Government Policies for Small and Tiny Enterprises

The Small Scale Industrial Sector has emerged as a dynamic and vibrant sector of the economy during the eighties. At the end of the Seventh Plan period, it accounted for nearly 35 percent of the gross value of output in the manufacturing sector and over 40 percent of the total exports from the country. It also provided employment opportunities to around 12 million people.The primary objective of the Small Scale Industrial Policy during the nineties would be to impart more vitality and growth-impetus to the sector to enable it to contribute its mite fully to the economy, particularly in terms of growth of output, employment and exports. The sector has been substantially delicensed. Further efforts would be made to deregulate and debureaucratise the sector with a view to remove all fetters on its growth potential, reposing greater faith in small and young entrepreneurs.All statutes, regulations and procedures would be reviewed and modified, wherever necessary, to ensure that their operations do not militate against the interests of the small and village enterprises.

1.0 TINY ENTERPRISES

1.1 Government have already announced increase in the investment limits in plant and machinery of small scale industries, ancillary units and export – oriented units to Rs 6 million, Rs 7.5 million, and Rs 200 thousand respectively. Such limits in respect of "TINY" ENTERPRISES would now be increased from the present Rs 200 thousand to Rs. 500 thousand, irrespective of location of the unit. Limit in plant and machinery for determining the status of SSI/Ancillary units as on date is Rs 10 million. For tiny it is Rs 2.5 million and for SSSBE Rs 500 thousand.

1.2 Service sub-sector is a fast growing area and there is need to provide support to it in view of its recognized potential for generating employment. Hence all Industry-related service and business enterprises, recognized as small scale industries and their investment ceilings would correspond to those of Tiny enterprises.

1.3 A separate package for the promotion of Tiny Enterprises is now being introduced. This constitutes the main thrust of Government’s new policy.

1.4 While the small scale sector (other than ‘Tiny Enterprises’) would be mainly entitled to one-time benefits (like preference in land allocation/power connection, access to facilities for skill/technology up gradation), the ‘Tiny’ enterprises would also be eligible for additional support on a continuing basis, including easier access to institutional finance, priority in the Government Purchase Programme and relaxation from certain provisions of labour laws.

1.5 It has also been decided to widen the scope of the National Equity Fund Scheme to cover projects up to Rs. 1 million for equity support (up to 15 per cent). Single Window Loan Scheme has also been enlarged to cover projects up to Rs 2 million with working capital margin up to Rs 1 million. Composite loans under Single Window Scheme, now available only through State Financial Corporations (SFCs) and twin function State Small Industries Development Corporation (SSIDCs), would also be channelised through commercial banks. This would facilitate access to a larger number of entrepreneurs.

2.0 FINANCIAL SUPPORT MEASURES

2.1 Inadequate access to credit – both short term and long term – remains a perennial problem facing the small scale sector. Emphasis would henceforth shift from subsidized/cheap credit, except for specified target groups, and efforts would be made to ensure both adequate flow of credit on a normative basis, and the quality of its delivery, for viable operations of this sector. A special monitoring agency would be set up to oversee that the genuine credit needs of the small scale sector are fully met.

2.2 To provide access to the capital market and to encourage modernization and technological up gradation, it has been decided to allow equity participation by other industrial undertakings in the SSI, not exceeding 24 per cent of the total shareholding. This would also provide a powerful boost to ancillarisation & sub-contracting, leading to expansion of employment opportunities.

2.3 Regulatory provisions relating to the management of private limited companies are being liberalized. A Limited Partnership Act will be introduced to enhance the supply of risk capital to the small scale sector. Such an Act would limit the financial liability of the new and non-active partners/entrepreneurs to the capital invested.

2.4 A beginning has been made towards solving the problem of delayed payments to small industries by setting up of ‘factoring’ services through Small Industries Development Bank of India (SIDBI). Network of

such services would be set up throughout the country and operated through commercial banks. A suitable legislation will be introduced to ensure prompt payment of Small Industries’ bills.

3.0 INFRASTRUCTURAL FACILITIES3.1 To facilitate location of industries in rural/backward areas and to promote stronger linkages between agriculture and industry, a new Scheme of Integrated Infrastructural Development (including Technological Back-up Services) for Small Scale Industries would be implemented with the active participation of State Governments and financial institutions. A beginning in this direction will be made this year itself.

3.2 A Technology Development Cell (TDC) would be set up in the Small Industries Development Organization (SIDO) which would provide technology inputs to improve productivity and competitiveness of the products of the small scale sector. The TDC would coordinate the activities of the Tool Rooms, Process-cum-Product Development Centers (PPDCs), existing as well as to be established under SIDO, and would also interact with the other industrial research and development organizations to achieve its objectives.

3.3 Adequacy and equitable distribution of indigenous and imported raw materials would be ensured to the small scale sector, particularly the tiny sub-sector. Policies would be so designed that they do not militate against entry of new units. Based on the capacity needs, Tiny/Small Scale units would be given priority in allocation of indigenous raw materials.

3.4 A proper and adequate arrangement for delivery of total package of incentives and services at the District level will be evolved and implemented.

4.0 MARKETING AND EXPORTS

4.1 In spite of the vast domestic market, marketing remains a problem area for small and tiny enterprises. Mass consumption labour intensive products are predominantly being marketed by the organized sector. The tiny/small scale sector will be enabled to have a significant share of such markets. In addition to the existing support mechanism, market promotion would be undertaken through cooperative/public sector institutions, other specialized/professional marketing agencies and consortia approach, backed up by such incentives, as considered necessary.

4.2 National Small Industries Corporation (NSIC) would concentrate on marketing of mass consumption items under common brand name and organic links between NSIC and SSIDCs would be established.

4.3 Government recognizes the need to widen and deepen complementarily in production programmes of large/medium and small industrial sectors. Parts, components, sub-assemblies, etc. required by large public/private sector undertakings would be encouraged for production in a techno-economically viable manner through small scale ancillary units. Industry associations would be encouraged to establish sub-contracting exchanges, in addition to strengthening the existing ones under the SIDO. Emphasis would also be laid on promotion of a viable and competitive ‘component’ market.

4.4 Though the Small Scale Sector is making significant contribution to total exports, both direct and indirect, a large potential remains untapped. The SIDO has been recognized as the nodal agency to support the small scale industries in export promotion. An Export Development Centre would be set up in SIDO to serve the small scale industries through its network of field offices to further augment export activities of this sector.

5.0 MODERNIZATION, TECHNOLOGICAL AND QUALITY UP GRADATION

5.1 A greater degree of awareness to produce goods and services conforming to national and international standards would be created among the small scale sector.

5.2 Industry Associations would be encouraged and supported to establish quality counseling and common testing facilities. Technology Information Centres to provide updated knowledge on technology and markets would be established.

5.3 Where non-conformity with quality and standards involves risk to human life and public health, compulsory quality control would be enforced.

5.4 A reoriented Programme of modernization and technological up gradation aimed at improving productivity, efficiency and cost effectiveness in the small scale sector would be pursued. Specific industries in large concentrations/clusters would be identified for studies in conjunction with SIDBI and other banks. Such studies will establish commercial viability of modernization prescriptions, and financial support would be provided for modernization of these industries on a priority basis.

5.5 Indian Institutes of Technology (IITs) and selected Regional/other Engineering Colleges will serve as Technological Information, Design and Development Centres in their respective command areas.

6.0 PROMOTION OF ENTREPRENEURSHIP6.1 Government will continue to support first generation entrepreneurs through training and will support their efforts. Large number of EDP trainers and motivators will be trained to significantly expand the Entrepreneurship Development Programmes (EDP). Industry Associations would also be encouraged to participate in this venture effectively.

6.2 EDP would be built into the curricula of vocational and other degree level courses.

6.3 Women entrepreneurs will receive support through special training Programme. Definition of "Women Enterprises" would be simplified. The present stipulation regarding employment of majority of women workers would be dispensed with and units in which women entrepreneurs have a majority shareholding and management control, would be defined as "Women Enterprises".

7.0 SIMPLIFICATION OF RULES AND PROCEDURES7.1 The persistent complaint of small scale units of being subjected to a large number of Acts and Laws, being required to maintain a number of registers and submit returns, and face an army of inspectors, would be attended to within a specified time frame of three months.

7.2 Procedures would be simplified, bureaucratic controls effectively reduced, unnecessary interference eliminated and paper work cut down to the minimum to enable the entrepreneurs to concentrate on production and marketing functions.

Government Policies for Village Industry (Special emphasis on Handloom. Handicrafts and Khadi Sector)

1.0 HANDLOOM SECTOR1.1 Handloom sector contributes about 30 per cent of the total textile production in the country. It is the policy of Government to promote handlooms to sustain employment in rural areas and to improve the quality of life for handloom weavers.

1.2 Schemes for the handloom sector will be redesigned keeping in mind the local and regional needs. Constraints of coverage will be removed so as to include bulk of the weavers who are outside the corporate/cooperative fold.

1.3 Existing schemes will be re-drawn and suitably revised under three major heads:

(a) Project Package Scheme: Under this scheme, area-based projects for product development, up gradation of technology, improvement of marketing facilities will be drawn up.

(b) Welfare Package Scheme: Number of welfare schemes and quantum of funds earmarked for them will be substantially augmented.

(c) Organization Development Package: Schemes for participation in the share capital will be re-drawn under organizational development scheme for imparting a better management system in the existing state agencies.

1.4 Janta cloth scheme which sustains weavers often on a minimum level of livelihood will be phased out by the terminal year of the VIII Plan ad replaced by the omnibus project package scheme under which substantial funds will be provided for modernisation of looms, training, provision of better designs, provision of better dyes and chemicals and marketing assistance.

1.5 A vastly expanded role for the National Handloom Development Corporation (NHDC) is envisaged. NHDC would be the nodal agency for increasing the supply of hank yarn and of dyes and chemicals. Spinning capacity in the co-operative sector will be increased. National Co-operative Development Corporation will provide more assistance for this in the form of Seed Money, both for cotton growers spinning mills and weavers spinning mills.

1.6 For improving marketing of handloom products, a more intensive implementation of schemes for design and product improvement by national level publicity, exhibitions, and design exercise will be undertaken. A

special scheme will be drawn up to graduate the handloom production, which is often of low value items, to high value products suitable for export markets. This will be done by better design inputs, upgradation of technology, diversion of weavers from cotton to silk and tassar weaving. Special projects for modernisation of looms for products suitable for export markets will be drawn up.

2.0 HANDICRAFTS SECTOR

2.1 The key areas in handicrafts that could contribute towards a faster pace of rural industrialisation are production and marketing. Schemes for training and design development and for production and marketing assistance will be given encouragement.

2.2 Considering the importance of this sector from the point of view of employment and exports, it is proposed to provide an integrated development thrust to this sector with a view to enlarging the production base, thus enhancing the opportunities for employment and income through crafts as an economic activity and to giving it necessary inputs for quality improvement and effective marketing support both internal and overseas. Efforts will be made not only to preserve the traditional richness of the crafts but to engage the hereditary skills of the craftspersons to suit modern requirements.

2.3 Emphasis will be given to the following:-

- Extension of services like supply of raw materials, design and technical guidance, market support, training and procuring of related materials/inputs in an integrated and area-based manner through the setting up of craft development centres in identified clusters of villages.

- Market development support in the form of a package of assistance through expansion of marketing infrastructure, exhibitions, publicity, etc., through Central and State Handicrafts Corporations, voluntary organisations and support to direct marketing activity by craftspersons.

- Expansion of training activities by greater involvement of State Handicrafts Development Corporations, Co-operatives and voluntary organisations.

- Measures to sustain an increased exports of handicrafts through new marketing channels like trading companies, departmental stores, etc.

3.0 OTHER VILLAGE INDUSTRIES

3.1 Government recognise the need to enhance the spread of rural and cottage industries towards stepping up non-farm employment opportunities.

