ENTREPRENEURSHIP DEVELOPMENT

UNIT-I
Q. 1) Define concept of entrepreneurship and discuss various
characteristics, by successful entrepreneur?

An entrepreneur is someone who organizes, manages, and assumes the risks of a business or
enterprise. An entrepreneur is an agent of change. Entrepreneurship is the process of
discovering new ways of combining resources.

An entrepreneur is a person who starts a new business and usually risks his own money to
start the venture. Examples of well-known entrepreneurs include Jamsetji Tata, Dhirubhai
Ambani, Azim Premji, Narayana Murthy, Lakshmi Niwas Mittal, Kiran Mazumdar-Shaw,
Anand Mahindra, Sunil Mittal

The various functions of entrepreneurship are Innovation and creativity, Risk taking and
achievement and organization and management, Catalyst of Economic Development,
Overcoming Resistance to Change and Research.

It is useful to break the entrepreneurial process into five phases: idea generation, opportunity
evaluation, planning, company formation/launch and growth. These phases are summarized
in this table, and the Opportunity Evaluation and Planning steps are expanded in greater
detail below.

Entrepreneurship:
Entrepreneurship is when an individual who has an idea acts on that idea, usually to disrupt
the current market with a new product or service. Entrepreneurship usually starts as a small
business but the long-term vision is much greater, to seek high profits and capture market
share with an innovative new idea.

Joseph Schumpeter, an Austrian, a distinguished economist and father of entrepreneurship

and innovation research.

CHARACTERISTICS OF SUCCESSFUL ENTREPRENEURS

1. Curiosity
Successful entrepreneurs have a distinct personality trait that sets them apart from other
organizational leaders: a sense of curiosity. An entrepreneur's ability to remain curious allows
them to continuously seek new opportunities. Rather than settling for what they think they
know, entrepreneurs ask challenging questions and explore different avenues.

This is validated in the online course Entrepreneurship Essentials, where entrepreneurship is

described as a “process of discovery." Without curiosity, entrepreneurs can’t achieve their
main objective: discovering new opportunities.
2. Structured Experimentation
Along with curiosity, entrepreneurs require an understanding of structured experimentation.
With each new opportunity, an entrepreneur must run tests to determine if it’s worthwhile to
pursue.

For example, if you have an idea for a new product or service that fulfills an underserved
demand, you’ll have to ensure customers are willing to pay for it. To do so, you’ll need to
conduct thorough market research and run meaningful tests to validate your idea and
determine its potential.

3. Adaptability
The nature of business is ever-changing. Entrepreneurship is an iterative process, and new
challenges and opportunities present themselves at every turn. It’s nearly impossible to be
prepared for every scenario, but successful business leaders must be adaptable. This is
especially true for entrepreneurs who need to evaluate situations and remain flexible to
ensure their business keeps moving forward, no matter what unexpected changes occur.

4. Decisiveness
To be successful, an entrepreneur has to make difficult decisions and stand by them. As a
leader, they’re responsible for guiding the trajectory of their business, including every aspect
from funding and strategy to resource allocation.

5. Team Building
A great entrepreneur is aware of their strengths and weaknesses. Rather than letting
shortcomings hold them back, they build well-rounded teams that complement their abilities.
In many cases, it’s the entrepreneurial team, rather than an individual, that drives a venture
toward success. When starting your own business, it’s critical to surround yourself with
teammates who have complementary talents and contribute to a common goal.

6. Risk Tolerance
Entrepreneurship is often associated with risk. While it’s true that launching a venture
requires an entrepreneur to take risks, they also need to take steps to minimize it.
While many things can go wrong when launching a new venture, many things can go right.
According to Entrepreneurship Essentials, entrepreneurs who actively manage the
relationship between risk and reward position their companies to “benefit from the upside.”

7. Comfortable with Failure

In addition to managing risk and making calculated decisions, entrepreneurship requires a
certain level of comfort with failure.
It’s estimated that nearly 75 percent of new startups fail. The reasons for failure are vast and
encompass everything from a flawed business model to a lack of focus or motivation. While
many of these risks can be avoided, some are inevitable.

8. Persistence
While many successful entrepreneurs are comfortable with the possibility of failing, it
doesn’t mean they give up easily. Rather, they see failure as an opportunity to learn and
grow.
Throughout the entrepreneurial process, many hypotheses turn out to be wrong, and some
ventures fail altogether. Part of what makes an entrepreneur successful is their willingness to
learn from mistakes, continue to ask questions, and persist until they reach their goal.

9. Innovation
Many ascribe to the idea that innovation goes hand-in-hand with entrepreneurship. This
notion is often true. Some of the most successful startups have taken existing products or
services and drastically improved them to meet the changing needs of the market.

Innovation is a characteristic some, but not all, entrepreneurs possess. Fortunately, it’s a type
of strategic mindset that can be cultivated. By developing your strategic thinking skills, you
can be well-equipped to spot innovative opportunities and position your venture for success.

10. Long-Term Focus

Finally, most people think of entrepreneurship as the process of starting a business. While the
early stages of launching a venture are critical to its success, the process doesn’t end once the
business is operational.

Q.2) what are the essential qualities that are required by successful
entrepreneur?

The following are the Qualities required by an entrepreneur.

1. Passion
Passion refers to a strong feeling, emotion or desire about something. Entrepreneurs use their
passion in a variety of ways. For example, they may use their passion about one of their
products or services to sell it to an investor. Having this trait not only motivates them, but it
also helps them endure any challenges they may face. In other words, their passion for their
goal helps them make their way through hardships in order to find success in the long run.

2. Creativity
Having creativity means using your imagination to develop innovative ideas. Entrepreneurs
use their creativity to constantly think and search for new ways of doing things. They also use
their creativity to improve existing policies or products. For example, if a competitor releases
an updated product, an entrepreneur may use their creativity skills to think of ways to
improve their own products so they compete with their competitor's release. Having creativity
in this role not only lets you solve problems by envisioning ingenious solutions, but it also
helps you identify gaps in the market.
3. Flexibility
Being flexible means willingly adapting to changes. Entrepreneurs use this trait to create a
sustainable business with long-term success. When a entrepreneur remains flexible, they
embrace change and take advantage of new opportunities as they arise. For example, they
may use their flexibility to collaborate with new employees or to improve a business strategy
to remain competitive.
4. Discipline
Discipline refers to one's ability to follow a certain code or rules of behavior. Entrepreneurs
use discipline to hold themselves accountable when working independently. For example,
having discipline helps them remain focused and motivated toward achieving a goal without
external parties holding them accountable. When an entrepreneur remains disciplined, they're
less likely to procrastinate and more apt to take decisive action when needed. This provides
substantial benefits in terms of productivity.

5. Resourcefulness
Resourcefulness means having the ability to reach ambitious goals through quick and clever
methods. Entrepreneurs use their resourcefulness to solve a variety of business problems. For
example, they use their resourcefulness to ensure they allocate their money properly. In this
sense, an entrepreneur's resourcefulness allows them to make smarter financial decisions
which contributes to greater financial health overall.
6. Attention to processes
Being process-oriented means focusing on business processes to develop a resolution model
for a problem or situation. Entrepreneurs use this mindset to work more efficiently since
process orientation lowers the amount of waste and allows for business growth. For example,
they may implement a standardized training protocol for new team members so other
employees can train them without sacrificing time or quality.
7. Empathy
Having empathy means understanding someone else's feelings. Empathetic entrepreneurs
connect with others on a genuine level in order to consider the perspectives of employees and
customers when faced with business decisions. For example, they may use empathy to
anticipate customer needs, empower their team members or to give employees and customers
space to voice their concerns and opinions. By demonstrating empathy, entrepreneurs can
increase customer loyalty, customer referrals and employee productivity.
8. Communication skills
Communication is the ability to exchange information with another person or group of
people, whether verbally or through writing. This trait allows entrepreneurs to share their
ideas and listen to others. Being communicative essentially allows an entrepreneur to share
their message clearly and to provide feedback in a supportive manner. For example, if a
customer has a complaint, entrepreneurs use their communication skills to listen to them and
consider their opinion before implementing a change or rectifying the situation.
9. Willingness to take risks
Being a risk-taker means willingly doing things that involve danger in order to achieve a
certain goal. Entrepreneurs use this trait when starting a new business without a set plan or by
using their own financial resources. As an entrepreneur, you use this trait to move forward
without uncertainty or concern about failure. Keep in mind that even if a risk sets you back
from your goal, it provides a valuable lesson.
10. Resilience
Being resilient means withstanding or quickly recovering from a difficult situation.
Entrepreneurs use their resilience when receiving rejection. For example, if they're rejected
when seeking potential customers or funding, they internalize their drive and persevere with
their vision in mind. With their resilience, they're able to move on to the next set of potential
customers or investors until they find the ones willing to take a chance on them.

Q.3) Briefly explain the role of entrepreneur in economic development of a

country?

Economic development essentially means a process of upward change whereby the real
per capita income of a country increases over a period of time. Entrepreneur plays a vital
role in economic development. Entrepreneurs serve as the catalysts in the process of
industrialization and economic growth. Technical progress alone cannot lead to
economic development, unless technological breakthroughs are put to economic use by
entrepreneurs.

