CHAPTER - 9 SMALL BUSINESS

CHAPTER - 9

SMALL BUSINESS

            Village & small industries in India come under two categories – traditional and modern. Traditional industries- handlooms, handicrafts, coir, sericulture, khaddar  & village industries.  Modern small industries – small scale industries & power looms. Taking capital investment as the basis, small business units in India fall under any of the following categories:

a. Small- scale industry:

            It is defined as the one in which the investment in plant and machinery does not exceed Rs 1 crore. It can be up to Rs 5 crore if the thrust is on export promotion and modernization.

b. Ancillary small industrial unit

            If an industrial unit supplies not less than 50% of its production to parent unit, it can enjoy the status of ancillary small industry. Parent unit normally provides technical guidance and financial help.

c.     Export –oriented units

            If the unit exports more than 50% of production, the small scale industry gets the status of an export oriented unit.

d.Small scale industries owned & managed by women entrepreneurs:

            Small scale units promoted by women entrepreneurs in which they individually or jointly hold shares of not less than 51%, can avail various concessions offered by the government.

e. Tiny industrial units

            Here investment in plant and machinery should not exceed Rs 25 lakh.

f. Small scale service and business enterprises

            Investment in fixed assets of plant and machinery excluding land and building not exceeding Rs 10 lakh is the criteria for this category.

g. Micro business enterprises

            These are small business units in which investment in plant & machinery should not exceed Rs 1 lakh.

h.Village industries

            Any industry located in rural area producing goods or rendering services with or without the use of power .And fixed capital investment per worker not more than Rs 50000 .Or an amount per worker as may be specified by the central government from time to time.

 i. Cottage industries

·        Known as traditional industries

·        Not defined by capital investment criteria

·        Organized by individuals with private resources

·        Family members as employees

·        Use of simple machinery and equipment

·        Less capital investment

·        Produce simple items, usually in their own premises

·        Use indigenous technology

Administrative Setup For The Small Scale,

Agro And Rural Industries

            Traditionally people in rural areas fully immersed in agriculture. Now rural households are turning towards non agricultural activities such as wage employment, self employment in commerce, manufacturing and services. 

ü    Cottage and rural industries provide employment opportunities to traditional artisans and weaker sections of society

ü    Prevent migration of rural work force to urban areas looking for employment.

ü    The government of India has realized the twin objectives of ACCELARATED INDUSTRIAL GROWTH & CREATING ADDITIONAL PRODUCTIVE EMPLOYMENT in rural and backward areas through the promotion of small scale industries. PROBLEMS OF SMALL BUSINESS

§  Lack of managerial experience : 

       One or few persons carry the small scale industry , they may not have specialized knowledge in the field of management.

§  Inadequate finance:

       Small entrepreneurs cannot able to arrange full finance from own sources. They obtain finance from unorganized sector at a higher rate of interest.

§  Lack of proper machinery & equipment :

       Because of financial problems, many small units use out dated machinery and equipment for production.

§  Lack of technical knowhow:

       The small entrepreneurs do not have the knowledge about different alternative technologies to improve the quality of products and reduce cost.

§  Run on traditional lines:

       Usually small scale industries not adopt modern methods of production. They prefer old designs and patterns. There is a high degree of obsolescence in most of the small units.

§  Irregular supply of raw materials:

       The quantity, quality and regularity of supply of raw materials are other problems of small industries. Small units are forced to go for small quantity purchases and pay high prizes. Economies of bilk purchase cannot be enjoyed.

§  Problem of marketing:

       Small units find it difficult to popularize the brand name of their products due to tough competition from big business houses. They lack costly advertisement & network distribution system.

§  Personnel problems:

            Small units will not able to pay handsome salary so, highly qualified staff may not be employed.

§  Lack of clear cut policy of the government:

            The government may take decisions relating to small units on the basis of political considerations rather than on economic considerations.

§  Bogus units:

            20% of small units in the country are bogus units. They exist for the purpose of getting quotas at concessional rates & divert them into black markets. This is a threat for the promotion of true entrepreneurships.

§  Under utilization of  capacity:

            40 to 50% of capacities are not utilized by small units.

§  Non availability of cheap power:

            Small units have to depend on high cost power.

§  Problems of entry into WTO:

            Because of the rules of the WTO, small scale units find it difficult to survive. Many will be forced to close down.

