viability study(3)

8/7/2019 Viability Study(3)

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According to Reserve Bank Of India-

A unit should be considered viable if it wasin a position to service its debt, at areasonable rate of interest, which would beconcessional but not below the minimumlending rate and in no case below the cost offunds to the banks, within a reasonableperiod say, about 8-10 years.

Conducted by banks, financial institutions,voluntary agencies etc..

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Historical Background and present position

Management

Production Infrastructural facilities

Labor

Marketing Govt. Policies

Finance

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Debt Equity Ratio

Current Ratio

% of Net Profit to equity share capital Quick ratio

Net working capital

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10% of the total credit to be advanced bycommercial banks should go to SSI units.

Out of 10%,

- 40% is required to be advanced to tiny units.

- 20% for units with investment for ancillary

unit.

- remaining 40% for other SSI units. Launching of Small Industries Development

Fund by the IDBI.

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One who has the right to manufacture musthave the freedom to sell.

MDAF provides for financing innovativemarket projects through a mix of loans, grantsand equity.

Under the marketing finance scheme assistance

is also provided for marketing research,

R&D,

product up gradation etc..

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Undue interference of various agencies, Govt.,Parent Industry etc..

Successful functioning of unit depends on owner,creditors, tax gatherers etc..

No favourtism

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Cheating adopted by small scale entrepreneurs:Entrepreneurs reportedly take full advantageof concessions that are made available to them

but they divert the funds somewhere else. If an institution is found to default with no

solid reason for delays, it may be penalizedand sick units compensated.

Entrepreneurs of sick units should be legallyauthorized to replace inefficient by efficientworkers.

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Voluntary agencies working for small scaleunits should form a voluntary advertisementpool, where each agency should take-up a

certain number of small scale units, collectfunds from them and transfer them to commonpool.

Priority in advertisement should be given tothose units under rehabilitation whoseproducts are of high quality.

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To decide whether the unit should berehabilitated or closed

The cell must be vested with ample powers to

mark its effectiveness and generate a degree offear among the defaulting agencies.

A judicial cell will imply a body comprising

representatives of various agencies likefinancial institutions, parent industries, laborunions, High Court etc.

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Tax holidays (under sec.80 of income taxAct) for a period of 5 years but for thisexemption the small scale industry shouldsatisfy the following 2 conditions:

i. It should not have been formed by the splitting

or reconstruction of an existing unitii. The unit should employ 10 or more workers in

manufacturing process with power, or at least20 workers without power.

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Depreciation ( under section 32 of income taxAct)

Deduction from the actual cost of P&M is allowed

to a maximum of Rs 20 lacs On plant and machinery that are used in

manufacturing in double or triple shift Extra shiftallowanceis available.

Eligibility criteria for deduction of depreciation:

i. The asset must be owned by the Assee

ii. The asset must be used for business

iii. Deduction is allowed only on fixed assets

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Rehabilitation Allowance (under sec. 33-Bof income tax Act)It is given to those small businesses that havesuffered on account of the following reasons:

i. Floods, typhoon, cyclone, earthquake, or othernatural upheavals;

ii. Riot or civil disturbance;iii. Accident, fire or explosion;

iv. Action by any enemy or action taken in combatingan enemy.( This allowance should be used for business purpose

within 3 years of reconstruction of revival.)

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Expenditure on Scientific ResearchDeduction is allowed in respect of thefollowing:

i. Any revenue expenditure incurred in respectof scientific research

ii. Any sum paid to scientific research associationor university for undertaking of scientific

research,iii. Any capital expenditure related to the business

of the assee.

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Credit policies

The actual availability of credit is only 8.1% ofoutput as against the minimum norm of 20%

prescribed by Nayak committee.

In case of tiny units it is only 2.7%

Therefore, there is a need for comprehensive

credit scheme.

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Infrastructure Lack of infrastructure facilities like power

supply, transportation and communication

adversely affect the quantity and quality ofproduction, its cost and delivery.

A mega plan has been worked out to set upabout 1000 rural technology parks which will

provide all the infrastructural needs in thevillage.

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Technology Technology in small industries is hampered

due to lack of infrastructural facilities and the

investment ceiling of the SSIs. A scheme introduced in 1993, aims to promote

the adoption of clean technology by smallindustries. It covers 3 main areas-

- Reduction of waste and pollution.- Recycling household wastes for reuse.

- Effluent treatment and disposal.

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viability study(3)

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