3.2 The activities of the Khadi and Village Industries Commission and the State Khadi and Village Industries Boards will be expanded and the organisations strengthened to discharge their responsibilities more effectively.

3.3 There will be greater emphasis on improving the quality and marketability of the products pari passu with consumer preferences instead of merely depending on rebates and subsidies.

3.4 While the plan allocation for rural industries will be augmented, effective steps will also be taken to ensure better flow of credit from the financial institutions and a more coordinated and optimal utilisation of different development schemes and agencies operating in the rural sector. Bankability of projects undertaken in this sector would be stressed.

3.5 The programmes of intensive development of KVI through area approach with tie-up with DRDA, TRYSEM and ongoing developmental programmes relating to weaker sections like Scheduled Castes, Scheduled Tribes and Women would be extended throughout the country.

3.6 The traditional village industries would be given greater thrust. Involvement of traditional and reputed voluntary organizations will be encouraged.

3.7 Agro processing and food processing industries in KVI sector using appropriate technologies would be promoted with a view to utilize locally available agricultural produce and promote employment/resource generation in the countryside.

3.8 Functional industrial estates would be established in areas with concentration of agricultural/horticultural produce.

3.9 R & D in KVI sector would be strengthened through greater linkages with CSIR and other research institutions in the areas of production, finishing/packaging, processes and development of new tools and implements.

3.10 The training programmes would be upgraded and augmented to cover the expanded list of industries under the purview of the KVIC.

Government Policies for ISO Certification and Quality Management

ISO Certification and related Activity

MSME Development Institute, Allahabad is providing support for following:

Cash Reimbursement Schemes are available in following

ISO 9000 -  75% or 75000/- expenditure incurred for taking ISO 9000 series    

Central Government subsidy is available in following :

1. Central Excise Exemption for SSI sector upto 1 Crore    2. Credit Link Subsidy through nationalized bank for SSI Sector3. Purchase price preference for SSI Sector4. Free display of exhibits in international trade fairs all over the world.

Click for Latest Information

ISO 9001/14001/HACCP Certification Reimbursement Status

The Salient features of the Scheme

1. The Scheme envisages reimbursement of charges of acquiring ISO-9000/ISO-14001/HACCP certifications to the extent of 75% of the expenditure subject to a maximum of Rs. 75,000/- in each case.

2. The Micro & Small Scale enterprises ( Manufacturing/ Service) having EM Part-II No. Acknowledgement are eligible to avail the Incentive Scheme – which can be obtained from DIC as per the MSMED Act, 2006. Applications received without EM Number will be rejected and Returned to the applicants.

3. The Scheme is applicable to those Micro & Small (Manufacturing/ Service) Enterprises who have already acquired ISO-9000/ISO-14001/ HACCP certification from NABCB registered Certifying Body.

4. The Scheme provides one time reimbursement only to each unit ; irrespective of the fact whether the concerned Micro & Small Enterprises has one or more than one Enterprises within the same premises/ location or outside .

5. The applicants are required to submit applications only with the Director of MSME-DI in the area where the units are located.

6. Applicants are required to enclose the Receipts and Invoice for payments made by them to the certifying bodies, consultants and other expenses also with other annexure.

7. Expenditure for the training will also be reimbursable only if they are by the consultants who are acceptable to this office for consultancy as listed below:

i. Consultants or consulting bodies registered with NRBPTii. TQM Division of Textiles Committeeiii. National Productivity Council (NPC)iv. Consultancy Development Centre (CDC)

v. Small Industries Service Institute ( Now MSME-DIs)vi. CII/FICCI/ASSOCHAM

Guidelines for filing Application Format

The Formats of the Application & the required documents together with "Check List" may be obtained from below mentioned link. The enterprises fulfilling the above criteria may submit their Application duly completed (with enclosures) addressed to the Director at the following address:

DIRECTORMSME-Development Institute(Formerly Small Industries Service Institute),E-17-18, Udyog Nagar,Naini,Allahabad - 211009, U. P., IndiaPhone No. - 0532-2697468Tele/Fax No. - 0532-2696809Email : dcdi-alld@dcmsme.gov.inWebsite : www.msmediallahabad.gov.in

Note:

1. The Application should be submitted complete in all respects along with the required documents , failing which the application will not be considered.

2. For any further guidance/ details, the enquiries may be sent at the above address. 3. Application Format & its Enclosures can be downloaded from the following link:

Download Details with Application Format and enclosures for Claiming Reimbursement

List of Certification Bodies

S. No.Name of CB

1 Det Norske Veritas ,Certification Services, India2 TUV India Pvt.Ltd.3 BVQI (India) Pvt.Ltd.4 Intel Quality Certification Pvt.Ltd.5 American Global Standards India6 Indian Register Quality Systems7 ICS Certifications(Asia) Pvt.Ltd.8 ICRS Management Systems Pvt. Ltd.9 BSI India Pvt.Ltd.10 TUV Rheninland India Pvt.Ltd.11 TUV Suddeutschland (India)Pvt.Ltd.12 NVT Quality Certification Pvt. Ltd.13 AQSR India Pvt.Ltd.14 American Quality Assessors India Pvt. Ltd.15 Bureau of Indian Standards16 URS Certification Ltd.17 ICL Certifications Ltd.18 Transpacific Certifications Ltd.19 Knowledge Partner QR Pvt.Ltd.20 QMS Certification Services Pvt.Ltd.21 Lloyd’s Register Quality Assurance Ltd.(India Branch)22 Vexil Business Process Services Pvt.Ltd.23 NQA Certifications India Pvt.Ltd.24 QSS Quality Management Services

25 QSI(India Certifications Pvt.Ltd.)26 RINA India Pvt.Ltd.

27 SGS India Pvt.Ltd.

28 Global Certification Services.29 NQAQSR Certification Pvt. Ltd.30 BSC International Certifications Co.31 SWISO India Pvt. Ltd.32 KBS Certification Services Pvt. Ltd.

33Intertek Testing Services India Pvt. Ltd.(Division Intertek Systems Certification)

34 STQC Certification ServicesB. For EMS Certification

S. No.

Name of CB

1 Det Norske Veritas, Certification Services, India2 TUV India Pvt.Ltd.3 International Certification Services (Asia)Pvt.Ltd.4 BVQI (India) Pvt.Ltd. /Bureau Veritas Quality Certification Pvt.Ltd5 Indian Register of Shipping (Indian Register Quality Systems)6 NVT Quality Certification Private Ltd.7 Lloyd’s Register Quality Assurance Ltd.(India Branch)8 Vexil Business Process Services Pvt.Ltd.9 TUV South Asia Pvt.Ltd.10 AQSR India Pvt.Ltd.11 NQAQSR Certification Pvt. Ltd.12 Integrated Quality Certification Pvt. Ltd.

(Formerly Known as Intal Quality Certification Pvt. Ltd.)C. For Food Safety Management System Certification (HACCP)

S. No.

Name of CB

1 BVQI (India) Pvt. Ltd./ Bureau  Veritas Certification (India) Pvt. Ltd.

Government Policies for Credit Guarantee Fund Trust for Small Industries (CGTSI)

If you have real dream, real hope and have a fine project plan for your dream industry/business, but don't have financially sound background and looking for finance/fund/loan to increase your business or to expand your business or to modernize your present business and having problem to arrange collateral security or third party guarantee, Central Government's Policy for Credit Guarantee Fund trust for small Industries (CGTSI) can help you in such area.

This scheme was established and running successfully by a joint venture of Central Government of India and Small Industries Development Bank of India (SIDBI). The Member Lending Institutions or MLIs are the members of CGTSI includes scheduled Commercial Banks, regional Rural Banks, SIDBI, National Small Industries Corporation (NSIC), North-East Development Financial Institute (NEDFI) etc. CGTSI ensures small industries to provide them collateral free funds and loans.

If candidate is unable to arrange third party guarantor or collateral security, CGTSI provides collateral free without third party guarantor up to Rs. 25 lakhs.

Eligibility

1. Company should be a registered unit.2. Company should be Small Scale Service and Business (Industry Related) Enterprises (SSSBEs) i.e., should be registered as small scale industry.3. Collateral Free without third party guarantor Loan/Fund is available maximum up to Rs. 25 lakhs only whether proposed/issued fund exceeds Rs. 25 lakhs.  4. Manufacturing Units, Development units, Service based industries can be benefited5. For more information visit www.cgtsi.org.in

Guarantee Fee/Tax and Service Fee/Tax

1. Candidate has to pay 2.5 % one time paid Guarantee Fee on issued fund/loan on fixed rate. If issued fund exceeds rs. 25 Lacks then guarantee fee is applicable for Rs. 25 lakhs only.2. Every Year on 31st March candidate has to pay service tax on due loan/fund at the rate of 1% per annum.

Guarantee Process Candidate should reach to nearest MLIs with their proposals and rest process will be settled by MLIs.

AddressCredit Guarantee Fund Trust for Small Industries  (CGTSI)12th floor, Nariman Bhavan, 227, Vinay K Shah Marg, Nariman Point,Mumbai - 400021Tel :  022 - 22045142, 22042753, 22045234, 22045105Fax:  022 - 22045154

asic requirement regarding the registration

The Government is the single largest buyer of a variety of goods. With a view to increase the share of purchases from the small-scale sector, the Government Stores Purchase Programme was launched in 1955-56. NSIC registers SSI units under Single Point Registration scheme for participation in Government Purchases.

Benefits of Registration

Issue of tender sets free of cost. Advance intimation of tenders issued by DGS&D. Exemption from payment of earnest money. Waiver of security deposit up to the monetary limit for which the unit is registered. Issue of competency certificate in case the value of an order exceeds the monetary

limit, after due verification.

Eligibility

Micro & small Enterprises which are in continuous production of stores for one year or more and are registered with the Director of Industries (DI) as manufacturing SSI Unit/Small Scale (industry related) Service & Business Enterprises(SSSBE), who own workshop of their own or on lease basis and have the commercial and technical competence to produce stores/provide services for supply to the Government Departments such as DGS&D, Railways, Defence, P&T, Central/State Government Departments and Central/State Government Public Sector Undertakings etc. conforming to BIS or such standards as required by the Government buying agencies.

For the micro & small Enterprises who have commenced the commericial production but not completed one year of existence and hence not able to submit the Audited Balance Sheets and other annexures, the provisional Registration Certificate can be issued to such Micro & Small Enterprises under Single Point Registration Scheme which shall be valid for the period of one year only for the date of issue after levying the registration fee and obtaining the requisite documents. The initial monetary limit for such units will be fixed at Rs. Lac Only. The Provisional Registration Certificate will be valid for the period of one year only. The Provisional Registration Certificate shall to be renewed by the unit before it expiry as per the term and conditions of the Single Point Registration Scheme laid down for the renewal of the registration.

How to Apply 

SSI Units shall have to apply on the prescribed application form in Duplicate and to be submitted to the concerned Zonal/Branch Office of NSIC located nearest to the unit.In case of any difficulty in filling the application form and completing the documentation please consult any of the Zonal / Branch office of   NSIC.

REGISTRATION FEE

S.No. CategoryRegistration Fee to be paid to NSIC

1. For Fresh Registration : Based on the Investment in Plant and Machinery as per slab given below

 

Upto Rs. 5 Lac Rs 2,500/-More than Rs 5 Lac but upto Rs 25 Lac Rs. 4000/-More than Rs 25 Lac but upto Rs 100 Lac Rs. 7000/-More than Rs 100 Lac but upto Rs 500 Lac Rs. 10,000/-

2. Fee for issuance of amendments in stores (Qualitative & Quantity); Fee for issuance of change in monetary limit or any other amendment in the certificate and fee for issuance of Renewal of GP Registration. (Every Two years)

50% of the charges as mentioned at S.No. 1 above

REGISTRATION PROCESS

1.      The SSI Unit has to submit the application form (in duplicate) alongwith requisite fee and documents to the Zonal/Branch and Sub Office of NSIC situated nearest to their location.

