TERM PAPER

ON
SUB: FINANCIAL INSTITUTION AND SERVICES

TOPIC: PROBLEMS & CHALLENGES IN SSI SECTOR

SUBMITTED TO: SUBMITTEB BY:

Ms.ANU SHEETAL RAJVINDER DEOL
LECTURER IN LPU REG NO: 10811496
DEPART. OF MGT M.B.A. 3rd .SEM
SERIAL NO: B39 (CG2)

1
Contents
INTRODUCTION………………………………………………. 3
REGISTRATION IN SSI …………………………………………………4-6

IMPORTANCE OF SSIs IN INDIA………………………………………...6-7

OBJECTIVES OF THE STUDY……………………………………………….8

PRODUCTION BYSSI……………………………………………………….9

EMPLOYMENT…………………………………………………………10

EXPORT……………………………………………………….11-12
PERFORMANCE OF SMALL SCALE SECTOR………………………13-14

PROBLEMS FACED BY SSIs……………………………………………..16-18

CHALLENGES FACED BY SSIs…………………………………………19-20

BIBLIOGRAPHY………………………………………………………………21

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 INTRODUCTION
The Small Scale Industrial (SSI): Sector is one of the most vital sectors of the
Indian Economy in terms of employment generation, the strong entrepreneurial base it helps to
create and its share in production. Effective policy formulation and implementation pertaining to
the promotion and development of this sector, requires a sound database. The Second All-India
Census of Registered SSI Units was conducted during 1990-1992 for the reference year 1987-88.
The data generated by the Census with the passage of time had lost its relevance and required
immediate updating to achieve its purpose. Accordingly, the Third All-India Census was
conducted during 2002-03 for the possible proximate reference year, i.e. 2001-02.

In India, ‘small and medium enterprises’ (SME) is a generic term used to describe small
scale industrial (SSI) units and medium-scale industrial units. Any industrial unit with a total
investment in its fixed assets or leased assets or hire-purchase asset upto Rs10 million is
considered as a SSI unit and investment up to Rs. 100 million is considered as a medium unit. In
addition, an SSI unit should neither be a subsidiary of any other industrial unit nor can it be
owned or controlled by any other industrial unit.

The SME sector produces a wide range of industrial products such as food products, beverage,
tobacco and tobacco products, cotton textiles, wool, silk, synthetic products, jute, hemp & jute
products, wood & wood products, furniture and fixtures, paper & paper products, printing
publishing and allied industries, machinery, machines, apparatus, appliances and electrical
machinery. SME sector also has a large number of service industries.

The small scale sector in India comprises of a diverse range of units from traditional crafts to
high-tech industries. The number of SSI working units (registered & unregistered) in India
totaled 11.4 million in 2003-04—80.5 per cent of which are proprietary concerns and 16.8 per
cent are partnership firms and private limited companies.

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REGISTRATION IN SSI

The Registration in SSI Sector is voluntary. Hence, the Sector comprises two sub-sectors, viz.,
Registered SSI Sector and Unregistered SSI Sector. In all the Surveys so far conducted by the
Office of the Development Commissioner (Small Scale Industries) including the Second All-
India Census, only the units in the Registered SSI Sector was surveyed. For the first time in the
Third All-India Census, both the segments of the Sector has been covered. Each of these
segments consisted of Small Scale Industrial Undertakings (SSIs) and Small Scale Service and
Business (Industry Related) Enterprises (SSSBEs). The SSIs are industrial undertakings in which
the investment in fixed assets in plant and machinery, whether held on ownership terms or on
lease or by hire-purchase, does not exceed rupees one crore. The SSSBEs are industry related
service and business enterprises with investment in fixed assets, excluding land and building, up
to Rs. 10 lakhs, irrespective of the location of the units. The Government had decided in 1991 to
extend the benefits being enjoyed by the SSIs to some of the Services not covered by the
definition of SSI. The definition of Industry Related Services is, however, not expressly provided
for, in the system. However, illustrations are issued from time to time by way of executive
instructions for prospective identification of SSSBEs.

