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TABLE OF CONTENTS

1. Small-scale Industrial Undertaking. 2. Ancillary Industrial Undertaking. 3. Investment limits in SSI 4. Valuation of Plant & machienery. 5. Opportunities in SSI 6. List of items Reserved for Exclusive manufacture. 7. SSI Registration 8. SSI regulation under various laws. a) Foreign direct investment. b) Operating environment & taxation policy c) NRI Investment. d) Foreign exchange Regulation. e) Environment regulation. f) Personnel tax g) Corporate Tax h) MAT. i) Capital gain & wealth tax j) withholding taxes k) Excise duty & SSI l) Sales Tax m) Land use Regulation. n) Industrial Development Act. o) Gratuity Act, Bonus Act, Trade union Act, Industrial Dispute Act. p) Export-Import policy for SSI & SIDBI 9. Conclusion.

In this brief project i have tried to give a clear picture of SMALL SCALE INDUATRIES and the various benefits given by the government under various laws. The information given in this project are true to the best of my knowledge & updated and taken from various governmnent sites of SMALL SCALE INDUTRIES and journals.I tried to give my best in preparing this report. I would like to give my thanks Mrs. SEEMA AGRAWAL (COMPMANY SECRETARY) for providing me her valuable time and support in prepartion of this project.

( RUBEENA PARVEEN)

PROJECT REPORT ON
SSI

UNITS & BENEFITS UNDER VARIOUS LAWS

SUBMITTED BY : RUBEENA PARVEEN Reg. No.- 220565441/09/2007

SUBMITTED TO : Mrs. SEEMA AGRAWAL


( COMPANY SECRETARY)

SMALL SCALE INDUSTRIAL UNDERTAKING

The following requirements are to be complied with by an industrial undertaking to be graded as Small Scale Industrial undertaking w.e.f. 21.12.1999

An industrial undertaking in which the investment in fixed assets in plant and machinery whether held on ownership terms on lease or on hire purchase does not exceed Rs 10 million.(Subject to the condition that the unit is not owned, controlled or subsidiary of any other industrial undertaking).An industrial undertaking shall be considered to be controlled by other industrial undertaking if:-

1. the equity holding by other industrial undertaking in it exceeds twenty four percent of its total equity; or 2. the management control of an undertaking is passed on to the other industrial undertaking by way of the Managing Director of the first mentioned undertaking being also the Managing Director or Director in the other industrial undertaking or the majority of Directors on the Board of the first mentioned undertaking being the equity holders Every industrial undertaking which has been issued a certificate of registration under section 10 of the said Act or a license under sections 11, 11A and 13 of the said Act by the Central Government and are covered by the provisions of paragraphs (1) and (2) above relating to the ancillary or small scale industrial undertaking, may be registered, at the discretion of the owner, as such, within a period of one hundred and eighty days from the date of publication of this notification in the Official Gazette. Ancillary Industrial Undertakings The following requirements are to be complied with by an industrial undertaking for being regarded as ancillary industrial undertaking:

An industrial undertaking which is engaged or is proposed to be engaged in the manufacture or production of parts, components, sub-assemblies, tooling or intermediates, or the rendering of services and the undertaking supplies or renders or proposes to supply or render not less than 50 per cent of its production or services, as the case may be, to one or more other industrial undertakings and whose investment in fixed assets in plant and machinery whether held on ownership terms or on lease or on hire-purchase, does not exceed Rs 10 million.

Tiny Enterprises Investment limit in plant and machinery in respect of tiny enterprises is Rs 2.5 million irrespective of location of the unit. Women Entrepreneurs A Small Scale Industrial Unit/ Industry related service or business enterprise, managed by one or more women entrepreneurs in proprietary concerns, or in which she/ they individually or jointly have a share capital of not less than 51% as Partners/ Shareholders/ Directors of Private Limits Company/ Members of Cooperative Society.

Small Scale Service & Business (Industry related) Enterprises (SSSBEs) SSSBEs industry related service/ business enterprises with investment upto Rs 500,000 in fixed assets, excluding land and building, are called Small Scale Service/ Business Enterprises (SSSBEs). This limit has been raised to Rs.1 million w.e.f. September 2000.

Investment Limits

The definition of small scale industries has undergone changes over the years in terms of investment limits in the following manner:-

YEAR INVESTMENT LIMITS ADDITIONAL CONDITIONS 1950 Upto Rs 5 lacs in fixed assets Less than 50/100 persons with or without power 1960 Upto Rs 5 lacs in Plant & Machinery No condition 1966 Upto Rs 7.5 lacs in Plant & Machinery No condition 1975 Upto Rs 10 lacs in Plant & Machinery No condition 1980 Upto Rs 20 lacs in Plant & Machinery No condition

1985 Upto Rs 35 lacs in Plant & Machinery No condition 1991 Upto Rs 60 lacs in Plant & Machinery No condition 1997(Dec) Upto Rs 100 lacs in Plant & Machinery No condition

Computation of Plant and Machinery (For calculating investment limit)

In calculating the value of plant and machinery, the original price thereof irrespective of whether the plant and machinery are new or second hand, shall be taken into account. However, to determine the price of second hand imported machinery, the original vale of the said plant and machinery will be taken in foreign currency terms. The value of foreign currency will be converted into rupee using the "current" exchange rate, i.e. exchange rate prevalent at the time of import. The import duty will be added on the basis of "current" rate of import duty, i.e. the rate of import duty prevalent at the time of import.In calculating the value of plant and machinery, the following shall be excluded, namely:-

1. Cost of equipments such as tools, jigs, dies, moulds and spare parts for maintenance and the cost of consumable stores. Cost of installation of plant and machinery. Cost of Research and Development (R&D) equipment and pollution control equipment. Cost of generation sets, extra transformers, etc., installed by the undertaking as per the regulations of the State Electricity Board. Bank charges and service charges paid to the National Small Industries Corporation or the State Small Industries Corporation. Cost involved in procurement or installation of cables, wiring, bus bars, electrical control panels (not those mounted on individual machines), oil circuit breaker/miniature circuit breakers, etc. which are necessarily to be used for providing electrical power to the plant and machinery safety measures. Cost of gas producer plants.

Transportation charges (excluding taxes e.g., Sales tax, excise, etc.) for indigenous machinery from the place of manufacturing to the site of the factory. Charges paid for technical know-how or erection of plant and machinery. Cost of such storage tanks which store raw materials, finished products only and are not linked with the manufacturing process. Cost of fire-fighting equipments. Cost of those items of plant and machinery installed purely for power generation using non-conventional energy sources such as wind, solar energy, ocean waves, bio-gas etc.

In case of imported machinery, the following shall be included in calculating the value namely:1. Import duty, excluding miscellaneous expenses such as transportation from the port to the site of the factory, demurrage paid at the port. Shipping charges Customs clearance charges and Sales tax

Performance of Small Scale Industries 1. Employment Production Exports Opportunities Economic Indicators Employment Generation

SSI Sector in India creates largest employment opportunities for the Indian populace, next only to Agriculture. It has been estimated that a lakh rupees of investment in fixed assets in the small scale sector generates employment for four persons.

Export contribution

SSI Sector plays a major role in India's present export performance. 45%-50% of the Indian Exports is being contributed by SSI Sector. Direct exports from the SSI Sector account for nearly 35% of total exports. The number of small scale units that undertake direct exports would be more than 5000.It would surprise many to know that non traditional products account for more than 95% of the SSI exports.The lucrative product groups where the SSI sector dominates in exports, are sports goods, readymade garments, woollen garments and knitwear, plastic products, processed food and leather products.

Opportunities

Small industry sector has performed exceedingly well and enabled our country to achieve a wide measure of industrial growth and diversification.By its less capital intensive and high labour absorbtion nature, SSI sector has made significant contributions to employment generation and also to rural industrialisation. This sector is ideally suited to build on the strengths of our traditional skills and knowledge, by infusion of technologies, capital and innovative marketing practices.

