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Module 3

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53 views22 pages

Module 3

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Vijjey N Mohan
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Visvesvaraya Technological University,

Belagavi
Centre for Distance and Online Education
(CDOE), Mysuru
Module-3

Entrepreneurship Development & Government support system

Definition:
Business angels, also known as angel investors, are individuals who provide
financial backing for small startups or entrepreneurs, typically in exchange for ownership
equity in the company. They often play a crucial role in the early stages of a business
when traditional sources of funding may be difficult to obtain.
In India, there are several examples of successful business angels who have made
significant contributions to the startup ecosystem. One prominent example is Ratan
Tata, the former chairman of Tata Sons, who has invested in various Indian startups
including Ola, Paytm, and Snapdeal through his investment firm RNT Associates.
Another example is Kunal Bahl and Rohit Bansal, the founders of Snapdeal, who have
also become angel investors themselves, funding several early-stage startups in India.
These business angels not only provide capital but also mentorship, industry connections,
and valuable business advice to help startups grow and succeed. Their contributions are
vital for fostering innovation and entrepreneurship in India's rapidly evolving startup
landscape.
Angels Business Characteristics
Business angels, also known as angel investors, exhibit certain characteristics that set
them apart from other types of investors. Here are some key characteristics of angel
investors:
1. High Net worth Individuals: Angels are typically high net worth individuals who
have surplus capital that they are looking to invest in promising startups.
2. Risk Tolerance: They have a higher risk tolerance compared to traditional investors
and are willing to invest in early-stage startups that may have a higher risk of failure.
3. Industry Experience: Many angels have significant experience in a particular industry
and often invest in startups operating in that industry. They may also provide valuable
industry-specific expertise and mentorship to the startups they invest in.
4. Hands-On Involvement: Angels are often more hands-on than other types of
investors. They may take an active role in advising the startup, making introductions to
potential customers or partners, and helping with strategic decision-making.
5. Long-Term Perspective: While angels are looking for a return on their investment,
they often have a longer-term perspective compared to venture capitalists, who may be
more focused on shorter-term gains.
6. Diverse Portfolio: Angels typically invest in a portfolio of startups rather than putting
all their eggs in one basket. This helps them spread their risk and increases the chances of
a successful investment.

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Visvesvaraya Technological University,
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Centre for Distance and Online Education
(CDOE), Mysuru

7. Personal Connection: Angels often invest in startups based on a personal connection


or relationship with the founder, rather than purely on the basis of financial projections or
market potential.
8. Local Focus: While some angels may invest globally, many prefer to invest in startups
that are geographically close to them, allowing for easier communication and
involvement.
Overall, angels play a crucial role in the startup ecosystem by providing early-stage
funding and support to help innovative ideas grow into successful businesses.
Challenges faced by angel business investors
Angel investors face several challenges in their investment activities. Some of the key
challenges include:
1. Deal Flow: Finding high-quality investment opportunities can be challenging,
especially in competitive markets where startups are actively seeking funding.
2. Due Diligence: Conducting thorough due diligence on potential investments can be
time-consuming and resource-intensive, particularly for individual investors who may not
have access to the same resources as institutional investors.
3. Risk Management: Investing in early-stage startups carries a high level of risk, and
angel investors must carefully manage their risk exposure to avoid significant losses.
4. Lack of Control: Angel investors typically have limited control over the management
and decision-making of the startups they invest in, which can be challenging for those
who prefer a more hands-on approach.
5. Exit Strategy: Finding a suitable exit strategy can be difficult, as it often requires the
startup to achieve a certain level of growth or to be acquired by a larger company.
6. Portfolio Management: Building and managing a diversified portfolio of investments
can be complex, requiring careful consideration of factors such as industry diversification
and investment timing.
7. Legal and Regulatory Challenges: Navigating the legal and regulatory landscape can
be challenging, especially in areas such as securities laws and tax regulations.
8. Competition: Angel investing is becoming increasingly competitive, with more
investors vying for a limited number of investment opportunities, which can drive up
valuations and make it harder to secure favorable terms.
Despite these challenges, many angel investors find the rewards of investing in startups to
be worth the risks and complexities involved.

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Visvesvaraya Technological University,
Belagavi
Centre for Distance and Online Education
(CDOE), Mysuru

Venture Capital

Definition: Venture capital refers to a type of financing typically provided by


investors to startups and small businesses that are deemed to have long-term growth
potential. In exchange for the capital investment, venture capitalists (VCs) usually
receive equity in the company. This form of funding is often sought by companies that
are too small or new to raise capital through traditional means like issuing bonds or
obtaining loans from banks. Venture capital is considered high-risk, high-reward, as the
investments have the potential for significant returns if the company succeeds, but also
carry a high risk of failure.
Types of Venture Capital
Venture capital can be categorized into several types based on various criteria. Here are
some common types:
1. Early-stage Venture Capital: This type of VC is provided to startups in the early
stages of development. It is often used to fund product development and initial marketing
efforts.
2. Expansion-stage Venture Capital: This type of VC is provided to companies that
have already developed a product or service and are looking to expand their operations.
Funds are typically used for scaling up production, entering new markets, or hiring
additional personnel.
3. Late-stage Venture Capital: This type of VC is provided to companies that are close
to going public or are considering other exit strategies, such as a merger or acquisition.
Funds are used to further expand the business and increase its valuation before the exit
event.
4. Seed Funding: Seed funding is the earliest stage of venture capital and is used to
support the development of a business idea into a viable product or service. It is often
provided by angel investors or early-stage venture capital firms.
5. Series A, B, and C Funding: These are stages of venture capital financing that
typically occur after seed funding. Series A funding is used to help a company scale its
operations, while Series B and C funding are used for further expansion and growth.
6. Corporate Venture Capital (CVC): CVC is provided by established companies
looking to invest in startups that align with their strategic goals. CVC can provide
financial support as well as access to the investing company's resources and expertise.
7. Social Venture Capital: This type of VC is focused on investing in companies that
have a positive social or environmental impact, in addition to generating financial returns.
Social venture capitalists seek to support businesses that address pressing social or
environmental issues.

