ED - Unit II

UNIT II
ENTREPRENEURIAL ENVIRONMENT
2.1 Business Environment
2.2 Role of Family and Society
2.3 Entrepreneurship Development Training and Other Support Organisational Services
2.4 Central and State Government Industrial Policies and Regulations
2.5 International Business
BUSINESS ENVIRONMENT
Business may be understood as the organized efforts of an enterprise to supply consumers with goods and
services for a profit. Businesses vary in size, as measured by the number of employees or by sales volume etc.
But, all businesses share one common purpose that is to earn profits.
The purposes of business that goes beyond earning profits are:
– an important institution in society
– for the supply of goods and services
– creating job opportunities
– offering better quality of life
– contributing to the economic growth of the country.
Hence, it is understood that the role of business is crucial from the point of view of individuals and national
society as well. Society cannot do without business. Similarly, it requires no emphasis that business needs
society as much. Modern business is dynamic. If there is any single word that can best describe today’s
business, it is ‘change’. It is ‘change’ that makes the companies spend substantially on Research and
development (R&D) to survive in the market.
Environment refers to all forces, which have a bearing on the functioning of business. They can be forces of
economic, social, political and technological factors, apart from internal forces of the organisation.
Business Environment may be defined as a set of conditions – Social, Legal, Economical, Political or
Institutional that are uncontrollable in nature and affects the functioning of organization. It is the surrounding
of the business.
Features of business environment are as follows:

(i) Totality of External Forces: Business environment is the sum total of all things external to business firms
and, as such, is aggregative in nature.
(ii) Specific and General Forces: Business environment includes both specific and general forces. Specific
forces (such as investors, customers, competitors and suppliers) affect individual enterprises directly and
immediately in their day-to-day working. General forces (such as social, political, legal and technological
conditions) have impact on all business enterprises and thus may affect an individual firm indirectly only.
(iii) Dynamic Nature: Business environment is dynamic in nature. It keeps on changing whether in terms of
technological improvement, shifts in consumer preferences or entry of new competition in the market.
(iv) Uncertainty: Business environment is largely uncertain as it is very difficult to predict future happenings,
especially when environment changes are taking place too frequently as in the case of information technology
or fashion industries.
(v) Relativity: Business environment is a relative concept since it differs from country to country and even
region to region. Political conditions in the USA, for instance, differ from those in China or Pakistan. Similarly,
demand for sarees may be fairly high in India whereas it may be almost non-existent in France.
BA5014 - ENTREPRENEURSHIP DEVELOPMENT - Unit II Lecture Notes IJCE 1
(vi) Multi-faceted: Business environment changes are frequent and depend on knowledge and existence of
business person. Changes may be viewed differently bu different individuals. It may be an opportunity for some
or a threat for others.
TYPES OF BUSINESS ENVIRONMENT

There are mainly two types of business environment, internal and external. A business has absolute control in
the internal environment, whereas it has no control on the external environment. It is therefore, required by
businesses, to modify their internal environment on the basis of pressures from external.
I. Internal Environment
The internal environment has received considerable attention by firms. Internal environment contains the owner
of the business, the shareholders, the managing director, the non-managers, employees, the customers, the
infrastructure of the business organization, and the culture of the organization.
It includes 6 Ms i.e.
– Man (Human Resource)
– Money (Financial Factors)
– Marketing Resources
– Machinery (Physical Assets)
– Management Structure and Nature
– Miscellaneous Factors (Research and Development, Company Image and Brand Equity, Value
System,
Competitive Advantage)
Usually, these factors are within the control of business. Business can make changes in these factors according
to the change in the functioning of enterprise.
Human Resource (MAN)
The human resource is the important factor for any organization as it contributes to the strength and weakness
of any organization. The human resource in any organization must have characteristics like skills, quality, high
morale, commitment towards the work, attitude, etc. The involvement and initiative of the people in an
organization at different levels may vary from organization to organization. The organizational culture and over
all environment have bearing on them. It is an internal factor and an organisation has absolute control on
changing this factor as per the needs of the enterprise and other forces.
Financial Factors (MONEY)
Factors like financial policies, financial positions and capital structure are another important internal factor
which has a substantial impact on business functioning and performance.
Financial facilities are required to start and operate the organisation. The sources of finance are share capital,
banking and other financial institutions and unorganised capital markets. The recent changes in the Indian
capital market indicate the availability of plenty of finance, both from the financial institutions as well as from
the general public.
Marketing Resources
Resources like the organization for marketing, quality of the marketing men, brand equity and distribution
network have direct impact on marketing efficiency of the company and thereby, affecting the decision making
component of the management. This, in lieu has great impact on the internal environment of business.
Physical Assets and Facilities
Facilities like production capacity, technology are among the factors which influences the competitiveness of
the firm. An organisation invests money in plant and machinery because it expects a positive rate of return over
cost in future. The revenue from the use of plant and machinery should be sufficient so as to cover the invested
money, operating costs, and generate enough profit to satisfy the organisation.

Management Structure and Nature
The structure of the organization also influences the business decisions. Being internal forces, the
organizational structure like the composition of board of directors influences the decisions of business. The
structure and style of the organization directly has an impact on the decision making decisions of a firm. These
needs to be appropriately managed for smooth functioning and operations. The strategies available to an
organisation are determined by its structure. Different strategies are better suited to different environments.
Thus, if an organisation has to thrive, its structure must fit its business environment in which it develops.
Miscellaneous Factors
(i) Research and Development: Though Research and Development needs are mostly outsourced from the
external environment but it has a direct impact on working, operations and decision making of the organization.
This aspect mainly determines the company’s ability to innovate and compete. R&D mainly results in
technological improvements of the Business environment.
(ii) Company Image and Brand Equity: The image of the company in the outside market has the impact on the
internal environment of the company. It helps in raising the finance, making joint ventures, other alliances,
expansions and acquisitions, entering sale and purchase contracts, launching new products, etc. Brand equity
also helps the company in similar manner.
(iii) Value System: The principles of right and wrong that are accepted by an individual or organisation are what
comprise value system. The value system of the founders and those at the helm of affairs has important bearing
on the choice of business, the mission and the objectives of the organization, business policies and practices.
(iv) Competitive Advantage: Competitor analysis is a critical aspect of analyzing the internal business
environment. Competitor’s actions affect the ability of the business to make profits, because competitors will
continually seek to gain an advantage over each other, by differentiating their product and service, and by
seeking to provide better value for money. It involves:
– identifying the actual competitors
– assessing competitors’ objectives, strategies, strengths & weaknesses, and reaction patterns
– selecting the strategies to deal with competitors.
The internal analysis of strengths and weaknesses focuses on internal factors that give an organization certain
advantages and disadvantages in meeting the needs of its target market thereby gaining the competitive edge
over the competitors.
II. External Environment XTERNAL ENVIRONMENT

