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- Words: 6,688
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Project Report
On
Growth and Problem of Small Scale Sectors
Submitted To :
Submitted by :
Dr Subhash Gupta
Abdul Hamid
Small-Scale Industries of India
Introduction The industrial policy Resolution Act 1956, while emphasizing the role of cottage and small scale industries, stated: They provide immediate large scale employment, they offer a method of ensuring a more equitable distribution of National Income, and they facilitate an effective mobilization of capital and skill, which might otherwise remain unutilized. A significant feature of the Indian economy since indecency is the rapid growth of the small skill sector, in terms of employment and growth. In spite of the stiff competition from the large sector, and not so encouraging support from the Government, the numbers of small scale units have growth from 4.2 lakh in 1973-74 to 23.84 lakh in 1993-94. During the same period, of 20 years, employment has grown 4 million to 13.9 million, and output has increased from Rs. 241,648 crores (Datt, 1997). The average annual growth rate of employment in the small scale industry for the period 1980-81 to 1993-94, worked out to be 5.3 percent, and that of production to be 18.0 percent. The annual growth of production of the small scale industry of 10.9 percent is much higher than the growth rate of industrial production, in
the large sector has been faster, both in term of output and employment (Datt, 1997). It is generally recognized, that the healthy expansion cottage and small scale sectors depends upon a number of factors, like the provision of raw materials, cheap power technological advances, and organized marketing of products. In this connection, we may refer to the problems faced in the production, process of the small scale industries, the low capacity utilization of the small industries, the lack of technical and financial assistance, the availability of raw materials, for the production process and finally the formulation of industrial policy for the small sector.
Definition and historical context The small companies are defined those with less than US $180,000 in capital equipment (USAEP, 1996). In India the definition of small scale industry has undergone changes over the years in terms of investment limits in the following manner. Table-I Investment limit of SSIs Year
SSI
Remarks
Gross Investment in Fixed
Employment less than 50 Workers Per
195
Assets: not
Day (with the Use of
0
Exceeding Re. 0.5 Million
Power) or Less than 100 Workers Per Day (Without the Use
of Power) Gross Investment in Fixed 195
Assets:
Employment less than 50 Workers Per
8
Less than Re. 0.5 Million
Day (with the Use of Power) or Less than 100 Workers Per Day (Without the Use of Power) except that the Criteria based on the employment ‘per day’ was henceforth replaced by a ‘per shift’ provision
19 60
Gross Invesment in Fixed
Employment less than 50 Workers Per
Assets:
Day (with the Use of
Value of Machinery
Power) or Less than 100 Workers Per Day
(Original)
(Without the Use of Power) except that the Criteria based on the employment ‘per day’ was henceforth replaced by a
1959
Gross Investment in Fixed
‘per shift’ provision employment condition was dropped from
Assets:
the definition
Value up to Re. 0.5 Million The 1960
Up to Re. 0.75 million
No condition
1975
Up to Re. 1 million
No condition
1977
No condition Up to Re. 1 million
1980
No condition Up to Rs. 2 million
1985
Up to 3.5 million
No condition
1991
Up to Rs.6 million
No condition
1997
Up to Rs. 30 million
No condition
1999
Up to Rs. 10 million
No condition
*Source: SIDBI Report on Small Scale Industry Sector 2000, Small Industries Development Bank of India.
Key role of Small scale industry in the Indian economic structure India has traditionally always had a vibrant and competitive SSI. Even after the dawn of industrialization, British producers of textiles found handmade Indian textiles such a threat that they lobbied hard to have its import banned, succeeding in the late eightenth century (Gupta & Sharma, 1996). During pre-economic liberalization time a wide variety of incentives, concessions and institutional facilities were extended for the development of small scale industries. But these socialistic promotional policy measures, in many cases resulted in protection of weak unit rather than the independent growth of units under competitive business environment (Nyati, 1988).
Such situation was continued up to the mid of 1991. Under the period of economic liberalization, the focus was shifted from “protection” to “competitive promotion” (Raja & Rajashekar, 2002). The public policy in India had been attaching lot of importance to village and small scale industries on the following grounds. Small scale industries being labor-intensive, helped to increase the volume of employment, particularly in rural areas, it is estimated that about 2 cror persons are engagment in India in these industries. The handloom industry alone employs 50 lakh people. They account for 6% of GDP, 95 % of all industrial unit, and 34% of total exports. Around 39 lakh SSIs in India has emerged versatile producing over 8000 products, from traditional handicrafts to high-end technical instruments. In developed OECD economy, about 60 % of GDP is generated by small enterprises, i.e., enterprises with maximum of 50 employees. The reason being large number of small enterprises guarantees a high degree of competition, and variety of economic activity that require millions of enterprises to be reasonable competitive and efficient. The indirect jobs created through forward and backward linkage are no less important. In real terms, the small scale industries recorded a growth rates of 10.1% in 1994-95 as against 7.1% in 1993-94 and 5.6% in 1992-93. By the year 2025, if not controled, this sector will grow even more rapidly (Parthasarathy, 1996). Generalization are difficult because though there are firms which are growing rapidly, there
also exist 1,38100 sick units within the sector in India. The contribution of small scale industries in India to national development was meager as compared to the contribution of SSI in other countries of the world. India’s small scale industry shared 95 % of all establishments, 42 % of output, 45% of employment and 34 % of exports. But Taiwan ranked first with a share of 97% of establishments, 80 % of output, 7% of employment, 47 % of exports followed by Japan contributing highly with 99 % of establishments, 53 % of output, 71 % of employment and 13 % of exports (SIDBI Report, 2000). TABE 1.1 : Employment and production in small scale sector 1973-74
7200
Year
production
Employment
Exports (Rs. In crores)
39.7
(lakh)
(Rs. In crores) 393 1977-78
14,300
54.0
28060
71.0
845 1980-81 1643 1985-86
61228
96.0
87300
107.0
2769 1987-98 4373
1990-91
155340
125.3
1,78,700
130.0
2,09,300
134.0
241,648
139.4
9,100 1991-92 13627 1992-93 17785 1993-94 22,764 1994-95 191.40 1995-96 197.93 1990-00 229.10 2000-01 239.09 2001-02 249.09 2002-02
122210 29068 148290 36470 234255 54200 261289 69797 282270 71244 311993
260.1
86013 2003-04 271.36
351427 N.A.
*Source : All India report on functions and activities (1992-93), small industries development organization, department of small scale industry,
Government of India, pp.4-16
Background: Small Scale Sector- its reservation • Reservation of product for exclusive manufacturing in the SSI as a policy instrument for its promotion owes its origin to the Industries (Development & Regulation) Act, 1951 (section 11B).And The main aim for reservation of items for exclusive production in the SSI were the feasibility of producing an item in the Small scale sector without compromising on quality; level of employment generation and prevention of economic concentration etc.
• The reservation policy was initiated in 1967 with 48 items which was enlarged to 506 items by 1978. In 1978, the reservation list was recast into NIC codes which converted these items to 807. Since then, from time to time some items have been added and also some items have been deleted from the list. In addition based on the requirements, the nomenclature of certain items has also been changed. As on today, there are 836 items reserved for exclusive manufacture in the small scale sector. It may be mentioned that the small scale sector produces over 7500 items.
• The term reservation for Small Scale Sector was introduced in Industries (Development & Regulation) Act 1951. In 1984 through an amendment the policy got a statutory backing. The 1984 amendment also provided for constitution of an Advisory Committee on reservation, which meets periodically and considers reservation issues. The Committee was
reconstituted in August, 1995. While taking a decision for reservation, the Committee is required to go into aspects like, i) economy in production, ii) level of employment generation, iii) scope of diffusing entrepreneurship and iv) prevention of concentration of economic power. • There are about 2.7 million small scale units producing around Rs. 3, 37,000 crores worth of goods and employing about 15 million people. At present, the small scale sector accounts for about 40% of industrial production and 35% of the exports of the country. • It is argued that the policy of reservation has led to rapid growth of the Small Scale Sector, since a significant number of units have come up in the reserved field. According to the Second All India Census, while only about 11% of items are reserved, the units producing reserved items accounted for 36% of the total number of registered units and as such, employ a large number of persons. It is also argued that the policy has also action a price control mechanism for consumer items like biscuits, electrical and electronic goods, safety matches, looks, etc. and that it has led to the promotion of ancillaries as the large units have to obtain reserved components from the small scale units in sectors such as auto mobiles, mechanical and electrical engineering etc. It is also argued that it has helped export promotion, since it is obligatory for the large scale units to export 75% of the produce in case they decide to manufacture reserved items. Modern Small Scale Industries These cover SSI units [both in the factory and Non /Factory sectors] and power loom units. Such units mostly use power driven machinery and possess superior production techniques. Units in this sub-sector are generally located
in close proximity to large industrial centers or urban areas. These industries are moving away from the traditional products to knowledge-based products. Traditional Small Scale Industries This sector comprises tiny and cottage industry segments like handlooms, Khadi and Village Industries, handicrafts, sericulture and silk, rubber and coir. These units are labor- intensive, are generally located in rural and semi-urban areas and are artisan based. Usually the capital invested is also nominal. Growth patterns of SSI during the reference period Small companies are often said to grow more faster than large firms. However, empirically it is observed that though they have high growth rate, they as a group have a high death rate, that is, many firms do not last very long. This means that the total effect on the economy may not be much greater than that of relatively larger firms. This section attempts to study the direction of growth in various aspects of small scale industry.
