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ENTREPRENURESHIP AND SMALL SCALE INDUSTRIES.

Definition and origin:

Entrepreneurship is one of the four main streams of economic factors:

1. Land.2. Labour.3. Capital.4. Entrepreneurship.

The word has been derived from 17th French entrepreneur, refers to individuals who were“undertakers” particularly the leader of military operations. Later it was used to refer other typesof adventures in civil engineering like construction of roads, bridges, harbours, etc. It was sincethe 18th century that the term entrepreneur came to be used, specifically after the industrialrevolution.

Joseph. A .Scum peter defines an entrepreneur as a person who innovates, raises money,assembles inputs, chooses managers and sets the organization going with his ability to identifyopportunities which others are not able to identify and is able to make use of them.

Peter Drucker defines an entrepreneur as one who always searches for a change responds to itand exploits it as an opportunity. An entrepreneur innovates. Innovation is a specific instrumentof success available to entrepreneur.

J.B.Says entrepreneurs are influenced by the society [he recognizes needs and fulfils themthrough organizing and managing resources] and he also influences society by creating newenterprises.

Richard Cantillion: “Entrepreneur is the agent who buys means of production at a certain pricein order to combine them into a product that is going to sell at prices that are uncertain at themoment at which he commits himself to the costs”

Hence an entrepreneur can be defined as a person who identifies the opportunities in hisenvironment and responds to opportunities in an innovative way so as to make economic surplusby engaging himself efficiently, exploiting the environment and the opportunities it offers.

Prosperity of a nation depends upon development of nations economy. Every nation hasresponsibility to ensure economic development to improve the living standards of the people,eliminate poverty and misery.

The prosperity and the process of economic development involves improvement of grossnational product and depends on the utilization of natural resources by the human resources torealize the productive potential of the nation. It requires increase in economic activity and thelevel of consumption.

In a developing economy like Indians which is a labour abundant, capital short economy. Thereis a limitation to the government effort directly involving itself in the increasing productivityconsidering the reverse budgetary constraints for funds and the urgent needs for higher

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investments in social development.

The Basic Stages of Entrepreneurship:

1. Initiation.2. Establishment.3. Maintenance.4. Expansion.

Initiation: It is this stage that business entrepreneur conceives the idea for a business venture.But before he finalizes on a particular business proposal, he has to make a comparative study ofthe various choices available to him. Its only after making a comparative analysis of the variouschoices that he has to make the right selection which should depend on his resources, attitudes,skills, experience, etc.

Innovation is a necessary aspect at this stage. According to Drucker there are followingimportant condition for innovation:

1. Innovation requires awareness and knowledge; it makes great demand or commitment.2. Innovation always has to be close to the market, in the sense that it should be focused on themarket and should be market driven.3. To succeed, innovation must be built on practical strength.

Principles of innovation:

1. Purposeful and systematic innovation begin with an analysis of opportunities. It begins withthinking and observation.2. Innovation involves going out to look, to ask and listen.3. The innovation to be effective, should be focused and should tackled one thing, otherwise itmay not be result oriented.4. Most of successful innovation starts small.

Innovation May occur in following forms:

1. Introduction of a new product.2. Introducing a new quality of an existing product.3. Opening of a new market.4. Finding of a new market.5. Finding out either a new source of raw material or adopting a new raw material all together.6. New methods of financing.

Establishment: The second stage deals with establishment of the venture. This stage is a mostimportant one. A new entrepreneur who does not have sufficient experience must take due caresand should be cautious. He can take the help of the professional consultancy, experienced elders.This stage is also important because the help of the project gain strength at this stage.

Maintenance: Once the business is established it is very important to maintain on regular basis.It is at this stage, that an entrepreneur’s commitment to the project is put to test. He has to meetthe challenge of the business and tackle issues and problems on day-to-day basis.




Expansion: Once a project is well established and has stabilized a steady porgies can beachieved. It is at this stage that an entrepreneur has the choice of further expansion anddiversification.

Qualities /Characteristics of an entrepreneur:

David Silver a successful venture capitalist and author described an entrepreneur as “energeticand single minded person having a mission and clear vision, intended to create out this vision aproduct or service. Following are some of the important qualities of an entrepreneur.

1. Ability to take calculated risk.2. Ability to face uncertainty.3. Ability to oversee.4. Ability to respond positively to changes.5. Creativity.6. Ability to be a leader and motivate.7. Ability to be flexible and adopt changes.8. He should be a person with sense of responsibility.9. He should have very good interpersonal skills.10. Knowledge about the market, product and other technicalities.11. He necessarily has to be a person with proactiveness. He should be resourceful.12. Persistence: This trait is a combination of patience and long time commitment.13. An entrepreneur has to be an efficient manager who is efficient in handling production,marketing, finance, personnel and all other important areas.14. He necessarily has to be wealthy individual.

Apart from above mentioned qualities there are many, such as good judgment, self-confidence, emotional stability, commercial acumen, business secrecy, clarity of objectives,technical knowledge, persistent problem solver etc.

Role of entrepreneurship in economic development:

Economic development means the process of upward change; thereby the real per capita incomeof a country increases over a period of time. Entrepreneurship plays a very important role ineconomic development. It serves as a catalyst in the process of industrialization and economicgrowth.

According to Joseph Scum peter “the rate of economic progress of a nation depends upon its rateof innovation which intern depends upon the distribution of entrepreneurial talent in thepopulation”

Technical progress alone cannot lead to economic development, unless entrepreneurs puttechnological break through to economic use. Whatever may be the state of economicdevelopment, the importance of entrepreneurs is always there. Their efforts hold the key tofurther developments.

1. Capital formation: Entrepreneurs encourage or mobilize the idle savings of the publicthrough the issue of various securities like equity shares, preference shares, public deposits,debentures, etc. Even in case of sole proprietary concerns an entrepreneur helps in capitalformation by way of using one’s own and others idle funds. High rate of the over all economic




growth

2.Generation of employment: Entrepreneurs create employment both directly and indirectly. Itis not always possible for the government to provide employment to eligible individuals. It is theindustries and business houses, which generate employment opportunities. An entrepreneurialventure creates employment, not only for the entrepreneur but for a few others also.

Apart from the direct employment, thus created indirect employment is also encouraged becauseof backward and forward linkages.

3. Improvement in per capita income: They help to increase the gross national product [GNP]and the per capita income, which is an important yard stick for measuring economicdevelopment.

4. Important in standard of living: Entrepreneurial activities result in creation of income andwealth for the entrepreneur family and at the same time such ventures remove the scarcity forcommodities by way of introducing innovative products and services.

5. Economic independence; Entrepreneurs help in the manufacture of indigenous substitutes forcertain imports, thereby encouraging economic independence.

6. Balanced regional development: By encouraging people to take up entrepreneurial venturesfor lively hood brings about a balanced regional development specially when such ventures areset-up in economically backward regions. The government offers a member of incentives toentrepreneurs establishing ventures in remote and backward regions.

7. Backward and forward linkages: An industries establishment has various backward,forward linkages.Ex: Establishment of steel plant generators several ancillary units and expands the demand foriron ore and coal. This is a backward linkage.At the same time the plant encourages the growth of the machine, building, manufacture of toolsand implements and such other units, which make use of an increase supply of steel. This is aforward linkage. Therefore entrepreneurial activities initiate change and create a chain reactionwith several links.

Distinction between entrepreneur and manager: An entrepreneur is different from amanager. The important differences between are mentioned below:

1. Innovation: An entrepreneur responds to the environment by using the opportunities providedby it and converting them into business ventures, on the other hand, manager is one who keepsrunning the business as per the wishes of entrepreneur. The manager puts the innovative ideas ofthe entrepreneur into practice.

2. Risk taking: An entrepreneur has to take risk of the business. He faces uncertainty, which canput his own financial security into trouble. But the manager does not take risks attached to themanager and is not much affected by the failure of venture as he can switch over another venture.

3. Skills: An entrepreneur is primarily a manager but needs extra skills to become a successfulmanager. He has to possess intuition, creative thinking, innovation skills, ability to take risk etc.On the other hand manager needs managerial skills of different types only.




4. Status: An entrepreneur is a self-employed person and is his own boss. He works for himself.Manager is an employee working for his employer.

5. Reward: An entrepreneur is rewarded by profits or ec9onomic surplus for his ability toassume risk, where as the manager is compensated with a fixed salary. The gains of theentrepreneur are unlimited, at the same time uncertain, which depend upon the type andmagnitude of risk that he assumes. On the other hand the salary of a manager is fixed andcertain.

Concept of Entrepreneurship: It is creation of wealth by bringing together resources in newways to start and operate an enterprise. It is a process of identifying opportunities in the marketplace, acquiring the resources in order to exploit the opportunities with the objective of long-term gains along with the objective of serving the society.