The external environment of an organisation comprises of all entities that exists outside its boundaries, but have
significant influence over its growth and survival. An organisation has little or no control over its external
environment but needs to constantly monitor and adapt to these external changes. A proactive or reactive
response leads to significantly different outcomes.
There are two types of external environment
– Micro/Operating Environment
– Macro/General Environment
MICRO ENVIRONMENT
Micro Environment
The micro environment consists of the factors in the company’s immediate environment that affects the
performance and working of the company.
Micro environmental factors, internal factors close to a business that have a direct impact on its strategy
includes:
– Customers
– Employees
– Suppliers
– Shareholders
– Media
– Competitors
(i) Customers: Organizations survive on the basis of meeting ‘customer needs and wants’ and providing
benefits to their customers. Failure to do so will result in a failed business strategy. This includes offering
customers the best quality products at reasonable prices.
(ii) Employees: Employing the correct staff and keeping staff motivated is an essential part of an organization’s
strategic planning process. Training and development play a critical role in achieving a competitive edge;
especially in service sector marketing. Employees have a substantial influence on the success of the enterprise.
(iii) Suppliers: Suppliers provide businesses with the materials they need to carry out their manufacturing and
production activities. A supplier’s behaviour will directly impact the business it supplies. For example, if a
supplier provides a poor service, this could increase timescales or lower product quality. An increase in raw
material prices will affect an organization’s marketing mix strategy and may even force price increases. Close
supplier relationships are an effective way to remain competitive and secure quality products.
(iv) Shareholders: A shareholder is an individual that invests into company’s business. They own shares of the
company thereby end up owning the company itself. Therefore, they have the right to vote on decisions that
affect the operations of company. This means that shareholders affect the functions of the business.
(v) Media: Positive media attention can ‘make’ an organisation (or its products) and negative media attention
can ‘break’ an are required. Organizations need to mange the media so that it helps promote the positive things
about the organisation and conversely reduce the impact of a negative event on their reputation.
(vi) Competitors: Competitor analysis and monitoring is crucial if an organisation is to maintain or improve
its position within the market. If a business is unaware of its competitor’s activities, they will find it very
difficult to ‘beat’ them. The market can move very quickly, whether that is a change in trading conditions,
consumer behaviour or technological developments. As a business, it is important to examine competitors’
responses to the changes, so that firm can maximize the benefits.
Macro Environment
Macro environment is also known as general environment and remote environment. Macro factors are generally
more uncontrollable than micro environment factors. When the macro factors become uncontrollable, the
success of company depends upon its adaptability to the environment.
The macro environment is primarily concerned with major issues and upcoming changes in the environment.
The acronym for the macro analysis is “STEEP.” The five areas of interest are:
– Socio-Cultural and Demographics
– Technology
– Economic Conditions
– Ecology and Physical Environment
– Political and Legal
(i) Socio Cultural and Demographics:
Societal values and lifestyles change over time, and the most important of these; directly or indirectly
leave an impact on the business environment. For example, over the past generation, it has become acceptable
for women to work; people are not retiring at 65; and people are more aware of the environment etc.
The changes in culture and lifestyle may come from many sources: medical (smoking, healthy eating,
exercises); science (global warming, going ‘green’); economic (people working longer, women in the
workforce); cultural diversity (music preferences, foods, living accommodations, medicine); and technologies
(biodegradable plastic) are just a few examples.
Demographics refer to the size, density, distribution and growth rate of population. All these factors have a
bearing on the demand for various goods and services. For example, a country where population rate is high
and children constitute a large section of population, and then, there will be more demand for such products.
Similarly, the demand of the people of cities and towns are different than that of people of rural areas. The high
rise of population indicates the easy availability of labour. These encourage the business enterprises to use
labour intensive techniques of production. Moreover, availability of skilled labour in certain areas motivates the
firms to set up their units in such area.
(ii) Technology: Technology is understood as the systematic application of scientific or other organised
knowledge to practical tasks. Technology changes fast and to keep the pace with the dynamics of business
environment; organisation must be on its toes to adapt to the changed technology in their system. The business
in a country is greatly influenced by the technological development. The technology adopted by the industries
determines the type and quality of goods and services produced.
(iii) Economic Conditions: The economic conditions of a country refer to a set of economic factors that have
great influence on business organizations and their operations. These include gross domestic product, per capita
income, markets for goods and services, availability of capital, foreign exchange reserve, growth of foreign
trade, strength of capital market etc. All these help in improving the pace of economic growth.
– Economic Policies: All business activities and operations are directly influenced by the economic
policies framed by the government from time to time. Some of the important economic policies are:
• Industrial Policy
• Fiscal Policy Monetary Policy
• Foreign Investment Policy
• Export –Import Policy (EXIM Policy)
The government keeps on changing these policies from time to time in view of the developments taking place
in the economic scenario, political expediency and the changing requirement. Every business organization has
to function strictly within the policy framework and respond to the changes therein.
(iv) Ecology and Physical Environment: The ecology and physical environment plays a large part in many
businesses – especially for those which carry out production and manufacturing activities. Infact, business are
affected on daily basis due to environmental and ecological changes. For example, the impact of climate change
must be considered: water and fuel costs could change dramatically. Sugar factories are set up only at those
places where sugarcane can be grown. It is always considered better to establish manufacturing unit near the
sources of input. Further, government’s policies to maintain ecological balance, conservation of natural
resources etc. put additional responsibility on the business sector.
(v) Political and Legal: The political environment includes the political system, the government policies and
their attitude towards the business community. All these aspects have a bearing on the strategies adopted by the
business firms. The stability of the government also influences business and related activities to a great extent.
It sends a signal of strength, confidence to various interest groups and investors. Further, ideology of the
political party also influences the business organisation and its operations. Political changes are closely tied up
with legal changes.
Legal environment includes flexibility and adaptability of law and other legal rules governing the business. It
may include the exact rulings and decision of the courts. These affect the business and its managers to a great
extent. This refers to set of laws, regulations, which influence the business organisations and their operations.
Every business organisation has to obey, and work within the framework of law. Additionally, an industry may
have specific laws and regulations. For example, a pet store would deal with federal animal welfare and
prohibited pet laws as wells as state laws concerning animal cruelty, housing, veterinary care and so on.

ROLE OF FAMILY AND SOCIETY
Role of Family
A lot has been documented about the importance of the entrepreneur’s access to financial capital, as well as
educational achievement and progress, to the enterprise’s ultimate success. The family background of an
entrepreneur is often an unrecognized aspect of success. Few facts regarding the role of family for
entrepreneurs are:
 Two to three times more business is owned by the children of industrialists than those whose parents
don’t own a business. So it is pretty clear that, business ownership runs within the family but the
question here is does it lead to success?
 Entrepreneurs working in their family business before starting a business of their own, tend to be 10 to
40 percent more successful than they would be otherwise.
 The would-be entrepreneur gains valuable experience through informal learning and apprenticeship that
occurs while working in a family business.
 Who can teach us better than our own parents? A brilliant way of learning the “name of the game” of
running an own business is first working in the family business.
 Family business is a golden ticket for family members to hold human capital linked to operating a
business. It is not necessary to gain this experience in the same industry, probably because basic
business experience is what counts.
The major scope through which families shift their business success across generations is by working through
experience. However, a major drawback is the cycle of low rates of business ownership could be easily broken
and relatively worse business outcomes could be passed from one generation to the next. It is very important to
address the lack of opportunities to work in family businesses.
Role of Society
The major role of the society in entrepreneurship is support. Entrepreneurs contribute to the society in the
following ways:
 Business yields and allots products and services to meet certain public requirements. Business has to be
very flexible and frequent research on consumer demands should be done to increase profit.
 Entrepreneurs create job opportunities. Income is ensured through entrepreneurship. It is a very
important factor to consider.
 Entrepreneurship has its own contribution in the national well-being. It ensures it in different ways,
assisting the government to preserve and manage all kinds of public, social institutions and services, etc.
Entrepreneurs facilitate in enlightening and educating people and motivating their growth at a personal level.
Due to high level of competition in the market, it is important for both businessmen as well as their employees
to be involved in the constant process of learning and improving personal skills and abilities like creativity,
determination, communication skills and vision for new business chances.
ENTREPRENEURSHIP DEVELOPMENT PROGRAMMES(EDP):
EDP is a programme meant to develop entrepreneurial abilities among the people.
The concept of entrepreneurship development programme involves equipping a person with the required
skills and knowledge needed for starting and running the enterprise.

