Entrepreneurship AND Small Business Management: Self Learning Material

ENTREPRENEURSHIP AND SMALL
BUSINESS MANAGEMENT
.\
M-229
Self Learning Material
Directorate of Distance Education
SWAM I VIVEKANAND SUBHARTI UNIVERSITY

\ MEERUT-250005
UTTAR PRADESH
SIM Module Developed by : Prof. Manjunatha, Amit Kumar Goudar
Reviewed by :
■ Dr. Prabhat Kumar

■ Mr. Rahul Sharma
Assessed by: ,
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■% r
CONTENTS
Units Page No.
I. Entrepreneurship 1-32
ii. Small Scale Industries 33-^65
III Financial Assistance 66-78
IV. Preparation of Project 79-108
V. Sickness in Small Scale Industries 109-115
f
SYLLABUS
ENTREPRENEURSHIP AND SMALL BUSINESS MANAGEMENT
M-229
UNIT-1
Entrepreneurship: Meaning, Types of Entrepreneurs, Qualities, Physical Factors in
Entrepreneurship, Factors influencing the Government Policies and measures towards
Promotion of entrepreneurship.
UNIT-II
Small Scale Industries: Importance, Growth and Problems: Central and state Govt.
Assistance to the SSI Sector, Incentives and Industrial Estates: District Industries Centres,
SISs, NSIC, SIDO
UNIT-III
Financial Assistance: SIDBI, SBI and Commercial Banks: Marketing Assistance to SSIs.
UNIT-IV
How to Start a Small Scale Unit: Conception of idea, Preparation of Feasibility report,
Clearances and Permissions, Basic Legal and Registration Formalities, Documentation
Procedures. . '
UNIT-V
/ Sickness in Small Scale Industries, Causes and Remedies.
v
Entrepreneurship
unit I ENTREPRENEURSHIP
(
STRUCTURE NOTES
1.1. Learning Objectives

1.2. Introduction
1.3. How to Pronounce Entrepreneur?
1.4. Meaning of an Entrepreneur
1.5. Evolution of the Concept
1.6. A Comprehensive Definition of Entrepreneur
1.7. Various Definitions for an Entrepreneur
1.8. Entrepreneur—Inherent Features
1.9. Urges of an Entrepreneur
1.10. Entrepreneurship—A Concept
1.11. Characteristics of Entrepreneurship
1.12. Evolution of Entrepreneurship
1.13. Development of Entrepreneurship
1.14. Enterprise—The Concept
1.15. Stages in Entrepreneurial Process
m 1.16. Concept ofEntrepreneur, Entrepreneurship, Enterprise
i 1.17. Difference between ah Entrepreneur and a Manager
1.18. Relationship between Entrepreneur and Entrepreneurship
1.19. Functions of an Entrepreneur
1.20. Types of Entrepreneur
1.21. Classification of Entrepreneurs
1.22. Characteristics of an Entrepreneur
1.23. Role of Entrepreneurship in Economic Development
1.24. Benefits of Entrepreneurship
1.25. Importance of an Entrepreneur
1.26. Skills ofEntrepreneur
1.27. Entrepreneurship in India
1.28. A Case Study of Entrepreneurship in India
1.29. Barriers of Entrepreneurship
1.30. Intrapreneur
1.31. Comparison between Entrepreneurship and Intrapreneurship
1.32. Pros and Cons of Being an Entrepreneur
• Summary
• Review Questions '
• Further Readings
Self-Instructional Material 1
Entrepreneurship and Small
Business Management 1.1 LEARNING OBJECTIVES
After going through this unit, you will be able to :
• explain Meaning of an Entrepreneur
NOTES • discuss Function and types of Entrepreneur
• explain Intrapreneur
• discuss Concept and Evolution of Entrepreneurship
• define Stages of Entrepreneurial Process
• state Role of Entrepreneurs in Economic Development.
1.2 INTRODUCTION
Modem business is very complex in nature due to fast technological innovations. This-
has made the business environment extremely volatile. There are numerous imponderable
uncertainties around. Hence,1 when a business enterprise irrespective of its size, goes or-
stream in a favorable environment, the entrepreneur may soon discover much to his discom
fiture that the apparent advantages he perceived have started to become non-conducive-
Answers to such problems in a rapidly changing business environment may technically termer
as ‘business decisions*. The person who takes such a decision is known as Entrepreneun
The entrepreneur does not function simply as a businessman, or a manager. Xher*=
are many businessmen who are not entrepreneurs.
Conversely many entrepreneurs are not businessmen. A businessman usually, invest-
in other assets outside the business whereas as entrepreneur always goes in for expansio-
and diversification, innovation and invention to further the growth of the enterprise.
- Entrepreneur is a person who discovers new ideas and business opportunities, bring-
together funds to establish a business, organises and manages its operations in order t-
provide economic goods and services, for the public.
Entrepreneurs have strong convictions, self motivation, and the will to grow and pros
per tremendously and also the courage to go bankrupt if they fail in their venture. ,
But in majority of the cases they start with nothing but entrepreneurial ability and en»
with positive results.
The term Entrepreneur is often used interchangeably with ‘entrepreneurship
Entrepreneurship refers to a process and not person. It can be described as a creative an*
innovative response to the environment. Such response can take place in any field of socii^
endeavor. In industrial or commercial field or agriculture and social work, for it exists ia
every economic profession and'in every society.
In recent years, significant amount of work has been done to identify the entrepreneu*
to stimulate entrepreneurship and to investigate the sequence of. events, which lead to th
formation of a new enterprise. The role of the entrepreneur in the development of ne'
enterprise has not been the only concern.
Many attempts have been made to harness entrepreneurial activities to the developme^
of the small business sector too. j
A small business owner is in every way an entrepreneur. He can be found in marketir
areas and also in manufacturing the products in a small - scale industry, cottage industr
khadi and village industry or he may be active in service industries such as dry cleanin;
printing press, transport firms, insurance companies, advertising agencies and buildir
construction firms.
2 Self‘Instructional Material
Enlnprcneurtkip
3 HOW TO PRONOUNCE ENTREPRENEUR?
The Word Entrepreneur has it’s root from the French language, it is not pronounced
liable by syllable as it is apparent in English. The first part of the word ‘Entre* is pro-
-jnced as ‘Anthro’, in the similar way to Anthropologist, Anthropoids, and ‘preneur* is NOTES
enounced as an English word.
The whole word is pronounced together as ‘ANTHRO PRENEURS* or
NTHRO PRENEURS*.
4 MEANING OF AN ENTREPRENEUR
■trepreneur as a Risk-Bearer
According to Richard Cantillon, an Irish man residing in France, was the first person
:oin the word ‘entrepreneur’ and his unique risk-gearing function in economics in the
dal 18th century. He defined an entrepreneur as an agent who buys factors ofproduc-
-n at certain prices in order to combine them into a product with a view to selling it at
certain prices in future.
F.H.Knight describes an entrepreneur “as a specialized group of persons who bear
:ertainty”. Uncertainty is defined as a risk which cannot be insured against and incaicula-
.. Thus, he draws a difference between risk and uncertainty. A risk can be reduced
-ough the insurance principle where the distribution of the outcome of group pf instances is
Dwn. On the other end uncertainty is the risk, which cannot be calculated. The entrepre-
-ir, according to Knight, is the economic functionary who undertakes such responsibility of
certainty which by its very nature cannot be insured nor capitalized nor salaried too.
*»
utrepreneur as a Organizer
According to Jean-Baptiste Say, an aristocratic industrialist, with his unpleasant
metical experiences developed the concept of an entrepreneur a little further which sur
ged for almost two centuries. His definition associates entrepreneur with the functions of
ordination, organization and supervision. According to him, an entrepreneur is one who
■mbines the land of one, the labour of another and the capital of yet another, and, thus,
educes a product. By selling the product in the market, he pays interest on the capital, rent
land and wages to labourers and what remains is his/her profit. Thus, Say has made a
-jar distinction between the role of the capitalist as a financer and the entrepreneur as an
■>anizer. He further elaborates that in the course of undertaking a number of complex
-erations like obstacles to be surmounted, anxieties to be suppressed, misfortunes to be
paired and expedients to be devised, three more implicit factors are deemed to be essen-
1. These are:
1. Moral qualities for work judgment, perseverance and a knowledge about the
business world.
2. Command over sufficient capital, and
3. Uncertainty of profits
-itrepreneur as a Innovator
According to Joseph A. Schumpeter, for the first time in 1934, assigned a crucial
■le of ‘innovation’ to the entrepreneur in his magnum opus ‘Theory of Economic Develop-
■ent’. Schumpeter considered economic development as a discrete dynamics change brought
' entrepreneur by instituting new combinations of production, i.e., innovations. The intro-
-iction of new combination of factors of production, according to him, may occur in any one
*the following five forms:
Entrepreneurship and Small 1. The introduction of a new product in the market
Business Management
2. The instituting of a new production technology which is not yet tested by expe
ence in branch of manufacture concerned.
3. The opening of a new market into which the specific product has not previou;
NOTES entered
4. The discovery of a new source of supply of raw material.
5. The carrying out of the new form of organization of any industry by creating
monopoly position or the breaking up of it.
Joseph A. Schumpeter, also made the very clear distinction between an inven-
and an innovator. An inventor is one who discovers new methods and new materials. At*
an innovator utilizes inventions and discoveries in order to make new combination.
Thus, the concept of entrepreneur is closely associated with the three elements:
>- Risk bearing,
>* Organizing and
>■ Innovating
Thus, an entrepreneur is defined as a person who tries to create something n
organizes production and undertakes risks and handles economic uncertainty invol>
in the enterprise.
1.5 EVOLUTION OF THE CONCEPT

The term “entrepreneur” is defined in a variety of ways. Yet, no consensus has b>-
arrived at on the precise skills and abilities that make a person a successful entreprenei*
The word derives from the French “entre” (to enter) and “prendre” (to tala
and in a general sense applies to any person starting a new project or trying a new oppon
nity. The simple meaning of an “entrepreneur” is “a person who is responsible for setting-
a business or an enterprise.” He possesses skill, initiative and innovative ideas and aspia
for high achievements in business. He promotes projects for the welfare of people i-
creates wealth for the society, in the process of implementing new projects, he cre^-
employment.
In the early 16th century, the Frenchmen who organized and led military expediti-
were called entrepreneurs. The French economist CANTILLON applied the term ‘en-
preneur’ to business initially in the 18th century to designate a dealer who purchases
means of production for combination into marketable products.
Another Frenchman J.B. SAY, expanded Cantillon’s idea and conceptualized
entrepreneur as an organizer of the business firm central to its distributive and product-
functions. Beyond stressing the entrepreneur’s importance to the business, SAY did li"
with his entrepreneurial analysis.
The Oxford English Dictionary also defined an entrepreneur in similar way as"
director or a manager of a public musical institution, one who ‘gets-up’ entertainment, es-
cially musical performance”
The leading economists of all schools, including KARL MARX, have emphasized
contribution of the entrepreneurs to the development of economics, but JOSE
SCHUMPTER, who argues that the rate of growth in an economy depends to a great ext»
on the activities of entrepreneurs, has probably put greater emphasis on the entrepreneur
function than any other economist.
4 Self-Instructional Material
To him, nobody is an entrepreneur all the time—one behaves as an entrepreneur only Entrepreneurship
when carrying on innovations. Thus, an individual may be an entrepreneur when he sets up
the business but ceases to be an entrepreneur when the business is well established.
The term ‘entrepreneur’ is subject to number of definitions. The entrepreneur is
often thought of as the risk taker. Schumpeter argued that his sole function was innovation. NOTES
Arthur Dewing conceptualised the function of an entrepreneur as one that promotes

idea into business.
‘Evans views the entrepreneur as the person who has the task of determining the
kind of business to be operated.
1,6 A COMPREHENSIVE DEFINITION OF ENTREPRENEUR

After analysing all the above statements, we may broadly define entrepreneur as a
person who specialises in taking judgmental decisions about the coordination of scarce
resources, discovers new ideas of business, and manages the entire operations to
exploit a market opportunity.
The above views have broadly classified the word entrepreneur into three major
groups viz., Risk bearer, Organizer and Innovator.
1.7 VARIOUS DEFINITIONS FOR AN ENTREPRENEUR

Table 1. Various definitions of Entrepreneur
1. 17th century . Person bearing risks of profits (loss) in a fixed price

contract with government
2 1725: Richard Cantillon Person bearing risks is different from one supplying
capital.
3. 1797: Beaudeau Person bearing risks, planning, supervising, organiz
ing and owning.
4. 1803: Jean Baptiste Say Separated profits of entrepreneur from profits of capi-
tal.
5. 1876: Francis Walker Distinguished between those who supplied funds and
received interest and those who received profit from
managerial capabilities.
6. 1934: Joseph Schumpeter An entrepreneur is an innovator and develops untried
technology.
7. 1958: Haggen An entrepreneur is an economic man who tries to maxi
mize his profits by innovations.
8. 1961: David McClelland Entrepreneur is an energetic moderate risk taker.
9. 1964: Peter Drucker Entrepreneur maximizes opportunities through system
atic innovations.
10. 1980: Karl Vesper ■ Entrepreneur seen differently by economists, psy
chologists,business persons and politicians.
Business Management 11. 1985: Robert Hirsch Entrepreneurship is the process of creating something
different with value by devoting the necessary time
and effort, assuming the accompanying financial, psy
chological and social risks and receiving the results -
NOTES rewards of monetary and personal satisfaction.
12 1975: Albert Shapero Entrepreneur takes initiative, organizes some socio
economic mechanisms, and accepts risk of failure.
13. 1983: Gifford Pinchot Intrapreneur is an entrepreneur within an already es
tablished organization.
14. 1990: Vasant Desai The entrepreneur brings in overall changes through
innovation for the maximum social good. Human val
ues remain sacred and inspire him to serve society.
“He has firm belief in social betterment and he carries
but this responsibility with conviction. In the proc
ess, he accelerates personal, economic, as well as hu
man development. The entrepreneur is a visionary and
an integrated man with outstanding leadership quali
ties. With a desire to excel, the entrepreneur gives top
priority to Research and Development. He always
works for the well-being of the society. More impor
tantly, entrepreneurial activities encompasses all fields/
sectors and fosters a spirit of enterprise for the wel- . -
fare of mankind.
1.8 ENTREPRENEUR—INHERENT FEATURES

A creator - Innovator - Risk taker - Change Seeker - Passes along - Long term views
- Works on his own intuitions - Puts his resources at stake - Accepts mistakes - A visionary
- out standing Leader - Exploits opportunities - High achiever - A change agent.
Entrepreneur is the originator of a new business venture and a new organization for
that venture.
An Entrepreneur:
1. Perceives opportunities which executives do not see or care
2. Uses information to produce something new
3. Creator of ambience and quality for the existing product or service to make it
new
4. Innovation and implementing innovative ideas are the main charcterstics of an
entrepreneur
5. Involves in initiating changes in production
, 6. Always searches for change, responds to it, and exploits it as an opportunity
7. A person who looks for the whole process of economic change to give a new
look to a particular activity
8. Agent ofchange in a market economy
1.9 URGES OF AN ENTREPRENEUR

' An urge to exercise power over things and objects persists among all human beings.
The urge may vary in.degree from person to person. This urge is an intrinsic quality of an
6 ■ Self-Instructional Material
entrepreneur. Sociologists consider him as a sensitive energizer in the modernization of the Entrepreneurship
societies. The psychologists look upon him as an “entrepreneurial man”, his motivations and .»
aspirations as conducive to development. Political scientists regard him as a leader of the
system; To economists, he is harbinger of economic growth. He combines entrepreneurial
drive with leadership and innovativeness.
NOTES
1.10 ENTREPRENEURSHIP—A CONCEPT

1. It is a process undertaken by an entrepreneur to augment his/her business inter
ests
2. It is an exercise involving innovation and creativity that will go towards establish
ing his/her enterprise.
3. It is a composite skill to bring together and put to use factors of production in an
appropriate manner
4. It is the propensity of mind to take calculated risks with confidence to achieve a
predetermined business
Higgins defined entrepreneurship as “the function of foreseeing investment and pro
duction opportunities, organizing an enterprise to undertake a new production process, rais
ing capital, hiring labour, arranging the supply of raw materials, finding site, introducing new
technique, discovering new source of raw materials and selecting top managers for day-to-
day operation”.
Cole’s definition for entrepreneurship is “the purposeful activity of an individual or a
group of associated individuals undertaken to initiate, maintain or organize profit by produc
tion or distributing of economic goods and services”.
1,11 CHARACTERISTICS OF ENTREPRENEURSHIP

The process of entrepreneurship in a complex one having a multi dimensional char
acteristics. The following are some of the commonly accepted characteristics suggested by •
experts
Organization. It brings together various facilities of production for an efficient and
economical use.
Decision Making. Decision making is a very vital characteristic of an entrepre
neurship. Taking decisions at all levels and stages of entrepreneurship is a routine task.
Making the enterprise a success. Entrepreneurship is mainly an economic activ
ity as it deals with creating and operating an enterprise. It involves in satisfying the needs of
customers with the help of production and distribution of goods and services. This makes the
enterprise a success. ^
Innovation. Entrepreneurship involves innovation of new things to effect dynamic
changes and good success in economy. It should create conditions for growth of the economy
Risk taking. Risk is a inbuilt element of any business. Entrepreneurship should be
risk bearing to cater uncertainty of future
Skill Management. Entrepreneurship brings together various functions of the man
agement - Planning, Organizing, Staffing directing, Controlling and Leading.
■ Entrepreneurship and Small
Business Management
Accepting
challenges
NOTES
Decision Making Organization
Risk taking Skillful management
Innovation , Making an enterprise a success
Entrepreneur
Figure 1. Characteristics of Entrepreneur.
1.12 EVOLUTION OF ENTREPRENEURSHIP

Entrepreneurship existed even in very early stages in different kinds. Its evolution is
discussed below:
(0 Early period:
An early example of entrepreneurship is known to be the example of Marco
Polo who tried to trade routes to the Far East. He used to sign a contract with a
venture capitalist to sell his goods. The capitalist was the risk bearer, the mer
chant-adventurer took the role of trading, bearing all physical and other risks.
After his successful selling Of goods and completing his trip, the profits were
shared by the capitalist and merchant.
OO Middle ages:
In the middle ages, the term entrepreneur was referred to a person who was
managing, large projects. He was not taking any risk but was managing the
projects using the resources provided. Some examples are the cleric who used
to be incharge of big architectural works like castles, cathedrals etc.
(m) 17th Century:
DGring 17th century, an amalgamation of risk with entrepreneurship had evolved.
A person (entrepreneur) used to enter into a contractual agreement with gov
ernment to perform a service or to supply some goods. This involved some risk
since the contract price was fixed and the profit or loss was borne by the entre
preneur.
Cantillon, a noted author developed one of the early theories of the entrepre
neurship during 17th Century. He viewed the entrepreneur as the risk taker,
observing that merchants, formers, craftsmen, buy at a certain price and sell at
an uncertain price, hence operating at risk.
(iv) 18th and 19th Century Entrepreneurship
As a result of industrialization during 18th century the person with capital (capi
talist) is differentiated from the person who needs capital (entrepreneur). Many
of the technical inventors did not have money to turn their inventions into prod
ucts. Hence some capitalists had to finance them. NOTES
(v) 20th Century:
During this, the entrepreneurs were not distinguished from managers and were
viewed mostly from the view of economy. The entrepreneur organises and oper
ates an enterprise for personal gains. He takes risk, contributes his own initia
tive, skills, he plans, organizes and leads his enterprise. He owns and bears the
loss or gain. In the middle or 20th century, the notion of an entrepreneur as an
innovator was established.
The ability to innovate could be seen throughout history from the Egyptians who
had designed, planned and erected pyramids with very heavy stone blocks, to the
space launching technology, to a cell phones to an artificial pace maker in human
heart. Although the tools have changed with advances in science and technol
ogy, the ability to innovate and risk taking has been present in all generations.
1.13 DEVELOPMENT OF ENTREPRENEURSHIP

The development of entrepreneurship started in the olden days. Ancient people in
vented wheel, fire by rubbing stones, spears to hunt animals, new ways and means of culti
vation etc. Then came the era of boats and ships opening the doors of trade at far places.
The invention of steam engine revolutionized sea and land transportation. Eventually the
industrial resolution during 19th century led to better and modem techniques of entrepre
neurship.
The noteworthy pioneers of this era are Colt who invented fire power for weapons,
and Morse’s telegraph that changed the life of communication. During 20th century founda
tion of modem industry was laid. America became leading industrial country. American
steel industry was founded by Andrew Corregie, Henry Ford started automobiles in a very
big way. Though Henry Ford was not an inventor, he was a great entrepreneur.
The contemporary period of entrepreneurship began with innovators such as Me
Cormic, who revolutionized mechanical reaper in agriculture, Alexander Graham Bell who
invented telephone, Thomas Alva Edison who invented Electric bulb, Gillet who invested
safety razor etc.
In the Indian context, pioneers like Jamshedji Tata, Birla etc., though not inventors,
were great entrepreneurs who contributed to the technical and economic growth of India.
All these entrepreneurs have been responsible for noteworthy innovators that charged
the human life for better. IBM converted the mechanical type writer to a electrically oper
ated one. Apple developed Personal Computers.
Today, we consider some companies as giants in innovations and entrepreneurial
ventures. To name some, Microsoft for office software, Sony for electronic goods, Ford for
cars, Intel for Micro electronics, Sun Micro systems for Electronic workstations etc.
In all above examples, starting from early period to today’s entrepreneurs, there have
been enthusiastic individual^ who went out and extended their hands to create new ventures
„ which created new avenues and satisfied needs of people.
Business Management 1.14 ENTERPRISE—THE CONCEPT
Enterprise pimply means an economic organization or activity. It may also be called a
place of business of an entrepreneur or an individual. Here it is considered as a business
NOTES organization. Sometimes the term is taken as a base term to effectively explain the courage,
conviction, commitment and creative ability of an entrepreneur, calling him as “Enterprising
person” or “Enterpriser.” This emphasizes the boldness and initiative of an entrepreneur
who creates a business entity with innovative ideas. Therefore, “Enterprise” may be consid
ered as “an organization engaged in a business activity.”
Enterprise is the starting point of an entrepreneur. He decides through this entity as to
where the business has to go and how it is to be positioned. He also determines the action
plan in the form of “Mission.” Ultimate objective of the entity will come out in the form of
“vision”.
Entrepreneur, after conceiving the idea of an enterprise, prepares a chart. This chart
exhibits the levels of management, authority levels, work flow, operating regions, competi
tion levels that may disturb the enterprise’s activities, strategies to be adapted to overcome
these disturbances, span of management at each level or in functional areas to have effec
■V'
tive work flow and have highest efficiently level etc., Thus the chart provides a profile of an
enterprise which gives a scientific direction to entrepreneur to work on his innovative busi
ness ideas. This is a road map which exhibits short-term and long-term plans of the organi
zation and action plan to achieve them.
Thus enterprise is an integrated whole of values, orientation, vision of entrepreneur
and his work force, mission, major objectives and strategic interest (commitment to win in
the competitive environment) etc. Enterprise works to attain an economic objective.
In this global age, leaders in the business world can come from anywhere. Their best
ideas will dominate, regardless of their national origins. It is in this competitive global regime
that the best hopes and aspirations of India rest.
A well-run enterprise embraces and practices a sound Predictability-Sustainability-
Profitability-De-risking (PSPD) model. A good forecasting system for sales based on data
gathered ensures predictability.
Every enterprise must focus on high profitability in order to ensure the best returns
for its shareholders. Indeed, profitability is crucial for the long-term success of a corpora
tion.
The enterprise must' have a good de-risking approach that recognizes, measures and
mitigates risk along every dimension.
Enterprise governance is focused on maximising, shareholder value while ensuring
fairness to. all stakeholders. In these days of free flowing global capital, in.order to attract
capital, corporations have to adhere to the best global standards of enterprise governance.
The Foundation of enterprise governance philosophy is the belief that it is better loose
a crores of rupees that to act in ways that make one lose a night’s sleep.
It is a good practice to under-promise and over-deliver. It is best to deliver bad news
to the stakeholders proactively. This creates goodwill, as they understand that ups and downs
are inevitable in every business’ What they value is honest and open managements.
• Quick progress comes in an environment that respects competence, where there are
competitions and where, there are no prejudices.
10 Self’Instructional Material
“Infosycians have respect for our competitors and a sense of humility about what we Entrepreneurship
have achieved. The success is, generally, ephemeral. We are only as good as the results we
produce and we believe in a long-term approach; our strategies and policies reflect that”......
says Narayan Murthy of Infosys.
The enterprise has an important duty to contribute to society. No enterprise can NOTES
sustain its progress unless it makes a difference to its context.
. The six Pillars of enterprise governance as outlined by Infosys mentor Naryan
Murthy are:
I want to emphasize the importance of being trustworthy in your dealings. It is on
such foundations that great organizations are created.
>* Fear is natural, but do not let yet your actions be totally governed by it. Just as
fear may sometimes be the voice of your intuition, it might also be an invitation to
explore yourself and the world.
>■ A Supportive.family is the bedrock upon which lives and careers are built.
>■ Learn how to manage yourself, separating the merits and demerits of a decision
from the accompanying feelings. Infosycians call this ‘being transaction ori
ented’.
>• Live your life and lead your career in a way that makes a difference to your
society,
>■ Follow your bliss. All else will follow.
So, choose a worthy dream for yourself. Go after it confidently. But always, ensure
that you are followingyourbliss.
1.15 STAGES IN ENTREPRENEURIAL PROCESS

The process of starting a new venture is the main theme of entrepreneurial process
which involves more than just problem solving in any typical management position. An entre
preneur must find, evaluate and develop an opportunity by overcoming the problem that arise
in developing something new. This process has five important stages:
(0 Identification of an opportunity
(ii) Evaluation of the opportunity , 1 .
(Hi) Preparation of the business plan
(iv) Determination and organizing the resources
(v) Management of the enterprise.
(i) Identification of Opportunity
The first step in the entrepreneurial process is the identification of opportunity.
This may be from his own idea or from external sources like consumers and
business associates, members of distribution system, independent technical or
ganizations, consultants, etc. Consumers are the best source of ideas for a new
venture who spells out the need of a product or service. The business associates
also can give ideas of a product or service.
Due to the close contact with the end user, member of distribution system also
see product needs one can identify new business opportunities through a discus
sion with a retailer, wholesalers or a trade representative.
Self-Instructional Material II
Business Management Some individuals are highly technical oriented and are not interested in any en
trepreneurship. Such people conceptualise new business opportunities that can
be given to the interested. Some government organizations and R & D centers
also provide new ideas. ,
NOTES
(ii) Evaluation of the Opportunity
The opportunity identified by using either input from consumers, business associ
ates, channel members or technical people, must be carefully screened and evalu
ated. This evaluation is perhaps the most critical element of the entrepreneurial
process as it allows the entrepreneur to assess whether the specific product or
service provides sufficient return on investment. The evaluation process involves
looking at the length of opportunity, its real and perceived value, its risks and
returns, its fit with personal skills and goals of the entrepreneur and its unique
ness or differential advantage in its competitive environment.
The length of opportunity and the market size and share are two main aspects
for deciding the risk and gains or profits. SWOT (Strengths, Weaknesses, Op
/
portunities and Threats) analysis is one of the useful analysis tools. Strength and
weakness are internal factors and related to the organization and opportunities
' and threats are external and related to the environment and competition. The
risks reflect the market, competition, technology and amount of capital involved.
The capital invested forms the basis.for returns and profits. The opportunity
must finally fit the personal skills and goals of the entrepreneur. It is very impor
tant that the entrepreneur must be able to put forth the necessary time and effort
needed to see the venture succeed. An overall opportunity assessment plan is
prepared to evaluate the opportunity. Unlike a business plan, this is a short one,
focuses only on the opportunity with risks and rewards and makes it clear whether
or not to go with it.
This plan includes:
(a) Description of product or service
(b) Agreement of opportunity
(c) Assessment of the entrepreneur and his team
(d) Resources needed
(e) Amount and source of capital needed
(f) Rewards and profit expected.
(Hi) Development of a Business Plan
To achieve the proposed business opportunity, a well defined business plan need
to be developed. This is a tedious and time consuming activity of the entrepre
neurial process. The business plan should contain the following in order.
(a) Title of project, table of contents and executive summary.
(b) Description of business and industry.
(c) Technology plan.
(d) Financial plan.
(e) Organization plan.
(f) Production and operation plan.
(g) Marketing and distribution plan. Entrepreneurship
(h) Summary of plan.
A good business plan is very essential to develop.the opportunity and determine
the resources received, pooling up the resources for successful managing of the
proposed venture. NOTES
(iv) Determination and Organising the Resources
This process begins with the assessment of present resources. Enough care
must be taken not to underestimate the amount and nature of resources re
quired. The risk involved with insufficient or incorrect resources should be cal
culated. Organizing the required resources at the appropriate time is another
important aspect of entrepreneurial process. Alternative sources of supply, process
of manufacture etc., are to be planned.
(v) Management of Enterprise
After resources are acquired, the entrepreneur must use them to implement the
business plan. The'operational problems of the growing enterprise must also be
examined. This calls for a management with all functions like planning, organiz
ing, staffing^ directing, and controlling.
16 CONCEPT OF ENTREPRENEUR, ENTREPRENEUR-

SHIP, ENTERPRISE
Entrepreneur: Entrepreneur a person or party who starts a venture risking his own
'ings and investment, or an individual developing or creating something unique.
Entrepreneurship: Entrepreneurship is the process or an action taken by the entre-
neur. Entrepreneurship is also the process of creating something new and assuming the
■ks and rewards.
Entrepreneurship is ubiquitous and is reflected in all the major dimensions of civiliza-
■n viz. Social, political and economic. It involves creativity that is consistent with the healthy
-ge required to change the basis of competition. Entrepreneurship is a creative human act
rolving the mobilization of resources from one level of productive use to a higher level of
;. “it is the process by which the individual pursue opportunities without regard to re-
-irces currently controlled.” Entrepreneurship involves a willingness to take responsibility
i ability to put mind to a task and see it through from inception to completion. Another
;redient of entrepreneurship is sensing opportunities, while others see chaos, contradiction,
i confusion. Essence of entrepreneurship is going against time with maturity and serving
a change agent.
Enterprise: An Enterprise is project or an undertaking or which can even be re-
red as a business or a company.
Person Process or Action Object
' r
/ i t
Entrepreneur Entrepreneurship Enterprise

