RCA 204, Innovation & Entrepreneurship

UNIT IV: (8 HRS)

Role of Government in promoting Entrepreneurship, MSME policy in India, Agencies

for Policy Formulation and Implementation: District Industries Centers (DIC), Small
Industries Service Institute (SISI), Entrepreneurship Development Institute of India
(EDII), National Institute of Entrepreneurship & Small Business Development
(NIESBUD), National Entrepreneurship Development Board (NEDB), Financial
Support System: Forms of Financial support, Long term and Short term financial
support, Sources of Financial support, Development Financial Institutions,
Investment Institutions

_____________________________________________________________________________________

Role of Government in promoting Entrepreneurship

Government plays a very important role in developing entrepreneurship.

Government develops industries in rural and backward areas by giving various
facilities with the objective of balances regional development. The government set
programmes to help entrepreneurs in the field of technique, finance, market and
entrepreneurial development so that they help to accelerate and adopt the changes
in industrial development. Various institutions were set up by the central and state
governments in order to fulfill this objective.

Key recommendations for Government Policy:

In summary, key recommendations for government policy in the fostering of

entrepreneurial ecosystems are:

Make the formation of entrepreneurial activity a government priority The

formulation of effective policy for entrepreneurial ecosystems requires the
active involvement of Government Ministers working with senior public
servants who act as institutional entrepreneurs to shape and empower
policies and programs.
Ensure that government policy is broadly focused Policy should be
developed that is holistic and encompasses all components of the ecosystem
rather than seeking to cherry pick areas of special interest.
Allow for natural growth not top-down solutions Build from existing
industries that have formed naturally within the region or country rather than
seeking to generate new industries from green field sites.
Ensure all industry sectors are considered not just high-tech Encourage
growth across all industry sectors including low, mid and high-tech firms.
Provide leadership but delegate responsibility and ownership Adopt a top-
down and bottom-up approach devolving responsibility to local and regional
authorities.

Prepared by Neelam Rawat

RCA 204, Innovation & Entrepreneurship

Develop policy that addresses the needs of both the business and its
management team Recognize that small business policy is transactional
while entrepreneurship policy is relational in nature.

Institutions set up by Central Government

1. Small industries development organization (SIDO)

2. Management development Institute(MDI)
3. Entrepreneurship development institute of India (EDI)
4. All India Small Scale Industries Board(AISSIB)
5. National Institution of Entrepreneurship and Small Business
Development(NIESBUD),New Delhi
6. National Institute of Small Industries Extension Training
7. National Small Industries Corporation Ltd. (NSIC)
8. Risk Capital and Technology Finance Corporation Ltd.(RCTFC)
9. National Research and development corporation (NRDC)
10.Indian Investment Centre
11.Khadi and village industries Commission(KVIC)
12.Indian Institute of Entrepreneurship(IIE)
13.Miscellaneous Organization
14.National Alliance of Young Entrepreneurs(NAYE)
15.Centre for Entrepreneurial Development(CED) Ahmadabad
16.Institute for Entrepreneurial Development (IED)
17.Technical Consultancy Organization (TCOs)
18.Public Sector Banks
19.Institutions set up at State Level

Reference: http://www.simplynotes.in/mbabba/role-of-government-in-promoting-
entrepreneurship/

MSME Policy in India

The Government through the Ministry of Micro, Small and Medium Enterprises
(MSME) has been implementing a number of schemes with the objective of having a
vibrant MSME sector through the promotion of growth and development of micro,
small and medium enterprises including khadi, village and coir industries in
cooperation with concerned Ministries/Departments, State Governments and other
stakeholders by providing support to existing enterprises and encouraging creation
of new enterprises.

The major thrust among the MSME segments include providing assistance in the
form of margin money subsidy to first generation entrepreneurs to set up new micro
enterprises through bank credit under Prime Ministers Employment Generation
Programme (PMEGP), facilitating adequate availability of bank credit through Credit
Guarantee Fund scheme, promotion of MSMEs through cluster based approach and
adequate skill development.