Some of the roles of entrepreneurs are:-

1. Capital Formation
2. Improvement in Per Capita Income
3. Generation of Employment
4. Balanced Regional Development
5. Improvement in Living Standards
6. Economic Independence
7. Backward and Forward Linkages
8. Inspire Others towards Entrepreneurship
9. Create Knowledge Spillovers
10. Augment the Number of Enterprises
11. Provide Diversity in Firms
12. Organizing of Society’s Productive Resources
13. Production of New Articles
14. Development of New Production Technique

Economic development essentially means a process of upward change whereby the real
per capita income of a country increases over a period of time. Entrepreneur plays a vital
role in economic development. Entrepreneurs serve as the catalysts in the process of
industrialization and economic growth. Technical progress alone cannot lead to
economic development, unless technological breakthroughs are put to economic use by
entrepreneurs.

It is the entrepreneur who organizes and puts to use capital, labour and technology.
Accordingly, “development does not occur spontaneously as a natural consequence when
economic conditions in some sense are right. A catalyst is needed and this requires
entrepreneurial activity to a considerable extent, the diversity of activities that
characterizes rich countries can be attributed to the supply of entrepreneurs.”

The entrepreneur is the key to the creation of new enterprises that energize the economy
and rejuvenate the established enterprises that make up the economic structure.

Role of Entrepreneurs in Economic Development of India

Economic development essentially means a process of upward change where by the per
capita income of a country increases over a long period of time.

The role of entrepreneurship in economic development varies from economy to economy

depending upon its material resources, industrial climate and the responsiveness of the
political system to the entrepreneurial function. The entrepreneurs contribute more in
favorable opportunity conditions.

Entrepreneurs initiate and sustain the process of economic development in the

following ways:

1. Capital Formation:
Entrepreneurs mobilize the idle savings of the public through the issues of industrial
securities. Investment of public savings in industry result s in productive utilization of
national resources. Rate of capital formation increases which is essential for rapid
economic growth. Thus, an entrepreneur is the creator of wealth.
2. Improvement in Per Capita Income:
Entrepreneurs locate and exploit opportunities. They convert the latent and idle resources
like land, labour and capital into national income and wealth in the form of goods and
services. They help to increase net national product and per capita income in the country,
which are important yardsticks for measuring economic growth.

3. Generation of Employment:
Entrepreneurs generate employment both directly and indirectly. Directly, self-
employment as an entrepreneur offers the best way for independent and honorable life.
Indirectly, by setting up large and small scale business units they offer jobs to millions.
Thus, entrepreneurship helps to reduce the unemployment problem in the country.

4. Balanced Regional Development:

Entrepreneurs in the public and private sectors help to remove regional disparities in
economic development. They set up industries in backward areas to avail various
concessions and subsidies offered by the central and state governments.
Public sector steel plants and private sector industries by Modis, Tatas, Birlas and othe rs
have put the hitherto unknown places on the international map.

5. Improvement in Living Standards:

Entrepreneurs set up industries which remove scarcity of essential commodities and
introduce new products. Production of goods on mass scale and manufacture of
handicrafts, etc., in the small scale sector help to improve the standards of life of a
common man. These offer goods at lower costs and increase variety in consumption.

6. Economic Independence:
Entrepreneurship is essential for national self-reliance. Industrialists help to manufacture
indigenous substitutes of hitherto imported products thereby reducing dependence on
foreign countries. Businessmen also export goods and services on a large scale and
thereby earn the scarce foreign exchange for the country.
Such import substitution and export promotion help to ensure the economic
independence of the country without which political independence has little meaning.

7. Backward and Forward Linkages:

An entrepreneur initiates change which has a chain reaction. Setting up of an enterprise
has several backward and forward linkages. For example- the establishment of a steel
plant generates several ancillary units and expands the demand for iron ore, coal, etc.

These are backward linkages. By increasing the supply of steel, the plant facilitates the
growth of machine building, tube making, utensil manufacturing and such other units.
Q.4) Explain Role of start-ups in the growth of the Economy in India?

A start-up technically is any enterprise that is working on the growth, commercialization, and
the creation of brand-new products, services, or mechanisms that are driven by intellectual
property or new tech. Over the last two decades, the Indian startup ecosystem has grown rapidly,
and more support has become available in all dimensions. Startups do not exist in a vacuum but
are part of a broader business environment that is focused on generating impactful solutions,
thereby acting as vehicles for socioeconomic development and transformation. Since start-ups
are centres of novel innovations, they generate jobs, which implies more career opportunities;
more employment leads to a stronger economy, and a healthier economy has a direct bearing on
the growth of cities where startups locate. For instance, consider how Infosys metamorphosed
the city of Bangalore.

Therefore to promote the start-up culture in India and strengthen the Indian economy, the
Government of India has undertaken various measures. For example, Prime Minister Narendra
Modi launched the “Standup India” initiative in August 2015. The larger goal is to help new
businesses with bank financing, energise business spirit among young Indians, build frameworks
for uplifting startups, and make the country the best destination for tech businesses. Let us
examine the role of startups in the growth of the Indian economy:

Employment Creation
India has 112 million working-age people between the ages of 20 and 24, compared to China’s
94 million. In the absence of government jobs, this demographic dividend is accelerating the
country’s startup culture. As of August 29, 2022, India had emerged as the world’s third-largest
startup ecosystem, with over 77,000 DPIIT-recognized startups spread throughout 656 districts.
These startups are simultaneously enabling more jobs than large companies or enterprises in the
same industry. Therefore curbing the unemployment problems in developing nations like India.
New Investments
Many multinational corporations are now outsourcing their tasks to small businesses in order to
focus on their core competencies. As a result of this trend, not only Indian venture capitalists but
also many multinational corporations are closely monitoring the progress of Indian start-ups to
invest their money. For example, Accenture gave 1.35 million dollars worth of business to
startups within the last year, giving startups an opportunity to make a significant impact on both
the Indian and global markets.
Research and Development
Start-ups heavily subsidise Research and Development (R&D) in countries like India as they
frequently have to deal with high-tech and knowledge-based services. The startup’s R&D team
acts as an innovation seeker and keeps the company updated. Start-ups, therefore, encourage a
pragmatic approach or independent research at the academic establishment. This motivates
students or researchers to put their ideas into practice by collaborating with the start-up, which
more importantly helps develop means of economic expansion.

Better GDP
Despite elevated inflation pressures owing to rising global food and fuel prices, Indian Gross
domestic product (GDP) is expected to grow by 6.9% in the fiscal year (FY) 2022-23 and 6.2%
in FY 2023-24. As GDP plays an important role in a country’s economic development, it will
become feasible to increase revenue domestically and consumer capital can also circulate
throughout the nation if we keep promoting and supporting more start-up initiatives.
Democratizing the Technology Benefits
Many startups not only drive innovation and technology, but also demonstrate how their benefits
reach the most remote customers. Fintech startups are now reaching out to remote areas with
their solutions and making financial solutions easily accessible in tier 2 and tier 3 cities. Hesa, a
Fintech and Agritech startup is one solution for all rural problems by bridging the rural-urban
divide with technology and labour. It is successfully facilitating banking transactions, managing
supply chains, and increasing the visibility of farmers’ rural products. Similarly, e-commerce
startups such as Zypp uses EV technology to make last-mile delivery sustainable and emission-
free. Due to these innovative startups, it has become easier for local entrepreneurs operating in
rural areas to market and sell their products. Local entrepreneurship is no longer limited to a
particular region but is capable of competing on a global scale, assisting India in becoming a
stronger economy.
The subtle influence of start-ups on the Indian Economy

 When a startup creates employment for locals, they also begin to purchase goods and
services, increasing the influx of cash and revenue to the government and thus boosting the
economy.

 When several startups are blooming in one location, the market of that geography rises as
well. Since many individuals desire to reside there to work, this dramatically changes the
infrastructural facilities of that city.

 When infrastructure upgrades, numerous guesthouses, homestays, food outlets, and transport
service unlocks, creating countless job opportunities and increasing the city’s revenue.

 Startups also create innovative solutions and technologies that enhance people’s quality of
life. Many startups in India are operating in remote areas with the aim to support the overall
local community including the economy.

 When Indian start-ups maintain the requirement for a requisite product or service, it reduces
the import of that foreign product or service. This not only minimises the cash flow to
another nation but increases the flow of capital within the Indian market, which is pivotal to
the growth of the Indian economy.
Q.5) what is a Start-up, explain various types of start ups in India?

A startup is a newly formed entity that offers specific products or services to the market. In
other words, it is a company in its initial operational stages. Therefore, innovation is essential
for every startup because it allows them to compete with other industries for market
leadership. They generally start with a concept with high expenses and limited income but
would eventually be focused on growing and scaling their business. Founders initially fund
startups through family and friends, crowd funding, angel investors, venture capitalists, IPOs,
and loans.
All startup founders are looking for a real problem and solving those problems based on the
potential customer or risk that can create business opportunities and impacts. They implement
business plans to predict whether they are viable from the customer’s perspective. They also
need good execution and tailored business applications to stay on top of things and
successfully implement their business vision. Hence, the seven different types of startups are
listed below.
Types of Startups
The following are the 6 main types of startups:
1. Lifestyle Startup
2. Small Business Startup
3. Scalable Startup
4. Buyable Startup
5. Large company startup
6. Social Startup

Lifestyle Startup
Lifestyle startups are the first type of startup. These Lifestyle startups are where
entrepreneurs generate income by living the life they love. They are their bosses. That means
they work for themselves by being passionate about their job. Some examples of Lifestyle
startups are freelancing graphic designers, web designers, travel bloggers, coders, etc.

