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SMALL SCALE INDUSTRY

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Title: SMALL SCALE INDUSTRY


1
UNIT - 6
SMALL SCALE INDUSTRY
2
Introduction
  • At present the Small Scale Industry (SSI)
    constitutes a Very Important Segment of the
    Indian Economy has emerged as a Dynamic
    Vibrant Sector of the Economy.
  • The Small Scale Industry Sector holds the
    Key to Economic Prosperity of the Indian Economy,
    Characterized by abundant Labor Supply,
    Unemployment Under Employment , Scarcity of
    Finance, Growing Modern Large Industries
    providing scope for development of Ancillary
    Industries so on. The Small Scale Industry has
    grown phenomenally during the last Six Decades
    has acquired a very prominent place in the Socio
    Economic Development in the Country.

3
  • This Sector accounts for about 40 of the
    Countrys Total Exports.
  • Various Policy Initiatives undertaken by
    the Central Govt Various State Govts whether
    by way of Incentives or protection, have helped
    the sector in acquiring the Status of a Major
    Contributor in the Growth Process.
  • The Process of Liberalization Economic
    Reforms, since 1991, while creating Tremendous
    Opportunities for the Growth of Small Scale
    Industrial Sector, have however thrown up new
    Challenges for the Sector. This changed
    Industrial Scenario, has called for building
    Competitive Strengths, Improving Quality
    Productivity, Introducing Technology Up
    gradation, reducing Wastages Rejections,
    Intelligent Use of Resources, Employing Modern
    Management Techniques etc in order to withstand
    growing competition for ensuring sustained
    growth.

4
  • Also, Small Scale Industries need to
    reposition itself in order to meet the Growing
    Demands for ancillary items, Subcontracting Job
    Work from other Industrial Units, requiring
    higher standards of Quality, Economies of Scale
    strict timely delivery schedules.
  • The emerging challenges to the Small Scale
    Industries Sector are also due to the Impact of
    Globalization Agreement under the WTO (World
    Trade Organization) GATT (General Agreement on
    Trade Tariff) to which India is a Signatory
    along with 134 Member Countries.

5
Concepts Definitions of Small Scale Industry
  • It Comprises a Variety of Undertakings.
  • These definitions generally relate to either
    the Capital Invested or people employed or both
    or any other relevant criteria.

6
Classification Definition of Industries
  • The earlier concept of Industries has been
    changed to Enterprises. Enterprises have been
    classified broadly into Two Categories as Under
  • Manufacturing Enterprises Enterprises which
    are engaged in the Manufacture / Production of
    Goods pertaining to any Industry are referred to
    as Manufacturing Enterprises.

7
  • 2) Service Enterprises Enterprises which
    are engaged in providing / rendering of Services
    are referred to as Service Enterprises.
  • I) Manufacturing Enterprises They have
    been defined in terms of Investment on Plant
    Machinery (Excluding Land Buildings) further
    classified into 3 Categories as under
  • a) Micro Enterprises An Enterprise where
    the Investment on Plant Machinery is upto Rs.
    25 Lakh is referred to as a Micro Enterprise.

8
  • b) Small Enterprises An Enterprise
    where the Investment on Plant Machinery is
    above Rs. 25 Lakh upto Rs. 5 Crore is referred to
    as Small Enterprise.
  • c) Medium Enterprises An Enterprise
    where the Investment on Plant Machinery is
    above Rs. 5 Crore upto Rs. 10 Crore is referred
    to as Medium Enterprise.
  • II) Service Enterprises
  • They have been defined in terms of
    their Investment in Equipment (excluding Land
    Building) further classified into 3 Categories
    as under

9
  • 1) Micro Enterprises An Enterprise where
    the Investment in Equipment is upto Rs. 10 Lakh
    is referred to as Micro Enterprise.
  • 2) Small Enterprises An Enterprise,
    where the Investment in equipment is above Rs. 10
    Lakh upto Rs. 2 Crore is referred to as Small
    Enterprise.
  • 3) Medium Enterprises An Enterprise,
    where the Investment in Equipment is above Rs. 2
    Crore upto Rs. 5 Crore is referred to as
    Medium Enterprise.

10
Ancillary Industrial Undertakings
  • An Industrial Undertaking which is
    engaged or is proposed to be engaged in the
    Manufacture or Production of Parts, Components,
    Sub Assemblies, Tooling or Intermediaries, or
    the rendering of services the undertaking
    supplies or it renders or proposes to supply or
    render not less than 50 of its production or
    services, as the case may be, to one or more
    other Industrial Undertakings whose Investment
    in Fixed Assets in Plant Machinery whether held
    on Ownership terms or on lease or on hire
    purchase, does not exceed Rs. 5 Crore in case of
    Manufacturing Small Enterprises Rs. 2 Crore in
    case of Service Small Enterprises.

11
  • As can be seen from the above
    definitions of Micro, Small Medium Enterprises,
    the only criteria for classification is
    Investment made on Plant Machineries in case of
    Manufacturing Enterprises Investment made on
    Equipment in case of Service Enterprises. None
    of the following factors are considered in
    classifying the enterprises.
  • 1) Investment made on Land Buildings.
  • 2) Extent of Land Built up area of the
    buildings.
  • 3) Number of people employed.
  • 4) Amount of Electric Power used
    whether LT (Low Tension) or HT(High Tension)
    power is used.
  • 5) Amount of utilities like Water, Gases,
    Fuels etc used.
  • 6) Working Capital Employed.
  • 7) Annual Sales / Turn Over.

12
Characteristics of Small Enterprises
  • Small Enterprise is Beautiful because of
    its following Important Characteristics
  • A Small Enterprise is generally a One Man
    Show. Even Small Enterprises which run by a
    Partnership Firm or a Private Limited Company, in
    most cases, the activities are mainly carried out
    by one of the Partners or Directors. In Practice,
    the others mainly assist in providing Capital /
    Funds.

13
  • 2) Owner himself / herself is also a
    Manager of the Enterprise. Thus, a Small
    Enterprise is managed in a personalized manner.
    The Owner has First Hand Knowledge of all aspects
    of the Enterprise knows what is actually going
    on in the Business. He takes effective
    participation in all matters of Business Decision
    Making.
  • 3) A Small Enterprise has lesser Gestation
    Period compared to a Large Enterprise. i.e., the
    period after which the return on Investment
    starts.

