Government Policies for Small Scale Enterprises (2022)

Small scale enterprises have been given an important place in the framework of Indian planning for both ideological and economic reasons.

Government Policies for Small Scale Enterprises

Smallscale enterprises have been given an important place in the framework of Indianplanning for both ideological and economic reasons.

Developmentof small scale enterprises has imbued with a multiplicity of objectives.

Importantamong these are

The generationof immediate employmentopportunity with relativelylow investment The promotion of more equitable distributionof national income

Effectivemobilization of untapped capital and human skills

Dispersalof manufacturing activities all over the country, leading to growth ofvillages, small towns and far- ung economically lagging regions

So, thegovernment of India has started various programmes for the development of smallscale sector in India.

The governments objectives and intentions towardsindustry including SSI were announced through industrial policy resolutions(IPR).

GovernmentPolicy for Small Scale Enterprise

Nation issaid to be far well to do if it has a much industry as it has industrialpolicy.

IPR 1948

The IPR1948 for the rst time, accepted the importance of small scale industries in theoverall industrial development in the country.

It waswell realized that small scale industries are utilized most of the localresources and create employment opportunities.

Moreover,they have to face problems of raw materials, capital, skilled labour, marketingetc. since a long period of time.

Therefore,emphasis was laid in the IPR 1948 that these problems of small scaleenterprises should be solved by the central government with cooperation of thestate governments.

Innutshell, the main thrust of IPR 1948 as far as possible small scaleenterprises were concerned was 'Protection'.

IPR 1956

The IPR1948 set in the nature and pattern of industrial developments taken place inthe country.

Forexample, planning has proceeded on an organized manner and the rst ve year plan1951 - 1956 has been completed.

Industriesdevelopment and Regulation Act (IDR Act), 1951 was also introduced to regulateand control industries in the country.

TheParliament had also accepted 'the socialist pattern of society' as the basicaim of social and economic policy during this period.

It wasthis background that the declaration of a new industrial policy resolutionseemed essential. This came in the form of IPR 1956.

The IPR1956 provided that along with continuing policy support to the small sector, italso aimed at to ensure that decentralized sector acquires su cient vitality toself-supporting and its development is integrated with that of large scaleindustry.

Tomention, some 128 items were reserved for exclusive production in the smallsector. Besides the SSIB constituted a working group in 1959 to examine andformulate a

developmentplan for small scale industries during the third ve year plan 1961 - 1966.

In thethird ve year plan period, speci c development like 'Rural Industrial Projects'and 'Industrial Estates Projects' were started to strengthen the small sector.

Thus tothe earlier emphasis of protection was added to development. The IPR 1956 forsmall scale industries aimed at 'Protection + Development'. The IPR 1956initiated the modern SSI in India.

IPR 1977

The IPR1977 classi ed small sector into three categories

Cottageand household industries which provides self employment on a large scale.

Tinysector incorporating investment in industrial unit in plant machinery upto Rs.1lakh and situated in towns with a population of less than 50,000 according to1971 census.

SmallScale Industries comprising of industrial unit with an investment of upto Rs.10lakhs and in case of ancillary units with an investment of upto Rs.15 lakhs.

From thesmall scale sector was thus, to be 'protected, developed and promoted'.

IPR 1980

Thegovernment of India adopted a new industrial policy resolution (IPR) on July23, 1980.

The mainobjectives of IPR 1980 was de ned as facilitating an increase of industrialproduction through optimum utilization of installed capacity and expansion ofindustries.

·Introduction of the concept of nucleus plants toreplace the earlier scheme of the district industry centre (DIC), in eachindustrially background district to promote the maximum small scale industriesthere.

·Promotion of village and rural industries togenerate economic viability in the villages well compatible with theenvironment.

Thus theIPR 1980 re-emphasized the spirit of 1956. The small scale sector stillremained that the best sector to generating wage and self-employment basedopportunities in the country.

IPR 1990

The IPR 1990 was announced during June 1990.As tothe small sector the resolution continued to give increasing importance tosmall scale enterprises to serve the objective of employment generation.

Theimportant elements included in the resolution to boost the development of smallscale sector were as follows.

·The investment ceiling in plant and machinery forsmall scale industries was ( xed in 1985) raised from Rs.35 lakshs to Rs.60lakshs and correspondingly for ancillary units from Rs.45 lakhs to Rs.75 lakhs.

