Chapter 2: Small Business

Introduction
In most of the developing countries
like India, Small Scale Industries
(SSI) constitutes an important and
crucial segment of the industrial
sector. They play an important role
in employment creation, resource
utilisation and income generation
and helping to promote changes in
a gradual manner. In the post
independence era, a strategic
position has been allotted to the
small scale industries in the
industrial policy.
What are Small Scale Industries ?
The industries in India which are
organized in a small scale and produce
Definition goods with the help of machines, hired
labour and power are considered as
small scale industries.

Initially, the following units were

classified as a small scale business:
Criteria  Those using power with less than 50
employees
 Those not using power with more
than 50 but less than 100
employees.
What are Small Scale Industries ?
However, the capital investment in a unit
was considered as a primary criterion to
classify a small scale business.

On 21st December 1999, a unit was considered to be a small scale

business if:
 Investment in fixed assets like plant & equipment is not more than Rs.
1 crore. The fixed assets may be owned, leased or on hire purchase
basis.
 The unit was not owned, controlled or an auxiliary for any other
industrial unit.
What are Small Scale Industries ?
However, now the classification is based on the Micro Small
and Medium Enterprises Development (MSMED) Act, 2006

The following is the investment criteria:

Manufacturing Sector Service Sector
Micro Does not exceed Rs. 25 Does not exceed Rs. 10
lacs lacs
Small Rs. 25 lacs but does not Rs. 10 lakhs but does
exceed Rs. 5 crores not exceed Rs. 2 crores
Medium Rs. 5 crores but does Rs. 2 crores but does
not exceed Rs. 10 crores not exceed Rs. 5
crores.
What are Small Scale Industries ?
After the MSMED Act, 2006, the small scale
industries were referred to as MSME or SME.

In order to promote small business units, the

government offers special concession and
subsidies to business units registered under
MSMED Act, 2006. These concessions include
exemptions from sales tax, electricity at
subsidized rate, government grants, and
advances at low rate of interest.

Tiny Sector – All small scale units whose

investment in plant and machinery is not
more than Rs. 25 lacs irrespective of location
of the unit have been given the status of tiny
enterprises.
Characteristics of Small Scale Industries
Adaptability
 Labour Intensive
 Managed by a single
individual
 Export contribution Small-scale industries are
 Localised operations flexible in their operation. They
 Low gestation period require limited capital and are
 Decentralization of labour intensive. Due to their
economic power small size, they can change and
 Production methods adapt themselves to changing
business trends.
Characteristics of Small Scale Industries
 Adaptability
Labour Intensive
 Managed by a single
individual
 Export contribution There are no or few machines in the small scale
industries. Therefore, the production process is
 Localised operations substantially dependent on labourers. This
 Low gestation period makes the small scale industries labour
intensive. They provide an economic solution by
 Decentralization of creating employment opportunities in urban and
rural areas at a relatively low cost of capital
economic power investment. It creates 8 to 10 times more
 Production methods employment as compared to large scale
industries. Currently, more than 2 crore people
are employed in the small scale sector in India.
Characteristics of Small Scale Industries
 Adaptability
 Labour Intensive
Managed by a
single individual A small-scale unit is generally a one-man
show. It is mostly set up by individuals.
 Export contribution Even some small units are run by
 Localised operations partnership firm or company, the
activities are mainly carried out by one
 Low gestation period of the partners or directors. Therefore,
 Decentralization of they provide an outlet for expression of
economic power the entrepreneurial spirit. As they are
their own boss, the decision making
 Production methods process is fast and at times more
innovative.
Characteristics of Small Scale Industries
 Adaptability
 Labour Intensive
 Managed by a single
individual
Export
contribution Small scale industries have a substantial
 Localised operations share in India’s total exports. They
contribute nearly 40% of India's total
 Low gestation period exports. Handicraft products made in
 Decentralization of India have huge demand in foreign
markets.
economic power
 Production methods
Characteristics of Small Scale Industries
 Adaptability
 Labour Intensive
 Managed by a single
individual
 Export contribution
Localised
Small-scale industries generally restrict
operations their operation to local areas in order to
 Low gestation period meet the demands of the local people.
They cannot expand their business
 Decentralization of activities due to limited resources.
economic power
 Production methods
Characteristics of Small Scale Industries
 Adaptability
 Labour Intensive
Small
 Managed by a single Gestation
individual Period

