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INTRODUCTION

Small and medium-sized enterprises (SMEs) are important agents of development throughout the world .Promoting a countrys SME sector plays a crucial role in maintaining high employment and income generation and is therefore critical for achieving sustainable growth. The process of globalization, characterized by fundamental changes in the organization of global production, rapid advances in information and communication technologies (ICTs), and the emergence of multilateral agreements, is significantly changing the international environment. New opportunities have opened up but at the same time new problems and threats have raised new challenges for policy makers in developing countries. In both developed and developing countries, the government is turning to small and medium scale industries and entrepreneurs, as a means of economic development and a veritable means of solving problems. It is a seedbed of innovations, inventions and employment. The Reserve Bank of India (RBI) has also been emphasising on the flow of bank credit to the micro enterprises in rural and semi-urban areas set up by vulnerable sections of society including women. A number of initiatives have been taken in this regard and banks have been advised to provide maximum support to Self Help Groups. Furthermore, four informal groups have been set up by the Reserve Bank to analyse various micro-finance issues relating to (i) structure and sustainability; (ii) (ii) funding; (iii) (iii) regulations; and (iv) (iv) capacitybuilding. The RBI will discuss the recommendations of the informal Groups in a wider forum for possible implementation. The SSI sector has so far been resilient to the impact of the policy changes increasing domestic and foreign competition following the de-reservation and import liberalisation of items as well as the relatively high interest rates- and has withstood the general deceleration in the industrial sector during 1997-98 to 2002-03. It has been well recognised that the investment limit of Rs.10 million for the remaining SSI units leaves little scope for such producersto achieve economies of scale and scope and become competitive. Today, it is, in fact, incentive-compatible for SSI units to remain deliberately small - by fragmenting production- in order to avail of fiscal benefits and to stay outside the purview of labour laws.

The pace of de-reservation of SSI items, therefore, needs to be accelerated so as to ensure that sizedoes not remain a constraint to higher production, cost-efficiency and technological upgradation

THE DEFINITION OF SMES


Small and medium-sized enterprises (SMEs) are a very heterogeneous group. SMEs are found in a wide array of business activities, ranging from the single artisan producing agricultural implements for the village market, the coffee shop at the corner, the internet caf in a small town to a small sophisticated engineering or software firm selling in overseas markets and a medium-sized automotive parts manufacturer selling to multinational automakers in the domestic and foreign markets. The owners may or may not be poor; the firms operate in very different markets (urban, rural, local, national, regional and international); embody different levels of skills, capital, sophistication and growth orientation, and may be in the formal or the informal economy. Statistical definition of SMEs varies by country4 and is usually based on the number of employees, and value of sales and/or value of assets. Due to its ease of collection, the most commonly used variable is the number of employees. The EU and a large number of OECD5, transition and developing countries set the upper limit of number of employees in the SMEs between 200-250, with a few exceptions such as Japan (300 employees) and the USA (500 employees). At the lower end of the SME sector, a large number of countries define a group, which is a mixture of the self-employed and micro enterprises, with less than 10 employees. Irrespective of the level of development of an economy, a significant proportion of micro and, sometimes, small enterprises are found in the informal sector or the shadow economy. Schneider (2003)6 compared the size of the informal sector in 22 transition (former Soviet Union and Central and Eastern Europe) and 21 OECD economies from 2000-2002 and found that the size of the informal sector amounted to an average of 16.7%, 29.2% and 44.8% of GDP in OECD, Central and Eastern Europe and the former Soviet Union economies, respectively. The Government of India has enacted the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 in terms of which the definition of micro, small and medium enterprises is as under: (a) Enterprises engaged in the manufacture or production, processing or preservation of goods as specified below:
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y A micro enterprise is an enterprise where investment in plant and machinery does not exceed Rs. 25 lakh; y (ii) A small enterprise is an enterprise where the investment in plant and machinery is more than Rs. 25 lakh but does not exceed Rs. 5 crore; and y (iii) A medium enterprise is an enterprise where the investment in plant and machinery is more than Rs.5 crore but does not exceed Rs.10 crore. In case of the above enterprises, investment in plant and machinery is the original cost excluding land and building and the items specified by the Ministry of Small Scale Industries vide its notification No.S.O.1722(E) dated October 5, 2006 (Annex I). (b) Enterprises engaged in providing or rendering of services and whose investment in equipment (original cost excluding land and building and furniture, fittings and other items not directly related to the service rendered or as may be notified under the MSMED Act, 2006 are specified below. y A micro enterprise is an enterprise where the investment in equipment does not exceed Rs. 10 lakh; y A small enterprise is an enterprise where the investment in equipment is more than Rs.10 lakh but does not exceed Rs. 2 crore; and y A medium enterprise is an enterprise where the investment in equipment is more than Rs. 2 crore but does not exceed Rs. 5 crore.

