BBA 2nd Sem. Industries in Indian Economy Notes

BBA 2nd Sem. Industries in Indian Economy Notes

BBA 2nd Sem. Industries in Indian Economy Notes :– 



Short Question Answer 


Q. 1. Explain the importance of SSI and cottage industries in Indian economy. 

Ans. Importance or Need of Small Scale and Cottage Industries in Indian Economy .

  1. Vast Employment : Small scale and cottage industries use mainly labour intensive technique which provides more employment. In 2004-05, about 282.82 Lakh persons were employed in small scale industries.
  2. Helpful in Exports : Contribution of small scale and cottage industries in the exports of our country has also been handsome. In 2002-03, exports of these industries was 86,013 crores which was 20.7% of total exports.
  3. Less Dependence on Imports : These industries are based on the resources and techniques available in the country itself. It minimises the need of imports.
  4. Suitable to the Economic Structure of Country : India is having abundant labour force but lack of capital. These industries are suitable to this structure because of more labour and less capital.
  5. Essential for the Production of Artistic Goods : These industries are essential for the production of artistic goods.
  6. Helpful in Equal Distribution of Income : Small scale and cottage industries are helpful in just and equal distribUtion of income because they are owned by lakhs of persons and families.
  7. Complimentary to Large Scale Industries : Small Scale industries supply raw materials and semi-finished goods to large scale industries.
  8. Cottage Industries : A source of rural prosperity. They provide part time job to the people engaged in agriculture, village artisans and craftsmen. Development of these industries offers a solution to the twin problems of rural unemployment and poverty.


Q. 2. What are the basic problems of small scale industries and collage industries? 

Ans.             Problems of Small Scale and Cottage Industries

1. Problems of Raw Materials : (i) Raw materials available to these industries are of inferior quality, (ii) These industries have to pay higher prices, (iii) Generally, these industries do not get raw materials on time.

2. Problem of Technique : In most of the cases, the methods and techniques of production adopted by small scale and cottage industries are old and of low technological level.

3. Problem of Finance : Banks and other financial institutions still hesitate in granting loans and advances to these industries.

4. Problem of Marketing : Small producers do not have proper marketing organisation to sell their output at remunerative prices. Besides they find it very difficult to complete with large scale producers.

5. Competition from Large Scale Industries : Large industries are organised on modern lines, they use latest technology, and get many facilities. Small industries are not properly organised, they use out-dated technology and do not get much facilities. Therefore, small producers cannot stand against them in the market.

6. Problem of Management : Most of the small industries are managed by their owners themselves who are not necessarily efficient managers.

7. Lack of Research Facilities : There is a lack of research facilities These entrepreneurs do not get complete information about their industry in time.

8. Bogus and Fictitious Units : Small scale and cottage units get a number Of facilities from government bogus and fictitious units are set up to avail these facilities.

Q. 3. Explain various steps taken by government to encourage small scale and cottage industries.

Ans.                 Steps Taken by Government to Encourage

                             Small Scale and Cottage Industries

1. Establishment of Boards and Corporations : A number of institutions have been set up by government to provide help and support to small scale and cottage industries.

2. Small Industries Development Organisation : SIDO works as nodal agency for formulating, co-ordinating and monitoring the policies and programmes for the promotion and development of small scale industries in the country.

3. National Small Industries Corporation (NSIC) : NSIC has been set up to provide training to small scale entrepreneurs. It also helps them in the exports of their products.

4. Marketing Facilities : ‘Central Cottage Industries Emporium’ provides help in marketing the products of cottage industries within and outside the country.

5. Establishment of Industrial Co-operative : Government is encouraging co-operative organisation in this sector. At present over 45,000 industrial co-operative societies are working.

6. National Institute for Entrepreneurship and small Business Development : This institute is to provide training for small entrepreneurs and to co-ordinate the activities of various institutes and agencies engaged in training activities.

7. National Awards : To give the recognition and encouragement to small entrepreneUrs, a scheme of national awards has been introduced. First three awards carry a cash prize OR 25,000 and 15,000 respectively.

8. Establishment of District Industries Centres : ‘District Industries Centres’ are set up to provide all possible help to small scale and cottage industries under a single roof and developing these industries, particularly in rural and semi-urban areas. One centre is established in every district.

9. Establishment of Industrial Estates : Number of industrial estates have been developed’ Factory shades and building are developed with all modern facilities in these estates and given to small scale and cottage units on lease or rent.

10. Small Industries Development Bank Of India (SIDBI) : This bank has been set LIP at national level to provide direct finance to small industries.