According to Cole “Entrepreneurship is the purposeful activity of an individual or a group ofassociated individuals undertaken to initiate, maintaining and increase profits by production ordistribution of economic goods and services.

It is a multidimensional concept, which can be expressed through the model devised by JohnKao.

Entrepreneurship refers to the efforts, skills, and the tasks, which a person undertakes in order tomake use of the opportunities provided by the environment with the intention of establishing asuccessful enterprise or organisation. Entrepreneurship necessarily involves person who has aparticular vision or objective that he wants to achieve further he performs the task in a particularenvironment which has various aspects such as social, cultural, political, economic,technological etc. Once the task is undertaken, its organisation and management becomes a partof entrepreneurship. Therefore we see that the aspects of person, environment, task and theorganisation are interrelated.

Basically entrepreneur is the person, entrepreneurship is the process and enterprise is the object.

Entrepreneur refers to: Entrepreneurship refers to:

1.Visualiser. 1. Vision.2. Organiser. 2. Organisation.3. Initiator. 3. Initiative.




4. Innovator. 4. Innovation.5. Imitators. 5. Imitation.6. Motivator. 6. Motivation.7. Planner. 7. Planning.8. Decision maker. 8. Decision making.9. Risk bearer. 9. Risk bearing.

Intrapreneuring or corporate entrepreneurship is the process by which other new ventures areborn within the confines of an existing corporation. It involves exploring new opportunitiesusing the existing resources. This concept involves and requires the top executives of thecompany to be encouraging and also be encouraged to be entrepreneurs within the enterpriserather than go our and start a new venture.

Entrepreneurship and intrapreneuring can be differentiated as below:

1. An entrepreneur is an independent businessman where as an intrapreneur is partiallydependent on the owners or promoters in the corporation.

2. An entrepreneur himself raises necessary capital from various resources and guarantees certainto creditors. On the other hand an intrapreneur neither raises nor guarantees any returns to thesuppliers of capital.

3. An entrepreneur fully bears the risks of an enterprise, where as an intrapreneur does not bearthe risk completely.

Origin of entrepreneur;

1. Sociologist theory: According to this theory the presence or absence of certain social baitsmotivate or de-motivate individuals from taking up entrepreneurial ventures some of theimportant ones are.

a. Family background: This factor means the size of the family, type of the family alongwith economic situation. To some extent joint family provides better financial security in theform of joint property holdings, which allows an individual to undertake risks of business. Jointfamily system also helps in expansion of business, at the same time, major drawback of jointfamily business is lack of independence with regard to decision-making.

b. Religious background: In certain societies where religions has a strong influence on apersons day to day life, it acts as a factor influencing entrepreneurship, for ex: the religiousphilosophies mould a persons thinking towards money, wealth, interest on capital, profiteering,ethics, adaptation or rejection of certain products or business ideas etc.

c. The age of entry to entrepreneurship: The time and age of starting entrepreneurialventure, this in turn may be dependent upon social factors such as exposure to family business,age of marriage and responsibility of supporting a family.

d. Occupational background: It has been significantly found that, people coming from abusiness background in the family have a better aptitude towards entrepreneurship.

2. Economists theory: According to economists entrepreneurship and economic growth takes




place in those situations where particular economic conditions are not favourable. Economicincentives are one of the main drives for entrepreneurial activity, lack of vigorous economicimperfections, insufficient and inadequate government policies, etc.

3. Psychological theory: This theory emphasises that entrepreneurship is not likely to emerge ordevelop when a society has a sufficient supply of individuals possessing certain psychologicalcharacteristics such as adventures nature, ability to take calculated risk, communication skills,leadership qualities, hardworking by nature, etc.

According to McClelland it is high need for achievement which drives people towardsentrepreneurial activities.

This achievement motive may have origins inculcated the important factors as maternal warmth.

Motivational factors: There can be many motivational factors, which help in supplying a goodnumber of entrepreneurs to the economy.

Entrepreneurial ambitions:

a. Attain wealth.b. To have self-employment.c. Desire to fulfil ambitions of elders in the family, gain social prestige.d. To do something creative for ones own and societies benefit.

Compelling factors:

a. Dissatisfaction with present job.b. Unemployment.c. To make use of idle funds.d. Revival of a sick family business.

Facilitating factors:

a. Success stories of friends and relatives.b. Previous experience in the same line of business.c. Property inherited.d. Advise of elders in family.

Function of an entrepreneur: In order to establish an enterprise or an entrepreneurial system,an entrepreneur needs to undertake the following steps:

1. Search for business ideas or opportunities.2. Process the ideas.3. Select the best idea.4. Decide the form of ownership most suited.5. Assemble the necessary inputs and resources.6. Establish the enterprise.7. Manage the business.8. Expansion.




1. Search for business ideas: The task of promotion begins with the search for suitable businessideas or opportunities. The sources may originate from:

a. Success stories of friends ands relatives,

b. Demand for new product,

c. Chances of import substitution. (Substituting an imported product with an indigenousone.)

d. Visits to trade fairs and exhibition,

e. Study of project profiles prepared but not adopted by others,

f. Market survey,

g. Consulting government agencies and entrepreneurial development institutes. Ex: Smallindustry service institute, district industries centre and national small industriescorporation. Idea should be sound and workable. The promoter has to be imaginative andfarsighted. Careful observation of the market can reveal a new business idea. Marketsurvey can also reveal the demand and supply position for various products. The surveyof available channel of distribution should also be made. Competition and price trend arealso revealed through the market survey.

h. Lists abroad are also helpful in searching new ideas.

i. Trade delegations, which may be either private ones or may be sponsored by thegovernment, explore the chances of foreign collaborations. Various government andprivate agencies publish project reports, which describe in detail the technical financialand market requirements, etc.

j. New inventions motivate entrepreneurs to adopt them and use them as a businessopportunity. Desk research is an important tool for this.

k. If through and dynamic approach to environmental scanning is another important sourcesfor business ideas, as it reveals factors prevailing in the environment such as nonavailability of a quality products (in other words of only an inferior variety of a particularproduct), unsatisfied demand, etc.

2.Processing the different ideas:

Once business ideas are discovered screening and testing of these ideas is done. First of alltechnical feasibility of an idea is judged in terms of availability of technology, machinery,equipment, skilled personnel etc. The advice and assistance of a technical expert may benecessity for this.

A detailed financial feasibility study is very important. It includes a study of different costsinvolved such as fixed cost, variable costs, overhead expenses, etc. It is also important at thisstage to make detailed profitability analysis along with thorough understanding of the BEP.




An elaborate study of market condition is essential in order to assess the viability and futureprospects of the proposed project. A number of calculations have to be made regarding thelikely demand, expected sales volume, cost of production, selling price (along with the pricingpolicy), a financial expert may be required at this stage.

After the preliminary analysis, the project is subjected with detailed analysis and evaluation fromdifferent dimensions not only technical feasibility or financial feasibility or demand feasibility,but also economic viability, managerial feasibility, etc. At this stage lot of information isrequired. It is worth spending enough time and effort at this stage, as it is critical in the finaladoptio9n of a particular business proposal.

3. Selection of best idea: Though an entrepreneur make s a study of different business ideas, itis very important for him to make a comparative study which helps him in knowing the relativeadvantages and disadvantages, strengths and weaknesses of them. Finally after ganging orunderstanding his own personal strengths and weakness, he has to make the final choice of aparticular business idea. This procedure helps him from taking a blind risk as it converts riskinto a calculated one.

4. Decide the form of ownership: It is important to decide about the form of ownership, theentrepreneur at this stage has to be aware of the relative advantages and disadvantages ofdifferent forms of ownership such as sole proprietary concerns, partnership concerns, joint stockcompany, etc. At the same time, he has to assess the requirements of his own project and adoptthe form of ownership best suited.

5. Assemble necessary inputs and resources: Once the entrepreneur is satisfied about thefeasibility of the project, he has to assemble the necessary resources to launch the enterprise, hehas to choose the partners or collaborators, collect the required finance, acquire land andbuilding, plant and machinery, furniture, employees etc.

Assembling is an important stage in the entrepreneurial journey to establish an enterprise. Themain inputs required for launching an enterprise are as follows:

1. Size and nature of demand for the product or service.

2. Alternative sources of raw materials, their costs-volume relationships.

3. Type of suppliers or technology, machinery and equipments etc.

4. Number of personnel required along with the skills.

5. Nature and degree of competition.

6. Government regulation and policies concerning the industry.

Arranging for finance is, for many ventures, the first step. A business enterprise requires financefor fixed assets, as well as for the working capital.

6. Establishing the enterprise: After all the above procedures are being completed, comes thestage of actual establishment of the enterprise, the reward that an entrepreneur gets for all his




efforts is profits, prestige, economic independence, a sense of achievement and the satisfaction ofhaving employment for many others.

