Entrepreneurial and Managerial Development of SMEs through Incubators

A look at how the Government has promoted entrepreneurial and managerial development of SME’s in India through Incubators.

Introduction

The government of India under the Ministry of Micro, Small and Medium Enterprises had launched the National Manufacturing Competitiveness Programme (NMCP) in order to enhance the competitiveness of these Micro, Small and Medium Enterprises (MSME) within the sector.

Micro and Small Enterprises (MSEs) are recognized as an important constituent of the national economies, contributing significantly to employment expansion and poverty alleviation. Recognizing the importance of micro and small enterprises, which constitute an important segment of Indian economy in terms of their contribution to country’s industrial production, exports, employment and creation of entrepreneurial base, the Central and state Governments have been implementing several schemes and programmes for promotion and development of these enterprises including Scheme for Support for Entrepreneurial and Managerial Development of SMEs through Incubators.

These initiatives under the NMCP have been formulated with the main goal of increasing productivity, up gradation of technology and conservation of energy within the manufacturing processes, along with the goal of expanding the domestic and global market share of Indian MSME products everywhere. Within the guidelines of this programme, ten of the following components have been conceptualised:
  • Lean Manufacturing Competiveness Scheme
  • Enabling manufacturing sector to be competitive through Quality Management Standards/Quality Technology Tools (QMS/QTT)
  • Promotion of ICT (Information & Communication Technology) in MSME sector.
  • Technology and Quality upgradation Support to MSMEs (TEQUP)
  • Marketing Assistance and Technology Upgradation Scheme
  • Marketing Support/Assistance to SMEs (Bar Code)
  • Design Clinic Scheme for Design Expertise to MSME sector
  • Setting up of Mini Tool Rooms
  • National campaign for building awareness on Intellectual Property Rights (IPR)
  • Support for Entrepreneurial and Managerial Development of SMEs through Incubators
  • This therefore implies that the success of such an NMCP depends entirely upon the active support and complete involvement of the State Governments, Industry Associations as well as other stakeholders such as technical institutions and professionals within the industry.
The Agencies responsible for Implementation:

Incubational support is provided by the following Host Institutions:
  • Indian Institutes of Technology (IITs)
  • National Institutes of Technology ( NITs)
  • Engineering Colleges
  • Technology Development Centres, Tool Rooms, etc
  • Other recognised R&D&/or Technical Institutes/Centres, Development Institutes of DIP&P in the field of Paper, Rubber, Machine Tools, etc.
During the implementation of this programme, all the above mentioned infrastructure providers will be reviewed midway in order to initiate and provide for any corrective action needed to make the scheme more effective and yield higher output.

Financial Assistance for the Scheme:

Nearly a 100 Business Incubators (BI) are to be established in order to incubate about 1,000 ideas, many of which are likely to lead to the setting up of SMEs at a cost of Rs. 62.50 crore within a  four year time period.

The Financial target in terms of expenditure has also been indicated to match the physical target. Further another Rs. 4 crores are earmarked for minor components and the total cost of the project is to be Rs. 66.5 crore. BIs will maintain separate accounts of the funds received and expenditure incurred on various activities. An audited Statement of Accounts or the statement certified by the Chief Financial Officer of the Host Institution will also be obtained.

Participation in a Public Private Partnership (PPP MODE):

In order to ensure the participation of the entrepreneurs in a PPP mode, it has been proposed that about 15% and 25%, as the case may be, of the cost of intervention, shall be borne by Micro and Small Enterprises respectively, wherever applicable. The proposal is in the form of pointed interventions for demonstrating the efficiency of superior technologies/ procedures which are more conducive to the fast-changing environment in industrial competitiveness.

In other words, all the other innovative options which are considered, with considerable degrees of private participation, in order to implement the schemes which have been proposed under the PPP mode. The traditional government-driven, government managed, subsidy oriented activities will have to make way for the user-driven and user-managed options, based on their felt needs.

All such innovative options which ensure that private participation within the programme is on a proportionate basis and that the governmental contribution of 75% to 85% towards the project cost shall be utilized for technology fee, common facilities and hiring/lease of machinery, etc. The incubate is required to deposit their share to the host institute after the completion of all the formalities of the Tripartite Agreement,  to be signed between the Government, the Host Institute (operationalizing the incubator) and the aspiring incubatee, clearly laying down the obligations  and expectations of each of the three signatories

Implementation of the Scheme:

The requests for proposals from the Institutes/Implementing agencies are invited by the Selection Committee through advertisements in Newspapers and websites, Letters to Implementing agencies, etc., to select the host institutes for setting up of BIs.

