MODULE 4

MODERN SMALL
BUSINESS
ENTERPRISES

INSTITUTIONAL SUPPORT FOR

BUSINESS ENTERPRISE
 Learning objectives
 By the end of this chapter student should be able to

 Define the term SSI

 Explain the characteristics of SSI
 Understand the importance and rationale of SSI

 To illustrate the policies of Government towards the development of SSI

 Describe the role of SSI in economic development
 Explain the advantages of SSI

 To understand the impact of LPG and WTO on SSI

 Describe various supporting agencies for SSI
 Define ancillary and Tiny industries

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 Definition
Any industrial undertaking in which the investment in fixed
assets in plant and machinery, whether held on ownership terms
or on lease or by hire purchase, does not exceed Rs 100 lakhs as
on March 31, 2001, is to be treated as a SSI
The plant and machinery cost does not include cost of tools,
installation charges, R & D equipment, generator sets, electrical
wires, storage tanks, fire fighting equipment's, gas producer
plant, transportation charges.

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 Characteristics
 Capital investment is less
 Number of personnel is less
 Usually sole proprietorship or with 2 to 3 partners
 Employees usually categorized as unorganized
The SSI solely depend on the entrepreneurial abilities of
the owner
 Chances of infant mortality is high
 Very few SSI’s grow into big industries
 Profit margins are low
 The working conditions of the employees are compromised
 The owner will enjoy the maximum savings
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 Need and rationale of SSI
 Small is always beautiful and easy to control
 Provide increased employment
 Require lower gestation period
 Easy to set up in rural and backward places
 Contributes towards the development of local community
 Needs only small market
 Fosters diversification of economic activities
 Caters the local needs
 Provides towards the economic development of the nation
 Influences the living standard of local people
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 Objectives
 Creation of job opportunities
 Contribute towards the reduction of regional imbalances
 Provide for economic development of the nation
 Optimum utilization of local skills
 Save foreign exchange by replacing imports
 Attainment of self reliance
 Encourage the growth of local entrepreneurship
 To meet the consumer needs at a competitive rate
 To promote uniform wealth distribution

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 Advantages of SSI
 Do not need high investment
 Do not need high level technology
 Can be started in quicker time
 Local needs will be met within short duration
 Spurts up local business
 Creates huge local employment opportunities
 Improves the backward regions that provides for reduction of wealth

imbalance
 Offers wide variety of products
 Encourages exports that improve the national economy
 Encourages innovation
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 Role of SSI in economic development of Nation
Today SSI’s play a very important role in the development of a
nation
 India being developing nation, the role of SSI is more important
Over the years SSI has emerged as dynamic and vibrant sector
of the economy
The above factor can be substantiated by the fact that the SSI’s
contribute to an extent of 40% of total exports, 35% of the NIP
and 60% of the employment opportunities

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Further the number of SSI’s have increased from 8.74 lacs
to 115.22 lacs in 2003-04
The SSI sector has registered positive growth even when
other sectors have suffered
The recent global recession did not have its effect to
a great extent in India due to contribution from SSI’s
SSI’s have contributed to the socio-
economic transformation of the country

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 Government policies towards SSI
 Indian Government has shown lot of interest towards SSI
Even during pre independence time it was reflected by Mahatma
Gandhiji himself
Various incentives related to finance, technology, infrastructure
have been extended towards SSI’s
Emerging liberalized and competitive economic environment
has necessitated the need of shift of focus from protection to
promotion

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 Impact of LPG on SSI
Liberalization, Privatization, Globalization forms the
LPG in business parlance.
 LPG started in India during early period of 1990’s
These initiatives have created ample opportunities while it
has also thrown up the challenges for SSI’s
Technology up gradation, quality, price are some of
the issues SSI’s are facing after implementation of LPG
SSI’s were overprotected by the Government to overcome
the lacunas of SSI’s