Small Business Startup

Small Business startups are the second type of startup. Entrepreneurs who start small
businesses want to build a long-lasting and sustainable business rather than earn huge profits
or scale up. They run their business to feed their families and live comfortably with family
and friends. Travel agents, bakers, plumbers, grocery store owners, and carpenters usually
commence this startup. Since it is a small business startup, they don’t need a business-facing
app but a responsive specialized app that can navigate order and track the products/services a
customer may want.
Scalable Startup
Scalable startups are the third type of startup. These startups are just born to be significant.
Generally, these startups continuously scale themselves without a traditional exit strategy.
Scalable startups are suitable for those with thorough market knowledge and the capability to
efficiently and effectively explore more market opportunities. They have the potential to keep
increasing their revenue while keeping their incremental costs at a minimum. Most founders
believe that their ideas and mission will change the world. These startups hire the best of the
best and bright among the brightest. They used to look for more venture capitalist to magnify
their businesses. Examples of scalable startups include Google, Facebook, Uber, and Twitter.

Buyable Startup
Buyable startups are the fourth type of startup. Technology and software-based startups make
up the majority of buyable startups. They are typically web and app-based startups. The main
aim of such startups is not to grow or build a billion-dollar business but to sell to larger
companies in exchange for a hefty profit. Entrepreneurs of buyable startups should have
startup ideas with enormous growth potential. They are always trying to raise money for their
start-ups by opting for crowd funding and angel funding.

Large Company Startup

Large businesses must continuously innovate due to the shifting environment. They are
supposedly large-scale startups. These companies will have an infinite lifespan if they
continue to innovate in response to new competition, changes in customer tastes and
preferences, and technological advancement. They have the potential to become a driving
force for more disruptive innovation. Google and Android are two such startups. New
markets are responsible for engaging customers with the sales of new goods and services.
Social Startup

Social startups are the sixth type of startup. The purpose of social startups is not to create a
sustainable business but to positively impact society and the economy. These startups aim to
make the world a better place to live in. They are less passionate and ambitious about earning
profits when compared to other founders. In short, they provide donations, grants, and
charities to build positive social and environmental change worldwide.

Offshoot startup
Startups aren’t always possible from scratch. Offshoot startups are separated from more
prominent or parent companies to establish their entities. The separated business unit then
becomes an independent startup with its own products, services, and market presence. It may
receive initial support or resources from the parent company, such as technology, funding, or
access to customers, but eventually, it operates as a standalone entity.

Startup India for All Types of Startups

Startup India is a scheme undertaken by the Government of India. Indian Prime Minister
Narendra Modi launched the project on 16th January 2016. The project planned to generate a
robust ecosystem for innovation and entrepreneurship in India, thereby facilitating economic
growth and nationwide employment vacancies. The main goal of this initiative is to enable
startups to grow through innovation and development and stimulate the spreading of the
startup movement. The benefits of Startup India include easier compliance, easier IPR
facilitation, speedy exit mechanism, and simplification of work, financial support, tax
exemptions, networking opportunities, and many more. Startup India has initiated several
programs, and Department duly manages them for Industrial Policy and Promotion (DPIIT).
 UNIT-II

Q.1) Explain Concept of Project Identification: How to identify successful projects and
discuss various Stages/Steps of project identification?

Introduction and Concept of Project Identification:

 Project identification is the first step in setting up an enterprise.
 Identification of a suitable project is very crucial decision as the ultimate success of
an entrepreneur depends upon the right selection of the right project.
 Project identification is concerned with the collection of data, compilation and
analysis of economic data for the eventual purpose of locating possible opportunities
for investment and development.
 Project identification is finding out business opportunities which are feasible and
promising.

According to Thomas J.Watson: “Opportunity never knocks on the door. You have to
knock on opportunity’s door and they are all around.

A lot of opportunities exist in the environment; the only thing we have to do is to grab them.
First of all, environment is to be analyzed for perceiving the opportunities available and after
that proper identification of opportunities, it has to be done in the given environment. The
next step is to select the best from the available. Now the question arises „Why it is necessary
to identify and select an opportunity‟? The simplest way to answer this question is to
appreciate the need for project identification.

According to Peter F. Drucker “opportunities are of three types: additive, complementary

and break-through”. These are explained below:
(A) Additive opportunities are those opportunities which make it able to the decision maker
to better utilize the existing resources without involving a change in any character of
business.
(B) Complementary opportunities involve the introduction of new ideas and as such lead to
changes in the existing structure up to some extent.
(C) Break through opportunities involve a fundamental change both in the nature and
character of business. So in the case of additive opportunities least amount of risk is involved
as it involves least amount of changes in the existing state of affairs. But the element of risk
is more in the other two types

i.e. complementary and breaks through opportunities, as they involve changes in existing
structure as well as nature and character of business.
 Stages/Steps of project identification:
Project identification involve following stages/steps, such as:
1) Environmental scanning
2) Generation of ideas
3) SWOT Analysis
4) Preliminary evaluation
5) Corporate appraisal
6) Profit potential of different projects
7) Project selection
8) Project objectives

1. Environmental scanning:
 The environmental scanning covers both scanning of external environment as well as
internal environment.
 The scanning of external environment includes identification of the opportunities and
threats to the organizations whereas internal environment include the study of
strengths and weaknesses of the organizations.
 So environment is an aggregate of all conditions whether external or internal that
surrounds and affects business.
 While scanning of business environment, an entrepreneur should take into
consideration the different types of environment such as Economic environment,
Technological environment, Competitive environment, Socio-demographic
environment and Governmental environment.

2. Generation of ideas: It is primarily concerned with the germination of project idea.

Entrepreneur may develop few ideas which he/she may think, suit to the existing
environment. The project idea may be discovered from both internal and external resources.

3. SWOT Analysis: SWOT Analysis means Strengths, Weaknesses, Opportunities, and

Threats. It is a method which enables the organization to identify opportunities that can be
profitably exploited by it. SWOT analysis helps the entrepreneur in stimulating the flow of
ideas.

4. Preliminary evaluation: An entrepreneur may have many project ideas. So some sort of
preliminary evaluation is required to eliminate those project ideas which are not feasible:
 The project idea should confirm to the government regulatory framework. It should be
compatible with the national goals, priorities and policies of the government.
 There must be a sizeable market available to consume the product made from the new
project.
  The idea must be compatible with the interest, personality and resources of the
entrepreneur.
 In simple words it should be compatible with men, money, material and market at the
disposal of entrepreneur. In the words of Murphy “A real opportunity has three
characteristics:

(a) It fits the personality of the entrepreneur-it squares with his abilities, training, and
Proclivities,
(b) It is accessible to him
(c) It offers him the prospect of rapid growth and high return on invested capital”.
The material needed for the project must be easily and economically available. Because
success of the project depends upon availability of resources.

5. Corporate appraisal: After preliminary evaluation, corporate appraisal of project should

be conducted in order to make sure the availability of raw material, equipment, selling and
distribution costs and customer behavior in relation to that project.

6. Profit potential and prioritize project list: Before entering a new venture a person must
look into the profit potential of that project and compare it with the other identified projects.
So in this step he needs to prioritize the list of projects, taking some things kept into mind
such as:
 Competition among existing firms
 Bargaining power of buyers and suppliers
 Existence of substitute products
 Threat of new entrants

7. Project selection: After studying profit potential of each project and preparing
prioritization list, entrepreneur will come to know the overall rating of the different project
ideas. The project with maximum rating will be the most feasible in comparison to other
projects. The process involved in selecting a project out of some prospects is also described
as “Zeroing in process”. While selecting a project, the entrepreneur should keep in mind
about the Location, Technology, Size of investment, Equipment, and Marketing of project.

8. Project objectives: project objective starts where project identification ends. Objectives
are the foundations on which the project design is built. Project objectives are concerned with
defining in a precise manner what the project is expected to achieve and to provide a measure
of performance for the project. The essential requirements of project objectives are:
 It should be simple.
 It should be realistic and attainable.
 It should be specific.
 I t should be consistent with available resources.
 It should be consistent with organizational plan, policies and procedures.
 It should be measurable, tangible and verifiable.
Q.2) what is a project report? What are the essential elements that are required to
prepare successful project report?

A project report is a document that consists of crucial information about a project. It includes
information that can be used to evaluate the progress of a project, understand its objective,
trace its journey, provide direction to team members, mitigate risks, and communicate a
project’s success or failure to stakeholders and other business entities.