14
  • 4) Small Enterprises generally carryout
    their operations so as to cater to the Local
    Regional Markets.
  • 5) Small Enterprises use indigenous
    resources therefore can be located anywhere
    subject to the availability of these resources
    like Raw Materials, Labor, Transport Facilities
    etc.
  • 6) They are fairly Labor Intensive with
    comparatively smaller Capital Investment than
    the Larger Units. That is, for the same
    Investment, a Small Enterprise provides more jobs
    to the people compared to a Large Enterprise.

15
  • 7) Using Local Resources, Small Units
    are decentralized dispersed to Rural Areas
    Smaller Towns. Thus, the development of Small
    Enterprises in Rural Areas Smaller towns
    promotes more Balanced Regional Development
    thereby prevents influx of job seekers from rural
    areas smaller towns to bigger cities
    urbanizing centers.
  • 8) Small Enterprises are more
    susceptible highly reactive receptive to
    Socio Economic conditions compared to larger
    enterprises. They are more flexible to adapt
    changes like Diversification to New Products,
    adopting to New Production Techniques,
    substituting New Raw Materials, Changes in
    Organization Structure, New Market etc.

16
Advantages of Small Enterprises
  • They are the Back Bone of the Industrial
    Activity in the Country are playing a very
    important role in improving the Socio Economic
    Conditions of the people. Advantages of these
    Enterprises are as follows (12 Points)
  • They create greater Employment
    Opportunities thro Labor Intensive processes
    thereby help in tackling the Unemployment
    Problem.

17
  • 2) They have Low Gestation Period
    thereby Expensive Financial Resources are not
    idled unproductively for long periods.
  • 3) They can be set up easily in Rural
    Backward Areas.
  • 4) They need Small / Local / Regional
    Market.
  • 5) They encourage growth of Local
    Entrepreneurship.
  • 6) They create Decentralized pattern of
    Ownership.
  • 7) They foster Diversification of
    Economic Activities.

18
  • 8) They Innovate Introduce New
    Products particularly to cater to Local Needs.
  • 9) They influence improve Standard of
    Living of Local People.
  • 10) They provide equitable dispersal of
    enterprises throughout Rural Backward Areas.
  • 11) They earn Vital Foreign Exchange for
    the Country through their Exports of Goods /
    Services.
  • 12) They Increase Revenue to Central
    State Govts by way of Taxes Paid by them.

19
Need Rationale of Small Scale Industry
Development in India
  • As per the IPR (Industrial Policy
    Resolution),1956, it emphasizes the Need
    Rationale as given below
  • They provide immediate large scale
    employment, they offer a method of ensuring a
    more equitable distribution of the National
    Income they facilitate an Effective
    Mobilization of Resources of Capital Skill
    which might otherwise remain unutilized. Some of
    the problems that unplanned urbanization tends to
    create will be avoided by the establishment of
    Small Centers of Industrial Production all over
    the Country.

20
  • The Rationale of Small Scale Industries so
    established can be broadly classified into Four
    Arguments as follows
  • Employment Argument.
  • Equality Argument.
  • Decentralization Argument.
  • Latent Resources Argument.

21
1) Employment Argument
  • In View of the Scarce Capital Resources
    of the Country large Manpower, the most
    important argument put forth in favor of the
    SSIs is that they have a potential to create
    immediate large scale employment opportunities.
  • The increasing emphasis on SSIs
    originates from the widespread concern over the
    Unemployment Situation in the Country. It has
    been found that Small Scale Units are more Labor
    Intensive than Larger Units. i.e., Small Units
    use more labor per Unit of Output than the
    Investment.

22
  • It has also been found by various studies
    that while Output Employment Ratio (Ratio of
    Output to the No. of people employed) is the
    lowest in the Small Scale Sector, the Employment
    Generation Capacity of Small Sector is between 8
    to 15 times that of the Large Sector for the same
    amount of Capital Invested for different types of
    Industries.
  • However, some Scholars have opposed this
    employment argument of Small Scale Industries.
    They argued that Employment should not be created
    for the sake of employment. The more important
    problem being, how to make the best use of the
    Scarce Resources like Capital, Power, Raw
    Materials, etc, not how to absorb Surplus
    Resources (Manpower). Then, the Employment
    Argument becomes an Output Argument.

23
2) Equality Argument
  • Another Argument put forward in favor of
    the Small Scale Industry is that they ensure a
    more Equitable Distribution of National Income
    Wealth. There are 2 Major Considerations
  • 1) The Ownership Pattern of SSIs is more
    widespread compared to the Ownership of Large
    Scale Units in which Major Stake Holders are only
    a few.

24
  • 2) They are more Labor Intensive their
    Decentralization Dispersal to Rural Backward
    Areas provide more Employment Opportunities to
    the Unemployed. This results in more equitable
    distribution of the produce of the Small Scale
    Units.
  • Here, since it is Proprietorship or
    Partnership, the relations between the Labor
    Management are more harmonious cordial in Small
    Enterprises than in Large Enterprises.

25
  • Some Authors argued that such Small
    Enterprises paid less to the Workers, may be only
    Half of the Wages paid to Workers of Large
    Enterprises. This is because Workers in Small
    Enterprises are Unorganized due to absence of
    Trade Unions therefore easily exploited by
    Employers.
  • But, However, the Workers choice is really
    not between a High Paid Job a Low Paid One, but
    between a Low Paid Job or No Job at all. Thus we
    can say the SSIs have great importance in an
    Economy like Ours where millions are unemployed
    in search of a Livelihood.

26
3) Decentralization Argument
  • This stresses the need to disperse the
    Industrial Development to different regions so as
    to promote Balanced Regional Development in the
    Country. Large Industries are concentrated
    everywhere in Urban Areas. But, Small Enterprises
    can be located in Rural Semi Urban Areas to use
    Local Resources to meet Local Demands.
  • Decentralization of Industrial Enterprises
    will help harnessing Local Resources such as Raw
    Materials , Idle Capital , Local Talents ,
    ultimately improves the Socio Economic
    Conditions the Standard of Living of the People
    even in the erstwhile backward areas.

27
4) Latent Resources Argument
  • This Argument suggests that Small
    Enterprises are capable of picking up Latent
    Unutilized Resources like hoarded Wealth, Idle
    Entrepreneurial Ability.
  • However, the Real Force of Latent Resources
    Argument lies in the existence of Entrepreneurial
    Skill.
  • The impressive growth in the number of
    small enterprises during the last six decades
    highlights the same fact that providing the
    necessary conditions such as Land, Sheds, Power,
    Good Transport Communication Facilities ,
    Credit Facilities etc, the Latent Resources of
    Entrepreneurship can be tapped by the Growth of
    Small Scale Industries only.