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 However the SSI’s have not responded in the true sense.
Very few SSI’s have shown the commitment to develop
into medium and large scale industries.
 Even the Government policies also have impacted the growth of
SSI’s during post globalization period
 The lending institutions also concentrated towards MNC’s
than
SSi’s
All these resulted in delay in implementation,
inadequate finance, marketing problems,
technological obsolescence, lack of infrastructure
facility, deficient managerial skills, etc.
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 To overcome the problems faced by SSI’s Government
has come up with the following measures
 Industrial extension services
 Training facilities
 Provision of developed sites for sheds
 Supply of machinery on hire purchase terms
 Encouraging exports
 Special incentives for SSI’s set up in rural areas
Technical and financial assistance for technological
up gradation.
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 Impact of WTO on
SSI’s
India has signed the World Trade Organization pact along
with 134 other nations
The WTO has altered the framework of international
trade towards non-distortive market oriented policies
WTO regulates the multilateral trade requiring its
member countries to remove import quotas, reduce
import tariffs
 Removal of quantitative restrictions on imports
 Removal of export subsidies on exports

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 This has resulted in:
Tighter patent laws through regulation of intellectual
property rights under Trade Related Intellectual Property Rights
(TRIPR)
 Import of consumer goods from China and East Asia
 Intensified competition in domestic market
 Flow of goods from overseas suppliers
Loss of Indian products and brands as competitors patent
our products and brands
Removal of quantitative restrictions on imports has resulted
in closure of many SSI’s
The Open General License (OGL) has put 586 of reserved items
for SSI’s
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which has resulted in direct competition
Dr. G.PURUSHOTHAM
with MNC’s15
 However WTO agreement has resulted in some
benefits also like:
 Opening of markets in other 133 countries
It has given a chance of becoming a super power
in service sector
It has opened up the opportunities for
knowledge exchange
Consumers are the most benefited as they can
choose between good and bad

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 GATT
During great BACKGROUND
depression of 1930’s the
international trade was badly affected and various
countries imposed import restrictions for
safeguarding their economies.

It resulted in sharp decline in world

trade.

1n 1945, USA put forward many proposals for

extending international trade and
employment.
On October 30th, 1947; 23 countries at
Geneva signed an agreement related to
tariffs imposed on trade.
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 Ancillary industry
Ancillary industries are those which manufacture
parts and components to be used by large industries.
Example..
Companies like GE produce engines for the aircraft
industry. The program of ancillarisation includes
motivation of public and private sector units
offload production to of
components,services etc.
subassemblies, tools, intermediates, parts,
to ancillary units.
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 Ancillary industry
This is a sub class of SSI
The industrial undertaking which is engaged or is
proposed to be engaged in
i. Manufacture of parts, sub-assemblies,
components, tools.
ii. Rendering of services compulsorily to an extent of 50%
to other industrial undertakings whose investment is
plant and machinery does not exceed Rs 1 crore as on
march 31st, 2001 .
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 TINY INDUSTRY
It is such of those industrial units for which the
investment limit on plant and machinery is Rs. 25 lacs
irrespective of the location.
Advantages:
1. Utilization of local resources like men and materials.
2. Limited capital to start the industry.
3. Less risk involved
4. Smaller gestation period

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 INSTITUTIONAL
SUPPORT

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 Institutions Supporting Small-scale
Industries
CENTRAL LEVEL
• SSI BOARD
•KVIC STATE LEVEL
•SIDO
• DIs
•NSIC
• DICs
•NSTEDB
SSIs
•NPC • SFCs
•NISIET • SIDCs/SIICs
•NIESBUD • SSIDCs
•IIE
•EDI

OTHERS
• Industry Association
• Non Governmental Organizations
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D r . Gto.PrUiReUsSHOTHAM
26
 Institutional Support Structure for MSMEs in India
At Federal
Level At State Level
1. Ministry of 1. Directorate of
MSMEs Industries
2. Small Industries 2. District Industries
Development Centres
Organisation
(SIDO) MSME 3. State Finance
Corporation
3. National Small s
Industries 4. State Industrial
Corporation(NSIC) Development
Others Corporation
4. Khadi & Village
Industries 1. Industry 5. Technical
Commission(KVIC) Associations Consultancy
Organisations
5. Coir Board 2. NGOs
6. Entrepreneurship
6. Entrepreneurship 3. Banks/ Development
Dr.
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27

