The document discusses incentives and subsidies provided by the central and state governments to encourage small-scale industries. It outlines various central government subsidy schemes like the Credit Linked Capital Subsidy Scheme and Market Development Assistance Scheme. It also discusses causes of sickness in small industries like internal factors related to management and external factors outside a firm's control. The document concludes by describing subsidy schemes offered by the Tamil Nadu government for industrial development, including capital subsidies for most backward and backward areas as well as thrust industries.

1. Chapter 5
Incentives For Small-Scale Units

2. Incentive- Meaning and Objectives
Meaning:
 The term incentive means ‘Stimuli’ for action. The stimuli motivates
entrepreneurs to start and run small-scale units.
Objectives:
 The incentives are given for the following objectives:
(1) To encourage entrepreneurs to take up industrial ventures.
(2) To ensure the competitive strength of the units.
(3) To attain balanced regional development.

3. Subsidy- Meaning
 A Subsidy is a government payment or grant to a private enterprise or
institution for the good of the public.
Central Government Subsidy Schemes:
1) Credit Linked capital subsidy scheme for technology upgradation:
The Scheme aims at SME’s om small-scale sector to assist technology
upgradation. SME’s can avail loan up to 1 Crore under this scheme. It involves a
subsidy rate of 15% which is calculated on the purchase price of Plant and
machinery.

4. 2) Market Development Assistance Scheme for MSME’s:
This Scheme offers funding for participation by Manufacturing SME’s in
International Trade fairs and exhibitions under MSME’s. The government of India
will reimburse 75% of airfare and 50% of rental charge for MSME manufacturing
enterprises.
3) Quality Upgradation for Small-Scale Sector for ISO9000/ ISO 14001
Certification:
Under this scheme, 75% of expenditure for setting ISO 14001 up to Rs 75000
in each company is reimbursed.

5. 4) Financial Assistance for Bar Code: Financial assistance up to 75% and annual
registration fee for getting bar code for recurring fee for 3 years is provided under this
scheme.
5) Food Processing Industry: For establishing and modernizing food processing
industry, Assistance in the form of up to 25% on Plant and Machinery and
Maximum of 50Lakhs in general areas will be provided.
6) Leather Industry: The Grant of 30% of the cost of Plant and Machinery for SSI
units and 20% for other units will be provided for Modernization and upgradation
of Leather Industry.

6. 7) Subsidy for Backward Areas: A subsidy of 15% of investment in Plant and
Machinery is provided to units setup in backward areas.

7. Tax Concessions
The Various tax concessions given to small-scale units are described here:
1) Tax Holiday: New Industrial units are exempted from payment of Income Tax under section
80 J of the Income tax act, on their profits up to 6% per annum.
2) Depreciation: Under section 32 of the Income Tax act, a small scale unit is entitled to a
deduction or depreciation account on buildings, furniture, Plant and Machinery. The
depreciation in allowed subject to a maximum of 20 Lakhs.
3) Investment Allowance: Investment allowance is allowed at the rate of 25 percent of the cost
of acquisition of the new plant or machinery installed under section 31 of the Income tax act.
4)Expenditure Allowance: Under Section 35 of the Income Tax act, the following deduction in
respect of expenditure on scientific research are allowed.
1. Any Revenue expenditure incurred on scientific research related to business.
2. Any sum paid to a scientific research association, college or public company.

8. 5) Authorisation of Preliminary Expenses: The preliminary expenses incurred in
connection with the preparation of feasibility report and legal charges for drafting
agreements for setting up new Industrial unit.
6) Tax Concession small-scale Industries in Rural Areas: The Small-scale units setup in
rural areas are entitled to a deduction of 20% of the profits and gains from their total
income.
7) Exemption on Excise Duty: The exemption on excise duty limit raised from 50 Lakhs to 1
Crore to improve the competitiveness of Small-Scale Sector.

9. Sickness in Small, Micro and Medium
Enterprises
 Definition: A Sick Industry is which is not healthy. A healthy unit is one which earns a
reasonable return on capital employed and which builds up reserves after providing
reasonable depreciation.
 According to RBI, An Industrial unit is declared as sick because of following features:
1) Incurred cash loss in the previous accounting year.
2) Likely to incur loss in the following year.
3) Worsening debt equity ratio.