28
Objectives of Developing Small Enterprises
  • Reasons for Developing Small Enterprises in
    India can be enumerated as follows
  • 1) To generate Large Scale Employment
    Opportunities for the Unemployed speedily with
    relatively Low Investment.
  • 2) To Eradicate Unemployment Problem from
    the Country.
  • 3) To encourage dispersal of enterprises
    to all over the country covering Rural Areas ,
    smaller towns economically backward regions.
  • 4) To bring Backward Regions too in the
    mainstream of national development.

29
  • 5) To promote balanced regional
    development in the Whole Country.
  • 6) To ensure more equitable distribution
    of National Wealth Income.
  • 7) To encourage effective mobilization
    of Untapped Resources of the Country.
  • 8) To improve Socio Economic
    Conditions Standard of Living of the people in
    the Country.
  • 9) To seize the Vast Opportunities
    created for Small Enterprises due to
    Liberalization Globalization policies of the
    Govt of India.
  • 10) To help earn Vital Foreign Exchange
    for the Country thro Exports of Goods / Services
    of Small Enterprises.
  • 11) To bring more Revenue to the Central
    State Govts by way of Taxes.

30
Role of Small Enterprises in Economic Development
  • Economic Development of a Country can be
    defined in terms of Increase in Real Per Capita
    Income of Persons resulting in Improvement in
    Standard of Living. The Development of Small
    Enterprises contributes to the Increase in Per
    Capita Income leads to Overall Economic
    Development.
  • It generates Vast Employment
    Opportunities quickly with relatively Low
    Investment , Promotes more equitable distribution
    of National Income, makes effective mobilization
    of Unutilized Capital Skilled Manpower leads
    to dispersal of Manufacturing Activities all over
    the Country , leading to Growth of Villages ,
    Small Towns Economically Backward Regions. This
    leads to Balanced Regional Development throughout
    the Country.

31
  • The Role of Small Enterprises in Economic
    Development of our Country can be discussed with
    reference to the following parameters during the
    last Four Decades
  • 1) Increase in the Number of Small
    Enterprises.
  • 2) Increase in the Value of Production
    in Rupee Terms.
  • 3) Increase in the Number of People
    Employed.
  • 4) Increase in the Export Earnings in
    Rupee Terms.

32
  • The Small Enterprises have registered
    phenomenal growth in their Number, Production,
    Employment Exports over the Last Four Decades.
  • In 1950, there were 16,000 Registered
    Small Scale Industries this has increased to
    31.21 Lakh Registered SSIs during 1998 1999.
  • During 1973 74, the Total Value of
    Production reported by SSIs was Rs. 7200 Crores
    this has grown phenomenally by about 75 Times
    to Rs. 5,38,357 Crores during 1998 1999.
  • As regards Employment, about 40 Lakh
    People were employed in SSI Sector during 1973
    1974 there is a Four Fold Increase in
    Employment during 1998 1999, that is 175.2 Lakh
    People were employed in SSI Sector during 1998
    1999.

33
  • There is a Phenomenal Growth in
    Exports Revenue during the last Four Decades.
    During 1973 -1974, SSI Sector exported Rs. 393
    Crores worth of Goods Services this has grown
    nearly 150 times to Rs. 57, 488 Crores during
    1998 -1999.
  • As we can see, the SSI Sector has
    been contributing tremendously in overall
    economic development of the Country by creating
    Vast Employment Opportunities , increased Value
    of Production, increased Value of Exports
    Foreign Exchange Earnings.
  • Another way of looking at the SSI
    Sector for the Economic Development of the
    Country is to look at its Relative Position in
    terms of Countrys Total Production, Employment
    Exports. It is encouraging to note that Small
    Scale Enterprises accounts for 35 of the Gross
    Value of the Output in the Manufacturing Sector ,
    about 80 of the Total Industrial Employment
    about 40 of the Total Exports of the Country.

34
Steps for Starting a Small Industry
  • The Various Basic Steps for Starting a Small
    Enterprise is as Given Below

35
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36
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37
  • The Steps are discussed below
  • 1) Project Selection Entrepreneur is the
    Most Important person for the Success of a
    Project. In order to set up a Small Enterprise,
    the Entrepreneur has to decide or choose a
    suitable project.
  • The Entrepreneur has also to
    decide on a suitable location for the project.
    Based on these selections, a project feasibility
    study has to be conducted then a brief project
    profile has to be prepared for the proposed
    project.

38
  • The Project Selection the Preliminary
    Activities involve the following
  • Product or Service Selection.
  • Location Selection.
  • Project Feasibility Study.
  • Preparation of Project Profile.
  • Business Plan Preparation.

39
  • a) Product or Service Selection
  • This is the first most important
    step in setting up a small enterprise. Because,
    the further prospects, actions efforts in
    setting up the small enterprise commencing its
    commercial activities successfully depend on this
    decision.
  • Therefore, the Entrepreneur has to
    be very careful in the choice or selection of the
    Project. The main factors to be considered in
    deciding a suitable project are as follows

40
  • 1) Background Experience of
    Entrepreneurs.
  • 2) Availability of the Right Technology
    Know How for the Project.
  • 3) Marketability of the Product /
    Service.
  • 4) Investment Capacity (i.e., Financial
    Resources.)
  • 5) Availability of Plant Machinery,
    Indigenous or Imported.
  • 6) Availability of Raw Materials.
  • 7) Availability of Proper
    Infrastructural Facilities Viz., Land / Shed,
    Power, Water, Communication, Transport etc.
  • 8) Availability of right kind of Labor
    Viz., Skilled, Semi Skilled Unskilled.

41
  • Considering all above aspects taking
    the help of Governmental Support Organizations
    like TECSOK, KIADB, KSSIDC etc even private
    consultants , the Entrepreneur has to choose
    decide the project for implementation.
  • b) Location Selection After deciding
    on the Project, the next important decision an
    Entrepreneur has to make is about the Location of
    the Project. There are a Few factors associated
    with the same

42
  • 1) Nearness or Proximity to Market.
  • 2) Availability of Raw Materials.
  • 3) Availability of Transformation
    Communication Facilities.
  • 4) Availability of Govt Incentives /
    Concessions.
  • 5) Govt Industrial Policy.
  • 6) Availability of suitable
    Infrastructural facilities.
  • 7) Availability of Labor.
  • 8) Convenience for the Entrepreneurs.