 Export contribution
 Localised operations
Gestation period can be stated in general terms
Low gestation as period in which firms achieve profitability and
a steady income is generated through the
period business activities. Small scale industries can be
set up in a small period of time and they can
 Decentralization of increase the production at a fast pace. Thus,
economic power they have a low gestation period. The capital of
the entrepreneur does not remain blocked for a
 Production methods longer period of time
Characteristics of Small Scale Industries
 Adaptability
 Labour Intensive
 Managed by a single
individual
 Export contribution
 Localised operations Due to formation of small scale
 Low gestation period industries, many entrepreneurs are
created in an economy. They put efforts
Decentralization of and try to make their business
economic power successful. This prevents concentration
of economic power in hands of few
 Production methods people. Moreover, income is distributed
evenly.
Characteristics of Small Scale Industries
 Adaptability
 Labour Intensive
 Managed by a single
individual
 Export contribution Small scale industries utilize a mix of
 Localised operations both traditional and modern methods of
production. The traditional methods
 Low gestation period
refer to manual operations using skills of
 Decentralization of labour. Modern methods refer to
economic power operations by use of machines. The
production methods used are simple
Production and less time consuming.
methods
Types of Small Scale Industries

Small Scale
Industry

Traditional Small Scale Modern Small Scale

Industry Industry
It includes metal work,
It includes producing
ivory, wood carpet
cycle parts, sewing
carving, pottery, hand
machines, razor
woven textile, goods of
blades, electrical
common use etc.
goods etc.
What is Cottage Industry ?
Introduction:
In rural regions of India, many families engage in
small production activities from their homes.
There scale of operations is very miniscule and
the workers are generally the family members
themselves. There are rarely any machines
involved and the production is carried out entirely
by hand. The produce generally consists of
handicraft, woolens, carpets, handloom articles,
earthenware, jewellery, etc. The products are
generally unique.

Definition:
Any industry where the creation of product
and services are home based rather than
factory based and specific skills is required is
called as cottage industry.
Characteristics of Cottage Industry
Unorganized
Sector
 Use of traditional skill
 Small scale production
 Employment
Cottage industries are scattered
generation
all over country. They function
 Preservation of culture in villages, districts and towns
 Use of agricultural also. There is also no common
link between them. As a result,
resources
they are unorganized.
Characteristics of Cottage Industry
 Unorganized Sector
Use of traditional
skill
 Small scale production
There is hardly any use of
 Employment mechanization in cottage industries.
generation They are based on skilful production.
The skill for making the product is
 Preservation of culture passed on through generations in the
 Use of agricultural family. Certain products made by
this sector require high skill
resources workmanship.
Characteristics of Cottage Industry
 Unorganized Sector
 Use of traditional skill
Small scale
production
Cottage industries are based on
 Employment skilful production. There is hardly
any use of machines. Even the
generation laborers involved are family
 Preservation of culture members only. Thus, they production
of cottage industry is on a small
 Use of agricultural scale. Moreover, they are able to
maintain quality if the production is
resources
on a small scale.
Characteristics of Cottage Industry
 Unorganized Sector
 Use of traditional skill
 Small scale production
Employment
generation Cottage industry is regarded as
a self-employed industry. It
 Preservation of culture
helps to provide employment
 Use of agricultural to a lot of people in rural India.
resources Thus, it has great importance
for our country.
Characteristics of Cottage Industry
 Unorganized Sector
 Use of traditional skill
 Small scale production
 Employment
generation Cottage industries have helped to
preserve the cultural heritage of the
Preservation of country. Certain products made in the
cottage industry are based on skilful
culture production. The skill for making such
products is passed on through generations
 Use of agricultural in the family. The products have a distinct
identity of its own and bear the
resources impression of the Indian culture.
Characteristics of Cottage Industry
 Unorganized Sector
 Use of traditional skill
 Small scale production
 Employment
generation Some cottage industries are
 Preservation of culture also engaged in processing of
agricultural produce. They
Use of acquire the agricultural
agricultural produce which is available in
that particular geographical
resources area.
Cottage Industry
Cottage industries work with bare minimum capital and they are
responsible for providing part time and full time employment to may
unskilled and unemployed rural Indians. It has helped to improve the
per capital income of rural India and improves the overall standard
living.
Cottage Industry
Products

Common High Skilled Agro-based

Consumer Goods Production processing
Footwear, Dress fabric, ivory Edible items,
garments, toys, carving, khadi, spices, oils, honey,
silk, handloom, stone idols, pickles, fruit
leather goods jewellery etc. products, jams etc.
How does cottage Industry benefit the society?
Any industry where the creation of product and services are home
based rather than factory based and specific skill is required is called
as cottage industry.

