CHAPTER 5

PROJECT ASSISTANCE

FINANCIAL ASSISTANCE TO SMALL SCALE ENTERPRISES

Introduction

With the quickened pace of economic development under the impetus of the Five- Year Plans,
the most striking change in the Indian economy has been the initiation of an industrial revolution
and the re-emergence of small scale industries. Not only have the established small industries
increased their installed capacity and output but a wide range of new small industries has also
come into existence. These far reaching developments and the scale and scope of operation of
small scale industries have brought to fore the importance of provision of administrative and
institutional assistance at various levels.

Financial and Extension Infrastructure

There is a wide network of institutional infrastructure for financing and extension service support
to small scale industries in the country. The networks consist of:
 State Financial Corporation (SFCs)
 Commercial Banks
 Co-operative Banks
 Regional Rural Banks (RRB)
 National Small Industries Corporation (NSIC)
 Small Scale Industries Development Corporation (SSIDC)
 Khadi and village Industries Commission (KVIC)
 District Industries Centres (DICs)
 National Bank for Agriculture and Rural Development (NABARD)
 Small Industries Development Bank of India (SIDBI)

The institution aiding small scale industries may be broadly classified into 3 categories:
i. Advisory Bodies: In this category we have Development Commissioner, Small Scale
Industries, the State Small Industries Board, Directorate of Industries, Export Promotion
Council, Small Scale industries Association.
ii. Government Institution: In this category we have Commodity Boards, National Small
Industries Corporation, Small industries Services Institutes
iii. Corporate Institution: In the third group the following corporate bodies are present, The
State Trading Corporation, Central Institute of Tool Design, IDBI etc.

Institutional Support

The scale and scope of operation of entrepreneurs and the far reaching developments in the
economic climate have brought to the fore the importance of institutional assistance at various
levels. In fact the success of entrepreneurship depends solely on the well established institutional
set up.
Following institutions offer Financial Assistance to SSIs:

 State Financial Corporation (SFC)

 Industrial Development Bank of India(IDBI)
 Industrial Finance Corporation of India (IFCI)
 Industrial Credit and Investment Corporation of India (ICICI)
 Industrial Reconstruction Bank of India (IRBI)
 Commercial Banks
 Life Insurance Corporation (LIC)
 General Insurance Corporation (GIC)
 United Trust of India (UTI)
 Small Industries Development Bank of India (SIDBI)
 Mutual Funds
 Leasing Companies
 Risk Capital Foundation
 National Bank for Agriculture and Rural Development (NABARD)
 Khadi and Village Industries Commission (KVIC)
 Stock Exchange
 Venture Capital Finance
 Housing Development Finance Corporation of India
 The Shipping Credit and Investment Company of India
 The World Bank
 Asian Development Bank
 Infrastructure and Leasing Finance Corporation

Financial Assistance from STATE FINANCIAL CORPORATIONS

The main element that goes into a business, credit is perhaps the most crucial. The best of
plans can come to halt if adequate finance is not available at the right time. SSIs needs credit
support not only for running the enterprise and operational requirement but also for
diversification, modernization/ up gradation of facilities, capacity, expansion etc. To overcome
financial hurdles of SSIs Government Of India has established State Financial Corporation (SFC)
in each state according to the provisions of State Financial Corporation Act 1951.
 SFCs are established to fulfill the financial needs of the small and medium scale
industries.
 The fundamental objective of SFC is to cater to the long term financial needs of the
entrepreneur.
 According SFC Act loans are extended to the industrial units which are engaged in areas
of manufacturing, processed foods, mining, hotel industry, repairing and assembly
of any type of machinery and vehicles for the passenger and goods transport by road or
by sea.
 In the service industry sector units engaged in the activities like hotels, tourism services,
stone crushing, chicken and meat production, salt manufacturing, video recording studios,
repair and maintenance of air conditioners, computer service etc.
Financial Assistance from KARNATAKA STATE FINANCIAL CORPORATION (KSFC)

 KSFC assists entrepreneur to set up new industries and to expand, diversify or modernize
existing ones-anywhere in Karnataka.
 Borrowers can be proprietary concerns, Partnership Firms, Private Limited Companies,
Limited Companies, Hindu Undivided Families, Trust or Co-operative Societies.
 KSFC offer additional incentives for SC/ST entrepreneurs, Women, Disabled people.
 It also offers special financial schemes and services through Leasing Finance, Hire
Purchase, Merchant Banking Divisions and Rental Discounting and Corporate Loans.