Here are some of the main components of a project report:

 General information

 Executive summary

 Organizational summary

 Project description

 Marketing plan

 Capital structure and operating cost

 Management plan

 Financial aspects

 Technical aspects
Project Formulation
Project formulation can be defined as the systematic. step-by-step development of a project
idea for the eventual objective of arriving at an investment decision. In fact it is a careful and
scientific mechanism which enables the entrepreneur to achieve the project objective with the
minimum expenditure and adequate resources. This makes it an analytical management aid.
Project formulation helps not only in fighting with the internal problems of project idea but a
well- formulated project is the best way of getting financial assistance from various financial
aspects.
Project formulation will also be of great assistance for obtaining necessary government
clearances and in meeting the hurdles of procedural formalities

ELEMENTS OF PROJECT FORMULATION:

Project formulation or the development of project has different stages. These are defined the
elements of the project formulation. Normally an entrepreneur goes through these sequential
stages:
1. Feasibility Analysis

2. Techno-Economic Analysis

3. Project Design and Network Analysis.

4. Input Analysis

5. Financial Analysis

6. Social Cost-Benefit Analysis

7. Pre-investment Appraisal.
Thus, project formulation is the step-by-step analysis of above defined aspects of the project, as
shown in fig. below
SEQUENTIAL STAGES OF PROJECT FORMULATION
1. Feasibility Analysis:
This is very first stage in project formulation.
It is done by the entrepreneur in order to evaluate the feasibility of the project.
As it is examined in the context of internal and external constraints, the entrepreneur may
face three alternatives.
First the project idea seems to be feasible; second it is not feasible and third is a state of
confusion with inadequate data.
Depending upon these alternatives, the entrepreneur moves ahead, as if it is feasible-proceed
to the second step.
If not feasible- abandon the idea. And If sufficient data is not available-make more efforts to
collect the required data to come to a conclusion.

2. Techno-Economic Analysis:
As the name indicates this analysis is concerned with the technology selected and the
economy of the project idea. In this step, estimation of project demand potential and the choice of
optimal technology is made.
This analysis produces necessary information on which the project design can be done
appropriately. It also indicates whether the economy is in a position to absorb the output of the
project.

3. Project Design and Network-Analysis:

Project design is one of the most important and essential part of the project formulation.
This defines individual activities and their inter- relationship with each other which are being
performed to constitute the whole project.
This identifies a detailed work plan including all events with time allocation and presented in
a network drawing
. Network analysis is carried out to identify the optimal course of action, so as to execute the
project within the minimum time keeping in view the available resources.
This paves the way for detailed identification and quantification of the project inputs, an
essential step in the development of the financial and cost-benefit profile of the project.
We shall discuss it in detail further.

4. Input Analysis:
Project is the combination of several activities required to convert an idea into a
reality. Each activity requires certain input to be complete successfully.
Input analysis is primarily concerned with the identification, quantification and
evaluation of the inputs required during the construction and also during the operation
of the project.

5. Financial Analysis: Finance may be considered as the life-blood of a project.

Financial aspects of an investment proposition have a significant impact on the
acceptability or rejection of a project.
Q.3) Briefly discuss sources of idea generation/ Techniques of idea generation?

In business, opportunity can be defined as an economic idea that a business person can
convert into a business enterprise to earn profit. If an entrepreneur converts ideas into
enterprise without analyzing, it may result in the failure of the business. Here, we
investigated how business opportunity identification and selection are made. Now, you will
know the methods of generating business ideas in entrepreneurship.

Methods of Generating New Ideas for Entrepreneurs

1. Brainstorming
It is the best-known and most widely used tool of creative thinking. In a short period, it
generates many ideas. There is no place for criticisms and prior judgment of any idea. It is
one of the idea generation techniques. It can be done both individually and in groups. This
tool uses one idea to stimulate other ideas. In the end, mix all ideas & generate one best idea.
It is one of the methods of generating new ideas for entrepreneurs.

2. Keeping a Journal
Keeping a journal is also used as methods of generating new ideas for entrepreneurs. Journals
are an effective way to record ideas when people are suddenly thinking about ideas. By
carrying a journal, one can note it down and help record ideas. However, one can create a
collection of thoughts on various subjects. Later on, it becomes a source of ideas.

3. Free writing
A business person can also use it as asking someone to write anything that comes to mind
about the subject. In this, a person will focus on a particular topic and write non-stop about it
for a short period. The idea is written down without stopping to proofread or revise the
writing. It can be said as methods of idea generation.

4. Brain Writing
It is like brainstorming, but it is done quietly. It is very effective in situations where
participants are reluctant to express their ideas. It is one of the methods of generating new
ideas for entrepreneurs.
The steps include are:

First step: One person directs to write the first idea in 5 minutes, then so on.

Second step: Each person writes an idea in each box of the first row.

Third step: After retaking another sheet, come to the first person and write ideas on the
second row after reading another person’s idea. It is the methods of generating ideas.

Fourth step: Above process continues until all the boxes are filled with ideas.

5. Mind Mapping
It is another highly effective tool which is quite similar to brainstorming. It is the best
methods to generate new ideas for business. It involves putting brainstormed ideas in a visual
map or picture or a graphical presentation showing the relationship among these ideas. It is
one of the techniques for generating ideas.

6. SCAMPER
Alex Osborn, a pioneer creativity teacher, first identified the nine principal ways of
improving divergent thinking. Bob Eberle later arranged them into an easy-to-remember
acronym, SCAMPER. It is a tool for generating ideas that work well with other diverging
tools, mainly when a group has trouble generating new ideas or when all the ideas seem very
similar. It is one of the best methods of generating new ideas for entrepreneurs.
S-Substitute- What can you substitute for it?
C-Combine- What can be combined with it?
A-Adapt- What else is like this?
M-Modify- Could we change an existing idea or product?
P-Put to other uses- How can I use this new way?
E-Eliminate- What can be omitted or eliminated?
R- Reverse- Could I do the opposite?

Examples:
Substitute: Keyboard Cellphone- Substitute them with- Touch Screen Phone

Combine: The first computer did not have a mouse- After the invention mouse combined-
Your computer combined with a mouse.

Adapt: SUV cars were not popular in the 90s- Adapt new model of SUV- SUVs’ sports car
is highly populated.

Modify: Companies introduce their product in bigger sizes & high prices like: Touch Screen
Phone- Modify product size and price- Tablet(tab).

Put to other use: Earlier computers were made only for an elder in the office, but now it is
also used by school children. It is the methods of generating new ideas for entrepreneurs.

Eliminate: In 1999 NOKIA only used cell phones, but now it is eliminated, and new branded
phones are invented in the modern era.

Reverse: By reversing the concept of furniture. Firstly, affordable furniture- They thought
what was unthinkable.- Customers will save money by assembling the furniture themselves.
Forced Connection
It takes some information by forcing novel thinking. A businessman can use it on their own
or as a part of a brainstorming or brain-writing session. This tool facilitates holding up or
pointing to an object unrelated to the problem. It is a practice of combining new ideas that
don’t appear in relation in any way. However, it is the methods of generating new ideas for
entrepreneurs.

8. Attribute Listing
Attribute listing in entrepreneurship, morphological analysis and matrix analysis are good
techniques for generating new, imaginative and unexpected ideas. It is the methods of
generating new ideas for entrepreneurs. It can be methods of generating ideas in
entrepreneurship.

The steps include are:

Step1: List the attributes (product, design, quality).

Step2: Draw a table using the attribute as the column heading.
Step3: Write down variations of attributes as possible in value.
Step4: Select one entry from each column.
Step5: Improve the mixture of elements and may be merely a starting point for a new way of
thinking about a task.

9. Accidental Genius
It is a relatively new technique that utilises writing to trigger the best ideas, content and
insight.

10. Wishing
An entrepreneur can begin these methods of generating new ideas for entrepreneurs by asking
for the unattainable & then brainstorming ideas to make it or at least an approximation of it. It
makes your wishes tangible & works with your team to generate 20 to 30 wishes about your
business. Focus on these impossible wishes & use them to create new ideas.

11. Socialising
If employers only hang around with colleagues and friends, they could find themselves in a
thinking rut. Socialising methods of generating new ideas for entrepreneurs in the context of
Ideation can also be about talking to others on topics that have nothing to do with the present
problem.

12. Collaboration
As the term indicates, collaboration involves two or more people joining hands to work for a
common goal. Designers frequently work in groups and engage in collaborative creativity
during the whole creative process. It is one of the methods of generating new ideas for
entrepreneurs.

13. Synectics
These are the creative idea generation & problem-solving methods of generating new ideas
for entrepreneurs that arouses thought processes that the subject may not know. According to
J.J. Gooden, three key assumptions are associated with synectics research.
 It is possible to describe & teach the creative process.
 Invention processes in sciences and the arts are analogous & triggered by the very same
“psychic” processes.
 Group and individual creativity and analogous.

14. Role Playing
In the role-playing methods of generating new ideas for entrepreneurs, each participant can
take on a personality or role different from their own. As the technique is fun, it can help
people reduce their inhibitions and come out with unexpected ideas.

15. Storyboarding
People develop a visual story to explore through these methods of generating new ideas for
entrepreneurs. It helps in exploring the information they gained from creative people during
research. All ideas are noted on a comparable surface, and the relation between ideas is
considered.

16. Daydreaming
Daydreaming is one of the most fundamental methods of generating new ideas for
entrepreneurs to trigger great ideas. The word “daydream” itself involuntarily triggers an
expressive and playful thought process. The focus of production daydreaming is a particular
goal irrespective of whether it seems to be a practice task.

Q.4) discuss guidelines for preparation project report?

Guideline for Preparation of Project Report

Step 1: Understand the Requirements

The first step in preparing a winning project report is to understand the requirements of the
funding organization. Research the organization to understand their priorities, goals, and
areas of focus. This will help you tailor your project report to meet their specific needs.

Step 2: Define Your Project

Next, define your project clearly. Explain what your project is, what it aims to achieve, and
how it will benefit the community. This should be a concise and compelling summary that
captures the reader's attention.