Figure 2. Relation between Entrepreneur, Entrepreneurship and Enterprise.
Business Management 1.17 DIFFERENCE BETWEEN AN ENTREPRENEUR
AND A MANAGER
Table 2. Difference between Entrepreneur and Manager
NOTES
SLNo. Comparing Entrepreneur Manager
Factor
1. Objective The main objective of an entrepreneur The main objective of a manager is
is to set up a venture by setting up an to render his services in an enter
enterprise. He understands the ven prise already set up by someone
ture for his personal gratification else
. 2 Status An entrepreneur is the owner of the A Manager' is a servant in the

enterprise enterprise owned by the entrepre
neur
3. Risk-bearing An entrepreneur being the owner of A manager being like a servant in
the enterprise assumes all risks and the enterprise does not bear any
uncertainty involved in setting up risk involved in the enterprise
and running the enterprise
4. Innovation Entrepreneur himself thinks over what Manager simply executes the plan
and how to produce goods to meet .and modus operand! prepared by
the changing demands of the custom the entrepreneur. Thus, the
ers. Hence, he acts as an innovator manager simply translates the
also called ‘change - agent’ entrepreneur’s ideas into practice
5. Rewards The reward an entrepreneur gets for A manager gets salary as reward
bearing risks involved in the for the services rendered by him in
enterprise is profit which is highly the enterprise
uncertain
6. Income Income on the entrepreneur is very Income of the manager is fixed and
uncertain and varying certain at the end of every month
7. Qualification An entrepreneur needs to possess The manager needs to possess
qualities and qualifications like a high distinct qualification in terms of-
achievement motive, originality in sound knowledge in management-
thinking, foresight, risk bearing ability theory and practice.
1.18 RELATIONSHIP BETWEEN ENTREPRENEUR AND

ENTREPRENEURSHIP
The term ‘entrepreneurship’ is often used synonymously with the ‘entrepreneur
Though they are two sides of the same coin, conceptually they are different. The entreprt—
neur is essentially a business leader and the functions by him is entrepreneurship. Th
following table distinguishes the difference between entrepreneur and entrepreneurship.
*4 Self-Instructional Material
Table 3. Relation between Entrepreneur and Entrepreneurship Entrepreneurship
Entrepreneur Entrepreneurship
Person Process
Organizer Organization NOTES
Innovator Innovation
Risk-bearer Risk-bearing
Motivator Motivation
Creator Creation
• Visualizer Vision
Leader Leadership
Imitator Imitation
Technician Technology
Administrator Administration
Communicator Communication
Programmer Action
Decision Maker \ Decision
1.19 FUNCTIONS OF AN ENTREPRENEUR

1. Assumption of Risk
The entrepreneur assumes all possible risks of business. A business risk is also
involves the risk due to the possibility of changes in the tastes of consumers,
techniques of production and new inventions. Such risks are not insurable. If
►
. they materialize, the entrepreneur has to bear the loss himself. Thus, risk bearing
or ‘uncertainty’ bearing remains the most important function of an entrepreneur.
He tries to reduce the uncertainties by his initiative, skill and good judgment.
2. business Decision
!
He has to decide the nature and the type of goods to be produced. He enters the
particular industry which offers him the best prospects and produces whatever
commodities he think will pay him most and employs those methods of production
which seem to him the most profitable. He effects suitable changes in the size of
the business, it location, techniques of production and does everything that is
needed for the development of his business.
3. Managerial Functions
—i He performs managerial functions through drey are different for entrepreneur.
He formulates production plans, arranges finance, purchases raw materials,
provides production facilities, organizes sales and assumes the task of personnel
management. In a large establishment, these management functions are delegated-
to the paid management personnel.
4. Function of Innovation
• i
1 An important function of entrepreneur is ‘innovation’.Heconceives an idea for
. the improvement of the quality of production line. He considers the economic
viability and technological feasibility in bringing out improved quality. The
*
Entrepreneurship and Small introduction of different kinds of electronic gadgets is an example of such an
Business Management
innovation of the new product. Innovation is an ongoing function rather than a
once for all, or possibly intermittent activity.
5. Raising Necessary Funds
NOTES An Entrepreneur after having an explicit image of the idea, he needs to put this
newly innovated idea into practice for which he requires funds. Depending on
the uniqueness of his idea and probability of the product being launched
successfully in the market there are number of financial institutions, which come
to the aid of the entrepreneur to make his idea to materialize.
Some of the institutes like ICICI, IRBI, LIC, UTI, SFC, SIDC, SIDCI etc. These
financial institutes are discussed in detail in the unit VII, Institutional Support.
6. Procuring Machine and Material
An Entrepreneur due to his innovative idea in the new method of manufacturing
needs to procure the machine and material. The new machine and material may
be different from the same component which is manufactured elsewhere. He
may require new machine because in the conventionally used machines there
could be some features which are redundant and useless and hence dead
investment on those features on the machine. For example, a component is required
to be simply drilled and if the conventional manufacturing uses a radial drilling
machine then the entrepreneur due his innovative idea suggests a simple bench
drilling machine and thus cuts down the cost of heavy investment on the radial
drilling machine and adds this amount to his profit.
7. Recruitment of Men
The Entrepreneur after deciding the type of business to be set up or type of
manufacturing unit to set up he needs to recruit human force ranging from lowly
paid daily wagers like skilled labors to the salaried managers to carry out the
business or the enterprise successfully.
/
Entrepreneurial functions can be performed by very different people under
different economic systems. In principle, the entrepreneur could be a planner in
a socialist economy, or even a priest or king in a traditional society. In practice,
entrepreneurship is closely identified with private, enterprise in a market economy.
Entrepreneur performs useful functions. He undertakes a venture, assumes risk
and earns, profit. He is the man having strong motivation to achieve success. He
is self confideht in his entrepreneurial abilities. He exploits opportunities wherever
and whenever they arise. The entrepreneur can identify opportunities to start a
business either as a manufacturer or as a distributor, for entrepreneurship exists
in every field of economic Endeavour. Manufacturing activities require high capital
investment and greater degree of entrepreneurial abilities than distribution activities.
Entrepreneurship has also been developed in trading sector.
1.20 TYPES OF ENTREPRENEUR

The different types of entrepreneurs are listed as following:
1. Innovating Entrepreneurs
An innovating entrepreneur is one who introduces new goods, inaugurates new
method of production, discovers new market and reorganizes the enterprise. It is
important to note that such entrepreneurs can work only when a certain level of Entrepreneurship
development is already achieved, and people look forward to change and im
provement
2. Imitative Entrepreneurs
These are characterized by readiness to adopt successful innovations inaugu NOTES
rated by innovating entrepreneurs. Imitative entrepreneurs do not innovate the
changes themselves, they only imitate techniques and technology innovated by
others. Such types of entrepreneurs are particularly suitable for the under-devel
oped regions for bringing a mushroom drive of imitation of new combinations of
factors of production already available in developed regions.
3. Fabian Entrepreneurs
These types of entrepreneurs are characterized by very great caution and
skepticism in experimenting any change in their enterprises. They imitate Only
when it becomes perfectly clear that failure to do so would result in a loss of the
relative position in the enterprise.
4. Drone Entrepreneurs
These are characterized by a refusal to adopt opportunities to make changes in
production formulae even at the cost of severely reduced returns relative to
other like producers. Such entrepreneurs may even suffer from losses but they
are not ready to make changes in their existing production methods.
There are some more types of entrepreneurs listed by some of other behavioral
scientists:
1. Solo Operators
These entrepreneurs essentially work alone and if needed at all, employ a few
employees. In the beginning, most of the entrepreneurs start their business like
this.
2. Active Partners
These entrepreneurs start or carry on an enterprise as a joint venture. It is
important that all of them actively participate in the operations of the business.
Entrepreneurs who only contribute funds to the enterprise but do not actively
participate in business activity are called simply ‘partners’
3. Challengers
These entrepreneurs plunge into industry because of the challenges it presents.
When one challenge seems to have met, they begin to look for new challenges.
4. Inventors
These are the type of entrepreneurs with their competence and indigenousness -
invent new products. Their basic interest lies in research and innovative activi
ties.
5. Life Timers
These entrepreneurs take business as an integral part to their life. Usually, the
family enterprise and businesses which mainly depend on exercise of personal
skill fall in this type/category of entrepreneurs.
6. Buyers
These entrepreneurs do not like to bear much risk. Hence, in order to reduce risk
. involved in’setting up a new enterprise, they' like to buy the ongoing one.
BusinessManagement 1.21 CLASSIFICATION OF ENTREPRENEURS
1. According to the Type of Business:
(a) Business entrepreneur
NOTES (b) Trading entrepreneur
(c) Industrial entrepreneur (/) Large (ii) Medium (Hi) Small and (iv) Tiny
(d) Corporate entrepreneur
(e) Agricultural entrepreneur (0 Placation (ii) Horticulture (Hi) Dairy (tv) For
estry
(f) Retail entrepreneur - '
(g) Service entrepreneur
2. According to the use of Technologies:
(a) Non-technical entrepreneur (b) Technical entrepreneur
(c) Profession entrepreneur (d) High-tech entrepreneur
(e) Low-tech entrepreneur
3. According to the Motivation:
(a) Pure entrepreneur (b) Induced entrepreneur
(c) Motivated entrepreneur 00 Spontaneous entrepreneur
4. According to the Growth:
(a) Growth entrepreneur (b) Super-growth entrepreneur
5. According to the Stages of Development:
(a) Pure entrepreneur (b) Induced entrepreneur
(c) Motivated entrepreneur
6. According to the Area:
(a) Urban entrepreneur (b) Rural entrepreneur
7. According to the Gender and Age:
(a) Men entrepreneurs (b) Women entrepreneurs
(/) Young entrepreneurs
(ii) Old entrepreneurs
(Hi) Middle-aged entrepreneur
8. According to the Scale of Operation:
(a) Small Scale entrepreneur (b) Large Scale entrepreneur
9.- Others or Unclassified:
(a) Professional entrepreneurs (b) Non-professional entrepre-
neurs -
(c) Modem entrepreneurs (d) Traditional entrepreneurs
(e) Skilled entrepreneurs (/) Non-skilled entrepreneurs
(g) Imitating entrepreneurs (h) Inherited entrepreneurs
(i) Forced entrepreneurs (j) National entrepreneurs
(k) Internal entrepreneurs (/) Bureaucratic entrepreneurs
(m) Entrepreneur entrepreneurs (n) Immigrant entrepreneurs
The above Classification of entrepreneurs is not exhaustive, for it aims at highlighting Entrepreneurship
ihe broad range of entrepreneurs found in business and profession. We shall now discuss in
orief, each type of entrepreneurs.
. According to the Type of Business NOTES

Entrepreneurs are found in various types of business occupations of varying size. We
-lay broadly classify them as follows:
(a) Business Entrepreneurs: Business entrepreneurs are individuals who con
ceive an idea for a product or service and then create a business to materialise
their idea into reality. They tap both production and marketing resources in their
search to develop a new business opportunity. They may set up a big establish
ment or a small business unit. They are called small business entrepreneurs
when found in small business units such as printing press, textile processing
house, advertising agency, ready-made garments, or,confectionery. In a majority
of cases, entrepreneurs are found in small trading and manufacturing business
and entrepreneurship flourishes when the size of the business is small.
(b) Trading Entrepreneur: Trading Entrepreneur is one who undertakes trading
activities and is not concerned with the manufacturing work. He identifies po
tential markets, stimulates demand for his product line and creates a desire and-
interest among buyers to go in for his product. He is engaged in both domestic
and overseas trade. Britain, due to geographical limitations, has demonstrated
their ability in pushing many ideas ahead which promoted their business.
(c) Industrial Entrepreneur: Industrial Entrepreneur is essentially a manufac
turer who identifies the potential needs of customers and tailors product or serv
ice to meet the marketing needs. He is product-oriented man who starts in an
industrial unit because of the possibility of making some new product. The entre
preneur has the ability to convert economic resources and technology into a
considerably profitable venture. He is found in any industrial unit such as the
electronic industry, textile units, machine.tools or video cassette type plant and
the like.
(d) Corporate Entrepreneur: Corporate Entrepreneur is a person who demon
strates his innovative skill in organizing and managing a corporate undertaking.
• . Acorporate undertaking is a form of business organization, which is registered
under some statute of Act, which gives it a separate legal entity. A trust regis
tered under the Trust Act, or a company registered under the Companies Act is
examples of corporate undertakings. A corporate Entrepreneur is thus an indi
vidual who plans, develops and manages a corporate body.
(e) Agricultural Entrepreneur: Agricultural Entrepreneurs are those entrepre
neurs who undertake such agricultural activities as raising and marketing of
crops, fertilizers and other inputs of agriculture. They are motivated to raise the
productivity of agriculture through mechanization, irrigation and application of
- technologies'for dry land agriculture. They cover a broad spectrum of the agri
cultural sector and include agriculture and allied occupations.
According to the Use of Technology

The application of new technology in various sectors of the national economy is
—sential for the future growth of business. We may broadly classify these entrepreneurs on
i basis of the use of technology as follows:
Self-Instructional Material 1°
Entrepreneurship and Small . (a) Technical Entrepreneur: A technical entrepreneur is essentially an entrepn
Business Management
neur of “craftsman type.” He develops new and improved quality of goods t
cause of his craftsmanship. He concentrates more on production than mark*
ing. He does not care much to generate sales by applying various sales pronn
NOTES tional techniques. He demonstrates his innovative capabilities in matters of pi*
duction of goods and rendering services. The greatest strength, which the tec
nical entrepreneur has, is his skill in production techniques.
(b) Non-Technical Entrepreneur: Non-technical entrepreneurs are those wl
are not concerned with the technical aspects of the product in which they dei
They are concerned only with developing alternative marketing and distributif-
strategies to promote their business.
(c) Professional Entrepreneur: Professional entrepreneur is a person who is i«
terested in establishing a business but does not have interest in managing
operating it once it is established. A professional entrepreneur sells out the ru«
ning business and starts another venture with the sales proceeds. Such an entr
preneur is dynamic and he conceives new ideas to develop alternative project*
111. According to Motivation

Motivation is the force that influences the efforts of the entrepreneur to achieve h
•objectives. An entrepreneur is motivated to achieve or prove his excellence in job perforr
ance. He is also motivated to influence others by demonstrating his power thus satisfying h
ego.
(a) Pure Entrepreneur: A pure entrepreneur is an individual who is motivated t
psychological and economic rewards. He undertakes an entrepreneurial activit
for his personal satisfaction in work, ego or status.
(b) Induced Entrepreneur: Induced entrepreneur is one who is induced to tak
up an entrepreneurial task due to the policy measures of the government thi
provides assistance, incentives, concessions and necessary overhead facilities t
start a venture. Most of the entrepreneurs are induced entrepreneurs who ent
business due to financial, technical and several other facilities provided to the
by the state agencies to promote entrepreneurship. A person with a sound proje
is provided package assistance to his project. Today, import restrictions, an
allocation of production quotas to small units have induced many people to sta
a small-scale industry.
(c) Motivated Entrepreneur: New entrepreneurs are motivated by the desire fc
self-fulfilment. They come into being because of the possibility of making an
marketing some new product for the use of consumers. If the product is deve
oped to a saleable stage, the entrepreneur is further motivated by reward i
♦ terms of profit.
(d) Spontaneous Entrepreneur. These entrepreneurs start their business out o
their natural talents. They are persons with initiative, boldness and confidence i
their ability which motivate them to undertake entrepreneurial activity. Such en
trepreneurs have a strong conviction and confidence in their ability.
IV. According to Growth

The development of a new venture has a greater chance of success. The entrepre
neur enters a new and open field of business. The customer approval to the new produc
gives them psychological satisfaction and enormous-profit. The industrial units are identifie
i as high growth, medium growth and low growth industries and as such we have “Growth Entrepreneurship
Entrepreneur; and “Super Growth Entrepreneur.”
(a) Growth Entrepreneur: Growth entrepreneurs are those who necessarily take
up a high growth industry. These entrepreneurs choose an industry which has
sustained growth prospects. NOTES
(b) Super-Growth Entrepreneur: Super-Growth entrepreneurs are those who
have shown enormous growth of performance in their venture. The growth per
formance is identified by the liquidity of funds, profitability and gearing.
V. According to Stage of Development

Entrepreneurs may also be classified as the first generation entrepreneur, modem
entrepreneur and classical entrepreneur, depending upon the stage of development.
(a) First-Generation Entrepreneur: A first-generation entrepreneur is one'who
starts an industrial unit by means of an innovative skill. He is essentially an
. innovator, combining different technologies to produce a marketable product or
service.‘ .
(b) Modern Entrepreneur: A modem entrepreneur is one who undertakes those
venture which go well along with the changing demand in the market. They
undertake those ventures which suit the current marketing needs.
(c) Classical Entrepreneur: A classical entrepreneur is one who is concerned
with the customers and marketing needs through the development of self-sup
porting ventures. He is a stereotype entrepreneur whose aim is to maximize his
economic returns at a level consistent with the survival of the firm with or with
out an element of growth.
1.22 CHARACTERISTICS OF AN ENTREPRENEUR

...4
The characteristics of an entrepreneur that contribute to success are the result of his
motivation. A successful entrepreneur must be a person with technical competence, initia
tive, good judgment, intelligence, leadership qualities, self-confidence, energy, attitude, crea
tiveness, fairness, honesty, tactfulness and emotional stability.
1. Mental Ability: Mental ability consists of intelligence and creative thinking. An
entrepreneur must be reasonably intelligent, and should have creative thinking
and must be able to engage in the analysis of various problems and situations in
order-to deal with them. The entrepreneur should anticipate changes and must
»( be able to study the various situations under which decisions have to be made.
2. Clear Objectives: An entrepreneur should have a clear objective as to the
exact nature of the business, the nature of the goods to be produced and subsidi
ary activities to be undertaken. A successful entrepreneur may have the objec
tive to establish the product, to make profit or to fender social service.
3. Business Secrecy: An entrepreneur must be able to guard business secrets.
Leakage of business secrets to trade competitions is a serious matter which
should be carefully guarded against by an entrepreneur. An entrepreneur should
be able to make a proper selection of his assistants.
4. Human Relation Ability: The most important personality factors contributing
to the success of an entrepreneur are emotional stability, personal relations, con
sideration and tactfulness. An entrepreneur must maintain good relation with his
Entrepreneurship and Smalt
Business Management
customers if he is to establish relations that will encourage them to continue^to
patronize his business. He must also maintain good relations with his employees
if he has to motivate them to perform their jobs at a high level of efficiency. An
. entrepreneur who maintains good human relation with customers, employees,}
NOTES suppliers, creditors and the community is much more likely to succeed in his :
business than the individual who does not practice good human relations.
5. Communication Ability: Communication ability is the ability to communicate *
effectively. Good communication also means that both the sender and the re- 1
ceiver understand each other and are being understood. An entrepreneur who :
can effectively communicate with customers, employees, suppliers and credi
tors will be more likely to succeed than the entrepreneur who does not.
IT
6. Technical Knowledge: An entrepreneur must have a reasonable level of tech
nical knowledge. Technical knowledge is the one ability that most people are .
able to acquire if they try hard enough.
t
Administrative Ability
It
Organization Skills
Intelligence (
Creativity
Innovation
Characteristics t-
of Clear Objective
Entrepreneur Business Secrecy
Sound Knowledge
Public Relation
"^-Emotional Stability .
. Technical Knowledge
^ Effective Communication )
Figure 3. Characteristics of Entrepreneur.

Some key characteristics of successful entrepreneur are :
(t) Motivator: An entrepreneur must build a team, keep it motivated, and provide, j-
an environment tor individual growth and career development.
(«) Self-Confidence: Entrepreneurs must have belief in themselves and the ability ?
to achieve their goals.
(Hi) Long-Term Involvement: An entrepreneur must be committed to the project »
* with a time horizon of five to seven years. No ninety-day wonders are allowed. ;
(tv) High Energy Level: Success of an entrepreneur demands the ability to work
long hours for sustained periods of time. x - :
(v) Persistent Problem-Solver: An entrepreneur must have an intense desire to
complete a task or solve a problem. Creativity is an essential ingredient.
(vt) Initiative: An entrepreneur must have initiative, accepting personal responsibil- ,
ity for actions, and above all make good use of resources.
(vii) Goal Setter: An entrepreneur must be able to set challenging but realistic goals.
(viii) Moderate Risk-Taker : An entrepreneur must be a moderate risk-taker and ,
learn from any failures. <
These personal traits go a long way in making an entrepreneur a successful man/ *
woman. However, no entrepreneur possesses total strengths. In such cases, he acquires
and/or associates and thus strengthens his enterprise.
A number of entrepreneurial managers have attempted to identify the true nature of Entrepreneurship
entrepreneur, entrepreneurship in the post industrial revolution. The definition has, therefore,
undergone changes with the changes in the socio-economic environment and will continue to
undergo changes with the changing times. However, some basic concept of innovation, risk
taking, vision and organizing skill continue to be the four pillars on which the edifice of
entrepreneurial concept has to be perceived from time to time. NOTES
An ideal entrepreneur is one who combines values in the market economy; that prof-
■its do not somehow precludeethical behavior; that growth is possible even if political patron-
■age is not used to bend rules and cut comers, and quite simply that pursuit of wealth can be
igrateful and mannerly one.
11.23 ROLE OF ENTREPRENEURSHIP IN ECONOMIC

V
DEVELOPMENT
, Entrepreneurship and economic development are intimately related. Schumpeter opines
■hat entrepreneurial process is a major factor in economic development and the entrepre
neur is the key to economic growth. Whatever be the form of economic and political set-up
->fthe country, entrepreneurship is indispensable for economic development.
Entrepreneurship is an approach to management that can be applied in start-up situ-
-tions as well as within more established businesses.
The growing interest, in the area of entrepreneurship has developed alongside inter-
st in the changing role of small businesses. Small entrepreneurship has a fabulous potential
-i a developing country like India; Therefore, statistical data and its analyses of several
-ountries show that small industries have grown faster than large industries over the last
-ouple of decades.
Large industries first lost jobs while small industries created new workplaces. The
dcus is on small scale industries, which led to the main source of employment in the country,
-i economic development, too, the entrepreneur is to be seen as responding to the opportu-
■ities rather than creating them; as capturing profit opportunities rather than generating
■iem. Without entrepreneurship, without alertness to the new possibility, the long term ben-
Its may remain untapped.
. The economic history of the presently developed countries for example, America,
ussia and Japan tends to support the fact that the economy is an effect for which entrepre-
Mirship is the cause. The crucial role played by the entrepreneurs in the development of the
Astern countries has made the people of the under-developed countries too much con-
:ious of the significance of entrepreneurship for economic development. Now, people
■^ve begun to realize that for achieving the goal of the economic development it is necessary
increase entrepreneurship both qualitatively and quantitatively in the country. It is only the
-.live and enthusiastic entrepreneurs who fully explore the potentialities of the country’s
'ailable resources - labor, technology and capital.
It is also sometimes opined that the development does not occur spontaneously as a
—ttural consequence when economic conditions are in some sense ‘right’, a catalyst or an
;ent is needed, and this requires an entrepreneurial ability. It is this ability that he perceives
—jportunities, which others do not see or care about. Essentially, the entrepreneur searches
—r change, sees need and then brings together the manpower, material and capital required
respond the opportunity what he sees. Akio Morita, the President of Sony who adopted
Entrepreneurehipand’Smatt the company’s products to create Walkman Personal - Stereo and India’s Gulshan kumar of
Business Management
T- Series who skimmed the audio-cassette starve vast Indian market are the clearest exam
ples of such able entrepreneurs
The important role of entrepreneurship on the economic development can be put
NOTES together as follows:
1. It encourages effective resource mobilization of capital and skill which might
otherwise remain unutilized and idle
2. It helps reduce the concentration of economic power
3. It provides immediate large-scale employment. Thus, it helps reduce the unem
ployment problem in the country, i.e„ the root of all socio-economic problems :
4. Entrepreneurship promotes capital formation by mobilizing the idle saving of the
public ‘
5. It promotes balanced regional development
6. It stimulates the equitable redistribution of wealth, income and even political
power in the interest of the country
7. It also induces backward and forward linkages which stimulate the.process of
economic development in the country.
8. It promotes country’s export trade Le., an important ingredient to economic
development
1.24 BENEFITS OF ENTREPRENEURSHIP

(a) Opportunity to Create your own Destiny
(b) Opportunity to make a Difference
(c) Opportunity to reach your Full Potential
(d) Opportunity to Reap Impressive Profits
(e) Opportunity to Contribute to Society and be recognized for your efforts
(/) Opportunity to do what you enjoy and have fun at it
1.25 IMPORTANCE OF AN ENTREPRENEUR

Entrepreneur is one of the most important inputs in the economic development of a
country or of regions within the country. Entrepreneurial competence makes all the differ
ence in the rate of economic growth. In India, state and private entrepreneurship co-exist.
The small-scale industrial sector and business are left completely to private entrepreneurs. It
is, therefore, in this context that an increasingly important role has been assigned to the
identification and promotion of entrepreneurs for this sector.
s The need for a broad-based entrepreneurial call in the India arises from the need to
speed up the process of activating the factors of production, leading to a higher rate of
economic growth, dispersal of economic activities, development of backward and tribal ar
eas, creation of employment opportunities, improvement in the standard of living of the
weaker sections of the society and involvement of all sections of the society in the process
of growth.
Several factors go into the making of an entrepreneur. Individuals who initiate, estab
lish, maintain and expand new enterprises constitute the entrepreneurial class. The socio-
ipolitical and economic conditions, the availability of industrial technology and know-how, Entrepreneurship
state of art and culture of business and trading, existence of markets for products and
■service and the incentives and facilities available for starting an industry or business, all have
■a bearing on the growth of entrepreneurship* A conducive environment is created through
■the policies and interest of the government. NOTES
Whether it is a socialist or capitalist or mixed economy, entrepreneurs are an impor-
ant source of economic development. It is, therefore, suggested that there must be a moti-
/ational training programme to develop entrepreneurs and measures to be taken to modify
■he environment to stimulate entrepreneurial behaviour among individuals. There are think
ers who believe that the “Schumpeterian entrepreheurs are needed in underdeveloped coun-
■ries for rapid economic development.” Entrepreneurs are to be innovators who must change
Ihe production function and bring rapid development. It is only through entrepreneurs that
-ubstantial development can be brought about.
Entrepreneurship has great importance in various economic systems. It is all the
-tore important under capitalism and mixed economy where not only the responsibilities of
■ntrepreneur in production and distribution are recognized but the objective of growth of
■usiness and profit maximization is also attained. Therefore, the importance of entrepre-
-eurship stands beyond challenge in every economic system except under socialism where
appears in a different form. Yes, entrepreneurship prevails in all economic systems in one
)rm or the other.
The role played by an entrepreneur is significantly important in a mixed economy as
permits the growth of both the public and the private sector. In the private sector, profit
■lotive acts as an incentive to the entrepreneur and market mechanism plays its own role
-id this establishes the role of entrepreneur in the mixed economy.
.26 SKILLS OF ENTREPRENEUR

1. Technical Skills:
(/) Writing (ii) Oral communication
(in) Monitoring environment (iv) Technical business management
(v) Technology (vi) Interpersonal .
(vii) Listening (viii) Ability to organize
(/*) Network building (x) Management Style
(*/) Coaching
2. Business Management Skills:
(i) Being a team player (ii) Planning and goal setting
(Hi) Decision-making (iv) Human Relations
(v) Marketing (vi) Finance
(vii) Accounting Management (viii) Negotiation
(ix) Venture launch (*) Managing growth
3. Personal Entrepreneur Skills:
(i) Inner control/disciplined (ii) Risk taker
(Hi) Innovative (iv) Change oriented
Self’lnstructional Material 25
Entrepreneurship and Small (v) Persistent (vi) Visionary leader
Business Management
(vii) Ability to manage change.
NOTES 1.27 ENTREPRENEURSHIP IN' INDIA

India does not possess a good record of entrepreneurship. However its image is
definitely improving. Concerted efforts at liberalization has made the countries of the world
sit back and look at India develop its own brand of entrepreneurship. In the recent past
India’s status in the industrial world has grown. From humble surroundings India is now th'e
tenth largest industrialized nation of the world.
However, India has essentially been an “adoptive” entrepreneur. It has now to pre
pare itself with an entrepreneurship of the different order - that of the “innovative “type.
This will require the harnessing of India’s true potential through tremendous advances of
science and technology. It is essential that the Government and the people must have more
mature and finer approach towards the concept of entrepreneurship. Then only would it be
possible for this nation to match the level reached by the advanced countries. A good begin-
, ning in this direction has been made and one hopes the adage “well begun is half done” will"
hold good in the case of India’s entrepreneurship.
In the past business community was involved in trade and commerce. This commu
nity is presently known to be Vaisyas or Banias. The following points are noteworthy with-
respect to the entrepreneurship in the past:
. 1. The trade activity was dependent on- caste system
2. The skill of any enterprise was inherited from ancestors
3. All the members of the family were involved in the business from planning tc
manufacture stage and finally selling them.
4. Manufacture and supply of a product was based on demand. The traders usee
to book orders from the required people and get them from the producer.
But the present day entrepreneurship has a different scene. There is a tremendous-
growth of industries and services over last 40 - 50 years. Banking, automobiles, software-
development, petrochemical, cement, steel, communication etc., are some of the major mod
em entrepreneurship areas, where lot of innovations had taken place.
Some of the successful entrepreneurs of India are: Jamnalal Bajaj, Dhirubai Amban
of Reliance, Karsanbhai Patel of Nirma, Aditya Birla, J.R.D. Tata, Vijay Mallya, Sunil Mittal"
Shehnaz Hussain and many more. i
1.28 A CASE STUDY OF ENTREPRENEURSHIP IN INDIA