The following are the benefits of cottage industry to the society:

Utilization of
Self Sufficiency
human resources

Advantage to
Empowerment
Entrepreneur
Benefits of Cottage Industry
Utilization of human resources
Cottage industries utilize the
manual skill of the people. As a
result, they are engaged in the
production activities and this
reduces the idle man hours of the
society.
Self-sufficiency
Cottage industries ensure self
sufficiency of the people engaged
in these industries. In villages,
where there are no big industries,
cottage industries help to provide
livelihood to the people and it
assures wealth creation.
Benefits of Cottage Industry
Empowerment
Cottage industry is regarded as a self-
employed industry. People engaged in
cottage industry generate employment
for themselves. This gives them a self
pride and increases their role in
empowerment of the whole nation.

Advantage to entrepreneur
The cost of setting up and maintaining
a cottage industry is relatively low.
Therefore, it gives great advantage to
entrepreneur as he can earn higher
profits.
Relationship between cottage industries, small scale
industries and large scale industries.
Cottage Industry
Points Small Scale Industry Large Scale Industry
(Tiny Sector)
Investment Does not exceed More than Rs. 25 More than Rs. 10 crores
in plant & Rs. 25 lakhs lakhs but does not
machinery exceed Rs. 5 crores
Use of Traditional Mix of traditional Modern technique involving
technique technique involving and modern sophisticated machines
operation by hand. technique
Labour Members of the People residing in People belonging from
supply family itself work the local areas are different parts of the
as labourers available as country are available as
labourers. labourers.

Raw It is procured from It is procured from It may also be imported

Material local areas outside if not from other countries if not
available in local available within the
areas country.
Rural Industry
Definition:
According to Khadi and Village Industry Commission (KVIC), rural
industry means “Any industry located in rural areas, population of which
does not exceed 10,000 or such other figure. Goods/services produced
with or without use of power and in which the fixed capital investment
per head of an artisan or worker does not exceed Rs. 1,000”

According to Government of India, rural industry means “Any industry

located in rural area, village or town with a population of 20,000 and
below with an investment of Rs. 3 crores in plant & machinery.”

Ministry of Agro and Rural Industries (MOARI)

Established: September 2001
Aim : Develop rural industrialization by upgrading skills, supply
chain management, expanding markets and introducing
innovative techniques.
Types of Rural Industry
The industries which use agricultural produce as their
raw material are called as agro-based industries.
Agro-Based E.g.: Food processing, vegetable oil, cotton textile,
Industries dairy products, leather, fruit pulp and juices, pickles,
spices etc.

The industries which use forests as their raw material

Forest-Based are called as forest based industries. E.g.: Wood
Industries products, bamboo products, honey collection,
making eating plates from leaves, coir industry,
making furniture from timber, etc.

Mineral- The industries which use mineral ore as their raw

material are called as mineral based industries.
Based
E.g.: Iron & Steel industries, cement, cement
Industries industries, machine tools, stone crushing, red oxide
making etc.
Types of Rural Industry
The industry which is involved in growing or
Textile producing fibres, or converting fibres to threads, or
converting thread to cloth or dyeing / bleaching of
Industry
cloth is called as textile industry.
E.g.: Spinning, weaving, bleaching, dyeing, etc.

The industries which provide engineering goods and

Engineering services to support other rural industries are covered
and service under this type.
rendering E.g.: Production of agricultural equipments, tractors,
Industry pumpset repairs, weaving machines, cutting tools
etc.

Ministry of Agro and Rural Industries (MOARI)

Established: September 2001
Aim : Develop rural industrialization by upgrading skills, supply chain
management, expanding markets and introducing innovative techniques.
Sectors in Rural Economy
Fisheries:
The occupation of raising and harvesting fishes is
called as fishery. It is carried on around the main
coastline and India has around 4000 fishing villages.
The fish production in India doubled between 1990
and 2010. It is mainly because of the National
Programme of developing fish seeds. Under this
programme, various new fishing methods and
processed fish products were introduced in Indian
markets. As a result, productivity improved.
Horticulture:
Horticulture is a part of agriculture and deals with
science & technology for intensive plant cultivation.
Since India has diverse climate and soils, there is a
great opportunity for horticulture. This occupation
has become popular over the last decade only. Some
crops cultivated in horticulture comprises of
vegetables, fruits, exotic flowers, aromatic plants,
spices etc.
Sectors in Rural Economy
Sericulture:
Sericulture or silk farming is the rearing of silkworms
for the production of silk. This industry is generally
found in the southern parts of India. It is a highly
profitable activity and is carried out by small &
marginal farmers including women.