Financial Assistance from Small Industries Development Bank of India (SIDBI)

 SIDBI was established on April 2nd 1990

 The Small Industries Development Bank of India Act 1989 envisaged SIDBI to be the
principal financial institute for promotion, financing and development of industry in the
small scale sector and to co-ordinate the functions of the institution engaged in the
promotion and financing or developing industry in the small sector and for matters
connected therewith.
 SIDBI is headed by the Chairman and Managing Director.
 The SIDBI is operating different programmers and scheme through 5 regional office and
33 branch offices.

Range of services from SIDBI

SIDBI directly finances

 SSI units for new/expansion/diversification/modernization projects.

 Marketing development project which expand the domestic and international
marketability of SSI products
 Existing well run SSI units and ancillaries/ sub contracting units/ vendor units for
modernization and technology up gradation.
 Infrastructure development agencies for developing industrial areas
 Leasing and hire purchase companies for offering leasing/ hire purchase facilities to SSI
units
 Existing export-oriented units to enable them to acquire ISO 9000 series certification.

SIDBI Provides Foreign Currency Loans to:

 Import equipment by existing export oriented SSIs and new units having definite plans
for entering export markets.
 Execute confirmed export orders by way of pre-shipment credit/letter of credit and
provides post shipment facilities.
SIDBI’s Venture Capital Funds Provides Assistance to:

Small Scale entrepreneurs using innovative indigenous technology and expertise.

Financial Assistance from Commercial Banks

The SSI sector confronts several problems despite its strategic importance in any
industrialization strategy and its immense potential for employment generation. The problem
which SSI faces is lack of access to timely and adequate credit. Government of India recognized
the need for a focused credit policy for SSIs in the early days of promotion of SSIs. This in turn
led to a credit policy with the following components:
1. Priority Sector Lending: Credit to the small scale is ensured as part of the priority sector
lending by banks. Banks are required to compulsory ensure that defined percentage of
their overall lending is made to priority sector as classified by the government.
2. Institutional Arrangement: Small industries Development Bank of India (SIDBI) was set up
as the apex refinance bank. Term loans are provided by the State Finance Corporations
and Scheduled Banks. Credit lending in direct/indirect forms is also undertaken to some
extent by NABARD, NSIC etc.

State Bank of India (SBI) assistance to SSIs

State Bank of India has many schemes for SSI sector few of those are as follows:

1. General Purpose term Loans: SBI grants term loans to small scale industries for meeting
general commercial purposes like substitution of high cost debt, R&D etc. The tenure
of loan is normally is 3 years and the pricing is fine-tuned to suit the risk profile of the
burrower. The repayment is structured in monthly or quarterly installments, according to
the cash generation cycle.
2. Liberalized Credit for SSI: SBI extends production linked credit facilities to small scale
industries, ancillary industrial units and village/cottage industrial units on liberal terms
and conditions. The pricing of the loan is based on credit assessment and the units
with strong ratings may be given finer rates. No collateral security is required for loans
upto Rs 5 Lakh. Composite term loans can be sanctioned upto 25 lakh combing term loan
and working capital.
3. Entrepreneur Scheme: SBI grants financial assistance to technically qualified, trained and
experienced entrepreneur for setting up new viable industrial projects. Loans are extended
to technocrats who are unable to meet the normal margin requirements under the
liberalized schemes. The bank provides Term loans, working capital and equity fund
finance.
4. Equity Fund Scheme: Under this scheme SBI grants financial assistance to entrepreneurs
who are not able to meet their share of equity fully by way of interest free loans repayable
over a long period. This type of assistance fills gap between the margin requirement in
the project and the capital contributed by the promoter.
5. Stree Shakti Package: The stree Shakti Package is a unique scheme run by the SBI, aimed at
supporting entrepreneurship among women by providing certain concessions. An
 enterprise should have more than 50% of its share capital owned by women to qualify this
scheme.
6. Composite Loan Scheme: A simplified scheme devised under single window concept of RBI
to suit requirements of Tiny Units under SSI sector. The purpose of this assistance is to
provide credit to entrepreneur for acquiring equipments, construction of work sheds and
to meet working capital needs of the unit.
7. Margin Money Scheme: This is a novel scheme devised for setting up industrial/ service
units in rural area focusing on employment generation. Individuals, Proprietary firms,
Societies/Trusts, Self Help Groups, Companies registered under Companies Act and
substantially owned and controlled by central/state government. Micro finance Institutes
(MFIs) and NGOs are eligible for the assistance. Partnership Firms and Private Limited
Companies are not eligible to get the assistance under this scheme.
8. Mahila Udyam Nidhi Scheme (MUNs)- Soft Loan Assistance : Equity type soft loan
assistance from SIDBI exclusively for women entrepreneurs for setting up industrial units
in the small scale and tiny sectors and undertaking service activities.