GOVERNMENT ASSISTANCE TO SMALL INDUSTRIES & SMALL BUSINESS UNITS

            A number of measures have been taken by the governments, central & state, to protect this sector from large scale industrial units & to promote its growth. The important protective & promotional measures include the following:

1.    Reservation of products:

            The government has notified that 675 items can be produced exclusively by the small scale units. It is reserved for them, e.g. writing pads, rubber bands, paper files etc

2.    Reservation  and preference in government procurement:

            SSI units have been given protection from competition in the matter of purchases by the government departments. A large number of items have been reserved for exclusive purchase from  SSI sector  while a number of items  have  been  provided price  preference up to 15 percent over  units in the large scale sector.

3.    Infrastructural and institutional support:

            Infrastructural institutional supports are provided through industrial estates, district industries centre, small industries service institute, etc which provide technical assistance, testing facilities , etc.

4.    Machinery on hire purchase:

            The national small industries corporation arranges supply of machines on hire purchase to small scale units.

5.    Marketing assistance:

            Marketing assistance including export promotion assistance are provided by institutions like SIDO, NSIC, etc.

6.    Financial assistance:

            Provided by concessional terms by commercial banks, state level financial institutions, etc

7.    Training facilities:

            Training for existing & would be entrepreneurs are offered by entrepreneurship development institute of India, technical consultancy organization, management institute etc. at a concession fee.

8.    Supply of raw materials:

            Arrangements have also been made for the supply of raw materials, particularly scarce and costly items to the small scale units.

9.    Accommodation in industrial estates:

            For promoting more & more small scale business units, the government has established many industrial estates in different parts.

Institutional Support:

Nabard(National Bank For Agricultural And Rural Development:

Ø    NABARD was set up in 1982. 

Ø    The objective is to create sustainable and employment opportunity to the unemployed and under employed persons in rural areas.

Ø    Rural artisans , handicraftsmen, small entrepreneurs, groups of individuals partnership firms , cooperative societies are eligible for assistance

Ø    All manufacturing, processing, and approved service activities in the cottage and village industries sectors are eligible for assistance.

RURAL SMALL BUSINESS DEVELOPMENT CENTRE (RSBDC):

Ø It is sponsored by NABARD

It same is to give management and technical assistance to micro and small-scale  entrepreneur in rural areas

Ø This agency has organized various  programmes on rural entrepreneurship, skill up gradation workshop, training programmes, etc.. in various villages.

Ø It helps unemployed youth in rural areas in starting small business in areas

NATIONAL SMALL INDUSTRIES CORPORATION LTD (NSIC)

It was set up in 1995.its main functions are:

Ø Supply of machinery on hire-purchase basis

Ø Providing equipment leasing facility

Ø Registration of units for participation in the purchase programmers of the central and state governments

Ø Marketing assistance  

Ø Development of prototypes of machinery and equipment

Ø A new scheme of performance and credit rating of small business

SMALL INDUSTRIES DEVELOPMENT BANK OF INDIA(SIDBI)

Ø It is an apex bank set up to meet the credit requirement of small scale sectors

Ø It has 27 branches and 5 regional office with its head office in Lucknow

Ø It offers refinancing of term loans

Ø discounting and rediscounting of bills

Ø It extension of equity type assistance

Ø Providing of factoring and leasing services

Ø Specialize scheme for direct assistance

THE NATIONAL COMMISION FOR ENTERPRISES IN THE UNORGANISED SECTOR(NCEUS)

Ø It recommend measures for the improvement of productivity of small enterprises in the informal sector  It generates employment on a sustainable basis.

Ø It enhance competiveness of the small scale sector to survive in the global environment

Ø It link the sector with other institutions in areas such as credit technology marketing and skill development

RURAL AND WOMEN ENTERPRENOURSHIP DEVELOPMENT(RWED)

Ø It aims at promoting and environment to business at building institutional and human capacities of rural women

Ø It create a business environment to encourage initiative of rural women entrepreneur

Ø It enhance human and institutional capacities to increase productivity

Ø It imparts training to women entrepreneurs

WORLD ASSOCIATION FOR SMALL & MEDIUM ENTERPRISES(WASME):  

Ø Its aim is to develop an action plan for sustained growth of rural enterprises.

Ø It has set up an international committee for rural industrialization.

There are various government programme schemes such as IRDP, PMRV,TRYSEM, ETC.

Ø There are wage employment scheme like JRY, food for work, etc. and also other schemes like khadi, handloom, & handicraft.

