This document discusses the significance of Micro, Small, and Medium Enterprises (MSMEs) in the Indian economy, highlighting their role in employment generation, GDP contribution, and socio-economic development. It outlines the government policies and frameworks that support the growth of small scale industries (SSIs), as well as the challenges they face and the advantages they bring, such as increased entrepreneurship and innovation. Additionally, it addresses the various legal structures of small enterprises and recent reforms aimed at improving their competitive stance in the market.

1. Unit No. 3
Entrepreneurship and Micro, Small and Medium Enterprises Small
scale industry, product range, capital investment, ownership patterns
-Importance and role played by SSI in the development of the Indian
economy - Problems faced by SSI’s and the steps taken to solve the
problems - Policies governing SSI’s.

2. 2

3. SSI’s
• Stands for Small Scale Industries
• MSME in Indian Context
• Governed by MSME Act, 2006

4. Small Scale Industries
• A SSI is an industrial undertaking in which the investment in
fixed assets in plant and machinery, whether held on
ownership term or on lease or hire purchase, does not exceed
Rs.1 Crore.
• This investment limit is varied by the government from time to
time.
• Entrepreneurs in small scale sector are normally not required
to obtain a licence either from the Central Government or
the State Government for setting up units in any part of the
country. Registration of a small scale unit is also not
compulsory.

5. • The ministry of micro, small and medium enterprises acts as
the nodal agency for growth and development of SSIs in the
country. (http://msme.gov.in/Web/Portal/New-Default.aspx)
• Objective: To promote SSIs and enhance their competitiveness
Various public sector enterprises assist it.

6. Classification

7. Definitions After 2nd
Oct. 2006
Investment Ceiling for Plant, Machinery or Equipments
Classification Manufacturing
Enterprises
Service Enterprises
Micro Up to Rs. 2.5 million Up to Rs. 1 million
Small Between 2.5 to 50 million Rs. 1 to 20 million
Medium Rs. 50 million to Rs. 100
million
Rs. 20 to 50 million

8. Importance of MSMEs
• Micro, Small and Medium Enterprises (MSMEs) are vital for
development of a country
– Helps reshaping the productive sectors
– Generates employment
– Creating an environment for entrepreneurship
– Promotes innovation
• Globally, MSMEs contribute over 90% of Business
Enterprises and 50-60% of Total Employment.
(UNIDO Report 2009-10)

9. Facts About MSME
• This sector contributes 8% of India’s GDP.
• It contributes 45% of manufactured output
and 40% of its exports.
• It provide employment to about 60 million
people through 26 million enterprises.

10. • The Small Scale Industry Sector holds the Key to
Economic Prosperity of the Indian Economy,
Characterized by abundant Labor Supply,
Unemployment & Under Employment , Scarcity of
Finance, Growing Modern Large Industries providing
scope for development of Ancillary Industries & so on.
• The Small Scale Industry has grown phenomenally
during the last Six Decades & has acquired a very
prominent place in the Socio – Economic Development
in the Country. 10

11. Features of SSI

12. Characteristics of
Small Enterprises :
• A Small Enterprise is generally a “One Man Show”.
• Owner himself / herself is also a Manager of the
Enterprise. Thus, a Small Enterprise is managed in a
personalized manner.
• A Small Enterprise has lesser Gestation Period
compared to a Large Enterprise.
• Small Enterprises generally carryout their operations so
as to cater to the Local & Regional Markets.
12

13. Characteristics of
Small Enterprises :
• Small Enterprises use indigenous resources & therefore can be
located anywhere subject to the availability of these resources like
Raw Materials, Labor, Transport Facilities etc.
• They are fairly Labor Intensive with comparatively smaller Capital
Investment than the Larger Units.
• Using Local Resources, Small Units are decentralized & dispersed
to Rural Areas & Smaller Towns
• Small Enterprises are more susceptible & highly reactive &
receptive to Socio – Economic conditions compared to larger
enterprises
13

14. • You need to make group of 5 and find any first
generation entrepreneur and discuss about his journey.
The detailed report comprised of the below points have
to be submitted on 29th March, 2016:
1. Brief Profile of Person
2. Business Idea
3. Steps in Setting Business
4. Challenges faced by entrepreneur and how he
overcome the same
The entrepreneur has to got approved from undersigned
latest by 22nd March, 2016 and interview of
friends/family is not allowed. 14

15. Advantages of Small
Enterprises :
15
 They are the Back Bone of the Industrial
Activity in the Country & are playing a very
important role in improving the Socio –
Economic Conditions of the people. Advantages
of these Enterprises are as follows :
1) They create greater Employment
Opportunities thro Labor Intensive processes &
thereby help in tackling the Unemployment
Problem.