The main purpose of Registration is to maintain statistics and maintain a roll of such units for the
purposes of providing incentives and support services.

States have generally adopted the uniform registration procedures as per the guidelines.
However, there may be some modifications done by States. It must be noted that small industries
is basically a state subject. States use the same registration scheme for implementing their own
policies. It is possible that some states may have a 'SIDO registration scheme' and a 'State
registration scheme'

Benefits of Registering
The registration scheme has no statutory basis. Units would normally get registered to avail some
benefits, incentives or support given either by the Central or State Govt. The regime of
incentives offered by the Centre generally contains the following:

- Credit prescription (Priority sector lending), differential rates of interest etc.

- Excise Exemption Scheme
- Exemption under Direct Tax Laws.
- Statutory support such as reservation and the Interest on Delayed Payments Act.

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Objectives of the Registration

They are summarized as follows:

• To enumerate and maintain a roll of small industries to which the package of incentives
and support are targeted.
• To provide a certificate enabling the units to avail statutory benefits mainly in terms of
protection.
• To serve the purpose of collection of statistics.
• To create nodal centres at the Centre, State and District levels to promote SSI.

Procedure for Registration

Features of the present procedures are as follows:

• A unit can apply for PRC for any item that does not require industrial license which
means items listed in Schedule-III and items not listed in Schedule-I or Schedule-II of the
licencing Exemption Notification. Units employing less than 50/100 workers
with/without power can apply for registration even for those items included in Schedule-
II.
• Unit applies for PRC in prescribed application form. No field enquiry is done and PRC is
issued.
• PRC is valid for five years. If the entrepreneur is unable to set up the unit in this period,
he can apply afresh at the end of five years period.
• Once the unit commences production, it has to apply for permanent registration on the
prescribed form.

The following form basis of evaluation:

• The unit has obtained all necessary clearances whether statutory or administrative. e.g.
drug license under drug control order, NOC from Pollution Control Board, if required etc.
• Unit does not violate any location restrictions in force, at the time of evaluation.
• Value of plant and machinery is within prescribed limits.
• Unit is not owned, controlled or subsidiary of any other industrial undertaking as per
notification.

Permanent Registration Certificate

Enables the unit to get the following incentives/concessions:

• Income-Tax exemption and Sales Tax exemption as per State Govt. Policy.
• Incentives and concessions in power tariff etc.
• Price and purchase preference for goods produced.
• Availability of raw material depending on existing policy.

Permanent registration of tiny units should be renewed after 5 years

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Importance of SSIs in India

SSI is one of the significant segments of the Indian economy, contributing about 7 per cent to
the Indian GDP and providing employment to over 28 million people. The Indian SME
segment’s current production value is almost Rs 816,000 crore. It contributes to around 40% of
industrial production & exports. It manufactures more than 8,000 diverse products, ranging from
low-tech items to technologically-advanced products. The SSI sector targets both domestic as
well global markets. SSIs sector is recognized as the engine of growth, accounting for about 70%
of employment and contributes a significant amount for the growth of GDP. Globally, 99.7 per
cent of all enterprises in the world are SME’s and the balances 0.3 per cent are large-scale
enterprises. By contrast, the SSI sector in India accounts for 95 per cent of all industrial units.

According to the Ministry of Small Scale Industries, the number of registered SSI units in India
has increased from 11 million units in 2002-03 to 11.4 million units in 2003-04, up 3.6 per cent.
The fixed investment grew by 5.04 per cent from Rs. 162,533 crore in 2002-03 to Rs. 170,726
crore in 2003-04. About 8,000 products are manufactured in the small-scale sector. The
production of SSI units in India increased from Rs.311,993 crore in 2002-03 to Rs.357,733 crore
in 2003-04.The industry groups—with a large share in the total production of SSIs such as textile
products, wood, furniture, paper, printing, and metal products—have recorded high growth rates.

The exports grew at a faster rate than production in 2002-03. While production at current prices
grew by about 10.53 per cent and exports rose by 20.7 per cent from Rs. 71,244 crore to Rs.
86,013 crore between 2001-02 and 2002-03. The industry groups with a large share in exports
are hosiery and garments (29.0%), food products (21.4%) and, leather products (18%).