The opportunities in the small scale sector are enormous due to the following factors :

- Less Capital Intensive - Extensive Promotion & Support by the Government - Reservation for Exclusive Manufacture by small scale sector - Project Profiles

- Funding

- Finance & Subsidies - Machinery Procurement - Raw Material Procurement

- Manpower Training - Technical & Managerial skills - Tools & Tools utilisation support - Reservation for Exclusive Purchase by Government - Export Promotion - Growth in demand in the domestic market size due to overall economic growth - Increasing Export Potential for Indian products - Growth in Requirements for ancillary units due to the increase in number of greenfield units coming up in the large scale sector. The promotional and protective policies of the Govt. have ensured the presence of this sector in an astonishing range of products, particularly in consumer goods. However, the bug bear of the sector has been the inadequacies in capital, technology and marketing. The process of liberalisation will therefore, attract the infusion of just these things in the sector.

Economic Indicators

The Small Scale Industry today constitutes a very important segment of the Indian economy. The development of this sector came about primarily due to the vision of our late Prime Minister Jawaharlal Nehru who sought to develop core industry and have a supporting sector in the form of small scale enterprises.

Small Scale Sector has emerged as a dynamic and vibrant sector of the economy.

- Today, it accounts for nearly 35% of the gross value of output in the manufacturing sector and over 40% of the total exports from the country. - In terms of value added this sector accounts for about 40% of the value added in the manufacturing sector. - The sector's contribution to employment is next only to agriculture in India. It is therefore an excellent sector of economy for investment.

List of Items Reserved for Exclusive Manufacture 1. Food And Allied Industries Textile Products Including Hosiery Art Silk/Man-Made Fibre Hosiery Wood And Wood Products 2. Paper Products Leather And Leather Products Including Footwear Rubber Products Plastic Products Injection Moulding Thermo Plastic Products (1) Injection Moulding Thermo Plastic Products (2) Chemicals And Chemical Products Laboratory Chemicals And Reagents Water Soluble Wood Preservative Based On Copper Chrome, Arsenic Boric Compunds Basic Dyes Azo Dyes Acid Dyes Napthols

Reactive Dyes Fast Colour Bases Natural Essential Oils Organic Chemicals, Drugs And Drug Intermediates Other Chemicals And Chemical Products Glass And Ceramics Roofing Tiles Flooring Tiles Ceramic Table Wares And Allied Items In Stone Wares Semi Vitreous Ware And Earthern Wares Mechnical Engineering Excluding Transport Equipment Electrical Machines, Appliances & Apparatus Including Electronics Electrical Appliances Electronic Equipments And Components Transport Equipment Boats And Truckbody Building Auto Parts Components And Ancillaries And Garage Eqpt Bicycle Parts, Tricycles And Perambulators Miscellaneous Transport Equipment Mathematical And Survey Instruments Sports Goods Stationery Items Clocks And Watches

SSI REGISTRATION

Small Scale and ancillary units (i.e. undertaking with investment in plant and machinery of less than Rs. 6.0 million and Rs. 7.5 million respectively) should seek registration with the Director of Industries of the concerned State Government. Registering Your SSI Unit The main purpose of Registration is to maintain statistics and maintain a roll of such units for the purposes of providing incentives and support services. States have generally adopted the uniform registration procedures as per the guidelines. However, there may be some modifications done by States. It must be noted that small industries is basically a state subject. States use the same registration scheme for implementing their own policies. It is possible that some states may have a 'SIDO registration scheme' and a 'State registration scheme'.

Benefits of Registering

The registration scheme has no statutory basis. Units would normally get registered to avail some benefits, incentives or support given either by the Central or State Govt. The regime of incentives offered by the Centre generally contains the following: - Credit prescription (Priority sector lending), differential rates of interest etc. - Excise Exemption Scheme - Exemption under Direct Tax Laws. - Statutory support such as reservation and the Interest on Delayed Payments Act. (It is to be noted that the Banking Laws, Excise Law and the Direct Taxes Law have incorporated the word SSI in their exemption notifications. Though in many cases they may define it differently. However, generally the registration certificate issued by the registering authority is seen as proof of being SSI). States/UTs have their own package of facilities and incentives for small scale. They relate to development of industrial estates, tax subsidies, power tariff subsidies, capital investment subsidies and other support. Both the Centre and the State, whether under law or otherwise, target their incentives and support packages generally to units registered with them.

Objectives of The Registration Scheme

They are summarised as follows: - To enumerate and maintain a roll of small industries to which the package of incentives and support are targeted. - To provide a certificate enabling the units to avail statutory benefits mainly in terms of protection. - To serve the purpose of collection of statistics. - To create nodal centres at the Centre, State and District levels to promote SSI.

Features of The Scheme

Features of the scheme are as follows: - DIC is the primary registering centre - Registration is voluntary and not compulsory. - Two types of registration is done in all States. First a provisional registration certificate is given. And after commencement of production, a permanent registration certificate is given. - PRC is normally valid for 5 years and permanent registration is given in perpetuity.

Provisional Registration Certificate (PRC)

- This is given for the pre-operative period and enables the units to obtain the term loans and working capital from financial institutions/banks under priority sector lending. - Obtain facilities for accommodation, land, other approvals etc.

- Obtain various necessary NOCs and clearances from regulatory bodies such as Pollution Control Board, Labour Regulations etc.

Permanent Registration Certificate

Enables the unit to get the following incentives/concessions: - Excise exemptions - Income-Tax exemption and Sales Tax exemption as per State Govt. Policy. - Incentives and concessions in power tariff etc. - Price and purchase preference for goods produced. - Availability of raw material depending on existing policy.

Procedure For Registration

Features of the present procedures are as follows: - A unit can apply for PRC for any item that does not require industrial license which means items listed in Schedule-III and items not listed in Schedule-I or Schedule-II of the licencing Exemption Notification. Units employing less than 50/100 workers with/without power can apply for registration even for those items included in Schedule-II. - Unit applies for PRC in prescribed application form. No field enquiry is done and PRC is issued. - PRC is valid for five years. If the entrepreneur is unable to set up the unit in this period, he can apply afresh at the end of five years period. - Once the unit commences production, it has to apply for permanent registration on the prescribed form.

Basis of evaluation:

- The unit has obtained all necessary clearances whether statutory or administrative. e.g. drug license under drug control order, NOC from Pollution Control Board, if required etc. - Unit does not violate any locational restrictions in force, at the time of evaluation. - Value of plant and machinery is within prescribed limits. - Unit is not owned, controlled or subsidiary of any other industrial undertaking as per notification.

De-Registration

A Small Scale Unit can violate the regulations in the following ways which will make it liable for de-registration: - It crosses the investment limits. - It starts manufacturing any new item or items that require an industrial license or other kind of statutory license. - It does not satisfy the condition of being owned, controlled or being a subsidiary of any other industrial undertaking.

SSI REGULATIONS UNDER VARIOUS LAWS

FOREIGN DIRECT INVESTMENT APPROVAL POLICY

An industrial undertaking, i.e., a company with interests in industry can invest upto 24% equity in a SSI unit. If the equity goes beyond 24%, the industrial unit loses its SSI status. There is no restriction on the extent of equity that can be held by a Nonresident Indian (NRI) as an individual/partner in a SSI unit.Automatic approval is granted by Reserve Bank for foreign investment upto 51% in 35 high priority industries. Investors need to file an application with the Reserve Bank of India (RBI) in the prescribed format and approval is ordinarily granted within 15 days. For

foreign investment outside the automatic route, clearance has to be obtained from Foreign Investment Promotion Board (FIPB). Applications for setting up a 100% Export Oriented Unit are also required to be filed with the SIA. For setting up an unit in an Export Processing Zone (EPZ), application has to be filed with the Development Commissioner of the concerned EPZ. Under automatic procedures, foreign technology agreements are being permitted in respect of industries that are designated as high priority industries. The use of foreign brand names and / or trade mark of goods is also now being permitted freely. To provide access to international markets, majority foreign equity holding upto 51% equity is being permitted for international trading companies that are primarily engaged in export activities.

