11287.Handbook for MSME Entrepreneur

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Foreword

Introduction to the MSME Sector

Knowledge on Bank Loans

Preparation on Bank Loans

Preparation of a Project Report

NEIIPP

Central Subsidy Schemes

Central Transport Subsidy Scheme,2007

Central Capital Investment Subsidy Scheme,2007

Central Interest Subsidy Scheme, 2007

Central Comprehensive Insurance Scheme

Operational Guidelines of NEIIPP,2007

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Foreword

Mr Dipak ChakravartyChairman,CII Assam State Council&

Managing Director, Numaligarh Refinery Limited

A dynamic MSME sector is the backbone of a growing economy as it not only creates employment

opportunities, income and assets but also constitutes the entrepreneurial hub in the country. In India

this sector , constituting over 90% of total enterprises of the country has been considered as the

engine of growth . The liberalization process have thrown open many new opportunities for the

sector , which is witnessing a steady growth with significant investments and accounting for highest

rates of employment growth and major share of industrial production and exports.

However, this sector in the Northeast is still in a nascent stage and is plagued with a wide array of

issues. Access to Finance, Market linkages, Quality , Productivity and cost management are the

some of the critical areas which needs to be addressed to make the sector competitive and ready to

take advantage of the opportunities emerging for this sector Confederation of Indian Industry

accords high priority to the development of micro, small and medium enterprises and provides :

Effective and integrated assistance to enable them to grow and contribute significantly to the

nations economy.

Institutional linkages to ensure sustainable competitive advantage.

This handbook has been developed by CII on how they can take advantage of the various schemes ,

policies and loan facilities provided by Banks and Financial Institutions. I hope this handbook will

be of immense help for the entrepreneurs while developing proposal for project finance from bank

and institutional credit.

Handbook for MSME EntrepreneurHandbook for MSME Entrepreneur

Introduction to the MSME Sector

Before we go into the in-depth analysis of the growth of the MSME Sector in the north east, let us

first get a clear idea on what is MSME.The following chart will give us an insight into the sector

wise categorisation of this sector:

Sector Manufacturing(Original Investment In) Service( Original InvestmentIn)

Micro Plant and machinery Up to Rs 25 lacs Equipment up to Rs 10 lacs

Small Plant and machinery Rs 25 lac-5 Cr Equipment Rs 10 lacs- 2 Cr

Medium Plant and machinery Rs 5-10 Cr Equipment Rs 2-5 Cr

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Priority Sector Lending:

large sections of the population, the weaker sections and the sectors which are employment-

intensive such as agriculture, and tiny and small enterprises.

Bank's lending to the Micro and Small Enterprises is reckoned for priority sector advances. Lending to

Medium enterprises is not eligible to be included for the purpose of computation of priority sector

lending.

In order to ensure that sufficient credit is available to micro enterprises within the MSE sector,

banks should ensure the following:

(a) 40 per cent of the total advances to MSE sector should go to micro (manufacturing) enterprises

having investment in plant and machinery up to Rs. 5 lakh and micro (service) enterprises having

investment in equipment up to Rs. 2 lakh ;

(b) 20 per cent of the total advances to MSE sector should go to micro (manufacturing) enterprises

with investment in plant and machinery above Rs. 5 lakh and up to Rs. 25 lakh, and micro (service)

enterprises with investment in equipment above Rs. 2 lakh and up to Rs. 10 lakh. Thus, 60 per cent

of MSE advances should go to the micro enterprises.

Priority sector lending includes only those sectors as part of the priority sector, that impact


(c) While banks are advised to achieve the 60% target as above, the allocation of 60% of the MSE

advances to the micro enterprises is to be achieved in stages viz. 50% in the year 2010-11, 55% in

the year 2011-12 and 60% in the year 2012-13.

Special Bank branches for MSME

Public sector banks have been advised to open at least one specialized branch in each district.

The banks have been permitted to categorize their MSME general banking branches having 60%

or more of their advances to MSME sector, as specialized MSME branches for providing better

service to this sector as a whole.

MARKET LINKAGE

Government will actively encourage trade with neighboring countries and countries in South

East Asia such as :

a) Reimbursement of 50% of the rent/fee paid by the unit for participation in Trade fair/

exhibition sponsored or recognized by Government within India Subject to a ceiling of

Rs.10, 000.

b) Reimbursement of 50% of the transport cost incurred on exhibits for participation in

Government sponsored/ recognized trade fair/ exhibition in South East Asia subject to a

ceiling of Rs.50, 000.00 per exhibition.

c) A unit can avail this benefit for a maximum three times.The Industries Department will

make adequate provisions forimplementing the incentive.

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Guidelines for delayed payment of dues to the MSE borrowers

(i) The buyer to make payment on or before the date agreed on between him and the supplier in

writing or, in case of no agreement before the appointed day. The agreement between seller and

buyer shall not exceed more than 45 days.

(ii) The buyer fails to make payment of the amount to the supplier, he shall be liable to pay

compound interest with monthly rests to the supplier on the amount from the appointed day or, on

the date agreed on, at three times of the Bank Rate notified by Reserve Bank.

(iii) For any goods supplied or services rendered by the supplier, the buyer shall be liable to pay the

interest as advised at (ii) above.

(iv) In case of dispute with regard to any amount due, a reference shall be made to the Micro and

Small Enterprises Facilitation Council, constituted by the respective State Government.

TIME FRAME FOR DISPOSAL OF LOAN APPLICATIONS MADE BY THE MICRO SMALL

ENTERPRISES

up to a credit limit of Rs. 25,000/-, within 2 weeks

and those up to Rs.5 lakh within 4 weeks

(provided the loan applications are complete in all respects and accompanied by a 'check

list')

UNIQUE FEATURE OF MSME LENDING

Perception of high credit risk

Lack of transparent credit information

Lack of Collaterals

Reluctance to submit stock statement

Diversion of fund

High propensity of loan impairment

Credit Rating in evolution stage

Poor Management

INTERNAL REASONS

Lack of co-ordination with Govt. Depts. / FI

Inadequate support from Controlling Office / Legal / Technical cell

Inadequate organizational arrangements

CGT SCHEME

Lack of skilled / technical staff for appraisal of Hi-tech projects


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TO SUM UP

MSMEs while starting up aim to break barriers and graduate to large business conglomerates

Hundreds of success stories could be quoted where MSMEs with a start turnover of Rs.1 crore to

Rs.10 crores have become large corporates with turnover of over Rs.1000 crores within a decade

apart from diversifying and expanding.

But business enterprise is a passion and it should be looked at with maturity and tinkered at every

stage of growth with appropriate rebalancing in terms of financial strength, human capital and

product strength.

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Knowledge on bank loansApproaching a bank successfully for getting a loan is one of the major concerns of Small and

Medium entrepreneurs in North East India. The main expectations of the borrowers are easy

and quick accessibility to loan funds, which are available in the form of several bank schemes.

Purchase of capital assets such as machines and equipments, and meeting working capital

requirements, are the main reasons for approaching a bank for a loan.

The banks on the other hand have a number of schemes to provide credit services to small

entrepreneurs but their outreach is often restricted, as they do not consider the entrepreneurs

creditworthy. Entrepreneurs are often disqualified for not being able to prepare a project correctly;

failure to convince about repayment capacity, either from the project or from other sources; lack of

proper marketing arrangement; and also due to the absence of a proper business plan. In addition,

there is a prevailing notion that the people in the NER of India are by and large not bankable!

This view is largely held by bankers, perhaps due to higher proportion of NPA shown in bank

statistics as well as banking experience shared by colleagues who have served in the north eastern

region of India. This notion is gradually fading with the successes of micro credit programmes in

the region, which have been reported by various organizations from the grass roots: and also as a

result of the emergence of successful small entrepreneurs in the region over the last few years,

most of whom have grown with the help of commercial bank finance.

The future looks bright with the growing entrepreneurial confidence shown by a section of small

entrepreneurs; their integrity and competence have been observed by financial and

developmental organizations all over the country.

It is generally agreed that it is not possible to do business by entrepreneurs without financial

services support from banks. Banks being professionally run organizations have developed various

schemes and services and are prepared to serve the potential entrepreneurs. The big questions

here are: whether the small entrepreneurs, community organizations and non-government

organizations have the correct approach for accessing finance purely for commercial purpose

from the banks? Are they prepared to approach the bank for a second loan?

