PPT on Industrial economics and Entrepreneurship development for engineering students

1. Unit IV

2. • Entrepreneurship is the practice of starting new organizations
or revitalizing mature organizations, particularly new
businesses generally in response to identified opportunities.
• Entrepreneurship is the process of creating value by bringing
together a unique package of resources to exploit an
opportunity.
Entrepreneurship is the pursuit of opportunity without regard to
resources currently controlled.
• Is a dynamic process of creating incremental wealth. This
wealth is created by individuals who assume the major risks in
terms of equity, time and career commitment of providing
value for some product or service.

3. Theories of motivation-
Abraham Maslow’s “Need Hierarchy Theory” :
One of the most widely mentioned theories of motivation is the hierarchy of needs theory put forth by
psychologist Abraham Maslow. Maslow saw human needs in the form of a hierarchy, ascending from
the lowest to the highest, and he concluded that when one set of needs is satisfied, this kind of need
ceases to be a motivator.
As per his theory this needs are :
(i) Physiological needs :
These are important needs for sustaining the human life. Food, water, warmth, shelter, sleep, medicine
and education are the basic physiological needs which fall in the primary list of need satisfaction.
Maslow was of an opinion that until these needs were satisfied to a degree to maintain life, no other
motivating factors can work.
(ii) Security or Safety needs :
These are the needs to be free of physical danger and of the fear of losing a job, property, food or
shelter. It also includes protection against any emotional harm.
(iii) Social needs :
Since people are social beings, they need to belong and be accepted by others. People try to satisfy
their need for affection, acceptance and friendship.
(iv) Esteem needs :
According to Maslow, once people begin to satisfy their need to belong, they tend to want to be held in
esteem both by themselves and by others. This kind of need produces such satisfaction as power,
prestige status and self-confidence. It includes both internal esteem factors like self-respect, autonomy
and achievements and external esteem factors such as states, recognition and attention.
(v) Need for self-actualization :
Maslow regards this as the highest need in his hierarchy. It is the drive to become what one is capable
of becoming, it includes growth, achieving one’s potential and self-fulfillment. It is to maximize one’s
potential and to accomplish something.

4. Abraham Maslow’s “Need Hierarchy Theory” :

5. Entrepreneurial Motivation
Motivation and entrepreneurship: important motivational concepts from
prior quantitative research-
Previous research has explored several motivations and their effects on
entrepreneurship. In this section, we discuss several of these concepts.
However, we do not provide a complete review of prior empirical research for
two reasons. First, the definitions of entrepreneurship used in previous
empirical research on motivation and entrepreneurship are inconsistent with
our definition, making it impossible to draw direct implications of prior work for
Research using our definition.5 Second, prior research has suffered from
significant methodological problems that we discuss below, making prior
findings suggestive rather than conclusive, even for research that employs the
same definition of entrepreneurship as was used in those studies. Therefore,
we discuss previous empirical research only to illustrate the ways in which
motivation can influence different aspects of the entrepreneurial process.

6. • Need for achievement-
Within the research domain of personality traits and entrepreneurship,
the concept of need for achievement (nAch) has received much
attention. McClelland (1961) argued that individuals who are high in
nAch are more likely than those who are low in nAch to engage in
activities or tasks that have a high degree of individual responsibility
for outcomes, require individual skill and effort, have a moderate
degree of risk, and include clear feedback on performance. Further,
McClelland argued that entrepreneurial roles are characterized as
having a greater degree of these task attributes than other careers;
thus, it is likely that people high in nAch will be more likely to pursue
entrepreneurial jobs than other types of roles.

7. McClelland Acquired Need theory
• Description
• Need are shaped over time by our experiences over time. Most of these fall into three
general categories of needs:
• Achievement (nAch)
• Affiliation (nAff)
• Power (nPow)
• Acquired Needs Theory is also known as the Three-Need Theory or Learned Need
Theory.
• We have different preferences
• We will tend have one of these needs that affects us more powerfully than others and
thus affects our behaviors:
• Achievers seek to excel and appreciate frequent recognition of how well they are
doing. They will avoid low risk activities that have no chance of gain. They also will
avoid high risks where there is a significant chance of failure.
• Affiliation seekers look for harmonious relationships with other people. They will thus
tend to conform and shy away from standing out. The seek approval rather than
recognition.
• Power seekers want power either to control other people (for their own goals) or to
achieve higher goals (for the greater good). They seek neither recognition nor
approval from others -- only agreement and compliance.

8. Kakinada Experiment
• David McClelland (1961), who conducted famous KAKINADA
Experiment in Andhra Pradesh, emphasized that "entrepreneur is an
energetic, moderate risk taker with high need for achievement".
• Kakinada is an industrial town In Andhra Pradesh. The experiment
started in January 1964. Its main objective was to break the barriers
of limited aspirations by i9nducing achievement motivation. Total 52
persons were sleeted from business and industrial community. They
were given an orientation program at Small Industry Extension
Training Institute (SIET) at Hyderabad. The participants were
grouped in 3 batches. They were put under tainting for 3 months.
Program was designed in such a manner that it could help the
participants to improve imagination and help to motivate them.
The impact of the training program on participants was observed
after a period of 2 years. They were assessed by Thematic
Assessment Test (TAT). In this TAT ambition related pictures were
displayed to the trainees and they were asked to interpret the
pictures. It has been observed that participants were positively
influenced by the training.