Step 3: Outline the Project Plan

Provide a detailed outline of the project plan, including the timeline, milestones, and tasks.
This should demonstrate that you have a clear understanding of how the project will be
executed and the resources required.
Step 4: Discuss the Budget
Discuss the budget for the project, including the total cost, funding sources, and how the
money will be allocated. This should include a breakdown of expenses, such as salaries,
materials, and overhead costs. Be sure to provide a justification for each item in the budget.

Step 5: Highlight the Impact

One of the most critical aspects of a project report is demonstrating the impact that the project
will have on the community. This should include both quantitative and qualitative data, such
as the number of people who will benefit, the positive change that the project will bring, and
any relevant statistics.

Step 6: Address Risks and Challenges

No project is without risks and challenges, and it is essential to address them in your project
report. This demonstrates that you have considered potential obstacles and have a plan in
place to overcome them.

Step 7: Provide Supporting Documentation

Finally, provide any supporting documentation that may be relevant to the project. This could
include letters of support from community leaders, project proposals, or research papers.
In summary, preparing a winning project report for securing CSR funds requires careful
planning, research, and attention to detail. By following the steps outlined above, you can
create a compelling and comprehensive project report that will help you secure the funding
you need to make a positive impact on society.

Q.5) Explain different project appraisal techniques in detail?

Some of the methods of project appraisal are as follows:

1. Economic Analysis:
Under economic analysis, the project aspects highlighted include requirements for raw
material, 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 concessions 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 Government has
already decided any specific location for this kind of enterprise.
2. 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 analyzed:
1. 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, and equipment’s are the familiar examples of fixed
assets/fixed 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.

2. In accounting, working capital means excess of current assets over current liabilities.
Generally, 2: 1 is considered as the optimum current ratio. Current assets refer to those assets
which can be converted into cash within a period of one week. Current liabilities refer to
those obligations which can be payable within a period of one week. In short, working capital
is that amount of funds which is needed in day today’s business operations. In other words, it
is like circulating money changing from cash to inventories and from inventories to
receivables and again converted into cash.

3. Market Analysis:
Before the production actually starts, the entrepreneur needs to anticipate the possible 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. There is a trite saying in this regard: “The
manufacturer of an iron nails must know who will buy his iron nails.”

This is because production has no value for the producer unless it is sold. It is said that if the
proof of pudding lies in eating, the proof of all production lies in marketing/ consumptio. 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 market,
what is named in ‘Managerial Economics’ as ‘demand forecasting’, range from the naive to
sophisticated ones.

Q.6) what are the methods used to estimate demand for a product under market
analysis?

The commonly used methods to estimate the demand for a product are as
follows:
1. Opinion Polling Method:
n this method, the opinions of the ultimate users, i.e. customers of the product
are estimated. This may be attempted with the help of either a complete survey
of all customers (called, complete enumeration) or by selecting a few
consuming units out of the relevant population (called, sample survey).

Let us discuss these in some details:

(a) Complete Enumeration Survey:
In this survey, all the probable customers of the product are approached and
their probable demands for the product 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 demand
for D numbers of it. Then, the total anticipated demand will be:

N ∑ i=1 DiN
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 example,
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 collected and summed. The total demand of
sample customers is finally blown up to generate the total demand for the
product. Let this also be explained with an example.

Imagine, there are 1000 customers of a product spread over the Faridabad
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….50, the total demand for the entire group of customers will be
50 ∑ ni Di = n1 D1 +n2D2 + n3 D3…….. n50 D50
Where n, is the number of customers in group i, and n1 +n2 + n3….n50 = 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:

(D1 D2 + D3 +D4…D5) 1000 /50

No doubt, survey method is less costly and tedious than the complete
enumeration method.

(c) Sales Experience Method:

Under this method, a sample market is surveyed 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 demand for the product.

In principle, the survey market should be the true representative of the national
market which is not always true. Suppose, if Delhi is selected as a sample
market, it may not be a true representative of a small place, say Silchar in
Assam simply because the characteristic features of Delhi are altogether
different from those of a small town like Silchar.

Again, if we select Agra as a sample market, sales in Agra would be influenced

by the size of the floating tourist’s population throughout the year. But this
feature is not experienced by many other places again like Silchar in Assam.

(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 customers’ 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 avoidable also.

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 begin 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 themselves 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 vary from stage to stage and follows S-shaped
curve as shown in Figure:

Considering the above five stages of a product life cycle, the sales at different
stages can be anticipated.

Q.7) what are the various financial tools used to appraise the project explain?

COST ANALYSIS OR COST-BENEFIT ANALYSIS:

Cost analysis, also known as cost-benefit analysis, is the process of calculating the potential
earnings from a situation or project and subtracting the total cost associated with completing it.

Capital Budgeting Methods

Traditional Methods Modern Methods

(Non Discounting Methods) (Discounting Methods)

1. Pay Back Period Method (PBP) 1. Net Present Value Method(NPV)

2. Average Rate of Return or 2. Internal Rate of Return(IRR)
Accounting Rate of Return (ARR) 3. Profitability Index(PI
MODERN (OR) DISCOUNTED CASH FLOW METHODS
The discounted cash flow methods provide a more objective basis for evaluating and
selecting an investment project. These methods consider the magnitude and timing of cash
flows in each period of a project’s life. Discounted cash flow methods enable us to isolate the
differences in the timing of cash flows of the project by discounting them to know the present
value. The present value can be analyzed to determine the desirability of the project. These
techniques adjust the cash flows over the life of a project for the time value of money.
a) Net Present Value methods (NPV)
b) Internal Rate of Return (IRR)
c) Profitability Index(PI)

Net Present Value Method:

The net present value method is a classic method of evaluating the investment proposals. It is
one of the methods of discounted cash flow techniques. It recognizes the importance of time
value of money. It correctly postulates that cash flows arising at different time periods differs
in value and are comparable only with their equivalents i.e., present values are found out.
“It is a present value of future returns, discounted at the required rate of return minus the
present value of the cost of the investment.” --------------------------------------- Ezra Solomon.
NPV is the difference between the present value of cash inflows of a project and the initial
cost of the project.
Steps of compute net present value:
1. An appropriate rate of interest should be selected to discount the cash flows. Generally,
this will be the “Cost of Capital” of the company, or required rate of return
2. The present value of inflows and outflows of an investment proposal has to be computed
by discounting them with an appropriate cost of capital
3. The net present value is the difference between the present value of cash inflows and the
present value of cash outflows

4. The formulate for the net present value can be written as:
According the NPV technique, only one project will be selected whose NPV is positive or
above zero. If a project(s) NPV is less than ‘Zero’. It gives negative NPV hence. It must be
rejected. If there are more than one project with positive NPV’s the project is selected whose
NPV is the highest.
Merits:
1. It recognizes the time value of money.
2. It is based on the entire cash flows generated during the useful life of the asset.
3. It is consistent with the objective of maximization of wealth of the owners.
4. The ranking of projects is independent of the discount rate used for determining the present
value.

Demerits:
1. It is difficult to understand and use.
2. The NPV is calculated by using the cost of capital as a discount rate. But the concept of
cost of capital. If self is difficult to understood and determine.
3. It does not give solutions when the comparable projects are involved in different amounts
of investment.
4. It does not give correct answer to a question whether alternative projects or limited funds
are available with unequal lines.
Example: 1
A choice is to be made between the two competing proposals which require an equal
investment of Rs50, 000/- and are expected to generate net cash flows as under.
Year Project-A Project-B
1 25,000 10,000
2 15,000 12,000
3 10,000 18,000
4 Nil 25,000
5 12,000 8,000
6 6,000 4,000
Cost of capital of the company is 10%. The following are the present factor at 10% P.A.
Which proposal should be selected using NPV method? Suggest the best project.
Solution: Year Discount Factor Project-A Project-B
Cash Flows Present Value Cash Flows Present Value
1 0.909 25,000 22,725 10,000 9,090
2 0.826 15,000 12,390 12,000 9,912
3 0.751 10,000 7,510 18,000 13,518
4 0.683 Nil Nil 25,000 17,075
5 0.620 12,000 7,452 8,000 4,968
6 0.564 6,000 3,384 4,000 2,256
Total present value of 53,461 56,819
inflows
Total present value of 50,000 50,000
outflow
Net Present Value 3,461 6,819

Internal Rate of Return:

This method advocated by Joel Dean, takes into account the magnitude and timing of cash
flows. This is another important cash flow technique of capital budgeting decisions. IRR can
be defined as that rate which equates the present value of cash inflows with the present value
of cash outflows of an investment proposal. It is the rate at which the net present value of the
investment proposal is zero.

“ The rate of interest that equates the present value of future period net cash flows, with the
present value of the capital expenditure required to undertake a project” Nemmers
“The internal rate as the rate that equates the present value of the expected future receipts to
the investment outlay” ---------------------------------------------------------------------- Weston and
Brigham

If the IRR is greater than the cost of capital the funds invested will earn more than their cost,
when IRR of a project equal the cost of capital, the management would be indifferent to the
project as it would be expected to change the value of the firm.
It is computed by the formula
Computation:
The internal rate of return is to be determined by trial and error method.
The following steps can be used for its computation:

1. Compute the present value of the cash flows from an investment, by using an arbitrator
selected interest rate
2. Then compare the present value so obtained with capital outlay
3. If the present value is higher than the cost, then the present value of inflows is to be
determined by using higher rate
4. This procedure is to be continued until the present value of the inflows from the investment
are approximately equal to its outflow
5. The interest rate that brings about this equality is the internal rate of return.