The maiden flight by India’s first privately manufactured six-seated aircraft on 17t—
march, 1994 shown that the right king of economic policies and business environment wil"
pfoduce Indian entrepreneurs who are willing to enter high-tech areas like aviation. Fro»
seamless metal tubes to aircraft market and risking money earner from other profitabl
ventures in a new are with potential.
Taneja Aerospace and Aviation Lt. (TAAL), the Bangalore - base manufacturer o—
the Observer, as its first place is called, is a company promoted by Indian Metal Tubes Ltd
A highly successful company with an annual turnover of Rs. 100 crores which has already Entrepreneurship
diversified into steel, finance and leasing. But aircraft manufacture is altogether a different
ball game. For corporate aircraft, there is no indigenous design available as yet, so TAAL
has entered into collaboration with an Italian company, Partenavia, for licensed manufacture
of three such planes, ranging in seat capacity from six to nine. The manufacture is currently NOTES
from ‘equipped assemblies’ which takes just about 4-6 weeks to assemble. But the manu
facture does involve establishing a sophisticated shop floor with specialized jigs and tooling.
TAAL’s initiative stems from its Chairman’s personal interest in aircraft and flying. A similar
personal interest lead J.R.D. Tata to start Air India. TAAL has gone one step further, into
aircraft manufacture, without the big reputation and deep pockets the Tatas have. The aim
of our economic reforms must be to channeled capital to enfrepreneur with vision and guts.
The success of the Taneja’s is quite intrinsically, a success of policy which is encouraging
entrepreneurship in India
1.29 BARRIERS OF ENTREPRENEURSHIP

^ The barriers are classified as into entry barriers and exit barriers.
Entry barriers are defined as those forces limiting access to identified business
opportunities and capitalization on those opportunities. Survival barriers are defined as con
straints on the conditions essential for the continuity of the small business entity.
Exit barriers are defined as those constraints limiting the termination of those small
industrial ventures that have outlived their business viability or the growth of such ventures
to a different size category.
Entry barriers include:
1. A cultural bias indentifying and managing the entrepreneurial development process.
2. Limited industry - specific data and insufficient market information.
3
3. Limited effectiveness of the infrastructural base.
4. Existence of visible and invisible obstacles'to entry of a specific societal group
(e.g., women) into business.
5. Unorganized capital market and traditional feasibility assessment processes
6. Unsympathetic and cumbersome government attitude
7. Hostile environment
8. Limited access to technology
-I
Exit barriers include:
1. He emotional commitment of the entrepreneur to his venture.
2. Specialized assets, sunk funds
3. The increasing demand for managerial skills
]
4. Fear of failure .
1.30 INTRAPRENEUR
The new concept of Entrepreneur is emerging in the large industrial organization.
■They are called as ‘intrapreneur*. In big organizations, the top executives are encouraged
—o catch hold of new ideas and then convert these into products through research and devel-
Instructional Material 27
Entrepreneurship and Small opment activities within the framework of organization. The concept of intrapreneurship has
Business Management
become very popular in developed countries like America. It is found that an increasing an
increasing number of intrapreneurs are leaving their jobs in big organization and are starting
their own enterprises. Many of such intrapreneurs have become exceedingly successful in
NOTES their ventures. They are causing more threat to the organization which they left.
1.31 COMPARISON BETWEEN ENTREPRENEURSHIP

AND INTRAPRENEURSHIP
Table 4> Comparison between Entrepreneur and Intrapreneur
SLNo. Comparing Entrepreneur Intrapreneur
' Factor
1. Risk An entrepreneur bears the risk in An intrapreneur does not fully bear
volved in the business the risk involved in the enterprise
2 Raising of An entrepreneur himself raises the An intrapreneur does not raise the
Funds funds required for the enterprise funds
3. Operation An entrepreneur operates from out An intrapreneur operates from
side the circle of the organization within the organization itself
4. Dependency An entrepreneur is independent in An intrapreneur is dependent on
his operations the entrepreneur, i.e. the owner
1.32 PROS AND CONS OF BEING AN ENTREPRENEUR

The advantages and disadvantages of being an entrepreneur are equally weighted.
Being an entrepreneur one can create wealth for society and be satisfied. But running a
business show on ones own capabilities if not that easy. Entrepreneur has to undergo several
hardships. In this backdrop, Pros and Cons of being an entrepreneur are discussed in the
following paragraphs.
Advantages (PROS)
Many a time people may ask for themselves as to the advantages they enjoy by
owning ones own business. Although it is very difficult to give an insight to into this question,
it may however be said that it all depends up on the extent of involvement of an individual in
a business activity. For some people simply being their own boss is enough to keep them
happy. Others would like to have their own business for an immense financial success. But
rarely seen are the entrepreneurs who are happy, Still people take risk and enjoy being
entrepreneurs. The advantages of being an entrepreneur are listed below.
1. Bridge the Gap between Knowledge and Application: People acquire
knowledge through education. But all are not interested in applying their knowl
edge for the benefit of society. Entrepreneur can bridge the gap between knowl
edge and its applications. If the knowledge is new, that is not a market. The step
towards commercialization is complicated. Entrepreneur can convert the knowl-
. edge into an economic activity and gain out of it. But he has to take risk. Knowl-
. edge conversion is a complicated issue. Still entrepreneur does it. I
2. Converting an Idea into Money: Being an entrepreneur, one may push up Entrepreneurship
ones innovative ideas into reality. A entrepreneur is dynamic, creative, skillful,
and is ready to take calculative risk, he / she puts societal resources into societal
use. At the same time, entrepreneur, besides enjoying economic gain, makes the
society more enjoyable.
NOTES
3. Be your Own Boss: Many people would like to enjoy their lives independently.
They feel excited by doing so. They possess high capacity to take risk and — to
have adventurous life. These personal traits of entrepreneur, provides an oppor
tunity to the society to improve the standard of living.
4. Originality Respected: The creative and original business ideas of an indi-
' vidual can be used for societal benefit and with this the originator respected in
the society. Originators feel that they can offer a new service / product that no
one has offered before.
5. Competition: By adapting innovative ideas of entrepreneur the product / serv
ice can be produced at a low cost. This facilitates the organization to face com
petition in the market. Besides this, society can get quality product.
6. Better Utilization of Skill and Knowledge: Several people in a society will
have entrepreneurs’ skills. But most of them hesitate to use their skill and knowl
edge for the benefit of the society. The advantage of becoming an entrepreneur
is that creative skill and knowledge of an individual can be used for the benefit of
the society otherwise, which would go wasted.
7. Alternative to Current Career: Many people with entrepreneurial skills will
v be working for others for reasons known or unknown to them. They are called
"Intrapreneurs”. At times they get frustrated working with others and would like
to change their position as employers. The advantage being that they not only get
satisfaction of becoming entrepreneurs, but also their creative skill will be used
for the benefit of the society. Persons having entrepreneural skills will be having
alternative to their present career, if opportunity come in their way.
8. Business Opportunity: In any society business development process is a
continuous activity. In such an atmosphere, very many business opportunities
will be cropping up in different sizes and magnitudes. People with entrepreneural
ability can seize such opportunities and have personal gain. This also facilities
the society to tap the resources for improving the standard of living of the people.
Besides these, entrepreneurs will have the advantages {a) of managing their
time for better living having flexible operations in their own business, (b) optimized
earning for their full efforts, (c) enjoy independence, (d) work wherever they
want, whenever they want, and however they want and (e) become role models
for success. They are not being paid what they are worth and would rather work
on their own and earn the money they should be earning for their efforts.
■sadvantages (CONS) -
Entrepreneur has several risks. Being an entrepreneur, one has to undergo several
■ils. Particularly in small business activities, there are very many hurdles come in the way
■business development. Some of the key disturbing factors are analyzed in the following
■agraphs.
Entrepreneurship and Small X. Remuneration: Entrepreneur works on his own for .economic gain. But he ,
Business Management
she is not assured of positive economic gain. It will work both ways. On the one
hand, becoming an entrepreneur, one forgoes regular income. This means with
out taking to self - employment, had he/she worked as a paid employee he/she
NOTES would have got regular monthly income. To become an entrepreneur, he/sh&
may work on the principle of opportunity cost and decides to get into own busi
ness. But in this, his expected growth in terms of profits and assets may no-
happen. The reward for risk-bearing in entrepreneurship may be positive o-
negative. If he/she continuously suffers loss, there will be no alternative excep-
to close the business. Therefore, in entrepreneurship development, reward ma;
be positive or negative.
2. Benefits: Being an entrepreneur, a person may not gain much in initial stages-
The start-up problems being more, it takes considerable time to reap the benefi-
of being an entrepreneur. Even in long-run, benefits will not be extra-ordinaiy
Most of the entrepreneurs .will be enjoying normal profits and build up reason
able assets. They cannot enjoy monopoly power and make super-normal profits-
There will always be threat of competition and any extra profit expected to b^
earned will be eaten away be competitors. Except that they will be enjoyin;
independence in operating entrepreneurs are always exposed to various types o
business risks. Considering the cost-benefit (cost includes both implicit and ex
plicit) analysis, entrepreneur will be benefited with only normal profit or he ma
be in break-even or might be incurring loss. Therefore, entrepreneur will nc
enjoy benefits as expected.
3. Time Management: As entrepreneur will be taking more risk, time is ver
precious for him. Time is money for him. One cannot enjoy time in self-erriplo)-
ment as one enjoys in paid employment. He/she has to dedicate himself/herse
to the business. Managing time becomes a critical factor. The work schedule c
an entrepreneur is never predictable. An emergency can come up in a matter c
a second and late hours will have to be put in. He will be on his toes all the tim*
to manage time effectively. He cannot have casual approach.
4. Management: Entrepreneur will be the boss of one’s own business and dec
sion-making will be again a critical factor. One should have sound decision sup-
port system to take good decisions on all the issues concerned with the busines,
Decision should not be post-poned. Good decision or bad decision is better tha-
indecision. Post-poning the decision means, post-poning the evil. Being the moi-
arch of the situation, entrepreneur should have better management of his affair
has to take sound decision. But the greatest limitation is that entrepreneur beii^
the top person in the chain of command, may take decisions which may pro\-
abortive for the business. Unknown risks are the one’s which put the entrepn-
neur in trouble in managing the business.
5. Experience: Entrepreneurship feature is an inherent quality of an individual. M
most of the cases it will be in genes. Very few acquire the entrepreneurial skil*
when they enter into their own business. An unskilled person with an unskille
staff will have a difficult time in running the business. Working with employe*-
who “do'not know the ropes” becomes a tough time for an entrepreneur.
Entrepreneurship
SUMMARY
i • The Word Entrepreneur has it’s root from the French language, it is not pronounced
syllable by syllable as it is apparent in English. The first part of the word ‘Entre’ is
pronounced as * Anthro’, in the similar way to Anthropologist, Anthropoids, and NOTES
‘preneur’ is pronounced as an English word.
• Entrepreneur as an agent who buys factors of production at certain prices in order
to combine them into a product with a view to selling it at uncertain prices in future.
* • A person who specialises in takingjudgmental decisions about the coordination of .
scarce resources, discovers new ideas of business, and manages the entire opera
tions to exploit a market opportunity.
• Higgins defined entrepreneurship as “the function of foreseeing investment and
production opportunities, organizing.an enterprise to undertake a new production
process, raising capital, hiring labour, arranging the supply of raw materials, finding
* site, introducing new technique, discovering new source of raw materials and se
lecting top managers for day-to-day operation”. . .
• Decision making is a very vital characteristic of an entrepreneurship. Taking deci
sions at all levels and stages of entrepreneurship is a routine task.
pi
• Entrepreneur a person or party who starts a venture risking his own savings and
*
investment, or an individual developing or creating something unique.
' • Entrepreneurship is the process or an action taken by the entrepreneur. Entrepre
neurship is also the process of creating something new and assuming the risks and
4 rewards.
• Entrepreneurship and economic development are intimately related. Schumpeter
' opines that entrepreneurial process is a major factor in economic development and
the entrepreneur is the key to economic growth.
REVIEW QUESTIONS
1. Define Entrepreneur.
2. Explain the meaning ofEntrepreneur as a Risk-Bearer.
3. Explain the meaning of Entrepreneur as an Organizer.
4. Explain the meaning of Entrepreneur as a Innovator.
5. Briefly explain the evolution ofthe concept Entrepreneur.
r
6. What are the inherent features of an Entrepreneur?
7. What is an Enterprise? Explain.
8. What are the various stages involved in the Entrepreneurial Process? Explain.
. 9. Explain the concept of Entrepreneur, Entrepreneurship and Enterprise.
10. Differentiate between Entrepreneur and Manager with the comparing factor.
11. What is the relationship between Entrepreneur and Entrepreneurship?
12. Explain thefunctions of Entrepreneurs.
13. What are the different types of Entrepreneurs?
14. Classify Entrepreneur exhaustively on their types.
Entrepreneurship and Small 15. List a few key characteristics of a successful entrepreneur.
Business Management
16. Explain the role of Entrepreneurship in the economic development.
17. What are the benefits of Entrepreneurs?
18. What is the importance of an Entrepreneur? Explain.
NOTES 19. What are the skills of an Entrepreneur?
20. Give a brief history of Entrepreneurship in India.
21. What are the barriers of Entrepreneurship?
22. Explain the concept of Intrapreneur.
23. Differentiate between Entrepreneurship and Intrapreneurship.
24. What are the advantages of an Entrepreneur?
. 25. What are the limitations of an Entrepreneur?
FURTHER READINGS
1. Entrepreneurship Development: Hitesh S Viramgami, APH, 2008.
2. EntrepreneurshipDevelopment:B.L.GuptaandAnilKumar,MahamayaPub,2009.
3. Entrepreneurship Development: Monica Loss and F.L. Bascunan, Global Visio"
Pub, 2011.
4. Entrepreneurship Development: An Operational Approach: Text and Cases with Spa
cial Reference to Bangladesh: Nazrul Islam and Muhammad Z. Mamun, University
Press Limited, 2000.
5. Entrepreneurship Development and Management : Umesh Saroj and Vaibha*
■ Mahndiratta, Abhishek Pub, 2009.
6. Entrepreneurship Development in Developing Countries: TUlus Tambunam, Academa
. Excellence, 2007.
Small Scale Industries
UNIT II SMALL SCALE INDUSTRIES
STRUCTURE NOTES

2.2. Introduction
2.3. Concept of Small Scale Industries
2.4. Characteristics of SSIs
2.5. Scope of Small Industry
2.6. Importance of Small Industries
2.7. Objectives of SSI
2.8. Rationale of SSI
2.9. Need of SSIs
2.10. Advantages of Small-scale Industries
2.11. Role of SSIs in Economic Development
2.12. Vision of Small Industries
2.13. Problems Faced by SSI
2.14. Steps Taken to Solve the Problems
I 2.15.
2.16.
Advantages of SSI’s Compared to Large Industry
Steps to Start a SSI -
l 2.17.
2.18.
Procedure for Registration of Small Scale Industry
Government Policy Towards SSI
2.19. Government Support to SSIs during 5 Year Plans
2.20. Impact ofLiberalization, Privatization and Globalisation on SSIs
I 2.21. General Agreement on Tariffs and Trade (GATT)
2.22. World Trade Organization (WTO)
2.23. Functions of WTO
2.24. Supporting Agencies of Government for SSI
I■ 2.25. All India Institutions
2.26. State Level Institutions
I 2.27. Ancillary Industries
I . 2.28.
2.29.
Tiny Industries
Cottage Industries
• Summary
• Review Questions
.Entrepreneurship and Small
Business Management 2.1 LEARNING OBJECTIVES
• explain Definition of SSI
NOTES • discuss Characteristics of SSI
• explain Role of SSI in Economic Development
• describe Government policy towards SSI, Different Policies of SSI
• explain Government support on SSI during 5 year plans
• explain Impact of Liberalization, Privatization, Globalization on SSI
• explain Effect of WTO and GATT
• discuss Supporting Agencies of Government for SSI. *
f
2.2 INTRODUCTION
In a way, small and large scale enterprises are two legs of industrialization process c
a country. Hence, small scale enterprises are found in existence in every country. Sma«
scale enterprises have been given an important place in the framework of Indian plannin-
since beginning both economic and ideological reasons. Today, India operates the largest an-
oldest programmes for the development of small scale enterprises in any developing coui"
try. As a matter of fact, small sector has now emerged as a dynamic and vibrant sector fc ,
the Indian economy in the recent years.*
The small-scale industries have been experiencing major turn-around in the post litP
eralization period with the growth rate hovering around 15 per cent, much higher than tf
large industries in past five years, despite constraints like infrastructure, finance, markt-
management and technology. With further improvement in these basic areas, small sea—
sector will definitely show much better results in this century.
2.3 CONCEPT OF SMALL SCALE INDUSTRIES

The definition of small enterprises varies from one country to another. In most of If—
countries of the world, the criterion for defining a small enterprise is related to the size <
employment. For instance, in U.S.A, small business is one which has employment of lej
than 500 people. In U.K., it is less than 20 skilled workers, in Germany less than 300 worla
ers, in Sweden and Italy less than 50 and 500 people respectively. In some countries, bot»
employment and investment are taken into account. In Japan, the investment in industrii*
undertakings should not exceed 100 million employing not more than 300 employees. ]■
South Korea, investment limit is 2 lakh dollars and development limit being 200 people.
The definition of small industry is an important aspect of government policy as,
identifies the target groups. The first official criterion for small-scale industry dates back tm
the Second Five Year Plan when it was in terms of gross investments in land, building, plar—
and machinery and the strength of the labour force. Subsequently, on the recommendation c
the Federation of Association of Small Industries of India (FASH), an apex level organiz*—
tion of small-scale industry, set up under the aegis. of the Ford Foundation team, only th
investment in fixed assets in plant and machinery, whether held in ownership terms or b—
lease or by the status of a SSI unit. From time to time, there have been many changes in th
ceiling limit of investment in plant and machinery. In the beginning, for a small-scale industi—
the investment level was ? 5 lakhs and employment limit of less than 50 persons when usiiw
c ,* ;
Dwer and less than 100 persons without using power. Small Scale Industries
■eflnitfon of SSI
Use of “SmallV as a designation, the industry differentiates pne set of industries from
-hers. Comparatively small in operation, employment, products, capital, technology etc. NOTES
Ihus, these small sector shares unique problems compared to others: In the case of manu-
-cturing units, small industries are to be expected to have a unique set of problems in
lation to their ‘smallness’ that differentiates them from medium and large manufacturing
-lits. At the same time, the small sector has unique advantages. And, as such small is
-iautiful, but also beneficial, efficient and reliable.
The term "small-scale industries” has been defined in three ways.
■onventional Definition
The conventional definition includes cottage and handicraft industries which employ
■iditional labour-intensive methods to produce traditional products, largely in village house-
-)!ds. They employ none or almost a few hired hands. The handloom textile is an example,
-lough once famous, this sector has been steadily declining.
■perational Definition
* The operational definition for policy purposes includes all those undertakings having
fit' investment in fixed assets in plant and machinery, whether held on ownership terms or by
Ease or by hire purchase, not exceeding? one crore. Ancillary units and tiny units also come
■ider the umbrella of small-scale industries.
■ational Income Accounting Definition
•i •
The third definition of small-scale industries relates to national income accounting.
Hiis includes all manufacturing and processing activities, including maintenance and repair
-rvices, undertaken by both household and non-household small-scale manufacturing units,
ftich are not registered under the Factories Act.
Accordingly, a small industry is presently defined as "A unit engaged in manufactur-
mg, servicing, repairing, processing and preservation of goods having investment in plant
-achinery, at an original cost not exceeding ? One crore.” The government ha$:accepted
-e recommendation of the Abid Russian Committee regarding enhancement in investment
iling and raised the same for small-scale sector.
. The government raised the investment limit in plant and machinery for the small-scale
■ctor to? 3 crore, from the prevailing ? 60 lakhs, with effect from February 7^1997.The
■vestment limit for the ancillary sector and for export oriented units had been raised from
75 lakhs to 3. crore.The investment ceiling for tiny sector had also been increased fivefold
•? 25 lakhs, from the prevailing ? 5 lakhs.
The decision to enhance the investment limits after a revision in 1991, was taken for
/e reasons:
1. The erosion of the rupee’s value due to inflation,
)
2. Devaluation,
» 3. The effect of foreign exchange fluctuation,
■f
4. The need to upgrade and modernize the technology base to keep competitive.
For non-SSI units opting to manufacture items reserved for the small-sector, the
i-
.port obligation has been reduced from 75% to 50%. Thus, non-SSI export units who were
Trlier allowed to sell only 25% of their produce in the Domestic Tariff Area (DTA), will
Business Management now be able to sell 50% their produce. The measure is expected to help the smair-scale unit
expand, diversity, undertake technology upgradation and modernization to remain competi
live while enabling them to avail special benefits. The sector could now grow vertically an
compete successfully in the market with large units.
NOTES However, those who are opposed to increase investment limits argue that by increai
ing the limit to ? 3 crore, the government is allowing back-door entry to large and mediu-
scale companies in sectors reserved for small units.
To ensure that large units don’t comer the available bank finance, it has been decide
that out of funds formally available to the SSI sector, 40% will be reserved for units wi-
investment in plant and machinery upto? 5 lakh, 20% for units with investment between ?
lakhs and ? 25 lakhs and the remaining 40% for other SSI Units.
In fact, the restrictions on investment were proving as disincentive for growing uni*
The recommendations of the committee may enable to create a better environment for sm>
sector to face the challenges with confidence and avail of new opportunities coming in the-
way.
An overview of the definitions of SSI over the years
Table 1. Investment Criterion for SSI.
SLNO. Year Investment Criterion 4
1. Upto 1958 Fixed capital investment upto ? 5 lakhs

2 1959 The value of machine was taken as the original price paid
irrespective of new or old machinery
3. 1960 Gross value of fixed asset upto ? 5 lakh
4. 1966 Value of the plant and machinery was fixed to 7.5 lakh
5. 1975 Value of the plant and machinery was fixed to 10 lakh
9. 1997 Value of the plant and machinery was fixed to 3.0 crore
Comprehensive Definition of SSI

SSI is defined as An industrial undertaking in which the investment in fix
assets in plant and machinery, whether held on ownership terms or oh lease or by h
purchase, does not exceed f 100 lakh as on March 31, 2001, is to be treated as sm~
scale industries.
2.4 CHARACTERISTICS OF SSIs

1. Small industries are fairly labour intensive with comparatively smaller capi—
investment than the larger units. Let the facts speak. According to P.
Mahalnobis, small scale units require very little capital. About six or seven hi—
dred rupees would get an artisan family started. With any given investme
employment possibilities would be ten or fifteen or even twenty times greater
Comparison with corresponding factory system.
36 Self-Instructionalfrfaterial
2. Compared to large units, a small-scale industrial unit has a lesser gestation pe Small Scale Industries
riod, i.e., the period after which the return on investment starts.
3. A.small scale unit is generally a one-man show. Even the small units which run
by a partnership firm or company, the activities are mainly carried out by one of
the partners or directors. In practice, the others are simply as sleeping partners
NOTES
or directors who mainly assist in providing funds.
4. In case of small-scale industries, the owner himself /herself is a manager also.
Thus, these units are managed in a personalized fashion. The owner has firsthand
knowledge of what is actually going on in the business. He takes effective par-,
ticipation in ail matters of business decision taking.
5. The scope of operation of small industrial undertakings is generally localised
catering to the local and regional demands.
6. Small units use indigenous resources and, therefore, can be located anywhere
subject to the availability of these resources like raw materials, labour etc.
7. Using local resources, small units are decentralized and dispersed to rural areas.
Thus, the development of small scale industries in rural areas promotes more
balanced regional development, on the one hand, and prevents the influx ofjob
seekers from the rural areas to cities and urbanizing centers, on the other.
8. Generally found in urban or semi urban area.
9. Few of them grow as medium scale industries.
10. Incidents of early closure are of highest order.
11. Profit margins are less due to competition.
12. Technology may become obsolete resulting in closure of SSis.
2.5 SCOPE OF SMALL INDUSTRY

The scope of small-scale enterprises is a global, phenomenon encompassing both the
developing and developed countries. Normal McRae (1979) predicts that the age of mam
moth corporation was over and the future lay with small, dynamic, efficient production groups
that could respond quickly to customer needs. Globally, the emphasis is on the small enter
prises holding the key to grOvyth with equity and proficiency.
In India, small industry refers to the manufacturing activity. Recently, it has also
come to ‘include servicing activities such as financial, health care, educational, personal
care, tele-communication, transport, tourism, hospitality (Hotels) services.
Table 2. Scope of Small Industry in Various Countries
Country Terminology Scope
Japan Small Enterprise Manufacturing, mining, services, trading
(wholesale and retail)
India Small Scale Industry (SSI) Manufacturing, repair and maintenance
Korea Small Enterprise Manufacturing, mining, construction, com
merce
USA/Canada Small Business Manufacturing, services, trading limited)
UK Small firms Manufacturing, commerce (both retail and
wholesale.), mining, construction, trans
port
Indonesia Small Industry Manufacturing services
Entrepreneurship and Small As is clear from the above table, the scope of small industry in India is rather narrow
Business Management
as compared to other countries like Japan, UK and USA. The question is whether the scope
of activities is in right perspective.
The following are some more areas of scope of SSIs:
NOTES
1. Manufacturing services
2. Public utilities
3. Financial activities
4. Construction services
5. Whole sale business
6. Servicing activities.
2.6 IMPORTANCE OF SMALL INDUSTRIES

In a labour-abundant and capital-scarce country like India, small-scale industries have
come to occupy a significant position in the planned industrialisation of the economy. Most
small-scale industries have a low capital intensity and high potential for employment genera
tion. Besides, they possess location flexibility which serves as an effective instrument for
achieving a wide dispersal of industries. Small-scale Industrial units also serve as an instru
ment in achieving a wide dispersal of industries. Further, small-scale units serve as a means
of bringing forth indigenous entrepreneurship and savings lying dormant, particularly in semi-
urban and rural areas.
Smalt scale
% t 1 t
Traditional Modern
Khadi Power Looms
Cottage Export Oriented
Village Ancilaries
Sericulture Small Scale Service
Handloom
Artisans
Figure 1. Classification of SSI. i
, The small-scale sector has a high potential for employment, dispersal of industries^
promoting entrepreneurship and earning foreign exchange to the country. The following
points,further demonstrate the importance of small-scale industries:
1. Small is Beautiful: “Small is beautiful”, said E.F Schumacher. He maintains Small Scale Industries
that man’s current pursuit of profit and progress, which promotes giant organiza
tions and increased specialisation, has in fact resulted in gross inefficiency, envi
ronmental pollution and inhuman working conditions. Schumacher emphasises
on small working units, communal ownership and regional work places utilising NOTES
local labour and resources. For him, emphasis should be on person and not on
product.
2. Innovative and Productive: It is the small units which are highly innovative
though they do not maintain their own research and development wings, “...a
disproportionate share of innovation success in business seems to come from
‘skunk works,’ tiny groups that tend to out-perform the much larger labs that
often have a cast of hundreds.” .
3. Individual Tastes, Fashions and Personalised Service: Small firms are
quick in studying changes in tastes and fashions of consumers and in adjusting
, the production process and production accordingly.
Small firms seem to have an edge in industries that call for personalized service,
attention to detail and the flexibility to adapt quickly to changes in the business or
technological environment For instance, in the garments and electronic fields,
the small units have ruled the roost, a chorus of garment and TV industry voices
says that big companies delegate responsibility down the line and cannot swiftly
change the trace when necessary.
4. Symbols of National Identity: Small enterprises are almost always locally
owned and controlled, and they can strengthen rather than destroy the extended
family and other social systems and cultural traditions that are perceived as
valuable in their own right as well as symbols of national identity.
5. Happier in Work: People who work in small enterprises are happier in their
work than those who work in large ones in spite of lower wages and poor stand
ards of safety, comfort and welfare facilities.
6. Always Winners of the Game: Small enterprises and new entrepreneurs were
at the forefront of practically every business boom of the last decade, whether it
was''computers, television sets, consumer electronics, garments, diamond ex
ports or advertising. And they frequently put the established large industrial houses
in the shade with the quality of their performance, their ability to seize business
opportunities and their aggressive feeding of burgeoning markets.
7. Dispersal Over Wide Areas: It is only small-scale units which have a ten
dency to disperse over wider areas. According to the second All-India Census
of small-scale units, 62.19 per cent of the units are located in backward areas.
Small-scale industries play a key role in the industrialisation of a developing country.
This is because they provide immediate large-scale employment and have a comparatively
higher labour-capital ratio; they need a shorter gestation period and relatively smaller mar
kets to be economic; they need lower investments, offer a method of ensuring a more
equitable distribution of national income and facilitate an effective mobilisation of resources
of capital and skill which might otherwise remain unutilised; and they stimulate the growth of
industrial entrepreneurship and promote a more diffused pattern of ownership and location.
Self-Instructional Material ^39 t

Business Management 2.7 OBJECTIVES OF SSI
The main objectives of the development of SSIs are:
(a) To create more employment opportunities for the people
NOTES (b) To effect decentralisation of industries by creating Indusrtial estates
(c) To effect a redistribution of economic power as well as income
(d) To raise the standard of living of the people
(e) To mobilize regional resources of capital
(f) To reduce regional imbalances
(g) To facilitate import substitution
(h) Improvement of output, income and better standard of living
(0 To generate immediate and large scale employment opportunities with relatively
low investment
(j) To eradicate unemployment problem in the country
(k) To bring backward area too in the mainstream of national development.
2.8 RATIONALE OF SSI