The SSI units continue to create employment. The number of employed in the SSI sector went
up from 260.13 lakh in 2002-03 to 271.36 lakh in 2003-04. This sector is next only to agriculture
in employment.

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7
OBJECTIVES OF THE STUDY
• To study the importance of small scale industries
• To know the problems faced by small scale industries in India
• To know the challenges faced by small scale industries
• To know services provided by Banks to SSI

METHODOLOGY

DATA COLLECTION

SECONDARY DATA : It is the data which is already available with us and we can
easily get it from many other sources like.

• Various websites
• Magazines
• News papers
• Course books

TYPE OF RESEARCH: Descriptive Research is used

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 PRODUCTION BY SSI
The small-scale industries sector plays a vital role in the growth of the country. It contributes
almost 40% of the gross industrial value added in the Indian economy.

It has been estimated that a million Rs. of investment in fixed assets in the small scale sector
produces 4.62 million worth of goods or services with an approximate value addition of ten
percentage points.

The small-scale sector has grown rapidly over the years. The growth rates during the various
plan periods have been very impressive. The number of small-scale units has increased from an
estimated 0.87 million units in the year 1980-81 to over 3 million in the year 2000.

When the performance of this sector is viewed against the growth in the manufacturing and the
industry sector as a whole, it instills confidence in the resilience of the small-scale sector.

Year Target Achievement

1991-92 3.0 3.1
1992-93 5.0 5.6
1993-94 7.0 7.1
1994-95 9.1 10.1
1995-96 9.1 11.4
1996-97 9.1 11.3
1997-98 * 8.43
1998-99 * 7.7
1999-00 * 8.16
2000-01 (P) * 8.90

P-Projected (April-December)
* Target not fixed at constant prices

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 EMPLOYMENT
SSI Sector in India creates largest employment opportunities for the Indian populace, next only
to Agriculture. It has been estimated that 100,000 rupees of investment in fixed assets in the
small-scale sector generates employment for four persons.

Generation of Employment - Industry Group-wise

Food products industry has ranked first in generating employment, providing employment to
0.48 million persons (13.1%). The next two industry groups were Non-metallic mineral products
with employment of 0.45 million persons (12.2%) and Metal products with 0.37 million persons
(10.2%).

In Chemicals & chemical products, Machinery parts except Electrical parts, Wood products,
Basic Metal Industries, Paper products & printing, Hosiery & garments, Repair services and
Rubber & plastic products, the contribution ranged from 9% to 5%, the total contribution by
these eight industry groups being 49%.

In all other industries the contribution was less than 5%.

Per unit employment

Per unit employment was the highest (20) in units engaged in beverages, tobacco & tobacco
products mainly due to the high employment potential of this industry particularly in
Maharashtra, Andhra Pradesh, Rajasthan, Assam and Tamil Nadu.

Next came Cotton textile products (17), Non-metallic mineral products (14.1), Basic metal
industries (13.6) and Electrical machinery and parts (11.2.) The lowest figure of 2.4 was in
Repair services line.

Per unit employment was the highest (10) in metropolitan areas and lowest (5) in rural areas.

However, in Chemicals & chemical products, Non-metallic mineral products and Basic metal
industries per unit employment was higher in rural areas as compared to metropolitan
areas/urban areas.

In urban areas highest employment per unit was in Beverages, tobacco products (31 persons)
followed by Cotton textile products (18), Basic metal industries (13) and Non-metallic mineral
products (12).

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 Location-wise Employment Distribution - Rural
Non-metallic products contributed 22.7% to employment generated in rural areas. Food Products
accounted for 21.1%, Wood Products and Chemicals and chemical products shared between
them 17.5%.

Urban
As for urban areas, Food Products and Metal Products almost equally shared 22.8% of
employment. Machinery parts except electrical, Non-metallic mineral products, and Chemicals
& chemical products between them accounted for 26.2% of employment.