OPERATING ENVIRONMENT AND TAXATION POLICIES

FDI can be in the form of cash or capital goods and there is no minimum cash requirement, Branch organisations are permitted only in a few specified service industries such as banking, shipping, airlines etc., or export-oriented ventures.This licensing applies uniformly to domestic and foreign investment.Also certain products are reserved for the small scale sector and large undertakings are ordinarily permitted equity participation up to 24 percent of total shareholding in these.There is no restrictions regarding access to domestic markets or user of foreign brand names.A work-permit as such is not required for expatriate employees, but permission to stay is required from the Government where the period of stay is more than three months.RBI permission is also required to employ expatriates where remittance of salary in foreign exchange is envisaged.

FDI - APPROVAL METHODOLOGY

The highlight of the policy is the promoted prducts category (Priority Sector in FDI)where approval for up to 51% equity investment proposals is automatic and where only an application to the Reserve Bank of India is required. This procedure is also applicable to investment proposals involving trading companies and hotels and the tourism related industry.Investment proposals involving greater than 51% equity or involving products not in the promoted category require approval from the Ministry of Industry through the specially empowered Foreign Investment Promotion Board which can negotiate terms directly on major proposals in their totality and free from any predetermined parametersAnd there are special facilities and incentives for export oriented units and investment in units located in any of the export promotion zones.

FOREIGN TECHNOLOGY AGREEMENTS

Automatic permission is to be given for foreign technology agreements up to certain ceilings covering the same high priority areas.No government permission is necessary for hiring foreign technicians and full powers have been delegated to the RBI. NON-RESIDENT INDIANS (NRI) INVESTMENT

A liberal policy for permitting investment of upto 100% equity wth full repatriation facilities in industrial ventures in high priority industries by Non-Resident Indians (NRIs) and Overseas Corporation Bodies (OCBs) has been announced. It has also been decided to permit 100% NRI investment with full repatriation benefits in Export/ Trading/ Star Trading House also.

REPATRIATION OF DIVIDENDS

India permits free repatriation of profits after payment of the applicable taxes for all approved investments other than in few specified industries. In these consumer goods industries, repatriation of profits is allowed only out of net foreign exchange earnings during an initial period of seven years from the commencement of production. However, there are procedural requirements for obtaining RBI approval for repatriation of Branch profits or dividend by an Indian company which has more than 40 percent of equity. On disinvestment, capital may be repatriated subject to the sale price being considered reasonable by the RBI and payment of applicable taxes.

FOREIGN INVESTMENT PROMOTION BOARD

Government of India has established a Special Empowered Board called Foreign Investment Promotion Board in the Ministry of Industry, to negotiate with large international firms and to approve direct foreign investment in selected areas. No formal application forms are prescribed; the entrepreneur can directly correspond with the Board.

NRI Investment Approval

- Non-Resident Indians (NRIs) allowed to invest upto 100% equity with full benefits of repatriation in most industry sectors. - There is no restriction on the extent of equity that can be held by a Non-Resident Indian (NRI) as an individual/partner in a SSI unit. - NRIs and Overseas Corporate Bodies (OCB) predominantly owned by NRIs are allowed to invest upto 100% foreign equity in high priority industries with full repatriation benefits. - To set up large industrial ventures in products reserved for the small scale sector, the unit has to take up a 75% export obligation.

Foreign Exchange Regulations

Current Account Convertibility

Under the present policy all receipts of foreign exchange under the current account both export earnings and inward receipts are fully convertible. As per the present policy of the Government all receipts of foreign exchange, under current transactions, both merchandise exports and invisible receipts, received by exporters and other recipients are required to be surrendered to an authorised dealer of foreign exchange. The authorised dealer converts 100% of the foreign exchange received into rupee at the free market.In respect of export contracts entered into by exporters on CIF or C & F basis, the authorised dealers are required to obtain documentary proof of freight and insurance charges actually paid by the exporter, whether in foreign currency or rupees (to be notionally converted into foreign exchange at market rate for this purpose) and deduct this amount from the CIF value of exports to arrive at the FOB value of exports. The conversion of foreign currency into Indian Rupees is done on the basis of FOB value of Exports.From the free convertible portion, the exporters of goods and services have the option to retain upto 25% of the foreign exchange in Dollar Accounts, also called EEFC Accounts, with some commercial bank in India which is an authorised dealer of foreign exchange, to meet their current or contingent liability, and get only 75% of the foreign exchange converted into rupees at free market rates. However, as has been exempted before, all the 100% Export Oriented Units and Units set up in the Export Processing

Zones / Free Trade Zones are allowed to get their entire proceeds from exports converted at market rates quoted by authorised dealers.For the import of raw materials, components, capital goods, etc and for remittance of dividends, royalties, technical know-how fee, repayment of overseas foreign exchange loans and/or interest therein, the foreign exchange has to be purchased by the remitter at market determined rates from the authorised dealers of foreign exchange in India.

For the requirement of foreign exchange for any of these purposes, an application to the regional Exchange Control Department of RBI, under whose jurisdiction the unit is located, has to be made and permits have to be obtained.

Indian exporters/importers can make payments towards freight charges in respect of their exports/imports in a convertible foreign currency to steamships/airline companies operating in India or to their Indian Agents. Such payments can be made either from their foreign currency accounts or by purchases of foreign exchange from authorised dealers at market rates quoted by them. It is open for Indian/Foreign Shipping lines/Airlines to open and maintain foreign agency accounts (EEFC accounts) and to credit up to 25% of the collections of the freight in foreign currencies to such accounts. As all payments for deemed exports are settled in rupees, they are outside the purview of Liberalised Exchange Rate Mechanism (LERMS).All foreign currency loans raised by Indian firms/Companies are converted into rupees at market rates. All remittances towards repayment/payment of principal/interest under commercial borrowings, supplier's credit, buyer's credit, lines of credit, etc and other incidental expenses connected therewith are also made at market rates.The RBI also permits Indian parties who have raised foreign currency loans abroad to open ESCROW accounts with banks abroad and to assign the credit balance outstanding therein favour or the lenders. Such accounts can be funded through export earnings of the borrower to the extent permitted by the Reserve Bank of India. Environmental Regulations

1. The Air (Prevention and Control of Pollution) Act, 1981 The Air and Water Pollution Act

PERSONAL INCOME TAX

A resident (staying for more than 182 days in a year) is taxed on his world-wide income if he is also ordinarily resident in India (e.g. if he maintains resident status for 9 out of 10 preceding years). A non-resident is taxed only on income that is received in India.Though the entire remuneration is taxable, concessional treatment is accorded to leave passage, reimbursement of medical expenses and benefits received in kind, such as, company-leased flat, car, furnished housing, utilities etc. A tax deduction is allowed at the rate of 20 percent on all eligible savings subject to a limit of Rs 60,000 savings per annum.

New rates for personal income tax: - 10% on the first slab of Rs.40,000-Rs.60,000 +10% Surcharge - 20% on the second slab of Rs.60,000 + 10% Surcharge - Rs.1,50,000 - 30% on the third slab of income > Rs 1,50,000 +10% Surcharge

CORPORATE INCOME TAX Corporate Tax Structure

- For locally incorporated companies, the tax rates for widely held and closely held domestic companies has been fixed at a single rate of 35%. - For Foreign Companies, the tax rates have been fixed at 48%. - The rate of capital gains tax is 30% to 40% on domestic companies in order to remove the deterrent to their restructuring.

Other Information Related to Corporate Taxes

- Corporates need to pay a tax of 10% on the dividends paid by these companies to the ir shareholders. - Foreign branches are taxed at a flat rate of 65% on branch income.

- There is no withholding tax on remittance of branch profits but evidence of payment of applicable tax is required. - Depreciation is allowed on all industrial buildings and machinery at specified rates for all types of business. - Certain specified industries, such as, oil exploration etc., are eligible for lower rates of corporate tax. - Government also allows certain exemption for exports profits and exemption or refund of customs duties paid for raw materials, components and capital goods imported for the manufacture of exported goods. - Duty drawback on domestically procured inputs is also available for exports and the Duty Drawback Scheme has been considerably simplified and widened in scope. - An Indian company is taxed on its worldwide income. A foreign company is taxed only on income that is accrued in India or that is deemed to accrue in India. - Double taxation of foreign income is avoided by means of foreign tax credits.