Table: II Growth pattern in the number of establishments of small scale industries (in lakhs) Year
No. of SSIs
Growth rate 1980-81
8.74
1981-82
9.62
10.07 1982-83
10.59
10.08 1983-84 9.07
11.55
1984-85
12.4
7.36 1985-86
13.53
9.11 1986-87
14.62
8.06 1987-88
15.83
8.28 1988-89
17.12
8.15 1989-90
18.23
6.48 1990-91
19.48
6.86 1991-92
20.82
6.88 1992-93
22.46
7.88 1993-94
23.88
6.32 1994-95
25.71
7.66 1995-96
26.58
3.38 1996-97
28.03
5.46 1997-98 5.03
29.44
1998-99
30.8
4.62 1999-00
32.12
4.29 2000-01
33.7
4.92 2001-02
34.6
2.67 2002-03
35.1
1.45 2003-04
38.6
9.97
The small scale industry has played a very important role in the socioeconomy development of the country during the past 50 years. It has significantly contributed to the overall growth in terms of the Gross Domestic Product (GDP), employment generation and export . The performance of the SSI, therefore, has a direct impact on the growth of the overall economies. According to projection made by the Ministry of SSIs during 2000-01, the SSI sector recorded growth in production of 8.09 per cent over the previous year. The SSIs sector has recorded higher growth rate than the industrial sector as a whole (4.8 per cent during 2000-01). This traditional sector in India is considered to have huge growth prospect with its wide range of products. With 40 percent share in total industry output and 35 percent share in exports, the small-scale industrial sector in India is acting as Engine of Growth in the new millennium. The definition for SSI, undertakings has changed over time. Initially they were
classified into two category- those using power with less than 50 employees and those not using power with the employee strength being more than 55 but less than 100. According to Ruddrdatt and K.P.M. Sundaram1 the SSI is classified in to two categories i.e. traditional and modern small-scale units. The traditional industries include khadi and handloom village industry, handicrafts, sericulture, coir, etc. Modern small-scale industry provide wide range of goods from comparatively simple items of sophisticated products such as televisions, electronic control systems, various engineering products, particularly as ancillary to the large industries. The traditional sector is highly labour intensive and use less of machine power. Till now the capital resources invest on plant and machineries building have been the primary criteria to differentiate the SSI from the large & medium scale sectors. 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 SSI. Small Scale Sector: A Boon to the Indian Society The SSI has acquired a prominent place in the socio-economic development of the country. SSI aims at maintaining self sustainability in various sectors of the economy SSI ensures a more equitable distribution of the national income and they facilitate an effective mobilization of resources of capital and skill which might otherwise would have remained unutilized. The total number of small scale units in the country was 28.6 lakhs at the end of 1996-97.
Value of Production in 1996-97 aggregating at Rs.4,12,636
crore showed an increase of 15.8per cent over 1995-96. Employment generated by the sectors stood at 160 lakhs, indicating a growth of 4.8 per cent in the year and exports increased by 7.6 per cent in 1996-97. Actual production of the SSI has always exceeded the annual targets in recent
years. In 1996-97, the 11.3 per cent growth in production at 1990-91 prices was much higher than the 7.1 per cent growth in overall industrial production. Employment growth of 4.8 per cent in 1996-97 was also higher than the target of 4.2 per cent for the year and the Union Budget 1997-98, the Small scale industries Excise Exemption Scheme was further simplified and the concessional excise limit was increased to Rs.100 lakhs from Rs.75 lakhs. While clearances up to Rs.30 lakh are fully exempt from excise duties @ 3 and 5 per cent ad valorem are being charged for clearances between Rs.30-50 lakhs and Rs.50-100 lakhs, respectively. In June 1997, MODVAT, along with concessional rate of 60 per cent of normal duty on clearances up to Rs.50 lakhs and 80 per cent on clearances up to Rs.100 lakhs were restored for the SSI sector. Developments that have taken place during the year 2001-02 for the SSI: 1)
The investment limit for units in hosiery and hand tool sub sectors was
enhanced from Rs. 1crore to Rs.5crore 2)
The corpus fund set up under the Credit Guarantee Fund Scheme has
been raised to
.
Rs, 200crore from Rs.125crore
3 ) Credit Guarantee cover against an aggregate credit of Rs.22.88crore was provided till
.
.
the end of December, 2001.
4.) 14 items were de reserved on June 29, 2001 related to leather goods, shoes and toys. 5.) A new scheme named Market Development Assistance Scheme was launched exclusively .
for the SSI sector.
6. ) Under the Cluster Development Programmed, 4 UNIDO assisted projects
have been
commissioned during the year.
Small Scale Sector: An Important catalyst for the growth of India’s economy. Since independence, the SSI has rendered a major contribution to the gross domestic product of the country and is important in stabilizing the economic growth of the country. They play a vital role in changing the industrial scenario and strengthening the industrial sector tremendously. They assist the utilization of assets for productive purposes with minimal initial resources. Small scale sector have contributed greatly in nurturing private enterprise and in hastening the economic development by generating employment, exports, and reducing local unevenness. This sector estimated to possess a huge potential in the growth of trade with the array of products it offers. With 40 percent share in total industrial output and 35 percent share in exports, small scale sector significantly contribute to the fiscal intensification of the country. The adored possession of India, the khadi handloom is a favorite product of these industries. Household products to raw materials for large scale industries mark the range of produce by these industries. They are instrumental in transfiguring the areas of horticulture, sericulture, fishery, and garments with the products they supply. The traditional small scale sectors that have been at hand for a long time form the crafty portion and tap the above fields.
In a nation like India small scale sector come as boon. They persuade entrepreneurship and help in employment of local population. As per a report about 273 lakh people are working in small scale sector with a turnover of about 348,059 crores currently. The domestic talents are put to good use to produce commodities that have found market worldwide. Small scale sector to a degree avert needless urbanization. The number of people migrating to cities in search of jobs shrinks by the employment options domestic industries create thereby reducing pollution and over population in cities and also helps in decentralized industrial expansion. The main reason of a small scale sector is to achieve self reliance by utilizing the resources available and harnessing the skills of local people to lay a platform that yields a steady income. The industries are characterized by the wise utilization of labor for the commodity production and the advantage lies in the fact that is consumption of ample laborers who are not qualified to work for the large scale industries and thus reducing unemployment and poverty in the country as well. Small Scale Sector helps the financial system in promoting even handed development of industries across all the regions of the economy and also in the efficient distribution of money. Government has always supported the small scale sector. Government has reserved certain products for manufacture in the small scale sector in areas where there is an economic justification for such an approach to encourage these industries, there are about 675 items reserved for the small industries presently.. There are about 115.2 lakh small scale industries in the country which have influenced the economy of the country by a great deal. While examining the list of items reserved for exclusive production in the small scale sector the committee of officials should keep in mind the following:
1. The interests of small industries. 2. The minimum economic scale of production. 3. The need for technological up gradation. 4. National and international competitiveness. 5. Productivity. 6. Serving consumer interests. 7. The import and export policies particularly export orientation of small enterprises. 8. Labour intensity. 9. Other related considerations as deemed appropriate. Policies for Small Scale Sector: A. Reservation of items of manufacture exclusively for the small scale
industry forms an important focus of the industrial policy as a measure of protecting this sector. Since 24th December 1999, industrial undertakings with an investment up to rupees one crore are within the small scale and ancillary sector. A differential investment limit has been adopted since 9th October 2001 for 41 reserved items where the investment limit upto rupees five crore is prescribed for qualifying While the large scale industries are expected to increases the inequities of income and concentration of wealth, Small scale sector is expected to help widespread equal distribution of income and wealth. B. Small scale sector may provide opportunities to a large number of capable and potential entrepreneurs who are deprived of appropriate opportunities. C. It can help to release scarce capital towards productive use. D. SSI can reap the benefits of lean production and can find new costefficient techniques of lean production.