The Reserve Bank of India has set up guidelines for financial banks for lending loans to Small and Medium Enterprises in the country. Common Guidelines / Instructions for Lending to MSME Sector:1. Disposal of Applications All loan applications for SSI up to a credit limit of Rs.. 25,000/- should be disposed of within 2 weeks and those up to Rs.. 5 lakh within 4 weeks, provided the loan applications are complete in all respects and accompanied by a 'check list'. 2 Collaterals The limit for all SSI borrowal accounts for obtaining collateral security is Rs. 5 lakh. Banks, on the basis of good track record and financial position of the SSI units, may increase the limit of dispensation of collateral requirement for loans up to Rs..25 lakh (with the approval of the appropriate authority). 3. Composite loan A composite loan limit of Rs..1 crore can be sanctioned by banks to enable the SSI entrepreneurs to avail of their working capital and term loan requirement through Single Window. 4. Specialised SSI/SME branches Public sector banks have been advised to open at least one specialised branch in each district. Further, banks have been permitted to categorise their SSI general banking branches having 60 per cent or more of their advances to SSI sector as Public sector banks have been advised to open at least one specialised SSI branch, in order to encourage them to open more specialised SSI branches for providing better service to this sector as a whole. As per the policy package announced by the Government of India for stepping up credit to SME sector, the public sector banks will ensure specialized SME branches in identified clusters/centres with preponderance of small enterprises to enable the entrepreneurs to have easy access to the bank credit and to equip bank personnel to develop requisite expertise. The existing specialised SSI branches may be also be redesignated as SME branches. Though their core competence will be utilized for extending finance and other services to SME sector, they will have operational flexibility to extend finance/render other services to other sectors/borrowers. Delayed Payment Under the Amendment Act, 1998 of Interest on Delayed Payment to Small Scale and Ancillary Industrial Undertakings, penal provisions have been incorporated to
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take care of delayed payments to SSI units which inter-alia stipulates a) agreement between seller and buyer shall not exceed more than 120 days, b) payment of interest by the buyers at the rate of one and a half times the prime lending rate (PLR) of SBI for any delay beyond the agreed period not exceeding 120 days. Further, banks have been advised to fix sub-limits within the overall working capital limits to the large borrowers specifically for meeting the payment obligation in respect of purchases from SSI. After the enactment of the Micro, Small and Medium Enterprises Development (MSMED), Act 2006, the existing provisions of the Interest on Delayed Payment Act, 1998 to Small Scale and Ancillary Industrial Undertakings, have been strengthened as under: y The buyer to make payment on or before the date agreed on between him and the supplier in writing or, in case of no agreement before the appointed day. The agreement between seller and buyer shall not exceed more than 45 days. y The buyer fails to make payment of the amount to the supplier, he shall be liable to pay compound interest with monthly rests to the supplier on the amount from the appointed day or, on the date agreed on, at three times of the Bank Rate notified by Reserve Bank. y For any goods supplied or services rendered by the supplier, the buyer shall be liable to pay the interest as advised at (ii) above. (iv)In case of dispute with regard to any amount due, a reference shall be made to the Micro and Small Enterprises Facilitation Council, constituted by the respective State Government. y 4.5 Delayed Payment Under the Amendment Act, 1998 of Interest on Delayed Payment to Small Scale and Ancillary Industrial Undertakings, penal provisions have been incorporated to take care of delayed payments to MSME units. After the enactment of the Micro, Small and Medium Enterprises Development (MSMED), Act 2006, the existing provisions of the Interest on Delayed Payment Act, 1998 to Small Scale and Ancillary Industrial Undertakings, have been strengthened as under: (i) In case the buyer to make payment on or before the date agreed on between him and the supplier in writing or, in case of no agreement before the appointed day. The agreement between seller and buyer shall not exceed more than 45 days. (ii) In case the buyer fails to make payment of the amount to the supplier, he
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shall be liable to pay compound interest with monthly rests to the supplier on the amount from the appointed day or, on the date agreed on, at three times of the Bank Rate notified by Reserve Bank. (iii) For any goods supplied or services rendered by the supplier, the buyer shall be liable to pay the interest as advised at (ii) above. (iv) In case of dispute with regard to any amount due, a reference shall be made to the Micro and Small Enterprises Facilitation Council, constituted by the respective State Government. Further, banks have been advised to fix sub-limits within the overall working capital limits to the large borrowers specifically for meeting the payment obligation in respect of purchases from MSMEs. y 4.6 Guidelines on rehabilitation of sick SSI (now MSE) units (based on Kohli Working Group recommendations) As per the definition, a unit is considered as sick when any of the borrowal account of the unit remains substandard for more than 6 months or there is erosion in the net worth due to accumulated cash losses to the extent of 50% of its net worth during the previous accounting year and the unit has been in commercial production for at least two years. The criteria will enable banks to detect sickness at an early stage and facilitate corrective action for revival of the unit. As per the guidelines, the rehabilitation package should be fully implemented within six months from the date the unit is declared as potentially viable/viable. During this six months period of identifying and implementing rehabilitation package banks/FIs are required to do holding operation which will allow the sick unit to draw funds from the cash credit account at least to the extent of deposit of sale proceeds A circular was issued to all scheduled commercial banks vide RPCD.No. PLNFS.BC.57/06.04.01/2001-02 dated January 16, 2002 thereby advising implementation of the Kohli Committee Recommendations.