16. 2) They have Low Gestation Period & thereby Expensive
Financial Resources are not idled unproductively for long
periods.
3) They can be set up easily in Rural & Backward Areas.
4) They need Small / Local / Regional Market.
5) They encourage growth of Local Entrepreneurship.
6) They create Decentralized pattern of Ownership.
7) They foster Diversification of Economic Activities.
16

17. 8) They Innovate & Introduce New Products
particularly to cater to Local Needs.
9) They influence & improve Standard of Living of
Local People.
10) They provide equitable dispersal of enterprises
throughout Rural & Backward Areas.
11) They earn Vital Foreign Exchange for the Country
through their Exports of Goods / Services.
12) They Increase Revenue to Central & State Govts by
way of Taxes Paid by them.
17

18. Role of Small enterprises in Indian
economy

20. Problems of SSI

22. Selection of Ownership

23. Legal Forms of Business
Three basic legal forms of business:
• Proprietorship - Single owner, unlimited liability, controls all decisions,
and receives all profits.
• Partnership - Two or more individuals having unlimited liability who
have pooled resources to own a business.
• Company - Most common form of corporation; regulated by statute;
treated as a separate legal entity for liability and tax purposes.

24. 24

25. 25

26. • Employment
• Spreading social equality
• Some small financial banks have precisely targeted to loan
MSMEs’
26

27. 24 Mantra Organic
• N Balasubramanian
• Founded in 2004, who
witnessed first-hand the
deep impact debt has on
rural farmers, who in a hope
to increase their produce,
end up spending the loan on
buying and using harmful
pesticides.
27

28. • They undertook the responsibility of converting 20 per
cent or 11,000 hectares of land in Sikkim by working with
close to 6,000 farmers.
28

29. • We identify smallholder farmers who are progressive and
enter in to a one-on-one contract. Our model is favorable
for many reasons – since organic farms produce
everything on the farm itself (bio-fertilisers and bio-
pesticides), farmers don’t need to borrow heavy loans, and
are thereby freed from the vicious cycle of debt. We also
pay a premium of 10 – 20 per cent to each farmer and
since 24 Mantra is their platform for produce, it eliminates
middlemen entirely. Our approach results in 10 – 15 per
cent profits for organic farmers. 29

30. Government Policy towards SSI
Small Scale Enterprises have been given an important
place in the frame work of Indian Planning for both
ideological & Economic Reasons. Development of
Small Scale Enterprises have been taken up with
various important objectives to be realized.
30

31. Objectives
• The generation of Immediate Employment
Opportunities with relatively Low Investment.
• The promotion of more equitable distribution of
National Income.
• Effective mobilization of untapped Capital & Human
Skills.
• Dispersal of Manufacturing activities all over the
Country, leading to growth of Villages , Small Towns &
economically Backward Regions.

32. Therefore, the Govt of India as well as various State Govts in the
Country have started various programs & evolved policies for the
Development of Micro & Small Enterprises in the Country.
Various measures taken by the Central & State Govts for the
development of Micro & Small Enterprises have included Product
Reservations, subsidies on fixed capital investment, Sales Tax &
Income Tax Concessions, Preferential allocation of credit &
interest subsidy, extension of business & Govt purchases,
Marketing Assistance including Export Promotion by institutions
such as National Small Industries Corporation, Small Industries
Development Organization & several other agencies.
32

33. Governmental Support to Small
Scale Enterprises :
33
 Immediately after independence, Govt of India
initiated various steps for promotion & development of
Small Scale & Cottage Industries. Govt of India has
attached great importance to the development of Small
Enterprises Sector in all the Five Year Plans since the
beginning in 1951.