7. Maintenance or management of business: This stage refers to post establishment period,which requires complete dedication of the entrepreneur. Since he is the risk taker he has toassume the responsibility of managing the venture most efficiently.

Managing a small business on a day-to-day basis calls for persistent involvement and problemsolving capacity from the entrepreneur.

An entrepreneur has to take care of different aspects of management like productionmanagement, financial, personnel management, marketing, after sales services, etc. He has to beprepared to face a variety of upheavals initially. Once the stability phase sets in, it’s relativelymore easily manageable.

8. Expansion of business: once the venture is well established and the entrepreneur is able toforesee opportunities for his business he has the option of expansion, but before adopting anynew expansion plans he must study the pros and cons.




CLASSIFICATION OF ENTREPRENEURS:

1. Business Entrepreneur: He is one who taps both production and marketing resourcesin his search to develop a new business opportunity.

2. Industrial Entrepreneur: He is essentially a manufactures who identifies the potentialneeds of customers and designs products or services to meet marketing needs. He isbasically a product-oriented entrepreneur.

3. Trading Entrepreneur: He is one who undertakes trading activities and is notconcerned with manufacturing work. He identifies potential market, stimulatesdemand for his product line and creates desire and interest among buyers to buy hisproducts.

4. Professional Entrepreneur: He is one who is interested in promoting enterprises. Hisfocus is on floating new enterprise.

5. Agricultural Entrepreneurs: These are entrepreneurs who undertake agriculturalactivities such as raising and marketing of crops and related agricultural inputs suchas fertilizers, etc.

Classification According to Motivation:

1. Pure Entrepreneur: He is a person who is motivated by psychological and economicrewards. He takes up entrepreneurship for personal satisfaction income and wealth.

2. Induced Entrepreneurs: He is one who is motivated and encouraged to undertakenentrepreneurship by certain external factors such as government incentives likecapital subsidies, tax deferrals (postponement), bounties, etc.

3. Spontaneous Entrepreneurs: They start their business based on their natural talent.They are persons with initiative, boldness and confidence. They have great self-confidence in their talent and are highly resourceful.

Classification on the basis of technology:

1. Technical Entrepreneurs: Entrepreneurs who take up business ventures, which arehighly technical in nature and require the entrepreneur also to be technically qualifiedand experienced, are called as technical entrepreneurs.

2. Non-technical entrepreneurs: Entrepreneurs who undertake ventures, which do notinvolve more of technology, are called as non-technical entrepreneurs.

Classification according to development:

1. Growth: They are individuals who necessarily take up a venture, which is growthoriented and has a high potential for development and expansion.

2. Classical: A classical entrepreneur is one who is stereotype and whose aim tomaximise his economic returns at a level which is consistent with the survival of thefirm either with or without the element of growth.

3. First Generation Entrepreneurs: He is one who has started the business venture forthe very first time. Though such a person may have the family background of somebusiness, still he is referred to as first generation entrepreneur for having started aventure unrelated to the family business.

4. Inherited Entrepreneur: Those who have inherited family business or who have




already got an experience from the family business and want to diversify a little fromthe family business are called as inherited entrepreneurs.

5. Forced Entrepreneurs: They have been forced in taking entrepreneurship either dueto family pressures or due to some inevitable condition.

6. Unprofessional Entrepreneurs: They are ones who either by habit or experience, aredeviated from the required basics of managing an enterprise.

7. Fabian Entrepreneurs: Such an entrepreneur is very cautious while practicing anychange, he has neither the will to introduce new change nor the desire to adopt newmethodologies innovated by others. His dealings are based upon customs, tradition,religion and past practices. They are not much interested in taking risk.

8. Drone Entrepreneur: He is characterised by a refusal to adopt any change and use theopportunities to make changes in production. Such entrepreneurs even make lossesbut avoid change when the product looses marketability and their operations becomeuneconomical they are pushed out of the market. They are conventional in the sensethat they stick to old ideas and products.

Male and Female Entrepreneurs:

Women Entrepreneurship is differentiated because of certain situations faced by thisgroup. Entrepreneurship among women is more of a modern phenomenon. Keepingthe requirements of this group is focus; certain special and exclusive institutes andtraining programmes have been provided.

Classification According to age wise:

According to age there may be young, middle, aged and old entrepreneurs.

The priorities and capabilities of these age groups are often different, though theyoung entrepreneurs are likely to take more risks; it is the older entrepreneurs who aremore experienced and likely to take better decisions.

Entrepreneurial Promotion: The entrepreneurial sector is a key, are required special attentionessential for economic growth. Amidst growing problems of unemployment and high cost ofliving, the medium and small enterprises assumes great importance. They create employmentopportunities not only for the entrepreneur but also for a few more. Small industries are bestsuited for capital short and labour abundant economies. Further they ensure better distribution ofincome, they are also important fro the point view of balanced regional growth. More thenumber of entrepreneurial activities better will be the utilisation of idle resources. In addition toall the above benefits they accelerate the rate of economic development because of thephenomenon of backward and forward linkages along with the fact that they add to the exportearnings.

Because of all the above-mentioned reasons, entrepreneurial promotions have been adopted as animportant part of government agenda. Both central and state assume, the responsibility forencouragement and development of entrepreneurs. These are under taken to ensure, an adequateand skilful supply of entrepreneurs to the economy. Entrepreneurial promotion has to tackle theissue from two angles. The first one being recognition and removal of barriers toentrepreneurship and secondly identify and encourage potential entrepreneurs by way ofproviding entrepreneurial development programmes and creating a support structure(institutional).




Entrepreneurial Development Programme:

Entrepreneurs are not necessarily born; they can be developed through education training andexperience. Development of entrepreneurs means inculcating entrepreneurial skills required forsetting up and operating business units. Entrepreneurial development is an ongoing process, butneeds to be well organised. Its basic purpose is to motivate persons for entrepreneurial careerand to make them capable of perceiving and exploiting business opportunities. EDP is notmerely a training program but it is the process of,

1. Enhancing the motivation, knowledge and skills of potential entrepreneurs.2. It aims at reforming the entrepreneurial behaviour in their day-to-day activities.3. Encouraging them to develop their own ventures.

A pre-condition to EDP is recognition and removal of barriers to entrepreneurship.

Barriers to entrepreneurship:

1. Lack of information and knowledge.2. Lack of technical skills.3. Lack of seed capital.4. Lack of business knowledge and experience.5. Social stigma attached to certain types of ventures.6. Legal and bureaucratic constraints.7. Patent inhibitions.8. Non-cooperative attitudes of banks, financial and support institutions.

While making he study of barriers it would be apt to also know the facilitating factors. Thesecan be,

1. Technical skills already acquired.2. Market and social contacts that a person already has.3. Family business.4. Availability of at least a part of the capital required.5. Successful role models within the family and friends.6. Capable advisors and supporters.7. Policy support from the government and institutions.

EDPs have become a novel approach towards harnessing the vast untapped human resource.They are one of the most talked about social development activities. EDPs bring about a changein perception and recognition of the critical role that the entrepreneurs play in industrialdevelopment and creating avenues for self-employment.

In short, EDP may be defined as the program designed to help an individual in strengthening hisentrepreneurial motive and encouraging his entrepreneurial role effectively. The short-termobjective of an EDP is to help a participant in the fixation of his goal of life as an entrepreneurand provide necessary guidance and support. The long-term objective of an EDP is equipping theparticipants with necessary skills required by them to become successful entrepreneurs. The nextimportant objective is to provide a constant supply of entrepreneurs to the economy.




Phases of EDP:

1. Initial or pre-training phase: This is the phase, which involves identification andselection of potential entrepreneurs and providing initial motivation to them. The mainactivities of this phase are:

1. Creation of an infrastructure for training.2. Preparing or finalising an appropriate syllabus. This also includes a

detailed list of the various contents of the training program.3. Selecting well-experienced trainers.4. Designing the techniques of training.5. Selection of capable and potential entrepreneurs.

2. Training or Development Phase: In this phase the training is actually imparted. Thetype of training is different for different target groups. It may be skill based trainingprogram or it may also be a trait based training program or it may also be a trait-basedtraining. One of the important objectives at this stage is to bring about desired changes inthe behaviour of the trainees, which may be,

1. Attitudinal tuning towards entrepreneurship in general and towards theproposed project idea in particular.

2. Trying to find out if the individual is motivated enough to actually take upthe venture along with the associated risk.

3. How and what entrepreneurial traits should the individual have, which arethe traits which the individual lacks.

4. Does he posses the required basic knowledge.5. Is he capable of mobilising the right resources even under stressful

conditions.

3. Post EDP or Follow-up stage: The objective of this phase is to assess how far theobjectives of the program have been actually achieved. Monitoring and follow-up reveals thedrawbacks of the earlier phases.




