Professional Documents
Culture Documents
ON
SMALL SCALE INDUSTRIES IN INDIA
Submitted in partial fulfillment of the
requirements for BBA(general) programme of
Guru Gobind Singh Indraprastha University
ACKNOWLEDGEMENT
The present work is an effort to throw some light on Small Scale Industries in
India. The work would not have been possible to come to the present shape
without the able guidance, supervision and help to me by number of people.
With deep sense of gratitude I acknowledged the encouragement and guidance
received by Mrs. Shitika (Faculty of LLDIMS). I also convey my heartfelt affection
to Mr. Divyansh Sharma (IIT, Delhi) who helped and supported me during the
course, for completion of my thesis.
GOURAV BHATIA
EXECUTIVE SUMMARY
Agro based industry is regarded as the sunrise sector of the Indian economy in view
of its large potential for growth and likely socio economic impact specifically on
employment and income generation. Some estimates suggest that in developed
countries, approximately 14 per cent of the total work force is engaged in agroprocessing sector directly or indirectly. However, in India, only about 3 per cent of the
work force finds employment in this sector revealing its underdeveloped state and
vast untapped potential for employment. There is no denying that India has to live
with the problem of unemployment for many years to come. Therefore need arises to
make all over development among all sections of the society especially in rural agro
based industrial units. The present paper is an attempt to find out the status of agro
based units such as rice mill industry in the Patiala district of Punjab and to analyze
the various problems being faced by them. It has been found that Rice mill industry in
Patiala district is in the crisis and facing the various problems regarding lack of
financial assistance, improper marketing channel, high degree of breakdown of
finished products and non availability of research lab for quality control. However, if
this sector will be properly developed, it can make state Punjab a major player at the
global level for marketing and supply of processed food for billion plus mouths to
feed. All over the world, the unorganized manufacturing sector is known as Small and
Medium Enterprises (SMEs) while in India this is known as SSI defined in terms of
investment in plant and machinery. During last 50 years, the limit of investment has
changed from Rs. 5 lacs in the sixties to Rs. 100 lacs in 2008. Within the SSI sector,
two sub segments have been created. : one for Tiny Units having investment in plant
and machinery up to Rs. 25 lacs and the other for industry Related Service and
Business Enterprise (SS and BE) sector defined as having investment in fixed assets
excluding land and building not exceeding Rs. 10 lacs. The SP Gupta Study Group on
Small Enterprises (2008), in its interim report, has recommended that the time is ripe
to move from Industry to Enterprise and also to include Medium Enterprises within
the SSI sector. This is essential in order to bring Indian SSI sector at par with the
global Small Medium Enterprises (SMEs) sector.
KEYWORDS: Agro based industries, challenges ahead.
TABLE OF CONTENTS
CHAPTER-1: INTRODUCTION
Background
The promotional measures cover
Literature Review
Statistics on SSIs
Small-Scale Industry Policy
Small Industries Development Organization (SIDO)
Directorate of Industries
Small Industries Service Institutes (SISIs)
National Small Industries Corporation (NSIC)
1-12
13-15
RESEARCH METHODOLOGY
Research sampling and design
Type of research design
Nature of data
Tools and techniques
Research variables and measurement
16-19
37-61
RECOMMENDATIONS
Recent modernization efforts
Adoption of new definitions
Dereservation
Promoting clusters
Institutional credit
62-68
69-74
EXPORT PROMOTION
Rationale Behind Export Promotion
International Exposure to SSI Products
75
BIBLIOGRAPHY/REFERENCES
76-78
CHAPTER-1
INTRODUCTION
INTRODUCTION
BACKGROUND
Since the time of the independence in 1947, a significant feature of the Indian
economy has been the rapid growth of the small industry sector. The small industry
sector is considered to have a major role in the Indian economy due to its 40 percent
share in the national industrial output along with an 80 percent share in industrial
employment and nearly 35 percent share in exports. The small scale industries sector
has been assigned an important role in the industrialization of the country by the
previous and current governments of India.
There are no clear official definitions of small. Small scale industries are usually
distinguished from the large-scale and medium-scale industries on the basis of size,
capital resources and labor force in the units. At one time the government of India had
grouped small-scale industrial undertakings into two categories - those using power
but employing less than 50 persons and those not using power and employing less
than 100 persons. However, capital investment on plant and machinery by units is
considered as a main criteria for distinguishing between the large and small industries.
An industrial unit can be classified as a small-scale unit only if it meets the capital
investment limits set by the government of India (GoI). These limits have been
steadily increased over the years. In 2005, the investment limit for small-scale
industry (SSI) was raised from $6 million to $30 million. Production units that are
ancillary to large-scale units are also considered as small if they sell not less than 50
percent of their manufactured products to one or more industrial units.
However, there is a clear distinction between the traditional and modern small
industries. The traditional small industries include khadi and handloom, village
industries, handicrafts, sericulture, coir, etc. Modern small industries manufacture a
wide variety of goods from simple items to sophisticated items such as television sets,
electronics control system, various engineering products, particularly as ancillaries to
large industries. The traditional small industries are highly labor-intensive, while the
modern small industries use highly sophisticated machinery and equipment. The term
small-scale industries is mostly used to represent modern small industries. The SSIs
manufacture many items which include rubber products, plastic products, chemical
2
(SSI&ARI) was bifurcated into two separate Ministries, namely, Ministry of Small
Scale Industries and Ministry of Agro and Rural Industries in September, 2010.
Taking into account the high potential for growth in the SSI sector in terms of output,
employment and exports, the role of the Ministry of Small Scale Industries is to
strengthen the SSI sector, to enable it to remain competitive in market-led economy
and generate additional employment opportunities. For achieving these objectives, the
endeavor of the Ministry is to provide the SSI sector proper and timely inputs like:
1
LITERATURE REVIEW
A leading, industrially advanced developing country, India has large, medium and
small industrial units of production in almost all branches of the industry.
Since Independence, the growth and development of the small-scale sector has been
favored by the GoI on the following grounds: (1) generation of employment
opportunities by SSIs, (2) mobilization of capital and entrepreneurship skills, (3)
regional dispersal of industries and (4) equitable distribution of national income. The
policies pursued by the GoI over the years have helped in the growth of the SSIs to a
considerable extent.
Statistics on SSIs
The total number of SSI units increased from 2.082 million units in 2000-01 to 2.724
million units in 2004-05. During the same period, at constant prices, the production
increased from nearly $1.6 billion to approximately $2.2 billion. The total number of
persons employed in SSIs increased from 12.9 million to 15.2 million. According to
4
Second All-India Census of Registered SSI units, 42 percent of the units were
functioning in rural areas, 48 percent in urban areas and 10 percent in metropolitan
areas. 62.2 percent of the units were located in backward areas. The rate of growth of
this sector has been higher as compared to the whole industrial sector.
