METHODIST COLLEGE OF ENGINEERING &

TECHNOLOGY
HYDERABAD
DEPARTMENT OF MECHANICAL
ENGINEERING

LECTURE NOTES
FOR
ENTREPRENEURSHIP
UNIT-III

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 Unit-III

Project formulation, Analysis of market demand, Financial and

profitability analysis and Technical analysis. Project financing in India.

Project Formulation
Till recently, in our country much attention was not paid towards
preparation of preliminary feasibility and detailed project reports. Most of
the important projects were designed with the help of the foreign
collaborators in one form or other. If the project work is done
intelligently it will throw up technological research problems the
solutions to which would promote accelerated development.

In the formulation of any project an important phase is pre-investment

phase. The phase consists of the period from the conception of an idea
until the final analysis of the necessary elements in order to decide
whether the project should be executed or not.

Elements of Project Formulation Techniques: -

Project formulation is by itself an analytical management aid.
Project development throws up data in a constant stream. The
project formulation team has to evaluate alternative approaches and to
arrive at the most effective decision either on its own or with the help of
the project sponsoring body.
The aim always is to achieve the project objectives with the
minimum expenditure of resources.
Project formulation divides the process of project development
into seven distinct and sequential stages. The stages area
1. Feasibility analysis
2. Techno-economic analysis
3. Project design and network analysis
4. Input analysis
5. Financial analysis
6. Social cost-benefit analysis and
7. Project appraisal
1. Feasibility analysis:-
The purpose of analysis is to examine the desirability of investing
in pre-investment studies. For this purpose examine the project idea in
the light of internal and external constraints. Internal constraints are
the limitations of the project sponsoring and project implementation
body. External constraints are due to the characteristics of the
environments.

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 When a project idea is taken up for development, three situations
arise, appear to be a) feasible b) not feasible c) available data may not be
adequate for arriving at a reasonable decision which requires additional
investment and time.
2. Techno-economic analysis:-
It is concerned with the identification of the project demand potential
and the selection of the optional technology which can be used to achieve
the project objectives. Project demand is a critical determinant of the
optional size of the project. Project size in its own turn determines the
technology which will be appropriate to a particular project situation.
Technology includes methodology or the process where technical
operations are not involved. Market analysis has to be followed by a
detailed search for alternative technologies which can be used to achieve
the project objectives.
Techno-economic analysis gives to the project individuality and
sets the stage for detailed design development.

3. Project design and Network Analysis: – Project design defines the

individual activities and their inter–relationship with each other. This is
most inter–relationship with each other. This is most conveniently
expressed in the form of a network diagram.
This is concerned with the development of the detailed work plan
of the project and its time profile.
4. Input Analysis: –It concerns with what the project will consume both
during the construction phase as also the normalisation phase.
The objective is to identify and quantify the project inputs and
to assess the feasibility of a sustained supply of these inputs all
through the effective life span of the project. Inputs are material and
human resources.
Input analysis considers the recurring as well as non–recurring
resources requirements of the project and evaluates the feasibility of the
project from the point of view of the availability of these resources.

5. Financial analysis:-It concerns itself with the estimation of the project

costs, project operating costs and project funds requirements. It also
involves the appraisal of financial characteristics of the project, so as to
establish the merits end demerits of the project as compared to other
investment opportunities. A large number of financial analytical aids
developed are: present worth technique, the cost volume–profit analysis
and ratio analysis. The uncertainties have to be taken into account.
6.Cost Benefit analysis:– The cost–benefit analysis takes into
account not only the direct costs and benefits which will accrue to
the project implementing body but also the total costs which all entities
concerned with the project will have to bear and the benefits which will

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be enjoyed by all such entities.
Idea is to evaluate the project in terms of absolute costs and
benefits rather than in terms of apparent costs and benefits.

7. Pre–investment Appraisal: – It is the process of consolidating the

above i.e., feasibility analysis, techno–economic analysis, Project design
and network analysis, input analysis, financial analysis and social cost–
benefit analysis so as to give the investment proposition a final and
formed shape.
The sum total of the pre-investment appraisal is to present the
project idea in a form in which the project sponsoring body the project
implementing body and the outside agencies can take an investment
decision regarding the proposals.

1.0 Analysis of market Demand:

Market and demand analysis is concerned with two broad issues
1. What is likely aggregate demand for the product /
service?
2. What share of the market will the proposed project enjoy?

Factors to be considered for getting the answers for the above:

1. Patterns of consumption growth 5. Availability of

substitutes
2. Income and price elasticity of demand 6. Distribution channels
3. Composition of the market
4. Nature of competition
3.1 Steps in market analysis:

1. Situation analysis and specification of objectives:

❖ Talk to customers, competitors, middlemen and others
❖ For carrying out market survey spell out the objectives
clearly
❖ Questionnaire can help gathering the information in a
way relevant for forecasting the demand
2. Collection of secondary inputs:
❖ Secondary information is the one which was gathered in
some other context and is available readily for the present
consideration
❖ Primary information is the one, which is collected for the
first time to meet the specific purpose on hand.
❖ Secondary information forms the basis and starting point
for the market and demand analysis.
❖ General sources of secondary information:
Censes of India, National sample survey reports, Plan
reports, India year book, Statistical year book,

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 Economic survey, Guide lines to industries, Annual
survey of industries, Publications of advertising
agencies, Monthly bulletin of RBI, etc.
Annual reports of association of Indian automobile
manufacturers
Journals of industry associations.
❖ The relevance, reliability, accuracy are to be carefully
studied in the information available in the secondary
information.
3. Conduct of market survey:
❖ Secondary information may not provide a comprehensive
basis often thus necessitating gathering primary
information through market survey.
❖ Census survey: Entire population is covered. It is
suitable for intermediate goods, investment goods - where
the number is less.
❖ Sample survey: A sample of the population is
contacted or observed. Inferences are made on the basis
of the information gathered from the sample. Ex:
o Total demand & rate of growth of the demand,
o Demand in different segments of the market,
o Income & price elasticity of the demand,
o Motives for buying, purchasing plan and in
tentions,
o Satisfaction with existing goods,
o Unsatisfied needs,
o Attitudes towards various products,
o Distribution trade practices and preferences,
o Socio-economic characteristics of buyers

1.1.1 Steps in conducting Sample survey:

i. Define the target population

ii. Select the sampling scheme and sample size
iii. Develop the questionnaire
iv. Recruit and train the field investigators
v. Obtain the information as per questionnaire from
the sample respondents
vi. Scrutinize the information gathered
vii. Analyze and interpret the information