Institutional Support:

Institutional and support to entrepreneurship development:

Some of the important entrepreneurship institutes are:

EDII [Entrepreneurial Development Institute of India]:

It is an all India institution set-up by public financial institutions, Government of Gujarat andGovernment of India. Its been established at Ahmedabad and was started in the year 1983.

It is a principle agency with a special responsibility for entrepreneurship development in thecounty. It has been focusing attention of developing programs for entrepreneurship developmentand innovative training techniques. The basic EDPs undertaken by EDII comprise of thefollowing step.

1. Selecting potential entrepreneurs.2. Achievement motivation training. (AMT)3. Product selection and project report preparation.4. Business management training.5. Practical training and work experience.6. Post training and follow-up7. It undertakes model-training program and sets an example for the status to follow.

NIESBUD [National Institute for Entrepreneurs and Small Business Development]: It isanother apex level institution set up by the ministry of industries and the government of India inthe year 1986 at New Delhi. Its main function are to co ordinate and oversee the activities ofvarious institutions engaged in EDPs. NIESBUD focuses mainly on such training programswhich are either new or there is an absence of any other organisation conducting such a program.

Its activities include,

1. Evolving effective strategy for training.2. Standardising syllabus for training for various target groups.3. Formulating scientific selection procedures.4. Evolving effective training tools.5. Supporting central or state or other agencies in carrying out EDPs.6. It has over all responsibility to provide support to different entrepreneurship institute and

also to develop an entrepreneurship culture in the society and economy.

Xavier Institute for Social Welfare [1974]: It is operating in the Ranchi district of Bihar eversince 1974. Its main focus is on training rural entrepreneurs. It operates in cooperation withother social organisations operating in villages of Ranchi district, it offers a six-month programto tribal with some literacy levels and such programs include identification and selection ofcandidates, motivational training, and managerial training along with placement for practicaltraining. It also helps preparation of project reports including market survey’s, financialassistance and finally follow up and concealing.




Management Development Institute [MDI]: This institute has been set up primarily to impartmanagerial training in order to improve and develop the quality of day-to-day management ofbusiness, which is very critical for its success. It has been supported by and sponsored byindustrial finance corporation of India (IFCI) and was set up at Gurgoan in 1973 Haryana. Themain goal of MDI is to improve managerial effectiveness in not only industries but also thebanking sector of the economy.

NAYE (National Alliance of Young Entrepreneurs.): It has sponsored variousentrepreneurship programmes in collaboration with public sector banks. Some of these schemesare:

1. Bank of India –NAYE: It functions in the states of Punjab, Rajasthan, Himachal Pradesh,J&K, Chandigarh and Delhi.

2. Dena Bank – NAYE-Madras.3. Punjab National Bank-NAYE, which is operative in Bihar and West Bengal.

Indian Investment Centre: It is an autonomous non-profit organisation financed and supportedby government of India. It primarily seeks to act as a link between Indian and foreignEntrepreneurs. It is a non-profit service organisation performing the important task of promotingmutually profitable and rewarding joint ventures between India and foreign entrepreneurs.

The centre acts as a house of information on economic situation, legal requirements, governmentpolicies and procedures, etc.

Technical consultancy organisations (TCO s): There are 17 TCO s set up to provide industrialconsultancy and training. These have been started with the support of all India financialinstitutions and state government. These organisations provide comprehensive package ofservices to potential entrepreneurs. Its basic functions include:

1. Conducting business potential surveys in order to gauge the industrial potential of anarea.

2. It provide consultancy for preparation of feasibility reports.3. It undertakes techno economic surveys for different proposed projects.4. It conducts market research.5. Provides technical and managerial assistance.6. It provides consultancy for technical up gradation.




Incentives:

The importance of small industries being what it is, incentives by the government have assumedprime significance.

Entrepreneurship facilitates decentralisation of economic power by encouraging prospectivepotential entrepreneurs to take up business ventures and assist in the distribution of industry overthe entire geographic area of a country. Secondly they also facilitate transformation oftraditional technology with improved skills, high productivity, increased wages and a higherstandard of living.

Because of all the above-mentioned reasons it becomes very important for the centralgovernment to take and initiate all the important steps required to develop the entrepreneurialsector. The central government gives various incentives to encourage peo0le to take upentrepreneurial ventures by making them attractive from the point of view of earnings.

Below is a description of various kinds of incentives provided by the central government.

Incentives:

1. Subsidies.2. Bounties.3. Concessions.

Incentives: The term incentives refer to an encouraging action. It is a motivational force, whichmakes an entrepreneur take the right decision and act accordingly. Broadly speaking incentivesincludes subsidies, bounties and concessions.

Economic incentives both financial and non-financial encourage an entrepreneur’s decisionmaking.

Subsidy: It denotes a single lump sum given by the government to an entrepreneur to cover apart of the expenditure made towards a particular head of expenditure.

The term bounty denotes a bonus or financial aid which is given to industry in order to help itcomplete with other units, objective of incentives is to motivate people to set up new venture inthe larger interest of the society.

Concession refers to a reduction on prices of certain inputs required by an entrepreneur. For ex:Concession on raw materials, power tariffs, water tariff, etc. They may be in addition to anotherscheme already prevailing.

Need for Incentives:

1. To remove regional disparities in development: Certain regions of the country are overcrowded with industries, where as there are other regions and areas which remainbackward and ignored for want of facilities for industrial development. Incentives areused as a bait to lure people towards entrepreneurship in these regions, in spite of thedeficiencies. In the long run backward areas become developed thereby bringing aboutbalanced regional growth.




2. To encourage entrepreneurship by removing economic obstacles to a certain extent.Because of the economic constraints new entrance in the field becomes difficult.Incentives aim at tackling some of the problem through various means. Some of them areindustrial estates, industrial complexes, reliable supply of power, confessional finance,transport subsidy, machinery hire purchase, etc.

3. To provide competitive strength, Survival and growth: Some of the incentives areconcerned with establishment of industries while other are concerned with survival andgrowth of industries. These are certain reservation policies for the small-scale industrybecause of which small firm can hope to compete in the market to which entry by largefirms is barred. For a new venture this kind of a reservation is an incentive. Concessionon finance also contributes toward competitive strength, survival and growth.

4. To generate more employment and remove unemployment: Incentives and subsidiesgenerate more employment by accelerating the industrial growth. The subsidies aim atmaking the backward areas attractive to capable entrepreneurs.

Various Schemes of Incentives:

1. Interest free loan.2. Loans with a longer repayment period.3. Capital investment subsidy.4. Special subsidies to artisans and traditional industries including handlooms.5. Special incentives to women entrepreneurs.6. Exemption from property tax subject to a certain period.7. Exemption from income tax.8. Sales tax exemption.9. Interest free sales tax loans.10. Assistance for technical consultancy.11. Concession on power and water.12. Allotment of subsidised raw materials.13. Allotment of subsidised raw materials.14. Subsidised cost for feasibility study.15. Transport subsidy.

The central government is operating three major schemes namely: [financial incentives].

1. Central investment subsidy scheme.2. Transport subsidy scheme.3. Central assistance scheme from infrastructure development.




1. Central Investment subsidy scheme: This was introduced in the year 1971 and has beenmodified from time to time, the scheme is for encouraging setting up of industries into centrallynotified backward areas for setting up industries in category and back ward areas subsidy isallowed at the rate of 25% subject to a maximum of Rs.25 lakhs (enhanced to Rs. 50 lakhs forsetting up an electronic industries in hilly districts) It is 15% and 10% subject to a maximum ofRs. 15 lakhs and Rs. 10 lakhs for category Band C.

2. Trans port Subsidy Scheme: This scheme was introduced in 1971 and is applicable to hilly,remote and inaccessible regions. It covers the entire northeastern region including Sikkim, J&KHimachal Pradesh, hill districts of U.P, Lakshadweep, Andaman and Nicobar Islands andDarjeeling district of W.B.

Transport subsidy is paid on the transport costs of industrial raw materials, which are broughtinto and finished goods taken out to identify the railheads or ports. In the Northeastern regionsubsidy is available at the rate of 90% and for Himachal Pradesh, hill districts of U.P andDarjeeling it is 75%.

3. Central Assistance for infrastructure development in no industry districts: This scheme isundertaken to assist the state government in taking up infrastructure development programs inone or two identified growth centres in each no industry district. The central government givesfinancial assistance, which is limited to 1/3rd of the total cost of infrastructure development,subject to the maximum of Ts. 2 crores / district.

So far, around 51 growth centres in ----- districts have been identified mainly in the state ofRajasthan, Orissa, U.P., Karnataka, M.P., Bihar, Maharastra, W.B., Tripura, Nagaland,Arunachal Pradesh and Mizoram have been approved by the government of the development ofinfrastructure facilities.

