BLBARIK

Legal and Statutory Environment for Small Industry Small Scale Industrial
Module- 4

LEGAL FORMALITIES IN SETTING UP OF SSIs Business Laws

Various legal formalities are to be completed for setting up a small scale unit.

These formalities are as under.

Registration with Director of Industries

Registration of small scale industrial unit is not compulsory. However registration with the State
Directorate of Industries or District Industry centre facilitates obtaining of assistance from the
government.

The registration of small scale units is done in two stages

(i) Provisional registration (ii) Permanent registration

Provisional Registration Certificate

• This is given for the pre-operative period and enables the units to obtain the term loans and working
capital from financial institutions / banks under priority sector lending.

• Obtain facilities for accommodation, land, other approvals etc.

• Obtain various necessary NOCs and clearances from regulatory bodies such as Pollution Control
Board, Labour Regulations etc.

Permanent Registration Certificate

• Income Tax exemption and Sales Tax exemption as per State Govt. Policy

• Incentives and concessions in power tariff etc.

• Price and purchase preference for goods produced.

• Availability of raw material depending on existing policy.

• Permanent registration of tiny units should be renewed after 5 years.

To identify and help these MSMEs, the Indian government took the initiative on May 13, 2020 to
announce a new metric for classifying MSMEs in India. The Union Cabinet approved this
classification, and the Udyam registration process became mandatory for all MSMEs from July 1,
2020. Udyam registration is a free, paperless, self-declared online registration process to easily
register Micro, Small, and Medium-sized Enterprises (MSMEs) as legal entities in India

How to complete your Udyam registration?

To avail of the benefits mentioned above, you will need to complete the Udyam registration of your
business. After completing the registration process, you will get an Udyam Registration Certificate.
Below is a step-by-step guide to Udyam registration:
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Step 1 – You need to visit the official website for Udyam registration by clicking here.

Step 2 – Click on the ‘New Registration’ tab on the Home Page. You will get an Udyam registration
form.

Step 3 – Enter your Aadhar card number and PAN card number, and then validate them by entering
the OTP received on your mobile number.

Step 4 – Select your type of business or organisation. Enter the business PAN number attached to
your business accounts.

Step 5 – Fill in all other relevant details in the form. Double-check every piece of information before
submitting the registration form.

Step 6 – Submit and validate your Udyam registration form by entering your mobile number and the
OTP received on it.

Step 7 – After successful registration, you will receive a ‘Thank You’ message on your mobile
number and e-mail ID, along with your Udyam registration number.

Step 8 – You can then download and print your Udyam Registration Certificate.

Benefits of Udyam Registration

The following are the benefits of Udyam Registration according to Office of Development
Commissioner Ministry of MSME:

1. Access to Schemes- Registered MSMEs can tap into various government schemes and subsidies,
offering financial support for business growth.

2. Enhanced Credibility - Udyam Registration boosts business credibility, making it more appealing
to customers, investors, and partners.

3. Collateral Free Loans - Registered enterprises can obtain collateral-free loans and credit at lower
interest rates, easing financial access.

4. Procurement Advantage- MSMEs with Udyam Registration get preferential treatment in

government procurement, improving their chances of winning contracts.

5. Simplified Compliance- The registration streamlines regulatory compliance, reducing

administrative tasks for businesses.

GOVERNMENT SETUP IN PROMING SMALL INDUSTRIES

1. NATIONAL SMALL INDUSTRIES CORPORATION (NSIC)-

 The National Small Industries Corporation (NSIC), an enterprise under the union ministry of
industries was set up in 1955 in New Delhi to promote, aid and facilitate the growth of small
scale industries in the country.
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 NISC offers a package of assistance for the benefit of small scale enterprises. NSIC
continuously gets updated with the latest specific information on business leads, technology
and policy issues.
 NSIC fulfils raw material requirements of small-scale industries and provides raw material
on convenient and flexible terms.
 NSIC facilitate sanctions of term loan and working capital credit limit of small enterprise
from [Link] gives credit rating by international agencies subsidized for small enterprises
upto 75% to get better credit terms from banks and export orders from foreign buyers.
 NSIC participates in government tenders on behalf of small enterprises to procure orders for
them.

2. SMALL INDUSTRIES DEVELOPMENT ORGANISATION (SIDO) –

 SIDO is created for development of various small scale units in different areas. SIDO is a
subordinate office of department of SSI and ARI.
 It is a nodal agency for identifying the needs of SSI units coordinating and monitoring the
policies and programmes for promotion of the small industries.
 It undertakes various programmes of training, consultancy, evaluation for needs of SSI and
development of industrial estates.
 To provide training, development and consultancy services to SSI to develop their
competitive strength.
 To provide marketing assistance to various SSI units.
 To assist SSI units in selection of plant and machinery, location, layout design and
appropriate process.