The rationale of SSI can be broadly classified into four arguments viz.
1. Employment argument 2. Equality argument
3. Decentralisation argument 4. Latent resources argument.
1. Employment Argument: In view of India's scarce capital resources and abun
dant labour, the most important argument advanced in favour of the SSIs that
they have a potential to create immediate large-scale employment opportunities.
The increasing emphasis on SSIs in developing countries like India stems largely
from the widespread concern over unemployment hovering in the country. There
are many research findings available which well establish that small scale units
are more labour intensive than large units. In other words, small units use more
of labour per unit of output than investment.
2. Equality Argument: One of the main arguments put forward in favour of the
small scale industries is that they ensure a more equitable distribution of national
income and wealth. This is accomplished because of the two major consideration:
Compared to the ownership of large scale units, the ownership pattern in SSI is
more widespread. ,
Their more labour intensive nature, on the one hand, and their decentralisation
and dispersal to rural and backward areas, on the other, provide employment
opportunities to the unemployed. This results in more equitable distribution of the
produce of the small scale units. It is also held that as most of the small enter
prises are either proprietary or partnership concerns, the relations between the
workers and the employers are more harmonious in small enterprises than I the
large enterprises.
3. Decentralisation Argument: Decentralisation argument impresses the neces
sity of regional dispersal of industries to promote balanced regional development
¥
K
in the country. Big industries are concentrated everywhere in urban areas. But, Small Scale Industries
small industries can be located in rural and semi urban areas to use local re
sources and to cater to the local demands. Admittedly, it will not be possible to
start small enterprises in very village, but it is quite possible to start small enter
prises in group of villages. NOTES
Decentralisation of industrial enterprises will help tap local resources such as
raw materials, idle savings, local talents and ultimately improves the standard of
living even in erstwhile backward areas.
4. Latent Resources Argument: This argument suggests that small enterprises
are capable of mopping up latent and unutilized resources like hoarded wealth
and ideal entrepreneurial ability, etc. The real force of latent resources argu
ment lies in the existence of entrepreneurial skills.
The emergence of entrepreneurial class requires a conducive environment. The fact
^mains that small enterprises provide such environment in which the latent talents of entre-
-reneurs find self expression.
The rationale of SSIs so established can be broadly classified as :
1. Backbone of Nation:
Small-scale industries are generally locally owned and well controlled. This leads
to strengthening of a family and other social systems and thus strengthening of
nation.
2. Small in Operation:
SSIs utilize local labour, small in operation and leads to satisfaction of the entre
preneur.
3. Innovative:
Small units are generally highly innovative. In SSIs, there will not be enough
facilities, machines or resources. To get the jobs done with the limited available
facilities, innovation arises.
4. Self Satisfaction;
It gives lot of self-satisfaction to workers for having done a good job with limited
facilities.
5. Caters to Individual Taste and Styles:
SSIs can change or alter the process and production according to the changes in
taste and fashions of the customers.
6. Spread Over Wide Areas:
Unlike large-scale industries that are concentrated at one or two places, SSIs
can spread over the entire nation leading to uniform development of country.
Government is supporting to starts SSIs in backward areas with an aim to im
prove the nation.
Thus SSIs plays vital role in the industrialization of a developing country..
SSIs need smaller investment, offer a means of equal distribution of national
income, better utilization of local skills and resources. They create the growth of
industrial entrepreneurship and promote a wide spread ownership location.
Business Management 2.9 NEED OF SSIs
1. To generate better employment opportunities
2. To raise incomes
NOTES 3. To raise standards of living
4. To bring about the growth of a more balanced and integrated rural economy
5. To increase in the supply of manufactured goods
6. Promotion of capital formation
7. Development ofindigenous enterprise and skills
8. Creation of employment opportunities
9. Regional imbalances reduction within the country
10. Wide distribution of socio-economic and political power
11. Creation of opportunities for people with initiative to rise by their own ability and
hard work
12. Improve the techniques of production and management
13. Provide credit facilities (for investment and as well as for working capital).
2.10 ADVANTAGES OF SMALL-SCALE INDUSTRIES

Small enterprise have distinct advantages both economic and social. Some of these
are:
(a) Some small-scale industries do not require a high level of technology.
(b) Small-scale industries are generally labour-intensive and do not require a large'
amount of capital. The energy of unemployed and under-employed people may
be used for productive proposes in an economy in which capital is scarce.
(c) Small-scale industries projects can be undertaken in a short period and hence
can increase production both in the short and the long run.
(d) Most developing countries are rich in certain agricultural, forest and mineral
resources; small-scale enterprises can be based on the processing of locally-
produced raw materials.
(e) It is possible both to save and to earn foreign exchange by producing and export
ing goods produced from local resources.
(f) Small-scale industrial enterprises are the training ground for local entrepreneurs
on decision-making. From small-scale industrial enterprises knowledge and skill
can be transferred to other enterprises, and small enterprises may grow into
medium-sized enterprises.
(g) By creating opportunities for the small business, small industrial enterprises can
. bring about a more equitable distribution of income which is socially necessary
and desirable. ■
t
(h) Small-scale enterprises in developing countries help to create economic stability

in society by diffusing prosperity and by checking the expansion of monopolies.
(0 The development of small-scale enterprises will create jobs in rural areas of the"
developing countries where unemployment and underemployment are high. This^
will help in reducing the exodus of workers from the rural to the urban areas in
search of jobs.
O') Apart from the linkages between agriculture of rural development and small- Small Scale Industries
scale industrial enterprises, there is an essential linkage between large-scale

enterprises and small-scale enterprises in the sense that the former creates op
portunities or facilities for the growth of the latter. For instance, the growth of
the large motor industry creates opportunities for the setting up of small service NOTES
and repair stations which are spread over the’country. Certain large-scale indus
tries also sub-contract work to small producers.
(k) Small-scale enterprises have their own place in a country’s economy. Imperfect
competition protects the small firms’ markets and enables them to exist even
where they are not efficient in terms of cost.
(0 The development of small-scale enterprises can be a part of integrated rural
development programmes on which a good deal of emphasis has been recently
placed in the developing countries of Asia. Due attention needs to be given to the
industrial and non-agricultural components or activities in the context of rural
development programmes.
This apart, the small enterprises have the following advantages too:
1. Small Enterprises (SE) create immediate and permanent employment at a rela
tively small capital cost.
2.-They meet a substantial part of increased demand for consumer goods including
mass consumption goods.
3. They facilitate mobilization of resources of capital and skills which often would
remain inadequately utilized.
4. They bring integration with rural economy on the one hand and large-scale en
terprise on the other.
5. They offer a method of ensuring equitable distribution of national income.
6. They involve a short gestation period.
7. They do not require heavy and costly infrastructure as larger enterprises.
8. They have a favorable capital output ratio.
9. The products of these enterprises earn a substantial exchange.
10. They assist in dispersal and avoid problems which unplanned urbanization tends
to create.
2.11 ROLE OF SSIs IN ECONOMIC DEVELOPMENT

Due to all these above advantages, the development of small enterprises has been
assigned a crucial role in India’s five year-plans. With a view to protect, support and promote
small enterprises to become self-supporting and to facilitate balanced growth of small and
■large sector, a number of policy and promotional measures have been taken by the Govem-
-ment. The policy measures include reservation of certain items for exclusive production in
■the small-scale sector, and exclusive purchase under the stores purchase policy and differ-
-ential excise duty. Promotional measures have included development of entrepreneurship
■backed by a package of consultancy services, improvement in techniques, institutional sup-
Entrepreneurship and Small port in respect of supply of credit and raw materials, factory accommodation in industrial
Business Management
estates, capital subsidy, and rebates on sales of certain products.
The small-scale sector has stimulated economic activity of a far-reaching magnitude
and has played a significant role in attaining the following major objectives:
NOTES (a) Elimination of economic backwardness of rural and underdeveloped regions in
the country.
(b) Attainment of self-reliance.
(c) Reduction of regional imbalances.
(d) Reduction of disparities in income, wealth and consumption.
(e) Mobilisation of resources of capital and skills and their optimum utilisation.
(f) Creation of greater employment opportunities and increased output, income and
standards of living.
(g) Meeting a substantial part of the economy’s requirements for consumer goods
and simple producer goods.
(h) Provides employment and a steady source of income to the low income groups
living in rural and urban areas of the country.
(0 Provides substitutes for various industrial products now being imported into the '
country. „ !
(j) Improves the quality of industrial products manufactured in the cottage industry
sector and to enhance both production and exports.
The development of these industries would be beneficial to the developing countries
and assist them in improving their economic and social well-being. This would create greater
employment opportunities, assist in enpepreneurship and skills development, and ensure .
better use of the scarce financial resources and appropriate technology.
2.12 VISION OF SMALL INDUSTRIES

Vision formulation for small industries is a must:
(a) If a small industry wants to run a marathon, it requires a value system. A value
system is what separates the men from the boys. It provides you energy and
enthusiasm in moments of your tribulation.
(b) Adhere to the value system and culture of the enterprise.
(c) It is possible for professionals to stay back in this country and create wealth
leveraging sweat equity,
(d) It is possible to conduct business honestly.
(e) Sharing wealth with employees only increases your own wealth.
(f) Investors reward you if you adhere to the best principles of enterprise govern
ance and level with the investors at all points of time. .
(g) It is also possible to benchmark against global standards from India.
- (h) You create incentive for innovatic i within an enterprise by rendering your own
innovation obsolete.
(/) It is possible for two fiercely competing organizations to maintain an open, har-
. monious and even information sharing relationship.
(j) Imbibe and inculcate skills and discipline on an ongoing basis.
(k) Strive to innovate and update technology on and on. Small . Scale Industries
(/) Putting maximum public good ahead of private good in every decision you make,
in fact, will result in enriching the private good. This is what differentiates the
developed world from the developing world.
(m) Do set benchmarks and base incentives around milestones. NOTES
(n) Forge alliance with your team members and strengthen it.
(o) It is possible to inspire a multitude of entrepreneurs to take a plunge in building a
new economy in the new millennium.
(p) The importance of maintaining high ethical standards in business and focusing on
the social responsibilities of an enterprise will become important in this millen
nium.
(q) Constant innovation and the ability to use technology to enhance the customer,
interface in terms of better, cheaper and more products and services. In a busi
ness environment that is complex and ever-changing, effective managers could
well emerge as the differentiating variable for the successful organization. Not
surprisingly, their predictions cover on more than one certainty; Intellectual capi
tal, not physical assets, will drive the new economy.
.13 PROBLEMS FACED BY SSI

Some of the problems faced by the SSE’s are as stated below:
(a) Inefficient human factor (b) Lack of credit facilities
(c) Absence of organised marketing (d) Problems of raw materials
(e) Lack of machinery and equipment (/) Power shortage and frequent power
cuts
(g) Problem of late payment of bills (h) Problem of finance
(0 Problem of marketing (/) Problem of under utilization of ca-
pacity.
(a) Inefficient Human Factor: Owing to illiteracy, ignorance, and the outdated
methods of the cottage workers, there is an inefficient human factor. The entre
preneurial abilities of the promoters of cottage industries and SSIs are handi
capped by the lack of technical knowhow in the areas of production, finance,
accounting and marketing management.
(b) Lack of Credit Facilities: The small industrialists are generally poor and there
are no facilities for cheap credit. They fall into the clutches of the money lender
who charges very high rates of interest, or else they borrow from the dealers 'of
their goods, who exploit them by compelling them to sell their products at very
low prices. After the nationalisation of 14 major Indian Banks in July 1969, the
commercial banks were providing only a small proportion of SSIs financial re
quirements. The position has somewhat improved since then, but if is far from
satisfactory yet. Credit to the SSI sector continues to be non-commensurate
with its contribution to the total Industrial output. As against the share of the
village and SSI sector at 40% in the industrial output; its share in total credit to
the industrial sector is only about 30%.
(c) Absence of Organised Marketing: As marketing is not properly organised,
the helpless artisans are completely at the mercy of middlemen. The potential
Entrepreneurship and Small demand for their goods remains underdeveloped. The SSUs (Small Scale Units)-
Business Management
have to face the competition from large scale units in marketing their products. It
causes damage to the growth and stability of SSIs. SSIs cannot afford to spend
lavishly for advertisement to promote their sales. Further, SSIs produce suchi
NOTES products which cannot satisfy modem tastes. They cannot afford to have serv
ices of specialists to prepare marketing plans for penetration info domestic andi
foreign markets.
(d) Problem of Raw Materials: The quantity, quality and regularity of the supply
of raw materials are not satisfactory. There are no quantity discounts, since they
are purchased in small quantities and hence charged, higher prices by suppliers.
Difficulty is also experienced in procuring semi-manufactured materials. Many
bogus small scale units exist only to procure raw materials at lower cost and sel
the raw materials in the black market.
(e) Lack of Machinery and Equipment: Exclusive machines and equipment suit
able for SSIs are not available. This is another serious handicap. Very little atten
tion is paid to manufacturing such machinery. Hence the problem of Small Scale
Units (SSUs) is the lack of availability of suitable machines and the obsoles
cence of the machines in use.
(f) Power Shortage and Frequent Power Cuts: In the recent years, power short
age and frequent power cuts have played havoc with the SSUs.
(g) Problem of Late Payment of Bills: SSUs face serious financial difficulty in a,
much as more than half of the total SSUs catering to medium and large indus
tries face the problem of late payments of their bills by the latter. This was as pe
the report by RBI committee.
(h) Problem of Finance: An important problem faced by SSI in the country is tha-
of finance. The problem of finance in small sector is mainly due to two reasons
Firstly, it is partly due to scarcity of capital in the country as a whole. Secondl)*
it partly due to weak creditworthiness of small units in the country. Due to thei*
weak economic base, they find it difficult to take financial assistance from th—
commercial banks and financial institutions. As such, they are bound to obtai«
credit from the moneylenders of a very high rate of interest and, thus, exploits
tive n character.
(/) Problem of Marketing: One of the main problem faced by the SSIs is in th-
field of marketing. These small units often do not possess any marketing organ:
zation. In consequence, their products compare unfavorable with the quality c
the products of the large scale industries. Therefore, they suffer from compare
tive disadvantages vis-a-vis large scale units.
(j) Problem of Under Utilization of Capacity: There are studies the clearl*
bring out the gross under utilization of installed capacities in small scale indus
tries. According to the All India Census of Small Scaje Industries, 1972, th-
percentage utilization of capacity was only 47 in mechanical engineering indus
tries, 50 in electrical equipment, 58 in automobile ancillary industry, 55 in leatht—
products and only 29 in plastic products. On an average, we can safely say ths—
50 to 40 percent of capacity is not utilized in SSIs.
Small Scale Industries
4 STEPS TAKEN TO SOLVE THE PROBLEMS
Suitable steps are to be taken to remedy the existing defects and to remove the main
culties of such industries. These measures include:
1. Surveys: Detailed surveys of the existing industries should be conducted and NOTES
production programmes of the SSIs are to be drawn up.
2. Proper Education and Training of Workers: Large number of Industrial
Technical Institutes and Polytechnics for different crafts should be established
for imparting training to the craftsmen.
3. Improvement in Techniques: The artisan should be familiarized with new
and more economical methods of production. Following are to be provided:
(a) Modem tools popularised on the hire-purchase system
(b) Technical guidance and advice
(c) A system of training-cum-production centers and pilot workshops
4. Supply of Inputs: Good raw materials, equipment and imported accessories
may be ensured by suitable measures. These should be regular, of good quality
and of reasonable costs.
5. Supply of Capita] or Credit: Cooperative Societies or State Financial Corpo
rations are a good source for capital or credit, Commercial banks should also
take an active role in this.
However, in view of the red-tapism and the rigidity in their working, SSI entre
preneurs may face problems.
6. Effective Marketing Organization:
(a) Sales depots may be started in all big towns
(b) Exhibitionsof SSI products may be organized
7. Provision of Cheap Electricity: In Japan and Switzerland, success of SSIs
has been achieved due to the availability of cheap power. This should happen in
India.
8. Integration with Large-Scale Industries: SSI should be complementary to
the large scale ones. The raw materials can be semi-processed in rules areas in
small and medium sized units and then brought in a semi-finished state to the big
urban industrial units. The large organised sector can provide.
(a) Technical Guidance
(b) Market Information
(c) Result of its own (R&D) activities in respect of quality and packing methods.
5 ADVANTAGES OF SSI’s COMPARED TO LARGE

INDUSTRY
(a) Low investment
(b) Easily controllable and manageable
(c) Importance to the National Economy
Entrepreneurship and Small (d) More employment opportunities
Business Management
(e) Dispersion of Industries to rural areas
(/) Entrepreneurial talent well utilised
NOTES (g) Cost effectiveness
(h) Complementarity characteristics to large industry.
2.16 STEPS TO START A SSI

The formalities for setting up an SSI are as follows: '
(a) Selection of Industry
(b) Arrange for know-how/technology
(c) Study of resource requirement
(d) Selection of land and premises
(e) Study of investment requirement
(/) Study of requirement of plant and equipment
(g) Study of requirement of raw material and sources of supply
Study of economic viability like marketing and pricing stratergy, financin;
staffing, SWOT analysis, break even analysis, return on investment etc.P'
(h) Preparation of project report
(i) Application of financial institutions for loan for fixed assets and working capit*
>-
0‘) Application to Directorate of Industries for No Objection Certificate (NOC
Registration as SSI, Power and permission .Jr
(fc) Get NOC and permission from local body (Municipality/Village Panchayat/Cc-
poration)
(0 Apply for power connection
(m) Recruit staff and workers
(n) Order for plant and machinery . i
(o) Order for raw materials v
(p) Install the machinery l
(q) Trial runs E-
(r) Production and sales

J
(j) Profits and pay creditors.
1-
2.17 PROCEDURE FOR REGISTRATION OF SMALL-

SCALE INDUSTRY
The under mentioned procedures are adopted for the registration of small sc«
industry:
1. The entrepreneur must select the name of the industry in whcih he wants to st—
- his business as the name itself play a very important role for any industry. The—
fore, the name must be selected which can give the overall view about the ty«
of industry. L
2. The prescribed form is to be filled up for the registration of firm in whatever the Small Scale Industries
name. The entrepreneur can register his firm at the office of the Registrar of
firms.
3. The entrepreneur has to decide whether he would like to start.
(a) Individual owhership/Proprietorship firm. NOTES
(b) Partnership firm
(c) Private Ltd. Company
(d) Public Ltd. Company.
4. The prescribed form for the registration of small scale industry can be submitted
in the office of the Director of Industries in various states for example at Delhi,
the application of registration of the small scale industry can be submitted in
office of the Director of Industries at Kashmiri Gate, New Delhi.
5. The prescribed form is to be filled up in which the complete details of the entre
preneur is to be submitted along with the project report of the industry to be
started.
6. Inspection by the Inspector of the office of the Director of Industries is required
thereafter.
lc As per point number one the entrepreneur must decide the name of the industry by
■ing through several factors. The naem must give the overall idea of the product to be
-nufactured. The decision is to be taken after consultation with the family members.
_tj As per the point number two, the prescriebd form of the Director of Industries is tobe
-d up by giving the address of the residential and office premises along with the details of
jprietor in case of firm. The details of the partners, in case of partnership firm, the details
■the Directors, in case of private limited company and the details of the Directors in case
public limited company must be mentioned. The details of the type of organization is given
Chapter-5 (Managerial Aspects of Small Business). The prescribed form is to be submit-
along with the project report.
As per the point number three, the entrepreneur can start any kind of business either
-a proprietor/partner/Director etc. If he is willing to start a business of his own without
/ing any partner the firm is died as proprietorship. This is applicable when the entrepre-
-jr is willing to start a small business and is having good financial capability to run business
< single person. Secondly, in case he is willing to start a business in which more funds are
Quired he can have more than two partners, maximum up to 5 or 6. By the contribution of
the partners, the more finance can be raised to be invested in the particular project and
. profit whatever comes out of the investment can be divided into all the partners. For this,
partnership deed is to be made in which the complete details of the partners and their
^res are to be given. It is the essential requirement for any kind of business as in acse of
mf kind of disputes or if a person is not willing to join or is willing to leave the industry he can
so by taking his own share.
; As per the point nubmer six, after submitting the prescribed application form to the
sector of Industries, the inspectors of the office of the Director of Industries visit the
-mises of the entrepreneur to find out the viability of the project by going through several
tors essential to set up a small .scale industry. He submits his report to the Director of
■lustries forgiving registration in small scale industry. This registration helps the entrepre-
-*ir to appear in any Government tender without submitting the earnest money requried for
^BuSne^ManagettenT11 obtaining any tender. The entrepreneur gets exemption to appear in the tender and with th
certification different kinds of connections can be obtained by the entrepreneur for hsi ov
industrial benefit. This is also an essential requirement for obtaining loan from any comme-
cial bank as while applying for laoh in any bank the entrepreneur has to submit the copies
NOTES the registration of the firm. After the registration with the Director of Indutries project repc
along with the security deposits is forwarded for the sanction of loan in his favour. The ban-
finance 90 per cent of the amount and the balance of 10 per cent is to be paid by t
entrepreneur as a security. All these loans are provided against the hypothecation of stoc
land and building, plant and machinery etc.
2.18 GOVERNMENT POLICY TOWARDS SSI

Small-scale industries have been given importance in five years plans by Govemme-
of India. Government of India has started various programmes for the development of sma«
scale industries in India. Government has announced several objectives and intentions !■
wards SSI through Industrial Policy Resolutions (IPRs). Since independence Governing
has announced several IPRs.
DIFFERENT POLICIES OF SSI .
IPR 1948
Importance of SSIs in the overall industrial development of the country was accept-
for first time in IPR 1948. It was well recognized that SSIs are particularly suited for usi«
the local resources and to create employment for rural. Initially SSIs faced lot of proble
like shortage of raw materials and capital, non availability of skilled labor, marketing etc. T
main thrust of IPR 1948 was to provide protection to SSI’s.'
IPR 1956
IPR 1956 provided continuing policy support to the small sector and aimed to ensi-
that decentralized sector gained enough self support. About 128 items were reserved
exclusive production in small sector. In addition, Small Scale Industries Board (SSIB) cons
ulted a working group in 1959 for the purpose of examining and formulating a developm*-
plan for SSIs. During Third Five Year Plan period (1961-66), specific developmental proje
like “Rural Industries Projects” and “Industrial Estate Projects” were started to strength
the SSIs. IPR-1956 for SSIs aimed at “Protection and Development” and initiated the nn
dem SSI in India.
IPR 1977
The main thrust on of DPR 1977 was on effective promotion of cottage and srm-
scale industries widely spread in rural and urban areas. IPR 1977 classified small sector i*-
three categories.
(i) Cottage and Household Industries:
This provides self-employment on a large-scale.
(w) Tiny Sector:
Tiny sector is one with investment in industrial units in plant and machinery u
? 1 lakh and situated in towns with a population of less than 50,000 according
1971 census.
(Hi) Small Scale Industries: Small Scale Industries
SSIs comprising of industrial units with an investment of upto ? 10 lakhs and in

case of ancillary units with an investment upto ?15 lakhs.
The measures suggested for promoting SSIs are reservation of 504 items for
exclusive production in Small Scale Industries and proposal to set up an agency NOTES
called “District Industry Centre” (DIC) in each district to serve as a focal point
for the development of SSIs.
■R 1980
Government of India adopted a new Industrial Policy Resolution (IPR) on July 23,
■80. The main objective of DPR 1980 was defined as facilitating an increase in industrial
eduction through optimum utilization of installed capacity and expansion of industries. It
;ped the small sector by increasing the ceiling from ? 1 lakh to? 2 lakhs for tiny industries,
•m ? 10 lakhs to 20 lakhs in case of small scale units and from ? 15 lakhs to ? 25 lakhs for
-Hilaries. District Industry Centres (DICs) are replaced with the concept of “Nucleus
■rnts” in each industrially backward district with an idea to promote the growth of small-
-lie industries in backward areas. It also emphasized the promotion of village and rural
■iustfies to generate economy in the villages. Similar to IPR 1956, IPR 1980 regenerated
*. spirit and encouragement of setting up SSIs.
R 1990
It came into existence in June 1990. It also gave lot of scope and importance for SSIs
-generate wage and self-employment based opportunities in the country. Some of the
ient points to increase the development of SSI are:
1. Investment ceiling in plant and machinery for tiny units is increased from ? 5
lakhs from ? 2 lakhs, provided the unit is located in an area having population of
Jess than 50,000 as per 1981 Census.
-r 2. Investment ceiling in plant and machinery for SSIs is raised to ? 60 lakhs from
? 35 lakhs.
3. Investment ceiling in plant and machinery for ancillary units is raised to ? 75
lakhs from ? 45 lakhs.
4. Implemented a new scheme of central investment subsidy exclusively for SSIs
in rural and backward areas that are generating employment at lower capital
investment.
5. To improve the competitiveness of the products manufactured in SSIs, technol
ogy upgradation programs are implemented under Technology Development
Centre in Small Industries Development Organization (SDDO).
6. Small Industries Development Bank of India (SIDBI) was established in 1990
with an idea to ensure timely and adequate flow of credit facilities to SSIs.
7. About 836 items have been reserved by Government for the exclusive manufac
ture in SSIs.
8. Implementation of delicensing 100% Export Oriented Units (EOUs) set up in
Export Processing Zones (EPZs) upto an investment of ? 75 lakhs. Also
delicensing of all new units with investment upto ? 25 lakhs in fixed assets in
non-backward areas and ? 75 lakhs in notified backward areas.
9. Emphasis to establish special cell in SIDO for developing and training women
entrepreneurs.
Entrepreneurship and Small NEW SMALL ENTERPRISE POLICY 1991
Business Management
During August 1991, the Government of India issued a new policy for small scalt
enterprises tided “Policy measures for promoting and strengthening and supplementing small!
tiny and village enterprises”. The main idea of this new policy is to improve. The growth rat*
NOTES of sector which in turn contributes the growth of economy of country in terms of increasei-
output, employment and exports. The salient features of this “New Small Enterprise Polic
1991” are:
1. Introduction of services to help the problems of delayed payments to small sec
tor.
2. Industry related services and business enterprises are included as SSIs irrespec
tive of their location.
3. Increase in the investment to ? 5 lakhs from ? 2 lakhs in tiny enterprises, irre
spective of the location of the enterprise.
4. Market promotion of small-scale industries products through cooperate/publi
sector institutions other specialized professional/marketing agencies and the con
sortium approach.
5. To widen the scope of the National Equity Fund (NEF) to enlarge the singl*
window scheme and also to associate commercial banks with provision for cor
porate loans.
6. Introduction of limited partnership act.
7. To give priority to small and tiny sector in the allocation of indigenous raw mate
rial.
8. To set up Technology Development Cell in the Small Industry Developmer-
Organization (SIDO)
9. Set up of Export Development Centre (EDC) in the SIDO.
10. To introduce the scheme of Integrated Infrastructural Development (IID) wit
technology backup services to SSIs.
Important Observations of New Small Enterprise Policy 1991:
1. The New Small Enterprise Policy 1991 is prepared on thorough understanding c
/ the basic problems of SSI and proposed remedial measures to over come th-
problems faced
2. Introduction of limited or restricted partnership to facilitate investment of equit
capital by relations and friends who were otherwise hesitating to invest thei-
capital.
3. Equity participation upto 24% by another undertaking in a small-scale unit. ThiP
allows big industries to start or invest in small-scale industries.
4. Removal of change of location of tiny industries and area with less than 50,00"
populations has encouraged development of tiny industries in towns also. Th—
raise of ceiling from ? 2 lakhs to ? 5 lakhs in tiny industries also help setting up c
tiny industries.
5. Made provisions for continuous support to the tiny sectors, like.easy access th—
institutional finance, preference in Government purchase and relaxation of cei—
tain labour laws.
IPR 2000 Small Scale Industries
*, Industrial policy 2000 was actually a comprehensive policy package for SSIs and tiny
»: sectors. Main focus of this policy is as follows:
(0 The exemption for excise duty limit raised from 50 lakhs to ? I crore to improve
the competitiveness. NOTES
(it) Credit linked capital subsidy of 12% against loans for technology upgradation
was providedjn specified industries,
(»0 The third census of small scale industries by the ministry of SSI was con
ducted, which also covered sickness and its causes in SSIs.
0'v) The limit of investment was increased in industry related service and business
enterprises from ? 5 lakhs to ? 10 lakhs.
(v) The scheme of granting ? 75000 to each small scale enterprise for obtaining ISO
9000 certification was continued till the end of 10th plan.
(vi) SSI associations were motivated to develop and operate testing laboratories.
* One time capital grant of 50% was given on reimbursement basis to.each asso
ciation,
(vi'O The limit of composite loan was increased from ? 10 lakhs to ? 251akhs.
■i (v»0 A group was constituted for streamlining of inspection and repeal of redundant
laws and regulations.
(ix) The coverage of ongoing Integrated Infrastructure Development (IID) was en
hanced to cover all areas in the country with 50% reservation for rural areas and
-5. 50% earmarking of plots for tiny sector.
(x) The family income eligibility limit of ? 24000 was enhanced to ? 40000 per
V annum under the Prime Minister Rozgar Yozna (PMRY).
IPR 2001-02
This policy emphasizes the following:
-ji 1. The investment limit was enhanced from ? 1 crore to ? 5 crore for units in
hosiery and handloom sectors.
2. The corpus fund set up under the Credit Guarantee Fund Scheme was increased
from 125 crore to 200 crore.
3. Credit Guarantee cover was provided against an aggregate Credit of ? 23 crore
-ft till December 2001.
4. 14 items were de-reserved during June 2001 related to leather goods, shoes and
toys.
• 5. Market Development Assistance Scheme was launched exclusively for SSI sector.
IPR 2003-04
The following are the highlights of this policy:
1. 73 items reserved for exclusive manufacture in the SSI sector were de-reserved
l in June 2003. These consist of chemical and chemical products, leather and
-r leather products, laboratory reagents etc.
3 2. Selective enhancement of investment in plant and machinery was from ? 1 crore
to ? 5 crore.
-r 3. Banks were directed to provide credit to SSI sector within an interest rate band
of 2 percent above and below their Prime Lending Rates (PLR).
4. The composite loan limit for SSI was raised from ? 25 lakhs to f 50 lakhs.
Entrepreneurship and Small , 5. The limit of dispensation of collateral requirement was raised from f 15 lakhs to
Business Management
? 25 lakhs on the basis of good track record and financial position of the unit.
6. The lower limit of? 5 lakhs on loans covered under the Credit Guarantee Scheme
was removed. All loans up to ? 25 lakhs were made eligible for guarantee cover
NOTES under the Credit Guarantee Scheme.
7. Specialized bank branches were made operational for SSIs.
8. Small and Medium Enterprise (SME) fund of ? 10000 crore was set up under
SIDBI to solve the problem of inadequate finance for SSIs.
9. Laghu Udyami Credit Card Scheme was liberalized. Under this scheme. The
credit limit was increased to ? 10 lakhs from ? 2 lakhs. But it was only for
borrowers with satisfactory track record.
IPR 2004-05
Main features” of this policy are as follows:
(a) The National Commission on Enterprises in the unorganized informal Sector
was set up in September 2004. It suggested measures considered necessary for
improvement in the productivity of these enterprises, generation of large scale
employment opportunities, linkage of the sector to institutional frame work in
areas like credit, raw material supply, Infrastructure, technology upgradation,
marketing facilities and skill development by training.
(b) 85 items were de-reserved in October 2004.
(c) The investment limit in plant and machinery was raised from ? 1 crore to ? 5
crore in October 2004, in respect of seven items of sports goods to help to
upgrade the technology and enhance competitiveness.
(d) The Small and Medium Enterprise (SME) fund of ? 10000 crore was started by
SIDBI since April 2004 with 80% of the lending for SSI units. The interest rate
was 2% below the prevailing Prime Lending Rate (PLR) of the SIDBI.
(e) The Reserve Bank of India raised the composite loan limit from ? 50 lakhs to
' ? 1 crore.
(/) Promotional Package for small enterprises was initiated.
IPR 2005-06.
Industrial policy resolution 2005-06 offered following package for SSIs:
(a) The Ministry of Small Scale Industries has identified 180 items for dereservation.
(b) Small and Medium Enterprises were recognized in the services sector and were
treated on par with SSIs in the manufacturing sector.
Government is aware of the challenges faced by SSIs and has been trying to improve
their competitiveness through various measures. These consist of the following:
(a) Tax concessions have been provided to SSIs to promote investment in this sector
and also to grant relief to small entrepreneurs.
(b) Technological facilities have been increased.
(c) In order to facilitate adequate flow of credit, efforts have been made.
(d) Measures have also been taken to improve infrastructure facilities
(e) Promote marketing of products.
54 Self-Instructional Material . .
(/) To improve access to latest information, automation of the Ministry of SSI Of Small Scale Industries
fice of DC (SSI), Directorate of Industries and District Industries Centers have

been set up.
(g) Other initiatives, such as, Advisory and Monitoring Services, Technology.Busi-
• ness Incubators, Suppliers Rating Accreditation Services have been taken up. NOTES
2.19 GOVERNMENT SUPPORT TO SSIs DURING