Prepared by Neelam Rawat

RCA 204, Innovation & Entrepreneurship

The role of micro, small and medium enterprises (MSMEs) is well established in the
economic and social development of the country. This sector contributes 8 per cent
of the countrys GDP, 45 per cent of the manufacturing output and 40 per cent of its
export. The MSMEs provide employment to about 60 million persons through 26
million enterprises.

In accordance with micro small and medium enterprises development (MSMED) Act
2006 the MSME are classified into:-

1. 1.Manufacturing/Production of goods
2. 2.Providing/Rendering of services

The Manufacturing Enterprises have been defined in terms of investment in plant

and machinery (excluding land and building) and further classified into:-

Micro Enterprises-investment up to Rs25 lakh

Small Enterprises-investment above Rs25 lakh and upto Rs5 crore
Medium Enterprises-investment above Rs5 crore and up to Rs10 crore

The Service Enterprises have been defined in terms of their investment in

equipment(excluding land and building) and further classified into:-

Micro Enterprises-investment up to Rs10 lakh

Small Enterprises-investment above Rs10 lakh and up to Rs2crore
Medium Enterprises-investment above Rs2 crore and up to Rs5 crore

Prepared by Neelam Rawat

RCA 204, Innovation & Entrepreneurship

District Industries Centre, DIC

The 'District Industries Centre' (DICs) programme was started by the central
government in 1978 with the objective of providing a focal point for promoting
small, tiny, cottage and village industries in a particular area and to make available
to them all necessary services and facilities at one place. The finances for setting up
DICs in a state are contributed equally by the particular state government and the
central government. To facilitate the process of small enterprise development, DICs
have been entrusted with most of the administrative and financial powers. For
purpose of allotment of land, work sheds raw materials etc., DICs functions under
the 'Directorate of Industries'. Each DIC is headed by a General Manager who is
assisted by four functional managers and three project managers to look after the
following activities:

Activities of District Industries Centre (DIC):

o Economic Investigation
o Plant and Machinery
o Research, education and training
o Raw materials
o Credit facilities
o Marketing assistance
o Cottage industries

Objectives of District Industries Centre (DIC): The important objectives of DICs are
as follow:

o Accelerate the overall efforts for industrialization of the district.

Prepared by Neelam Rawat

RCA 204, Innovation & Entrepreneurship

o Rural industrialization and development of rural industries and

handicrafts.
o Attainment of economic equality in various regions of the district.
o Providing the benefit of the government schemes to the new
entrepreneurs.
o Centralization of procedures required to start a new industrial unit and
minimization- of the efforts and time required to obtain various
permissions, licenses, registrations, subsidies etc.

Functions of District Industries Centre (DIC):

o Acts as the focal point of the industrialization of the district.

o Prepares the industrial profile of the district with respect to: Statistics
and information about existing industrial units in the district in the
large, medium, small as well as co-operative sectors.
o Opportunity guidance to entrepreneurs.
o Compilation of information about local sources of raw materials and
their availability.
o Manpower assessment with respect to skilled, semi-skilled workers.
o Assessment of availability of infrastructure facilities like quality testing,
research and development, transport, prototype development,
warehouse etc.
o Organizes entrepreneurship development training programs.
o Provides information about various government schemes, subsidies,
grants and assistance available from the other corporations set up for
promotion of industries.
o Gives SSI registration.
o Prepares techno-economic feasibility report.
o Advices the entrepreneurs on investments.
o Acts as a link between the entrepreneurs and the lead bank of the
district.
o Implements government sponsored schemes for educated unemployed
people like PMRY scheme, Jawahar Rojgar Yojana, etc.
o Helps entrepreneurs in obtaining licenses from the Electricity Board,
Water Supply Board, No Objection Certificates (NOC) etc.
o Assist the entrepreneur to procure imported machinery and raw
materials.
o Organizes marketing outlets in liaison with other government agencies.