Small Industries Extension and Training Institute (SIET 1974), now National Institute of Small Industry
Extension Training (NISIET), Hyderabad defined EDP as “an attempt to develop a person as entrepreneur
through structural training”.
According to N. P. Singh (1985), “Entrepreneurship Development Programme is designed to help an individual

in strengthening his entrepreneurial motive and in acquiring skills and capabilities necessary for playing his
entrepreneurial role effectively. It is necessary to promote this understanding of motives and their impact on
entrepreneurial values and behaviour for this purpose.” Now, we can easily define EDP as a planned effort to
identify, inculcate, develop, and polish the capabilities and skills as the prerequisites of a person to become and
behave as an entrepreneur.
Objectives of EDP:
The major objectives of the Entrepreneurship Development Programmes (EDPs) are to:
a. Develop and strengthen the entrepreneurial quality, i.e. motivation or need for achievement.
b. Analyse environmental set up relating to small industry and small business.
c. Select the product.
d. Formulate proposal for the product.
e. Understand the process and procedure involved in setting up a small enterprise.
f. Know the sources of help and support available for starting a small scale industry.
g. Acquire the necessary managerial skills required to run a small-scale industry.
h. Know the pros and cons in becoming an entrepreneur.
i. Appreciate the needed entrepreneurial discipline.
j. Besides, some of the other important objectives of the EDPs are to:
k. Let the entrepreneur himself / herself set or reset objectives for his / her enterprise and strive for their
realization.
l. Prepare him / her to accept the uncertainty in running a business.
m. Enable him / her to take decisions.
n. Enable to communicate clearly and effectively.
o. Develop a broad vision about the business.
p. Make him subscribe to the industrial democracy.
q. Develop passion for integrity and honesty.
r. Make him learn compliance with law.
Course contents and curriculum of EDPs

1. General instruction to Entrepreneurship: Participants are exposed to a general knowledge of factors
affecting small scale industries, the role of Entrepreneurs in economic development and the facilities
available for establishing small scale industries.
2. Motivation Training: Induces and increases the needs for achievement among the participants. It is the
crucial input of Entrepreneurship training. It injects confidence and positive attitude among the
participants towards business sometimes successful Entrepreneurs are also invited to speak about their
experience in setting up and running a business.
3. Management skills: Running a business whether large or small requires the managerial skill participants
will be imported with basic and essential managerial skills in the functional areas like marketing,
finance, HR and production. It helps to run business smoothly.

4. Support system and procedure: The participants also needed to be exposed to the support available from
different institutions and agencies for setting up and running small scale enterprises.
5. Fundamentals of project feasibility study: Participants are provided guidelines on the e ective analysis
of feasibility or viability of the particular project in view of marketing, organization, technical, financial
and social aspects knowledge is also given how to prepare the projects or feasibility report for certain
products.
6. Plant Visits: In order to familiarize the participants with real life situation in small business, plant visits
are also arranged such trips help the participants know more about an Entrepreneur’s 8abours8n,
personality, thoughts and aspirations.
On the whole, the ultimate objective of Entrepreneurship training program is to make the trainees prepared to
start their own enterprise after the completion of the training program.
PHASES OF EDP’S
An Entrepreneurship development program consists of the following three phases:
Pre-training phase
Training phase
Post-training phase
Pre – Training Phase:

The activities and preparations required to launch the training program come together in the phase.
Selection of Entrepreneurs
Arrangement of infrastructure
Tie-up of guest faculty for the training purpose.
Arrangement for inauguration of the program
Selection of necessary tools, techniques to select the suitable Entrepreneurs
Formation of selction committee for selecting trainees.
Arrangement for publicity media and campaigning for the program.
Development of application form.
Finalization of training syllabus.
Pre-potential survey of opportunities available in the given environmental conditions.
Training Phase:
The main objectives of this phase is to bring desirable change in the 8abours8n of the trainees. In other
words, the purpose of training is to develop ‘need for achievement’ (i.e.,) motivation among the
employees/trainees. Accordingly, a trainer should see the following changes in the 8abours8n of the trainees.
1. Is he/she attitudinally tuned very much towards his/her proposed project ideas
2. Is the trainee motivated to plunge in to Entrepreneurial career and bear risk involved in it.
3. Is there any perceptible change in his Entrepreneurial attitude, outlook, skill, role etc.
4. How should he/she behave like an Entrepreneur?
5. What kind of Entrepreneurial traits the trainee lacks the most.
6. Whether the trainee possesses the knowledge of technology, resources and other knowledge related to
Entrepreneurship?
7. Does the trainee possess the required skill in selecting the viable projects, mobilizing the required
resources at right time.
Having trained the trainees, the trainees need to ask themselves as to how much and how far the trainees have
moved in their Entrepreneurial pursuits.

Post- Training phase (Follow up):
The ultimate objective of the Entrepreneurship development program is to prepare the participants to start their
enterprises. This phase involvement assessment to judge how far the objectives of the program had been
achieved, this is called Follow up.
In nutshell, the purpose behind the EDP follow up is to:
1. Review the pre-training work.
2. Review the process of training program
3. Review post training approach.
Evaluation of EDP:
Evaluation of EDP is necessary to see whether the objective of EDP’s is 9abours9 or not. In simple words, there
is a need to have a look into how many participants have actually started their own enterprises after completing
the training. This calls for evaluation of EDPs.
Problem faced by EDP:

1. Trainer – motivations are not found upto the mark in motivating the trainees to start their own enterprises.
2. ED organization lack in commitment and sincerity in conducting the EDPs.
3. Non-conductive environment and constraints make the trainer – motivators’ role ineffective.
4. The antithetic attitude of the supporting agencies like banks and financial institutions serves as stumbling
block to the success of EDPs.
5. Selection of wrong trainees also leads to low success role of EDPs.
CENTRAL AND STATE GOVERNMENT INDUSTRIAL POLICIES AND REGULATIONS –
With due attention to role of entrepreneurship in economy, government is interested to lead and guide
entrepreneur’s needs to capital, technology and other facilities for performing their activities. With approval
of laws and regulations, Governments can give necessary information and capital and provide to better
technology can help entrepreneurs. Government can also perform planning, draw policy and determine
strategy for helping entrepreneurs. In the early stages of sustained growth, government has often has often
provided the incentives for entrepreneurship to take hold. Some economies the support has been extended
even for transportation, power and other utilities by the government. The government has also offered
financial inducements and subsidies without financial intermediaries or brokers. Even during recession,
government gives investment support to the needy entrepreneurs during their course of business.
Promotional schemes provided by Government – Government has announced various schemes and benefits
for promoting the entrepreneurship in I. Some of them are as follows:
a) Tax Holiday- Under Section 80J of the Income Tax Act, 1961, new industrial undertakings, including
small-scale industries are exempted from the payment of income tax on their profits subject to a
maximum of 6% per annum of their capital employed. This exemption tax is allowed for a period of
five years from the commencement of production.
A small scale industry has to satisfy the following two conditions to avail of this tax exemption facility:
(i) The unit should not have been formed by the splitting or re-constitution of an existing unit (ii) The
unit should employ 10 or more workers in a manufacturing process with power or at least 20 workers
without power.