9. Some successful entrepreneurs in India
1. Dhirubhai Ambani (1933-2002), founder of Reliance Industries
2. Ghanshyam Das Birla (1894-1983), prominent member of the
Birla family
3. Jamsetji Tata (1839-1904), pioneering Indian industrialist, founder
of the Tata Group of companies
4. J.C. Mahindra, co-founder of the Mahindra Group
5. Karsanbhai Patel (1945- ), founder of the Nirma Group
6. Sunil Mittal (1957- ), chairman and managing director of Bharti
Enterprises
7. Narayan Murthy founder of Infosys
8. Azim Prmchand founder of Wipro technologies
9. Vijay Mallya (1955- ), chairman of the United Breweries Group
and Kingfisher Airlines, member of the upper house of the Indian
Parliament, and owner of several sports franchises and teams

10. Small Scale Industry
Small Scale Industries may sound small but actually plays a very important part in the
overall growth of an economy. Small Scale Industries can be characterized by the
unique feature of labor intensiveness. The total number of people employed in this
industry has been calculated to be near about one crore and ninety lakhs in India,
the main proponents of Small scale industries.
The importance of this industry increases manifold due to the immense
employment generating potential. The countries which are characterized by acute
unemployment problem especially put emphasis on the model of Small Scale
Industries. It has been observed that India along with the countries in the Indian
continent have gone long strides in this field.
The small scale industries are playing an important role in the GDP of India. The
small scale industries have nearly 40% share in the total industrial output and 35%
share in exports. The definition of small scale industries have changed from time to
time. Earlier they were classified under two categories:
Using power with less than 50 employees.
Using no power, but strength of employees is more than 50, less than 100.
However according to the latest definition a industry is said to be a small scale industry
if its investment in fixed assets like plants and equipments either held on ownership
terms or on lease or on hire purchase is less than Rs 10 million. And it is also
essential that the unit is not controlled by any other industrial unit.

11. • Traditional and Modern Small Scale Industries and Their Products
The traditional small scale industries are more labor intensive than capital
intensive whereas the modern small scale industries are more capital
intensive. The traditional small scale industries use old machinery and
their output is also very low. But the modern small scale industries use
the modern machinery and the quality of their output is also very good.
Some of the traditional small scale industries are that of Khadi and
Handloom, coir, village industries etc. The modern small scale industries
are that of garments, leather products etc. But in today's scenario, most
of the small scale industries in India are modern small scale industries.
The products manufactured by these small scale industries are electrical
items, hardware, sports goods, stationary items, clocks, watches,
automobile parts, chemical products etc. They are also helped by the
business enterprises in India in their production.
Need to Boost Small Scale Industries
Realizing the importance of small scale industries in Indian economy, the
government is trying to develop this industry keeping in mind the following
aims:
1. To increase employment.
2. To prevent unequal distribution of income.
3. To develop capital investment.

12. Advantages of Small Scale Industry
1. This industry is especially specialized in the production of consumer
commodities.
2. Small scale industries can be characterized with the special feature of
adopting the labor intensive approach for commodity production. As these
industries lack capital, so they utilize the labor power for the production of
goods. The main advantage of such a process lies in the absorption of
the surplus amount of labor in the economy who were not being absorbed
by the large and capital intensive industries. This, in turn, helps the
system in scaling down the extent of unemployment as well as poverty.
• It has been empirically proved all over the world that Small Scale
Industries are adept in distributing national income in more efficient and
equitable manner among the various participants in the process of good
production than their medium or larger counterparts.
• Small Scale Industries help the economy in promoting balanced
development of industries across all the regions of the economy.
1. This industry helps the various sections of the society to hone their skills
required for entrepreneurship.
2. Small Scale Industries act as an essential medium for the efficient
utilization of the skills as well as resources available locally.

13. Types of small scale Industry
1. Manufacturing Industries- Industries producing
complete articles for direct consumption and also
processing industries
2. Feeder industries- specializing in certain types of
products and services like casting, welding etc.
3. Serving industries- Covering light repairs and
maintenance
4. Ancillary industries- producing parts and components
and rendering services
5. Mining and quarrying

14. OBJECTIVES FOR PERIODIC CHANGES IN DEFINITION
• To facilitate growth of this sector with changing economic scenario
• To facilitate growth within the framework of social and economic
policy of the country
• To encourage technology modernization
• To promote entrepreneurship among technically qualified persons
• To improve product standards
• To create opportunities for in house R&D
• To provide greater export thrust

