SMALL SCALE AND COTTAGE INDUSTRIES

MANAGERIAL ECONOMICS PROJECT

Submitted By, Amit Pande 12BLL035 Institute of Law

Submitted To, Mr. Ritesh Shah Assistant Professor Institute of Law

ABSTRACT

Small-Scale industry is defined as manufacturing and processing establishments with less than fifty workers.1 Small-Scale industry ran the gamut from the most primitive kind of handicraft to small mechanized factories and from independent business units to cottage industries.2 The possible existence of Cottage industry is prehistoric. In cottage industry production of goods by individual households is specifically for trade not for their own consumption. Small-Scale industry play an important role in developing countries by urban job creation and market expansion that will affect the prospects of developing countries engaging more actively in international trade in the future. Because of small scale industry low skill demand, it provide women and children opportunities to supplement household income and it also provide technical and entrepreneurial training to urban workers. Unlike western countries, most developing economies have a small percentage of their labour forces in large-scale manufacturing and a large share engaged in small-scale enterprises.3 In the future, the capacity for trade in developing countries will depend increasingly on their ability to create sufficient numbers of jobs to absorb their rapidly growing labour forces. This paper will focus on the role of small-scale and cottage industries in aiding to the economy of the developing countries.

Key Words: Small Scale Industries, Cottage Industries, Challenges, Opportunities, Aiding economy, five year plans

1 2

The term small-scale industry refers to the size of the individual production unit, not to the size of an industry. The Quarterly Journal of Economics, Vol.61, No. 4 (Aug., 1947)pp. 578 3 Small Business Economics, Vol. 4, No. 4 (Dec., 1992), pp.256

INTRODUCTION

The definition of small scale industries has undergone changes over the years in terms of investment limits is as follow as, In 1977, small scale industrial unit having investment of less than Rs. 10 lakh were defined as small scale industrial undertakings, while for ancillary units, the investment limit was Rs. 15 lakh. Units with investment of less than Rs.1 lakh were defined as tiny enterprises. In 2000, the investment limit for small scale industries was Rs. 1 crore, for ancillary units Rs. 1 crore, and for tiny enterprise Rs. 25 lakh. The new definition for micro enterprises, where the investment in plant and machinery does not exceed Rs. 25 lakh, small enterprises, where the investment limit was more than Rs. 25 lakh but does not exceed Rs. 5 crore and a medium enterprises, where the investment in plant and machinery is more than Rs. 5 crore but not exceed Rs. 10 crore.4

The term cottage industry is used when products are manufactured on a small scale. India is well known for its large number of traditional cottage industries. But with the advent of the industrialization, cottage industries witnessed a sharp decline. However, the government has taken steps to revive cottage industries and they now play an important part in contributing to the economy of the country. The top five Indian cottage industries are cotton weaving, silk weaving, carpet making, leather industry, metal handicrafts and small food processing industries.5

Cotton weaving is a very important cottage industry in India. This skill dates back to ancient times as cotton clothing is widely worn around the country. Indian cotton weaving is known for traditional designs and patterns done by skilful weavers with their looms. The cotton industry in India is concentrated in Maharashtra, Tamil Nadu, and Gujarat.

Silk weaving is another famous cottage industry in India. India is one of the major producers and consumers of silk as it is worn on special occasions such as weddings and festivals. Mulberry, Muga, Tassore, and Eri are the types of silk produced in India.

4 5

Definition by Ministry of micro, small and medium enterprises(http://dcmsme.gov.in/) K.B.Suri, (Ed.), Small-scale enterprises in Industrial Development The Indian Experience, (New Delhi: Sage Publication, 1988), p.12.

Carpet making was introduced in India during the Mogul era. Even though the Kashmiri carpets are world famous for their fine quality, India also is known for its durries and coir mats. The carpet making industry in India is in Kashmir, Rajasthan, Punjab, Uttar Pradesh Andhra Pradesh and Punjab. The Government of India has set up the Carpet Export Promotion Council for promoting hand-knotted rugs and all other types and styles of floor coverings from around the country.

India is a supplier of high quality leather to the global market. The Indian tanning industry can produce around 10% of the global demand. The major leather producing regions in India are Tamil Nadu, West Bengal and Uttar Pradesh. Metal has always been used in India to make figurines, utensils, jewellery.

Metal handicrafts have a distinctly Indian touch and are widely appreciated around the world. They have been a significant contributor to the Indian economy.