In the NER, there are several issues which arise while sanctioning loans to small and medium

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Handbook for MSME EntrepreneurHandbook for MSME Entrepreneursector entrepreneurs. Most of the bankers are from outside the region and therefore knowledge

about the region is definitely scanty in the beginning. Then when they come to the region, the

feedback they get would veer around the problem of bad recovery history in the region. Their

tenures here are also short say, for 2/3 years, and by the time they understand theregion, they

are transferred back.

Overview of the Credit Market in North East India

The North Eastern region (NER) of India comprise of 8 states with a population of 39.93 million as

per 2001 census, which accounts for 3.8 per cent of the total population of the country. A large

portion of this population live in the Brahmaputra and Barak valley and the rest are spread

across the upland areas of the region. Banking infrastructure in the region has been established

to meet the credit and savings needs of this population.

During the period 1994 to 1999 the growth of bank branches in the entire country was 4.35 per

cent while the North Eastern region witnessed a growth rate of 2.31 per cent. By contrast, the

percentage of rural branches, are much higher in the region (61.9 per cent) as compared to the

rest of the country (50.9 per cent). As of March 2002, the number of rural branches in the entire

NER stood at 1,254, in semi-urban area at 373 and in area urban 258 with a total of 1,885

branches. However, viability of rural branches is a matter of concern in the NER with a low

recovery rate at 17 per cent.

Bank clients on the other hand need to improve their approach to strengthen their access to

credit and maintain sound relationship with banks.

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Preparations for a Bank Loan

Preparation for a Bank Loan is an important responsibility of the Borrower, which is often

overlooked while approaching a bank for a loan. Generally a person looking for bank loan to

finance a new project or even for working capital finance overlook a number of things that they

should be responsible for producing before a bank officer.

The following usually happens:

The borrower meets the banker often without an appointment. Very rarely, one wouldfind

someone meeting a bank manager with an appointment. On meeting the banker for the

first time, the entrepreneur spends substantial time introducing one-self and talking

casually about their proposal without much preparation.

Thereafter, several meetings are arranged and, in each meeting the banker would raise a

new query. The reason being, at the very first meeting the borrower did not provide

complete information about the project, nor gave relevant information required to make a

decision for giving a loan. As a result, the entrepreneur becomes frustrated; and often, first

generation entrepreneurs give up their initiative for starting a business with a bank loan.

If at all the banker decides to give the loan after several meetings, considerable amount of

valuable time will have already been spent.

In general, the entrepreneur ends up not receiving the loan from the bank due to lack of

proper information regarding the project as well as about his credibility or his ability to

repay the loan. In fact, the borrower has failed to convince the banker the feasibility and

viability of the project. For example, he has failed to explain how the loan is going to be

utilised, what the expected returns from the project are and whether the returns will be

sufficient to repay the loan.

The broad framework for fulfilling such borrower responsibilities are given below:

a) General approach: What do you need to take along when you first meet the banker?

You may take time to get the documents below, but having them before the first meeting is

desirable. This shows that the borrower is serious. The banker is a very busy man and

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Handbook for MSME EntrepreneurHandbook for MSME Entrepreneurtherefore, things, which can be submitted at the first meeting itself for him to read later

helps the process.

b) Preparation for the First Visit

Things to carry

- A concrete project report. Bankers want to see something in black and

white.

Training, exposure visits, contracts with machinery providers should

be documented and placed.

Market survey needs to be shown.

The banker would like to see somebody who has the money, perhaps

to make a fixed deposit. Therefore proof of assets of the

company/person should be there. Only the people who are moneyed

get the loan. Even the dress matters! If the customer is going with a

friend or the consultant, they need an introduction, and this should be

kept in mind too.

Land documents must be there. Miyadi patta/ original sales deed in

the borrower's name is needed along with Jamabandi papers. If this is

not available, then a lease deed for at least ten years should be there

to show that land is no problem.

If there are any insurance (life) papers then the surrendered value

paper from the concerned organizations (These papers are required

for mortgage only) should be brought along. If available, fixed deposit

account papers could be also submitted.

A 'no objection certificate' from the existing commercial banks of the

area.

Land valuation papers from approved quantity surveyor.

Registration of the unit, either with SSI/ DICC/Sales Tax

Department(VAT Registration)

Issues to discuss regarding the project needs to be listed and thought through. So that

the issues could be discussed precisely and clearly.

Entrepreneurs need to keep and maintain financial books and records such as:

personal expenditure account, labour wage record, tax account, insurance premium

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Handbook for MSME EntrepreneurHandbook for MSME Entrepreneurrecord, savings and investment record, record of subsidies received if any, etc. In

addition, if one has already started the business, then one needs to maintain and

furnish yearly profit and loss accounts, cash flow statement and balance sheet of the

business. A book of accounts reflects the business character of the borrower, which is

more important for banks for a check on his or her personal character than a guarantor's

recommendation.

Next, the borrower must be ready to patiently wait for the decision of the banker.

It is important to take note finally, that an entrepreneur should take at least a year to

conceptualise and think through the project or the business venture for which he

proposes to borrow money from the bank. This will also help him to remain focused on

his business goals.

c) Guidelines for preparation of a Project Report

Presentation of a project report to the banker shows the borrowers character as a true

professional. A neatly presented project report for a commercial loan reflects the character

of the borrower as one who has discipline. It leads the banker to believe that he is perhaps

likely to apply the same discipline in his business and in the utilization of the bank loan.

The project report therefore needs to be prepared by appraising the project and then

incorporating the appraisal in the business plan. The different types of appraisal that

are used in formulating a project are outlined below:

q Technical appraisal This consists of a number of aspects regarding the entire

business operation. For example, it will deal with environmental or health hazards

related to the raw materials used in the production process or the residues and

production wastes. It ascertains that there is no change in the manufacturing process;

estimates the production capacity of the plant; whether any future expansion of the

plant be required; the extent to which the product mix-requirement change; examines

the optimum level of production, plant lay out, water supply, power supply, raw material

specification, input requirement for running the plant such as fuel and lubricants; and

whether the plant is suitably located. Furthermore, it also examines the extent of quality

standard norms the unit might need to maintain as per industry requirement.

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q Commercial appraisal This is usually done with respect to number of product range

that is feasible to produce; sales volume for the market; identifying various segments

of the market that the product will possibly cover; marketing network; dealer and

retailer coverage; and price margins at various level of the market chain or the supply

chain. It also assesses the number of competitors and the extent of competition in the

various markets and different market segments. Therefore, the focus of this section

will be the commercial feasibility and viability of the enterprise project in question

within the commercial environment. It also takes into account pricing policy,

packaging, transportation, distribution channels and sales promotion strategies. Profit

margins are examined as per the product mix and the possible change is sometimes

recommended in the product mix to maximize profits.

q Financial Appraisal- This appraisal determines the financial position of the unit after

examining the value of the assets and current liabilities of the entrepreneur. It

examines the financial requirement of the unit as per the technical and commercial

appraisal. Estimated working capital requirements are also worked out for expected

level of capacity utilization. Application for a loan from a bank or from any other formal

financial institution, especially to set up a new enterprise needs to have the following

analysis done in the project report:

Break-Even Analysis- The break-even analysis is done to find the break-even

point i.e., the point, at which the enterprise makes neither profit nor loss, and can

just recover the cost of production. To calculate the break-even point, two types of

costs are to be taken into account: Fixed Cost and Variable Cost.

Fixed Costs are the following: salaries and wages; repairs and maintenance

costs; administrative expenses; fixed selling expenses; fixed royalty and

know-how payments; interest on debt (i.e., interest on bank loans or other

forms of credit); and depreciation (in the experts' language it is the 'straight line

depreciation').

Variable Costs are those that are incurred in the following: Raw materials;

outside purchase; purchase of goods for resale; consumable stores and

spares; packing material; power, fuel and water; royalty payments linked to

sales; variable selling expenses; interest on working capital; and variable

proportions varying in addition to outputs.