Small Industries Service Institutes (SISI)

The SISIs were set up in state capitals and other industrial cities in the country.
There are all together 28 SISIs and 30 branch SISIs in India. Their performances are
overseen by the office of the Development Commissioner (DC-SSI).

Functions of SISI

Prepared by Neelam Rawat

RCA 204, Innovation & Entrepreneurship

To assist existing and prospective entrepreneurs through technical and

managerial counseling such as help in selecting the appropriate machinery
and equipment, adoption of recognized standards of testing, quality
performance etc;
Conducting EDPs all over the country;
To advise the Central and State governments on policy matters relating to
small industry development;
To assist in testing of raw materials and products of SSIs, their inspection and
quality control;
To provide market information to the SISIs;
To recommend SSIs for financial assistance from financial institutions;
To enlist entrepreneurs for partition in Government stores purchase
programme;
Conduct economic and technical surveys and prepare techno-economic
feasible reports for selected areas and industries.
Identify the potential for ancillary development through sub-contract
exchanges;
Organize seminars, Workshops and Industries Clinics for the benefit of
entrepreneurs.

The Small Industries Service Institutes have been generally organizing the following
types of EDPs on specialized courses for different target groups like energy
conservation, pollution control, Technology up-gradation, Quality improvement,
Material handling, Management technique etc. as mentioned earlier.

Practice Questions:

1. What are the problems faced by small scale Entrepreneurs?

2. What is the Importance of Small Entrepreneurs in Indian Economy?
3. What are the main ingredients of modern industries?
4. Here are the two main criteria used to define the concept of small business
5. How to get venture capital for starting your business in India?
6. What is the difference between Large and Small Scale Entrepreneur?

Entrepreneurship Development Institute of India, EDII

Entrepreneurship Development Institute was set up in May 1933 at Ahmedabad by

All India Financial Institutions like Industrial Development Bank of India, Industrial
Credit & Investment Corporation of India, Industrial Finance Corporation of India and
the State Bank of India.
EDII has emerged from the Centre for Entrepreneurship Development (CED) of the
Gujarat Industrial and Technical Consultancy Organization. The entrepreneurship
development institute of India (EDI) is established in 1983 and helps the
unemployed to get job where they provide employment for others also.

Role of EDII

Entrepreneurship Development Institute of India (EDI), an autonomous and

not-for-profit institute, set up in 1983, is sponsored by apex financial

Prepared by Neelam Rawat

RCA 204, Innovation & Entrepreneurship

institutions the IDBI Bank Ltd., IFCI Ltd., ICICI Bank Ltd. and the State Bank
of India (SBI).

EDI has helped set up twelve state-level exclusive entrepreneurship

development centres and institutes.

These achievements was taking entrepreneurship to a large number of

schools, colleges, science and technology institutions and management
schools in several states by including entrepreneurship inputs in their
curricula.

In the international arena, efforts to develop entrepreneurship by way of

sharing resources and organizing training programmes, have helped EDI earn
accolades and support from the World Bank, Commonwealth Secretariat,
UNIDO, ILO, British Council, Ford Foundation, European Union, ASEAN
Secretariat and several other renowned agencies.

EDII has also set up Entrepreneurship Development Centre at Cambodia, Lao

PDR, Myanmar and Vietnam and is in the process of setting up such centres
at Uzbekistan and five African countries.

Functions of EDII

It trains to new generation of entrepreneurs.

It identifies and selects the individual with some entrepreneurial traits and
potential for the purpose of training.
It conducts result oriented development programmes in enterpriser, lacking
regions like the Andaman, Kerala, Goa, Sikkim, Bihar and Arunachal Pradesh
in a systematic and methodical manner.
It is promoting Small Scale Industries in industrially backward and rural areas
by developing local, and human resources.
It conducts special programmes for^ Science and Technical graduates for self
employment anci for. existing entrepreneurs.
It conducts extension motivation programmes for officers of financial
institutions and development organizations.
It offers exciting aveneus for self help, for Ex-serviceman, war widows, sons
and daughters of dead soldiers.

