Ms Sonam Kapil Lecturer MIT, MIET GROUP (UNIT 1 EDP Notes) Page 1
UNIT 1 –ENTREPRENEURSHIP DEVELOPMENT
INTRODUCTION TO ENTREPRENEUR
Entrepreneur is a person who undertakes a business venture by combining the
resources for production of goods and services and selling them to earn a profit.
Entrepreneur is a person who has already started an enterprise or is in the process
of starting an enterprise. “Entrepreneur is one who ORGANISES, MANAGES,
and ASSUMES THE RISK of a business enterprise”. Entrepreneur is an action
oriented highly motivated individual with a strong desire to be the successful who
take risks to achieve goal.
Entrepreneur is an individual responsible for the operation of a business
Choice of the product
Mobilization of resources
Employment of labour
Extending or reducing the scope of his business.
According to Webster’s……… “An Entrepreneur is defined as an
individual who forecasts future demand for the product or services and
arranges business enterprise to respond to their demand”
According to J B Say …….“Entrepreneur is an economic agent to unities
all the means of production”
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According to David McClleland : “An entrepreneur is a person with a high
need for achievement. He is energetic and a moderate risk taker”.
Entrepreneurship is the activity performed by an entrepreneur to organize
and run an enterprise (Business).
ENTREPRENEURSHIP=Entrepreneur + Enterprise
Entrepreneur is generally to be the owner, manager of an enterprise.
Entrepreneurship is the activity of an entrepreneur which includes all the
activities performed from the inception stage of an enterprise till its death.
Entrepreneurship is a person-oriented task where the entrepreneur creates a
small world of his own and becomes the master of his own business
Entrepreneurship is a creative activity. It is the ability to create and build
something from practically nothing. It is a knack of sensing opportunity
where others see chaos, contradiction and confusion. Entrepreneurship is the
attitude of mind to seek opportunities, take calculated risks and derive
benefits by setting up a venture. It comprises of numerous activities involved
in conception, creation and running an enterprise.
According to J.A Schumpeter ,
“Entrepreneurship is a creative activity , the entrepreneur being an innovator
who introduces something new into the economy , a new method of
production not yet tested by experience in the branch of manufacture
concerned ,a product with which customers are not familiar , a new source
of raw materials and other similar innovation”.
According to Peter Drucker
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“Entrepreneurship is defined as ‘a systematic innovation, which consists in the
purposeful and organized search for changes, and it is the systematic analysis of
the opportunities such changes might offer for economic and social innovation.’
According to A.H Cole
“Entrepreneurship is the purposeful activity of an individual or a group of
associated individuals, undertaken to initiate, maintain or organize a profit
oriented business unit for the production for distribution of economic goods and
ENTREPRENUER VS ENTREPRENEURSHIP
Refers to a person Refers to a process
Decision Maker Decision
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7 key Qualities of Entrepreneur
Inner Drive to succeed
Entrepreneurs are driven to succeed and expand their business. They see the
bigger picture and are often very ambitious. Entrepreneurs set massive goals
for themselves and stay committed to achieving them regardless of the
obstacles that get in the way.
Strong Belief in themselves
Successful entrepreneurs have a healthy opinion of them-selves and have
often have a strong and assertive personality. They are focused and
determined to achieve them.
Search for New Ideas and innovation
All entrepreneurs have a passionate desire to do things better and to improve
their products or service .They are constantly looking for ways to improve
.They are creative, innovative and resourceful.
Openness to change
Entrepreneurs know the importance of keeping on top of their industry and
the only to being a number one is to evolve and change with the times. They
are up to date with the latest technology or service technique and are always
ready to change if they see a new opportunity arise.
Competitive by Nature
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Successful entrepreneurs thrive on competition .The only way to reach their
goals and live up to their self-imposed high standards is to compete with
other successful businesses.
Highly Motivated and Energetic
Entrepreneurs are always on the move, full of energy and highly motivated.
They are driven to succeed and have an abundance of self-motivation. The
high standard and ambition of many entrepreneurs demand that they have to
Accepting of constructive criticism and rejection
Innovative entrepreneurs are often at the forefront of their industry. They
readjust their path if the criticism is constructive and useful to their overall
plan. Also the best entrepreneurs know that the rejection and obstacles are a
part of any leading business and they deal with them appropriately.
SOME MORE CHARACTERISTICS / QUALITY OF AN
1. Desire to Excel:
The entrepreneur should always engage in competitions with self-imposed
standards with himself to beat his last best performance. According to Mc
Clelland, this high achievement motive strengthened him to overcome the
obstacles, suppress anxieties and repair misfortunes. The entrepreneur must have a
strong desire to be a winner.