Q. 4. State the meaning of public enterprises.

Ans. Public Enterprises : An Introduction : Public enterprises are the enterprises which are owned, managed and controlled by central or state or local government, Government sets up the enterprise, manages and controls it and bears the profit or loss thereof, Public enterprises are known as government enterprises, state enterprise and government industries also.

“State Enterprise in business denotes and undertakes, which is controlled and operated by the government as its sole-owner or major shareholder.”  —Raj, Chaudhary and Chakravati

Thus, it may be concluded that public enterprises are the business and industrial enterprises
which are owned, managed and controlled by central government or state government or local government, individually or jointly.

Characteristics of Public Enterprises : 1. Public enterprises are the government enterprises, 2. They are owned, managed and controlled by government, 3. Government may be central or state or local or a combination thereof. 4. These enterprises produce various goods and services.

Q. 5. What are the problems faced by public enterprises in India?

Ans.      Problems of Public Enterprises in India

1. Problem of Organisational Structure : There are four types of organisation and management of public enterprises in India and government has not yet decided a certain policy on this issue. These types are : (i) Departmental Organisation : A public enterprise is established as a ministry or department under government, (ii) Public Corporations ; A public enterprise is established as an independent and autonomous corporation. (iii) Government Company : A public enterprise is established as a joint stock company under Indian Companies Act in which the government has at least 51% shares. (iv) Board. A public enterprise is established as an independent board.

2. Problem of Management and Administration : (i) Generally •IAS and PCS officers are deputed at the key posts of these enterprises who åre not necessarily so efficient to run a business and industrial enterprise, (ii) Politicians directly or indirectly interfere in the activities of these enterprises.

3. Financial Problems : (i) Finance for public enterprise is provided by government through budget. So these enterprises always get short of funds, (ii) Financial Structure of these enterprises in not balanced.

4. Personnel Problems: (i) Generally there is labour-surplus in public enterprises, (ii) There is a common lack of efficiency, rgsponsibility and initiative among the employees of public enterprises.

5. Problems Relating to Cost, Profit and Audit : (i) Cost of production arid rnanagement of public enterprises is very high, (ii) Price of goods and services produced by public enterprises is determined keeping in view social needs and paying capacity of people, As a result, these enterprises do not get fair price.

6. problems of Control and Public Accountability : (i) These enterprises are accountable to parliament. It reduces the autonomy of these enterprises, (ii) There is undue influence of political leaders in these enterprises.

7. Other problems : (i) Location of these enterprises is selected on regional priorities. It Plunges them into uneconomic situation, (ii) These enterprises are bound by legal andv adlilinistrative formalities, (iii) Most of the public enterprises are working much below their installed capacity, (iv) There is competition between public sectors and private sectors.

Q. 6. Write a detailed note on performance and growth of public enterprises in India.

Ans.         Performance and Growth of Public Enterprises in India

 1. Growth of Public Enterprises : On the eve of first five year plan (April 1, 1951), there Were
only 5 public enterprises in India with an capital investment ON 29 crore, As on April 1, 2002 there were 240 public enterprises with an capital investment OR ‘3,24,632 crore,

Commercial activities of these enterprises have also increased enormously during this period.

2. Increase in Ernployment Opportunities : Public enterprises have played an important role in generating employment opportunities. These enterprises provided employment to 191 lakh in 2001 70% of total employment in organised sector.

3. Contribution in Export and Import Substitution : Goods and services produced by public enterprises are exported to a large number of countries all over the world, Besides these enterprises are saving valuable foreign currency by producing goods which are otherwise to be imported.

4. Helpful in the Development of Small Scale and Ancillary Industries : (i) These enterprise vacate such areas, items or seryices which can be developed by small and ancillary units., (ii) Public enterprises support such Inits by providing technical knowledge and management consultancy services. The bureau of public enterprises is monitoring the growth and development of small scale and ancillary industries by public sector.

5. Helpful in Promoting Balanced Industrial Development : Public enterprises promotes balanced industrial development regional disparities may be minimised.

Q.7. “Co-existence of both the public and private enterprises is necessary for real economic development of a country.” Comment.

Ans. Private and public enterprises are not contrary to each other. Co-existence of both the private and public enterprises is essential for the real economic development of a country and particularly for the economic development of under-developed countries like India. Government develops Social overhead capital and basic heavy industries, such as : railways, roads, powers banking communication, iron and steel, machine making and chemical industries etc. Private entrepreneurs, establish consumer goods industries. Government provides infra-structural facilities so that both the public and private enterprises may prosper and grow. It also ensures maximum utilisation of all the _physical and natural resources. Thus, corexistence of both the public and private enterprises is vital for rapid and balanced economic development of a country.