1.1.2 The results of the information can be vitiated by

1. Non representative ness of the sample
2. Questions lack precision and accuracy
3. Failure of respondents to comprehend the
questions

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 4. Deliberate distortions in the answers given by the
respondents
5. Inept handling of the interviews
6. Cheating on the part of the investigators
7. Incorrect and inappropriate analysis and
interpretation of data
1.1.3 Problems:
1. Heterogeneity of the country
2. Multiplicity of the languages
3. Design of questionnaire

4. Characterization of the market:

❖ The market may be described as follows on the basis of
the information gathered in the survey
1. Effective demand in the past and present:
Apparent consumption = Production + Imports –
Exports – Change in stock level
Consumption of the product by producers and
effect of abnormal factors are to be adjusted.
In a competitive market effective demand and
apparent consumption are equal.
2. Breakdown of the demand:
Aggregate demand may be broken down into
demand for different segments of the market
Market segments may be defined by
1. Nature of the product
2. Consumer group
3. Geographical division
Segmental information is helpful because the
nature of the demand tends to vary from one
segment to the other
3. Price:
1. Manufacturer’s price quoted FOB( Free
On Board)
2. CIF price ( Cost, Insurance, Freight)
3. Landed price for imported goods
4. Average whole sale price
4. Methods of distribution and sales promotion
Distribution varies in the nature of the product
Different distribution channels may be used for
a given product
Advertisement, discounts, Gifts scheme vary
from product to product
5. Consumers:
Demographic & Sociological Attitudinal
Age Profession Preferences

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 Sex Residence Intentions
Income Social background Habits
Attitudes
Responses
6. Supplies and Competition:
Existing sources - Indigenous / imported
Location, present production Capacity
Planned expansion, capacity utilization
level
Bottlenecks in production, Cost
structures,
Quantity, Quality, Promotional efforts
7. Government policy:
Production targets in National plan
Import & export trade constraints
Import duties and incentives
Excise duties and sales tax , industrial licensing
Credit controls, preferential purchasing
Financial regulations , subsidies , Penalties

5. Demand Forecasting:
• Quantitative methods:
1. Jury of executives opinion method
2. Delphi method: involves converting the views of
group experts , who do not interact face to face ,
into a forecast through an iterative process.
• Time series method:
1. Trend projection method
2. Exponential smoothening method
3. Moving averages method
• Casual models:
These are based on the cause-effect relationship.
1. Chain ratio method – Applies a series of factors for
developing a forecast.
2. Consumption method
• Income elasticity of demand
• Price elasticity of demand
3. End use method – suitable for intermediate
products
4. Leading indicator method – Observed changes in
leading indicators are used to predict the changes
in lagging variables.
5. Econometric method – Estimating quantitative
relationship derived from economic theory.

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 6. Market planning:
1. Pricing 2. Distribution 3. Promotion 4. Service

FINANCIAL AND PROFITABILITY ANALYSIS:-

The estimates of financial profitability may be prepared along the following

lines:
A. Cost of production
B. Total administrative expenses
C. Total sales expenses
D. Royalty and know–how payable
E. To cost of production (A+B+C+D)
F. Expected sales
G. Gross profit before interest
H. Total financial expenses
I. Depreciation
J. Operating profit (G–H–I)
K. Other income
L. Preliminary expenses written off
M. Profit/loss before taxation (J+K–L)
N. Provision for taxation
O. Profit after tax (M-N)
Less Dividend on
–Preference capital
-Equity capital
P. Retained profit
Q. Net cash accrual (P+I+L)

A. Cost of Production: – This represents the cost of materials,

labour, utilities and factory overheads as calculated earlier.

B. Total administrative expenses: – This consists of

(i) Administrative salaries, (ii) remuneration to directors, (iii) Professional fees,
(iv) light, postage, telegrams, and telephones, and office supplies (stationery,
printing, etc.) (v) Insurance and taxes on office property, and (vi)
miscellaneous items.

C. Total sales expenses:– The expenses included under this head are:
i) commission payable to dealers, (ii) packing and forwarding charges, iii) salary of
sales staff (which sway be increased at 5 percent per annum), (iv) sales
promotion and advertising expenses, and (v) other miscellaneous
expenses.
The selling expenses depend mainly on the nature of
industry and the kind of competitive conditions that prevail. Typically, selling
expenses vary between 5 and 10 percent of sales. The experience of similar firms

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in the industry may be used as basic guideline .

D. Royalty and know–how payable: – Royalty and know–how payable annually

may be shown here. The royalty rate is usually 2-5 percent of sales.
Further, royalty is payable often for a limited number of years, say 5 to 10
years.

E. Total cost of Production: – This is simply the sum of cost of

production, total administrative expenses, total sales expenses, and royalty and
know–how payable.

F. Expected sales: - The figures of expected sales are drawn from the
estimates of sales and production prepared earlier in the financial analysis and
projection exercise.

Typically, the starting point for profitability is the forecast for

sales revenues. In estimating sales revenues, the following considerations
should be borne in mind:
1. It is not advisable to assume a high capacity utilization level in the
first year of operation. Even if the technology is simple and the company
may not find technical problems in achieving a high rate of capacity utilization in
the first year itself, there are likely to be other constraints like raw material
shortage, limited power, marketing problems, etc. It is sensible to assume that
capacity utilization would be somewhat low in the first year and rise
thereafter gradually to reach the maximum level in the third or fourth year
of operation. A reasonable assumption with respect to capacity utilization
is as follows: -
40 - 50 percent of the installed capacity in the first year,
50 - 80 percent in the second years and 80 - 90 percent from the third year
onwards.
2. It is not necessary to make adjustments for stocks of finished goods. For
practical purposes it may be assumed that production would be equal to
sales.
3. The selling price considered should be the price realizable by the company
net of excise duty. It shall, however, include dealers’ commission which is
shown as an item of expense (as part of sales expenses).
4. The selling price used may be the present selling price--it is generally
assumed that changes in selling price will be matched by proportional
changes in cost of production (This assumption is commonly used by financial
institutions. However, it is not very convincing). If a portion of production is
saleable at controlled price, take the controlled price for that portion.
Sales and production are closely inter-related. Hence they may be
estimated together. For this purpose the format XII A of the

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 application form need by all-India financial institutions in India, may be
employed.
(Details may be furnished separately for each product and until the plant reaches
maximum capacity utilization)
Product 1 Product 2

1 2 3 4 1 2 3 4
yr. yr. yr. yr. yr. yr. yr. yr.