Financial Assistance from Karnataka State Industrial Investment and Development Corporation
(KSIIDC)

 KSIIDC was established with the objective of promoting industrial growth in the state of
Karnataka, especially in the medium and large sector.
 The institution accepts applications for financing as per the standard loan application
format within the state of Karnataka only.

Direct equity participation and underwriting Facility

The corporation participates in the direct equity share capital mainly in respect of assisted/
joint sector companies. The participation will be upto 11% of the paid-up equity capital
depending upon the merit of the project. In certain sectors the participation is expected to be
disinvested by the corporation within a maximum period of three to five years on a mutual
agreed disinvestment formula entered into at the time of investment.

Equipment Finance Scheme

The assistance is available for purchase of identifiable items of new plant and machinery for
modernization/expansion/balancing/replacement or for any other purpose except for setting up a
new project. Assistance is available to existing industrial concerns with a good performance
record and sound financial position. They should have been in operation for at least four years,
have earned profit during preceding two financial years. Repayment of loan ranges from two to
five years.

Financial Assistance from Industrial Finance Corporation of India (IFCI)

 IFCI the first development financial institution in India was set up in 1948 as a Statutory
Corporation to pioneer institutional credit to medium and large sized industries.
  IFCI was also the first public financial institution to be corporatized and converted into
public limited company.
 It has also played a crucial role in industrial and economic development by promoting
such illustrious organizations as the National Stock Exchange, the Management
Development Institute, the Entrepreneurship Development Institute of India, LIC
Housing Finance Ltd and a number of Technical Consultancy Organizations (TCOs).
IFCI extends financial assistance to the industrial sector through rupee foreign currency loans,
underwriting/direct subscription to share/debentures and guarantees and also offers financial
services through its facilities of equipment procurement, equipment finance, buyers and suppliers
credit, equipment leasing and finance to leasing and hire purchase companies.

The financial resources of IFCI are constituted of the following three components:
 Share Capital
 Bonds and Debentures
 Other Borrowings

NON-FINANCIAL ASSISTANCE

District Industries Centre (DIC)

District Industries Centre focuses on

 Industrialization process in the district
 Encourage entrepreneurs through various schemes
 Educate and train people in entrepreneurship
 Financial Assistance through credit schemes
 Marketing Assistance
 Raw material and Technical assistance
 Special attention to tiny and cottage industries

Objectives of DIC

 Accelerate the industrialization process in the district through education, training and
support.
 Encourage the spread of industries to rural areas through supporting to cottage industries.
 Decentralize the industrialization process so that regional economic imbalances are
minimized.
 Implement various support schemes of government in the respective district, thus
encourage new entrepreneurs.
 Acts as a single window to minimize the time required to obtain various statutory
permission like licenses, registration, subsidies, financial assistance etc.

Role of District Industries Centre

 DIC acts as a nodal agency to spread the process of industrialization in the respective
region.
  Prepare the profile of the industry located in district
 Collects the statistical data of various kinds of industries located in the district.
 Based on the local resources and the needs of the society, DIC prepares list of product
and services which can be produced in the district.
 Assists the entrepreneurs in accessing various infrastructure facilities like quality testing,
transport, raw material, packaging technology, prototype development, warehousing etc.
 Organize entrepreneurship awareness programmes and entrepreneurship development
programmes about various tenders by government and other.
 Acts as a link between entrepreneur and the lead banks, credit cooperative societies, rural
banks, agricultural banks etc. Depending on the nature of business.