MINIMUM ALTERNATE TAX

- A minimum tax called Minimum Alternate Tax (MAT), amounting to 12 % of the net profits of a company, would be levied corporates with zero tax liability - 100% Export Oriented Units are exempted from this tax. - Export profits eligible for deduction under Section 80- HHC of the Income Tax Act will be exempt from MAT.

CAPITAL GAINS & WEALTH TAX

- Long term capital gains to be taxed at flat rates of 20% for individuals and HUFs, 30 percent for firms and 40 percent for companies. - Capital gains are computed by deducting an inflation index original cost from the sales price of assets.

- Capital gains to be adjusted for inflation. Cost inflation index with 1981 - 82 = 100 notified - In the case of non-residents, no indexation for inflation is available, but protection is given against fall in the value of rupee vis-a-vis the foreign currency in which the asset was acquired. - A distinction is made between short-term and long-term capital gains. - Foreign instutional investors are taxed 20% on investment income, 10% on long term capital gains, and 30% on short-term capital gains.

WITHHOLDING TAXES

Income of foreign companies by way of dividends, interest, royalty and other technical know-how fee taxable in India is subject to withholding tax rates as indicated here : Countries Dividends Interest Royalties/ Technical fees Non-Treaty Countries 25% 25% 30% Treaty Countries 10-25% 10-25% 10-30% India has tax treaties with about 38 countries including Australia, Canada, France, Germany, Korea, Italy, Japan, U.K. and U.S.A.

INCOME TAX BENEFITS FOR EXPORTERS

Income Tax exemption upto 50% is granted on earnings from exports of projects and consultancy services under Sections 80- HHB and 80-O of Income Tax Act respectively.

CENTRAL EXCISE

Key Feature of the Central Excise tariffs

- Extension of Modvat to capital goods and petroleum products - Shift in the bulk of excise taxation from specific to ad valorem rates which will assure much greater built-in buoyancy of revenues. - Application of Uniform rates for similar commodities to the extent possible. This will reduce classification problems, scope for misuse and widespread litigation.

EXCISE DUTY & SMALL SCALE INDUSTRIES

Full exemption continues for many goods such as - Unbranded drugs - Domestic electric bulbs - Bicycles - Spices - Jams - Jellies - Sauces - Packaged Tea - Coffee - Ketchup - Butter - Cheese - Skimmed milk powder - Vegetable oils

- Pickles - Canned fruits and dried vegetables - Certain soya products - Starches and - Preparations of meat and fish.

Other Major Features of Excise Tax Policy for SSI Sector

In the last budget the MODVAT adjustment allowed to manufacturing limits had been capped at 95%. In the Union budget 1999-2000 MODVAT credit has been restored to 100%. The structure has been rationalised. 11 major adv. Rates have been merged into following three new rates.

(1) Merit rate : 8% (merging existing rates of 5%, 8%, 10% 12%). (2) Central rate : 16% (merging existing rates of 13%, 15%, 18%). (3) Demerit rate : 24% (merging existing rates of 25%, 30%, 32%, 40%).

SALES TAX

The sales tax structure varies from state to state and this ranges from 0% to 10% depending on the state policies and the type of product in question.

COMPULSORY LEGISLATION FOR QUALITY

Legislation on Weights & Measures, Food Adulteration, Essential Commodities, Exports Quality & Inspection,Directorate of Marketing and Inspection.

LAND USE REGULATIONS

Locational Policy for Small Scale Industries in India - In tune with the liberalised Licencing Policy, the locational Policy has also been significantly amended. - There is no requirement of obtaining industrial approval from the Central Government (except for the industries under compulsory licensing) for locations not falling within cities having a population of more than 1 million. - In respect of units proposed to be located in cities with population greater than 1 million, industries of a non- polluting nature such as electronics, computer software and printing, may be located within 25 Kms of periphery of urban areas. - Other industries are permitted only if they are located in Industrieal Areas designated prior to 25.7.1991. - Zoning and Land Use Regulations as well as Environmental Legislation continue to regulate industrial locations.

Industries Development and Regulation Act, 1951

The conceptual and legal framework for small scale and ancillary industrial undertakings is derived from the IDR Act, 1951.The Industries (Development and Regulation) Act provides the conceptual and legal framework for industrial development and industries in India. It is briefly known as the IDR Act. The act was enacted in 1951 and a number of amendments have been made in the Act. The licensing policy for industries is determined under this act. Section 11-B provides the power to specify the definition of SSI in consideration of factors relating to:

1. Investment of unit in fixed assets 2.Nature of ownership 3. Smallness of number of workers employed

4. Nature, cost and quality of product etc., 5. Section 29-B provides for reservation of products for exclusive production in the small-scale sector.

The portions of the Act and subsequent notifications for amendments related to the small scale and ancillary industrial undertakings have been reproduced here for reference. The major ones are

1. Industries (Development and Regulation) Act, 1951.

SECTION 11-B

"Power of Central Government to specify the requirements which shall be complied with by small scale industrial undertakings:

(1) The Central Government may, with a view to ascertaining which ancillary and small scale industrial undertakings need supportive measures, exemptions or other favourable treatment under this Act to enable them to maintain their viability and strength so as to be effective in -

promoting in a harmonious manner the industrial economy of the country and easing the problem of unemployment and securing that the ownership and control of the material resources of the community are so distributed as best to subserve the common good, specify, having regard to the factors mentioned in sub-section (2), by notified order, the requirements which shall be complied with by an industrial undertaking to enable it to be regarded, for the purposes of this Act, as an ancillary, or a small scale, industrial undertaking and different requirements may be so specified for different purposes or with respect to industrial undertakings engaged in manufacture or production of different articles:-

Provided that no industrial undertaking shall be regarded as an ancillary industrial undertaking unless it is or is proposed to be, engaged in the manufacture of parts,

components, sub-assemblies, tooling or intermediates; or rendering of services, or supplying or rendering, not less than fifty per cent of its production or its total services, as the case may be, to other units for production of other articles.

(2) The factors referred to in sub-section (1) are the following, namely: -

1. the investment by the industrial undertaking in plant and machinery, and, buildings plant and machinery; the nature of ownership of the industrial undertaking; 2. smallness, in respect of the number of workers employed in the industrial undertaking; The nature, cost and quality of the product of the industrial undertaking. foreign exchange, if any, required for the import of any plant or machinery by the industrial undertaking; and such other relevant factors as may be prescribed..."

Section 29B of the Industries Development and Regulation Act, 1951, deals with the policy of reservation in the small-scale sector. The relevant sections are quoted below: -

Section 29B

2A. In particular and without prejudice to the generality of the provisions of subsection (1), the Central Government may, if it is satisfied, after considering the recommendations made to it by the Advisory Committee constituted under subsection (2B), that it is necessary so to do for the development and expansion of ancillary, or small scale industrial undertakings, by notified order, direct that any article or class of articles specified in the First Schedule shall, on and from such date as may be specified in the notified order (hereafter in this section referred to as the "date of reservation"), be reserved for exclusive production by the ancillary, or small scale, industrial undertakings (hereafter in this section referred to as "reserved article").

2B. The Central Government shall, with a view to determining the nature of any article or class of articles that may be reserved for production by the ancillary or small scale, industrial undertakings, constitutes an Advisory Committee consisting of such persons as have in the opinion of that Government, the necessary expertise to give advice on the matter.

2C. The Advisory Committee shall, after considering the following matters, communicate its recommendations to the Central Government, namely: -

1. The nature of any article or class of articles which may be produced economically by the ancillary, or small scale, industrial undertakings, The level of employment likely to be generated by the production of such article or class of article by the ancillary, or small-scale, industrial undertakings. The possibility off encouraging and diffusing entrepreneurship in industry; The prevention of concentration of economic power to the common detriment and such other matters as the Advisory Committee may think fit.