If the internal rate of return exceeds the required rate of return, then the project is accepted. if
the project’s IRR is lower than the required rate of return, it will be rejected. In case of
ranking the proposals, the technique of IRR is significantly used. the projects with higher rate
of return will be ranked as first compared to the lowest rate of return projects.
Thus the IRR acceptance rules are Accept if r>k
Reject if r<k
May accept or reject if r=k Where r = internal rate of return
k=cost of capital
Example 7:
A firm whose cost of capital is 10% is considering two mutually exclusive projects X and Y,
the details are:
Year CFAT(Machin CFAT(Machin
e -X) e -Y)
1 70,000 70,000
1 10,000 50,000
2 20,000 40,000
3 30,000 20,000
4 45,000 10,000
5 60,000 10,000
Find IRR for the two projects.
 Year Discount Factor 25% Project-X
Cash Flows Present Value Factor @30% Present Value
1 0.800 10,000 8,000 0.769 7,690
2 0.640 20,000 12,800 0.592 11,840
3 0.512 30,000 15,360 0.455 13,650
4 0.410 45,000 18,450 0.350 15,750
5 0.328 60,000 19,680 0.269 16,140
Total present value of 74,290 65,057
inflows
Total present value of 70,000 70,000
outflow
Net Present Value 4,290 -4,930

Solution: Year Discount Factor 35% Project-Y

Cash Flows Present Value Factor @40% Present Value
1 0.741 50,000 37,050 0.714 35,700
2 0.549 40,000 21,960 0.510 20,400
3 0.406 20,000 8,120 0.364 7,280
4 0.301 10,000 3,010 0.260 2,600
5 0.221 10,000 2,230 0.186 1,860
Total present value of 72,370 67,840
inflows
Total present value of 70,000 70,000
outflow
Net Present Value 2,370 -2,160

Probability Index Method (PI):

The method is also called benefit cost ration. This method is obtained cloth a slight
modification of the NPV method. In case of NPV the present value of cash out flows are
profitability index (PI), the present value of cash inflows are divide by the present value of
cash out flows, while NPV is a absolute measure, the PI is a relative measure.
It the PI is more than one (>1), the proposal is accepted else rejected. If there are more than
one investment proposal with the more than one PI the one with the highest PI will be
selected. This method is more useful in case of projects with different cash outlays cash
outlays and hence is superior to the NPV method.
Example 6:
A choice is to be made between the two competing proposals which require an equal
investment of Rs50, 000/- and are expected to generate net cash flows as under
Year Project-A Project-B
1 25,000 10,000
2 15,000 12,000
3 10,000 18,000
4 Nil 25,000
5 12,000 8,000
6 6,000 4,000
Cost of capital of the company is 10%. The following are the present factor at 10% P.A.
Which proposal should be selected using PI method? Suggest the best project.

Solution: Year Discount Factor Project-A Project-B

Cash Flows Present Value Cash Flows Present Value
1 0.909 25,000 22,725 10,000 9,090
2 0.826 15,000 12,390 12,000 9,912
3 0.751 10,000 7,510 18,000 13,518
4 0.683 Nil Nil 25,000 17,075
5 0.620 12,000 7,452 8,000 4,968
6 0.564 6,000 3,384 4,000 2,256
Total present value of 53,461 56,819
inflows (A)
Total present value of 50,000 50,000
outflow (B)
Profitability Index (A/B) 1.06 1.13

Interpretation: Since project B has the highest PI than Project A, hence project B should be
accepted.
 UNIT-III
Q.1) Explain the role of NABARD in promoting entrepreneurship Development?
 The National Bank for Agriculture and Rural Development or NABARD
provides investment and production credit for various developmental activities and
projects taking place in rural areas, which will help enhance rural development and
facilitate rural prosperity. As this bank is the center or the main financing agency for
all such developmental projects, the responsibility falls on the bank to ensure that the
projects receive the proper financing and promotion.
 The responsibility of coordinating all the financing activities in the rural areas with all
institutions involved in the developmental projects falls on the NABARD. It has to
stay in touch with all major institutions, including the Indian government, Reserve
Bank of India or RBI, state governments, or any other major institutions that may be a
part of the ongoing agriculture or rural development activities.
 NABARD takes action towards monitoring, formulating strategies for the
rehabilitation schemes, restructuring credit institutions and training personnel, etc.,
through making an improvement in the credit delivery system’s absorptive capacity
and building a strong institution with an aim to achieve the same.
 The National Bank refinances all the financial institutions that finance the rural
development projects for Agriculture and Rural Development or NABARD as it is the
specific bank for looking after all agriculture and rural developments in the country.
 After the bank has refinanced a developmental project or activity taking place in the
rural region, the responsibility of monitoring and evaluating the project or activity
also falls on the NABARD.
 NABARD keeps all the client institutions in check and provides training facilities to
all the institutions that are working towards rural upliftment or want to work for rural
development in the future.
 Along with all the above roles, the National Bank for Agriculture and Rural
Development also keeps the portfolio of the Natural Resource Management
Programmes.
 NABARD also helps Self-Help Groups or SHGs through its SHG bank linkage
programme that will boost the activities of SHGs in the rural areas and will be a
helpful step in the rural development.

Functions of NABARD
Now that we have seen what NABARD stands for and the roles that it has to perform, let us
go through the functions performed by the bank. In an effort to keep up with its roles, the
National Bank for Agriculture and Rural Development undergoes four central functions.
These four central functions performed by the NABARD are—credit functions, financial
functions, supervisory functions, and development functions. To understand all these four
functions performed by the NABARD, let’s go through all of them one by one.

1. Credit functions As the main provider of credit facilities in rural areas, the National
Bank for Agriculture and Rural Development or NABARD performs the credit
functions. Under these functions, the bank provides, regulates, and monitors the credit
flow in the rural parts of the nation.
2. Financial functions NABARD has many client banks and institutions that help and
assist in the developmental activities in rural areas. By performing the financial
functions, the National Bank for Agriculture and Rural Development or NABARD
 provides loans to these client banks and institutions like handicraft industries, food
parks, processing units, artisans and many more.
3. Supervisory functions As already discussed above, NABARD is the apex institution
that looks after agriculture and rural development. This is why the responsibility of
monitoring and regulating all the development activities and projects fall on this
institution. Given this role, the NABARD performs supervisory functions in which it
has to keep a check on all the client banks, institutions, credits and non-credits
societies that are a part of the developmental tasks taking place in the rural areas.
4. Development Functions As you must be pretty much aware by now that the primary
role of the National Bank for Agriculture and Rural Development or NABARD is to
focus on developing sustainable agriculture and promote rural development, the bank
performs development functions in an effort to stay true to this role. Under
developmental functions, the NABARD helps rural banks prepare action plans for the
developmental activities.

The National Bank for Agriculture or Rural Development or NABARD performs all the
above roles and functions efficiently and has a great impact on the agricultural progress and
rural development in the country.

Following Programmes have been undertaken with the support of National Bank for
Agriculture and Rural Development (NABARD):
1. Financial Literacy Programmes (FLPs) to provide insights into formal credit avenues,
accessing financial services and planning towards economic security. Over 600
participants trained from 2013-2015.
2. Skill Development Initiatives (SDI) in various districts of Uttar Pradesh to provide
inputs in entrepreneurship & schemes of assistance, project selection & its pre-
feasibility, project report preparation and management during the first quarter of
2020. – In the second quarter, SDI programme was conducted at Basti (Refrigeration
& Air-Conditioning) and the study on Red Terracotta Pottery Industries with Special
Reference to Villages under Bhathat Block of Gorakhpur District’ was completed.