10. Causes of Industrial Sickness
 Sickness in small scale industry cannot be attributed to a single factor alone.
The causes of sickness can be classified in to two categories:
1) External Causes
2) Internal Causes
External Causes: The External causes are beyond the control of the industry and usually
affect the industry as a whole. Some of the important external causes are as follows:
1) Changes in Government Policy
2) Inadequate availability of inputs like raw materials due to poor agricultural output,
Change in import conditions etc.
3) Recessionary trends.
4) Credit Squeeze by banks.

11. 5) Change in Monetary Policy.
6) Infrastructural problems like power cuts, transport etc.
Internal Causes: Internal Causes are within the control of the Industrial Unit and mostly
relate to mismanagement in various operational areas.
1) Lack of Experience of Promoters: Wrong selection of the project and poor
implementation due to the inexperience of the promoters contribute to sickness of the
industrial units.
2) Easy approval of Small-Scale Units: The easy approval of the units by the state without
proper screening of project proposal resulted in sickness.
3) Dependence on Own Funds: Most of the small units depended mostly on their own
funds rather than on borrowed funds. For working capital these units depend on
commercial banks

12. 4) Improper financial structure: The long-term financial requirements of a unit are met by
raising long-term loans. The Short term requirements are met by resorting to working
capital loans. If finance mix is inappropriate it may disturb economic viability.
5) Personnel Constraints: Industries located in backward areas get abundant supply of
unskilled labour but it may be difficult to get skilled manpower.
6) Underutilization of Capacity: Lack of Working capital, Lack of Demand for the product
and non-availability of raw materials result in underutilization of capacity which make the
units sick.
7) Improper Technology: Frequent Breakdown, improper maintenance and delay in
replacing the machinery is a normal feature in sick units. Failure to adopt to modern
technology make the firms difficult to survive.

13. Measures to Prevent Sickness
The following measures are suggested to prevent sickness in small scale Industries
1) Ensure that sickness is arrested at the incipient stage: A majority of units die is the
second or third year of their existence. So a programme of monitoring and nursing them
during infancy is essential. The Bank branch officials who are in constant contact with the
business units should identify the units showing symptoms of sickness by effective
monitoring.
2) Make Professional Management Expertise Easily Available: A well organized industry
owes its success to its efficient management. The Small Entrepreneurs must acquaint with
need for a better equity base, norms for allocation of surplus to depreciation, retained
profits and expansion programme so as to build their internal financial strength.

14. 3) Priority to Small-Scale Units: The government can accord priority in the allocation of
scarce raw materials, extend marketing assistance and grant concessions to small units
which show better record of performance.
4) Action for Non-Payment: The government should take panel action against the
principals for non-payment for the goods supplied by small units.
5) Rehabilitation package to cover various areas: Some small units may become sick but
may be potentially viable. The rehabilitation programme covers only financial measures
such as rescheduling of debts, enhancement of working capital limit etc. The programme
of rehabilitation should be finalized and implemented speedily.

15. Subsidy Schemes Of Government of
Tamilnadu
The incentives offered by the government of Tamilnadu towards industrial development in
the state are comparable to the best in the industry. The following are the incentives
offered by the Government Of Tamilnadu.
1) Most Backward Area Capital Subsidy: The investment subsidy is given for all new
industrial units set up in 71 Most backward blocks and SIPCOT industrial complexes at
Pudukkottai. The subsidy is given at 20% of fixed assets subject to a maximum of 20 Lakhs.
2) Backward Area Capital Subsidy: This investment subsidy is given at the rate of 15% on
fixed assets subject to a ceiling of 15 Lakhs. For new industries set up in 216 backward
blocks in all other industrial estates and complexes developed by the government agencies
including Madras export processing zone.
3)Special Capital Subsidy for Thrust Industries: An investment subsidy of 20% of fixed
assets subject to a maximum of 20 Lakhs is granted to the following industries located
anywhere in Tamilnadu.

16. 4) Additional Subsidy for Employment for Women Workers: New Industrial units which
employ more than 50% of women in workforce are eligible for an additional subsidy of 5%
up to a ceiling of 5 Lakhs.
5) Generator Subsidy: In order to encourage units to have reliable power supply, subsidy
for installation of new generators for captive use to the extent of 15% of the cost upto a
maximum of 5 Lakhs is given to small-scale units.
6) Subsidy for Water Royalties: For New Industries set up in backward areas water royalty
is fixed at Rs 360 p.a. for drawing any quantity of water in the first six years.