1 Installed Capacity
(qty/day/annum)

2 No. of working days

3 No. of shifts

4 Estimated production per day (qty.)

5 Estimated annual production

(qty.)

6 Estimated output as % of plant

capacity

7 Sales (qty.) (after adjusting stocks)

8 Value of sales (in ‘000 of Rs.)

Product
i)
ii)
iii)

Note: - Production in the initial period should be assumed at a reasonable level

of utilization of capacity increasing gradually to attain full capacity in
subsequent years.

G. Gross profit before interest: This represents the difference between

expected sales and total cost of production.

H. Total financial expenses: - Financial expenses consist of interest on term

loans, interest on bank borrowings, commitment charges on term loans, and
commission for bank guarantees. The principal financial expenses, of course,
are interest on term loan interest on bank borrowings.

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 In estimating the interest on term loans, two points should be
borne in mind: i) Interest on term loans is based on the present rate of
interest charged by the term loan lending financial institutions and
commercial banks, ii) Interest amount would decrease according to the
repayment schedule of term loan.
The interest on bank borrowings may be estimated
as follows: (i) determine the total requirement of the working capital, (ii) find out the
quantum of bank borrowing that would be available against the total working
capi t a l requirement, and {iii) calculate to
the interest charges on the basis of the prevailing interest rates.

I. Depreciation: - This is an important item, particularly for capital-intensive

projects. In figuring out the depreciation charge, the following points should
be borne in mind:
1. Contingency margin and pre-operative expenses provided in estimating the
cost of project should be added to fixed assets proportionately to ascertain the
value of fixed assets for determining the depreciation charge.
2. Preliminary expenses in excess of 2.5% of the project cost (excluding working
capital margin) should be added to fixed assets proportionately to ascertain the value of
fixed assets for determining the depreciation charge.
3. The Income Tax Act specifies that the written down value method should
be used for tax purposes. It further specifies the rate of depreciation
applicable to different kinds of assets.
4. For company law (financial reporting) purposes, the method of depreciation may
be either the written down value (WDV) method or the straight line (SL)
method.From 1988 onwards the depreciation rates under the Companies Act have
been delinked from those under the Income Tax Act.The key depreciation
rates under the Companies Act are as follows:
In percentage terms
Single Shift Double Shift Triple Shift
WDV SL WDV SL WDV SL
1 Buildings (other than
factory buildings) 5.00 1.63
2 Factory buildings 10.00 3.34
3 Plant and machinery
(general rate) 15.00 5.15 22.50 8.09 30.00 11.31
According to the written down value method, the depreciation charge is a certain
percentage of the written down value of the asset. In general terms, the
depreciation charge for the nth
nth year is:

Dn = I(1-d)n-1d
Where Dn = depreciation charge for the nth year
I = initial cost
d = depreciation rate

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K. Other Income: - Other income, if any, details have to be given. This
represents income arising from transactions not part of the normal operations of
the firm. Examples of such transactions are: sale of machinery, disposal of
scrap, etc. Except disposal of scrap, which can be reasonably anticipated and
estimated, the effects of other
non-operating transactions can hardly be estimated. Of course, when non-
operating transactions result in a deficit, other income would be negative--put
differently, there will be a non-operating loss.

L Write-off of Preliminary Expenses: - Preliminary expenses up to 2.5% of the

cost of project or capital employed whichever is higher, can be amortized in
ten equal annual installments.

M. Profit/Loss before Taxation:-This is equal to: operating profit + other

income - write-off of preliminary expenses.

N. Provision for Taxation: - To figure out the tax burden, sound

understanding of the Income Tax Act -- a complicated legislation -- and
relevant case laws is required. While calculating the taxable income, a variety
of incentives and concessions have to be taken into account.Once the taxable
income, as per the Income Tax Act, is calculated, the tax burden can be
figured out fairly easily by applying the appropriate tax rates.

0. Profit after Taxation: - This is simply profit/loss before taxation minus

provision for taxation. A part of profit after
tax is usually paid out as dividend--dividend on preference capital and dividend
on equity capital.

P. Retained Profit: - The difference between profit after tax and dividend
payment is referred to as retained profit. It is also called ploughed back
earnings.
Also Depreciation and Preliminary Expenses Written Off are to be added to
Retained Profit.

Q. Net Cash Accrual: - The net cash accrual from operations is equal to:
retained profit + depreciation + write-off of preliminary expenses + other
non-cash charges.

R. Total Financial Expenses: - Financial Expenses includes

Interest on term loans, Interest on borrowings for working capital and
Guarantee commission.
Form XII of the application form used by all-India financial institutions for
preparing the estimates of working results or profitability projections and the
statement should be prepared for ten years giving detailed working shall be
provided for calculation of depreciation (straight line and income tax method),

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interest, taxation, etc.
COST OF PROJECT: - Conceptually the cost of project represents the total of
all items of outlay associated with a project which are supported by long-term
funds. It is the sum of the outlays on the following: -
1. Land and site development
2. Buildings and civil works
3. Plant and machinery
4. Technical know-how and engineering fees
5. Expenses on foreign technicians and training of Indian
technicians abroad
6. Miscellaneous fixed assets
7. Preliminary and capital issue expenses
8. Pre-operative expenses
9. Provision for contingencies
10. Margin money for working capital
11. Initial cash losses

1. Land and site development:- It includes i) Basic cost of land ii) Premium
payable on leasehold iii) Cost of leveling and development iv) Cost of laying
approach roads and internal roads v) Cost of gates and vi) Cost of tube
wells
The cost of land varies considerably from one location to another.
2. Buildings and Civil Works: - It covers the followings
— Buildings for the main plant and equipments
— Buildings for auxiliary services like steam supply, workshops,
laboratory, water supply etc.
— Godowns, warehouses, and open yard facilities -- Non-factory
buildings like canteen, guest houses, time office, and excise house
etc.
— quarters for essential staff
-- Silos (or bins for raw material storage), tanks, wells,
basins, cisterns, hoppers, bins and other structures
necessary for installation of plant and equipment Garages
- Sewers, drainage, etc.
The cost of buildings and civi1 works depends on the kinds of structures
required which, in turn, are dictated largely by the requirements of the
manufacturing process.
3. Plant Machinery: - It consists of
-- Cost of imported machinery: - This is the sum of
i) FOB (free on board) value, ii) shipping, freight, and insurance
cost, iii) import duty, and iv) clearing, loading, unloading and
transportation charges.
— Cost of indigenous machinery: - This consists of i) FOR (free on
rail) cost, ii) sales tax, octroi, and other taxes, if any, and iii) railway freight and

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transport charges to site.
-- Cost of stores and spares
— Foundation and installation charges
The cost of plant and machinery is based on the latest available
quotation adjusted for possible escalation.
4. Technical Know—how and Engineering Fees:- Often it is necessary to
engage technical consultants or collaborators from India and/or abroad for
advice and help in various technical matters like preparation of project report,
choice of technology, selection of plant and machinery, detailed engineering, and
so on. While the amount payable for obtaining technical know—how and
engineering services for setting up the project is a component of project cost,
the royalty payable annually, which is typically a percentage of sales, is an
operating expense taken into account.