2.      Duplicate copy of the G.P. Registration Application Form submitted by the SSI Unit will be forwarded to the concerned SISI along with copies of required documents and Draft/Pay Order of Rs. 1000/-, requesting for carrying out the Technical Inspection of SSI Unit and forward their recommendations in this regard.

3.      After receiving SISI Inspection Report, NSIC will issue the GP Registration Certificate to SSI Unit for items/stores as recommended. Procedure for calculation & fixation of Monetary Limits of SSI Units:

Monetary limit of the company is fixed on the basis of the unit's net sales turnover during the last three years reflected in the Audited Balance Sheets. Sample calculation:Net Sales = Total sales – All Duties, Taxes, returns etcDetails of the net sales of the company during last three years:-2002-03 – Rs. 50 Lacs2003-04 – Rs. 75 Lacs2004-05 – Rs. 80 LacsTherefore, Monetary Limit = Rs. (50+75+80)/3 X 50%                                   = Rs. 34.26 Lac.                                  Say = Rs. 34 Lac.

In case the Company/Partnership concern/Proprietorship unit is in loss for one year out of past three years, their monetary limit will be fixed at 40% of their average net sales turnover.

Similarly, when the SSI Unit is in loss for two years out of the past three years, the monetary limit will be accordingly fixed at 30% of their average net sales turnover of

the past three years. In the event of SSI unit being in loss throughout past three years, the monetary limit of

the Unit will be fixed at 20% of the average net sales turnover of the Unit during the past three years    In cases of initial registration where the firm has been in existence for less than 3 years MTL may be fixed at 50% of the average net sales value of the last year for which audited accounts are available.

Validity Period of G. P. Registration

The G. P. Registration Certificate granted to the SSI Unit under Single Point Registration Scheme (Revised), 2003 is valid for Two Years and will be reviewed and renewed after every two years by verifying continuous Commercial and Technical Competence of the registered SSI Unit in manufacturing / producing the stores for which it has been registered by NSIC.

Documents Requred for Renewal of the Registration

1. Original GP Registration Certificate.2. A Copy of the Permanent Account Number (PAN CARD).3. Copy of valid SSI Registration Certificate4. List of major Govt. Orders executed during last 2 (two) years.5. Copies of Audited Balance sheet for last 3 years duly signed by the authorized person under his seal6. List of addition/deletion in the the plant and machinery after the registration.

7. For the following documents one declaration shall be given :-

1. Factory License/Shop Establishment Act License2. Photocopy of Municipal Corporation Certificate3. Proof of ownership Deed/Lease Deed/ Rent Deed4. No Objection Certificate from Pollution Control Board.

Requirements Common To All Types of IndustriesA. Prior to setting up the unit

1. Registration with Industries Department:» Entrepreneurs Memorandum Form - 1 with District IndustriesCenter, for Micro, Small & Medium Scale Industries. Presently unitshaving investment upto Rs. 25 Lacs in Plant & Machinery are termed asMicro, Rs. 25 Lacs to Rs. 5 Crores as Small and Rs. 5.00 crores to Rs.10 crores as Medium. However, this is an optional requirement, thoughthe entrepreneurs are advised to submit Form - 1 in DIC and obtainthe acknowledgement along with Entrepreneur Memorandum Number,since it gives them an identification and sometimes it is also requiredby some departments.» Industrial Entrepreneur’s Memorandum has to be filed with the Secretariat for IndustrialApprovals (SIA), Ministry of Industries, Government of India for all Heavy industries and thosenot requiring Industrial License. (Presently 9 category of industries, are required to obtainindustrial license from Ministry of Industry, Government of India from time to time).For Details click here2.Land allotment from Industrial Development Authority/or shed Allotment from District IndustriesCenter3.If land is private, land-use conversion declaration from District Authorities and permission underSection 143 of UP Zamindari abolition and Land Reforms Act 1950. For Details clickhere4.NOC from Pollution Control Board under the provision of Water (Prevention of Pollution) Act 1974,Air (Prevention of Pollution) Act 1981,Environment (protection) Act 1986.In case of 220 category of non-pollution SSI industries For Details click here, which arePresently exempted by UP Pollution Control Board from obtaining NOC, the SSI registrationgranted by District Industries Center itself is Sufficient and no separate application for NOC isneeded.5.Building Map approval from concerned Development Authority/Designated Authority of notifiedarea.6. Fire Department NOC.7.Provisional Trade Tax Registrations under section 8-B of U.P. Trade Tax Act 1948. ThisRegistration is optional. It is however, beneficial to intending manufacturer who want to purchaseplant, machinery, raw material, fuel, lubricants, consumables, packing materials etc. within theState of U.P. at a concessional rate, as allowable for use in the manufacture or packing of goodsfor sale. It also make them eligible to obtain Import Permit (Form “31”), for import of goods fromoutside the State.

8.Registration under Central Sales Tax Act Registration is compulsory, only when the unitproposes to make sales in course of Inter-State Trade and enables the unit to get the benefitof Form "C” for purchase from outside the State, at concessional rate of tax, as allowable.B. Before commencement of Production1.Consent from Pollution Control Board under Water (Prevention of Pollution) Act 1974, Air(Prevention of Pollution) Act 1981, and Environment (Protection) Act 1986.2. Clearance from Fire Department.3. Permanent Trade Tax Registration under U. P.Trade Tax Act 1948.4.Registration under Central Sales Tax Act 1956Registration is compulsory, only when the unit proposes to mark sales in course of Inter-StateTrade and enables the unit to get the benefit of Form `C’ for purchase from outside the State atconcessional rate of tax as allowable.C. After Commencement of Production /Activity

1.Registration with Industries Department.» Entrepreneurs Memorandum Form II with District Industries Center for Micro, Small andMedium Scale Industries.» Filling Industrial Entrepreneur Memorandum (Part-B) with SIA for Heavy Industries and thosenot requiring Industrial License. (presently 9 categories of industries, are required to obtainindustrial license from Ministry of Industry, Government of India. However, this categorizationis subject to changes from time to time) For Details click hereAdditional Requirements Depending Upon Specific Nature of IndustryA. Prior to setting-up the unit1 Letter of Intent to be filed with Ministry of Industries, Government of India, as by 9 category ofindustries presently notified by Government of India, as well as those, not covered under theprovisions for exemptions, from Industrial Licensing. however, this is subject to change, fromtime to time. For Details click here2 Sanction of power for Construction / light & fan, as well as for production, if power is required.3 NOC from District Magistrate, for storage of Diesel for the units which store diesel for their D.G.Sets/Furnace etc.4 NOC from Drug Controller, for setting Drugs & Pharmaceuticals and Cosmetics productsmanufacturing units, covered under Drugs & Cosmetics Act 1940.5 NOC from Director Ayurvedic & Unani medicines, for setting up Ayurvedic/ Unani medicinesmanufacturing units.6 NOC from Forest Department, for setting up wood based units.7 Allotment Assurance from UP Excise Department for setting up Alcohol based units for ensuringthe availability of Alcohol.8 Registration under Shop and Commercial Establishment; Act 1962 for the units having employeesposted in their offices, not covered under the Factories Act,1948.

B. Before commencement of production1 Industrial License from Ministry of Industry, Government of India. Presently 9 category ofIndustries, are required to obtain industrial License from Ministry of Industry) as well as thosenot covered under the provisions for exemptions from Industrial Licensing. Government of India.However, this is subject to changes by Government of India time to time.) For Details clickhere2 Factory License under the Factories Act 1948,in case of factories where manufacturing process iscarried on with the aid of power, if the number of workers employed is ten or more, and withoutaid of power, if the number of workers employed is twenty or more.3 Clearance from Director, Electrical Safety, under Indian Electricity Rules 1956,if powerconnection/D.G. set is installed.4 Drug License under Drugs & Cosmetics Act 1940,for Drugs and Pharmaceuticals and Cosmeticsproducts manufacturing units covered under Drugs & Cosmetics Act.5 Excise License under UP State Excise Act for Distilleries & Breweries, covered under the said Act.6 License from Food Commissioner, for units manufacturing food items covered under UPScheduled Commodities Dealer (Licensing and Restriction Hoarding Order) 1989.7 License under Milk and Milk Product order for milk based industries.The above are only illustrative and not exhaustive list of requirements.The Application Forms of various departments are available on this website as soon as you enter intoit using your Unit Id and password in the form of:-Set - 'A’ (containing application form for clearances before setting up the unit) andSet - `B’ (containing application form for clearances before and after commencement of production

CENTRAL EXCISE 

  Excise exemption to small scale units is mainly/chiefly granted under notification no. 8/99 - CE datPed 28.2.99 as amended from time to time. 

Key Feature of the Central Excise tariffs 

- Extension of Modvat to capital goods and petroleum products - Shift in the bulk of excise taxation from specific to ad valorem rates which will assure much greater built-in buoyancy of revenues. - Application of Uniform rates for similar commodities to the extent possible. This will reduce classification problems, scope for misuse and widespread litigation. 

EXCISE DUTY & SMALL SCALE INDUSTRIES Full exemption continues for many goods such as - Unbranded drugs - Domestic electric bulbs - Bicycles - Spices - Jams - Jellies - Sauces - Packaged Tea - Coffee - Ketchup - Butter - Cheese - Skimmed milk powder - Vegetable oils - Pickles - Canned fruits and dried vegetables - Certain soya products - Starches and - Preparations of meat and fish. 

Other Major Features of Excise Tax Policy for SSI Sector 

- In the last budget the MODVAT adjustment allowed to manufacturing limits had been capped at 95%. In the Union budget 1999-2000 MODVAT credit has been restored to 100%. 

- The structure has been rationalised. 11 major adv. Rates have been merged into following three new rates. 

(1) Merit rate : 8% (merging existing rates of 5%, 8%, 10% 12%). 

(2) Central rate : 16% (merging existing rates of 13%, 15%, 18%). (3) Demerit rate : 24% (merging existing rates of 25%, 30%, 32%, 40%). 

As a measure for simplification of procedures and also to improve the liquidity position of manufacturing units in the SSI Sector, the SSI units have been permitted to pay excise duty on a monthly basis. 

Presently, small scale units are allowed complete exemption from excise duty in respect of clearance of specified goods upto a value of Rs.30 lakhs of the Central Excise Tariff. 

Clearances of goods between Rs.50 lakhs and 100 lakhs attract central excise duty at the rate of 5% adv. on clearances of goods between Rs.100 lakhs and above this attracts normal duty. 

The existing distinction between one chapter clearances and more than one chapter clearances has been removed. 

Tiny and small-sector units having sales turnover of less than Rs.50 lakh will not be required to pay any excise duty.  Also, no officer would visit any small-scale factory without the written authorisation of the assistance collector indicating specifically the purpose of visit. 

No registration with the Directorate of Industry or DCSSI would be necessary for availing of the exemption under SSI scheme.

SALES TAXThe sales tax is a state government controlled revenue element.

The sales tax structure varies from state to state and this ranges from 0% to 10% depending on the state policies and the type of product in question.Objectives- To ensure adequate safety measures and to promote the health and welfare of the workers employed in factories.

- To prevent haphazard growth of factories through the provisions related to the approval of plans before the creation of a factory. 

Scope and coverage- Regulates working condition in factories.

- Basic minimum requirements for ensuring safety, health and welfare of workers.

- Applicable to all workers.

- Applicable to all factories using power and employing 10 or more workers, and if not using power, employing 20 or more workers on any day of the preceding 12 months.

Main provisions- Compulsory approval, licencing and registration of factories.

- Health measures.

- Safety measures.

- Welfare measures.

- Working hours.

- Employment of women and young persons.