4. Subsidised Consultancy services: [other services] New entrepreneurs entering the field ofmedium industry in the country can have market studies for the products undertaken by TCOs atcheaper cost.

5. Technology policy: The objective of technology policy is development of indigenoustechnology and efficient absorption and adaptation of imported technology appropriate tonational priorities and resources. The government basic policy towards import of technology isaimed at reducing unnecessary dependence on external resources and achieving self-reliancethrough optimum use of indigenous resources. It is however recognised by the government thetit is equally necessary to update technology continuously to keep pace with the fasttechnological advancements. Therefore the government policy with regard to the import oftechnology is selective and is ordinarily permitted in certain selected areas. Encouragement isgiven to individual units for setting up in house R and D units.

Technical assistance is important for the development of small-scale industries. The governmentaims at providing complete technical, economical and managerial consultancy services to small-scale industries in order to upgrade the skills of workers, increase employee productivity andwages, reduce the cost of production and strengthen competitive positions of small units.

The industrial services are provided through industrial extension centres located at different partsof the country. The small industries service institutes are state level agencies, which provide




coordinated services. The SISIs assist individual units to solve common technical problems,suggest improved designs and more up-to-date techniques of production, train the workers forimproved management etc.

The technical assistance includes:

1. Advise on improved technical processes and the use of modern machines and equipment.2. Demonstration of the use of modern machines either through workshops or through

mobile services.3. Research on proper use of equipment.4. Training classes in different technical traits.5. Information is also made available to exercise on technical matters.

6. Assistance in supply of machinery on hire purchase: The reluctance of small scale industriesto install modern and update machinery is due to the lack of investable funds or lack of fixedcapital. It was against this background that national small industries corporation (NSIC), fullyowned government of India undertaking was set-up. It provides assistance to SSIs for acquiringmachinery on hire purchase basis. The interested entrepreneur is expected to apply to NSIC inthe prescribed application form with a description of the equipment required by them. The termsand conditions of repayment are fixed by NSIC depending on the value of the machinerysanctioned for hire purchase.

In addition to the above, the chief controller of imports and exports, New Delhi issues importlicenses for import of machinery, which is of foreign origin on the basic of recommendations ofthe state directorate of industries.

7. Subsidies for market studies: New entrepreneurs who are setting up their ventures for the firsttime in the country can have market studies for their products undertaken by TCOs at a cheapercost.

8. Marketing assistance: The problem of marketing constitutes one of the major problems ofSSIs the Problem of marketing constitutes one of the major problems of SSIs. The absence ofthe market for the product often leads to sickness at the same time we can find many small scaleindustries which work at lower capacities through the installed capacity is much larger. As aresult of this they are unable to sustain themselves in the market. Economies of scale are oftenmissing in SSIs.

With a view to extend a helping hand to SSIs the government has offered the facility ofgovernment stores purchase program, which offers the market for the SSIs.

9. Assistance in exports: Export promotion of products manufactured in the small-scale sectorhas been given considerable importance and efforts have been made to increase the SSIs share inexports. The small industries development organisation (SIDO nodal agency) along with its fieldofficers offer techno-managerial assistance and guidance for he development and promotion ofexports of small scale industries.

Training programmes on marketing, packaging for exports and seminars on various aspects ofexport development in the small sector are organised.

10. Seed capital assistance: One of the constraints faced by first generation entrepreneurs and




also technical entrepreneurs is the lack of resources to meet the minimum promoters contributionto help entrepreneurs to overcome this problem IDBI has come up with the scheme which hasbecome popular as a seed capital assistance.

The objective of this scheme is to create new generation entrepreneurs who have all thenecessary traits of a good entrepreneur along with an economically viable project idea, butwhose financial resources are limited. It aims at providing finance for the very nominal chargefor meeting the risk capital requirements of entrepreneurs. The scheme is expected to promote awider dispersal of entrepreneurs thereby assisting in a wider dispersal of ownership and controlof industrial undertakings. To be eligible for this scheme the entrepreneur should be technicallyqualified or should possess relevant experience and skills. The following categories re eligiblefor this assistance:

1. New generation entrepreneurs in small sector.2. Small-scale entrepreneurs who undertake expansion or diversification.3. Small-scale entrepreneurs who intend to graduate from small scale to medium scale

sector for the first time.4. Entrepreneurs seeking additional seed capital towards meeting the project cost which

might have exceeded or over run because of causes beyond their control.5. Entrepreneurs who intend to take over an existing sick or closed unit.




STATE INCENTIVES:

It refers to different types of incentives schemes, which a stage government provides in order toassist and develop entrepreneurship and enterprise. Though there may be several centralincentive schemes available, it is the state government incentives, which attract entrepreneurs toactually start their ventures in a particular state. The objectives of state incentives are, to provideassistance and facilities to motivate potential entrepreneurs and to achieve a balanced growth forthe state. State incentives must be so devised as to synchronize private gains with social returnsin an efficient cost effective manner.

Objectives of state incentives:

1. To attract good business projects for the state.2. To assist in the dispersal of industries through out the state.3. To make investments in the industrially backward areas more remunerative.4. To help the entrepreneurs to over come certain disadvantages in setting up industries.5. To speed up process of industrialisation.

The state of Maharashtra has assumed the status of a modern state the incentives provided by itare covered under the package scheme of incentives of 1988.

For the purpose of 1988 scheme, the areas in the state have been divided into different categoriesas a, b, c, d and no industries districts.




Contribution towards cost of feasibility study the implementing agency may give up to 75%contribution towards the cost of preparation of the feasibility study, which may be undertaken bythe implementing agency itself or by any other agency approved by. If the project isimplemented, the contribution shall be treated as an unsecured loan for a period of five years.

State Directorate of industries: It provides several types of assistance and facilities toentrepreneurs. The first and foremost help is about giving information about the variousassistance facilities available to industries from the state government, following are some of theimportant activities of assistance provided by the state DOI:

1. Supply of raw materials, electric power and transport facilities.2. Procurement of land for setting up SSIs.3. Cash loans under the state aid to industries act, which are upto 10 years.4. Provision of accommodation in their industrial estates.5. Training facilities of different types to different categories.6. Providing essential certificates for import licences, raw material and other components.

Additional incentives: Additional incentives shall be available to the eligible units for a periodof additional 1 yea and upto additional 10% of the fixed capital investment separately for thefollowing credit points.

1. Energy saving d4evices: The admissibility (eligibility) in this regard could be determinedby the government in consultation with the energy department. Those projects, whichinstall energy saving devices, fall under the purview of additional incentives.

2. Installation of effluents treatment plants: The incentive shall be admissible for thoseeligible units, which abide by the stipulations of the population control board or theenvironmental department of the government.

3. Employment of local persons: This incentives hall be applicable to those unit whichemploy minimum of 80% of the local people in the non supervisory category and 50% insupervisory category. The unit is expected to maintain this level of employment,throughout the period of eligibility.

District Industries Centres: DICs were set-up in the year 1978 with a view to speed up smallindustries development, in fact many other agencies have also been set up with the sameintention, such as small industries service institutes (SISI) Small industries developmentorganisation (SIDO) and small industries development corporation. (SIDCO).

DICs focus their attention on industrial development in rural areas. It was felt that large citiesand state capitals were the main focus of attention at the cost of neglect of districts.

In addition multiplicity of institutions engaged in support activities to SSIs, complicated thesystem. The procedures were also observed to be lengthy. Hence it was felt necessary toestablish a development agency, which could provide all services and facilities to village andsmall industries under one roof. Accordingly DIC is to coordinate and act as a multifunctionalagency in respect of various government departments as also with other agencies. Theprospective entrepreneur can get assistance and help from DICs for setting up units in rural areas.The metropolitan cities of Delhi, Mumbai, Calcutta and Madras, have been kept out side thepurview of this scheme.

The efficiency and productivity of any DIC depends upon the general manager and his team of




other managers. The general manager of DIC is of the rank of joint director of industries isnormally assisted by a team of seven managers, each manager is in-charge of one specialisedactivity like for example, Manager of economic investigations, manager credits, managerresearch investigations, manager marketing, etc.

Functions of DIC:

1. DICs undertake various motivational programs and are involved with EDPs.2. Selection of projects: DIC with the help of their specialised services help a new

entrepreneur with the selection of a project.3. Provisional registration: After the selection of suitable project, the SSIs are given the

provisional registration which is of great help in getting assistance of different types fromother agencies, specially the financial institution.

4. Procurement of fixed assets: DICs sponsor the loan applications for the purchase of fixedassets like land and building and also plant and machinery.

5. DICs assist SSIs in getting various clearances from different government departments,which helps, in the speedy implementation of the project.

6. Special assistance to village artisans: It assists and arranges for the financial assistancewith the lead bank in-charge of the area.

