Project Assistance Long Answer Type Questions
Question 1.
What are the various financial institutions which provide finance to entrepreneurs?
Answer:
The various financial institutions which provide finance to entrepreneurs are:
(i) Industrial Finance Corporation of India (IFCI): The Industrial Finance Corporation of India (IFCI) was established in 1948 under an Act of parliament with the object of providing medium and long-term credit to industrial concerns in India.
(ii) The Industrial Development Bank of India (IDBI): The Industrial Development Bank of India (IDBI) was established on 1st July 1964 under the Industrial Development Bank of India Act, as a wholly owned subsidiary of the Reserve Bank of India. The IDBI has been assigned a special role to play in regard to industrial development.
(iii) ICICI (The Industrial Credit and Investment Corporation of India):
ICICI (The Industrial Credit and Investment Corporation of India) was conceived as a private sector development bank in 1955 with the primary function of providing development finance to the private sector.
(iv) The National Bank for Agriculture and Rural Development: The National Bank for Agriculture and Rural Development provides credit for the promotion of agriculture, small-scale industries, cottage and village industries, handicrafts and other rural crafts and other allied economic activities in rural areas.
(v) The Small Industries Development Bank of India (SIDBI): Small Industries Development Bank of India (SIDBI) is an apex-level national institution for promotion, financing and development of industries in the small-scale sector.
(vi) Industrial Investment Bank of India: The Industrial Investment Bank of India (IIBI) was established in 1985 and it extends loans and advanced to industrial concerns, underwrites stocks, shares, bonds, debentures and provides guarantees for loans/deferred payments.
(vii) Life Insurance Corporation of India: The Life Insurance Corporation of India (LIC) was set up under the LIC Act in 1956, as a wholly-owned Corporation of the Government of India, on nationalisation of the life insurance business in the country.
(viii) General Insurance Corporation of India: The General Insurance Corporation of India (GIC) was established in January 1973, GIC has been participating with other financial institutions in extending term loans to industrial undertakings and providing facilities for underwriting/direct subscription to their shares and debentures.
(ix) Export-Import Bank of India: the Export Import Bank of India (Exim Bank) was set up on JANUARY 1, 1982 as the principal financial institution for promotion and financing of India’s international trade.
(x) Khadi’& Village Industries Commission: The Khadi and Village Industries Commission (KVIC), is engaged in the development of khadi and village industries in rural areas.
(xi) National Small Industries Corporation Ltd.: The National Small Industries Corporation Ltd. (NSIc) was set-up by the Government of India in 1955 with the objective of promoting and developing small-scale industries in the country.
(xii) State Industrial Development Corporations: SIDCs provide assistance by way of term loans, underwriting and direct subscription to shares/ debentures and guarantees.
(xiii) State Small Industries Development Corporations: The State Small Industries Development Corporations (SSIDCs) are State Government undertakings, responsible for catering to the needs of the small, tiny and cottage industries in the State/Union Territories under their justification.
(xiv) State Financial Corporations: State Financial Corporations (SFCs), function with the objective of financing and promoting small and medium enterprises for achieving balanced regional socio-economic growth.
Question 2.
Explain the financial assistance provided by SIDBI to SSI’s.
Answer:
The business domain of SIDBI consists of Micro, Small and Medium Enterprises (MSMEs), which contribute significantly to the national economy in terms of production, employment and exports. MSME sector is an important pillar of Indian economy as it contributes greatly to the growth of Indian economy with a vast network of around 5.1 crore units, creating employment of about 11.7 crore, manufacturing more than 6,000 products, contributing about 45% to manufacturing output and about 40% of exports in terms of value, about 37% of GDP.
The business strategy of SIDBI is to address the financial and non-financial gaps- in MSME eco-system. Financial support to MSMEs is provided by way of (a) Indirect / refinance to banks / Financial Institutions for onward lending to MSMEs and (b) direct finance in the niche areas like risk capital, sustainable finance, receivable financing, service sector financing, etc. As on March 31, 2016, SIDBI has made cumulative disbursements of about 4.50 lakh crore benefitting about 350 lakh persons. By this way, SIDBI would be complementing and supplementing efforts of banks/ FIs in meeting diverse credit needs of MSMEs.
The most critical input, however, that has remained is, access to finance both for investment in fixed assets and for working capital. It is now accepted increasingly and universally that there is need for ensuring relatively easier access to credit, timely and adequate, need based at affordable rate of interest.
→ Credit being the most important input in the development process, the need for effective delivery and management of the same is given high priority.
→ It is generally recognized that in developing countries and to some extent in industrialized countries.
→ SSI has limited access to financial sources from banks and other financial institutions.
Even today major financing of SSI is done from sources other than institutional mechanism. Financing from own sources and borrowings. The government at both central and state level established various financial institutions to provide non-financial and financial assistances to small- scale industries. As the small-scale industries are weak financial structure, they require non-financial assistances, so that, they could compete with large scale industries.
The government established various institutions to provide non-financial assistances exclusively to the small-scale industries. In the same way there are institutions in addition to commercial banks which cater to the financial requirements of small scale industries.
Question 3.