Small Industries Service Institute (SISI)

Small Industries service Institute is established by Government of India to help the SSI sector on
various [Link] states has SISI and functions under the guidance of Director. There are 28
SISIs and 30 branch SISIs setup at various state capitals and other industrial cities all over the
country. The main activities of these institutes are:

 Assistance/Consultancy to prospective Entrepreneur: SISIs assist and guide the prospective

entrepreneur son various issue.
 Assistance/consultancy: Existing unit require the guidance from time to time on various
issue like raw material procurement
 Preparation of state economic and Industrial profiles: SISI in each state collects and publishes
various information is spread to the state. This information is spread to entrepreneur
through books, seminars and training programmers.
 Preparation/ Updating of District Industrial potential surveys: SISI periodically conducts
survey to identify emerging business opportunities. This information helps upcoming
entrepreneur to take up potential business opportunities.
 Project Profiles: Prepares profiles on various projects. These projects profile explains
various issues like the extent of demand for product/ service, production issues,
marketing issues, financial issues and expected growth in the demand.
 Entrepreneurship Development Programmers (EDP): EDP can convert ordinary person into
risk takers, innovators, employers, leaders and visionaries. SISI periodically conducts
various programmers to bring awareness to motivate and build skills among people to
take up businesses of their own.
 Production Index: It measures the monthly/yearly performance of various industries in the
country. Due to its periodicity and detailed breakdown by branches of economic activity,
it is the central and up-to-date indicator of the development of business activity. SISI
collects data from industries about the production of various godsend services and
publishes for the benefit of entrepreneurs.
 Quality Control and up gradation: SISI conducts various training programmes, workshops
and seminars to bring awareness about the quality aspects in business operations. SISI
helps to deploy appropriate quality systems and processes in the SME sector.
 Export Promotion: Small business sector is contributing in a big way to country’s export.
SISI updates entrepreneurs about visits of foreign delegates and trade visits, so that
entrepreneurs get a chance to meet prospective buyers
  Ancillary Development: Ancillary industrial unit is one which supplies 50% or more of its
production to one or more industrial undertakings. Along with development of small
industries SISI also focuses on setting up of ancillary industries. This accelerates the
process of industrialization.
 Common Facility workshop/Lab: SISI offers common facility services like general
engineering works, electrical and electronics, product designing etc. It is difficult and
expensive to set up such kind of facilities in every small scale units.
 Preparation of Directory of specific Industry: SISI prepares directories for specific industries
like directory on manufacturers of automobile spare parts, agricultural implements, and
electrical equipments. These kinds of directories help to promote a particular industry in
terms of creating awareness, bridging the gap between buyers and sellers etc.
 Coordination with DICs: SISI provides extensive back up support to DICs in the state in
promoting industrial development by providing technical and economical information,
project profiles on industries, participating in EDPs and seminars organized by DICs,
conducting industrial potential surveys etc.
 Linkage with State Government Functionaries: SISI acts as a central point of contact and
coordinates with various government functionaries like various ministries, committees,
financial institutions, commodity boards, commercial banks, training institutes etc.
 Market Surveys: In coordination with various government agencies SISI regularly
conducts market survey on various products and services

Entrepreneurship Development Institute (EDI)

EDI of India is an autonomous body and non-profit-institute set up in 1983. It is sponsored by

apex financial institutes, namely the Industrial Development Bank of India (IDBI), the Industrial
Finance Corporation of India(IFCI), the Industrial Credit and Investment Corporation of India
(ICICI) and state Bank of India (SBI)

EDP aims at the following

 Creating a multiplier effect on opportunities for self-employment

 Augmenting the supply of competent entrepreneurs through training
 Augmenting the supply of entrepreneur trainer-Motivators
 Participating in institution building efforts
 Inculcating the spirit of Entrepreneurship in youth
 Promoting micro enterprises at rural level
 Improving managerial capabilities of small scale industries

EDI has set up Centre for Research in Entrepreneurship Education and Development (CREED)
to act as a crucial link between theory and practice in the field of entrepreneurship with special
focus on applied research backed by sound theory. Through this centre EDI
 Supports in-house research in the areas of major concerns in entrepreneurship
 Catalyses the process of networking researchers and institutions in the sphere of
entrepreneurship
  Encourages young researches to make use of intellectual and other resource at the centre
so as to make valuable contributions to the knowledge on entrepreneurship.
 Promotes collaborative research endeavors with institutions and individuals outside the
centre
 Disseminates and share various research findings among planners, policy-makers
and academicians and
 Organizes seminar, workshops