15. PERFORMANCE OF SSI SECTOR IN INDIA
YearNo. of Registered SSI working Units (Million)No. of Unregistered SSI working Units (Millions)Total SSI working Units (Millions)
Production (Rs. Billion)
Employment (Million Persons)At current pricesAt constant prices (1993-94 prices)
1990-1991 0.79 6.00 6.79 635.18 682.95 15.834
1991-1992 0.87 6.19 7.06 730.72 791.80 16.599
1992-1993 0.99 6.36 7.35 855.81 935.23 17.484
1993-1994 1.06 6.59 7.65 988.04 988.04 18.264
1994-1995 1.16 6.80 7.96 1222.10 1091.16 19.140
1995-1996 1.16 7.12 8.28 1482.90 1216.49 19.793
1996-1997 1.20 7.42 8.62 1684.13 1353.80 20.586
1997-1998 1.20 7.77 8.97 1891.78 1478.24 21.316
1998-1999 1.20 8.14 9.34 2129.01 1594.07 22.055
1999-2000 1.23 8.48 9.71 2342.55 1707.09 22.910
2000-2001 1.31 8.80 10.11 2612.89 1844.28 23.909
2001-2002 1.37 9.15 10.52 2822.70 1956.13 24.909
2002-2003 1.59 9.36 10.95 3119.93 2106.36 26.021
2003-2004 1.70 9.70 11.40 3514.27 2265.81 27.142
2004-2005 1.85 10.11 11.86 4182.63 2515.11 28.257
2005-2006 1.87 10.47 12.34 4762.01 2776.68 29.491
Source : SIDO’s Half Century y DCSSI, Govt. of India, 2004, and Economic Survey, Govt. of India, 2006-2007, Feb. 2007

16. Procedure to set up SSI
• For starting a Small Scale Industry (Other than Chemical, Chemical based industries
and highly polluting industries), entrepreneurs have to first apply to the Directorate of
Industries at Pondicherry. Branch Office at Karaikal, Sub Office at Mahe and Yanam,
depending on the location of the unit for Provisional SSI Registration, in the form
prescribed by the Development Commissioner (SSI), New Delhi.
In case of Chemical and Chemical based industries, entrepreneurs have to first get
clearance from the Committee for Chemical Industries through the Directorate of
Industries and then approach for provisional SSI registration after its clearance.
All the entrepreneurs irrespective of their size of investment, may approach the
'Single Window Committee' (Functioning in the District Industries Centre) for getting
the said clearances expeditiously.
• The District Industries Centre will forward the complete set of applications received
from the entrepreneurs to the concerned Municipality/Commune Panchayat. In turn,
the Municipality/Commune Panchayat after getting clearances from the concerned
Departments/ Organisations, will issue permission for establishment of the industrial
units. The Municipalities/Commune Panchayat will obtain the following clearances
depending upon the nature of the manufacturing activities:-

17. (a) NOC on pollution angle from the Department of Science, Technology and Environment
(Second working day of every month is earmarked for environmental clearances meeting);
(b) Approval of Factory Building and Machinery lay out from the Inspectorate of Factories;
(c) Site clearance from Town and Country Planning Department;
(d) Permission for land use conversion and ground water clearance from Agricultural Department;
(e) Power feasibility Certificate from Electricity Department;
(f ) Building Plan approval from Pondicherry Planning Authority;
(g) Clearance from Health Department;
(h) Clearance from Fire Service Department;
(i) Clearance from Revenue Department;
(j) License from Food and Drugs Administration;
(k) License from Civil Supplies Department.

18. • In order to help the entrepreneurs to get the above clearances, procedures
are being simplified. Single Window Committee, under the Chairmanship of
the Secretary to Government (Industries) is being given a new vigor with
meaningful "Single Point Deliberation" with the concerned decision making
departments/authorities right in the presence of the promoters of the
industries.
High degree of earnestness and transparency is being instilled into the
process.
First working day of every month has been earmarked for this meeting.
After installing machinery, entrepreneurs have to get licenses from the
concerned Municipality/Commune Panchayat.
License from Inspectorate of Factories and consent orders from the
Department of Environment for operation of the unit.
After commencement of regular production, the entrepreneurs have to apply
for Permanent SSI Registration to the Directorate of Industries.

19. Policies governing SSI
• 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.

20. • 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.

21. • 3.0 INFRASTRUCTURAL FACILITIES
3.1 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.

22. 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 labor 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.

23. • 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 Centers 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 Centers in
their respective command areas.

24. • 6.0 PROMOTION OF ENTREPRENEURSHIP
6.1 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 PROCEDURES
7.1 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.

