Small Scale Industries in India

SMALL SCALE INDUSTRIES IN INDIA ROLE AND GOVERMENT POLICY

MADE BY: ITEE BERI MBA 1st SEM. ROLL NO. 16 FMS-BHU

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DEFINITION OF SSIs The definition for small-scale industrial undertakings has changed over time. Initially they were classified into two categories- those using power with less than 50 employees and those not using power with the employee strength being more than 50 but less than 100. However, the capital resources invested on plant and machinery buildings have been the primary criteria to differentiate the small-scale industries from the large and medium scale industries. An industrial unit can be categorized as a small- scale unit if it fulfils the capital investment limit fixed by the Government of India for the small-scale sector. As per the latest definition which is effective since December 21, 1999, for any industrial unit to be regarded as Small Scale Industrial unit the following condition is to be satisfied: Investment in fixed assets like plants and equipments either held on ownership terms on lease or on hire purchase should not be more than Rs 10 million. However, the unit in no way can be owned or controlled or ancillary of any other industrial unit.

YEAR

INVESTMENT INVEST MENT LIMITS LIMIT S

1960

Upto Rs 5 lacs in Plant & Machinery

1966

Upto Rs 7.5 lacs in Plant & Machinery

1975


1980


1985


1991


1997


1999

Upto Rs 100 lacs in in Plant & Machinery









CLASSIFICATION OF SSIs: A common classification is between traditional small industries and modern small industries. Traditional small industries include khadi and handloom, village industries, handicrafts, sericulture, coir, etc. Modern SSIs produce wide range of goods from comparatively simple items t sophisticated products such as television sets, electronics, control system, various engineering products, particularly as ancillaries to the large industries.. The traditional small industries are highly labour-intensive while the modern smallscale units make the use of highly sophisticated machinery and equipment. For instance, during 1979-80, traditional small-scale industries accounted for only 135 of the total output but their share in total employment was 56%. As against this, the share of modern industries in the total output of this sector was 74% in 1979-80 but their share in employment was only 33%. Obviously, these industrial units would be having higher labour productivity. One special characterstic of traditional small-scale industries is that they cannot provide full time employment to workers, but instead can provide only subsidiary or part time employment to agricultural laborers and artisans. Among traditional village industries, handicrafts possess the highest labour productivity, besides handicrafts make a significant contribution to earning foreign exchange for the country. Nowada Nowadays ys Indian Indian smallsmall-sca scale le indust industrie riess (SSIs (SSIs)) are mostly mostly modern modern smallsmall-sca scale le industries. Modernization has widened the list of products offered by this industry. The items manufactured in modern Small-scale service & Business enterprises in India now include rubber products, plastic products, chemical products, glass and cerami ceramics, cs, mechani mechanical cal engine engineeri ering ng items items,, hardwa hardware, re, electr electrica icall items items,, transp transport ort equipment, electronic components and equipments, automobile parts, bicycle parts, instruments, sports goods, stationery items and clocks and watches.

ROLE OF SMALL SCALE INDUSTRIES IN INDIAN ECONOMY The small-scale industrial sector plays a pivotal role in the Indian economy in terms









The small-scale industries sector plays a vital role in the growth of the country. It contributes almost 40% of the gross industrial value added in the Indian economy. It has been estimated that a million Rs. of investment in fixed assets in the small scale sector produces 4.62 million worth of goods goo ds or services with an approximate value addition of ten percentage points. The small-scale sector has grown rapidly over the years. The growth rates during the various plan periods have been very impressive. The number of small-scale units has increased from an estimated 0.87 million units in the year 1980-81 to over 3 million in the year 2000. When the performance of this sector is viewed against the growth in the manufacturing and the industry sector as a whole, it instills confidence in the resilience of the small-scale sector.