Q. 8. What is departmental organisation? Give its characteristics.

Ans. Departmental Organisation : Departmental organisation means a system of state enterprise which is financed and controlled like any other government department. Auditing of accounts and recruitment of employees are made on the same principle as in other government departments.

Characteristics of Departmental Organisation

1. Financial Administration : Financial administration Of departmental organisation is made through government exchequer.

2. Accounts and Audit : Budget, accounts and auditing of such enterprises are carried out as
other departments of government.

3. Recruitment Of personnel : Employees of these enterprises are appointed by public service commissions.

4. Sovereign Immunity Of State : Departmental organisations enjoy sovereign immunity of states. No suit can be filed on it without government permission,

Q. 9. Write a short note on public corporation.

Ans. Public Corporation : Public corporation means an organisation which is established through a special Act, has a separate legal entity government powers and yet possesses initiative and flexibility. A public corporation is a healthy combination of freedom and boldness.Public corporation is governed by a board consisting of a chairman and directors.

Characteristics of Public Corporation

(i) Wholly owned by government.

(ii) Incorporated under special Act.

(iii) Separate legal entity.

(iv) Management by board,

(v) Autonomous financial system.

(vi) Accounts and audit.
Q.10. “Service sector occupies a key position in Indian economy”, comment.

Ans. Private and public enterprises are not contrary to each other. Co-existence of both the private and public enterprises is essential for the real economic development of a country and particularly for the economic development of under-developed countries like India. Government  develops social overhead capital and basic heavy industries, such as railways, roads, powers, banking communication, iron and steel, machine making and chemical industries etc. private entrepreneurs, establish consumer goods industries. Government provides infra-structural facilities so that both the public and private enterprises may prosper and grow. It also ensures maximum utilisation of all the physical and natural resources. Thus, co-existence of both the public and private enterprises is vital for rapid and balanced economic development of a country.


Q. 11. What are the main functions of District Industries Centres (DICs)?

Ans. Functions of District Industries Centres : The DICs are funded by the state concerned and the centre jointly. The government has provided substantial assistance to the DICs which can be spent by DICs on construction of an office building, expenditure on furniture, fixtures, equipment, vehicles and other recurring expenses.

With this basic facility, DICs in the district level undertakes various promotional measures with a view to bring all out development of SSI in the district. In starts from explanation of potential entrepreneurs to marketing the products produced by the SSIs,

The DICs provide and arrange a package of assistance and facilities for credit guidance, raw materials, training, marketing etc. /including the necessary help to unemployed educated young entrepreneurs in general.

Thus it may be said that DIC extends promotional, technical, physical, financial, marketing and all other type of services required for growth and development of SSI.

Q. 11. What do you mean by financial institutions?

Ans. An establishment that focuses on dealing with financial transactions, such as investments, loans and deposits. Conventionally, financial institutions are composed of organisations such as : banks, trust, companies, insurance companies and investment dealers. Almost everyone has deal with a financial institution on a regular basis. Everything from depositing money to taking out loans and exchange currencies must be done through financial institutions.

Long Questions Answer

Q. 1. Write an essay on privatisation of public sector enterprises-

Ans. Meaning and Rationale of Privatisation : Privatisation is a process by which the government transfers the productive activity from the public sector to private sector- While many industrial market economies (particularly OFCD member countries) have carried out the programme of privatisation on their own accord, former communist countries and many developing countries were forced by the IMF and would bank to carry out privatisation as a condition for assistance under the economic stabilisation and struCtural programmes.

According to the supporters of privatisation, the rationale for privatisation and disinvestment is as follows :

1. The private sector introduced the ‘profit oriented’ decision making process in the working of the enterprise leading to improved efficiency and performance. Moreover, private ownership establishes a market for managers, which improve the quality of management.

2. While personnel in the public enterprises cannot be held responsible (or accountable) for any lapse, the areas of responsibility in the private sector clearly defined.

3. Private sector firms are subject to capital market disciplines and scrutinig by financial experts.

4. According to Bimal Jain, political interference is avoidable in private sector.

5. Many public sector enterprises remain headless for long periods of time. This causes confusion and delay in decision making as nobody is sure how the new incumbent will act (or react) on the policy decision being undertaken. Such a situation, does not exist in private sector.

