Entreprenurial business

7/29/2019 Entreprenurial business

1/35

Unit III (14 Hours)

Small Enterprises & Enterprise Launching Formalities

1. Introduction:

2. Concept: Definition of Small Scale; Rationale; Objective; Scope

3. Role of SME in Economic Development of India

4. SME:

Registration; NOC From Pollution Board; Machinery & Equipment Selection

First Online Test

5. Project Report: Preparation; Specimen of Project Report

6. Project Planning & Scheduling using Networking Techniques of PERT / CPM

7. Methods of Project Appraisal

Second Online Test


2/35

Introduction

In India, the small-scale industrial (SSI) sector has acquired a prominentplace in the socio-economic development of the country during the past 50years. This sector constitutes 95% of the industrial units and contributes40% to the total industrial output of the country and 35% to direct export.According to the latest statistics, there are about 3.6 million SSI units inIndia and these employ approximately 19.3 million people, which is secondhighest next only to agriculture.

This achievement has been possible due to the consistent and sustainedpolicy support from the Government including policy of reservation,investment ceiling for the SSI sector and priority lending. The economicreforms started in 1991 in India provided the opportunity to SSIs to grow

big. However, the formation of WTO in 1995 has started posing a majorchallenge to the SSIs in India. There have been some sweeping changeswhich have taken place in the SSI sector in the last two years. The hithertoprotection of the SSI sector by way of reservations and quantitativerestrictions have been removed. More than 160 items which were reservedfor the SSI sector have been de-reserved.


3/35

Introduction (Contd..)

The higher rate of growth of SSIs during 1991-2000 period, compared to the overall

industrial growth rate, does not offer much satisfaction in the immediate future, unlessconcrete remedial measures are taken. Indian industry does not face any immediate threatfrom developed countries but faces serious competition from neighbouring countriesparticularly from Chinese manufacturers where productivity is 60-100% more than theIndian companies.

It has been concluded through previous studies on the SSI sector that Indian SSIs shouldremain competitive in the era of globalisation. These studies have suggested thatcompetitiveness is possible only if there is a technology up-gradation and adoption of newtechnologies. There is a need to introduce new tools and equipments for production,changes in manufacturing process, improvement in the quality of products and qualityassurance, introduction of new designs and diversification, use of new raw materials andusage of modern management and IT tools. There could, however, be other factors besidestechnology which have impacted the growth of the SSIs.

There have been varied views which have been formed about the growth of the SSI sectorpost liberalisation and the features which have acted as contributors or inhibitors for thegrowth. The vulnerable areas as experienced by the SSIs have been cited as low capital base,difficulties in accessing technology, credit constraint, low access to business services,constraint of quality of human resources, low market awareness, low lobbying capacity,Inspector-raj and infrastructural constraints.


4/35

Introduction (Contd..)

The factors which have been identified as aiding thegrowth of SSIs are advancement in generic

technology of computers and telecommunications,

rise in electronic commerce, multilateral tradingrules under agreements of World Trading

Organization (WTO), mergers and acquisitions,

liberalisation of services/ infrastructure and

sourcing out of activities to outside firms.


5/35

Definitions of Micro, Small & Medium Enterprises

In accordance with the provision of Micro, Small & MediumEnterprises Development (MSMED) Act, 2006 the Micro, Small and

Medium Enterprises (MSME) are classified in two Classes:

(a) Manufacturing Enterprises- The enterprises engaged in themanufacture or production of goods pertaining to any industry

specified in the first schedule to the industries (Development andregulation) Act, 1951). The Manufacturing Enterprise are defined

in terms of investment in Plant & Machinery.

(b) Service Enterprises: The enterprises engaged in providing or

rendering of services and are defined in terms of investment inequipment.

The limit for investment in plant and machinery / equipment formanufacturing / service enterprises,


6/35

Manufacturing Sector

Enterprises Investment in plant & machinery

Micro Enterprises Does not exceed twenty five lakh rupees

Small Enterprises More than twenty five lakh rupees but does not exceed five crore rupees

Medium Enterprises More than five crore rupees but does not exceed ten crore rupees

Service Sector

Enterprises Investment in equipments

Micro Enterprises Does not exceed ten lakh rupees:

Small Enterprises More than ten lakh rupees but does not exceed two crore rupees

Medium Enterprises More than two crore rupees but does not exceed five core rupees


7/35

Definition:

Small Scale Industrial Undertakings

The following requirements are to be complied with byan industrial undertaking to be graded as Small Scale

Industrial undertaking w.e.f. 21.12.1999

An industrial undertaking in which the investment infixed assets in plant and machinery whether held on

ownership terms on lease or on hire purchase does notexceed Rs 10 million.

