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How to set up an industry in India

manufactring industry

Are you planning to set up an industry in India:

You are in the right place. Here are some steps you need to follow to set up a small scale industry:- 1. Selection of Product 2. Location of Enterprise 3. Deciding Organisation Pattern 4. Preparation of Project/Feasibility Report 5. Registration with Authorities 6. Statutory Licences/Clearances 7. Arranging Finance 8. Obtaining Land and Building and Few Others.

Step # 1. Selection of Product:

Product selected for manufacturing should have good market potential and profitability. For this purpose market study is necessary.

Following factors should be considered while selecting a product for manufacturing:


(i) Product should have no or little competition.

(ii) Innovative idea.

(iii) Experience in the line.

(iv) Easy availability of raw material


(v) Government policy about the product.

(vi) Whether it meets the requirement of the society.

(vii) Easy access-ability to market.

(viii) Availability of finances.


(ix) Availability of water and power.

Step # 2. Location of Enterprise:

Location should be decided considering the economy between the raw material, transportation cost and availability of land at cheaper rates with other facili­ties nearby.

In this connection facilities offered by various State Governments are also relevant Industrial estates with pre-built factory sheds/developed plots have been set up in different parts of the country for coordinated, intensified and integrated development of small scale industries.

State Governments provide a lot of facilities at these estates like subsidy on rent for factory accommodation, allotment of sheds on hire-purchase basis, subsidised charges for wa­ter and power, exemption of sales tax on certain categories of industries for a given period of time.

Step # 3. Deciding Organisation Pattern:


A small scale can be started in any following organisational patterns:

(i) Proprietary.

(ii) Partnership firm.

(iii) Cooperative Society.


(iv) Hindu undivided family.

(v) Company.

Step # 4. Preparation of Project/Feasibility Report:

It is very essential to prepare a project report or feasibility report which theoretically justifies the starting of a factory profitably. This is also essential for getting loan from the banks and other facilities from other agencies. It also enables an entrepreneur to assess inputs required to guide for his future activities.

The report should cover the economic and commercial analysis in terms of the following:


(a) Technical feasibility.

(b) Economic viability.

(c) Financial implications.

(d) Managerial competence.


Steps in Making Feasibility Report:

  1. Summary of product selected. For the purpose of choosing the product help of Small Industries Service Institute could be taken and the various reports on various products pre­pared by them consulted.
  2. Market Survey.
  3. Technical Study.

(a) Design and drawings of the product.

(b) Preparation of operation sheets for various components.

(c) Material requirements.

(d) Mechanical loading.

(e) Equipment requirements.

(f) Organisational layout.

(g) Personnel requirements.

(h)Floor area requirements and layout with materials handling arrangement.

(i) Quality Control.

  1. Costing.
  2. Cost analysis. Requirement of Fixed and working capital Controlling project costs over run through effective project planning, implementation and control.
  3. Budgeting.
  4. Procurement of Finance.
  5. Critical report on feasibility. For this rate of return on the invested capital is taken as the criteria for analysing the feasibility of the project.

Approval of Scheme:

Once the industry is selected and the scheme is prepared, owner should get this scheme approved. Approval is given by the Directorate of Industries and Civil Supplies of their respective states.

Although approval of the scheme is not compulsory but it is in the interest of the industries to submit their schemes for approval. Technical assistance will be provided to only those whose schemes are approved and registered with it.

The Scheme should be prepared in a prescribed pattern and be submitted to the District Industries Officer/Assistant Director of Industries in 7 copies if imported raw material is re­quired and in 4 copies if such raw material is not required. This approval is valid for 12 months only. If the industry is not started within 12 months of its being approved, scheme is treated as cancelled.

Step # 5. Registration with Authorities:

Small Scale Industries are required to get themselves registered with following authorities:

(a) State Directorate of Industries:

This, although voluntary but for getting various facilities and assistance from Government, small scale entrepreneurs are advised to get their units registered.