Jute Business:
Jute business in India is one the major foreign
exchange earner for the country. India is one of the
leading producers of jute. The delta of the river
Ganges in West Bengal is the ideal place for the
cultivation of jute in India. Jute is one of the most
popular natural fibers next only to cotton. Jute is
used for a variety of uses such as gunny bags,
shopping bags, handicrafts, carpets, etc. which has
high demand in urban areas.
Sectors in Rural Economy
Tea Business:
The tea business in India is nearly a 170 years old
practice. This agro-based industry is a very
important contributor to the economy of India. The
main tea business in India is located along the rural
hills and backward areas of north eastern and
southern states like Assam, West Bengal, Tamil Nadu
and Kerala. The tea business in India is mainly based
on cultivation of tea variants like CTC, orthodox tea
and green tea.
Poultry Business:
Poultry business or poultry farming refers to raising
of domesticated birds like chickens for the purpose
of meat or eggs for food. India is the 7th largest
poultry producer all over the world. The major
poultry production takes place at Andhra Pradesh,
Karnataka and Kerela. Tamil Nadu contributes 45%
of the total egg production and the central part of
India contributes 20%.
Sectors in Rural Economy
Rubber Business
The rubber business is one of the oldest businesses
in India. Natural rubber is cultivated in the remote
areas of southwest Konkan and Malabar coast, in
Kerela and in Kanyakumari. The production of
rubber in 2006 was 6.49 lakh tons and has increased
gradually since then. The rubber business in India
has huge potential but the technique of production
needs to be improved.
Role of small business in India
Almost 75% of the population of India resides in rural areas. Therefore, small
businesses play a significant role in rural India. Most importantly, it provides
employment and livelihood to crores of people living in rural areas. Also, it has
helped to preserve the cultural heritage of India.

The following is the role of small business in rural India:

Reducing gap between Equitable distribution
rural and urban areas of national income
Rise of co-operative
Capital Mobilization
sector
Employment Rural
entrepreneurship
Co-ordination with
agricultural sector Self-sufficiency
Optimum utilization of Connectivity to
local raw material developed world
Role of small business in India
1. Reducing gap between rural and urban areas
Due to small businesses, there has been a great
amount of development in rural areas. A lot of
infrastructure has developed to support these
businesses. Moreover, employment is being
generated for the local people. Thus, small
business has helped to reduce the gap between
rural and urban areas. Small business provides an
answer to various problems such as poverty,
unemployment and backwardness.

2. Capital Mobilization
Small scale businesses are scattered over a large
area throughout rural India. They are not
concentrated in certain specific areas only like large
scale industries. They are able to mobilize capital
easily. They are suitable for the capital scarce and
labour abundant rural parts of India.
Role of small business in India
3. Employment
In rural India, small scale businesses provide largest
employment opportunity after agriculture. This is
mainly because small businesses are labour
intensive. Moreover, agriculture is a seasonal
business and it leads to seasonal unemployment.
Such unemployed labourers find employment in
small businesses. Thus, small businesses have been
able to absorb the surplus labour in rural economy.
Total contribution of small business is around 45% in
area of employment.
4. Co-ordination with agricultural sector
Small business support agricultural sector by
providing processing facilities and consumer goods
for consumption. This has led to a boost in
agricultural production. Further, agricultural sector
also provides raw material to the agro based
industries. This has led to growth of agro based
industries as well.
Role of small business in India
5. Optimum utilization of local raw material
Small businesses utilize the raw material
available locally. In absence of such small
businesses, this local raw material would have
not been utilized or under-utilized. Also, since
local raw materials are utilized, the cost of
production is reduced and the consumers get
the final product at a reasonable price.

6. Equitable distribution of national income

Small scale industries are scattered throughout
the country unlike large industries which are
based in urban areas only. As a result, there is
decentralization of industrial expansion. People
residing in rural areas also earn income. Thus,
there is equitable distribution of income and
wealth.
Role of small business in India
7. Rise of co-operative sector
Due to the growth of small businesses, there
has also been an emergence of co-operative
institutions at rural and district level. Co-
operative institutions collect savings from
people and utilize it for the benefit of the
people. Co-operative sector is very active in
agro based industries especially in western
Maharashtra.