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(CDOE), Mysuru

8. Venture Debt: Venture debt is a type of financing provided to startups alongside


equity funding. It is typically used to extend the runway of a startup without diluting
existing equity ownership.
These types of venture capital can vary in terms of investment size, risk profile, and stage
of company development.
How to secure Venture Capital
Securing venture capital involves several key steps and considerations. Here's a general
guide:
1. Develop a Strong Business Plan: Create a comprehensive business plan that outlines
your company's vision, market opportunity, competitive landscape, and financial
projections. This plan should clearly articulate why your company is a compelling
investment opportunity.
2. Build a Strong Team: Investors often look for strong, capable teams with a track
record of success. Ensure that your team has the skills and experience necessary to
execute your business plan effectively.
3. Proof of Concept: If possible, demonstrate that your product or service has market
traction through a successful pilot, beta testing, or initial sales. This can help validate
your business model and reduce investor risk.
4. Identify Potential Investors: Research and identify venture capital firms or individual
investors (angel investors) who have a track record of investing in your industry or
sector. Tailor your pitch to their specific interests and investment criteria.
5. Prepare a Compelling Pitch: Develop a compelling pitch deck that highlights your
business opportunity, market potential, competitive advantage, and financial projections.
Your pitch should be clear, concise, and engaging.
6. Network: Attend networking events, pitch competitions, and industry conferences to
connect with potential investors. Building relationships with investors and industry
experts can help you secure introductions and referrals.
7. Engage in Due Diligence: Be prepared for investors to conduct due diligence on your
company. This may include reviewing your financials, conducting market research, and
speaking with customers and partners.
8. Negotiate Terms: If an investor expresses interest, be prepared to negotiate the terms
of the investment. This may include the valuation of your company, the amount of equity
you're willing to give up, and the terms of the investment agreement.
9. Close the Deal: Once you've reached an agreement with an investor, work with legal
counsel to finalize the investment agreement and close the deal. Be sure to comply with
all legal and regulatory requirements.

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Visvesvaraya Technological University,
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Centre for Distance and Online Education
(CDOE), Mysuru
10. Post-Investment Relationship: After securing funding, maintain a strong
relationship with your investors. Keep them informed of your progress, seek their advice
and guidance when needed, and work collaboratively to achieve your business goals.
Securing venture capital can be a challenging and time-consuming process, but with a
strong business plan, a compelling pitch, and the right connections, you can increase your
chances of success.

Advantages & Disadvantages of Venture capital

Venture capital can offer significant advantages to start-ups and growing companies, but
it also comes with certain disadvantages. Here's an overview of both:

Advantages:

1. Access to Capital: Venture capital provides access to significant funding that may not
be available through traditional sources like bank loans or personal savings.

2. Expertise and Guidance: Venture capitalists often bring valuable expertise,


experience, and industry connections to the table. They can provide strategic guidance
and help companies navigate challenges.

3. Network Expansion: Venture capitalists often have extensive networks that can help
companies access new markets, customers, partners, and talent.

4. Validation: Securing venture capital funding can validate a company's business model
and potential, making it easier to attract additional investors, customers, and employees.

5. Flexibility: Venture capital funding is typically more flexible than traditional debt
financing. It does not require regular interest payments or collateral, and repayment is
often tied to the company's success.

Disadvantages:

1. Equity Dilution: Venture capital funding usually involves giving up a portion of


ownership in the company, which can result in dilution of control for the founders.

2. High Expectations: Venture capitalists expect high returns on their investments,


which can create pressure for rapid growth and profitability. This pressure can sometimes
lead to short-term decision-making.

3. Loss of Autonomy: With venture capital funding comes increased accountability to


investors, who may have a say in major business decisions. This loss of autonomy can be
challenging for some entrepreneurs.

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Visvesvaraya Technological University,
Belagavi
Centre for Distance and Online Education
(CDOE), Mysuru
4. Risk of Failure: Venture capital is high-risk, high-reward. If the company fails to
meet expectations or achieve a successful exit, the founders and investors may lose their
investment.

5. Time and Effort: Securing venture capital funding can be a time-consuming and
demanding process. Entrepreneurs must dedicate significant time and effort to pitching
investors, conducting due diligence, and negotiating terms.