2D. The production of any reserved article or class of reserved articles by any industrial undertaking (not being an ancillary, or small scale, industrial undertaking) which, on the date of reservation, is engaged in, or has taken effective steps for, the production of any reserved article or class of reserved articles, shall after the commencement of the Industries (Development and Regulation) Amendment Act, 1984, or, as the case may be, the date of reservation, whichever is later, be subject to such conditions as the Central Government may, by notified order, specify.

2E. While specifying any condition under sub-section (2D), the Central Government may take into consideration the level of production of any reserved article or class of reserved articles achieved, immediately before the date of reservation, by the industrial undertaking referred to in sub-section (2D), and such other factors may be relevant.

2F. Every person or authority, not being the central Government, who, or which, is registered under section 10 or to whom, or to which, a license has been issued or

permission has been granted under section 11 for the production of any article or class of articles which has, or have, been subsequently reserved for the ancillary, or small scale, industrial undertakings, shall produce, such registration certificate, license or permission, as the case may be, within such period as the Central Government may, by notified order, specify in this behalf, and the Central government may enter therein all or any of the conditions specified by it under subsection (2D), including the productive capacity of the industrial undertakings and other prescribed particulars.

2G. The owner of every industrial undertaking (not being an ancillary or small-scale, industrial undertaking) which, immediately before the commencement of the Industries (Development and Regulation) Amendment Act, 1984, or the date of reservation, whichever is later was engaged in the production of any article or class of articles, which has, or have been reserved for the ancillary, or small scale, industrial undertakings, or Had before such commencement or before the date of such reservation, as the case may be, taken effective steps for commencing the production of such reserved article or class of reserved articles, without being registered under section 10 or in respect of which a license or permission has not been issued under section 11, shall refrain from the production of such reserved article or class of reserved articles, on and from the date of such reservation, whichever is later.

2H. Every notified order made under sub-section (2A) shall be laid, as soon as may be after it is made, before each House of Parliament, while it is in session, for a total period of thirty days, which may be comprised in one session or in two or more successive sessions aforesaid, both Houses agree in making any modification in the notified order or both Houses agree that the notified order should not be made, the notified order shall thereafter have effect only in such modified form or be of no effect, as the case may be; so however, that any such modification or annulment shall be without prejudice to the validity of anything previous done under that notified order.

I. Requirements to be complied with by an industrial undertaking for being regarded as small scale industrial undertaking An industrial undertaking in which the investment in fixed assets in plant and machinery whether held on ownership terms or on lease or by hire purchase does not exceed Rs. 6 million In case of an industrial undertaking referred to in (a) above the limit investment in fixed assets in plant and machinery shall be rupees seventy five

lakhs provided the unit undertakes to export atleast 30 per cent of the annual production by the end of 3rd year from the date of its commencing production.

II. Requirements to be complied with by an industrial undertaking for being regarding as ancillary industrial undertakingAn industrial undertaking which is engaged or is proposed to be engaged in the manufacture or production of parts, components, sub-assemblies, tooling or intermediates, or the rendering of services, and the undertaking supplies or renders or proposes to supply or render not less than 50 per cent of its production or services, as the case may be, at one or more other industrial undertakings and whose investment in fixed assets in plant and machinery whether held on ownership terms or on lease or on hire purchase, does not exceed Rs. 7.5 million. Every industrial undertaking which has been issued a certificate of registration by the Department of Industrial Development or Director General of Technical Development under the said Act and now falls within the above definition of ancillary or small scale industrial undertaking, may be registered, at the discretion of the owner, as such, within six months from the date of issue of this notification.

A Company will be considered as having set up an industrial undertaking only if it has an equity interest (i.e. invested in equity) in an industrial undertaking. In other words, a company with no equity interest in any industrial undertaking can invest in a small-scale unit without such equity being counted as equity by other industrial undertaking. Thus, in the first instance, such a company can invest even more than 24% equity in a small-scale industrial unit. However, no sooner the company acquires an equity interest in an industrial undertaking it becomes a company that has set up an industrial undertaking. Therefore, in the second or subsequent instances the equity investment by such a company will count towards equity by other industrial undertaking and the provisions of clubbing will apply.

Similarly, a NRI can invest in the first instance in a small-scale industrial unit without such equity being counted as equity by other industrial undertaking. Thus, in the first instance the equity investment can be more than 24%, even 100%. However, in the second or subsequent instances, the provisions of "clubbing" will start to apply.

Similarly, a foreign company with no equity interest in an industrial undertaking, whether in India or abroad can, in the first instance, invest equity of any amount in a

small-scale industrial undertaking. However, in the subsequent instances, the provisions of "clubbing" will apply because such a company would, after the first investment, be considered as having set up an industrial undertaking.

The Factories Act

- In factories, women not to be engaged for cleaning, lubricating or adjusting any part of primemover or transmission machinery; maternity leave upto 12 weeks with wages to be provided.

Equal Remuneration Act, 1976

- Payment of equal remuneration to men and women workers for same or similar nature of work protected under the Act and also under the provisions at ISMW Act, mentioned above. - No discrimination permissible in recruitment and service conditions except where employment of women is prohibited or restricted by or under any law.

Employees' State Insurance (General) Regulation - Claim for maternity benefit becomes due on the date medical certificate is issued for miscarriage, sickness arriving out of pregnancy, confinement or premature birth of child.

The Children (Pledging of Labour) Act, 1933 - Any agreement to pledge the labour of children is void.

The Bidi and Cigar Workers (Conditions of Employment) Act, 1966 - Employment of children under 14 years of age prohibited under the laws at Sl.Nos.2 to 5.

- Except in the process of family based work or recognised school-based activities, children not permitted to work in occupations connected with: Passenger, goods mail transport by Railway Cinder picking, cleaning of ash pits Building operations, construction Catering establishments in Railway premises or port limits Beedi making Carpet weaving Cement manufacturing Cloth printing Dyeing, weaving Manufacture of matches, explosives, fireworks Mica cutting, splitting Wool cleaning - In occupations and processes other than the above mentioned, work by children is permissible only for six hours between 8.00 A.M. and 7.00 P.M. with one day's weekly rest. - Occupier of establishment employing children to give notice to local Inspector and maintain prescribed register.

The Plantations Labour Act, 1951 - Children / adolescents are allowed to work 27 hours a week. Child work is not allowed during night i.e. 7.00 P.M. to 6.00 A.M. - Children are permitted to work in Plantation only where certificate of fitness is granted by a certifying Surgeon.

Payment of Gratuity Act, 1972

Objective - To provide for payment of gratuity on ceasing to hold office

Coverage - Factories, Mines, Oil fields, Plantations, Ports, Railway Companies, Shops & Commercial Establishments and to other establishments to which the Government extends the law.

Eligibility - Employees drawing wages not exceeding Rs.3500/- per month

Benefits - 15 days wages for every completed year of service or part thereof in excess of six months subject to a maximum of Rs.50,000/-

Employees State Insurance Act

Objective To provide for health cover, Medical care and Cash benefits for Sickness, Maternity, Employment injury, Pensions to dependents in case of Death (or) Employment injury.

Eligibility - Employees drawing wages not exceeding Rs.3000/- per month

Benefits - Compensation for Death Minimum - Rs.20,000 Maximum - Rs.1,14,000

- Compensation for Permanent disablement Minimum - Rs.24,000 Maximum Rs.70,000

- Temporary disablement 50% of wages for a maximum period of 5 years.

The Payment Of Bonus Act, 1985

Objectives

- To provide statutory obligations for payment of bonus to persons employed in certain establishments on the basis of profits or productivity.

Scope And Coverage - Applicable all over India to factories under the Factories Act and to other establishments employing 20 or persons on any day during a year. - Government can extend its coverage to establishments employing between 10 and 20 workers.

- Covers all workers including supervisors, managers, administrators, technical and clerical staff employed on salary or wages not exceeding Rs 2500/- per month.