43
  • c) Project Feasibility Study The
    important facets of Project Feasibility Study are
    as follows
  • 1) Market Analysis is carried out to
    find out the aggregate demand of the proposed
    Product / Service what would be the Market
    Share of the proposed project.
  • 2) Technical Analysis seeks to
    determine whether the prerequisites for the
    successful commissioning of the Project have been
    considered reasonably good choices have been
    made with respect to Location, Size, Process so
    on.
  • 3) Financial Analysis seeks to
    ascertain whether the proposed project will be
    Financially viable in the sense of being able to
    meet the burden of Servicing Debt Satisfy the
    return on Investment Expectations of the
    Promoters.

44
  • 4) Economic Analysis (Social Cost
    Benefit Analysis) is concerned judging a Project
    from the larger, social point of view. In such an
    evaluation, the focus is on the Social Costs
    Benefits of the Project.
  • 5) Project Profile This gives a Birds
    Eye View of the Proposed Project. This may be
    used for obtaining Provisional Registration
    Certificate (PRC) from the District Industries
    Centre for making an Application to KIADB for
    allotment of Land or to KSSIDC for allotment of
    Shed other Infrastructures.
  • A Project Profile generally contains
    information about the Project under the Following
    Heads

45
  • 1) Introduction.
  • 2) Promoter(s) Background (Education,
    Experience).
  • 3) Product(s) Service(s) Description
    (Specification, Uses etc.)
  • 4) Market Marketing.
  • 5) Infrastructure needed.
  • 6) Plant Machinery (Description,
    Capacity, Cost etc.)
  • 7) Process Details.
  • 8) Raw Materials (Requirements,
    Specifications, Cost etc.)
  • 9) Power, Water other utilities required.
  • 10) Manpower needed (type of Personnel reqd
    salaries / wages)
  • 11) Cost of the Project means of finance.
  • 12) Cost of Production Profitability.

46
  • e) Business Plan Preparation This is a
    Document where the Entrepreneur plans his
    Business to have an Organized effective
    response to a situation which may arise in
    future. A Business Plan is used to make Crucial
    Start Up Decisions to reassure Lenders,
    Investors, to measure Operational Progress to
    Test Planning Assumptions to Adjust Forecasts
    to set the standard for good Operational
    Management.
  • A Workable Business Plan has the
    following features

47
  • Determines where the Company needs to go.
  • Forewarns of possible hurdles along the
    way.
  • Formulates the responses to contingencies.
  • Keeps the Business on Track to reach its
    Planned Goals.
  • Start a Business Plan with describing
    your Business Product or Services. Indicate the
    Market Segment you are Targeting the Stage of
    Development your Company is in.

48
  • 2) Decide on the Constitution
  • To start any Enterprise, the
    Promoters have to decide on the Constitution of
    the Unit. There are 3 Major Alternatives
  • a) Proprietary b) Partnership c)
    Company.
  • In fact, this has to be decided at
    the initial stages of the Project necessary
    formalities should be completed by the time the
    application for Provisional Registration
    Certificate (PRC) is made to DIC (District
    Industries Centre).

49
  • a) Proprietary Enterprise A Single
    Individual is the Owner of such an Enterprise.
    The Proprietor may proceed to obtain PRC from the
    DIC.
  • b) Partnership Enterprise (Firm) This is
    an Association of Two or more Persons, subject to
    a Maximum of 20 Persons. They are governed by the
    Indian Partnership Act , 1932 rules framed
    there under the State Govt. It is advisable to
    have a Partnership Deed Agreement on Stamp Paper
    of Appropriate Value.

50
  • Registration Formalities of a Partnership
    Firm
  • For Registering a Partnership Firm,
    an Application in the prescribed form has to be
    submitted to the Registrar of Firms of the
    District , along with the authenticated copy of
    the Partnership deed the prescribed fee must
    obtain Form A Form C from the Registrar of
    Firms for having registered the Partnership Firm.
  • Assistance of a Chartered Accountant
    may be availed for completing the above
    formalities.

51
  • c) Company
  • This may be a Private or Public
    Limited Company. A Private Limited Company can be
    formed with a minimum of 2 Persons a Maximum of
    50 Persons. A Public Limited Company can be
    formed with a Minimum of 7 Persons Maximum
    number of Persons is unlimited. Company is
    governed by the Companies Act, 1956.
  • For Registering the Company, one
    has to approach Registrar of Companies of the
    State.

52
  • 3) Obtaining SSI Registration
  • Entrepreneurs desiring to start
    a Small Enterprise have to initially obtain a
    PRC(Provisional Registration Certificate). Once
    the Unit goes into Production, the PRC has to be
    converted into a Permanent Registration
    Certificate (PMT).
  • a) PRC This is the Initial Registration
    reqd for starting a Micro Small Enterprise. The
    Entrepreneur has to apply obtain a PRC after
    selection of the Project deciding on the
    Location of the Unit. This Application is
    necessary for Infrastructural Facilities such as
    Land, Shed, Power etc Finance from the
    Financial Institutions.

53
  • b) Permanent Registration Certificate (PMT)
  • A Micro or a Small Enterprise can
    get a Permanent Registration Certificate when it
    actually commences Commercial Production /
    Service. PRC would be converted to PMT when the
    Unit commences its Commercial Activities.
  • PMT Registration will help in several
    ways like the following
  • To apply for scarce raw materials for
    imported raw materials.
  • To get Working Capital Loan from Banks /
    Financial Institutions.
  • To get Central Excise Duty Concessions.
  • For Claiming Incentives, Concessions,
    including Sales Tax Exemption wherever
    applicable.
  • To apply for registration under Govt Stores
    purchase programs / Ancillary Development
    Programme / Export Promotion Program to get
    Purchase Price Preference.

54
  • 4) Specific Clearances
  • There are a number of Statutory
    Clearances reqd to start Micro Small
    Enterprises.
  • Some of them are given below
  • a) Agricultural Land Conversion into Non
    Agricultural Land (NA Conversion).
  • b) Building Plan approved by the Local
    Authorities.
  • c) Factories Act Labor Dept.
  • d) Trade License from the Local
    Authorities.
  • e) Pollution Control Board Clearances.
  • f) Food Adulteration Act License.
  • g) BIS Certification wherever applicable
    etc.