b) Depreciation- Under Section 32 of the Income Tax Act 1961, a small scale industry is entitled to a
deduction on depreciation account on block of assets at the prescribed rate. In the case of small scale
industry, deduction from the actual cost of plant and machinery is allowed subject to a maximum of Rs
20 Lakhs.
The amount of depreciation is calculated on the diminishing balance method. In case of an asset
acquired before the accounting period, depreciation is calculated on its written down value. For plant &
machinery that are used in manufacturing in double or triple shift, an additional allowance called “Extra
Shift Allowance” is available. The small scale industry should satisfy the following four conditions
before it becomes eligible for deduction in depreciation: (i) The assets must be owned by assesses (ii)
The assets must actually be used for the purpose of the assessee’s business or profession (iii)
Depreciation allowance or deduction is allowed only on fixed assets (iv) All the prescribed particulars
must be furnished to the Income Tax Officer as required under section 34 (1) of the Income Tax Act,
1961.
c) Rehabilitation allowance- It is granted to small scale industries under Section 33-B of the Income Tax
Act, 1961 whose business is discontinued on account of following four reasons: (i) Flood, typhoon,
hurricane, earthquake, or other natural upheavals (ii) Riot or civil disturbance (iii) Accidental fire or
explosion (iv) Action by an enemy or action taken in combating an enemy.
d) Investment allowance- Under Section 31A of the Income Tax Act, 1961, is allowed at the rate of 25%
of the cost of acquisition of a new plant or machinery installed. This allowance can be used for
installation of plant & machinery during current or immediate coming year.
e) Expenditure on scientific research- The following are the three deductions on scientific research: (i)
Any revenue expenditure incurred on scientific research related to the business of the assesses in the
previous year (ii) Any capital expenditure incurred on scientific research related to the business of the
assesses subject to the provision of Section 35(2) of the Income Tax Act, 1961.
f) Amortization of certain preliminary expenses- The Indian Companies and resident persons, under
Section 35D of the Income Tax Act 1961 are allowed to write – off the preliminary and development
expenses incurred by them in connection with the setting-up of a new industrial unit or expansion of an
existing industrial unit. Eg:- Legal charges for drafting agreements.
A small scale industry established in a backward area, under Section 80-HH, is allowed a deduction of
20% on its profits and gains provided the unit satisfies the following four conditions: (i) The unit
began its production after 31st Dec 1970 in any backward area of the country (ii) It is a newly
established unit in a backward area. It is neither split nor re-constituted out of a business already in
existence in any backward area (iii) It has not been formed by the transfer to a new business plant or
machinery which was previously used for any purpose in any backward area (iv) It employs 10 or more
workers in a manufacturing process with power or 20 or more workers without power.
g) Tax concessions to SSI in Rural areas – Under Section 80 – HHA, are entitled to a deduction of 20%
of the profits and gains derived by running small scale industries in rural areas. The deduction is allowed
for a period of 10 years from the year of commencement of manufacturing activity (Except Mining
activity) after 30th September 1977 only after fulfilling the following five conditions: (i) No splitting or re-
construction of business (ii) Not formed by transfer to a new business of machinery or plant previously
used for any purpose (iii) The accounts of the unit are audited by a chartered accountant (iv) It employs 10
or more workers in manufacturing process carried on with the aid of power or 20 or more workers in a
manufacturing process carried on without the aid of power (v) The unit does not claim a simultaneous
deduction under Section 80-HH of the Income Tax Act, 1961.

h) Tax concessions to SSI in Backward areas – The newly established small scale industries in these
backward areas specified in the Eighth Schedule to the Income Tax Act, 1961 are entitled to a deduction
of 20% of their profits & gains from their gross total income. This deduction is allowed for a period of
10 years beginning with the year of commencement of manufacture or production. A small scale
industry established in backward area but engaged in mining activity is not entitled to such deduction
benefit.
The unit must satisfy the following two conditions to avail the deductions: (i) It is established on
or after 31st Dec 1970 (ii) It employs at least 10 workers in a manufacturing process carried on with the
aid of power or at least 20 workers in a manufacturing process carried on without the aid of power.
i) Expenditure on Acquisition of Patents & Copyrights – Under Section 35-A of the Income Tax Act,
196, any expenditure of a capital nature incurred in acquiring a patent and copyright by a small scale
industry is deductible from its income. But the expenditure should be incurred after 28 th Feb 1966. The
expenditure can be deducted in 14 equal 11abours11nts beginning with the previous year in which the
expenditure was incurred in acquiring patents and copyrights for the units.
j) Profits from Business of publications of Books – Under Section 80-IA of the Income Tax Act 1961
which has replaced section 80-I w.e.f the assessment year 1991-92, 20% of the profits earned by a small
scale industry from the business of publication of books is deductible from its gross total income. The
deduction benefit is available for a total period of five years beginning with the assessment year 1992-
93.
Financial support provided by Government – Incentives, Grants and Subsidies are the financial aids provided
by various institutions either governmental or non-governmental. It is an effective tool to the entrepreneurship
promotion. They perform functions of promoter for a developing entrepreneur. The following are the support
provided by government:
a) Incentives – It is a motivational force which makes an entrepreneur to take a right decision and act upon
it. Broadly incentives include concessions, subsidies and bounties. The Incentives may be financial
incentives like seed capital, soft loan schemes, National Equity Fund Scheme; Fiscal incentives like
investment allowance, tax holidays, additional depreciation for new plant & machinery; General
incentives include price preference over medium and large scale units in public sector purchases and self-
employment schemes; Special incentives in backward areas like concessional finance scheme, transport
subsidy, income tax incentives; Reservation of items for exclusive manufacture in SSI like scheme with
simplified procedure.
There are other incentives provided by the Government to the entrepreneurs, exclusively for the Non-
Resident Indians to set-up new industries in their respective states and Women entrepreneurs include
special incentives, like 50% subsidy for building and machinery, rent subsidy, managerial grant, training
programs for women entrepreneurs having more than 80% women 11abours.
b) Subsidy – It denotes a single lump-sum which is given by a Government to an entrepreneur to cover the
cost. The term ‘Bounty’ denotes a bonus or financial aid given to an industry to help it to compete with
other units in country or in a foreign market. The objective of incentives is to motivate an entrepreneur to
set-up a new venture in the larger interest of the nation and the society. State Capital Subsidy, Interest
Subsidy, State Transport Subsidy, Subsidy for Technical Know-how, State capital investment subsidy and
sales tax concessions.
c) Grants – They are a kind of financial assistance in the form of money by the federal government to
eligible guarantee with no expectation that the funds will be paid back. It may be sanctioned against
specific programs, schemes, projects etc. For the entrepreneurial development.

STATE AND CENTRAL GOVERNMENT INSTITUTIONS
STATE LEVEL INSTITUTIONS:
 State Finance Corporations (SFCs)
 State Small Industries Development Corporations (SSIDC)
 District Industries Centers (DICs)
 Technical Consultancy Organizations (TCOs)
STATE FINANCE CORPORATIONS:

The State Finance Corporations (SFCs) are the integral part of institutional finance structure in the country.
SEC promotes small and medium industries of the states. Besides, SFCs are helpful in ensuring balanced
regional development, higher investment, more employment generation and broad ownership of industries.
At present there are 18 state finance corporations (out of which 17 SFCs were established under SFC Act
1951). Tamil Nadu Industrial Investment Corporation Ltd. established under Company Act, 1949, is also
working as state finance corporation.
Functions:
The important functions of State Finance Corporations are:
10. The SFCs grant loans mainly for acquisition of fixed assets like land, building, plant and machinery.
(ii) The SFCs provide financial assistance to industrial units whose paid-up capital and reserves do not exceed
Rs. 3 crore (or such higher limit up to Rs. 30 crore as may be specified by the central government).
(iii) The SFCs underwrite new stocks, shares, debentures etc., of industrial concerns.
(iv) The SFCs provide guarantee loans raised in the capital market by scheduled banks, industrial concerns, and
state co-operative banks to be repayable within 20 years.
Working of SFCs:
The government of I passed the State Financial Corporation Act in 1951 and made it applicable to all the States.
The authorized Capital of a State Financial Corporation is fixed by the State government within the minimum
and maximum limits of Rs. 50 lakh and Rs. 5 crore and is divided into shares of equal value which were taken
by the respective State Governments, the Reserve Bank of I, scheduled banks, co-operative banks, other
financial institutions such as insurance companies, investment trusts and private parties.
The shares are guaranteed by the State Government. The SFCs can augment its fund through issue and sale of
bonds and debentures, which should not exceed five times the capital and reserves at Rs. 10 Lakh
STATE SMALL INDUSTRIES DEVELOPMENT CORPORATIONS (SSIDC)

The State Small Industries Development Corporations (SSIDC) were sets up in various states under the
companies’ act 1956, as state government undertakings to cater to the primary developmental needs of the
small tiny and village industries in the state/ union territories under their jurisdiction. Incorporation under the
companies act has provided SSIDCs with greater operational flexibility and wider scope for undertaking a
variety of activities for the benefit of the small sector.
The important functions performed by the SSIDCs include:
● To procure and distribute scarce raw materials.
● To supply machinery on hire purchase system.
● To provide assistance for marketing of the products of small-scale industries.
● To construct industrial estates/sheds, providing allied infrastructure facilities and their maintenance.
● To extend seed capital assistance on behalf of the state government concerned provide management
assistance to production units.