·Investment ceiling for tiny units has beenincreased from Rs.2 lakhs to Rs.5 lakhs provided the unit is located in thearea having a population of 50,000 as per 1981 causes.

·As many as 836 items was reserved for exclusivemanufacture in small scale sector.

·A new scheme of initial investment subsidyexclusively for small scale sector in rural and backward areas capable ofgenerating more employment at lower cost of capital had been mooted andimplemented.

·A new scheme of initial investment, with a vireo toimprove the competitiveness of the products manu-factured in the small scalesector, programmes of technology up graduation will be implemented under theumbrella of an apex Technology development centre in small industriesdevelopment organization (SIDO).

·Greater emphasis on training of women and youthunder EDP (entrepreneurship development

pro-gramme)and to establish a special call in SIDO for the purpose. New Small EnterprisePolicy 1991

Thegovernment of India, for the rst time, tabulated the new small enterprisepolicy titled 'Policy measures for promoting and strengthening small, tiny andvillage enterprises' in the parliament on August 6, 1991.

The mainthrust of New small enterprise policy is to impact more vitality and growthimpetus to the sector which enable it to contribute its mite fully to theeconomy , particularly in terms of growth of output, employment and exports.

Salientfeatures of the new small enterprise policy

Theinvestment limit has been increased in plant and machinery of tiny enterprisesfrom Rs.2 lakh to Rs.5 lakh based on their location.

Inclusionof industry related service and business enterprises, based on their locationas SSI. To limit the nancial liability of the new entrepreneurs to the capitalinvestment. A new partnership act has been introduced.

Introductionof a scheme of integrated infrastructural development including technologicalbackup services for small scale industries.

Anfactoring services have to be introduced to solve the problems of delayed paymentto smallsector.

Marketpromotion of small scale industries products through cooperative/ public sectorinstitu-tions, order specialized professional and the consortium approach.

In thesmall industries development organization (SIDO) an export development centre(EDC) has to be set up.

To widenthe scope of National Enquiry Fund (NEF) to enlarge the single window schemeand also to associate commercial banks with provision of composite loans.

Importantpoints on the New small enterprise policy are;

The newpolicy is founded on a proper understanding of the fundamental problems ofsmall sector and the measure proposed it are well directed to mitigate thevarious handicaps that faces their sector.

The newpolicy provides for continuous support to the tiny sector like easier access toinstitutional nance, preference in government purchase and relaxation ofcertain labour laws. Since tiny sector is the nursery of the traditional skill,the proposed package of incentives for tiny sector will help its grow with morevitality.

Oneimportant feature is the introduction of new legal form of organization ofbusiness, namely restricted (or) limited partnership. As per this form theliability of atleast one partner is unlimited and the liability of other partneris limited to their invested capitals.

This canbe considered as a welcome provision. It will attract equity capital fromfriends and relatives who were earlier reluctant to advance their funds due tothe limited liability of the partners.

The importantplan proposal (1992-1999)

The mainfunction of the eighth ve year plan has been employment generation as themotive for economic growth to ful ll these objectives, small and villageindustries have been assigned for an extremely important role.

Theimportant plan proposal in the year 1992-1997 are;

·The plan has reiterated that timely and adequateavailability of credit is of more importance than concessional credit. So withthe establishment of SIDBI, sanction of composite loans under 'Single WindowConcept' concessional loan to state corporations for infrastructure developmentand provision of factory services have been introduced. It proposes toestablish appropriate tool rooms and training institution to upgradetechnology.

·The growth centre approach has been established tomeasure industrial disputes and is under imple-mentation. In the year1992-1997, to growth centres are developed and completed.

·An integrated centre approach has been establishedin the eighth plan.

Newpolicy initiative in 1997-2000 for the small scale sector

oAnnouncement of a new credit insurance scheme inthe year (1999-2000), particularly exported oriented & tiny units.

oThe working capital limit for SSI unit isdetermined by the bank on the basis of 20 percent of their annual turnover.

oExemption from excise duty, as given to SSI units,will be extended to goods bearing a brand name of another manufacturer in ruralarea.

oA national programme for rural industrializationhas been announced, with a mission to setup 100 rural clusters per year, togive a boost to rural industrialization.

o Cotton yarn has been introduced in the generalexercise exemption scheme for SSIs.

o The investment limit for small scale andancillary undertakings has been reduced from Rs.3 Crores to Rs.1 Crore.

oSmall job workers, engaged in printing of glazedtitles, have been exempted from excise duty.

