Project Report

On

Growth and Problem of Small Scale

Sectors

Submitted To : Dr Subhash Gupta

Submitted by : 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
Gross Invesment in Fixed Employment less than 50 Workers Per
60
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
‘per shift’ provision
Gross Investment in Fixed employment condition was dropped from
1959 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 39.7
Year production
Employment Exports

(Rs. In crores) (lakh)

(Rs. In crores)

393

1977-78 14,300 54.0

845

1980-81 28060 71.0

1643

1985-86 61228 96.0

2769

1987-98 87300 107.0

4373
1990-91 155340 125.3
9,100

1991-92 1,78,700 130.0

13627

1992-93 2,09,300 134.0

17785

1993-94 241,648 139.4

22,764

1994-95 122210
191.40 29068

1995-96 148290
197.93 36470

1990-00 234255
229.10 54200

2000-01 261289
239.09 69797

2001-02 282270
249.09 71244

2002-02 311993 260.1

86013

2003-04 351427
271.36 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 11.55
9.07
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 29.44
5.03
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 socio-
economy 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 cost-
efficient 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 hi-
tech 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 FB-

SSI 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

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