DISTRICT INDUSTRIES CENTRE:
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:
Objectives of District Industries Centre (DIC):
Accelerate the overall efforts for industrialization of the district.
Rural industrialization and development of rural industries and handicrafts.
Attainment of economic equality in various regions of the district.
providing the benefit of the government schemes to the new entrepreneurs.
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):
10. Acts as the focal point of the industrialization of the district.
ii. Prepares the industrial profile of the district with respect to:
iii. Statistics and information about existing industrial units in the district in the large, medium, small as well as
co-operative sectors.
iv. Opportunity guidance to entrepreneurs.
v. Compilation of information about local sources of raw materials and their availability.
vi. Manpower assessment with respect to skilled, semi-skilled workers.

vii. Assessment of availability of infrastructure facilities like quality testing, research and development,
transport, prototype development, warehouse etc.
viii. Organizes entrepreneurship development training programs.
ix. Provides information about various government schemes, subsidies, grants and assistance available from the
other corporations set up for promotion of industries.
x. Gives SSI registration.
xi. Prepares techno-economic feasibility report.
xii. Advices the entrepreneurs on investments.
xiii. Acts as a link between the entrepreneurs and the lead bank of the district.
xiv. Implements government sponsored schemes for educated unemployed people like PMRY scheme, Jawahar
Rojgar Yojana, etc.
xv. Helps entrepreneurs in obtaining licenses from the Electricity Board, Water Supply Board, No Objection
Certificates etc.
xvi. Assist the entrepreneur to procure imported machinery and raw materials.
xvii. Organizes marketing outlets in liaison with other government agencies.
CENTRAL GOVERNMENT INSTITUTIONS

 Small Scale Industries Board (SSI Board)
 Small Industries Development Organization (SIDO)
 National Small Industries Corporation (NSIC)
 Industrial Finance Corporation of I
 Small Industries Service Institutes (SISI’s)
SMALL SCALE INDUSTRIES BOARD (SSI Board)

The government of I constituted a board, namely, Small Scale Industries Board (SSIB) in 1954 to advice on
development of small scale industries in the country. The SSIB is also known as central small industries board.
The range of development work in small scale industries involves several departments /ministries and several
organs of the central/state governments. Hence, to facilitate co-ordination and inter-institutional linkages, the
small scale industries board has been constituted. It is an apex advisory body 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 I is the chairman of the SSIB. The SSIB comprises of 50 members
including state industry minister, some members of parliament, and secretaries of various departments of
government of I, financial institutions, public sector undertakings, industry associations and eminent experts in
the field.
SMALL INDUSTRIES DEVELOPMENT ORGANIZATION:

Small Industries Development Organization (SIDO) is a subordinate office of the Department of SSI &
Auxiliary and Rural Industry (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 small scale industries, industrial estates, etc.
The main functions of the 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 created for
specific functions. At present, the SIDO functions through 27 offices, 31 Small Industries Service Institutes
(SISI), 37 Extension Centres, 3 Product-cum –Process Development Centres, and 4 Production Centres.
All small-scale industries except those falling within the specialized boards and agencies like Khadi and Village
Industries (KVI), Coir Boards, Central Silk Board, etc., fall under the purview of the SIDO.
The main functions performed by the SIDO in each of its three categories of functions are:
Functions Relating to Co-ordination:
a. To evolve a national policy for the development of small-scale industries,
b. To co-ordinate the policies and programmes of various State Governments,
c. To maintain a proper liaison with the related Central Ministries, Planning Commission, State
Governments, Financial Institutions etc., and
d. To co-ordinate the programmes for the development of industrial estates.
Functions Relating to Industrial Development:
a. To reserve items for production by small-scale industries,
b. To collect data on consumer items imported and then, encourage the setting of industrial units to produce
these items by giving coordinated assistance,
c. To render required support for the development of ancillary units, and
d. To encourage small-scale industries to actively participate in Government Stores Purchase Program by
giving them necessary guidance, market advice, and assistance.
Function Relating to Extension:
a. To make provision to technical services for improving technical process, production planning, selecting
appropriate machinery, and preparing factory lay-out and design,
b. To provide consultancy and training services to strengthen the competitive ability of small scale industries.
c. To render marketing assistance to small-scale industries to effectively sell their products, and
d. To provide assistance in economic investigation and information to small- scale industries.
NATIONAL SMALL INDUSTRIES CORPORATION:

The NSIC was set up in 1955 with the objective of supplying machinery and equipment to small enterprises on
hire purchase basis and assisting them in procuring government orders for various items of stores with a view to
promote any faster the development of SSI in the country. The Head Office of NSIC is at Delhi and it has four
regional offices at Delhi, Mumbai, Chennai and Kolkata and eleven branch offices. It has one Central liaison
office at Delhi and Depots and Sub-centers.
Functions:
The main functions of NSIC are:
To develop small scale units are ancillary units to large-scale industries.
To provide machines and equipments to SSI’s on hire-purchase basis.
To help enterprises to participate in the stores purchase programme of the Central government.
To assist small industries in marketing their products.
To make available the basis raw materials through their depots.
To import and meet the requirement of components and parts to actual small scale users in specific
industries.
To construct Industrial Estates and establish and run prototype production-cum training centres to carter the
need of prospective entrepreneurs.
The NSIC has taken up the challenging task of promoting and developing small-scale industries almost from
scratch and has adopted an integrated approach to achieve the socio-economic objectives.
SMALL INDUSTRIES SERVICE INSTITUTE:

The small industries service institutes (SISI’s) are set-up one in each state to provide consultancy and training
to small and prospective entrepreneurs. The activities of SISs are co-ordinate by the industrial management
training division of the DC, SSI office (New Delhi). In all there are 28 SISI’s and 30 Branch SISI’s set up in
state capitals and other places all over the country.
SISI has wide spectrum of technological, management and administrative tasks to perform.
Functions of SISI:
1. To assist existing and prospective entrepreneurs through technical and managerial counselling such as help in
selecting the appropriate machinery and equipment, adoption of recognized standards of testing, quality
performance etc;
2. Conducting EDPs all over the country;
3. To advise the Central and State governments on policy matters relating to small industry development;
4. To assist in testing of raw materials and products of SSIs, their inspection and quality control;
5. To provide market information to the SISI’s;
6. To recommend SSI’s for financial assistance from financial institutions;
7. To enlist entrepreneurs for partition in Government stores purchase programme;
8. Conduct economic and technical surveys and prepare techno-economic feasible reports for selected areas and
industries.
9. Identify the potential for ancillary development through sub-contract exchanges;
10. 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.
General EDP for educated unemployed youth, ex-service personnel etc. For a duration of four weeks. In these
programmes, classroom lectures and discussions are held on issues such as facilities and assistance available
from State and Central government agencies, banks, financial institutions and National Small Industries
Corporation.
Apart from this, exposure is given information regarding market survey, product identification and selection,
technologies involved, management of small enterprises, particularly in matters relating to financial
management, marketing, packaging and exports.
The participants also interact with successful small scale entrepreneurs as a part of their experience sharing
Information of quality; possibilities of diversification and expansion are also given.
The entrepreneurs are helped to prepare Project Reports based on their own observations and studies for
obtaining financial assistance as may be required. Such courses have benefitted many entrepreneurs to set up
units of their own choice.
INDUSTRIAL FINANCE CORPORATION OF INDIA:

Establishment:
The Industrial Finance Corporation of India was established on 1st July, 1948 under the Industrial Finance
Corporation Act, 1948 to provide financial assistance (medium and long-term) to large-scale industries all over
the country. On 1st July, 1997 the name of Industrial Finance Corporation of India was changed as ‘Industrial
Finance Corporation of India Limited’.
Objective:
The main object of Industrial Finance Corporation of India Limited is to provide financial assistance to large-
scale industrial units particularly at a time when the normal banking accommodation is inadequate and not
forthcoming to assist these industrial units. Industrial enterprises, organized on the basis of proprietary or
private limited company basis, cannot take loans from this corporation. Only the public limited companies are
eligible to take loans from it.
Functions:
The main functions of Industrial Finance Corporation of India Limited are as follows:
To grant medium and long-term loans ranging between Rs. 30 lakhs to Rs. 2 crores to large-sized industrial
units which are repayable within a period of 25 years.
To guarantee loans raised by the industrial units which are repayable within a period of 25 years.
To underwrite the issue of stocks, shares, debentures or bonds b industrial units but must dispose of such
securities within 7 years.
To issue debentures.
To accept public deposits up to Rs. 10 crores for a period of five years only.
To act as an agent for the Central Government and for the World Bank in respect of loans sanctioned by
them to industrial units.
To guarantee deferred payments by importers of capital goods, who are able to obtain this concession from
foreign manufacturers.
Government of India Support for Innovation and Entrepreneurship in India
The Government of India has undertaken several initiatives and instituted policy measures to foster a culture of
innovation and entrepreneurship in the country. Job creation is a foremost challenge facing India. With a
significant and unique demographic advantage, India, however, has immense potential to innovate, raise
entrepreneurs and create jobs for the benefit of the nation and the world.
In the recent years, a wide spectrum of new programmes and opportunities to nurture innovation have been
created by the Government of India across a number of sectors. From engaging with academia, industry,
investors, small and big entrepreneurs, non-governmental organizations to the most underserved sections of
society.
Recognising the importance of women entrepreneurship and economic participation in enabling the country’s
growth and prosperity, Government of India has ensured that all policy initiatives are geared towards enabling
equal opportunity for women. The government seeks to bring women to the forefront of India’s entrepreneurial
ecosystem by providing access to loans, networks, markets and trainings.
A few of India’s efforts at promoting entrepreneurship and innovation are:
Startup India: Through the Startup India initiative, Government of India promotes entrepreneurship by
mentoring, nurturing and facilitating startups throughout their life cycle. Since its launch in January 2016, the
initiative has successfully given a head start to numerous aspiring entrepreneurs. With a 360 degree approach to
enable startups, the initiative provides a comprehensive four-week free online learning program, has set up
research parks, incubators and startup centres across the country by creating a strong network of academia and
industry bodies. More importantly, a ‘Fund of Funds’ has been created to help startups gain access to funding.
At the core of the initiative is the effort to build an ecosystem in which startups can innovate and excel without
any barriers, through such mechanisms as online recognition of startups, Startup India Learning Programme,
Facilitated Patent filing, Easy Compliance Norms, Relaxed Procurement Norms, incubator support, innovation
focused programmes for students, funding support, tax benefits and addressing of regulatory issues.
Make in India: Designed to transform India into a global design and manufacturing hub, the Make in India
initiative was launched in September 2014. It came as a powerful call to India’s citizens and business leaders,
and an invitation to potential partners and investors around the world to overhaul out-dated processes and

policies, and centralize information about opportunities in India’s manufacturing sector. This has led to
renewed confidence in India’s capabilities among potential partners abroad, business community within the
country and citizens at large. The plan behind Make in India was one of the largest undertaken in recent history.
Among several other measures, the initiative has ensured the replacement of obsolete and obstructive
frameworks with transparent and user-friendly systems. This has in turn helped procure investments, foster
innovation, develop skills, protect intellectual property and build best-in-class manufacturing infrastructure.
Atal Innovation Mission (AIM): AIM is the Government of India’s endeavour to promote a culture of
innovation and entrepreneurship, and it serves as a platform for promotion of world-class Innovation Hubs,
Grand Challenges, start-up businesses and other self-employment activities, particularly in technology driven
areas. In order to foster curiosity, creativity and imagination right at the school, AIM recently launched Atal
Tinkering Labs (ATL) across India. ATLs are workspaces where students can work with tools and equipment to
gain hands-on training in the concepts of STEM (Science, Technology, Engineering and Math). Atal Incubation
Centres (AICs) are another programme of AIM created to build innovative start-up businesses as scalable and
sustainable enterprises. AICs provide world class incubation facilities with appropriate physical infrastructure
in terms of capital equipment and operating facilities. These incubation centres, with a presence across India,
provide access to sectoral experts, business planning support, seed capital, industry partners and trainings to
encourage innovative start-ups.
Support to Training and Employment Programme for Women (STEP): STEP was launched by the
Government of India’s Ministry of Women and Child Development to train women with no access to formal
skill training facilities, especially in rural India. The Ministry of Skill Development & Entrepreneurship and
NITI Aayog recently redrafted the Guidelines of the 30-year-old initiative to adapt to present-day needs. The
initiative reaches out to all Indian women above 16 years of age. The programme imparts skills in several
sectors such as agriculture, horticulture, food processing, handlooms, traditional crafts like embroidery, travel
and tourism, hospitality, computer and IT services.
Jan Dhan- Aadhaar- Mobile (JAM): JAM, for the first time, is a technological intervention that enables direct
transfer of subsidies to intended beneficiaries and, therefore, eliminates all intermediaries and leakages in the
system, which has a protential impact on the lives of millions of Indian citizens. Besides serving as a vital
check on corruption, JAM provides for accounts to all underserved regions, in order to make banking services
accessible down to the last mile.
Digital India: The Digital India initiative was launched to modernize the Indian economy to makes all
government services available electronically. The initiative aims to transform India into a digitally-empowered
society and knowledge economy with universal access to goods and services. Given historically poor internet
penetration, this initiative aims to make available high-speed internet down to the grassroots. This program
aims to improve citizen participation in the digital and financial space, make India’s cyberspace safer and more
secure,abd improve ease of doing business. Digital India hopes to achieve equity and efficiency in a country
with immense diversity by making digital resources and services available in all Indian languages.
Stand-Up India: Launched in 2015, Stand-Up India seeks to leverage institutional credit for the benefit of
India’s underprivileged. It aims to enable economic participation of, and share the benefits of India’s growth,
among women entrepreneurs, Scheduled Castes and Scheduled Tribes. Towards this end, at least one women
and one individual from the SC or ST communities are granted loans between Rs.1 million to Rs.10 million to
set up greenfield enterprises in manufacturing, services or the trading sector. The Stand-Up India portal also
acts as a digital platform for small entrepreneurs and provides information on financing and credit guarantee.

Trade related Entrepreneurship Assistance and Development (TREAD): To address the critical issues of
access to credit among India’s underprivileged women, the TREAD programme enables credit availability to
interested women through non-governmental organizations (NGOs). As such, women can receive support of
registered NGOs in both accessing loan facilities, and receiving counselling and training opportunities to kick-
start proposed enterprises, in order to provide pathways for women to take up non-farm activities.
Pradhan Mantri Kaushal Vikas Yojana (PMKVY): A flagship initiative of the Ministry of Skill
Development & Entrepreneurship (MSDE), this is a Skill Certification initiative that aims to train youth in
industry-relevant skills to enhance opportunities for livelihood creation and employability. Individuals with
prior learning experience or skills are also assessed and certified as a Recognition of Prior Learning. Training
and Assessment fees are entirely borne by the Government under this program.
National Skill Development Mission: Launched in July 2015, the mission aims to build synergies across
sectors and States in skilled industries and initiatives. With a vision to build a ‘Skilled India’ it is designed to
expedite decision-making across sectors to provide skills at scale, without compromising on quality or speed.
The seven sub-missions proposed in the initial phase to guide the mission’s skilling efforts across India are: (i)
Institutional Training (ii) Infrastructure (iii) Convergence (iv) Trainers (v) Overseas Employment (vi)
Sustainable Livelihoods (vii) Leveraging Public Infrastructure.
Science for Equity Empowerment and Development (SEED): SEED aims to provide opportunities to
motivated scientists and field level workers to undertake action-oriented, location specific projects for socio-
economic gain, particularly in rural areas. Efforts have been made to associate national labs and other specialist
S&T institutions with innovations at the grassroots to enable access to inputs from experts, quality
infrastructure. SEED emphasizes equity in development, so that the benefits of technological accrue to a vast
section of the population, particularly the disadvantaged.
INDUSTRIAL POLICIES & REGULATIONS
Industrial policy can be defined as a statement stating the role of government in industrial development, the
position of public and private sectors in industrialization of the country, the comparative role of large and
small industries.
Objectives
It enlists the rules and procedures that will monitor the growth and pattern of industrial activity. The industrial
policy is neither fixed nor flexible. It is constructed; modified and further modification is done according to the
changing situations, requirements and perspectives of developments.
The major objectives of industrial policy are discussed below.
Rapid Industrial Development
The industrial policy of the Government of India focuses at increasing the level of industrial development. It
explores ways to construct favorable investment environment for the private sector and also for mobilizing
resources for the investment in public sector. In this way, the government roots to promote rapid industrial
growth in the country.