Entrepreneurial Initiatives in India- “Governmentand Non Government Support”

DelhiTechnical University announced the setting up of water technology andmanagement centre with the support of UNESCO.

TheEntrepreneurship Development Cell (EDC) of University School of managementStudies, Guru Gobind Singh Indraprastha University (GGSIPU) has launched a onemonth business skill development programme in association with the Ministry ofMicro, Small and Medium Enterprises. Representatives from KVIC, NABARD willshare their knowledge.

NASSCOMhas signed a Memorandum of Understanding (MoU) with University GrantsCommission (UGC), for

FacultyDevelopment Programme (FDP) Re-skilling the faculty in IT

Frameworkfor co-operation to catalyze industry-academia interface

The Role of Government in SupportingEntrepreneurship

Small andMedium-sized Enterprises (SMEs) in market economies are the engine of economicdevelopment. Owing to their private ownership, entrepreneurial spirit, theirflexibility and adaptability as well as their potential to react to challengesand changing environments, SMEs contribute to sustainable growth and employmentgeneration in a significant manner.

SMEs havestrategic importance for each national economy due a wide range of reasons.Logically, the government shows such an interest in supporting entrepreneurshipand SMEs. There is no simpler way to create new job positions, increasing GDPand rising standard of population than supporting entrepreneurship andencouraging and supporting people who dare to start their own business. Everysurviving and successful business means new jobs and growth of GDP.

Therefore,designing a comprehensive, coherent and consistent approach of Council ofMinisters and entity governments to entrepreneurship and SMEs in the form ofgovernment support strategy to entrepreneurship and SMEs is an absolutepriority. A comprehensive government approach to entrepreneurship and SMEswould provide for a full coordination of activities of numerous governmentalinstitutions (chambers of commerce, employment bureaus, etc.) and NGOs dealingwith entrepreneurship and SMEs. With no pretension of defining the role ofgovernment in supporting entrepreneurship and SMEs, we believe that apart fromdesigning a comprehensive entrepreneurship and SMEs strategy, the developmentof national SME support institutions and networks is one of key condition forsuccess. There are no doubts that governments should create different types ofsupport institutions:

i) Toprovide information on regulations, standards, taxation, customs duties,marketing issues;

ii) To adviseon business planning, marketing and accountancy, quality control and assurance;

iii) To createincubator units providing the space and infrastructure for business beginnersand innovative companies, and helping them to solve technological problems, andto search for know-how and promote innovation; and

iv)To helpin looking for partners. In order to stimulate entrepreneurship and improve thebusiness environment for small enterprises.

Policies And Schemes ForPromotion Of MSME Implemented By State Governments

All theState Governments provide technical and other support services to small unitsthrough their Directorates of Industries, and District Industries Centres.Although the details of the scheme vary from state to state, the following arethe common areas of support.

1. Developmentand management of industrial estates

2. Suspension/defermentof Sales Tax

3. Powersubsidies

4. Capitalinvestment subsidies for new units set up in a particular district

5. SeedCapital/Margin Money Assistance Scheme

6. Priorityin allotment of power connection, water connection.

7. Consultancyand technical support

Governmentof India runs a scheme for giving National Awards to micro, small and mediumscale entrepreneurs providing quality products in 11 selected industry groupsof consumer interest. The winners are given trophy, certificate and a cashprice of Rs. 25000/- each.

Governmentaccords the highest preference to development of MSME by framing andimplementing suitable policies and promotional schemes like policies andpromotional schemes, providing incentives for quality upgradation, concessionon excise duty and provides technical supportive services. Thus Government playsupportive role in developing entrepreneurs.


Manystate governments are offering incentives to attract investment in theirstates. Many state governments in India offer attractive incentive packageswhich include incentives such as:

Land atsubsidized prices or Industrial sheds to set up small scale industrial units.

Taxconcessions for a number of years. These may include exemption from sales taxetc for a set period of time.

Electricpower supply at a reduced tariff.

Loans andsubsidies at very attractive rates of interest.