This Selection Committee is entitled to constitute sub-committees for the specific product groups to vet the feasibility of ideas and proof of concepts, option of the entrepreneur for host institute, access to workshop & laboratory, etc., and to lay down the procedure to release the fund directly to the host institutions as also to formalize the tripartite agreements. A sub-committee headed by the Industrial Adviser of Development Commissioner (MSME comprises of :
  • Director of Apex Scientific/Industrial Research Institute in respective field or his representative.
  • Incubation Executive nominated by Director, MSME-DI in the area of Incubation Center.
  • Representative of Lead Bank in the area of Incubation Centre.
  • Representative of Host Institute.
 
The modes of release of Finances for the Scheme:

Just as it has been provided within the tripartite agreement between the Government, the Host Institution and the aspiring entrepreneur, the Government would release finances to the Host Institution. Initially, the Host Institution would be released 30 per cent of the expenditure expected to be incurred in the establishment and operation of the incubators during the ensuing financial year. The balance would be released to the Host Institution in one or more instalment, once the earlier amount is reported to have been utilised by the Host Institution.
 
Monitoring and Evaluation Procedures:

The projects under this Scheme will be monitored and guided by the Ministry of MSME. Emphasis will be provided for ensuring that the continuation of the scheme through documentation in monitoring of the implementation is done perfectly. A monitoring and advisory committee headed by Additional Secretary & Development Commissioner (MSME) comprising of the following is also in place:-
  • Representatives of NMCC,
  • Representatives of Technology Information Forecasting and Assessment Council (TIFAC)
  • Representatives of the Lead Bank of the State where the incubator is established.
  • Representatives of Industries Associations represented on the Advisory Committee constituted under the MSMED Act, 2006, must be  constituted in order to review and guide the implementation of the programme periodically. Necessary mid-term corrections arrived at by the Committee will be applied to make the programme more effective in the future as well.
 
Responsibilities of the Host Institute:
  • Nucleation of new business ideas by creating the environment and opportunities for know-how providers, entrepreneurs and financiers to meet each other and form business teams;
  • Nurturing businesses in their start-up phase by creating and running an efficient business incubator offering not only space but also access to technology support, business mentoring, networks, scientific and information resources, and a generally conducive and supportive environment; and
  • Promoting and running an active program for identification, creation, acceleration and translation (into practice) of business ideas suitable for new venture creation.
  • The Host Institute must provide ready-to-use, dedicated space for housing and operation of the Business Incubator.
  • The Host Institute is responsible for providing access to basic infrastructural facilities, office facilities and laboratory/ facilities for the Business Incubator.
  • The Host Institute is also be responsible for arranging the resources for the day-to-day operation of the Business Incubator.
  • The operation of the Business Incubator is governed by the Managing Committee which shall be constituted with the approval of the Board of Governors (BOG) of the Host Institutions and comprise of at least the following:
  1. Executive Head of the Business Incubator (Ex-officio Chairperson).
  2. One representative of the Government of India’s promoter agency, in present case representative of Office of the DC (MSME), New Delhi (Member).
  3. One representative of the industry/industry association (Member).
  4. One representative of the financial institutions (Member).
  5. One representative from the academic community of the Host Institution (Member).
  6. One R&D expert (Member).
  7. Business Incubator Manager (Member-Secretary).
  • The Managing Committee is responsible for the overall monitoring and evaluation of the Business Incubator on a periodic basis (preferably six–monthly). The reports of the periodic review shall be made available to all the promoters of the Business Incubator.
Implementation of the Scheme and its Financial Arrangements:

The Managing Committee is be responsible for publicizing the Scheme and further for seeking out all the proposals under the scheme in the approved format as has been given within the guidelines. This Managing Committee or sub-committee checks for the feasibility of the proposals received and recommend proposals to the Government for support under the scheme through the BI.

The Managing Committee also ensures that the selection of entrepreneurs/incubatees is fair and the disbursement/utilization of the fund is done with fairness to the entrepreneur/ incubate.

Thus this is how the Government has introduced and aided the entrepreneurial and managerial development of SME’s through the use of incubators.

Conclusion:

The Scheme had proposed to make efforts to incubate eight micro enterprises and two small enterprises in each BI on an average in an ideal situation. However, flexibility on this count is permitted. There will also be flexibility in having more than one BI in the same host Institution, and where required, there may be less than 10 or more than 10 enterprises hosted in each BI.

This scheme is designed for sustaining, at some basic or introductory level, the incubation of ideas that would have otherwise been lost for want of support. The expectations are that a sizeable percentage of the grantees/incubatees would be graduating to higher levels of operation, that would then require other levels of support under other schemes/organisations and from Venture Capital or Angel Funding.