55
  • 5) Land or Shed Selection
  • For any Industrial Project,
    suitable Industrial Site or a ready Industrial
    shed is reqd. The Promoters of the Unit could
    consider taking an Industrial Site constructing
    a shed as per their requirement, alternatively,
    could consider taking a ready Industrial Shed on
    Ownership Basis also.
  • Whom to approach
  • a) KIADB for Land.
  • b) KSSIDC for Shed requirement.
  • c) Alternatively, the Entrepreneur can
    also approach directly the Jt. Director , DIC in
    the particular District also for requirement of
    Land / Shed for the proposed Enterprise.

56
  • 6) Plant Machinery
  • This requirement for a Particular
    Project could be purchased from recognized
    manufacturers / dealers. This could also be
    taken on Hire Basis operated by National Small
    Industries Corporation Limited (NSIC).
  • This is a Govt of India promoted
    Corporation.

57
  • 7) Infrastructure Facilities
  • For Micro or Small Enterprises the
    main infrastructure facilities are Land or Shed
    for the Project , Power Connection , Water Supply
    Telephone Internet Facility.
  • As said earlier, for Land or Shed ,
    the Entrepreneur can approach either KIADB or
    KSSIDC as the case may be. For the requirement of
    Power, an application may be made to the local
    electricity company in the region. For Telephone
    connection Internet facilities, Entrepreneur
    has to approach BSNL or other operators.
  • District level Single Window Agency
    (SWA) assists the Entrepreneur in getting all the
    above facilities. Hence, the Entrepreneur can
    forward an Application on a plain paper to the
    Jt. Director , District Industries Centre of the
    District giving his requirement of various
    infrastructural facilities for speedy approval
    sanction.

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  • 8) Project Report
  • For any New Project or
    Enterprise to be set up, Proper Planning is
    necessary.
  • A detailed Project Report
    provides such a plan for the Project. The Report
    is useful to the Entrepreneur for Planning
    Implementing the Project. This is essential for
    Obtaining Finance other clearances for the
    Project.
  • In fact, the Project Report
    gives a detailed insight of the Techno Economic
    Viability of the Project. This is generally
    prepared to cover the following

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  • 1) Introduction.
  • 2) Entrepreneurs (Promoters) Background
    (Education, Experience, Special Achievements
    etc.)
  • 3) Details of Product(s) to be
    manufactured specs / details of Service(s) to
    be rendered with Technical Details.
  • 4) Market Potential for the Product(s) /
    Service(s) Marketing Plan.
  • 5) Plant Capacity, Production Plan
    Manufacturing Process.
  • 6) Infrastructure needed for the Project.
  • 7) Raw Materials Consumables needed for
    the Project.

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  • 8) Plant Machinery for the Project
    (Description , Capacity , Cost etc.)
  • 9) Manpower requirements.
  • 10) Total Project Cost.
  • 11) Means of Finance.
  • 12) Income , Costs Profitability
    Projections.
  • 13) Financial Analysis.
  • 14) Schedule of Implementation.
  • 15) Conclusions Recommendations.

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  • 9) Finance
  • Finance for such Projects are under 2
    main categories
  • a) Term Loan.
  • b) Working Capital Loan.
  • a) Term Loan For starting a Small
    Enterprise, Term Loan Finance for the Fixed
    Assets like Land, Building, Plant Machinery etc
    ., can be availed. This Loan can be availed from
    Karnataka State Financial Corporation (KSFC) or
    from the Commercial Banks.
  • Financial Institutions sanction
    up to 75 of the Total investment on Fixed
    Assets the Balance of 25 has to be pooled in
    by the Promoters as Margin Money. At present the
    Lending Interest Rates are between 13 to 14
    also subject to change. Promoters can also
    approach National Small Industries Corporation
    (NSIC) for Financial Assistance.

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  • b) Working Capital Loan
  • It is always preferable to approach
    Commercial banks for Working Capital Loan. All
    Commercial Banks finance up to 75 of the
    Working Capital Loan the remaining 25 has to
    be pooled in by the Promoters.
  • It is important to note that Banks
    will release Working Capital Loan only after the
    Promoters have contributed their share of 25 ,
    at present the Lending Rates are varying between
    13 to 14 .

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  • c) Single Window Scheme (SWS) of KSFC for
    both Term Loan Working Capital Loan
  • This Loan Scheme is for providing
    assistance to new Micro Small Enterprises whose
    project cost (Excluding Working Capital Margin of
    the Promoters) does not exceed Rs. 50 Lakh the
    Total Working Capital Requirements at the Normal
    Level of Operation is up to Rs. 20 Lakh. Term
    Loan for Fixed Assets Term Loan for Working
    Capital is fixed based on the Debt Equity Ratio
    of 21 for Loans above Rs. 10 Lakh 31 for
    Loans up to Rs. 10 Lakh.

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  • 10) Implementation of the Project
  • The Entrepreneurs will have to take
    necessary steps to physically implement the
    Project after obtaining the various Licenses,
    Clearances, Infrastructural Facilities etc.
    Following are the Major Activities that the
    Entrepreneurs have to undertake for implementing
    the Project.
  • a) Construct Shed If the Entrepreneurs
    have taken a ready shed from the KSSIDC or have
    made arrangements for Rental Sheds / Premises
    then they need to go thro this Step. If they have
    obtained Industrial Land from KIADB or they have
    made arrangements for Vacant Land privately, then
    they have to take steps to construct the shed for
    their industry. The Plan for the Industrial Shed
    should be approved by the concerned authorities
    like KIADB or Local Authorities like Municipal
    Corporations or Municipalities or Village
    Panchayats etc., as the case may be.

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  • b) Order for Machinery
  • The Entrepreneurs have to take
    necessary steps to order the necessary Machinery,
    Equipments etc. thro NSIC or any other suitable
    Organizations. The Terms Conditions for
    ordering Machinery, Equipments etc. will vary
    from dealer to dealer, hence the Entrepreneurs
    have to make necessary arrangements as per the
    terms conditions of the dealers.
  • The delivery dates may vary upon
    the type of Machinery, Equipments etc. the
    dealer thro whom the Machinery is ordered.
  • Keeping these Factors in mind, the
    Entrepreneurs should plan to order the necessary
    Machinery, Equipments etc. at the appropriate
    time so that they are able to obtain them in
    Time, to implement the Project.

