a Small Scale Industry in India
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)
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
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.]
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?
can start a unit, whether
entrepreneur or fresh to business,
or without a business background in the family,
area / Backward area persons, Women, Physically Handicapped
persons, Minorities, SC-ST have special incentives available
strong “will” to set up industry, essential skills, ability of hard
work, and ability to take “calculated risk” are the key requirements.
is the Money? :
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.
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.
to Locate? :
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.
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.
“Wise” Tips :
On use of Funds &
On Product Selection
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.
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.
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.
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.
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.
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
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.
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.