Definition of Small Entrepreneurs Development

Introduction

Over the past five decades, Government policies have been to protect the interests of the SSI sector and facilitate is rapid development, the Government, in pursuance of its policies, initiated various support measures from time to time which include policy reservation, revision of investment ceilings, modernization, technological upgradation, marketing assistance, fiscal incentives etc.,

The small scale sector owes its definition to the industries (Development and Regulation) Act, 1951. The sector is defined in terms of investment limits in plant and machinery (original value), upto a prescribed value. It comprises a wide divergent spectrum of industries, ranging from the micro and rural enterprises, using rudimentary technology on the one hand to the modern small scale industries using sophisticated technology on the other.

With effect from October 2001, the investment ceiling in Plant & Machinery in respect of 41 items covering two broad groups of Hosiery & Hand Tolls has been enhanced to ` 500 lakh.

Profile of SSI sector in the Industrial Sector

The SSI Sector accounts for:

95% of industrial units in the country.

39.92% of value added in the manufacturing sector.

34.29% of national exports.

6.86% of Gross Domestic Product (GDP)

The Small Industries Development Organisation (SIDO), headed by the Additional Secretary & Development Commissioner (SSI), being an apex body for formulating and overseeing the implementation of the policies for the development of small scale industries in the country, is playing a very positive and constructive role for strengthening this vital sector. It functions through a network of SISIs, Branch SISIs, Regional Testing Centres, Footwear Training Institutes, Production Centres, Field Testing Stations and specialized institutes. It renders services such as:-

Advising the Government in policy formulation for the promotion and development of small scale industries.

Providing techno-economic and managerial consultancy, common facilities and extension services to small scale units.

Providing facilities for technology upgradation, modernization quality improvement and infrastructure.

Developing Human Resources through training and skill upgradation.

Providing economic information services.

Maintaining a close liaison with the Central Ministries, Planning Commission, State Goverments, Financial Institutions and other Organisations concerned with development of Small Scale Industries.

Evolving and coordinating Policies and Programmes for development of Small Scale Industries as ancillaries to large and medium scale industries.

Small Industries Development Organisation (SIDO) had set up a cell for ancillary development to promote ancillarisation and sub-contracting in the country and has taken up the challenges to open new avenues for the small scale sector to ward off the psychological fear of failures due to competition from imported goods as a result of WTO agreements. This has been done through intensified efforts of promoting ancillarisation and sub-contracting by providing a common platform to small scale industries as well to the buyer organizations which hitherto were dependent on inputs or otherwise through the concept of organizing Vendor Development Programmes (VDPs) on larger scaled and setting up more sub-contracting Exchanges (SCXs) in different parts of the country.

Over the years SIDO has served a very useful purpose as a catalyst of growth of small enterprises through its vast network of field organizations spread over different parts of the country.

Support from State / Industry Associations

At the State level, concerned Commissioners / Directors of Industries implement policies for the promotion and development of small scale, cottage, medium and large-scale industries. The Central policies for the SSI sector serve as the guidelines, but each State evolves its own policy and package of incentives. The State departments also oversee activities of the field offices, viz., District Industries Centres (DICs). In addition, State Financial Corporations, State Small Industrial Development Corporations, Technical Consultancy Organisations, operate at the state level to assist the promotion and development of SSIs. Other regional level agencies include State Infrastructure Development Corporations, State Cooperative Banks, Regional Rural Banks, State Export Corporations, Agro Industries Corporations and Handloom and Handicrafts Corporations. At the grass root level, NGOs play an important role for the development of tiny and cottage units.

Industry Associations provide support to the SSI sector and offer common platform to raise industry-related issues. Government policies, in recent years, have stressed the increasing role of Industry Associations in the setting up of common facilities and other ventures in the area of technology, marketing and other support services. Industry Associations also impart institutional support to the small scale sector. Some of the major associations like Confederation of Indian Industry (CII); Federation of Indian Chamber of Commerce and Industry (FICCI); PHD Chamber of Commerce and Industry (PHDCCI); Associated Chamber of Commerce & Industry of India (ASSOCHAM); Federation of Indian Exporters Orgaganisation (FIEO); World Association for Small & Medium Enterprises (WASMe); Federation of Associations of Small Industries of India (FASII); Consortium of Women Entrepreneurs of India (CWEI); Laghu Udyog Bharati (LUB); Indian Council of Small Industries (ICSI) etc. have been helping and motivating SSI entrepreneurs.