2. Hard Work:
Entrepreneurs who successfully build new enterprises possess an intense level of
strong determination and willingness to work hard. They possess a capacity to
work for long hours and in spurts of several days with less than normal amount of
3. Self Confidence:
Entrepreneurs must have confidence and belief in themselves to achieve their
desired objectives. They strongly believe that they can beat anyone in the field.
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An entrepreneur must have initiative seeking personal responsibility for actions
and use the available resources for optimisation of objectives. They take full credit
for the success and assume full responsibility for the failure of the enterprise.
5. Moderate Risk-Taker:
An entrepreneur must be a moderate risk taker and learn from failures. The
successful entrepreneurs are neither high risk takers, nor gamblers. They work in
between the two extremes. They take moderate challenging risk to attain moderate
returns which are influenced within their abilities and decisions.
An entrepreneur should have a strong motivation towards the achievement of a
task and must be able to get things done by others. He should be a person who
likes working with people and has skills in dealing with them.
Entrepreneurs do not believe that the success or failure of a new business venture
depends mostly upon luck or fate or external uncontrollable factors. They are
highly optimistic about the success of the enterprises. They use positive knowledge
to support their thinking. They always look at the brighter side of the situation.
8. Analytical Ability:
Entrepreneur must be realistic in their approach. They should not be affected by
the personal likes and dislikes. At the time of crisis, they must select experts rather
than their friends and relatives to solve the problems. They must analyse the
problem in detail before taking any decisions.
9. Mental Ability:
Mental ability refers to the inner strength of an entrepreneur which helps him to
reach his goal. It is that ability which helps him to quickly respond to difficult
situation. It consists of intelligence and creative thinking of an entrepreneur.
10. Communication Ability:
An entrepreneur must be good with the art of communication. It is that skill
through which both the sender and receiver understand each other and are being
understood. Entrepreneurs are required in many situations to influence customers,
employees, suppliers, creditors, and government and make them think in his way
and act accordingly. An entrepreneur who can effectively communicate and
convince the above people will be more likely to succeed than the entrepreneur
who does not.
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Entrepreneurs should be flexible in their decisions in the sense that they should not
be very rigid in the decision making process. If the situation demands a change in
the decision that will be beneficial to the enterprise, then after analysing the pros
and cons of the decision, the entrepreneur should revise or modify or change the
Successful entrepreneurs do not like to be guided by others. They prefer to work in
an environment free from interference. They like to be independent in the matters
of decision making of their own business.
An entrepreneur must have an ability to lead so that he can induce the people to
work with confidence and zeal. It is an aid to authority and helps in better
utilization of manpower.
16. Good Human Relations Ability:
Entrepreneurs must have the abilities to maintain and establish good relations with
customers, employees, suppliers, financiers and other people related with the
business to run it effectively and efficiently. An entrepreneur who maintains good
human relations is much more likely to succeed in his business than the individual
who does not practice such relations.
FUNCTIONS OF ENTREPRENEUR
i. Entrepreneurial functions consisting of organization building, risk taking and
ii. Promotional functions consisting of discovery of idea, detailed investigation;
assembling of requirements and financing the proposition.
iii. Managerial functions consisting of planning, organizing staffing, directing,
coordinating and controlling.
iv. Commercial functions representing production, finance marketing, accounting
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Entrepreneur is a person who starts an enterprise. The process of creation is called
Entrepreneurship. The entrepreneur is the actor and entrepreneurship is the act.
The outcome of the actor and the act is called the enterprise. An enterprise is the
Business organization that is formed and which provides goods and services,
Creates jobs, contributes to national income, exports and overall economic
Difference between Entrepreneur and Manager
“An entrepreneur could be a manager but a manager cannot be an entrepreneur”.
An entrepreneur is intensely dedicated to develop business through constant
innovation. He may employ a manager in order to perform some of his functions
such as setting objectives, policies, rules etc. A manager cannot replace an
entrepreneur in spite of performing the allotted duties because a manager has to
work as per the guidelines laid down by the entrepreneur.
An entrepreneur is involved with the
A manager with running the business
over a long period of time
An entrepreneur assumes financial,
material and psychological risks
A manager does not have to bear risks
An entrepreneur is driven by perception
A manager by the resources he
An entrepreneur initiates change A manager follows rules & procedures
An entrepreneur is his own boss A manager is a hired employee
An entrepreneur gets uncertain rewards A manager gets fixed rewards and
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ROLE OF ENTREPRENEURSHIP IN DEVELOPMENT OF ECONOMY
Entrepreneurship is one of the most important inputs in the economic development
of a country. Entrepreneur plays a pivotal role not only in the development of
industrial sector of a country but also in the development of farm and service
sector. The major roles played by an entrepreneur in the economic development of
an economy are discussed as follows.
