-India Financial Institutions in the
seventies and eighties in collaboration with the state
 level financial and development institutions and
commercial banks.
• To cater to the consultancy needs of small business and
new entrepreneurs.
• The functions of the TCOs include:
• conducting surveys on industrial potential,
• preparing project profiles,
• undertaking techno-economic appraisal of projects,
• carrying out market research,
• providing technical and managerial assistance to
entrepreneurs,
• assistance in modernisation and technology
upgradations
Other Financial Institutions
 Commercial banks
 IDBI
 IFCI
 ICICI
 LIC
 UTI
 SFCs
 SIDBI
 EXIM BANK
Government Policies for Small Scale Enterprises
• Government plays a great role in the administration of
small-scale business in general, because it operates in
the society controlled by the government and in
particular, there are micro-policies specifically designed
to address small business.
• They regulate production, distribution and marketing.
• Some of the Government Policies for development and
promotion of Small-Scale Industries in India are:
• 1. Industrial Policy Resolution (IPR) 1948:
• The IPR, 1948, accepted the importance of small-scale
industries in the overall industrial development of the
country.
• It was realized that small-scale industries are
particularly suited for the utilization of local resources
and for creation of employment opportunities.
• However, they have to face acute problems of raw
materials, capital, skilled labour, marketing, etc.,
• Therefore, emphasis was laid in the IPR, 1948 that these
problems of small-scale enterprises should be solved by
the Central Government with the cooperation of the
State Governments.
• In nutshell, the main thrust of IPR 1948, as far as small-
scale enterprises were concerned, was ‘protection.
• 2. Industrial Policy Resolution (IPR) 1956:
• The main contribution of the IPR 1948 was that, it set in
the nature and pattern of industrial development in the
country.
• The post-IPR 1948 period was marked by significant
developments taken place in the country.
• For example, planning has proceeded on an organised
manner and the First Five Year Plan 1951-56 had been
completed.
• Industries (Development and Regulation) Act, 1951 was
also introduced to regulate and control industries in the
country.
• The parliament had accepted ‘the socialist pattern of
society’ as the basic aim of social and economic policy
during this period.
• It was this background, that the declaration of a new
industrial policy resolution in the form of IPR 1956.
• The IPR 1956 provided that along with continuing policy
support to the small sector.
• It also aimed at, to ensure that decentralised sector
acquires importance, to self-supporting and its
development is integrated with that of large- scale
industry in the country.
• The SSIB, constituted a working group in 1959 to
examine and formulate a development plan for small
scale industries during the third five-year plan (1961 –
1966).
• In the third five-year plan period, specific developments
like 'Rural Industrial Projects' and 'Industrial Estates
Projects' were started to strengthen the small sector.
• The IPR 1956 for small-scale industries aimed at
“Protection plus Development.”
• Hence, the IPR 1956 initiated the modem SSI in India.
• 3. Industrial Policy Resolution (IPR) 1977:
The IPR 1977 classified small sector into three
categories:
• a. Cottage and household industries which provides
self-employment on a large scale.
• b. Tiny sector, where the investment in industrial unit
i.e., plant & machinery up to Rs.1 lakh, situated in towns
with a population of less than 50,000 according to 1971
census.
• c. Small Scale Industries comprising of industrial unit
with an investment of up to Rs.10 lakhs and in case of
ancillary units with an investment of up to Rs.15 lakhs.
• From the small-scale sector was thus, to be 'protected,
developed and promoted'.
• 4. Industrial Policy Resolution (IPR) 1980
• The Government of India adopted a new industrial
policy resolution (IPR) on July 23, 1980.
• The main objectives of IPR 1980
• 1. To facilitate an increase of industrial production
through optimum utilization of installed capacity and
expansion of industries.
• 2. Introduction of the nucleus plants to replace the older
scheme of the district industry centre (DIC), in each
industrially background district to promote the
maximum small-scale industries there.
• 3. Promotion of village and rural industries to generate
economic viability in the villages well compatible with
the environment.
• Thus, the IPR 1980, re-emphasized the spirit of 1956.
The small-scale sector is considered to be the best
sector in generating wage and self-employment-based
opportunities in the country.
• 5. Industrial Policy Resolution (IPR) 1990
• The IPR 1990 was announced during June 1990.
• As to the small sector, the resolution continued to give
increasing importance to small scale enterprises, to
serve the objective of employment generation.