E. As small units can use resources more efficiently to the full capacity without any wastage, they may have higher allocative efficiency. F. As the element of risk is minimum in small scale sectors, more resources will be employed by large number of labour force.
Role of Small Scale Sector in bringing about Economic Development: Small Scale Sector plays an important role in the economic development of a country. Their role in terms of production, employment generation, contribution to exports and facilitating equitable distribution of income is very critical. The small scale sector consists broadly of 1) the traditional cottage and household industries viz., khadi & village industries, handicrafts, handlooms, sericulture and coir industries; and 2) modern small scale industries. The traditional village and cottage industries as distinguished from modern small scale industries are mostly unorganized and located in rural areas and semi-urban areas. They normally do not use power operated machines/appliances and use relatively lower levels of investment and technology. But they provide part-time employment to a very large number of poorer sections of the society. They also supply some essential products for mass consumption and exports. The modern small scale sector is mostly defined in terms of the size of investment and labour force. The Industries (Development & Regulation) Act 1951 defines Small scale sector having less than 50 workers with the aid of power or less than 100 workers working without the aid of power. The more formal definition is in terms of the fixed assets less than Rs. 35 lakh (1981). In
1991 the limit was raised to Rs. 60-75 lakh. The Ninth Plan fixed the ceiling at Rs. 100 lakh and the Tenth Plan increased to it to 50 corers in the case of hitech and export oriented sectors. Government is extending various steps to the Small scale sector. In India, a unique instrument called reservation in the sense of legal ban on production by large units introduced in 1970s was for the protection and promotion of Small scale sector. During Ninth Plan period, Small scale sector was producing about 8000 items out of which 812 items (15%) were reserved for protection in the small scale sector. In addition, the Small scale sector has been supported and encouraged by various government policies for infrastructure support, technology up gradation, preferential access to credit, preferential policy support, etc. De-Regulation of Reserved Items: The Finance Minister had announced in his Budget speech that 108 items would be de-regulated after consulting the stakeholders and on the recommendations of the Advisory Committee constituted under the Industries (Development & Regulation) Act, 1951. Accordingly, the Ministry of Small Scale Industries issued a notification on March 28, 2005 de-regulating 108 items including ten sub items ranging from textile products to agricultural implements from the list of items reserved for exclusive manufacture in the small scale sector. The objective of the de-regulation is to enhance competitiveness in manufacturing these products by freeing them from the limitations of investment. With the deletion of these items the number reserved for exclusive manufacture now stands at 506. The small and medium enterprises fund of Rs.10,000 crore has been operationalised by Small industries development bank of India since April 2004. Eighty per cent of the lending from this fund will be for Small scale units, at interest rate of 2 per
cent below the prevailing rates of SIDBI. Specific contributions of Small scale sector: G. The contribution of Small scale sector to the manufacturing sector and
GDP as a whole is significant in terms of its share in total value added. H. . Small scale sector performs a very significant role in generating employment opportunities in a sustainable manner. I. . Small scale sector can play a role in mitigating the problem of
imbalance in the balance of payment accounts through its export promotion. J.
While the large scale industries are expected to increases the inequities of income and concentration of wealth, Small scale sector is expected to help widespread equal distribution of income and wealth.
K. Small scale sector may provide opportunities to a large number of
capable and potential entrepreneurs who are deprived of appropriate opportunities. L. It can help to release scarce capital towards productive use. M. SSI can reap the benefits of lean production and can find new cost-
efficient techniques of lean production. N. As small units can use resources more efficiently to the full capacity
without any wastage, they may have higher allocative efficiency. O. As the element of risk is minimum in small scale sectors, more resources will be employed by large number of labour force.
Problems of Small Scale Sector: Small scale sector are facing many problems. The following are some of their
major problems: Scarcity of inputs Inadequate capital Marketing Under-utilization of capacity High cost of production Small and insecure markets, due to low rural incomes, seasonality, poor
access to large markets, and severe competition; Raw material shortages, often compounded by wasteful processing, restrictive regulations, poor distribution, and lack of working capital; Shortage of finance, in particular working capital, worsened by problems of access to what is available and by its cost; Non-availability of appropriate technology in the form of suitable tools
and equipment; Managerial weaknesses, which serve to worsen all the other problems since FB-SSI entrepreneurs often lack capacity to analysis situations and chart ways to minimize adverse impacts of problems; Lack of organization of the enterprises in a manner which enables them
to make effective use of available support services.
Incentives of Small Scale Sector: Small Scale industry play an important role as less capital-intensive producers of consumer goods and providers of employment to labour there by addressing the problems of reducing the poverty and unemployment. According to rough estimates of 2003-04 there are about 113.95 lakh small
scale industry units (registered and unregistered) in the country accounting for more than 40 percent of gross value of output in the manufacture sector and about 35 percent of the total export of the country. It provides employment to about 271.36 lakhs persons, which is second only to agriculture. One of the measures of the policy support for promoting SSI’s is the policy of reservation of economically viable and technically feasible items for exclusive manufacture in small scale industry sector. The policy of reservation initiated in 1967 primarily as promotional and protective measure vis-à-vis the large and medium scale sector, grant protection to small scale industry units by preventing fresh capacities being created in the large scale sector in areas which are techno-economically highly suitable for being taken up in the SSI. The only exception being the case of large-scale units, which undertake minimum level of exports as 75% of their total production. The IDR act was amended in 03/ 1984 empowering Government to reserve items for small scale industry sector. Reservation of items for manufacture in small scale industry sector is a continuing process monitored by an advisory Committee on Reservation constituted under IDR Act. The total number of items reserved for SSI is 675 as on 3rd June 2003 and 605 as on 20th October 2004. The Small Scale Sector has acquired a prominent place in the socio-economic development of the country during the past five decades, contributing to the overall growth of the gross domestic product towards employment generation and exports. During the year 2002-03 SSI contribution to the Gross Domestic product was 6.81 percent. Having emerged as the engine of growth for Indian Industry, performance of SSI sector has had a direct impact on the growth of the
national economy. There has been a steady increase in number of SSI units, their production, employment and exports over the years. On the production front also, there has been a steady increase over the previous years. The increase was 9.19% in1997-98, 7.84% in 1998-99, 7.09% in 1999-2000 & 8.04% in 2000-01 respectively. In the year 2001-02 the increase over the previous year was registered 6.06% at constant prices i.e. 1993-94 prices. Similarly the increase in production in the year 2002-03 & 2003-04 were 7.68%, 8.59% respectively. Products for Small Scale Sector: In India products have been reserved for exclusive manufacturing in the Small scale industry for promoting this sector. Currently the investment limit for items to be manufactured in Small scale units is 1 crore. At present 812 items are reserved for manufacture in this sector. This Policy got a legal backing when the Industries (Development & Regulation) 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).
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 Industries (Development &Regulation) Act. Appropriate action on the cases of
violations of the Policy of Reservation is taken up suitably by the concerned Administrative Ministry/Department. 812 products reserved for exclusive production in the small scale sector.