In terms of the above mentioned development, the progress of the SSI sector is
considered impressive by experts. But the SSIs are mostly effected by a number of
problems that have hampered its absolute gwoth. According to the Seventh Five Year
Plan (1985-90) the growth of the SSIs has been constrained by various factors
``including technological obsolescence, inadequate and irregular supply of raw
materials, lack of organized market channels, imperfect knowledge of market
conditions, unorganized nature of operations, inadequate availability of credit,
constraint of infrastructure facilities including power etc. and deficient managerial
and technical skills.''
Directorate of Industries
The Directorate of Industries is an apex body for promoting industrial development in
the states. The Development Commissioner (Industries) heads the institution which is
supported by 6 regional and 30 district level establishments. The regional offices in
each state are headed by the Joint Director of District Industries Centers. The
important functions of this agency is the implementation of the small-scale industry
promotional schemes.
The governments prime role has been to encourage growth of these industries,
often neglecting environmental considerations. Industrial effluent largely comes
from the 3 million small- and medium-sized units that are scattered throughout the
country, particularly in the production of paper, sugar, leather, and chemicals.
Unfortunately, only about half the medium- to large-scale industries have partial
or complete effluent treatment. Fourfold industrial growth from 1963 to 2000
resulted in sixfold growth in toxic releases. Heavy industries like iron and steel
producers contribute nearly 70% of the toxic wastes released but only 20% of
industrial output. Industrial disposal of polluted effluent occurs via open drains
into streams and reservoirs or through underground injection. Most industrial
estates lack wastewater treatment systems (US-AEP, 2005).
most of the units are dispersed, they find it difficult to come together for a joint or
common treatment plant. The concern of depressed profit margins and decline in
competitiveness prevents these units from using pollution control measures. More
emphasis is laid on new investments, production, and other return oriented
opportunities. Soft loans for pollution control measures are not lucrative. There are
subsidies offered for investments in pollution control as incentives, but the impact of
these incentives on these units is little or nothing, for they do not alter the cost-benefit
analysis in favour of pollution control investments (Nyati, 1988).
Regulatory Problems
Research done by Pargal, Mani, and Huq (2006) on industrial plants in India,
indicated that high levels of pollution elicit a formal regulatory response in the form
of inspections, but these inspections appear to have no impact on the emissions.
Inspections are probably ineffective in bringing about desired changes in behaviour
because of bureaucratic or other problems, including the probability that enforcement
is low and that the penalty for non-compliance is not stringent enough to act as a
deterrent. They suggest that Indian policy makers and regulators thus need to
explicitly recognize the trade-off in environmental quality of the existing regulatory
bias towards the small- and medium-scale sector.
Regulatory compliance has been a major issue for these units. Environmental
legislation in India, although seemingly as tough as that in major developed nations, is
not well enforced. Though multinationals and the large domestic companies are
monitored, poorly funded regulatory bodies find it nearly impossible to police the
millions of small- and medium-scale units. Bribing poorly paid inspectors is reported
to be common (Roberts, 2004).
Environmentalists have viewed enforcement as lax, despite the regulatory framework
and oversight authority of the Central and State Boards. There have been no
incentives to invest in the pollution control effort because of weak monitoring and
enforcement of environmental regulations. It is mainly small industries that continue
to lack incentives to set up treatment equipment or to operate equipment, if it already
is installed, because operating that equipment has been more expensive than noncompliance (Dasgupta, Laplante, & Mamingi, 2007). Obviously, in India, scarcity of
natural resources is less a concern than misuse of them. The pressure for profits
10
12
13
15
RESEARCH METHODOLOGY
16
RESEARCH METHODOLOGY
RESEARCH SAMPLING AND DESIGN
RESEARCH DESIGN
A research design is a framework or blueprint for conducting any marketing research
project. It details the procedures necessary for obtaining the information needed to
structure or solve marketing research problems.
Research Methodology defines the purpose of the research, how it proceeds, how to
measure progress and what constitute success with respect to the objectives
determined for carrying out the research study.
The appropriate research design formulated is detailed below.
Exploratory research: this kind of research has the primary objective of
development of insights into the problem. It studies the main area where the problem
lies and also tries to evaluate some appropriate courses of action.
The research methodology for the present study has been adopted to reflect these
realties and help reach the logical conclusion in an objective and scientific manner.
The present study contemplated an exploratory research.
Exploratory Research
Conclusive Research
Descriptive Research
Casual Research
As the mode of research for this project is a survey to analyze the Indian Market
rather than an experiment, the group will use Descriptive research for the analysis.
NATURE OF DATA
Secondary data:- Data which is already available through various books, journals ,
magazines, internet etc.
Bio-tech Industry
Corrugated Boxes
Industry
based
on
Medicinal
and
Aromatic
18
plants
Foundries Steel and Cast Iron General Engineering Works Gold Plating and
Jewellery Locks Steel Furniture
Toys
Non-Ferrous Foundry
Sport Goods
Cosmetics
Readymade Garments
Wooden Furniture
Zinc Sulphate
Welding Electrodes
19
CHAPTER 2
LITERATURE REVIEW
20
LITERATURE REVIEW
Due to rapid pace of technological developments and intensified competition, small
and medium enterprises in India have started realising the significance of improving
their productivity levels more than ever before. In this context, the present chapter
reviews the literature relating to the study so as to formulate the problem precisely
and develop a rationale for its undertaking. The basic objective is to indicate in a
general way the type of work done in this direction rather than to give exhaustive
review of all the research work done on the problem. The review of various studies
done in this chapter provides a broad spectrum about the productivity and efficiency
analysis of small scale industrial sector which would be helpful to design the
appropriate methodology for the present study.
Various empirical studies have been conducted from time to time to examine the
different aspects of growth pattern and performance of small scale industrial sectors in
India and in this context, important studies are reviewed below in a chronological
order. For this purpose, the chapter has been divided into three sections, Section -I
highlights the review of studies relating to the performance evaluation of small scale
industrial sector at All India level, whereas, Section-II focuses on the studies
pertaining to the performance evaluation of the small scale industrial sector at
regional level. However, the last section is concluding in nature and pinpoints the
rationale of undertaking the present study.
Habib (1972) through his study came to the conclusion that small scale industries play
an important role in the economic development by providing numerous chances of
income generation and improving the standard of living of the masses. Habib
emphasized that it is only the small scale sector through which economic prosperity
can reach the remotest sections of the society. From the very beginning since the
process of economic development started, the small scale sector has been providing
handsome employment opportunities to millions of job seekers in the country. Further,
small scale industries use local raw materials, employ local people and thus help in
generating employment opportunities for the community.