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  • c) Recruit Personnel
  • Depending upon the Size of the
    Industry type of the Products, the
    Entrepreneurs will have to hire different types
    of personnel for the Industry.
  • Certain Managerial Technical
    Personnel may be reqd in the initial stages for
    the Project Planning. These Personnel may be
    needed for the preliminary works, for supervision
    other related works during Planning
    Implementation of the Project.
  • Accordingly, the Entrepreneurs should
    take steps to hire the Key Managerial Technical
    Personnel well in advance. Most of the other
    Personnel Office Staff will be needed as soon
    as the unit is ready for Commissioning.

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  • d) Arrange for Raw Materials
  • Entrepreneurs should plan for reqd
    Raw Materials as soon as they proceed to
    implement the Project. They should try to get the
    necessary samples for the Basic Raw Materials
    Components that they need to buy from outside for
    the Project.
  • During the implementation of the
    Project, they should finalize the Sources of Raw
    Materials, the Quality Quantity Requirements
    for the Project. Accordingly, they should Plan
    Order the necessary Raw Materials Components so
    that they start receiving the supplies from the
    date of expected Commissioning of the Project.

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  • e) Marketing
  • The Entrepreneurs would have already
    considered about the Market for their Project
    the Marketing Plan that they desire to take up
    for the Products.
  • They should build up necessary
    Contacts for marketing during the implementation
    stage. They have to undertake necessary ground
    work of contacting the prospective customers
    preparing necessary plans for Marketing. The
    Planning should cover the product(s) design,
    Pricing, Promotional Activities the
    Distribution Systems.

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  • f) Erection Commissioning
  • Once the Building is ready the
    necessary Plant Machinery have arrived, the
    Entrepreneurs have to take steps to erect the
    Machineries. The various items of Plant
    Machinery should be erected as per the Plan
    prepared. Some of the sophisticated Machineries
    are supplied along with the service of erection.
    In such cases, the erection commissioning will
    be undertaken by the Vendors of the equipment.

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  • After the Plant Machinery is erected,
    the Entrepreneurs should proceed to commission
    the Plant. Initially, during the trial run
    period, the Entrepreneurs will have to make
    necessary adjustments changes in Production
    Process so as to obtain the desired quality
    products. Once, the Production / Process of the
    Unit is standardized, they can proceed with
    Commercial Production.

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  • g) Obtain Final Clearances
  • The Entrepreneurs are reqd to take
    several Final Clearances when is ready for
    Commissioning or as it goes into Production.
    Accordingly, the Entrepreneurs are advised to
    refer to the various preliminary clearances they
    have obtained from different Depts /
    Organizations take necessary steps to obtain
    Final Clearances or approvals as reqd.

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  • Government Policy towards SSI
  • Small Scale Enterprises have been
    given an important place in the frame work of
    Indian Planning for both ideological Economic
    Reasons. Development of Small Scale Enterprises
    have been taken up with various important
    objectives to be realized. These are
  • (1) The generation of Immediate
    Employment Opportunities with relatively Low
    Investment.
  • (2) The promotion of more equitable
    distribution of National Income.
  • (3) Effective mobilization of
    untapped Capital Human Skills.
  • (4) Dispersal of Manufacturing
    activities all over the Country, leading to
    growth of Villages , Small Towns economically
    Backward Regions.

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  • Therefore, the Govt of India as
    well as various State Govts in the Country have
    started various programs evolved policies for
    the Development of Micro Small Enterprises in
    the Country.
  • Various measures taken by the
    Central State Govts for the development of
    Micro Small Enterprises have included Product
    Reservations, subsidies on fixed capital
    investment, Sales Tax Income Tax Concessions,
    Preferential allocation of credit interest
    subsidy, extension of business Govt purchases,
    Marketing Assistance including Export Promotion
    by institutions such as National Small Industries
    Corporation, Small Industries Development
    Organization several other agencies.

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  • For the purpose of administration of
    Indias Micro Small Enterprises have been
    divided into Seven Groups as under into
    Traditional Sector Modern Sector.
  • Traditional Sector
  • 1) Handicrafts.
  • 2) Handlooms.
  • 3) Khadi, Village Cottage Industries.
  • 4) Coir.
  • 5) Sericulture.

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  • Modern Sector
  • 6) Power Looms.
  • 7) Residual Micro Small Enterprises.

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Governmental Support to Small Scale Enterprises
  • Immediately after independence, Govt of
    India initiated various steps for promotion
    development of Small Scale Cottage Industries.
    Govt of India has attached great importance to
    the development of Small Enterprises Sector in
    all the Five Year Plans since the beginning in
    1951.

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  • Details of the same are seen below
  • The Plan Expenditure on Small
    Enterprises Sector has been continuously
    increasing. In the First Five Year Plan (1951
    56), Rs 48 Crores constituting 47.8 of the
    Total Plan Expenditure was spent in Small Scale
    Sector alone.
  • By the end of First Five Year Plan,
    there were Six Statutory Boards created to help
    the Small Scale Sector.

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  • These are
  • a) All India Handloom Board.
  • b) All India Handicrafts Board.
  • c) All India Khadi Village Industries
    Board.
  • d) Small Scale Industries Board.
  • e) Coir Board.
  • f) Central Silk Board.

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  • The above Boards covered the entire field
    of Small Scale Cottage Industries.
  • Second Five Year Plan (1956 61)
    focused on dispersal of Industries to all the
    regions in the Country. Accordingly, 60
    Industrial Estates were established in different
    regions providing various infrastructural
    facilities like Power, Water, Transport etc., at
    one place. The total expenditure was 187 Crores.
  • The Third Five Year Plan (1961 66)
    stressed on extension of Coverage of Small Scale
    Industries. The total expenditure on Small Scale
    Sector was Rs. 248 Crores.
  • The Fourth Five Year Plan (1969 73)
    Small Scale Sector witnessed significant
    Diversification Expansion. By the end of 1973,
    as many as 346 Industrial Estates had been
    established Small Scale Sector provides
    employment to about 82,700 Persons.

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  • The Fifth Five Year Plan (1974 78)
    outlay was Rs 611 Crores, whereas the actual
    expenditure on Small Scale Sector amounted to Rs.
    592 Crores.
  • During Sixth Five Year Plan (1980
    1985), massive development programs were
    initiated by the development of most promising
    Small Scale Industrial Sector. Expenditure
    occurred in this Plan was Rs. 1945 Crores
    exceeding the Outlay of Rs. 1780 Crores.