Revamping Khadi and Village Industries Commission: The Government is working on the revamping of the Khadi and Village Industries Commission (KVIC). Programmes for modernising the coir, handlooms, power looms, garments, rubber, cashew, handicrafts, food processing, sericulture, wool development, leather, pottery and other cottage industries are also being launched. Khadi and Village Industries Commission revamping has been necessitated primarily because of the steep decline in employment and nearly stagnant sales of Khadi over the past six years, the need to take effective measures to introduce modern management practices in Khadi and village Industries Commission and make the Khadi products competitive in the globalised economy. Towards these objectives the government dissolved the KVIC on October 14, 2004 and set up a ten-member Expert Committee. The small enterprises sector also faces several problems which impede its full growth potential. Some of the major problems faced by the sector are access to timely and adequate credit, technological obsolescence, infrastructural bottlenecks, marketing constraints and a plethora of rules and regulations. Some policy initiatives were taken during the last one year to help promote and develop the Small scale sector. The Government launched a new scheme on the performance and credit rating of the small scale units. The basic objective of the scheme is to sensitise the Small scale sector to the need for credit rating and encourage the SSI units to maintain good financial track record, which would help them earn higher rating for their credit requirements
when they approach the financial institutions for their working capital and investment requirements. Here a one-time government grant will be provided to units availing themselves of the benefits of this scheme Financial aid for SSI Credit is the prime input for sustained growth of SSI and its mobilization for meeting fixed & working capital needs poses the foremost problems. Credit provided for creation of fixed assets like land, building, and machinery is called long term credit. Credit provided for running the industry for its day-to-day requirement for purchasing raw material and/or direct and indirect expenses and other input like electricity and water etc. and for payment of wages and salaries is called short-term credit or working capital. The Laghu Udyami Credit Card Scheme has been provided to SSI where they can credit up to Rs.10 lakhs. Apart from this, credit facilities up to maximum of Rs.25 lakh are provided through Credit Guarantee Fund Trust in collaboration with SIDBI and Government of India. Table X provides further insight into credit related information. The SSI is provided working capital by commercial banks and in some cases by cooperative banks and regional rural banks. Term loans are provided by State Financial Corporations (SFCs), Small Industries Development Corporations (SIDCs), National Small Industries Corporation (NSIC) and National Bank for Agriculture and Rural Development (NABARD). Financial assistance from NSIC
and to some extent from SIDCs is available in the form of supply of machinery on hire purchase basis/deferred payment basis. Small sized SSI and tiny units also get some term loans from commercial banks along with working capital in the form of composite loans. The Small Industries Development Bank of India (SIDBI) provides refinance to these institutions. Such refinance comprises assistance provided to State Financial Corporation Bills, Finance Scheme, Special Capital/Seed Capital Scheme, and new debt instruments and to National Small Industries Corporation. Long-term loan are provided to the smalls scale industrial units by SFCs mainly through Single Window Scheme and National Equity Fund as also direct assistance provided to State Financial Corporations in the form of refinance. Some part of working capital for pre-operative expenses is also provided by State Financial Corporations to Small Scale Industrial Units under the Single Window Scheme.
SSI’s as creator of the job SSI’s have always been regarded for their high employment intensity. SSIs today employ over 192 lakhs persons and this is targeted to grow at 4% per year during the 10th Plan period of 2002-2007. Though often described as ideal vehicles for promotion creation of jobs in the economy, at the same time, it is
true that the nature of employment in the sector is undergoing
change. Employment generation figure declined from 6.3 persons per SSI in 1987-88 (2nd Census) to 3.6 persons per SSI in 1999-2000 (Sample Survey).
Expert committees which have looked at this issue have also come up with different
sets
of
recommendation.
The
Task
Force
on
Employment
Opportunities under Shri Montek Singh Ahluwalia had identified SSIs as an important
source
of
employment
&
as
an
important
incubator
for
entrepreneurship. The Task Force however called for a shift in policy from protection to promotion. The Task Force felt that almost 70% of the total employment opportunities generated over the next 10 years were likely to be in the services sector. On the other hand, a Special Group on Employment for creation of 10 million employment opportunities per year over the 10th Plan under Dr. S.P. Gupta has recommended that since more than 92% of employment generation in the economy is coming from small and medium enterprises, including agriculture - commonly defined as the unorganized sector, there is need to give special focused attention for meeting the requirements of small and medium enterprises to enable them to create more jobs in the future. During the 1990s, jobs in the organised sector grew at less than 1% per year while jobs in the SSI sector increased by 3.5% every year. In the changing scenario, on account of globalization and liberalization, what shall be the impact on the creation of new jobs by SSIs? Does increase in capital intensity of SSIs, as they go in for technological up gradation
.
Summary of main conclusions 1.) Empirical findings show FB-small scale industries to be a large and important part of both the forest and rural enterprise sectors in developing countries; there is need to recognize this and to adjust forest sector strategies accordingly 2.) Further study is needed in order to identify which forest based activity have the potential for viable growth as small-scale enterprises; this information should be widely disseminated to policy makers and sector managers 3.) Assistance to FB-small scale industries needs to be geared to their very small size, and to the consequent constraints on the resources and skills available to them. Within this aggregate, support activity need to differentiate
between the micro household units using non-wood raw materials and the some what larger and more advance wood working enterprises operating at a workshop level; while the latter may be able to benefit from some existing support services the former will usually not be able to do so and will require other modes of assistance. Another category of enterprise likely to need special attention is that in transition from the household to the workshop scale of operating 4.) The forest based activity of many small scale industries are closely integrated with other of their processing, agricultural and household activities, and therefore can not effectively be dealt with in isolation 5.) Support to FB-SSIs should not be unduly oriented towards encouraging and perpetuating small scale as an objective in itself; growth and development of many FB-small scale industry activities will logically require them to increase in unit size 6. ) Care needs to be taken to ensure that support is cost effective and consistent with the absorptive capacity of the enterprise, and does not intrude on the entrepreneur to the point of undermining his or her self-reliance and decision-making responsibility 7. ) In order to get access to supporting services, and be able to use them effectively, FB-SSIs, in particular micro enterprises, will often need to organise themselves in appropriate groupings 8.) Informal mechanisms such as nongovernmental organisations may have an important role in providing FB-SSIs with access to support and in improving its effectiveness
9.) As availability of markets is essential to FB-small scale industry viability and growth, priority should be given to assisting entrepreneurs with market information, product development, access to markets and marketing 10.) Because of the nature of the forest resource, it is impossible for FB-small scale industry
to provide for their own raw material base. Measures to
improve their raw material situation include the following: - improve raw material management and allocation procedures to accommodate small as well as large enterprises, - broaden forest management to include non-wood raw materials of value to FB-SSIs - amend legislation and regulations which unnecessarily restrict beneficial FBSSI operations - assist rural communities to develop ways of managing local forest resources to supply sustainable FB-SSIs. 11.) FB-small scale industries need improved access to finance from formal sources. Such assistance needs to be adapted to the different circumstances of micro, workshop and intermediate enterprises; in order to be effectively used it needs to be accompanied by technical assistance to entrepreneurs in organisation, record keeping and accounting, and to institutional lenders to improve their ability to service small enterprises 12.) The FB-small scale industries activities which will continue to be profitable and grow will be those which are able to improve their productivity; the problems of identifying appropriate technologies and of effectively transferring them, and the necessary skills, are particularly acute for micro
enterprises 13.) The task of upgrading management of FB-small scale industries has to start with recognition that the entrepreneurs have a technical not a managerial background, and the particular difficulties that they face in adding a managerial dimension to their responsibilities. To be effective, training materials and methods must be accurately matched to their needs and capabilities. Under the policy measures for promoting and strengthening SSIs and tiny industries, it has been enunciated that adequate and equitable distribution of raw materials, problem –free production processes, advanced technology and infrastrustral facilities, would be ensured to small sector. Thus there is a significant change in the overall strategy for small scale industry development . It maybe too early to judge the sufficiency of the strategy to bring out the desired outcome. But internationally rapid technological Changes are revitalizing the SSIs and it is perceived that future role of SSIs will be based on competition, productivity and efficiency . .
