Role of Central Government in Entrepreneurship

Presenter : Sujeet Pandit

MBA 2nd Sem

1201074

DIMAT

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An entrepreneur requires a continuous flow of funds not only for setting up ofhis/ her business, but also for successful operation as well as regular upgradation/ modernization of the industrial unit. To meet this requirement, theGovernment (both at the Central and State level) has been undertaking severalsteps like setting up of banks and financial institutions; formulating variouspolicies and schemes, etc. All such measures are specifically focused towardsthe promotion and development of small and medium enterprises.

The government of India has been taking active steps to promoteentrepreneurship in various industry & service sectors. It has declared severalpolicy measures and is implementing schemes and programmes to enhancethe global competitiveness of small enterprises across the country.

Government Support

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Policies and Incentives

The Ministry of Micro, Small and Medium Enterprises is the nodal Ministry forformulation of policies, programmes and schemes, their implementation and related co-ordination, for the promotion and development of small scale industries in India. Therole of the Ministry is to assist the States in their efforts for the growth of the small scalesector, by enhancing their competitiveness in an increasingly liberalized economy. It isassisted 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 Board3

Micro, Small and Medium Enterprises Development Organization (MSME-DO) :- the Officeof the Development Commissioner (Micro, Small and Medium Enterprises) [earlier knownas 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 informulating, coordinating, implementing and monitoring policies and programmes formicro, small and medium enterprises (MSMEs) in the country. MSME-DO provides acomprehensive range of common facilities, technology support services, marketingassistance, entrepreneurial development support, etc.

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

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

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

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The other important policies for the sector relate to:

I. Excise duty

II. Foreign direct investment approval

III. Labour laws

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Excise duty

Value of Clearance (Rs.) Rate of duty Remarks

Upto 100 Lakhs 60% of normal rateCenvat 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

Rate of duty in respect of Clearances of Excisable Goods

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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 anindividual/partner in a SSI unit.

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

For foreign investment outside the automatic route, clearance has to be obtained from Foreign InvestmentPromotion 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 DevelopmentCommissioner of the concerned EPZ.

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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

Workmens Compensation Act, 1923

The Weekly Holidays Act, 1942

Apprentices Act, 1961The Bidi and Cigar Workers (Conditions of Employment) Act, 1966Bonded Labour System (Abolition) Act, 1976Child Labour (Prohibition & Regulation) Act, 1986The Children (Pledging of Labour) Act, 1933The Contract Labour (Regulation & Abolition) Act, 1970The Employees Provident Funds and Misc. Provisions Act, 1952Employees State Insurance Act, 1948Employers Liability Act, 1938Maternity Benefit Act, 1961The Minimum Wages Act, 1948The Payment of Bonus Act, 1965The Payment of Gratuity Act, 1972The Payment of Wages Act, 1936

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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)

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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)

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Composite Loan Scheme

Debt-equity Ratio

Promoter's Contribution

Margin for Term Loan

Rate of Interest : (Effective)

Repayment

Security

Terms and Conditions

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Scheme of Interest Subsidy Eligibility Certification (ISEC)

The Interest Subsidy Eligibility Certificate (ISEC) Scheme is the major source of funding for the khadiprogramme. It was introduced in May 1977 to mobilize funds from banking institutions to fill the gap in theactual fund requirement and its availability from budgetary sources. Under the ISEC Scheme, credit at theconcessional rate of interest of 4 per cent per annum for capital expenditure as well as working capital isgiven 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. 329.73crore, Rs. 362.70 crore, Rs. 278.74 crore and Rs. 233.23 crore and subsidy provided by the Governmentthrough KVIC were Rs. 21.99, Rs. 18.77 crore, Rs. 26.09 crore and Rs. 22.38 crore respectively. Interest SubsidyEligibility Certificates worth Rs.392.63 crore have been issued up to December 2006 to meet part of theworking capital requirement of the institutions during 2006-07, against which loans actually availed by theinstitutions was around Rs. 260 crore compared to Rs. 356.94 crore sanctioned and Rs. 174.92 crore availed bythe institutions as on 31 December 2005.

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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

Single Point Registration Scheme and other services.14

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