5 YEAR PLANS
Government has given a lot of importance to the development of SSIs in its five year-
plans. The expenditure on small sector has been continuously increasing. The details are
given below:
{a) First Five-Year Plan (1951-56)
In the first five year plan, ? 48 crore was spent in SSIs (about 48% of total plan
expenditure of industry) covering the entire field of small scale and cottagejn-
dustries, six boards were formulated by the end of first five-year plans. They
are: All India Handloom Board, All India Handicrafts Board, All India and Vil
lage Industries Board, Small Scale Industries Board, Coir Board and Central Silk
Board.
(6) Second Five-Year Plan (1956-61)
The second five-year plan focused on dispersal of industries with an out lay of
f. 187 crore. As may as 60 industrial estates were established for providing basic
facilities* like power, water, transport etc., under one roof.
(c) Third Five-Year Plan (1961-66)
Third five-year plan outlayed ? 264 crore for the development of SSI and cot
tage industries. It has put lot of stress on the extension of the coverage of SSIs.
Establishment of SSI underwent a slight recession during this plan.
(d) Fourth Five-Year Plan (1969-73)
Fourth five-year plan also adopted and encouraged the development of SSIs like
the earlier three plans. SSI has seen remarkable diversification and expansion
owing to the various developments programming during fourth five-year plan
period, The planned out layout for fourth five-year plan is X 293 crore. During
fourth five plans about 346 industrial estates were completed providing employ
ment to about 80,000 people.
(e) Fifth Five-Year Plan (1974-78)
The main thrust of fifth year-plan was to develop SSIs to help reducing poverty
and in equating prevailing in society. Government had initiated wide development
programmes leading to the development of SSIs. The planned out lay of fifth
five-year plan was ? 611 crore.
(().Sixth Five-Year Plan (1980-85)
The planned out lay of sixth five-year plan was X 1945 crore. The sixth plan
included many programs like: Reservation of 409 items for purchase from pro
duction in small scale industries, established Council for Advancement of Rural
Self-Instructional Material S5
Business Management
Technology (CART) in 1982, with an idea to provide technical inputs to the rural
industries and providing consultancy services in technical, managerial and mar
keting through SIDO.
(g) Seventh Five-Year Plan (1985-90)
NOTES
The planned outlay of seventh five-year plan was ? 2752 crore. The main thrust
of seventh plan was upgradation of technology to increase competitiveness of
SSIs. Owing to various development programmes, the small sector witnessed
significant development in all directions. The number of small-scale industries
had gone up, the employment also increased considerably from 96 lakhs to about
120 lakh persons.
(A) Eighth Five-Year Plan (1992-97)
Eighth plan has a plan outlay of ? 6334 crore. It started with a main focus of
employment generation. In order to upgrade the technology, the eighth plan pro
posed to establish appropriate tool rooms and training institutes. Similar to growth
centers, the eighth plan proposed to set up integrated infrastructure development
centers. The eighth plan ensured timely and adequate availability of credit by the
establishment of SIDBI, introduced new initiatives like sanction of composite
loans under single window concept and concessional loans to state corporations
for infrastructure development.
2.20 IMPACT OF LIBERALIZATION, PRIVATIZATION AND

GLOBALISATION ON SSIs
Liberalisation, Privatisation and Globalisation (LPG) process started in India in July
1991 that had changed the face of industry. It has attracted new areas of development,
foreign direct investments and new business areas which were Unheard before 80’s. This
made Indian Economy to grow to new heights. Past 3 decades Indian economy is growing at
an average steady rate of 5% of per-capita income, The exports have increased.
Liberalisation had made import of scarce and non-available raw materials easy. This
had led to many new openings. New entrepreneurs have started many SSIs which other
wise was not possible due to non-availability of certain raw materials and resources, liberali
zation helped getting them from abroad and use them. The best example for effect of liber
alization is electronic and computer industries that have seen tremendous growth in past-two
decades.
Privatisation also helped the growth of SSIs in a big way. Earlier, certain products/
services were produced only by Government organizations and no competition existed. With *
privatization, it threw open to many challenging entrepreneurs to produce similar goods and
service at much competitive price and of better quality. One example of privatization was
the production of telephones. Hither to, Bangalore based Indian Telephone Industries (TTI)
was producing the telephones. With the privatization, many players had entered the arena
producing better, good looking phones with additional facilities. The other important develop t
ment due to privatization is life insurance sector which was earlier monopolized by LIC.
Now there are many private agencies offering Life Insurance, Health Insurance and others.
56 êlf-instructional Material
010631153110111138 helped in setting m3ny smsll sc3le industries. It m3de possible the Small Seale Industries
export of goods produced in SSI. Industries 3nd service providers sre going globsl from
Indis. Indisn entrepreneurs in Pharms Sector, I. T. Sector, Steel Sector have gone to many
countries to start new ventures. Indian entrepreneurs have used the globalisation for the
growth of service sectors. Accordingly investments and quality levels in service sectors NOTES
have increased. The spectacular growth is observed in Business Process Outsourcing (BPO),
/ transport, repair services, entertainment and hospitality sectors.
There has been a big growth of entrepreneurial activities in rural India in the areas
like food processing, ready-to-eat arid parked food, export of food products like fish, meat,
prawns etc., due to LPG.
2.21 GENERAL AGREEMENT ON TARIFFS AND TRADE

(GATT)
General Agreement on Tariffs and Trade (GATT) was a treaty signed by a group of
123 nations agreeing in principle to promote trade among members in 1947. GATT was a
multilateral global initiative. It was an important mile stone in global trade. After World War
II the forward looking thinkers in trade and industry felt that political disputes and problems
could be solved by coming together and singing agreements similar idea is extended to
business, commerce and industry. With British and USA initiatives and discussions GATT
was made possible.
In its existence of more than five decades GATT had many challenges.
. They are:
(0 High tariffs by some countries V
(ii) E-commerce
(Hi) Agriculture commodities
(iv) Narcotics, nuclear and dangerous materials
(v) Development of backward regions
(vi) Subsidies
(vii) Trade restrictive practices
(vm) Trade disputes in international business
(«r) Regional trade blocks
(x) Bilateral trade agreements and monopolies
Cxi') Barter deals
(xii) Trade information.
GATT had no enforcement powers. The losing party could ignore the ruling given by
GATT. The various causes like language, legal issues, distances, and communications de
layed settlement of disputes for years. Even then GATT could handle hundred of large trade
disputes and concluded to satisfaction of parties involved. It gave a new direction of settle
ment by discussions, mediation, taking opinions of experts and negotiations. It highlighted
problems of different trade practices and contract issues. It advocated free trade and open
trade policies for commerce in industry and stages across the globe.
Self-Instructional Material SI
Business Management 2.22 WORLD TRADE ORGANIZATION (WTO)
World Trade Organization was establish in January 1st, 1995 as a successor to the
General Agreement oh Tariffs and Trade (GATT), serves as the legal and institutional foun
NOTES dation of the multilateral trading system. The Uruguay Round Table Agreement that created
WTO also eliminated tariffs for some manufactures’ goods, reduced barriers to trade in
agriculture, expanded protection for copyrights, patents and other intellectual property, pro
vided some reduction in barriers to services and foreign investment. It also reformed the
multilateral trade process and included a strong dispute settlement mechanism. WTO has
123 members, another 31 countries have applied for the membership. Make Optimum utili
zation of world’s resources for improving the incomes and standard of living, promoting
employment and expanding production and trade activities among varies countries.
Encourage sustainable development and ensure that environment care and develop
mental activities together.
Efforts should be made that poor countries as well as developing countries get an
opportunity to have a share in the growth in the world trade.
2.23 FUNCTIONS OF WTO

(0 It covers all the commodities that are internationally traded and have formulated
. rules and procedures for each category as a guideline to member countries.
(ii) Though WTO does not interfere in economic and political issues of the member
countries, it does involve in case of policies regarding international trade.
(Hi) WTO has various expert committees and subcommittees for different catego
ries to review various subjects and also to work as consultants.
0'v) It arranges visits of its expert committees to various countries for training and
development activities.
(v) WTO acts as an arbitrator to sort out disputes between various countries in the
international trade.
(vi) It reviews and advises trade policies of various countries so that such policies
are conducive for international trade.
(v/i) Implementation and monitoring of multilateral and bilateral trade agreements
which are essence of the WTO.
(vm) To keep a track of trade related activities, member countries will inform WTO
about various trade activities they have-been doing in the global market.
(ix) Evaluation of international trade and seek explanation wherever abnormal vari
ations in terms of over dominance or very poor performance are observed.
Indian Issues in WTO

India is a member of GATT and WTO since its inception. India is closely working on
the progress and development of the activities in WTO on its own as a member for develop- -
ing business from India. In addition, India is also representing the group of G-21 developing-
nations in WTO, who jointly look after the interests of the developing world. The developing
world would like to have their fair share of the global markets without any influence or Small Scale Industries
twisting tactics of the rich nations.
Advantages of WTO
(0 Safeguards from unilateral actions of the developed nations. NOTES
(ii) Increased access to export markets.
07/) Increased R&D efforts in the country.
O'v) Access to advanced technology to the existing and new industries.
(v) Increased opportunity to subcontracting and job work for SSI.
(v/) Increased global competition resulting higher efficiency and improved quality.
Business boost will take place in specified fields:
(/) Textiles and clothing.
0*0 Agriculture and food products.
(///) Chemicals. *
O'v) Software industry.
(v) Export subsidies not prohibited till a country’s per capita income is plus 1000 US
Dollars.
(v/) Services.
disadvantages of WTO
(a) Developed countries are becoming protectionists themselves. The global trading
system has been unfair to ‘third world’ Asia, and Latin America for over 2
centuries.
(b) 8 years of bargaining developing countries gained little or nil.
(c) Developed countries raising political and social barriers.
(d) India may gain about only 2 billion per year more exports which is too small.
(e) Pharmaceutical intellectual property right issue. Multinationals use exclusive
market rights and increase price of drugs.
(f) SSI will be hit due to competition.
.24 SUPPORTING AGENCIES OF GOVERNMENT FOR SSI

Starting a new venture requires various resources and facilities. Small scale enter
prises generally find it difficult to have these resources and facilities on their own. Adequate
—nance is life blood to start and run an enterprise as it facilitates an entrepreneur to have
aough funds to procure land, labor, materials plant and machinery and so on. Recognizing it,
-ovemment has come forward to help, small entrepreneurs by providing them funds and
Kher needed facilities and supports. Government has recognized the important role of entre-
nreneurs in the industrial development of the country, especially through the small-scale
tdustries (SSIs). The Government of India and State Governments provide a number, of
>ecial facilities and incentives to small-scale industries. The incentives not only motivate
—itrepreneurs to set up industries in the small-scale sector, but also strengthen the entrepre-
mrfal base in the economy. The government offers a package of services through its
Entrepreneurship and Smalt specialized institutions and motivates entrepreneurs to take advantage of the various facili
Business Management
ties and establish enterprises and flourish. It is hoped that institutional incentives would play
a key role in the promotion of small enterprises and ensure their self-sustained growth. The
institutions providing assistance to small scale industries are broadly classified into three
NOTES categories namely:
(a) All India Institutions
(b) State Level Institutions
(c) Fund-Based Institutions.
2.25 ALL INDIA INSTITUTIONS

All India institutions supporting entrepreneurs are as below:
(0 Smalt Scale Industries Board (SSIB)
(it) National Small Industries Corporation (NSIC)
(Hi) The Khadi and Village Industries Commission (KVIC)
(iv) Small Industry Development Organization (SIDO)
(v) Training Institutes.
(0 Small Scale Industries Board (SSIB)
SSI Board is the apex non-statutory advisory body constituted by the Govern
ment'of India to render advice on all issues pertaining to the SSI sector. It pro-,
vides a forum to its members for interaction to facilitate cooperation and inter-'
institutional linkages and to render advice to the Government on various policy ‘
matters; for the development of the small-scale industries. The Board was first
constituted in 1954. Its term is for two years. The Board was last constituted on
18th January 2003, with lOImembers and held its 48th meeting on 17 January
2004, The Industrial Minister of the Government of India is the chairman of
the SSIB. Its key members are^tate Industry Minister, some Members of
Parliament, secretaries of various departments of Government of India, finan
cial institutions, public sector undertakings, industry associations, eminent ex-,
perts in the field etc.
(w) National Small Industries Corporation (NSIC) Limited
The National Small Industries Corporation Ltd (NSIC) was set up in 1955 with,
a view to promoting, aiding and fostering the growth of small scale industries in
the country with focus on commercial aspects of these functions. NSIC contin
ues to implement its various programs and projects throughout the country to
assist the SSI units. The Corporation has been assisting the sector through sev
eral schemes and activities.
(Hi) The Khadi and Village Industries Commission (KVIC)
The Khadi and Village Industries Commission (KVIC) is a statutory body cre
ated by an Act of Parliament in April 1957. The KVIC is supposed to do the
planning, promotion, organization and implementation of programs for the devel
opment of khadi and other village industries in the rural areas in coordinatior—
with other agencies engaged in rural development wherever necessary.
(iv) Small Industry Development Organization (SIDO) Small Seale Industries
The Office of the Development Commissioner (Small Scale Industries) is also

known as the Small Industry Development Organization (SIDO). It is an apex
body, established in 1954, for assisting the Ministry in formulating, coordinating,
implementing and monitoring policies and programs for the promotion and devel NOTES
opment of small-scale industries. It has over 60 offices and 21 autonomous bod
ies under its management, including Tool Rooms, Training Institutions and Project-
cum-Process Development Centers etc.
(v) Training Institutes
There are three National Level Training Institutes. These are:
(a) National Institute of Small Industry Extension Training (NISIET), Hyderabad^
which undertakes operations ranging from training, consultancy, research
and education, to extension and information services.
(b) National Institute for Entrepreneurship and Small Business Development
(NIESBD), New Delhi, which conducts national and international level train-
. ing programs in different fields and disciplines.
(c) Indian Institute of Entrepreneurship (HE), Guwahati was established to act
as a channel for entrepreneurship development with its focus on the SSls.
-26 STATE LEVEL INSTITUTIONS

State level institutions supporting entrepreneurs are as below:
(a) State Small Industrial Development Corporations (SSIDC)
(b) State Directorate of Industries (SDIs)
(c) District Industries Centers (DICs)
These are discussed in unit 7 in detail.
JND BASED INSTITUTIONS
The fund based institution supporting entrepreneurs are as follows:
(j) Small Industries Development Bank of India (SIDBI)
(if) Commercial Banks
(Hi) State Financial Corporations (SFCs).
*■< (i) Small Industries Development Bank of India (SIDBI)
The SIDBI was established in 1990 as the apex refinance bank. The SIDBI is
operating different programs and schemes through 5 Regional Offices and 33
Branch Offices. The financial assistance of SIDBI to the small-scale sector is
channelized through the two routes: direct and indirect
(if) Commercial Banks
Credit requirement of SSIs is basically of two types - long term loans and work
ing capital. Commercial Banks with their extensive network of branches operat
ing nationwide are primary channel for working capital requirement. Banks are
required to compulsory ensure that defined percentage (currently 40%) of their
( • overall lending is made to priority sectors as classified by RBI. These sectors
include agriculture, small industries, export etc. The inclusion of small industries
Self-Instructional Material til
Entrepreneurship and Small in this list makes them eligible for this earmarked credit. With the liberalization <■
Business Management
the Indian economy, greater emphasis was placed on meeting the credit needs o
SSIs. This was manifest-through the following initiatives taken by RBI. i-
(a) Credit for tiny sector has been earmarked within overall lending to smai
NOTES industries. In order to ensure that credit is available to all segments of Sf
sector, RBI has issued instructions that out of the funds normally availab=
to SSI sector, 40% be given to units with investment in plant and machinen
up to ? 5 lakhs, 20% for units with investment between f 5 lakhs to ? 2
lakhs and remaining 40% for other units.
(b) Public sector banks have been advised to operationalize more specialize
SSI branches at centers where there is a potential for financing many S?
borrowers. As on March 2002,391 specialized SSI branches are working^
the country.
(c) Single window scheme was extended to all districts to meet the financi-
requirements (both term loan and working capital) of SSIs. ’
(d) Laghii Udyami Credit Card (LUCC) Scheme was launched by public se
tor banks for providing simplified and borrowed friendly credit facilities^-
SSI, tiny enterprises, retail traders and artisans.
(e) Composite loan limit was enhanced to ? 50 lakhs from 125 lakhs. Limit Cz
collateral free loans was increases to X 25 lakhs in deserving cases.
9
(m) State Financial Corporations (SFCs)
The-Industrial Financial Corporation of India (IFCI) set up in 1948 used to pr
vide financial assistance to only large-sized industrial undertakings. In order"”
cater the financial requirements of a large number of small-scale units, the Sta»
Financial Corporation Act was passed. State Financial Corporation Act 19.'
was brought into force to enable all the State Governments to set up State Fina-
cial Corporations as regional development banks. The first SFC was set up:;
Punjab in 1953. Today there are 18 SFCs in the country, which exist almost
every state. A SFC has a board of directors, a managing director and an exec
tive committee. A SFC can open its office at different places within the stafr
Presently following assistance is provided to small scale and medium scale u-
dertakings. *
1. Providing long-term finance to industrial enterprises having sole proprietaia
partnership, company and cooperative society form of business organiz-
tion. "
2. Subscribing equity and debentures of industrial enterprises.
3. Providing financial assistance to small and medium enterprises engaged
service sector. '$=
4. Provide working capital loans and meeting various short-term needs of tht—
clients.
More of these are discussed in the unit 7 Institutional Support J
<b—
2.27 ANCILLARY INDUSTRIES

Definition o—
The following requirements are to be complied with by an industrial undertaking f=
t being regarded as ancillary industrial undertaking: c
> An industrial undertaking which is engaged or is proposed to be engaged in the Smalt Scale Industries
■lanufacturing or production of parts, components, sub-assemblies, tooling or intermediates,
ir the rendering of services and undertaking supplies or proposes to supply or render not less
iian 50 per cent of its production or services, as the case may be, to one or more other
rtdustrial undertakings and whose investment in fixed assets in plant and machinery whether
eld on ownership terms or on less or on hire-purchase, does not exceed ? 10 million. NOTES
(leaning
v An ancillary industry is a subsidiary industry or supplementary industry to a main
=dustry. For example, if food production is a main industry, then supply of plastic cups and
-ates to the food industry will become an ancillary industry. A food producer cannot afford
an manufacture plastic cups and plates. Hence, it is wise to get it done from others. An
■icillary industry plays an important role in supplementing a main industry.
28 TINY INDUSTRIES
ifinition
A tiny industrial unit is one with an investment limit of ? 2.5 million in plant and
^chinery irrespective of location of the unit.
-eaning
,* In Indian scenario, tiny industries are playing a major role particularly in the rural and
-ni-urban areas. Setting up tiny enterprises like paan shop, hair dressing salon, grocery
»?ps, production of small agricultural equipments etc in the villages does not require huge
)ital. These kinds of business enterprises can conveniently be categorized as tiny indus-
^s, These tiny industries are generally run by a single person or by his/her own family
mbers. Recent development in rural economic scenario in the form of Self Help Groups
iG’s) can also be considered as a tiny enterprise.
/
‘ A separate package for the promotion of Tiny Enterprises is now being
■<'oduced. While the small scale sector (other than Tiny Enterprises’) would be mainly enti-
i to one-time benefits (like preference in land allocation/power connection, access to
ilities for skill/technology upgradation), the Tiny enterprises would also be eligible for
Bitional support on a continuing basis, including easier access to institutional finance, prior-
in the Government Purchase Programme and relaxation from certain provisions of labour
's. This constitutes the main thrust of Government’s new policy.
l
=19 COTTAGE INDUSTRIES
Cottage industries are of a traditional nature, catering mainly to the local populations
^ dependent upon local raw materials. They are located usually at the homes of the
-ducers, hence the name cottage industries. It is estimated that about 50 million people are
ployed in cottage industries generating revenue to the tune of? 6000 Crores annually,
tage industries include carpet weaving, folk paintings like paintings on wood, silk, etc.,
ring of panels, caskets, tray boxes, furniture ivory items etc. Khadi and village industries,
—dlooms, handicrafts, sericulture and coir industry. Both the segments have their own
rial characteristics in terms of capital/labour intensity, location orientation, manufacturing
cess and skill requirements.
Business Management SUMMARY
• Use of “Small” as a designation, the industry differentiates one set of industr
from others. Comparatively small in operation, employment, products, capital, tec
NOTES
nology etc.,Thus, these small sector shares unique problems compared to othe
• The operational definition for policy purposes includes all those undertakings ha
ing an investment in fixed assets in plant and machinery, whether held on owne
ship terms or by lease or by hire purchase, not exceeding ? one crore.
• Small-scale industries have been given importance in five years plans by Gover
ment of India. Government of India has started various programmes for the dev
opment of small-scale industries in India.
• IPR 1956 provided continuing policy support to the small sector and aimed
ensure that decentralized sector gained enough self support.
• Policy measures for promoting and strengthening and supplementing small, ti
and village enterprises.
• Liberalisation, Privatisation and Globalisation (LPG) process started in India
July 1991 that had changed the face of industry.
• General Agreement on Tariffs and Trade (GATT) was a treaty signed by a gro
of 123 nations agreeing in principle to promote trade among members in 1947.
• World Trade Organization was establish in January 1 st, 1995 as a successor to t
General Agreement on Tariffs and Trade (GATT), serves as the legal and insti
tional foundation of the multilateral trading system.
• A tiny industrial unit is one with an investment limit of? 2.5 million inplant a
machinery irrespective of location of the unit.
• General Agreement on Tariffs and Trade (GATT) was a treaty signed by a gro
of 123 nations agreeing in principle to promote trade among members in 1947.
REVIEW QUESTIONS
1. Briefly explain the concept of Small Scale Industries (SSI).
2. Define an SSI.
. 3. What are the characteristics of an SSI?
4. What is the scope of SSI? Explain.
5. What is the importance of SSI?
6. Classify SSI.
7. What are the objectives of SSI?
8. Explain the rationale of SSI.
9. What is the need for an SSI? 1
10. What are the advantages of SSI?
11. What are the limitations of SSI?
12. What is the role of an SSI in the economic development of the country?
13. What are the problems faced by SSI?
14. What are the steps taken to solve the problems of an SSI?
15. What are the steps involved in setting up an SSI?
64 Self'Instructional Material
16. Define Sickness. Small Scale Industries
17. What are the causes of Industrial Sickness?
18. What are the symptoms of industrial sickness?
19. What are the government policies towards SSI?
20. What is the impact of liberalization on SSI? NOTES
' 21. What is the effect ofPrivatization on SSI?
. 22. What is the effect of Globalization on SSI?
23. Briefly explain GATT.
24. Briefly explain about WTO.
'■i
25. What are the functions of SSI?
26. What are the government agencies supporting SSI?
27. What are ancillary industries?
i
28. What are cottage industries?
29. What are tiny industries?
FURTHER READINGS
2. Entrepreneurship Development: B.L. Gupta and Anil Kumar, MahamayaPub, 2009.
3. Entrepreneurship Development: Monica Loss and F.L. Bascuhan, Global Vision
Pub,2011. . •
'! 4. Entrepreneurship Development: An Operational Approach: Text and Cases with Spe
L* Press Limited, 2000.
5. Entrepreneurship Development and Management : Umesh Saroj and Vaibhav
=C
Mahndiratta, Abhishek Pub, 2009.
6. Entrepreneurship Development in Developing Countries: Tulus Tambunam, Academic
Excellence, 2007.
Business Management
unit III FINANCIAL ASSISTANCE c
NOTES STRUCTURE
si .

3.2. Introduction
3.3. Need for Institutional Support
3.4. Institutional Support
3.5. T^P65 of Financing Institutions for SSI
3.6. Financial Assistance Institutes
3.7. .Non-financial Assistance Institutes
• Summary
3.1 LEARNING OBJECTIVES

• explain the Need for Institutional Support
• explain the "types of Financing Institutes for SSI
• discuss TECSOK, KIADB, KSSIDC and KSIMC
• define DIC/Single Window
/ • describe SISI, NSIC and SIDBI.
/
3.2 INTRODUCTION
Finance is one of the essential requirements of any enterprise. Before actually setti—
up their units, small entrepreneurs need to know very clearly about the type and extent of th<
financial requirements. Integral to the financial requirements is to know about the possit
alternative sources from which finance can be availed of. Given the shortage or lack of entt
prise’s own funds/resources, the Government of India as a part of its policy of promotion
small-scale sector in the country has set up a host of institutions to meet the financial requii
ments of small entrepreneurs. This chapter is therefore, devoted to discuss the financial assi:
ance given by various institutions to small entrepreneurs to set up their enterprises.
3.3 NEED FOR INSTITUTIONAL SUPPORT

The success of small-scale industries depends solely on the well-established institution
set-up. In order to meet the requirements of the rapidly expanding small-scale industrii
sector in the country, the Government gave adequate institutional support; and it may wc
claim to have achieved success in this sphere. The role of various institutions set-up special
to promote the growth of small-scale industries is quite unique.
Starting a business or industrial unit requires variousTesources and facilities. Finance Financial Assistance
)een an important resource to start and run an enterprise since it facilitates the entrepre-
to procure land, engage labour, procure plant and machinery, raw materials and others,
■ncial assistance and concessions could not over come the difficulties of infrastructure, in
mg up an enterprise. Creation of infrastructure facilities like communication, transport,
NOTES
t, power, raw material etc., involve large amount of funds which are not available in the
H$ of small entrepreneurs. In view of this, various Central and State Government institu-
•5 have come forward to help small entrepreneur by providing various facilities. Institu-
*1 support helps make the economic environment more conducive to the business or
■rprise.
INSTITUTIONAL SUPPORT
The institutions aiding small scale industries may be broadly classified into three cat-
•ies viz.
1. Advisory bodies
2. Government institutions
3. Corporate institutions.
Small Industries
yr >r
Advisory Bodies Government Institutions Corporate Institutions
Figure L Institutions aiding SSI.