7. DICs also assist in the procurement of raw materials, which are short in supply by way ofcoordinating with the other state level agencies.

8. Self-employment for educated, but unemployed youth: This scheme was introduced in1983-84 for the rural youth between the ages of 18 and 25, with a minimum qualificationof SSLC.

9. DICs also assist the rural artisans to get subsidies like power etc.

Thus DICs are supposed to provide assistance to entrepreneurs under one rule.

National Small Industries Corporation [NSIC]: NSIC were started in the year 1955 with theobject of supplying machinery and equipment to small industries on hire purchase basis and alsoto assist them in getting government orders. The head office of the corporation is at Delhi. Ithas four regional offices at Mumbai, Chennai, Calcutta and Delhi. It also has 11 branch offices.Following are the main functions of NSIC:

1. Making plant and machinery and other technical equipments available to SSIs on a hirepurchase basis.

2. To help and develop SSIs as ancillary units to larger units.3. NSIC also helps the small industries in marketing by providing certain marketing

facilities.4. To distribute raw materials through their depots.5. To construct industrial estates.

The NSIC has taken up the challenging task of promoting and developing SSIs almost fromscratch and has adopted on integrated approach to achieve the socio economic objectives.

Small Industries Service Institutes [SISI]: Established in the year 1956 it offers the followingforms of assistance:

1. Technical consultancy and advisory services: This is with regard to selection ofprofitable enterprises and choice of appropriate machinery, appraisal of machinery.

2. Training facilities: Training is provided for workers in basic traits in the workshops,




which are attached to this institute. This helps development of rural industries.3. Marketing assistance: Economic information on the nature and extent of the market for

specific products is collected and furnished to SSIs.4. SISI provide testing facilities: Testing facilities are provided in the laboratories and

workshops attached to the respective SSIs are located at Delhi, Bombay, Chennai,Calcutta, Bangalore and Hyderabad.

KVIC (Khadi and Village industries commission): It is a statutory organisation engaged in thetask of promoting and developing Khadi and village industries with a view to promoteemployment opportunities in the rural areas. It was established in 1975 and it took over from AllIndia Khadi and Village Industries Board, which was set up in 1953.

The board’s objectives that KVIC has set for itself are:

1. Providing employment.2. Providing saleable articles.3. Creating self-reliance among the people and building strong rural community spirit.

Its other functions include:

a. Training of persons engaged in production of Khadi and village industries.b. Building up reserves of raw materials.c. To provide for sale and marketing.d. To promote and encourage cooperative efforts among the manufactures of Khadi.

For the year 1993-94 the estimates of production of the KVIC sector is Rs. 2,899,000000 and ofemployment is 52.5 lakhs.

Management of Finance in SSIs:

Once the feasibility studies for a chosen project are over and the project report is ready, theentrepreneur has to initiate steps for the actual implementation of the project. This involvesbringing together the important inputs namely land and building, labour, machinery, staff, etc.Finance is required to assemble all the essential factors of production.

The entrepreneur has the responsible task of raising finance for his business. Financialmanagement is very important for any business not only at initial stages but, throughout the lifeof the business. Success of a business depends upon proper management of finance at all times,just as more of capital than required (excess capital0 results in higher costs, lack of it can resultin various types of blockages like production blockage, delay in processing orders, delay inrepairs of machinery, etc.

Financial planning is a process of setting policies and strategies relating to procurement,investment, and administration of funds for an enterprise. While formulating such a plan theentrepreneur has to answer questions such as how much of finance is required, for what purposeis it required, when it is required, what source should he avail it from.

There are certain features, which are special to small-scale industries in terms of financial




planning:

1. High proportion of working capital: Due to the labour intensive technology that SSIsusually adopt, a large proportion of total funds is required in the form of liquid assets.

2. Normally the SSIs in India are either proprietary concerns or partnership undertakings.Thus the amount of owned funds is lesser and dependency on borrowed funds is high.

3. Low credit standing: The creditworthiness of a new entrepreneur is generally low. Ittakes him sometime to establish the business and earn a market standing. Thus he has toprovide for adequate securities in order to avail on loans.

4. Small entrepreneurs many times do not have the required information regarding the legalaspect and documentation procedures to be followed at different stages for differentpurpose. It is also difficult for him to seek the opinion of legal experts at every step.

Assessment of capital requirement: The capital requirement for any business is basically of twotypes fixed capital and working capital. Fixed capital refers to the capital required in thepurchase of fixed assets like land and building, plant and machinery, furniture, etc. These headsof expenses are relatively fixed in nature and are not repetitive in the shorter period. On theother than working capital requirement is towards meeting thee operating expenses of a businesson a day to day business, for example, raw materials, wage and salary bills, power and watertariffs, maintenance of machinery, etc.

From the point of view of the time period for which a loan is availed there can be threecategories of loans:

1. Short term loans: They are availed for a period of less than one year.2. Medium term loans: are available for a period of 1-5 years.3. Long-term loans- are those which a re available for more than 5 years.

Estimation of fixed capital:

1. Cost of promotion: The expenses incurred on setting up of the entropies are called costof promotion. This forms a major cost factor.

2. Cost of fixed assets: The amount of fixed capital required depends upon factors such as

a. Nature of business, for example, manufacturing enterprise specially in the processindustry requires more of fixed capital as compared to a trading unit or anassembling unit.

b. Scale of operation: or the size of business is one of the important determinants ofthe amount of fixed capital required.

3. Method of acquiring fixed assets: The method or modes of payment towards thepurchases of fixed assets are an important determinant. For example if a business unitbuys all machines that it requires on entire amount being paid cash down will need moreof fixed capital as compared to a unit which buys its machinery on a hire purchase basis.Likewise a unit, which prefers an owned building, needs much higher fixed capital than aunit, which prefers a rented accommodation.

Fixed capital comprises of fixed investment and pre-production capital investment.




Fixed investment:

1. Land and site expenditure.2. Expenses on parliamentary market survey.3. Expenses on feasibility study and preparation of feasibility report.4. Any other head of expenditure related to the start up capital.

Working capital management:

It is the capital required by any enterprise to carry out day-to-day activities. It is also called the“challenging” or “circulating” capital. Since the money circulates in various forms of assets in acontinuous manner. Ex: Funds once tied up in the forms of raw material are later converted intofinished goods, which are ultimately sold.

In the balance sheet the working capital is reflected by those items of assets and liabilities whichare changing their form i.e. current assets and current liabilities.

Gross working capital: It means the total value of current assets. Current assets refer to thoseassets, which get converted to cash within a period of 1 year. This includes cash in hand, cash atbank, Bills receivable, stock or inventory and other short-term investments. Thus gross workingcapital is equal to current assets.

Net working capital: IT implies to the extent or excess of current assets over current liabilities.Current liabilities include accounts payable, bills payable short-term outstanding expenses. Thenet working capital = CA-CL.

Assessment of working capital:

1. Size of enterprise or business unit.2. Nature of business: The amount of working capital depends on the nature of the business.

Ex: A trading concern will require lesser stocks of raw materials as compared tomanufacturing concern.

3. Seasonal Variations: Some enterprise, which has seasonal demands for its products, hasa variable need for working capital during certain seasons.

4. Length of operating cycle-longer the time gap between purchase of raw materials and theultimate sale of products where by they get converted into cash, greater is the need forworking capital.

5. Inventory turnover: It refers to the speed with which sales are made. Higher the seedlesser is the working capital requirement. If the speed of sales is slow higher is therequirement of working capital.

Sources of working capital: The variable working capital is funded through short-term funds.The major sources of short-term funds are:

1. Trade credit.2. Bank credit.3. Factoring.4. Accrual accounts.




1. Trade credit: It is also referred to as mercantile credit. It is the credit extended by thesupplier/seller of goods to the buyer as incidental to trade. It arises out of transfer of ownershipof goods.

2. Bank Credit: Banks are the largest sources of short-term finance to small-scale industry.They provide assistance in following ways:

1. Loans: It is an advance where a lump sum amount is given to the borrower at an agreedrate of interest. The borrower has to pay interest on the entire amount of loan whether hewithdraws a part of it or whole amount.

2. Cash credit: It is an arrangement under which the borrower is allowed to borrow money.The cash credit limit is fixed after taking into account the repaying capacity and creditworthiness of the borrower. The borrower may withdraw money as and when requiredand has to pay the interest on the amount actually withdrawn rather than the total amountsanctioned.

3. Over Draft: It is a facility that a banker gives to the current account holder to withdrawupto a certain limit over and above his credit balance in the account. This facility isprovided for a very short period, i.e. for about a week.

4. Discounting of a bill: Banks provide facility of discounting bills of exchange. The holderof the bills (who also happens to be creditor to some other party.) Holder of the bill canget it discounted with his banker. It helps him to raise funds much earlier than maturitytime of the bill.