(1) Promotes Capital Formation:
Entrepreneurs promote capital formation by mobilizing the idle savings of public.
They employ their own as well as borrowed resources for setting up their
enterprises. Such type of entrepreneurial activities leads to value addition and
creation of wealth, which is very essential for the industrial and economic
development of the country.
(2) Creates Large-Scale Employment Opportunities:
Entrepreneurs provide immediate large-scale employment to the unemployed
which is a chronic problem of underdeveloped nations. With the setting up of more
and more units by entrepreneurs, both on small and large-scale numerous job
opportunities are created for others. As time passes, these enterprises grow,
providing direct and indirect employment opportunities to many more. In this way,
entrepreneurs play an effective role in reducing the problem of unemployment in
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the country which in turn clears the path towards economic development of the
(3) Promotes Balanced Regional Development:
Entrepreneurs help to remove regional disparities through setting up of industries
in less developed and backward areas. The growth of industries and business in
these areas lead to a large number of public benefits like road transport, health,
education, entertainment, etc. Setting up of more industries leads to more
development of backward regions and thereby promotes balanced regional
(4) Reduces Concentration of Economic Power:
Economic power is the natural outcome of industrial and business activity.
Industrial development normally leads to concentration of economic power in the
hands of a few individuals which results in the growth of monopolies. In order to
redress this problem a large number of entrepreneurs need to be developed, which
will help reduce the concentration of economic power amongst the population.
(5) Wealth Creation and Distribution:
It stimulates equitable redistribution of wealth and income in the interest of the
country to more people and geographic areas, thus giving benefit to larger sections
of the society. Entrepreneurial activities also generate more activities and give a
multiplier effect in the economy.
(6) Increasing Gross National Product and Per Capita Income:
Entrepreneurs are always on the lookout for opportunities. They explore and
exploit opportunities, encourage effective resource mobilisation of capital and
skill, bring in new products and services and develops markets for growth of the
economy. In this way, they help increasing gross national product as well as per
capita income of the people in a country. Increase in gross national product and per
capita income of the people in a country, is a sign of economic growth.
(6) Improvement in the Standard of Living:
Increase in the standard of living of the people is a characteristic feature of
economic development of the country. Entrepreneurs play a key role in increasing
the standard of living of the people by adopting latest innovations in the production
of wide variety of goods and services in large scale that too at a lower cost. This
enables the people to avail better quality goods at lower prices which results in the
improvement of their standard of living.
(7) Promotes Country's Export Trade:
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Entrepreneurs help in promoting a country's export-trade, which is an important
ingredient of economic development. They produce goods and services in large
scale for the purpose earning huge amount of foreign exchange from export in
order to combat the import dues requirement. Hence import substitution and export
promotion ensure economic independence and development.
(8) Induces Backward and Forward Linkages:
Entrepreneurs like to work in an environment of change and try to maximize
profits by innovation. When an enterprise is established in accordance with the
changing technology, it induces backward and forward linkages which stimulate
the process of economic development in the country.
(9) Facilitates Overall Development:
Entrepreneurs act as catalytic agent for change which results in chain reaction.
Once an enterprise is established, the process of industrialization is set in motion.
This unit will generate demand for various types of units required by it and there
will be so many other units which require the output of this unit. This leads to
overall development of an area due to increase in demand and setting up of more
and more units. In this way, the entrepreneurs multiply their entrepreneurial
activities, thus creating an environment of enthusiasm and conveying an impetus
for overall development of the area
Diagram of characteristics of entrepreneurship
Making enterprise a success
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FACTORS FAVOURING ENTREPRENEURSHIP/ MOTIVATIONAL
FACTORS OF ENTREPRENEURSHIP
1. Developed Infrastructure Facilities:
Availability of infrastructure reduces the cost & efforts and improves viability of
projects through higher profit margins.
2. Financial Assistance:
Easy availability of cheap funds is vital for promoting entrepreneurship.
3. Protective and Promotional Policies:
Most of the entrepreneurship projects start very small and have no resilience. They
are extremely vulnerable to competitors, market, money markets, etc., for
considerable time. Favorable Govt. policies shelter them from such vagaries.
4. Growth of Education:
Science, Technology & Management – Growth of education is believed to be
promoting entrepreneurship. However, there are enough examples to suggest
otherwise. A very large proportion of first generation entrepreneurs are low
educated. Take the case of Microsoft Chairman Mr Bill Gates or Reliance Founder
Mr Dhirubhai Ambani. (We also have Mr Narayan Murthy and Mr Ajim Premji to
balance this scale). On a wider spectrum, Kerala, the most literate state and West
Bengal, another state high on literacy front, are least entrepreneurial states where
as Punjab, with 5 rank from bottom was top on entrepreneurial charts.