Following are broad parameters for grant of relief and concessions for revival of potentially viable sick SSI units: (i) Interest on Working Capital: (ii) Funded Interest Term Loan: (iii) Working Capital Term Loan : (iv) Term Loan: Interest 1.5% below the prevailing fixed/prime lending rate, wherever applicable Interest Free Interest to be charged 1.5% below the prevailing fixed / prime lending rate , wherever applicable Concessions in the interest to be given not more than 2 % (not more than 3 % in the case of tiny / decentralised sector units) below the document rate. The Concessional rate allowed for Working Capital

(v) Contingency Loan Assistance:

Initiatives by Government of India / Reserve Bank of India


Recognizing the important role played by MSMEs in economic development and its sizeable contribution to employment and GDP, and realizing that financial access is critical for MSMEs growth and development, Government and Reserve Bank of India are taking the lead in supporting initiatives that improve access to finance. While at the broader level, financial inclusion makes growth broad based and sustainable by progressively encompassing the hitherto excluded population, and has become a national priority, at the more narrower level, since the level of financial exclusion is very high in this sector, drive to universal financial access, including SME finance, is no longer a policy choice but a compulsion. The Reserve Bank of India has intensified a number of measures and endorsed quantitative access targets over the last year to further financial inclusion. Let me very briefly touch upon a few of them. 1. With an objective of ensuring uniform progress in provision of banking services in all parts the country, banks were advised to draw up a roadmap to provide banking services through a banking outlet in every unbanked village having a population of over 2,000 by March 2012. The Reserve Bank advised banks that such banking services need not necessarily be extended through a brick and mortar branch but could be provided also through any of the various forms of Information and Communication Technology (ICT) - based models, including Business Correspondents (BCs). A total of about 74,000 such unbanked villages have been identified and allotted to various banks through State Level Bankers Committees (SLBCs). As at the end of September 2011, as reported by the State Level Bankers' Committees of various states/Union Territories, banking outlets have been opened in 42,079 villages across the various States in the country. This comprises of 1127 branches, 39998 business correspondents and 954 other modes like rural ATMs, mobile vans etc.

