INCENTIVES AND SUBSIDY

The term “incentive” includes concessions and bounties. ‘Subsidy’

denotes a single lump sum which is given by a government to industry. It is
granted to an industry which is considered essential in the national interest. The
term ‘bounty’ denotes bonus or financial benefit which is given by a government
to an industry to help it compete with other units in a nation or in a foreign
market. It is given in proportion to the output. Bounty confers benefits on a
particular industry, while a subsidy is given in the interest of the nation.
These subsidies and incentives offer the following advantages :
(a) They act as a motivational force which attract the prospective
entrepreneurs to enter into manufacturing line.
(b) They encourage the entrepreneurs to start industries in backward areas.

(c) By providing sub idies and incentives the Government can : (i) bring
industrial development uniformly in all regions, (ii) develop more
new entrepreneurs which lead to entrepreneurial development, (iii)
increase the ability of entrepreneurs to face competition successfully,
and (iv) reduce the overall problems of small scale entr preneurs.

LESSON : 12
INSTITUTIONAL SUPPORT TO
ENTREPRENEURS

Governments-both Central and State, have in the past taken a number of measures
for the development of small and medium enterprises. Government has set up a
number of development institutions to support entrepreneurs. Some of the
institutions assisting entrepreneurs include District Industries Centres (DICs) and
Industrial Estate, Small Industries Development Organisation (SIDO), Small
Industries Service Institutes (SISI), Small Industry Development Corporation
(SIDCO), Entrepreneurial Guidance Bureau (EGB), National Alliance of Young
Entrepreneurs (NAY ), National Productivity Council (NPC) and Venture capital
funds (VCF). In addition, all India financial institutions-IDBI, IFCI, ICICI-have
promoted/sponsored number of Technical Consultance Organisations (TCOs) to
assist small entrepreneurs in different ways. Recently, the Small Industries
Development Bank of India (SIDBI) has been established to help small scale
units. Besides, agencies like Khadi a d Village Industries Commission,
Commercial Banks, Cooperative Banks, EXIM Ba k and National Science and
Technology Entrepreneurship Board undertake promotional activities aiming at
support in entrepreneurship development. Now, what follows in the subsequent
pages is the various kinds of support provided by aforesaid inst tutio s to the
entrepreneurs to help them establish industries.
Small Scale Industries Board (SSIB)
The Government of India constituted a Board, namely, Small Scale Industries
Board (SSIB) in 1954 to advise on the development of small scale industries in
the country. The SSIB is also known as Central Small Industries Board. The
range of developmental work in small scale industries involves several
departments/ministries and several organs of the Central/State Governments.
Hence, to facilitate co-ordination and inter-institutional1inkages, the Small
Scale Industries Board has been constituted. If is an apex advisory body

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constituted to render advice to the Government on all issues pertaining to

the development of small-scale industries.
The Industries Minister of the Government of India is the Chairman of the
SSIB. The SSIB comprises of 50 members including State Industry
Minister, some Members of Parliament, Secretaries of various Departments
of Government of India, financial institutions, public sector undertakings,
industry associations and eminent experts in the field.
State Small Industries Corporations
Many State Governments have set up Small Industries Corporations in
order to undertake a number of commercial activities. The most important
of these activities are distribution of scarce raw materials, supply of
machinery on hire-purchase basis, constitution and management of
industrial estates, procurement of orders from Government Departments,
assistance in export marketing and in certain cases provision of financial,
technical and managerial assistance to small enterprises.
Small Industries Development Corporation (SIDCO)
In Tamilnadu SIDCO is the state small industr es corporation. It plays a
lead role in developing small scale sector. It provides the following
facilities to small scale units :
(a) It makes provision of constructed sheds/plots in industrial estates. These
are sold to entrepreneurs on hire-purchase basis or given on re tal basis
(b) Assistance in procuring some scarce key raw materials like iron and
steel, paraffin wax, potassium chlorate, Fatty Acids, etc., through its
various distribution centres.
(c) Financial assistance in the form of subsidies to industrial units in
backward areas like Central Investment subsidy, state capital subsidy.
Interest-Free sales tax loans, power tariff subsidy and margin money
assistance for the rehabilitation of the sick small scale industries.
(d) Marketing assistance to small entrepreneurs.
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Small Industries Service Institutes (SISIs)

The Small Industries Services Institutes (SISIs) are set up to provide
consultancy and training to small entrepreneurs-both existing and prospective.
The activities of SISIs are coordinated by the Industrial Management Training
division of the DCSSI’s office. There are 28 SISIs and 30 branch SISIs set up
in State capital and other places all over the country.
The main functions of SISIs include :

• To serve as interface between Central and State Governments.