Overall, venture capital can be a powerful tool for fuelling growth and innovation, but
entrepreneurs should carefully weigh the advantages and disadvantages before seeking
funding.
Initial public offering
An Initial Public Offering (IPO) is the process by which a private company becomes
publicly traded by offering its shares to the public for the first time. This is often done to
raise capital for growth, expansion, or to allow early investors and employees to monetize
their investment.
During an IPO, the company works with investment banks to determine the offering price
and the number of shares to be issued. The company also undergoes a thorough
regulatory review process to ensure compliance with securities laws and regulations.
Once the IPO is complete, the company's shares are traded on a stock exchange, and the
company becomes subject to public reporting requirements, including regular financial
disclosures.
How IPO works
An Initial Public Offering (IPO) is a complex process that involves several key steps:
1. Preparation: The company decides to go public and starts preparing for the IPO
process. This includes selecting investment banks (underwriters) to manage the offering,
conducting financial audits, preparing legal documents, and developing a marketing
strategy.
2. Due Diligence: The company undergoes a thorough due diligence process, where
underwriters, lawyers, and accountants review its financial statements, business
operations, management team, and legal compliance to ensure everything is in order for
the IPO.
3. SEC Registration: The company files a registration statement with the Securities and
Exchange Commission (SEC), which includes detailed information about the company
and the offering. The SEC reviews the registration statement to ensure compliance with
securities laws and regulations.
4. Roadshow: The company, along with its underwriters, conducts a roadshow to market
the IPO to potential investors. During the roadshow, the company presents its business
model, financial performance, and growth prospects to attract investor interest.

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Visvesvaraya Technological University,
Belagavi
Centre for Distance and Online Education
(CDOE), Mysuru
5. Pricing: Based on investor demand and market conditions, the underwriters determine
the final offering price and the number of shares to be issued. The offering price is
usually set at a level that maximizes proceeds for the company while ensuring sufficient
demand from investors.
6. Allocation: The underwriters allocate shares to institutional investors, retail investors,
and other clients. The allocation process is typically based on factors such as investor
demand, size of the investment, and relationship with the underwriters.
7. Trading: The company's shares are listed on a stock exchange, and trading begins.
The stock price is determined by supply and demand in the market, and it may fluctuate
significantly in the early days of trading.
8. Post-IPO Compliance: After the IPO, the company becomes subject to ongoing
reporting and compliance requirements, including regular financial reporting, disclosure
of material events, and compliance with securities laws and regulations.
Overall, an IPO is a complex and rigorous process that requires careful planning,
preparation, and execution to ensure a successful transition to becoming a publicly traded
company.
Steps to an IPO's
The process of taking a company public through an Initial Public Offering (IPO) involves
several key steps. While the specifics can vary depending on the company and its
circumstances, here is a general outline of the steps involved in an IPO:
1. Preparation and Planning:
- Select underwriters: Choose investment banks to manage the IPO process.
- Internal preparation: Ensure financial statements are in order, corporate governance is
strong, and all legal and regulatory requirements are met.
- Evaluate readiness: Assess the company's financial position, market conditions, and
overall readiness for going public.
2. Due Diligence and SEC Filings:
- Conduct thorough due diligence: Review all aspects of the company's business,
operations, finances, and legal compliance.
- Prepare registration statement: Draft the S-1 registration statement, which includes
detailed information about the company, its business, financials, risks, and the proposed
offering.
3. SEC Review and Approval:
- Submit the registration statement to the Securities and Exchange Commission (SEC)
for review.
- Respond to SEC comments: Address any comments or concerns raised by the SEC
during the review process.

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Visvesvaraya Technological University,
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Centre for Distance and Online Education
(CDOE), Mysuru
- Obtain SEC clearance: Receive approval from the SEC to proceed with the IPO.
4. Roadshow and Investor Marketing:
- Conduct a roadshow: Present the company to potential investors, including
institutional investors, analysts, and the media.
- Generate investor interest: Showcase the company's business model, financial
performance, and growth prospects to attract investor interest.
5. Pricing and Allocation:
- Determine the offering price: Based on investor feedback and market conditions, set
the final price at which shares will be offered.
- Allocate shares: Allocate shares to institutional investors, retail investors, and other
clients based on demand and other factors.
6. Closing and Listing:
- Price the offering: Determine the final offering price and the number of shares to be
sold.
- Close the offering: Complete the sale of shares to investors.
- List on the stock exchange: List the company's shares on a stock exchange for trading.
7. Post-IPO Compliance and Reporting:
- Meet ongoing reporting requirements: Comply with regular financial reporting and
disclosure requirements.
- Maintain compliance: Adhere to securities laws and regulations, including those
related to corporate governance and financial reporting.
8. Stabilization and Transition:
- Stabilize stock price: Manage the stock price in the days following the IPO to prevent
excessive volatility.
- Transition to public company: Adjust to the requirements and responsibilities of being
a publicly traded company.
Throughout the IPO process, the company and its advisors must navigate various
challenges and considerations to ensure a successful and smooth transition to public
ownership.

Role of Indian Government promoting Entrepreneurship


The Indian government plays a crucial role in promoting entrepreneurship through
various initiatives and policies. Some key aspects of its role include:
1. Policy Framework: The government creates a conducive policy framework to support
entrepreneurship. This includes simplifying regulations, reducing bureaucratic hurdles,
and providing incentives such as tax breaks and subsidies for startups.

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Visvesvaraya Technological University,
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Centre for Distance and Online Education
(CDOE), Mysuru
2. Financial Support: The government offers financial support through various schemes
and programs. This includes providing loans at subsidized rates, seed funding, and
venture capital support for startups.
3. Skill Development: To nurture entrepreneurship, the government focuses on skill
development through various training programs, workshops, and mentorship initiatives.