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onContributi

Cost Fixed

Cost Variable Price Sales

Cost Marginalor Cost Fixedpointeven -Break The ==

Contribution = Sales Realistion Variable Cost

Break-even points can be of three types:

Volume of production to calculate this figure, the break-even point is multiplied by the projected

volume of production, for example:

volumeproduction estimatedonContributi

Cost Fixedpointeven -Break The =

Percentage of installed capacity - To calculate the break-even point as the percentage of

installed capacity it is multiplied with the average installed capacity. For example - To calculate the

break-even point as the percentage of installed capacity it is multiplied with the average installed

capacity. For example :

(%)capacity installed averageonContributi

Cost Fixed capacity installed of % aseven -Break =

%30%903000

1000=

Amount of sales - Similarly, the break-even as the amount of sales is calculated by multiplying

the break-even point by estimated/ or budgeted sales.

Debt service Coverage Ratio (DSCR): This ratio is one, which indicates the capacity of the unit

to repay term loan and interest on the loan thereafter. It can be calculated during the entire

repayment period separately for each year and also as an average for the entire repayment

period.

rentals Lease loan on termIntetest termofRepayment

Rentals Lease loan on termInterest on Depritiati Tax after Profit DSCR

++

+++=

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Fixed Assets Coverage Ratio: Term loans are normally given against the security of fixed assets.

When there is excess of fixed assets over term loans provide margin on security then this ratio is

worked out to find the available security cover.

Debt-Equity Ratio- This ratio indicates the relationship between term liabilities and owned funds

and helps in assessing the capital gearing. Debt is cheaper to finance a project as compared to

equity owing to taxation policy. But certain amount of equity is required to cushion for debt. The

higher the debt equity ratio, lower will be the margin available to the banker for its term loans. The

instalment of term loan (debt) repayable within one year and preference capital redeemable within

one year is treated as current liability and excluded in the long-term debt equity ratio calculation.

There are four methods for understanding the profitability of the project of which the last two

methods are usually used reliably by most financial institutions for project finance to assess the risk

as it takes into account the time value of money.

Payback Method-This method is estimated for recovering the entire investment made in the

project. Although the calculation of the payback period method is simple, it ignores the time

value of money.

Average Rate of Return Method- In this method the entire life of the project is taken into

account, unlike the payback period. The annual operating profit (after depreciation) for the

entire life of the project is taken and the rate of return on original investment and average

investment is calculated. The average profit is divided by original investment as well as

average investment to get the rate of return on them.

Net Present Value (NPV) - This is calculated by discounting the cash flow for all the years

during the expected life of the project and is discounted at a pre-determined cut off rate and

the present value is obtained. This rate should equate with the cost of fund that the

entrepreneur will have to pay as interest on loans. When the NPV is positive at this rate or at

the rate of cost of capital the project proposal is accepted. On the other hand, if the NPV is

zero, it indicates that the total earning from the project is equal to the cost of funds that the

entrepreneur will have to pay. If the NPV is negative, the bank will not accept the project

proposal. The several discount rates are used to discount the projected cash flow from the

project until a rate is found when the NPV is zero. This discount rate is the Internal Rate of

Return.

Internal Rate of Return- This return is calculated to assess the return from the project in

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relation to the interest rate charged by the financial institution. If the Internal Rate of Return is

higher than the Bank's interest rate, the project is considered to be viable.

Organisational Appraisal- This appraisal is done to assess the organizational strength and

weakness of the organization in relation to the vision and mission statement, strategic objectives

and operational goals of the organization.

a) Working Capital Requirement

Financial feasibility with regards to linkage with other plants is also examined in much detail. In

addition, finally keeping in view the future cash flow the repayment schedule is drawn of existing

loans and additional term loans. Further the following information may be submitted along with the

application for working capital requirements:

Turnover Ratios: This indicates the extent to which gross working capital is turned around in a

year. It further indicates the level of holdings of various inventories and receivables. The ratios

given below are very useful for banks providing working capital finance to judge the efficiency

of the management in utilization of inventories and recovery of receivables:

sales/12 Gross

sreceivable+materials packing Spares,

+progressin Work +goods Finished+stock material Raw

(months) ratio holding ratioCurrent =

year/12 theduring consumed material Raw

materials raw ofStock (months) ratio holding materials Raw =

year /12 theduring used stores Consumable

shares ofStock (months) ratio Holding Stores =

/12production ofCost

process-in- workofStock (months) ratio process-in-Work =

sold/12 goods ofCost

goods finished theofStock (months) ratio Holding Goods Finished =

sales/12 Gross

)discounted billsfor liability

contingent (including sReceivable

(months) ratio Collection =

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sales/12 Gross

sreceivable+materials packingSpares,+

progressin Work +goods Finished+stock material Raw

(months) ratio Holding AssetsCurrrent =

Furthermore, the efficiency with which capital assets have been used and comparison with similar

enterprises in the same industry as well as the relationship between total value of goods sold and

funds deployed can be understood with the help of the following ratios:

payable rentals lease Future +asset fixedNet

al)(Operation incomeother + salesNet (times) ratio assets Fixed toIncome Total =

Creditors-Provisions -AssetsCurrent

+ Investment + payable rentals lease Future +Assets FixedNet

l)operationa-(non incomeOther

+ al)(operation incomeOther + salesNet

(times) ratio around turn Capital =

Working capital management of the business would also consider the following financial indicators:

production growth rate, growth in sales, quick ratio, current ratio, net profit to sales, gross profit to

sales, and return on investment, which needs to be also worked out particularly when the business

is in operation for several years. These ratios could be calculated in the following way:

sLiabilitieCurrent

AssetsQuick RatioQuick =

sLiabilitieCurrent

AssetsCurrent RatioCurrent =

100Sales

proftNet Sales Profit toNet =

a) Business Plan for a New Venture

A business plan is important to convince a banker about the probable success of the

enterprise or venture for which financial assistance is sought from the institution. In order to

improve upon your business plan, it is always helpful to discuss your business plan with

your consultant and also take the help from local businesspersons in your district town or

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your city. For example, you could discuss your business plan with a member of your local

business community, particularly issues related to: supply chain, procurement, marketing,

pricing, etc.

One the other hand, for machines used in your manufacturing plant you could, apart from

consulting a technical consultant (who would usually be a company representative or an

independent consulting firm), discuss with local fabrication and electrical businesses.

There could be persons in your locality who are familiar with machines in your proposed

unit. So these people are invaluable community assets for you as a beginner.

We would like to present to you the salient features of a business plan that is recommended

for small and medium scale industrial projects. If you prepare a project report in this

manner, you are likely to ful-fill a major responsibility for producing a comprehensive project

proposal for acquiring finance from the bank. The following steps are explained in a logical

sequence.

Business Concept: This the first section of the business plan that explains the type of

business; the industry and the nature of the market in which the business is going to be

established; the product range to begin with; the objective of the business and the

business strategy that the entrepreneur is going to follow to establish the business in

the market.

Industry Setting: This section describes the industry setting in terms of the size of the

market, number of markets, suppliers for the business, the long-term focus and trend

on the future of the market in which the products are going to be sold. The market

situation in terms of the legal and institutional matters related to the industry.

Marketing Strategy:The marketing strategy is one of the most important features of

the business plan. This is one of the sections that the banker is keen to look at before

disbursing a loan. The section should describe the target market of the products,

distribution structure, sales network, promoters and promotion.

Operating Strategy:In this section the discussion should revolve around the basic

elements of operation of the business, such as: the use of specific technology; use of

different facilities; procurement system; and general operation management policies.

Investment plan: In this section the investment plan should be a 'logical extension' of

the production and marketing plan, the choice of technology and the location of

16

Handbook for MSME EntrepreneurHandbook for MSME Entrepreneurtechnology in which the investments are going to be made. This section should also

give the timing of investment during the course of project implementation.

Resource Mobilization:The section of the project would discuss the existing capital

requirement, and a brief outline of the financial plan. It is useful to take the help of a

financial consultant to work out the financial plan. In projects dealing in sectors with a

large number of sub-sectors such as agriculture or entertainment, it is useful to take

the support of a technical consultant along with the financial consultant for preparing

the financial plan.

Resource Allocation:There are mainly three types of resources in a business

enterprise: financial, human and raw material for production. This section discusses

the allocation of human resources, raw materials and financial resources as per the

business strategy and internal business decisions of the enterprise.

Performance: This section discusses how the performance of the business would be

monitored as per the business targets set by the enterprises. For example, the

performance monitoring in terms of sales and profitability targets.

We would like to present to you the salient features of a business plan that is

recommended for small and medium scale industrial projects. If you prepare a project

report in this manner, you are likely to ful-fill a major responsibility for producing a

comprehensive project proposal for acquiring finance from the bank. The following steps

are explained in a logical sequence.