5. Risk Taking Abilities:
Risk taking ability is one of the pillars of entrepreneurial spirits.
6. Hunger for Success (Capitalistic View):
Fire in the belly and dreams of riches is what drives most entrepreneurs on this
risky path. Any person content with what he has would take the easier route of
7. Environment/Culture Impact:
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Entrepreneurship is contagious. Communities like Punjabis and Marwari’s are
historically entrepreneurial. They are known for seeking and exploiting business
opportunities in most remote areas. It is a culture that propels them.
8. Social Security:
Social security acts as a safety net against failure of enterprise. Social security
guarantees basic ‘roti, kapada aur makan’ in case of failure. Entrepreneurial spirit
of United States is born partly out of this security.
9. Technical/Industrial Training Facilities:
Industrial Training facilities on one hand generate skilled manpower so vitally
required for setting up enterprises while on the other hand they are also nursery for
future entrepreneurs. Among the educated entrepreneurs, a majority is product of
technical institutes from IIT to ITI (Tier I to Tier III institutes).
Globalization has provided another avenue for business. Many dare devils have
taken a head– along plunge into this uncharted water and have written new success
Intra-preneurship is defined as entrepreneurship within an existing business set–
up. That is to say – Intra-preneurship is corporate entrepreneurship. When a
corporation indulges in entrepreneurial activities, like diversification into new
businesses, it is called intra-preneurship.
Intra-preneur is a manager who focuses on innovation and creativity; who
brainstorms, dreams and puts ideas into profitable venture by operating within the
It gives managers the freedom to try new ideas by employing firm’s resources in a
CHARACTERISTICS OF AN INTRAPRENEUR
An intrapreneur is not far removed from an entrepreneur. The major difference
being that an entrepreneur risks his own money where as an intrapreneur works
with his employer’s money. Thus, the risk level of an intrapreneur is considerably
1. Vision – It is the basis for successful venture. An Intra-preneur has ability to
visualize from idea to implementation.
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2. Motivation – Intra-preneur is generally self-motivated, but expect corporation
reward and recognition.
3. Orientation – Intra-preneur is achievement oriented.
4. Risk Appetite – Intra-preneurs are moderate risk takers since risk acceptance
depends on their skills. Wild risk takers are not affordable to corporate.
INTRODUCTION TO SMALL SCALE INDUSTRIES
The Small Scale Sector is the natural habitat of entrepreneurs. Most
entrepreneurs start small and then nurture their units into large industries.
The SSI Sector provides an opportunity for them to hone their skills and
talents, to experiment, to innovate and transform their ideas into goods and
services needed by the society.
In most of the developing countries like India, Small Scale Industries (SSI)
constitutes an important and crucial segment of the industrial sector. They
play an important role in employment creation, resource utilisation and
income generation and helping to promote changes in a gradual and phased
They have been given an important place in the framework of Indian
planning since beginning both for economic and ideological reasons.
Small scale enterprises are generally more labour intensive than larger
organisations. As a matter of fact, small scale sector has now emerged as a
dynamic and vibrant sector for the Indian economy in recent years. It has
attracted so much attention not only from industrial planners and economists
but also from sociologists, administrators and politicians.
Industries can be classified into seven categories depending on their size;
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The definition for small-scale industrial undertakings has changed
over time. Initially they were classified into two categories- those using
power with less than 50 employees and those not using power with the
employee strength being more than 50 but less than 100. However, the
capital resources invested on plant and machinery buildings
have been the primary criteria to differentiate the small-scale industries
from the large and medium scale industries. An industrial unit can be
categorized as a small- scale unit if it fulfills the capital investment limit fixed
by the Government of India for the small-scale sector.
“Investment in fixed assets like plants and equipment’s either held on
ownership terms on lease or on hire purchase should not be more than Rs 10
The different small-scale industries existing in the Faridkot District during
1992-93 are mentioned below:
(1) Food Products – There were 1,160 units engaged in the production of
food products. Out of these a large number of units were flour mills/atta
chakies (703) and rice shellers (170). These units gave employment to 5,823
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persons and produced goods worth Rs 8,953.30 lakhs. The fixed investment of
these units was Rs 2,068.92 lakhs.
(2) Beverages – There were 18 units engaged in the production beverages i.e.
soda water. These units gave employment to 55 persons and produced goods
worth Rs 8.30 lakhs. The fixed investment of these units was Rs 10.84 lakhs.
(3) Textile and Dyeing– There were 20 units engaged in cotton textile,
cotton carding and dyeing in the district. These were set up with capital
investment of Rs 2,211 lakhs. These units gave employment to 70 persons and
produced goods worth Rs 45.10 lakhs.