 A total of 60 trainees participated in SDI programmes conducted at Basti and Mau
and 30 more trainees were a part of the ongoing two-month SDI programme being
conducted at Deoria in the last quarter of 2020.
 A total of 180 trainees participated in SDI programmes conducted at Deoria, Mau,
Kushinagar, Balrampur, Siddharthnagar and Ballia in first quarter of 2021.
 A total of 90 trainees participated in SDI programmes conducted at Shravasti,
Jaunpur, and Unnao in second quarter of 2021.
3. Promotion of Women SHGs (WSHGs) in Dhenkanal, Odisha: This four-year project
focused on providing poor households in rural hinterlands of Dhenkanal, access to
sustainable banking services. The project supported livelihood development
programmes for the poor, through formation of Women Self Help Groups (SHGs). As
a result, 1000 WSHGs have been formed, 1000 savings bank accounts opened with
cumulative savings of Rs. 85 lakhs and Rs. 362.63 lakh have been sanctioned and
disbursed to WSHGs
4. Technology Entrepreneurship Development Programmes (TEDPs) in various districts
of Uttar Pradesh to orient people towards the ways and means of adopting businesses
that are based on technology.
5. Pottery Cluster Development Programme in Gorakhpur, Uttar Pradesh, a 5-year
project aimed at revitalising the cluster on the parameters of processes, market,
networks and innovations. (2015)
6. Wooden Toys & Jewellery Cluster Development Programme in Varanasi, Uttar
Pradesh to revitalize the cluster.
7. Management Support for Implementation of DFID ‘Skill for Jobs’ Programme (2015)
: The 5-year project supported by a consortium of technical agencies viz., Price-
Water-House Coopers (PWC) Pvt. Ltd., Federation of Indian Chambers of Commerce
and Industry (FICCI), NABARD Consultancy Services (NABCONS) and
Entrepreneurship Development Institute of India, Ahmedabad, aims at developing
‘skills eco-system’ so that jobs could be generated for the poor. The State Skill
Development Missions of the respective states were provided capacity building
support to develop an institutional structure to coordinate skill development
initiatives; set up an effective mechanism to monitor skill building initiatives in the
state; and establish skill development committees in high demand sectors involving
sector-specific councils (SSCs) and National Skill Development Corporation (NSDC)
8. The NABARD-Bhubaneswar Project – ‘Sustaining Community Livelihood through
Farming of Anantamula-A Herbal Creeper’, implemented in Kantol Gram Panchayat
of Kankadahad Block, Dhenkanal District, focused on forming a ‘Growers
Cooperative of Anantamula Herbs’ to ensure better practices for making it a
commercially viable product. 1000 nurseries of Anantamula were raised and
samplings distributed in three villages viz., Kadabapal, Bahadapal and Rekuti in
Kantol panchayat involving 6 SHGs. (2013)
9. Micro Entrepreneurship Development Programmes (MEDPs) on various trades were
organised in Gorakhpur. The latest programme on Terracotta was conducted for 30
participants from 06 SHGs of Hafiznagar village of Bhatahat Block of Gorakhpur
district. The programme organized during 11-23 February 2022 was sponsored by
NABARD under Micro Enterprise Development Program (MEDP) scheme. The
objective of the training program was to ensure livelihood and income generation
opportunities for the trainees (mostly SHG members) by way of placement or by
helping them set up their own units. The programme inputs enhanced capacities of
participants through appropriate skill upgradation in existing or new livelihood
activities in farm or non-farm activities and enriched their knowledge on enterprise
management, business dynamics and rural markets.
10. As NABARD’s agency for promoting Women Self-Help Groups (WSHGs) in the 21
Left Wing Extremism (LWE) Districts in Odisha, the Institute sensitized women
leaders from 50 WSHGs on the importance and role of WSHGs towards developing
livelihood-based self-employment skills in under-developed and resource poor
regions. (2012)
11. EDII has been awarded ‘Excellent Performance in NABARD sponsored SDI
Programme’ in 2020. The award was presented by Hon’ble Finance Minister of Uttar
Pradesh Shri Suresh Khanna.
12. NABARD (OFPO-PI) (2021)EDII has been selected as the ‘Off-Farm Producer
Organization-Promoting Institution’ for Gorakhpur Terracotta Cluster. Sponsored by
NABARD, the project will focus on developing the socio-economic status of artisans
of Gorakhpur Terracotta cluster. The main aim of OFPO is to ensure better income for
the producers through an organization of their own.
As the Producer Organization Promoting Institution (POPI), EDII is carrying out cluster
identification, diagnostic and feasibility studies, business planning, mobilization of artisans
and registration/incorporation of PO, resource mobilization, development of management
systems and procedures, and assessment and audit. The Institute will also build the
capabilities of the Staff and Management of the PO through training and continuous hand-
holding.
13. Diagnostic Study and DPR preparation of Duttapukur Terracotta and Pottery Cluster
(2019)Sponsored by NABARD, the activity focused on understanding prospects and
constraints of the cluster, create need-based infrastructure, and upgrade the skill level
of artisans to improve their standard of living.

14. Project Parisar was launched on 29th September, 2021, at Mysore, in the presence of
Chief General Manager, NABARD. The project focuses on the manufacture of
coconut leaf straws from naturally fallen dried coconut leaves. Supported by
NABARD under Gramya Vikas Nidhi Scheme and implemented by EDII, the project
will support 100 rural women in generating income and employment through the
production of coconut leaf straws.

Q.2) Discuss about SIDBI, its functions and various schemes for promoting small scale
industry?
SIDBI, or Small Industries Development Bank of India, is the principal financial institution
responsible for providing financial support and aid in developing the MSME sector. It also
coordinates with other similar institutions to strengthen the country's micro, small and
medium enterprises. The institution fulfils its agenda through indirect lending and direct
lending. SIDBI offers to refinance primary lending institutions such as banks with branches
across the country, to have a larger reach to support the MSME sector. Through direct
lending, SIDBI aims to fill the credit gaps within the sector for the smooth running of the
businesses. The Fund of Funds channel of SIDBI promotes entrepreneurship by supporting
startup companies in the country. The institution also acts as a facilitator for various
government schemes related to this sector.
Mission and Vision of SIDBI
The mission of SIDBI is to facilitate and improve the flow of credit to small and medium-
sized businesses. It helps fill financial and developmental gaps in the MSME ecosystem. It
aims to become a one-stop solution for meeting the financial and developmental needs of the
MSME sector in India. By doing so, it wants to make this sector strong and globally
competitive. It also wants to position itself as a customer-friendly institution that customers
and shareholders alike prefer.
Objectives of SIDBI
The Small Industries Development Bank of India has the following objectives for MSMEs in
the country -

 Provide financial aid to micro, small and medium-sized businesses.

 Provide easy reach to a large population through indirect lending to banks and other
financial institutions.
 Help in the modernisation of small-scale industry and upgrade technology for
improved efficiency.
  Promote products of the small-scale industry through better marketing strategies.
 Support national plans on climate change.
Benefits of SIDBI
1. Customized Loans
Startups and small-scale industries often find it difficult to arrange sufficient capital for the
business. SIDBI offers several loan schemes to their customers. But if someone has a special
requirement, the institution provides customised loans as per the requirement of the business.
This tailored approach helps small-scale businesses acquire loans and credit as per their
needs.
2. Attractive Rate of Interest
High-interest rates make things difficult for the MSME sector. SIDBI makes it easy for
enterprises to avail of loans by offering an affordable interest rate. SIDBI can keep their
interest rate low because they have tie-ups with several national and international financial
institutions like the Japan International Cooperation Agency and the World Bank.
3. Collateral-free Loans
Banks usually provide loans against collateral. SIDBI, on the other hand, provides security-
free loans to its customers, and MSMEs can take a loan of up to ₹1 crore without the
compulsion of providing collateral.
4. Government Subsidies
When the government decides to provide a subsidy for MSMEs, SIDBI offers such subsidy
loans and schemes to business owners at a lower interest rate than usual and with easy terms
and conditions.
5. No Tempering of Company Ownership
Business owners sometimes have to give away part ownership of the company to acquire
capital for their business. SIDBI safeguards the interest of business owners by providing them
credit and loans without affecting their ownership of the company.
6. Transparent Procedure
Applying for a loan with SIDBI and its sanction procedure is very clear, with no hidden
charges. The interest rates and other charges are mentioned to lenders beforehand to maintain
a high level of transparency in the loan process.
7. Special Assistance
SIDBI bank provides loans to MSMEs through different SIDBI schemes and assists startup
companies and entrepreneurs by providing valuable insights and guidance related to the
business. Their relationship managers help business owners make the right decisions during
the loan process.
Functions of SIDBI
SIDBI coordinates with various institutions in the country to financially assist and develop
small-scale industries. Financial institutions like commercial cooperative banks, regional
rural banks, industrial development corporations, etc., work along with SIDBI to strengthen
the MSME ecosystem in India. Now let us look at the various functions of the Small
Industries Development Bank of India.

 Refinancing commercial banks and other financial institutions to grant loans to small
scale industries and promote borrowings by small business units.
  Discounting bills of small business units and rediscounting further to help the
businesses.
 Assisting small-scale units that export their products to other countries. SIDBI helps
display products of such exporters in international exhibitions and bears involved
expenditures.
 Providing seed capital to promising entrepreneurs and soft loans for sustaining the
business. A soft loan has a very low-interest rate and is repayable in a long span of
15-20 years.
 Conducting surveys in specific geographic locations to figure out the potential of
developing MSMEs in the area. SIDBI also offers non-financial assistance by helping
procure raw materials for business owners.
 Offering hires purchase financing to help small-scale business owners acquire
expensive machinery.
 Providing factoring services, leasing, etc., to the small-scale sector.
Schemes Offered by SIDBI
1. Loan Schemes under Direct Financing
SMILE (SIDBI Make in India Soft Loan Fund for MSME) provides capital to new businesses
in the service or manufacturing sector.
Loan Tenure: 10 years
Loan Amount: ₹10 lakhs to ₹25 lakhs
2. STFS (SIDBI Trader Finance Scheme)
This scheme is for wholesalers, retailers and traders who have been running their businesses
for at least three years.
Loan Tenure: Depends on the cash flow of the business
Loan Amount: ₹10 lakhs to ₹1 crore
3. SEF (SMILE Equipment Finance)
This finance scheme helps MSMEs interested in purchasing new equipment.
Loan Tenure: 72 months
Loan Amount: Minimum ₹10 lakhs
4. TULIP (Top-Up Loan for Immediate Purposes)
Business owners with existing loans can top up their loans through this finance scheme in 7
days.
Loan Tenure: Maximum 5 years
Loan Amount: 20% of net sales or 30% of existing exposure
5. SPEED (Loan for Purchase of Equipment for Enterprise's Development)
This scheme entertains both new and existing customers. The only requirement is that the
business is operational for at least three years.
Loan Tenure: 5 years and a moratorium of 6 months
Loan Amount: Up to ₹1crore for new customers and up to ₹2 crores for existing customers
6. Loans under Partnership with OEM (Original Equipment Manufacturer)
Small scale industries can purchase machinery and equipment directly through the
manufacturers under this scheme.
Loan Tenure: 5 years with an eligible moratorium
Loan Amount: Up to ₹1 crore
7. Working Capital (Cash Credit)
Businesses can apply for a flexible loan. With instant approval, this financial product is a
great option to meet the immediate needs of the business.
Loan Tenure: As per the terms and conditions of the scheme
Loan Amount: As per the financial status of the borrower
Also Read: Meaning and Need for a Cancelled Cheque
Other Finance Schemes of SIDBI
Microlending: Businessmen and women entrepreneurs can take advantage of the
microlending offered by SIDBI.
1. Indirect Financing
SIDBI provides indirect financing to other financial institutions which provide financial
assistance to small-scale industries.
2. Venture Capital
The SIDBI Venture Capital Ltd, a subsidiary of SIDBI, offers capital to small-scale industries
through venture capital funds such as Aspire Funds, Funds of Funds, etc.