(b) DGS & D:

This has a system of registration of firms as approved contractors in the following categories:

(i) Manufacturers of all stores purchased by DGS&D.

(ii) Sole selling agents/sole distributors/distributors who are registered with DGS & D.

(iii) Stockists of imported and indigenous stores.

(iv) As assemblies for items like diesel generating sets, air-conditioning plants etc.

DGS&D (Director General of Supplies and Disposal) is the Central Purchase Organisation of the Government of India, who purchases store for most of the Govern­ment offices from these registered units.

(c) Registration under Factories Act 

(d) Obtaining Licence from Municipal Authority:

Permission of Municipal/Local authority is required to undertake an industrial work within its limits.

(e) Registration with Reserve Bank of India:

It is compulsory for every exporter to obtain an exporter’s code number from the RBI before engaging in export.

(f) Registration with Regional Licensing Authorities:

For export or import, a firm is also required to obtain an Importer Exporter Code (IEC) number from the Director General of Foreign Trade. Customs Authorities allow import or export of goods only when the firm has a valid IEC number.

(g) Registration with Export Promotion Councils:

In order to enable to obtain ben­efits/concession under the export-import policy, the firm is required to register with an appropriate export promotion agency.

(h) Registration with Sales Tax Authorities:

A firm should be registered with the Sales Tax Authority of the State for getting exemption from both Sales Tax and Cen­tral Sales Tax for shipping goods out of the country for export.

Step # 6. Statutory Licences/Clearances:

Depending on the product line chosen, size of the units/workers employed etc. an entrepreneur is required to seek approval for specific regula­tions applicable in his case. Depending upon the nature of the activity a unit has to secure various lincences, clearances, no objection certificates, approvals and registrations etc. details of which can be obtained from the District Industries Centres.

Some of such commodities are Alcohol based industries, Arms, Boilers, Cigarette, Cold Storage, Chemical Industry, commer­cial vehicles, drugs and chemists, explosives, food, furnace oil, fertilisers, kerosene, LPG, minerals, paper, printing press etc.

Step # 7. Arranging Finance:

A firm is required to explore internal and external sources for raising funds. A judicious mix of funds should be accorded first preference.

Internal Sources:

(i) Personnel and family savings.

(ii) Loans from LIC. Provident Fund Account.

(iii) Personal loans against assets like land and property.

(iv) Personal loans against shares and debentures.

(v) Personal loans from societies, chit funds etc.

(vi) Loans from relatives and friends.

External Sources:

Banks and other financial institutions grant loans and advances for the purchase of ma­chinery, equipment and land and buildings etc.

Step # 8. Obtaining Land and Building:

To overcome the problem of availability of land for the construction of factory, the State Department of Industries have set up Industrial Areas and Industrial Estates in the urban, semi-urban and rural areas. Land is allotted in Industrial areas on lease for a period of 99 years. Factory accommodations with facilities of water, electric­ity, transport, bank, post-office etc., are provided in the Industrial Estates.

These factory accom­modations are available at reasonable rents, on the hire-purchase basis or on outright pur­chase. Several state governments allow subsidy on rent for these accommodations, water and electricity, exemption from sales tax on certain categories for a given period of time, and loans to small industries in non-confirming areas for shifting to industrial areas.

Step # 9. Procurement of Machinery and Raw Materials:

National Small Industries Corpo­ration Ltd (NSIC) supplies indigenous and imported machinery to small scale units on hire- purchase basis.

Small Industries Development Organisation (SIDO) maintains close liaison with raw mate­rial suppliers such as primary producers, chanalising agencies like STC (State Trading Corpora­tion), MMTC (Minerals and Metals Trading Corporation) etc. SIDO assists the state Directors of Industries and Small Scale Industries (SSI) Corporations in the estimation of raw materials required by the respective Small Scale industries. State Directorate of Industries fix up specific quotas for industrial units while undertaking distribution of scarce raw materials.