(4) Hosiery– This is a pre-partition industry established at Moga in 1936.
There were 245 units in the district engaged in this industry. These units
produce hosiery goods like knitted woolen products, woolen pullovers, nylon
strips, surgical bandages, etc. these units gave employment to 414 persons
and produced goods worth Rs 131.20 lakhs. The fixed investment of these
units was 86.67 lakhs.
(5) Wood Products– There was 667 units engaged in the production of
wooden furniture, boxes and pawas. Set up with a fixed investment of Rs
403.68 lakhs, these units gave employment to 1,874 persons and produced
goods worth Rs 389.60 lakhs.
OBJECTIVES OF SMALL SCALE INDUSTRIES
The small scale sector can stimulate economic activity and is entrusted with the
responsibility of realising the following objectives:-
1. To create more employment opportunities with less investment.
2. To remove economic backwardness of rural and less developed regions of the
3. To reduce regional imbalances.
4. To mobilise and ensure optimum utilisation of unexploited resources of the
5. To improve standard of living of people.
6. To ensure equitable distribution of income and wealth.
7. To solve unemployment problem.
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8. To attain self-reliance.
9. To adopt latest technology aimed at producing better quality products at lower
Characteristics of small scale industries
Small-scale industries have certain unique features, which distinguish it from
the Large-scale sector. Some of the salient characteristics of small-scale
businesses are given below.
1. Personal Character: In most small businesses the owners themselves are
Managers and so they can operate independently. They can give customized
Service to their clients, which in many cases is their USP.
2. Flexibility: Since most small businesses are a one-man show they do not
have to go through a hierarchy to get permissions to make changes. Small
business can respond quickly to environmental trends.
3. Labour Intensive: Small businesses have tremendous capacity for
Employment generation through their labour intensive techniques. Small
businesses actually create more jobs than big businesses. This feature of a
small-scale unit is of great significance in a country like India where the
number of unemployed people is more.
4. Local Area of Operation: Small businesses are largely local in operation;
however the market for its products may be local, regional or even
5. Short Gestation Period: The capital investment in the small sector is
generally low and the time taken for production to commence is also less. As
a result of short gestation period the units give quick returns and
consequently the pace of economic development quickens.
6. Registration: small scale industries are registered under the local DIC
(Direct Industries Centre) as per the rules of the state government where the
SSI is located. No large number of formalities are required to start a SSI.
7. Size: There is limited amount of money and the volume of production is
less, the size of a SSI is usually small.
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8.Capital: The capital requirement is not much and is supplied by the owners
but a large portion of capital is brought from banks and financial institution
on term loan.
Types of Small scale industries
a. Resources based SSI
b. Demand Based SSI
c. Ancillary Based SSI
d. Subsidiary SSI (Sub control type)
e. Linkage Based SSI
f. Export oriented SSI
g. Technology Based SSI
h. Preference Based SSI
i. Policy Based SSI
j. Competence based SSI
Resources Based SSI: A large number of SSI are started because raw material
are available in plenty, cheaply and easily. Entrepreneurs get tempted to start
SSI to take advantage of the raw material and other resources available.
Resources like natural resources, mineral resources, marine resources, human
resources, agricultural resources, forest resources, industrial waste resources
etc. A large number of such quantities of such material is lying scattered here
and entrepreneurs collect these surplus resources and start industries based
on that. Entrepreneurs are encouraged to start small scale industry to take
advantage of the cheap locally available resources with the expectation of
earning good profits.
Demand Based SSI
Whenever there is a good demand of a product, many entrepreneurs get
tempted to start manufacturing of such or similar products by establishing
industry, so that they can easily establish themselves in the market and earn
good profits. SSI can be started to meet the growing demand of a product or to
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fill up the existing demand supply gap. Entrepreneurs do not come forward to
start SSI because of the difficulties in selling the product but in demand based,
it is advantageous for any entrepreneur as production is easier than
Industries which have been started with the aim of taking advantage of the
demand are known as demand based SSI. They do not create demand but take
advantage and when they see that there is a good demand of a product in
comparison to supply; they make entry into the field. They need not to search
buyers for the product as they are easily accepted by the consumers. This type
of situation does not continue for a long time but by the time such situation
arises the entrepreneur might have established them firmly in the market and
developed the capabilities to withstand the demand fluctuation.
A large number of SSI’s do not produce usable completed products but
produce components, parts, assembling, sub-assembling, tooling or
intermediate goods which are supplied to other industries for manufacturing
of other useful articles. It may not be possible for an organization to produce
all of its required components, parts, accessories, tools etc. so they have to
depend on other source of supply from other industries and this can be met by
the ancillary industries.