3. SMALL INDUSTRIES SERVICE INSTITUTES (SISI)-

 The small industries service institutes have been set up in state capitals and other places all
over the country to provide consultancy and training to small entrepreneurs both existing and
prospective.
 To serve as interface between central and state government.
 To render technical support services.
 To conduct entrepreneurship development programmes .To initiate promotional programmes.

4. SMALL SCALE INDUSTRIES BOARD (SSIB) –

 The government of India constituted a board, namely, Small Scale Industries Board (SSIB) in
1954 to advice on development of small scale industries in the country.
 The SSIB is also known as Central Small Industries board.
 The range of development work in small scale industries involves several departments /
ministries and several organs of the central / state governments.
 Hence, to facilitate co-ordination and inter-institutional linkages, the small scale industries
board has been constituted.
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 It is an apex advisory body constituted to render advice to the government on all issues
pertaining to the development of small-scale industries.

5. STATE SMALL INDUSTRIES DEVELOPMENT CORPORATION (SSIDC) –

 The State Small Industries Development Corporations (SSIDC) were sets up on various states
under the Companies’ Act 1956, as state government undertakings to cater to the primary
developmental needs of the small, tiny and village industries in the state / union territories
under their jurisdiction. To procure and distribute scarce raw materials.
 To supply machinery on hire purchase system.
 To provide assistance for marketing of the products of small scale industries.
 To construct industrial estates / sheds, providing allied infrastructure facilities and their
maintenance.
 To extend seed capital assistance on behalf of the state government concerned and provide
management assistance to production units.

6. DISTRICT INDUSTRIES CENTRES (DIC) –

 The District Industries Centres (DIC’s) programme was started in 1978 with a view to
provide integrated administrative framework at the district level for promotion of small scale
industries in rural areas.
 DICs are the implementing arm of the central and state governments of the various schemes
and programmes. Registration of small industries is done at the district industries centre and
PMRY (Pradhan Mantri Rojgar Yojana) is also implemented by DIC.
 To prepare action plan to implement the schemes effectively already identified.
 To undertake industrial potential survey and to identify the types of feasible ventures which
can be taken up in ISB sector, i.e. industrial sector, service sector and business sector.
 To guide entrepreneurs in matters relating to selecting the most appropriate machinery and
equipment, sources of it supply and procedure for importing machineries.
 To provide guidance for appropriate loan amount and documentation.
 To help the entrepreneurs in clarifying their doubts about the matters of operation of bank
accounts, submission of monthly, quarterly and annual returns to government departments.

MEANING AND DEFINITION OF SMALL SCALE INDUSTRY

The definition of small scale industry varies from one country to another and from one time to
another in the same country depending upon the pattern and stage of development, government policy
and administrative set up of the particular country.

It is an important aspect of government policy as it identity the target groups. The first official
criterion for small scale industry in India dates back to second five year plan when it was in terms of
gross investment in land, building, plant, machinery and the strength of the labour force.
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Definitions of Micro, Small & Medium Enterprises [MSME]

In accordance with the provision of Micro, Small & Medium Enterprises Development (MSMED)
Act, 2006 the Micro, Small and Medium Enterprises (MSME) are classified into two classes:

(a) Manufacturing Enterprises. These enterprises are engaged in the manufacture or production of
goods pertaining to any industry specified in the first schedule to the industries (Development and
regulation Act, 1951). The Manufacturing Enterprises are defined in terms of investment in plant &
machinery.

(b) Service Enterprises. The enterprises engaged in providing or rendering of services and defined in
terms of investment in equipment.
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Status of small scale industry undertaking

1. Employment Generation-

 Small scale enterprises employ labour intensive technology and hence generate more
employment opportunities.
 In a country like India confronted with the twin problems of unemployment and scarcity of
capital, it is only the small scale industry which can solve these problems.
 Small scale industries can be located anywhere and hence can provide employment to
workers near their homes, more work for the under employed and additional work for the
farmers when they are idle.

2. Self Employment-

 Small scale sector provides numerous opportunities for self-employment and hence is more
suited for our country faced with the major problem of unemployment.
 A self-employed entrepreneur is the master of his own show and he, thus gets, opportunity
for doing something creative, new and different.
 He instead of seeking job for himself, provides employment to others.
 Working for himself creates personal interest and successful accomplishment of the task
generates job satisfaction and sense of attainment.