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  • Some of the important programs
    implemented during Sixth Five Year Plan are as
    under
  • 1) List of items reserved for exclusive
    production in Small Scale Industrial Sector
    increased to 836.
  • 2) 409 items were reserved for exclusive
    purchase from Small Scale Industries.
  • 3) Provision of Consultancy Services in
    Technical , Managerial etc. thro SIDO (Small
    Industries Development Organization).

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  • 4) For providing necessary Technical Input
    to Rural Industries, Council for Advancement of
    Rural Technology (CART) was established in
    October 1982.
  • By the end of 6th Five Year Plan the
    Annual Production of SSIs was Rs. 65,370 Crores,
    Exports touched Rs. 4557 Crores, employment
    reached to 31.5 Lakh Persons, accounting for 80
    of the Total Industrial Employment next only to
    employment in Agricultural Sector.

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  • 7th Five Year Plan (1985 90) gave a
    lot of importance for Technology Up gradation to
    increase Competitiveness of Small Scale
    Industrial Sector. The actual expenditure during
    Seventh Plan was Rs. 3249 Crores exceeded the
    plan outlay of Rs. 2753 Crores. Due to this,
    various development programs, the Small Scale
    Industrial Sector witnessed significant
    development in all fronts. Employed increased
    substantially from 96 Lakh persons to 119.6 Lakh
    persons during the Seventh Plan period.

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  • The 8th Five Year Plan (1992 1997)
    gave a lot of stress on Employment generation as
    the motive force for economic growth. As a result
    the number of Small Scale Units increased from
    13.56 lakh to 18.27 Lakh. The value of Annual
    Production increased to Rs. 91,681 Crores. The
    total expenditure in Eight Plan on Small Scale
    Sector was Rs. 6334 Crores.

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  • Impact of Liberalization, Privatization
    Globalization of Small Enterprises
  • The process of Liberalization
    Economic Reforms , since 1991, have thrown up new
    challenges to the small enterprises sector ,
    simultaneously creating tremendous opportunities
    for the growth of this sector.
  • In this changed scenario, building
    Competitive Strengths, introducing Technology Up
    gradation Quality Improvement are important
    issues which need to be addressed in order to
    build the capacity to withstand emerging
    pressures ensure sustained growth. Also small
    enterprises sector needs to reposition itself if
    it has to meet the growing demands for ancillary
    items , subcontracting etc from other Medium
    Large Enterprises , requiring higher standards of
    Quality, Economies of Scale strict delivery
    schedules.

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  • Even before introduction of the
    Economic Reforms in 1991, following the
    inevitable Globalization, the Small Enterprises
    sector was somewhat overprotected. With
    Liberalization Globalization, they are now more
    exposed to severe competition from Large Domestic
    Private Enterprises from Foreign other MNCs.
  • The problems of Small Enterprises in
    the Liberalized Environment are many Delay in
    Implementation of Projects, Lack of Timely
    assistance of Finance Credit from the Financial
    Institutions, Marketing Problems, Lack of Proper
    Infrastructural Facilities, Delay in receiving
    payment against the goods sold, outdated
    technology, poor quality of raw materials
    consumables lack of managerial skills etc.

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  • Now, World over the Business
    Environment is changing fast. Globalization in
    terms of multilateral trade liberalization
    increasing Internationalization of Production,
    Distribution etc has resulted in the opening up
    of markets, leading to keen competition.
  • For instance, the WTO regulates
    multilateral trade requiring its member countries
    to remove restrictions on Import Quotas reduce
    the Import Tariff. Accordingly, India was asked
    to remove Quantitative restrictions on Imports by
    2001, all export subsidies by 2003. As a
    result, all enterprises both Big Small
    Enterprises are facing severe competition in both
    domestic export markets. Further, 643 of the
    812 items reserved for MSME Sector , have been
    brought under OGL (Open General License) list of
    Imports as on 1st April 2001. This has opened up
    stiff direct competition in the Domestic market
    with the imports of high quality goods from
    member countries.

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  • Competition in the domestic market has
    further intensified with the arrival of MNCs as
    the restrictions on Foreign Direct Investment
    (FDI) have been removed. During, 1990 2000
    period, many MNCs in areas such as Automobiles,
    Electronics, Information Technology
    Telecommunication have entered the Indian Market.
  • Many sectors which were over
    protected earlier where Large Government
    promoted Public Undertakings were only involved,
    have been thrown open to the Private Sector by
    the Government of India. As a result, many Indian
    MNCs have such areas as Telecommunications,
    Infrastructural Development Activities ,
    establishment of International National
    Airports , formation of Special Economic Zones
    (SEZs ) in specified areas etc. Privatization has
    resulted in additional market potential for
    Products / Services, of Small Enterprises Sector.

89
  • Thus, we can say that the with the New
    Emerging Industrial Scenario, MSMEs will have to
    be Competitive. Govt is aware of these challenges
    has been trying to improve the Competitiveness
    thro various measures like
  • a) Strengthen Existing Technological
    Facilities. It is formulating a Scheme of
    assistance for Technology Up gradation.
  • b) To improve access to Latest Technology,
    automation of the ministry of MSME, has been
    taken up.
  • c) In order to facilitate adequate flow
    of Credit, a scheme of Credit Guarantee has been
    launched. Measures have been taken to improve
    Infrastructure Facilities Promote Marketing of
    Products etc.

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Effect of WTO / GATT on Small Enterprises
  • The Emerging Challenges to Micro Small
    Enterprises Sector are due to impact of the
    agreements under the WTO to which India is a
    Signatory.
  • The setting up of WTO in 1995 has altered
    the Basic structure of International Trade
    towards supportive, Market Oriented Policies.
    This is in keeping with the Policy shift from
    State Regulations / Interventions in economic
    Activity. This has lead to an expansion in the
    Volume of International Trade Changes in the
    Pattern of Commodity Flows. The main outcome of
    WTO stipulated requirements has been brought
    about thro a gradual reduction in Export
    Subsidies, greater market access, removal of Non
    Tariff Barriers, reduction in Tariffs.