National Institution of Entrepreneurship and Small Business Development
(NIESBUD), New Delhi

It was established in 1983 by the Government of India. It is an apex body to

supervise the activities of various agencies in the entrepreneurial development
programmes. It is a society under Government of India Society Act of 1860.

Objectives

To evolve standardized materials and processes for selection, training,

support and sustenance of entrepreneurs, potential and existing.

Prepared by Neelam Rawat

RCA 204, Innovation & Entrepreneurship

To help/support and affiliate institutions/organizations in carrying out training

and other entrepreneurship development related activities

To serve as an apex national level resource institute for accelerating the

process of entrepreneurship development ensuring its impact across the
country and among all strata of the society.
To provide vital information and support to trainers,promoters and
entrepreneurs by organizing research and documentation relevant to
entrepreneurship development.
To train trainers, promoters and consultants in various areas of
entrepreneurship development.
To provide national/international forums for interaction and exchange of
experiences helpful for policy formulation and modification at various levels.
To offer consultancy nationally/internationally for promotion of
entrepreneurship and small business development.
To share internationally experience and expertise in entrepreneurship
development.

Activities of NIESBUD:

Assisting/supporting EDPs
Training for trainers/promoters
Creation & capacity building of EDP Institutions.
Small business focus
National/international forum for exchange of ideas &
expressions.
Developing entrepreneurial culture.
National entrepreneurship development board (NEDB)
Services to affiliate members.
Sustaining entrepreneurship

The major activities of institute are:

To make effective strategies and methods
To standardize model syllabus for training
To develop training aids, tools and manuals
To conduct workshops, seminars and conferences.
To evaluate the benefits of EDPs and promote the process of
Entrepreneurial Development.
To help support government and other agencies in executing
entrepreneur development programmes.
To undertake research and development in the field of EDPs.

Note: NIESBUD also serves as the secretariat for National Entrepreneurship

development Board(NEDB) ,the apex body which determines policy for
entrepreneurship development in the country. The institute, therefore, performs the
task of processing the recommendations made by the Board.

National Entrepreneurship Development Board (NEDB)

Prepared by Neelam Rawat

RCA 204, Innovation & Entrepreneurship

The main objective of the National Entrepreneurship Development Board (NEDB) is

promotion of entrepreneurship for encouraging self-employment in small scale
industries and small business.

Activities of NEDB

1. To focus on existing entrepreneurs in micro, tiny and small sector and identify
and remove constraints to survivals, growth and continuously improve
performance.
2. To facilitate the consolidation, growth and diversification of existing
entrepreneurial venture in all possible ways.
3. To support skill up gradation and renewal of learning processes among
practicing entrepreneurs and managers of micro, tiny, small and medium
enterprises.
4. To support agencies in the area of entrepreneurship about the current
requirement of growth.
5. To act as catalyst to institutionalize entrepreneurship development by
supporting and strengthening state level institutions for entrepreneurship
development as most entrepreneurship related activities take place at the
grass root level and removing various constraints to their effective
functioning.(
6. Setting up of incubators by entrepreneurship development institutions and
other organizations devoted to the promotion of entrepreneurship
development

Financial Support System: Sources of Finances

ACCORDING TO TIME-PERIOD:

Sources of financing a business are classified based on the time period for which the
money is required. Time period is commonly classified into following three:

LONG TERM SOURCES OF FINANCE

Long-term financing means capital requirements for a period of more than 5 years
to 10, 15, 20 years or maybe more depending on other factors. Capital expenditures
in fixed assets like plant and machinery, land and building etc of a business are
funded using long-term sources of finance. Part of working capital which
permanently stays with the business is also financed with long-term sources of
finance. Long term financing sources can be in form of any of them:
Share Capital or Equity Shares
Preference Capital or Preference Shares
Retained Earnings or Internal Accruals
Debenture / Bonds
Term Loans from Financial Institutes, Government, and Commercial Banks
Venture Funding
Asset Securitization
International Financing by way of Euro Issue, Foreign Currency Loans, ADR,
GDR etc.