3. Optimum Use of Capital -

 Small scale enterprises require relatively lesser amount of capital as compared with large
scale enterprises.
 In the context of Indian economy where capital is scarce, small scale sector can act as a
stabilising force by providing high output capital ratio as well as high employment capital
ratio.
 Moreover due to shorter gestation period, small scale units provide early returns to the
entrepreneurs. Small scale units help in capital formation by mobilising idle and small
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scattered savings of the people and put these into productive use by investment in small scale
units.

4. Use of Local Resources –

 Small scale enterprises employ local resources like raw material, savings, entrepreneurial skill
more effectively. In the absence of these enterprises, these resources are likely to remain
unutilised.
 Thus, on one hand small scale sector ensures better use of the local resources and on the
other, generates employment opportunities and income for the local population.

5. Balanced Regional Development- .

 Whereas small scale industries utilise local resources and promote decentralised development
of industries.
 It is only through dispersal of industries in rural and backward areas that the objective of
balanced regional development can be achieved.
 Small scale sector by providing employment to people in rural & backward areas help in
solving the problems of industrial slums, congestion and pollution in industrial towns.
 Small scale sector by generating employment and income in backward areas help in raising
standard of living of people.

6. Conservation of foreign exchange-

 Small scale enterprises help in saving precious foreign exchange. Firstly small scale units
utilise local resources like raw material and available machinery and they are not dependent
on costly imports.
 These units also produce those products which were earlier being imported.
 Secondly there has been considerable increase in exports from the small scale sector over
years and presently this sector contributes about 35 percent to India's total exports, thus
earning precious foreign exchange for the country.

7. Contribution towards national economy –

 Small scale enterprises have made rapid strides over years and can produce wide range of
products having mass consumption.
 This sector is helping in realisation of the objective or export promotion and import
substitution.
 The small scale sector thus play a very important role in the economic development of our
country.

STEPS TO START AN SMALL SCALE INDUSTRIES

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INCENTIVES AND SUBSIDIES

These incentives and subsidies can give following benefits.

(i) Incentives and subsidies act as a motivational force and push the prospective entrepreneurs
to an entrepreneurial line.

(ii) Entrepreneurs are encouraged to take action and decisive decisions.

(iii) It encourages entrepreneurs to set up their ventures in those states where incentives are
available. Thus, it results in regional dispersal of industries in rural and backward areas. For
example, in the State of Punjab, Bhatinda, Ferozpur, Gurdaspur, Hoshiarpur and Sangrur,
have been in the list of Industrially Backward Districts in the country.
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(iv) Incentives and subsidies increase the ability of the entrepreneur to face competition. (v)
More and more young people are encouraged to become entrepreneurs and exploit their
skills. Failures also emerge but hidden talent also crops up.

NEED FOR INCENTIVES-

To Remove Regional Disparities in Development: By offering better incentives

in backward areas, the concentration of industry in cities will reduce resulting in even
distribution of industry all over the state. Incentives allure the entrepreneurs to
overlook the deficiencies of backward areas thus, removing the disparities and utilising
the local resources properly.
To Strengthen and Expand the Entrepreneurial Base: Entrepreneurial
development is an index to measure the development of any country. Whether
entrepreneurship is taken up out of necessity or as an opportunity, incentives do
strengthen them to face and overcome various problems coming up in their way.
To Provide Competitive Strength, Survival and Growth: Central and State
governments have a variety of incentives for the industrialists. Some incentives, like
seed money are for establishing the new unit while others, like interest free loans,
exemption from income-tax are concerned with survival and growth of industries.
Some benefits are available only in beginning years of setting up a unit while few are
available over a long period.
Ensure Employment Opportunities: Establishing a small unit ensures not only
selfemployment but also generates employment for others and removes the evil of
underemployment. Proper availability and usage of incentives and subsidies can make
it happen. A prosperous and contended entrepreneur will be a satisfied owner also and
would give reasonable wages as well. He will be able to generate a conducive
environment and may also move from developed to backward area in order to diversify
his unit.

Problems in small Enterprise Management Sickness

Small Scale Industries (SSIs) play vital role in the economic development of a country. Some
SSIs turn out to be sick due to various reasons. Some of the major causes for sickness in
small scale industries are dealt in brief.

1. Inadequacy of working capital - some units turn out sick due to inadequacy of working
capital. There may exist delay in sanction of working capital by financial institutions.
Industrial units find it difficult to meet out day to day operations due to the time gap between
sanction of term loan and working capital needs. Shortage of Working Capital is one of the
main reasons for sickness.

