MODULE-5

MICRO and SMALL

ENTERPRISE

Introduction
At present the Small Scale Industry (SSI) constitutes a
Very Important Segment of the Indian Economy & has
emerged as a Dynamic & Vibrant Sector of the Economy.
Small Scale Industry Sector holds the Key to Economic
 Prosperity of the Indian Economy, Characterized by
abundant Labor Supply, Unemployment & Under
Employment , Scarcity of Finance, Growing Modern Large
Industries providing scope for development of Ancillary
Industries & so on. The Small Scale Industry has grown
phenomenally during the last Six Decades & has acquired
a very prominent place in the Socio – Economic
Development in the Country.

Introduction
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Definition
 An industrial undertaking in which investment in
fixed assets in plant and machinery, whether held
in ownership or on lease in fixed assets in plant and
machinery, whether held or ownership terms or on
lease or by hire purchase, does not exceed Rs.1crore
as on May 21,2010 is treated as a small-scale
industry.

Characteristics
 1. A small scale industry is generally a one man show even in
cases where the small units are run by a partnership firm or
a company.
2. In SSIS the owner himself is a manager also and these units
are managed in a personalized fashion.
3. The SSIs have smaller gestation period as compared to larger
SSIs that is the period after which the return of investment
starts.
4. Scope of SSI is generally localized catering the needs of local
and regional demands.
5. SSIs can be located anywhere use indigenous resources subject
to the availability of these resources like raw material labour
etc.
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Characteristics
 6. SSIs are fairly labour intensive with comparatively smaller
capital investment as small as 600-700 rupees for an
artisan and his family to begin with than the larger units.
7. The development of the small scale industries in rural areas
promotes balanced regional development due to the
decentralization and utilization local resources and also
prevents influx of job seekers from cities and
urbanization.
8. The small scale industries are more susceptible to change,
highly reactive and receptive to socio-economic
conditions.

Importance
  Provide increased employment through
labor intensive process.
 Require lower gestation period.
 Easy to set up in rural & backward areas.
 Need small/local market.
 Encourage growth of local entrepreneurs.
 Create decentralized pattern of ownership.
 Foster diversification of economic activities. 
Introduce new products particularly to cater local
needs.
 Influence the standard of living of local people. 
Provide equitable dispersal of industries throughout
rural & backward area.

Objectives:
1. To generate immediate and large scale employment
opportunities with relatively low investment.
2. To eradicate unemployment problem from the country. 3. To
encourage dispersal of industries to all over country covering
small towns, villages and economically lagging regions.
4. To bring backward areas too, in the main stream of national
development.
5. To promote balanced regional development in the whole
country.
6. To ensure more equitable distribution of national income. 7. To
encourage effective mobilization of country’s untapped
resources.
8. To improve the standard of living of people in the country. 8

Advantages of SSI
 Require lesser capital resources.
  Have lower gestation period.
 Provide local employment
opportunities.  Attract subsidies from
govt.
 Earn valuable foreign exchange.
 Enjoy privileges for exclusive
manufacturing.  Mobilize local resources.
 Help in shifting the concentration of
industrial activity.
 Enjoy preferential purchase of products. 
Demonstrate entrepreneurial acumen and ability.
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Steps in establishing micro and

small enterprise
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1)Project/product identification:process of identifying broad areas
where opportunities for new business exist. It is the selection of
actual product to be made.
i)new idea can be pulled from study of what people need or love.-
known as market pull.
ii)new product idea can be pushed into market by R&D-Technology
push.
iii)whatever may be the product, one has to know market
potential,existing competition,availability of raw
material,technology, man power, future demand etc. The
Project Selection & the Preliminary Activities involve the
following :

a) Product or Service Selection.

b) Location Selection.
c) Project Feasibility Study.
d) Preparation of Project Profile.
e) Business Plan Preparation.
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a) Product or Service Selection :

The main factors to be considered in deciding a suitable
project are as follows :
1) Nearness or Proximity to Market.
2) Availability of Raw Materials.
3) Availability of Transformation & Communication
Facilities.
4) Availability of Govt Incentives / Concessions. 5)
Govt Industrial Policy.
6) Availability of suitable Infrastructural facilities. 7)
Availability of Labour.
8) Convenience for the Entrepreneur’s.
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Business Plan Preparation :

This is a Document where the Entrepreneur plans his
Business to have an Organized & effective response to a
situation which may arise in future.
A Business Plan is used
to make Crucial Start Up Decisions to reassure Lenders,
Investors,
to measure Operational Progress ;
to Test Planning Assumptions ;
to Adjust Forecasts;
to set the standard for good Operational Management.
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2) Decide on the Constitution :