TheGovernment of India as well as several State Governments provides severalbenefits and incentives to promote industrialization of backward areas. Boththe central and state governments share the cost of some of the incentivesprovided. The purposes of such incentives are to develop backward areas and increaseemployment for local inhabitants of such areas.

The bulkof new industries prefer areas with an established infrastructure and this iswhy incentives are offered to entice new ventures to start up in areas thatneed development. Incentives offered depend on the specific area chosen.

Some ofthe incentives offered are:

Transportationsubsidies to promote industries in areas that are not easily accessible, likeremote hilly areas. A subsidy of 50% to 90% on transportation costs isavailable under this scheme.

A Subsidyat the rate of 15% of the investment amount in plant and machinery is givenunder the capital investment subsidy scheme.

A subsidyfor interest relief is also provided at a rate of 3% for new industrial unitsin some areas.

While inthe past setting up an industry in India was not an easy task because ofbureaucratic requirements that needed to be fulfilled. However both the centraland state governments have now made efforts to improve some things.

IndustrialUnit Startup Information for NRIs

For NonResident Indians returning to India to start up industrial units. They willfind that there is plenty of talent available in India. Hiring the right kindof person can make things quite easy to go through the maze of Indianregulations.

While thegovernment no doubt is trying to bring out reforms to make things easier forforeign investors, the attitude of some officials is difficult to change.

Those whoencounter problems should use the several channels available now to reportclerks use delaying tactics for personal gain.

ReturningNRI's who can tolerate the initial adjustment setbacks in establishingthemselves when they return to India will ultimately find the rewards wellworth the effort. India offers investors tremendous opportunities and ispresently one of the most sought locations for industrial investment.

Loans available for starting Industrial venture inIndia

There aretwo main financial institutions available for loans for entrepreneurs on the(federal/ all India level).

1.IndustrialDevelopment Bank of India(IDBI)

2.IndustrialFinance Corporation of India (IFCI)

TheIndustrial Development Bank of India is the head institution in the area oflong term industrial finance. It was established under the IDBI Act 1964 as awholly owned subsidiary of RBI and started functioning on July 01, 1964. UnderPublic Financial Institutions Laws (Amendment) Act 1976, it was delinked fromRBI. IDBI is engaged in direct financing of the industrial activities

Theobjectives of the Industrial development bank of India are to create aprincipal institution for long term finance, to coordinate the institutionsworking in this field for planned development of industrial sector, to providetechnical and administrative support to the industries and to conduct researchand development activities for the benefit of industrial sector.

On theState level finance is available loans can be availed from

·State Financial Corporation (SFC)

2.State IndustrialDevelopment Corporation (SIDC).

Criteriafor Business loans:

Technicalassessment of project

Experienceof the entrepreneurs

Financial& commercial practicality of the project

Conformityto environmental laws

Economicviability of the project

How toapply for business loans in India – Loan application procedure

The firststep is to submit a detailed project report (business plan)to the financialinstitution to IDBI, IFCI or any other financial institution from where theloan sanction is sought. In case a license is a requirement for the project,the license should be provided with the project report.

Thefinancial institution after scrutinizing the project report. If the financialinstitution requires additional information or clarifications, they usually askfor this in a few days of receipt of project report.

Representativefrom the financial institution will arrange to inspect the site etc to makecertain the suitability of the project. At this stage discussions on variousaspects of the project are discussed and final project costs are calculated.

Thefinancial institution gives its approval if they find the project feasible.

Loansprovided for business ventures can be for equipment and fixed assets as well asworking capital.

Whilethere is no hard and fast rule that is revealed by financial institutions. Iwould say that if a project is viable and the entrepreneur has approximately25% of his own funds. Then 75% can be financed. In addition to this loans canbe availed for working capital also.

In caseyou can provide proof of your expertise in the project there is always thepossibility that your loans may be sanctioned with a lesser amount of cashinvestment on your part. Projects costing up to Rupees 5 crores can normally befinanced on the state level.

Financialinstitutions follow guidelines such as debt-equity ratio, entrepreneur‟scontribution to the project etc when deciding on loans. It is not uncommon forapplicants to inflate their contributions in an attempt to invest the leastamount of their own funds.

Study Material, Lecturing Notes, Assignment, Reference, Wiki description explanation, brief detail

Business Science : Enterpreneurship Development : Entrepreneural Environment : Government Policies for Small Scale Enterprises |

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