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MODULE 3

Industrial undertaking, investment in fixed assets, > 5 crores (manufacturing enterprises) and 2 crores (service enterprises)

Classification of MSMEs

PROFILE OF SSI SECTOR IN INDIA • 95% of industrial units in the country • 39.92% of value added in the manufacturing sector • 34.29% of National Exports • 6.86% of GDP • Employment to 193 lakh persons • Production of over 7500 items in the industrial sector • 298 items reserved for exclusive manufacture • 358 items for exclusive purchase from this sector

Step One : Making the Product Choice

• Product Line – Depth, Width

• Packaging

• Branding

• Warranties

• After Sales Service

• Ease of availability of raw material

• Process Technology

• Accessibility

• Incentive and support from the government

FeePal

Step Two –Marketing Research

• Study the products w.r.t the demand in the market • Check whether it is a seasonal product or it has

demand through the year • Study similar products in the market that can be

competitors • Check whether the product can be exported • Explore the possibility of producing the product in

collaboration with a foreign country

Step Three – Manufacturing

For manufacturing, 2 things have to be considered: • Deciding the product for manufacturing • Select the process technology or the

manufacturing process

Deciding the product for manufacturing

Process Technology or Manufacturing Process

Does the process require:• Very high level of skilled workers? • Complex machines?• Large quantities of water and power?• Any process or product patent that needs to be honoured?• Any special pollution or environmental regulation?

Finally, check whether the product is appropriate to the Indian environment and conditions.

Step Four – Form of Ownership

Step Five – Infrastructure

• Select a proper site• Take a building for factory on hire (brownfield

investment) or construct own factory building (greenfield investment)

• Easily accessible location • Being conversant with the rules and other info

available from Ministry of MSME, New Delhi • Getting utility connections (water supply, power

supply and incentives)

Step Six – Finance Should include the cost of:

Classification of Finance Needs

• Long and medium term Loans

• Short term loans or working capital requirements

• Risk Capital(VC / Angel Investor)

• Seed Capital/ Marginal Money

• Bridge Loans - short-term loan that is used until a person or

company secures permanent financing or removes an existing

obligation.

Institutions that provide Financial Help

• SIDBI – long term and medium term loans

• SFC / SIDCs – long term and medium term loans

• Commercial Banks – Short term loans , working

capital, upto Rs. 1 crore

• Regional Rural Banks and Cooperative Banks

Documentation of Loan Application• Balance Sheet and P/L Statement for last 3 years of firms

owned by promoters

• Income Tax Assessment Certificates of Partners/Directors

• Proof of Possession of Land and Building – Architect’s

estimate of the construction cost

• Partnership Deed/ MOA and AOA

• Budgetary Quotations of Plant and Machinery

Banks will then issue sanction/rejection letter

Step Seven – Concessions

• Finance to SSI – RBI guidelines, 40% of nationalised banks

lending has to be to Priority Sector.

• Collateral / Third Party Guarantee Free Loans

• Equity Support

• Assistance for Technology Department – SIDBI has set up

Technology Development and Modernisation Fund (TDMF) –

to assist SSIs in their technological and production facilities

Step Eight – Filing of Entrepreneurs Memorandum

• Form of Memorandum can be downloaded from the net

Step Nine – Getting the 3M’s Right

Step Ten – Registration

• Registration is not compulsory

• >100 workers – with or without power – requires a

license from the Govt. of India

• 2 stages: Provisional Registration and Permanent

Registration

Provisional Registration • Issued to a SSI unit, not producing and not banned by

GOI • Enables unit to take all preliminary steps – apply

loan, plots in Industrial Estate, power connection, purchase/import P&M, raw material, mchinery on hire – purchase basis etc.

• Director of Industries, Trade and Commerce – reserves right to ask for project report

• Valid for 5 years from date of issue – becomes invalid after 5 years or from date unit goes into commercial production

Permanent Registration

• Provisional Registration Permanent Registration

• Application for Permanent Registration – Directorate of

Industries Trade and Commerce in prescribed format costing Rs.

20

• Application received – Facilitation counter – verified by

Industries Inspector / Extension Officer – submits Inspection

report within 15 days to General Manager (DIC)

• Subsequently approved or rejected

Approvals Required For Starting a SSI

• NOC on Pollution angle

• Approval of Factory Building and machinery – Inspectorate of

Industries

• Site Clearance from Town and Country Planning Department

• Permission for land use conversion and ground water

clearance from Agri Dept.

• Power Feasibility Certificate from Electricity Department

• Building Plan Approval from Town Planning Authority

Clearances

Feasibility Plan

• Determine whether entrepreneur’s idea is viable or

not

• Answers the question “Should we go ahead with the

business idea?”

• Investigative tool

Important Areas to Focus On

• Product/Service

• Financial

• Technical

• Organizational/Managerial

• Social

• Legal

Product/Service Feasibility • Industry Description – size and scope, future direction, nature of

the industry, life cycle of the industry

• Industry Competitiveness – industry concentration, major

competitors, barriers/ease of entry, price competitiveness,

competitiveness of input suppliers and product/service buyers

• Market Potential – demand and usage trends, potential of

markets, market usage and potential market share, customer

profile

• Sales Projection – estimate sales or usage, assume future sales,

estimate accuracy of projections

• Access to Market Outlets – distribution system

Financial Feasibility

• Capital Requirements – seed capital, capital for facilities,

equipment and inventories, replacement capital, contingency

capital, other capital

• Equity and Credit needs – Assess alternative credit needs, assess

alternative equity sources

• Expected costs and revenue

• Estimate profit margin and expected net profit

• Estimate sales to break even

Technical Analysis• Input Analysis – machinery and materials, SCM

• Throughput Analysis – Production/operations performed on the

inputs to add value (Value – add)

• Output Analysis – Product specifications in terms of

technicalities

• Suitability of production technology – investigate and compare

technology providers, reliability and competitiveness,

limitations/constraints

• Availability and suitability of site – access to markets, raw

materials, transportation, analyse environmental impact etc.

Organizational/Managerial Feasibility

• Identify availability of skilled and experienced biz managers

• Availability of consultants and service providers

• Outline the governance, lines of authority and decision

making structure

• Business founders – who will lead the project? Reward system

for founders? Have the founders organized other successful

businesses