2 Origin and history of small scale industries in India

Before the Second World War, it was established as the office of superintendent of
Cottage Industries.
In 1947, it was expended into as the office of Directorate of Industries and in 1952 it
took responsibility for the development of private industries.
In 1972; it was transferred to the Ministry of Industries, bearing with the name of Cottage
Industries Corporation.
On 21-2-1974, it was shifted again to the Ministry of Co-operative. The name was also
changed into Cottage Industries Department on 30-3-1976. On 21-2-1974, it was shifted
again to the Ministry of Co-operative. The name was also changed into Cottage Industries
Department on 30-3-1976.
In 1982, 14 weaving schools were referred from the Department of Industry, Agriculture
& Vocational Training under the Ministry of Education to the Cottage Industries
Department.
In 1997, the structure of the department was promoted from Grade 3 to Grade 1.
The name of the department was changed again as the Small-Scale Industries Department
on 1-4-2011.

2.3 Meaning of small scale industry

A small scale industry (SSI) is an industrial under taking in which the investment in fixed
assets in plant and machinery, whether held on ownership term or on lease or hire purchase, does
not exceed Rs. 1 crore.
In other words, A small scale industry is that industry in which most of the work
is done by hand or very small and simple machines and the workers have lack of technical
knowhow means they have no degree for their work.
Small scale units are not defined in the central excise Act 1944 or rules made there under.
The small scale units are defined in Industries Act, 1951 for the purpose of exempting then from
registration under the Act. The definition basically taken the investment made on the plant and
machinery by any industries as the basis for determining the small scale industries.

2.4 Definition of small scale industries

Defining small-scale industry is a difficult task because the definition of small-scale
industry varies from country to country and from one time to the in the same country depending
upon the pattern and stage of development, government policy and administrative set up of the
particular country.
The Fiscal Commission, Government of India, New Delhi, 1950, for the first time
defined a small-scale industry as, one which is operated mainly with hired labor usually 10 to 50
hands. Fixed capital investment in a unit has also been adopted as the other criteria to make a
distinction between small-scale and large-scale industries. This limit is being continuously raised
up wards by government.
The Small Scale Industries Board in 1955 defined, "Small-scale industry as a unit
employing less than 50 employees if using power and less than 100 employees if not using
power and with a capital asset not exceeding Rs. 5 lakhs".
The definition for small-scale industrial undertakings has changed over time. Initially
they were classified into two categories- those using power with less than 50 employees and
those not using power with the employee strength being more than 50 but less than 100.
However the capital resources invested on plant and machinery buildings have been the primary
criteria to differentiate the small-scale industries from the large and medium scale industries. An
industrial unit can be categorized as a small- scale unit if it fulfills the capital investment limit
fixed by the Government of India for the small- scale sector.
As per the latest definition which is effective since December 21, 1999, for any industrial
unit to be regarded as Small Scale Industrial unit the following condition is to be satisfied,
Investment in fixed assets like plants and equipments either held on ownership terms on lease or
on hire purchase should not be more than Rs 10 million. However the unit in no way can be
owned or controlled or ancillary of any other industrial unit.
The traditional small-scale industries clearly differ from their modern counterparts in
many respects. The traditional units are highly labour consuming with their age-old machineries

and conventional techniques of production resulting in poor productivity rate whereas the
modern small-scale units are much more productive with less manpower and more sophisticated.

2.4 Growth:
A small scale industry (SSI) is an industrial undertaking in which the investment in fixed
assets in plant & machinery, whether held on ownership term or on lease or hire purchase, does
not exceed Rs. 1Crore. However, this investment limit is varied by the Government from time to
time.
The Small Scale Industry is an enterprise whose employee count and revenue falls below
certain levels. Small Scale Industries in India provide job opportunity to more than 65 million
people. Internationally SMEs report for 98% of business statistics and are accountable for
triggering originality and competition.
Entrepreneurs in small scale sector are normally not required to obtain a license either
from the Central Government or the State Government for setting up units in any part of the
country. Registration of a small scale unit is also not compulsory. But, its registration with the
State Directorate or Commissioner of Industries or DICs makes the unit eligible for availing
different types of Government assistance like financial assistance from the Department of
Industries, medium and long term loans from State Financial Corporations and other commercial
banks, machinery on hire-purchase basis from the National Small Industries Corporation etc.
Registration is also an essential requirement for getting benefits of special schemes for
promotion of SSI viz. Credit guarantee Scheme, Capital subsidy, reduced custom duty on
selected items, ISO-9000 Certification reimbursement & several other benefits provided by the
State Government.

2.5 Features of small scale industries

1. Labour intensive:
Small-scale industries are fairly labour-intensive. They provide an economic
solution by creating employment opportunities in urban and rural areas at a relatively low
cost of capital investment.
2. Flexibility:

Small-scale industries are flexible in their operation. They adapt quickly to

various factors that play a large part in daily management. Their flexibility makes them
best suited to constantly changing environment.
3. Management and control:
A small scale unit is normally a one man show and even in case of partnership the
activities are mainly carried out by the active partner and the rest are generally sleeping
partners. These units are managed in a personalized fashion. The owner is activity
involved in all the decisions concerning business.
4. Use of indigenous raw material:
Small-scale industries use indigenous raw materials and promote intermediate and
capital goods. They contribute to faster balance economic growth in a transitional
economy through decentralization and dispersal of industries in the local areas.
5. Localized operation:
Small-scale industries generally restrict their operation to local areas in order to
meet the local and regional demands of the people. They cannot enlarge their business
activities due to limited resources.
6. Lesser gestation period:
Gestation period is the period after which the return on investment starts. It is the
time period between setting the units and commencement of production. Small-scale
industries usually have a lesser gestation period than large industries. This helps the
entrepreneur to earn after a short period of time. Capital will not be blocked for a longer
period.
7. Education level:
The educational level of the employees of small industries is normally low or
moderate. Hardly there is any need of specialized knowledge and skill to operate and
manage the small scale industries.
8. Profit motive:
The owners of small industries are too much profit conscious. They always try to
keep high margins in their pricing. This is one of the reason for which the unit may lead
to closure.
9. Resources:
Small industries are fairly labour intensive with comparatively smaller capital
investment than the large units. Therefore these units are more suited for economies
where capital is scarce and there is abundant supply of labour.
10. Dispersal of unit:

Small scale units use local resources and can be dispersed over a wide territory. The development
of small scale units in rural and backward areas promotes more balanced regional development
and can