Small Industries Development Organization (SIDO)

Small Industries Development Organization in functioning Under Department of SSI,

Government of India. The main functions of SIDO are:
 Framing of policies pertaining to SSI sectors
 Coordination with different bodies/ agencies in the SSI sector
 Monitoring Policy implementation
 Industrial Development
 Extensive Services

Market Development Assistance for SSI exporters

 It is currently operated by the Ministry of Commerce with a view to encourage exporters

to access and develop overseas
 The scheme offers funding for participation in international fairs, study tours abroad,
trade delegations, publicity etc.
 Direct assistance under MDA for small-scale units is given for individual sales-cum-
study tours, participation in fairs/exhibitions and publicity.
 SIDO provides exhibition space and shipment of exhibits Ex- Mumbai free cost for this
purpose.
 SIDO provides exhibition space and shipment of exhibits

International Exposure to SSI products

 With a view to rendering assistance to Small Scale Sector exhibit their products in the
International Exhibition, require assistance and support is provided.
 Packaging for exports: With a view to improve SSI Exporters of the latest packing
standards, techniques etc. Training programmes on packaging for export s are organized
regularly by SID in various parts of the country. These programmes are organized in
association with Indian Institute of Packaging.

Consultancy Services

Technical and Managerial Consultancy Services: Technical and Managerial Consultancy

services to the SSI manufacturers/ exporters are provided through a network of field offices of
this office so as to ensure higher level of production and generation of higher exports.
Technology Trends and Trade Reports: SIDO and SISI are involved in activities to build
databases and report on technology trends and Trade reports. The activities encompass
Preparation of state Industrial Profiles
 Preparation/ Updation of District Industrial Potential Surveys
 Project Profiles
 Production Index
 Energy Conservation
 Pollution Control
 Quality Control
 Papers on emerging Trends
 Export Promotion
 Preparation of Directory of Specific Industry
 Markets Surveys

Association of Women Entrepreneurs of Karnataka (AWAKE)

 It is today one of India’s premier institution totally devoted to entrepreneurship

development among women.
 Established in 1983 AWAKE’s success has been recognized worldwide.
 It aims to empower women through entrepreneur development to improve their economic
condition, enhance their social status and develop a spirit of individuality and creativity.
 AWAKE organizes conventions/seminars. The seminars will emphasize the imperative
need for growth of women owned enterprises in the changing economic scenario.

The objectives of such seminars are:

 To provide an international platform focusing on economic empowerment of women and
international trade.
 To provide an opportunity for interaction between entrepreneurs to learn about the best
business practices
 Business to Business trade meets
 Networking of Business Associations
 To evolve pro-women entrepreneur policies
 Exposure to new ideas of marketing access to finance/ technology/ innovation.
 Exploring business opportunities.

Technical Consultancy Organization (TCO)

To cater to the consultancy needs of small and medium enterprises, TCO were established by
many financial institutions like ICICI, IFCI, SIDC, IDBI, SFC etc in collaboration with state
level financial institution and commercial banks. Functions of TCO are to
 Advice SMEs about technical aspects of business
 Prepare project profiles and feasibility reports
 Technical collaboration and transfer of technology
 Encourage, assist and offer technical consultancy to new entrepreneurs
 Undertake financial potential Survey
  Advice on industrial management
 Undertake market research and survey for specific product
 Provide consultancy services to the new entrepreneurs
 Offer merchant banking facilities
 Opportunity scanning and product selection
 Market survey, project launching, expansion of units etc.
 Conduct entrepreneurship development programmes

Technical Consultancy Services Organization of Karnataka (TECSOK)

It is a Government of Karnataka Organization specialised in providing following range of

services to the entrepreneur.
 Identification of project ideas and selection of investment opportunities
 Selection of suitable locations for setting up industrial unit
 Conducting market surveys, industrial units
 Preparation of detailed techno-economic feasibility report/ detailed project reports
 Turnkey assistance
 Assistance in obtaining necessary licenses and clearances
 Energy audit and conservation
 Modernization studies
 Dissemination of information on industrial policies and procedures of central as well as
state government
 Coordinating and conducting management development programmes
 Identification and development of ancillary industries
 Assistance to government in providing information about new policies, programmes
and schemes.