25. Unit V

26. Factors governing selection of site
• Availability of raw materials
• Availability of labors
• Availability of water
• Availability transport facilities
• Nearness of market
• Availability of land
• Supply of power
• Availability of banks
• Availability of ancillary materials and services

27. • PREPARATION OF PROJECT REPORT
1. After the market survey and final selection of the products a project profile is to be
prepared. This is a brief description of the project and would include the following
details:
• Introduction about the promoter, giving his complete Bio-data(i.e. age, educational
and professional qualification, Past experience, Present activity and relationship with
each other in case of partnership concerns).
2. Manufacturing process. All operations, which are to be carried out from the Raw
Material stage to be finished stage, are to be explained in detail.
3. Market Survey report that has already been prepared, is to be included.
4. Installed capacity of the plant, capacity utilization, during initial 1-3years and Annual
Sales.
5. Complete details about the land and building (e.g. cost, area etc.). These are to be
supposed by documentary evidence and building plans prepared by an approved
Architect.
6. Details of the Plant Machinery. To be supported with quotations from three different
suppliers. This should include expenses incurred on taxes, transportation, installation,
accessories etc.
7. Details of the Annual requirement of Raw Material and consumables, also to be
supported with quotations.
8. All annual expenses (e.g. Utilities, Administrative expenses, Repair and Maintenance,
Salaries, Selling expenses, packing and forwarding expenses etc).

28. 9. Working capital requirement, showing the margin on working capital and Bank finance required.
Items considered for working capital are:
• Raw material stock
• Finished Goods stock
• Work in process
• Bills receivable
• Working expenses
10. Cost of the project : The items to be included in this area as follows:
• Land
• Building
• Plant and Machinery
• Misc. Fixed Assets
• Contingencies
• Pre-operative Expenses
• Margin on Working Capital Means of Finance
• Term loan
• Promoters Contribution
• Subsidy (if applicable)
• Special Capital Assistance (if applicable) (or seed capital)
• Following Annexure are to be included in the Feasibility Report.
11. Calculation of Interest and Repayment of Term Loan:
• The repayment schedule is prepared in equal Annual installments according to the repayment
period allowed by the financial institution. Along with this, the interest for each year is calculated
at the rate applicable in the financial institution.

29. 12. Calculation of Depreciation:
• The depreciation of Building, Machinery and
miscellaneous fixed assets is calculated for the complete
repayment period
13. The cost of production and profitability:
• This is calculated for the repayment period and would
include all direct and indirect annual recurring expenses.
14. Debt Service Coverage Ratio:
• the method for calculation the D.S.C.R. is given below:
Calculate the total (A), of
• Profit after Tax
• Depreciation
• Interest on term loan
• Then the total (B), of
• Repayment of term loan and interest on term loan
• Average D.S.C.R. is A/B

30. 15. Cash Flow Statement:
• Sources of funds is calculated by adding up the following for the complete repayment period:
• Profit before tax with interest added back
• Depreciation
• Increase in Term Loan
• Increase in Bank Finance
• Increase in Promoters Contribution
• Then calculate disposition of funds by totalling
• Increase in Fixed Assets
• Decrease in Term Loan
• Increase in Current Assets
• Interest on Term Loan and Working Capital
• Income Tax
• Total of sources of funds - total of Disposition of funds = Surplus/Deficit Opening Balance +
Surplus = Closing Balance (Starting from nil doing 1st year)
• This is completed for the complete repayment period
16. Projected Balance Sheet:
• Preparation of project balance sheet as follows:
• Reserves and Surplus
• Term Loan
• Promoter's Contribution
• Bank Borrowing (Bank Finance of working Capital)
• Assets : Total of-
• Net Block Assets
• Fixed assets- Depreciation (cumulate Depreciation over the operating years)
• Current Assets
• Cash and bank Balance
• The total of liabilities and total Assets should tally for each operating year individually, for a
correct Balance Sheet.

31. 17. Break Even Point:
• This is the level of production at which the unit is running
at no profit no loss. Hence , it is essential to calculate the
BEP to ascertain the level of production at which the
units starts earning profits. It is calculated as follows:
BEP=( Fixed Cost * Percentage of optimum cap.
Utilization) * 100/ contribution
Contribution = Sales - Variable Cost
This is calculated for the year during which the unit
reaches optimum capacity utilization.
• After preparation of the project Report the Entrepreneur
is required to get the provisional Registration Certificate
from the concerned District Industries Center, and the
Application for the Term loan and Working Capital with
the Financial Institution/ Bank Depending upon the
scheme under which he wishes to apply.

32. • Check List of Document to be submitted along with the loan application
• The number of documents shall depend upon product size, nature and location of project
• Prescribe application form in Duplicate
• Project Report in Duplicate
• List of total movable and immovable Assets of the promoters.
• Income Tax and Wealth Tax details of last three years, with copies of Assessment / Return if
applicable.
• Provisional Registration Certificate from the concerned District Industries Centre.
• Memorandum of Articles of Association and Certificate of in corporation (in case of Company).
• Certified copy of Registration Certificate issued by the Registrar of firms ( if partnership concern)
if forms 'A' and 'C'.
• Registration with the Tourism Department, and the license for eating house in case of Hotel
Industry.
• Permission/license from Competent Authority (in case of Textile, Drugs, Foods etc.).
• Certified copy of sale deed in respect of land. (The land should be in the name of sole
proprietor/partner/company whichever applicable
OR
• Rent agreement in case of rented premises.
• Three quotation in respect of each item of plant and machinery and raw material, proposed to be
purchased.
• Details of power requirement and tie-up with State Electricity Board.
• Copy of instructions to your Bankers to give full information about the concern on request to State
Financial Corporation.
• Permission from Water Pollution Control Board.
• Approved Building plan from Competent Authority with cost estimates