5. Expenses on Foreign Technicians and Training of Indian Technicians Abroad:-

For Foreign Technicians, expenses on their travel, boarding, and lodging along
with their salaries and allowances must be shown here. Likewise, expenses on
Indian technicians who require training abroad must also be included
here.

6. Miscellaneous Fixed Assets: - Fixed assets and machinery which are not
part of the direct manufacturing process may be referred to as miscellaneous
fixed assets. They include items like furniture, office machinery and equipment,
vehicles, railway siding, diesel generating sets, transformers, boilers, piping
systems, laboratory equipments, workshop equipments, effluent treatment plant,
fire fighting equipments, and so on. Expenses incurred for procurement or use of
patents, licenses, trade marks, copyrights, etc, and deposits made with the
electricity board may also be included here.
7. Preliminary and Capital issue Expenses: - Expenses incurred for
identifying the project, conducting the market survey, preparing the feasibility
report, drafting the memorandum and articles of association, and
incorporating the company are referred to as preliminary expenses. Expenses
borne in connection with the raising of capital from the public are referred to as
capital issue expenses. These are: underwriting commission, brokerage, fees to
managers and registrars, printing and postage expenses, advertising and
publicity expenses, listing fees and stamp duty.

8. Pre—operative Expenses: - Expenses of the following types incurred till the

commencement of commercial production are referred to as pre—operative
expenses.
Pre—operative expenses are directly related to the project implementation
schedule. So, delays in project implementation,

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which are fairly common, tend to push up these expenses. Appreciative of this,
financial institutions allow for some delays (20 to 25% ) project implementation
schedule and accordingly permit a cushion in the estimate for pre—operative
expenses.

9. Provision for Contingencies: — Provision for contingencies is made to

provide for certain unforeseen expenses and price increases over and above the
normal inflation rate which is already incorporated in cost estimates.
10. Margin Money for Working Capital: - A certain part of working capital
requirement has to come from long—term sources of finance. The principal
support for working capital is provided by commercial banks and trade
creditors.

The first part of the above is called Margin money for working capital.
The margin money for working capital is sometimes utilized for meeting over–
runs in capital cost. This leads to working capital problem (and sometimes a
crisis) when the project is commissioned. To mitigate this problem, financial
institutions stipulate that a portion of the loan amount, equal to the margin
money for working capital, be blocked initially so that it may be released when the
project is completed.

11. Initial Cash Losses: - Most of the projects incur cash losses in the
initia1 years. Yet, promoters typically do not disclose the initial each
losses because they want the project to appear attractive to the financial
institutions and the investing public. F a i l u r e t o make provision for such
cash losses in the project cost generally affects the liquidity position and
impairs the operations. Hence prudence calls for making a provision, overt or
covert, for the estimated initial cash losses.

Dealing with Government and Financial Institutions:–

Before a project actually reaches the resource allocation level it has to
pass through several levels of examination, scrutiny, analysis and appraisal.
Delays generally take place when a project has to be screened through so
many levels, but the worst delays take place on account of the fact that no
systematic or scientifically evolved procedure is used either for the preparation or
evaluation or appraisal of the project.
The Government official who deals with the project (like State Electricity
Board officials, Pollution Control Board officials for issuing No objection Certificate,
or obtaining Land use certificate
and clearances under Factory Act for building plans/machinery installation
clearances from Director, Town and Country P1anning/Urban Development

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Authority, Health Department official etc) who deals with the project, and
who has a positive role to play in the final clearance of a project has to be
treated as an integral part of the project formulation team (which consists o f a
team of experts). He has to be exposed to the details of the project to the same
extent as any other member of the team which formulates the pre–investment
report.
Financial institutions have to perform dual role. They have to provide
institutional support to development activities and secondly they have to identify
bankable investment propositions.
No development financial institution advances funds today merely on the
basis of credit worthiness of the entrepreneur. Every institution makes its own
assessment and appraisal of the investment opportunity and only after satisfying
itself about the capacity of the project to repay the investment and also the
desirability of what a project will contribute to the overall development of the
country, does it part with it funds.
Project formulation team, in effect, tries to bring the project sponsoring authority and
the development finance institutions on one wave length where the parameters of
project appraisal laid down by the development finance institutions are integrated
into the scheme of development of project ideas and data and other information are
collected, evaluated and presented in a form which enables the appraisal team
to quickly and efficiently deal with the project.
Some of the financial institutions are ICICI (Industrial Credit & Investment
Corporation of India), IDBI (Industrial Development Bank of India), SIDC
(State Industrial Development Corporation like APSFC) & SFC (State
Financial Corporation like APSFC).
Govt. (Central/State) interventions in all fields of social and economic life
based on available knowledge of the conditions and their interrelationship and
aimed at the acceleration of development.
National plans are presented with considerable attention and care which
identify the priority sectors and production targets for the Country as a whole, and
defines the resources mobilization effort which the nation will have to undertake
and specify the broad sectoral allocation of resources. And it passes labour
laws, controls the prices, exchange regulations etc.
FEASIBILITY STUDIES: – Feasibility report lies in between the
project formulation stage and the appraisal and sanction stage.
It consists of
1. General information
2. Preliminary analysis of alternatives
3. Project description
4. Marketing Plan
5. Capital Requirements and Costs
6. Operating Requirements and costs and
7. Financial analysis.

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1. General Information: - The feasibility report should include an
analysis of the industry to which the project belongs. It should deal with the
post performance of the industry. Description of the type of industry should
also be given.