6. In private sector enterprises response time is very quick. Because of the vary nature of management in these units, it beComes easier to react to changing situation fast.

7. Private sector firms are more subject’ to liquidation, threat of takeover and loss of assets for owners than public sector enterprises.

8. The very survival of private sector enterprises depends on customer satisfaction since only such satisfaction can ensure more widespread and repeat buying.

Methods of Privatisation

The first major programme of privatisation was adopted in U.K. by the conservative government of Margaret Thatcher during 1980s. In this swifts and widespread programme, a large number of public sector companies that dominated a wide swathe of industry and services in U.K. including railways, aeroscape, oil, telecommunications, mining and bus services were sold off. This was followed by privatisation in France and many other OECD countries, former communist countries and developing nations.

The methods of privatisation used by these countries over frequently one or a combination Of the following methods :

1.  Initial Public Offering (IPO) : This is the most important method used for privatisation in U.K and OECD countries. Under this method, the share of Public Sector Undertakings (PSUs) are sold to the retail investors and institutions.

2. Strategic Sale : In this method, the government sells its share in the PSU to a strategic partner. As a result, the management passes over the buyer.

3. Sale to Foreigners : This is a variant of the strategic sales method where the buyer is not a domestic company but a foreign company.

4. Equal-Access Voucher Programmes : This form of privatisation involves distribution of vouchers across the population and attempts to allocate assets approximately evenly among voucher holders. Such programmes excel in speed a fairness.

5. Management-Employees Buy cents : In this route to privatisation, managements and employees themselves buy major stakes in their firms. This method has been widely used in Croatia, Poland, Romania and Solvenia.

The Disinvestment Programme in India

The new industrial policy, 1991 advocated privatisation of public sector enterprises, For purpose of privatisation, the government has adopted the routes of disinvestment which involves the sale of the public sector equity to the private sector and the public at large.

The main approach of the government in this regard is to bring down its equity in all  non-strategic public sector undertakings to 260/0 (or lower) and close down those public sector undertaking which cannot. This investment programme began in 1991-92 and governments stakes in different public sector companies have been sold in varying degrees by 2004-05.

Objectives of the Disinvestment Programmes

(i) Raising of resources,

(ii) Reducing day to day interference in the working of the public sector enterprises by loosening shackles of bureaucratic government control.

(iii) Giving the managements the autonomy to act on their commercial judgement.

Special Aims of the Disinvestment Policy

1.    Modernisation and up gradation of public sector enterprises.

2.    Creation of new assets.

3.    Generation of employment,

4.    Retiring of public debt.

5.    To ensure that disinvestment does not result in alienation of national assets.

6.    Setting up a Disinvestment proceeds fund.

7.    Formulating the guidelines for the disinvestment of natural asset companies.

8.    preparing a paper on the feasibility and modalities of setting up asset management Company to hold, manage and dispose and residual holding of the government in the companies which government equity has been disinvested to a strategic partner. In this statement, the government also announced its decision to disinvest in two oil companies Bharat Petroleum Corporation Ltd. (BPCL).

Hindustan Petroleum Corporation Ltd. (HPCL)

Rangarajan Committee on Disinvestment of Shares : The government appointed a Committee on disinvestment in public sector enterprises under the chairmanshiP Of C’ Rangarajan in 1993 to suggest the correct method of divestiture. Committee suggested that the best method for disinvestment is by offering shares of PSU to the general public at a “‘fixed price” through general prospectus.

Disinvestment Commission : The Government constituted a five member Public sector disinvestment commission under the chairmanship oof G.V, Rama Krishna in August 1996 for drawing a long-term disinvestment programme for the PSUs referred to the Commission. The long term strategy of the disinvestment commission had four objectives .

(i) Strengthen PSUs, were appropriate, in orderto facilitate disinvestment.

(ii) Protect employees’ interest.

(iii) Broad-base ownership.

(iv) Augment receipts for the government.

National Investment Fund : The UPA government at the center approved the constitution of a national investment fund from April 1, 2005 comprising of proceeds from disinvestment Of public sector undertakings. The broad objectives of the fund will be to make investments in social sector projects and capital investment in selected profitable or revivable public sector enterprises that yield adequate returns, in order to enlarge their capital base to finance expansion.

Criticism of Privatisation : The main reasons for the poor performance were :

1. The government carried out the whole exercise of disinvestment were much less than the targets.

2. The government launched the disinvestment programme without creating the required condition for take it off.

3. The government did not adopt suitable methods to oversee the disinvestment of public sector shareholding.

4. The Department of public enterprise and the finance ministry adopted techniques and methods which resulted in far lower realisation than justified.
Q. 2. What is the role of the private sector in Indian economy ? Explain the problems ofthe private sector.