Bibliography : Datt, R. and Sundara, M.K.P.M.(1997), India Economy, S.chand and Co Balasubramanya, M.H. (2000) India small industry policy in 90’s Subramanya, S. (2000) “doing without Reservation in the small sector” Mathew, P.M. (2000) small industries Francis Cherunilam (2008) Business Environment
1. http://dcmsme.gov.in/publications/reserveditems/itemrese.htm 2. http://pib.nic.in/release/release.asp?relid=9408 3. www.textbooksonline.tn.nic.in/Books/11/Econ-EM/Chapter_07.pdf 4. http://www.education.nic.in/cd50years/15/8P/88/8P880402.htm 5. http://www.books.iupindia.org/overview.asp?bookid=IB1100165 6. http://www.smallindustryindia.com/ssiindia/reservitems.html#list2 7. http://dcmsme.gov.in/publications/reserveditems/itemrese.htm 8. http://dcmsme.gov.in/publications/reserveditems/itemrese.htm
On
Growth and Problem of Small Scale Sectors
Submitted To :
Submitted by :
Dr Subhash Gupta
Abdul Hamid
Small-Scale Industries of India
Introduction The industrial policy Resolution Act 1956, while emphasizing the role of cottage and small scale industries, stated: They provide immediate large scale employment, they offer a method of ensuring a more equitable distribution of National Income, and they facilitate an effective mobilization of capital and skill, which might otherwise remain unutilized. A significant feature of the Indian economy since indecency is the rapid growth of the small skill sector, in terms of employment and growth. In spite of the stiff competition from the large sector, and not so encouraging support from the Government, the numbers of small scale units have growth from 4.2 lakh in 1973-74 to 23.84 lakh in 1993-94. During the same period, of 20 years, employment has grown 4 million to 13.9 million, and output has increased from Rs. 241,648 crores (Datt, 1997). The average annual growth rate of employment in the small scale industry for the period 1980-81 to 1993-94, worked out to be 5.3 percent, and that of production to be 18.0 percent. The annual growth of production of the small scale industry of 10.9 percent is much higher than the growth rate of industrial production, in
the large sector has been faster, both in term of output and employment (Datt, 1997). It is generally recognized, that the healthy expansion cottage and small scale sectors depends upon a number of factors, like the provision of raw materials, cheap power technological advances, and organized marketing of products. In this connection, we may refer to the problems faced in the production, process of the small scale industries, the low capacity utilization of the small industries, the lack of technical and financial assistance, the availability of raw materials, for the production process and finally the formulation of industrial policy for the small sector.
Definition and historical context The small companies are defined those with less than US $180,000 in capital equipment (USAEP, 1996). In India the definition of small scale industry has undergone changes over the years in terms of investment limits in the following manner. Table-I Investment limit of SSIs Year
SSI
Remarks
Gross Investment in Fixed
Employment less than 50 Workers Per
195
Assets: not
Day (with the Use of
0
Exceeding Re. 0.5 Million
Power) or Less than 100 Workers Per Day (Without the Use
of Power) Gross Investment in Fixed 195
Assets:
Employment less than 50 Workers Per
8
Less than Re. 0.5 Million
Day (with the Use of Power) or Less than 100 Workers Per Day (Without the Use of Power) except that the Criteria based on the employment ‘per day’ was henceforth replaced by a ‘per shift’ provision
19 60
Gross Invesment in Fixed
Employment less than 50 Workers Per
Assets:
Day (with the Use of
Value of Machinery
Power) or Less than 100 Workers Per Day
(Original)
(Without the Use of Power) except that the Criteria based on the employment ‘per day’ was henceforth replaced by a
1959
Gross Investment in Fixed
‘per shift’ provision employment condition was dropped from
Assets:
the definition
Value up to Re. 0.5 Million The 1960
Up to Re. 0.75 million
No condition
1975
Up to Re. 1 million
No condition
1977
No condition Up to Re. 1 million
1980
No condition Up to Rs. 2 million
1985
Up to 3.5 million
No condition
1991
Up to Rs.6 million
No condition
1997
Up to Rs. 30 million
No condition
1999
Up to Rs. 10 million
No condition
*Source: SIDBI Report on Small Scale Industry Sector 2000, Small Industries Development Bank of India.
Key role of Small scale industry in the Indian economic structure India has traditionally always had a vibrant and competitive SSI. Even after the dawn of industrialization, British producers of textiles found handmade Indian textiles such a threat that they lobbied hard to have its import banned, succeeding in the late eightenth century (Gupta & Sharma, 1996). During pre-economic liberalization time a wide variety of incentives, concessions and institutional facilities were extended for the development of small scale industries. But these socialistic promotional policy measures, in many cases resulted in protection of weak unit rather than the independent growth of units under competitive business environment (Nyati, 1988).
Such situation was continued up to the mid of 1991. Under the period of economic liberalization, the focus was shifted from “protection” to “competitive promotion” (Raja & Rajashekar, 2002). The public policy in India had been attaching lot of importance to village and small scale industries on the following grounds. Small scale industries being labor-intensive, helped to increase the volume of employment, particularly in rural areas, it is estimated that about 2 cror persons are engagment in India in these industries. The handloom industry alone employs 50 lakh people. They account for 6% of GDP, 95 % of all industrial unit, and 34% of total exports. Around 39 lakh SSIs in India has emerged versatile producing over 8000 products, from traditional handicrafts to high-end technical instruments. In developed OECD economy, about 60 % of GDP is generated by small enterprises, i.e., enterprises with maximum of 50 employees. The reason being large number of small enterprises guarantees a high degree of competition, and variety of economic activity that require millions of enterprises to be reasonable competitive and efficient. The indirect jobs created through forward and backward linkage are no less important. In real terms, the small scale industries recorded a growth rates of 10.1% in 1994-95 as against 7.1% in 1993-94 and 5.6% in 1992-93. By the year 2025, if not controled, this sector will grow even more rapidly (Parthasarathy, 1996). Generalization are difficult because though there are firms which are growing rapidly, there
also exist 1,38100 sick units within the sector in India. The contribution of small scale industries in India to national development was meager as compared to the contribution of SSI in other countries of the world. India’s small scale industry shared 95 % of all establishments, 42 % of output, 45% of employment and 34 % of exports. But Taiwan ranked first with a share of 97% of establishments, 80 % of output, 7% of employment, 47 % of exports followed by Japan contributing highly with 99 % of establishments, 53 % of output, 71 % of employment and 13 % of exports (SIDBI Report, 2000). TABE 1.1 : Employment and production in small scale sector 1973-74
7200
Year
production
Employment
Exports (Rs. In crores)
39.7
(lakh)
(Rs. In crores) 393 1977-78
14,300
54.0
28060
71.0
845 1980-81 1643 1985-86
61228
96.0
87300
107.0
2769 1987-98 4373
1990-91
155340
125.3
1,78,700
130.0
2,09,300
134.0
241,648
139.4
9,100 1991-92 13627 1992-93 17785 1993-94 22,764 1994-95 191.40 1995-96 197.93 1990-00 229.10 2000-01 239.09 2001-02 249.09 2002-02
122210 29068 148290 36470 234255 54200 261289 69797 282270 71244 311993
260.1
86013 2003-04 271.36
351427 N.A.
*Source : All India report on functions and activities (1992-93), small industries development organization, department of small scale industry,
Government of India, pp.4-16
Background: Small Scale Sector- its reservation • Reservation of product for exclusive manufacturing in the SSI as a policy instrument for its promotion owes its origin to the Industries (Development & Regulation) Act, 1951 (section 11B).And The main aim for reservation of items for exclusive production in the SSI were the feasibility of producing an item in the Small scale sector without compromising on quality; level of employment generation and prevention of economic concentration etc.
• The reservation policy was initiated in 1967 with 48 items which was enlarged to 506 items by 1978. In 1978, the reservation list was recast into NIC codes which converted these items to 807. Since then, from time to time some items have been added and also some items have been deleted from the list. In addition based on the requirements, the nomenclature of certain items has also been changed. As on today, there are 836 items reserved for exclusive manufacture in the small scale sector. It may be mentioned that the small scale sector produces over 7500 items.
• The term reservation for Small Scale Sector was introduced in Industries (Development & Regulation) Act 1951. In 1984 through an amendment the policy got a statutory backing. The 1984 amendment also provided for constitution of an Advisory Committee on reservation, which meets periodically and considers reservation issues. The Committee was
reconstituted in August, 1995. While taking a decision for reservation, the Committee is required to go into aspects like, i) economy in production, ii) level of employment generation, iii) scope of diffusing entrepreneurship and iv) prevention of concentration of economic power. • There are about 2.7 million small scale units producing around Rs. 3, 37,000 crores worth of goods and employing about 15 million people. At present, the small scale sector accounts for about 40% of industrial production and 35% of the exports of the country. • It is argued that the policy of reservation has led to rapid growth of the Small Scale Sector, since a significant number of units have come up in the reserved field. According to the Second All India Census, while only about 11% of items are reserved, the units producing reserved items accounted for 36% of the total number of registered units and as such, employ a large number of persons. It is also argued that the policy has also action a price control mechanism for consumer items like biscuits, electrical and electronic goods, safety matches, looks, etc. and that it has led to the promotion of ancillaries as the large units have to obtain reserved components from the small scale units in sectors such as auto mobiles, mechanical and electrical engineering etc. It is also argued that it has helped export promotion, since it is obligatory for the large scale units to export 75% of the produce in case they decide to manufacture reserved items. Modern Small Scale Industries These cover SSI units [both in the factory and Non /Factory sectors] and power loom units. Such units mostly use power driven machinery and possess superior production techniques. Units in this sub-sector are generally located
in close proximity to large industrial centers or urban areas. These industries are moving away from the traditional products to knowledge-based products. Traditional Small Scale Industries This sector comprises tiny and cottage industry segments like handlooms, Khadi and Village Industries, handicrafts, sericulture and silk, rubber and coir. These units are labor- intensive, are generally located in rural and semi-urban areas and are artisan based. Usually the capital invested is also nominal. Growth patterns of SSI during the reference period Small companies are often said to grow more faster than large firms. However, empirically it is observed that though they have high growth rate, they as a group have a high death rate, that is, many firms do not last very long. This means that the total effect on the economy may not be much greater than that of relatively larger firms. This section attempts to study the direction of growth in various aspects of small scale industry.
