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 including,
Choice of the product
Mobilization of resources
Decision
Prices
Market
Employment of labour
Extending or reducing the scope of his business.
Definition: According to Websters 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
According to David McClleland : An entrepreneur is a person with a high need for
achievement. He is energetic and a moderate risk taker.
ENTREPRENEURSHIP
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 universe.
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 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 services.
ENTREPRENUER VS ENTREPRENEURSHIP
Entrepreneur Entrepreneurship Refers to a person Refers to a process Visualizer Vision
Organizer Organization Innovator Innovation Technician Technology Initiator Initiative Decision
Maker Decision Planner Planning Leader Leadership Motivator Motivation Programmer Action
Communicator Communication Administrator Administration
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 themselves 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: 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 selfmotivation. The high standard and ambition of many entrepreneurs demand that they
have to be motivated!
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 ENTREPRENEUR

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 sleep.
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.
4. Initiative: An entrepreneur must have initiative seeking personal responsibility for actions
and use the available resources for optimization 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.
6. Motivation: 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.
7. Optimistic: 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.
11. Flexibility: 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 analyzing the pros and cons of
the decision, the entrepreneur should revise or modify or change the decisions.
12. Independence: 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.
13. Leadership: 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.
14. 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 innovation.
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 and
personnel.
Enterprise 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 Development. 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. Entrepreneur Manager
An entrepreneur is involved with the start-up process 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 of opportunity A
manager by the resources he currently possesses 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 Salary
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 largescale 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 the country which in turn
clears the path towards economic development of the nation.
(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 development.
(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.
(7) 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.
(8) Promotes Country's Export Trade: 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.
(9) 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.
(10) 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 Entrepreneurship Decision making Risk taking Innovation
Organisation Skillful management Making enterprise a success

FACTORS FAVOURING
ENTREPRENEURSHIP

ENTREPRENEURSHIP/

MOTIVATIONAL

FACTORS

OF

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 salaries job.
7. Environment/Culture Impact: Entrepreneurship is contagious. Communities like Punjabis and
Marwaris 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).
10. Globalization: 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 stories.
INTRA-PRENEURSHIP 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

organisational environment. It gives managers the freedom to try new ideas by employing firms
resources in a unique way.
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 employers money.
Thus, the risk level of an intrapreneur is considerably reduced.
1. Vision It is the basis for successful venture. An Intra-preneur has ability to visualize from
idea to implementation.
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 manner. 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;
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. Definition Investment in fixed assets like plants
and equipments either held on ownership terms on lease or on hire purchase should not be more
than Rs 10 million. 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 Khadi & village industries
Large scale medium scale ancillary scale small scale tiny industry cottage INDUSTRIES
16. . (UNIT 1 EDP Notes) Page 16 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 economy. 3. To reduce regional
imbalances. 4. To mobilise and ensure optimum utilisation of unexploited resources of the
country. 5. To improve standard of living of people. 6. To ensure equitable distribution of income
and wealth. 7. To solve unemployment problem.
8. To attain self-reliance. 9. To adopt latest technology aimed at producing better quality products
at lower costs. 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
international. 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.
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
19. . (UNIT 1 EDP Notes) Page 19 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 marketing. 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. ANCILLARY BASED A large number of SSIs 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)
20. . (UNIT 1 EDP Notes) Page 20 Type of SSI unit Investment limit (1 million= 10 Lakhs)
Remarks Small Scale Industry Rs 10 million Historical cost of plant & machinery 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 production 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.
21. . (UNIT 1 EDP Notes) Page 21 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 foreign
exchange. 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
22. . (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 for finance. 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 equipments,
furniture and fittings etc. Prepare the detailed project report
23. . (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
consumers response Appoint dealer, wholesalers, agents, and arrange showrooms etc.
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 ECONOMY OR ROLE OF SSIS IN
NATIONAL ECONOMY
24. . (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 overcrowding, 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 development. 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:
25. . (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- employer relationship. 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
26. . (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 200304 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 norm. (iv) The composite loan limit for
SSI units was enhanced from Rs 25 lakh to Rs 50 lakh. (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 Credit Plans. (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 records. 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.
27. . (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 and
requirements. (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 TO SSI 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
28. . (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.