Ans.   Role of the Private Sector in Indian Economy

 1. The Dominant Sector : Despite the rapid progress of the public sector in the period ofplanning, private sector is the dominant sector in the Indian economy. The number of private sector companies in 2001-02 was 1, 10,634 out of 1,28,549 total companies. Thus as many as 86.1% of the per cent of the total companies were in the private sector, the share of public sector being only 11.5 per cent. As far as employment is concerned, the share of private sector was 51.2% in 2001-02 against 44.3% of the public sector.

2. Importance for Development : The private entrepreneur/sector is guided by the profit motive. He is responsible for the introduction of new commodities, new techniques of production’ assembling the necessary plant and equipment, labour force and management and organising them into a going concern. The private entrepreneur acts as an innovator who revolutionses the entire method of production. Such activities help the process of industrialisation and economiec developnnent. After the announcement of the new industrial policy in 1991, private sector has been assigned the dominant role in industrial development.

3. Extensive Modern Industrial Sector : Important consumer goods industries were set up in the pre-independence period as-cotton textile industry, sugar industry, paper industry and edible oil industry. They were highly suitable for private sector since they ensured early returns and required less capital for establishment.

Today India is practically self reliant in its requirements for consumer goods, According to the 1956 resolution, ‘(industries producing intermediate goods and machines can be set up in private As a consequence, chemical industries like paint, varnishes, plastics etc. and industries manufacturing machine tools, machinery and plants, ferrous and non-ferrous metals, rubber, paper, etc., have been set up in the private sector.

4. Potentialities Due to Personal Incentive in the Small Sector : Small and cottage industries have an important role to play in the industrial field. These industries employ labour-intensive techniques and are, accordingly, important from the point of view of providing employment opportunities. In India, all small and cottage industries are in the private sector. Personal initiative plays a decisive rule in small scale industries. With the help of a small capital, the small entrepreneur wise his resources efficiently to earn maximum profit, such management is not available to public sector enterprises.

Problems of the Private Sector

1. Profit Generation is the Main Motive : Private sector operate with the motive of maximising profits. They are interested in investing only in those industrial sectors where quick profit generation is possible. Therefore they tend to be must in consumer goods industries and ignore investments that are crucial for building up a proper industrial infrastructure.

2. Focus on Consumer Durables Sector : The focus of the private sector is on the elite consumer groups cause they have ample pUrchasing power. Thus the production pattern is skewed in favour of the relatively small richer sections of society.

3. Monopoly and Concentration : It is the general pattern of capitalist development that, as the economy progresses, the monopoly organisation are strengths need a concentration of wealth and economic power in a few hands increases.

4. Declining Share of Net Value Added in Total Output : Net value added is defined as the amount generated over and above the cost of raw materials which go to the production system. It thus indicated the efficiency of the production process, A survey of 250 private companies shows that over the period 1996-97 to 2000-01, while their aggregate value of output increased by 57.3%, heir total net value added increased by 45%. The share of net value added in output declined from 23.11% to 21.32% over the same period. This shows a decline in efficiency over the five year period 1996-97 to 2000-01. A fall in the share of net value added in output means that the same amount of raw materials now generates less output.

5. Infrastructure Bottlenecks : Inverse capacity shortfalls, poor quality and high cost of infrastructUre continue to constrain Indian businesses. The most important infrastructural constraint is ‘power’. Industry surveys have found that active power shortfalls, unscheduled power cuts, erratic power quality (low voltage coupled with fluctuation) delays and informal payments required to obtain new connections, and very high industrial energy costs’ hurt industry performance and competitiveness.

6. Contribution to Trade Deficit : To upgrade their technology, their import expenditures have increased at a much faster rate than their export earnings this has pushed up the country’s trade deficit.

7. Industrial Disputes : As compared to public sector enterprises the private sector enterprises suffer from more industrial disputes. Differences and conflicts between the owners and employees regarding wages, bonus, retrenchment and other issues frequently emerge,

8. Industrial Sickness : This is a serious problem confronting the small, medium and large units in the private sector substantial amount ofloanable funds of the financial institutions is locked up in sick industrial units causing not only wastage of resources but also affecting the healthy growth of the industrial economy adversely.