Table: II Growth pattern in the number of establishments of small scale industries (in lakhs) Year
No. of SSIs
Growth rate 1980-81
8.74
1981-82
9.62
10.07 1982-83
10.59
10.08 1983-84 9.07
11.55
1984-85
12.4
7.36 1985-86
13.53
9.11 1986-87
14.62
8.06 1987-88
15.83
8.28 1988-89
17.12
8.15 1989-90
18.23
6.48 1990-91
19.48
6.86 1991-92
20.82
6.88 1992-93
22.46
7.88 1993-94
23.88
6.32 1994-95
25.71
7.66 1995-96
26.58
3.38 1996-97
28.03
5.46 1997-98 5.03
29.44
1998-99
30.8
4.62 1999-00
32.12
4.29 2000-01
33.7
4.92 2001-02
34.6
2.67 2002-03
35.1
1.45 2003-04
38.6
9.97
The small scale industry has played a very important role in the socioeconomy development of the country during the past 50 years. It has significantly contributed to the overall growth in terms of the Gross Domestic Product (GDP), employment generation and export . The performance of the SSI, therefore, has a direct impact on the growth of the overall economies. According to projection made by the Ministry of SSIs during 2000-01, the SSI sector recorded growth in production of 8.09 per cent over the previous year. The SSIs sector has recorded higher growth rate than the industrial sector as a whole (4.8 per cent during 2000-01). This traditional sector in India is considered to have huge growth prospect with its wide range of products. With 40 percent share in total industry output and 35 percent share in exports, the small-scale industrial sector in India is acting as Engine of Growth in the new millennium. The definition for SSI, undertakings has changed over time. Initially they were
classified into two category- those using power with less than 50 employees and those not using power with the employee strength being more than 55 but less than 100. According to Ruddrdatt and K.P.M. Sundaram1 the SSI is classified in to two categories i.e. traditional and modern small-scale units. The traditional industries include khadi and handloom village industry, handicrafts, sericulture, coir, etc. Modern small-scale industry provide wide range of goods from comparatively simple items of sophisticated products such as televisions, electronic control systems, various engineering products, particularly as ancillary to the large industries. The traditional sector is highly labour intensive and use less of machine power. Till now the capital resources invest on plant and machineries building have been the primary criteria to differentiate the SSI from the large & medium scale sectors. 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 SSI. Small Scale Sector: A Boon to the Indian Society The SSI has acquired a prominent place in the socio-economic development of the country. SSI aims at maintaining self sustainability in various sectors of the economy SSI ensures a more equitable distribution of the national income and they facilitate an effective mobilization of resources of capital and skill which might otherwise would have remained unutilized. The total number of small scale units in the country was 28.6 lakhs at the end of 1996-97.
Value of Production in 1996-97 aggregating at Rs.4,12,636
crore showed an increase of 15.8per cent over 1995-96. Employment generated by the sectors stood at 160 lakhs, indicating a growth of 4.8 per cent in the year and exports increased by 7.6 per cent in 1996-97. Actual production of the SSI has always exceeded the annual targets in recent
years. In 1996-97, the 11.3 per cent growth in production at 1990-91 prices was much higher than the 7.1 per cent growth in overall industrial production. Employment growth of 4.8 per cent in 1996-97 was also higher than the target of 4.2 per cent for the year and the Union Budget 1997-98, the Small scale industries Excise Exemption Scheme was further simplified and the concessional excise limit was increased to Rs.100 lakhs from Rs.75 lakhs. While clearances up to Rs.30 lakh are fully exempt from excise duties @ 3 and 5 per cent ad valorem are being charged for clearances between Rs.30-50 lakhs and Rs.50-100 lakhs, respectively. In June 1997, MODVAT, along with concessional rate of 60 per cent of normal duty on clearances up to Rs.50 lakhs and 80 per cent on clearances up to Rs.100 lakhs were restored for the SSI sector. Developments that have taken place during the year 2001-02 for the SSI: 1)
The investment limit for units in hosiery and hand tool sub sectors was
enhanced from Rs. 1crore to Rs.5crore 2)
The corpus fund set up under the Credit Guarantee Fund Scheme has
been raised to
.
Rs, 200crore from Rs.125crore
3 ) Credit Guarantee cover against an aggregate credit of Rs.22.88crore was provided till
.
.
the end of December, 2001.
4.) 14 items were de reserved on June 29, 2001 related to leather goods, shoes and toys. 5.) A new scheme named Market Development Assistance Scheme was launched exclusively .
for the SSI sector.
6. ) Under the Cluster Development Programmed, 4 UNIDO assisted projects
have been
commissioned during the year.
Small Scale Sector: An Important catalyst for the growth of India’s economy. Since independence, the SSI has rendered a major contribution to the gross domestic product of the country and is important in stabilizing the economic growth of the country. They play a vital role in changing the industrial scenario and strengthening the industrial sector tremendously. They assist the utilization of assets for productive purposes with minimal initial resources. Small scale sector have contributed greatly in nurturing private enterprise and in hastening the economic development by generating employment, exports, and reducing local unevenness. This sector estimated to possess a huge potential in the growth of trade with the array of products it offers. With 40 percent share in total industrial output and 35 percent share in exports, small scale sector significantly contribute to the fiscal intensification of the country. The adored possession of India, the khadi handloom is a favorite product of these industries. Household products to raw materials for large scale industries mark the range of produce by these industries. They are instrumental in transfiguring the areas of horticulture, sericulture, fishery, and garments with the products they supply. The traditional small scale sectors that have been at hand for a long time form the crafty portion and tap the above fields.
In a nation like India small scale sector come as boon. They persuade entrepreneurship and help in employment of local population. As per a report about 273 lakh people are working in small scale sector with a turnover of about 348,059 crores currently. The domestic talents are put to good use to produce commodities that have found market worldwide. Small scale sector to a degree avert needless urbanization. The number of people migrating to cities in search of jobs shrinks by the employment options domestic industries create thereby reducing pollution and over population in cities and also helps in decentralized industrial expansion. The main reason of a small scale sector is to achieve self reliance by utilizing the resources available and harnessing the skills of local people to lay a platform that yields a steady income. The industries are characterized by the wise utilization of labor for the commodity production and the advantage lies in the fact that is consumption of ample laborers who are not qualified to work for the large scale industries and thus reducing unemployment and poverty in the country as well. Small Scale Sector helps the financial system in promoting even handed development of industries across all the regions of the economy and also in the efficient distribution of money. Government has always supported the small scale sector. Government has reserved certain products for manufacture in the small scale sector in areas where there is an economic justification for such an approach to encourage these industries, there are about 675 items reserved for the small industries presently.. There are about 115.2 lakh small scale industries in the country which have influenced the economy of the country by a great deal. While examining the list of items reserved for exclusive production in the small scale sector the committee of officials should keep in mind the following:
1. The interests of small industries. 2. The minimum economic scale of production. 3. The need for technological up gradation. 4. National and international competitiveness. 5. Productivity. 6. Serving consumer interests. 7. The import and export policies particularly export orientation of small enterprises. 8. Labour intensity. 9. Other related considerations as deemed appropriate. Policies for Small Scale Sector: A. Reservation of items of manufacture exclusively for the small scale
industry forms an important focus of the industrial policy as a measure of protecting this sector. Since 24th December 1999, industrial undertakings with an investment up to rupees one crore are within the small scale and ancillary sector. A differential investment limit has been adopted since 9th October 2001 for 41 reserved items where the investment limit upto rupees five crore is prescribed for qualifying While the large scale industries are expected to increases the inequities of income and concentration of wealth, Small scale sector is expected to help widespread equal distribution of income and wealth. B. Small scale sector may provide opportunities to a large number of capable and potential entrepreneurs who are deprived of appropriate opportunities. C. It can help to release scarce capital towards productive use. D. SSI can reap the benefits of lean production and can find new costefficient techniques of lean production.