COMPARATIVE GROWTH RATES OF SSI SECTOR AND TOTAL INDUSTRIAL SECTOR

Year

SSI Sector Growth Rate

1994-95 1995-96 1996-97 1997-98 1998-99

10.44 11.49 1.29 9.19 7.84

1999-2000 2000-01 2001-02 2002-03 2003-04 2004-05

7.09 8.04 6.06 7.68 8.06 9.96

Total Industrial Sector Growth Rate 9.10 13.00 6.10

6.70 4.10 6.70 5.00 2.70 5.70 6.09 8.04

Source: SIDO Half Century by DCSSI, Govt. of India 2004 and Annual Report of the Ministry of SSI 2005-06

2. EMPLOYMENT









Office of the Development Commissioner M/O Micro & Small Enterprises Cluster Development Programme (Statistics & Data Bank Division) PERFORMANCE OF MICRO & SMALL ENTERPRISES

Year

Number of Enterprises (Lakh Nos.)

Production Empl. (Rs. Crs.) Growth Share In (Lakh at Current Rate Regi Regist ster ered ed Unre Unregi gist ster ered ed Tota Totall Person) GDP (%) prices (%)

2002-2003

15.91

93.58

109.49 263.49

314850

8.68

5.92

2003-2004

16.97

96.98

113.95 275.30

364547

9.64

5.79

2004-2005

17.53

101.06

118.59 287.55

429796

10.88

5.84

2005-2006

18.71

104.71

123.42 299.85

497842

12.32

5.83

2006-2007

20.98

107.46

128.44 312.52

587196

12.65

5.94

2007-2008 (Projected)

24.68

108.99

133.67 322.28

695126

13.00

NA

3. EXPORT:

SSI Sector plays a major role in India's present export performance. SSI Sector contributes 45%-50% of the Indian Exports. Direct exports from the SSI Sector account for nearly 35% of total exports. Besides direct exports, it is estimated that small-scale industrial units contribute around 15% to exports indirectly. This takes place through merchant exporters, trading houses h ouses and export houses. They may also be in the form of export orders from large units or the production of parts and









The exports from SSI sector have been clocking excellent growth rates in this decade. It has been mostly fuelled by the performance of garments, leather and gems and jewellery units from this sector. The product groups where the SSI sector dominates in exports, are sports goods, readymade garments, woolen garments and knitwear, k nitwear, plastic products, processed food and leather products. The SSI sector is reorienting its export strategy towards the new trade regime being ushered in by the WTO.

Year

Exports (Rs. Crores) (at current prices)

1994-95

29,068 (14.86)

1995-96

36,470 (25.50)

1996-97

39,249 (7.61)

1997-98

43946 (11.97)

1998-99

48979 (10.2)

1999-0 9-00 (P)

53975 (10.2)

4. OPPORTUNITY:

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

Less Capital Intensive Extensive Promotion & Support by Government Reservation for Exclusive Manufacture by small scale sector Project Profiles Funding - Finance & Subsidies Machinery Procurement Raw Material Procurement Manpower Training











•

I.

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 the increase in number of greenfield greenfield units coming up in the large-scale large-scale sector. Small industry industry sector has performed exceedingly well and enabled our country to achieve a wide measure of industrial growth and diversification. d iversification.

Fashion Technology: OPPORTUNITIES •

Glamour & Limelight

•

Creative

•

High Value Addition

• Coverage (Extensive) •

Clothes

• Dresses •

Garments

•

Textile

•

Footwear









II.

Information Technology OPPORTUNITIES Media & Entertainment • • • •

III.

Contents, Animation, Games,

Design Technology

OPPORTUNITIES Interiors - (Furniture & Furnishing – homes, work places, community, • hospitals, schools, shopping places, recreation, sports) Exteriors - (Architectural) • Industrial products • Textiles • Electrical appliances • White goods • Leather products • Engineering products • Machinery • Dies and tools • Watches • Jewellery • Hospital equipments • Medical instruments • Electronics and Communication Products and Equipments









income, and on the other hand, the very people among whom these are distributed generate this income.