33. Ratio Analysis
• Compare the performance of the company for
three successive years
• The absolute numbers change so compare
ratios
• Compare two companies of differing size but
from the same industry, e.g, Infosys and
Mastek
• Calculate industry-wide numbers (net profit
margins for automobile companies)

34. Lenders’ need it for carrying out the
following
• Technical Appraisal
• Commercial Appraisal
• Financial Appraisal
• Economic Appraisal
• Management Appraisal

35. It’s a tool which enables the banker or lender to
arrive at the following factors :
• Liquidity position
• Profitability
• Solvency
• Financial Stability
• Quality of the Management
• Safety & Security of the loans & advances to
be or already been provided

36. As Percentage - such as 25% or 50% . For
example if net profit is Rs.25,000/- and the sales
is Rs.1,00,000/- then the net profit can be said to
be 25% of the sales.
As Proportion - The above figures may be
expressed in terms of the relationship between
net profit to sales as 1 : 4.
As Pure Number /Times - The same can also
be expressed in an alternatively way such as the
sale is 4 times of the net profit or profit is 1/4th
of
the sales.

37. Balance Sheet RatioP&L Ratio or Income/Revenue Statement RatioBalance Sheet and Profit & Loss
Financial Ratio Operating Ratio Composite Ratio
Current Ratio
Quick Asset Ratio
Proprietary Ratio
Debt Equity Ratio
Gross Profit Ratio
Operating Ratio
Expense Ratio
Net profit Ratio
Stock Turnover Ratio
Fixed Asset Turnover Ratio, Return on Total Resources
Return on Own Funds Ratio, Earning per Share Ratio,

38. • Current Ratio : It is the relationship between the current assets
and current liabilities of a concern.
Current Ratio = Current Assets/Current Liabilities
If the Current Assets and Current Liabilities of a concern are
Rs.4,00,000 and Rs.2,00,000 respectively, then the Current Ratio
will be : Rs.4,00,000/Rs.2,00,000 = 2 : 1
The ideal Current Ratio preferred by Banks is 1.33 : 1
• Net Working Capital : This is worked out as surplus of Long Term
Sources over Long Tern Uses, alternatively it is the difference of
Current Assets and Current Liabilities.
NWC = Current Assets – Current Liabilities

39. 3. ACID TEST or QUICK RATIO : It is the ratio between Quick Current
Assets and Current Liabilities.
Quick Current Assets : Cash/Bank Balances + Receivables upto 6 months +
Quickly realizable securities such as Govt. Securities or quickly marketable/quoted
shares and Bank Fixed Deposits
Acid Test or Quick Ratio = Quick Current Assets/Current Liabilities
Example :
Cash 50,000
Debtors 1,00,000
Inventories 1,50,000 Current Liabilities 1,00,000
Total Current Assets 3,00,000
Current Ratio = > 3,00,000/1,00,000 = 3 : 1
Quick Ratio = > 1,50,000/1,00,000 = 1.5 : 1

40. • DEBT EQUITY RATIO : It is the relationship between
borrower’s fund (Debt) and Owner’s Capital (Equity).
Long Term Outside Liabilities / Tangible Net Worth
Liabilities of Long Term Nature
Total of Capital and Reserves & Surplus Less Intangible Assets
For instance, if the Firm is having the following :
Capital = Rs. 200 Lacs
Free Reserves & Surplus = Rs. 300 Lacs
Long Term Loans/Liabilities = Rs. 800 Lacs
Debt Equity Ratio will be => 800/500 i.e. 1.6 : 1

41. 5. PROPRIETARY RATIO : This ratio indicates the extent to which
Tangible Assets are financed by Owner’s Fund.
Proprietary Ratio = (Tangible Net Worth/Total Tangible
Assets) x 100
The ratio will be 100% when there is no Borrowing for
purchasing of Assets.
6. GROSS PROFIT RATIO : By comparing Gross Profit percentage to
Net Sales we can arrive at the Gross Profit Ratio which indicates the
manufacturing efficiency as well as the pricing policy of the concern.
Gross Profit Ratio = (Gross Profit / Net Sales ) x 100
Alternatively , since Gross Profit is equal to Sales minus Cost of
Goods Sold, it can also be interpreted as below :
Gross Profit Ratio = [ (Sales – Cost of goods sold)/ Net Sales]
x 100
A higher Gross Profit Ratio indicates efficiency in production of the unit.

42. 7. OPERATING PROFIT RATIO :
It is expressed as => (Operating Profit / Net Sales ) x 100
Higher the ratio indicates operational efficiency
1. NET PROFIT RATIO :
It is expressed as => ( Net Profit / Net Sales ) x 100
It measures overall profitability.