- Annual leave provision.

- Accident and occupational diseases.

- Dangerous operations.

- Penalties.

- Obligations and rights of employees.

When to consult and refer- On starting a factory.

- Throughout the life of the factory.

Taxation and Excise Policy

Today, the MSME sector produces almost 8000 products. The number of units have gone up from 19 lakhs in 1991 to over 31 lakhs in 1999. During the 7 year period from 1991 when liberalization began till 1998, the MSME sector created almost 42 lakhs new jobs whereas the entire organised industry including government was able to create only 14.3 lakhs new jobs.

From time to time, various incentives in the shape of exemptions from payment of excise duties and licensing registration controls have been extended to small scale units producing excisable goods. This has been the long standing and consistent policy of the Government to encourage the small scale sector and to improve their competitive position vis-à-vis the large manufacturing units. Government of India has provided a major relief by granting full exemption from the Payment of central excise duty on a specified output and thereafter slab-wise conceMSMEons of certain specified items in 1978. A general Small Scale Exemption Scheme in respect of specified commodities was introduced in 1985. The same was replaced in 1986 and subsequently amended from time to time by a number of notifications in 1993. With effect from 1-4-1994, Gate-Pass System was replaced by manufacturer invoice to cover clearances of goods as the duty-paying document.

In the Budget 1995-96, the limit of Rs.2 crore turnover for a small scale unit to be eligible to exemption was revised to Rs.3 crore. MSME units whose clearances dis not exceed Rs.30 lakhs in a financial year were exempted from payment of excise duty. MSMEs are also not required to maintain any statutory records such as daily stock account of production and clearances, raw material account, personal ledger account, RG-23A account, RG-23C account, stock register of goods sent for Processing of job-work, invoice records etc. Their own records are adequate for excise purposes. The exemption limit was raised to Rs.50 lakhs in the budget 1998-99 and further to Rs.100 lakhs in 2000. MSMEs have been allowed to pay duty on a monthly basis w.e.f 1-4-1999.

Eligibility as an MSME Unit

The pre-requisite for the eligibility for excise conceMSMEons was that MSME unit should be registered with the State Directorate of Industries or DC(MSME). At-the time of obtaining the exemptions and conceMSMEons, the MSME unit was required to produce such a certificate of registration from the respective Directorate of Industries or DC(MSME),

In the year 1986, MSME units not registered with the State Directorate of Industries were also given exemptions, but on different eligibility conditions. With effect from 1-4-1994, the requirement of obtaining registration certificate from the Directorate of Industries or DC(MSME) has been dispensed with as a condition for available or excise duty conceMSMEons. This implies that there would be no distinction between registered and unregistered units for MSME conceMSMEons. Further, the eligibility for excise conceMSMEons for MSMEs has been based on annual turnover rather than MSME registration which is based on the criterion of investment in plant and machinery. Only the units previously registered with DGTD and now with SIA are not considered eligible for MSME conceMSMEons.

There are two exemption schemes available for the MSME sector which have been amended by the Finance Act, 2000. The schemes are:

MSME Scheme (Without CENVAT)

This scheme as contained in Notification No.8/2003-CE dated 1.3.2003 is effective from 1.4.2000. The following rate of duty is applicable to such manufactures whose turnover does not exceed Rs. 3 crores in the previous financial year in respect of clearances of excisable goods for home consumption (including exports to Nepal or Bhutan) from one or more factories of the same manufacturer or from factory by one or more manufacturers:

Rate of duty in respect of Clearances of Excisable Goods

Value of Clearance (Rs.)

Rate of duty Remarks

Upto 100 Lakhs NilNot to avail Cenvat

100-300 LakhsNormal rate of duty

Can avail Cenvat

It may be noted that beyond clearances of Rs.100 lakhs, the manufacturer is liable to pay normal rate of duty and accordingly he can avail CENVAT credit at this stage. Similarly, CENVAT credit on capital goods can be availed and utilised after crossing the limit of Rs.100 lakhs.

The scheme has been extended to articles of plastic, cosmetic and toilet preparations, tread rubber, airconditioning and refrigeration and parts, which were earlier covered under a separate exemption. All such clearances of the specified goods which are used for captive consumption in production of the specified goods are subjected to ‘nill’ rate of duty and the Table itself. The notification grants exemption in respect of basic excise duty and special excise duty. The manufacturer may opt for not availing exemption contained in the notification and instead pay the normal rate of duty on the clearances. But once the option is exercised, it shall continue till the remaining part of the financial year.

MSME exemption notifications clearly use the words ‘first clearances on or after 1st April in any financial year’. In Remakrishna Engineering Works v. CCE, (1996) 83 ELT 346 (CEGAT), it has been held that all clearance from 1st April in chronological order have to be considered for purpose of calculation of exemption limit of Rs.100 lakhs. Thus, if some goods are cleared on payment of duty, those will also have to be considered for calulating the limit of 100 lakhs.

Value for purpose of calculating the limit of 100 and 300 lakhs is the ‘Assessable value’ as per section 4 i.e., wholesale price at factory gate, exclusive of taxes, where price is the sole criteria. When goods

are assessed on basis of MRP (Maimum Retail Price) the ‘Value’ will be as determined under section 4A.

MSME Scheme (with CENVAT)

This scheme as contained in Notification No.9/2003-CE dated 1.3.2003 is effective from 1.4.2003. The Notification provides the concessional rate of duty in respect of clearances of specified goods for home consumption (including exports to Nepal or Bhutan), and also states that all clearances of the specified goods which are used for captive consumption in production of the specified goods shall be subjectedd to ‘nil’ rate of duty. Such clearances shall not be counted for determining the aggregate value of clearance of the specified goods. The following Table shows the Rate of Duty.

Rate of duty in respect of Clearances of Specified goods

Value of Clearance (Rs.)

Rate of duty Remarks

Upto 100 Lakhs60% of normal rate

Cenvat credit is of duty available from the beginning itself

100-300 LakhsNormal rate of duty

Can avail Cenvat

The exemption shall apply only subject to the following conditions:

i. A manufacturer who intends to avail the exemption under this notification shall exercise his option in writing for availing the exemption under this notification shall exercise his option in writing for availing the exemption under this notification before effecting the first clearances and such option shall be effective from the date of exercise of the option and shall not be withdrawn during the remaining part of the financial year.

ii. While exercising the option under condition (i), the manufacturer shall inform in writing to the jurisdiction Deputy Commissioner or assistant Commissioner of Central Excise with a copy of the Superintendent of Central Excise giving the following particulars, namely:-

a. name and address of the manufacturer;

b. location/locations of factory/factories;

c. description of specified goods produced;

d. date from which option under this notification has been exercised;

e. aggregate value of clearances of specified goods (excluding the value of clearances referred to in para 3 of this notification) till the date of exercising the option.

iii. Where a manufacturer opts for availing the exemption under this notification in terms of condition (i) above, the clearances of specified goods already made during the financial year, prior to the exercise of such option, shall be taken into account for computing the aggregate value of clearances, as specified in the said table.

iv. Where a manufacturer clears the specified goods from one or more factories, the exemption in this case shall apply to the aggregate value of clearances mentioned against each of the serial numbers in the said table, and not separately for each factory.

v. Where the specified goods are cleared by one or more manufacturers from a factory, the exemption shall apply to the aggregate value of clearances mentioned against each of the serial numbers in the said table and not separately for each manufacturer.

vi. The aggregate value of clearances of all excisable goods for home consumption by a manufacturer from one or more factories, or from a factory by one or more manufacturer, does not exceed preceding financial year Rs.300 lakhs.

The exemption contained shall not apply to the specified goods bearing a brand name of trade name, whether registered or not, of another person, except in the following cases, namely:-

a. Where specified goods, being in the nature of components or parts of any machinery or equipment or appliances by following the procedure laid down in Chapter X of the Central Excise Rules, 1944, However, manufacturers, whose aggregate value of clearances for home consumption of such specified goods for use as original equipment does not exceed rupees fifty lakhs in the financial year 1999-2000, may submit a declaration regarding such use instead of following the procedure laid down in chapter X of the said rules;

b. Where the goods bear a brand name of trade name of -

i. the Khadi and Village Industries Commission; or

ii. a State Khadi and Village Industry Board; or

iii. the National Small Industries Corporation; or

iv. a State Small Industries Development Corporation; or

v. a State Small Industries Corporation;

c. Where the specified goods are manufactured in a factory located in a rural area.

Goods exempted from whole of the Duty of Excise/The Additional Duty of Excise

i. Specified goods produced without the aid of power. All capital goods, intermediate goods and inputs if captively consumed within the factory of their production or used in the manufacture of specified final products in the manufacturer or specified goods.

ii. Specified goods if manufactured on job work basis/cleared for job work/manufactured as a job work and used in the manufacture of final products.

iii. Genuine specified products of village industry/certain specified goods manufactured in the rural areas by Co-operatives/K.V.I.C., etc.

iv. Goods meant for repairing, reconditioning and reengineering.

v. Goods sent abroad as exhibits for exhibition in International Trade Fairs or for demonstration or carrying out tests or trials.

vi. Certain goods if cleared for display in any fair or exhibition in India.

vii. Goods produced in a technical, educational and research institute during the course of technical training or an academic or vocational nature or carrying out experiments or research.

viii. Goods supplied to specified research institutions.

ix. Goods produced in Government Factories, Mines, Mints, prisons Defence Production etc.

x. Goods manufactured by specified units/Institutions for use by Governmnet Departments or Defence purposes.

xi. Goods supplied for Defence or other specified purposes.

xii. Specified goods manufactured in a State Government factory and intended for use in any of its department.

xiii. Duty in excess of 10% is exempted on goods for supply to Gas Authority of India Limited, Oil and Natural Gas Corporation Ltd., or the Oil India Limited.

xiv. Certain specified goods connected with solar and natural energy.

xv. Improved Chulhas (including smokeless Chulhas) capable of burning wood, agro-waste, cow-dung, briquettes and coal.

xvi. Good required for Nuclear Fuel Complex.

xvii. Duty in excess of 5% ad valorem on pollution control equipment.

xviii. Goods manufactured by institution for handicapped persons.

xix. Good produced or manufactured in a Free Trade Zone.

xx. Specified goods used by units in Export Processing Zones/Free Trade Zones.

xxi. Goods brought to any gem and jewellery manufacturing units set up in Santa Cruz Electronics Export Processing Zone (SEEPZ).

xxii. Goods produced in 100% Export Oriented undertakings but not sold within India.

ConceMSMEons

MSME units having turnover less than Rs.60 lakhs per annum need not have a separate storeroom for storing the finished products.

MSME units are required to pay duty on monthly basis instead of paying at the time of every clearance. Duty liability is to be discharged by 15th of the following month. The duty can be paid either through PLA or RG23 register.

MSME exemption is available in respect of goods exported to Nepal & Bhutan. The MSME exemption is available for home consumption, i.e. for consumption within India. However, explanation to MSME exemption notifications make it clear that clearances for home consumption shall also include clearances for export to Bhutan & Nepal. Thus, exports to Nepal & Bhutan will qualify for MSME exemption.

As per the CBE&C circular No.406/39/98-CX dated 7.7.1998, since the exemption MSME units do not have to file any declaration, they will not be given any code number and it need not be mentioned in the invoice or challan. In Lokhandwala Construction Industries v. CCE, 1997 (92) ELT 703(CEGAT) & K.S. Mills v. CCE, 1998 (98) ELT 619 (CEGAT), it has been held that the declaration to be given by MSME is only for purpose of exemption from registration. The duty exemption to MSME is available whether or not such declaration is given. Thus, MSME exemption is available even if such declaration is not submitted.