Khadi and Village Industries Corporation (KVIC)

As per the provision of a Special Parliamentary Act 1956, the government has established Khadi
and Village Industries Commission.

Objectives of KVIC

 To preserve the traditional arts and crafts in India

 To equip the artisans and craftsmen to take up the challenges of the modern market
 To promote the handicrafts, Khadi, village and cottage industry by facilitating them with
the necessary inputs like raw materials, equipment, capital etc
 To develop a market for these products
 To introduce the products even in the international market

To achieve these objectives, the following schemes are provided by KVIC

 Financial assistance for purchase of land, building, workshop, shed, machinery and
equipment at the rate of 4%interest.
  Working capital Provision
 Equity capital
 Loan provision for purchase of raw material
 Marketing avenues and selling centre’s for the products of artisans and craftsmen
 Subsidies for the registered societies of artisans and craftsmen belonging to scheduled
castes, scheduled tribes, ex-service men, women etc.

In addition to these schemes, KVIC provides various facilities for cottage industry like integrated
village development programme, special beneficiary schemes, silk industry development scheme
interest subsidy scheme, artisans employment guarantees etc. The government has defined
“Gramodyog” (Village Industries) as
 Population of the village should not be more than ten thousand people
 Investment in the place of products,, machines and equipments should not exceed Rupees
Fifteen Thousand.
 Manufacturing can be done either with power or without power.

It has approved nearly 96 industries under the purview of the KVIC. These industries are under
the following categories:

 Material based industries

 Industries based on products from forests
 Agro-based industries
 Polymer and other chemical based industries
 Khadi and textile industry
 Service industry

Financial Incentives and Industrial Estates

Financial incentives foster industrial development in a balanced manner. It includes concession,

priority and aid.

Differential Rate of Interest scheme

 Under this rate of interest scheme, loans upto Rs 6500 as term loans and Rs 1500 as
working capital are provided by the commercial banks to the weaker section at a
concessional rate of interest of 4% per annum.
 This scheme was introduced in 1972 with a view to increase the credit flow to the weaker
sections for various productive purposes.
 The eligible borrowers under this scheme are identified in relation to income concept i.e.
Rs 2000 per family per annum in rural areas and Rs 3000 per family per annum in urban
areas.
Composite Loan Scheme (CLS)

 It was introduced in 1978 with a view to meet the entire financial requirements of
artisans, village and cottage industries where the total credit requirements for equipment
finance and working capital do not exceed Rs25000. (Currently the limit raised to Rs.
50000)
 In respect of projects sponsored by SC/ST entrepreneurs, the requirement of minimum
contribution (presently 5% of the project cost) has been totally waived.
 The ceiling on the population of the village/ town, where the unit is located has been
raised from Rs 50000 to Rs 5 Lakhs.
 The loan is payable in 7 to 10 years or even more with an extension/grace period of 12 to
18 months for payment of interest and principal.
 The maximum rate of interest chargeable for such loans is 10% for the units located in
specified backward areas and 12 % for those located in other areas
 The loans under the scheme are available both from the Commercial Banks and State
Financial Corporations.

Margin Money Scheme for Tiny Sector

 In order to provide margin money assistance to the tiny units, the Margin Money Scheme
was introduce by the Government of India in 1977.
 Under this scheme assistance is provided to the small scale unit whose investment in
plant and machinery does not exceed Rs 2 Lakhs and are located in village and towns
with a population of less than 50000.
 The extent of assistance in the form of margin is limited to 10% of the total investment,
comprising fixed capital investment, Pre-operative expenses and three months working
capital requirements or Rs 20000 whichever is less.
 In case entrepreneurs belong to SC/ST assistance is admissible upto 15% of the total
investment or Rs 30000whichever less is.
 This scheme is operated by the State Govt. Through District Industries Centres.