43. 9. STOCK/INVENTORY TURNOVER RATIO :
(Average Inventory/Sales) x 365 for days
(Average Inventory/Sales) x 52 for weeks
(Average Inventory/Sales) x 12 for months
Average Inventory or Stocks = (Opening Stock + Closing
Stock)
-----------------------------------------
2
. This ratio indicates the number of times the inventory is
rotated during the relevant accounting period

44. 10. DEBTORS TURNOVER RATIO : This is also called Debtors Velocity or
Average Collection Period or Period of Credit given .
(Average Debtors/Sales ) x 365 for days
(52 for weeks & 12 for months)
11. ASSET TRUNOVER RATIO : Net Sales/Tangible Assets
12. FIXED ASSET TURNOVER RATIO : Net Sales /Fixed Assets
13. CURRENT ASSET TURNOVER RATIO : Net Sales / Current Assets
14. CREDITORS TURNOVER RATIO : This is also called Creditors Velocity
Ratio, which determines the creditor payment period.
(Average Creditors/Purchases)x365 for days
(52 for weeks & 12 for months)

45. 15. RETRUN ON ASSETS : Net Profit after Taxes/Total Assets
16. RETRUN ON CAPITAL EMPLOYED :
( Net Profit before Interest & Tax / Average Capital Employed) x 100
Average Capital Employed is the average of the equity share
capital and long term funds provided by the owners and the
creditors of the firm at the beginning and end of the accounting
period.

46. Composite Ratio
17. RETRUN ON EQUITY CAPITAL (ROE) :
Net Profit after Taxes / Tangible Net Worth
• EARNING PER SHARE : EPS indicates the quantum of net profit of the year that would be
ranking for dividend for each share of the company being held by the equity share holders.
Net profit after Taxes and Preference Dividend/ No. of Equity Shares
19. PRICE EARNING RATIO : PE Ratio indicates the number of times the Earning Per Share is covered
by its market price.
Market Price Per Equity Share/Earning Per Share

47. 20. DEBT SERVICE COVERAGE RATIO : This ratio is one of the most important
one which indicates the ability of an enterprise to meet its liabilities by way of
payment of installments of Term Loans and Interest thereon from out of the
cash accruals and forms the basis for fixation of the repayment schedule in
respect of the Term Loans raised for a project. (The Ideal DSCR Ratio is
considered to be 2 )
PAT + Depr. + Annual Interest on Long Term Loans & Liabilities
---------------------------------------------------------------------------------
Annual interest on Long Term Loans & Liabilities + Annual Installments
payable on Long Term Loans & Liabilities
( Where PAT is Profit after Tax and Depr. is Depreciation)

48. LIABILITES ASSETS
Capital 180 Net Fixed Assets 400
Reserves 20 Inventories 150
Term Loan 300 Cash 50
Bank C/C 200 Receivables 150
Trade Creditors 50 Goodwill 50
Provisions 50
800 800
EXERCISE 1
• What is the Net Worth : Capital + Reserve = 200
• Tangible Net Worth is : Net Worth - Goodwill = 150
• Outside Liabilities : TL + CC + Creditors + Provisions = 600
• Net Working Capital : C A - C L = 350 - 250 = 50
• Current Ratio : C A / C L = 350 / 300 = 1.17 : 1
• Quick Ratio : Quick Assets / C L = 200/300 = 0.66 : 1

49. EXERCISE 2
LIABILITIES 2005-06 2006-07 2005-06 2006-07
Capital 300 350 Net Fixed Assets 730 750
Reserves 140 160 Security Electricity 30 30
Bank Term Loan 320 280 Investments 110 110
Bank CC (Hyp) 490 580 Raw Materials 150 170
Unsec. Long T L 150 170 S I P 20 30
Creditors (RM) 120 70 Finished Goods 140 170
Bills Payable 40 80 Cash 30 20
Expenses Payable 20 30 Receivables 310 240
Provisions 20 40 Loans/Advances 30 190
Goodwill 50 50
Total 1600 1760 1600 1760
1. Tangible Net Worth for 1st
Year : ( 300 + 140) - 50 = 390
2. Current Ratio for 2nd
Year : (170 + 20 + 240 + 2+ 190 ) / (580+70+80+70)
820 /800 = 1.02
3. Debt Equity Ratio for 1st
Year : 320+150 / 390 = 1.21

50. Exercise 3.
LIABIITIES ASSETS
Equity Capital 200 Net Fixed Assets 800
Preference Capital 100 Inventory 300
Term Loan 600 Receivables 150
Bank CC (Hyp) 400 Investment In Govt. Secu. 50
Sundry Creditors 100 Preliminary Expenses 100
Total 1400 1400
1. Debt Equity Ratio will be : 600 / (200+100) = 2 : 1
2. Tangible Net Worth : Only equity Capital i.e. = 200
3. Total Outside Liabilities / Total Tangible Net Worth : (600+400+100) /
200
= 11 : 2
4. Current Ratio will be : (300 + 150 + 50 ) / (400 + 100 ) = 1 : 1