34. • Industrial Policy Resolution (IPR) 1948
• Industrial Policy Resolution (IPR) 1956
• Industrial Policy Resolution (IPR) 1977
• Industrial Policy Resolution (IPR) 1980
• Industrial Policy Resolution (IPR) 1990
• http://www.yourarticlelibrary.com/essay/economics-essay/governmen
34

35. Impact of Liberalization,
Privatization & Globalization of
Small Enterprises :
The process of Liberalization & Economic Reforms , since 1991,
have thrown up new challenges to the small enterprises sector ,
simultaneously creating tremendous opportunities for the growth of
this sector.
In this changed scenario, building Competitive Strengths, introducing
Technology Up gradation & Quality Improvement are important
issues which need to be addressed in order to build the capacity to
withstand emerging pressures & ensure sustained growth. Also
small enterprises sector needs to reposition itself if it has to meet
the growing demands for ancillary items , subcontracting etc
from other Medium & Large Enterprises , requiring higher
standards of Quality, Economies of Scale & strict delivery
schedules. 35

36. Salient features of the price policy
1. Increasing in the investment limit in plant and machinery of tiny
enterprises from Rs. 2 Lakhs to Rs. 5 Lakhs, irrespective of the
location of the enterprise.
2. Inclusion of industry related service and business enterprises,
irrespective of their location as small-scale industries.
3. To introduce a limited partnership act. This would limit the
financial liability of the new enterprises to the capital invested.
4. Introduction of a scheme of integrated infrastructural
development for small-scale industries.
5. Introduction of factoring services to help solve the problems
of delayed payments of small-scale sector.

37. 6. Market promotion of small-scale industries products through co-operative/public sector
institutions, other specialized professional/marketing agencies and the consortium approach.
7. To set up a Technology Development Cell in the small industries development organization.
8. To accord priority to small and tiny sector in the allocation of indigenous raw materials.
9. Setting up of an Export Development Center in the small industries development
organization.
10.To widen the scope of the National Equity Fund (NEF) to enlarge the single window scheme
and also to associate commercial banks with provision of composite loans.
The new policy was founded on a proper understanding of the fundamental problems of the small-
scale sector and the measures proposed by it have integrated the various handicaps that face this
sector.

38. Tax Benefits: Boon for the Growth of
SSIs
• Need for Tax benefits
• Tax Holidays (Section 80J of income tax act,1961):- Small-scale
industries, are exempted from the payment of income-tax of their
profits subject to a maximum of 6% per annum of their capital
employed. This exemption in tax is allowed for the period of five
years from the commencement of production.
• Conditions:- (i) The unit should not have been formed by the splitting
or reconstitution of an existing unit.
• (ii) The unit should employ ten or more workers in a
manufacturing process with power, or at least twenty workers
without power.

39. • Depreciation (Section 32 of the income tax act,
1961):- Small-scale industry is entitled to a
deduction on depreciation on block of assets
at the prescribed rate
• In the case of the small-scale industry, deduction
from the actual cost of plant and machinery is
allowed subject to a maximum of rupees 20
Lakhs 39

40. • Rehabilitation Allowance (33-B income tax act, 1961):-
• (i) Flood, Cyclone, earthquake or other natural upheavals.
• (ii) Riot or civil disturbance Accident fire or explosion
• (iii) Action by an enemy or action taken in combating an enemy.
• The rehabilitation allowance should be used for the business purposes within
three years of the unit's re-establishment reconstruction of revival.
• The rehabilitation allowance is allowed to the unit equivalent of 60% of the
amount of the deduction allowable to the unit.

41. • Investment Allowance (31-A income tax act, 1961):- The
investment allowance under the section 31A of the
Income-tax Act, 1961, is allowed at the rate of 25% of
the cost of acquisition of new plant or machinery
installed
• A small-scale industry can avail of investment allowance
provided it has put to use machinery or plant either in
the year of installation or in the immediate following
year, falling which the benefit will be forfeited.

42. • Expenditure on Scientific Research (35 income tax act, 1961):- The
following deductions in respect of expenditure on scientific research
are allowed
• (i) Any revenue expenditure incurred on scientific research
related to the business of the assessee in the previous year.
• (ii) Any sum that it pays to a scientific research association or a
university, college, institutions or to a public company which has
as its object, the undertaking of scientific research.
• (iii) Any capital expenditure incurred on scientific research related
to the business of the assessee subject to the provision of section
35(2) of the Income Tax Act, 1961.

43. Greater Attention on TQM in
Small Enterprise:-
TQM can help strengthening of small enterprises in the following manner:
•(i) By increasing efficiency in processes.
•(ii) By providing more time for innovation and creativity.
•(iii) Boosting the morale of employees
•(iv) Improving the quality of products and services
•(v) Enhancing customer satisfaction
•(vi) Snatching higher market share
•(vii)Generating higher productivity
•(viii) Achieving higher profits, etc.