Normally, excise officers are not expected to visit MSME units paying less than Rs.10 lakhs duty annually. According to Mumbai II Commissionerate Trade Notice No.15/93 dated 31-3-1993, excise inspectors as well as preventive and internal audit parties can visit MSME units only with specific permission of assistant Commissioner for specific purpose. Officers are required to enter relevant particulars in the visitors’ book maintained as assessee.

"Setting up a new unit is a big challenge."The overriding reason for anyone to think of establishing a MSME unit can be summarised in one word - OPPORTUNITY. If one can see an opportunity to provide a product or service in a manner to generate sufficient surplus, then one way is to start up a MSME unit. This is all the more true if one believes in the maxim, "Small is Beautiful"Opportunities emerge out of ideas that one comes across by thinking about lives of friends and neighbours. This can generate ideas about products and services that can make things easier, and improve quality of life of people.

Government Formalities and Schemes for setting up new Unit

For setting up a company formally in India, one is required to fulfill a slew of formalities. As per an estimate, one would require more than a month to complete all the filework and office work. For foreign firms, it is mandatory to obtain government approval for incorporating in India or forming a joint venture in India. Certain restrictions apply in some sectors. One is advised to seek proper legal advice before setting up a formal business in India.

For setting up a new venture in India, a number of approvals/clearances are required from different authorities such as Pollution Control Board, Chief Inspector of Factories, Electricity Board, Municipal Corporations, etc. Though the government has reduced the legal formalities for starting a business in recent years, a good number of legal requirements are still up there.

pprovals/Clearances Required Department to be Approached and Consulted

Incorporation of Company Registrar of Companies

Registration/IEM/ Industrial license DIC for SSI/SIA for large and medium industries

Allotment of land State DI/SIDC/Infrastructure Corporation /SSIDC

Permission for land use(in case industry is located outside an industrial area)

a. State DIb. Dept. of Town and Country Planning Local authority / Distt. Collector

NOC and consent under Water and Air Pollution Control Acts

State Pollution Control Board

Approval of construction activity and building plan a. Town and country planningb. Municipal and local authoritiesc. Chief Inspector of Factories d. Pollution Control Board e. Electricity Board

Sanction of Power State Electricity Board

Use and storage of explosives Chief Controller of Explosives

Use and storage of explosives Chief Controller of Explosives

Boiler Inspection Certificate Chief Inspector of Boilers

Finance i. SFC/SIDC for term loans ii. For loans higher than Rs. 15 Million, all India financial institutions like IDBI, ICICI, IFCI etc.

Registration under States Sales Tax Act, and Central and State Excise Act

i. Sales Tax Department ii. Central and State Excise Depts.

Other Registrations and Clearances

Extraction of Minerals State Director of Mines and Geology

ISI Certificate Regional Office of the Bureau of Indian Standards (BIS)

Quality Marking Certificate Quality Marking Center of the State Government

Weights and Measures Inspector of Weights and Measures

Code Number for Export and Import Regional Office of Director General of Foreign Trade.

Setting up a Micro, Small and Medium Enterprise

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A micro or small or medium enterprise can easily be set up for self-employment. You can choose an activity depending upon your interest and suitability not only to become self-employed but also to generate employment for others.

What is a Micro, Small or Medium Enterprise?The earlier concept of ‘Industries’ has been changed to ‘Enterprises’ • Enterprises have been classified broadly into: (i) Enterprises engaged in the Manufacture / production of Goods pertaining to any industry; & (ii) Enterprises engaged in providing / Rendering of services. Manufacturing enterprises have been defined in terms of investment in plant and machinery (excluding land & buildings) and further classified into : - Micro Enterprises - investment up to Rs.25 lakh. - Small Enterprises - investment above Rs.25 lakh & up to Rs. 5 crore - Medium Enterprises - investment above Rs. 5 crore & up to Rs.10 crore. • Service enterprises have been defined in terms of their investment in equipment (excluding land & buildings) and further classified into: - Micro Enterprises – investment up to Rs.10 lakh. - Small Enterprises – investment above Rs.10 lakh & up to Rs.2 crore. - Medium Enterprises–investment above Rs. 2 crore & up to Rs. 5 crore

It is not necessary to engage in manufacturing activity for self-employment. One can set up service enterprises as well .

The main steps involved in setting up a Micro, Small & Medium Enterprise are as below :-(a) Project Selection

(b) Technology and Machinery

(c) Arranging Finance

(d) Unit Development

(e) Filing of Entrepreneurs’ Memorandum

(f) Approvals

(g) Clearances

(h) Quality Certification

Project SelectionIt all begins with an IdeaThe overriding reason for anyone to think of establishing a MSME unit can be summarised in one word - opportunity. An opportunity to provide a product or service, which can generate sufficient surplus. This is all the more true if one is a believer in the maxim, "Small is Beautiful".However, ideas need to be filtered through a multi-layer sieve. This model is shown in the following flow:

- Does the idea fire up your motivation? - Is it a viable business proposition in your area? - Does it match the needs of your clientele? - Check it out with basic market research - Test it out at market place - Consult with the experts - Look out for competition in the field - Is it a sunrise industry? - Your business opportunity - Project conceptualisation

Once the ideas are screened and a viable business opportunity emerges the project has to be conceptualised in all its dimensions. The 4 Ps of Project Conception is:

- PRODUCT (Shape, Size and Nature) - PROCESS (Technology to produce the product) - PLACE (Location of Plant) - PARTNER (Technological of Financial Collaborator)

Making a Product ChoiceIn a project conceptualisation stage while making a product choice following factors are related to product need to be considered:

- Product Line - Depth, Width - Packaging

- Branding - Warranties - After Sales Service

Some other factors that one should consider while finalising the product choice are:- Ease of availability of raw-material - Process Technology - Accessibility to the market - Incentive and support from Government

Market information is also important for product selection. Products, which are likely to have a number of players in the market, are best avoided. Some such products in the recent past have been plastic footwear, audio cassettes, disposable gloves and bulk drugs.In case the entrepreneur is looking for a product, which has export potential, the following additional questions need to be asked:

- What should be the contents of export-product portfolio? - What are the special requirements for packaging if one has to export the products?- What product adaptations are needed to be made for exporting a product to a specific country?- Are any WTO conditionalities involved e.g. "child labour free", ISO 9000 certified, GMP followed etc.

The development of export-product portfolio can be done by considering 4 parameters viz.- External demand conditions - Internal supply capability - Complexity of marketing tasks - Amount of investment required to penetrate the market

Analysis can be conducted using this four dimensional model. The obvious choice is a product which scores a high rating on first two parameters and low rating on last two parameters.EXIM (Export Import Bank of India) Bank has also developed an excellent model to conduct the export-product portfolio analysis based on three parameters viz.

- Supply Capability In Product Group - Domestic Environment - Export Market Attractiveness

This analysis gives rise to product groups with high potential or low potential.With regard to special packaging requirements one has to be careful about laws of the country one is exporting to. For instance, while exporting to Australia, wooden-packaging cannot be done.Product adaptations for country's specific needs look into things like whether voltage supply is 220V or 110V for electric appliances and for automobiles whether left-hand drive or right-hand drive is appropriate.It has now become important to understand the implications of the various agreements which form part of WTO. Once the product is finalised, choices of process technology emerge.

Technology and MachineryProcess SelectionChoices of process technology emerge once the product is finalised. For some complex products, process know how has to be imported. In such cases agreements for technology transfer should be made with due care to safeguard interest. A lot of appropriate technology is being developed at CSIR and Defense Research Labs and some of this technology can now be bought. Indigenously developed process know-how has intrinsic benefits such as appropriateness and relative inexpensiveness.While checking out on a process technology, the following things need to be considered with utmost care:- Whether process requires very high level of skilled workers or complex machines?- Whether process requires large quantities of water and/or power?

- Whether any process or product patent needs to be honoured while utilising the selected process technology.

- Any special pollution or environmental regulations.- Finally, the appropriateness to the indian environment and conditions. Machinery and

equipmentOne of the major deficiencies in the micro, small and medium enterprises scenario is the prevalence of outdated production and management methods hindering the efficient operation of micro, small and medium-scale units. It was also found that the most important reason for the reluctance of the small industrialists to install modern machinery and equipment was the lack of investible funds. The main objective of National micro, small and medium enterprises (NMSME) is to provide machinery and equipment to small industrial units offering them long repayment period with moderate rate of interest.NSIC procedures for hire purchase of machinery- The hire purchase application is to be made on the prescribed form.- The Director of Industries of the State under whose jurisdiction the applicant falls,

forwards the application to the head office of the NSIC at Delhi with his recommendation and comments.

- All applications for indigenous or imported machines are considered by acceptance committees comprising of the representatives of the Chief Controller of Imports, Development Commissioner, micro, small and medium enterprises and other concerned departments.

- Decision of these committees is conveyed to the parties concerned with copies to the regional offices of the NSIC and the concerned Directorate of Industries.

- Once all these formalities are completed by the hirer, instructions are sent to the suppliers to dispatch the consignment (duly insured for transit risk) to the hirer and to send the R/R or C/R as the case may be, to the regional office

- The NSIC after ensuring that all dues have been paid by the hirer, releases the R/R or C/R to him for taking delivery of the machines.

- In case of imported machines, the procedure is slightly different in as much as the shipping documents are sent to the clearing agents for clearing the consignment from the Customs and dispatching it to the hirer.

Value of machines that can be suppliedRs. 7.5 Lacs, F.O.R. or landed cost as the case may be.

Earnest Money5% or 10% of the value of machinery depending on whether the equipment is imported or indigenous. In the case of furnaces and a few other items of equipment, the rate of earnest money is different. Interest 9 per cent per annum with a rebate of 2 per cent on prompt payment. This interest is calculated on the value of machines outstanding after deducting payment of earnest money.

Administrative Charge2 per cent on the sales value of machines and its recovery by the NSIC is spread over the total installment period.

Period of RepaymentThe value of the machines, after deducting the earnest money received, called the Balance Value, is payable alongwith interest and administrative charge in 7 years.

- The first installment is payable after one year and six months from the delivery of machines- The second and subsequent installment are payable half-yearly thereafter.Gestation Period

In case of certain type of machines which become operative immediately on installation in the service sector industries and job order establishment, a gestation period of only 6 months shall be allowed both to the new and existing units.

A rebate of 2% per annum is allowed on the interest rates, in case an installment is paid on or before the due date.In case the payment of installment is not made within one month of the specified due date, interest @ 2% per annum over and above the normal rate is charged on the defaulted amount from the date of default to the date of actual payment. Remission in interests is allowed in case one or more than one installment is paid in advance of the due date(s).Now the Place and Right Partner has to be selected and Project Report has to be prepared.

Arranging FinanceNo MSME unit can take off without monetary support. This need for finance can be classified into following types:- Long and medium term loans- Short term or working capital requirements- Risk Capital- Seed Capital/Marginal Money- Bridge loansFinancial assistance in India for MSME units is available from a variety of institutions. The important ones are:(i) Commercial/Regional Rural/Co-operative Banks.(ii) SIDBI: Small Industries Development Bank of India (refinance and direct lending)(iii) SFCs/SIDCs: State Financial Corporations (e.g. Delhi Financial Corporation)/State Industrial Development Corporations.Long and medium term loans are provided by SFCs, SIDBI and SIDCs. Banks also finance term loans. This type of financing is needed to fund purchase of land, construction of factory building/shed and for purchase of machinery and equipment. The short-term loans are required for working capital requirements, which fund the purchase of raw materials and consumables, payment of wages and other immediate manufacturing and administrative expenses. Such loans are generally available from commercial banks. The commercial banks also sanction composite loan comprising of working capital and term loan up to a loan limit of Rs.1 crore.For loans from financial institutions and commercial banks a formal application needs to be made. The details of documentation that need to be provided with the loan application are indicated below:- Documentation for Loan Application- Balance Sheet and Profit Loss Statement for last three consecutive years of firms owned by promoters- Income Tax Assessment Certificates of Partners/Directors- Proof of Possession of Land/Building- Architect’s estimate for construction cost- Partnership deed/Memorandum and Articles of Associations of Company- Project Report- Budgetary Quotations of Plant and MachineryA sanction or rejection letter is issued by bank after its assessment of the application. After receiving a sanction letter, applicants need to indicate in writing their acceptance of terms and conditions laid down by FI/Banks.Subsequently, loan is disbursed according to the phased implementation of the project. In today’s environment there are other choices apart from commercial banks and Government owned financial institutions. These options include venture capital funds and non-government finance companies.