National Council of Applied Economic Research (1972) conducted a study to
examine the economies of selected number of small industrial units operating in
21
different parts of the country. A sample of 159 units spread over 22 industrial groups
was selected, of the selected units, 48 were manufacturing consumer products, 76
capital goods and 35 intermediate products. The study showed that besides other
problems, the under-utilisation of capacity among most of the units was due to the
problems of production as well as marketing. The problems of production were
closely associated with scarcity of raw material and inadequate finance. The problems
of marketing are by and large attributed to such factors as limited size of operation,
practically little or no control over quality, price and weak financial base, restricting
the scope for engaging in sustained sales promotion. The problem of sales is more
acute where the area of operation is large particularly in case of consumer products or
capital goods, where after-sale service is essential. In most of the cases the
entrepreneurs are found to be dependent on middlemen for the marketing of their
products.
Banerjee (1975) examined the relationship between capital intensity and productivity
in the context of Indian manufacturing industry. The analysis has been carried out for
manufacturing sector as a whole and five individual industries (viz. cotton textiles,
Jute textiles, sugar, paper and bicycle) by using ASI data for the period 1946-64. The
study highlighted that the performance of the manufacturing sector was sluggish over
the period 1946-64. While labour productivity showed a significant upward trend
during this period, but this sector did not indicate the presence of any technical
progress. The hypothesis of constant returns to scale was not rejected. It has been
found that elasticity of substitution between capital and labour is near unity in almost
all the industries.
The Vidarbha Industries Association (1976) made an empirical survey of sick units in
the region and dealt specifically with the major problem of finance, policies and
procedures of credit agencies as well as the difficulties that were being faced in
marketing. The study asserted that most of the difficulties of small scale sector arise
from financial, administrative control, frequent interest changes and recession in
demand these tends to make the units sick. Further, the requirements of credit of small
scale industries located in far away places are greater than those located at an
industrial centre because the former has to maintain higher inventories. The study
made specific observations on the low and weak equity base of the units, the
unrealistic gestation period allowed by state financial corporations, inadequate loans
22
by commercial banks and these factors emerged as the major causes of sickness in the
small scale sector. The study suggested that the moment a danger of sickness appears,
action should be initiated and dues of a sick unit should be converted into a long term
loan. The study also revealed that financial agencies have not been able to play their
role in the development of small scale sector in the under developed regions. It has,
therefore, been recommended to set up a regional development corporation which
may finance sick units and help them in marketing their products.
Jain (1980) discussed the increasing role of small scale industries in industrial
structure of the country along with export potential of small scale industries. The
various measures undertaken by the government agencies such as guidance formation,
financial support, export house scheme etc. to develop the formation of the consortia
for the benefit of the small industries have also been expressed. It has been observed
that the operational results of existing consortia may not be very substantial but
encouraging. Therefore, a potential of growth of such consortia look immensely
favourable.
Mehta (1980) attempted to analyse productivity trends for 27 Indian industries by
using ASI data for the period 1953-65. The results revealed that there was a
considerable diversity in the experience of different industries regarding trends of
labour and capital productivity. Labour productivity was found to have increased
significantly in industries like vegetable oil, chemical, glass and glassware and
insignificantly in matches, iron and steel and cement industries. However, capital
productivity has not increased appreciably, rather the reverse was true in most
industries. The total factor productivity of Indian manufacturing sector have declined
over a period of time. The study noticed that most industries exhibited the presence of
constant returns to scale and diseconomies of scale had not set in. The study
demonstrated that there were inter industry differences with respect to ease of capitallabour substitution which primarily explained the inter industry growth differentials.
The elasticity of substitution was found to be significantly different from zero in
many industries.
Papola (1981) studied the impact of concessional finance on industrial development
and emphasised that in order to make concessional finance effective, it will be
necessary to plan and develop a minimum threshold level of industrial activity
23
growth, since these are the industries in which import substitution has been attempted
on a considerable scale. Though the policy of import substitution contributed much to
the objective of self reliance, yet it has been inimical to productivity growth.
Ethiopia (1984) evaluated the importance of small scale industries for providing
employment and income generation in the African countries. The focus of the study is
on the analysis of efficiency of production and employment and results showed that
the artisan and small scale industrial sector are important component of the Ethiopian
economy in terms of generation of income and employment. The empirical evidence
of factor intensity and production also indicates that many small enterprises are
efficient in utilizing scarce resources such as capital and foreign exchange. Small
scale industries have also reasonable demand for their products, but strengthening of
the linkage between small scale industry and the agriculture sector appears to be
necessary. The study revealed that institutional, social and economic constraints
impede the development of this sector.
Qommen (1972) conducted a survey of randomly selected 45 small scale units in
Kerala to investigate the marketing assistance provided by the government to this
sector along with assistance of finance and services. The study undertook to examine
the modernisation, industrial estates programmes and rural industries project with
regard to small scale industries in Kerala. It has been observed that 44 percent of the
units sell their products throughout India, 28 percent at state level and remaining 28
percent sell their goods in the local market. Most of the units sell their products
through retailers, wholesalers, commission agents, government, ancillaries, subcontracting etc. The study also revealed that there are various marketing assistance
schemes such as marketing research, quality marketing, ancillary development, export
promotion and direct government purchase programme, but small units could not take
desired advantage of these programmes due to ignorance and lack of communication.
It has been observed that the state of Kerala faces a peculiar marketing problem of
'distant cost' in the purchase of inputs as well as sale of output and so special strategy
is desirable in this regard.
Brahma and Subas (1979) examined the development of small scale industries in
India with special reference to its development in Pune region. In this regard the data
was collected from 276 modern units and 98 traditional units. The main focus of the
25
study was to find out the problems of development of small scale industrial units,
along with other problems, the study indicated that the problems of raw material and
marketing by small scale units are the major problems. The irregular supply and low
quality of raw material are very common, with regard to marketing, delay in payment
and exploitation at the hands of middlemen are the other noteworthy problems
mentioned in the study.
Kaur (1982) conducted a study of Haryana during the period 1966-78 and found that
there was overwhelming concentration of industrial units and employment
opportunities in Gurgaon, Ambala and Sonepat districts and the relative change in the
number of units, output and employment observed during the study period. further,
author indicated that inter district disparities in the growth of industries had widened
and with the help of location quotient and coefficient of localisation, a high degree of
spatial concentrations was observed in wool, silk and synthetic fiber, wood and
wooden products, food manufacturing, beverages and cotton textile industry group.
Mohanty (1983) examined the marketing structure of small scale industrial products
by taking a sample of 178 small units of Cuttack. The study revealed that 64 percent
of the units sell their products directly to the consumers, while 36 percent sell their
products through distributive agencies. It has been further observed that if marketing
cost is taken into consideration, it constitutes only a small percentage of the total
value of production of small units which indicates that small units do not take pains to
develop market for their products, further, it was found that Director General Supplies
and Disposal and other Government stores do not purchase items from small units.