Business Concept: This the first section of the business plan that explains the

type of business; the industry and the nature of the market in which the business is

going to be established; the product range to begin with; the objective of the business

and the business strategy that the entrepreneur is going to follow to establish the

business in the market.

Industry Setting: This section describes the industry setting in terms of the size

of the market, number of markets, suppliers for the business, the long-term focus and

trend on the future of the market in which the products are going to be sold. The

market situation in terms of the legal and institutional matters related to the industry.

Marketing Strategy:The marketing strategy is one of the most important

features of the business plan. This is one of the sections that the banker is keen to look

at before disbursing a loan. The section should describe the target market of the

products, distribution structure, sales network, promoters and promotion.

17

Handbook for MSME EntrepreneurHandbook for MSME Entrepreneur Operating Strategy:In this section the discussion should revolve around the

basic elements of operation of the business, such as: the use of specific technology;

use of different facilities; procurement system; and general operation management

policies.

Investment plan: In this section the investment plan should be a 'logical

extension' of the production and marketing plan, the choice of technology and the

location of technology in which the investments are going to be made. This section

should also give the timing of investment during the course of project

implementation.

Resource Mobilization:The section of the project would discuss the existing

capital requirement, and a brief outline of the financial plan. It is useful to take the

help of a financial consultant to work out the financial plan. In projects dealing in

sectors with a large number of sub-sectors such as agriculture or entertainment, it is

useful to take the support of a technical consultant along with the financial consultant

for preparing the financial plan.

Resource Allocation:There are mainly three types of resources in a business

enterprise: financial, human and raw material for production. This section discusses

the allocation of human resources, raw materials and financial resources as per the

business strategy and internal business decisions of the enterprise.

Performance: This section discusses how the performance of the business would

be monitored as per the business targets set by the enterprises. For example, the

performance monitoring in terms of sales and profitability targets.

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PREPARATION OF A PROJECT REPORT

While preparing detailed project report (DPR), some of the necessary information and documents

required are given as below :

a) Indicative Information Required In Detailed Project Report (DPR)

b) Indicative Checklist of Documents to be submitted with the Detailed Project Report (DPR)

These are the indicative and guideline to the entrepreneurs / consultants to help in preparing

detailed project report which can be submitted to the banks or financial institutions.

INDICATIVE INFORMATION REQUIRED IN DETAILED PROJECT REPORT

COMPANY/FIRM

1. Memorandum and Articles of Association with certificate of incorporation.

2. IEM/DIC registration

PROPOSAL

1. What is the project proposal, cost of the project, Equity or promoter/self contribution and

Term Loan.

2. What is the proposed capacity of the project?

3. What is the proposed capacity utilization?

BACKGROUND OF PROMOTERS/DIRECTORS AND THEIR EXPERIENCE

1. Detailed bio-data of each inter-alia name, Father's / Husband's name, age, qualifications

and experience in the proposed line of activity and other fields.

2. Promoters' place of residence, permanent and temporary and address for communication,

telephone numbers and e-mail id.

3. Detail experience of the Promoter, particularly in business management of present activity.

4. Proposed shareholding pattern and definite source of meeting the commitment of

promoters' contribution.

5. Details of Associated business along with the balance sheet and profit & loss account for

the last three years.

6. Income tax return for the last three years.

7. Details of networth

19


BACKGROUND OF THE PROJECT

1. For existing unit, describe in detail, the experience, background and operational

details of the unit.

2. For existing organization getting into new business, write details of the reason getting

in to the new business.

3. What are the reasons for your going into the project?

4. Audited Balance Sheet, Profit & Loss account for the last three years, in case of

existing unit.

ORGANIZATIONAL STRUCTURE AND MANAGEMENT

1. Existing and proposed organizational Chart.

2. Number of Managers, Supervisors, Workers - Skilled, Unskilled etc.

3. Availability of adequate manpower. What arrangement is done to ensure qualified and

adequate manpower.

TECHNOLOGY/COLLABORATION

1. Describe type of technology being proposed.

2. Is the level of technology high or low?

3. A note on the performance of various units based on the same/similar technology in

the region/country.

4. Technical competency you command over the proposed technology.

5. Name of the Machinery suppliers, their reputation, their past business in the same

state/area.

6. Latest Price Quotation of the machinery, equipment.

7. Any technical arrangement/tie-up? If yes, Name & Address of the collaborator.

8. A detailed note on important terms and conditions of the collaboration agreement

relating to performance guarantee of the plant with regard to quality and output, buy-

back arrangement, assistance to marketing etc.

9. Note on the background of the collaborators.

1. PRODUCT, MARKETING AND SELLING ARRANGEMENT

1. Uses of the product.

2. Industry analysis and major competitors.

20


3. Demand and supply position indicating the demand supply gap. The published

data on these aspects should be submitted.

4. In case, exports are envisaged, furnish the comparative advantages of the

product in the export market.

5. Details of marketing & selling arrangements.

LOCATION AND LAND

1. Proposed location of the project and advantage.

2. Details of land such as area, nature of possession viz. ownership, leasehold. Non-

encumbrance certificate etc.

3. Description on the proposed location and site of the project. Distance from the main

market, and reasons/advantages thereof i.e. distance from the raw material source,

distance from the market from finish goods, availability of labour, power, water,

infrastructure, communication/transport and other factors related to the proposal.

4. Status of the land allotted , whether it is industrial or agricultural land. Status of

necessary clearances for conversion of land use.

5. Whether location/site is prone to natural calamities such as Earthquake, Flood, Cyclone,

flood, landslide etc.

6. NOC from concerned Authorities such Local/Village authorities with non- encumbrances

certificate.

PROCESS

1. Detailed description of the process involved in manufacture of the product.

2. Process flow-chart/Block diagram of the process.

3. Salient features of the process with justification.

4. Quality control measures.

5. Arrangement made for effluent treatment.

RAW MATERIAL & CONSUMABLES

1. Raw materials/consumables required for manufacture of the product.

2. Present price of various inputs along with three quotations of each raw material.

3. Demand supply of critical raw materials and consumables.

4. Industry report/analysis

5. Arrangement for procurement of raw materials.

21


6. Detail analysis of the raw material requirement.

UTILITIES

1. Different type of utilities existing/proposed to be installed.

2. Consumption and cost per unit output.

3. A note on:-

1. Power: Estimation of connected power requirement, sanctioned load & tariff

rate. Status of sanction of requisite power load from SEB. Is the power

regular?

2. DG Set: Capacity required

1. Water: Quantity of water required, storage capacity, arrangement proposed for

obtaining the requisite amount of water.

2. Fuel: Quantity required, storage capacity and arrangements proposed for

procurement.

3. Compressed air and Steam: Quantity required existing/proposed arrangement

4. Natural Gas: Quantity required existing/proposed arrangement

DETAILS OF ENGINEERING CONSULTANTS, TECHNICAL CONSULTANTS AND

ARCHITECHTS

1. Their experience in the same field or on similar projects/plants. A list of various jobs

handled in the past, scope of work handled earlier and job presently handling.

2. Scope of work of the consultant/architects.

COST OF THE PROJECT

1. Land: Break-up of the cost of land and site development.

2. Building & Civil Works: Approved civil drawings of the building showing plan/elevation

and cost estimates.

3. Plant & Machinery: The details of plant & machinery with price quotation. The details

of delivery schedule, performance guarantee, lay out etc.

4. Details of Misc. Fixed Assets includes furniture & fixtures and equipment other than

the main machines.

5. Preliminary & Pre-operative expenses including interest during construction period.

6. Details of working capital and its arrangement.

22


OTHERS

1. Implementation Schedule.

2. Status of various Govt. approvals required for implementation of the project.

3. Copies of applications made for working capital to a bank.

4. Copies of applications/letter sent to other financial institutions involved, if any, in case of

joint financing with these institutions.