9. Problems Relating to Finance and Credit : Since the rate of Capital formation in the economy is law and the capital market is an underdeveloped state, the private sector enterprises have to encounter serious difficulties in arranging finances. Because of high inflationary tendencies in the economy, people are attracted towards purchasing land, gold and jewellery and are not willing to invest in industries. Inflationary conditions have also given birth the black marketing and a large parallel economy, The industrial finance institutions have filled up this gap to some extent but the problem continuous to be enormous.

10. Threat from Foreign Competition : The process of liberalisation unleashed in 1991 has opened up the gates to foreign investors and the government has progressively introduced measures to ‘open up’ the economy to foreign competition. This process of globalisation and ‘integration’ of the Indian economy with the world economy has led to an unequal competition a competition between ‘giant MNCs’ (Multinational Corporations) and dwarf Indian enterprises.

Q. 3. Explain the various promotional activities of commercial banks in entrepreneurial development.


How does Indian bank promote entrepreneurial development?

Ans. Commercial Banks in Entrepreneurial Development

In recent time commercial banks have not confined themselves to more extension of finance to small entrepreneur, but have shown genuine concern for their progress and development. They have now entered the challenging field of promoting new small scale entrepreneures through entrepreneurship development programmes. In their new role as promoters of small scale sector they have accepted yet another challenging task. They are now holding EDPs in collaboration with specialised institutions such as : DIC, SISI, TCOs etc, with a view to identify entrepreneurs, especially in backward areas, and training and monitoring them to start new ventures.

1. State Bank of India (SBI) : SBI launched EDPs in 1978 for the development of backward areas by monitoring potential entrepreneurs to take up risky new ventures. EDPS consist of one months’S intensive training in behavioural science, management aspects, field training. During the training period the entire cost of boarding and lodging is born by the bank.

The banks EDP consists of three phases :

1. Initiation phase for creating awareness about entrepreneurial opportunities.  2. Development phase through training programmes in developing motivation and managerial

3. Support phase counseling, encouragement and infra-structural support for establishing and running a enterprise.

In 1967 the SBI launched a scheme for providing financial assistance to technically qualified or trained entrepreneurs to the extent of 100%. SBI and its groups offer package of financial arrangement and assistance to small scale units in their promotional and expansion activities,

II. Punjab National Bank (PNB) : Through its merchant banking division it offers similar package of assistance to small scale units.

The package of measures include the following :

1.    The banks study the economic viability and technical feasibility of the proposals and help in preparation of market survey report with the assistance of technical consultants,

2.    They provide assistance to entrepreneurs in obtaining various government consents required for industrial projects.

3.    They assist the entrepreneur in raising rupee resources in the form of debentures, term loans, dereferred payment guarantees from financial institutions.

4.    They assist in raising foreign exchange resources required for import of plant and machinery, raw materials, etc., by arranging through the bank’s foreign correspondents suppliers credit, buyers’ credit and foreign currency loans.

5.    They determines the capital structure, assist in obtaining consent of SEBI.

6.    They suggest strong things the capital base of small scale industries, which intend to expand by conversion of partnership firms into private limited company.

III. Indian Bank-Entrepreneurship Service Cell : The bank provides consultancy services to persons who graduate from engineering and technological institutions and unemployed engineers, diploma holders and other graduates or business executives.

IV. Bank of Baroda-Entrepreneurial Banking Service : Bank of Baroda has started what is known as ‘Entrepreneurial Banking’ in collaboration with V.P. small industries corporation to assist technician entrepreneurs to set up their own units at Rae Bareli Industrian Complex for building and hardware material. Under this scheme, Bank of Baroda arranges in plant training in established industrial units and provides working capital facilities to the entrepreneurs.

Bank of Baroda has also started a multi service agency at Bombay to provide raw materials, marketing prospects to self employed persons about feasibility of their projects.

V. Bank of India-Entrepreneurial Clinic-Cum-Guidance-Service : Bank has set up the cell for economic development. The scheme offers :

1.    Assistance in selection of industry, preparations and evaluation of project report and market survey.

2.    Practical training in the line, if necessary.

3.    Assistance in attaining government clearance, procurement of machinery and marketing product.

4.    Assistance and guidance in implementation of profit.

VI. Canara Bank—Industrial Information and Guidance service : The bank has set up an industrial information and guidance service to provide information and advice to its clients and matters, such as scope for establishment of industries, technical and marketing facilities, taxation, export and imports, accounting and management and to prepare project report an proposed industries.