91
  • More stringent Patent Laws have been
    brought into force thro regulation of
    Intellectual Property Rights (IPR) under the
    Trade related aspects of the Intellectual
    Property Rights (TRIPS) Agreement which
    stipulates the Products Processes which can be
    patented for what duration of time (20 Years)
    on what terms.
  • Because of WTO Agreement , there will be
    Large Inflows of Imports in the Domestic Market ,
    from around 3 of Domestic Production to 5 .
    The removal of Quantitative Restrictions (QRs)
    on Imports has been speeded up Imports of these
    items will soon be freed from all restrictions in
    our EXIM Policy. (Export - Import Policy.)

92
  • Increased Market Access under the WTO
    requirements will also mean that our Small
    Enterprises have a bigger World Market can
    compete for Export Markets in both Developed
    Developing Countries. This requires restructuring
    of our Small Enterprises to meet the demands of
    Quality Global Competitiveness for their
    survival growth.
  • Small Enterprises contribute about 54 of
    the Non Traditional 10 of Traditional Exports
    ( Together 35 of the Total Exports ) of our
    Country. However, they have to face Threats
    also avail opportunities owing to the WTO its
    agreements.

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  • The main Opportunities of WTO are
    classified as under
  • a) Firstly, most favored nation (MFN)
    treatment for exportable items across the member
    countries all over the World, with better Market
    Access thro the Internet .
  • b) Secondly, enlightened Entrepreneurs
    have greater Opportunities to benefit from their
    Comparative advantages due to lowering of Tariffs
    removal of other restrictions.
  • c) Finally, Enterprises that are in
    constant touch with the Govt which in turn
    negotiates in their best interests in the On
    Going dialogue with the WTO are going to benefit.

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Summary
  • India has a Good Potential to become a
    Superpower in the Service Sector, particularly
    Information Technology (IT) enabled services.
    India has already captured 25 of World Exports.
    However, they face challenges due to competition
    by way of Cheap Imports from other Countries due
    to Removal of Quantitative Restrictions (QRs) on
    Imports Lowering of Tariffs. Due to this, there
    is Stiff Competition for both Small Big
    Enterprises in both Domestic Export Markets.

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  • In addition, the Open General License
    (OGL) opens up the possibility of Direct
    Competition in the Domestic Market with the
    Import of High Quality Goods from developed
    Nations Cheap Products from Less Developed
    Countries. Also, the entry of MNCs has
    intensified Competition in the Domestic Market.
    Also, these Enterprises are finding it extremely
    difficult to compete due to certain inherent
    problems like Poor Quality of Goods, Costly
    Credit, not so well developed Infrastructure,
    Traditional Technology, Strict Labor Laws, Lack
    of Information International Exposure
    ineffective Small Enterprises association.

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  • However, the WTO Agreements suggests ways
    by which some of the adverse consequences could
    be neutralized. Some of them are inbuilt safety
    mechanisms like Anti Dumping such other
    measures. Also WTO prevents subsidies which
    directly affects the Competition of the Product ,
    it helps activities of Common Interest which act
    indirectly act as Subsidy to the Small
    Enterprises.

97
Supporting Institutions / Agencies of Govt for
Small Enterprises
  • Need for Institutional Support
  • Small Enterprises are playing a
    Very Vital Role in Economic Development of the
    Country by contributing to increased Production,
    increased employment generation, contributing to
    nearly 40 of our Countrys Exports thereby help
    earning Important Foreign Exchange for the
    Country finally giving substantial revenue to
    both Central State Govts by way of Direct
    Indirect Taxes.
  • Therefore, Small Scale
    Enterprises Sector needs a lot of support
    encouragement for its rapid growth from both
    Central State Govts. Setting up of Small
    Enterprise requires Infrastructural Facilities
    Financial Support as Entrepreneur on his own
    cannot arrange all these requirements.
    Entrepreneur also requires support for marketing
    his Product (s) / Service (s) , he requires
    Technological Inputs also ED Training,
    therefore, a strong Governmental Institutional
    Network is reqd.

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  • The Governmental Institutional Support
    Network can be broadly be classified into Two
    Categories as under
  • a) Central Level Institutions / Agencies.
  • b) State Level Institutions / Agencies.
  • List of these support organizations
    salient features of these support organizations
    is given below

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a) Central Level Support Institutions /
Agencies
  • Important Central Level Support
    Agencies for Promotion Development of Small
    Scale Enterprises are as under
  • 1) Development Commissioner, Micro, Small
    Medium Enterprises (DC MSME) under the Central
    Ministry of Micro, Small Medium Enterprises in
    which Ministry of Agro Rural Industries has
    also been merged.
  • 2) National Board for Micro, Small
    Medium Enterprises (NBMSME).

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  • 3) Small Industries Development Organization
    (SIDO).
  • 4) National Small Industries Corporation
    (NSIC).
  • 5) Small Industries Development Bank of
    India (SIDBI).
  • 6) Khadi Village Industries Commission
    (KVIC).
  • 7) National Science Technology
    Entrepreneurship Development Board (NSTEDB).
  • 8) National Productivity Council (NPC).
  • 9) National Institute for Small Industry
    Extension Training (NISIET).
  • 10) National Institute for Entrepreneurship
    Small Business Development (NIESBUD).
  • 11) Indian Institute of Entrepreneurship
    (IIE).
  • 12) Entrepreneurship Development Institute
    of India (EDII).
  • 13) National Bank for Agricultural Rural
    Development (NABARD).
  • 14) Council of Scientific Industrial
    Research (CSIR).

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Khadi Village Industries Commission (KVIC)
  • This is a Statutory Body created by an act
    of the Parliament in 1956. It is concerned with
    Planning, Promotion, Organization,
    Implementation of the Programme for the
    Development of Khadi other Village Industries
    in the Rural Areas in Coordination with other
    agencies engaged in Rural Development whenever
    necessary. The Various Functions are

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  • Build up a Reserve of Raw Materials
    implements for supply to rural industries.
  • Create common service facilities for
    converting Raw Materials into Semi Finished goods
    to be used as inputs by the Rural Industries.
  • To market the Products of KVIC.
  • To Organize Training of Artisans engaged
    in Rural Industries to encourage Co-operative
    efforts amongst them.
  • To Provide Financial Assistance to
    Institutions or Persons engaged in the
    Development Operation of Khadi Village
    Industries.
  • To Provide necessary Technical
    Information Guidance thro supply of Designs
    Prototypes etc. to Khadi Village Industries.

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National Productivity Council (NPC)
  • This is an
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