8. Rural entrepreneurship
The small businesses have promoted
entrepreneurship among the rural youth. A lot
of people are now starting up and becoming
self employed. It has also encouraged
innovation in the country.
Role of small business in India
9. Self-sufficiency
Small businesses brought about self sufficiency
in rural areas in two ways:
 Consumer goods produced by small
businesses became available locally at
reasonable prices
 Rural people started earning their livelihood
from small businesses.
10. Connectivity to developed world
Small businesses have led to social as well as
economic development of rural areas. There is
an overall increase in education, general
awareness and familiarity to modern
techniques. Rural areas are no longer backward.
Rural areas are slowly connecting to the
developed world.
Problems of small businesses
Due to their small size, small scale industries face a lot of problems. Due to limited
capital, the businesses are not in a position to expand and enjoy the benefits of
large scale production. They are also not able to take advantage of the government
schemes. As a result, many small scale unit have turned sick. The following are the
problems of small scale businesses in India:-

Problems (M-M-M-M)

Manufacturing Marketing Monetary Many Others

Problems of small businesses
Monetary Problems (Funding Problem)

This is one of the major problems faced by small businesses. Most of

the small businesses are proprietary firms or partnership firms. Thus,
their capital base is essentially weak. In order to set up and run the
businesses, the owners are forced to borrow from non-institutional
sources like money lenders, traders, agents, relatives and friends. The
rate of interest charged is very high which becomes a burden for the
business owners.
Problems of small businesses
Manufacturing Problems

Quality

Under utilization of capacity

Infrastructure

Expenditure on R & D

Technology is outdated

Non-availability of raw materials

SMART CODE: QUIET - N

Problems of small businesses
Manufacturing Problems

Quality
Small businesses are not able to maintain quality for the following reasons:
• They focus more on cutting costs and keeping prices low.
• They do not adhere to quality standards.
• They work on outdated technology and do not have funds to upgrade.

Under utilization of capacity

Small scale businesses may not be able to market their products properly due
to which the demand for their goods is low. As a result, they have to operate
below full capacity. Also, resources are not utilized optimally which leads to
increase in operating costs. Such businesses may have to face losses.
Problems of small businesses
Manufacturing Problems

Infrastructure
Rural areas face the major problems of water shortage, shortage of power and
poor road connectivity. Such basic infrastructural problems hamper the growth
of small businesses. Apart from these basic problems, transport problems,
shortage of space, high rent and other labour problems also affect the working
of the business.

Expenditure on R & D
Small Units have a very small capital base they do not have funds to carry out
any research or development on their products. This leads to higher costs of
production, shortens the product life cycle, failure to offer variety.
Problems of small businesses
Manufacturing Problems

Technology is outdated
Most of the small businesses are working on outdated technology. The following
are the disadvantages:
Low productivity
High costs
Low quality
Difficulty to face competition.

There are very few small businesses which have access to modern technology.
Non-availability of raw materials
Small businesses obtain raw materials from local sources. They face the
following problems relating to raw material:
Local traders exploit them by charging higher prices.
Shortage problems due to natural calamities, transport problems and industrial
strikes.
Low quality raw materials are available.
Problems of small businesses
Marketing Problems

Involvement of middlemen

Limited funds for marketing

Other marketing problems
Lack of advertising
Non-branding of products
Poor quality of products
Heavy competition from large players
Lack of knowledge regarding marketing.
Problems of small businesses
Marketing Problems

Involvement of middlemen
The small businesses do not have the capacity to directly market their goods to final
consumers. Therefore, they involve middlemen who many times exploit them by
paying low prices and delaying their payments.
Limited funds for marketing
Small businesses allot limited funds for marketing due to which they are not able to
undertake market research. As a result, their marketing is not effective. Also, they
are not able to expand the size of their markets. They are forced to restrict their
sales to local markets.
Other marketing problems
The other marketing problems faced by small businesses are as follows:
Lack of advertising
Non-branding of products
Poor quality of products
Heavy competition from large players
Lack of knowledge regarding marketing.
Problems of small businesses
Many Other Problems

Heavy Competition

Export related problems

Problem of sickness

Other problems:
There are various other problems faced by small units like:
Products are not recognized as branded products many times.
Burden of local taxes
Labour problems like highly demanding employees, absenteeism, high
labour turnover, strikes etc.
Problem of delayed payments by large firms and government departments.
Problems of small businesses
Marketing Problems

Heavy Competition
Small businesses face competition not only from large scale businesses in the
country but also from multinational companies (MNCs). The small businesses
cannot match up to the quality standards and marketing capacity of big companies.
Thus, they are not able to grow and reach out to a wider audience.