Cottage Industry is a concentrated form of small scale industry where the productivity of the goods takes place in the houses of the labourers and the workforce include the members of the family. The equipments used to generate products are not the hi-tech ones but generally those which are used at homes.

Cottage industry is generally unorganized in character and falls under the category of small scale industry. They produce consumable products through the use of conventional methods. These types of industries originate in the country sides where unemployment and underemployment are widespread. In this way, cottage industries help the economy by engrossing a massive amount of remaining workforce of the rural areas. But on the flip side Cottage Industry cannot be considered as the mass producer of products. It faces major risks from medium or large industries which demand huge amount of capital investment for all types of hi-end technologies. Small-scale industries requires little plant and capital equipment, since they rely on a very high ratio of labour to the other factors of production. The mechanical equipment was simple but sometimes highly specialized. Much emphasis is place on manual dexterity, resulting in skills exceeding those of most workers in the more highly mechanized factories; at the same time, the small industries has a large proportion of quite unskilled persons (including

children) to do simple preparatory or finishing tasks and heavy work. The work force, commonly built around the family as a nucleus, is held together by close personal and customary relationships, which recognized and adjusted for various interruptions to regular working. An important outcome of these traits is the fact that the small industries are capable of irregular operations, employing small and varying stocks of raw materials as well as varying amounts of labour. Finally, the products are usually sold locally either for direct consumption or for wider distribution by the parent firm or the merchant capitalist.

There are two types of Small-Scale Industries-

1. Modern Small Scale Manufacturing Enterprises: These are small firms using Modern techniques to produce modern products. These firms, by their very nature, are located in large towns in order to take advantage of external production economies; they use hired labour and raw materials supplied by large scale enterprises located at a long distance. Their market is dispersed in a region or throughout the country. Sometimes they operate in export markets. 2. Intermediate Groups of Small Enterprises: These firms use more or less traditional techniques to produce more or less modern products. The orientation of these enterprises is towards urban areas, rather than villages, as they have to procure their raw materials from towns, which also provide markets for the finished products. They provide immediate large-scale employment and have a shorter gestation period and relatively smaller markets.

PROBLEMS FACED BY SMALL SCALE INDUSTRIES

Cottage industry is considered for its enormous potential of providing employment. But, over the years, employment may have increased in this industry but the income of the people has definitely decreased as the middlemen offer low prices to the manufacturers but take heavy chunks of money from the buyers. But, it is not only the middlemen and the dealers. The new revised foreign policies, globalization is also responsible for the current condition of cottage industry. The handloom weaver facing constant competition from the power looms. These workers have given their whole life to stitching and knitting. The skill that they possess is just unmatchable. But, still they are at the same place where they had started years ago. An industry, providing employment to a large section of our population is in such distress. With over 4 million people engaged in handloom industry, such a condition proves the adversities which these people are facing. An interesting point to note is that out of the total people engaged in this industry, around 47% are below poverty line. Also, according to the new census6, the average annual household income of these people is just Rs 41,068. And given the large family size among this section of the society, the per capita income is just a little more than nothing. Cottage industries in India face dearth of capital and large quantity of labour, which force them to buy capital-saving techniques. Hence, there is an urgent need for implementation of techniques which not only enhances productivity but develops skills of the labourers and meets the requirements of the local market. Endeavours should be directed towards the development of technology so that labours can enjoy a decent lifestyle. Government should also provide subsidiaries for the growth of cottage industries especially in the preliminary stages. The labourers of cottage industry often find themselves fighting against all odds at every stage of their business, be it buying the raw materials or promoting their products, arranging for capital or access to insurance covers, etc.7 The various problem faced by cottage industries are-

6 7

Annual Report (2009 2010) Ministry of Small Scale Industries.

P.S.Lokanathan, Problems of the SSIs Sector, (New Delhi: Govt. of India, 1976), p.24.