The Msmed Act 2006

Classification of Enterprises

Notwithstanding anything contained in section 11B of the Industries (Development and Regulation)Act, 1951, the Central Government may, for the purposes of this Act, by notification and having regard to the provisions of sub-sections (4) and (5), classify any class or classes of enterprises, whether proprietorship, Hindu undivided family, association of persons, co-operative society, partnership firm, company or undertaking, by whatever name called, -

Definition

In the case of the enterprises engaged in the manufacture or production of goods pertaining to any industry specified in the first schedule to the Industries (Development and Regulation) Act, 1951, as –

Manufacturing Enterprises

Micro Enterprises

A micro enterprise, where the investment in plant and machinery does not exceed twenty five lakh rupees;

Small Enterprise

a small enterprise, where the investment in plant and machinery is more than twenty five lakh rupees but does not exceed five crore rupees; or

Medium Enterprise

a medium enterprise, where the investment in plant and machinery is more than five crore rupees but does not exceed ten crore rupees;

Service Enterprises

In the case of the enterprises engaged in providing or rendering of services, as –

Micro Enterprises

a micro enterprise, where the investment in equipment does not exceed ten lakh rupees;

Small Enterprises

a small enterprise, where the investment in equipment is more than ten lakh rupees but does not exceed two crore rupees; or

Medium Enterprises

a medium enterprise, where the investment in equipment is more than two crore rupees but does not exceed five crore rupees.

Explanation 1

For the removal of doubt, it is hereby clarified that in calculating the investment in plant and machinery, the cost of pollution control, research and development, industrial safety devices and such other items as may be specified, by notification, shall be excluded.

Explanation 2

It is clarified that the provisions of section 29B of the Industries (Development and Regulation) Act, 1951, shall be applicable to the enterprises specified in sub-clauses (i) and (ii) of clause (a) of sub-section (l) of this section.

Filing of Memoranda by MSMEs

Process of two stage registration of Micro & Small Enterprises dispensed with & replaced by filling of memoranda.

Filing of memoranda optional for all Micro & Small enterprises and service sector medium enterprises.

Filing of memorandum mandatory for manufacturing sector Medium Enterprises.

Notwithstanding anything contained in section 11B of the Industries (Development and Regulation) Act, 1951 and clause (h) of section 2 of the Khadi and Village Industries Commission Act, 1956, the Central Government may, while classifying any class or classes of enterprises under sub-section (i), vary, from time to time, the criterion of investment and also consider criteria or standards in respect of employment or turnover of the enterprises and include in such classification the micro or tiny enterprises or the village enterprises, as part of small enterprises.

Any person who intends to establish,-

A micro or small enterprise, may, at his discretion; or

A medium enterprise engaged in providing or rendering of services may, at his discretion; or

a medium enterprise engaged in the manufacture or production of goods pertaining to any industry specified in the First Schedule to the Industries (Development and Regulation) Act, 1951, shall file the memorandum of micro, small or, as the case may be, or medium enterprise with such authority as may be specified by the State Government under sub-section (4) or the Central Government under sub-section (3):

Provided that any person who, before the commencement of this Act, established—

a small scale industry and obtained a registration certificate, may, at his discretion; and

an industry engaged in the manufacture or production of goods pertaining to any industry specified in the First Schedule to the Industries (Development and Regulation) Act, 1951, having investment in plant and machinery or more than one crore rupees but not exceeding ten crore rupees and, in pursuance of the notification of the Government of India in the erstwhile Ministry of Industry (Department of Industry (Department of Industrial Development) number S.O 477(E), dated the 25th July, 1991 file an Industrial Entrepreneurs’ Memorandum, shall within one hundred and eighty days from the commencement of this Act, file the memorandum, in accordance with the provisions of this Act.

The form of the memorandum, the procedure of its filing and other matters incidental thereto shall be such as may be notified by the Central Government after obtaining the recommendations of the Advisory Committee in this behalf.

The authority with which the memorandum shall be filed by a medium enterprise shall be such as may be specified, by notification, by the Central Government.

The State Government shall, by notification, specify the authority with which a micro or small enterprise may file the memorandum.

The authorities specified under sub-sections (3) and (4) shall follow, for the purposes of this section, the procedure notified by the Central Government under sub-section (2).

Apex Consultative Body with Wide Representation of Stakeholders

National Board for Micro, Small and Medium Enterprise (MSME) headed by the Central Minister i/c of MSMEs and consisting of 47 members among.

Members of Parliament

Representatives of Central Ministries State Governments

UT Administration

RBI, SIDBI, NABARD

Associations of MSMEs including women

Persons of eminence and

Central Trade Union Organisations.

National Board to be now statutory as against non-statutory as against non-statutory SSI Board Quarterly meetings of National Board made mandatory.

Functions of the National Board

Examine the factors affecting the promotion and development of MSMEs and review the policies and programmes of the central government.

Make recommendations on matter referred to it by the Central Government.

Advise the Central Government on the use of Fund or Funds constituted under section 12.