Financial Analysis

1. Project cost and Means of Financing

2. Detailed profitability estimates along with the assumptions of profitability,

3. Cash Flow Statement,

4. Projected Balance Sheet,

5. Financial Ratios

6. Repayment Schedule

LAND DOCUMENTS

1. If on lease -

1. Registered lease deed

2. NOC from lessor to create mortgage

3. Title Investigation Report

2. If owned -

1. Pattas/Registered sale deeds

2. Certified to be true copy of Jamabandi

3. Certified to be true copy of Chitha

4. Non Encumbrance Certificate

5. Land revenue payment receipt

6. Trace map

7. Search reports

8. Valuation report

9. Title Investigation Report

23


INDICATIVE CHECKLIST OF DOCUMENTS TO BE SUBMITTED WITH THE DETAILED

PROJECT REPORT

PROPOSAL

1. Brief write up on existing experience i.e. background and conceptualization of the proposal.

2. A write up of the present proposal

3. Justification of the proposal

COMPANY/ FIRM/ASSOCIATED COMPANIES

1. Memorandum and Articles of Association with Certificate of Incorporation/Registered

Partnership Deed.

2. Registered office and Operating office address with telephone, fax, email-id etc

3. Annual Report of the Company, in case of existing (containing Audited Balance Sheet,

Profit & Loss account) for last three years.

4. Existing Bankers, credit sanction letter, present outstanding and latest bank loan

statement.

5. ITR of the Company for the last three years.

6. Annual Report of Associated Company/s (containing Audited Balance Sheet, Profit & Loss

account) of the Company for the last three years.

7. ITR of the Associated Company/s for the last three years.

8. Detailed Address for communication.

9. Credit Rating from external Agency, if any, and a copy.

10. PAN card of the Company.

11. IEM Number and Registration copy.

12. DIC Registration Copy.

13. NEIIPP 2007 registration copy.

14. Certificate of Excellence/ISO Certificates.

15. Application for Sanction of Power to the State Electricity Board and sanction letter, if

sanctioned.

16. Land allotment Letter/ Patta or lease deed.

24

Handbook for MSME EntrepreneurHandbook for MSME Entrepreneur17. Environmental Clearance from Ministry of Environment & Forest, if applicable.

18. Consent to Establish / NOC from Pollution Control Board.

19. Mining plan approval from Indian Bureau of Mines/Ministry of coals.

20. Clearance from the Chief controller of explosive.

21. A write up on availability of water

22. Approved building plan and Construction Permission from concerned authority.

23. Other related Govt. approvals / Registration required for the project

24. Clearance / Permission from Local Bodies

25. Any other statutory clearances

26. Proposed shareholding pattern and source of meeting the commitment.

27. Quotations from 3 suppliers for each plant/ machinery item

28. Machinery layout plan

29. Details of existing and proposed manpower such as Number of Managers, Supervisors,

Workers (Skilled, Unskilled etc.)

30. Details of key personnel with details of experience

31. Profile of the Machinery suppliers

PROMOTERS/DIRECTORS

1. Detailed bio-data of each inter-alia age, qualifications and past experience

2. Proof of Address, Phone Number, e-mail id etc.

3. Balance sheet for the last three years

4. Income Tax Returns for the last three years.

5. Banking details if Loan, sanction, outstanding, credit report.

6. Net-worth Statement

7. PAN CARD

8. Balance Sheet /P & L Statement of Associate Companies/Firms

9. Banker details of Associated Companies

10. Certificates of qualifications & excellence

25


NORTH EAST INDUSTRIAL AND INVESTMENT PROMOTION POLICY (NEIIPP)

The Government has approved a package of fiscal incentives and other concessions for the North

East Region namely the 'North East Industrial and Investment PromotionPolicy (NEIIPP),

2007', effective from 1.4.2007, which, inter-alia, envisages the following:

(i) Coverage:

The North East Industrial Policy (NEIP), 1997 announced on 24.12.1997 covered the States of

Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland and Tripura. Under NEIIPP,

2007, Sikkim will also be included. Consequently, the 'New Industrial Policy and other concessions

for the State of Sikkim' announced vide O.M. No.14(2)/2002-SPS dated 23.12.2002 and the

Schemes thereunder i.e. Central Capital Investment Subsidy Scheme, 2002, Central Interest

Subsidy Scheme, 2002 and Central Comprehensive Insurance Scheme, 2002, notified vide

Notifications No. F.No.14(2)/2002-SPS dated the 24.12.2002 will be discontinued from 1.4.2007.

(ii) Duration:

All new units as well as existing units which go in for substantial expansion, unless otherwise

specified and which commence commercial production within the 10 year period from the date of

notification of NEIIPP, 2007 will be eligible for incentives for a period of ten years from the date of

commencement of commercial production.

(iii) Neutrality of location:

Incentives will be available to all industrial units, new as well as existing units on their substantial

expansion, located anywhere in the North Eastern Region. Consequently, the distinction between

'thrust' and 'non-thrust' industries made in NEIP, 1997 will be discontinued from 1.4.2007.

(iv) Substantial Expansion:

Incentives on substantial expansion will be given to units effecting 'an increase by not less than

25% in the value of fixed capital investment in plant and machinery for the purpose of expansion of

capacity/modernization and diversification', as against an increase by 33 % which was

prescribed in NEIP, 1997.

26


(v) Excise Duty Exemption:

100% Excise Duty exemption will be continued, on finished products made in the North Eastern

Region, as was available under NEIP, 1997. However, in cases, where the CENVAT paid on the

raw materials and intermediate products going into the production of finished products (other

than the products which are otherwise exempt or subject to nil rate of duty) is higher than the

excise duties payable on the finished products, ways and means to refund such overflow of

CENVAT credit will be separately notified by the Ministry of Finance.

(vi) Income Tax Exemption:

100% Income Tax exemption will continue under NEIIPP, 2007 as was available under NEIP,

1997.

(vii) Capital Investment Subsidy:

Capital Investment Subsidy will be enhanced from 15% of the investment in plant and machinery

to 30% and the limit for automatic approval of subsidy at this rate will be Rs.1.5 crores per unit, as

against Rs.30 lakhs as was available under NEIP, 1997. Such subsidy will be applicable to units

in the private sector, joint sector, cooperative sector as well as the units set up by the State

Governments of the North Eastern Region. For grant of Capital Investment Subsidy higher than

Rs.1.5 crore but upto a maximum of Rs.30 crores, there will be an Empowered Committee

Chaired by Secretary, Department of Industrial Policy & Promotion with Secretaries of

Department of Development of North Eastern Region (DONER), Expenditure, Representative of

Planning Commission and Secretary of the concerned Ministries of the Government of India

dealing with the subject matter of that industry as its members as also the concerned Chief

Secretary/Secretary (Industry) of the North Eastern State where the claiming unit is to be

located.

Proposals which are eligible for a subsidy higher than Rs.30 crores, will be placed by Department

of Industrial Policy and Promotion before the Union Cabinet for its consideration and approval.

(viii) Interest Subsidy:

Interest Subsidy will be made available @ 3% on working capital loan under NEIIPP, 2007 as was

available under NEIP, 1997.

(ix) Comprehensive Insurance:

New industrial units as well as the existing units on their substantial expansion will be eligible for

reimbursement of 100% insurance premium.

27


(x) Negative List:

The following industries will not be eligible for benefits under NEIIPP, 2007:-

(i) All goods falling under Chapter 24 of the First Schedule to the Central Excise Tariff Act, 1985

(5 of 1986) which pertains to tobacco and manufactured tobacco substitutes.

(ii) Pan Masala as covered under Chapter 21 of the First Schedule to the Central Excise Tariff

Act, 1985 (5 of 1986).

(iii) Plastic carry bags of less than 20 microns as specified by Ministry of Environment and

Forests Notification No.S.O. 705(E) dated 02.09.1999 and S.O.698 (E) dated 17.6.2003.

(iv) Goods falling under Chapter 27 of the First Schedule to the Central Excise tariff Act, 1985 (5

of 1986) produced by petroleum oil or gas refineries.

(xi) Incentives for Service/other Sector Industries Incentives under NEIIPP, 2007 will be

applicable to the following service sector activities/industries:-

I. Service Sector:

(i) Hotels (not below Two Star category), adventure and leisure sports including ropeways ;

(ii) Medical and health services in the nature of nursing homes with a minimum capacity of 25

beds and old-age homes ;

(iii) Vocational training institutes such as institutes for hotel management, catering and food

crafts, entrepreneurship development, nursing and para-medical, civil aviation related

training, fashion, design and industrial training.

A number of tax concessions under the existing provisions of Section 10A and 10AA of the

Income Tax Act are already available to the IT sector. However, one of the important

impediments to the development of Software Technology Parks or IT related SEZs in the North

Eastern Region is the non-availability of trained human resources in the North Eastern Region.