Amin (1999) focused on the regional spread and structural set up of small scale
industries in Gujarat and examine the regional share of small scale industries in the
industrial sector of the state. Further, the author attempt to make an overall assessment
of the performance of the industries among three homogenous regions of the state
during the period 1965-1985: the study found that the spread of small scale industrial
sector across the industrially homogenous regions is positively influenced by basic
economic characteristics of the concerned region. The pattern of regional distribution
of the SSI sector suggests the growth prospects of SSI sector over a period of time.
26
PROBLEM
CONTEXTS
INDUSTRY/
ORGANIZATION/
PERSPECTIVES/ IMPLICATIONS
The Ministry of SSI designs policies, programmes, projects and schemes in
consultation with its organizations and various stakeholders and monitors their
implementation with a view to assisting
industries. The Ministry also performs the function of policy advocacy on behalf of
the SSI sector with other Ministries/Departments of the Central Government and the
State and Union Territories.
The implementation of policies and various programmes/projects/schemes for
providing infrastructure and support services to small enterprises is undertaken
through its attached office, namely the Small Industry Development Organization
(SIDO) and the National Small Industries Corporation (NSIC) Ltd., a public sector
undertaking under the Ministry.
SMALL
INDUSTRY
DEVELOPMENT
ORGANIZATION
(SIDO)
The Office of the Development Commissioner (Small Scale Industries) is also known
as the Small Industry Development Organization (SIDO). It is an apex body for
assisting the Ministry in formulating, coordinating, implementing and monitoring
policies and programmes for the promotion and development of small scale industries
in the country and is headed by the Development Commissioner (SSI).
In addition, the SIDO provides a comprehensive range of common facilities,
technology support services, marketing assistance, etc., through its network of 30
Small Industries Service Institutes (SISIs), 28 Branch SISIs, 7 Field Testing Stations
(FTS), 4 Regional Testing Centres, 2 Small Entrepreneur Promotion and Training
Institutes (SEPTI) and 1 Hand Tool Design Development and Training Centre. The
SIDO also has a network of Tool Rooms, Process-cum-Product Development Centres
(PPDCs) and technology and training support institutes which are run as autonomous
bodies registered as societies under the Societies Act.
27
The National Small Industries Corporation Ltd. was set up with a view to promoting,
aiding and fostering the growth of small scale industries in the country with focus on
commercial aspects of these functions. NSIC continues to implement its various
programmes and projects throughout the country to assist the SSI units. The
Corporation has been assisting the sector through the following schemes and
activities:
28
The SSI Board provides to its members a forum for interaction to facilitate cooperation and inter-institutional linkages and to render advice to the
Government on various policy matters, for the development of the sector.
The Board was first constituted in 1954. Its term is for two years. The Board
was last constituted on 18th January 2012, with 101 members and held its 48 th
meeting on 17 January, 2014.
NATIONAL
INSTITUTES
FOR
ENTREPRENEURSHIP
DEVELOPMENT
As entrepreneurship development and training is one of the key elements for the
promotion of small scale industries, the Ministry has established three National
Institutes, viz. the National Institute of Small Industry Extension Training (NISIET) at
Hyderabad, the National Institute of Entrepreneurship and Small Business
Development (NIESBUD) at NOIDA and the Indian Institute of Entrepreneurship
(IIE) at Guwahati as autonomous bodies. These Institutes are responsible for
development of training models and undertaking of research and training for
entrepreneurship development in the SSI sector.
NATIONAL
COMMISSION
FOR
ENTERPRISES
IN
THE
UNORGANIZED SECTOR
The National Commission for Enterprises in the Unorganized Sector was constituted
in September, 2014 under the chairmanship of Dr. Arjun K. Sengupta, an eminent
economist. It has three full-time Members and two part-time Members and an
Advisory Board consisting of 11 eminent experts from different fields relating to the
unorganized/informal sector. The Commission will recommend measures considered
necessary for bringing about improvement in the productivity of the informal sector
enterprises, generation of large scale employment opportunities on a sustainable basis,
particularly in the rural areas, enhancing the competitiveness of the sector in the
emerging global environment, linkage of the sector with institutional framework in
areas such as credit, raw material, infrastructure, technology upgradation, marketing
and formulation of suitable arrangements for skill development.
In accordance with its terms of reference, the Commission and its Advisory Board
have held several rounds of deliberations on a host of issues relating to the
unorganized/informal sector enterprises. In the light of these deliberations, the
29
following issues have been identified so far by the Commission for detailed
consideration and recommendations: notion of growth poles for the informal sector in
the form of clusters/hubs, where external economies need to be provided to spur
employment generation and productivity enhancement and the feasibility of
integrating the initiatives and programmes of various Ministries in this domain; skill
formation in the informal sector and potential for public private partnership in
providing the required skills; provision of micro finance and related services to the
informal sector enterprises and strengthening of the institutional framework in this
area; and issues concerning social security for the workers in the informal sector and
instrumentalities for achieving this objective.
Target
Achievement
2000-01
3.0
3.1
2001-02
5.0
5.6
2002-03
7.0
7.1
2003-04
9.1
10.1
2004-05
9.1
11.4
2005-06
9.1
11.3
2006-07
2.1
8.43
2007-08
3.2
7.7
2008-09
1.2
8.16
2009-10 (P)
1.0
8.90
i P-Projected (April-December)
ii Target not fixed at constant prices
30
11.4
12
11.3
10.1
9.1
10
9.1
8.43
8.9
8.16
7.7
7 7.1
9.1
5.6
3.2
3 3.1
2.1
1.2
2
0
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 (P)
Target
Achievement
31
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%.
32
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.
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
(lakh nos.)
Achievement
(lakh nos.)
Growth rate
2001-02
128.0
134.06
3.28
2002-03
133.0
139.38
3.28
2003-04
138.6
146.56
5.15
2004-05
144.4
152.61
4.13
2005-06
150.5
160.00
4.88
2006-07
165
167.20
4.50
2007-08
170.1
171.58
2.61
2008-09
175.4
177.3
3.33
33
P-Provisional
180
160
140
120
100
80
60
40
20
0
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
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 exports, 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.
1
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, woollen garments and knitwear, plastic products, processed
food and leather products.
34
The SSI sector is reorienting its export strategy towards the new trade regime
being ushered in by the WTO.
Year
Exports
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09 (P)
(Rs.Crores)
29,068
36,470
39,249
43946
48979
53975
P-Provisional
Exports (Rs.Crores)
60,000
50,000
40,000
Exports (Rs.Crores)
30,000
20,000
10,000
0
2003-04
2004-05
2005-06
2006-07
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 categorised into three broad categories.
Export Destinations
The Export Destinations of SSI products have been identified for 16 product
groups.
35
Opportunity
The opportunities in the small-scale sector are enormous due to the following factors:
Project Profiles
Machinery Procurement
Manpower Training
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.
By its less capital intensive and high labour absorption nature, SSI sector has made
significant contributions to employment generation and also to rural industrialisation.
This sector is ideally suited to build on the strengths of our traditional skills and
knowledge, by infusion of technologies, capital and innovative marketing practices.