When there is a scope to supply components, parts, etc. to another industry, a
small scale entrepreneur may start a small scale industry to manufacture such
items as per the specifications & design of the other industries .Such ancillary
industries are independent units and largely depend on other industries for
supply of their goods and services. A small percentage of their percentage may
be sold in the open market directly to the consumers, but their main aim is to
supply to other industries to manufacture other useful products. For e.g.
Investment Ceilings for Small Scale Industries (2006)
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Type of SSI unit Investment limit
(1 million= 10 Lakhs)
Small Scale Industry Rs 10 million Historical cost of plant &
Ancillary Rs 10 million At least 50% of its output should go
to other industrial undertaking
Tiny Enterprise Rs 2.5 million No location limits
Service & Business Enterprise Rs 0.5 million No location limits
Women Enterprise Rs. 10 million 51% equity holding by women
Export Oriented Rs. 10 million Obligation to export 30% of
SUBSIDIARDY TYPE or SUB CONTROL TYPE SSI
Many large scale manufacturer start SSI under the full control to manufacture small
items or some of their products .All of their products are taken by the large industry and
sold under their brand name. The SSI is created and managed directly or indirectly by
the bigger industry but a different name .They are owned and controlled by the same
management .They take advantage of the benefits, concessions and incentives
available from the government due to the status of small scale industry.
This type of SSIs is usually owned, controlled, financed and managed by some other
industry or the control and management of such units may be vested in the hands of
their family members or relatives. The entire production of the small industry may be
sold to the bigger industry and for this there may be a tie up .This type of franchise may
also be started to cater to the need of a large area or population, to produce goods at a
lower cost and to take advantage of the liberal SSI policies.
LINKAGE BASED SSI
Small scale industry is started by an entrepreneur to procure the finished products of a
large industry and use it as a raw material for production of further commodities. Eg.
Many small scale industry established near to large scale industry (steel plant) in order
to use the finished products of the plant to produce other products like stainless steel
utensils, steel pipes, iron rods, different iron castings,fabrication items etc. Similarly the
waste or scrap products of a bigger industry can be taken by a small entrepreneur to
manufacture some useful articles. E.g. the molasses of sugar factory may be collected
by another industry to produce liquor or the fly ash of thermal power plant may be used
to manufacture etc.
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Export oriented based SSI
Some products have very high demand in other countries and they can be
manufactured locally. Government gives many concessions, incentives and benefits to
such units. Government also provides services like collecting, orders and supplying
goods to those countries by collecting from the manufacturers. Due to these
encouragements many persons get tempted to start export oriented SSI. Exports of
products from the country to other country are responsible for earning huge amount of
Import substitute based SSI
There are a large number of items being imported by the country from other countries. It
is a cause of botheration for the government because ,it wants to reduce the
dependence on other countries. There is lot of foreign currency outgo due to such
imports. If such a product can be produced within the country they get special status by
the govt. and a lot of incentives and concessions are allowed to such industries .
Technology based SSI
Changes in technology are very rapid as a result of which there is the development of
new products, new processes, etc. Due to that better product, cost effective products
and other innovative products are developed. An entrepreneur may start a SSI to take
the advantage of the change in technology or development of new technology for
production of any goods or services. Such entrepreneur start SSI only to provide the
new products which have emerged out of new technologies. They do not see the
demand or resources. The demand is automatically created when such new products
come to the market.
Preference based SSI
Entrepreneur starts some type of industry only because of their likeness, affinity or
preferences. They may not have knowledge, skill, talent and competence yet they want
to start SSI to satisfy their want by starting such industries. They do not put much
emphasis to the demand, resources etc. but aim to establish SSI on the products
preferred .Most of the times the selection of SSI by an entrepreneur depends on the
likeness, dislikeness, preferences, capabilities, skill, talent, etc. of the entrepreneur.
Policies Based SSI
Some entrepreneurs start SSI to take the advantage of the liberal governmental
policies. Govt. also tries to promote certain categories of industries due to various
reasons. So the policies of the government towards particular industry or industries at a
particular place may be the main reason due to which many prospective entrepreneurs
come up to start the SSI and as a result of that a large number of industries start.
Competence Base SSI
Ms Sonam Kapil Lecturer MIT, MIET GROUP (UNIT 1 EDP Notes) Page 22
Some of the entrepreneurs have competence, skill, knowledge, and experience in a
particular business. Whenever they get chance, they prefer to start such an industry on
which they are capable. Competence of the entrepreneur is the only force behind the
starting of such an industry. Because of their workmanship and quality consciousness,
they thrive and even grow high if right opportunity is available.
STEPS TO START A SSI
1. Preliminary stage
Decision to become an entrepreneur and start an enterprise.
Developing entrepreneurial characteristics
Studying business environment
Meeting entrepreneurs, people, experts and others
Searching the opportunity.
