Policies and Incentives

 An entrepreneur requires a continuous flow of funds not only for setting up of

his/ her business, but also for successful operation as well as regular up

gradation/ modernization of the industrial unit. To meet this requirement, the

Government (both at the Central and State level) has been undertaking several

steps like setting up of banks and financial institutions; formulating various

policies and schemes, etc. All such measures are specifically focused towards

the promotion and development of small and medium enterprises.

 The government of India has been taking active steps to promote

entrepreneurship in various industry & service sectors. It has declared several

policy measures and is implementing schemes and programmes to enhance

the global competitiveness of small enterprises across the country.

Government Support

Policies and Incentives

 The Ministry of Micro, Small and Medium Enterprises is the nodal Ministry for formulation of policies, programmes and schemes, their implementation and related co-ordination, for the promotion and development of small scale industries in India. The role of the Ministry is to assist the States in their efforts for the growth of the small scale sector, by enhancing their competitiveness in an increasingly liberalized economy. It is assisted by an attached office and two public sector enterprise,

namely:-Micro, Small and Medium Enterprises Development Organization (MSME-DO) National Small Industries Corporation Ltd (NSIC)

Khadi and Village Industries Commission (KVIC) Coir Board

 Micro, Small and Medium Enterprises Development Organization (MSME-DO) :- the Office of the Development Commissioner (Micro, Small and Medium Enterprises) [earlier known as the O/o the DC (SSI)] is also known as Micro, Small and Medium Enterprises-Development Organization (MSME-DO). It is the apex body for assisting the Government in formulating, coordinating, implementing and monitoring policies and programmes for micro, small and medium enterprises (MSMEs) in the country. MSME-DO provides a comprehensive range of common facilities, technology support services, marketing assistance, entrepreneurial development support, etc.

 Coir Board :- is a statutory body, established under the Coir Industry Act, 1953, for the promotion and development of coir industry in India as well as for uplifting the living conditions of the workers engaged in this industry.

 National Small Industries Corporation Ltd (NSIC) :- was established by the Government with a view to promoting, aiding and fostering the growth of micro, small and medium enterprises in the country, with a focus on commercial aspect of their operations. It implements several schemes to help the MSMEs in the areas of raw material procurement, product marketing, credit rating, acquisition of technologies, adoption of improved management practices, etc.

 Khadi and Village Industries Commission (KVIC) :- established under the Khadi and Village Industries Commission Act, 1956, as a statutory organisation engaged in promotion and development of khadi and village industries for providing employment opportunities in the rural areas.

The other important policies for the sector

relate to:

I. Excise duty

II. Foreign direct investment approval

III. Labour laws

Excise duty

Value of Clearance (Rs.) Rate of duty Remarks

Upto 100 Lakhs 60% of normal rate Cenvat credit is of duty available from the beginning itself

100-300 Lakhs Normal rate of duty Can avail Cenvat

Rate of duty in respect of Clearances of Specified goods

Rate of duty in respect of Clearances of Specified goods

Value of Clearance (Rs.) Rate of duty Remarks

Upto 100 Lakhs Nil Not to avail Cenvat 100-300 Lakhs Normal rate of duty Can avail Cenvat

Foreign direct investment approval

 An industrial undertaking, i.e., a company with interests in industry can invest up to 24% equity in a SSI unit.  If the equity goes beyond 24%, the industrial unit loses its SSI status.

 There is no restriction on the extent of equity that can be held by a Non-resident Indian (NRI) as an individual/partner in a SSI unit.

 Investors need to file an application with the Reserve Bank of India (RBI) in the prescribed format and approval is ordinarily granted within 15 days.

 For foreign investment outside the automatic route, clearance has to be obtained from Foreign Investment Promotion Board (FIPB).

 Applications for setting up a 100% Export Oriented Unit are also required to be filed with the SIA.

 For setting up a unit in an Export Processing Zone (EPZ), application has to be filed with the Development Commissioner of the concerned EPZ.

