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A Guide on Starting MSME in India - Part II

Updated on June 4, 2010

Steps For Setting Up MSME Unit in India

A Manufacturing Enterprise   may be :

Micro - Investment in Plant & Machinery above Rs. 25 lakhs

Small - Investment in Plant & Machinery Rs. 5 Crore.

Medium - Investment in Plant & Machinery Rs. 10 Crore.

According to the Small Scale Service & Business Enterprises (SSSBE), the categorzation is as per:

Micro - Investment in Plant & Machinery above Rs. 10 lakhs

Small - Investment in Plant & Machinery Rs. 2 Crore.

Medium - Investment in Plant & Machinery Rs. 5 Crore.

The major skills that one should have to become an entrepreneur are :

- positive thinking

- Self confidence

- Goal setting

- Initiative

- Courage

- Determination

2. Selection of the product based on market survey

3. Form of ownership can be - Proprietary concern, - Partnership, - Limited company, or   - Cooperative society

4.  Factor determining the Location of the enterprise  are:-

- Nearness to market and nearness to raw materials.

- Early availability of transport facility at cheaper rates.

- Availability of skilled workers at cheaper rates.

- Incentives/concessions for industrially backward areas

5. Land & Building :- Availability industrial sheds and with minimum investment

6. Preparation of the project report :-

- Technical feasibility.

- Economic viability.

- Total cost of the project-fixed as well as working capital.

7. Registration :-

- Whom to approach-depending upon the location of the factory.

- Permanent and temporary registration.

8. Finance :- (for fixed assets & working capital)

- Whom to approach - Bank, private financial Institutions, Govt. agencies, UPFC, etc.

- Types of scheme.

9. Statutory Licenses/clearances :- e.g.

- Manufacture of drugs Cosmetics

- State Drug controller/Drug Control Administration.

- Manufacture of fruits and vegetable based products (FPO)

- D.D Food, Vegetable Preservation, Ministry of Agriculture

- Power connection

- State Electricity Board

- Pollution Control

- State Pollution Control Board and so on.

10. Purchasing of Machinery :-

- NSIC provides indigenous and imported machinery to MSMEs on hire purchase basis. The rate of earnest to be paid varies from 15 to 30%.

11. Recruitment of personnel :-

- Well qualified - skilled & unskilled

- Well experienced skilled & unskilled

- Minimum wage rate prevalent

12. Installation of machinery.

13. Power connection / water supply

14. Procurement of raw materials :-

- Minimum stock

- Easily available

- Find substitutes

- Lower rates

15. Production :-

- Know the installed capacity.

- Less rejections

- Quality control & testing.

16. Marketing :-

- Advertisement and publicity

- Channel of distribution

- After sales service, if required

- Feed back from customer.

17. Repayment of loans

18. Profit generation

19. Avoiding sickness

- Modernization and technology upgradation

Registration of Micro, Small and Medium Enterprises:

Registration of an existing or proposed small scale enterprise is voluntary and not compulsory. It has no statutory basis. But, registration is beneficial for the enterprise itself because it makes the unit eligible for availing the benefits given by the Central or State Governments for the promotion of MSMEs. Some of the incentives so obtained by them relate to credit guarantee scheme, priority sector lending, capital subsidy, reduced customs duty, ISO-9000 certification reimbursement, power tariff subsidies, exemptions under tax laws, etc.

The State Directorate or Commissioner of Industries or District Industries Centres (DICs) are the concerned authorities for registration of small scale units. This registration is both location specific and product specific. Like in certain State capitals and metropolitan cities, it is granted to only those units which are located in the designated industrial areas/estates.

A small scale unit is generally subjected to two types of registration. Initially, a provisional registration is granted for the proposed enterprise. It is termed provisional because the enterprise is yet to come into existence. It is granted for a specified period of time during which the unit is expected to be setup. A Provisional Registration Certificate (PRC) enables the unit to obtain :- (i) term loans and working capital from financial institutions, banks under priority sector lending; (ii) facilities for accommodation, land and other approvals; (iii) no objection certificates (NOCs) and clearances from regulatory bodies such as pollution control board, labour regulations, etc.

Once the unit has commenced commercial production, it is granted permanent registration. It is a life time registration given after physical inspection of the enterprise and scrutiny of certain documents. Some of the formalities required to be completed for seeking permanent registration are:-

  • Clearance from the municipal corporation
  • State pollution control board clearance
  • Sanction from the electricity board
  • Ownership/tenancy rights of the premises where unit is located
  • Copy of partnership deed/Memorandum of articles of association in case of a private limited company
  • Sale bill of product manufactured
  • Sale bill of each end product
  • Purchase bill of each raw material
  • Purchase bill of machinery installed
  • BIS/QC certificate if applicable
  • An affidavit giving status of the unit, machinery installed, power requirement, etc.
  • The registration certificate so issued by the concerned authority is seen as a proof of the unit being a small scale unit. It enables the unit to get several concessions like:-

- Income tax exemption and Sales tax exemption as per the State Government policy.

- Incentives and concessions in power tariff, etc.

- Price and purchase preference for goods produced.

- Availability of raw material depending on existing policy.

Though, provisional registration is not compulsory for getting a permanent registration. But, a provisional certificate enables the unit to apply to the various departments and agencies for assistance in setting up of the enterprise.

Such a registration procedure is generally uniform across the States. However, there may be some modifications done by individual States. For example, certain States may have a 'SIDO registration scheme' and a 'State registration scheme'. But, whatever be the registration scheme, the main purpose is to maintain statistics and a roll of such units for providing incentives as well as to create nodal centres at the Centre, State and District levels to promote MSMEs. It gives recognition to the industrial unit and helps in generating a database for policy planning.

A small scale unit may also become liable for de-registration, if it crosses the investment limits; starts manufacturing any new item or items that require an industrial license or other kind of statutory license; or does not satisfy the condition of being owned, controlled or being a subsidiary of any other industrial undertaking.



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