Export related problems

Various products made by small businesses have huge demand in foreign markets
and are exported to all parts of the world. Infact, the government has announced
various schemes to encourage exports. However, small businesses are not able to
effectively market their products in foreign countries, there is demand fluctuation
and also lack of organized effort to increase exports.
Problems of small businesses
Marketing Problems

Problem of sickness
A business unit is said to be sick if it is not able to sustain itself financially. According
to RBI, a business unit is said to be sick if it has suffered a cash loss in the previous
year and is expected to suffer a cash loss in the current year and the next year as
well. A lot of small business units are turning sick due to various internal and
external causes.

Other problems:
There are various other problems faced by small units like:
Products are not recognized as branded products many times.
Burden of local taxes
Labour problems like highly demanding employees, absenteeism, high labour
turnover, strikes etc.
Problem of delayed payments by large firms and government departments.
Government schemes for industries in hilly and
backward areas
In order to facilities last growth of small industries, the government has devised and
launches multiple schemes, which directly or indirectly favour and aid the growth of
small units. Among the developing countries, India was the first to display special
concern for small scale enterprises. The following are some schemes that the
government has announced for small units in hilly and backward areas:

District Special Employment Programme:-

This programme was launched with the motive of creating employment in all those
districts which were specifically included in this programme.
In order to create employment, this programme helped establishment of tiny and
small units in the various districts covered by this programme.
It had envisaged employment generation of 10,000 persons per district over a
period of time.
Under this programme, village industries like carpentary, fruit processing, cane,
bamboo, honey processing, stone crushing, detergent, soap etc.
So far, 71 backward districts spread over 24 states have benefited from this program.
Government schemes for industries in hilly and
backward areas
Block Development Programme :-
This programme was launched on 2nd October 1994.
It was initiated in 125 backward blocks.
The programme aimed at generating sustainable employment for 1000 persons per
block.
So far, 171 institutions have been identified under this programme.

Integrated Infrastructural Development Centres:-

The central government has formulated a scheme for setting up IID in rural and
backward areas and the target was to set 50 such IID centres.
The scheme was formulated in the 8th five year plan and continued in the 9th five
year plan as well.
Under this scheme, the central government provides aid in the form of grant upto
Rs. 2 crores for a project which requires investment of Rs. 5 crores. The grant is
upto Rs. 4 crores for projects in north east region of the country.
SIDBI provides loans upto Rs. 3 crores for projects covered under this scheme.
Government schemes for industries in hilly and
backward areas
Package for tiny sectors:
Tiny sectors are those having investment in plant and machinery upto Rs. 25 lacs
and 95% of small businesses are tiny units.
The government has provided a separate package of facilities and incentives to tiny
sectors.
Out of total credit available for small businesses, 60% was reserved for tiny sector
with 40% to units having investment upto Rs. 5 lacs and 20% to units having
investment from Rs. 5 lacs to Rs. 25 lacs.

Credit Flow

60% to Tiny Sector 40% to other small businesses

40% for units with investment

upto Rs. 5 lacs

20% for units with investment

upto Rs. 5 lacs to Rs. 25 lacs
Policies formulated by central government and
financial assistance to small businesses.
New Small Enterprise Policy, 1991.
After 1990, the government adopted policies to liberalise the economy and to open it to foreign trade. In
1991, the government announced the New Small Enterprise Policy in order to encourage the growth of
small businesses. This was a policy package for small, tiny and village industries.
The following are the important measured announced in the policy:

 Investment limit raised - Investment limit in plant and machinery for tiny units was increased to Rs. 5 lakhs from Rs.
2 lakhs.
 Unrestricted entry - The scheme allowed unrestricted entry i.e. removed location based barriers for tiny units.
 Integrated infrastructure development centers - Government established integrated infrastructure development
centers in rural regions of India. These centers provide infrastructural aid to tiny units established in their rural
areas.
 Scope of tiny units widened - The policy helped to widen the scope of tiny units so as to include industry related
services apart from just manufacturing activities.
 Separate package proposed - Special privileges were given to “TINY” units from the government .They were given
many benefits from the Government on a continuous basis where as other small businesses were given only 1 time
benefits.
 New form of organization introduced - The policy introduced a new form of organization where the liability of
atleast one partner is unlimited. It is known as restricted partnership.
 Market promotion - The policy proposed that the market promotion of small and tiny sectors should be undertaken
by co-operatives, public sector institutions and professional agencies.
 Priority - The policy also proposed to give priority to tiny sector in government purchases as well as in allocation of
indigenous/local raw material.
Policies formulated by central government and
financial assistance to small businesses.
Cluster Based Approach