Institutions (EDIs) G.PUR U SH O T H AM

I n s ti t u tions
 CENTRAL
LEVEL
•SSI BOARD: Small-scale Industries Board

• KVIC: Khadi and Village Industries Commission

• SIDO: Small Industries Development Organization

• NSIC: National Small Industries Corporation Ltd

• NSTEDB: National Science and Technology Entrepreneurship Development

Board

• NPC: National Productivity Council

• NISIET: National Institute for Small Industry Extension and Training

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• NIESBUD: National Institute for Entrepreneurship and Small Business
 STATE
LEVEL
•DIs: Directorate of Industries

• DICs: District Industries Centers

• SFCs: State Financial Corporations

• SIDCs/SIICs: State Industrial Development / Investment

Corporation

11/25/2019 • SSIDCs: State Small Industrial Development

Dr. G.PURUSHOTHAM 29
 1.TECHNICAL CONSULTANCY SERVICES
ORGANIZATION OF KARNATAKA
(TECSOK)
•TECSOK is a professional industrial technical and
management consultancy organization promoted by
the government of Karnataka and other state level
development institutions way back in 1976.
•It is a leading investor-friendly professional
consultancy organization in Karnataka.

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• Its various activities are investment advice, procedural
guidance, management consulting, mergers and
acquisition, process reengineering studies, valuation of
assets for takeovers, impact assessment of socio-economic
schemes, critical infrastructure balancing; IT related
studies, detailed feasibility studies and reports.
• In addition to this TECSOK sharpens the project ideas
through feasibility studies, project reports, market surveys,
and sources of finance, selection of machinery, technology,
costing and also providing turnkey assistance.

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 TECSOK undertake the assignment in the field of
• Technical and market appraisal of projects.
• Industrial potential surveys.
• Fact-finding and opinion reports.
• Corporate planning.
• Collection and spread of information.
• Impact assessment.
• Evaluation of schemes and programmes.
• Asset evaluation.
• Infrastructure development project proposal.
• Event management and publicity campaigns, and
• Or g a n izing seminar and works h
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 2.KARNATAKA INDUSTRIAL AREAS DEVELOPMENT BOARD
(KIADB)
• Constituted under the Karnataka industrial area
development act of 1996
• It is in the business of apportioning land for industries and
gearing up facilities to carryout operations
• provides developed land suited for industrialization, by
drawing up well laid-out plots of varying sizes to suit
different industries with requisite infrastructure facilities

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The facilities include roads, drainage, water supply etc.
The amenities such as banks, post offices, fire stations, police outposts, ESI
dispensaries etc are also provided.
Applications duly filled must be accompanied by:
(a) A brief project report.
(b) Details of constitution of the company
(c) Provisional registration certificate
(d)EMD of Rs 500/- per acre, subject to a maximum of Rs 10,000/-
along with20%, 15% and 5% of the land cost for various districts.