• To render technical support services.
• To conduct Entrepreneurship Development Programmes.
• To initiate promotional programmes.
The SISIs also render s i tance in the following areas :
(i) Economic Consultanc /Information/EDP Consultancy.
(ii) Trade and market informations.
(iii) Project profiles.
(iv) State industrial potential survey.
(v) District industrial potential surveyes.
(vi) Modernisation and inplant studies.
(vii) Workshop facilities.
(viii) Training in various trade/activities.
District Industries Centres (DICs)
The District Industries Centres (DICs) were established in May 1978 with a
view to provide integrated administrative framework at the district level for
promotion of small-scare industries in rural areas. The DICs are envisaged as a
single window interacting agency with the entrepreneur at the district level.
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Services and support to small entrepreneurs are provided under a single

roof through the DICs. They are the implementing arm, of the Central and
State Governments for various schemes and programmes. Registration of
small industries is done at the district industries centres.
The organisational structure of DICs consists of General Manager, four
Functional Managers and three Project Managers to provide technical
service in the area relevant to the needs of district concerned. Management
of the DIC’s is done by the State Governments. The scheme has now been
transferred to the states and from the year 1993-94, funds will not be
provided by the Central Government to the States for running the DICs.
Functions : The DICs role is mainly promotional and developmental. To
attain this, they have to perform the following main functions :
• To conduct industrial potential surveys keeping in view the availability of
resources in terms of material and human skill, infrastructure, demand for
product, etc. To prepare techno-economic surveys and identify product
lines and then to provide investment advice to entrepreneurs.
• To prepare an action plan to effectively implement the schemes identified.
• To guide entrepreneurs in matters relati g to selecting the most
appropriate machinery and equipment, sourc s of its supply and
procedure for procuring imported machinery, if needed, assessing
requirements for raw materials etc.
• To appraise the worthiness of the various proposals received from
entrepreneurs.
• To assist the entrepreneurs in marketing their products and assess the
possibilities of ancillarisation and export promotion of their products.
• To undertake product development work appropriate to small industries.
• To conduct artisan training programmes.
• To function as the technical arms of DRDA in administering IRD
and TRYSEM programmes.

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INDUSTRIALESTATES
Developing countries require institutional arrangements for their rapid
industrialisation and balanced growth. One such institutional measure is
industrial estates. The term ‘industrial estate’ is called by different names,
e.g., industrial park, industrial zone, industrial region, industrial city,
industrial area, industrial township, etc.
An industrial estate has been defined as a method of “organising, housing
and servicing industry, a planned clustering of industrial enterprises
offering standard factory building erected in advance of demand and a
variety of services and facilities to the occupants”. In other words, an
industrial estate is a tract of land sub-divided and developed according to a
comprehensive plan for the use of a community of industrial enterprises. It
is a planned clustering of industrial units offering standard f ctory buildings
and a variety of services and facilities to entrepreneurs.
Types of Industrial Estates
Industrial estates are classified on various bases. The prominent ones are :
1. Classification on the basis of Functions : On the basis of functions
industrial estates are broadly classified into two types : (i) G n ral type
industrial estates, and (ii) Special type industrial estates.
General Type Industrial Estates: These are also called as conve tional or
composite industrial estates. These provide accommodation to a wide
variety and range of industrial concerns. The Indian industrial estates are
mainly of this type.
Special Type Industrial Estates : This type of industrial estates are constructed
for specific industrial units, which are vertically or horizontally interdependent.
2. Classification on the basis of Organisational Set-up : On this
basis, industrial estates are classified into following four types :
(i) Government Industrial Estates,

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(ii) Private Industrial Estates,

(iii) Co-operative Industrial Estates, and
(iv) Municipal Industrial Estates.
3. Other Classifications :
(i) Ancillary Industrial Estates : In such industrial estates, only those
small-scale units are housed which are ancillary to a particular large
industry. Examples of such units are like one attached to the HMT,
Bangalore.
(ii) Functional Industrial Estates : Industrial units manufacturing the same
product are usually housed in these industrial estates. These industrial
estates also serve as a base for expansion of small units into larger units.
(iii) The Workshop-bay : Such types of industrial estates are
constructed mainly for very small firms engaged in repair work.
Objectives of Industrial Estates
The main objectives of the establishme t of ndustrial estates are :
(i) To provide infrastructure and accommodation facilities to the
entrepreneurs;
(ii) To encourage the development of small-scale industries in the country;

(iii) To decentralise industries to the rural and backward areas;

(iv) To encourage ancillarisation in surrounding major industrial units; and

(v) To develop entrepreneurship by creating a congenial climate to run

the industries in these estates.
Industrial Estates in India
One of the handicaps faced by small scale industries in India has been the lack
of well-developed space with the necessary infrastructure for carrying on their
manufacturing operations. In order to overcome this problem, the Government
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of India launched the programme of setting up industrial estates in 1955.