(Subject to the condition that the unit is not owned,controlled or subsidiary of any other industrial

undertaking


8/35

Definition:Ancillary Industrial Undertakings

The following requirements are to be complied with by anindustrial undertaking for being regarded as ancillary industrial

undertaking: -

An industrial undertaking which is engaged or is proposed to be

engaged in the manufacture or production of parts, components,sub-assemblies, tooling or intermediates, or the rendering ofservices and the undertaking supplies or renders or proposes tosupply or render not less than 50 per cent of its production orservices, as the case may be, to one or more other industrial

undertakings and whose investment in fixed assets in plant andmachinery whether held on ownership terms or on lease or on

hire-purchase, does not exceed Rs 10 million.


9/35

Definition:

Tiny Enterprises

Investment limit in plant and machinery in respect of tinyenterprises is Rs 2.5 million irrespective of location of theunit.

Definition:

Women Entrepreneurs

A Small Scale Industrial Unit/ Industry related service orbusiness enterprise, managed by one or more womenentrepreneurs in proprietary concerns, or in which she/ they

individually or jointly have a share capital of not less than51% as Partners/ Shareholders/ Directors of Private LimitsCompany/ Members of Cooperative Society.


10/35

The opportunities in the small scale sector

are enormous due to the following factors :

- Less Capital Intensive

- Extensive Promotion & Support by the Government

- Reservation for Exclusive Manufacture by small scale sector

- Project Profiles

- Funding

s

- Finance & Subsidies

- Machinery Procurement

- Raw Material Procurement

- Manpower Training

- Technical & Managerial skills


11/35

Tools & Tools utilisation support

- Reservation for Exclusive Purchase by Government

- Export Promotion

- Growth in demand in the domestic market size due to overall economic

growth

- Increasing Export Potential for Indian products

- Growth in Requirements for ancillary units due to the increase in number

of greenfield units coming up in the large scale sector.


12/35

Rationale & Objectives of SME

Development

There are numerous arguments in favor of the small-scaleindustries which justify the rationale of small-scale industrydevelopment. The Industrial Policy Resolution 1956 has putforward four arguments in favor of small-scale industries

which emphasize the very rationale of small-scale industry inthe Indian economy. The arguments are:

Employment Generation

Balanced Regional Development

Equal Distribution Of Income and Wealth

Latent Resource utilization.


13/35

Class Discussion

What may be the other objectives behind

setting up the Small and Medium Enterprises

in India??


14/35

Scope of SME in India

In India the important areas of operation of

Small Business Enterprises are

Manufacturing

Services

Trading


15/35

Role of SME in Economic Development

of India

The importance of Small Scale Industries are asfollows

Promotes Rural and Semi Urban GrowthFosters Women EmploymentDrives the Employment avenues of SemiSkilled People.

Acts as an aid to large scale enterprises.Promotes Rural Development and betterhabitat.


16/35


17/35

SSI Registration

Small Scale and ancillary units (i.e. undertaking with investment in plant

and machinery of less than Rs. 6.0 million and Rs. 7.5 million respectively)should seek registration with the Director of Industries of the concerned

State Government.

Registering Your SSI Unit

The main purpose of Registration is to maintain statistics and maintain a rollof such units for the purposes of providing incentives and support services.

States have generally adopted the uniform registration procedures as perthe guidelines. However, there may be some modifications done by States.It must be noted that small industries is basically a state subject. States use

the same registration scheme for implementing their own policies. It ispossible that some states may have a 'SIDO registration scheme' and a

'State registration scheme'.


18/35

Benefits of Registering

The registration scheme has no statutory basis. Units would normally get

registered to avail some benefits, incentives or support given either by the Centralor State Govt. The regime of incentives offered by the Centre generally contains

the following:- Credit prescription (Priority sector lending), differential rates of interest etc.

- Excise Exemption Scheme- Exemption under Direct Tax Laws.