4. Infrastructure Development: The government invests in infrastructure development


to create a supportive ecosystem for startups. This includes setting up incubation centers,
technology parks, and providing access to high-speed internet.
5. Market Access: The government helps startups by providing access to markets, both
domestic and international. This includes participation in trade fairs, exhibitions, and
networking events.
6. Research and Development: To foster innovation, the government promotes research
and development activities through grants, funding, and collaborations with educational
institutions.
7. Regulatory Reforms: The government continuously reviews and reforms regulations
to make it easier for startups to operate. This includes simplifying tax procedures, labor
laws, and intellectual property regulations.
8. Promotion of Entrepreneurial Culture: The government promotes an
entrepreneurial culture by celebrating successful entrepreneurs, organizing events like
startup competitions, and creating awareness about entrepreneurship as a career option.
Overall, the Indian government plays a multifaceted role in promoting entrepreneurship,
aiming to create a vibrant ecosystem that encourages innovation, job creation, and
economic growth.
Government Financial Institutions for providing Loans to start Industrial
venture in India
Indian financial sector plays an important role in the overall development of the nation.
Indian government, for the purpose of sufficient supply of credit to different sectors of
Indian economy, has created a valuable structure of financial institutions in India.
Depending upon the geographical coverage of their functions these financial institutions
(FIs) can be classified into State level institutions and all India institutions,. At the
national level, FIs provide long term and medium term loans and advances at a very
genuine interest rate. Their main functions are to underwrite public issue of shares,
debenture issues of companies, guarantee loans and deferred payments etc. On the other
hand, the State level institutions are basically linked with the development of medium
and small scale institutions and they deliver the same type of financial help at the national
level institutions.

There are two main national level financial institutions which provide loans to the
entrepreneurs and these are:

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Centre for Distance and Online Education
(CDOE), Mysuru
 Industrial Development Bank of India (IDBI): Industrial Development
Bank of India aims to create a principal institution for long term finance, to provide
administrative and technical support to the industries, to coordinate the institutions which
are working in this field for planned development of industrial sector and to conduct
research and development activities for the benefit of industrial sector.
 Industrial Finance Corporation of India (IFCI): The government
established The Industrial Finance Corporation of India (IFCI) on July 1, 1948, as the
first Development Financial Institution in India to deal with the long-term finance needs
of the industrial sector. The newly-established DFI were given low-cost funds through
the central bank’s Statutory Liquidity Ratio (SLR) which in turn enabled it to give
advances and loans to the borrowers of corporate sector at concessional rates.

On the state level, loans as well as finance can be availed from:


 State Financial Corporation (SFC): Under the provision of the State
Financial Corporation Act, 1952, the SFCs are established in the various states for giving
loans and advances to small and medium scale industries. There are 18 SFCs operating in
seventeen different states (including the Tamil Nadu Industrial Investment Corporation
Ltd.) and Delhi (Union Territory). The SFCs are under the direct control of the relevant
State Government and the IDBI. The SFCs have similar functions to those of the IFCI. Its
main functions are to provide financial assistance in the form of advances and loans,
underwriting of new issues, subscription to shares and debentures and guarantee of loans.
But, in reality, they have concentrated mostly on advances and loans only. There is,
therefore, a need for reorientation of their loans policy.

There are 18 State Financial Corporations (SFCs) in the country and these are:
1. Andhra Pradesh State Financial Corporation (APSFC)
2. Himachal Pradesh Financial Corporation (HPFC)
3. Madhya Pradesh Financial Corporation (MPFC)
4. North Eastern Development Financial Corporation (NEDFC)
5. Rajasthan Financial Corporation (RFC)
6. Tamil Nadu Industrial Investment Corporation Limited
7. Uttar Pradesh Financial Corporation (UPFC)
8. Delhi Financial Corporation (DFC)
9. Gujarat State Financial Corporation (GSFC)
10. The Economic Development Corporation of Goa (EDC)
11. Haryana Financial Corporation (HFC)
12. Jammu & Kashmir State Financial Corporation (JKSFC)
13. Karnatka State Financial Corporation (KSFC)
14. Kerala Financial Corporation (KFC)
15. Maharashtra State Financial Corporation (MSFC)
16. Orissa State Financial Corporation (OSFC)

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(CDOE), Mysuru
17. Punjab Financial Corporation (PFC)
18. West Bengal Financial Corporation (WBFC)
 State Industrial Development Corporation (SIDC): The SIDCs came on
the scene much after the SFCs. Besides giving finances, these types of institutions
perform a variety of functions, viz. licenses for industrial units, arranging for land, power,
roads, sponsoring the establishment of such units, especially in backward areas, etc. It
also provides working capital margin to the entrepreneurs as term loan.

5. Government Schemes

The government schemes available for the industrial development of a state may be
categorized as making available infrastructure at concessional or reduced rates and
providing cash subsidy and incentives which amounts financial gains to the entrepreneur.
These schemes are as follows:
 Loans and subsidies at very attractive rates of interest.
 Electric power supply at a reduced tariff.
 Land at subsidized prices or industrial sheds to set up small scale industrial
units.
 Various tax concessions for a number of years. These may include exemption
from sales tax, etc. for a set period of time.

1. Providing Assistance for Acquiring Land: In case the entrepreneur requires


land in particular area suited for his type of industry, government will notify the land for
industrial use and acquire it by paying compensation to the owners of the land, which
may be less than the market price plus reducing the effort required to by promoter to deal
with owners of the land and time involved.