In. the first category, we have the:
(a) Development Commissioner for Small-scale Industries
(b). The State Small Industries board
(c) Directorate of Industries
(d) Export Promotion Council
-( (e) Small Scale Industries Association etc.
,r\ Under the Government Institutions we have:
i (a) National Small Industries Corporation
. (b) CommodityBoards
^ (c) Small Industries Service Institutes etc..
Under the Corporate Institutions we have:
(a) State Trading Corporation
(b) The MMTC
- (c) The ISI
(d) The Central Institute of Tool Design
„ («) IDBI.
.. The Institutions fostering the development of the SSI can be classified into:
y I. Promotional
1. State Small Industries Corporations (SSIC)
2. Directorate of Industries of the State Government (DISC)
Entrepreneurship and Small 3. The Small Industries Development Organization (SIDO)
Business Management
4. State Industrial and Investment Corporations (SIICO)
5. Udyog Mitra
6. Indian Bureau of Standards (BIS)
NOTES
7. State Industrial Development Corporations (SIDC)
8. Electronic Corporation
9. Industrial Development Corporations (IDC)
10. The National Industrial Development Corporation (NIDC)
11. State Electricity Board (SEB).
II. Financial
1. Mutual Funds
2. Small Industries Development Bank of India (SIDBI)
3. Industrial Development Bank of India (IDBI)
4. Life Insurance Corporation (LIC)
5. State Financial Corporation (SFC)
6. Industrial Finance Corporation of India (IFCI)
7. Industrial Credit and Investment Corporation of India (ICICI)
8. Industrial Reconstruction Bank of India (IRBI)
9. The World Bank
10. The Shipping Credit and Investment Company of India (SCICI)
11. National Bank for Agriculture and Rural Development (NABARD)
12. Unit Trust of India.
III. Technical
1. Industrial and Technical Consultancy Organization
2. Pollution Control Boards
3. Central Institute of Tool Design
4. The Institute for Design for Electrical Measuring Instruments
5. Technology Development and Information Company of India Ltd.
6. Technical Consultancy Organization
J. National Institute of Design
8. Controller of General Patents, Designs and Trade Marks.
IV. Marketing
1. Export Promotion Councils
2. Expoit-Import Bank of India
3. Jute Corporation of India
4. Indian Investments Center *
5. The Minerals and Metals Trading Corporation of India.
6. Export Inspection Council
7. Export Houses
8. Commodity Boards
9. Indian Institute of Packing -
10. The State Trading Corporation of India.
4..
V. Training Financial Assistance
1. Entrepreneurship Development Institute of India

2. Centre for Entrepreneurship Development
3. Management Development Institute
4. Institutes of Management NOTES
5. Institutes of Entrepreneurship Development
6. National Institute for Entrepreneurship and Small Business Development
7. Science and Technology Entrepeneurship
8. Industrial Training Institures
9. Polytechnics .
10. Parks National Institute of Small Industry Extension Training.
VI. Others
1. Bureau of Industrial Costs and Prices
2. Indian Council of Arbitration
3. The credit Rating Information Services of India Ltd.
VII. Associations
1. National Alliance of Young Entrepreneurs
2. Association of Women Entrepreneurs of Karnataka
3. Industrial Associations
4. Merchant Chambers
5. Industry and Trade Associations.
.5 TYPES OF FINANCING INSTITUTIONS FOR SSI

A. State Level Institutions:
(a) Small Scale Industries Development Corporation (SSIDC)
(b) Technical Consultancy Organization (TCO)
(c) State Directorate of Industries
(d) District Industries Centre (DIC)
(e) State Industrial Area Development Board (SIADB)
(f) State Financial Corporations
(g) Karnataka Industrial Areas Development Board (KIADB).
B. Central Government Institutions:
(a) Small Scale Industries Board (SSIB)
(b) Department of Small Scale Industries (DSSI)
(c) Industrial Finance Corporation of India (IFCI)
(d) Industrial Credit and'Investment Corporation of India (ICICI)
(e) National Small Industries Corporation (NSIC)
(/) Small Industries Development Organization (SIDO)
(g) General Insurance Corporation (GIC).
ypes of Finance Provided By Different Institutions

A. GOVERNMENT:
(a) Policy (b) Programmes
(c) Subsidy . (d) State Aid.
Entrepreneurship and Small B. RBI:
Business Management
(a) Guidelines (b) Supervision.
C. SIDBI, NABARD, (EXIM):
(a) Refinance (b) Direct Assistance
NOTES
(c) Training (d) Development.
D. SIDO:
(a) Supervision (b) Technical Know How
(c) 'IVaining (d) Policy Implementation.
E. NSIC, SSIDC:
(a) Machinery (b) Raw Materials
(c) Marketing (d) Training.
F. COMMERCIAL BANKS, CO-OPERATIVES, RRB’S:
(a) Equity (b) Working Capital
(c) Term Loans (d) Training.1
G. IDBI, IFCI, ICICI, IRBI, SFC, SIDC:
(a) Venture Capital (b) Term Loans
(c) Lease (d) Guarantee
(e) Training.
The institutions providing assistance to SSI’s are classified as below:
A. Financial Assistance: These institutes provide assistance monetarily like financ- *
ing or refinancing.
B. Non Financial Assistance: These institutes provide assistance non financially,
i.e., they assist the small enterprise not by funding but by providing Training,
Technical Know How etc.
3.6 FINANCIAL ASSISTANCE INSTITUTES

The following institutions provide the financial assistance to SSI’s:
I. Small Industries Development Bank of India (SIDBI)
SIDBI was set up as a subsidiary of the IDBI by a special Act, 1989 to function
as the principal financial institution for the promotion, development and financing
of industry in the small scale sector, and for co-coordinating the functions of the
institutions engaged in similar activities. It has taken over the responsibility of
administering Small Industries Development Fund and National Equity Fund,
which were earlier under the control of IDBI. However, it started functioning
from April 2,1990. The initial authorized capital of SIDBI is ? 250 crores which
can be increased by IDBI up to f 1000 crores.
The activities of SIDBI include the following:
(a) Technological Upgradation.
(b) Extending the channels for marketing the products in SSI sector. .
(c) Promotion of employment oriented industries especially in semi-urban ar
eas.
- (d) Refinancing of loans and advances extended by primary lending institu
tions.
(e) Discounting and rediscounting of bills. Financial Assistance
(f) Extension of seed capital/soft loan assistance, under valuation equity fund,
Seed capital under Mahila Udyam Nidhi Scheme.
(g) Grading direct assistance and refinance for financing exports of SSI sector
(h) Extending financial support to SSIDC NOTES
(0 Extending financial support to NSIC
O') Providing leasing services.
SIDBI is catering to the needs of a large number of small scale units (several
Lakhs) in our country. The problems of SSI entrepreneurs are multifarious in
nature. This exclusive development bank for SSI units has minimized the prob
lems of Small and Medium Enterprises (SMEs). Government hopes to minimize
the sickness of the SSI with the help of maximum services of SIDBI to the small
entrepreneurship.
SIDBI has opened up schemes of assistance for marketing support to the small
sector. For the first time, the concept of marketing entrepreneurship as against
manufacturing entrepreneur has been recognized.
SIDBI plans to assist service organizations oriented towards marketing. Schemes
such, as ‘Factoring’ introduced by SIDBI are helpful to some extent The SIDBI
is also offering bill discounting facility to SSIs. It also makes finance available to
large industry for the specific purpose of timely payment to SSIs for their sup
plies.
II. Karnataka State Small Industries Development Corporation (KSSIDC)
The principal objective of KSSIDC is the promotion and development of SSIs in
the state. Construction and utilization of infrastructure, especially in backward
areas, procurement and marketing raw materials, technical support and assist
ance are the means to ‘reach the goals’. A concern for results, emphasis on
quality'and timely work and willingness to understand the problems of entrepre
neurs are the staff creed. An industrially prosperous Karnataka is their vision.
Karnataka Industrial Area Development Board (KIADB), a part of KSSIDC,
acquires land for industrial purpose, develops and allots developed places to
entrepreneurs under deferred payment facilities. , *
KSSIDC is an agency promoted by the Government of Karnataka for promotion:
and development of small scale industries in the state. KSSIDC has established
98 industrial estates in all the districts and major talukas. KSSIDC industrial
estate have other infrastructure like roads, drainage, street lighting, water supply
and common service buildings like bank, post office, canteen etc. It has provided
ready built sheds and small plots and has made them available for allotment to
entrepreneurs. KSSIDC has also opened raw material depots in all the districts
of the state. Entrepreneurs shall contact the agency for allotment of shed and
raw materials. KSSIDC has regional offices at Bangalore, Mysore, Gulbarga
and branch offices at Hubli, Belgaum, Shimoga, Tumkur, and Mangalore.
The main functions of KSSIDC are as follows:
Entrepreneurship and Small' (a) Procurement and distribution of scarce raw materials.
Business Management
(b) Supply of machinery of hire-purchase ba'sis.
(c) Providing assistance for marketing of the products of small scale units.
(d) Construction of industrial estates/sheds, providing allied infrastructure fa
NOTES cilities and their maintenance. -
(e) Extending seed capital assistance on behalf of the State Government.
(/) Providing management assistance to production units.
III. Karnataka State Finance Corporation (KSFC)
The State Finance Corporation (SFC) in Karnataka is called as KSFC.
The first SFC was set up in Punjab in 1953. Today there are in all 18 SFCs in the
country which exist almost in every State and Union Territory of the country.
Initially during 1948 SFCs were set up to provide financial assistance to medium
and large-scale industries. Later in 1951 the role was extended for assistance to
small-scale units also. Each SFC has its own Managing Director, Executive
Director, Board of Directors and Management team to take care of the activities
independently.
Activities of SFCs
(a) To promote self-employment for professionally qualified men and women
entrepreneurs interested in starting their own projects.
(b) Financial assistance for expansion, modernization and mechanization in the
existing setup.
(c) Financial assistance for rehabilitation of sick units.
(d) To provide term loans for purchase of land, buildings, machinery and other
facilities.
(e) To provide financial assistance for transport vehicles and tourism related
activities.
(/) To arrange entrepreneurial development progarmmes and seminars for
upcoming young industrialists.
(g) To provide financial assistance for quality improvement and environmental
control needs.
Problems of SFCs
(a) In the state offices problems of corruption and other malpractices continue
to bother the applicants.
(b) Since SFCs are started by respective State Governments the usual prob
lems of State bureaucracy of procedures, delays, castism and favoritism do
occur.
(c) In case of repayments very strict procedure are followed and units are
‘ sealed.
IV. Karnataka Industrial Areas Development Board (KIADB)
Karnataka Industrial Areas Development Board (KIADB) is a wholly owned
infrastructure agency of Government of Karnataka, set up under Karnataka
Industrial Areas Development Act of 1966.
This Board functions as per statutory provisions, rules and regulations enacted Financial Assistance
there under. The Board comprises of senior government officers in their ex-
officio capacities. The Board of members meet regularly to take decisions and
monitor the functions. KIADB holds pride in being the first government organi
zation in Karnataka to obtain ISO 9001 certification in the year 1997. NOTES
Now the KIADB is following ISO 9001:2000 module covering its functions of
Land Acquisition, Development and Allotment functions in Bangalore Urban
and Rural districts.
Aims and Objectives:
1. Promote rapid and orderly development of industries in the state.
2. Assist in implementation of policies of government within the purview of KIAD
Act.
3. Facilitate for establishing infrastructure projects.
4. Function on corporate lines, with "No Profit - No Loss” policy.
Functions:
1. Acquire land and form industrial areas.
2. Provide all infrastructure to such industrial areas.
3. Acquire land for Single Unit Complexes.
4. Acquire land for Government agencies for their schemes and infrastructure
projects.
Few prominent industrial areas:
1. Peenya, Electronic City, Export Promotion Industrial Park (EPIP) in Bangalore.
2. Hebbal in Mysore.
3. Baikampady in Mangalore.
4. Tarihal in Dharwar.
5. KakatiinBelgaum.
6. Auto Complex in Shimoga.
World’s leading Companies have rose up in glory on the infrastructure set by KIADB.
This apart, KIADB has envisaged several innovative projects up its sleeve like Agro-Tech
Parks, Apparel Park, Auto Parks, Hardware Park, Bio-Tech Park, EPIPs, Special Eco
nomic Zones etc.
Some of the projects of KIADB executed with high degree of professionalism;
1. Acquisition of about 4316.25 acres of lands for Bangalore International Airport
Ltd.
2. Acquisition of about 1850 acres of lands for Harbour at Tadri in Uttara Kannada
Dist.
3. Acquisition of about 1958 acres of lands for M/s MRPL at Mangalore and reha
bilitation of about 610 displaced families with modem infrastructure.
i 4. Acquiring and Developing of about 430 acres of land for M/s Toyota in Bidadi at
Bangalore Dist.
Other industrial areas are also supported with secondary infrastructures from both
State owned and private agencies, such as: i
1. Public transport facilities and Medical facilities.
2. Telephones Posts and Telegraphs.
3. Cafeterias / Restaurants.
Entrepreneurship and Small ■ 4. Schools'and Industrial Training Facilities.
Business Management
. 5. Banks/Financial Institutions.
6. Police Stations / Outposts and Fire Stations.
7. In some place even Health Clubs and Cinema Theatres.
NOTES KIADB has so far developed 95 industrial areas spread all over in 24 districts of the
State.
3.7 NON-FINANCIAL ASSISTANCE INSTITUTES

I. Small Industries Service Institute (SISI)
SISI was set up by Ministry of Industry, Government of India. It is under the
control of Development Commissioner Small Scale Industries (DCSSI). It has a
branch office at Bangalore and also at Mangalore, Mysore, Hubli, Gulbarga, ’
SISI also offers service To entrepreneurs which include preparation of feasibil-J
ity studies and conducting practical training programmes on various trades. The
other services offered by SISI include.
(a) Conducting practical training programmes on various trades.
(b) Dissemination of information on project ideas and selection of investment
opportunities.
(c) Bringing about project profiles on various types of products to the new
entrepreneurs and providing guidelines.
(d) Conducting techno-economic surveys in districts and publishing reports/study
reports.
(e) Arranging displays of various items of big industries to assist SSIs to take
manufacture of the same and for supplying the same to the industries.
(/) Participating in plant level committee meetings as an important member.
(g) Coordinating the activities of ancillary industries in the state.
(h) To serve as an interface between Central and State Government.
(0 To conduct Entrepreneurship Development Programmes.
II. National Small Industries Corporation (NSIC) *
NSIC was started by the Central Government in 1955 with the objective for
promoting and developing SSI units throughout the country. It started with multi
ple objectives of helping SSI units for:
(a) Assisting, marketing and exports
(b) Providing machinery on hire purchase
(c) Enlisting SSI units for tender participation in Government purchases
(d) Training ofpersonnel
(e) Assistance in modernization of the units
The important functions of NSIC are as under:
(a) Financial assistance by way of hire purchase scheme for purchase of local and
imported machinery
(b) Provision of various equipments on lease basis
(c) Assistance for marketing the products in the country and also to help in export
ing the products of SSI units
(d) Enlisting quality conscious good SSI units for sending enquires of Government Financial Assistance
stores and purchase departments
O) Training of workers in various trades required for SSI units
if) To develop industrial estates and testing facilities in the industrial areas
(g) Assistance in upgradation of technology, processes and modernization of plant NOTES
and machinery.
NSIC has got offices in various industrial cities and towns and is having socioeco
nomic approach in industrialization of non-industry areas. It aims to create an industrial
atmosphere with facilities and management support, so that small entrepreneurs take up
new projects. As a nodal agency in playing supportive role to small industries, it has helped
to reduce the control of private traders who were exploiting the small industries in many
ways. Its other objective of developing backward areas is still to prove successful in view of
the various problems of business activities and demoralization set in due to failures of indus
tries started in backward areas.
III. Technical Consultancy Services Organization of Karnataka (TECSOK)
These organizations are highly useful to entrepreneurs in providing many serv
ices and are found in almost all the states. The services rendered by Technical
Consultancy Organization (TCO) in Karnataka are called TECSOK. Similar
services are rendered by other TOC’s in other states.
TECSOK is a Government of Karnataka Organization specialized in providing
following range of services to the entrepreneurs:
{a) Identification of project ideas and selection of investment opportunities
(b) Selection of suitable locations for setting up industrial units
(c) Conducting market surveys, industrial potential surveys
{d) Preparation of detailed techno-economic feasibility report/detailed project
reports
(e) Energy audit and conservation
(/) 'Modernization studies
(g) Dissemination of information on industrial policies and procedures of Cen
tral as well as Sate Governments
(/i) Assistance to Government in providing information about new policies, pro
grammes and schemes
(0 Assistance in obtaining necessary licenses and clearances.
TECSOK provides ideas of viable projects to suit the entrepreneurs’ backgiound.
It selects the right product, location for entrepreneur. Its office is situated in
Nrpatunga Road, Bangalore, It is a wing of the Department of Industries and
Commerce promoted during 1976. It assists the entrepreneurs in the preparation
of feasibility reports at a subsidized cost.
TECSOK has also established a separate women’s cell to assist women entre
preneurs. The main object of women’s cell is to formulate the projects which are
i oriented towards progress and development of women. Women’s cell of TECSOK
has spread its area of operations to districts.
It has been observed that small and medium industries are not taking full advan
tages of TCOs due to disinterest or inability to pay the consultancy fees. Hence
the consultancy and development programmes sponsored by the World Bank,
Self-Instructional Material 75 '

Entrepreneurship and Small Central Government or the State Government are mainly implemented for the
Business Management
benefit of various small and medium industries.
IV. District Industries Centres (DICs)/ Single Window Concept
The DICs were established in May 1978 in order to cater to the needs of small
NOTES units.
The main functions of District Industries Centres (DICs) is to act as a chief
coordinator or multifunctional agencies in respect of various government depart
ments and other agencies. The prospective small entrepreneur will obtain all
assistance from this organization for setting up and running industry in rural
areas. The other functions of the DICs are as follows:
1. Identification of Entrepreneurs
>- Develops new entrepreneurs by conducting entrepreneurial motivation pro
grams throughout the district.
2. Projects Selection
> Offers technical advice to new entrepreneurs for the selection of projects.
3. Provisional Registration of Units
>• Once the projects are selected, entrepreneurs are given provisional SSI
registration. This would enable them to obtain assistance form FIs (Finan
cial Institutions).
4. Fixed Assets Purchase
. >■ Sponsors the loan applications to State Industrial Investment Development
Corporation, SIDCO and Banks for the purchase of land and buildings.
>• Sanctions margin money under Rural Industries project loan scheme pay
able to other financial agencies regarding the purchase of plant and machin-
ery.
5. Clearances from Connected Departments
>• Takes the initiative for the above.
>* Takes follow up measure to get speedy power connection.
6. Raw Material Supplies Assistance
Makes necessary recommendations to the raw material suppliers.
>* Issues the certificates for important of raw materials and machinery re
quired.
7. Interest Free Sales Tax Loan
>• SSIs rural areas get Interest free sales tax loan, uptp 8 % of the total fixed
assets (max) form SIDCO sanction order issued from DIC.
8. Assistance to Milage Artisans and Handicrafts
>• Arranges for the financial assistance with the lead banks of nationalizec
banks in the respective areas.
9. Training Programmes
>■ Arranges training to rural entrepreneurs.
>■ Assists other units to give training to SSI entrepreneurs.
10. Self Employment for Unemployed Educated Youth
>* Scheme introduced in 1983 - 84 for youth between 18-25 years (SSLC
technocrats and woman as preference.
The organizational structure of DICs consists of on General Manager, four Func- Financial Assistance
iil Managers and three Project Managers to provide technical service in the area rel
it to needs of district concerned. Management of the DICs is done by the State Govem-
its.
About 430 DICs have been set up covering major districts of the country leaving out NOTES
■opolitan cities and some new districts.
SUMMARY
• SIDBI is catering to the needs of a large number of small scale units (several
Lakhs) in our country.
• KSSIDC is an agency promoted by the Government of Karnataka for promotion
and development of small scale industries in the state. KSSIDC has established 98
industrial estates in all the districts and major talukas. KSSIDC industrial estate
have other infrastructure like roads, drainage, street lighting, water supply and
• common service buildings like bank, post office, canteen etc.
• Karnataka Industrial Areas Development Board (KIADB) is a wholly owned in
frastructure agency of Government of Karnataka, set up under Karnataka Indus
trial Areas Development Act of 1966.
• SISI was set up by Ministry of Industry, Government of India. It is under the
control of Development Commissioner Small Scale Industries (DCSSI).
• NSIC has got offices in various industrial cities and towns and is having socioeco
nomic approach in industrialization of non-industry areas.
REVIEW QUESTIONS
1. What is the need for the institutional support for the SSI?
2. Classify various bodies providing institutional support for SSI.
3. Briefly discuss the institutions that are providing the financial support for SSI’s.
4. Briefly discuss the institutions that are providing technical support for SSI’s.
5. Briefly discuss the institutions that are providing marketing support for SSI’s.
6. What are the institutions at the state level that are providing support for SSI’s ?
7. What are the institutions at the central or national level that are providing support for
SSI’s?
8. Briefly discuss about SIDBI.
9. Briefly discuss about KSSIDC.
10. Briefly discuss about KSFC.
11. Briefly discuss about KIADB.
12. Briefly discuss about SISI.
13. Briefly discuss about NSIC.
14. Briefly discuss about TECSOK.
15. Briefly discuss about DIC’s.
Business Management FURTHER READINGS
1. EntreprenenrshlpDevelopment:HiteshSViramgami,APH,2008.
2. Entrepreneurship Development: B.L. Gupta and Anil Kumar, Mahamaya Pub, 2009.
NOTES
3. Entrepreneurship Development: Monica Loss and F.L. Bascunan, Global Visio
Pub,2011. I
4. Entrepreneurship Development: An Operational Approach: Text and Cases with Spa

cial Reference to Bangladesh : Nazrul Islam and Muhammad Z. Mamun, Universit
Press Limited, 2000. !
!i
5. Entrepreneurship Development and Management: Umesh Saroj and Vaibha
**I
6. Entrepreneurship Development in Developing Countries: Tulus Tambunam, Academil
r
Excellence, 2007. i
!
\
I
: ■
.i-
•*
Preparation ofProject
unit IV PREPARATION OF PROJECT
STRUCTURE NOTES

4.2. Introduction
4.3. Meaning of Project
4.4. Project Classification
4.5. Project Identification
4.6. Project Selection
4.7. Significance of Project Report
4.8. Contents of a Project Report
4.9. Formulation of a Project Report
4. ID. Planning commission’s guidelines for Formulating a Project Report
n 4.11. Specimen of a Project Report
■ 4.12. Network Analysis
4.13. Programme Evaluation and Review Technique (PERT)
4.14. Critical Path Method (CPM)
4.15. Common Errors in Project Formulation
4.16. Concept of Project Appraisal
4-17. Technical Feasibility
4^8. Management Competence
4.19. Identification of Business Opportunities
4.20. Market Feasibility Study
4.21. Technical Feasibility Study
4.22*. Financial Feasibility Study
4.23. Social Feasibility Study
i 4.24. Project Report
• Summary
i • Review Questions
.1 LEARNING OBJECTIVES
After going through this unit, you will be able to : ■■ ’UV
• explain Meaning of Project ; •
• discuss Project Identification 'I ■
■I
• discuss Project Selection and Project Report
• discuss Formulation of Project Report
• explain Guidelines by Planning Commission for Project Report
• explain Network Analysis
• discuss Errors of Project Report
• define Identification of Business Opportunities
• describe Technical Feasibility Study and Financial Feasibility Study.
Sei/'-Jnstructionai Material 79
Business Management 4.2 INTRODUCTION
Entrepreneur, entrepreneurship, and enterprise go hand in hand. By now, you have
leamt who is an entrepreneur and what is entrepreneurship. Thus, you have learnt what do
NOTES entrepreneur do but relatively little how do they do it. In practice, an entrepreneur takes
numerous decisions to convert his business idea into a running concern. In setting up is/ her
enterprise, his/her decision making process starts with project/product selection. In fact,
project selection is the first comer stone to be laid down in setting up an enterprise. The
selection of a right project goes to validate the trite proposition: “Well begun is half done”.
4.3 MEANING OF PROJECT ■ \
It is very much apparent that the very foundation of an enterprise is the prpject.:
Hence, the success or failure of an enterprise largely depends upon the project; In simple
words, a project is an idea or plan that is intended to be carried out. The dictionary meaning
of project is that it is a scheme, design, a proposal of something intended or devised to be
achieved.
The few definitions of the projects are defined as follows:
1. Newman et.al., defines that a project typically has a distinct mission that it
is designed to achieve and a clear termination point, the achievement of
the mission.
2. Giilinger defines project as the whole complex of activities involved in
using resources to gain benefits.
3. According to Encyclopaedia of Management, a project is an organised
unit dedicated to the attainment of a goal-the successful completion of a
development project on time, wit*'*” in conft * znce withpre-de-
termined programme specifications.
Now, a project can be defined “as a scientifically evolved work plan devised to achieve
a specific objective within a specified period of time”.
Here, it is also important to mention that while projects can differ in their size, nature,
objectives, time duration and complexity, yet they partake of the following three basic at
tributes:
{a) A Course of Action
(h) Specific Objectives, and
(c) Definite Time Perspective.
Every project has a starting point, an end point with specific objectives.
4.4 PROJECT CLASSIFICATION

Project classification is a natural corollary to the study of project idea.
Different authorities have classified projects differently. Following are the major-
classifications of projects:
I. QUANTIFIABLE AND NON-QUANTIFIABLE PROJECTS
Projects for which a plausible quantitative assessment of benefits can be made-
are called ‘quantifiable projects.’ Projects concerned with industrial development
power generation, mineral development fall in this category. On the contrary
non-quantifiable projects are those in which a plausible quantitative assessment
SO Self-Instructional Material
cannot be made. Projects involving health education and defense are the examples Preparation ofPnyect
of non-quantifiable projects.
IP. SECTORAL PROJECTS
According to this classification, a project may fall in anyone of the following
sectors: NOTES
(a) Agriculture and Allied Sector
(b) Irrigation and Power Sector
(c) Industry and Mining Sector
(d) Transport and Communication
(e) Sector Social Services Sector
(/) Miscellaneous Sector.
The project classification based on economic sectors is found useful in resource
allocation more especially at macro levels.
III. TECHNO-ECONOMIC PROJECTS
Projects classification based on techno-economic characteristics fall in this cat
egory.
This type of classification includes factors intensity-oriented classification, cau
sation oriented classification and magnitude-oriented classification. These are
discussed as follows:'
(a) Factor Intensity-Oriented Classification; Based on factor intensity clas
sification, projects may be classified as capital intensive or labour intensive.
If large investment is made in plant and machinery, the projects will be
termed as ‘capital intensive’. On the contrary, projects involving large number
of human resources will be termed as ‘labour intensive’.
(b) Causation-Oriented Classification: Where causation is used as a basis
of classification, projects may be classified as demand based or raw mate
rial based projects. The very existence of demand for certain goods or
services makes the project demand-based and the availability of certain
raw materials, skills or other inputs makes the project raw material-based.
(c) Magnitude-Oriented Classification: In case of magnitude-oriented clas
sification, based on the size of investment involved in the projects, the projects
are classified into large scale, medium-scale or small-scale projects.
4.5 PROJECT IDENTIFICATION

If you ask anyone intending entrepreneur what project he/she will select, the obvious
answer would be “<2 project having a good market". But, the question is how without
knowing the product could one determine the market? Whose market will one find out
without knowing the item, le., product? Idea generation about a few projects provides a
way out of above tangle.
Idea Generation
Project selection process starts with the generation of a product idea. In order to
select the most promising project, the entrepreneur needs to generate a few ideas about the
possible projects he/she can undertake. The project ideas can be discovered from various-
internal and external sources. These may include:
Self-Inetructionat Material SI
Entrepreneurship and Small (a) A new product introduced by the competitor.
Business Management
(b) Going through certain professional magazines catering to specific interests like
electronics, computers etc.,
(c) Knowledge of potential customer needs,
NOTES (d) Watching emerging trends in demands for certain products, y-
(e) Scope for producing substitute product,

(/) Success stories of known entrepreneurs or friends or relatives,
(g) Making visits to trade fairs and exhibitions displaying new products and services,
(ft) Meeting.with the Government agencies,
(0 Ideas given by the knowledgeable persons,
O’) Knowledge about the Government policy, concessions and incentives, list of itenre
reserved for exclusive manufacture in small-scale sector, and *'
Ji
All of these sources putting together may give a few ideas about the possible projects
to be examined as the final project. This is also described as 'opportunity scanning and
identification*.
After going through the above process, imagine that you have been able to get five
project ideas as a result of above analysis. These five projects ideas are:
1. Nut and bolt manufacturing (industry)
2. Lakhani Shoes (industry)
3. Photocopying unit (Servicebased industry)
&
4. Electro-type writer servicing (Service based industry)
5. Polythene bags for textile industry (ancillary industry).
From above list, now one project idea will be finally selected going through the follow
ing selection process. 3r
“3
4.6 PROJECT SELECTION
Project selection starts from where project identification ends. After having some
project ideas, these are analysed in the light of existing economic conditions, the government
policy and so on. A tool generally used for this purpose is, what is called in the managerial
jargon, SWOT analysis. The intending entrepreneur analyses his/her strengths and weak^
nesses as well as opportunities/competitive advantages and threats/challenges offered by-
each of the project ideas. On the basis of this analysis, the most suitable idea is finally
selected to convert it into an enterprise. The process involved in selecting a project out of^
some projects is also described as the "zeroing in process".
Whiat follows from above analysis is that there is a time interval involved in between
project identification and project selection. But, in some cases, there may be almost no time
gap between the two. An imaginary case can illustrate it.
TVvo friends Nikhil and Chinmoy were travelling’ from Guwahati to Delhi by North
East Express. Their train stopped at Allahabad. Some teenagers with guava baskets crowded
the compartment. Almost every passenger purchased guava. So did Nikhil and Chinmoy
also. They started eating guava. Chinmoy told to Nikhil: “The guavas are really delicious”.
Nikhil nodded. They reached Delhi by evening and parted company. While Chinmoy went to
his home, Nikhil took Bramputra Mail to Allahabad. He contacted shopkeepers in Allahabad
.io were selling guavas. He finalised a business deal for them to send a packet of 1000 kgs Preparation ofProject
■f guavas daily to Delhi. Thus, Nikhil’s business started from the third day when he was
elling guavas in Delhi.
Here, one pertinent question for us is how did this idea make its headway into a
■usiness opportunity for Nikhil? In its answer, what can we mention is that Nikhil must have NdTLS
umed questions in his mind like:
(i) Who will buy his guavas?
(») What will be the size of the packet and what will be its price?
(«0 How much will be the cost of per kg. of guava?
Project identification and selection is half done in the process of establishing an enter-
ise. The entrepreneur needs to analyse other related aspects also like raw material, poten-
4l market, labour, capital, location, forms of ownership etc. It is necessary to mention that
■tch of these aspects has to be evaluated independently and in relation to each other.
n
■
The other points to be considered in selection of a project are as follows:
(a) Technology
& (b) Equipment
(c) Investment size
(d) Location
(e) Marketing.
-eaning of Project Report

Webster New 20th Century Dictionary defines a project as a scheme, design, a pro-
=sal of something intended or devised. In simple words, project report or business plan is a
itten statement of what an entrepreneur proposes to take up. It is a kind of guide frost or
■urse of action what the entrepreneur hopes to achieve in his business and how is he going
achieve it. In other words, project report serves like a kind of big road map to reach the
-stination determined by the entrepreneur. Thus, a project report can best be defined as a
11 evolved course of action devised to achieve the specified objective within a specified
iod of time. So to say, it is an operating document.
7 SIGNIFICANCE OF PROJECT REPORT

< An objective without a plan is a dream. The preparation of a project report is of great
-nificance for an entrepreneur.
The project report serves the two essential functions:
n 1. First and most important, the project report is like a road map. It describes the
direction the enterprise is going in, what its goals are, where it wants to be, and
how it is going to get there. It also enables an entrepreneur to know that he is
tf proceeding in the right direction. Some hold the view that without well spelled
t out goals and operational methods/tactics, most businesses flounder on the rocks
v 1 of hard times.
2. The second function of the project report is to attract lenders and investors.
t Although, it is not mandatory for the small enterprises to prepare project reports,
yet it is useful and beneficial for them to prepare the project reports for various
Business Management reasons. The preparation of project report is beneficial for those small ent«
prises which apply for financial assistance from the financial institutions and d
commercial banks. It is on the basis of project report that the financial instil
tions make appraisal if the enterprise requires financial assistance or not. If y
NOTES how much. Similarly, other organizations which provide various assistance si-
as work shed, raw material, seed/margin money, etc. are equally interestedi
knowing the economic soundness of the proposal. In most cases, the quality
the firm’s project report weighs heavily in the decision to lend or invest fundp
4$ CONTENTS OF A PROJECT REPORT