Accordingly, tax benefits as is availed under Section 80 IC of the Income Tax Act would be

extended to IT related training centers and IT hardware units.

II. Incentives for Bio-technology industry:

The biotechnology industry will be eligible for benefits under NEIIPP, 2007 as applicable to

other industries

III. Incentives for Power Generating Industries:

Power Generating plants will continue to get incentives as governed by the provisions of

28


Section 81A of the Income tax Act. In addition, power generating plants upto 10 MW based on

both conventional and non-conventional sources will also be eligible for capital investment

subsidy, interest subsidy and comprehensive insurance as applicable under NEIIPP, 2007.

(xii) Establishment of a monitoring mechanism for implementation of the NEIIPP, 2007:

In order to establish a monitoring mechanism for implementation of NEIIPP, 2007, a 'High Level

Committee' / an 'Advisory Committee' under the Chairmanship of Secretary, Department of

Industrial Policy and Promotion and comprising Secretaries of the Ministries/Departments of

Revenue, Department of Development of North Eastern Region (DONER), Banking and

Insurance, Representative of Planning Commission, CMD, NEDFi as well as major stakeholders

including the industry associations of the North Eastern region would be constituted. In addition,

an 'Oversight Committee' will be constituted under the Chairmanship of the Union Commerce and

Industry Minister with Industry Ministers of NE States as its members.

(xiii) Value Addition

In order to ensure genuine industrial activities in the North Eastern Region, benefits under

NEIIPP, 2007 will not be admissible to goods in respect of which only peripheral activities like

preservation during storage, cleaning operations, packing, re-packing, labelling or re-labelling,

sorting, alteration of retail sale price etc. take place.

(xiv) Transport Subsidy Scheme

The Transport Subsidy Scheme would continue beyond 31.3.2007, on the same terms and

conditions. However, an early evaluation of the scheme will be carried out with a view to

introducing necessary safeguards to prevent possible leakages and misuse.

(xv) Nodal agency

The North East Industrial Development Finance Corporation (NEDFi) will continue to act as the

nodal agency for disbursal of subsidies under NEIIPP, 2007.

2. The 'New Industrial Policy and other concession in the North Eastern Region' announced on

24.12.1997 (NEIP, 1997) will cease to operate with effect from 1.4.2007. Industrial Units which

have commenced commercial production on or before 31.3.2007 will continue to get

benefits/incentives under NEIP, 1997.

3. Government reserves the right to modify any part of the Policy in public interest.

4. All concerned Ministries/Departments of the Government of India are requested to amend their

respective Acts/rules/notifications etc. and issue necessary instructions for giving effect to these

decisions.

29


CENTRAL SUBSIDY SCHEMES

Government of India has entrusted NEDFi, in the budget 1998-99, to act as the nodal agency

for disbursement of Central Subsidies for the North Eastern States.

At present subsidies under the following schemes are disbursed:

CENTRAL TRANSPORT SUBSIDY

a) Transport Subsidy Scheme 1971

b) Transport Additional Notification

CENTRAL CAPITAL INVESTMENT SUBSIDY

a) Central Capital Investment Subsidy Scheme,2007

CENTRAL INTEREST SUBSIDY

a) Central Interest Subsidy Scheme, 2007

CENTRAL COMPREHENSIVE INSURANCE SCHEME

a) Central Capital Investment Subsidy Scheme, 2007

30


CENTRAL TRANSPORT SUBSIDY

Transport Subsidy Scheme 1971

The Transport Subsidy Scheme was announced on 23.7.1971. The Scheme was introduced to

develop industrialization in the remote, hilly and inaccessible areas by providing for subsidy in the

transportation cost incurred by the industrial units so that they could stand competition with other

similar industries, which are geographically located in better areas.

2. Planning Commission, Ministry of Railways, Ministry of Finance (Department of Expenditure),

State Governments and Industrialists in NER, were associated at the time of finalization of initial

scheme.

3. The salient features of the Scheme are as under:

Introduced on: 23.7.1971

Applicability:The Scheme is applicable to all industrial units (barring plantations, refineries and

power generating units both in public and private sectors irrespective of their size)

Coverage:- 8 States of the North East

H.P.

Uttarakhand

J&K

Darjeeling District of West Bengal

Andaman & Nicobar Administration

Lakshadweep Administration

Validity of Scheme:The scheme has been extended from time to time, the last being on

26.02.2009 when the Cabinet Committee on Economic Affairs (CCEA) approved its extension

beyond 31.03.2008 till completion of the process of evaluation of the Scheme being done with a

view to introducing necessary safeguards to prevent possible leakages and misuse, if any, under

the Scheme.

On the basis of Performance Audit Report of the Comptroller & Auditor General of India and

Evaluation Report submitted by M/s. Deloitte Touche Tohmatsu India Ltd. and in consultation

with stakeholders, a draft CCEA Note on Transport Subsidy Scheme has been circulated to the

31


concerned Ministries/Departments for comments. On receipt of comments from the concerned

Ministries/Departments, a suitable proposal will be incorporated in the Note and submitted for

approval of CCEA.

Quantum of Subsidy: Subsidy ranging between 50% and 90% of the transport cost for

transportation of raw material and finished goods to and from the location of the unit and the

designated railhead. (For North East States, J&K and UTs, the subsidy is 90%. For H.P. and

Uttarkhand and Darjeeling District of West Bengal, the subsidy is 75%. However, for movement of

goods within NER, the subsidy is 50 %.)

Period of eligibility:The subsidy is eligible to a unit for a maximum period of five years from the

date of commencement of commercial production.

Nodal Agency:The disbursement of subsidy to the eligible industrial units in the States is made

through the nodal agencies appointed for the purpose. These are:

(i) North East Development Financial Corporation (NEDFi), Guwahati for North Eastern Region.

(ii) JKDFC for Jammu & Kashmir

(iii) HPSIDC for Himachal Pradesh

(iv) SIDCUL for Uttarakhand

The disbursement of subsidy to the industrial units in the Union Territories is made through the

UTs Administrations.

Releases under the scheme : Since inception of the Scheme, an amount of Rs.2438.99 crore

(approx) has been released to the States/UTs.

32


TRANSPORT SUBSIDY SCHEMENOTIFICATION

New Delhi, the 23rd July, 1971.

No. F.6(26)/71-IC The Government of India are pleased to make the following scheme for grant of

subsidy on the transport of raw materials and finished goods to and from certain selected areas with

a view to promoting growth of industries there:-

1. Short title - This Scheme may be called the Transport Subsidy Scheme, 1971.

2. Commencement and duration: It comes into effect from 15-7-1971, for selected areas (A), with

effect from 24-8-1973 for selected areas (B), with effect from 1-12-1976 for selected areas (C) and

with effect from 5-12-1977 for selected areas (D) and will remain in operation till 31-3-2007. [The

Scheme was extended till 31.3.2007 vide Notification No.11(1)/2000-DBA.II dated 25.5.2000; till

31.3.2008 vide notification No. 10(3)/2007-DBA.II/NER, dated 3rd April, 2007 & 5th November

2008. Vide Notification No.10(3)/2007- DBA-II/NER dated 4th March, 2009, the Scheme was

further extended beyond 31.3.2008 on the same terms and conditions till completion of the

evaluation process after which suitable proposals are to be placed before the CCEA for decision.

Amended vide Notification Nos 6(26)/71-IC, dated 28.2.74; 6(3)/75-RD, dated 19.7.78 (Areas A, B,

C & D were defined); 11(1)/85-DBA.II, dated 1.12.86

3. It is applicable to all industrial units (barring plantations, refineries and power generating units)

both in the public and the private sectors, irrespective of their size in the selected areas (A), (B), (C)

and (D) for a period of 5 years from the date of commencement of commercial production. The date

of effect of this amendment shall be 1st April, 1995.

Amended vide Notification Nos. 6(3)/75-RD, dated 19.7.78; 11(1)/95-DBA-II dated 28-7-93 & dated

29-9-1995.

4. Definitions

(a) 'Industrial Unit' means an industrial unit where a manufacturing programme is carried on.

(b) 'New Industrial Unit' means an industrial unit which has set up manufacturing capacity and come

into production on or after the date of commencement of the Scheme.