Explain the different institutions providing non financial assistance to SSIs OR Explain various assistance for obtaining raw material, machinery land & Building.
Answer:
The success of SSIs depends solely on the well established institutional set-up. The role of various institutions set-up especially to promote the growth of small scale industries is quite unique.
Institutional support can be classified into two categories: Financial and non financial. Non financial institutional assistance is used for obtaining raw material, machinery, land and building.
- District Industries centre
- Small Industries Services Institute (SISI)
- Entrepreneurship Development Institute (EDI)
- Smalt Industrial Development Organisation (SIDO)
- Association of Women Entrepreneurs of Karnataka (AWAKE)
- Technical Consultancy Organisations (TCOs)
- Technical Consultancy Services Organisation of Karnataka (TECSOK)
- Khadi and Village Industries Corporation (KVIC)
Question 4.
Discuss the various financial incentives of SSI’s.
Answer:
The various financial incentives of SSIs include concessions, priority and aid.
1. Differential Rate of Interest Scheme: Under this scheme, loans upto Rs. 6,500 as term loans and Rs. 1,500 as working capital are provided by commercial banks to the weaker sections at a concessional rate of interest of 4% p.a.
2. Composite Loan Scheme: This scheme meets the entire financial requirements of artisans, village and cottage industries where the total credit requirements for equipment finance and working capital do not exceed Rs. 50,000.
3. Margin Money Scheme for Tiny Sector: Under this scheme, assistance is provided to the small scale unit whose investment in plant and machinery does not exceed Rs. 2 lakhs and are located in villages and towns with a population of less than Rs. 50,000.
4. Special Capital Scheme of IDBI: The scheme is being operated by IDBI for extending equity type of assistance to such entrepreneurs who possess the necessary skill and experience but do not have adequate financial resources to set-up projects, primarily in the small scale and tiny sectors.
5. Seed Capital Scheme: The scheme was introduced by IDBI with a view to assist the new entrepreneurs who do not have adequate resources of their own to set up industrial project in the small and medium sectors with project cost not exceeding Rs. 3 crores.
6. Equity Fund Scheme: Under this scheme, SBI provides interest free assistance to the small entrepreneurs for meeting the equity gap in the project.
7. Soft Loan Scheme for Modernisation: Under this scheme, IDBI provides financial assistance to the units in selected industries to overcome the backlog of modernisation/renovation/replacement of plant and machinery so as to improve their productivity and competitiveness. There is no minimum or maximum limit for loans under this scheme.
8. Bill Rediscounting scheme: This scheme was introduced by IDBI with the objective of helping the manufacturers of indigenous machinery and equipment. To push the sales of their products by offering deferred payment facilities to the prospective purchaser – user. And to enable the purchaser – user of the machinery to utilise the machinery acquired and repay its cost over a number of years.
9. Margin Money Scheme for Revival of sick Units: The scheme was introduced by GOI with a view to help the State Governments in the revival of sick small scale units.
10. Rehabilitation Scheme for Sick Units: The Small Scale units which have been assisted by SFC/SIDC and are classified as sick are eligible for assistance under the scheme. The extent of relief depends upon the merits of each individual case.
11. Credit Guarantee Scheme: Under the scheme, guarantees are extended to borrowers engaged in small scale industrial activities and also in respect of credit facilities granted to organisations assisting workers, artisans and other self employed persons engaged in industrial activities.
Question 5.
What are the various tax concessions given to small scale units?
Answer:
The various tax concessions given to small scale units are described below:
(i) Tax Holiday: New industrial units are exempted from payment of income tax on their profits upto 6% p.a on their capital employed. This exemption is allowed for a period of five years from the commencement of production.
(ii) Depreciation: A Small Scale unit is entitled to a deduction on depreciation account on buildings, furniture, plant and machinery. The depreciation is allowed subject to a maximum of Rs. 20 lakhs.
(iii) Investment Allowances: Investment allowance is allowed @ 25% of the cost of acquisition of the new plant or machinery installed under Sec- 31 of the I.T. Act.
(iv) Expenditure Allowance: The following deduction in respect of expenditure on scientific research are allowed.
- Any revenue expenditure incurred on scientific research related to business.
- Any sum paid to a scientific research association or a university, college, institution or public company which has its object, the undertaking of a scientific research.
- Any capital expenditure incurred on scientific research related to the business.
(v) Amortisation of Preliminary Expenses: The preliminary expenses incurred in connection with the preparation of feasibility report, engineering expenses and legal charges for drafting agreements for the setting up of a new industrial unit or expansion of existing units are allowed to be written off.
(vi) Tax concessions for Small Scale Industries in Rural Areas: The Small Scale units set up in rural areas are entitled to a deduction of 20% of the profits and gains from their total income. This concession is also allowed for small scale units started in 24 districts declared as backward areas by the planning commission.
(vii) Rehabilitation Allowance: The business units which has been discontinued on account of flood, cyclone, earthquake or other natural calamities is granted rehabilitation allowance which is equivalent to 60 percent of the amount of deduction allowable to the unit.
(viii) Exemption on Excise duty: The exemption on excise duty limit is raised from Rs. 50 lakh to Rs. 1 crore to improve the competitiveness of small scale sector.