In metropolitan areas the leading industries were Metal products, Machinery and parts except
electrical and Paper products & printing (total share being 33.6%).

State-wise Employment Distribution

Tamil Nadu (14.5%) made the maximum contribution to employment. This was followed by
Maharashtra (9.7%), Uttar Pradesh (9.5%) and West Bengal (8.5%) the total share being 27.7%.

Gujarat (7.6%), Andhra Pradesh (7.5%), Karnataka (6.7%) and Punjab (5.6%) together
accounted for another 27.4%. Per unit employment was high - 17, 16 and 14 respectively - in
Nagaland, Sikkim and Dadra & Nagar Haveli.

It was 12 in Maharashtra, Tripura and Delhi. Madhya Pradesh had the lowest figure of 2. In all
other cases it was around the average of 6.

Year Target Achievement Growth rate

(lakh nos.)
(lakh nos.)
1992-93 128.0 134.06 3.28
1993-94 133.0 139.38 3.28
1994-95 138.6 146.56 5.15
1995-96 144.4 152.61 4.13
1996-97 150.5 160.00 4.88
1997-98 165 167.20 4.50
1998-99 170.1 171.58 2.61
1999-00 175.4 177.3 3.33

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

• It would surprise many to know that non-traditional products account for more than 95%
of the SSI exports.

• The exports from SSI sector have been clocking excellent growth rates in this decade. It
has been mostly fuelled by the performance of garments, leather and gems and jewellery
units from this sector.

• The product groups where the SSI sector dominates in exports, are sports goods,
readymade garments, woolen garments and knitwear, plastic products, processed food
and leather products.

• The SSI sector is reorienting its export strategy towards the new trade regime being
ushered in by the WTO.

Year Exports
(Rs. Crores)
(at current prices)
1994-95 29,068
(14.86)
1995-96 36,470
(25.50)
1996-97 39,249
(7.61)
1997-98 43946
(11.97)
1998-99 48979
(10.2)
1999-00 (P) 53975
(10.2)
P-Provisional

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Major Export Markets
An evaluation study has been done by M/s A.C. Nielsen on behalf of Ministry of SSI. As per the
findings and recommendations of the said study the major export markets identified having
potential to enhance SSIs exports are US, EU and Japan. The potential items of SSIs have been
categorized into three broad categories.

Export Destinations
The Export Destinations of SSI products have been identified for 16 product groups.

Opportunity

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

• Less Capital Intensive

• Extensive Promotion & Support by Government
• Reservation for Exclusive Manufacture by small scale sector
• Project Profiles
• Funding - Finance & Subsidies
• Machinery Procurement
• Raw Material Procurement
• Manpower Training
• Technical & Managerial skills
• Tooling & Testing support
• Reservation for Exclusive Purchase by Government
• Export Promotion
• Growth in demand in the domestic market size due to overall economic growth
• Increasing Export Potential for Indian products
• Growth in Requirements for ancillary units due to the increase in number of greenfield
units coming up in the large scale sector. Small industry sector has performed
exceedingly well and enabled our country to achieve a wide measure of industrial growth
and diversification.

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 Performance of Small Scale Sector

Production (Billion Rs.) Employment Exports (Billion Rs.)

Year No. of units
(million nos.) (at current prices) (Million nos.) (at current prices)

1993-94 2.38 2416.48 13.93 253.07

1994-95 2.57 2988.86 14.65 290.68

1995-96 2.65 3626.56 15.26 364.70

1996-97 2.80 4118.58 16.00 392.70

1997-98 2.94 4626.41 16.72 444.42

1998-99 3.08 5206.50 17.15 489.79

1999-00 3.21 5728.87 17.85 542.00

2000-01 3.37 6454.96 18.56 599.78

The Indian Small Sector has been consistency

% of SSI in total exports

Product % of SSI in total exports

Sports goods 100

Readymade garments 90

Woolen garments, knitwear 35

Processed foods 65

Marine products 29

Leather products 80

Plastic products 45

Cosmetic, basic chemicals &pharmaceutical products55

Engineering goods 30

Outperforming the organized sector on crucial parameters such as growth in production and
growth in employment.
As the knowledge economy gains ascendance over the traditional smoke-stack economy, for
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better opportunities are emerging for the Indian small units in the service sector. In India, such
units are generally:

Increase in jobs per annum

Growth per annum Increase in Jobs per annum

GDP Growth
Period
per annum Large SSI Organized sector SSI
industry Sector including Government Sector

1980-1990 5.7% 7.0% 10% 1.59% 6.7%

1991-1997 5.7% 6.2% 7.5% 0.86% 3.5%

Problems Faced by Small Scale Entrepreneurs of

the Industrial Estates of Madurai Region
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 India a land striving for Unity among diversities is rich by a cultural heritage and grooming
entrepreneurs. Though not big shots, most of them have established under Small Scale Industries.
The SSIs being the provider of inputs to the Big Business Houses are playing a major role in the
economy.

SSI includes industrial undertakings in which investments in Fixed Assets in Plant & Machinery
excluding Land & Buildings whether held under ownership, lease or hire purchase does not
exceed 1 crore. Most of them act as ancillary to Big Business Houses. Some are tiny industries
where Fixed Assets including Plant & Machinery is worth only 25 lakhs or below and yet
another group concentrates on exports.

As entrepreneurs increased their problems as to production, marketing, infrastructure and

Financing, also increased. Many people vaguely quoted it as managerial problems. Going into
the details we see that:

* The production problems include raw material availability, capacity utilization, and
storage problems.

* The marketing problems arises because of dealing in only one product, cut throat
competition, adopting cost oriented method of pricing, lack of advertisement, not branding
their products etc.,

* The financial problems include investment risks, procurement of loan from banks and
their repayment, meeting day to day expenses and the like.

* The labour problems include highly demanding employees, absenteeism lack of skilled
workers and transportation of workers.

* Infrastructure problems also add coal to the fire. Unless and until you have the
infrastructure in its place the rest of the efforts are futile.

* Personal problems like spending less time with family and for the whole sweat exerted the
rewards have not been favorable.

Though the industrial estates of Madurai Region are performing satisfactorily as far as profits are
concerned, they tire a lot and rewards are not commensurate.

Above all starting up a business unit itself poses big problems.

RBI asks banks to look into problems faced by SSIs

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In a bid to alleviate the problems faced by micro and small enterprises (MSEs), Reserve Bank of
India on Tuesday asked State Level Bankers Committee (SLBC) convenors to immediately
organise special meetings so that representatives of the MSE sector and banks can arrive at
concrete measures in the interest of the sector and the banking system.

The central bank also reiterated that banks should closely monitor the operations of sub-limits,
particularly with reference to corporate borrowers’ dues to small scale industry (SSI) units, by
ascertaining periodically from their corporate borrowers the extent of their dues to SSI suppliers.

RBI sells $20.6 b in Oct

Corporate dues

Further, banks have to ensure that corporate pay off their dues before the ‘appointed day’/ agreed
date by using the balance available in the sub-limit so created.

While sanctioning/renewing credit limits to their large corporate borrowers (i.e. borrowers
enjoying working capital limits of Rs 10 crore and above), banks are required to fix separate sub-
limits, within the overall limits, specifically for meeting payment obligations in respect of
purchases from SSIs either on cash basis or on bill basis.

Indian economic outlook uncertain: RBI

If at any time, the sub-limit is exhausted, then there is no bar on payments being made by
corporate to SSIs from the other segment of the working capital limit. Similarly, if no payments
are due to SSI suppliers, and the sub-limit remains un utilized/partly utilized, banks are free to
allow their corporate borrowers to operate this limit for meeting other working capital expenses.

Fiat to banks

Directing banks to explain and disseminate the RBI restructuring guidelines to MSE units, the
RBI said that the problems faced by the MSE sector should be addressed proactively by banks
via SLBC meetings and steps taken for timely restructuring, holding on operations and additional
facilities etc.

The latest RBI instructions regarding credit delivery to MSEs by banks come close on the heels
of the special credit package for small and micro units.