This is the opportune time to set up projects in the small-scale sector. It may be said
that the outlook is positive, indeed promising, given some safeguards. This
expectation is based on an essential feature of the Indian industry and the demand
structures. The diversity in production systems and demand structures will ensure
long term co-existence of many layers of demand for consumer products /
36
technologies / processes. There will be flourishing and well grounded markets for the
same product/process, differentiated by quality, value added and sophistication. This
characteristic of the Indian economy will allow complementary existence for various
diverse types of units. The promotional and protective policies of the Govt. have
ensured the presence of this sector in an astonishing range of products, particularly in
consumer goods. However, the bugbear of the sector has been the inadequacies in
capital, technology and marketing. The process of liberalisation coupled with
Government support will therefore, attract the infusion of just these things in the
sector. Small industry sector has performed exceedingly well and enabled our country
to achieve a wide measure of industrial growth and diversification.
By its less capital intensive and high labour absorbtion nature, SSI sector has made
significant contributions to employment generation and also to rural industrialisation.
This sector is ideally suited to build on the strengths of our traditional skills and
knowledge, by infusion of technologies, capital and innovative marketing practices.
So this is the opportune time to set up projects in the small scale sector. It may be said
that the outlook is positive, indeed promising, given some safeguards. This
expectation is based on an essential feature of the Indian industry and the demand
structures. The diversity in production systems and demand structures will ensure
long term co-existence of many layers of demand for consumer products /
technologies / processes. There will be flourishing and well grounded markets for the
same product/process, differentiated by quality, value added and sophistication. This
characteristic of the Indian economy will allow complementary existence for various
diverse types of units. The promotional and protective policies of the Govt. have
ensured the presence of this sector in an astonishing range of products, particularly in
consumer goods. However, the bug bear of the sector has been the inadequacies in
capital, technology and marketing. The process of liberalisation will therefore, attract
the infusion of just these things in the sector.
37
CHAPTER- 3
DATA ANALYSIS
38
DATA ANALYSIS.
Analysis of data has been done with help of various statistical tools. There are
graph, tables and the percentages to get the current report.
PRESENTATION OF DATA
Statement showing All India cumulative number of SSI Units (SIDO) granted
Permanent Registration by the State/UT Directorates of Industries upto the Financial
Year
39
Position as on:02.07.2010
S
Name of
l.
State/Uni
the
State
200
200 upto:
2006-07
Registration
ANDHRA
112
on
4-
2007 2008
2009-10(Pj)
117
5-
121039
1249
1283
-08
-2k
135738
01. ASSAM
PRADES
192
916
207
132
21954
2313
2410
50
21
25503
02. BIHAR
101
42
108
21
114296
1191
1239
P
6
9
130903
03. GUJARA
129
221
141
148
153497
1647
1748
07
33
185008
04. HARYAN
T
944
455
984
951
63623
5332
5437
85
99
88271
05. HIMACH
A
140
62
145
55
15232
1594
1660
1
5
17562
06. JAMMU
AL
251
15
263
93
28471
2938
3066
P
1
2
32040
07. KARNAT
&
115
65
124
63
143073
1506
1599
7
7
169189
08. KERALA
AKA
133
353
148
504
166484
1841
2023
75
44
214019
243
275
256849
2687
2778
P
66
25
289042
10. MAHAR
PRADES
981
225
111
481
123856
1350
1434
41
04
151749
11. MANIPU
ASHTRA
492
44
515
129
5314
5439
5588
16
57
5911
12. MEGHAL
201
R
8
216
7
2323
2514 2711
2868
13. NAGALA
AYA
741
5
757
6
782
813
1120
14. ORISSA
ND
166
171
17931
1873 1951
20641
15. PUNJAB
145
23
147
73
149405
1511
1527
2
3
161598
744
563
77047
8022
8365
80
68
88486
17. TAMIL
AN
202
79
228
50
257079
2849
3138
9
1
332011
18. TRIPURA
583
NADU
210
590
936
5946
6001
6058
43
61
6406
29. UTTAR
302
3
323
1
341788
3610 3820 P
402606
20. WEST
PRADES
145
557
147
475
149148
1503
1513
33
27
160087
21. SIKKIM
BENGAL
275
713
296
462
305
312
27
22. ANDAM
103
107
1116
1151 1180
1248
23. ARUNAC
A&
766
8
926
1
945
959
1027
24. CHANDI
HAL
288
295
2965
3007 3042
3218
25. DADRA
GARH
409
0
454
2
618
870
1035
26. DELHI
&
251
252
25303
2530 2534
26807
27. GOA
511
74
527
84
5488
5761
5921
6
2
6263
28. LAKSHA
47
8
51
8
58
63
76
9. DWEEP
40
1059
330
40
971
978
72
349
MIZORA
301
351
3702
4028 4413
4668
30. PONDIC
M
420
8
425
5
4484
4722 4873
5155
31. DAMAN
HERRY
693
9
920
5
1135
1455 1507
1594
ALL-INDIA
2. & DIU
201
215
2261256
2378 2503
267
3.57 Million
Employment
19.96 Million
39%
45%
Overall
34%
Over 8000
675
(Figures for 2011-2012)
1980-1999
2000-2006
including
Government
1.59%
0.86%
5.7%
5.7%
41
6.7%
3.5%
1980 2006
Organised Sector
SSI Sector
3.57 Million
Employment
19.96 Million
39%
45%
Overall
34%
Over 8000
675
(Figures for 2011-2012)
SSI Sector
Industrial Sector
2000-01
3.1
0.6
2001-02
5.6
2.3
2002-03
7.1
6.0
2003-04
10.1
9.4
2004-05
11.4
12.1
2005-06
11.3
7.1
42
2006-07
8.43
5.8
2007-08
7.7
4.0
2008-2009
8.16
6.5
TRENDS
IN
GROWTH
SSI & INDUSTRIAL SECTOR (in %)
OF
Period
GDP Growth
annum
per
EMPLOYMENT
1980-1999
5.7%
Organised Sector
including
Government
1.59%
2000-2006
5.7%
0.86%
1980 2006
Organised Sector
SSI Sector
IN
SSI sector
3.5%
6.7%
Percentage share
9.6
14.9
26.5
29.0
31.5
33.1
36.4
35.1
34.2
33.4
35.19
2007-08
2008-09
2009-10
2010-11
2011-12
141603.53
159561.00
202509.7
207745.56
252789.97
48979.23
54200.47
69796.5
71243.99
86012.52
34.59
33.97
34.47
34.29
34.03
E - Estimated
SICKNESS
Year
Potentially Viable
No. *
No. *
Amount O/S
(Rs. Crores)
Amount O/S
(Rs. Crores)
March 2002
2,23,176
3,443
21,649
799
March 2003
2,56,452
3,680
16,580
686
March 2004
2,68,815
3,547
15,539
597
March 2005
2,62,376
3,722
16,424
636
March 2006
2,35,032
3,609
16,220
479
March 2007
2,21,536
3,857
18,686
456
March 2008
3,06,221
4,313
18,692
377
March 2009
3,04,235
4,608
14,373
369
Source: RBI
* These units include village industries as well.