Main Provision

- Eligibility for bonus. - Payment of minimum and maximum bonus. - Time limit for payment of bonus. - Deductions from bonus. - Computation of gross profits and available allocable surplus. - Rights of employees.

When To Consult And Refer

- When the factory if registered under the Factories Act. - When the number of employees in the establishment reaches 20 or above. - When calculating the bonus.

The Shops And Establishments Act

Objectives To provide statutory obligation and rights to employees and employers in the unorganised sector of employment, i.e., shops and establishments.

Scope And Coverage

- A state legislation; each state has framed its own rules for the Act. - Applicable to all persons employed in an establishments with or without wages, except the members of the employer's family. - State government can exempt, either permanently or for a specified period, any establishments from all or any provisions of this Act.

Main Provisions

- Compulsory registration of shop/establishment within thirty days of commencement of work. - Communications of closure of the establishment within 15 days from the closing of the establishment. - Lays down the hours of work per day and week.

- Lays down guidelines for spread-over, rest interval, opening and closing hours, closed days, national and religious holidays, overtime work. - Rules for employment of children, young persons and women
- Rules

for annual leave, maternity leave, sickness and casual leave, etc.

- Rules for employment and termination of service. - Maintenance of registers and records and display of notices. - Obligations of employers. - Obligations of employees.

When To Consult And Refer

- At the time of start of an enterprise. - When framing personnel policies and rules

The Trade Union Act, 1926

Objective To confer a legal and corporate status on registered trade unions.

Scope And Coverage

- Applicable to unions of workers as well as associations of employers. - Extends to the whole of India. - A central legislation but administered and enforced by the state governments.

Main Provisions

- Defines trade union.

- Registration of a trade union by any seven or nine workers of an establishment on applying with a copy of the rules of the union, the name and address, and the list of office bearers. - Cancellation and dissolution of trade unions. - Obligations of registered trade unions. - Rights of registered trade unions.

When To Consult And Refer

- At the time of start of an enterprise.

Throughout the running of the enterprise.

The Water (Prevention and Control of Pollution) Act, 1974

Scope And Coverage Applies to all establishments discharging effluents in water or an land.

Main Provisions

- Procedure for consent - Laying down standards - Collection of samples and analysis - Penalty provision.

When To Consult And Refer

- While making the project report for pollution control requirements. - While managing effluent discharge at all times

THE AIR (PREVENTION AND CONTROL OF POLLUTION) ACT, 1981

Scope And Coverage Applies to all industries

Main Provisions

- Declaring Air pollution control areas - Setting standards - Procedure for consent - Penalty provisions

When To Consult And Refer

- At the time of making project report for pollution control requirements - While managing discharge in air within standards at all times.

The Environment (Protection) Act, 1986

This is the umbrella Legislation having number of acts under it.

- The Water (Prevention & Control of Pollution) Act, 1981, as amended in 1978 and 1988. - The Air (Prevention & Control of Pollution) Act, 1981, as amended in 1987.

The above two Acts have been substantially amended in the recent past and some of the most significant aspects of amendments are:

- A consent order is now valid for 15 years or till such time there is some significant change in the process, whichever is earlier; - A consent order cannot be provided provisionally and will be obtainable only when all the pollution prevention requirements are adopted in toto;

Action under these two Acts are to be taken by the respective State Pollution Control Boards.

The Forest Conservation Act, 1980

- The Wildlife Preservation Act, 1982; extended to cover biosphere resources and the Hazardous Wastes (Management & Handling) Rules, 1989. - Manufacture, Storage and Import of Hazardous Chemical Rules, 1989 - Manufacture, Use, Import, Export and Storage or Hazardous Micro organisms and Genetically Engineered Organism or Cell Rules, 1989, to regulate the storage, use, trade, transport and disposal of hazardous wastes.

The Industrial Disputes Act, 1947

Objectives

To provide a machinery for peaceful resolution of disputes and to promote harmonious relation between employers and workers.

Scope and coverage

- Applicable to all industrial and commercial establishments - Covers all workers and supervisors drawing salaries up to Rs. 1600/- per month. - Not a applicable to person employed in managerial and administrative capacities.

Main provisions

- Defines industry, industrial dispute, layoff, lockout, retrenchment, trade union, strike, wages. workman, etc. - Provides machinery for investigating and settling disputes through works committees, conciliation officers, boards of conciliation, courts of enquiry, labour courts, tribunals and voluntary arbitration. - Reference of dispute for adjudication. - Awards of labour courts and tribunals. - Payment of wages to workers pending proceedings in High Courts. - Rights of appeal. - Settlements in outside conciliation. - Notice of change in employment conditions. - Protection of workmen during pendency of proceedings - Strike and lock-out procedures. - Lay-off compensation. - Retrenchment compensation.

- Proceedings for retrenchment. - Compensation to workmen in case of transfer of undertakings. - Closure procedures. - Reopening of closed undertakings. - Unfair labour practices. - Recovery of money due from employer. - Penalties. - Obligations and rights of employees.

When to consult and refer

- When a dispute arises with the workers' union. - When you plan changes in employment conditions. - When there is a strike & lock-out. - When retrenchment of workmen. - When undertaking is being transferred - On closure of an establishment. - On re-opening establishment.

Delayed Payments Act, 1993

In line with the long standing demand of small scale sector to alleviate the problem of Delayed Payments, an Act was promulgated on 2nd April 1993. It makes a provision for small scale industries to charge penal rate of interest on outstanding payments if the same are delayed beyond the agreed or stipulated period of time. It is expected to relieve the Small Scale industries from shortage of working capital

arising due to delayed payment against supplies made by them and will go a long way in alleviating the cash flow problems and provide a bulwark against bullying tactics of the big industry.

Export-Import Policy for Small Scale Sector

1. Recognition of Export Houses/ Trading Houses, etc.

With a view to recognise established exporters so that they may build marketing infrastructure and expertise required for export production, merchant as well as manufacturer exporters, EOU etc. are recognised as Export House, Trading Houses, Star Trading Houses and Super Star Trading Houses on the basis of certain criteria as laid down in the Export-Import Policy 1997-2002. The eligibility criteria for such recognition is based either on the basis of FOB or Net Foreign Exchange value of exports of goods and services made directly by the exporters during the preceding three licensing years or the preceding licensing year. In an attempt to encourage exports from the small scale sector, the exports made by small scale sector manufacturer-exporters are given triple weightage for the purpose of recognition as EH/TH/STH/SSTH. Accordingly, in terms of provisions contained at para 12.7(a) of the Exim Policy 1997-2002 (amended upto 31/3/99), triple weightage on FOB or net foreign exchange on the export of products manufactured and exported by units in the small scale industry (SSI)/ Tiny sector/ Cottage sector and double weightage on FOB or net foreign exchange to merchant exporter exporting products reserved for SSI units and manufactured by units in the SSI/Tiny Sector is give. These Export Houses, Trading Houses, etc. are entitled to certain benefits under the current Export-Import Policy.

2. Special Import Licence (SIL)

Exporters recognised as Export Houses, Star Trading House, Trading Houses, etc. Are eligible for grant of special Import Licence (SIL) @ certain percentage of their FOB value of exports/NFE. However, 2 percent additional SIL is granted for exports of Products manufactured by units registered as SSI, provided the exports of these products is more than 50% of the exports during the period (provisions contained in para 12.7(b) of Hand Book of Procedure 1997-2000 refers).

3. Eligibility condition for Small Scale Exporters for SIL

In case of small scale exporters holding ISO 9000 (Series) or IS/ISO 9000 Series of quality certification, the FOB value (excluding deemed exports) of exports for becoming eligible for Special Import Licence (SIL) @4% of the FOB value of exports is Rs. 3 crores and above in the preceding licensing year or on an average FOB value of Rs. 1 crores or above during the preceding three licensing years instead of the limit of Rs. 5 crores and Rs. 2 crores respectively prescribed for others (Para 11.11 (a) & (b) of Hand Book of Procedures 1997-2002 refers in this context).