The responsibility for planning, developing, constructing and managing
industrial estates lies with the respective State Governments. They are free
to run the estates through corporations or any other agencies of their choice.
The Central Government provides financial assistance to the State
Governments for the development of industrial estates. Such financial
assistance is provided in the form of loans, grants and subsidies.
Industrial estates as a tool of rapid and balanced economic development,
occupy a prominent place in the scheme of planned growth in India. These
estates are expected to foster the growth of small scale industries, help in
rural industrialisation, and decentralisation of industrial location. Therefore,
increasingly more funds have been allocated under successive five year
plans for the development of industrial estates. Such allocation of funds
increased from Rs. 58 lakhs under the First Five Year Plan to more than Rs.
90 crores in the Eighth Five Ye r Plan.
The programme of industrial estates in I dia is designed to achieve the
following objectives :
(i) to encourage the development of small-scale a d m dium sized
industrial units for balanced regional development;
(ii) to remove concentration or congestion of industries in b g cities by
facilitating the movement of industrial units to suburban and rural areas;
(iii) to secure decentralisation of industry by diverting new industrial
units to underdeveloped regions;
(iv) to encourage the growth of ancillary units in the townships surrounding
major industrial undertakings, both in public and private sectors. No developing
country has launched such a massive programme of industrial estates as India.
Over the years there has been a remarkable growth in industrial estates. However,
a sizeable portion of capacity in industrial estates remains unutilised.
Experience reveals that urban industrial estates have been more successful

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semi-urban and rural estates. Rural estates have not been much successful due
to lack of sound infrastructural facilities. Therefore, efforts should be made to
develop sound infrastructure in rural and suburban industrial estates.
Small industry certainly needs a boost through industrial estates. But industrial
estates should not simply become a housing colony for small units,
irrespective of their merits. Encouraging the small units that do hot fit into the
nation’s needs and the national priorities is pointless. Identification of the
product, manufacturing of which results in the promotion of labour - intensive
industry and choosing the techniques that help promote the labour - and
intensive manufacturing should be the objectives of the industrial estates.
National Small Industries Corporation Ltd. (NSIC)
The National Small Industries Corporation Ltd. (NSIC), an enterprise under
the Union Ministry of Industries, was set up in 1955 to promote, and foster
the growth of small scale indu tries in the country. NSIC provides a wide
range of services, predominantly promotional in character to small scale
industries. Its main functions are:
• To provide machinery on hire-purchase scheme to small scale industries.

• To provide equipment leasing facility.

• To help in export marketing of the products of small scale i dustries.
• To develop proto-type of machines and equipments to pass on to
small scale industries for commercial production.
• To distribute basic raw material among small scale industries
through raw material depots.
• To help in the development and upgradation of technology and
implementation of modernisation programmes of small scale industries.
• To impart training in various industrial trades.
• To undertake the construction of industrial estates.

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Small Industries Development Organisation (SIDO)

Small Industries Development Organisation (SIDO) is a subordinate office
of the Department of SSI & ARI. It is an apex body and nodal agency for
formulating, coordinating and monitoring the policies and programmes for
promotion and development of small-scale industries. Development
Commissioner is the head of the SIDO. He is assisted by various directors
and advisers in evolving and implementing various programmes of training
and management consultancy, industrial investigation, possibilities for
development of different types of smallscale industries, development of
industrial estates, etc. The main functions of SIDO
are classified into (i) co-ordination, (ii) industrial development and (iii)
extension. These functions are performed through a national network of
institutions and associated agencies. All small-scale industries except those
falling within the speci lised boards and agencies like KVIC, Coir Boards,
Central Silk Board, etc. fall under the purview of the SIDO.
Following are the main tasks performed by the SIDO in each of its three
categories of functions.
Functions Relating to Co-ordination
• To evolve a national policy for the developme t of small scale industries,

• To co-ordinate the policies and programmes of var ous State

Governments,
• To maintain a proper liasion with the related Central Ministries, Planning
commission, State Governments, Financial Institutions, etc., and
To co-ordinate the programmes for the development of industrial estates.
Functions Relating to Industrial Development
• To reserve items for production by small-scale industries,
• To collect data on consumer items imported and then, encourage the
setting of industrial units to produce these items by giving
coordinated assistance,
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• To render required support for the development of ancillary units, and