Problem of Raw-materials Due to their limited resources, the owners of these industries cannot afford to purchase rawmaterial in bulk. That is why they get low quality materials at high rates. Problem of Finance Cheap and easy finance is not available to these industries. The financing system of government institutions and banks is such that these industries have to complete many formalities and there are so many complications which can be followed by these less educated entrepreneurs. Marketing problems These industries mainly exist in villages and due to lack of transport and communication facilities they are handicapped in finding suitable markets for their products, Lack of Managerial Talent Cottage and small scale industries are mostly run by the small businessmen having no training of management and organization. How these industries, therefore, can stand before the large seals industries which are managed and organized by the specialists of that field? Competition with large-scale industries The main problem before these industries is that they are unable to compete with large-scale industries. The economies of large-scale production are not available to them and therefore they fail to compete with large-scale industries. Cottage industries are the victims when it comes to attracting the attention of modern industry. This calls for preservation and promotion of cottage industries through formulation of public policies directed at improving the industry both in context of income of labourers and technological aspects. It is high time now that the Government took some initiatives. Though in every budget, new promises are made, new policies are made. But, so far none of them has benefitted these people much. They are almost in the same conditions as they were decades ago. Though there is a marginal increase in their income but if at the same time, we also notice the increase in the expenditures, then, we can say that in fact they are worse now than they were earlier.

ROLE OF SMALL SCALE INDUSTRIES IN AIDING ECONOMY

Small-scale industries play a vital role in the development of the national economy. India is facing the problems of unemployment and paucity of capital resources. The built in characteristics of small scale industries, such as relatively small size of initial capital requirement, entrepreneurship and employment generation potential, etc., render them the ideal for balanced and decentralized development.8 The small-scale industries assume great importance in mitigating the problem of unemployment, in facilitating the growth of the industrial sector and in ensuring all round development. Cottage and small scale industries are of very special importance in India. "If we lack capital, we do not lack manpower, and we must use this manpower both to add to the wealth of the country and to reduce unemployment, Jawaharlal Nehru said. Besides, small-scale industries avoid regional imbalances and facilitate decentralized development in various parts of the country, including the remote areas, by effectively utilizing the locally available raw materials and other resources, including work force. Small scale industries have emerged as a vibrant and dynamic sector of the Indian economy that contributes around 40 per cent of the total industrial production and over 34 per cent of the national exports. At present the Small Scale Industrial sector is providing employment to over 250 lakh persons9. The captains of our economy are more than aware of the importance of the small scale industries in terms of employment potential, productivity, utilization of indigenous resources, balanced regional development etc. The small scale sector is important not only for its contribution to GDP but also for its stellar performance in exports and in generating employment. The small scale industrial sector is endowed with certain special features, which are especially beneficial to our economy such as employment potential, indigenous nature, balanced development of the economy. When compared with large scale units. This sector facilitates speedy development of the economy by providing employment opportunities to rural and less skilled masses and caters to the consumption requirements of these people by resorting to indigenous production making use of local resources.
8

Deb Ranabijoy : Small Scale Industries in India, New Delhi, Mittal Publication, (1993) 9 Editor N.Ravi, The Hindu, survey of Indian Industry, 2010, p.no.7.

Indian economy is a developing economy. Its vast resources are either unutilized or underutilized. A major section of man power is lying idle. The per capita income is low. Production is traditional and the technique is outdated. The output is insufficient and the basic needs of the people remain unfulfilled. In both developed and developing countries, the government is turning to small and medium scale industries, as a means of economic development.

So the various roles of small scale industries in aiding of economy are-

Employment generation: The basic problem that is confronting the Indian economy is increasing pressure of population on the land and the need to create massive employment opportunities. This problem is solved to larger extent by small-scale industries because small- scale industries are labour intensive in character. They generate huge number of employment opportunities. Employment generation by this sector has shown a phenomenal growth. It is a powerful tool of job creation.10

Mobilisation of resources and entrepreneurial skill: Small-scale industries can mobilize a good amount of savings and entrepreneurial skill from rural and semi-urban areas which are remain untouched to the clutches of large industries and put them into productive use by investing in small-scale units. Small entrepreneurs also improve social welfare of a country by harnessing dormant, previously overlooked talent. Thus, a huge amount of latent resources are being mobilised by the small-scale sector for the development of the economy.

Equitable distribution of income: The small-scale industries ensures equitable distribution of income and wealth in the Indian society which is largely characterised by more concentration of income and wealth in the organised sector keeping unorganised sector undeveloped. This is mainly due to the fact that small industries are widespread as compared to large industries and are having large employment potential.

10

Michael Froment, Smaller Enterprises Create Most New Jobs, Southern Economist, 35(9): 23, 1996.

Regional dispersal of industries: There has been massive concentration of industries in few large cities of different states of India. People migrate from rural and semi urban areas to these highly developed centers in search of employment and sometimes to earn a better living which ultimately leads to many evil consequences of over-crowding, pollution, creation of slums, etc. This problem of Indian economy is better solved by small- scale industries which utilise local resources and brings about dispersion of industries in the various parts of the country thus promotes balanced regional development.