3. Factoring: It is an arrangement with a financial institution (factor), which undertakes tocollect bank debts on behalf of the client in turn for a charge. The factoring institution eliminatesthe risk of bad debts to a certain extent.

4. Accrual account: There is a time gap between receipt of income and making payment of theexpenditure incurred. During this time gap the outstanding expenses help an enterprise inmeeting some of the urgent working capital requirement. Ex: Wages and salaries, taxes whichare due and are not paid immediately. Wages and salaries are paid in the first week of themonth, next to the month of service rendered. Similarly a provision for tax is credited at the endof the financial year but tax is actually paid only after the assessment year.

Difficulties in the procurement of working capital:

The institutions, which provide short-term loans towards working capital requirements, arecommercial banks, cooperative banks, private moneylenders and at times schedule andunscheduled commercial banks.

Small-scale industries find it difficult to secure adequate finance from institutional sources evenfor short-term working capital needs because of certain inherent limitations. Organised creditinstitutions are generally quite sceptical (cautious) of lending to small-scale industries as theyconsider it risky.

Small-scale industries on the other hand find it quite difficult to provide securities to the lendinginstitutions because

a. Their limited equity base.




b. Their markets are quite narrow.c. Their risk taking capacity is limited.d. Their prospects are quite uncertain.

Because of all the above-mentioned reasons the financial institutions find it difficult to asses orevaluate the credit worthiness of the borrower. This problem is more so in the case of 1st

generation entrepreneurs. In the context of the above mentioned situation it is relevant tomention that SSIs should be given a special treatment because of their antique and importantposition in the Indian economic scene. SSIs play a very important role in tackling the twinproblems of regional imbalance and high rate of unemployment.

A note on making a loan proposal acceptable to the lending institutions:

1. In case all the required information is not available or the relevant documents are notavailable, whatever information is available should be presented in a balanced manner.Entrepreneurs can make use of professional consultants, futurists and other experiencedpeople.

2. Details regarding nature of the unit and its products.3. Data regarding performance, estimated cost of production and selling price.4. Entrepreneurs may attach a copy of the feasibility study report along with loan

application.5. In case of a unit has already availed the provisional registration, and copy of the same

may also be enclosed.6. Estimates regarding the growth prospects should be mentioned.7. The entrepreneur must reveal the other sources of finance also.8. The purpose of the loan must be clearly mentioned.9. Results expected on availed finance should be made known.10. Units must be able to provide acceptable evidence for verification if required.11. It is in their own interest that units must maintain audited account.12. All the loans availed should be used for the purpose mentioned in the loan application.13. In case the future of the business is dependent heavily on one person, his life must be

well insured.

Management of financial aspects is of immense importance to any enterprise irrespective of thesize of enterprise. But it is all the more so in case of small scale industries because of theirinherent limitations.

There is a need for greater cooperation and coordination between the SSIs and the financialinstitutions. Though it is important for the financial institutions to safeguard their interest stillkeeping in view the enormous importance of small scale importance, they have to make certaincompromise regarding financing the small sector.




Sources of finance

Fixed Capital Working Capital.1. State finance corporation 1. Commercial Banks.2. National Small Industries Corporation. 2. Cooperative Banks3. SSIC. 3. Family Sources.4. Small Industries Development Corporation. 4. Private money5. Commercial Banks. Lenders.

Important Financial Institution:

1. Industrial Finance Corporation of India. [IFCI]:

IFCI was established in 1948 under the IFCI act, with the objective of making medium andlong-term credit to eligible industrial concerns. IFCI has the distinction of being the firstdevelopment bank of independent India. IFCIs primary role is to provide direct financialassistance to eligible medium and large-scale industries, but it has initial responsibility byway of its promotional role of helping and developing the small-scale sector. It provides themuch-needed guidance through specialised agencies in project identification, counselling,development of ancillary and small-scale industries.

IFCI has been authorised by the industrial finance corporation (amendment act 1982) toundertake certain incidental activity. These include undertaking research and surveys,assistance and undertaking merchant banking operation.

1. Being a development bank, the IFCI has undertaken a number of development activities.These include guidance to new and tiny, small-scale and medium-scale entrepreneurs inproject identification, implementation and management, etc.

2. IFCI helps SSIs by subsidising the costs of feasibility or project reports, market studies,survival of sick units, encouraging the in-house R&D facilities to capable industries.

3. IFCI also taken up underwriting of shares of public limited companies.4. It also provides development and assistance to the primary lending institutions, which are

in direct contact with the small-scale industries.

However IFCI ordinarily does not grant assistance for the purpose of working capital as thisaspect is taken care of by commercial bank.

2. IDBI [Industrial Development Bank of India]:

It was set-up on 1st July 1964 as the apex institution in the field of industrial finance.

The important objectives of IDBI are to coordinate, regulate and supervise the activities of allfinancial institutions providing term finance to industrial undertakings, which has the important




duty of bridging the gaps between demand for financial accommodation and its supply.

IDBI provides assistance to small-scale units indirectly through its refinance and rediscountingschemes. It is not possible for IDBI to reach individual small-scale units directly. ThereforeIDBI provides refinance of loans given by commercial banks and state finance corporation to thesmall sectors.

Some of the important schemes of IDBI are:

1. Refinance assistance: IDBI replenishes loans provided by commercial banks and alsocooperative banks, RRBs (Regional Rural Banks) SFCs, SIDCs (Small IndustrialDevelopment Corporation) SIIC (Small Industries Development Corporation) to small-scale sector. IDBI has imposed ceilings on rates of interest, which the primary lendinginstitutions can charge to the borrowers. This is to ensure that it is the borrowers who areultimately benefited.

2. Rediscounting of bills: IDBI provides indirect assistance by way of rediscounting ofgenuine trade bills, which have been discounted by the primary lending institutions.

3. Automatic refinance scheme: The objective of this scheme is to avoid delays in the grantof financial assistance to the small sector. Loans upto 7.5 lakhs are fully refinanced andassistance is sanctioned within days. Under this scheme, concessional interest rates arecharged to a physically handicapped, SC, ST categories upto Rs. 50,000.

4. Composite loan scheme: Under this scheme small and cottage industries in villages andtowns with a population not exceeding 5 lakhs, assistance up Rs. 50,000 is given.

5. Seed capital assistance: This scheme is basically fro assisting new entrepreneurs who lackfinance of their own to set-up small-scale units. This assistance is given by IDBI in theform of soft loans to priority sector, sole proprietary and partnership firms upto Rs. 15lakhs. This assistance is repayable over a period of 10 years. It is operational throughState Finance Corporations and Small Industries Development Corporation.

6. Credit guarantee scheme: IDBI provides guarantees to banks and other financialinstitutions for loans made to small-scale units. The guarantee extends to 75% of theamount in case of a default of the amount guaranteed.

7. IDBI also provides assistance to NSIC.8. Export finance: IDBI operates nearly three important schemes with the objective of

encouraging exports from small-scale sector.

3. SIDBI: It is one of the primitive institution providing financial assistance and support to thesmall sector.

It was started in 1990 2nd April as a subsidiary of IDBI. It functions as the apex institutions fromthe small-scale industries. It has the responsibility of overall coordination of the differentfinancial institutions working are aid of small sector.

SIDBI was formed by transfer of small industries development fund and the national equity fundfrom IDBI.

Following are the important activities undertaken by SIBDI:

1. Re-finance facility to institutions giving term loans to the small sectors.2. Direct discounting of bills and rediscounting of bills.3. SIDBI provides resource support to National Small Industries Company.




4. It provides technical support through state level organisation to small sectors.

The disbursements of SIDBI are over 4,000 crores in the recent past.

4. State Finance Corporation [SFCs]:

It was formed under state finance corporation act 1951. The SFCs have been establishedthroughout the country in all the states and the union territory. SFCs are basically catering to thesmall sector. Fixed capital requirements including medium and long-term loans. Following arethe important activities of SFCs:

1. Providing medium and long-term loans.2. Providing guaranteeing seminars to small sectors from the loans raised by them in the

capital market.3. Undertaking of issues.4. Subscribing directly to the debentures of newly formed enterprise.5. Operating the refinance schemes of IDBI functioning of SFCs is that out of its total

operations 90% are for the small-scale sectors.

5. Karnataka State Finance Corporation [KSFC]:

KSFC was established by the government of Karnataka in March 1959 under state financecorporati0on act 1951 for expending financial assistance tiny, small and medium scale industriesunit in the state

KSFC has a decentralised system working terms loans of upto Rs. 4.25 lakhs are sanctioned atbranch offices and loans over the Rs. 25 lakhs are sanctioned by the head office. KSFC has itsbranches all over the state all state. all KSFC have zonal offices, 34 branch offices.