- Statutory support such as reservation and the Interest on Delayed Payments Act.(It is to be noted that the Banking Laws, Excise Law and the Direct Taxes Law haveincorporated the word SSI in their exemption notifications. Though in many cases

they may define it differently. However, generally the registration certificate issuedby the registering authority is seen as proof of being SSI).

States/UTs have their own package of facilities and incentives for small scale. They

relate to development of industrial estates, tax subsidies, power tariff subsidies,capital investment subsidies and other support. Both the Centre and the State,whether under law or otherwise, target their incentives and support packages

generally to units registered with them.


19/35

Objectives of The Registration Scheme

They are summarised as follows:

- To enumerate and maintain a roll of small industries to which the package ofincentives and support are targeted.

- To provide a certificate enabling the units to avail statutory benefits mainly interms of protection.

- To serve the purpose of collection of statistics.- To create nodal centres at the Centre, State and District levels to promote SSI.

Features of The Scheme

Features of the scheme are as follows:- DIC is the primary registering centre

- Registration is voluntary and not compulsory.- Two types of registration is done in all States. First a provisional registrationcertificate is given. And after commencement of production, a permanent

registration certificate is given.- PRC is normally valid for 5 years and permanent registration is given in perpetuity.


20/35

Provisional Registration Certificate (PRC)

- This is given for the pre-operative period and enables the units to obtainthe term loans and working capital from financial institutions/banks under

priority sector lending.- Obtain facilities for accommodation, land, other approvals etc.

- Obtain various necessary NOCs and clearances from regulatory bodiessuch as Pollution Control Board, Labour Regulations etc.

Permanent Registration Certificate

Enables the unit to get the following incentives/concessions:- Excise exemptions

- Income-Tax exemption and Sales Tax exemption as per State Govt. Policy.- Incentives and concessions in power tariff etc.- Price and purchase preference for goods produced.

- Availability of raw material depending on existing policy.


21/35

Procedure For Registration

Features of the present procedures are as follows:- A unit can apply for PRC for any item that does not require industrial license which meansitems listed in Schedule-III and items not listed in Schedule-I or Schedule-II of the licencingExemption Notification. Units employing less than 50/100 workers with/without power can

apply for registration even for those items included in Schedule-II.- Unit applies for PRC in prescribed application form. No field enquiry is done and PRC is

issued.

- PRC is valid for five years. If the entrepreneur is unable to set up the unit in this period, hecan apply afresh at the end of five years period.- Once the unit commences production, it has to apply for permanent registration on the

prescribed form.

The following form basis of evaluation:- The unit has obtained all necessary clearances whether statutory or administrative. e.g.drug license under drug control order, NOC from Pollution Control Board, if required etc.

- Unit does not violate any locational restrictions in force, at the time of evaluation.- Value of plant and machinery is within prescribed limits.

- Unit is not owned, controlled or subsidiary of any other industrial undertaking as pernotification.


22/35

NOC From Pollution Board

As per the provisions of the Water (Prevention & Control ofPollution) Act, 1974 and Air (Prevention & Control ofPollution) Act, 1981, any entrepreneur desirous ofestablishing a new industry or expansion of its existing unit isrequired to obtain consent to establish (NOC) from the Board

before taking any steps for establishment/expansion of thesaid industry. The Board has categorized the small scaleindustrial units into two categories namely

Green Categoryand Red Categorytaking into consideration

their pollution potential loads. The Board has laid down verysimple procedure for obtaining consent to establish (NOC)for the said categories of industries.


23/35

Machinery & Equipment Selection

You must know the different types of machinery andequipment that are needed to set up your enterprise.

Make a listing of the leading dealers/suppliers where the

machinery is available. The following factors determine thetype of machines you will need:

Capacity of the proposed unit

Minimum scale of production which is economical

Expected performance standards

Productivity Waste

Minimization Availability of spare parts for the new

machinery


24/35

Project Report

What is a project report?

The project report is a document, which gives an account of the projectproposal to ascertain the prospects of the proposed plan/activity. The projectreport contains detailed information about:

Land & building required

Manufacturing Capacity per annum Manufacturing Process

Machinery & equipment along with their prices and specifications

Requirements of raw materials

Power & Water required.

Manpower needs

Marketing

Cost of the project and production.

Financial analyses & economic viability of the project.


25/35

How is a Project Report Prepared?