E. As small units can use resources more efficiently to the full capacity without any wastage, they may have higher allocative efficiency. F. As the element of risk is minimum in small scale sectors, more resources will be employed by large number of labour force.
Role of Small Scale Sector in bringing about Economic Development: Small Scale Sector plays an important role in the economic development of a country. Their role in terms of production, employment generation, contribution to exports and facilitating equitable distribution of income is very critical. The small scale sector consists broadly of 1) the traditional cottage and household industries viz., khadi & village industries, handicrafts, handlooms, sericulture and coir industries; and 2) modern small scale industries. The traditional village and cottage industries as distinguished from modern small scale industries are mostly unorganized and located in rural areas and semi-urban areas. They normally do not use power operated machines/appliances and use relatively lower levels of investment and technology. But they provide part-time employment to a very large number of poorer sections of the society. They also supply some essential products for mass consumption and exports. The modern small scale sector is mostly defined in terms of the size of investment and labour force. The Industries (Development & Regulation) Act 1951 defines Small scale sector having less than 50 workers with the aid of power or less than 100 workers working without the aid of power. The more formal definition is in terms of the fixed assets less than Rs. 35 lakh (1981). In
1991 the limit was raised to Rs. 60-75 lakh. The Ninth Plan fixed the ceiling at Rs. 100 lakh and the Tenth Plan increased to it to 50 corers in the case of hitech and export oriented sectors. Government is extending various steps to the Small scale sector. In India, a unique instrument called reservation in the sense of legal ban on production by large units introduced in 1970s was for the protection and promotion of Small scale sector. During Ninth Plan period, Small scale sector was producing about 8000 items out of which 812 items (15%) were reserved for protection in the small scale sector. In addition, the Small scale sector has been supported and encouraged by various government policies for infrastructure support, technology up gradation, preferential access to credit, preferential policy support, etc. De-Regulation of Reserved Items: The Finance Minister had announced in his Budget speech that 108 items would be de-regulated after consulting the stakeholders and on the recommendations of the Advisory Committee constituted under the Industries (Development & Regulation) Act, 1951. Accordingly, the Ministry of Small Scale Industries issued a notification on March 28, 2005 de-regulating 108 items including ten sub items ranging from textile products to agricultural implements from the list of items reserved for exclusive manufacture in the small scale sector. The objective of the de-regulation is to enhance competitiveness in manufacturing these products by freeing them from the limitations of investment. With the deletion of these items the number reserved for exclusive manufacture now stands at 506. The small and medium enterprises fund of Rs.10,000 crore has been operationalised by Small industries development bank of India since April 2004. Eighty per cent of the lending from this fund will be for Small scale units, at interest rate of 2 per
cent below the prevailing rates of SIDBI. Specific contributions of Small scale sector: G. The contribution of Small scale sector to the manufacturing sector and
GDP as a whole is significant in terms of its share in total value added. H. . Small scale sector performs a very significant role in generating employment opportunities in a sustainable manner. I. . Small scale sector can play a role in mitigating the problem of
imbalance in the balance of payment accounts through its export promotion. J.
While the large scale industries are expected to increases the inequities of income and concentration of wealth, Small scale sector is expected to help widespread equal distribution of income and wealth.
K. Small scale sector may provide opportunities to a large number of
capable and potential entrepreneurs who are deprived of appropriate opportunities. L. It can help to release scarce capital towards productive use. M. SSI can reap the benefits of lean production and can find new cost-
efficient techniques of lean production. N. As small units can use resources more efficiently to the full capacity
without any wastage, they may have higher allocative efficiency. O. As the element of risk is minimum in small scale sectors, more resources will be employed by large number of labour force.
Problems of Small Scale Sector: Small scale sector are facing many problems. The following are some of their
major problems: Scarcity of inputs Inadequate capital Marketing Under-utilization of capacity High cost of production Small and insecure markets, due to low rural incomes, seasonality, poor
access to large markets, and severe competition; Raw material shortages, often compounded by wasteful processing, restrictive regulations, poor distribution, and lack of working capital; Shortage of finance, in particular working capital, worsened by problems of access to what is available and by its cost; Non-availability of appropriate technology in the form of suitable tools
and equipment; Managerial weaknesses, which serve to worsen all the other problems since FB-SSI entrepreneurs often lack capacity to analysis situations and chart ways to minimize adverse impacts of problems; Lack of organization of the enterprises in a manner which enables them
to make effective use of available support services.
Incentives of Small Scale Sector: Small Scale industry play an important role as less capital-intensive producers of consumer goods and providers of employment to labour there by addressing the problems of reducing the poverty and unemployment. According to rough estimates of 2003-04 there are about 113.95 lakh small
scale industry units (registered and unregistered) in the country accounting for more than 40 percent of gross value of output in the manufacture sector and about 35 percent of the total export of the country. It provides employment to about 271.36 lakhs persons, which is second only to agriculture. One of the measures of the policy support for promoting SSI’s is the policy of reservation of economically viable and technically feasible items for exclusive manufacture in small scale industry sector. The policy of reservation initiated in 1967 primarily as promotional and protective measure vis-à-vis the large and medium scale sector, grant protection to small scale industry units by preventing fresh capacities being created in the large scale sector in areas which are techno-economically highly suitable for being taken up in the SSI. The only exception being the case of large-scale units, which undertake minimum level of exports as 75% of their total production. The IDR act was amended in 03/ 1984 empowering Government to reserve items for small scale industry sector. Reservation of items for manufacture in small scale industry sector is a continuing process monitored by an advisory Committee on Reservation constituted under IDR Act. The total number of items reserved for SSI is 675 as on 3rd June 2003 and 605 as on 20th October 2004. The Small Scale Sector has acquired a prominent place in the socio-economic development of the country during the past five decades, contributing to the overall growth of the gross domestic product towards employment generation and exports. During the year 2002-03 SSI contribution to the Gross Domestic product was 6.81 percent. Having emerged as the engine of growth for Indian Industry, performance of SSI sector has had a direct impact on the growth of the
national economy. There has been a steady increase in number of SSI units, their production, employment and exports over the years. On the production front also, there has been a steady increase over the previous years. The increase was 9.19% in1997-98, 7.84% in 1998-99, 7.09% in 1999-2000 & 8.04% in 2000-01 respectively. In the year 2001-02 the increase over the previous year was registered 6.06% at constant prices i.e. 1993-94 prices. Similarly the increase in production in the year 2002-03 & 2003-04 were 7.68%, 8.59% respectively. Products for Small Scale Sector: In India products have been reserved for exclusive manufacturing in the Small scale industry for promoting this sector. Currently the investment limit for items to be manufactured in Small scale units is 1 crore. At present 812 items are reserved for manufacture in this sector. This Policy got a legal backing when the Industries (Development & Regulation) 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).
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 Industries (Development &Regulation) Act. Appropriate action on the cases of
violations of the Policy of Reservation is taken up suitably by the concerned Administrative Ministry/Department. 812 products reserved for exclusive production in the small scale sector.