2. Preliminary analysis of alternatives:- T h i s s h o ul d c o nta i n

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 projects that are
in production 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
intent/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 the project and its implications should also be looked into. An
account of the foreign exchange requirement should 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-à-vis return should be presented.

3. Project Description: - The feasibility report should provide a brief

description of the technology/process chosen for the project. It should also give
reasons for locating the project in a particular area to be given. To assist
in the assessment of the environmental effects of a project every feasibility
report must present the information on specific points, i.e., populations water,
1and, air, flora$ fauna, effects arising out of projects pollution and other
environmental disruption$ etc.
The report should contain a list of important items of capital
equipment and also a list of the operational requirements of plant, water, power,
personal, organizational structure envisaged, transport costs, activity wise phasing
of construction and factors affecting it.

4. Marketing Plan: - The feasibility report should contain the following

items:
Data on the marketing plan. Demand and prospective supply in each of
the areas to be served.
The methods and the data used for main estimates of domestic supply and
selection of the market areas should be presented. It should present an
analysis of past trends in prices.
5. Capital Requirements and Cost: - The estimates should be reasonably
complete and properly estimated. Information on all items costs should
be carefully collected and presented.

6. Operating Requirements and Costs: - Operating costs are essentially

those costs which are incurred after the commencement of commercial

Page | 17
production. Information about all items of operating costs should be
collected. Operating costs relate to cost of raw materials and intermediates,
fuel, utilities, labor, repair and maintenance, selling expenses and
other expenses.
7. Financial Analysis: - A proforma balance sheet for the project data
should be presented. Depreciation should be allowed for on the basis specified
by the Bureau of Public Enterprises. Foreign exchange requirements should
be cleared by the Department of Economic Affairs. The feasibility 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 analyze
the sensitivity of 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 adjustment involves a correction in input 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 analyzed and their importance emphasized.

PLANNING COMMISIONS’S GUIDELINGES (CHECK LIST) FOR

FEASIBILITY REPORT:-
1. Examination of public with respect to the industry.
2. Broad specifications of outputs and alternative techniques of production.
3. Listing and description of alternative locations.
4. Preliminary estimates of sales revenue, capital costs and operating costs of
different alternatives.
5. Preliminary analysis of profitability for different alternatives.
6. Marketing analysis.
7. Specification of product pattern and product prices.
8. Raw material investigation and specification of sources of raw material
supply.
9. Estimation of material energy, flow balance and input prices.
10. Listing of major equipment by type, size and cost.
11. Listing of auxiliary equipment by type, size and cost.
12. Specification of sources of supply for equipment and process
know-how.
13. Specification of site and completion of necessary investigation.
14. Listing of buildings, structures and yard facilities by type size and
cost.
15. Specification of supply sources connection costs and other costs for
transportation services, water supply and power.
16. Preparation of layout.
17. Specification of skill-wise labor requirements and labor costs.
Page | 18
18. Estimation of working capital requirements.
19. Phasing of activities and expenditure during construction.
20. Analysis of profitability.
21. Determination of measures of combating environmental problems.
22. Analysis of the past performance of the enterprise responsible for
implementing and running the project with respect to project completion,
capacity utilization, profitability, etc.
23. State of preparedness to implement the project rapidly.

Economic Viability: – Above everything, a project should be viable. It should

break even on a cash basis in the first 6 to 8 months. It should break even (on
cost basis) in the first 9 to 10 months. One must get an accounting profit no
matter how small it is, in the very first year.He should not think he cannot
earn profits in
the first year. He can if he is determined. He must declare
a dividend of at least eight percent in the second year. Many entrepreneurs
deceive themselves about the economic viability after
fooling the financial institutions. An entrepreneur can least
afford to deceive himself of all people.

2.0 Technical analysis:

1. Material inputs & utilities:
• Raw materials – agricultural, mineral, livestock, forest,
marine products.
• Processed industrial materials & Components
• Utilities – Power, water, fuel, steam, air etc.
2. Manufacturing process / Technology
• Choice of technology
• Acquiring technology
• Appropriateness of technology
3. Product mix
• Market requirements
• Variations in size, quality
• Product, Price, Place & Promotion
4. Plant capacity
• Technological requirement
• Input constraints
• Investment cost
• Market conditions
• Resources of the firm
• Government policy
5. Location & site
• Proximity to raw materials

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 • Availability of infrastructure – water, Power, fuel,
transport, communications etc.
• Nearness to market
• Government policies
• Availability of labour and their attitudes
• Climate, pollution, facilities like schools,
entertainment etc.
6. Machinery & equipment
• Selection, procurement, installation & commissioning
7. Structures & civil works
• Site preparation
• Buildings & structures
• Outdoor works
8. Project charts & layouts
• General functional layout
• Material flow diagrams
• Production line diagrams
• Transport layout
• Utility consumption layout
• Communication layout
• Organizational chart
• Plant layout
9. Work schedule
• Installation phase
• Phasing of investment
• Develop plan of operation
3.0 Financial Analysis:
1. Cost of Project:
• Land & site development
• Buildings & civil works
• Plant & machinery
• Technical know-how & engg. Fees
• Expenses of foreign technicians & training
• Miscellaneous fixed assets
• Preliminary & capital issue expenses
• Pre-operative expenses
• Provision for contingencies
• Margin money for working capital
• Initial cash losses
2. Means of finance:
• Share capital
• Term loans
• Debenture capital
• Deferred capital

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 • Incentive sources
• Miscellaneous sources
• Planning the means of finance:
- Norms of regulatory bodies and financial
institutes
- Key business considerations like cost of capital,
risk, control, flexibility etc.
3. Estimates of sales & Production:
• Capacity utilization
- 40-50% in 1 year
- 50-80% in 2 year
- 80-90% in subsequent years
• Selling price is realizable value
• Production & sales assumed to be equal
• Changes in selling price may be matched with changes in
cost of production
4. Cost of Production:
Material cost, labor cost, utilities cost, factory overheads
5. Working capital requirement & financing:
• Raw materials & components
• Work in process
• Finished goods stock
• Debtors
• Operating expenses
• Sources of WC
o Advances by commercial banks
o Trade credit
o Accruals and provisions
o Long term sources of financing
o 25% of current assets must be supported by long
term sources of financing i.e. margin money
6. Profitability projections: (Estimates of working results)
A: Cost of production J: Operating
profit: G-H-I
B: Total administrative expenses K: Other income
C: Total sales expenses L: Preliminary expenses
written off
D: Royalty & know-how M: Profit / loss before
taxes:
J+K-L
E: Total cost of prodn. (A+B+C+D) N: Provision for
tax
F: Expected sales O: Profit after tax: M-N
G: Gross profit before interest Less dividend

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 H: Total finance expenses - Preference
capital
I: Depreciation - Equity capital
R: Retained profit
Q: Net cash accrual :
P+I+L

7. Breakeven analysis:
Break even Point in units = fixed costs/ (unit selling price- unit
variable cost)
Fixed cost
= --------------- X Expected prodn. in nos.
Nos.
Contribution
BEP (% of installed capacity) = (Fixed cost / contribution) x
Expected
Capacity utilization in the
year.