 A cluster is a collection of enterprises producing similar products or services,

setup within a common identifiable area. Clustering of units help to improve the
productivity and competitiveness of micro and small enterprises.
 National Programme for Rural Industrialization (NPR1) was launched in the year
1999-2000, to promote clusters of units in rural areas. It aimed at setting up 100
rural clusters in each year.
 The aim of the scheme was to support the growth and development of the micro
and small enterprises by providing them assistance in areas like marketing,
export promotion, skill upgradation and infrastructure.
 NPR1 provided assistance of upto Rs. 5 lacs for intervention in a cluster. There is
a budget provision of Rs. 5 crores in the 10th plan for this program.
 Further, the Ministry of Small Scale Industries launched a scheme called UPTECH
in 1998. Later in August 2003, the scheme was renamed Small Industry Cluster
Development Program (SICDP).
Policies formulated by central government and
financial assistance to small businesses.
Various schemes were launched by the government to provide financial assistance
to small units:

Sr. Scheme Launched Functions

No. in
1 Small Industries 1986 Provides refinance assistance for
Development Fund development, expansion, diversification
(SIDF) and rehabilitation of small, tiny, village
and cottage industry.
2 National Equity 1987 - Provides equity type of support for
Fund (NEF) setting new projects in tiny sector.
- Provides assistance for sick units.
3 Single Window 1988 Provides long term loans for fixed
Scheme (SWS) capital to new tiny and small
businesses.
Note on SIDBI
• Small Industries Development Bank of India (SIDBI), set up on April 2, 1990
under an Act of Indian Parliament, is the principal financial institution for the
About promotion, financing and development of the Micro, Small and Medium
SIDBI Enterprise (MSME) sector and for co-ordination of the functions of the
institutions engaged in similar activities. SIDBI is the wholly owned subsidiary of
IDBI.

• Initiating steps for technological upgradation and modernisation of existing

units;
Objective • Expanding the channels for marketing the products of the small scale sector;
of SIDBI and
• Promotion of labour intensive industries, especially in semi- urban areas to
create more employment opportunities.

• Refinances loans and advances provided by the existing lending institutions to

the small-scale units.
• Extends capital assistance under National Equity Fund, Mahila Udyam Nidhi
Major and Mahila Vikas Nidhi and seed capital schemes.
activities • Financial facilities relating to marketing and development of industrial areas
and technical support.
• Direct discounting and rediscounting of short term trade bills.
Schemes by SIDBI
National Equity Fund Scheme which provides equity support to small entrepreneurs setting up projects in
tiny sector

Technology Development & Modernisation Fund Scheme for providing finance to existing SSI units for
technology upgradation/modernisation.
Single Window Scheme to provide both term loan for fixed assets and loan for working capital through
the same agency
Composite Loan Scheme for equipment and/or working capital and also for worksheds to artisans, village
and cottage industries in Tiny Sector.
Mahila Udyam Nidhi (MUN) Scheme provides equity support to women entrepreneurs for setting up
projects in Tiny Sector.

Scheme for financing activities relating to marketing of SSI products which provides assistance for
undertaking various marketing related activities such as marketing research, R&D, product upgradation,
participation in trade fairs and exhibitions, advertising branding, establishing distribution networks
including show room, retail outlet, wears-housing facility, etc.

Equipment Finance Scheme for acquisition of machinery/equipment including diesel generator sets
which are not related to any specific project.

ISO 9000 Scheme to meet the expenses on consultancy, documentation, audit, certification fee,
equipment and calibrating instruments required for obtaining ISO 9000 certification.
National Bank for Agricultural and Rural
Development
NABARD stands for National Bank for Agricultural and Rural Development.

The Government of India and Reserve Bank of India (RBI) constituted a

committee to review the arrangements for institutional credit for agriculture and
rural development on 30 March 1979, under the Chairmanship of Shri
B.Sivaraman, former member of Planning Commission.

The Committee in its report recommended the formation of a separate

organization and thus the NABARD was formed by an act of parliament in July
1982.
NABARD and its role
It was established with the purpose of providing credit facilities in the rural areas.
It is an apex development bank facilitating credit flow for production and
development of agriculture, small scale and cottage industries.

Role of NABARD
i. Providing refinance to institutions in rural area i.e supporting those
institutions who promote rural development

ii. Promoting the development of institutions.

iii. Evaluating, monitoring and inspecting client banks.

Functions of NABARD
1. Assists the government, RBI and other organizations in matters related to
rural development
2. Offers training facilities and research facilities for banks, co-operatives and
other organizations which are working in the field of rural development.
3. Acts as a co-ordinator in the operations of rural credit institutions.
4. Acts as a regulator for co-operative banks
5. Helps the state government in reaching their targets of providing assistance
to eligible institutions in agricultural and rural development.
Khadi and Village Industries Commission

The KVIC is a statutory body established by an Act of Parliament in

1957.