Unit DevelopmentAfter deciding the issues of product and process, the next important question is where to set the unit up?For many tiny units and service-based units, the home is perhaps the best starting point.Setting up an establishment is much more than putting a signboard up and waiting for customers to walk in. It requires negotiating a favourable plot or shed purchase, organising for proper construction of building, design of interiors and finding good deals for equipment and machinery.Construction of BuildingOnce an industrial plot for the unit is secured, then the next job is that of finding a suitable architect. Design of factory building has to be in consonance with the type of industry and have an appropriate plant layout.An architect's estimate of building construction is essential for loan applications. Further, architect's certificate for money spent on building is needed for disbursement of loan. Getting the Utility ConnectionsAmong the utilities of prime importance are power and water. In many cases getting power connection causes delay in setting up of plant. Therefore it is imperative to commence work on these aspects with diligent follow up. Power connections are generally of either LT (Low Tension) or HT (High-tension) type. If connected load is upto 75 HP, LT connection is provided. For connected loads of 130 HP or higher only HT connection is provided.A formal application needs to be made in a specified form to the state electricity board. An electrical inspector is deputed for evaluation of application to factory site, after which the load is sanctioned. In areas of power shortage, it is advisable to augment the power supply with a captive generating set.Water connection is also obtained likewise by applying in advance in formal forms. The water supply can be augmented by installation of tubewell.Getting 3M's RightMenProjections for manpower and staffing are made in the project report. However it is necessary to time the induction of manpower in a planned manner. The engineers and operatives must be available before the installation of the machinery.MachineryChoosing and ordering of right machinery is also of paramount importance. In many cases technology or process provides us with specifications which is not provided, then an extensive techno-economic survey of machinery and equipment available must be carried out. International trade fairs and engineering fairs are good places to look at available options. The entrepreneur must also consult experts, dealers / suppliers as well as users, prior to making a selection of equipment and machinery. The advice of DIC, MSMEI and NSIC can also be sought.MaterialsMaterials procurement and planning are critical to success, of a start-up with a MSME unit. Inventory management can lead to manageable cash flow situations; otherwise if too much is ordered too soon considerable amount of working capital gets locked up. On the other hand, non-availability may result in production hold-ups, and idle machine and manpower. For essential imported raw material whose lead-time is large proper planning is all the more essential.

Filing of Entrepreneurs Memorandum Section 8 of the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 provides for filing of memorandum by a Micro, Small or Medium Enterprise. Sub-section (2) of section 8 stipulates that the form of the

Memorandum, the procedure of its filing and other matters incidental thereto shall be such as notified by the Central Government. The memorandum may be filed by all three categories of enterprises with the District Industries Centre in the jurisdiction of which the enterprise is (or, is proposed to be) located, The procedure for filing it has been outlined in Schedule. II of the Notification   for the format of EM , Download Registration Forms & Related Documents (Proforma) File Format for Entrepreneurs Memorandum Features of the Scheme The memorandum may be filed by all three categories of enterprises with the District Industries Centre in the jurisdiction of which the enterprise is (or, is proposed to be) located, The procedure for filing it has been outlined in Schedule. II of the Notification for the format of EMProcedure for Filing MemorandaFeatures of the present procedures are as follows: Form of the Entrepreneurs Memorandum can be downloaded from the Internet, the address of which can be obtained from Directorate dealing with Micro, Small & Medium Enterprises of the State Governments/ UTs. or the hard copies of the same can be obtained from the District Industries Centres. This form can also be downloaded from the SIDO website i.e. www.laghu-udyog.com or www.dcmsme.gov.in Any person who intends to establish a micro or small enterprise, 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 shall file the Memorandum of Micro, Small or as the case may be, of Medium Enterprise with District Industries Centre of its area. The District Industries Centre shall fill all the codes in the form of the Memorandum and issue an acknowledgement after allotting an EM number, date of issue and category of the unit within five days of the receipt of the form of Memorandum by post or same day, if the form of Memorandum is submitted in person as well as online. Before issuing the acknowledgement, the District Industries Centers shall make sure that the form is complete in all respect and particularly the form is signed and is accompanied with an undertaking, which is a part of the form of Entrepreneurs Memorandum. The District Industries Centre shall maintain record of all the Entrepreneurs Memorandum so filed in respect of micro and small enterprises and medium enterprises engaged in providing and rendering services. District Industries Centers shall forward a copy of the Entrepreneurs Memorandum so filed with EM number allotted to the Small Industries Service Institutes of their State/Jurisdiction. The District Industries Centre shall maintain record of all the Entrepreneurs Memorandum so filed in respect of medium enterprises engaged in production/manufacturing of products and forward one copy each of the Entrepreneurs Memorandum with EM number allotted to Small Industries Service Institutes of their State/Jurisdiction and to Joint Development Commissioner (MSME Pol.) in the Office of the Development Commissioner (Small Scale Industries). The form of Memorandum is in two parts. Any person who intends to establish a micro, small or medium enterprise engaged in providing or rendering of services may file or those who want to establish medium enterprise engaged in the production or manufacture of products shall file Part 1 of the Entrepreneurs Memorandum to District Industries Centre. Once the above enterprises start production or start providing or rendering services, they should file Part II of the Entrepreneurs Memorandum to District Industries Centre. In case of non-filing of Part II of the Entrepreneurs Memorandum within two years of the filing of Part I, the Memorandum (Part I) filed by the entrepreneur will become invalid. In case of change in the investment in plant and machinery or in equipment, the enterprises who have already filed Entrepreneurs Memorandum should inform the District Industries Centre of the same in writing within one month of the change in investment. In case of change of products and that of services or addition in products or services, the enterprises who have already filed Entrepreneurs Memorandum should inform the District Industries Centre of the same in writing within one month of the change. The District Industries Centre shall, in addition of keeping a record, in writing, shall also maintain records electronically on computer.

The following form basis of evaluation: The unit has obtained all necessary clearances whether statutory or administrative. e.g. drug license under drug control order, NOC from Pollution Control Board, if required etc. Unit does not violate any locational restrictions in force, at the time of evaluation. Value of plant and machinery is within prescribed limits. Unit is not owned, controlled or subsidiary of any other industrial undertaking as per notification.

ApprovalsEvery SSI unit has to comply with various regulations in force. These include regulatory, taxation, environmental and certain product specific clearances. This section looks into the methodology of obtaining these approvals and clearances.

Exemption from Compulsory Licence

Licensing in the Industries sector is governed by the licensing exemption notification issued by Govt. of India in July 25 1991 under the Industries (Development and Regulation) Act, 1951. In SSI, there are virtually no licensing restrictions. No industrial license is required except in case of 6 product groups included in compulsory licensing (these products groups mainly cover products that can only be made in large sector.)But if a small-scale unit employs less than 50/100 workers with/without power then it would not require a license from the Govt. of India even for the 6 product groups covered in licensing under Schedule II of the notification.Subject to this, an entrepreneur can set up a SSI unit anywhere in the country without any restriction. The units are, of course, subject to the locational/land use and zoning restrictions in force under the local laws.

ClearancesAn entrepreneur has to obtain several clearances or permissions depending upon the nature of his unit and products manufactured.Regulatory or Taxation Clearances1. Registration under Sales Tax Act - Commercial Tax officer of area concerned2. Registration under Central Excise Act - Collector of Central Excise or his nominee for

area3. Payment of Income Tax - ITO of the area concerned4. Registration of Partnership deed - Inspector General of area concerned5. Calibration of weights & measures - Weights and Measures Inspector of State6. Power Connection - Designated Officer of State Electricity Board7. Employee strength exceeding 10 with power connection or 20 without power - Chief

Inspector of FactoriesEnvironment & Pollution Related ClearancesThe method of granting consent under water and air pollution to SSI units has been simplified. Except for 17 critically polluting sectors given below, in all other cases SSI units will merely have to file an application and obtain an acknowledgement which will serve the purpose of consent:-1. Fertilizer (Nitrogen/Phosphate)2. Sugar3. Cement4. Fermentation & Distillery5. Aluminium6. Petrochemicals7. Thermal Power

8. Oil refinery9. Sulphuric Acid10. Tanneries11. Copper smelter12. Zinc smelter13. Iron & Steel14. Pulp & Paper15. Dye and Dye intermediates16. Pesticides manufacturing and formulation17. Basic Drugs and PharmaceuticalsProduct Specific Clearances1. Establishing a Printing Press - District Magistrate2. License for Cold Storage Construction - Designated Official in State3. Pesticides - Central/State Agricultural Department - Ministry of Agriculture4. Drugs and Pharmaceuticals - Drug license from State Drug Controller5. Safety Matches/ Fireworks - License under Explosives Act from Directorate of Explosives, Nagpur6. Household Electrical Appliances - License from Bureau of Indian Standards7. Wood Working Industry within 8 km from forest - District Forest Officer8. Milk Processing & Milk products manufacturing units - Approval under Milk and Milk Products Order from State

Agricultural/ Food Processing Industries Department above a designated capacity.

Quality CertificationQuality certification has become extremely important in competitive markets and especially in gaining foothold in exports. To avail the certification of ISO-9000, a unit has to undertake significant costs; the small scale industries have been found wanting mainly on account of resource crunch to implement quality systems to obtain this certification. However, as a paradigm shift, SSI must make 'Quality' a way of life.It has been decided to push the quality upgradation programme in the SSI Sector in a big way.A scheme has been launched to give financial incentive to those SSI units who acquire ISO-9000 certification, by reimbursing 75% of their costs of obtaining certification, subject to a maximum of Rs. 0.75 lacs per unit.In order to promote modernisation and technology upgradation in SSI, the units are assisted in improving the quality of their products.A new scheme has been launched to assist SSI units in obtaining ISO-9000 or an equivalent international quality standard. Subject to an upper ceiling of Rs. 075 lacs, each unit is given financial assistance equal to 75% of the costs incurred in acquiring the quality standard.The SSI units are also encouraged to participate in quality awareness and learning programmes organised specially for their benefit.

How To Start A MSME Unit

 Project Selection  Technology and Machinery  Arranging Finance 

 Unit Development  Entrepreneurship Memorandum Filling  Approvals  Clearances  Quality Certification

For more Details on MSMEs log on to www.dcmsme.gov.in

  Click here for Act, Notifications, Policies, Schemes, Programme under the Ministry of MSME

 

 

 

 

 

 

Project Selection

It all begins with an Idea

The overriding reason for anyone to think of establishing a MSME unit can be summarised in one word - opportunity. An opportunity to provide a product or service, which can generate sufficient surplus. This is all the more true if one is a believer in the maxim, "Small is Beautiful".

However, ideas need to be filtered through a multi-layer sieve. This model is shown in the following flow: 

      - Does the idea fire up your motivation?       - Is it a viable business proposition in your area?       - Does it match the needs of your clientele?       - Check it out with basic market research       - Test it out at market place       - Consult with the experts       - Look out for competition in the field       - Is it a sunrise industry?       - Your business opportunity       - Project conceptualization

 Project Selection  Technology and Machinery  Arranging Finance  Unit Development  E M Filling  Approvals  Clearances  Quality Certification

Once the ideas are screened and a viable business opportunity emerges the project has to be conceptualised in all its dimensions. The 4 Ps of Project Conception is:       - PRODUCT (Shape, Size and Nature)       - PROCESS (Technology to produce the product)        - PLACE (Location of Plant)       - PARTNER (Technological of Financial Collaborator)

Making a Product Choice

In a project conceptualisation stage while making a product choice following factors are related to

product need to be considered: 

      - Product Line - Depth, Width       - Packaging       - Branding       - Warranties       - After Sales Service

Some other factors that one should consider while finalising the product choice are: 

      - Ease of availability of raw-material       - Process Technology       - Accessibility to the market       - Incentive and support from Government

Market information is also important for product selection. Products, which are likely to have a number of players in the market, are best avoided. Some such products in the recent past have been plastic footwear, audio cassettes, disposable gloves and bulk drugs.