Fixed cost
BEP( in Rs.) = --------------- X Expected sales realization in
the year
Contribution
Contribution = sales realization – variable cost
8. Projected cash flow statements:
Cash flow statement shows the movement of cash into and
out of the firm and is net impact on the cash balance with
the firm.
Sources of funds Disposition of funds
9. Projected balance sheet:
Balance sheet shows the balances in various assets and
liabilities.
It reflects the financial condition of the firm at a given point
of time.
Liabilities Assets
Share capital Fixed assets
Reserves & surplus Investments
Secured loans Current assets, loans,
advances
Unsecured loans Miscellaneous Expenditure &
losses
Current liabilities & provisions
4.0 Project financing:

MEANS OF FINANCE: – To meet the cost of project the following means of

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finance are available:
1. Share capital
2. Term loans
3. Debenture capital
4. Deferred credit
6. Incentive sources
7. Miscellaneous sources
1. Share Capital:– There are two types of share capital--equity
capital and preference capital. ‘Equity capital’ represents the contribution made by
the owners of the business, the equity shareholders, who enjoy the rewards and
bear the risks of ownership. Equity capital being risk capital carries no fixed rate of
dividend. ‘Preference capital’ represents the contribution made by preference
shareholders and the dividend paid on it is generally fixed.
2. Term Loans:- Provided by financial institutions and commercial banks, ‘term
loans’ represent secured borrowings which are a very important source (and often
the major source) for financing new projects as well as expansion, modernization,
and renovation schemes of existing firms. There are two broad types of term
loans available in India: ‘rupee term loan’ and ‘foreign currency term loan’.
While the former are given for financing land, building, civil works and indigenous
plant and machinery and so on, the latter are provided for meeting the foreign
currency expenditure towards import of equipments and technical know–how.

3. Debenture Capital:–Akin to promissory notes, debentures are instruments

for raising debt capital.There are two broad types of debentures, non–convertible
debentures and convertible debentures. Non–convertible debentures are
straight debt instruments. Typically they carry a fixed rate of interest and have
a maturity period of 5 to 9 years. Convertible debentures, as the name implies
are debentures which are convertible, wholly or partly into equity
shares. The conversion period and price are announced in advance.
4. Deferred Credit: – Many a time the suppliers of plant and machinery
offer a deferred credit facility under which payment for the purchase of plant
and machinery can be made over a period of time.
5. Incentive Sources:– The government and its agencies may provide
financial support as incentive to certain types of promoters or for setting up
industrial units in certain locations. These incentives may take the form
of ‘seed’ capital assistance (provided at a nominal rate of interest to enable
the promoter to meet his contribution to the project), or ‘capital subsidy’ (to
attract industries to certain locations), or ‘tax deferment or exemption’
(particularly from sales tax) for a certain period.

6. Miscellaneous sources: – A small portion of project finance may come

from miscellaneous sources like unsecured loans as public deposits,
leasing and hire purchase finance. ‘Unsecured loans’ are typically provided
by the promoters to bridge the gap between the promoters’ contribution (as

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required by the financial institutions) and the equity capital the promoters can
subscribe to. ‘Public deposits’ represent unsecured borrowings from the
public at large. Leasing and hire purchase finance represent a form of
borrowing different from the conventional term loans and debenture capital.

Sources of finance for raising capital are:-

1. Equity Capital
2. Preference capital
3. Non-convertible debenture
4. Convertible debentures
5. Rupee term loans
6. Foreign currency term loans
7. Euro issues
8. Differed Credit
9. Bill rediscounting Scheme
10 Suppliers line of credit
11. Seed capital assistance
12. Government subsidies
13. Sales tax deferment and exemption
14. Unsecured loans and deposits
15. Lease and hire purchase finance.

1. Equity Capital: - This is the contribution made by the owners of

business, the equity shareholders, who enjoy the rewards and bear the
risks of ownership. Equity capital offers two important advantages:
i) It represents permanent capital. Hence there is no liability for
repayment,
ii) ii) It does not involve any fixed obligation for payment of
dividends.
The disadvantages of raising funds by way of equity capital are:
i) The cost of equity capital is high because equity dividends are not tax-
deductible expenses,
ii) The cost of issuing equity capital is high.

2. Preference Capital: - This is like debt capital since rate of preference dividend is
fixed. It is similar to equity capital because preference dividend, like equity
dividend, is not a tax-deductible payment. Typically, when preference
dividend is Skipped it is payable in future because of the cumulative feature
associated with it. The, near-fixity of preference dividend payment renders
preference capital somewhat unattractive in general as a source of finance. It is,
however, attractive when the promoters do not want a reduction in their
share of equity and y et there is need for widening the net worth base (net
worth consists of equity and preference capital) to satisfy the requirements of
financial institutions. In addition to the conventional preference shares, a