Provides opportunities for development of technology: Small-scale industries have tremendous capacity to generate or absorb innovations. They provide ample opportunities for the development of technology and technology in return, creates an environment conducive to the development of small units. The entrepreneurs of small units play a strategic role in commercialising new inventions and products. It also facilitates the transfer of technology from one to the other. As a result, the economy reaps the benefit of improved technology.

Supports the growth of large industries: The small-scale industries play an important role in assisting bigger industries and projects so that the planned activity of development work is timely attended. They support the growth of large industries by providing, components, accessories and semi-finished goods required by them. In fact, small industries can breathe vitality into the life of large industries.

Better industrial relations: Better industrial relations between the employer and employees help in increasing the efficiency of employees and reducing the frequency of industrial disputes. The loss of production and man-day's are comparatively less in small- scale industries. There is hardly any strikes and lock out in these industries due to good employee-employer relationship. Of course, increase in number of units, production, employment and exports of small-scale industries over the years are considered essential for the economic growth and development of the country.

OPPORTUNITIES FOR COTTAGE INDUSTRIES IN INDIA

Cottage Industry is often characterized by its enormous potential for employment generation and the person getting employed is basically regarded as a self-employed one. It has been empirically found out that Cottage Industry has given economic independence to the women in the developing as well as developed countries. Cottage industries involve all the family members contribution for the development of the family. The most common form of support extended by the governments towards this industry is through forwarding of capital subsidies. Another form through self-help groups. They are very much helpful for the cottage industries. As the women employed in the cottage industries are the members of the self-help group and they can get financial assistance at low interest rate which is a great boon for them.

METHOD
A Doctrinal Research method has been adopted. Data has been collected from secondary sources such as books, journals, annual reports of ministry of small scale industries and surveys conducted by Reserve Bank of India and National Small Industries Corporation. The collected data has been classified in a systematic manner.

FINDINGS
Cottage and small-scale industries had flourished in India in early times. They were principal sources of income and employment and their products were identified for their excellence and artistic skill. The decay of these industries started with the advent of the British. After independence government of India focused heavily on industrialization of large-scale industries and neglecting small scale industries but later the Government of India, realizing the socio-economic significance of the role of small-scale industries, has initiated several positive measures for their development. The industrial policy pronouncements, the progressive allocations made in the Five-Year Plans, the creation of different promoting and supporting organizations and the nationalization of commercial banks reflect the spirit and

effort of the Government towards the creation of a favourable climate for the growth and working of small-scale industries.

That the small industries have a specific role to play was underlined by the Industrial Policy Resolution of 1948, which stated that cottage, and small-scale industries are particularly suited for the better utilization of local resources and for the achievement of local selfsufficiency in respect of certain types of essential goods. After the formulation of the First Five Year Plan, the Planning Commission with Professor D.G. Karve as Chairman appointed a Committee. The Committee recommended that any development Programme for small industries should be decentralized, should aim at gradual improvement in techniques without reducing job opportunities, should assure marketing through co-operatives, and aim at providing promotional support rather than enforce protection or reservation. A Small Scale Industries Board was constituted in 1954 and a number of helping schemes such as supply of machinery on hire purchase, liberal and wider grants under State Aid, and price preference in government purchase were initiated to provide support to the small-scale sector. The government announced its Second Industrial Policy in 1956, which replaced the industrial policy resolution of 1948. This industrial policy statement explicitly made it clear that Small scale industries provide immediate large scale employment, offer a method of ensuring a more equitable distribution of national income and facilitate an effective mobilization of resources of capital and skill which might otherwise remain unutilized.

The various activities undertaken by government are:

Registration and promotion of small scale and tiny industries and industrial Cooperative societies. Sanction and disbursement of various subsidies and incentives such as State Capital Subsidy, Generator Subsidy, Power Tariff Subsidy. Offering various testing facilities for chemicals, metals, metallurgical, electrical, electronic gadgets and appliances. Implementation of centrally sponsored schemes like Self Employment Programmes for the Educated Unemployed Youth and Prime Ministers Rozgar Yojana schemes.