• To encourage small scale industries to actively participate in

Government Stores Purchase Programme by giving them necessary
guidance, market advice and assistance.
Functions Relating to Extension
• To make provision of technical services for improving technical
process, production planning, selecting appropriate machinery,
preparing factory layout and design.
• To provide consultancy and training services to strengthen the
competitive ability of small-scale industries.
• To render marketing assistance to small-scale industries to
effectively sell their products, and
• To provide assistance in economic investigation and information to
smallscale industries.
Entrepreneurial Guidance Bureau (EGB)
The EGB has, been set up to guide entrepreneurs in identifying investment
opportunities, assisting them in selecting locations or the projects, preparing
project profiles, assisting them to get financial assistance.
EGB has been supplying information pertaining to the products that offer
scope for manufacture, statistical details relating to demand, capacity
production, sources of raw materials, types of equipments required, investment
involved, sources of finance, etc. Information of procedures pertaining to
obtaining letters of intent, import of capital equipment, export of finished
products is also furnished. EGB also renders assistance from banks/financial
institutions or for submitting proposals for the letter of intent, etc. EGB also
establishes direct contact with engineering graduates, technically qualified
personnel and small entrepreneurs to promote entrepreneurship development.

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National Alliance of Young Entrepreneurs (NAYE)

National Alliance of Young Entrepreneurs (NAYE) sponsored an
Entrepreneurial Development Scheme with Bank of India in August 1972
on pilot basis. This scheme, known as BINEDS, is operative in the States of
Punjab, Rajasthan, Himachal Pradesh, Jammu and Kashmir and Union
Territories of Chandigarh and Delhi. NA YE entered into similar
arrangements with a few other banks as are discussed below.
1. Dena Bank - NAYE : For Promoting ancillary units and small scale
enterprises in Madras..
2. Punjab National Bank- NAYE : Entrepreneurship Assistance
Programme launched in the States of West Bengal and Bihar in
March 1973.
3. Central Bank of India - NAYE : Entrepreneurship Development
Programme being implemented in Maharashtra.
4. Union Bank of India - NA YE : Entrepreneurship Development
Programme inaugurated in June 1975 in Tamilnadu with an intention
to adopt 200 entrepreneurs.
The main objective of the scheme is to help young entrepreneurs in
identifying investment and self-employment opportuniti s; securi g proper
arrangements for their training including development of their ma ufacturing
capabilities; providing necessary financial assistance on the basis of properly
prepared reports; securing package of consultancy services on appropriate
terms and arranging for all possible assistance, facilities and incentives being
extended to young entrepreneurs by Government and other institutions.
Small Industry Extension Training Institute (SIETI)
SIET entered the field of consultancy on abhoc basis mainly to support the
activities of State Governments and development corporations. SIETI’s
consultancy services have recently become broad-based in terms of both the
types of assignments undertaken and area covered. The activities have been

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operative in Jammu and Kashmir, Karnataka, Nagaland, Meghalaya, Manipur,

Assam, Maharashtra and Andhra Pradesh. The assignments in the earlier-years
pertained to (1) identification of industrial opportunities, (2) identification of
growth centres, (3) preparation’ of regional development plans, (4) industrial
profiles, (5) feasibility studies, (6) organisational development, and (7) designing
information system. They now include entrepreneurial development; training and
counselling of the educated unemployed; management counselling for sick
industrial units; and training of trainers and consultants for entrepreneurial
development. Particular attention is given to industrialisation of backward areas.
National Productivity Council (NPC)
Recently National Productivity Council has started a Package Consultancy
Service to Small Industries. This service is in three stages.
(a) Training young nd prospective entrepreneurs;
(b) Undertake market urve s in the States. These surveys are conducted
for identifying investment opportunities and consumption patterns
for the prospective entrepreneurs; develop data bank for providing
information in respect of investment opportunities and financial
resources required, facilities available for obtaining loans; selection/
modernisation of processes and equipme t, product development,
availability of raw materials and market opportuniti s, sales
promotion and marketing and to undertake techno-economic feasib
lity studies either on behalf of prospective or existing entrepreneurs
or on behalf of financial institutions.
(c) Post-investment service consultancy and follow-up in the following
form.
To assist the entrepreneurs in repayment of loans in the minimum possible
time by helping them in improving their enterprise level productivity through
periodical visits; assist the small scale industries in training of workers in
specific trades and supervisory and managerial personnel in techno-managerial
subjects, assist the existing enterprises in improving their enterprise level