Revamping Khadi and Village Industries Commission: The Government is working on the revamping of the Khadi and Village Industries Commission (KVIC). Programmes for modernising the coir, handlooms, power looms, garments, rubber, cashew, handicrafts, food processing, sericulture, wool development, leather, pottery and other cottage industries are also being launched. Khadi and Village Industries Commission revamping has been necessitated primarily because of the steep decline in employment and nearly stagnant sales of Khadi over the past six years, the need to take effective measures to introduce modern management practices in Khadi and village Industries Commission and make the Khadi products competitive in the globalised economy. Towards these objectives the government dissolved the KVIC on October 14, 2004 and set up a ten-member Expert Committee. The small enterprises sector also faces several problems which impede its full growth potential. Some of the major problems faced by the sector are access to timely and adequate credit, technological obsolescence, infrastructural bottlenecks, marketing constraints and a plethora of rules and regulations. Some policy initiatives were taken during the last one year to help promote and develop the Small scale sector. The Government launched a new scheme on the performance and credit rating of the small scale units. The basic objective of the scheme is to sensitise the Small scale sector to the need for credit rating and encourage the SSI units to maintain good financial track record, which would help them earn higher rating for their credit requirements
when they approach the financial institutions for their working capital and investment requirements. Here a one-time government grant will be provided to units availing themselves of the benefits of this scheme Financial aid for SSI Credit is the prime input for sustained growth of SSI and its mobilization for meeting fixed & working capital needs poses the foremost problems. Credit provided for creation of fixed assets like land, building, and machinery is called long term credit. Credit provided for running the industry for its day-to-day requirement for purchasing raw material and/or direct and indirect expenses and other input like electricity and water etc. and for payment of wages and salaries is called short-term credit or working capital. The Laghu Udyami Credit Card Scheme has been provided to SSI where they can credit up to Rs.10 lakhs. Apart from this, credit facilities up to maximum of Rs.25 lakh are provided through Credit Guarantee Fund Trust in collaboration with SIDBI and Government of India. Table X provides further insight into credit related information. The SSI is provided working capital by commercial banks and in some cases by cooperative banks and regional rural banks. Term loans are provided by State Financial Corporations (SFCs), Small Industries Development Corporations (SIDCs), National Small Industries Corporation (NSIC) and National Bank for Agriculture and Rural Development (NABARD). Financial assistance from NSIC
and to some extent from SIDCs is available in the form of supply of machinery on hire purchase basis/deferred payment basis. Small sized SSI and tiny units also get some term loans from commercial banks along with working capital in the form of composite loans. The Small Industries Development Bank of India (SIDBI) provides refinance to these institutions. Such refinance comprises assistance provided to State Financial Corporation Bills, Finance Scheme, Special Capital/Seed Capital Scheme, and new debt instruments and to National Small Industries Corporation. Long-term loan are provided to the smalls scale industrial units by SFCs mainly through Single Window Scheme and National Equity Fund as also direct assistance provided to State Financial Corporations in the form of refinance. Some part of working capital for pre-operative expenses is also provided by State Financial Corporations to Small Scale Industrial Units under the Single Window Scheme.
SSI’s as creator of the job SSI’s have always been regarded for their high employment intensity. SSIs today employ over 192 lakhs persons and this is targeted to grow at 4% per year during the 10th Plan period of 2002-2007. Though often described as ideal vehicles for promotion creation of jobs in the economy, at the same time, it is
true that the nature of employment in the sector is undergoing
change. Employment generation figure declined from 6.3 persons per SSI in 1987-88 (2nd Census) to 3.6 persons per SSI in 1999-2000 (Sample Survey).
Expert committees which have looked at this issue have also come up with different
sets
of
recommendation.
The
Task
Force
on
Employment
Opportunities under Shri Montek Singh Ahluwalia had identified SSIs as an important
source
of
employment
&
as
an
important
incubator
for
entrepreneurship. The Task Force however called for a shift in policy from protection to promotion. The Task Force felt that almost 70% of the total employment opportunities generated over the next 10 years were likely to be in the services sector. On the other hand, a Special Group on Employment for creation of 10 million employment opportunities per year over the 10th Plan under Dr. S.P. Gupta has recommended that since more than 92% of employment generation in the economy is coming from small and medium enterprises, including agriculture - commonly defined as the unorganized sector, there is need to give special focused attention for meeting the requirements of small and medium enterprises to enable them to create more jobs in the future. During the 1990s, jobs in the organised sector grew at less than 1% per year while jobs in the SSI sector increased by 3.5% every year. In the changing scenario, on account of globalization and liberalization, what shall be the impact on the creation of new jobs by SSIs? Does increase in capital intensity of SSIs, as they go in for technological up gradation
.
Summary of main conclusions 1.) Empirical findings show FB-small scale industries to be a large and important part of both the forest and rural enterprise sectors in developing countries; there is need to recognize this and to adjust forest sector strategies accordingly 2.) Further study is needed in order to identify which forest based activity have the potential for viable growth as small-scale enterprises; this information should be widely disseminated to policy makers and sector managers 3.) Assistance to FB-small scale industries needs to be geared to their very small size, and to the consequent constraints on the resources and skills available to them. Within this aggregate, support activity need to differentiate
between the micro household units using non-wood raw materials and the some what larger and more advance wood working enterprises operating at a workshop level; while the latter may be able to benefit from some existing support services the former will usually not be able to do so and will require other modes of assistance. Another category of enterprise likely to need special attention is that in transition from the household to the workshop scale of operating 4.) The forest based activity of many small scale industries are closely integrated with other of their processing, agricultural and household activities, and therefore can not effectively be dealt with in isolation 5.) Support to FB-SSIs should not be unduly oriented towards encouraging and perpetuating small scale as an objective in itself; growth and development of many FB-small scale industry activities will logically require them to increase in unit size 6. ) Care needs to be taken to ensure that support is cost effective and consistent with the absorptive capacity of the enterprise, and does not intrude on the entrepreneur to the point of undermining his or her self-reliance and decision-making responsibility 7. ) In order to get access to supporting services, and be able to use them effectively, FB-SSIs, in particular micro enterprises, will often need to organise themselves in appropriate groupings 8.) Informal mechanisms such as nongovernmental organisations may have an important role in providing FB-SSIs with access to support and in improving its effectiveness
9.) As availability of markets is essential to FB-small scale industry viability and growth, priority should be given to assisting entrepreneurs with market information, product development, access to markets and marketing 10.) Because of the nature of the forest resource, it is impossible for FB-small scale industry
to provide for their own raw material base. Measures to
improve their raw material situation include the following: - improve raw material management and allocation procedures to accommodate small as well as large enterprises, - broaden forest management to include non-wood raw materials of value to FB-SSIs - amend legislation and regulations which unnecessarily restrict beneficial FBSSI operations - assist rural communities to develop ways of managing local forest resources to supply sustainable FB-SSIs. 11.) FB-small scale industries need improved access to finance from formal sources. Such assistance needs to be adapted to the different circumstances of micro, workshop and intermediate enterprises; in order to be effectively used it needs to be accompanied by technical assistance to entrepreneurs in organisation, record keeping and accounting, and to institutional lenders to improve their ability to service small enterprises 12.) The FB-small scale industries activities which will continue to be profitable and grow will be those which are able to improve their productivity; the problems of identifying appropriate technologies and of effectively transferring them, and the necessary skills, are particularly acute for micro
enterprises 13.) The task of upgrading management of FB-small scale industries has to start with recognition that the entrepreneurs have a technical not a managerial background, and the particular difficulties that they face in adding a managerial dimension to their responsibilities. To be effective, training materials and methods must be accurately matched to their needs and capabilities. Under the policy measures for promoting and strengthening SSIs and tiny industries, it has been enunciated that adequate and equitable distribution of raw materials, problem –free production processes, advanced technology and infrastrustral facilities, would be ensured to small sector. Thus there is a significant change in the overall strategy for small scale industry development . It maybe too early to judge the sufficiency of the strategy to bring out the desired outcome. But internationally rapid technological Changes are revitalizing the SSIs and it is perceived that future role of SSIs will be based on competition, productivity and efficiency . .
Bibliography : Datt, R. and Sundara, M.K.P.M.(1997), India Economy, S.chand and Co Balasubramanya, M.H. (2000) India small industry policy in 90’s Subramanya, S. (2000) “doing without Reservation in the small sector” Mathew, P.M. (2000) small industries Francis Cherunilam (2008) Business Environment
1. http://dcmsme.gov.in/publications/reserveditems/itemrese.htm 2. http://pib.nic.in/release/release.asp?relid=9408 3. www.textbooksonline.tn.nic.in/Books/11/Econ-EM/Chapter_07.pdf 4. http://www.education.nic.in/cd50years/15/8P/88/8P880402.htm 5. http://www.books.iupindia.org/overview.asp?bookid=IB1100165 6. http://www.smallindustryindia.com/ssiindia/reservitems.html#list2 7. http://dcmsme.gov.in/publications/reserveditems/itemrese.htm 8. http://dcmsme.gov.in/publications/reserveditems/itemrese.htm
