MSMEs in the country have not been able to play the best possible role due to many deficiencies. The foremost reason for this is the prevalence of outdated production and management methods, and a general reluctance to install modern machinery and equipment due to paucity of funds.
Financing
Financial assistance in India for MSME units is available from a variety of institutions. The important ones are:
• Commercial / regional rural / co-operative banks
• Small Industries Development Bank of India (SIDBI) for refinancing and direct lending
• State Financial Corporations (SFCs) such
as the Delhi Financial Corporation and State Industrial Development Corporations (SIDCs)
Long term and medium term loans are provided by SIDBI, SFCs and SIDCs. Banks also finance term loans. This type of financing is needed to fund the purchase of land, the construction of the factory building / shed, and for buying machinery and equipment.
Short term loans, on the other hand, are needed for working capital requirements—to fund the purchase of raw materials and consumables, the payment of wages, and other immediate manufacturing and administrative expenses. Such loans are generally available from commercial banks, which also sanction composite loans that comprise working capital and term loans up to Rs. 1 crore.
If you plan to take a loan from a financial institution or a commercial bank, a formal application needs to be made. You need to provide the following along with your loan application:
• Required documentation for loan application
• The balance sheet and profit and loss statement of the firms owned by the promoters for the last three years
• Income tax assessment certificates of
partners / directors
• Proof of possession of land / building
• Architect’s estimate for construction costs
Setting up the unit
Your home could be the best place to start up at. However, if you would rather set up the unit somewhere else, make sure you negotiate for the purchase of a favorable plot or shed, organize for the proper construction of the building, pay attention to the interior design of the unit, and find good deals for equipment and machinery.
Constructing the building
Once an industrial plot for the unit has been secured, your next task is to find a suitable architect. The design of the factory building has to be in sync with the industry you are in and have an appropriate plant layout.
Getting utility connections
While land and the building make up the skeleton of the unit, utilities like power and water are of prime importance to sustain it. It is imperative to commence work on these aspects with diligent follow up. Power connections are generally either of the LT (low tension) or HT (high tension) type. If the connected load is up to 75 HP, an LT connection is provided. If the connected load is 130 HP or higher, an HT connection is provided.
A formal application needs to be made (in the specified form) to the state electricity board. An electrical inspector is deputed for evaluation of application to factory site, after which the load is sanctioned. In areas where there is power shortage, it is advisable to augment the power supply with a captive generating set.
Likewise, water connection is obtained by applying for it in advance using the official forms. The water supply can be augmented by installing a tubewell.
Men, machinery & material
A project report must specify the manpower required for projects; it is advisable to provide a staggered proposal for the induction of manpower. Engineers and operatives must be available to you before the machinery is installed.
Choosing and ordering the right machinery is also of paramount importance. Carry out a techno-economic survey of the machinery and equipment that are available and suited to your purpose. Then, consult experts, dealers / suppliers and existing users of these machines before you make the purchase. Also seek out the advice of the DIC, MSMEI and NSIC.
Materials procurement and planning are critical. And inventory management can lead to manageable cash flow situations.
Filing the Entrepreneurs Memorandum
Section 8 of the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006, provides for the filing of the Entrepren-eurs Memorandum by a micro, small or medium enterprise. Subsection 2 of Section 8 stipulates the form of the memorandum, the procedure for filing it, and other such
relevant matters.
The memorandum may be filed with the District Industries Centre in the jurisdiction where the enterprise is or will be located.
Approvals
Every SSI unit has to comply with various regulations in force. These include regulatory, taxation, environmental and certain product specific clearances.
Exemption from Compulsory License
Licensing in the industries sector is governed by the licensing exemption notification that was issued by the Government of India on July 25, 1991, under the Industries (Development and Regulation) Act, 1951. For small-
scale industries (SSIs), there are virtually no licensing restrictions.
Environment & Pollution Related Clearances
The method of granting water and air pollution clearances to SSI units has been simplified. Except for 17 critically polluting sectors, all other SSI units will merely have to file an application and obtain an acknowledgement that will serve the purpose of consent.
Quality certification
Quality certification has become extremely important in competitive markets, especially for gaining a foothold in export businesses. To avail the ISO-9000 certification, a unit has to undertake significant expenditure.
Regulatory or Taxation Clearances
• Registration under Sales Tax Act: From the commercial tax officer of the area concerned
• Registration under Central Excise Act: From the Collector of Central Excise or nominee for the area
• Payment of Income Tax: From the ITO of the area concerned
• Registration of Partnership Deed: From the Inspector General of the area concerned
• Calibration of weights & measures: From the Weights and Measures Inspector of State
• Power Connection: From the Officer of the State Electricity Board
• Employee strength exceeding 10 (with power) or 20 (without power):
From the Chief Inspector of Factories
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