2. Providing Land in Industrial Area: Government depending on its policy of


dispersion of industries for uniform development of state develops industrial are by
providing roads, drainage, power, water, telecommunication and civic amenities so that
entrepreneurs can set up their industrial units in these fully developed industrial areas.
Further certain industrial areas are developed to house specific type industries such as
electronic industries, software industries, pharmaceutical industries etc., such industrial
areas are equipped with facilities required by the target industries. The cost of the land in
such location is at cost basis which is much less than the market price.

3. Providing shed in Industrial Estates: Government constructs industrial sheds


of different sizes in the identified locations and allocates them to the entrepreneurs thus
reducing the cost, time and effort involved. Such sheds are in fully developed
estates/areas where roads, drains, power, water etc. are available.

4. The government schemes for making available financial incentives to


entrepreneurs include the following:

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(CDOE), Mysuru

(i) Providing Capital Subsidy: The government depending on its policy of


dispersion of industries all over the state for all round development provides capital
subsidy to make it attractive for the entrepreneurs to set up their units in backward
districts of the state. Even the industrial area and sheds are developed in the backward
districts or taluks of the state.

(ii) Concessions in the payment of stamp duty: In order to encourage


entrepreneurs, government has given concession on the stamp duty applicable while
registering the industrial land, which is a financial gain to the entrepreneurs who register
the industrial land in their name.

(iii) Sales tax concessions/deferment: New industrial units were given sales
exemption to the extent of twice the amount of investment made in the industrial units set
up in the state. There used to be a scheme which exempts sales tax payment/remittance
by the unit for a period of three years.

(iv) Interest Subsidy: The government extends interest subsidy on the loan extended
to certain class of entrepreneurs such as women entrepreneurs, ex-servicemen etc. the
interest subsidy is in terms of a percent or less. There are schemes which
require lesser contribution from women entrepreneurs in the equity contribution.

(v) Export Subsidy: Government charges reduced interest rates for the funds
involved in exports to promote export and to make the export price competitive in the
market.

(vi) Funding the educational and industrial tours: The government extends
subsidy and assistance to entrepreneurs to undertake tour both within the country and
abroad for visiting/participating in exhibitions.

(vii) Income tax benefits: Income Tax Act, 1961 under section 80 J, new industrial
undertakings including small-scale industries (SSI), are exempted from the payment
of income-tax on their profits which is subject to a maximum of 6 per cent per annum of
their capital employed. The exemption in tax payment is allowed for the period of five
years from the date of commencement of production. In order to avail this exemption
facility, a small-scale industry has to satisfy the following two conditions;
 The unit should not have been formed by the reconstitution or splitting of an
existing unit.
 The unit should employ ten or more workers in a manufacturing process with
power, or at least twenty workers without power.

(viii) Rehabilitation Allowance: According to the section 33 B of Income Tax Act


1961 the rehabilitation allowance is allowed to small-scale industrial units and the

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(CDOE), Mysuru
manufacturing small enterprises. The rehabilitation allowance is given to only those small
businesses that had suffered because of the following reasons:
 Action taken in combating an enemy or action by an enemy.
 Cyclone, Flood, earthquake or other natural upheavals.
 Civil disturbance or riot, explosion or accident fire.

The rehabilitation allowance should be utilized within three years of the unit’s re-
establishment reconstruction of revival for the business purposes only. This allowance is
allowed to the industrial undertaking equal to 60 per cent of the amount of the deduction
allowable to the enterprise.

(ix) Expenditure on Scientific Research : Following deductions in respect of


expenditure on scientific research are allowed under the section 35 of the Income Tax Act
1961:
 The capital expenditure (except land) incurred on scientific research must be
related to the business of the assesse, but it is subjected to the provision of section 35(2)
of the Income Tax Act, 1961
 The revenue expenditure must be incurred on scientific research related to the
business of the assesse in the current previous year.
 The sum that it pays to a scientific research association or a university, college,
institutions or to a public company which must have its objective of scientific research.

(x) Depreciation: A small-scale industrial unit is entitled to a deduction on


depreciation on block of assets at the rates which are given under section 32 of the
Income Tax Act, 1961. Depreciation deduction from the actual cost of plant and
machinery is allowed subject to a maximum of rupees 20 Lakhs in case of the small-scale
industry. Diminishing balance method is used to calculate the amount of depreciation. In
case of an asset acquired before the accounting period, depreciation is calculated on its
written down value (WDV). An additional allowance called ‘Extra Shift Allowance’ is
available for the plant and machinery that is used in manufacturing in double or triple
shift. A small-scale industry should fulfill the various conditions before it becomes
eligible for claiming the deduction in depreciation:
 This deduction of depreciation is allowed only on fixed assets, viz. building,
machinery, plant and furniture.
 The asset must be used actually in the business or profession of assessee.
 The asset must be owned by the assessee.
 The income tax officer must be satisfied with all the prescribed particulars as
required under section 34(1) of the Income-Tax Act, 1961.

(xi) Investment Allowance: In 1976 the investment allowance was introduced in order
to replace the initial depreciation allowance. This allowance is allowed at the rate of 25
per cent of the cost of acquisition of new plant or machinery installed as per section 31A
of the Income-tax Act, 1961. Actually the investment allowance has been made available

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(CDOE), Mysuru
for the things or the articles except certain items of low priority initially, but, according to
the 11th schedule of the Income Tax Act 1961, a special dispensation has been provided
for the plant and machinery installed in small-scale industries. The important condition
for claiming the investment allowance that the small scale industrial unit has put to use
machinery or plant either in the immediate following year or in the year of installation,
falling which the benefit will be forfeited.