2. To ensure enhanced credit flow to the sector, in terms of the recommendations of the Prime Ministers Task Force on Micro, Small and Medium Enterprises (MSMEs) (Chairman: Shri T.K.A.Nair, Principal Secretary, Government of India) constituted by the Government of India, banks were advised to achieve a 20 per cent year-on-year growth in credit to micro and small enterprises; the allocation of 60% of the MSE advances to the micro enterprises is to be achieved in stages viz. 50% in the year 2010-11, 55% in the year 2011-12 and 60% in the year 2012-13 and achieve a 10% annual growth in number of micro enterprise accounts. The Reserve Bank is closely monitoring the achievement of targets by banks on a quarterly basis. The matter is followed up with the laggard banks to know their constraints and impress upon them the need to devise strategies to gear up the credit mechanism for the sector. 3. Further, based on the recommendations of the Working Group (Chairman: Shri V.K. Sharma, Executive Director, RBI) constituted by the Reserve Bank of India to review the Credit Guarantee Scheme (CGS) of the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), the limit for collateral free loans to the MSE has been increased from the present level of Rs. 5 lakh to Rs.10 lakh and it has been made mandatory for banks. The Working Group has also made recommendations regarding increase in the extent of guarantee cover, absorption of guarantee fees for the collateral free loans by CGTMSE subject to certain conditions, simplification of procedure for filing claims with CGTMSE and increasing awareness about the scheme. CGTMSE, which is implementing agency for Credit Guarantee Scheme, has been advised to expedite implementation of the recommendations. The implementation of the Recommendations of the Working Group should result in enhanced usage of the Guarantee Scheme and facilitate increase in quality and quantity of credit to the presently included, as well as excluded, MSEs, leading eventually to sustainable inclusive growth 4. All Scheduled Commercial Banks have also been advised on May 4, 2009, to review and put in place MSE Loan policy, Restructuring / rehabilitation policy and Non-discretionary One Time Settlement Scheme for recovery of non-performing loans duly approved by their Board of Directors. Banks were advised in December 2009 to give wide publicity to the Non-discretionary One Time Settlement Scheme for recovery of non-performing loans for the MSE sector by placing it on their bank's web-site and through other possible modes of dissemination. 5. On the issue of alternate sources of credit, dedicated Exchange for MSMEs, marketing, technology up-gradation and infrastructure, the PMs Task Force has examined the issues and has made several recommendations to address the bottlenecks. The implementation of the recommendations in a time bound manner are being monitored by the GOI.

Policy Relating to Small Scale Undertakings


1 The Small Scale Industry Sector has emerged as India's engine of growth in the New Millennium. By the end of March 2000, the SSI sector accounted for nearly 40 per cent of gross value of output in the manufacturing sector and 35 per cent of total exports from the country. Through over 32 lakh units, the sector provided employment to about 18 million people. 1.2 The on going programme of Economic Reforms based upon the principle of liberalisation, globalisation and privatisation and the changes at the international economic scene including the emergence of World Trade Organisation (WTO), have brought certain schallenges and several new opportunities before the SSI Sector. The most important challenge faced by the sector is that of growing competition both globally and domestically. At the sametime sector has also been facing some problems which relate to credit, infrastructure, technology, marketing, delayed payment hassels on account of so many rules and regulations etc. In order to enable this sector to avail the opportunities and play its role as an engine of growth, it is essential to address to these problems effectively and urgently. 1.3 With a view to provide more focused attention on the development of SSI, the Government of India created a new Ministry of Small Scale Industries & Agro and Rural Industries in October 1999. Immediately after the formation of the Ministry, a Mission for the Millennium giving a blue print for small scale and village industries was announced. To carve out a road map for this sector in the New Millennium, the Hon'ble Prime Minister constituted a Group of Ministers under the Chairmanship of Shri L.K. Advani the Home Minister of India in June 2000. The background material for the consideration of the Group of Ministers was provided by the Interim Report of the S.P. Gupta Study Team constituted by the Planning Commission. 1.4 The Group of Ministers considered the recommendations and came out with a Comprehensive Policy Package for the Small Scale and Tiny Sector which was announced by the Hon'ble Prime Minister Shri Atal Bihari Vajpayee at first ever National Conference on the Small Scale Industries organised by the Ministry of SSI & ARI at Vigyan Bhavan, New Delhi on 30th August 2000.). A copy of Speech of the Hon'ble Minister of State (Independent Charge) SSI & ARI, Smt. Vasundhara Raje on the occasion of National Conference on Small Scale Industries is placed at . While some components of the policy package were announced by the Hon'ble Prime Minister on 30th August 2000, some others including the Tiny Sector Policy Package were announced by the Ministry of SSI& ARI on 31st August 2000 in the meeting of the SSI Board.

