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              1.2.3   of Starting a Small Scale Industry in India

(Based substantially on M Vishwanath “A Brief Note on Establishment of a Small scale Industry”, Kassia News, Jan 2002. Note that procedures may vary somewhat from state to state in India)

       An Industry:    is one in which something is converted into other form(s) with value-addition using men, material, & equipment. When this involves at least 3-persons (and power is used) or at least 5-persons (when power is not used), it is an industry, else, it is classified as an “artisan” activity.   

[ Service enterprises may also be in the small-scale ambit, and there are many schemes that are now available for financing them.]  

       An S.S.I.:   A small-scale industry is one in which the investment in plant & machinery is less than Rs. 1 crore. When investment is less than Rs. 25 Lakhs it qualifies to be treated as a “Tiny” sector SSI.

      Who can start an industry? Do you need to be an existing Entrepreneur?

Anyone can start a unit, whether

  • Existing entrepreneur or fresh to business,

  • With or without a business background in the family,

  • Educated or Uneducated,

  • Rural area / Backward area persons, Women, Physically Handicapped persons, Minorities, SC-ST have special incentives available to them. 

A strong “will” to set up industry, essential skills, ability of hard work, and ability to take “calculated risk” are the key requirements.

Where is the Money? :    

 Artisans, who have skill in their hands, as well as some vision, can start their unit by availing of the Composite Loan scheme, where they need not contribute any of their own capital.   Other entrepreneurs need to contribute 25 to 30% of the project cost as their own contribution (that is, Equity capital). The rest can be got as a Loan from a financial institution or bank. The Loan would have two components – Term Loan for creating fixed assets, and Working capital to run the industry. These have to be returned over a period of a few years.   The Loans generally require a Collateral. However, there is the Credit Guarantee scheme which is Collateral-free. Assistance under Technology Upgradation scheme is also one, which can be of much advantage. The unit may be owned either by one Proprietor, or a Partnership, or a Cooperative of some members, or a limited company.

Where to Locate? :

An industry can be started by the entrepreneur at either his own place / own shed, or rented place / rented shed. It can also be located at an industrial estate.

The Product :

A completely new product is rare for an SSI. An entrepreneur would usually start with a product that some others are already doing business with.  To identify the “right” product, one has to keep looking till your “right choice” becomes clear to you, almost magically! For every product that you explore, it is essential to look at its possible market, its price, and competition. One can then try to find ways of catering the same product to a different market, or offering it at a more competitive price-- these are often the pathways to a new business.

Some “Wise” Tips On use of Funds & On Product Selection : 

If you possess some funds of your own, be wise about how you use it. Some experienced people give the thumb-rule, that you should divide it into 3-parts, and use it in the following way –

  •           1/3rd can be utilised for providing your equity contribution to obtain the term loan

  •           1/3rd can be utilised for your contribution to get the working capital loan, and

  •       1/3rd can be set apart for uncertainties till the unit generates its own funds from sales. 

Pouring all ones resource into just getting a fat term loan (to finance fixed assets) can be a recipe for disaster, because, merely fixed assets without working capital cannot make a business work. 

From the point of view of  “product-selection”, it would be wise if you–

  •   Pick a “set” of products rather than a single one to guard against uncertainty in case one product fails.

  • Try to see if the product can have other alternative markets.

  •   Product / Process should be such that the Technology can be Upgraded when such upgrades come into the market.

  • Apart from own market study, you can look at project profiles that may be available at the District Industries Centre, and seek opinion / assistance from the SISI or Industrial Consultancy wing of the state development or financial corporation.  

Provisional Registration Certificate (PRC)

In order to take steps to set up an industry for a particular product at a particular place, one needs to Register it with the state Government’s District or Tehsil Industries Centre (DIC / TIC etc), which issues a Provisional Registration certificate (PRC).

  To get the PRC, apply to the DIC etc in prescribed format with a Project Report / Project Profile. A 2 to 3 page project report / profile would suffice if it is a small SSI. It would highlight the background of the entrepreneur, plant & machinery to be bought & its value, details of where the product would sell & at what price, and the sources of funds including term loan, working capital loan, own equity, etc. For large SSI project, details like cash-flow chart will also be needed.

  The DIC etc will issue the PRC (normally, across the table) if the investment in plant & machinery is within Rs. 1 Crore, the product is not banned, and such an activity is declared as an industry (many services like IT, Hotels, Hospitals are included). The PRC is valid for 3-years, and can be extended if the entrepreneur cites unavoidable circumstances.

  The PRC is a prerequisite for getting other permissions – permission of local authority to set up the industry, Trade licence, Power, Pollution clearance, clearance of inspector of Boilers, Registration for commercial Taxes (State & Central sales tax) etc. The PRC is also needed for obtaining Term Loan & Working Capital.

  Permanent Registration Certificate (PMT) 

Having set up the unit and achieved Trial production, the entrepreneur is expected to take the Permanent registration  (PMT). This is also issued by the DIC etc. To get PMT, apply in prescribed format along with copies of PRC, Power sanction, Municipal / Panchayat Licence, First Sale Invoice, Lease or rental agreement, Partnership Deed or Memorandum of Association (in case of limited co.), and a required affidavit. The PMT is normally issued either after inspection or without inspection subject to later verification.




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