Special Capital Scheme of Industrial Development Bank of India (IDBI)

 The IDBI is operating a special capital scheme for extending equity of assistance to such
entrepreneur who possess the necessary skill and experience but do not have adequate
financial resources to set up projects, primarily in the small scale and tiny sector.
 The maximum assistance admissible under the scheme is 20% of the project cost of Rs
4lakhs, whichever less.
 The assistance is interest free and carries only a service charge of 1% per annum.
 Grace period for repayment of interest and upto 5 years for payment of installments.
 The scheme is operated by the IDBI through the State Financial Corporation.
Seed Capital Scheme

 The scheme was introduced by the IDBI in 1976 with a view to assist the new
entrepreneur who do not have adequate resource of their own to set up industrial project
in the small and medium sectors with project cost not exceeding Rs 3 Crores.
 Seed capital upto Rs 15 Lakhs is made available to proprietary and partnership firms in
the form of interest free soft loans.
 In case of private limited companies, the assistance is available in the form of
subscription to 1 % cumulative redeemable preference shares
 While in the case of public limited companies it will cover subscription to 1% cumulative
redeemable preference shares or both.
 Soft loans assistance is normally payable over a period of 10 years with a grace period of
5 years.

Equity Fund Scheme

 Under this scheme, the State Bank of India provides interest free assistance to the small
entrepreneurs for meeting the equity gap in the project.
 The assistance provided under the Scheme varies between Rs 5000 to Rs 50000
 The actual amount of assistance admissible is the difference between 25% of the total
project cost and the capital available with the entrepreneur.
 Grace period of 5 to 7 years is allowed for repayment of the amount. Thereafter it is to be
repaid over a period of 5 to 7 years through monthly/quarterly/half yearly installments.

Soft Loan Scheme for Modernisation

 Under this scheme IDBI provides financial assistance to the units in selected industries to
overcome the back log of renovation/ replacement of plant and machinery, so as to
improve their productivity and competitiveness.
 The assistance under the scheme is need-based and as such no minimum or maximum
limit for individual loan has been prescribed.
 The maximum rate of interest chargeable by credit institutions on such assistance is
11.5% per annum.
 The scheme is operated by the IDBI in collaboration with Industrial Credit and
Investment Corporation of India(ICICI).
 Loans upto Rs 5 Lakhs are covered under the Automatic Reference Scheme.

Bill Rediscounting Scheme

 This scheme was introduced by the IDBI in 1965 with two objectives
a. To help the manufactures of indigenous machinery and equipment to push the sales of
their products by offering deferred payments facilities to the prospective purchaser-user
b. To enable the purchaser-user of the machinery to utilize the machinery acquired and
repay its cost over a number of years.
  Bill/Promissory notes drawn in favour of or by the machinery manufacturers are
discounted by them with bankers who in turn rediscount the same with IDBI. There is
no restriction of minimum amount of transaction in the case of small scale units.
 In order to ensure larger flow of assistance to small scale sector, IDBI have introduced
special concessional rates of discount/ rediscount for purchaser-user as well as seller-
manufacturer in this sector.
 IDBI has also been sanctioning special rediscounting limits to banks for exclusive
utilisation by the small scale sector.
 Normally the facilities under this scheme are not available for purchase of machinery for
new [Link] exception has been made in the case of small-sector.

Margin Money scheme for Revival of Sick Units

 This scheme was introduced by the Government of India in 1982 with a view to help the
State Government in the revival of sick small scale units.
 Under this scheme matching assistance is provided to the State Governments who wants
to operate the scheme.
 Margin money to the extent of a minimum of Rs 1000 and a maximum of Rs 20000 is
sanctioned to sick small scale units in the form of loans by the State Government on the
recommendation of the State Level Coordination Committee for Sick Units.

Scheme for Rehabilitation of Sick Units

 The Small Scale units which have been assisted by State Finance Corporations are
classified as sick are eligible for assistance under the scheme.
 The extent of relief depends upon the merits of individual cases.
 The rehabilitation assistance may cover margin money for additional term loan and
working capital term loan, payment of statutory liabilities, cash losses that
may incur during the nursing programme, overdue installments agree to be refunded into
a separate term loan, apart from the minimum capital expenditure required for restarting
the unit on viable level.