A project report is prepared with the help of prescribed guidelines available withMSMEDI's, DIC's & financial institutions. Information about prices of machinery &equipment, raw material and other various inputs required for setting up anenterprise need to be collected from the market.

Is there any standard model for preparing the project report?

A model proforma for preparing the project report is available with MSMEDI's,DIC's & financial institutions. Every institution has its own model proforma.However contents of all the proforma are almost similar.

Is a model project report available?

Yes, Model project profiles are available with the MSMEDIs(formerly SmallIndustries Service Institute's) & DIC's for the guidance of entrepreneurs.. However,these project profiles have to be recast in accordance with specific needs of theentrepreneurs and the current prices of inputs.

Which agency assists in preparation of Project Report?

MSMEDIs, NSICand State Govt. agencies viz. DICs, SFCs can help you in preparingthe Project Report. You can also prepare the Project Report yourself by collectingdetailed information on various points.


26/35

Home Assignment

Refer to a specimen of a Project Report and try

drafting it on your own for a new manufacturing

or service enterprise.


27/35

Project Planning & Scheduling using

Networking Techniques

PERT, the Project Evaluation and Review Technique, is a network-based aid for planningand scheduling the many interrelated tasks in a large and complex project. It was

developed during the design and construction of the Polaris submarine in the USA in the

1950s, which was one of the most complex tasks ever attempted at the time. Nowadays

PERT techniques are routinely used in any large project such as software development,

building construction, etc. Supporting software such as Microsoft Project, among others,

is readily available. It may seem odd that PERT appears in a book on optimization, but it isfrequently necessary to optimize time and resource constrained systems, and the basic

ideas of PERT help to organize such an optimization.

PERT uses a network representation to capture the precedence or parallel relationships

among the tasks in the project. As an example of a precedence relationship, the frame of

a house must first be constructed before the roof can go on. On the other hand, some

activities can happen in parallel: the electrical system can be installed by one crew at the

same time as the plumbing system is installed by a second crew.


28/35

Pert Chart


29/35

Project Planning & Scheduling using Networking

Techniques

CPM(Critical Path Method)

Has some common characteristics with PERT

Defined by activities and events

An activity is a time-consuming effort that is required to

complete part of a project. Shown as an arrow on the

diagram

An event is denoted by a circle and defines the end of one

activity and beginning of the next. An event may be a

decision point.

Activity Event


30/35

Critical Path Method

CPM Example


31/35

Project Appraisal

Project appraisalis a generic term that refers to theprocess of assessing, in a structured way, the case

for proceeding with a project or proposal. In short,

project appraisal is the effort of calculating a

project's viability. It often involves comparing

various options, using economic appraisal or some

other decision analysis technique


32/35

Project Appraisal Criteria

Technical: will the project work? Has due attention been paid to technical factors

affecting the project design? Given the human and material resources identified,can the project activities be undertaken and outputs achieved within the timeavailable and to the required standards?

Financial: can the project be financed? Will there be sufficient funds to coverthe expenditure requirements during the life of the project?

Economic: will the nation and society at large be better off as a result of theproject? Will the project benefits be greater than the project costs over the life ofthe investment when account is taken of time (namely, is the Net Present Value ofthe project positive at the test discount rate)?

Social and gender: what will be the effect of the project on different groups, atindividual, household and community levels? How will the project impact onwomen and men? How will they participate in various stages of the project cycle?Will the social benefits of the project be greater than the social costs over the lifeof the investment when account is taken of time?


33/35

Project Appraisal Criteria

Institutional: are the supporting institutions in place? Can theyoperate effectively within the existing legislative and policyenvironment? Has the project identified opportunities forinstitutional strengthening and capacity building?

Environmental: will the project have any adverse effects on theenvironment? Have remedial measures been included in theproject design?

Political: will the project be compatible with government

policy, at both central and regional levels?

Sustainability and risk: will the project be exposed to anyundue risks? Will the project benefits be sustainable beyond thelife of the project?

P j A i l T h i / S d d


34/35

Project Appraisal Techniques/Standard

Methods Of Project Appraisal

Traditional MethodsPay back Period Method

Accounting Rate of Return

Profitability Index (post Pay back)

Time Adjusted Methods

Net Present Value Approach

Internal Rate of Return

Profitability Index


35/35

Entreprenurial business

Documents

Transcript of Entreprenurial business