Having gone through the significance of project report, it is now clear that there is
substitute for a well-prepared business plan or project report and also there are no shortc
to preparing it. The more concrete and complete the business plan, the more likely it is-
eam the respect of outsiders and their support in making and running an enterprise. The-
fore, the project report needs to be prepared with great care and consideration. A go-
project report should contain the following contents:
(а) General Information: Information on product profile and product details.
(б) Promoter: His/her educational qualification, work experience, project relan
experience.
(c) Location: Exact location of the project, lease or freehold, locational advt-
tages.
(d) Land and Building: Land area, construction area, type of construction, cost-
construction, detailed plan and estimate along with plant layout.
(e) Plant and Machinery: Details of machinery required, capacity, suppliers, cc
various alternatives available, cost of miscellaneous assets.
(f) Production Process: Description of production process, process chart, tech-
cal know- how, technology alternatives available, production programme.
\ (g) Utilities: Water, power, steam, compressed air requirements, cost estimat-
sources and other utilities.
(ft) Transport and Communication: Mode, possibility of getting, costs.
(i) Raw Material: List of raw material required by quality and quantity, sources
procurement, cost of raw material, tie-up arrangements, if any, for procurenu
of raw material, alternative raw material, if any.
fl) Manpower: Manpower requirement by skilled and semi-skilled, sources
manpower supply, cost of procurement, requirement for training and its cost.
(k) Products: Product mix, estimated sales, distribution channels, competitions
their capacities, product standard, input-output ratio, product substitute.
(/) Market: End-users of product, distribution of market as local, national, inten
tional, trade practices, sales promotion devices, proposed market research.
(m) Requirement of Working Capital: Working capital required, sources of worki"
capital, need for collateral security, nature and extent of credit facilities offer
and available.
(n) Requirement of Funds: Break-up of project cost in terms of costs of lai—
building, machinery, miscellaneous assets, preliminary expenses, contingenc
and margin money for working capital, arrangements for meeting the cost of Preparation ofProject
setting up of the project,
(0) Cost of Production and Profitability of first ten years.
(p) Break-Even Analysis
(q) Schedule of Implementation. NOTES
4.9 FORMULATION OF A PROJECT REPORT

Normally, small-scale enterprises do not include sophisticated technique which is used
for preparing project reports of large-scale enterprises. Within the small-scale enterprises
too, all the information may not be homogeneous for all units. In fact, what and how much
information will be given in the project report depends upon the size of the unit as well as
nature of the production. . ' .
Project formulation divides the process of project development into eight distinct and
sequential stages. These stages are:
1. General Information.
2. Project Description.
3. Market Potential.
4. Capital Costs and Sources of Finance.
5. Assessment of Working Capital Requirements
6. Other Financial Aspects,
7. Economic and Social Variables.
8. Project Implementation.
1. GENERAL INFORMATION
The information of general nature given in the project report include the follow-
mg:
(a) Bio-data of Promoter: Name and address of entrepreneur; the qualifica
tions, experience and other capabilities of the entrepreneur; if these are
partners, state these characteristics of all the partners individually.
(b) Industry Profile: A reference of analysis of industry to which the project
belongs, e.g., past performance; present status, its organization, its prob
lems etc.
(c) Constitution and Organization: The constitution and organizational struc
ture of the enterprise; in case of partnership firm, its registration with the
Registrar of Firms; application for getting Registration Certificate from the
Directorate of Industries/District Industry Centre.
(d) Product Details: Product utility, product range; product design; advan
tages to be offered by the product over its substitutes, if any.
2. PROJECT DESCRIPTION
A brief description of the project covering the following aspects is given in the
project report.
(a) Site—Location ofenterprise; owned or leasehold land; industrial area; No
Objection Certificate from the Municipal Authorities if the enterprise loca
tion falls in the residential area.
Physical Infrastructure: Availability of the following items of infrastructure
should be mentioned in the project report:
Entrepreneurship and Small - (i) Raw Material: Requirement of raw material, whether inland or imported,
Business Management
sources of raw material supply.
(it) Skilled Labour: Availability of skilled labour in the area, arrangements for
training labourers in various skills.
NOTES Utilities: These include:
(i) Power: Requirement for power, load sanctioned, availability of power.
(«) Fuel: Requirement for fuel items such as coal, coke, oil or gas, state of
their availability.
(iii) Water: The sources and quality of water should be clearly stated in the
project report.
(b) Pollution Control—The aspects like scope of dumps, sewage system and
sewage treatment plant should be clearly stated in case of industries pro*
ducing emissions.
(c) Communication System—Âvailability of communication facilities, e.g.,
telephone, telex etc. should be stated in the project report.
(d) Transport Facilities—^Requirements for transport, mode of transport, po
tential means of transport, distances to be covered, bottlenecks etc., should
be stated in the business plan.
(e) Other Common Facilities—Availability of common facilities like machine
shops, welding shops and electrical repair shops etc. should be stated in the
report.
(f) Production Process—A mention should be made for process involved in
production and period of conversion from raw material into finished goods.
(g) Machinery and Equipment—A complete list of items of machinery and
equipments required indicating their size, type, cost and sources of theii
supply should be enclosed with the project report.
(h) Capacity of the Plant—The installed licensed capacity of the plant along
with the shifts should also be mentioned in the project report.
(i) Technology Selected—The selection of technology, arrangements made
for acquiring it should be mentioned in the business plan.
if) Research and Development—A mention should be made in the project
report regarding proposed research and development activities to be under-,
taken in future. • -
3. MARKET POTENTIAL si)
While preparing a project report, the following aspects relating to market poten
tial of the product should be stated in the report-
(a) Demand and'Supply Position—State the total expected demand for the
product and present supply position. This should also be mentioned how
much of the gap will be filled up by the proposed unit.
(b) Expected Price—An expected price of the product to be realised should
be mentioned in the project report.
(c) Marketing Strategy—Ârrangements made for selling the product should
be clearly stated in the project report.
(d) After-Sales Service—Depending upon the nature of the product, provi
sions made for after-sales service should normally be stated in the project
report.
(e) Transportation—^Requirement for transportation means indicating whether Preparation ofProject
public transport or entrepreneur’s own transport should be mentioned in the
project report.
4. CAPITAL COSTS AND SOURCES OF FINANCE
An estimate of the various components of capital items like land and buildings, NOTES
plant andmachinery, installation costs, preliminary expenses, margin for working
capital should be given in the project report. The present probable sources of
finance should also be stated in the project report. The sources should indicate
the owner’s funds together with funds raised from financial institutions and banks.
5. ASSESSMENT OF WORKING CAPITAL REQUIREMENTS
The requirement for working capital and its sources of supply should be care
fully and clearly mentioned in the project report. It is always better to prepare
working capital requirements in the prescribed formats designed by limits of
requirement. It will minimise objections from the banker’s side.
6. OTHER FINANCIAL ASPECTS
In order to adjudge the profitability of the project to be set up, a projected Profit
and Loss Account indicating likely sales revenue, cost of production, allied cost
and profit should be prepared. A projected Balance Sheet and Cash Flow State
ment should also be prepared to indicate the financial position and requirements
at various stages of the project.
In addition to above, the Break-Even Analysis should also be presented in the
project report. Break-even point is the level of production/sales where the indus-
trial enterprise shall earn neither profit nor incur loss. In fact, it will just break
even. Break-even level indicates the gestation period and the likely moratorium
required for repayment of loans. Break-even point (BEP) is calculated as fol
lows:
F
BEP = x 100
S-V
where, F Fixed Cost

S Sales Projected
V Variable Costs.
Thus, the break-even point so calculated will indicate at what percentage of sales, the
-iterprise will break even.
~ 7. ECONOMIC AND SOCIAL VARIABLES
In view of the social responsibility of business, the abatement costs, i.e., the
costs for controlling the environmental damage should be stated in the project.
< Arrangement made for treating the effluents and emissions should also be men
tioned in the report.
* . Besides, the socio-economic benefits expected to accrue from the project should
also be stated in the report itself. Following are the examples of socio-economic
benefits
(a) Employment Generation.
(b) Import Substitution.
(c) Ancillarisation.
(d) Exports.
Entrepreneurship and Small (e) Local Resource Utilization.
Business Management
(/) Development of the Area.
8. PROJECT IMPLEMENTATION
Finally every entrepreneur should draw an implementation scheme or a tin*
NOTES table for his project to ensure the timely completion of all activities involved
setting up an enterprise.
Table 1. Project Implementation Chart
TasksWonths 1 2 3 4 5 6 7 8 9 10 11 12 13 b
I. Formulation
of the Project
Report
2. Application for
Term-Loan
3. Term-Loan
Sanction
4. Possession
of Land
5. Construction
of Building
6. Getting Power
and Water
7. Placing Order
for Machinery
8. Receipt and
Installation
of Machinery
9. Manpower
Recruitment
10. Trail Production
11. Commencement
of Commercial
Project
Timely implementation is important because if there is a delay, it causes, among other thit—
a project cost overrun. In India, delays in project implementations has become a comn—
feature. Delay in project implementation jeopardizes die financial viability of the project,
the one hand, and props up the entrepreneur to drop the idea to set up an enterprise, on
other. Hence, there is a need to draw up an implementation schedule for the project and t\m
to adhere to it.
4.10 PLANNING COMMISSION’S GUIDELINES FOR

FORMULATING A PROJECT REPORT
In orderto process investment proposals and arrive at investment decisions, the PI.
ning Commission of India has also issued some guidelines for preparing/ formulating reali:
•dustrial projects. So-far as feasibility , report is concerned, it lies in between the project Preparation ofProject
irmulating stage and the appraisal and sanction stage. The project formulation stage in-
ilves the identification of investment options by the enterprise and in consultation with the
-iministrative Ministry, the Planning Commission and other concerned authorities.
The guidelines are presented as follows: NOTES
1. General Information : The feasibility report should include an analysis of the
industry to which the project belongs. It should deal with the past performance
of the industry. The description of the type of industry should also be given, i.e.,
the priority of the industry, increase in production, role of the public sector, allo
cation of investment of funds, choice of technique, etc. This should also contain
information about the enterprise submitting the feasibility report.
2. Preliminary Analysis of Alternatives: This should contain present data on
the gap between demand and supply for the outputs which are to be produced,
data on the capacity that would be available from the projects that are in produc
tion or under implementation at the time the report is prepared, a complete list of
all existing plants in the industry, giving their capacity and level of production
actually attained, a list of all projects for which letters of intents/licenses have
been issued and a list of proposed projects. All options that are technically
feasible should be considered at this preliminary stage. The location of die project
as well as its implications should also be looked into. An account of the foreign
exchange requirement should also be taken. The profitability of different options
should also be given. The rate of return on investment should be calculated and
presented in the report. Alternative cost calculations vis-^-vis return should be
presented.
3. Project Description: The feasibility should provide a brief description of the
technology /process chosen for the project. Information relevant to determining
optimality of the locations chosen should also be included. To assist in the as
sessment of the environmental effects of a project, every feasibility report must
present the information on specific points, i.e., population, water, air, land, flora
and fauna, effects arising out of project’s pollution, other environmental discretions
etc. The report should contain a list of the operational requirements of the plant,
requirements of water and power, requirements of personnel, organizational struc
ture envisaged, transport costs, activity-wise phasing of construction and factors
affecting it.
4. Marketing Plan: It should contain the following items:
(a) Data on the marketing plan .
(b) Demand and prospective supply in each of the areas to be served.
The method and data used for main estimates of domestic supply and selection
of the market areas should be presented. Estimates of the degree of price sensi
tivity should be presented. It should contain an analysis of past trends in prices.
5. Capital Requirements and Costs: The estimates should be reasonably com
plete and properly estimated. Information on all items of costs should be care
fully collected and presented.
6. Operating Requirements and Costs: Operating costs are essentially those
‘.costs which are incurred after.the commencement j3f commercial production.
Information about all the items of operating cost should be collected; operating
Entrepreneurship and Small costs relate to the cost of raw materials and intermediates, fuel, utilities, labour^
Business Management
repair and maintenance, selling expenses and other expenses. !
7. Financial Analysis: The purpose of this analysis is to present some measures;
to assess the financial viability of the project. A proforma Balance Sheet for the-
NOTES project data should be presented. Depreciation should be allowed for on thej
basis of specified by the Bureau of Public Enterprises. Foreign exchange re
quirements should be cleared by the Department of Economic Affairs. The fea
sibility report should take into account income-tax rebates for priority industries,:
incentives for backward areas, accelerated depreciation, etc. The sensitivity
analysis should also be presented. The report must analyse the sensitivity all.the
rate of return of change in the level and pattern of product prices.
8. Economic Analysis: Social profitability analysis needs some adjustment in the
data relating to the costs and returns to the enterprise. One important type of
investment involves a correction in input and costs, to reflect the true value of
foreign exchange, labor! and capital. The enterprise should try to assess the
impact of its operations on foreign trade; Indirect costs and benefits should also
be included in the report. If they cannot be quantified, they should be analysed
and their importance emphasized.
9. Miscellaneous Aspects: The preceding three areas are deemed appropriate
to almost every new small enterprise. Not withstanding, depending upon the size
of the operation and peculiarities of a particular project, other items may be
considered important to be applied out in the project report. To mention, probable
use of minicomputers or other electronic data processing services, cash flow
statements, method of accounting etc., may be of great use in some small enter
prises. •
4.11 SPECIMEN OF A PROJECT REPORT

A. PRODUCT DESCRIPTION
B. PRODUCTION AND GENERAL EVALUATION OF PROSPECTS
F
C. MARKETS ASPECTS:
1. Users
,2. Sales Channels and Methods
3. Geographical Extent of Market
4. Competitive Situation:
id) Domestic Market
{b) Export Market
5. Market needed for plant described
D. PRODUCTION REQUIREMENTS
Salient Features:
1. Annual Capacity(One/Two/Three-Shift Operation)
2. Capital Requirements:
{a) Land and Buildings on rent (Mention value, if owned)
ib) Equipment, furniture and fittings
(c) Working capital
9$.jSelf=instructional Material •
3. Total capital which the entrepreneur would need for the whole project, pro
vided he uses agencies planned by the Government or financial accommoda
tion
{a) Own
(b) Borrowings NOTES
4. Expected net profit per annum
E. CAPITAL REQUIREMENTS
i I. Fixed Assets and Working Capital
{a) Land(.... sq. mts) and
Building(...... sq. mts) on rent at Rs... .per annum
* . {b) Equipments:
(0 Production Equipment (List down in an appendix, giving values etc.,
\ of each machine separately)
(ii) Other tools and Equipments
o (m) Furniture and Fittings
.. (c) Working Capital
II. Raw Material and Allied Supplies (Annual)
Description Qty Rate Annual
i Requirements
ii ■O'’
1. Material - 1
w-
2. Material - 2
-1
3. Material-3
4. Power, Fuel and Water
5. Maintenance and Spares
6. Other Supplies
Total
III. Manpower (Annual)

Description No. Rate per Annual
Month (?) Cost (?)
1. Manager
2. Foreman
3. Supervisor
4. Skilled Workers
5. Semi-Skilled Workers
6. Unskilled Workers
7. Office Staff
8. Others
Total
IV. Other Costs (Annual)
{a) Depreciation on equipment, furniture and fittings/Annum
{b) Interest on capital (fixed and working) per annum
:
Business Management
(c) Administrative Costs
(d) Sales cost (Including Sales Commission, Advertisement, etc.)
(e) Provision for discount, bad debts and miscellaneous contingencies
NOTES (/) Training costs
F. Total Annual Costs, Sales Revenue and Net Profits
(a) Annual Costs:
(0 Rent for Land and Buildings
(h) Raw Materials and Allied Supplies
(Hi) Manpower
(iv) Other Costs
(b) Annual Sales Revenue
(c) Expected Annual Net Profit
(d) % Profit on Own Capital
(e) % Profit on Total Annual Sales Turnover.
(/) % Total Investment
G. REMARKS
Signature
Date:
4.12 NETWORK ANALYSIS

What is a network? A network is a set of symbols connected with each other with a
sequential relationship with each step making the completion of a project/event. As dis
cussed earlier, a business plan or project involves various activities to be undertaken toi
convert it into an enterprise. Delays in the completion of activities cause, among other things,
cost overruns. Hence, there is a need for deciding the sequential order of all activities of the
project so as to accomplish the project economically in the minimum available time with the
limited resources. This is also called “project scheduling". A number of network tech
niques have been developed for project scheduling. Some of them are:
1. Programme Evaluation and Review Technique (PERT)
2. Critical Path Method (CPM)
3. Graphical Evaluation and Review Technique (GERT)
4. Workshop Analysis Scheduling Programme (WASP)
5. Line of Balance (LOB).
However, PERT and CPM are the two techniques the most commonly used in project
management. These are, therefore, discussed in detail.
Importance of Network Analysis

The network analysis helps in identifying the hidden stages involved in project esti
mates. By identifying them the management can improve on the (Ongoing project estimates
. 92 Self•Instructional Material
;-
and learn for future use. The following are some of the points that speak about the impor Preparation ofProject
tance of network analysis:

1. The whole project has to be considered with reference to the sequence of activi
ties and events. Sequence means activities that are to follow on after another
leading to an event. NOTES
2. The events should be considered as different branches of operations
3. The different segments of the project are treated as separate network which are
finally integrated to the overall network. The entire project may be put on one
network
4. Cost estimates would depend on the project time estimates and the charge of
prices of different factors of production
5. The time estimates may be done based on either previous experience of similar
types of operations or may be based on probabilities for the ones where previous
experience does not exist
6. The physical progress of the project, nature of events, jobs formed and snags in
different areas of project work would call for corrective action at appropriate
time. The concept of crashing would be helpful to reduce penalties.
.13 PROGRAMME EVALUATION AND REVIEW

TECHNIQUE (PERT)
PERT was first developed as a Management Aid for completing Polaris Ballistic
Bissile Project in USA in October 1958. It worked well in expediting the completion of the
oject from 7 years to 5 years. Since then, PERT has become very popular technique used
=r project planning and control. In nutshell, it schedules the sequence of activities to be
-impleted in order to accomplish the project within a short period of time. It helps reduce
)th the time and cost of the project.
Steps Involved in PERT: The following steps are involved in PERT technique:
1. The activities involved in the project are drawn up in a sequential relationship to
show what activity follows what. ,
2. The time required for completing each activity of the project is estimated and
noted on network.
3. The critical activities of the project are determined.
4. The variability of the project duration and probability of the project completion in
a given time period are calculated.
The above steps can be illustrated with the help of the following example.
The Managing Director of XYZ Ltd. is interested in getting his Operating Budget.
-0 Managing Director of XYZ Ltd. is interested in getting his Operating Budget prepared.
i project is decomposed into the following activities:
Entrepreneurship and Small Table 2. Job Description for PERT
Business Management
Job Job Description Activity Tune Required
Identification
NOTES A Forecasting of Sales 1-2 10 Days
B Sales Pricing 24 8 Days
C Production Scheduling •2-3 9 Days
D Cost Determination 34 7 Days
E Preparation of Budget 4-5 12 Days
Total 46 Days
•f. •'
4
4 V
3 days (B) 12 days (E)
10 days (A)
0 ■>{ 2
7 days (0)
9 days (C)
3
Figure l.PERTNetworkAnalysis.
Advantages of PERT
1. It determines the expected time required for completing each activity.

2. It helps complete the project within a given period of time.
3. It helps management handle uncertainties involved in the project and thus, r
duce the risk element in the project
4. It enables management to make optimum allocation of limited resources. .
„ 5. It presses for the right action, at the right point and at the right time in til
organization
Limitations of PERT
1. PERT network is mainly based on time estimates required for each activity. C
\ account of wrong time estimates, the network is bound to become highly unrea«
istic.
2. This technique also does not consider the resources required at different stagt=
of the project.
3. For effective control of a project by using PERT technique requires freque
updating and revising the PERT calculations. But, this proves quite a costly a-
fair for the organization.
\
. 94 SelfInstructional Material
4.14 CRITICAL PATH METHOD (CPM)
The Critical Path Method (CPM) was first developed in USA by the E.I. DuPont
Nemours & Co. in 1956 for doing periodic overhauling and maintenance of a chemical plant.
It resulted in reducing the shut-down period from 130 hours to 90 hours and saving the NOTES
company $ 1 million. The CPM differentiates between planning and scheduling of the project.
While planning refers to determination of activities to be accomplished, scheduling refers to
the introduction of time schedule for each activity of the project. The duration of different
activities in CPM are deterministic. There is a precise known time that each activity in the
project will take.
Let us illustrate the CPM technique with an example of a research project. The
following activities are identified in the project:
Table 3. Job Description for CPM
Job Job Description Activity Time Required
Identification
A. Preparation of Dealer Questionnaire 1-2 10 Days
B. Preparation of Consumer Questionnaire 14 10 Days
C Dealer Survey 2-3 20 Days
D. Consumer Survey 4-5 60 Days
E Processing and Interpretation of Dealer data 3-6 10 Days
F. Processing and Interpretation of Consumer
Survey Data 5-6 30 Days
20 days (C)
2 *( 3
10 days (E)
10 days (A)
10 days (B) 30 days (F)

4 MS
60 days (D)
Figure 2. CPM Network Analysis.

With the data given in the tabular column the above diagram is drawn.
Advantages of CPM
:
1. It helps in ascertaining the time schedule of activities having sequential relation
ship.
l 2. It makes, control easier for the management.
“1. •
,3. It identifies the most critical elements in the project. Thus, the management is
kept alert and prepared to pay due attention to the critical activities of the project.
4. It makes better and detailed planning possible.
Sei/'-lnserucftonai Material 95
Business Management
Limitations of CPM
1. CPM operates on the assumption that there is a precise known time that each
activity in the project will take. But, it may not be true in'real practice.
NOTES 2. CPM time estimates are not based on statistical analysis.
3. It cannot be used as a controlling device for the simple reason that any change
introduced will change the entire structure of network. In other words, CPM
cannot be used as a dynamic controlling device.
Difference between PERT and CPM
PERT CPM
1. Its origin is military. Its origin is industry.
2 It is an event-oriented approach. It is an activity oriented approach.
3. It allows uncertainty. It does not allow uncertainty.
4. It is a probabilistic model. It is a deterministic model.
5. It is time-based. It is cost-based.
6. It does not demarcate between It marks critical activities.
critical and non-critical activities.
7. It averages time. It does not average time.
8. It is suitable when high precision is It is suitable when reasonable precision is
required in time estimates, e.g„ defence required, e.g., civil construction projects,
projects. industrial expansion schemes, etc.
4.15 COMMON ERRORS IN PROJECT FORMULATION

Project formulation is as important is not so easy. However, the entrepreneurs often
make errors while formulating project reports and business plans. Here, we are highlighting ‘
the errors widely noticed in project formulation:
1. Product Selection: It is noticed that some entrepreneurs commit mistakes by
selecting a wrong product for their enterprises. They select the product without
giving due attention to product related other aspects such as size of the product
markets, its future demand, Competitive position, lifecycle, availability of required
labour, raw material and technology. Hence, when you are selecting a product,
>-
take a comprehensive view.
2. Capacity Utilization Estimates: The entrepreneurs usually make over-opti
mistic estimates of capacity utilization. Their estimates are based on a com
pletely false premises. The estimates are made in complete disregard of present-
enterprise performance, prevailing market conditions, competitive atmosphere,
the technical snags, etc. A business plan formulated as such falls prey to finan
cial jugglery. Hence, avoid such temptations while estimating capacity utilization :
for your enterprise.
3. Market Study: Product production is ultimately meant for eventual sale. Hence,
market study of the product assumes importance. Market study continues to be
96 Self-Instructinml Material
a grey area. But, there are some entrepreneurs who pass by this component of Preparation ofPreyed
their business plan completely. Based on their nebulous ideas and scanty and
scattered information on demand and supply' of their proposed product, they
conclude that market is just there waiting to be tapped. This is a wrong attitudinal
block. Avoid it. NOTES
4. Technology Selection: The requirement for technology differs from product
to product depending upon the nature of products. Swayed by the reported profit
margins, the entrepreneurs sometimes plan for a technology not possible to set'
up within limited financial resources. Thus, in the absence of technological fea
sibility, enterprise is foredoomed to failure. Hence, make sure your technological
feasibility.
5. Location Selection: The entrepreneur often makes two types of errors while
selecting location for their enterprises. First, they are completely swayed by the
Government offer of financial^ncentives and concessions to establish industries
in a particular location. This/becomes their sole and overriding concern com
pletely disregarding other factors like market proximity, availability of raw mate
rials, manpower and infrastructural facilities. Second, the entrepreneurs select
a location for their enterprises merely because it is their home town or they own
ancestral land there which is, however, not an appropriate location. Make sure
you do not fall prey to such temptations.
6. Selection of Ownership Form: Many enterprises fail merely because the
ownership form of enterprises is not suitable. Hence, select a suitable form of
ownership taking a comprehensive view of the factors affecting the selection of
a form of ownership.
■1.16 CONCEPT OF PROJECT APPRAISAL

Simply speaking, project appraisal means the assessment of a project. Project ap
praisal is made for both proposed and executed projects. In case of former, project appraisal
-s called "‘ex-ante analysis* and in case of latter ‘post-ante analysis* Here, project ap
praisal relates to a proposed project.
Project appraisal is a costs and benefits analysis of different aspects of proposed
project with an objective to adjudge its Viability. A project involves employment of scarce
-esources. An entrepreneur needs to appraise various alternative projects before allocating
rtie scarce resources for the best project. Thus, project appraisal helps select the best project
-mong available alternative projects. For appraising a project, its economic, financial, techni-
al, market, managerial and social aspects are analysed. Financial institutions do project
■ppraisal to assess its credit-worthiness before extending finance to a project. For a finan-
-ial institution, project appraisal is a process whereby a leading financial institution makes an
—^dependent and objective assessment of the various aspects of an investment proposition
Dr arriving at a financial decision and is aimed at determining the viability of a project.
Method of Project Appraisal

Appraisal of a proposed project includes the following analysis:
l. Economic Analysis 2. Financial Analysis
Entrepreneurship and Small 3. Market Analysis 4. Technical Analysis
Business Management
5. Managerial Analysis.
Economic Analysis
NOTES Under economic analysis, the aspects highlighted include requirements for raw mate
rial, level of capacity utilization, anticipated sales, anticipated expenses and the probable
profits. It is said that a business should have always a volume of profit clearly in view which.
will govern other economic variables like sales, purchases, expenses and alike. It will have to
be calculated how much sales would be necessary to earn the targeted profit. Undoubtedly,
demand for the product will be estimated for anticipating sales volume. Therefore, demand
for the product needs to be carefully spelled out as it is, to a great extent, deciding factor of
feasibility of the project concern.
In addition to above, the location of the enterprise decided after considering a gamut
of points also needs to be mentioned in the project. The Government policies in this regard
should be taken into consideration. The Government offers specific incentives and conces
sions for setting up industries in notified backward areas. Therefore, it has to be ascertained
whether the proposed enterprise comes under this category or not and whether the Govern
ment has already decided any specific location for this kind of enterprise.
Financial Analysis
Finance is one of the most important pre-requisites to establish an enterprise. It is
finance only that facilitates an entrepreneur to bring together the labour of one, machine of
another and raw material of yet another to combine them to produce goods. In order to
adjudge the financial viability of the project, the following aspects need to be carefully ana
lysed:
Assessment of the financial requirements both-fixed capital and working capital
need to be properly made. You might be knowing that fixed capital normally called ‘fixed
assets’ are those tangible and material facilities which purchased once are used again and
again. Land and buildings, plants and machinery are the familiar examples of fixed assets/
capital. The requirement for fixed assets / capital will vary from enterprise to enterprise
depending upon the type of operation, scale of operation and time when the investment is
made. But, while assessing the fixed capital requirements, all items relating to the asset like
the cost of the asset, architect and engineer’s fees, electrification and installation charges
(which normally come to 10 per cent of the value of machinery), depreciation, pre-operation
expenses of trial runs, etc., should be duly taken into consideration. Similarly, if any expense
is to be incurred in remodeling, repair and additions of buildings should also be highlighted in
the project report.
Market Analysis
Before the production actually starts, the entrepreneur needs to anticipate the possi
ble market for the product. He/she has to anticipate who will be the possible customers for
his product and where and when his product will be sold. This is because production has no
value for (he producer unless it is sold. It is said that if the proof of pudding lies in eating, the
f;\ proof ofall production lies in marketing/ consumption. In fact, the potential of the market
constitutes the determinant of probable rewards from entrepreneurial career.
Thus, knowing the anticipated market for the product to be produced becomes an
important element in every business plan. The various methods used to anticipate the potential
larket, what is named in ‘Management Economics’ as ‘demand forecasting’, range from Preparation ofProject
»ie naive to sophisticated ones. The commonly used methods to estimate the demand for a
iroduct are as follows:
1. Opinion Polling Method: In this method, the opinions of the ultimate users,
i.e., customers of the product is estimated. This may be attempted with the help NOTES
of either a complete survey of all customers (called, complete enumeration) or
by selecting a few consuming units out of the relevanfpopulation (called, sample
survey). Let us discuss these in some details.
(«) Complete Enumeration Survey: In this survey, all the probable custom
ers of the product are approached and their probable demands for the prod
uct are estimated and then summed. Estimating sales under this method is
very simple. It is obtained by simply adding the probable demands of all
customers. An example should make it clear.
Suppose, there are total N customers of X product and everybody will de
mand for D numbers of it. Then, the total anticipated demand will be:
N
XDi
;=i
Though the principle merit of this method is that it obtains the first-hand and
unbiased information, yet it is beset with some disadvantages also. For ex
ample, to approach a large number of customers scattered all over market
becomes tedious, costly and cumbersome. Added to this, the consumers
themselves may not divulge their purchase plans due to the reasons like
their personal as well commercial/business privacies.
(b) Sample Survey: Under this method, only some number of consumers out
of their total population is approached and data on their probable demands
for the product during the forecast period are coliected and summed. The
r total demand of sample customers is finally blown up to generate the total
demand for the product. Let we explain it with an example.
Imagine, there are 1000 customers of a product spread over the market.
Out of these, 50 are selected for survey using stratified method'. Now, if the
estimated demand of these sample customers is Di, i.e., it refers to 1,2, 3,
4.... 50, the total demand for the entire group of customers will be
jr m * Dj = nlDl + n2D2 + n3D3 n50D50

i=i
i
Where ni is the number of customers in group i, and /tj + n2 + "50 =
1000.
But, if all the 1000 customers of the group are alike, then the selection may
be done on a random basis and total demand for the group will be:
1000 *
(Dj + D2 + D3 + D4 D5o) 50
(c) Sales Experience Method: Under this method, a sample market is sur
veyed before the new product is offered for sale. The results of the market
surveyed are then projected to the universe in order to anticipate the total
0. demand for the product.
Self-Instructional Material 99 .•
Business Management
In principle, the survey market should be the true representative of the
national market which is not always true. Suppose, if Bombay is selected as-
a sample market, it may not be a true representative of a small place, say
Kolar simply because the characteristic features of Bombay are altogether
NOTTS different from those of a small town like Kolar. Again, if we select Agra as
a sample market, sales in Agra would be influenced by the size of the
floating tourists population throughout the year.
(d) Vicarious Method: Under the vicarious method, the consumers of the
product are not approached directly but indirectly through some dealers
who have a feel of their customers. The dealers’ opinions about the cus
tomers’ opinion are elicited. Being based on dealers’ opinions, the method is
bound to suffer from the bias on the part of the dealers. Then, the results
derived are likely to be unrealistic. However, these hang-ups are not avoid
able. . •
2. Life Cycle Segmentation Analysis: It is well established that like a man,
every product has its own life span. In practice, a product sells slowly in the
beginning. Backed by sales promotion strategies over period, its sales pick up. In
the due Course of time, the peak sale is reached. After that point, the sales
begins to decline. After some time, the product loses its demand and dies. This is
natural death of a product. Thus, every product passes through its ‘life cycle’.
This is precisely the reason why firms go for new products one after another to
keep the firm alive.
Based on above, the product life cycle has been divided into the following five
stages:
1. Introduction 2. Growth
. 3. Maturity 4. Saturation
5. Decline.
The sales of the product varies from stage to stage and follows S-shaped curve'
as shown in the figure below:
A
t
2
c
' &
O
£
Introduction Growth Maturity Saturation Decline

■>
Figure 3. Product Life Cycle.