Constitution of Advisory Committee

Headed by Central Government Secretary i/c of MSMEs & including.

Not more than five officers of the Central Government; not more than three representatives of State Governments &

One representative each of the Associations of Micro, Small and Medium Enterprises.

Functions of the Advisory Committee

To examine the matters referred to it by the nation board.

To advise Central & State Governments.

Promotional & Enabling Provisions

Central Government to notify programmes guidelines or instruc-tions for facilitating the promotion and development and enhanc-ing the competitiveness of MSMEs.

Central Government to constitute, by notification, one or more funds.

Central Government to credit to the Fund or funds, such sums as the Government may provide after due appropriation made by parliament by law in this behalf.

Central Government to administer the Fund or funds for purpose mentioned in section 9 & coordinate and ensure timely utilization and release of sums with such criteria, as may be prescribed.

Credit

The Policies and practices in respect of credit to the MSMEs shall be progressive and such as may specified in the guideline or instructions issues by the RBI, with the aims of:

Ensuring smooth credit flow to the MSMEs.

Minimizing sickness among them and

Ensuring enhancement of their competitiveness.

Procurement Policies

Central Government or a state Government.

To notify preference policies in respect of procurement of goods and services, produced and provided by MSMEs, by its Ministries, departments or its aided institutions and public sector enterprises (non statutory till now).

Provisions to Check the Delayed Payments

Provisions related to delayed payments to micro & small enterprises (MSEs) strengthened.

Period of payment to MSEs by the buyers reduced to forty five days.

Rate of interest on outstanding amount increased to three times the prevailing bank rate of Reserve Bank of India compounded on monthly basis.

Constitution of MSE Facilitation Council(s) mandatory for State Governments.

Provision for inclusion of one or more representations of MSE Associations in the Facilitation Council.

Jurisdiction of the Council in a State to cover wherever the buyer may be located.

MSE facilitation council may utilize the services of any Institution or Centre for conciliation and alternate dispute resolution services.

Reference made to the Council to be decided within ninety days from the date of reference.

Declaration of payment outstanding to MSE supplier mandatory for buyers in their annual statement of accounts.

Interest (paid or payable to buyer) disallowed to supplier for deduction for income tax purposes.

No appeal against order of Facilitation Council to be entertained by any Court without deposit of 75% of the decreed amount payable by buyer.

Appellate Court may order payment of a part of the deposit to the supplier MSE.

Facilitating Closure of Business

Central Government may (within one year of the commencement of the Act) notify a scheme for facilitating closure of business by a micro, small or medium enterprise.

New Package for Ssi Sector

Policy Support

The investment limit for the tiny sector will continue to be ` 25 lakh and for the SSI sector it will be ` 100 lakh.

The Ministry of SSI, A & RI will bring out a specific list of high-tech and export oriented industries which would require the investment limit to be raised up to ` 5 Crore to admit suitable technology upgradation and to enable them to maintain their competitive edge.

The Limited Partnership Act will be drafted quickly and got enacted.

Fiscal Support

To improve the competitiveness of small Scale sector the exemption on excise duty limit has risen from ` 50 lakh to ` 1 crore.

Credit Support

Composite loans limit has risen from ` 10 lakh to ` 25 lakh.

The Small Scale Service and Business (Industry Related) Enterprises (SSSBEs) with a maximum investment of ` 10 lakh will qualify for priority lending.

In the National Equity Fund Scheme, the project cost limit will be revise from ` 25 lakh to ` 50 lakh. The Soft loan limit will be retained at 25% of the project cost subject to a maximum of ` 10 lakh per project. Assistance under the NEF will be provided at a service charge of 5% per annum.

The eligibility limit for coverage under the Credit Guarantee Scheme has been revised to ` 25 lakh from the present limit of ` 10 lakh.

The Department of Economic affairs will appoint a Task Force to suggest revitalistion / restructuring of the State Finance Corporations.

The Nayak Committee’s recommendations regarding provision of 20% of the projected turn over as working capital is being recommended to the financial institution and banks.

Infrastructural Support

The Integrated Infrastructure Development Centre (IIDC) Scheme will progressively cover all areas in the country with 50% reservation for rural areas.

Regarding upgrading the industrial estates, which are languishing SSI Ministry will draw up a detailed scheme for consideration of the Planning Commission.

A plan scheme for cluster development will be drawn up.

The funds available under the non lapsable pool for the North East will be made use of for industrial infrastructure development, setting up of incubation centres, for cluster development and for setting up of IIDCs ins the North East including Sikkim.