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productivity through training and consultancy services; and assisting them

in market studies and sales promotion.
National Research Development Corporation of India (NRDCI)
NRDCI makes available processes which have been developed by various
laboratories in the country: It brings out periodically a publication, entitled,
‘PRDC Processes’, which gives in brief particulars of the various processes,
uses of the products, raw materials required and capital outlays.. If an
entrepreneur is interested to adopt a process, he is expected to pay a
lumpsum premium; royalty is also payable bi-anually for specified period
after starting production. The concerned institute or laboratory releases the
process details to the license after he has executed an agreement. NRDC
also provides technical appraisals on a few projects, which are variously
priced at Rs. 25 to Rs. 750 per copy.
Khadi And Village Indu tries Commission (KVlC)
KVIC was set up in 1953. The primary objective of establishing KVIC is to
develop Khadi and Village industries and improving rural employment
opportunities. Its wide range of activities i clude trai ing of artisans, extension
of assistance for procurement of raw materials, marketing of finished products
and arrangement for manufacturing and/ distribution of improv d tools,
equipment and machinery to producers on concessional terms.
KVIC provides assistance to Khadi and Village industries which are
characterised by low capital intensity and ideally suited to manufacturing
utility goods by using locally available resources. There are about 26
specified-village industries such as processing of cereals and pulses, leather,
cottage matches, gur and khandsari, palm gur, non-edible oils and soaps,
village pottery, carpentry, gobargas, household aluminium utensils, etc.
KVIC’s policies and programmes are executed through 30 State Khadi and
Village Industries Boards, 2320 institutions registerd under the Societies
Registration Act, 1960 and about 30,600 Industrial Cooperative Societies
registered under State Cooperative Societies Act. Activities involving pioneering

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types of work, such as developing new industries in hilly, backward and

inaccessible areas are undertaken by KVIC directly.
National Institute of Entrepreneurship and Small Business
Development (NISEBUD), New Delhi
It is an apex national level institute of its kind set up at New Delhi in 1983.
Its main functions are to coordinate research and training in
entrepreneurship development and to impart specialised training to various
categories of entrepreneurs. Besides, it also serves as a forum for
interaction and exchange of views between various agencies engaged in
activities relating to entrepreneurial development
National Institute of Small Industries Extension Training (NISIET),
Hyderabad
This institute was set up in 1956 to develop the required manpower for running
small-scale industries in the country. Accordingly, its main functions are:
(a) To impart training to the perso s engaged in small-scale industries.
(b) To undertake research studies relating to development of small-scale
industries.
(c) To enter into agreements relating to consultancy s rvices both with
national and international organisations to provide consultancy
services to small industries in the country.
The institute conducts courses in business management for the benefit of
the entrepreneurs and semi-managerial personnel of small industries. It is
located at Hyderabad.
Other Institutes Supporting Entrepreneurs
Following are some of the important institutes set up by the Government
for development of small-scale industries :
(a) Electronic Training and Service Institute, Nainital.
(b) Central Machine Tools Limited, Bangalore.

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(c) Sports Goods and Leisure Time Equipment, Meerut.

(d) Central Institute of Plastics Engineering and Tools, Madras.
(e) National Institute of Foundry and Forging Technology, Ranchi.
Technical Consultancy Organisations (TCOs)
A network of Technical Consultancy Organisations (TCOs) was established
by the all India financial institutions in the seventies and the eighties in
collaboration with state level financial/development institutions and
commercial banks to cater to the consultancy needs of small industries and
new entrepreneurs. At present, there are 17 TCOs operating in various
states, some of them covering more than one state. These 17 TCOs are:
1. Andhra Pradesh Industrial and Technical Consultancy Organisation
Ltd. (APITCO).
2. Bihar Industri l nd Technical Consultancy Organisation Ltd. (BITCO).
3. Gujarat Industri l and Technical Consultancy Organisation Ltd. (GITCO).

4. Haryana-Delhi Industrial Consultants Ltd. (HARDICON).

5. Himachal Consultancy Organisation Ltd. (HIMCO).
6. Industrial and Technical Consultancy Orga isation of Tamil Nadu
Ltd. (ITCOT).
7. Jammu and Kashmir Industrial and Technical Consultancy Orga
isation Ltd. (J&KITCO).
8. Karnataka Industrial and Technical Consultancy Organisation Ltd
(KITCO).
9. Madhya Pradesh Consultancy Organisation Ltd. (MPCON).
10. Mahrashra Industrial and Technical Consultancy Organisation. Ltd.
(MITCON).
11. North-Eastern Industrial Consultants Ltd. (NECON).
12. North-Eastern Industrial and Technical Consultancy Organisation
Ltd. (NEITCO).
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13. North-India Technical Consultancy Organisation Ltd. (NITCON).