To start any Enterprise, the Promoter’s have to decide on
the Constitution of the Unit. There are 4 Major
Alternatives :
a) Sole Proprietorship b)family ownership
c) Partnership d) Private Company.
In fact, this has to be decided at the initial stages of the
Project & necessary formalities should be completed by the
time the application for Provisional Registration
Certificate (PRC) is made to DIC (District Industries
Centre).
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3) Location of Unit:
i)proximity to the source of raw materials.
ii)Nearness to the market.
iii)availability of manpower
iv) Infrastructure availability with respect to -factory
sheds, industrial estates,transportation
facility,availability of power,water, waste
disposal,essential services etc.
v) General business climate of region
vi) climate and environmental factors.
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4) Project Report :
• For any New Project or Enterprise to be set up, Proper
Planning is necessary.
• A detailed Project Report provides such a plan for the
Project.
• The Report is useful to the Entrepreneur for Planning &
Implementing the Project.
• This is essential for Obtaining Finance & other clearances
for the Project.
• In fact, the Project Report gives a detailed insight of the
 Techno – Economic Viability of the Project. This is
generally prepared to cover the following :general info
about project, preliminary analysis of alternatives, project
description, technical feasibility, economic vaibility,
financial analysis, marketing plan etc.

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5) Registration :
i)provisional registration: temporary registration, needed at
the planning stage. Issued by district unit of directorate of
industries. Initialy given for one year, extended six months
max of 4 times.
ii)permanent registration: ready to commence commercial
production.
6) Arrangement of finance – fixed and working: fixed
capital required for setting up infrastructure like land,
building,machinery etc . This can be generated by
partnership, bank loans, venture capitalist, personal savings.
7) Procuring licenses and clearances:
There are a number of Statutory Clearances reqd to start Micro
& Small Enterprises.

Some of them are given below :

i) Municipal authorities.
ii) Chief Inspector of factories
Iii) Ministry of agriculture.
iv) state drug controller.
v)collector , central excise
vi) Bureau of Indian standards.
vii)company law board.
Viii) Pollution Control Board Clearances.
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8) creating physical infrastructure.: Land or Shed Selection : For
any Industrial Project, suitable Industrial Site or a ready Industrial
shed is reqd. The Promoters of the Unit could consider taking an
Industrial Site & constructing a shed as per their requirement,
alternatively, could consider taking a ready Industrial Shed on
Ownership Basis also.

Plant & Machinery :

This requirement for a Particular Project could be purchased from

recognized manufacturer’s / dealers. This could also be taken on
Hire Basis operated by National Small Industries Corporation
Limited (NSIC).
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9) Recruitement of staff: right kind of staff for from
manager level to work level has to be recruited.
10) procuring raw materials:raw materials has to be procured in
the right quantity, quality.
11)power connection & water supply:
There is acute shortage of power in our country. Hence
application for connection of power has to be given in advance.
12) Staring production: after basic trails, commercial
production has to start with proper quality checks. 13)
Marketing the product: no business is complete without
selling the products and ensuring revenues flow into
organization.
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Govt policies towards SSI

● Reservation of items for exclusive manufacture in the
small scale sector:Initiated with 47 items in 1967,list of
reserved items been revised from time to time.
● Reservation of items for exclusive purchase from
SSI:purchases are made exclusively from SSI units for
specified items.for unreserved items 15% purchase price
preference against the large scale units.
● Excise(removing) duty exemption on third party branded
goods manufactured by SSI units in rural
areas:promotes entrepreneurship in rural area.
● SSI’s allowed to pay excise duty on a monthly basis as
against duty at removal of goods from the factory: pay for
all supplies made in a month taken together.
● All industrial units in North East region are exempted from
excise duty for 10 years from Aug 1999.
● A grant of Rs 75000 to each SSI unit which opts for ISO
9000 certification: to establish quality govt introduced.
● One time capital grant of 50% for small scale associations
which wish to develop and operate testing laboratories,
provided they are of international standard.
● No liability for SSI under state sales tax law for import of
goods into or export of goods out of the territory of
india:state govt provided relief to SSI’s which are into
export and import activities.
Export sales for SSI exempted from
levy of sales tax under central sales
tax act 1956: encourage export of
product to abroad and earn foreign
exchange for the country.

Scope: The scope for small scale industries is quite vast covering a wide range of activities
requiring less sophist acted technology the important ones among them being

1)Manufacturing activities 2)servicing/repairing activities3)retailing activities 4)

Infrastructural activities like transportation, communication and other public utilities.
Financial activities 5)whole-sale activities 6)construction activities
Government policy towards small scale industries to strengthen the scope for small
industrial development in the country
1)announced the reservation policy for small scale industry development in the country in
1947 which included 47 items for exclusive manufacture in SSI sector
2) By 1983 the reserve list included 836 items for exclusive production in SSIs. 3) The main
objectives being to insulate the small sector from unequal completion of large industrial
establishments.
Important industries reserved for exclusive development in the small sector are: Food and
allied industries, Textile products; leather and leather products including footwear; rubber
products: plastic products :chemical and chemical products: glass and ceramics: mechanical
engineering transport equipment: metal cabinets all types: pressure stove: electrical
appliances: electronic equipments and components: boats and truck body buildings: auto
parts components mathematical and survey instruments; sports goods; stationary items,
 clocks and watches etc.