Page | 24
company may issue Cumulative Convertible Preference Shares (CCPS).
These shares carry a dividend rate of 10% (which if unpaid, cumulates) and
are compulsorily convertible into equity shares between three and five years from
the date of issue.
3 & 4. Debenture Capital: - It is similar to promissory note. In the last few
years, debenture capital has emerged as an important source for project
financing. There are three types debentures that are
commonly used in India:
a) Non-Convertible Debentures (NCDs), Partially Convertible Debentures
(PCDs) and Fully Convertible Debentures (FCDs). NCDs are used by
companies for raising debt that is generally retired over a period of 5 to
10 years. They are secured by a charge on the
assets of the issuing company. PCDs are partly convertible into equity
shares as per pre-determined terms of conversion. The unconverted portion of
PCDs remains like NCD. FCDs, as the name implies, are converted wholly into
equity shares as per pre-determined terms of conversion. Hence FCDs may be
regarded as delayed equity instrument.
5.Rupee Term Loans: - Provided by financial institutions and commercial
banks, rupee term loans which represent secured borrowings are a very
important source for financing new projects as well as expansion, modernization,
and renovation schemes of existing units. These loans are generally repayable over
a period of 8 - 10 years which includes a moratorium period of 1 - 3 years.
6.Foreign Currency Terms Loans:- Financial institutions provide
foreign currency term loans for meeting the foreign currency expenditures
towards import of plant, machinery, and equipment and also towards
payment of foreign technical know-how fees.U n d e r t h e g e n e r a l
Scheme, the periodical liability towards interest and principal remains in
the currency/currencies of the loan/s and is translated into rupees at the
then prevailing rate of exchange for making payments to the financial
institution. Apart from approaching
financial institutions (which typically serve as intermediaries between foreign
agencies and Indian borrowers), companies can directly obtain foreign currency
loans from international lenders. More and more companies appear to be
doing so presently.
7.Euro issues: - From middle of 1992, a number of companies have been
making euro issues. They have employed two types of securities:
Global Depository Receipts (GDRs) and Euro convertible Bonds (ECDs).
Denominated in US dollars, a GDR is a negotiable certificate that
represents the publicly traded in local currency (Indian Rupee) equity shares
of a non-US (Indian) company (of course, in theory,
a GDR may represent a debt security, in practice it rarely does so) GDRs
are issued by the Depository Bank (such as the Bank of New York) against the
local currency shares (such as Rupee shares) which are delivered to the
depository’s local custodial banks. GDRs trade freely in the overseas
markets.
A Euro convertible Bond (ECB) is an equity-linked debt security. The holder of
Page | 25
an ECB has the option to convert it into equity shares at a pre-determined
conversion ratio during a specified period. ECBs are regarded as advantageous
by the issuing company because i) they carry a lower rate of interest
compared to a straight debt security, ii) they do not lead to dilution of
earnings per share in the near future, and iii) they carry very few restrictive
covenants.
8.Deferred Credit: - Many a time the suppliers of machinery provide
deferred credit facility under which payment for the purchase of machinery is
made over a period of time. The interest rate on deferred credit and the period
of payment vary rather widely. Normally, the supplier of machinery when
he offers deferred credit facility insists that the bank guarantee should be
furnished by the buyer.
9.Bills Rediscounting Scheme: - Operated by the IDB1, the bills
rediscounting scheme is meant to promote the sale of indigenous machinery on
deferred payment basis. Under this scheme, the seller realizes the sale
proceeds by discounting the bills or promissory notes accepted by the buyer
with a commercial bank which in turn rediscounts them with the IDBI. This
scheme is meant primarily for balancing equipments and equipments and
machinery required for expansion, modernization, and replacement
schemes.
10. Suppliers’ line of Credit: - Administered by the ICICI, the
Suppliers' Line of Credit is somewhat similar to the IDBI’s Bill
Rediscounting Scheme. Under this arrangement IC1C1 directly pays to the
machinery manufacturer against issuance of bills duly accepted or
guaranteed by the bank of the purchaser.

11. Seed Capital Assistance: - Financial institutions, through

what may be labeled broadly as the ‘Seed Capital Assistance scheme’,
seek to supplement the resources of the promoters of the small and medium scale
industrial units which are eligible for assistance from all-India financial
institutions and/or state-level financial institutions. Broadly three schemes have
been formulated:

i) Specia1 Seed Capital Assistance Scheme: The quantum of assistance under this
scheme is Rs.0.2 million or 20% of the project cost, whichever is lower. This
scheme is administered by the State Financial Corporations.

ii) Seed Capital Assistance Scheme: The assistance under this scheme is
applicable to projects costing not more than Rs.20 million. The assistance
par project is restricted to Rs.1.5 million. The assistance is provided by IDBI
through state level financial institutions. In special oases, the IDBI
may provide the assistance directly.

iii) Risk Capital Foundation Scheme: Under this scheme, the Risk Capital
Foundation an autonomous foundation set up and funded by the IFCI, offers
assistance to promoters of projects costing between Rs.20million and
Page | 26
Rs.150million. The ceiling on the assistance provided between Rs.1.5million
and Rs.4million. depending on the number of applicant promoters.
12. Government Subsidies: - Previously the central government as well as the
state governments provided subsidies to industrial units located in backward areas.
The central subsidy has been discontinued but the state subsidies continue.
The state subsidies vary between,
5% to 25% of the fixed capital investment in the project, subject to a ceiling
varying between RS.0.5million and Rs.2.5million depending on the location.
13.Sales, Tax Deferments and Exemptions: - T o a t t r a c t i n d u s t r i e s ,
the states provide incentives, in the form of sales tax deferments and sales tax
exemptions.

Under the sales tax deferment scheme, the payment of sales tax
on the sale of finished goods may be deferred for a period ranging
between 5 to 12 years. Essentially it implies that the project
gets an interest free loan, represented by the quantum of sales tax
deferred, during the deferment period.
Under the sales tax exemption scheme, some states exempt the
payment of sales tax applicable on purchases of raw materia l,
consumables, p a c k i n g , a n d p r o c e s s i n g m a t e r i a l s f r o m
w i t h i n t h e s t a t e which are used for manufacturing
purposes. The period of exemption ranges from three to nine
years depending upon the state and the specific location of the
project within the state.
14.Unsecured Loans and Deposits: - Unsecured loans are typically
provided by the promoters to fill the gap between the promoter’s
contribution required by financial institutions and the equity capital
subscribed to by the promoters. These loans are subsi diary to
the institutional loans. The rate of interest chargeable on these loans is
less than the rate of interest on the institutional loans. Finally these loans
cannot be taken back without the prior approval of financial institutions.
Deposits from public, referred to as public deposits, represent
unsecured borrowing of 2 to 3 years duration. Many existing companies prefer
to raise public deposits instead of term loans from
financial institutions because restrictive covenants do not accompany public
deposits. However, it may not be possible for a new company to
raise public deposits. Further, it may be difficult for it to repay public deposits
within 3 years.

1 5 . Leasi n g and Hire Purchase Finance: – With the emergence

of scores of finance companies engaged in the business of leasing and hire
purchase finance, it may be possible to get a portion, albeit a small portion, of the
assets financed under a lease or a hire
purchase arrangement.
Typically, a project is financed partly by financial institutions
and partly through the resources raised from the capital. market. Hence, in
Page | 27
finalizing the financing schemes for a project, you should bear in mind the norms
and policies of financial institutions and the guidelines of Securities Exchange
Board of India and the requirements of the Securities Contracts Regulation
Act (SCRA).