14. Orissa Industrial and Technical Consultancy Organisation Ltd.
(ORITCON).
15. Rajasthan Consultancy Organisation Ltd. (RAJCON).
16. U.P. Industrial Consultants Ltd. (UPICO).
17. West Bengal Consultancy Organisation Ltd. (WEBCON).
Functions
Initially, TCOs’ functions were focused on pre-investment studies for small
and medium scale enterprises. Over the years, they have diversified their
functions to include the following:
• To prepare project profiles and feasibility profiles.
• To undertake indu trial potential surveys.
• To identify potential entrepreneurs and provide them with technical
and management assistance.
• To undertake market research and surveys for specific products.
• To supervise the project and where necessary, r nder technical and
administrative assistance.
• To undertake export consultancy for export-oriented projects based
on modern technology.
• To conduct entrepreneurship development programmes.
• To offer merchant banking services.
• A summary view of the progress/performance of TCOs
Commercial banks and Entrepreneurial Development
In recent times commercial banks have not confined themselves to mere
extension of finance to small entrepreneurs but have shown genuine concern

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for their progress and development. They have now entered the challenging
field of promoting new small scale entrepreneurs through entrepreneurship
development programmes. In their new role as promoters of small scale
sector they have accepted yet another challenging task. They are now
holding EDPs in collaboration with specialized institutions such as DIC,
SISI, TCOs, etc. with a view to identifying entrepreneurs, especially in
backward areas, and training and monitoring them to start new ventures.
Assessment Questions
1. Describe the institutional set up for entrepreneurial development in
India.
2. Discuss the need for institutional support to small-scale industries.
3. Discuss the support provided by the National Small Industries
Corporation Ltd. (NSIC) to small-scale industries in the country.
4. What are the functions performed by the Small Industries
Development Corporation (SIDCO) to boost the growth of small-
scale industries in the country?
5. Describe the role that State Small Industr es Dev lopment Corporations
(SSIDC) play in developing small enterprises in the country.
6. What are District Industries Centres (DICs)? Explain the fu ctions of
the DICs.
References:
Gupta, C.B. and Srinivasan, N.P. : Entrepreneurship Development in India.
Gupta, C.B. and Khanka, S.S. : Entrepreneurship and Small Business Management.

Khan, M.A. : Entrepreneur Development Programmes in India.

John Kao and Harars Stevenson: Entrepreneurship- What it is and How to
Teach it.

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Components of Project Report

The following are the important headings under which the complete
information on relevant aspects should be included for a small scale
industry’s project report.

 General information
 Rationale
 Project description
 Market potential
 Capital expenditure and sources of finance
 Assessment of working capital
requirements  Other financial factors
 Government and other statutory approvals
 Economic and social variables

1. General Information

The following aspects should be given in the stage, which are of

general Nature

 Name and address of the entrepreneur

 The qualifications, experience and other capabilities of the
entrepreneur. If it is a partnership firm, these informations of other
members should also be given.
 A small reference of analysis of industry to which the project
belongs e.g. past performance, present status, the way of
organisation, the problems etc.
 The organisational structure of the enterprise
 The utility of the product and the range of products to be
manufactured

2. Rationale

As mentioned earlier a project may have several objectives

subsidiary to the prime objective of maki g prof t. As a first step in project
evaluation, it is essential that one looks at the broad rationale of the project
proposal to ensure that the project is appropriate a d justified. As an
example, one could say that modernisation or pollution control may be fully
justified on grounds of survival and environmental protection even if, in the
short-term, the project expenditure may adversely affect the financial
criteria of project evaluation. On the other hand, a project which would
improve the earnings per share or the debt service cover or the production
efficiency may not necessarily be justified if all this is to be achieved at the
expense of national interest or public interest.

3. Project Description

A brief description of the project covering the following aspects

should be given in the project report.

SITE: Location (Town, Complete address) whether owned or

leasehold land, whether the site is approved industrial area? Is it suitable for
the product under review.

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Notes
4. Input Factors

Raw materials: What are the sources of raw materials? Are they
locally available? Whether imported raw material is also required? If so,
whether license has been obtained? Is it suitable to get quality raw materials
continuously at reasonable prices?

The availability, quality critically and quality compatibility of the

raw material with the technology as well as the plant and machinery are
important factors to be clearly understood while evaluating a project
especially those in hi-tech area.

This element is also intimately linked to many other elements in a

project and can force necessary changes in them to ensure the viability of
the project.

As a simple example, one can easily surmise that a raw material

with a high volume to weight ratio will indicate the plant is located near the
source of raw material. e.g. Cement, power (coal based).