In case the entrepreneur is looking for a product, which has export potential, the following additional questions need to be asked: 

      - What should be the contents of export-product portfolio?       - What are the special requirements for packaging if one has to export the products?      - What product adaptations are needed to be made for exporting a product to a specific country?      - Are any WTO conditionalities involved e.g. "child labour free", ISO 9000 certified, GMP followed etc.

The development of export-product portfolio can be done by considering 4 parameters viz. 

      - External demand conditions      - Internal supply capability       - Complexity of marketing tasks       - Amount of investment required to penetrate the market

Analysis can be conducted using this four dimensional model. The obvious choice is a product which scores a high rating on first two parameters and low rating on last two parameters.

EXIM (Export Import Bank of India) Bank has also developed an excellent model to conduct the export-product portfolio analysis based on three parameters viz. 

      - Supply Capability In Product Group       - Domestic Environment       - Export Market Attractiveness

This analysis gives rise to product groups with high potential or low potential.

With regard to special packaging requirements one has to be careful about laws of the country one is exporting to. For instance, while exporting to Australia, wooden-packaging cannot be done.

Product adaptations for country's specific needs look into things like whether voltage supply is 220V or 110V for electric appliances and for automobiles whether left-hand drive or right-hand drive is appropriate.

Technology and Machinery  Project Selection 

Process Selection

Choices of process technology emerge once the product is finalised. For some complex products, process know how has to be imported. In such cases agreements for technology transfer should be made with due care to safeguard interest. A lot of appropriate technology is being developed at CSIR and Defense Research Labs and some of this technology can now be bought. Indigenously developed process know-how has intrinsic benefits such as appropriateness and relative inexpensiveness.

While checking out on a process technology, the following things need to be considered with utmost care:

 Technology and Machinery  Arranging Finance  Unit Development  E M Filling  Approvals  Clearances  Quality Certification

- Whether process requires very high level of skilled workers or complex machines? - Whether process requires large quantities of water and/or power?- Whether any process or product patent needs to be honoured while utilising the selected process technology.- Any special pollution or environmental regulations.- Finally, the appropriateness to the indian environment and conditions. Machinery and equipment

One of the major deficiencies in the small industry scenario is the prevalence of outdated production and management methods hindering the efficient operation of small-scale units. It was also found that the most important reason for the reluctance of the small industrialists to install modern machinery and equipment was the lack of investible funds. The main objective of National Small Industries Corporation (NSIC) is to provide machinery and equipment to small industrial units offering them long repayment period with moderate rate of interest.

NSIC procedures for hire purchase of machinery

- The hire purchase application is to be made on the prescribed form. - The Director of Industries of the State under whose jurisdiction the applicant falls, forwards the application to the head office of the NSIC at Delhi with his recommendation and comments. - All applications for indigenous or imported machines are considered by acceptance committees comprising of the representatives of the Chief Controller of Imports, Development Commissioner, Small Scale Industries and other concerned departments. - Decision of these committees is conveyed to the parties concerned with copies to the regional offices of the NSIC and the concerned Directorate of Industries. - Once all these formalities are completed by the hirer, instructions are sent to the suppliers to dispatch the consignment (duly insured for transit risk) to the hirer and to send the R/R or C/R as the case may be, to the regional office- The NSIC after ensuring that all dues have been paid by the hirer, releases the R/R or C/R to him for taking delivery of the machines. |- In case of imported machines, the procedure is slightly different in as much as the shipping documents are sent to the clearing agents for clearing the consignment from the Customs and dispatching it to the hirer.

Value of machines that can be suppliedRs. 7.5 Lacs, F.O.R. or landed cost as the case may be.

Earnest Money5% or 10% of the value of machinery depending on whether the equipment is imported or indigenous. In the case of furnaces and a few other items of equipment, the rate of earnest money is different. Interest 9 per cent per annum with a rebate of 2 per cent on prompt payment. This interest is calculated on the value of machines outstanding after deducting payment of earnest money.

Administrative Charge 2 per cent on the sales value of machines and its recovery by the NSIC is spread over the total

installment period.

Period of RepaymentThe value of the machines, after deducting the earnest money received, called the Balance Value, is payable alongwith interest and administrative charge in 7 years.

- The first installment is payable after one year and six months from the delivery of machines - The second and subsequent installment are payable half-yearly thereafter.

Gestation PeriodIn case of certain type of machines which become operative immediately on installation in the service sector industries and job order establishment, a gestation period of only 6 months shall be allowed both to the new and existing units.

A rebate of 2% per annum is allowed on the interest rates, in case an installment is paid on or before the due date.

In case the payment of installment is not made within one month of the specified due date, interest @ 2% per annum over and above the normal rate is charged on the defaulted amount from the date of default to the date of actual payment. Remission in interests is allowed in case one or more than one installment is paid in advance of the due date(s).

Arranging Finance

No MSME unit can take off without monetary support. This need for finance can be classified into following types: 

      - Long and medium term loans       - Short term or working capital requirements       - Risk Capital      - Seed Capital/Marginal Money       - Bridge loans

 Project Selection  Technology and Machinery  Arranging Finance  Unit Development  E M Filling  Approvals  Clearances  Quality Certification

Financial assistance in India for MSME units is available from a variety of institutions. The important ones are

- SIDBI: Small Industries Development Bank of India (refinance and direct lending)- SFCs: State level Financial Corporation e.g. Delhi Financial Corporation.- NSIC: National Small Industry Corporation. - Small Industry Development Corporations of various states. - Commercial/Co-operative Banks. - DIC: District Industry Centre.

Long and medium term loans are provided by State Financial Corporations, SIDBI and State Industrial Development Corporations. Banks also finance term loans. This type of financing is needed to fund purchase of land, construction of factory building/shed and for purchase of machinery and equipment. Term loans are secured against mortgage of assets such as land, building, machines, equipment and other stocks. The short-term loans are required for working capital requirements, which fund the purchase of raw material and consumable, payment of wages and other immediate manufacturing and administrative expenses. Such loans are generally available from commercial banks.

There is, however, a SINGLE WINDOW SCHEME, for MSME units. Under the scheme, one agency, either the bank or the financial institution, funds both the term loan and working capital requirements. This scheme applies to all MSME projects with project cost upto Rs. 5 million. The working capital loan is generally secured against

- Pledging of stocks, raw materials and finished goods, - Advances against work-in-progress (WIP), 

- Advance against bills.

For loans from financial institutions and commercial banks a formal application needs to be made. The details of documentation that need to be provided with the loan application are shown here.

      - Documentation for Loan Application       - Balance Sheet and Profit Loss Statement for last three consecutive years of firms owned by promoters      - Income Tax Assessment Certificates of Partners/Directors      - Proof of Possession of Land/Building       - Architects estimate for construction cost       - Partnership deed/Memorandum and Articles of Associations of Company.       - Project Report       - Budgetary Quotations of Plant and Machinery

A sanction or rejection letter is issued by bank after its assessment of the application. After receiving a sanction letter applicants need to indicate in writing their acceptance of terms and conditions laid down by FI/ Banks.

Subsequent loan is disbursed according to the phased implementation of the project. In today's environment there are other choices apart from commercial banks and Government owned financial institutions. These options include venture capital funds and non-government finance companies.

Unit Development

After deciding the issues of product and process, the next important question is where to set the unit up?

For many tiny units and service-based units, the home is perhaps the best starting point.

Setting up an establishment is much more than putting a signboard up and waiting for customers to walk in. It requires negotiating a favourable plot or shed purchase, organising for proper construction of building, design of interiors and finding good deals for equipment and machinery.

 Project Selection  Technology and Machinery  Arranging Finance  Unit Development  E M Filling   Approvals  Clearances  Quality Certification

Construction of Building

Once an industrial plot for the unit is secured, then the next job is that of finding a suitable architect. Design of factory building has to be in consonance with the type of industry and have an appropriate plant layout.

An architect's estimate of building construction is essential for loan applications. Further, architect's certificate for money spent on building is needed for disbursement of loan.

Getting the Utility Connections

Among the utilities of prime importance are power and water. In many cases getting power connection causes delay in setting up of plant. Therefore it is imperative to commence work on these aspects with diligent follow up. Power connections are generally of either LT (Low Tension) or HT (High-tension) type. If connected load is upto 75 HP, LT connection is provided. For connected loads of 130 HP or higher only HT connection is provided.

A formal application needs to be made in a specified form to the state electricity board. An electrical inspector is deputed for evaluation of application to factory site, after which the load is sanctioned. In areas of power shortage, it is advisable to augment the power supply with a captive generating set.

Water connection is also obtained likewise by applying in advance in formal forms. The water supply

can be augmented by installation of tubewell.

Getting 3M's Right

MenProjections for manpower and staffing are made in the project report. However it is necessary to time the induction of manpower in a planned manner. The engineers and operatives must be available

before the installation of the machinery. MachineryChoosing and ordering of right machinery is also of paramount importance. In many cases technology or process provides us with specifications which is not provided, then an extensive techno-economic survey of machinery and equipment available must be carried out. International trade fairs and engineering fairs are good places to look at available options. The entrepreneur must also consult experts, dealers / suppliers as well as users, prior to making a selection of equipment and machinery.

The advice of DIC, MSME-DI and NSIC can also be sought. MaterialsMaterials procurement and planning are critical to success, of a start-up with a MSME unit. Inventory management can lead to manageable cash flow situations; otherwise if too much is ordered too soon considerable amount of working capital gets locked up. On the other hand, non-availability may result in production hold-ups, and idle machine and manpower. For essential imported raw material whose lead-time is large proper planning is all the more essential.

Approvals

Every MSME unit has to comply with various regulations in force. These include regulatory, taxation, environmental and certain product specific clearances. This section looks into the methodology of obtaining these approvals and clearances.

Exemption from Compulsory License

Licensing in the Industries sector is governed by the licensing exemption notification issued by Govt. of India in July 25 1991 under the Industries (Development and Regulation) Act, 1951. In MSME, there are virtually no licensing restrictions. No industrial license is required except in case of 6 product groups included in compulsory licensing (these products groups mainly cover products that can only be made in large sector.)

 Project Selection  Technology and Machinery  Arranging Finance  Unit Development  E M Filling   Approvals  Clearances  Quality Certification

But if a small-scale unit employs less than 50/100 workers with/without power then it would not require a license from the Govt. of India even for the 6 product groups covered in licensing under Schedule II of the notification.

Subject to this, an entrepreneur can set up a MSME unit anywhere in the country without any restriction. The units are, of course, subject to the locational/land use and zoning restrictions in force under the local laws.

Clearances

An entrepreneur has to obtain several clearances or permissions depending upon the nature of his unit and products manufactured.