4. Duty Exemption Scheme made Flexible

A provision for annual advance licence has been made to reduce the avoidable interface between the exporter and the DGFT. This facility would provide necessary flexibility in the import of duty free inputs. The exporter would now be able to import any prescribed inputs as per input-output norms right through the year without approaching DGFT. The licence would be issued without stipulation of minimum value addition.

5. Benefit of Zero Duty EPCG Scheme Extended to Other Sectors

Threshold limit for EPCG Zero-Duty Scheme for several sub-sectors under the Chemicals, Plastics and Textiles sectors has been brought down from Rs. 20 crores to Rs. 1 crore.

No additional Customs Duty would be charged on import of Capital Goods under Zero-Duty EPCG Scheme in Marine and Electronics Sectors.

6. EOU/EPZ - Further Rationalisation

Net foreign exchange earning as a percentage of exports (NEEP) requirement for the units operating in EPZ and EOUs has been made uniform at 20%. However, for Hardware Units, Bio-technology and Toys sectors, this NFE requirement has been reduced to positive NFEP. The entitlement of DTA sale has been increased to 50% of the FOB value of the preceding year. The procedure for operation of the units in the EPZ and EOUs have been simplified considerably and a number of operations have been permitted on the basis of self-certification. The EOU/EPZ imots shall have the option to supply the goods to Bonded Warehouse for exports.

7. Export House/ Trading House/ Star Trading House/ Super Star Trading House

All such exporters who attain Export House/ Trading House/ Star Trading House/ Super Star Trading House status for three successive terms or more shall be eligible for Golden Status Certificate which would enable them to enjoy all the benefits in perpetuity irrespective of their actual performance in future.

8. Other Steps

In line with the facility of free imports of components for textile garments sector, leather garment and handicraft exporters have been allowed export of samples upto US$10,000 per consignment has been allowed. Limit of import of bonafide technical and trade samples appearing in restricted list has been increased from Rs. 3,000/- per consignment to Rs. 1,00,000/- per consignment.

9. Integration of Indian Economy with Global Economy

To ensure easy access to inputs and to integrate with the global economy as many as 894 items have been added to the free list of imports. 414 additional items have also been put in the SIL list of imports.] Out of aforesaid 894 items shifted to OGL list, 245 items are having small scale angle either due to their reservation for manufacture in the small scale sector or having a strong production base. Out of 245 items, 158 items pertained to Reservation list and 87 are having strong small scale production base. Further, these 158 items pertained to 76 product groups which are

reserved for manufacture in the small scale sector. Out of these 76 product groups, certain items in respect of 12 reserved items were already under OGL. As such, there was a net addition of 64 reserved items to OGL list on 1/4/99.

10. Free Trade Zones

Free Trade Zones will become operational from 1.7.99. Units in free trade Zone shall be permitted to carry out any manufacturing or trading activities. They shall not be subjected to any predetermined value addition, export obligation, inputoutput/wastage norms. They shall be treated as outside the Customs territory of the country and the Customs shall be manning only entry and exit points. Sale in the DTA will be permitted on payment of full Custom Duty.

Export Promotion Programmes / Measures

1. Participation in International Fairs/Exhibitions


Packaging for Exports

Technical & Managerial Consultancy Services National Awards for Quality Products
Marketing Development Assistance - Marketing Development Scheme (MDA) is being operated by Ministry of Commerce under which MDA is given to exporters through FIEO and Export Promotion Councils/ Commodity Boards to plan their marketing strategy for export growth. Guidelines in respect of single person sale-cum-study tours abroad and participation in fairs/ exhibition abroad have been revised with effect from 1st May, 1999.

Awards to exporters. Promotional Schemes (i) Technology Development and Modernization Fund Scheme (ii) Quality Awareness Scheme (iii) Subsidy for obtaining ISO-9000 quality Certification

(iv) Other Schemes for technology improvement

UPTECH:

A new scheme for technology upgradation for industrial clusters has been started recently. 10 clusters of industries producing different groups in various parts of country have been selected. The scheme aims at diagnostic study of the clusters, identification of technological needs, technological intervention and wider dissemination of information and technology within the clusters. The expenditure involved on pilot plants etc. Is to be met on 50:50 cost sharing basis by the Government and the concerned Industry Association of the clusters. The scheme is flexible and provides for smooth sourcing of technology even from abroad.The National Small Industries Corporation (NSIC) through its export development programme is playing a vital role to promote the SSI sector in exporting their products/projects in international, markets by providing following assistance to the small enterprises.

Policy Of Reservation

Items Reserved for manufacturing in SSI

Reservation of products for exclusive manufacture in the SSI Sector has been one of the important policy measures for promoting this sector. This policy was initiated in 1967 with 47 items which was enlarged to 807 items in 1978. At present 812 items are reserved for manufacture in this sector. This Policy got a legal backing when the I (D&R) Act was amended in March, 1984 empowering the Government to reserve items under this Act. This Act also provided for the Constitution of an Advisory Committee headed by Secretary (SSI & ARI). Other members of this Committee include Secretary (IP&P), Secretary (ID), Chairman BICP and AS&DC (SSI).

Criteria for Reservation

The overwhelming consideration for reservation of an item is its suitability and feasibility for being made in the small scale sector without compromising quality aspects. Violation and Punishment

As per policy no medium/large including multi-national companies are allowed to manufacture reserved items except under 50% export obligation. Those who had been manufacturing reserved items prior to the date of reservation can continue to do so after obtaining a Carry-On Business (COB) Licence from the Government.

Any violation of the policy of reservation is punishable under Section 24 of I (D&R) Act. Appropriate action on the cases of violations of the Policy of Reservation is taken up suitably by the concerned Administrative Ministry/Department. The Act, namely "Labour Laws (Exemption from furnishing Returns and maintaining registers by certain Establishments), Act, 1988" covers labour related acts and thus provides:-

-Establishments employing 10-19 persons require to maintain only 3 registers and to submit an annual core return only. -Establishments employing less than 10 persons to maintain only 1 register and submit only one annual core return. -Earlier inspections under the EPF Scheme were conducted six monthly in normal cases and quarterly in default cases. Now inspections in normal cases are being conducted on annual basis. However, in default cases establishments are liable for random inspections. Earlier in the ESI Scheme establishments were liable for inspections once in a year. Now after liberalisation small scale establishments employing upto 20 persons are inspected once in 2 years, whereas establishments employing more than 20 persons are inspected annually. -Steps are also being taken to have better self-discipline regarding enforcement of labour laws in the small scale sector. -Simplification and rationalisation of forms/returns to be submitted by the Establishments/Industries is under process. -Simplification of Labour legislation with a view to bringing them nearer to Labour Market and simplification of procedures with a view to minimising the adverse

impact of excessive inspections and having joint inspection by the inspectors of the Ministry of Labour, is under process.

Licensing Policy

In the new industrial policy, the Government has prepared a list of industries (Schedule II) for which industrial licensing is compulsory. For setting up a unit for the manufacture of any item listed in Schedule II, all entrepreneurs have to necessarily obtain an industrial licence irrespective of the category to which they belong and the investments involved.

SSI Sector & Licensing

In case of small scale sector, if an item is listed in Scheule II and is also listed in the list of reserved items for small scale sector, the small scale unit does not require an industrial licence or those who have received SIA or DGTD registrations for the manufacture of these items and have either already set up their units or are in the process of setting up their unit, however are not required to apply afresh for an industrial licence for the manufacture of these items.

Steps taken by Reserve Bank of India to improve credit flow to SSI sector

a) The Government had raised the investment limit for SSIs from Rs.60 lakhs to Rs.300 lakhs and for tiny units from Rs.5 lakhs to Rs.25 lakhs. In order to ensure that credit is available to all segments of tiny sector. RBI has issued instructions that out of the funds normally available to SSI sector, 40% be given to units with investment in plant and machinery up to Rs. 5 lakhs; 20% for units with investment between Rs. 5 lakhs to Rs.25 lakhs and remaining 40% for other units.

b) Public sector banks have been advised to operationalise more specialised SSI branches at centres where there is a potential for financing many SSI borrowers. As on March 1998, 370 specialised SSI branches are working in the country.

c) To extend 'Single Window Scheme' of SIDBI to all districts to meet the financial requirements (both term loan & working capital) of SSIs.

d) With a view to moderating the cost of credit to SSI units, banks are advised to accord SSI units with a good track record the benefits of lower spread over the Prime Lending Rate.

e) In order to take expeditious decision on credit proposals of SSI units, banks have been advised to delegate enhanced powers to the branch managers of the specialised SSI branch so that most of the credit proposals are decided at the branch level.