Credit Guarantee Scheme

 With a view to encourage banks and financial institutions to grant loans to small-scale
industries, the Government of India had introduced a Credit Guarantee Scheme operated
by the Reserve Bank of India.
 This scheme has been replace by the Small Loans Guarantee Scheme 1981 of the
Insurance and Credit Guarantee Corporation with effect from 1st April 1981.
 Under this scheme guarantee are extended to borrowers engaged in small-scale industrial
activities and also in respect of credit facilities granted to organizations assisting workers,
artisans and other self employed persons engaged in industrial activities.
 The extent of the amount to be covered by the guarantee varies from 50% to 90%.
 The claim liability per borrower under the scheme is not to exceed Rs 10 Lakhs,
irrespective of the number of financial institutions from which he might have borrowed.
Taxation Benefits for SSI

 In most developing countries, the taxation policy aims at the promotion of agriculture and
industry.
 Industrial development may however be stimulated by means of a reduction in the
normally applicable tax liability in the form of either an exemption from income tax on
the amount invested or a concession in the tax rate.
 Government has provided a number of taxation benefits for Small Scale industries
development programmes.
 In fact special tax concessions to SSI are desirable for the accumulation of capital and for
directing it into right channels.

Tax Benefits relates to the following

 Income Tax
 Excise Duty
 Sales Tax
 Octroi

Apart from these small scale industries are entitled to Central capital and transport subsidies.

Taxation Support for Small-Scale Sector

 Concession in matters of taxation for industries have three supportive roles like
a. Marketing Support
b. Investment support
c. Raw material support
d. Concession in profit tax/dividend tax
 Every year the department formulates pre-budget proposals in consultation with the
technical division of the same department and appropriate suggestions/ modifications in
respect of direct and indirect taxes are sent to the Ministry of Finance for their
consideration.

Tax Holidays

 New industrial undertakings include small industries are exempted from payment of
income tax under 80 J of the Act on their profits upto 6 % per annum of the capital
employed.
 The deduction at the rate of 6% from the total income is allowed in the assessment year
in which the unit begins to manufacture, provided that the conditions specified in section
80 J are fulfilled by small scale industries.
 This concession is for five years from the commencement of production.
 Small scale units should satisfy the following conditions before they become eligible for
tax benefits:
a. They should not have been formed by the splitting or reconstitution of an existing unit;
 b. They should employ 10 or more workers in a manufacturing process with power or 20 or
more persons without power

Depreciation

 Under Section 32 of the Income Tax Act, a small scale industry is entitled to a deduction
on depreciation account on buildings, furniture, plant and machinery at the prescribed
rates.
 In case of small scale industries the deduction from the actual cost of plant and
machinery is allowed upto 20Lakhs; in case of any machinery or plant hired by a unit, the
actual cost thereof the owner of such machinery or plant.
 The depreciation is calculated on reducing balance system.
 Full depreciation is available for a year irrespective of the actual number of days for
which the asset is used so long as it is used for the purpose of business or profession at
any time during the year.
 Any machinery or plant costing less than Rs 750 is allowed to be written off completely
in the year in which it was first used in business.

Meaning of Industrial Estates

The term industrial estate is defined to indicate the provision of basic infrastructure for the rapid
development of the area. It is group of factors, constructed on economic scale in suitable sites
with facilities of water, transport, electricity, steam, bank, post office, canteen, watch and first
aid; and provided with special arrangements for technical guidance and common service
facilities.

Types of Industrial Estates

 On the basis of functions

a. Conventional (General): This type of industrial estate provides accommodation to wide
variety and range of industrial concerns. In India general type estate are very popular.
b. Special Type: This type of estate attempts the establishment of industrial units, which are
vertically or horizontally interdependent.
 On the basis of the organisational set up
a. Government
b. Private
c. Co-operative
d. Municipal estate
 There are a number of other variants of industrial estate such as:
a. Ancillary Industrial Estate: Only small industries which are ancillary to a particular large
industry are housed in this estate.
b. Functional industrial Estate: This is a small and fully serviced unit which serves as a
reception centre for displaced small firms. It also serves as p “Pilot-cell” for small firms
going into production and is a base for expansion into larger factories.
 c. The workshop-bay: This is usually located in the shopping centres to provide space for
repair shops and enterprises such as job-printing

Objectives of Industrial Estates

 To encourage the growth of small-scale industries

 To shift small-scale industries from congested areas to estate premises with a view to
increase their productivity
 To achieve decentralized development in small town and large villages;
 To encourage growth of ancillary industries in the townships, surrounding major
industrial undertaking, both in public and private sector
 To foster the development of industry as well as entrepreneurship by providing
economies and incentives.