The schemes of the government mentioned above are illustrative only. There are
various schemes which would exempt industrial units from power cut, development
loans given at very nominal rate of interest etc.

Government in promoting Entrepreneurship


The Indian government has been actively promoting entrepreneurship through various
initiatives aimed at fostering a culture of innovation and supporting aspiring
entrepreneurs. Some key ways in which the government is promoting entrepreneurship
include:
1. Startup India: Launched in 2016, Startup India is an initiative to build a strong
ecosystem for nurturing innovation and startups in the country. It includes various
schemes and programs to provide funding, mentorship, and other support to startups.
2. Standup India: This initiative aims to promote entrepreneurship among women,
Scheduled Castes (SCs), and Scheduled Tribes (STs) by providing loans and support for
starting new enterprises.
3. Make in India: While not solely focused on entrepreneurship, the Make in India
initiative aims to boost manufacturing in the country, which in turn can create
opportunities for entrepreneurs in various sectors.
4. Ease of Doing Business: The government has taken several measures to improve the
ease of doing business in India, making it easier for entrepreneurs to start and operate
businesses.
5. Venture Capital Funds: The government has set up funds such as the India
Aspiration Fund (IAF) to provide financial support to startups and small businesses.
6. Tax Benefits: Various tax benefits and incentives are provided to startups under the
Startup India initiative, such as tax holidays and exemptions.
7. Skill Development: The government is also focusing on skill development and
entrepreneurship training through programs like the National Skill Development Mission.
Overall, the Indian government's efforts aim to create a conducive environment for
entrepreneurship to thrive, which is crucial for economic growth and job creation.
Introduction to various incentives subsidies & grants
In India, both the central and state governments offer a range of incentives, subsidies, and
grants to promote entrepreneurship and business development. These incentives are

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(CDOE), Mysuru
designed to support startups, small and medium enterprises (SMEs), and other businesses
across various sectors. Here's an introduction to some of the key incentives available:
1. Central Government Incentives:
Startup India Scheme: Launched to promote startups, this scheme offers various
benefits such as tax exemptions, self-certification compliance, and funding support
through the Startup India Fund.
MUDRA Loan Scheme: This scheme offers loans up to Rs. 10 lakh to micro-
enterprises in the non-farm sector, helping them to start or expand their business.
Credit Guarantee Fund Scheme for Micro and Small Enterprises (CGTMSE): It
provides collateral-free credit to micro and small enterprises.

Stand-Up India Scheme: This scheme aims to promote entrepreneurship among


women, Scheduled Castes (SCs), and Scheduled Tribes (STs) by offering loans for
starting Greenfield enterprises in the manufacturing, services, or trading sectors.
Export Promotion Capital Goods (EPCG) Scheme: Under this scheme,
entrepreneurs can import capital goods at concessional customs duty for export
production.
Income Tax Exemptions: Various exemptions and deductions are available under the
Income Tax Act for eligible businesses, particularly for startups and SMEs.
2. State Government Incentives:
State Specific Industrial Promotion Schemes: Many states offer specific schemes to
promote industries in their regions, such as tax incentives, infrastructure support, and
subsidies.
Electricity Duty Exemption/Concession: Some states provide exemptions or
concessions on electricity duty to industrial units.
Stamp Duty and Registration Fee Waiver: To reduce the cost of setting up a
business, some states waive or reduce stamp duty and registration fees for certain types of
businesses.
Interest Subsidy Scheme: Some states offer interest subsidies on loans taken by
entrepreneurs for setting up new businesses.
Investment Promotion Subsidy: States may provide subsidies based on the amount of
investment made by an entrepreneur in certain sectors or regions.
3. Other Incentives:
Research and Development (R&D) Grants: Various government departments and
agencies offer grants for R&D activities to encourage innovation.
Skill Development Subsidies: To address the skill gap, governments offer subsidies
for skill development programs and training initiatives.

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(CDOE), Mysuru
Technology Upgradation Fund Scheme (TUFS): This scheme provides financial
assistance for upgrading technology in certain sectors.
These are just a few examples of the incentives, subsidies, and grants available to Indian
entrepreneurs from both the central and state governments.

Grants & schemes for Exports from Indian government


The central government of India has several schemes and grants to promote exports.
Here are some of the key ones:
1. Export Promotion Capital Goods (EPCG) Scheme: This scheme allows import of
capital goods for pre-production, production, and post-production at zero customs duty,
subject to an export obligation equivalent to 6 times the duty saved on capital goods
imported under EPCG.
2. Merchandise Exports from India Scheme (MEIS): MEIS aims to incentivize export
of merchandise goods by providing duty credit scrip to exporters.
3. Services Exports from India Scheme (SEIS): SEIS incentivizes service exporters
based on their net foreign exchange earnings.
4. Advance Authorization Scheme: This scheme allows duty-free import of inputs,
which are physically incorporated in export product.
5. Duty Drawback Scheme: Under this scheme, exporters can claim a refund of duties
paid on inputs used in the manufacture of export goods.
6. Market Access Initiative (MAI) Scheme: MAI provides funding support to exporters
for export promotion activities in focus countries and focus sectors.
7. National Export Insurance Account (NEIA): NEIA provides insurance cover to
exporters to protect them against payment risks.
8. Trade Infrastructure for Export Scheme (TIES): TIES aims to create export
infrastructure in states to promote outbound shipments.
9. Export Promotion Councils (EPCs): EPCs are industry-specific councils that provide
support to exporters in terms of market information, product development, training, etc.