51. LIABILITIES ASSETS
Capital + Reserves 355 Net Fixed Assets 265
P & L Credit Balance 7 Cash 1
Loan From S F C 100 Receivables 125
Bank Overdraft 38 Stocks 128
Creditors 26 Prepaid Expenses 1
Provision of Tax 9 Intangible Assets 30
Proposed Dividend 15
550 550
• What is the Current Ratio ? Ans : (125 +128+1+30) / (38+26+9+15)
: 255/88 = 2.89 : 1
Q What is the Quick Ratio ? Ans : (125+1)/ 88 = 1.43 : 11
Q. What is the Debt Equity Ratio ? Ans : LTL / Tangible NW
= 100 / ( 362 – 30)
= 100 / 332 = 0.30 : 1
Exercise 4.

52. LIABILITIES ASSETS
Capital + Reserves 355 Net Fixed Assets 265
P & L Credit Balance 7 Cash 1
Loan From S F C 100 Receivables 125
Bank Overdraft 38 Stocks 128
Creditors 26 Prepaid Expenses 1
Provision of Tax 9 Intangible Assets 30
Proposed Dividend 15
550 550
Q . What is the Proprietary Ratio ? Ans : (T NW / Tangible Assets) x 100
[ (362 - 30 ) / (550 – 30)] x 100
(332 / 520) x 100 = 64%
Q . What is the Net Working Capital ?
Ans : C. A - C L. = 255 - 88 = 167
Q . If Net Sales is Rs.15 Lac, then What would be the Stock Turnover
Ratio in Times ? Ans : Net Sales / Average Inventories/Stock
1500 / 128 = 12 times approximately
Exercise 4. contd…

53. LIABILITIES ASSETS
Capital + Reserves 355 Net Fixed Assets 265
P & L Credit Balance 7 Cash 1
Loan From S F C 100 Receivables 125
Bank Overdraft 38 Stocks 128
Creditors 26 Prepaid Expenses 1
Provision of Tax 9 Intangible Assets 30
Proposed Dividend 15
550 550
A. What is the Debtors Velocity Ratio ? If the sales are Rs. 15 Lac.
Ans : ( Average Debtors / Net Sales) x 12 = (125 / 1500) x 12
= 1 month
Q. What is the Creditors Velocity Ratio if Purchases are Rs.10.5 Lac ?
Ans : (Average Creditors / Purchases ) x 12 = (26 / 1050) x 12 = 0.3 months
Exercise 4. contd…

54. Unit VI

55. District Industries Center
• Main Activity-
• To develop and promote Cottage and Small Scale Industries in the district. The Small
Scale Industries (SSI) means the Industries with investment upto Rs 1 (one) crore in
plant & machinery
• FINANCIAL ASSISTANCE SCHEMES (DEPARTMENTAL)
• 1) Prime Minister Rozgar Yojona (PMRY)
It is a self-employment scheme for educated unemployed youth with eligibility...
a) Class VIII passed
b) Age – 18 to 35 years (relaxable upto 45 years for SC / ST / Women / Physically
handicapped / Ex-Servicemen)
c) Project upto Rs 2.00 lakh for Industries/Service and Rs 1.00 lakh for Business
d) Annual family income – Rs 40,000/- (Max)
• 2) Normal Bank Finance Scheme
If is one of the major schemes for setting up SSI unit. The Projects/Schemes for the
purpose should have sufficient equity participation.
• 3) Loan Under BSAI Act
This assistance is mainly for Handicrafts Sector. Limit of loan upto Rs 10,000/-. The
rate of interest is 8% with a rebate of 2.5% on regular re-payment.

56. • INCENTIVE SCHEME FOR SSI-
West Bengal Incentive Scheme 2000 – SSI
units commenced after 01.01.2000 will be
entitled for this scheme. The features of this
scheme are...
a) 25% subsidy on fixed capital investment
(Land, Building, Plant & Machinery)
b) 50% (60% in case of agro and food
processing units, IT, Electronics industry)
subsidy on paid interest on Bank/FI loan for
consecutive 7 years and 9 years
c) Remission of Stamp Duty and Registration
Fee on purchase of Land or Buildings.

57. • FACILITIES AND OTHER SERVICES
• 1. S.S.I. Registration
a) Provisional/Temporary Registration : Before starting the SSI Unit, this
registration is issued
b) Permanent/Final Registration : After commencement of production of SSI
Unit, this registration is issued
• 2. Preference for power connection
Priority is given for WBSEB electric power connection to registered SSI
Unit
• 3. Project/Scheme Vetting
Project Scheme of SSI unit is vetted for technical feasibility
• 4. Marketing Assistance to Handicraft Products
Given through participation in WB Handicrafts Expo'
• 5. Special Assistance rendered
For setting up Haldia Petrochemicals Downstream Units.
• 6. National Project of Bio-Gas Development (NPBD)
Construction of Bio-gas plant (family size 1-cum to 10-cum). Main usage
are...
a) Domestic cooking and lighting
b) Production of organic manure (enriched with NPK) for better yield in
agricultural, horticultural & pisicultural sectors
c) Helps to maintain ecological balance. Provision of Govt. subsidy to all
categories of beneficiaries