Seed Capital Assistance

One of the constraints faced by the entrepreneurs, especially first generation or technical entrepreneurs, is the lack of resources to meet the minimum promoter’s contribution. To help the entrepreneurs overcome the problem IDBI has come up with the scheme which has gained popularity as the Seed Capital Scheme. If the project is coming up in non-backward areas, then the project would not be eligible for subsidy. Hence, the entire amount of promoter’s contribution would be brought by the contributor himself. This would be reduced to the extent of the subsidy if the project is coming up in backward areas like (category A, B, or C). the maximum amount which can be sanctioned is to the extent of ` 5 lacs per project on the fulfillment of certain conditions.

Objectives of the Scheme

The objective of the scheme is to create new generation entrepreneurs who have the requisite traits of entrepreneurship but whose financial resources are limited. It envisages extension of assistance at a nominal service charge for meeting the risk capital requirements of entrepreneurs. The scheme is expected to promote wider dispersal of ownership and control of industrial undertakings.

Incentives for Development of Industries in Backward Areas

As a part of the measures to ensure balanced regional development, Government of India have announced a number of concessions and facilities for industries established in selected backward districts/areas from time to time. The Central Government has declared 247 districts (covering about 70% of the areas in the country) as backward and eligible for the subsidies. Many State Governments have added to this list for the purpose of State level subsidies. The programme of assistance drawn up for setting up industries in the selected backward area/district is briefly indicated below:

Concessional finance: All India financial institutions namely, Industrial Development Bank of India, Industrial Finance Corporation of India and Industrial Credit and Investment Corporation of India, extend financial assistance on concessional terms to all, new and existing industrial projects having expansion schemes irrespective of the project costs located in the 247 districts selected by the government. The concessions given by these financial institutions are in the form of lower interest rate, viz., 9.5% p.a. against be normal rate of 11%, a reduced commitment charge of 0.5% (which could be waived in exceptional cases), lower underwriting commission of 1.25% and 0.75% for shares and debentures respectively, initial moratorium period upto five years, longer amortizations of 15 to 20 years and participation in the risk capital on selective basis. Besides these, the IDBI follows a flexible attitude in respect of promoter’s contribution, margin requirements, rescheduling of repayments during the currency of the loan. Depending upon the merits of specific cases in respect of refinance, the IDBI charges a special rate of 6% with the primary lender’s rate being subject to a ceiling of 9.5%. The normal rate of refinance is 6% with ceiling of 12.5% by the primary lending institution.

Central Investment Subsidy: The granting of cash subsidy on the capital investment is called capital investment subsidy. It will be usually in the form of outright grant of 10% to 20% of the amount of capital invested in the industrial units in areas specified to be backward regions/districts. The government also fixes ceiling above which they could not avail. It is offered by the Central Government.

Out of the 247 districts declared backward by the planning commission, 101 districts/areas have been selected to qualify for Central investment subsidy. These districts / areas have been selected on the pattern of six districts / areas for industrially backward states and three districts / areas for other states.

Machinery on Hire Purchase

Small scale industrial units including ancillaries are eligible to procure machinery on hire purchase basis from the National Small Industries Corporation Ltd, through its liberalized terms and conditions for supplying machinery to small scale industries located in backward areas which qualify for investment subsidy. According to the liberalized terms, with effect from 1st October 1975, the earnest money payable by technocrats and entrepreneurs from declared backward areas in 10% as against 15% in other cases. The rate of interest is 11% p.a. in respect of technocrats and entrepreneurs coming from backward areas and 13.5% in case of others. These concessional rates are available to units having a total investment in plant and machinery up to ` 2 lakhs. A rebate of 2% is allowed for prompt payment.

Special Facilities for Import of Raw Materials

The Import Policy of 1978-79 has introduced special concession of import of raw materials in the case of industrial units set up in backward areas or by graduates / diploma holders in professional subjects or by ex-servicemen/persons belonging to scheduled castes/scheduled tribes. The maximum value of the licence shall be ` 5 lakhs in respect or new or proposed small scale units instead of ` 3 lakhs. They will also be eligible for preferential treatment in the matter of canalized items.

Transport Subsidy

The transport subsidy scheme, 1971 envisages grant fo a transport subsidy to industrial units in selected areas to the extent of 50% of the transport costs of raw materials which are brought into and finished goods which are taken out of the selected areas. The scheme has been extended up to the end of March 1985.

The scheme covers the State of Jammu and Kashmir, Himachal Pradesh, hilly areas of Uttar Pradesh and North Eastern Region comprising States of Assam, Meghalaya, Nagaland, Tripura and the Union Territories and Arunachal Pradesh, Andaman and Nicobar Islands, Mizoram and Lakshadweep.

Subsidy is paid on transport costs between the selected railheads and location of the industrial units in the above states / Union Territories.

Summary

The different incentives scheme available for entrepreneurs to fulfil their requirements are discussed thoroughly in this lesson. So it could create an awareness among the entrepreneurs what are the incentives available? and How to avail them?