The Role Of Small

Scale Industries In
India
A small scale or cottage industry may be defined as an enterprise or series of
operations carried on by a workman skilled in the craft on his responsibility, the
finished product of which, he markets himself
-Prof. K.T. Sash

By Rahul Dixit
BBA Sem-4

* Indian economy is an under developed economy. Its vast resources are

either unutilized or under utilized. A major section of man power is lying

idle. The per capita income is low. Capital is shy and scarce and
investment is lean. Production is traditional and the technique is
outdated. The output is insufficient and the basic needs of the people
remain unfulfilled.
* Industrialization is the only answer to this present state of disrupted
economy. The problem is of the approach which should be direct,
utilitarian and pragmatic. Such industries do not require huge capital
and hence suitable for a country like India.
* The small scale industries have a talent of dispersal. They can be
accessible to the remote rural areas of the country and do not lead to
regional imbalances and concentration of industries at one place, which
is responsible for many economic resources such as entrepreneurship
and capital.

*State Of Indian Economy

SSI means small scale industries, which is an industrial

undertaking with the investment not exceeding Rs.100
lakhs in plant and machinery. In cases of auxiliary
industries the investment ceiling on plant and
machinery is also Rs.100 lakhs.

*Small Scale Industries

* Small Scale Industries help the economy in promoting

balanced development of industries across all the regions

of the economy.
* Small Scale Industries are adept in distributing national
income in more efficient and equitable manner among the
various participants in the process of good production than
their medium or larger counterparts.
* Small Scale Industries enjoy a lot of help and
encouragement from the government through protecting
these industries from the direct competition of the large
scale ones, provision of subsidies in the form of capital,
lenient tax structure for this industry

*Advantages

* Before Independence, the present small scale industry was meant to

denote the village and the urban cottage industry.

* This group included a variety of industries ranging from manufacturing of
Iron safes, locks, carpets, marble jigs, baskets, hand-loom cloth and the
like.
* In fact, at that time the term cottage and Small scale industries was
used in juxtaposition to large scale industries, which were established
under the British patronage.
* They received encouragement and support during the freedom
movement.
* The small scale industries found a prominent place in the economic
programme envisaged by the Indian National Congress.

SSI Pre-independence

After 1947
* Jawaharlal Nehru maintained separate entities of small scale industries. He was of
the view that a small industry was the middle sector and it would overlap both the
cottage and the large industries.
1977 industrial Policy
* The basic policy support of SSI sector had its roots in the Industrial Policy Resolution
1977, laid emphasis on reservation of items.
* The reservation economically viable and technologically feasible products to be
exclusively manufactured by small scale industry began with a list of 47 items
which was gradually extended to too many products.
* At Present 812 items are in the reserved list.
* The limit on the fixed capital investment for SSIs was Rs 7.5 lakhs and for
ancillaries it was Rs 10 lakhs. After the Industrial Policy, the ceiling for investment
for SSIs was raised to Rs 60 lakhs and Rs 70 lakhs for ancillaries .

*SSI Post-Independence

1991 Industrial Policy

* Equity participation of upto 24% by other industrial undertakings including

foreign companies.
* Hike in investment limit for tiny sector from Rs. 2 lakh to Rs. 5 lakh.
* Support from National Equity Fund for projects upto Rs. 10 lakh.
* Single window loans to cover projects upto Rs. 20 lakhs. Banks to be
involved.
* Relaxation of certain provisions of labor laws.
* Subcontracting Exchanges to be set up by industry associations
* Factoring services through SIDBI to overcome the problem of delayed
payments.
* Women enterprises redefined
* Package for handloom and handicraft sector
* Export development centre in SIDO
* Marketing of mass consumption items by NSIC under a common brand name.

1995 WTO Policy

* The formation of WTO in 1995 resulted in a major challenge to the well being of
*

the SSI. The protection given to the SSI in the form of reservation and
quantitative restrictions has been withdrawn.
More than 160 items reserved under the SSI category have been de reserved.

Micro, Small and Medium Enterprises Development Act, 2006 (MSMED

Act)
*The Act provides the framework fir recognition of enterprises (Manufacturing and services) and integrating
the micro, small and medium enterprises.
*Categorization of SMEs: SMEs have been categorized into manufacturing and service industry within which
the classification based on investment in plant and machinery or in equipment has been made:
*Manufacturing Enterprise:
Micro: investment upto Rs. 25 lakhs
Small Enterprises: investment above Rs. 25 lakhs and upto Rs. 5 crore
Medium Enterprise: investment above Rs. 5 crore and upto Rs. 10 crore
*Service Enterprises:
Micro: investment upto Rs. 10 lakhs
Small Enterprises: investment above Rs. 10 lakhs and upto Rs. 2 crore
Medium Enterprise: investment above Rs. 2 crore and upto Rs. 5 crore

Other Features:

Establishment of funds for promotion, development and enhancement of competitiveness of these

enterprises.
Progressive Credit Policies and practices.
Preference in Government procurement of products and services of micro and small enterprises.
More effective mechanism for mitigating problem of delayed payment to micro and small
enterprises.
Simplification of process for closure of business by all three categories of business

*Performance Of Small

Scale Industries

* 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.

* The number of small scale units has increased from an estimated

8.74 lakhs units in the year 1980-81 to an estimated 31.21 lakhs in

the year 1999.

*PRODUCTION

Production From Small Scale Industries

Production (Rs. '000 crores) at 1993-94 prices

300000

250000

200000

150000

100000

50000

Production (Rs. 000' crores) at 1993-94

prices

* 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.

*EMPLOYMENT

Year
1990-91
1991-92
1992-93
1993-94
1994-95
1995-96
1996-97
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06

Production per
employee (Rs.
Employment
thousand) at
(Lakh Nos.)
1993-94 prices
158.3
54
166
53
174.8
53
182.6
54
191.4
57
197.9
61
205.9
66
213.2
69
220.6
71
229.1
74
238.7
77
249.3
78
260.2
81
271.4
84
282.6
89
294.9
93

* 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, 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%.

* Generation of Employment Industry Group-wise

* Per unit employment was the highest (20) in units

engaged in beverages, tobacco & tobacco products

mainly particularly in Maharashtra, Andhra
Pradesh, Rajasthan, Assam and Tamil Nadu.
* Next came Cotton textile products (17), Nonmetallic 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

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%).

* 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%.

* State-wise Employment

Distribution

* No of Employment in Small Scale Industries in

India.

* SSI Sector plays a major role in India's present export performance.

* 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.
* 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.
* SSI Sector contributes about 45%-50% of the Indian Exports.
* Direct exports from the SSI Sector account for nearly 35% of total
exports.
* It contribute around 15% to exports indirectly.
* Non traditional products account for more than 95% of the SSI
exports.

*EXPORT

Export from small sector

* Major Export Destination

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.

*Opportunity

* Development measures should be spread

* Rising productivity needs to be made
sustainable
* Assistance programs need to be tackled
* Skill based needs need to be improved

*Suggestions