INDIAN SME SECTOR – AT A GLANCE 2005-06

• • •

SSI units : million

12.3

Employment generated in SSIs : million

29.5

Production : At current Prices billion

•

Exports : billion • SSI account: Industrial Production: Exports:

GDP Share:

Rs.4762.01

Rs. 1215

40% 35% (50% of Direct & Indirect) 7%









•

Ancillary Units : 1% • Produces Diverse range of products (more than 8000- consumer items, capital goods and intermediates)

DISABILITIES Small enterprises are presently seriously handicapped in comparison with larger units by an inequitable allocation system for scarce raw materials and imported components, lack of provision of credit and finance; low technical skill and managerial ability; and marketing contracts. It is, therefore, essential to develop an overall approach to remove these disabilities.

1.

OUTPUT vs EMPLOYMENT

One argument is that the emphasis on employment is irrelevant, as the basic thing is the output that the economy needs for its growth. From this angle, it is contended that, since the productivity of these industries is low compared to that that of large industries, the small industries simply waste the capital which is very scarce, and which , if diverted to large industries, can produce more. From this viewpoint, small industries are more capital-intensive. It is also argued that the labour-productivity in the small industries is also small compared to large industries. 2.

ADVERSE EFFECT ON CAPITAL FORMATION









No doubt, the fact of large scale entails, what is described as economies of scale, scale, lowering the costs. 4.

LARGE SICKNESS There are two main issues in respect of sick SSIs: (i) existence of a large number of sick units which are non-viable; and (ii) rehabilitation of potentially viable units. As far as former is concerned, there were 1, 67,980 sick SSI units as on March 31,2003. These units are those that had obtained loans from banks. An amount of Rs. 5,706 crore was blocked in these units. Of these, as many as 1,62,791 units with outstanding bank credit of Rs. 4,569 crore were identified by banks as being non-viable. As far as the latter issue is concerned, of the 1,67,980 1,67,9 80 sick SSI units as on March 31, 2003, only 3,626 units with outstanding bank credit of Rs. 625 crore were found to be potentially viable by the banks.

5.

SEVERAL DIFFICULTIES: It is thus obvious that these industries, despite their importance in the economy, are not contributing to their full towards the development of the country along the desirable lines. It is because these are beset with a number of problems concerning their operations. These may be described as under:

• Inadequacy of finance: A serious problem of these industries is in

respect of credit both for long-term and short-term purposes. This is evident from the fact that the supply of credit has not been commensurate with their needs associated with fixed and working capital.

TRENDS OF LENDING BY BANKING SECTOR TO SSI

Rs. in Crores As at end

Total advances by Total Advances to Proportion of SSI











Source : RBI Report on Trend and Progress of Banking in India * Provisional

• Difficulties of Marketing: These industries are also up against the

crucial problem of marketing their products. The problem arises from such factors as small scale of production, lack of standardization, inadequate market intelligence, competition from technically more efficient units, etc. Apart from the inadequacy of marketing facilities, the cost of promoting and selling their products too is high. • Shortage of raw materials: Then there is the problem of raw

materials which continues to plague these industries. Raw materials are available neither in sufficient quantity, nor of requisite quality, nor at reasonable price. Being small purchasers, the producers are not able to undertake bulk buying as the large industries can do. The result is taking whatever is available, of whatever q uality and at high prices. •









Government Policy R elated elated Related

12.78%

Power Related/Infrastructure Related/Infras tructure Related/Infrastructure

14.0%

Technology

14.60%

MEASURES To help the SSIs in meeting the challenges ch allenges of globalization, the Government has taken several initiatives and measures in recent years. Primarily among them is the enactment of the ‘Micro, Small and Medium Enterprises Development Act, 2006’ , which aims to facilitate the promotion and development and enhance the competitiveness of MSMEs. The Act came into force from 2nd October 2006. The main features of the act are : SALIENT FEATURES OF MSMED ACT – 2006 •

Manufac Manufactur turing ing enterp enterpris rises es define defined d in terms terms of investm investment ent in Machin Machinery ery and and Equipment (excluding land and building) classified into a. Micro enterprises enterprises - investment upto Rs 25 lakhs, lakhs, b. Small enterprises enterprises - investment above Rs 25 lakhs and upto Rs 5 crore c. Medium enterprises - Investment Investment above Rs 5 crores and upto Rs 10 crores

•

Servic Servicee enterpr enterprise isess defined defined in terms terms of of their their invest investmen mentt in equipm equipment ent (excluding land and building) classified into