Prepared by Neelam Rawat

RCA 204, Innovation & Entrepreneurship

MEDIUM TERM SOURCES OF FINANCE

Medium term financing means financing for a period of 3 to 5 years. Medium term
financing is used generally for two reasons. One, when long-term capital is not
available for the time being and second, when deferred revenue expenditures like
advertisements are made which are to be written off over a period of 3 to 5 years.
Medium term financing sources can in the form of one of them:
Preference Capital or Preference Shares
Debenture / Bonds
Medium Term Loans from
Financial Institutes
Government, and
Commercial Banks
Lease Finance
Hire Purchase Finance

SHORT TERM SOURCES OF FINANCE

Short term financing means financing for a period of less than 1 year. Need for short
term finance arises to finance the current assets of a business like an inventory of
raw material and finished goods, debtors, minimum cash and bank balance etc.
Short term financing is also named as working capital financing. Short term finances
are available in the form of:
Trade Credit
Short Term Loans like Working Capital Loans from Commercial Banks
Fixed Deposits for a period of 1 year or less
Advances received from customers
Creditors
Payables
Factoring Services
Bill Discounting etc.

Sources of finances are classified based on ownership and control over the business.
These two parameters are an important consideration while selecting a source of
finance for the business. Whenever we bring in capital, there are two types of costs
one is interest and another is sharing of ownership and control. Some
entrepreneurs may not like to dilute their ownership rights in the business and
others may believe in sharing the risk

ACCORDING TO OWNERSHIP AND CONTROL:

OWNED CAPITAL

Owned capital is also referred as equity capital. It is sourced from promoters of the
company or from the general public by issuing new equity shares. Business is
started by the promoters by bringing in the required capital for a startup. Owners
capital is sourced from following sources:

Equity Capital

Prepared by Neelam Rawat

RCA 204, Innovation & Entrepreneurship

Preference Capital
Retained Earnings
Convertible Debentures
Venture Fund or Private Equity

Further, when the business grows and internal accruals like profits of the company
are not enough to satisfy financing requirements, the promoters have a choice of
selecting ownership capital or non-ownership capital. This decision is up to the
promoters. Still, to discuss, certain advantages of equity capital are as follows:

It is a long term capital which means it stays permanently with the business.
There is no burden of paying interest or installments like borrowed capital.
So, the risk of bankruptcy also reduces. Businesses in infancy stages prefer
equity capital for this reason.

BORROWED CAPITAL

Borrowed capital is the capital arranged from outside sources. These include the
following:

Financial institutions,
Commercial banks or
The general public in case of debentures.

In this type of capital, the borrower has a charge on the assets of the business
which means the borrower would be paid by selling the assets in case of liquidation.
Another feature of borrowed capital is regular payment of fixed interest and
repayment of capital. Certain advantages of borrowing capital are as follows:

There is no dilution in ownership and control of business.

The cost of borrowed funds is low since it is a deductible expense for taxation
purpose which ends up saving on taxes for the company.
It gives the business a leverage benefit.

ACCORDING TO SOURCE OF GENERATION:

INTERNAL SOURCES

Internal source of capital is the capital which is generated internally from the
business. Internal sources are as follows:

Retained profits
Reduction or controlling of working capital
Sale of assets etc.

The internal source has the same characteristics of owned capital. The best part of
the internal sourcing of capital is that the business grows by itself and does not
depend on outside parties. Disadvantages of both equity capital and debt capital

Prepared by Neelam Rawat

RCA 204, Innovation & Entrepreneurship

are not present in this form of financing. Neither ownership is diluted nor fixed
obligation / bankruptcy risk arises.