SMALL SCALE SECTOR 2.0 Policy Support 2.1 The investment limit for the Tiny Sector will continue to be Rs. 25 lakhs. (Annexure-III) 2.2 The investment limit for the SSI sector will continue to be at Rs. 1 crore. (Annexure-IV) 2.3 The Ministry of SSI & ARI will bring out a specific list of hi-tech and export oriented industries which would require the investment limit to be raised upto Rs. 5 crores to admit of suitable technology upgradation and to enable them to maintain their competitive edge. 2.4 The Limited Partnership Act will be drafted quickly and got enacted. Attempt will be made to bring the Bill before the next session of the Parliament. 3.0 Fiscal Support 3.1 To improve the competitiveness of Small Scale Sector, the exemption for excise duty limit raised from Rs. 50 lakhs to Rs. 1 crore. (Annexure-V) 4.0 Credit Support 4.1 The composite loans limit raised from Rs. 10 lakhs to Rs.25 lakhs. (Annexure-VI) 4.2 The Small Scale Service and Business (Industry Related) Enterprises (SSSBEs) with a maximum investment of Rs. 10 lakhs will qualify for priority lending. (Annexure-VII) 4.3 In the National Equity Fund Scheme, the project cost limit will be raised from Rs. 25 lakhs to Rs. 50 lakhs. The soft loan limit will be retained at 25 per cent of the project cost subject to a maximum of Rs. 10 lakhs per project. Assistance under the NEF will be provided at a service charge of 5 per cent per annum. (Annexure-VIII) 4.4 The eligibility limit for coverage under the recently launched (August 2000) Credit Guarantee Scheme has been revised to Rs.25 lakhs from the present limit of Rs. 10 lakhs. (Annexure-IX) 4.5 The Department of Economic Affairs will appoint a Task Force to suggest revitalisation/restructuring of the State Finance Corporations. (Annexure-X) 4.6 The Nayak Committee's recommendations regarding provision of 20 per cent of the projected turnover as working capital is being recommended to the financial institutions and banks. (Annexure-XI)

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5.0 Infrastructural Support 5.1 The Integrated Infrastructure Development (IID) Scheme will progressively cover all areas in the country with 50 per cent reservation for rural areas. (Annexure-XII) 5.2 Regarding upgrading the Industrial Estates, which are languishing, the Ministry of SSI & ARI will draw up a detailed scheme for the consideration of the Planning Commission. 5.3 A Plan Scheme for Cluster Development will be drawn up. 5.4 The funds available under the non-lapsable pool for the North-East will be used for Industrial Infrastructure Development, setting up of incubation centres, for Cluster Development and for setting up of IIDs in the North-East including Sikkim. (Annexure-XIII) 6.0 Technological Support and Quality Improvement 6.1 Capital Subsidy of 12 per cent for investment in technology in select sectors. An interministerial Committee of Experts will be set up to define the scope of technology upgradation and sectorial priorities. (Annexure-XIV) 6.2 To encourage Total Quality Management, the Scheme of granting Rs.75,000/- to each unit for opting ISO-9000 Certification will continue for the next six years i.e. till the end of the 10th plan. (Annexure-XV) 7.0 Marketing Support 7.1 SIDO will have a Market Development Assistance (MDA) Programme, similar to one obtaining in the Ministry of Commerce & Industry. It will be a Plan Scheme. 7.2 The Vendor Development Programme, Buyer-Seller Meets and Exhibitions will take place more often and at dispersed locations. 8.0 Streamlining Inspections/Rules and Regulations 8.1 To minimise harassment to Small Scale Sector a Group will be set up to recommend within 3 months, means of streamlining inspections. This will include repeal of laws and regulations applicable to the sector that have since become redundant. (Annexure-XVIII) 8.2 Self-certification will be progressively encouraged in lieu of inspections, which should be prescribed under the three following conditions:

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l On receipt of specific complaint; l Selection of unit for sample check (Say 10 per cent of total units); and l For audit and safety purposes.

9.0 Entrepreneurship Development 9.1 Capacity building in the SSI sector, both for entrepreneurs as well as workers, will be given top priority. The Ministry of SSI & ARI and Ministry of Labour will work out the strategy jointly. 10.0 Facilitating Prompt Payment 10.1 The Reserve Bank of India is being requested to appoint a Task Force to go into the question of strengthening and popularising factoring services, without recourse to the SSI suppliers. The Task Force shall give its report within six months of its constitution. 10.2 RBI is being requested to take up with the banks, the question of sub-allocating overall limits to the large borrowers specifically for meeting the payment obligations in respect of purchases from the SSIs, either on case basis or on bills basis. (Annexure-XIX) 11.0 Rehabilitation of sick units 11.1 RBI is being requested to draw up revised guidelines for the rehabilitation of currently sick but potentially viable SSI units. Such guidelines should be detailed, transparent and non-discretionary. (Annexure-XX) 12.0 Promoting Rural Industries 12.1 To support the Handloom Sector "Deendayal Hathkarga Protsahan Yojna" has been announced. The scheme has a total financial implication of Rs. 447 crores and will provide comprehensive financial and infrastructural support to weavers. 12.2 The Government is working out new comprehensive package to strengthen Khadi and Village Industries that will further upgrade the skills of Khadi Workers. (Annexure-XXI) 13.0 Improving Data Base 13.1 A fresh Census of Small Scale Industries will be conducted covering inter-alia, the incidence of sickness and its causes. (Annexure-XXII)