(c) 'Existing Industrial Unit' means an industrial unit which has set up manufacturing capacity and

came into production before the date of commencement of the Scheme.

(d) 'Substantial Expansion' means increase in production of an industrial unit by 25 per cent or more

of the licenced or approved capacity.

(e) 'Diversification' means manufacture of new article or articles by an industrial unit by 25 per cent

or more (by value) of the approved or licensed capacity of the article or articles already

33


manufactured by it during the preceding year.

(f) The Selected Areas (A) means the State of Jammu & Kashmir, Union Territories of Andaman &

Nicobar Islands, Lakshadweep, the State of Sikkim and the North-Eastern Region comprising

the States of Assam, Meghalaya, Manipur Nagaland and Tripura and the Union territories of

Arunachal Pradesh and Mizoram, the Selected Areas (B) means the State of Himachal Pradesh

and hilly areas of the State of Uttarakhand comprising the districts of

Dehradun, Nainital, Almora, Pauri Garhwal, Tehri Garhwal, Pithoragarh, Uttar Kashi and

Chamoli and the State of West Bengal comprising Darjeeling District.

Amended vide Notification No. 11/1/85-DBA-II dated 1-12-1986

(Initially amended vide Notification No.6/3/75-RD, dated 19.7.78 to provide definition of areas A,

B, C & D)

(g) Deleted vide Notification No. 6(26)/71-IC dated 28.2.1974

(h) 'Raw Material' means any raw material actually required and used by an industrial unit in its

manufacturing programme as approved by the Government of India and/or by the Government

of State/Union Territory in which the industrial unit is located.

(i) 'Finished Goods' means the goods actually produced by an industrial unit in accordance with

the manufacturing programme approved by the Government of India and/or the Government of

the State/Union Territory in which the industrial unit is located.

5. Deleted vide Notification No. 6(26)/74-IC dated 28.2.1974

6. Details of the Scheme

(i) A transport subsidy will be given to the industrial units located in the selected areas in respect

of raw materials which are brought into and finished goods which are taken out of such areas.

(ii) Industrial units will not be eligible for the transport subsidy for internal movement of raw

materials and finished goods within the State of Jammu & Kashmir, the State of Himachal

Pradesh, the hilly areas of Uttar Pradesh, the Union Territory of Andaman & Nichobar Islands and

Lakshadweep and the State of Sikkim.

(iii) In the case of Jammu & Kashmir, transport subsidy will be given on transport costs between

the location of the industrial unit and rail-head of Jammu or Pathankot, whichever is nearer.

Transport Subsidy would also cover 75% of the air freight on movement of electronic

components/products by air to and from Delhi to Srinagar and vice-versa. In case of movement of

goods moving partly by air and partly by rail/road, the transport subsidy would be admissible

34


@75% on the air freight from Delhi to Srinagar and @90% for movement by rail/road upto the

location of the industrial unit and vice-versa. (Transport subsidy on air freight allowed vide

Notification No.11/2/89-DBA-II, dated 18.8.89)

In the case of Himachal Pradesh the transport subsidy will be given on transport costs between the

location of the industrial unit in the State and the nearest rail-head viz. (i) Pathankot, (ii) Kiratpur

Sahib, (iii) Nangal, (iv) Kalka, (v) Ghanauli, (vi) Yamuna Nagar, (vii) Barara and (viii) Hoshiarpur.

Transport Subsidy would also cover 75% of the air freight on movement of electronic

components/products by air to and from Delhi to Shimla and vice-versa. In case of movement of

goods moving partly by air and partly by rail/road, the transport subsidy would be admissible

@75% on the air freight from Delhi to Srinagar and @75% for movement by rail/road upto the

location of the industrial unit and vice-versa. (Transport subsidy on air freight allowed vide

Notification No.11/2/89-DBA-II, dated 18.8.89)

In the case of hilly areas of Uttar Pradesh State, the transport subsidy will be given on the transport

costs between the location of the industrial unit and the nearest rail-head viz., (i)Dehradun, (ii)

Rishikesh, (iii) Moradabad, (iv) Bareilly, (v) Kotdwara, (vi) Shahajahanpur and (vii) Rampur.

**Amended vide Notification No. 11/1/85-DBA-II dated 1-12-1986

(Initially amended vide Notification No.6/3/75-RD, dated 19.7.78 to provide definition of areas A,

B, C & D)

(iv)* In the case of North-Eastern region comprising the States of Assam, Meghalaya, Nagaland,

Manipur, Tripura and the Union Territories of Arunachal Pradesh and Mizoram the transport

subsidy will be given on the transport costs between Siliguri and the location of the industrial unit in

these states/Union territories. While calculating the transport costs of raw materials the cost of

movement by rail from Siliguri to the railway station nearest to the location of the industrial unit and

thereafter the cost of movement by road to the location of industrial unit will be taken into account.

Similarly, while calculating the transport costs of finished goods the costs of movement by road

from the location of industrial unit to the nearest railway station and thereafter the cost of

movement by rail to Siliguri will be taken into account. In the case of North Eastern region, for

materials moving entirely by road or other mode of transport the transport costs will be limited to

the amount which the industrial unit might have paid had the raw materials moved from Siliguri by

rail upto the railway station nearest to the location of the industrial unit and thereafter by road.

Similarly in the case of movement of finished goods moving entirely by road or other mode of

transport in the North Eastern region, the transport costs will be limited to the amount which the

35


industrial unit might have paid had the finished goods moved from the location of the industrial

units to the nearest railway station by road and thereafter by rail to Siliguri.

[* Amended vide Notification No. 6(26)/71-IC dated 28.2.1974]

Transport subsidy would also cover movement of 'raw materials' from one State to another within

the North Eastern Region. Transport subsidy would also cover inter-State movement of 'finished

goods' within the region but the subsidy available would be 50% of the transport cost on the

movement of the goods from the location of the industrial units to the nearest Railway Station by

road and thereafter by rail and vice-versa. Transport subsidy would also cover 75% of the air

freight on movement of electronic component/products by air to and from Calcutta upto the

location of the industrial unit & vice-versa. In case of movement of goods moving partly by air and

partly by rail/road, the transport subsidy would be admissible @ 75% on air freight from Calcutta

upto the airport nearest to the location of the industrial unit and thereafter, @90% for movement

by rail/road upto the location of the industrial unit and vice versa.

[ Inserted vide 11/1/85-DBA-II dated 17.3.1987 and 24.5.1988]

(v)& In the case of Andaman & Nichobar Islands, the transport subsidy will be given on transport

costs by sea and road between Madras Port and the location of the industrial unit in the Union

Territory. In the case of Lakshadweep, the transport subsidy will be given on transport costs by

sea and road between Cochin Port and the location of the industrial unit in the Union Territory. If

any other port on the mainland is used for the purpose of transport subsidy, the transport costs will

be taken as what the industrial unit would have incurred had Madras or Cochin Port, as the case

may be, been used, or the actual transport costs, whichever are less.

[& Inserted vide Notification No. 6/3/75-RD dated 19-7-1978]

(vi)& In the case of Sikkim, the transport subsidy will be given on transport costs between the

location of the industrial unit in the State and the rail head of Siliguri.

[& Inserted vide Notification No. 6/3/75-RD dated 19-7-1978]

(vii)$ Freight charges for movement by road/sea will be determined on the basis of

transport/transshipment rates fixed by the Central Government/State Government/Union

Territory Administration concerned from time to time or the actual freight paid, whichever is less.

[Renumbered & amended vide Notification No. 6/3/75-RD dated 19.7.1978]

(viii) Cost of loading or unloading and other handlings charges from railway station to the site of

the industrial unit will not be taken into account for the purpose of determining transport costs.


36


(ix)All New industrial units located in the selected areas will be eligible for transport subsidy

equivalent to 90 percent in the selected areas (A) and 75 per cent in the selected areas (B) of the

transport costs of both raw materials as well as finished goods.

(x) Existing industrial units in the selected areas are also eligible for transport subsidy in respect of

the additional transport costs of raw materials and finished goods arising as a result of substantial

expansion or diversification effect by them after the commencement of the Scheme. Transport

Subsidy in such cases will be restricted to 90 percent in the selected areas (A) and 75 per cent in

the selected areas (B) of the transport costs of the additional raw materials required and finished

goods produced as a result of the substantial expansion or diversification.