Small-scale industries: Preparing for the WTO challenges

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THE post-liberalization business environment has become harsh for the small-scale industries
(SSI) sector because of increased internal and external competition. In addition, the far-reaching
impact of the various WTO norms are now threatening to further affect the fortunes of small and
medium enterprises. Unfortunately, despite sufficient notice and the growing awareness of the
impending threats, the SSI sector does not appear to be adequately prepared for the new
challenges.

While the official figures show only about 10 per cent of the over 32 lakh SSI units as sick, the
unofficial figures put this figure at over 40 per cent.

Given the crucial importance of the SSI sector to the economy with 40 per cent share in the total
industrial output, 35 per cent in exports and over 80 per cent in industrial employment, it
deserves all the policy support the Government can offer. What the small entrepreneurs need is
not protection but institutional support to fund modernisation and technology up gradation,
infrastructural support, and adequate working capital finance from the banking sector.

There is also a need for small entrepreneurs to keep pace with the structural and technological
changes taking place in large industries.

• The policy has not actually helped the growth of small-scale industries.
• The units in the unreserved sector have actually grown faster than those in the reserved
list. In other words, the SSI units have shown more dynamism in areas where they had to
compete with larger units.
• Reservation in many areas has become irrelevant since a large number of reserved
products are not being produced by SSIs. It is also inconsistent with the new trade policy
that allows the items reserved for the SSI sector to be freely imported.
• Reservation has hurt India's ability to expand exports in many crucial areas, including
textiles and leather.
• In getting loans.

Govt framing single law for SSI sector'

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IN the light of complaints from the small-scale industry (SSI) sector regarding prevalence of a
plethora of Acts and rules, the Government is in the process of framing a single law for the SSI
units, according to Dr C.P. Thakur, Union Minister for Small Scale Industries.

Speaking at a meeting on `Development of small-scale industries' here, the Minister informed

that the draft of the Small Enterprises Development Bill would be introduced in the next session
of Parliament. The law would aim at eliminating the plethora of Acts and rules related to
registration and location, labour and welfare measures, safety, security and environment.

Dr Thakur said the 10th Five-Year Plan envisaged a greater role for the SSI sector, which had
been assigned a higher growth rate of 12 per cent per year, as against eight per cent of the overall
economy.

"The Government will make all efforts to provide proper and timely inputs in the form of
adequate credit/loans from financial institutions and banks, funds for technology upgradation,
adequate infrastructure facilities, modern testing facilities and quality certification laboratories to
give the SSI sector a level-playing field with the organized sector," he said.

On the problems being faced by the SSI units in accessing credit from banks and financial
institutions, the Minister said in order to improve the flow of credit, several initiatives such as
raising limit of collaterals-free loan from Rs 1 lakh to Rs 5 lakh, raising limit of composite loan
from Rs 10 lakh to Rs 25 lakh and opening of 394 specialized bank branches in the country. He
sought to allay apprehensions in certain circles of Indian entrepreneurs regarding impact of WTO
regulations.

The Bombay Small Entrepreneurs' Association presented a memorandum to the Minister on the
occasion, highlighting the problems the SSI sector was facing.

BIBLIOGRAPHY
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http://www.books.iupindia.org/IB11011610009.htm

http://www.indianmba.com/Faculty_Column/FC394/fc394.html

www.thehindubusinessline.com/2002/07/.../2002071200110800.htm

http://dcmsme.gov.in/publications/books/census/censusch5.pdf

http://www.lubindia.org/ssi/what-is-ssi.php

shttp://www.unitedbankofindia.com/small-scale-Industries.asp

http://www.smallindustryindia.com/ssiindia/reservitems.html

http://eaindustry.nic.in/handbk0305/chap071.pdf

http://www.thehindubusinessline.com/2003/06/08/stories/2003060801380300.htm

http://sify.com/finance/rbi-asks-banks-to-look-into-problems-faced-by-ssis-news-default-
jeguLRgecci.html

http://www.hindu.com/2004/09/07/stories/2004090706690400.htm

http://www.banknetindia.com/banking/ssi1.htm

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