2. Decision making Stage
Selecting business opportunities.
Consulting DIC, SISI, consultants, banks, licensing authorities.
Deciding the size, type, technology of the project
Deciding the location and survey site
Selection of exact site
Preparation of the project report
Studying the project from technical, financial, managerial and
operational point of view.
Deciding the product
3. Planning stage
Application for acquisition of land or exact site.
Application for provisional registration
Application for No-objection certificate, assurance from bankers
Application for licenses, permission, clearances from state
government, central government and from the local authorities.
Application for loans and arrangement of capital
Enquiry for plant and machineries etc.
Preparing plans of the factory buildings
Preparing plans for acquiring plants and machineries, tools and
equipment’s, furniture and fittings etc.
Prepare the detailed project report
Ms Sonam Kapil Lecturer MIT, MIET GROUP (UNIT 1 EDP Notes) Page 23
4. Implementation stage
Acquisition of land
Development of site
Construction of buildings and other infrastructure like road,
affluent disposed etc.
Placing orders for plants and machineries, tools and equipment,
furniture and fixtures etc.
Arranging electricity, water connection
Installation of plants and machineries and test running
Recruitment, selection, training and placement of manpower
Procurement of raw material and other materials
Finalise the marketing channel, distribution policy, percentage
of margin and commission to the middleman etc.
Carry on trial production and test marketing
5. Managerial stage
Evaluate the field performance of product and examine the
Appoint dealer, wholesalers, agents, and arrange showrooms
Carry on commercial production
Carry on advertising and marketing activities.
Distribution and selling
Managing the enterprise
Creation of external economies
Consolidating the marketing and selling network
Ensure growth and generate profits
Repayment of loan and interest.
Keep pace with the change in technology, change in taste,
fashion of consumers, competition, and development of new
product, new substitute or alternatives.
Carry on modernization, expansion, and diversification etc.
ROLE OF SMALL SCALE INDUSTRIES IN DEVELOPMENT OF
ROLE OF SSIS IN NATIONAL ECONOMY
Ms Sonam Kapil Lecturer MIT, MIET GROUP (UNIT 1 EDP Notes) Page 24
1. Employment generation:
The basic problem that is confronting the Indian economy is increasing pressure of
population on the land and the need to create massive employment opportunities.
This problem is solved to larger extent by small-scale industries because small-
scale industries are labour intensive in character. They generate huge number of
employment opportunities. It is a powerful tool of job creation.
2. Mobilization of resources and entrepreneurial skill:
Small-scale industries can mobilize a good amount of savings and entrepreneurial
skill from rural and semi-urban areas by investing in small-scale units. Thus, a
huge amount of latent resources are being mobilized by the small-scale sector for
the development of the economy.
3. Regional dispersal of industries:
There has been massive concentration of industries in a few large cities of different
states of Indian union. People migrate from rural and semi urban areas to these
highly developed centers in search of employment and sometimes to earn a better
living which ultimately leads to many evil consequences of over-crowding,
pollution, creation of slums, etc. This problem of Indian economy is better solved
by small- scale industries which utilize local resources and brings about dispersion
of industries in the various parts of the country thus promotes balanced regional
5. Provides opportunities for development of technology:
Small-scale industries have tremendous capacity to generate or absorb innovations.
They provide ample opportunities for the development of technology and
technology in return, creates an environment conducive to the development of
small units. The entrepreneurs of small units play a strategic role in
commercializing new inventions and products.
6. Promotes exports:
Small-scale industries have registered a phenomenal growth in export over the
years. They help in increasing the country's foreign exchange reserves there by
reduces the pressure on country's balance of payment.
8. Supports the growth of large industries:
The small-scale industries play an important role in assisting bigger industries and
projects so that the planned activity of development work is timely attended. They
support the growth of large industries by providing- components, accessories and
semi-finished goods required by them
9. Better industrial relations:
Ms Sonam Kapil Lecturer MIT, MIET GROUP (UNIT 1 EDP Notes) Page 25
Better industrial relations between the employer and employees help in increasing
the efficiency of employees and reducing the frequency of industrial disputes.
There is hardly any strikes and lock out in these industries due to good employee-
GOVERNMENT POLICIES FOR SSIS
Government policies are flexible and changes from time to time, place to place and
product to product. Different policies are applicable for different states as per the
suitability of the states.
The central government also announces various schemes for the benefit of the SSIs
and aimed at achieving industrial growth. So the central and state government have
their industrial policies for the promotion of small scale industries.
Some industries are classified as priorities industries and Governments allow
special subsidies on those SSIs. Other facilities include:
(i) Sales tax exemptions.
(ii) Sales tax concessions.
(iii) Water tax concessions.