It took over the work of the former All India Khadi and Village
Industries Board.
Functions of KVIC
 The KVIC is charged with the planning,
promotion, organisation and
implementation of programs for the
development of Khadi and other village
industries in the rural areas in
coordination with other agencies
engaged in rural development
 Building up of a reserve of raw materials
and implement for supply to producers,
creation of common service facilities for
processing of raw materials and
provisions of facilities for marketing of
KVI products
 The KVIC is also charged with the
responsibility of encouraging and
promoting research in the production
techniques and equipment employed in
the Khadi and Village Industries.
Functions of KVIC
 Further, the KVIC is entrusted with the task
of providing financial assistance to
institutions and individuals for
development and operation of Khadi and
Village Industries.
 In implementing KVI activities, the KVIC
may take such steps as to ensure
genuineness of the products and to set
standards of quality and ensure that the
products of Khadi and Village Industries do
conform to the standards.
 The KVIC may also undertake directly or
through other agencies studies concerning
the problems of Khadi and/or village
industries besides research or establishing
pilot projects for the development of Khadi
and village industries.
Comprehensive Policy Package 2000
The S.P. Gupta Committee recommended a comprehensive policy package
on 30th August 2000 with the basic objective to enable domestic industry
to meet global competition.

The important features of the policy are as follows:

 An increase in investment limit from Rs. 5 lacs to Rs. 10 lcs in industry
related to service and business enterprise.

 Raised the limit for excise duty exemption from Rs. 50 lacs to Rs. 1
crore.

 Providing grants of Rs. 75000 to every small unit for obtaining ISO 9000
certification till the end of 10th five year plan.

 Conducting the third census of small industry after a gap of 12 years.

Mahila Bachat Ghat
Mahila Bachat Gat is an organization established to promote co-operation
of self development of women. In rural areas, self help groups were
established with the primary objective of empowering women at grass
root level. It has resulted into Mahila Bachat Gat which is a co-operative
moment.

Rate of loan interest for Mahila Bachat Gat is 2%. The micro loans are
available to members to buy equipments. They can either take contractual
work or help cottage industries. They can purchase construction
machinery at subsidized rates through government schemes.
Objectives of Mahila Bachat Ghat
The following are the objectives of Mahila Bachat Gat:
i. Income generation for lower income group women.
ii. Providing guidelines to member to start cottage industry.
iii. Making rural women independent.
iv. Elevating economic status of women in family.
Background of Mahila Bachat Ghat
 The concept of Mahila Bachat Gat and self help groups (SHGs) can be
traced to Bangladesh.
 Dr. Mohammed Yunus, a professor of Economics at Chitgaon University
had initiated a project “Grameen Bank” in 1976.
 The basic objective of this project was to provide loans to landless
poor women to promote self employment.
 Around 24 lakh people had joined the project till 2001.

Machila Bachat Gats are not only economically active in Maharashtra but
they also participate in various social causes like:
 Establishing primary health care centers in villages
 Addressing issue of clean water and sanitation
 Active participation in village education committee
 Contesting local elections
Example of Mahila Bachat Ghat
1. Mann Desi Mahila (MDM) Bachat Gat:

Founder & Head: Mrs. Chetna Gala Sinha

Comprises of:
Mann Desi Mahila Sahakari Bank (MDMSB)
Mann Vikas Samajik Sanstha (MVSS)
Mann Desi Mahila Bachat Gat Federation (MDMBGF) – a microfinance
institution.

All clients are rural women with daily incomes of less than Rs. 60 and
more than 60% are daily wage labourers. They live in drought prone area
of Mhaswad in Maharashtra and North Karnataka.
Example of Mahila Bachat Ghat
2. Hembai Didi Saraswati Mahila Swayam Sahayta Samooh Raigad:
It was started in the year 2000 by a group of 12 women. They used to
contribute Rs. 5 each per week. Gradually the savings increased. They
further borrowed Rs. 60,000 and purchased a silk reeling machine from
the sericulture department. They now produce Grade A silk that sells at a
high value. The members of this group lead a respectful life.

Mahila Bachat Gats have presence not only in rural areas but also in urban
areas. In urban areas, the Mahila Bachat Gats provide tiffin services or
they are suppliers of pickles and food products for functions.
 Presented by
Lazy Bone Support Services
- a unit of

To subscribe for presentations, please call on 8898 587 585