VII. Grindlags Bank Limited : It has two wings, small scale consultancy service and merchant banking division.

Small Scale Consultancy Service division is located in Calcutta, this division offers assistance in preparing project feasibility reports conducting overall industry studies, marketing or ‘sales and management accounting, this division undertakes a detailed in depth-study Of the existing system and procedures in Various functional areas for idea problems and other deficiencies to develop tailor-made solutions. The division also helps the management in implementing the suggestions’

The Merchant Banking Division located at Mumbai, Chennai, Calcutta and New Delhi manages public issues for raising capital, helps to establish liaison with government. It assists the strengths and weakness of the company.

VIII. Syndicate Bank : Small scale industries department of all the bank will a technical cell of engineers working at the head office at Manipal (Karnataka) Syndicate Bank offers counseling services to the entrepreneurs, including helping them to prepare project reports,

IX. Union Bank of India—General Services Cell : The bank has opened a general service cell at its head office at 66/80 Bombay Samachar street. services like selection of machinery accounting procedure, financial planning and other matters to small borrowers.

United Bank of India : The bank’s technical cell at Kolkata provides assistance to persons about feasibility of their projects and technical as well as non-technical guidance.

United Commercial Bank : The Bank has a cell on its head office at Kolkata to provide technical assistance/guidance to self employed persons about feasibility of their projects. It also renders them advice in regard to sources and availability of raw materials, and marketing of their products.

Q.4. Evaluate the role of Industrial Development Bank of India in the development of Indian economy.

Ans. Industrial Development Bank of India (IDBI) : Industrial Development Bank of India was set up to accelerate the development of the country. A number of financial institutions came into existence after independence and were catering to a variety of needs of the industry. There a lack of coordination among different institution and it led to overlapping and duplication in their efforts. At the same time some gigantic projects of national importance were not getting required financial assistance. It was in response to this need that the Industrial Developmeht Bank of India (IDBI) was established in 1964 as a wholly owned subsidiary of Reserve Bank of India. The bank was to act as an apex institution coordinating functions of all the financial institution into a single integrated movement of development banking and supplementing their resources for industrial financing all as an agency for providing financial support to all Worthwhile projects of national importance whose access to existing institutional sources is limited.

The ownership of IDBI was transferred to Central Government on February 16, 1976. It is now working as state owned Autohonomous corporation. Besides, acting as a reserviour on which other financial institutions can draw, IDBI provides direct financial assistance to industrial units to bridge the gap between supply and demand of medium and long term finance.  The IDBI Act was amended, in 1994, to permit public ownership upto 49 per cent. In 1995, it raised more than Z 20 billion through the first Initial Public Office (IPO) of equity. It reduced the stake of the government to 72-14 per cent. Further, in June 2000, a part of the equit shareholding of the government was converts into preference share capital which was redeemed in march 2001. Resulting into further reduction of government stake to 58.41 per cent,

Development Banking vs Commercial Banking : Both banks and other financial institvtions play an important role in the development of economy by influencing saving and/or investment by acting as financial intermediaries, in collecting saving from the public and re-channelling them to the people in need, for financing investment in demand and current assets. But the commercial banks also perform the additional function of generating money. Also, the main difference between banks and other financial institution arises from the differences, in the nature of their liabilities. Generally, the liabilities of non-banking financial institutions are not convertible into cash on demand. On the other hand, a substantial part of the liabilities of banks consist of demand deposits withdrawable by cheques and only banks are authorised to accept deposits withdrawable by cheque. As the economy became more and more advanced, where more and more payments are largely by means of cheques, the commercial banks not only perform credit function but also a monetary function. So it is the combination of those two important functions that give and edge to commercial banks over other financial institutions as a monetary tool in the hands of government/central banking institutions of regulating economy.

While the development banks or financial institutions meet the medium and long term needs of the industry for their fixed capital expenditure, the commercial banks meet mainly their short-term credit requirements, in view of structure of their liabilities, they consider it more appropriate to finance the working capital need of customers rather than term credit.

The structure of their liabilities also differ widely from those of financial institutions is that a substantial portion of the funds of financial institutions are drawn from budgetary resource of the central government, borrowing from the capital market by issue of bonds, whereas the fund of the bank drawn from the public and corporate sector by way of deposit only and that too largely, demand deposits.

Role of Development Banks in Economic Development : Development banking differ from commercial banking in several aspects. While commercial banks lend for short term requirements of trade and industry primarily for working capital purpose, the development banks lend for medium and long period, mainly’for the purpose of investment in fixed assets for establishment, expansion, modernisation etc. of industrial unit, commercial banking has traditionally been ‘security-oriented’ while development banking approach has been ‘project-oriented’. They act as ‘partners in progress’ and proceed on what is termed as ‘anticipated income theory’, i.e. the dues form the borrowing unit are expected to be realised out of anticipated income of the borrower.