44
45
1
)
2
)
3
)
4
)
5
)
6
)
SAMPLE
SURVEY
2003-04
SECOND
CENSUS
1987-88
Rural Areas
42.20%
42.20%
Urban Areas
48.50%
48.00%
Metropolitan Areas
9.30%
9.90%
Backward Areas
48.30%
62.20%
Proprietory Units
80.48%
78.00%
Partnership Units
16.84%
16.03%
Limited Companies
2.01%
3.78%
96.24%
87.28%
Ancillary Industries
0.52%
1.57%
3.24%
11.15%
50.19%
51.01%
15.23%
10.37%
6.84%
4.57%
1.70%
1.41%
By women entrepreneur
7.69%
5.15%
Locational Status
Organisational Status
Activity Status
Ownership Status
Important Parameters
46
7
)
3.08
1.60
4.0
0.93
6.98
1.23
30.93
7.38
8.54
6.29
79.7%
50.6%
10.00
4.62
6.75
1.10
2.73
3.94
12.50
8.00
Important Ratio
Production/investments in fixed assets
(Rs. lakhs)
Net value added/Investment in fixed
assets (Rs. lakhs)
Employment/Investment in fixed assets
(Rs. lakhs)
Wages paid/Employemnt excluding self
employment (Rs. 000)
47
DATA ANALYSIS
Problems in modernization of SSIs
The existence of a huge number of small industrial units manufacturing a variety of
products makes technological modernization a difficult task in India. Small industrial
units in India are mostly managed by entrepreneurs who are caught up in the day-today matters of production and management of their units and find it difficult to keep
themselves abreast of the various technological developments. In addition, the GoI
has provided protection to the SSIs from competition from local large enterprises and
imports through many policy measures. Therefore there is no threat to their markets.
The government also gives capital subsidies, excise concessions and backward
technology subsidies to the SSIs. All of these reduce any incentive for the small
industrial units to constantly upgrade their technology or for technological innovation.
48
1973-74
1974-75
1975-76
1976-77
1977-78
1978-79
1979-80
1980-81
1981-82
1982-83
1983-84
1984-85
1985-86
1986-87
1987-88
1988-89
1989-90
19992000
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
No.
of
units
(millions)
Productio
n
Employme
nt
Export
(at current
prices)
(Rs. Bn.)
Nos.
million
(Rs.
billion
)
0.416
0.498
0.546
0.592
0.67
0. 734
0.805
0.874
0.962
1.059
1.155
1.24
1.353
1.462
1.583
1.712
1.823
1.948
Fixed
investmen
t
(at current
prices)
(Rs.
billion)
22.96
26.97
32.04
35.53
39.59
44.31
55.40
58.50
62.80
68.00
73.60
83.80
95.85
108.81
126.10
152.79
N.A.
N.A.
72.0
92.0
110.0
124.0
143.0
157.0
216.35
280.6
326.0
350.0
416.2
505.2
612.28
722.5
873.0
1064.0
1323.2
1553.4
3.97
4.04
4.59
4.98
5.40
6.38
6.70
7.10
7.50
7.90
8.42
9.00
9.60
10.14
10.70
11.0
11.96
12.53
3.93
5.41
5.32
7.66
8.45
10.69
12.26
16.43
20.71
20.45
21.64
25.41
27.69
36.43
43.72
54.89
76.25
96.64
2.082
2.246
2.388
2.571
2.658
2.803
2.944
3.08
3.212
3.312
3.442
3.572
N.A.
N.A
35.376
40.799
49.620
54.698
60.549
86.106
72.633
79.703
84.329
90.450
1786.99
2093.0
2416.48
2988.86
3626.56
4118.58
4626.41
5206.5
5728.87
6390.24
6903.16
7420.21
12.98
13.406
13.938
14.656
15.261
16.0
16.72
17.158
17.85
18.564
19.223
19.965
138.83
177.84
253.07
290.68
364.7
392.48
444.42
489.79
542.00
697.97
712.44
860.12
in
49
TO
SMALL
SCALE
SECTOR
MEANING OF SMALL-SCALE SECTOR:
In the official industrial policy formulation, a small industry is defined as a unit
having investment up to Rs.1 crore in plant and machinery. In 2014-15 investment
limit has been raised from Rs.1crore to Rs. 5 crore in respect of 69 items reserved for
manufacture in small scale sector. Small scale Sector are mainly located in urban
centres as separate establishments and produce goods with partially or wholly
mechanized equipment employing hired labor. Small Sector operate as full time
occupation and meet the demand of large area. It depends on the conditions of
expanded market and the nature of business here is permanent.
Rapid expansion of the labour forces, especially among the marginal farmers
and landless agricultural labours;
To ensure self-reliance.
50
they are labour-intensive, and they require comparatively less capital. These sector
have a special place in the economic development.
The main roles played by this sector in the Indian economy are as under:
Upgrade not only the skill of traditional artisans but also induce the
unemployed youths to undertake entrepreneurship with special emphasis on
the women;
Check the migration of rural mass from the villages to the urban
conglomerations;
51
view of the employability of trained manpower for the new and modernizing SSIs.
The following are the major problems in administrative area:
Faulty planning.
Poor management.
Labor problems.
Capacity utilization.
Lack of strategies.
Branding problems.
Distribution problems.
53
Poor quality.
Technological problems.
Scale of production.
Lack of standardization.
The new policy regime, with a virtual open door policy towards foreign investment
and technology in most areas of industry and infrastructure, is likely to intensify and
accelerate the process of technological polarization between the large and small-scale
sectors.
Promoting SSIs within the framework of the social and economic policies of
the country;
Major Features
Emphasis to shift from subsidies/cheap credit to
2.
adequate credit.
Equity participation by other undertakings
3.
4.
domestic/foreign up to 24 percent
Introduction of factoring services through banks
Marketing of mass consumption goods under
5.
6.
7.
8.
9.
Objectives
To meet the emerging
demand for credit
Small
To upgrade technology and
promote
ROLE
OF
SMALL
SCALE
SECTOR
IN
THE
in production, at current and constant prices, was 12.4 percent and 8.1 percent
respectively. Thus, there has been a significant increase in contribution of this sector
in the economic development of the country.
SSI sector should be encouraged to grow the natural way in the new economic
environment. Artificial barriers and protection may not help in the long run.
Innovativeness and efficiency must be rewarded in order to enable SSIs to emerge
competitive.