Conducting Entrepreneur Development Programmes particularly special schemes for women. Creating awareness about the various policies and programmes of the Government through seminars and dissemination meets. Providing Escort Services to the Entrepreneurs. Maintenance of Special purpose Industrial Estates for Electrical and Electronics Industries. Providing entrepreneurial guidance through Data Bank and Information Centre and technical information sections attached to various District Industrial Centers. Identification of new areas with growth potential and providing familiarization and Incubator facilities to promising entrepreneurs. Conducting Techno-Economic Surveys. Conducting sample and comprehensive surveys. Development and promotion of cottage and handicrafts industries. Training facilities in the field of light engineering, tool and die designing. Assistance for import of capital goods machineries and scarce raw materials. Implementation of Quality Control Act on Electrical household appliances, etc. Export Promotion. Supervision of implementation of special assistance schemes announced by Government in favour of small and tiny sector units.

CONCLUSION

The balanced and sustainable growth of Indian economy calls for certain minimum level of diversification of the economy in the direction of the industrial sector. Hence, small scale industries have an important place in the economic life of a developing country like India.

After implementation of 1991 new industrial policy resolution, there was a threat for the very survival of small scale industry in India during the post reform periods. The government apart

from encouraging high rate of foreign investment in the Indian industries it has been also liberal in extending relatively more number of foreign good is available everywhere in India at cheaper rate. Small scale industrial sector to contribute to increase of industrial productivity, rise of exports, generate more employment opportunity and also contribute very impressive of the GDP. In view of this, the government of India has rightly recognised small scale industries as the engine of growth in the present millennium. For sustainable higher growth of the small scale industrial sector, top priority should be given to financial support state and central government should facilitate the growth of small scale industry mainly through creating conducive environment for producing and marketing of products and services of small scale sectors.

Cottage Industries are of cultural and economic importance to India. They keep the age old traditions alive and also provide employment to a number of people. Support should be provided by the community to prevent exploitation and further develop these industries as they face stiff competition from other economies. In the over-populated countries like ours, the only way to fight the monster of unemployment is the development of cottage and small scale industries. They will bring about a more equitable distribution of wealth.

Suggestions

For the promotion and development of cottage and small scale industries which has been recognized as important and appropriate means for accelerating economic development, necessary steps be taken by entrepreneurs, bankers educational institutions, training institutes, Government, N.G.O.s for the socio-economic development of the town in particular and the district, the state and the nation in general in respect of the following.

Improving finance facilities: It is suggested that the banks can eliminate the avoidable delays, guiding the entrepreneurs to overcome initial hurdles at the time of launching their enterprise, effective monitoring and follow-up of utilisation, easy way of receiving loans. Rescheduling of loan repayment in case of genuine difficulty of entrepreneurs to overcome financial problem. Various Schemes launched by the Government from time to time for short- term and long- term credit at cheaper rate of interest be made available to the entrepreneurs to gear up entrepreneurship.

Improving Power Supply Position: Adequate and uninterrupted power supply is one of the basic requirements for industrial development. The power supply position of Abhayapuri should be improved to assist the enterprises.

Developing Management Knowledge and Skill: Managerial problems like absenteeism, negative work culture, etc. can be removed by participation of the entrepreneurs in the seminars, workshops training programmes, etc.

Market Survey: Periodic market survey, surveying the competitive pricing nature, collecting periodic feedback from dealers, customers, etc. is done for upgrading their products, diversifying their product lives, improving the quality, etc.

Training Facilities: Arrangements are to be made for setting up of training institutes at Central place for the said purpose.

Marketing Hat: Marketing arrangements should be developed in the area for the smooth marketing of the products of Cottage sector and elimination of middle man.

REFERNCES

Rajkumar.S.Topandasani, Performance of Small scale Industry in India, Southern Economist, (Oct 2, 2013), pg no.5-7 Dutta A. and Singh M.K. : Contribution of Small Scale Industries (SSI) Sector in Indian Economy. The ICFAI Journal of Applied Economics, Vol. 2, No. 4, (2003) Deb Ranabijoy : Small Scale Industries in India, New Delhi, Mittal Publication, (1993) Annual Report (2000 01) Ministry of Small Scale Industries & Rural Industries, Government of India, New Delhi. http://www.tn.gov.in/spc/tenthplan/CH_10_2.PDF. http://www.economywatch.com/world-industries/c.ottage.html Aditi Swami, Cottage Industries in India, The Viewspaper , March 5, 2010. Durgesh Shanker, Crafts of India and Cottage Industries, Indusvista Editions (Oct2, 2013).