• The important elements were included in the resolution,
to improve the development of small-scale sector were
as follows: -
• The investment ceiling in plant and machinery for small
scale industries was raised from Rs.35 lakhs to Rs.60
lakhs and for ancillary units from Rs.45 lakhs to Rs.75
lakhs.
 • Investment ceiling for tiny units has been increased
from Rs.2 lakhs to Rs.5 lakhs, provided the unit is
located in the area having a population of 50,000 as per
1981 census survey.
• As many as 836 items was reserved for exclusive
manufacture in small scale sector.
• A new scheme of initial investment subsidy, exclusively
for small scale sector in rural and backward areas
capable of generating more employment at lower cost
of capital had been mooted and implemented.
• A new scheme of initial investment, with a vision to
improve the competitiveness of the products
manufactured in the small-scale sector, programmes of
technology up graduation will be implemented under
the umbrella of an Apex technology development centre
in Small Industries Development Organization (SIDO).
• Greater emphasis on training of women and youth
under EDP (Entrepreneurship Development Programme)
and to establish a special cell in SIDO for the purpose.
New Small Enterprise Policy 1991
• The government of India, in the Parliament on August 6,
1991, introduced the new small enterprise policy titled
'Policy measures for promoting and strengthening small,
tiny and village enterprises’.
• The main objective of New small enterprise policies is:
 • to impact more vitality and growth impetus to the
sector which enable it to contribute fully to the
economy,
• particularly in terms of growth of output, employment
and exports.
Salient features of the new small enterprise policy
• The investment limit has been increased in plant and
machinery of tiny enterprises from Rs.2 lakh to Rs.5 lakh
based on their location.
• Inclusion of industry related service and business
enterprises, based on their location as SSI.
• To limit the financial liability of the new entrepreneurs
to the capital investment.
• A new partnership act has been introduced.
• Introduction of a scheme of integrated infrastructural
development including technological backup services for
small scale industries.
• Factoring services have to be introduced, to solve the
problems of delayed payment to small sector.
• Market promotion of small-scale industries products
through cooperative/ public sector institutions, order
specialized professional and consortium approach.
• In SIDO (small industries development organization), an
export development centre (EDC) has to be set up.
• To widen the scope of National Enquiry Fund (NEF)
• To enlarge the single window scheme, and
• to associate commercial banks with provision of
composite loans.
• Important points on New small enterprise policy;
The new policy is formulated to remove the basic
problems of small sector and measures to mitigate the
various handicaps in that sector.
• The new policy provides for continuous support to the
tiny sector like:
• easier access to institutional finance,
• preference in government purchase and
• relaxation of certain labour laws.
• Since tiny sector is the nursery of the traditional skill,
the incentives will help its growth.
• Another important feature is the introduction of new
legal form of organization of business, i.e.., restricted
(or) limited partnership.
• As per this form, the liability of at least one partner is
unlimited and the liability of other partner is limited to
their invested capitals.
• This can be considered as a welcome provision.
• It will attract equity capital from friends and relatives,
who were earlier reluctant to advance their funds due to
the limited liability of the partners.
 The Role of Government in Supporting
Entrepreneurship
• The governments should create different types of
support institutions:
• i) To provide information on regulations, standards,
taxation, customs duties, marketing issues;
• ii) To advise on business planning, marketing and
accountancy, quality control and assurance;
• iii) To create incubator units providing the space and
infrastructure for business beginners and innovative
companies, and helping them to solve technological
problems, and to search for know-how and promote
innovation; and
• iv) To help in looking for partners. In order to stimulate
entrepreneurship and improve the business
environment for small enterprises.
Policies And Schemes for Promotion of MSME
Implemented by State Governments
• All the State Governments provide technical and other
support services to small units through their
Directorates of Industries, and District Industries
Centres.
• the details of the scheme vary from state to state, the
following are the common areas of support.
• Development and management of industrial estates
 • Suspension/deferment of Sales Tax
• Power subsidies
• Capital investment subsidies for new units set up in a
particular district
• Seed Capital/Margin Money Assistance Scheme
• Priority in allotment of power connection, water
connection.
• Consultancy and technical support
• Government of India runs a scheme for giving National
Awards to micro, small and medium scale entrepreneurs
providing quality products in 11 selected industry
groups of consumer interest.
• The winners are given trophy, certificate and a cash
price of Rs. 25000/- each.
• Government accords the highest preference to
development of MSME:
• By framing and implementing policies and promotional
schemes like providing incentives for quality
upgradation, concession on excise duty and provides
technical supportive services.