EXTERNAL SOURCES

An external source of finance is the capital which is generated from outside the
business. Apart from the internal sources finance, all the sources are external
sources of capital.

Deciding the right source of finance is a crucial business decision taken by top-level
finance managers. The wrong source of finance increases the cost of funds which in
turn would have a direct impact on the feasibility of project under concern. Improper
match of the type of capital with business requirements may go against the smooth
functioning of the business. For instance, if fixed assets, which derive benefits after
2 years, are financed through short-term finances will create cash flow mismatch
after one year and the manager will again have to look for finances and pay the fee
for raising capital again.

TOP 10 SOURCES OF FUNDING FOR START-UPS

1. Bootstrapping. Self-funding from your savings (if you have it) is always
preferred. Advantages: no time going hat-in-hand to investors and you dont
have to relinquish any control in your company. For more on how to
bootstrap, check out Bootstrap Business by Rich Christiansen, who has
launched nearly 30 companies by that method.

2. Friends and family. Tap your inner circle before expanding your horizons. As a
rule of thumb, professional investors like to see real skin in the gameyour
own, of that of people who trust you.

3. Small business grants. This bucket often gets overlooked, but it should be a
major focus thanks to the Obama administrations initiatives to foster new
alternative-energy sources and other technological breakthroughs. Nabbing
federal or state funds can be an exhausting gauntlet (check out One Energy
start-ups Tireless Quest For Capital), but at least the government doesnt
charge interest or demand control. One smart approach: Team with a
professor at your local university. Grants associated with commercializing
products are favored over ones allocated for academic study only. If a
professor does the application with you and get to publish the results, thats a
win-win situation.

4. Loans or lines of credit. If your company needs only a temporary or small

infusion of cash, try for a Small Business Administration loan (offered at a
lower interest rate because it is guaranteed by the government) or a bank
line of credit.
5. Incubators. A start-up incubator is a company, university or other
organization that ponies up resourceslaboratories, office space, consulting,
cash, marketingin exchange for equity in young companies when they are
most vulnerable. Angel investors. For those looking for $25,000 to $250,000,
angel networks can come in handy. Networking is critical here, and you need

Prepared by Neelam Rawat

RCA 204, Innovation & Entrepreneurship

to find angels who understand your industry and share your passion. Ive
been on the selection committee of an angel group for years.
6. Venture capital. As a rule of thumb, dont try this one in the earlier stages; in
fact, dont try it unless you need more than $1 million. VCs take their pound
of flesh in equity and control. Its not the most efficient route, either: Prepare
to spend at least six months searching for and closing the deal. Start your
search within your local network of entrepreneurs. After that, hit the National
Venture Capital Association Web site.

7. Bartering. Exchanging goods or services as a substitute for cash can be a

great way to run on a little wallet. Example: trading free office space by
agreeing to be the property manager for the owner. This technique can also
work with legal, accounting and engineering services. (For more, see Nine
Effective Bartering Techniques.)

8. Form a partnership. A more established company may have a strategic

interest in helping to develop your productand be willing to advance
funding to make it happen. I know several companies that develop
customized social networks for large enterprises, with the expectation of
using that funding and experience to compete in the consumer market some
day. Licensing may not be as sexy as being a consumer brand, but it will cost
you a lot less
9. Commit to a major customer. Some customers would be willing to cover your
development costs in order to be able to buy your product before the rest of
the world can. Their advantage: control over your production process (to
make sure it meets their requirements) and the promise of dedicated support.
Even large companies look to their best customers to fund new projectsthis
is the essence of good business development.

Reference: https://gradestack.com/Class-11th-Commerce/Sources-of-
Business/Financial-Institutions/17625-3452-28660-study-wtw

Prepared by Neelam Rawat