(iv) Electricity duty exemption concession.
(v) Marketing assistance.
(vi) Price preference while supplying products to government organisation.
(vii) Subsidy on expenses made on research and development .
(viii) Subsidy on acquiring quality certificate like ISI marks, AG mark, ISO 9000
series, ISO 14000 series.
(ix) Single window system of clearance.
Policy Initiatives on SSI Sector
Ms Sonam Kapil Lecturer MIT, MIET GROUP (UNIT 1 EDP Notes) Page 26
(i) 75 products are reserved for exclusive manufacture in the SSI sector
consisting of chemicals and their products, leather and leather products,
laboratory reagents etc.
(ii) Selective enhancement of investment in plant and machinery from Rs 1
crore to Rs 5 crore carried out in respect of 13 items in stationery sector and
10 items in the drugs and pharmaceutical sector .
(iii) The Union budget 2003–04 announced that banks would provide credit to
the SSI sector within an interest rate band of 2 per cent above and below
Prime Lending Rated (PLR). All public sector banks have adopted this
(iv) The composite loan limit for SSI units was enhanced from Rs 25 lakh to Rs
(v) The RBI announced that banks may enhance the limit of dispensation of
collateral requirements for loans from the existing Rs 15 lakh to Rs 25 lakh
on the basis of good track record and financial position of the units.
(vi) The lower limit of Rs 5 lakh on loans covered under the Credit Guarantee
Scheme has been removed. All loans up to Rs 25 lakh made eligible for
guarantee cover under the Credit Guarantee Scheme.
(vii) 417 SSI specialized bank branches made operational throughout the country.
(viii) The final results of third All India Census of Small-scale Industries were
released on January 17, 2004.
(ix) In the first phase, 60 clusters were identified (July, 2003) for focused
development, by including their credit requirements in the respective State
(x) Setting up of a Small and Medium Enterprises Fund (SMEF) of Rs 10,000
crore under SIDBI, to inter alia, address the problems of inadequacy of
financial resources at highly competitive rates for small-scale sector.
(xi) Laghu Uddyami Credit Card scheme liberalized with enhanced credit limit
of Rs 10 lakh (up from Rs 2 lakh) for borrowers with satisfactory track
Problems Faced by Small-scale Industries
(i) Difficulty in obtaining credit from commercial banks because of their
general inability to provide security.
(ii) Absence of management expertise. Often managed by one person who
performs a number of functions usually with no formal training.
(iii) Difficulty in competing with imported products due to high production costs.
Ms Sonam Kapil Lecturer MIT, MIET GROUP (UNIT 1 EDP Notes) Page 27
(iv) Difficulty in obtaining industrial land in towns and cities. The shortage of
industrial land is giving rise to more and more backward operations.
(v) Under capitalisation.
(vi) Difficulty in identifying appropriate technology and technical assistance.
(vii) Surveys of material and human resources of the countries are not available
to identify the regions or areas for the development of small-scale and
medium-scale industrial enterprises.
(viii) Difficulty in identification of industrial projects for development.
(ix) Poor Project preparation and evaluation.
(x) Lack of Financial or credit support and investment promotion.
(xi) Lack of consultancy and counselling services.
(xii) Technology development and applications such as the designing of
prototype machines for products identified according to country resources
(xiii) Inadequate Industrial training and skill formation.
(xiv) Quality control and testing facilities.
(xv) Inadequate Market promotion, both domestic and export.
(xvi) Difficulties in Procurement of raw materials and equipment.
ROLE OF NATIONAL AND STATE AGENCIES PROVIDING ASSISTANCE
Refer Book ENTREPRENEURSHIP DEVELOPMENT PROGRAMME
Author B. Badhai PAGE NO. 2.17, 2.18 &2.19
LARGE SCALE INDUSTRIES
Industries with a fixed asset of more than one hundred million rupees are called
large scale industries. These could be manufacturing units or others which use both
indigenous and imported technologies. They cater to both the local and foreign
markets. Examples of large scale industries :- include fertilizer, cement, natural
Ms Sonam Kapil Lecturer MIT, MIET GROUP (UNIT 1 EDP Notes) Page 28
gas, coal, metal extraction, metal processing, petroleum, natural gas, mining,
electrical, petrochemical, food processing units, tourism, banking, sugar,
construction, automobile, communication equipment, cement, chemicals, earth
movers, consumer durables (like television, refrigerators, etc), engineering
products, vehicle assembly, beverages, gas and water; other fuels, agricultural
processing, insurance and finance. With the opening up of the market and
globalization, the effects on such industries has been mixed, some have gained by
attracting foreign customers, foreign trade and technology, tie-ups, while others
have lost out due to their inability to cope up with the open market competition.