(xi) Transport subsidy will also cover 90 percent in the selected areas (A) and 75 per cent in the

selected areas (B) of the transport charges for movement of steel from Gauhati Stockyard of M/s.

Hindustan Steel Limited to the site of the industrial units in the North Eastern region and for

movement of industrial raw materials from the State Corporation's depots situated in the hill

districts of Uttar Pradesh and Himachal Pradesh to the sites of the industrial units located in the hill

districts of the State. Transport Subsidy will also cover the transport charges for movement of

Steel from the SAIL's Stockyard at Parwanoo upto the location of the industrial units in the State of

Himachal Pradesh (SAIL Stockyard added vide Notification No.11/3/81-BAD/DBA-II dated

28.7.86)


[Amended vide Notification No. 11/1/85-DBA-II dated 25.9.1986- Definition of areas A & B

provided and rate of subsidy revised from 75% to 90% for area A]

(xii) (a) The State Government/Union Territory Administration will set up a committee consisting of

the Director of Industries, a representative each of the State Industries Department and the State

Finance Department etc. on which a representative of the Ministry of Industrial Development will

also be nominated. The Committee will operate at the State/Union Territory Level and scrutinize

and settle all claims of transport subsidy arising in the State/Union Territory. The claimants should

be asked to provide proof of raw materials, 'imported' into and finished goods 'exported' out of the

selected States/Union Territory/areas where the unit is situated from the registered chartered

accountants. The committee may also lay down the production of any other documents which in

their opinion is necessary to decide the eligibility of claimant for the transport subsidy. However, in

the case of small units with a capital investment of Rs. 1 lakh or less the requirement of production

of certificate from Chartered Accountant may be waived subject to the condition that such claims

are properly verified by the State Government authorities before the subsidy is

37


sanctioned/disbursed. After having scrutinized and settled the claims, the amount disbursed to

industrial unit should first be adjusted against the outstanding ways and means of advance made

to the State Government/Union Territory Administration for Centrally Sponsored Scheme in

accordance with the procedure outlined in the Ministry of Finance letter No.2(17)PII/58 dated

12/5/1958 and the balance, if any, shall be paid in cash to the State Governments/Union Territories

Administration.

Provided that in the case of small units with a capital investment of Rs.1,00,000 and less, the

requirement of production of proof of import of raw material and export of finished products from

registered Chartered Accountant will be substituted by a appropriate verification by the State

Government authorities.

[* Amended vide Notification No. 6(26)/71-IC dated 28.2.1974]


(b) The North East Development Finance Corporation (NEDFi) shall act as a nodal agency for

release of transport subsidy on the basis of the recommendations of the State Level Committee,

for the North East Region, as per existing terms & conditions of the Scheme.

[ Inserted vide Notification No.11 (1)/98-DBA-II dated 29.1.1998]

(c) In the case of Himachal Pradesh, Uttaranchal and Sikkim, after scrutiny and approval of the

transport subsidy claims by the State Level Committee (SLC)/District Level Committee (DLC), the

claims shall be referred by the respective Directorate of Industries to the designated nodal

agencies of these States namely Himachal Pradesh State Industrial Development Corporation

(HPSIDC), State Industrial Development Corporation of Uttaranchal (SIDCUL) and North Eastern

Development Finance Corporation Limited (NEDFi) respectively. Thereafter, HPSIDC, SIDCUL

and NEDFi shall, after careful scrutiny of the transport subsidy claims in accordance with the

provisions of the scheme and the guidelines issued to them separately, disburse transport subsidy

to the eligible units out of the funds which will be released by the Department of Industrial Policy

and Promotion to them and which will be maintained by these nodal agencies as revolving fund to

be supplemented by the Department from time to time based on the requirements received from

such nodal agencies.

[ Amended vide Notification No.10 (4)/2004-DBA-II dated 25.1.2005]

Explanation: However, in the State of Mizoram, if it is not possible for the existing industrial units

to furnish a certificate from a registered Chartered Accountant for non-availability of a registered

Chartered Accountant, the unit(s) may be asked to provide a certification from the sale tax

authorities and counter signed by Commissioner/Director Industries of the State for transportation

38

Handbook for MSME EntrepreneurHandbook for MSME Entrepreneurof raw material/finished goods in lieu of Chartered Accountant certificate. The position regarding

availability of registered Chartered Accountant may be reviewed regularly by the State

Government of Mizoram and the alternate course of providing certificate may be suspended as

and when a registered Chartered Accountant becomes available and thereafter the units may be

asked to provide the required certificate from a registered Chartered Accountant.

(xiii)In order to check any misuse of transport subsidy Directorates of Industries in the State/Union

Territories will carry out periodical checks to ensure that the raw materials and the finished goods

in respect of which transport subsidy has been given were actually used for the purpose by a

system of scrutinizing of consumption of the raw materials and the output of the finished goods.

(xiv) Directorate of Industries of the State and Union Territories concerned will draw up

procedures and arrangements not only for scrutinizing the claims for transport subsidy but also

arrange for prompt payment of the claims. The number of transport subsidy claims that may be

preferred by an industrial unit should not ordinarily exceed one in a quarter. However, the Director

of Industries may at his discretion entertain more number of claims in a financial year, if the

financial position of the industrial unit so warrants.

(xv)Directorate of Industries of the States and Union Territories concerned will lay down a system

of pre-registration of industrial units which are eligible for transport subsidy. At the time of

registration the Directors of Industries will fix and indicate the capacity of such units. They will also

lay down procedure to ensure regular inflow of information regarding the movement of raw

material and finished goods to and from the industrial units. The Directorate of Industries of the

States and Union Territories should also lay down that statistics of production and utilization of raw

material should be maintained and kept open for inspection on request by the Directorate of

Industries.

(xvi) The Ministry of Industrial Development (now Department of Industrial Policy and Promotion)

will continuously review the arrangement made by the Directorate of Industries of the concerned

States and Union Territories and suggest modifications in the procedure for scrutinizing the claim,

payment of transport subsidy etc.

(xvii) Not withstanding the provisions of the Scheme, Government of India and/or the Government

State/Union Territory concerned have full discretion to refuse to entertain or reject any claim for

transport subsidy.

[ Renumbered & amended vide Notification No. 6/3/75-RD dated 19.7.1978]

(xviii) All false statement made deliberately by an industrial unit or any misrepresentation of facts

by it will disqualify it from the grant of transport subsidy for such period of time as the Government

of India and/or the Government of State/Union Territory concerned may decide after giving a

reasonable opportunity to the industrial unit to state its case.

[Amended vide Notification No. 6(26)/71-IC dated 28.2.1974]


39


CENTRAL CAPITAL INVESTMENT SUBSIDYCentral Capital Investment Subsidy Scheme, 2007

In pursuance of the North East Industrial and Investment Promotion Policy, 2007 (NEIIPP, 2007)

issued by the Ministry of Commerce and Industry (Department of Industrial Policy and Promotion)

dated the 1st April, 2007, the Government of India is pleased to make the following Scheme of

Capital Investment Subsidy for industrial units in the North Eastern Region (NER) comprising the

States of Arunachal Pradesh, Assam, Manipur, Meghalaya,Mizoram, Nagaland, Sikkim and Tripura

with a view to accelerating the industrial development in the NER.

1. Short Title:-This Scheme may be called the 'Central Capital Investment Subsidy Scheme, 2007'.

2. Commencement and duration: - It will come into effect from the 1st April, 2007 and remain in force

upto and inclusive of 31.3.2017.

3. Applicability:- Unless otherwise specified, all new industrial units as well as existing units which

go in for substantial expansion and are located anywhere in NER, will be eligible for capital

investment subsidy under this Scheme. The Scheme will also be applicable to the following service

sector activities/industries: -

I. Service Sector:

(i) Hotels (not below Two Star category), adventure and leisure sports including ropeways

(ii) Medical and health services

(iii) Vocational training institutes

II. Bio-technology industry

III. Power Generating Industries:

4. Definitions:

(a) 'Industrial unit' means any industrial undertaking, suitable servicing unit other than that

run departmentally by Government.

(b) 'New industrial unit' means an industrial unit for the setting up of which effective steps were not

taken prior to 1.4.2007

(c) 'Existing Industrial Unit' means an industrial unit for the setting up of which effective steps were

taken prior to 1.4.2007.

40


(d) 'Substantial expansion

11287.Handbook for MSME Entrepreneur

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