Step # 10. Connections for Power and Water Supply:

Consumers are allowed L.T. supply for load upto 75 HP, beyond 130 HP loads they are supplied only II.T. supply. For the load between 75 to 130 IIP consumer has option either to avail L.T. supply or H.T. supply. For water, entrepreneur should apply to the water department of the municipality or corpo­ration or make his own arrangement by installing a tube-well.

Step # 11. Recruitment of Staff:

In these days of specialisation and competition, professionals and skilled workers are necessary to be recruited. After making realistic assessment of the actual manpower requirements of an enterprise, suitable arrangements should be made for recruitment of personnel. If the entrepreneur himself is not specialised in the particular field, he should appoint a works manager well-versed in that particular field.

Step # 12. Marketing Management:

Marketing is a two-way exchange process in which the needs and wants of the buyer and seller are satisfied.

The NSIC provides assistance in marketing the products of SSI sector, both at home and abroad. The corporation markets products of SSI sector under the Government Stores Purchase Programme to meet the requirements of departments, Railways, Defence etc.

Other schemes which are providing marketing assistance to small scale units are:

(a) Government’s stores purchase programme through DGS & D.

(b) Supply of stores to state Governments.

(c) Supply of stores to Defence.

(d) Supply of stores to Railways.

(e) Canteen stores department, Mumbai-400 040.

(f) Participation in International Exhibition and Fairs through SSIDO, STC and the Indian Trade Promotion Organisation.

(g) Trade centres established by Govt. of India of Jaipur, Bangalore, Kanpur, Ludhiana, Hyderabad, Ahmedabad, Chandigarh, Bhubaneshwar and Cochin.

(h) State emporium and departmental stores.

(i) Export Market through S.T.C, SI SI in the respective states and State Export Promo­tion corporations.

Step # 13. Quality Gradation and Testing:

Four Regional Testing Centres and 19 Field Testing stations have been set up under SIDO in order to:

(a) Improve the quality of products being manufactured in the small scale sector, and

(b) To provide requisite testing facilities.

Governments have also introduced a scheme to provide incentives to those small scale un­dertakings who acquire ISO-9000 certification or its equivalent.

Step # 14. Training, Research and Design Institutes:

For the success of any industry, proper training is essential in production techniques, management, marketing and other aspects. Small Industries Service Institute and their extension centres organise training programmes to im­prove technical skills of workers and acquainting the entrepreneurs with advanced production and management techniques.

(i) Management Training by SIDO in industrial management, marketing, financial man­agement, costing, and production.

(ii) Technical training courses for workers by SISIs.

(iii) Training programmes for engineer entrepreneurs by SISIs and others.

(iv) Entrepreneurial development for non-engineers by SIDO for different category of en­trepreneurs.

(v) Central Institute of Tool Design (CITD), Hyderabad for fulfilling the needs of SSI in the fields of tool design (including jigs, fixtures, dies and moulds), manufacturing and training of technical personnel.

(vi) Central Tool Room and Training Centre, Kolkata for assisting SSI by providing mod­ern tools, technical consultancy, training of tool makers and tool designers.

(vii) Central Tool Room, Ludhiana for providing services in the area of tooling (tool design and tool manufacture), precision machining, heat treatment, technical training and the technical consultancy.

(viii) Process-cum-Product Development Centre (PPDC) at Ranchi, Agra, Meerut, Kannauj.

(ix) Indo-German Tool Rooms—Indore, Ahmedabad and Aurangabad.

(x) National Institute for Entrepreneurship and Small Business Development (NIES BUD), New Delhi conducts training programmes for trainers/motivators and entre­preneurs, prepares model syllabi for training various targets groups, conducts semi­nars/ workshops/conferences etc.

(xi) National Institute of Design, Ahmedabad.

(xii) Central Machine Tool Institute, Bangalore.



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