• Thus, Government plays a supportive role in developing
entrepreneurs.
STATE GOVERNMENTS INCENTIVES FOR INVESTORS
 • Many state governments offer incentives to attract
investment in their states. which include incentives such
as:
• Land at subsidized prices or Industrial sheds to set up
small scale industrial units.
• Tax concessions for a number of years.
• These may include exemption from sales tax etc., for a
period of time.
• Electric power supply at a reduced tariff.
• Loans and subsidies at very attractive rates of interest.
INCENTIVES FOR SETTING UP BUSINESS IN
BACKWARD AREAS
• The Government of India & several State Governments
provide several benefits and incentives to promote
industrialization of backward areas.
• Both the central and state governments share the cost
of some of the incentives provided.
• The purpose of such incentives is to develop backward
areas and increase employment for local inhabitants of
such areas.
• Some of the incentives offered are:
• Transportation subsidies to promote industries in
areas that are not easily accessible, like remote
hilly areas.
 • A subsidy of 50% to 90% on transportation costs is
available under this scheme.
• A Subsidy at the rate of 15% of the investment
amount in plant and machinery is given under the
capital investment subsidy scheme.
• A subsidy for interest relief is also provided at a
rate of 3% for new industrial units in some areas.
• Earlier, setting up an industry in India was not an
easy task, because of bureaucratic requirements
that needed to be fulfilled.
• But however, both the central and state
governments have now made efforts to improve
certain things.
Industrial Unit Start-up Information for NRIs
• For Non-Resident Indians, returning to India to start up
industrial units.
• They find, that there is plenty of talent available in India.
• Hiring the right kind of person make things easier to go
through various Indian regulations.
• While the government, trying to bring out reforms to
make things easier for foreign investors, the attitude of
certain officials is difficult to change.
• Those who face problems should use various channels
available now, to avoid delay and play certain tactics for
personal gain.
 • Returning NRI's who can tolerate the initial adjustment
setbacks in establishing themselves, will ultimately find
the rewards well worth the effort.
• India offers investors tremendous opportunities and one
such is locations for industrial investment.
Loans available for starting Industrial venture in India
• There are two main financial institutions available for
loans for entrepreneurs on the (State / National level):
• 1. Industrial Development Bank of India (IDBI)
• 2. Industrial Finance Corporation of India (IFCI)
• The IDBI is the head institution in the area of long-term
industrial finance.
• It was established under the IDBI Act 1964 as a wholly
owned subsidiary of RBI and started functioning on July
01, 1964.
• Under Public Financial Institutions Laws (Amendment)
Act 1976, it was delinked from RBI.
• IDBI is engaged in direct financing of the industrial
activities
The objectives of the IDBI are: -
• to create a principal institution for long term finance,
• to coordinate the institutions working in this field for
planned development of industrial sector,
• to provide technical and administrative support to the
industries and
 • to conduct research and development activities for the
benefit of industrial sector.
On the State level, finance is available loans can be
availed from: -
• State Financial Corporation (SFC)
• State Industrial Development Corporation (SIDC).
Criteria for Business loans:
• Technical assessment of project
• Experience of the entrepreneurs
• Financial & commercial practicality of the project
• Conformity to environmental laws,
• Economic viability of the project
How to apply for business loans in India – Loan
application procedure
• 1. To submit a detailed project report (business plan) to
the financial institution to IDBI, IFCI or any other
financial institution from where the loan sanction is
sought.
• In case, a license is a requirement for the project, the
license should be provided with the project report.
• 2. The financial institution after scrutinizing the project
report, requires any additional information or
clarifications, they ask for this in a few days of receipt of
project report.
• 3. Representative from the financial institution inspect
the site etc., to check the suitability of the project.
• At this stage, discussions on various aspects of the
project are discussed and final project costs are
calculated.
• 4. The financial institution gives its approval, if they find
the project feasible.
• Loans provided for business ventures, can be for
equipment and fixed assets as well as working capital.
• If a project is viable and the entrepreneur has
approximately 25% of his own funds.
• Then 75% can be financed. In addition to these loans
can be availed for working capital also.
• In case you can provide proof of your expertise in the
project there is always the possibility that your loans
may be sanctioned with a lesser amount of cash
investment on your part.
• Projects costing up to Rupees 5 crores can normally be
financed on the state level.
• Financial institutions follow guidelines such as debt-
equity ratio, entrepreneur’s contribution to the project,
etc., when deciding on loans.