On the other hand, if the value added in such a case is very high,
then it may be possible or even necessary to locate the pla t away from the
source of raw materials. Textiles, power (gas based of oil bas d), processed
foods like snack foods, ice creams are some the pertinent exampl s.

The characteristics of the raw materials are multivariate and not just
on the volume weight ratio. It is imperative therefore that this element gets a
careful consideration while assessing a project. The market, the
management, and the utility needs of the projects also influence the
locational decisions.

Labour: What is the type of labour required? Whether skilled or

unskilled? Are they available in that area? If not, what arrangement have
been made to recruit and train the labour in various skills?

Power: Inadequate supply and high cost of electricity is a major

problem now-a-days. So, the project report should contain the information
regarding the power requirements, the load sanctioned, stability of supply of
power and the price at different consumption level.

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Fuel & water: Whether the fuel systems like coal, coke, oil or gas
are required and if yes, then state their availability position. Similarly water
is an important factor. The source and the quality of water should be clearly
stated.

Waste discharge: Most of the plants produce waste material or

emissions that may result in many health problems to the public. The
emissions and discharge may be various types like (a) gaseous (smoke,
fumes, dust etc.) by physical (noise, hear, vibration etc.) or (c) liquid or
solid discharged through pumps and sewers. Hence, it should be clearly
stated that the arrangements made from these things.

Communication and Transport Facilities

Availability of communication facilities like telephone, telex and

post and telegraph department, should be stated in the report. Similarly,
transport is basic necessity for industries. Raw materials as well as finished
products has to reach destination only through a good transport systems
available. So, the various transport facilities available in that should be
clearly stated. Similarly availability of facilities like machine shops,
welding shops and electrical repair shops etc., should also be stated.

List of Machinery & Equipments

A complete list of items of machinery and other equipments

indicating their type, size and cost should be stated. Source of supply of
capital equipment and the construction services should also be given.

The source of plant and machinery as also the specification for the
same can often make or break a project. It is, therefore, equally important to
evaluate the plant and machinery which is to be installed at the project. The
reputation of the supplier and references to place where such/similar plant
and machinery are installed is a good starting point while assessing this
element.

Capacity & Technology

The installed and licensed should be stated and the number of shifts
likely to follow should be stated. Similarly, Is the technology upto date and

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appropriate? Which other units are using the same technology and with
what results? How the required know-how is proposed to be arranged?

The level of technology in terms of its “state of art” or obsolescence,

adaptability to the local conditions, maintenance and repairability,
sophistication in management and control are elements which have a
significant impact on the quality and quantity of production that is
envisaged in the project. It is thus necessary to have a clear understanding
about the technology which is to be utilised in the project.

It is pertinent to note that there are no hard and fast rules but
“appropriateness” and “relevance” are the two key operative words while
assessing a technology proposed for the project. It is ridiculous to propose a
highly sophisticated, push button control technology in a place where
electricity supply follows its own rules or where a simpler technology is
better understood and more manageable. Equally, it would be disastrous to
recommend an obsolete technology on account of its durability or time
tested proof of performance when everyone else is fast discarding it.

This technology elements is linked to every other element in the

project proposal and these linkages also need to be looked into as an
essential step in assessing the technology. One of the tech ologi s available
may necessitate creation of large capacity not necessarily advisable given
the current raw material supply or the market size for the product.

For example, a capacity of 100 tpa for manufacture of peer starting

from pulp or even hard wood or bamboo could be considered an or even the
“minimum economic” size leading to acceptance of a particular technology
which gives maximum efficiency at 10 tpa. But if raw material proposed is
“agricultural waste” a whole lot of new considerations starting from
collection and storage or raw materials come into play necessitating
appropriate changes in the plant size and even perhaps the technology.
Similar situations can arise in linkages of technology to management,
availability of utilities, and cost of the project.

Quality Control

What is the system arranged for to check the quality of products on

continuous basis? The quality marks like ISI, Agmark will enhance the

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values of the product as well as confidence among the consumers. If it is
desired to get quality markings, the fact should be included in the project
report.

5. Market Potential

Estimation of Demand & Supply

Facts regarding the anticipated demand for product and the level of
supply, should be clearly stated. An estimate of manufacturing and
administrative expenses together with the price expected along with the
margin of profit should be stated.

Marketing strategy: What is the strategy adopted for marketing the

product should be stated. Whether the products are to be supplied to the
reputed sellers directly or distributors? Is there any possibility of getting a
contract from the reputed concerns should also be stated in this project
report. Simil rly whether after sales service has been arranged and how to
fill the gap of demand if there is fluctuations in the sales seasonal demand
arrangements made for warehousing the products.