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TINY SECTOR 14.0 Policy Support 14.1 The investment limit for the tiny sector will continue to be Rs. 25 lakhs. 14.2 Under the Prime Minister's Rozgar Yojna, which finances setting up of micro enterprises and generates employment for the educated unemployed, the family income eligibility limit of Rs. 24,000 perannum being revised to Rs. 40,000 per annum. (AnnexureXXIII) 15.0 Credit Support 15.1 The Nayak Committee's recommendations regarding provision of 20 per cent of the projected turnover as working capital is being recommended to the Financial Institutions and Banks. In respect of Tiny units also 20 per cent of the projected annual turnover would qualify for working capital loan. 15.2 The National Small Industries Corporation will continue to give composite loans upto Rs. 25 lakhs to the Tiny Sector and continue to charge one per cent concessional interest rate. 15.3 SIDBI will continue to give concessional rate of refinance to the tiny sector which is now at 10.5 per cent as compared to 12 per cent for the SSI sector. This policy will continue. 15.4 In the National Equity Fund Scheme, the project cost limit will be raised from Rs. 25 lakhs to Rs. 50 lakhs. The soft loan limit will be retained at 25 per cent of the project cost subject to a maximum of Rs. 10 lakhs per project. Assistance under the NEF will be provided at a service charge of 5 per cent per annum. Under the National Equity Fund Scheme, 30 per cent of the investment will be earmarked for the Tiny Sector. 16.0 Infrastructure Support 16.1 The Integrated Infrastructure Development (IID) Scheme will progressively cover all areas in the country with 50 per cent reservation for rural areas. Under this Scheme, 50 per cent of the plots will be earmarked for the tiny sector (as against 40 per cent done earlier). (Annexure-VII) 16.2 Under the National Programme for Rural Industrialisation, cluster development is being taken up by KVIC, SIDO, SIDBI and NABARD. The major beneficiaries of Cluster Development Programme will be Tiny Sector Units. The sponsoring organisation for each cluster will provide for design development, capacity building, technology intervention and

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consortium marketing. A Cluster Development Fund will be created under the Plan. 17.0 Technological Support 17.1 Under the Scheme of Capital Subsidy of 12 per cent for investment in technology upgradation in select sectors, preference will be given to the Tiny Sector. 18.0 Marketing Support 18.1 Preference will be given to the Tiny Sector while organising Buyer-Seller Meets, Vendor Development Programmes and Exhibitions.

1. An industrial undertaking is defined as a small scale unit if the investment in

fixed assets in plant and machinery does not exceed Rs 10 million. The Small Scale units can get registered with the Directorate of Industries/District Industries Centre in the State Government concerned. Such units can manufacture any item including those notified as exclusively reserved for manufacture in the small scale sector. Small scale units are also free from locational restrictions cited in paragraph 1.3 above. However, a small scale unit is not permitted more than 24 per cent equity in its paid up capital from any industrial undertaking either foreign or domestic. 2.Manufacture of items reserved for the small scale sector can also be taken up by non- small scale units, if they apply for and obtain an industrial license. In such cases, it is mandatory for the non-small scale unit to undertake minimum export obligation of 50 per cent. This will not apply to non-small scale EOUs that are engaged in the manufacture of items reserved for the SSI sector, as they already have a minimum export obligation of 66 per cent of their production. In addition, if the equity holding from another company (including foreign equity) exceeds 24 per cent, even if the investment in plant and machinery in the unit does not exceed Rs 10 million, the unit loses its small scale status. An IEM is required to be filed in such a case for de-licensed industries, and an industrial license is to be obtained in the case of items of manufacture covered under compulsory licensing. 3. A small scale unit manufacturing small scale reserved item(s), on exceeding the small scale investment ceiling in plant and machinery by virtue of natural growth, needs to apply for and obtain a Carry-on-Business(COB) License. No export obligation is fixed on the capacity for which the COB license is granted. However, if the unit expands its capacity for the small scale reserved item(s)
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further, it needs to apply for and obtain a separate industrial license. (For procedure to obtain COB licence, refer to para 7.2(d)). 4. It is possible that a chemical or a by-product recoverable through pollution control measures is reserved for the small scale sector. With a view to adopting pollution control measures, Government have decided that an application needs to be made for grant of an Industrial Licence for such reserved items which would be considered for approval without necessarily imposing the mandatory export obligation.

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