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 OBJECTIVES:
1. To establish industrial areas and promote rapid
and orderly establishment of industries in the
state of Karnataka.
2. To provide infrastructural facilities
and amenities to SSIs.
3. To assists in implementation of
government policies.
4. To function on “No Profit – No Loss” basis.
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 FUNCTIONS:
1. To acquire lands for industrial activity at identified and notified
locations and form industrial area with all infrastructure facilities
like Road Electricity power Water supply(for drinking and
industrial purposes)
2. To acquire lands in favour of single unit.
3. To acquire lands for single unit complexes for Government
organizations and to facilitate government projects.
4. To provide all infrastructure facilitates to such industrial areas.
5. To maintain the infrastructural facilities during the contractual
period.
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 3. DISTRICT INDUSTRIES CENTERS
•The District Industries Centers (DIC’s) programme was started
(DIC)
in
1978 with a view to provide integrated administrative framework
at the district level for promotion of SSI’s in rural areas.
•the districtarelevel
The DIC’s providing
envisaged service
as a single and interacting agency
window to at
entrepreneurs
support under a single small
•roof.
DIC’ are the implementing arm of the central
governments
s of the various schemes and and state
•programs.
Registration of small industries is done at the district
centre and PMRY (Pradhan Mantri Rojgar Yojana) is
industries
implemented
also by DIC.
• The organizational structure of DICS consists of General Manager,
Functional Managers and Project Managers to provide
technical services in the areas relevant to the needs of the district
•concerned.
Man a g e ment of DIC is done by t h e s t a te
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 The main functions of DIC are:
(1) To prepare and keep model project of the
profiles for reference entrepreneurs.
(2)To prepare action plan to implement the schemes effectively already
identified.
(3)To undertake industrial potential survey and to identify the types of feasible
ventures which can be taken up in ISB sector, i.e., industrial sector, service
sector and business sector.
(4)To guide entrepreneurs in matters relating to selecting the most
appropriate machinery and equipment, sources of it supply and procedure for
importing machineries.
(5) To provide guidance for appropriate loan amount and documentation.
(6)To assist entrepreneurs for availing land and shed equipment and tools,
furniture and fixtures. 39
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(7) To appraise the worthiness of the project-proposals received from entrepreneurs.
(8)To help the entrepreneurs in obtaining required licenses/permits/clearance.
(9)To assist the entrepreneurs in marketing their products and assess the possibilities of
ancillarization.
(10) To conduct product development work appropriate to small industry.
(11)To help the entrepreneurs in clarifying their doubts about the matters of operation of
bank accounts, submission of monthly, quarterly and annual returns to government
departments.
(12) To conduct artisan training programme.
(13)To act as the nodal agency for the district for implementing PMRY (Prime Minister
Rojgar Yojana).
(14)To function as the technical consultant of DRDA in administering IRDP and TRYSEM
programme.
(15)To help the specialized training organizations to conduct Entrepreneur development
programmes.
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 4. SMALL INDUSTRIES SERVICE
INSTITUTES (SISI)
The small industries service institutes have been set up
in state capitals and other places all over the country to
provide consultancy and training to small
entrepreneurs both existing and prospective.

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The main functions of SISI include:
(1) To serve as interface between central and state government.
(2) To render technical support services.
(3) To conduct entrepreneurship development programmes.
(4) To initiate promotional programmes.
The SISIs also render assistance in the following
areas:
(5) Economic consultancy/information/EDP consultancy.
(6) Trade and market information.
(7) Project profiles.
(8) State industrial potential surveys.
(9) District industrial potential surveys.
(10)Modernization and in plant studies.
(11)Workshop facilities.
(12)Training in various trade/activities.
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 5. Karnataka State Financial
State Corporation(KSFC)
Financial Corporations (SFCs) –
Main objectives are to finance and promote small and medium enterprises in their
respective states for achieving balanced regional growth, catalyze investment,
generate employment and widen ownership base of industry.
Financial assistance is provided by way of term loans, direct subscription to
equity/debentures, guarantees, discounting of bills of exchange and seed capital
assistance. SFCs operate a number of schemes of refinance of IDBI and SIDBI and
also extend equity type assistance.
• SFCs have tailor-made schemes for artisans and special target groups such as SC/ST,
women, ex-servicemen, physically challenged and also provide financial assistance
for small road transport operators, hotels, tourism-related activities, hospitals and
so on.
• Under Single Window Scheme of SIDBI, SFCs have also been extending working
capital along with term loans to mitigate the difficulties faced by SSIs in obtaining
work i n g capital limits on
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time.
 KSFC give preference to the projects which are
(i) Promoted by technician entrepreneur.
(ii) In the small-scale sector.
(iii)Located in growth centers and developing of the
areas state;
(iv) Promoted by entrepreneurs belonging to scheduled
castes and scheduled tribes, backward classes
sections of society.
and otherweaker
(v) Characterized by high employment (vi) Capable
potential. of utilizing local resources; and
(vii) In tune with the declared national
priorities.
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 6. Karnataka State Small
Industrial Development
Corporations(KSSIDC)
Established under Companies Act, 1956, as State government
undertaking, caters to small, tiny and village industries in respective
states. Being operationally flexible undertakes the activities like,
(i) Procure and distribution of scarce raw materials,
(ii) Supply of machinery to SSI units on hire-purchase basis,
(iii)Product marketing assistance (iv) Construction of
industrial estates, allied infrastructure facilities and their
maintenance
(v) Extending seed capital assistance on behalf of State government
(vi) Providing management assistance to production units.
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 Karnataka State Small Industrial Development Corporations
•Set up under the Companies Act, 1956, as wholly owned
undertakings of the State governments, act as catalysts in respective
states. SIDC helps in developing land providing developed plots
together with facilities like roads, power, water supply, drainage and
other amenities. They also extend assistance to small-scale sector
by way of term loans, subscription to equity and promotional
services. 11 out of 28 SIDCs in the country also function as SFCs
and are termed as Twin-function IDCs.