4. Filing of memoranda Replacement of registration Facilitates SMEs to avail the benefits of the act optional for Micro and with memorandum immediately after setting up of the unit. Small enterprises in manufacturing and service sector Medium enterprises in Service Sector but mandatory for Medium enterprises in manufacturing sector

Clause

5. Proc Procur urem emen entt Policies

6

Delayed

Salient Features

Impact

Notification of preference policies by central or State Governments for goods and services provided by Micro & Small enterprises • Period of

Facilitates opportunity for supply of goods/services without any hassles. Public Procurement Policy under Section 11 of MSME Act, yet to be notified

SMEs can plan their cash flow/financial









appropriation and release 11. Facilitating Credit Statutory

Mandatory on all providing credit. Guidelines for credit for 20% year on year growth

Other major initiatives taken by the government are setting up of National Manufacturing Competitiveness Council (NMCC) and the National Commission of Enterprises in the Unorganized Sector (NCEUS). Further, in recognition of the fact that delivery of credit continues to be a serious problem for MSEs, a ‘Policy Package for Stepping up Credit to Small and Medium Enterprises (SME)’ was announced by the government with the objective to double the credit flow within the period of five years.

The government has also announced a comprehensive package for promotion of micro and small enterprises, which comprises the proposals/schemes having direct impact on the promotion and development of the micro and small enterprises , particularly in view of the fast changing economic environment, wherein to be competitive is the key of success.









for meeting the change aspirations of micro and small enterprises. The main objective of all these schemes is to promote p romote the interest of the micro and small enterprises and to put them in competitive and advantageous position. The information pertaining to the schemes planned to be continued/implemented in the XI plan period by NSIC with Government support is given hereunder: I. Perfor Performanc mancee & Credit Credit Rating Rating Sch Scheme eme NSIC, in consultation with Rating Agencies and Indian Banks Association, has formulated Performance & Credit Rating Scheme for Small Industries. The scheme is aimed to create awareness among small enterprises about the strengths and weaknesses of their ex isting operations and to provide them an opportunity to enhance their organizational strengths and credit worthiness. The rating under the scheme serves as a trusted third party opinion on the capabilities and credit worthiness of the small enterprises. An independent rating by an accredited rating agency has a good acceptance from the Banks/Financial Institutions. Under this scheme, rating fee to be paid by the SSIs is subsidized for the first year only and that is subject to maximum of 75% of the fee or Rs. 40,000/-, whichever is less.

II

Marke Marketin ting g Assist Assist

e Sch











are to be reserved for tiny units. For the promotion and development of MSEs in the country, cluster is one of the thrust areas of the Ministry in the 11th plan. 

Technology Upgradation in MSE Sector The opening up of economy has exposed MSE sector to global and domestic competition. With a view to enhancing the competitiveness of this sector, the Government has taken several steps such as:

i. ii.

Assistance to industry association for setting setting up of testing centres and to State Governments and to their autonomous bodies for modernization/expansion of their Quality Marking Centres. Regional Regional Testin Testing g Centre Centress and Field Field Test Testing ing Cent Centres res to prov provide ide testin testing g services and services for quality upgradation.









fairs/exhibition, overseas tours, or tours of individuals as member of a trade delegation going abroad. 

Entrepreneurship and Skill Development

The Ministry conducts Entrepreneurship Development Progamme (EDPs) to cultivate the skill in unemployed youths for setting up micro and small enterprises. Further, under the management Development Programmes(MDPs), existing existing MSE entrepreneurs are provided training on various areas to develop skills in management, to improve their decision-making capabilities resulting in higher productivity and profitability. To encourage more entrepreneurs from SC/ST, women and physically challenged groups, the Ministry of MSME provides them a stipend of Rs.500 per capita per p er month for the duration of the training.











INDIA 2008 by MINISTRY OF INFORMATION AND

BROADCASTING

 

BUSINESS ENVIROMENT by Francis Cherunilam

Websites:  http://indiabudget.nic.in



http://dcmsme.gov.in/ssiindia

Small Scale Industries in India

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