Balanced industrial Structure
The industrial policy is crafted to correct the prevailing downgraded industrial structure. Say for example, India
had some fairly developed consumer products industries before independence but the capital goods sector was
not at all developed, also basic and heavy industries were by and large absent.
Thus, industrial policy had to be enclosed in such a way that imbalances in the industrial structure are corrected
by laying stress on heavy industries and development of capital goods sector. Industrial policy explores
methods to maintain balance in industrial structure.
Prevention of Concentration of Economic Power
The industrial policy explores to facilitate a borderline of rules, regulations and reservation of spheres of
activities for the public and private sectors. This is targeted at minimizing the dominating symptoms and
preventing focus of economic power in the hands of a few big industrial houses.
Balanced Regional Growth
Industrial policy also targets at correcting differences of region in industrial development. It is a well-known
fact that some regions in our country are quite developed industrially, like Maharashtra and Gujarat, while
others are marked as industrially backward regions, like Bihar and Orissa. It is the job of industrial policy to
amend some programs and policies, which will result in the development of industries or industrial growth.
The first industrial policy statement of the Government of India was formed in 1948 and was modified in 1956
in industrial development policy dominated by the public sector till 1991 with some minor modifications and
amendments in 1977 and 1980.The year 1991 noticed far reaching changes that were made in the 1956
industrial policy. The new Industrial Policy of July 1991 witnessed the border outline for industrial
development at present.
INDUSTRIAL POLICY RESOLUTION 1956
In April 1956, the Indian Parliament adopted Industrial Policy Resolution of 1956 (IPR 1956). It is marked as
the first comprehensive documented statement on industrial development of India. It systematizes three
different groups of clearly defined industries.
The policy of 1956 regulated to design the basic economic policy for a very long time. The Five-Year Plans of
India confirmed this fact. With respect to this Resolution, the establishment of a socialistic pattern of society
was seen through the objective of the social and economic policy in India. It ensured more powers to the
governmental authorities.
Companies were grouped into categories. These categories were −
 Schedule A − Those companies which were considered as an exclusive responsibility of the state or the
society.
 Schedule B − Companies which were marked as progressively state-owned and in which the state
would basically establish new companies, but in which private companies would be anticipated only to
supplement the effort of the state.

 Schedule C − The left companies and their future development would, in general, be neglected and
would be entirely dependent to the initiative and enterprise of the private sector.
Even though there was a category of companies left to the private sector that is those companies that are above
Schedule C. The sector was monitored by the state by a system of licenses. So to set up a new company or to
widen production, obtaining a license from the government was a prerequisite to be fulfilled. Launching of new
companies in economically backward areas was incentivized through easy licensing and subsidization of
important inputs, like electricity and water. This step was taken to encounter regional differences that existed in
the country. In fact, the license to boost the production was issued by convincing the government that the
economy required more of the products and services.
Some other salient behavior of the IPR 1956 was fair and non-biased treatment for the private sector,
motivating the village and small-scale companies, eradicating regional differences, and the requirement for the
provision of amenities for labor, and attitude to foreign capital. This Industrial Policy of 1956 is also referred to
as the Economic Constitution of the country.
Policy Measures
Some of the essential policy measures were declared and procedural simplifications were undertaken to opt for
the above stated objectives. Following are some of the policy measures −
Liberalization of Industrial Licensing Policy
A list of goods demanding compulsory licensing is reviewed on an ongoing regular basis. Currently, only six
industries are monitored under compulsory licensing mainly on account of environmental, safety and strategic
considerations that need to be taken care of. In the same way, there are only three industries reserved
specifically for the public sector. The lists of goods under compulsory licensing and industries reserved for the
public sector are included in Appendix III and IV respectively.
Introduction of Industrial Entrepreneurs' Memorandum (IEM)
Companies which don’t require compulsory licensing are expected to file an Industrial Entrepreneurs'
Memorandum (IEM) to the Secretariat for Industrial Assistance (SIA). Industrial approval is not needed for
these types of exempted industries. Amendments are also permitted to IEM proposals filed after 1.7.1998.
Liberalization of the Locational Policy
A crucially reformed locational policy in tune with the liberalized licensing policy is in place. Approval from
industries are not required from the Government for locations not within the range of 25 kms of the periphery
of cities having a population of more than one million apart for those industries, where industrial licensing is
compulsory. Non-polluting enterprises like electronics, computer software and printing can be located within
25 kms of the periphery of cities with more than one million population. Other industries are allowed in such
locations only if they are located in an industrial area so designated prior to 25.7.91. Zoning and follow land use
regulations as well as environmental legislations.

Policy for Small Scale Industries
Reservation of goods that are manufactured exclusively for small scale industries ensures effective measure for
protecting this sector. Since 24th December 1999, entrepreneurial undertakings with a maximum investment up
to rupees one crore are within the small scale and ancillary sector.
Non-Resident Indians Scheme
The general policy and provisions for Foreign Direct Investment as available to foreign investors or company
are completely applicable for NRIs as well. With addition to this, the government has broadened some
concessions mostly for NRIs and overseas corporate bodies having more than 60% stake by the NRIs. These
include investment by NRI/OCB in the real estate and housing sectors, domestic airlines sector up to
100%.They are also permitted to invest up to 100% equity on non-repatriation basis in all activities except for a
small negative list.
EHTP vs STP Scheme
For constructing strong electronics company along with a view to modify export, two schemes viz. Electronic
Hardware Technology Park (EHTP) and Software Technology Park (STP) are in function. Under EHTP/STP
scheme, the inputs are permitted to be procured free of duties.
Policy for Foreign Direct Investment (FDI)
Promotion of FDI forms a vital part of India's economic policies. The role of FDI in boosting economic growth
is by way of infusion of capital, technology and modern management activities. The Department has put in
place a liberal and transparent foreign investment egime where all the practices are opened to foreign
investment on automatic route without any limit on the extent of foreign ownership.
INTERNATIONAL BUSINESS
International business includes commercial transactions such as private, governmental, sales, investments,
logistics, and transportation that occurs between two or more countries apart from their political boundaries.
Generally, such transactions are undertaken by private sector companies to generate profit. The government
sector also undertakes them to earn profit as well as for political reasons.
The term “international business” describes business activities which are engaged in cross-border
transactions of products, services, resources between two or more nations. Transaction of economic
resources comprises of capital, skills, people, etc. For international production of physical products and
services. For example, finance, banking, insurance, construction, etc.
Importance of International Business

The International Business principles stresses on the following:
Creating awareness of the interdependency of one nation’s political policies and economic practices on
another nation or nations.
Learning to improvise international business relationships by using appropriate communication strategies and
techniques.
Acknowledging the global business environment, the relationship the nation’s share through their cultural,
political, legal, economic, and ethical systems with one another.
Seeking clarity on concepts of international finance, management, marketing, and trade relations.
Specifying forms for ownership of enterprises and international business opportunities.
By stressing on the above points, entrepreneurs will gain a better and clear understanding of political economy.
These are raw materials that would help future entrepreneurs to build a bridge between the economic and
political gap between countries.
Factors considered in International Business