Q.3) what are state level institutions? Discus how they promote
entrepreneurship?

STATE LEVEL INSTITUTIONS

Directorate of Industries (DIs) : At the State level, the Commissioner/ Director of

Industries implements policies for the promotion and development of small-scale,
cottage, medium and large scale industries. The Central policies for the SSI sector serve as
guidelines but each State evolves its own policy and package of incentives. The
Commissioner/ Director of Industries in all the States/UTs, oversee the activities of field
offices, that is, the District Industries Centers (DICs) at the district level.

District Industries Centers (DICs) : In order to extend promotion of small-scale and cottage
industries beyond big cities and state capitals to district headquarters, DIC program
was initiated in May, 1978, as a centrally sponsored scheme. DIC was established with the
aim of generating greater employment opportunities especially in rural and backward
areas in the country. At present DICs operate under respective Sate budgetary
provisions. DICs extend services of the following nature –
(i) Economic investigation of local resources
(ii) Supply of machinery and equipment
(iii) Provision of raw materials
(iv) Arrangement of credit facilities
(v) Marketing
(vi) Quality inputs
(vii) Consultancy.
District Industries Centers (DICs) : In order to extend promotion of small-scale and cottage
industries beyond big cities and state capitals to district headquarters, DIC program
was initiated in May, 1978, as a centrally sponsored scheme. DIC was established with the
aim of generating greater employment opportunities especially in rural and backward
areas in the country. At present DICs operate under respective Sate budgetary
provisions. DICs extend services of the following nature – (i) economic investigation of
local resources (ii) supply of machinery and equipment (iii) provision of raw materials (iv)
arrangement of credit facilities (v) marketing (vi) quality inputs (vii) consultancy.

State Financial Corporation’s (SFCs) : Main objectives are to finance and promote small
and medium enterprises in their respective states for achieving balanced regional
growth, catalyze investment, generate employment and widen ownership base of industry.
Financial assistance is provided by way of term loans, direct subscription to
equity/debentures, guarantees, discounting of bills of exchange and seed capital
assistance. SFCs operate a number of schemes of refinance of IDBI and SIDBI and also
extend equity type assistance. SFCs have tailor-made schemes for artisans and special target
groups such as SC/ST, women, ex-servicemen, physically challenged and also provide
financial assistance for small road transport operators, hotels, tourism-related activities,
hospitals and so on. Under Single Window Scheme of SIDBI, SFCs have also been
extending working capital along with term loans to mitigate the difficulties faced by SSIs in
obtaining working capital limits on time.

State Industrial Development / Investment Corporation (SIDC/SIIC) : Set up under the

Companies Act, 1956, as wholly owned undertakings of the State governments, act as
catalysts in respective states. SIDC helps in developing land providing developed plots
together with facilities like roads, power, water supply, drainage and other amenities. They
also extend assistance to small-scale sector by way of term loans, subscription to equity and
promotional services. 11 out of 28 SIDCs in the country also function as SFCs and are termed
as Twin-function IDCs.
State Small Industrial Development Corporations (SSIDC) : Established under
Companies Act, 1956, as State government undertaking, caters to small, tiny and
village industries in respective states. Being operationally flexible undertakes the
activities like
(i) procure and distribution of scarce raw materials,
(ii) supply of machinery to SSI units on hire-purchase basis,
(iii) product marketing assistance,
(iv) construction of industrial estates, allied infrastructure facilities and their maintenance
(v) Extending seed capital assistance on behalf of State government and
(vi) Providing management assistance to production units.
State Industrial Development / Investment Corporation (SIDC/SIIC) : Set up under the
Companies Act, 1956, as wholly owned undertakings of the State governments, act as
catalysts in respective states. SIDC helps in developing land providing developed plots
together with facilities like roads, power, water supply, drainage and other amenities. They
also extend assistance to small-scale sector by way of term loans, subscription to equity and
promotional services. 11 out of 28 SIDCs in the country also function as SFCs and are termed
as Twin-function IDCs. State Small Industrial Development Corporations (SSIDC) :
Established under Companies Act, 1956, as State government undertaking, caters to
small, tiny and village industries in respective states. Being operationally flexible
undertakes the activities like (i) procure and distribution of scarce raw materials, (ii) supply
of machinery to SSI units on hire-purchase basis, (iii) product marketing assistance, (iv)
construction of industrial estates, allied infrastructure facilities and their maintenance (v)
extending seed capital assistance on behalf of State government and (vi) providing
management assistance to production units.

Q.4) Explain Government policy for MSME’s for encouraging entrepreneurship?

Government Policies for Development and Promotion of Small-scale Industries in India

Some of the Government Policies for development and promotion of Small-Scale Industries
in India are:
1. Industrial Policy Resolution (IPR) 1948,
2. Industrial Policy Resolution (IPR) 1956,
3. Industrial Policy Resolution (IPR) 1977,
4. Industrial Policy Resolution (IPR) 1980 and
5. Industrial Policy Resolution (IPR) 1990.
1. Industrial Policy Resolution (IPR) 1948:
It was well realized that small-scale industries are particularly suited for the utilization of
local resources and for creation of employment opportunities. However, they have to face
acute problems of raw materials, capital, skilled labour, marketing, etc. since a long period of
time. Therefore, emphasis was laid in the IPR, 1948 that these problems of small-scale
enterprises should be solved by the Central Government with the cooperation of the State
Governments. In nutshell, the main thrust of IPR 1948, as far as small-scale enterprises were
concerned, was ‘protection.’
2. Industrial Policy Resolution (IPR) 1956: he IPR 1956 provided that along with continuing
policy support to the small sector, it also aimed at to ensure that decentralised sector acquires
sufficient vitality to self-supporting and its development is integrated with that of large- scale
industry in the country. To mention, some 128 items were reserved for exclusive production in
the small-scale sector.
3. Industrial Policy Resolution (IPR) 1977:
1. Cottage and Household Industries which provide self-employment on a large scale.
2. Tiny sector incorporating investment in industrial units in plant and machinery up to Rs. 1 lakh
and situated in towns with a population of less than 50,000 according to 1971 Census.
3. Small-scale industries comprising of industrial units with an investment of up to Rs. 10 lakhs
and in case of ancillary units with an investment up to Rs. 15 lakhs.
4. Industrial Policy Resolution (IPR) 1980:
(i) Increase in investment ceilings from Rs. 1 lakh to Rs. 2 lakhs in case of tiny units, from Rs. 10
lakhs to Rs. 20 lakhs in case of small-scale units and from Rs. 15 lakhs to Rs. 25 lakhs in case of
ancillaries.
(ii) Introduction of the concept of nucleus plants to replace the earlier scheme of the District
Industry Centres in each industrially backward district to promote the maximum small-scale
industries there.
(iii) Promotion of village and rural industries to generate economic viability in the villages well
compatible with the environment.
5. Industrial Policy Resolution (IPR) 1990:
(i) The investment ceiling in plant and machinery for small-scale industries (fixed in 1985) was
raised from Rs. 35 lakhs to Rs. 60 lakhs and correspondingly, for ancillary units from Rs. 45
lakhs to Rs. 75 lakhs
. (ii) Investment ceiling for tiny units had been increased from Rs. 2 lakhs to Rs. 5 lakhs provided
the unit is located in an area having a population of 50,000 as per 1981 Census.
(iii) As many as 836 items were reserved for exclusive manufacture in small- scale sector.
(iv) A new scheme of Central Investment Subsidy exclusively for small-scale sector in rural and
backward areas capable of generating more employment at lower cost of capital had been mooted
and implemented.
(v) With a view, to improve the competitiveness of the products manufactured in the smallscale
sector; programmes of technology up gradation will be implemented under the umbrella of an
apex Technology Development Centre in Small Industries Development Organisation (SIDO).
(vi) To ensure both 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 1990.
(viii) Greater emphasis on training of women and youth under Entrepreneurship Development
Programme (EDP) and to establish a special cell in SIDO for this purpose.
(ix) Implementation of delicencing of all new units with investment of Rs. 25 crores in fixed
assets in non-backward areas and Rs. 75 crores in centrally notified backward areas. Similarly,
delicensing shall be implemented in the case of 100% Export Oriented Units (EOU) set up in
Export Processing Zones (EPZ) up to an investment ceiling of Rs. 75 lakhs.