2. Non-availability of credit - Sickness in SSI sector may be attributed to non-availability of

credit. Delay in getting loans may result in stoppage of work or lead to production loss. Low
production may lead to reduced sales which in turn may lead to financial loss.
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3. Poor and obsolete technology- Some industrial units use technology which is outdate.
Out dated technology may affect the quantity and quality of production. This results in
production loss and reduces demand for the goods.

4. Non availability of raw material- Some units may require raw material which are
scarcely available. Sometimes, the raw material required by the unit may not be available in
abundance. Hence, this affects the production and the sales of the goods. If the raw material
is not abundantly available, then the industrial units have to spend a large amount of money
to buy them. This may result in financial loss.

5. Marketing problems - Sometimes, the industrial units may not know as to how to create
demand for the products. Lack of marketing knowledge may result in less demand for the
goods. Similarly, there may be less demand for the goods produced by the SSI due to
competition or change in the taste of the buyers.

6. Erratic power supply - Shortage in power supply affects the industries. This results in
delay in production of goods and leads to financial losses.

7. Labour problems - The relationship between the employer and the employees may not be
cordial. Some of the labour problems such as strike, lay off, lock out may lead to industrial
sickness.

8. Poor Management - The entrepreneur must be a good planner, organizer and a manager.
If the Industrial Unit promoters lack managerial skills, then it may lead to several problems.

9. Inadequate attention to R&D - Industries have to allocate a part of money in research

and development to survive and compete with competitors. Failure to focus on the above may
lead to industrial sickness

10. Diversion of resources - If the employer utilizes the funds obtained for the business for
any personal purposes, and then diversion of funds will lead to industrial sickness. The funds
used for personal purposes cannot be regenerated and hence it may result in delay in payment
of loans or financial crisis for the borrower of the loan.

PREVENTIONS Small Enterprise Management

1. Identifying sickness at initial stage- Sickness in Small Scale Industries are not a sudden
phenomenon but it is a gradual process taking 5 to 7 years eroding the health of a unit beyond
cure. Therefore, the identification and detection of the sickness at incipient stage is the first
and foremost measure to detect and reduce industrial sickness. Sickness must be identified at
initial stage.

2. Financial assistance- Lending agencies need to relax their lengthy process and other
norms for extending credit to the SSIs.
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3. Improving Infrastructure - Infrastructure facilities can be improved by setting up

industrial estates. Common testing centres etc., infrastructural problems can be solved by
improving the roadways, waterways, establishing telecommunication systems.

4. Technology Up-gradation - Funds may be provided by the financial institutions for

adoption of advanced technology. Similarly, some sort of training may be provided for use of
the latest technology to overcome technological problems. Technological up-gradation can
help to overcome technological obsolescence.

5. Marketing assistance- Marketing assistance may be provided to entrepreneurs for

marketing the goods produced by them. Government must help to market the goods.
Government and Non -Government Organizations ([Link]) can come forward for marketing
the goods produced by the SSI sector. The problem of poor marketing of the products can be
solved by coordinated efforts of entrepreneurs and promotional agencies.

6. Liquidation- It is better to wind up the business when there is no possibility to revive the
unit.

7. Government Interventions- Interventions must be made by the government to prevent

sickness. Periodic review of financial statements can help to identify and prevent sickness at
initial stage.

8. Training- A proper environment must be created where an entrepreneur will be educated

and will have a proper knowledge, skill and experience about internal and external
environment of business to compete with large-scale industries and multinational companies.

MOST EXPECTED QUESTION FOR SEMESTER

Unit 1-

Define entrepreneur and type of entrepreneurs.

Difference between entrepreneur and entrepreneur / entrepreneur and intrapreneur.
various traits and motivation of entrepreneur
What do you mean by women entrepreneur? discuss various problem faced by women
entrepreneur.

Unit2-

Define entrepreneur environment and its various factors that affecting entrepreneur
environment.
Define role relevance and achievement of entrepreneurs with development program
What are the institution established to provide support to entrepreneur development
programme
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UNIT3-

Define project appraisal? Discuss various method/ Factor related to project appraisal
What are the technique for Idea generation? Discuss the various source of business idea
Define project formulation and its various stages in project formulation
what is risk analysis and its various kind of approaches
what are the various source of finance

Unit 4-

What do you mean by small scale industry and discuss the steps to create a SSI
Describe in details a various initiative and subsidies
The various status of small scale industry undertaken
Mention various problem faced by small scale industry and give some prevention