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Centre for Distance and Online Education
(CDOE), Mysuru
10. Export Development Fund (EDF): EDF provides financial assistance to exporters
for export promotion activities.
These schemes and grants are subject to periodic changes and updates, so it's advisable to
check the latest information on the website of the Directorate General of Foreign Trade
(DGFT) or the Ministry of Commerce and Industry, Government of India.

Financial institution who encourages Entrepreneurs


There are several financial institutions in India that encourage entrepreneurs through
various schemes, loans, and support programs. Some prominent ones include:

1. Small Industries Development Bank of India (SIDBI): SIDBI provides financial


and non-financial assistance to small-scale industries, including startups and
entrepreneurs, through various schemes like the SIDBI Startup Mitra and the SIDBI
Make in India Loan for Enterprises (SMILE).

2. National Bank for Agriculture and Rural Development (NABARD): NABARD


offers financial assistance and support to rural entrepreneurs, particularly in agriculture
and allied activities, through schemes like the Rural Innovation Fund and the
Microfinance Innovation and Development Fund.
3. National Small Industries Corporation (NSIC): NSIC provides support to small-
scale industries, including entrepreneurs, through schemes like the Single Point
Registration Scheme and the Performance and Credit Rating Scheme.
4. Rural Electrification Corporation (REC): REC offers financial assistance and
support to entrepreneurs in the renewable energy sector through schemes like the REC
Scheme for Financing Energy Efficiency and Renewable Energy Projects.
5. National Entrepreneurship Development Board (NEDB): NEDB provides financial
and non-financial support to entrepreneurs through various schemes and programs aimed
at promoting entrepreneurship and innovation in India.
These are just a few examples, and there are many other banks, financial institutions, and
government agencies in India that support and encourage entrepreneurs through various
initiatives.
Small Industries Development Bank of India (SIDBI)
The Small Industries Development Bank of India (SIDBI) is an institution that focuses on
the growth and development of micro, small, and medium enterprises (MSMEs) in India.
Here's a brief overview of its operations:
1. Financial Support: SIDBI provides financial assistance to MSMEs in the form of
term loans, working capital loans, and project-specific loans. It also offers refinancing
facilities to banks and financial institutions that lend to MSMEs.

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Centre for Distance and Online Education
(CDOE), Mysuru
2. Credit Guarantee: SIDBI operates the Credit Guarantee Fund Trust for Micro and
Small Enterprises (CGTMSE), which provides credit guarantees to banks and financial
institutions to encourage them to extend collateral-free loans to MSMEs.
3. Venture Capital: SIDBI promotes entrepreneurship by providing venture capital to
startups and small businesses through its subsidiary, the Small Industries Development
Bank of India Venture Capital Ltd. (SIDBI Ventures).
4. Microfinance: SIDBI supports microfinance institutions (MFIs) and self-help groups
(SHGs) by providing them with financial assistance to reach out to micro-entrepreneurs
and small businesses in rural and semi-urban areas.
5. Promotional Activities: SIDBI undertakes various promotional activities such as
organizing workshops, seminars, and training programs to enhance the skills and
capabilities of MSMEs. It also collaborates with other institutions to promote MSME
development.
6. Development Initiatives: SIDBI supports MSMEs through various development
initiatives such as cluster development, technology upgradation, and modernization of
existing units.

7. Digital Initiatives: SIDBI has launched digital initiatives to provide online platforms
for MSMEs to access financial services, information, and networking opportunities.
Overall, SIDBI plays a crucial role in the development of the MSME sector in India by
providing financial and non-financial support to promote entrepreneurship and economic
growth.
Small Industries Development Corporations (SIDCO)
Small Industries Development Corporations (SIDCOs) play a crucial role in supporting
the growth and development of small-scale industries in India. Here's a brief overview of
SIDCs and their operations:
1. Establishment: SIDCOs were established by the respective state governments in India
to promote, aid, and foster the growth of small-scale industries. They were set up under
the provisions of the State Financial Corporations (SFCs) Act, 1951.
2. Financial Assistance: SIDCOs provide financial assistance to small-scale industries in
the form of term loans, working capital loans, and other financial products. They also
help in obtaining credit from banks and financial institutions.
3. Promotional Activities: Apart from financial assistance, SIDCOs also engage in
various promotional activities such as conducting market surveys, organizing exhibitions,
providing technical and managerial assistance, and facilitating the procurement of raw
materials and machinery.
4. Entrepreneurial Development: SIDCOs play a crucial role in the development of
entrepreneurial skills among individuals interested in starting small-scale industries. They

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(CDOE), Mysuru
conduct training programs, workshops, and seminars to educate entrepreneurs about
various aspects of business management.
5. Project Evaluation: SIDCOs evaluate project proposals submitted by entrepreneurs to
determine their feasibility and viability. They assess factors such as market demand,
technical feasibility, financial viability, and managerial capabilities before sanctioning
loans.
6. Rehabilitation of Sick Units: SIDCOs also undertake the rehabilitation of sick small-
scale industries by providing financial and technical assistance to revive their operations
and make them viable again.
7. Coordination with Government Agencies: SIDCOs work closely with various
government agencies, financial institutions, and industry associations to formulate
policies and programs for the growth and development of small-scale industries.
Overall, SIDCOs play a crucial role in fostering the growth of small-scale industries,
which are considered the backbone of the Indian economy due to their contribution to
employment generation, income generation, and rural development.