4.17 TECHNICAL FEASIBILITY
While making project appraisal, the technical feasibility of the project also needs to be
taken into consideration. In the simplest sense, technical feasibility implies to mean the ad
equacy of the proposed plant and equipment to produce the product within the prescribed NOTES
norms. As regards know-how, it denotes the availability or otherwise of a fund of knowledge
to man the proposed plants and machinery. It should be ensured whether that know-how is
available with the entrepreneur or is to be procured from elsewhere. In the latter case,
arrangement made to procure.it should be clearly checked up. If project requires any col
laboration, then, the terms and conditions of the collaboration should also be spelt out com
prehensively and carefully. In case of foreign technical collaboration, one needs to be aware
of the legal provisions in force from time to time specifying the list of products for which only
such collaboration is allowed under specific terms and conditions. The entrepreneur, there
fore, contemplating for foreign collaboration should check these legal provisions with refer
ence to their projects.
While assessing the technical feasibility of the project, the following inputs covered in
the project should also be taken into consideration:
1. Availability of land and site.
2. Availability of other inputs like water, power, transport, communication facilities.
3. Availability of servicing facilities like machine shops, electric repair shop, etc.
4. Coping with anti-pollution law.
5. Availability of work force as per required skill and arrangements proposed for
training-in-plant and outside. r
•\
% 6. Availability of required raw material as per quantity and quality.
4.18 MANAGEMENT COMPETENCE

Management ability or competence plays an important role in making an enterprise a
success or otherwise. Strictly speaking, in the absence of managerial competence, the projects
which are otherwise feasible may fail. On the contrary, even a poor project may become a
successful one with good managerial ability. Hence, while doing project appraisal, the mana-
=gerial competence or talent of the promoter should be taken into consideration. Research
-studies report that most of the enterprises fall sick because of lack of managerial compe-
■tence or mismanagement. This is more, so in case of small-scale enterprises where the
■proprietor is all in all, i.e., owner and manager. Due to his one-man show, he may be jack of
—all but master of none.
-4.19 IDENTIFICATION OF BUSINESS OPPORTUNITIES

Business opportunities can be obtained from various magazines, trade journals, finan
cial institutions, government, commercial organizations, friends, relatives, competitors etc.
NDhoosing of best business opportunity from the information collected requires ingenuity, skill
=and foresight of entrepreneur. As entrepreneur has to identify and select the most rewarding
Dpportunity from the available ones. For this one he has to evaluate the following areas and
—understand the gap between demand and supply:
Entrepreneurship and Small 1. Technical feasibility study
Business Management
2. Social feasibility study
3. Market feasibility study
4. Study of government rules and regulations regarding the different business op
NOTES portunities
5. Extensive and in-depth study of promising investment opportunity
6. SWOT analysis of the business opportunities
7. Financial feasibility study. i-
4.20 MARKET FEASIBILITY STUDY

Feasibility study is a detailed work of collection of data analysis and conclude the
feasibility of that operation. Market feasibility study involves the study and analysis of the
following aspects.
Market feasibility study will assess whether the product has a good market. This
needs to study the following:
1. Cost of Production. It is essential to study and control cost of production. Cost
of production decides the selling price.
2. Selling Price and Profit. Selling price plays a important role in the profit. In
price sensitive goods like cosmetics, one should be careful in fixing the price
3. Nature of Market. The nature of market in terms of monopolistic or perfect
competition is to be studied.
4. Demand. Present demand and demand forecast are prepared and studied. This
will decide the facility planning. *
5. Market Share. Estimated market share is to be made. Comparison is made
with share of similar products.
6. Target Market Study is made with regard to the target market and market
segmentation.
4.21 TECHNICAL FEASIBILITY STUDY

In technical feasibility the following areas require a detailed study:
1. Selection of Machinery. The selection of machinery required to produced the > ;
intended product is to be carried out: The specifications are capacity, cost, sources—
of supply, technology evaluation of various makes of the machine, their good and
bad etc., are studied.
2. Availability of Raw Materials. The study of availability Of raw materials, sources
of supply, alternate sources, its quality and specifications cost etc., are to be
dealt carefully.
3. Construction of Factory, Building and its Size. The construction details, the
nature/type of building and its size for the project are to be analysed.
4. Location of the Project. The data regarding the location of project is very
important. It may be located near the rural, urban or semi-urban areas.
5. Staff Requirements. Study and analysis of requirement of workers, technical
staff and officers etc. is to be. made.

6. Technical Viability. The technical viability of the opportunity is to be studied. Preparation ofProject
7. Utilities. The detailed study about availability like water, gas, electricity, petrol,
diesel etc. are to be studied.
8. Production Capacity. Establishment off production capacity and utilization of
NOTES
production capacity are analysed.
4.22 FINANCIAL FEASIBILITY STUDY

• Financial feasibility is the most important aspect of a business opportunity. Some of
-the aspects involved in the financial study are as follows: .
1. Sources of Capital. The study of main sources of capital is to be made. If
capital is borrowed, interest burden is to be studied in detail.
2. Financing for Future Development of Business. Finance requirement for
future development of business are to be studied. Working capital requirement
for at least three months running of enterprise are to be estimated.
r, 3. Total Capital Cost of Project It is very essential to study the total cost of
project. This includes fixed capital, working capital and interest factor.
4. Subsidiary Sources for Additional Finance. After the study of main sources
of capital, subsidiary sources of capital are to be identified and studied.
•v
5. Break even Analysis (BEA). BEA is to be carried out to see at what level of
production/sales will make the organization no loss/no profit situation. BEA is
>T very useful to identify the level of production that makes profit.
6. Return on Investment (ROI). ROI is to calculated to see the .amount of
return on investment for the investors/share holders and how much they get.
(i.7. Proposed Balance Sheet. Proposed balance sheet is made showing liabilities
and assets, depreciation, interest burden, profits expected etc.
8. Cost of Labour and Technology. The cost of employees (salaries etc) is to
estimated and studied. If technology is not available then it has to be purchased
from any R & X institution or by way of foreign collaboration.
.23 SOCIAL FEASIBILITY STUDY

1 Social feasibility study is important in the social environment.
Ik
1. Pollution. There should not have any sort of noise or other pollution objection
able to the society. Suitable measures are to be taken for controlling pollution
2. Social problem. The enterprise should not create any nuisance to the public
. 3. Locations.The location is in such a place that is should not have objection from
the neighbors
•v 4. Other problems. Any other problems related to the society and people are to
be studied
l;

Business Management 4.24 PROJECT REPORT
MOHAN CLAY WORKS, P. O. ALANGAD PROJECT REPORT
NOTES Introduction
This unit is proposed as proprietary concern bearing S.S.I. Registration No.
MU/07/02468/90/SSI/PROV/TINY and the location of the project is at
Alanged, Aluva Emakulam district. Main object pursued by the project is the
manufacture and sale of country bricks. The project is promoted by Sri M. K.
Mohan, Maniath House, Alangad. He is the brain and driving force behind
this project. He has more than 15 years experience in this field and has thor
ough knowledge about the business.
Market Potential and Scope

The growing demand for country bricks as an Important building materials
paved the way for setting up such a unit in small-scale sector. The demand for'
country bricks from Kochi city and its suburbsjs-very high. This industry is
purely of a seasonal business and even though’ there are a few units in exist
ence, they are not able to meet the growing demand fully. A large volume of
bricks are required very year. The raw materials required for this industry are
available in plenty from the local areas. The proposed project is at Alangad,
Aluva where there are easy accessibility to important towns and business
places. The demand is infinite. There are a network of roads from this place
connecting important places where the demand is very high.
Project Particulars
The unit is established in a self owned land at Alangad. No machineries are
required in the manufacturing process except some moulds made out of wood.
Trial runs were done and resultant products confirmed to high standards. Testing
methods are also involved for testing the quality of the product.
Manufacturing Process
Clay is shaped in the form of raw bricks with the help of wooden moulds, These
raw bricks are kept in an open space for drying for three to four days. Dried
bricks are kept in kiln for nearly 6 days and is burnt with firewood. Now the
process is complete and it is ready for sale.
Machinery and Equipments

No machineries are involved in the manufacturing process
Land required for mining clay is self owned. Details of Furniture, Tools and
Equipments are given below:
Wooden Moulds, Frames and Equipments ? 15,000.00
Tarpaulins and other accessories ? 12,000.00
Furniture f 5,000.00
? 32,000.00

Raw Materials Preparation ofProject
The important raw material that go into the production is clay. It is available in
plenty in the land owned by the proprietor. Firewood required for heating is
available locally in ‘plenty and is not of a scarce nature in relation to its use.
There are several agencies for supplying firewood. NOTES
COST OF THE PROJECT
Land ? 4,00,000.00
Shed ? 15,000.00
Wells ? 10,000.00.
Furniture and Equipments t 32,000.00 '*
Working Capital t 2,10,000.00
? . 6,67,000.00
Source or Finance
Own Investments X 4,67,000.00
Bank Finance expected ? 2,00,000.00
? 6,67,000.00
Working Capital Requirements

11/2 Months Materials in Stock f 30,000.00
1 Month Working Expenses ? 65,000.00
15 days Finished Goods in Stock ? 1,05,000.00
Sundry Debtors ? 10,000.00
? 2,10,000.00
Man Power Requirements
Managerial 1 No. 9,000.00
Skilled Workers 5 Nos. ? 67,500.00
Semi Skilled 5 Nos. • ? 56,250.00
Unskilled 3 Nos. ? 23,625.00
1,56,375.00
Annual Requirements of Materials for the First Three Years

I Year II Year III Year
Clay . 60,000 70,000 80,000
Firewood 1,25,000 1,50,000 1,75,000
Sand , 10,000 12,500 . 15,000
Other Materials 8,000 10,000 12,000
2,03,000 2,42,500 2,82,000

Business Management
Cost of Pfoduction and Financial Viability
I Year II Year III Year
Materials 2,03,000 2,42,500 2,82,000
NOTES
Wages and Salary 3,60,000 3,85,000 4,10,000
Loading and Unloading 32,000 36,500 40,000
Brokerage and Commission 20,000 23,000 25,000
Printing and Stationery 3,000 4.000 5,000
Postage and Phone 4,000 . 5,000 6,000
Travelling Expenses .8,000 8,500 9,000
Interest paid 36,000 25,000 15,000
S'
Miscellaneous Expenses 5,000 7,500 10,000
Depreciation of Land 20,000 20,000 20,000
6,91,000 7,57,000 8,22,000
Profitability
I Year II Year - Ill Year
Sales Revenue 9,00,000 9,90,000 10,89,000
Cost of Sales 6,91,000 7,57,000 8,21,000
Gross Profit 2,09,000 2,33,000 2,68,000
Reserve for Taxes 25% 52,250 58,250 67,000
Net Profit 1.56.750 1.74.750 2,01,000
Depreciation • 20,000 20,000 20,000
Annual Accrual 1.76.750 1.94.750 2,21,000
and Cash Flow
ANNUAL SALES REVENUE
Country Bricks 9,00,000 9,90,000 10,89,000
SUMMARY
• A project typically has a distinct mission that it is designed to achieve and a cles-
termination point, the achievement of the mission.
• A project is an organised unit dedicated to the attainment of a goal-the successfi-
completion of a development project on time, within budget, in conformance wit«
pre-determined programme specifications.
• Project selection starts from where project identification ends. After having son-
project ideas, these are analysed in the light of existing economic conditions, tl«
government policy and so on.
• A network is a set of symbols connected with each other with a sequential reh
tionship with each step making the completion of a project/event. As discusse
earlier, a business plan or project involves various activities to be undertaken ^
\ convert it into an enterprise.
• PERT was first developed as a Management Aid for completing Polaris Ballistic Preparation ofProject
Missile Project in USA in October 1958.

■ The Critical Path Method (CPM) was first developed in USA by the E.I. DuPont
Nemours & Co. in 1956 for doing periodic overhauling and maintenance of a
chemical plant. v NOTES
• Project appraisal is a costs and benefits analysis of different aspects of proposed
project with an objective to adjudge its Viability.
• Finance is one of the most important pre-requisites to establish an enterprise. It is
finance only that facilitates an entrepreneur to bring together the labour of one,
machine of another and raw material of yet another to combine them to produce
goods.
• Management ability or competence plays an important role in making an enterprise
a success or otherwise. Strictly speaking, in the absence of managerial compe
tence, the projects which are otherwise feasible may fail.
• Business opportunities'can be obtained from various magazines, trade journals,
financial institutions, government, commercial organizations, friends, relatives, com
petitors etc.
• Feasibility study is a detailed work of collection of data analysis and conclude the
feasibility of that operation.
REVIEW QUESTIONS
1. Briefly explain the meaning of the Project.
2. Classify Projects.
c 3. Discuss briefly about project identification. .
4. Discuss briefly about project selection.
5. Discuss briefly about project report.
6. What is the significance of the project report?
7. What are the contents of the project report?
8. What are the steps involved in the formulation of the project report? Explain.
9. What are the planning commission’s guidelines for formulating a project report?
10. Give the specimen of a project report.
11. Briefly discuss about network analysis.
12. What is the importance of network analysis?
A 13. What is PERT? Explain.
14. Explain the concept of PERT with an illustration.
15. What are the advantages of PERT?
16. What are the limitations of PERT?
17. What is CPM? Explain.
18. Explain the concept of CPM with an illustration.
19. What are the advantages and disadvantages of CPM?
20. What is the difference between PERT and CPM?
21. What are the common errors in project formulation?
22. Explain the concept of project appraisal.
-» •

Entrepreneurship and Small 23. What are the different methods of project appraisal?
Business Management
24. What is Economic Analysis?
25. What is Financial analysis?
26. What is Technical'Analysis?,
NOTES 27* What is Market Analysis?
28. What is Managerial Analysis?
29. Explain briefly about identification of business opportunities.
30. What is Market Feasibility'Study?
31. What is Technical Feasibility Study?
32. What is Financial Feasibility Study?.
33. What is Social Feasibility Study?
34. Prepare a typical project report.
FURTHER READINGS
1. EntrepreneurshipDevelopment:HiteshSViramgami,APH,2008.
2. Entrepreneurship Development: B.L. Gupta and Anil Kumar, Mahamaya Pub, 2009.
3. Entrepreneurship Development: Monica Loss and F.L. Bascunan, Global Vision
Pub,2011. ...
4. Entrepreneurship Development: An Operational Approach: Text and Cases with Spe*
cial Reference to Bangladesh: Nazrul Islam and Muhammad Z. Mamun. University
Excellence, 2007.

Sickness in Small Scale
Industries
JNIT V SICKNESS IN SMALL SCALE
INDUSTRIES
NOTES
STRUCTURE

5.2. Introduction
. 5.3. Causes of Sickness
5.4. Symptoms of Industrial Sickness
5.5. Remedies for Sickness of Small Scale Industries .
• Summary
A LEARNING OBJECTIVES
• define industrial sickness
• explain about causes of sickness
• discuss about symptoms of industrial sickness
• explain remedies for sickness of small scale industries.
.2 INTRODUCTION
Rapid industrial growth has brought in its wake incidence of sickness in the industrial
-ctor including small-scale industries.
Sickness in industrial units is a gradual process and does not develop suddenly. In the
-itial stages, it gets reflected in the form of defects and mistakes in the unit’s functional
—eas like production, finance and management. Later it is observed in the form of symp-
—ms ‘like irregular or unsatisfactory turnover in the account, slow and unsatisfactory move-
-ent of stocks, decline in production, sales and profitability, frequent violation of terms and
—mdition and asking for additional grants.
■efinition
The term Industrial Sickness has been defined in a number of ways and its concept
cks uniformity. A sick industrial unit may be defined as “ one when it fails to generate
—rplus on a continuous basis and depends on frequent infusion of external funds for its
■rvival”.
According to the Reserve Bank of India (RBI) a sick unit should be considered so if
■has incurred cash loss in the previous accounting year and is likely to continue to
cur cash loss in the current accounting year, and has an erosion on account of
Self-Instructional Material 109,
Entrepreneurship and Small cumulative cash losses to the extent of 50 percent of these of its net worth A unit
Business Management
likely to continue to incur cash losses for the current year as well as the following year an
which has imbalance in its financial structure such as current ratio of less than 1:1 an
worsening debt-equity ratio.
NOTES
According to ICICI a sick industry is one whose financial viability is threaten
by adverse factors present and continuing. The adverse factor might relate to ma>
agement, market fiscal burden; labors relations or any other. When the impact offer
tors reaches a point where a company begins to incur cash losses leading to erosion
its funds, there is threat to its financial stability. The Sick Industrial Companies (spec
provision) Act 1985 identifies sickness in terms of cash losses for two consecutive financ
years and accumulated losses equaling or exceeding the net worth of the the company at t
end of the second financial year.
Later the definition of sick SSI units has been modified as underA small scale indim
trial unit should be considered as sick if it has. at the end of any accounting ye*
accumulated losses equal to or exceeding 50 percent of its peak net worth in t
immediately preceding five accounting years (Bihar Chambers of Commerce. Sep. 198:
The latest definition of Sickness given by the Working Group on Rehabilitation of Sii
Units set up by the RBI (Kohli Committee) is given below:
A small scale industrial unit is considered as sick when *
(a) if any of the borrowal accounts of the unit remains substandard for more than,
months, i.e., principal or interest, in respect of any of its borrowal accounts !■
remained overdue for a period exceeding one year will remain unchanged ev
if the present period for classification of an account as substandard is reducec
due course;
OR
{b) There is erosion in the net worth due to accumulated losses to the extent to
percent of its net worth during the previous accounting year and
(c) The unit has been in commercial production for atleast two years.
An analysis of all the definitions given above indicates that sickness, more or less, H
a perfect positive correlation with*f>rofitability. Profitability alone can generate cash s-
pluses for an industrial unit to meet its various obligations to the creditors like financ
institutions, the government and others.
5.3 CAUSES OF SICKNESS

The sickness of the SSI’s are broadly classified as follows:
1. Internal Causes
2. External Causes.
A. Internal Causes
1. Planning
(a) Technical Feasibility:
;
(0 Inadequate technical know-how
O'O Locational disadvantage
(Hi) Outdated production process. Sickness in Small Scale
Industries
(b) Economic Viability:
(0 High cost of inputs
(ii) Break-even point too high
NOTES
(Hi) Uneconomic size of project
(iv) Under-estimation of financial requirements
c (v) Unduly large investment in fixed assets
(v/) Over-estimation of demand.
2, Implementation:
(0 Cost overruns resulting from delays in getting licenses and sanctions etc.
v (ii) Inadequate mobilization of finance.
»v 3. Production:
•> V
(a) Productions Management
'iK .(0 Inappropriate product-mix
0*0 Poor quality control
(Hi) Poor capacity utilization
(iv) High cost of production *
(v) Poor inventory management
k (vi*) Inadequate maintenance and replacement
(vt'O Lack of timely and adequate modernization etc,
"br (viii) High wastage.
(ft) Labour Management:
(0 Excessively high wage structure.,
(ii) Inefficient handling of labour problems
0'i*0 Excessive manpower
(iv) Poor labour productivity
(v) Lack of trained skilled labour or technically competent personnel.
^2
(c) Marketing Management:
(i) Dependence on a single customer or a limited number of customers/sihgle
ora limited number of products,
(ii) Poor sales realization
(Hi) Defective pricing policy
(iv) Booking of large orders at fixed price in an inflationary market
(v) Weak market organization
(vi) Lack of market feedback and market research
(vii) Lack of knowledge of marketing techniques
(viii) Unscrupulous sales/purchase practices.
(d) Financial Management:
(0 Poor resources management and financial planning
(ii) Faulty costing
(Hi) Liberal dividend policy
nr
Entrepreneurship and Small (iv) General financial indiscipline and application of funds for unauthorized pur
Business Management
poses
(v) Deficiency funds
(vO Over-trading
NOTES (viO Unfavorable gearing or keeping adverse debt-equity ratio.
(viii) Inadequate working capital
(ix) Absence of cost consciousness
O') Lack of effective collection machinery.
(e) Administrative Management:
(0 Over centralization
(it) Lack of professional ism
070 Lack of feed-back to management (Management Information System)
(iv) Lack of controls
%
(v) Lack of timely diversification
(vO Excessive expenditure on R & D
(WO Dissension within the management
(vi/0 Incompetent management
(ix) Dishonest management.
B. External Causes
(a) Infrastructural Bottlenecks:
(i) Non-availability of irregular supply of critical raw materials or other inputs
(ii) Chronic power shortage.
(iiO Transport bottlenecks.
(b) Financial Bottlenecks:
(0 Non-availability of adequate finance.
(c) Government Controls and Policies etc: / •
(i) Government price controls
(ii) Fiscal duties
(in) Abrupt change in government policies
(iv) Procedural delays on the part ofthefinanciaj/licensing/other controlling or
regulating authorities (Banks, Reserve Bank of India, Financial Institutions.
Government Departments, Licensing Authorities, Monopolies and Restric
tive Trade Practices Board). ' • ' t .
(tf) Market Constraints:
(i) Market saturation
(if) Revolutionary technological advances rendering one’s products obsolete.
(e) Extraneous Factors: .
(i) Natural calamities
(ii) Political situation (domestic as well as international) >-
112 Self-Instructional Mnterini

070 War Sickness in Small Scale
Industries
(iv) Sympathetic strikes
*/
(v) Multiplicity of labor unions.
*;
NOTES
5.4 SYMPTOMS OF INDUSTRIAL SICKNESS
1; Continuous irregularity on cash credit accounts low capacity utilization
2. Reduction in credit summations (whenever the companies are in financial diffi
culty, they open a separate account with another bank and deposit all collections
therein)
3. High rate of rejection of goods manufactured
4. A general decline in that particular industry combined with many failures
5. Rapid turnover of key personnel
6. Existence ofa large number oflawsuits against company
7. Rapid expansion and too much diversification within a short time
8. Diversion of funds for purposes other than running the units
9. Any major change in the share holdings
10. Failure to pay statutory liabilities
11. Larger and longer out-standings in the bills accounts
12. Longer period of credit allowed on sale documents negotiated through the bank
and frequent returns by customers of the same
13. Constant utilization of credit facilities and failure to pay timely instalment of
principal and interest on the loans and installment credit
14. Non-submission of periodical financial data/stock statement etc., in time financ
ing capital expenditure out of funds provided for working capital purposes.
15. Decrease in working capital on account of: V
(a) Increase in debtors and particularly dues from selling agents

(b) Increase in creditors .
(c) Increase in inventories which may include, large number of slow or non
moving items.
16. 'Sudden/frequent changes in management whether professional or otherwise and/
or dominated by one inan/few individuals.
1.5 REMEDIES FOR SICKNESS OF SMALL SCALE

INDUSTRIES
Majority of sick units is retrievable in order to tackle the problem of sickness from the
-wo angles the role of three agencies assumes significance: (a) The government (b) Finan-
ial institutions and the industry associations.
(a) The Role of Government If the number of units in the country has increased
—ome 10 times since independence and if we have diversified industrial structure with wide
■pread entrepreneurship the cerdit fof this largely belongs to government.
: . . V' X Self-Instructional Material Hi
Business Management Second area where the government can be helpful is Vis-a-vis industrial licensing.
The very existence of licensing and monopoly regulation implies that there is a stampede to’
“to get in” when ever licensing is liberaized for an industry or an economy as a whole.
NOTES (b) The role of financial Institutions. The following are the ways by which sick
ness can be prevented by financial institutions:
(0 Continuous monitoring of unit.
(if) Careful project appraisal.
(Hi) Professional institutional response to unit’s problems.
(iv) Required systems at client units.
(v) Incentives to units to remain healthy.
(c) The role of Industry Associations. A good practical review by each industry
association of installed and usable capacity in the industry, capacity utilization, growth trends,
problems etc. should be useful 4 the potential new entrants 4 deciding whether 2 enter the
industry or not. The industry can have some sort of 1st aid cell this could consist of profes
sionals who could go to the aid of a unit that is beginning to fall with the offer of managerial
and technical help also.
(d) Curative measures. These measures include how to cure the sickness after it
has crept in. There are lots of agencies which help cure industrial sickness.
There is Industries (Development and Regulation) Act, 1951, which provides for the
takeover of a sick unit by the Government of India. Before resorting to a takeover, other
alternatives like rehabilitation through the concerned state government and financial institutions
or for the merger of a sick unit with a healthy unit could be explored.
Then there is the Sick Industrial Companies (special provisions) Act, 1985, which has
passed by parliament and received the assent of president in January 1986. It was amended
in December 1991 so as to bring government companies within the preview of the Act.
Further, there is the Industrial Reconstruction Bank of India (IRBI) which came itno
being on March 20th 1985 by converting the erstwhile Industrial Reconstruction Corporation
of India. It provides assistance for reconstructions and rehabilitation of the sick industrial
units by granting those loans and advances, underwriting shares and debentuers etc.
For the sick units in the small scale sector, separate facilities are available. State
Finance Corporations and commercial banks will be asked to devise a scheme of the
rehabilitation of sick units in the small scale sector, and the assistance given by them for the
revival of such units will be eligible for refinancing by the IRBI at the confessional rate of
interest.
SUMMARY
• Industrial Sickness has been defined in a number of ways and its concept lacks
uniformity. A sick industrial unit may be defined as “ one when it fails to generate
surplus on a continuous basis and depends on frequent infusion of external funds
for its survival”.

• A sick industry is one whose financial viability is threatened by adverse factors Sickness in Small Scale
. Industries
present and continuing. The adverse factor might relate to management, market
fiscal burden, labors relations or any other. When the impact of factors reaches a
point where a company begins to incur cash losses leading to erosion of its funds,
there is threat to its financial stability. **. j■
NOTES
• A small scale industrial unit should be considered as sick if it has. at the end of any
accounting year, accumulated losses equal to or exceeding 50 per cent of its peak
net worth in the immediately preceding five accounting years.
REVIEW QUESTIONS
1. Define Sickness.
2. What are the causes of Industrial Sickness?
3. What are the symptoms of industrial sickness?
4. Explain the remedies taken for sickness of small scale industries.
FURTHER READINGS
2. Entrepreneurship Development: B.L. Gupta and Anil Kumar, MahamayaPub, 2009.
3. Entrepreneurship Development: Monica Loss and EL. Bascunan, Global Vision
Pub,2011.
4. Entrepreneurship Development: An Operational Approach: Text and Cases with Spe
Excellence, 2007.

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ENTREPRENEURSHIP AND SMALL

Self Learning Material

Directorate of Distance Education

SWAM I VIVEKANAND SUBHARTI UNIVERSITY

■ Dr. Prabhat Kumar

Copyright © Laxrni Publications Pvt Ltd

ENTREPRENEURSHIP AND SMALL BUSINESS MANAGEMENT

/ Sickness in Small Scale Industries, Causes and Remedies.

1.1. Learning Objectives

1.5 EVOLUTION OF THE CONCEPT

Arthur Dewing conceptualised the function of an entrepreneur as one that promotes

1,6 A COMPREHENSIVE DEFINITION OF ENTREPRENEUR

1.7 VARIOUS DEFINITIONS FOR AN ENTREPRENEUR

1. 17th century . Person bearing risks of profits (loss) in a fixed price

1.8 ENTREPRENEUR—INHERENT FEATURES

1.9 URGES OF AN ENTREPRENEUR

1.10 ENTREPRENEURSHIP—A CONCEPT

1,11 CHARACTERISTICS OF ENTREPRENEURSHIP

Risk taking Skillful management

Innovation , Making an enterprise a success

Figure 1. Characteristics of Entrepreneur.

1.12 EVOLUTION OF ENTREPRENEURSHIP

1.13 DEVELOPMENT OF ENTREPRENEURSHIP

1.15 STAGES IN ENTREPRENEURIAL PROCESS

16 CONCEPT OF ENTREPRENEUR, ENTREPRENEUR-

Person Process or Action Object

Entrepreneur Entrepreneurship Enterprise

. 2 Status An entrepreneur is the owner of the A Manager' is a servant in the

1.18 RELATIONSHIP BETWEEN ENTREPRENEUR AND

1.19 FUNCTIONS OF AN ENTREPRENEUR

1.20 TYPES OF ENTREPRENEUR

. According to the Type of Business NOTES

According to the Use of Technology

111. According to Motivation

IV. According to Growth

V. According to Stage of Development

1.22 CHARACTERISTICS OF AN ENTREPRENEUR

Figure 3. Characteristics of Entrepreneur.

11.23 ROLE OF ENTREPRENEURSHIP IN ECONOMIC

1.24 BENEFITS OF ENTREPRENEURSHIP

1.25 IMPORTANCE OF AN ENTREPRENEUR

.26 SKILLS OF ENTREPRENEUR

NOTES 1.27 ENTREPRENEURSHIP IN' INDIA

1.28 A CASE STUDY OF ENTREPRENEURSHIP IN INDIA

1.29 BARRIERS OF ENTREPRENEURSHIP

1.31 COMPARISON BETWEEN ENTREPRENEURSHIP

1.32 PROS AND CONS OF BEING AN ENTREPRENEUR

UNIT II SMALL SCALE INDUSTRIES

2.1. Learning Objectives

2.3 CONCEPT OF SMALL SCALE INDUSTRIES

1. Upto 1958 Fixed capital investment upto ? 5 lakhs

Comprehensive Definition of SSI

2.4 CHARACTERISTICS OF SSIs

2.5 SCOPE OF SMALL INDUSTRY

2.6 IMPORTANCE OF SMALL INDUSTRIES

Khadi Power Looms

Cottage Export Oriented