The medium and long term finance for an industrial unit is required for the establishment, renovation, expansion and moderrisation of such units, Such finance is raised either as : capital funds consisting of equity and preference shares and/or as long and medium term,loans or thorough debt instrument like bonds and debenturps.

Evaluation of New Policy

1.    New policy will help in the procurement of credit and raw material, development of market, improvement of technology.

2.    New policy will gear up the entire administrative machinery to solve the problem at earliest.

3.    New policy emphasis upon providing timely finance rather than cheap finance.

4.    New policy has target oriented scheme rather than general promotional schemes.

5.    New policy allows equity participation by large industrial units in small sector.

6.    New policy has specific attention to tiny sector,

7.    New policy allows limited partnership, which increases source of financial for small scale units.


1. Equity participation scheme may lead to indirect ownership of small units by large units.

2. The policy does not describe how the objective of providing finance to these units would be achieved.

3. The policy is salient about problem of unviable and technically obsolete small units.
Q. 5. Write a detailed note on main functions of District Industries Centres (DICs). (2013)

Ans. Functions of District Industries Centres (DIC) : The important functions of DIC are discussed as follows :

1. Identification of Entrepreneurs : DICs develop new entrepreneurs by conducting entrepreneurial motivation programmes throughout the district particularly under SEEUY scheme. DICs also take association of SIS’s and TCOs for conducting EDPs.

2. Provisional Registration : Entrepreneurs can get provisional registration with DICs which enable them to take all necessary steps to bring the unit into existence.

The entrepreneur cam get assistance from term •lending institutions only after getting provisional registration. The provisional registration for two years initially and can be renewed every year but only for two times.

3. Permanent Registration : When the entrepreneur completes all formalities required to commence the production like selection of site, power connection, installing machinery etc. he can apply to DIC for permanent registration. It is only after getting the permanent registration that the entrepreneur can apply for supply Of raw materials on concessional rates, Permanent Fegistration is essential to avail all types of benefits extended by the government from time to time.

4. Purchases of Fixed Assets : The DICs recommend loan applications of the prospective entrepreneur to various concerned financial and development institutions e.g.NSIC, SISI etc, for the purchase of fixed asset. It also recommend to the commercial banks for meeting the working capital requirement of SSI to run day to day operations.

5. Clearances from Various Departments : DIC takes the initiative to get clearances from various departments which is essential to start a unit. It even takes follow up measures to get speedy power connection,

6. Assistance to Village Artisans and Handicrafts : In spite of inherent talent and ability village artisans are not better up because they lack financial strength to strive in the competitive market. DIC in support with different lead banks and nationalised banks extends financial support to those artisans.

7. Incentives and Subsidies : DIC helps SSI units and rural artisans to subsidies granted by government under various schemes. This boost up the moral as well as the financial capacity of the units to take further development activities.

The different types of subsidies are power subsidy, interest subsidy for engineers and subsidy under IRDP etc. from various institutions.

8. Interest Free Sales Tax Loan : SIDCO provides interest free sales tax loan up to a maximum limit Of 8% of the total fixed assets for SSI units set up in rural areas. But the sanction order for the same is to be issued by DIC.

The DIC recommends the case of SSI units to National Small Industries Corporation Limited for registration for Government purchase programme.

9. Assistance of Import and Export : Government is providing various types of incentives for import and export of specific goods and services. These benefits can avail by any importer or exporter provided the same is routed through the concerned DIC.

Export and import license is also issued to the importer or exporter only on the basis of recommendation of DIC:

10. Fairs and Exhibitions : The DICs inspires and facilities the SSI units to participate in various

fairs and exhibitions which are organised by the Government of India and other organisations to give publicity to industrial products.

DICs provide free space to SSIs for the display of their products and attitudes financial assistance for the purpose.

11. Training Programmes : Dic organises training programs to rural entrepreneurs and also assists other institutions and organisations imparting training to •train the small entrepreneurs.

12. Self-employment for Unemployed Educated Youth : The DICs have launched a scheme to assist the educated unemployed youth by providing them facilities for self employment. The youth should be in the age group of 18 to 35 years with minimum qualification of Metric or Middle with I.T.I. in engineering or technical trade, Technocrats and women entrepreneurs are given preference.


Full BBA Notes All Semester 

Montey Parjapati




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