District Industrial Centre (DIC)


The District Industries Centre (DIC) is a key institution in the promotion and
development of small-scale industries at the district level in India. Here's an overview of
its operations:
1. Promotion of Small Industries: DICs play a crucial role in promoting small-scale
industries by providing assistance in the identification of viable projects, preparation of
project reports, and obtaining necessary approvals and clearances.
2. Facilitating Finance: DICs help entrepreneurs in accessing financial assistance by
assisting them in preparing loan applications and linking them with financial institutions
like banks and state financial corporations.
3. Providing Infrastructure: DICs assist in the development of industrial infrastructure
such as industrial estates, industrial growth centers, and industrial parks, which are
essential for the growth of small-scale industries.
4. Entrepreneurship Development: DICs conduct various training programs,
workshops, and seminars to develop entrepreneurial skills among potential and existing
entrepreneurs.
5. Implementation of Government Schemes: DICs play a key role in the
implementation of various government schemes and programs aimed at promoting small-
scale industries, such as subsidies, incentives, and credit guarantee schemes.
6. Handholding Support: DICs provide handholding support to entrepreneurs during the
initial stages of setting up their business, including guidance on technology, marketing,
and export promotion.

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Centre for Distance and Online Education
(CDOE), Mysuru
7. Facilitating MSME Registration: DICs facilitate the registration of Micro, Small,
and Medium Enterprises (MSMEs) and help them avail the benefits under the MSME
Act.
8. Monitoring and Evaluation: DICs monitor the performance of small-scale industries
in their respective districts and evaluate the impact of government policies and programs
on the sector.
Overall, DICs play a crucial role in the development of small-scale industries by
providing a range of support services and facilitating their growth and sustainability.
Single window in entrepreneurship development
A "single window" approach typically refers to a centralized platform or system that
facilitates the delivery of various support services to entrepreneurs. This approach aims to
simplify the process of accessing resources and assistance, thereby enabling
entrepreneurs to focus more on developing their businesses.
Here are some key aspects of how the single window operates in entrepreneurship
development:
1. Centralized Access: The single window serves as a central point of access for
entrepreneurs to access a wide range of services, including information, training,
mentoring, funding, networking opportunities, and regulatory support.
2. Streamlined Processes: It streamlines the process of accessing support by reducing
paperwork, eliminating redundant procedures, and providing clear guidelines on how to
access different services.
3. Customized Support: The single window provides tailored support based on the
specific needs of each entrepreneur, helping them to identify and access the resources that
are most relevant to their business.
4. Coordination and Collaboration: It facilitates coordination and collaboration among
various stakeholders involved in entrepreneurship development, such as government
agencies, industry associations, academic institutions, and private sector organizations.
5. Monitoring and Evaluation: The single window may also include mechanisms for
monitoring and evaluating the impact of support services on the growth and success of
entrepreneurs, helping to improve the effectiveness of the overall ecosystem.
Overall, the single window approach in entrepreneurship development aims to create a
more efficient and supportive environment for entrepreneurs, enabling them to overcome
barriers and achieve their full potential.
Industrial Policy from Government of India
The Government of India has periodically issued industrial policies to guide the country's
industrial development. Here is a brief overview of some key industrial policies:

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(CDOE), Mysuru
1. Industrial Policy Resolution, 1948: This was the first comprehensive statement of
industrial development objectives by the Government of India. It emphasized the role of
the state in industrial development.
2. Industrial Policy Resolution, 1956: This resolution emphasized the role of the public
sector in industrial development and laid the foundation for the mixed economy model in
India.
3. New Industrial Policy, 1991: This policy marked a significant shift in India's
economic policies, moving towards liberalization, privatization, and globalization. It
aimed to dismantle the license raj system and open up the economy to foreign investment
and competition.
4. National Manufacturing Policy, 2011: This policy aimed to increase the share of
manufacturing in GDP to 25% and create 100 million jobs by 2022. It focused on
enhancing the competitiveness of the manufacturing sector through various measures.
5. Make in India Initiative, 2014: This initiative was launched to promote India as a
manufacturing hub and attract foreign investment in various sectors. It aimed to boost
domestic manufacturing and create jobs.
6. National Industrial Policy, 2021: The Government of India has proposed a new
National Industrial Policy to replace the existing policy of 1991. The new policy aims to
promote the growth of industries in India, especially in sectors like manufacturing,
services, and technology.

National Industrial Policy, 2021


As of my last update, there isn't a specific National Industrial Policy for 2021 that has
been officially released by the Government of India. However, there have been
discussions and proposals for a new industrial policy to replace the existing one from
1991.
Key highlights and focus areas expected in the new policy may include:
1. Promoting Manufacturing: Emphasis on boosting domestic manufacturing across
various sectors, aligning with the 'Make in India' initiative.
2. Attracting Investments: Measures to attract both domestic and foreign investments in
key sectors to spur industrial growth and create employment opportunities.
3. Sustainable Development: Focus on promoting sustainable and environmentally
friendly industrial practices.
4. Digital Transformation: Embracing digital technologies and Industry 4.0 practices to
enhance competitiveness and efficiency in manufacturing.
5. Ease of Doing Business: Simplification of regulations and procedures to make it
easier for businesses to operate and grow.

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6. Skill Development: Initiatives to promote skill development and training programs to
meet the demands of the evolving industrial landscape.

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