It gives preference to the projects:a. Promoted by technical entrepreneurs.b. Located in developing areas of the state.c. Entrepreneurs belonging to ST, SC categoriesd. Projects having high employment potential.e. Project capable of utilising local resources.

6. Karnataka State Industrial Investments and Development Corporation [KSIIDC]:

It was established in 1964 with the prime objective of promoting industrial growth in the state toachieve this, KSIIDC identifies industrial opportunities, provides guidance and advise toprospective entrepreneurs and extends necessary financial assistance. It also provides assistancein securing single window clearances for land, power, water, etc.

It assists entrepreneurs in identifying suitable projects, keeping in view the resource availabilityand the market demand. Project profiles are prepared and made available to prospectiveentrepreneurs. Entrepreneurs are assisted with techno-economic reports, feasibility studies andmarket surveys.




7. Karnataka State Small Industries Development Corporation [KSSIDC]:

The corporation principle objective is the promotion and development of small-scale industriesin the state.

KSSIDC has constructed over 5,230 industrial heads for SSI s all over the state. Naturalventilation, lighting, securities and easy accessibility make KSSIDC industrial sheds an excellentchoice for entrepreneurs.

KSSIDC establishes and maintains industrial estates all over the state. A typical KSSIDCindustrial estate includes sheds of various dimensions, industrial pl0ts with good infrastructurelike roads, drainage, supply of power, water, banking, post office, canteen and other commonfacilities.

KSSIDC has taken the function of supplying raw materials to SSIs in Karnataka. The rawmaterial supplied includes iron and steel, pig iron, coal, paraffin wax, petroleum products,industrial rubber. It is in constant liaison with the raw materials manufactures to ensure timelysupply. Scarcity of indigenous materials is supplied with the help of imports. KSSIDC has set-up 23 raw materials depots all over the state.

How to apply: Application forms can be collected from and submitted to the concerned chiefmanager. The duty filled application must be accompanied by:

1. A detailed project report / feasibility report.2. A demand draft as prescribed by KSSIDC.3. Provisional or permanent SSI registration certificate.4. A partnership deed (in case of partnership).5. A copy of memorandum and articles of association (in case of Joint stock companies).6. Income tax clearance certificates and the latest audited balance sheet and P&L

account.(in case of existing units)

Pro-forma of a project / feasibility report:a. Promotes background, practical experience and other qualifications.b. Products intended to be manufactured and their uses.c. Market potential.d. Project cost, means of finance.e. Working capital requirement and break-up.f. Production cost / unit and total.g. Sales break-up / unit selling price.h. Requirement of raw material and their prices.i. Profitability statement.j. Cash flow statement.k. Repayment schedule including payment towards KSSIDC shed and financial institutions.l. Debt equity ratio.m. Breakeven analysis.n. Plant, machinery and layout design.o. Electric power required.p. Requirement of water.q. Requirement of staff and labour.r. Built up space required in terms of plinth area.




Production Management: It is one of the most important managerial functions. Everymanufacturer aims at maximum production a least cost in order to make maximum profits.

Broadly, production means conversion of raw materials into finished products. IT has beenobserved that in the small-scale industries unit become sick because of lack of planning and lackof coordination in the production process.

According to the committee on public undertaking there were delays in product output becauseof poor production performance, defective procedures and high cost of production, whichresulted in heavy losses. The committee observed that the delays in the procurement ofmaterials, drawings, P&L, would have been avoided to a large extent with proper planning. Thecommittee has further stressed, the need for a special interest in the matter of stores management.

Under utilisation of labour and machines is an important reason for the losses suffered.

The various methods of production can be basically of the following types:

1. Production to order.2. Production to stop.

In production to order goods are manufactured in order to meet the requirements of a customer.In case of production to stop, the unit manufactures goods according to the demand for theproduct. Whatever be the type of production it is necessary to plan for it.

Below is a description of important elements of production management:

1. Location: The location for starting a unit should be chosen after a lot of investigations.Decision of a faulty location is not easy to mend as it involves financial commitment fora longer period of time. It is one of the most important factors determining the ultimatesuccess of failure of an SSI. According to certain recent investigation it was found thatdue to faulty selection for the location of an industry. Nearly 56% of small units failwithin a period of 5 yrs of their start.

The important factors to be taken into account while selecting right location are:a. Availability of raw materials: The region where the unit proposed to be set-up

should provide at least a majority of the raw materials required. This will ensurethat continuity of supply at reasonable price. It has been found that scarcity ofimportant raw materials has been one of the important causes for productionblockades.

b. Availability of skilled and unskilled labour: It should be ascertained if properlabour required is available locally. In case of non-availability of adequate labourforce they have to be brought from other places, which will result in escalation ofcost.

c. Availability of power: Consistent supply of electric power is of immenseimportance to SSI. In case of unpredictable supply of electric power it is theSSIs, which suffer the most as compared to bigger units. At times it becomesalmost essential for the SSIs to depend upon alternative source of power such as agen-set (diesel). In such cases there is a heavy cost escalation, which results in anerosion of profitability.




d. Nearness to market: In case of tiny units, if the production is for localconsumption, proximity or nearness to the market is an advantage.

e. Availability of transport facilities: The transport-cost influence the choice of thelocation. The factor to be considered is the availability of transportation facility ata reasonable cost.

f. Nuisance problem: In case there is any special nuisance problem connected withunits like smoke, effluents, etc, an arrangement for this disposal or control shouldbe arranged for or at least taken into consideration at the time of making a choiceof the location.

2. Selection of plant and machinery: After having selected a proper location of a unit, theentrepreneur has to select the right type of machinery for his unit. At this stage theentrepreneur must have the required information regarding the different types and brandsof the particular machinery available in the market. He must make a detailed cost benefitanalysis of the different brands along with an assessment of the different features that thedifferent brands offer.

The ultimate choice of machinery largely depends upon:

a. Size of the unit.b. Scale of production or output.c. The operating character of technology.

The concept of the optimum size is very relevant at this stage.

3. The optimum size of the plant: Good understanding of the concept of the optimum size isnecessary to draw maximums economies in production cost.

In every industry and for every method of production within each industry there is aminimum size of plant below which production is technically not possible andeconomically unprofitable. If the cost of production varies with the quantum of output,there has to be a particular size of operation at which the unit cost is at least. Theparticular scale that ensures the most economical operations is referred to as the optimumsize of the plant.

This concept is of foremost importance to new entrepreneurs because seasonedentrepreneurs are aware of the optimum size concept with the help of their previousexperience.

4. Layout design: While designing a factory layout a very important aspect is the fact thatthe movement of materials from one stage of manufacture to the next should beminimum. Materials must move in a stream light fashion, which would result in anefficient use of time causing the minimum fatigue. Unnecessary movement results inconfusion and the entire manufacturing process takes a much longer time. In industriallife the economic and efficient usage of all the factors of production is major reason toprofitability and gives an extra edge to an entrepreneur on his competitors.

It has been observed that small industrialist generally are not very keen about the short




floor, but they soon discover that inadequate planning of the shop floor results in variouskinds of obstructions to the smooth flow of working progress and the delays caused stepup the cost of production which erode profitability. Therefore a well-planned productionlayout checks production bottlenecks.

5. Production design: An important aspect of production management is production design,which includes various elements of the product such as size, shape, colour along with thepackaging of the product. This aspect of production management should be handled by ateam of personnel with creative thinking.

6. Preventive maintenance: It is a sub function of production management concerned withthe upkeep of plant and machinery as also the infrastructure. Research and developmentis also an important aspect as the market requirement, in terms of changes in demandpattern calls for necessary changes to be made either in production process or theproduct. Thus R&D improves the marketability of the product in a changing andfluctuating environment characterised by competition, which calls for improvement in theproduct regularly.

7. Advantages of production management:

a. SSIs can give a much better and efficient service to the customers.b. Rush orders can be avoided.c. Wastage and rejections of consignments by the customers can be avoided.d. Wastage of time and effort can be avoided by having an efficient production

layout.e. It ensures higher profit.f. Inventory control is facilitated.

Pre-requirements of production management: An entrepreneur who wants to avail of the aboveadvantages has to have following initial requirements:

1. A first hand information relating to engineering tools, machines and must have fairlygood idea about the technology adopted for the production process.

2. Knowledge of inventory control measures along with stores information (update).3. He must also have up to date information regarding the work in progress.4. He must have an adequate knowledge of workers skills and capacity.5. He must have information about the best performance on similar work with the best

combination of different machines, tools and optimum speed of machinery.6. Data on power consumption and methods of conserving electric power is also important.

Planted production is an important feature of SSIs. An entrepreneur possessing the ability tohave a visions for the future, along with the desire to make a success and who also has plenty ofdrive and capacity to lead along with the required skills to deal with human relations effectivelycan get the best out of his business.




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