The role of SSIs can be understood in terms of the following arguments:
57
I. EMPLOYMENT GENERATION
300
239.09
250
260.13
249.09
271.36
282.91
200
158.34
150
100
50
0
2008-09
2009-10
2010-11
2011-12
2012-13
2013-14
This sector has a high potentiality of employment orientation. These are labourintensive in character i.e., they use more of labour per unit of output and investment.
The most important single argument advocated in favor of these Sector since a long
compass of time is that they are capable to create a large volume of employment for
the people relevant particularly in India where the problem of unemployment and
underemployment and seasonal unemployment are rampant on a mass scale which is
also characterized by the feature of lack of resources. In such a grave and contrast
situation, i.e. labour-abundant and capital-scarce economy, it is argued that the
development of this sector is the only alternative strategy which is labour intensive
and the level of employment can be enlarged by a smaller dose of capital. The
contribution of this sector in employment generation in different years is presented
below:
58
100000
86,013
80000
69,797
60000
71,244
EXPORT (Rs. Crore)
40000
20000
9,664
0
2009-10
2010-11
2011-12
2012-13
2013-14
One of the main arguments put forward in support of the growth of cottage and small
scale Sector in the country is that the contribution of these Sector in the field of
foreign exchange has increased abnormally. The bulk of exports of small scale Sector
consist of such non-traditional goods like ready-made garments, sports goods,
finished leather, leather products, woolen garments, processed foods, chemicals and
engineering goods. In the year 1999-2000, the contribution of SSIs in exports was
worth Rs. 9664 cores, than in the year 2009-10, it increased to Rs. 69,797 crores. By
the end of 2012-13, the total contribution of SSI sector in the total exports was worth
Rs. 97,644 crores. Thus, small scale sector plays a very important role in the
promotion of countries exports. The share of SSIs in total exports is illustrated in the
following graph:
III. REMOVAL OF REGIONAL DISPARITY
Another significant role of this sector is that it removes the burning problem of
regional disparity and promotes the wider scope of balanced regional development in
the country on account of decentralization of Sector which is not governed by the
factors of localization as we see in case of large scale Sector. A great bottleneck in
our industrial setup has been that the regional dispersal of Sector is uneven because
the large and medium scale Sector can be developed only in a special geographical
zoning factor which leads to disproportionate growth by concentrating in a particular
59
zone. The development of small Sector tends to solve this problem of uneven
distribution.
IV. BOOSTING CAPITAL FORMATION
The establishment of these Sector is conducive for capital formation of the country
on the ground of spreading of Sector over the countryside which could encourage the
habits of thrifts and investment in the rural areas. These Sector have a distinct
advantage as far as the mobilization of capital and entrepreneurial skill is concerned.
reservation,
price
preference,
priority
sector
lending,
fiscal
exemptions/concession etc. With the emergence of WTO and its conditionality which
considers protection as discriminatory or barrier to trade, many of existing support
systems for protection of small scale sector will have to be dismantled. As a result,
SSI will have to compete on its own to find a place for itself in the domestic as well
as international market.
The challenge o SSI sector against the emerging global environment is to become
globally competitive. The small scale sector will have to upgrade its technology and
modernize, adopt modern marketing, management practices and improve the quality
of its products in order to be efficient and competitive. In the absence of these
changes, its survival may be at peril. Most of the small scale units are unaware of the
60
challenges thrown by the WTO agreements and negotiations because of the lack of
understanding about these agreements and negotiations. Thus makes it imperative for
the Government to review its policies concerning the sector with a view to not only
making them compatible with the WTO regime but also preparing them completely
to respond to the emerging environment as an opportunity rather than a threat.
Operational flexibility.
Import substitution
b) WEAKNESSES
Technologically weak.
Lack of professionalism.
61
c) OPPORTUNITIES
Untapped export potential in sectors such as computer software, leather and
leather products, light engineering products, hand tools and implements, auto
components and ancillaries, garments including hosiery, etc.
Joint ventures.
Technology up gradation.
d) THREATS
Slow adoption of quality culture.
Poor infrastructure support.
Technological obsolescence.
Inadequate use of information and communication technologies.
International environmental agenda which is in stark contrast to low emphasis
laid by Indian firms.
Non-compliance with non-tariff barriers particularly environmental, health
and safety standards.
Growth of cheap imports.
High cost of funds.
62
CHAPTER-4
CONCLUSION &
IMPLICATIONS
63
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 upgradation, 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 accent should be on the
much greater degree of ancillarisation and on providing services as the larger
companies are keen on offloading a number of job works to smaller units. True, a
section of the SSI sector is already undergoing structural changes but the process is
still quite slow.
There is an urgent need to refashion the policies governing the sector so as to improve
its competitive strength and long-term outlook. The recast and reform of the SSI
policy will have to largely concentrate on the following areas:
As can be inferred from the information in the preceding section, the various Indian
governments have proclaimed many policies and also implemented several initiatives
and programs. Most of the policies before the 1999s were aimed at protecting the
small sector rather than making it competitive. Some of the major issues that these
policies did not address are as follows:
Problems in obtaining credit One of the serious problems affecting the small scale
sector is the hardship of obtaining credits from the banking sector. Although this has
been a problem for past several years and though the issue has been mentioned in
budget speeches by government, none of the policies seem to solve it. Many
entrepreneurs who had been drawn into industrial activities hoping to receive
financial assistance have subsequently found that working capital is not
forthcoming[4]. The internal financial resources of the SSIs are held to be so small
that have no surplus money in times of business strain. This along with the situation
of unstable profits prevent the banks from issuing them unsecured loans. As a result,
65
many of these SSIs are still dependent for funds on money-lenders who charge high
interest rates. And those who have tried to obtain loans from the various financial
institutions have only faced corruption associated with grant of loans and long delays
in delivery.
In a 2005 survey of small entrepreneurs by the Confederation of the Indian Industry
(CII), a large proportion of the respondents attributed their problems to delayed
payments, high cost of borrowing and inadequate credit.
Sickness in the SSIs As of September 2001, about 233 thousand small-scale units were
sick. Many of the sick units ultimately close down due to finance and marketing
problems. Poor management has also be identified as a major cause of sickness.
Therefore a need exists to countinously provide help in terms of training for the small
enterprises to manage themselves. The recent policies and programs providing
management training by the SIDBI is hopefully a step towards solving this problem.
Negative impacts of reservation policy The previous and current small-scale industries
policies have followed the policy of reserving certain items to be manufactured only
by the SSIs. Many of the items that are reserved are in the mechanical engineering,
chemical products and auto-ancillary industry groups. Though the policy was mainly
aimed at protecting the small firms from competition from the large firms, the lack of
any licensing to identify SSIs has resulted in the entery by large firms into those areas.
There is no enforceable penalty for moving into reserved areas. It is also held by
many authors that the policy is actually counterproductive as those producing nonreserved items have performed better than those in reserved areas. Hence the
reservation policy tends to become large redundant.