58. • Pollution Clearance for SSI Units
Pollution Clearance Certificate (consent for starting all categories, viz. Green, Orange,
Red of SSI units) is issued on behalf of WBPCB and also the consent to operate for Green
category only
• 8. Training Programme
Some training programmes on different trades as mentioned below are organised from time
to time for prospective entrepreneurs and handicraft artisans
• Entrepreneurship Development Programme
• Special Training Programmes for Women/Physically Handicapped and Backward Classes
(plumbing, pump-set repair, umbrella repair, batik print, etc.)
• Transfer of Skill and Service Centres (terracotta)
• Design Development/Craft Development for Handicraft Industries, Cane and Bamboo
Products, Wood Carving, Solapith work
• 9. REGP/BSKP/Minority Loans
Technical vetting of project/scheme is done here for these Extra departmental financial
assistance schemes...
• a) REGP (Rural Employment generation programme)
It is launched by Khadi and Village Industries Commission. The main features are...
- Meant only for rural areas of population (less that 20,000) and for viable village-industry
projects.
- Maximum limit – projects upto Rs 10.0 lakhs and Rs 25.0 lakhs for institution @ 30% project
cost upto Rs 10.00 lakhs will be provided as Margin Money in the form of backend subsidy
after 2 years.

59. • b) BSKP: Bangla Swanirbhar Karma Sangthan Prakalpa
This Scheme is promoted by Youth Welfare Department. The key
features are...
• For municipal areas only
• Projects on industry, service & business sectors
• Projects upto Rs 10.0 lakhs for individual @ 20% Govt. Subsidy on
the project cost
• c) MINORITY:
Self-employment Project for Minority Communities only. Scheme is
financed and promoted by West Bengal Minorities Development &
Finance Corporation (WBMDFC). The main features are...
• Age – 18 to 45 years
• Annual family income – Rs 42,142/- for urban area and Rs 31,952/-
for rural areas
• Generation of Govt. or Semi Govt. employee upto 53 years
• Interest – 7.5% pa

60. • Role of consultancy organization in entrepreneurship
development-
• The scheme envisages providing financial assistance to
State-level existing/proposed institutions meant for
supporting entrepreneurship development and self-
employment activities. Under this scheme, grant is given
for setting up of new entrepreneurship development
institutions (EDIs) and also for up-gradation and
modernisation of existing EDIs in the country. Under the
scheme, a matching grant of 50 per cent, subject to a
ceiling of Rs.100 lakh, is provided for building,
equipment, training aids etc., the balance being
contributed by the State/Union Territory Governments
and other agencies. The financial assistance provided
under this scheme is only catalytic and supportive to the
contribution and efforts of State/Union Territory
Governments and other agencies. Under no
circumstances

61. • grant funds provided under the scheme can be used to
meet the recurring expenditure of the institute.
• 7.2.2 The institutions/organizations seeking assistance
under this scheme should be registered as not-for-profit
organization with entrepreneurship development as its
main objective, should possess a clear title of the land
required for setting up of the proposed/existing
institution, have a separate bank account in a scheduled
bank in which all receipts/funds received by the institute
should be credited and payments made on the basis of
authorization by the Governing Council of the institute.
• 7.2.3 All the proposals under this scheme are required to
be recommended by and routed through the concerned
State/UT Government.

62. • 7.3 NATIONAL INSTITUTE FOR MICRO, SMALL AND MEDIUM
ENTERPRISES (NI-MSME), HYDERABAD
• 7.3.1 NI-MSME, formerly known as National Institute of Small Industry
Extension Training (NISIET), was set up in 1960 at New Delhi as a
Department of Central Government under the Ministry of Commerce and
Industry and was initially known as Central Industrial Extension Training
Institute (CIETI). Subsequently, in 1962, it was shifted to Hyderabad and
converted into an autonomous society. In 1984, the Institute was renamed
as National Institute of Small Industry Extension Training (NISIET). After
enactment of the MSMED Act, 2006, the Institute has been renamed as
National Institute for Micro, Small and Medium Enterprises (NI-MSME),
w.e.f. 11th April 2007. The Institute has benefited not only the Indian micro,
small and medium enterprises (MSMEs) but also those in other developing
countries through a plethora of activities and thus helped in promoting self-
employment and enterprise development. The Institute is constantly
evolving in accordance with the changing times, modifying its focus with the
emerging needs of MSMEs and providing solutions in the form of
consultancy, training, research, and education. NI-MSME’s programmes are
designed to have universal relevance for successfully training the
entrepreneurs to face challenges and emerging competition in the era of
globalisation.

63. • 7.3.2 The academic activities of the
Institute are organized through centres of
excellence focusing on specific needs of
the MSMEs. The Academic Council of the
Institute is the central coordinating body
for benchmarking, formulation and
evaluation of academic activities and
programmes.