It refers to the means of finance employed for meeting the

cost of the project. The long-term sources used for meeting
the cost of the project are known as means of finance.
1. Equity (Owned funds)
• Ordinary shares
• Preference shares
2. Debt (barrowed funds)
• Secured from financial institutes
• Debentures – convertible, non-convertible
• Public deposits
• Rupee term loans
• Foreign currency loans
• Euro issues – Global depository receipts , Euro
convertible bonds
• Deferred credit
3. Lease financing
• Maintenance lease
• Financial lease
• Operating lease
• Net lease
4.1 Classification of capital:
1. Fixed capital: Funds required for acquiring fixed assets.
2. Working capital: Funds required for operations and
includes raw materials; work in processes, finished goods,
wages and salaries etc.
3. Venture capital: Venture capital is thought of as a
creative capital, which is expected to perform economic
functions different from other investment vehicles, which
primarily serve as expansion capital.
It is the equity support to fund new concepts that involves
a high risk and at the same time has high growth and
profit potential.

Institutions providing venture capital:

• The technology Development and
Investment corporation of India (a subsidy
of ICICI)
• Technology Development fund set up by
IDBI

Page | 28
 • The Equity development Scheme - SBI
capital markets Ltd., CANFINA.
• India Investment Fund. – Grindley’s bank.
4. Seed capital
It is the capital to be subscribed by the promoters as
required by the financial institutions. Financial
institutions through seed capital assistance
supplement the resources of promoters of the small
and medium scale industries.
1. Special seed capital assistance scheme: Rs. 2.0
lakhs or 20% of the project cost which ever is less.
SFCs
2. Seed capital assistance for projects costing not
more than Rs. 200 lakhs – Rs. 15 lakhs max. – by
IDBI
3. Risk capital foundation scheme for projects of Rs.
150 to Rs. 200 lakhs – Rs 15 to 40 lakhs - by
IFCI.
4.2 Financial institutions:
1. Industrial finance Corporation of India (IFCI)
2. The Industrial Development Bank of India (IDBI)
3. The Industrial Credit and Investment corporation of
India (ICICI)
4. The National Bank for Agriculture and Rural
Development (NABARD)
5. The Small Industries Development Bank of India
(SIDBI)
6. Industrial Investment bank of India (IIBI)
7. Life Insurance Corporation of India (LIC)
8. General Insurance Corporation of India (GIC)
9. Export Import bank of India (Exim Bank)
10. Khadi & Village Industries commission (KVIC)
11. National Small Industries Corporation Ltd.
(NSIC)
12. State industrial Development Corporations
(SIDCs)
13. State Small industries Development
Corporations (SSIDCs)
14. State Financial Corporations (SFCs)
15. Commercial banks
4.3 Institutions engaged in entrepreneurial development:
1. Small Industries Extension Training Institute,
Hyderabad (SIET)
2. Small Industries Service Institute (SISI)
3. Small Industries Development Organization (SIDO)

Page | 29
 4. Entrepreneurial Development Institute of India
(EDII) set up by IFCI
5. National Institute for Entrepreneurship and Small
business Development (NIESBUD)
6. Gujarat Industrial and Investment Corporation
(GIIC)
7. Indian Investment Center (IIC)
8. Entrepreneurial Motivation Training Center EMTC)
9. Xavier Institute of Social Sciences Ranchi.
10. Center for Entrepreneurship Development ,
Ahmadabad (CED)
11. Rural entrepreneurship development (RED)
institute.
12. National science and technology
Entrepreneurship development Board (NSTEDB)
13. Rural Management and management centers at
Maharashtra and Training cum Development
centers RMEDC)
14. Management Development Institute (MDI)

IDBI (Industrial Development Bank of India): - It has completed Industrial

potential surveys of 19 states and union territories. The surveys have
yielded number of viable projects ideas. It has also set up Inter
Institutional Groups (IIGs), at the state levels.
IDBI has constituted a Technical Assistance Fund for financing wide
range of developmental activities. The funds could be utilised for financing a)
techno-economic surveys, b) Preparation of project profiles, feasibility studies
and project reports, c) Promotion of research, d) Providing technical assistance
and expertise by sponsoring services of experts and consulting firms, e) training
facilities for the personnel of financial institutions in India and abroad and f)
entrepreneurial development programmes and entrepreneurial development
institutions.
TCO: - Eight Technical Consultancy Organisations (TCO's) at Cochin,
Gauhati (North Eastern) Patna, Kanpur, Hyderabad, Bhubaneswar,
Jammu and Kashmir and Calcutta. The TCO's are primarily catering to the
needs of new and small entrepreneurs in the areas such as 1)
Identification of Projects, 2) Preparation of Project profiles 3) reports, 4)
market studies, 5) Technical and managerial assistance.
Apart from the above TCO's are active in identification
of new entrepreneurs and have been providing training facilities to them by
conducting Entrepreneur Development Programmes (EDP).
ICICI: - Industrial Credit and Investment Corporation of India as an
experienced development bank, the ICICI provides promotional assistance to

Page | 30
worthwhile projects. Established in 1973 promotional assistance like
identification of new projects on the one hand and location of suitable
entrepreneurs on the other. Special consideration is also given to new
products and processes.
IFCI (Industrial Finance Corporation of India):-
It is the first development bank established on the 1st July,1948 under a special
Stature, with the object of making medium and long term credits more readily
available to industrial concerns in India. Its objectives are a) to fill in gaps in the
institutional infrastructure for promotion and growth of industries, b) to provide
much needed guidance in project identification, formulation, implementation,
operation, monitoring etc., to the new, tiny, small scale or medium scale
entrepreneurs and to improve the productivity of human and material resources,
giving at the same time a better deal to the weaker and under-privileged sections
of the society in consonance with the socio-economic objectives laid down by the
Government of India.
Also its efforts are towards a) encouraging the adoption of indigenous
technology, reviving sick units in the tiny and small scale sectors, c) self-
development and self-employment of unemployed young persons, etc.
IFCI set up in 1973, The Management Development Institute (MDI) at Delhi is
an autonomous body, helps in-developing managerial skills in various areas of
functional management in their respective fields of industry. IFCI gives great
importance to professionalised management.

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