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 7. NATIONAL SMALL INDUSTRIES CORPORATION (NSIC)
• The National Small Industries Corporation (NSIC), an enterprise
under the union ministry of industries was set up in 1955 in
New Delhi to promote aid and facilitate the growth of small
scale industries in the country. NSIC offers a package of
assistance for the benefit of small–scale enterprises.
•1. Single point registration: Registration under this scheme for
participating in government and public sector undertaking
tenders.
•2. Information service: NSIC continuously gets with
updated the latest specific information technology
on
and policy issues. leads,
business
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 NATIONAL SMALL INDUSTRIES CORPORATION (NSIC)
•3. Raw material assistance: NSIC fulfils raw material requirements
of small-scale industries and provides raw material on convenient
and flexible terms.
•4. Meeting credit needs of SSI: NSIC facilitate sanctions of term loan
and working capital credit limit of small enterprise from banks.
•5. Performance and credit rating: NSIC gives credit rating by
international agencies subsidized for small enterprises up to 75% to
get better credit terms from banks and export orders from foreign
buyers.
•6. Marketing assistance programme: NSIC participates in
government tenders on behalf of small enterprises to procure
orders for them.
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 8. SMALL INDUSTRIES DEVELOPMENT
BANK OF INDIA (SIDBI)
• For 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 Special Act of Parliament
in
1989 as a wholly owned subsidiary of the IDBI. The SIDBI has taken
over
modernization of existing units.
the outstanding portfolio of the IDBI relating to the small scale
• (2) To expand
sector. The the channels for marketing
important theof products
functions IDBI are of as
SSIfollows:
sector
• in
(1)domestic and international
To initiate steps for markets.
technological up gradation
• (3)
To promote employment oriented industries especially in semi-
and
urban areas to create more employment opportunities and thereby
checking migration of people to urban areas.
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 SMALL INDUSTRIES DEVELOPMENT BANK OF INDIA (SIDBI)
• The SIDBIs financial assistance to SSIs is channeled through existing
credit delivery system comprising state financial corporations, state
industrial development corporations,
commercial banks and regional rural
banks.
In 1992-93 it has introduced two new schemes. The first is
equipment finance scheme for providing direct finance to
well-run small-scale units taking existing up
gradation/modernization and refinance for resettlement
technology of up
voluntarily
retired workers of NTC. The other new scheme was venture capital
fund exclusively for small-scale units, with an initial corpus of Rs 10
crore. SIDBI also provides financial support to national small
industries corporation (NSIC) for providing leasing, hire-purchase and
marketing support to the industrial units in the small scale sector.
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