Regulatory or Taxation Clearances

1. Registration under Sales Tax Act - Commercial Tax officer of area concerned

2. Registration under Central Excise Act - Collector of Central Excise or his nominee for area

 Project Selection  Technology and Machinery  Arranging Finance  Unit Development  E M Filling  Approvals  Clearances  Quality Certification

3. Payment of Income Tax - ITO of the area concerned4. Registration of Partnership deed - Inspector General of

area concerned5. Calibration of weights & measures - Weights and

Measures Inspector of State6. Power Connection - Designated Officer of State

Electricity Board7. Employee strength exceeding 10 with power connection

or 20 without power - Chief Inspector of FactoriesEnvironment & Pollution Related Clearances

The method of granting consent under water and air pollution to MSME units has been simplified. Except for 17 critically polluting sectors given below, in all other cases MSME units will merely have to file an application and obtain an acknowledgement which will serve the purpose of consent:-

1. Fertilizer (Nitrogen/Phosphate)2. Sugar3. Cement4. Fermentation & Distillery5. Aluminium6. Petrochemicals7. Thermal Power8. Oil refinery9. Sulphuric Acid10. Tanneries11. Copper smelter12. Zinc smelter13. Iron & Steel14. Pulp & Paper15. Dye and Dye intermediates16. Pesticides manufacturing and formulation17. Basic Drugs and PharmaceuticalsProduct Specific Clearances

1. Establishing a Printing Press - District Magistrate2. License for Cold Storage Construction - Designated Official in State3. Pesticides - Central/State Agricultural Department - Ministry of Agriculture4. Drugs and Pharmaceuticals - Drug license from State Drug Controller5. Safety Matches/ Fireworks - License under Explosives Act from Directorate of Explosives, Nagpur6. Household Electrical Appliances - License from Bureau of Indian Standards7. Wood Working Industry within 8 km from forest - District Forest Officer8. Milk Processing & Milk products manufacturing units - Approval under Milk and Milk Products Order

from State Agricultural/ Food Processing Industries Department above a designated capacity.

Quality Certification

Quality certification has become extremely important in competitive markets and especially in gaining foothold in exports. To avail the certification of ISO-9000, a unit has to undertake significant costs; the small scale industries have been found wanting mainly on account of resource crunch to implement quality systems to obtain this certification. However, as a paradigm shift, MSME must make 'Quality' a way of life.

It has been decided to push the quality upgradation programme in the

 Project Selection  Technology and Machinery  Arranging Finance  Unit Development  E M Filling  Approvals  Clearances  Quality Certification

MSME Sector in a big way.

A scheme has been launched to give financial incentive to those MSME units who acquire ISO-9000 certification, by reimbursing 75% of their costs of obtaining certification, subject to a maximum of Rs. 0.75 lacs per unit.In order to promote modernisation and technology upgradation in MSME, the units are assisted in improving the quality of their products.

A new scheme has been launched to assist MSME units in obtaining ISO-9000 or an equivalent international quality standard. Subject to an upper ceiling of Rs. 075 lacs, each unit is given financial assistance equal to 75% of the costs incurred in acquiring the quality standard.

The MSME units are also encouraged to participate in quality awareness and learning programmes organised specially for their benefit.

How to start Micro, Small & Medium UnitSSI in India are like small nurseries for developing entrepreneurs. Setting of a business serves as a stepping stone to those who aspire to go up the ladder of prosperity. Many of today's industrial leaders began their career with a small industry.

STEPS FOR SETTING UP MSME UNIT1) Definition :-    Manufacturing Enterprises:    Micro       - Investment in Plant & Machinery above Rs. 25 lakhs    Small         - Investment in Plant & Machinery Rs. 5 Crore.    Medium   - Investment in Plant & Machinery Rs. 10 Crore.        Small Scale Service & Business Enterpri8ses (SSSBE):    Micro       - Investment in Plant & Machinery above Rs. 10 lakhs    Small        - Investment in Plant & Machinery Rs. 2 Crore.    Medium   - Investment in Plant & Machinery Rs. 5 Crore.                 

 the SSI sector accounted for nearly 40% of gross value of output in the manufacturing sector and 35% of total export from the country. It provides employment to about 18 million people.

STEPS FOR SETTING UP MSME UNITS :-1. Decision to be self employed :    -     Think positively    -     Self confidence    -     Goal setting.    -     Initiative    -     Courage    -     DeterminationWhat to manufacture ?2.       Selection of the product based on market surveyForm of ownership   -     Proprietary concern   -     Partnership   -     Limited company   -     Cooperative society3. Location of the enterprise :-   -     Nearness to market and nearness to raw materials.   -     Early availability of transport facility at cheaper rates.   -     Availability of skilled workers at cheaper rates.   -     Incentives/concessions for industrially backward areas4. Land & Building :-    Availability industrial sheds and with minimum investment5. Preparation of the project report :-    -    Technical feasibility.    -    Economic viability.

    -    Total cost of the project-fixed as well as working capital.6. Registration :-    -    Whom to approach-depending upon the location of the factory.    -    Permanent and temporary registration.7. Finance :- (for fixed assets & working capital)    -    Whom to approach - Bank, private financial Institutions, Govt. agencies, UPFC, etc.    -    Types of scheme.8. Statutory Licenses/clearances :-   e.g.    -    Manufacture of drugs Cosmetics         - State Drug controller/Drug Control Administration.    -    Manufacture of fruits and vegetable based products (FPO) - D.D Food, Vegetable Preservation,                                                                                               Ministry of Agriculture, Govt. of India    -    Power connection                                                          - State Electricity Board    -    Pollution Control                                                           - State Pollution Control Board and so on.9. Purchasing of Machinery :-    -    NSIC provides indigenous and imported machinery to MSMEs on hire purchase basis. The rate of earnest to be paid varies from 15 to 30%. Full hire purchase value is pay able in 13 installments.10. Recruitment of personnel :-    -    Well qualified - skilled & unskilled    -    Well experienced skilled & unskilled     -    Minimum wage rate prevalent11. Installation of machinery.12. Power connection / water supply13. Procurement of raw materials :-    -    Minimum stock    -    Easily available    -    Find substitutes    -    Lower rates14. Production :-    -    Know the installed capacity.    -    Less rejections    -    Quality control & testing.15. Marketing :-    -    Advertisement and publicity    -    Channel of distribution    -    After sales service, if required    -    Feed back from customer.16. Repayment of loans17. Profit generation18. Avoiding sickness    -    Modernization and technology upgradation

TIPS FOR MSME ENTREPRENEUR

Do not overburden yourself right from the beginning. you will have plenty to do later no. An entrepreneur should be a moderate and calculated risk taker, so take your decisions considering this fact at all

times. An  entrepreneur's work is not to do all the work himself, but also to get result from the work done by others. Proper and planned utilization of time can yield better performance. Keep yourself fully informed about the market developments and think out the adjustments when required in

advance. Do not avoid or run away from your problems be they the creditors/money lenders in band times, but take them

into confidence and keep them informed about your real position. This is unpleasant but it can be helpful. The best way to face competition is to know more about your competitors, my meeting and talking to related

persons, don't keep yourself in the dark about them. Do not hesitate to take advice of experts. Learn to use their advice to your advantage. Develop all round

managerial understanding. Do not promise immediate repayments of private borrowings from your relatives or friends, especially if they have

been put into long them assets. Spread out your payments and make promises on expected receipts. Don't delay. A days delay in decision can multiply in weeks/months.

Any decision will always have many implications, both short term and long term. So weigh them, evaluate them and then do not be afraid to take hard and unpleasant decisions

You must have your own information system to know where your business is leading. Don't depend too much on your memory. Make a habit of writing point's down and maintain the records regularly.

A simple way is to spend at least 15 minutes a day to do this. That can save spending days at the end of the year to write them. Make recording a regular practice.

Cost consciousness does not mean accurate calculations of cost up to last decimals. But it is awareness about your commitments, priorities, and implications, commensurate with your resources and returns.

Through financial results and problems are your major concerns, these may not always be the only cause or factor for improving your performance.

Anticipate changes and problems and prepare your self to face them.

You will be surprised to know that the majority of MSME units have failed in the first year itself. Work hard and cautiously in the initial period in order to lay a solid foundation.

A majority of the reasons that cause failure can be avoided if proper planning is done in advance. Only plan for likely difficulties/uncertainties over which you have reasonable control. Do not worry about

uncertainties over which you have little control, make provisions about them and then forget. For instance, take insurance against fire and then stop worrying.

If you think someone can do your work, delegate it to him and monitor his performance. This will give you more time to do some more important work.

Develop the habit of spending half an hour everyday to plan your activities and to assess your day's work. It will keep you free of tensions and your unit healthy.

Managerial success is into keeping oneself, totally busy and involved in the day-to-day work, but to have adequate free time to think, plan and work for future also.

Keep yourself aware about technology by visiting factories, exhibitions, and markets and by being members of trade/industry associations.

Small scale firms are helpful in the achievement of these goals in the following ways:

1. Employment: Small scale firms use labour-intensive techniques and, therefore, they have high potential to provide employment to a larger number of people per unit of capital. For every worker employed in large scale industries about three workers are engaged in small scale and cottage industries. Next to agriculture small business constitutes the most popular occupation of people in India. Small firms promote self-employment particularly among the educated and professional class. They also provide employment to agriculturists who remain idle during a part of the year. In fact, the healthy growth of small scale industries can be an effective approach to the pressing problem of unemployment in the country. Several empirical studies have revealed that the employment generating capacity of small scale industries in about in times more than that of the large scale industries. 

2. Balanced Regional Development: small scale industries promote decentralized development and help to remove regional disparities in industrialisation. Decentralized development contributes to the process of self-sustained growth and avoids concentration of industries in particular areas. By providing employment in rural areas they help to check migration and overcrowding in urban areas. Small scale firms can be a useful means of rural reconstruction and development. Development of decentralized sector also improves the standard of living of people in backward regions. 

3. Optimization of Capital: Small scale firms require less capital per unit of output and, therefore, greater output can be obtained with small investment. The Annual Surveys of industries reveal that fixed capital per employee in case of small scale industry was Rs. 3,706 as compared to Rs. 27,757 in case of large scale industry. Small firms also provide quick returns after their establishment on account of short gestation period. In India where the rate of capital formation is low, small scale industries are very suitable. 

4. Mobilization of Local Resources: Small scale industries facilitate Mobilization and utilization of local resources and family skills which might otherwise remain talent or utilized. Small business promotes a new cadre of small entrepreneurs and self-employed and encourages local talent. The growth of small enterprises helps in tapping talent resources like entrepreneurial skills and small savings specially in rural

areas. Small business helps to protect technical skills and handicrafts. 

5. Exchange Earnings: Small scale industries help in reducing pressure on the country's balance of payments in two ways. First, they do not require imports of sophisticated machinery and equipment. Secondly, they earn valuable foreign exchange through exports of their products. The exports of small scale industries increased from Rs. 637 crores in 1975-76 to Rs. 2785 crores in 1985-86. Small scale sector accounts for 40 percent of the exports of non-traditional items and about 25 per cent of the country's total exports. About 90 per cent of its exports are of non-traditional items. 

6. Egalitarian Society : Small scale industries help in reducing concentration of economic power in a few hands. They promote a more equitable distribution of national income and wealth. Development of small scale industries helps to reduce monopolies and exploitation of consumers. Benefits of small scale firms are derived by a wider population. A large part of the earnings is distributed among workers. 

7. Feeder to Large industries: small scale sector is complementary to the large scale industries. Small scale industries manufacture various types of components, spare parts, tools and accessories which are required by the large scale sector. 

8. Social Advantage: Small scale units offer opportunity for an independent way of life to people with small means. They offer savings in social overheads like education, housing and medical facilities by taking industry nearer to the people. They help to raise per capita income an standard of living in the country. A system of widely diffused ownership permits wider participation of people in the process of economic development. Small scale sector provides a base for democracy, socialism and self-government. 

At present there are about 16 lakh small scale units in India producing more than 500 times. The Seventh Fiver Year Plan envisages a growth rate of 10 per cent in the small scale sector. By the end of 1990 the production of small scale sector is expected to be Rs. 8,000 crores and employment 1.19 crore persons. 

At current prices the total output of small scale sector in 198-87 amounted to Rs. 72,250 crores.