The Equity policyThe New Small Industry Policy allows the large firms to have equity
in SSIs. This policy is contended to be a bad one as it only encourages the small units
to continue to act as dependent on the large firm. A fear that the large firms might at a
later stage takeover the small units is also expressed by some industry experts.
Apart from the abovementioned critical issues, there are several other issues such as
non-classification of a separate medium enterprise under the Indian industrial sector,
regional imbalances in the concentration of small scale industries and survey data
66
Technology
Development
Board,
the
Technology
Development
and
challenge is an issue that is relevant to every industry big or small. Every business
faces pressure to improve its eco-performance.
As regards regulatory pressure and compliance, many businesses spend more time in
fighting regulations and take a less proactive, strategic approach to environmental
management (Schoemaker and Schoemaker, 2004). Although Indian courts closed
almost 1,000 factories for pollution problems, and the Supreme Court fined 15 plants,
including some multinationals (Shaman, 2005), the effectiveness of these regulatory
pressures and compliance has still to be realized. Johannson (2003) addresses a
green firm as one that does not look at regulatory or legal compliance as a first step.
The ability to assure that a firm is in compliance is therefore a poor tactic, and very
cost-ineffective. Managers who understand environmental laws can be counted on. In
other words, regulation, compliance, and environmental laws will take care of
themselves if managers adopt a sustainable vision or green objectives for industries.
Much of the literature seeks to establish that there is an acute need for regulatory and
legal measures. However, pressure for sustainable vision in these small industries lies
within themselves. They must realize the importance of environmental management
and quality and that it could be highly effective if it is administered by the small units
themselves.
69
RECOMMENDATIONS
70
RECOMMENDATIONS
Recent modernization efforts
Inspite of the existence of all the aforementioned organizations to help the
development of the SSI, an increasing spread of sickness is reported in the sector.
Acknowledging this fact, the DCSSI set up a working group in 1985 to make
recommendations for a suitable action. The suggestions made by this group included
the following:
In August 2000, the GoI announced its new policy towards the small scale sector.
The government announced that a Technology Development Cell would be set up
in the Small Industries Development Organization (SIDO). This Cell would
provide technology inputs ``to improve productivity and competitiveness of the
products of the small scale sector''. The Technology Development Cell would
coordinate with other industrial research and development organizations to
achieve its objectives. Information on whether such a Cell had been set up was not
available.
Under its scheme of direct assistance, the SIDBI had launched the Technology
Development and Modernization Fund. The main objective of this fund is ``to
encourage existing industrial units in the small scale sector to modernize their
71
In addition, the SIDO and SISIs have introduced a program for promoting
technological modernization of the SSIs. Under this initiative, the small
production units are provided information, advice and training. Reports are
distributed among them for spreading modernization information. The SSIs can
register for these programs for a fee. As of March 1986, there were 570 enterprises
registered under the modernization scheme of the SIDO. However only 24 of
these have been provided with modernization guides.
A recent change in the small-scale industrial policy allows the large firms to hold
up to 26 percent of equity in small enterprises without the requirement of
consolidation of accounts. This is considered as a good way to induce the transfer
of technology and skills from large industrial units to SSIs. Industry experts are
72
however skeptical about this. Most large units use the small-scale sector as subcontractors. Doubts have been expressed whether these large units would allow
for transfers of technology to SSIs and enable them to grow and become
independent units in their own right.
Dereservation
The rationale behind the policy of SSI reservation was studied by the Expert
Committee on Small Enterprises (the Abid Hussain Committee), which submitted its
report in 2006. The Committee listed the following arguments against reservation:
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.
73
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.
Promoting clusters
International experience suggests that the small-scale enterprises flourish in situations
where they can be clustered together in areas where it is easier to develop common
infrastructure facilities of high quality. Many such clusters have already emerged.
However, at present we do not have any policy for providing special assistance for the
development and upgradation of specific industry clusters. The Abid Hussain
Committee had recommended that the States should identify the existing clusters and
promote joint ventures between the State government or local authority and business
associations in these clusters.
The Planning Commission Study Group went a step further and recommended that the
Centre should provide additional resources through a special centrally-sponsored
scheme aimed at upgrading infrastructure in areas where well-defined industry
clusters have already emerged.
According to a UNIDO study, there are 354 industrial clusters in India, of which 34
have a turnover exceeding Rs 1,000 crore. A few have a gross turnover exceeding Rs
10,000 crore. There is evidence to suggest that the new SSIs are increasingly moving
towards clusters to be near the centres of demand. The units that were initially lured to
the backward areas by the capital subsidy provided by the government found
themselves at a greater disadvantage. While in 1987-88 about two-thirds of the total
74
SSI units in the country were in backward areas, this proportion declined to 50 per
cent by 2003-04, according to a survey of SSIs. This proportion must have come
down further by now.
Institutional credit
Ensuring adequate flow of institutional credit to the SSI sector has remained a
major problem despite several attempts made by the Reserve Bank of India over
more than a decade to improve the situation.
A number of studies have clearly established that the major cause for the largescale incidence of sickness in the SSI sector is the non-availability of adequate
and timely working capital from the banking sector. For instance, the S. L. Kapur
Committee Report (2007) bemoaned that despite the central bank's instructions
and guidelines from time to time, banks have not been following the P. R. Nayak
Committee recommendations (2001) emphasising the need to improve the flow of
funds to this sector. It had recommended a minimum level of working capital
finance by banks to SSI units at 20 per cent of the value of their output.
Even today, this recommendation remains only on paper. Worse, according to the
estimates of the Kapur Committee, only 15-20 per cent of the SSI units could
access bank credit. Others have to depend on borrowings from private sources at
exorbitant interest rates. Now there is a new urgency to provide a new deal to this
crucial sector, which successive governments have been promising over the past
decade.
75
EXPORT PROMOTION
Rationale Behind Export Promotion
The capability of Indian SSI products to compete in international markets is reflected
in its share of about 34% in national exports. In case of items like readymade
garments, leather goods, processed foods, engineering items, the performance has
been commendable both in terms of value and their share within the SSI sector while
in some cases like sports goods they account for 100% share to the total exports of the
sector. In view of this, export promotion from the small scale sector has been
accorded high priority in Indias export promotion strategy which includes
simplification of procedures, incentives for higher production of exports, preferential
treatments to SSIs in the market development fund, simplification of duty drawback
rules, etc. Products of SSI exporters are displayed in international exhibitions free of
cost under SIDO Umbrella abroad.
76
BIBLIOGRAPHY/REFERENCE
S
77
BIBLIOGRAPHY/REFERENCES
References
1
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environmental performance in developing countries (World Bank Policy Research
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Paper
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2
Mani, M., Pargal, S., & Huq, M. (2005). Does environmental regulation matter?
Determinants of the location of new manufacturing plants in India in 2003 (World
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a
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Nyati, K. (1988). Problems of pollution and its control in small scale industries.
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