Business at an international level is also affected by various factors. These can be due to the physical location
of the country or due to some political matters in the country.
Some of the major factors in business are as follows:
Geographical factors: Many different geographical factors like the geographical size, the climatic
challenges occurred recently, the available natural resources in a specific region, the population distribution in a
nation, etc. Affect international business.
Social factors: The internal factors or happenings inside a nation also plays a very important role in internal
business. These include:
o Political policies: Political conflicts, mostly those that result in military confrontation can disturb
trade and investment.
O Legal policies: National and international laws have a crucial role in framing how an enterprise can
operate overseas.
Behavioural factors: In a foreign unknown surrounding, the related studies like anthropology, psychology
and sociology assists the managers to have a better understanding of values, attitudes and beliefs.
Economic forces: Economics explains the differences among countries in terms of costs, currency values
and market size.
Basic Modes of Entry

Modes of entry into international markets are the Internet, Licensing, International Agents, International
Distributors, Strategic Alliances, Joint Ventures, Overseas Manufacture and International Sales Subsidiaries.
Licensing: Licensing is where the own organization charges fee or royalty for the use of the technology or
brand.
International agents and distributors: Agents are individuals or organizations those who deal with
business/marketing on your behalf in any country. Agents represent more than one organization and for this one
needs to set some targets to check the level of commitment of the agent. They tend to be expensive to recruit,
retain and train.
Strategic Alliances: It describes a series of different relationships between companies that market
internationally.
Joint ventures: It means working equally, i.e. a new company is set up with parties owning half of the
business.
Overseas Manufacture or International Sales Subsidiary: It means the organization invests in plant,
machinery and labor in the overseas market. This is also known as Foreign Direct Investment (FDI).
These were the basic modes describing how international marketing is initiated between two nations or more.
Risk of International Business

Business at national as well as international level is all about taking risks, nothing is certain and an entrepreneur
has to take chances or risks to earn profit. These risks can at times give fruitful result and at times may lead to
losses.
Given below are some of the major risks faced in international business:

Strategic Risk
An organization should always be prepared, acknowledge the competition and be ready to face it on the
international market. Many companies or competitors would prove to be good to be the replacement for
products or services of an unrecognized company. An excellent, creative and innovative strategy will help and
make a company successful.
Operational Risk
A company should acknowledge the production costs and make sure there is no waste of time and money. If the
expenditures and costs are monitored properly, it will create and maintain efficient production and also help for
internationalization.
Political Risk
How a government monitors a nation deeply affects the operations of a company. The nation might have a
corrupted, hostile, totalitarian government but this is a negative picture of government around the globe. A
company’s reputation and status can change if it functions in a nation monitored by that type of government.
An unstable political situation proves to be risky for multinational firms. Any unexpected event like elections or
any other political event can change the complete situation of a nation and put a company at risk.
Technological Risk
Technological development brings in many benefits, along with some disadvantages. Like lack of security
measures in electronic transactions, higher cost of developing new technology, and the fact that these new
technology may fail. When all of these paired with an old fashioned outdated existing technology, the result
invites new dangerous effect in doing business at the international level.
Environmental Risk
Companies that set up supplementary or factory outside the residential country are expected to be conscious
regarding the externalities they will produce. Negative externalities include noise, pollution or some other
disturbances like, natural calamities, etc. The mass may want to fight against the company to maintain a natural
and healthy environment or nation. This type of condition can change the customer’s point of view regarding
the firm and create a negative image.
Economic Risk
Economic risks arise due to inability of a nation to satisfy its financial obligations. It is very difficult to conduct
international business due to changing foreign investment or domestic fiscal or monetary policy because of the
effect on exchange rate and interest rate.
Financial Risk
A nation has financial risks due to the fluctuating currency exchange rate, government flexibility in allowing
the companies to repatriate profits or funds outside the nation. Also, the taxes that a company pays have the
probability of either being advantageous or not. It might be more or less in the host or strong nations.
Terrorism Risk
A terrorist attack opposite to a company or a nation is done intentionally to hurt or cause damage by violence. It
is hatred that pushes people to do it and it is usually based on a religion, culture, political ideas, etc. Thus, it is
very difficult to operate where the surrounding is tensed and scary and in countries that are likely to be
attacked.
Bribery Risk
Bribery is a global issue. Multinational companies must be careful and concerned about it. Companies
functioning or marketing at the international level have a major role on combating bribery accompanied by the
governments, trade unions, etc.
**********

ED - Unit II

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ED - Unit II

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UNIT II

Features of business environment are as follows:

TYPES OF BUSINESS ENVIRONMENT

BA5014 - ENTREPRENEURSHIP DEVELOPMENT - Unit II Lecture Notes IJCE 2

II. External Environment XTERNAL ENVIRONMENT

BA5014 - ENTREPRENEURSHIP DEVELOPMENT - Unit II Lecture Notes IJCE 5

ENTREPRENEURSHIP DEVELOPMENT PROGRAMMES(EDP):

EDP is a programme meant to develop entrepreneurial abilities among the people.

BA5014 - ENTREPRENEURSHIP DEVELOPMENT - Unit II Lecture Notes IJCE 6

According to N. P. Singh (1985), “Entrepreneurship Development Programme is designed to help an individual

Course contents and curriculum of EDPs

BA5014 - ENTREPRENEURSHIP DEVELOPMENT - Unit II Lecture Notes IJCE 7

Pre – Training Phase:

BA5014 - ENTREPRENEURSHIP DEVELOPMENT - Unit II Lecture Notes IJCE 8

Problem faced by EDP:

CENTRAL AND STATE GOVERNMENT INDUSTRIAL POLICIES AND REGULATIONS –

BA5014 - ENTREPRENEURSHIP DEVELOPMENT - Unit II Lecture Notes IJCE 9

BA5014 - ENTREPRENEURSHIP DEVELOPMENT - Unit II Lecture Notes IJCE 10

BA5014 - ENTREPRENEURSHIP DEVELOPMENT - Unit II Lecture Notes IJCE 11

STATE FINANCE CORPORATIONS:

STATE SMALL INDUSTRIES DEVELOPMENT CORPORATIONS (SSIDC)

BA5014 - ENTREPRENEURSHIP DEVELOPMENT - Unit II Lecture Notes IJCE 12

BA5014 - ENTREPRENEURSHIP DEVELOPMENT - Unit II Lecture Notes IJCE 13

CENTRAL GOVERNMENT INSTITUTIONS

SMALL SCALE INDUSTRIES BOARD (SSI Board)

SMALL INDUSTRIES DEVELOPMENT ORGANIZATION:

NATIONAL SMALL INDUSTRIES CORPORATION:

SMALL INDUSTRIES SERVICE INSTITUTE:

INDUSTRIAL FINANCE CORPORATION OF INDIA:

Government of India Support for Innovation and Entrepreneurship in India

A few of India’s efforts at promoting entrepreneurship and innovation are:

BA5014 - ENTREPRENEURSHIP DEVELOPMENT - Unit II Lecture Notes IJCE 17

BA5014 - ENTREPRENEURSHIP DEVELOPMENT - Unit II Lecture Notes IJCE 18

INDUSTRIAL POLICIES & REGULATIONS

The major objectives of industrial policy are discussed below.

Rapid Industrial Development

BA5014 - ENTREPRENEURSHIP DEVELOPMENT - Unit II Lecture Notes IJCE 19

Prevention of Concentration of Economic Power

Balanced Regional Growth

INDUSTRIAL POLICY RESOLUTION 1956

Companies were grouped into categories. These categories were −

BA5014 - ENTREPRENEURSHIP DEVELOPMENT - Unit II Lecture Notes IJCE 20

Liberalization of Industrial Licensing Policy

Introduction of Industrial Entrepreneurs' Memorandum (IEM)

Liberalization of the Locational Policy

BA5014 - ENTREPRENEURSHIP DEVELOPMENT - Unit II Lecture Notes IJCE 21

Non-Resident Indians Scheme

EHTP vs STP Scheme

Policy for Foreign Direct Investment (FDI)

Importance of International Business

Factors considered in International Business

Basic Modes of Entry

Risk of International Business

BA5014 - ENTREPRENEURSHIP DEVELOPMENT - Unit II Lecture Notes IJCE 23

BA5014 - ENTREPRENEURSHIP DEVELOPMENT - Unit II Lecture Notes IJCE 24

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