Government policy for small scale enterprises:

Review of industrial policies for the development and promotion of small scale enterprises in India
IPR 1948

1) Accepted for the first time the importance of small scale industries in the overall economic
development of the country.

2)realized that small scale industries are particularly suited for utilization of local resources
and for creation of employment opportunities

3)passed a resolution that the central government in cooperation with state governments
should solve the problems of SSI like raw materials, capital, skilled labour, marketing etc to
protect SSIs

IPR 1956
I)Industries development and regulation act was passed in 1951to regulate and control the
industries in the country
2)parliament accepted to develop “the socialist pattern of society” as the basic aim of
economic policy which cam in form in 1956
3)measures were taken to provide sufficient vitality to decentralized sectors and to work with
the large scale industry
4)Small scale industries board constituted a working group in 1959 to formulate a
development plan for SSIs during the third five year plan in 1961-66
5)during this period projects like “Rural Industries Projects” and “Industries Estate Projects”
were started during this period to strengthen the small sectors
6)thus the IPR 1956 aimed at “Protection plus Development” which initiated a modern SSI in
India

IPR1977

1) Emphasized new renewal policy was based on effective promotion of cottage and small
industries widely dispersed in rural areas and small towns.
2)Thus IPR1977 accordingly classified small sector into three categories
(i)Cottage and household industries: to provide self-employment on large scale (ii)Tiny
sector: promoting investment in industrial units in plant and machinery upto 1 lakh (iii)Small
scale industries : comprising of industrial units with an investment of Rs.10 lakhs and upto 15
lakhs for ancillary industries.
Measures suggested for promotion of small scale and cottage
industries: (i)Reservation of 504 items for exclusive production in
small-scale sector
(ii)Proposal to set up ‘district industry centre’ agency in each district which was introduced
in78 Thus the as per this resolution the small sector was thus to be protected, developed and
promoted

IPR 1980
The Government of India adopted a new industrial policy resolution(IPR) on July
231980 The main objective of this polices were
i) Increase in investments of tiny plants from Rs1 lakh to 2 lakh and from 10 lakhs to 20 lakhs
for SSIs and from Rs.15 lakhs to 25 lakhs in case of ancillaries.
(ii)Introduction of the concept of nucleus plants in case of DICS in each industrially backward
district and to promote maximum small scale industries there.
(iii) Promotion of village and rural industries to generate economic viability in the villages well
compatible with the environment.
Thus IPR 1980 emphasized the spirit of IPR 1956

IPR 1990

Was announced during June 1990

Resolution continued to give the increasing importance to small-scale enterprises to serve the
objective of employment generation
Important elements in the resolution to boost the development of small scale industries of
IPR 1990 are
(i)Investment ceiling increased in plant and machinery for SSIs was raised from 35 lakhs to 60
lakhs and for ancillary industries from 45 lakhs to 75 lakhs
(iii)836 items reserved for exclusive manufacture in small scale industry
(iv)subsidy introduced for SSIs by the central government for SSIS in rural and backward areas
capable of generating employment
(v)to improve competiveness amongst SSIs pro-grams of technology upgradation was
implanted under the apex technology development centre in small Industries Development
Organization(SIDO)
(vi)to ensure adequate and timely flow of credit facilities for the small scale industries a new
apex bank known as ‘Small Industries Development Bank of India(SIDBI)’ was established in
1991
(vii)Greater emphasis on training of women and youth under Entrepreneurship Development
Program (EDP) was started.
(viii)implementation of delicensing of all new units with an investment of
Rs.25 crores in fixed assets in non-backward areas
Rs.75 crores in centrally notified backward areas and
Delicensing took place for 100%export oriented units set up in export processing zone took
place with a ceiling of Rs.75 lakhs.

New small enterprise policy 1991

The government of India for the first time tabled the new small enterprise policy in 1991
titled policy measures for promoting and strengthening and supplementing the small, tiny
and village enterprises

Salient features of the new small enterprise policy of 1991

 1)increase in investment limit in plant and machinery of tiny enterprises from 2 lakhs to 5
lakhs irrespective of the location of the enterprise
2)inclusion of the industry related services and business enterprises irrespective of the
location as small industries
3) Introduction of the limited partnership Act. Which would limit the financial liability of the
the new entrepreneurs to the capital invested.
4)Introduction of a scheme of Integrated Infrastructural Development for small-scale
industries 5)Introduction if factoring services to help solve the problems of delayed payment
to small sector
6)Market promotion of the small scale industries products through co-operative/public
sector institutions, other specialized professional/marketing agencies and the consortium
approach 7)to set up a technology development cell in the Small Industries Development
Organization(SIDO)
8) To accord priority to small and tiny sector in the allocation of indigenous raw
materials. 9)Setting up of export development centre in SIDO
10)To widen the scope of National Equity Fund(NEF), to enlarge the single window scheme
and also to associate commercial banks with provision of composite loans

Government support for SSI during the five year plans