Monitoring

Credit to SSIs is monitored periodically by Reserve Bank of India, Department of SSI & ARI, National Advisory Committee of SIDBI, State Level Bankers Committee and District Level Coordination Committees of the Bank.

Small Industries Development Bank of India (SIDBI)

SIDBI was set up by an Act of Parliament, as an apex institution for promotion, financing and development of industries in small scale sector and for coordinating the functions of other institutions engaged in similar activities. It commenced operations on April 2, 1990. SIDBI extends direct/indirect financial assistance to SSIs, assisting the entire spectrum of small and tiny sector industries on All India basis.SIDBI directly assists SSIs under Project Finance Scheme, Equipment Finance Scheme, Marketing Scheme, Vendor Development Scheme, Infrastructural Development Scheme, ISO-9000, Technology Development & Modernisation Fund, Venture Capital Scheme, assistance for leasing to NBFCs, SFCs, SIDCs and resource support to institutions involved in the development and financing of small scale sector.These Schemes are mainly targeted at addressing some of the major problems of SSIs in areas such as high tech project, marketing, infrastructural

development, delayed realisation of bills, obsolescence of technology, quality improvement, export financing and venture capital assistance.

Indirect Assistance Schemes

Under its indirect schemes, SIDBI extends refinance of loans to small scale sector by Primary Lending Institutions (PLIs) viz. SFCs, SIDCs and Banks. At present, such refinance assistance is extended to 892 PLIs and these PLIs extend credit through a net work of more than 65,000 branches all over the country.

All the Schemes of SIDBI both direct and indirect assistance are in operation in all the States of the country through 39 regional/branch offices of SIDBI.

Promotional and Development Activities

SIDBI is actively involved in promoting tiny and small scale industries by means of its promotional and developmental activities through suitable professional agencies for organising Entrepreneurship Development Programmes, Technology Upgradation & Modernisation Programmes, Micro Credit Schemes and assistance under Mahila Vikas Nidhi to bring about economic empowerment of women specially the rural poor by providing them avenues for training and employment opportunities.

- Norms laid down by Reserve Bank of India and Government of India are followed by SIDBI for granting assistance to SSI units.

Main Schemes of SIDBI

1. National Equity Fund Scheme which provides equity support to small entrepreneurs setting up projects in Tiny Sector. Technology Development & Modernisation Fund Scheme for providing finance to existing SSI units for technology upgradation/modernisation. Single Window Scheme to provide both term loan for fixed assets and loan for working capital capital through the same agency. Composite Loan Scheme for equipment and/or working capital and also for worksheds to artisans, village and cottage industries in Tiny Sector. Mahila Udyam Nidhi (MUN) Scheme provides equity support to women entrepreneurs for setting up projects in Tiny Sector. Scheme for financing activities relating to marketing of SSI products which provides assistance for undertaking various marketing related activities such as marketing research, R&D, product upgradation, participation in trade fairs and exhibitions, advertising branding, establishing distribution networks including show room, retail outlet, wears-housing facility, etc. Equipment Finance Scheme for acquisition of machinery/equipment including Diesel Generator Sets which are not related to any specific project. Venture Capital Scheme to encourage SSI ventures/sub- contracting units to acquire capital equipment, as also requisite technology for building up of export capabilities/import substitution including cost of total quality management and acquisition of ISO-9000 certification and for expansion of capacity. ISO 9000 Scheme to meet the expenses on consultancy, documentation, audit, certification fee, equipment and calibrating instruments required for obtaining ISO 9000 certification. Micro Credit Scheme to meet the requirement of well managed Voluntary Agencies that are in existence for at least 5 years; have a good track record and have established network and experience in small savings-cum-credit programmes with Self Help Groups (SHGs) individuals.

New Schemes

(i) To enhance the export capabilities of SSI units.

(ii) Scheme for Marketing Assistance.

(iii) Infrastructure Development Scheme.

(iv) Scheme for acquisition of ISO 9000 certification.

(v) Factoring Services and

(vi) Bills Re-discounting Scheme against inland supply bills of SSIs.

Major schemes

Technology Development & Modernisation Fund

SIDBI has set up Technology Development & Modernisation Fund (TDMF) scheme for direct assistance of small sale industries to encourage existing industrial units in the sector, to modernise their production facilities and adopt improved and updated technology so as to strengthen their export capabilities.

National Equity Fund

National Equity Fund (NEF) under Small Industries Development Bank of India (SIDBI) provides equity type assistance to SSI units, tiny units at one per cent service charges. The scope of this scheme was widened in 1995-96 to cover all areas excepting Metropolitan areas, raising the limit of loan from Rs. 1.5 lakhs to Rs. 2.5 lakhs and covering both existing as well as new units. State Financial Corporations (SFCs)

In pursuance of the SFCs Act, 1951, SFCs were set up mainly to finance small and medium scale units. Their area of operation is generally restricted to the concerned States. SFCs also assist small scale units for their modernisation and technology upgradation programmes by providing soft loans, restructuring the sick small scale units through rehabilitation schemes and through equity type assistance under SIDBI's seed capital scheme.One-Man Committee set up by RBI under the Chairmanship of former Secretary, SSI&ARI, to look into various problems regarding credit flow to SSI sector and support appropriate measures for their redressal.

National Small Industries Corporation (NSIC)

Bill Financing

Bills drawn by small scale units for the supplies made to the reputed and well established enterprises and duly accepted by them will be financed / discounted by NSIC for a maximum period of 90 days.

Working Capital Finance

Finance for augmenting working capital of viable and well managed units, on selective basis in case of emergent requirements, to enable them to payoff their purchases of consumable stores and spares and production related overheads particularly electricity bills, statutory dues, etc.

Export Development Finance

Finance for export development to export oriented units for meeting their emergent requirements. Pre and post shipment finance shall also be provided to such units at usual terms & conditions.

Equipment Leasing Scheme

The object of the Leasing Scheme is to assist SSI Units to procure industrial equipment for modernisation, expansion and diversification of their industries.

ELIGIBILITY

Exclusively for existing && financially viable SSI units including ancillary units, duly registered as SSI units with the Directorate of Industries.

BENEFITS

1. 100% financing at very liberal terms with easy repayment schedule. Simple formalities and speedy sanction. Single window system for imported equipment. The Corporation undertakes to complete formalities like procuring import licence, opening of Letter of Credit etc. Tax rebate on full 5 year lease rental.

BASIC TERMS

1. Lease period of 5 years extendable by another 3 years. Repayment as lease rental at the rate of Rs.24 per Rs.100 per month of the cost of machine. There is no separate interest. Minimum assistance provided is Rs.100,000 and maximum subject to SSI ceiling of Rs.6,000,000 or Rs.7,500,000 in case of an ancillary unit. The value of installed machinery at original cost including value of the machine proposed to be obtained

under leasing should not exceed Rs.6,000,000 or Rs.7,500,000 in case of an ancillary unit. The unit will have to pay the following before the order for equipment can be placed on the supplier :-

1. Amount equal to three months rental (six months rental for special equipment) and Approximately 7% cost of the equipment (8% for Imported equipment) to cover the insurance charges of the machinery for the period of lease i.e. 5 years and administrative charges of the Corporation.

CONCLUSION

Thus, SSI are the most prominent sector of our industry which gives employement opportunities to various sectors of the society and also helps prominently in developing our economy, Ssi has given several benefits under various laws discussed above for fast development.Government need to make such laws more flexible for provididng its benefits to the society.