Labour laws

 Employment Exchange (Compulsory Notification of Vacancies) Act, 1959

 Equal Remuneration Act, 1976  The Factories Act, 1948

 The Industrial Disputes Act

 The Industrial Employment (Standing Orders) Act,1946  The Inter-state Migrant Workmen (Regulation of

Employment and Conditions of Service) Act, 1979  Labour Laws (Exemption from Furnishing Returns & Maintaining Registers by Certain Establishments) Act, 1988  The Sales Promotion Employees (Conditions of Service) Act, 1976

 The Shops and Establishments Act, 1953  The Trade Union Act, 1926

 Workmen’s Compensation Act, 1923  The Weekly Holidays Act, 1942

Apprentices Act, 1961

The Bidi and Cigar Workers (Conditions of Employment) Act, 1966

Bonded Labour System (Abolition) Act, 1976

Child Labour (Prohibition & Regulation) Act, 1986 The Children (Pledging of Labour) Act, 1933

The Contract Labour (Regulation & Abolition) Act, 1970 The Employees Provident Funds and Misc. Provisions Act, 1952

Employees State Insurance Act, 1948 Employers Liability Act, 1938

Maternity Benefit Act, 1961 The Minimum Wages Act, 1948 The Payment of Bonus Act, 1965 The Payment of Gratuity Act, 1972 The Payment of Wages Act, 1936

Schemes and Programmes:

 Besides, several schemes and programmes have been undertaken by the Government with the aim of facilitating access

to:-i. adequate credit from financial institutions;

ii. funds for technology upgradation and modernisation; iii. integrated infrastructural facilities;

iv. modern testing facilities and quality certification laboratories;

v. modern management practices, entrepreneurship development and skill up

gradation through appropriate training facilities; etc. The schemes so announced include:- (next slide)

Schemes and Programmes:…contd…

 Tax Holiday Scheme

 Composite Loan Scheme  Industrial Estate Scheme

 Scheme for International Cooperation

 Scheme of Surveys, Studies and Policy Research

 Scheme of Fund for Regeneration of Traditional Industries (SFURTI)  Scheme of Product Development, Design Intervention and Packaging

(PRODIP)

 Scheme of Khadi Karigar Janashree Bima Yojana for Khadi Artisans  Scheme of Interest Subsidy Eligibility Certification (ISEC)

Composite Loan Scheme

 Debt-equity Ratio

 Promoter's Contribution  Margin for Term Loan

 Rate of Interest : (Effective)  Repayment

 Security

Scheme of Interest Subsidy Eligibility Certification (ISEC)

 The Interest Subsidy Eligibility Certificate (ISEC) Scheme is the major source of funding for the khadi programme. It was introduced in May 1977 to mobilize funds from banking institutions to fill the gap in the actual fund requirement and its availability from budgetary sources. Under the ISEC Scheme, credit at the

concessional rate of interest of 4 per cent per annum for capital expenditure as well as working capital is

given as per the requirement of the institutions.

 The extent of credit flow to the institutions under the scheme during 2002-03 to 2005-06 was Rs. 329.73 crore, Rs. 362.70 crore, Rs. 278.74 crore and Rs. 233.23 crore and subsidy provided by the Government through KVIC were Rs. 21.99, Rs. 18.77 crore, Rs. 26.09 crore and Rs. 22.38 crore respectively. Interest Subsidy Eligibility Certificates worth Rs.392.63 crore have been issued up to December 2006 to meet part of the working capital requirement of the institutions during 2006-07, against which loans actually availed by the institutions was around Rs. 260 crore compared to Rs. 356.94 crore sanctioned and Rs. 174.92 crore availed by the institutions as on 31 December 2005.

National Small Industries Corporation Ltd (NSIC) schemes for

small scale industries relate

to:- Bill Financing

 Working Capital Finance

 Export Development Finance  Equipment Leasing Scheme

 Raw Materials Procurement Support

 Marketing Assistance Programme and Exports Assistance;  Stores Purchase Programme