6. Capital Expenditure and Sources of Finance

Cost of the project: Since each proj ct is profit motivate it is

important that cost of the project is carefully ass ssed and evaluated. One of
the most important factors in this assessment is the level of accuracy in the
cost estimates, which in addition to proper data collection also depends
upon the approach and the attitude of the evaluator hims lf. Some evaluators
tend to see all cost estimates as “too high” leading to unnecessary under
estimation of the project cost and consequent problems in project
implementation and even project viability. On the other hand some
evaluators tend to provide “cushions” at all levels of cost estimates which
may erode the viability of the project on paper leading to a wrong decision
on the issue of project selection and implementation.

An estimate regarding this various capital inputs required by the

industry should be given. Those capital items include the following:

1. Land & Building

2. Plant and machinery

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3. Preliminary expenses
4. Miscellaneous assets
5. Price escalation
6. Working capital limit

Means of financing: Having established the cost of a project as

justified and reasonable, it is necessary to evolve the means of financing the
project. It should be acceptable within the framework of the financial
system and sufficiently attractive/or safe enough for the investor lender to
come forward and extend the necessary assistance.

During the last decade, financial scenario in India has undergone

substantive, qualitative as well as quantitative change almost amounting to a
metamorphosis. As a result the project prosperity has a fairly wide range of
means of finance available to him to choose from. Instead of a standard
debt-equity ratio of 2:1, the promoter taking up 50% to 75% of the equity,
the balance being offered to the public and the financial institutions and
banks picking up the tap for the debt component.

The promoter can now think of a variety of instruments like equity

cumulative convertible preference shares fully or partly or on-convertible
debentures, as means of financing and also many other sources of funds like
mutual finds, venture finance and lease finance. A clear und rstanding of the
various elements and the various institutions operating in the financ al
system would help to assess the appropriateness of the means of finance.
The cost of raising and servicing funds, and other terms and conditions
accompanying funds, as all these have a direct impact on the viability of the
project. At this juncture, it is worthwhile nothing that the project evaluation
should also pay due attention to the ethics of fund raising especially if the
means of finance involves premium carrying instruments.

7. Assessment of Working Capital Requirements

Many industries fail due to improper estimate of working capital

requirements. It is very crucial to an entrepreneur. The unit could function
only if the working capital limit is maintained properly. So, the working
capital requirements should be very carefully calculated and stated in the
project report.

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8. Other Financial Aspects

It should be found out that the product taken up for production is

profitable. For this, profit & Loss A/c an estimated one should be prepared,
which shows sales revenue, cost of production and other costs and profit.
Similarly a projected balance sheet and cash flow statement should be
prepared to indicate financial position and financial requirements.

There should be always availability of funds for the smooth

functioning of the unit. Next the break-even analysis must be given break-
even point is that level of production sales where the industrial enterprise
shall make no profit no loss. This break even analysis facilitates knowing
the gestation period and the likely moratorium required for repayment of
loan.

The return from a project is a very essence of evaluating a project

especially s the prime motive for setting up a project is its profitability. The
project return is to be assessed in terms of cost of production realisable
selling price, financial charges, depreciation taxes and host of other
financial and non-fina cial variables.

9. Government and Other Statutory Approvals

The project is not put up in a vacuum but in the real world which is
subject not only to procedural requirements but also to policy guidelines and
stipulations. These requirements, guidelines and stipulation could begin
with the very permission to establish a project and go across various
economic statutes of a country governing several aspects of a project. The
project evaluation must take all these into account, not merely as an element
of feasibility or otherwise of setting up the project but as part of the plan
extending over the economic life of the project.

10. Economic and Social Variables

Among other things, what will be the abatement costs to control

pollution and treating for the effluents and emissions, should be stated.
Added to this, whether the project derives home some social benefits like
the following:

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 It promotes an increases the employment potential in that area
 It promotes an encourages smaller units (tiny sector) to grow
 It effects overall development of that area

Economic and National Significance of the Project

Many projects have an economic and/or a national significance

especially if they are in the area of hi-tech, import substitution, export
orientation, defence and/or involve substantive outflow of foreign currency
either for technology know-how or for raw materials. It is necessary to
evaluate the economic and the national significance of a project is to be
made acceptable in the prevalent economic scenario.

Social and Environmental Consideration

While setting up a project, issues not necessarily connected with the

financial profitability of the project but to the environment and society as a
whole have become important in more than one case. These issues relate to
environmental pollution and safety as also different segments of the society
coming in contact with the activities of the project.