SCHEMES OF FUND FOR RE- GENERATION OF TRADITIONAL INDUSTRIES (SFURTI):

Ø The central government has set up a fund with RS:100crore,this is ment for allocation to begin with the year 2005. It is to make implementation by the ministry of agro and rural industry with the help of state government

Ø The objective is to develop clusters of traditional industry

Ø It helps to make traditional industries competitive ,profitable and sustainable.  It helps to create employment opportunities in traditional  industries

SMALL INDUSTRIES DEVELOPMENT ORGANISATION (SIDO)

Ø It is an apex body for formulating ,co-ordinating and monitoring the policies and programmes for promotion and development of small scale industries  It functions are:-

Ø To evolve a national policies for the development of small scale industries

Ø To co-ordinate the policies and programmes of various state government

Ø To reserve items for production by small scale industries

Ø To collect data on consumer item imported and encourage entrepreneurs to produce this item by coordinated assistance

Ø To provide consultancy and training services to strengthen the competitive knowledge of small scale industries

Ø To render marketing assistance to small scale industries to effectively sell them products

SMALL INDUSTRIES DEVELOPMENT CORPARATION(SIDCO)

            It is set up under companies act 1956,as state government undertaking to cater the primary development needs of tiny and village industries . It functions are:- 

Ø To procure and supply of scares raw material

Ø To supply machinery on hire purchase

Ø To provide marketing assistance

Ø To enter joint ventures in the small scale sectors

Ø To construct industrial estates and provide infrastructure facilities

SMALL INDUSTRTIES SERVICE INSTITUTES(SISIs)

            They are set up to provide consultancy and training to existing to small entrepreneur . It functions are:- 

Ø To render technical support services

Ø To conduct EDPs

Ø To initiate promotional programmers

STATE INDUSTRIAL DEVELOPMENT CO-OPERATIONS(SIDCs)

            There are 26 state industrial development corporations In all, these corporations are owned by state governments, they have been set up to provide facilities for rapid industrialization in the respective states . It functions are:- 

Ø Granting of loans, issuing guaranties, underwriting the shares of debentures

Ø Promoting industrial projects by themselves or in participation with others

Ø Underwriting the development of industrial areas ,construction of sheds and providing infrastructural

     facilities

Ø Administering various schemes of the government

 STATE FINANCIAL CORPORATIONS(SFCs)

            It establish under state financial cooperating act of 1951, to render assistance to medium small industries in the respective state, there are 18 SFCs including Kerala state financial corporation

 DISTRICT INDUSTRIES CENTERS(DICs)

            DICs were established in May 1978 for catering the needs of small entrepreneurs. It act as multifunctional agency in respect of various government departments. The DICs comes under the directorate of industries and commerce of every state. Every district has one DICs. The organizational structure of DICs consist of one general manager and several managers of different disciplines to provide technical services in the area relevant to the needs of district concerned . It functions are:-

Ø  To conduct industrial techno economic surveys to identify product lines to investment advise to entrepreneurs

Ø  To advise entrepreneurs to select appropriate machinery and equipment, sources of supply, assessing the requirements of raw materials

Ø  To arrange artisan training programmers

Ø  To prepare an action plan to effectively implement the schemes identify

Ø  To arrange for the financial assistants with the lead banks in respective areas

INCENTIVES

                    Incentives are financial assistance provided by government to entrepreneurs for boosting industrial development in all regions here subsidy is a lump sum amount given as a help to the entrepreneurs by the government. It aims to correct the regional imbalance in industrial development by encouraging the new entrepreneurs to start industries in the backward areas. Some of the industries are as follows

LAND:- State governments offer developed land plots for setting up industry at varying terms, some states don’t charge rent while some allow payment on installment basis

POWER:- Some state supply power at concessional rate of 50% while others give extension in the initial year

WATER:- 50%concession for initial 5 year may be the criteria for supply of water to such units 

SALES TAX:- Some state give exemption for 5 years . in all union territory such industries are totally exemted from sales tax

OCTROI:- All most all the state have abolish OCTROI.

RAW METERIALS:- Industries set up in backward areas are given preferential treatment in the allotment of scares materials like cement, iron and steels, etc..  

FINANCE:- 10-15% subsidy is allowed for capital assets

INDUSTRIAL ESTATES:- States encourage settings up off industrial estates in backward region

TAX HOLIDAY:- Tax exemption for 5-10 years is given to industrial units started in backward hilly and tribal areas

FORMS OF SUPPORT TO INDUSTRIES BY THE GOVERNMENT

Ø Reservation of products 

Ø Reservation and preference in government procurements

Ø Infrastructural and institutional support

Ø Machinery on hire purchase

Ø Marketing assistance 

Ø Financial assistance

Ø Training facilities

Ø Supply of raw materials

Ø Accommodation in industrial estates

Ø Technical assistance for technological up gradation

Ø Incentives for setting up units in backward areas