CHAPTER 9

SMALL BUSINESS

LEARNING OBJECTIVES

After studying this chapter, you should be able to:

• explain the meaning and nature of small business;

• appreciate the role of small business in India;

• analyse the problems of small business; and

• classify the different forms of assistance provided by thegovernment to small business, particularly in rural and hilly areas.

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9.1 INTRODUCTION

In the pervious chapters, the conceptsof business, trade, commerce andindustry were discussed. The presentchapter discusses the issue of size ofbusiness, with reference to smallindustries and small businessestablishments. It also describes therole of small business and the majorproblems faced by the small sectorunits. Further, the assistance providedby the government to small business,particularly in the rural and hilly areashas been discussed.

9.2 MEANING AND NATURE OF SMALL

BUSINESS

In India, the ‘village and smallindustries sector’ consists of both‘traditional’ and ‘modern’ smallindustries. This sector has eightsubgroups. They are handlooms,

handicrafts, coir, sericulture, khadi andvillage industries, small scaleindustries and powerlooms. The lasttwo come under the modern smallindustries, while the others come undertraditional industries. Village and smallindustries together provide the largestemployment opportunities in India.

Before understanding the natureand meaning of small business, it isimportant to know how size is definedin our country, with reference to smallindustries and small businessestablishments. Several parameters canbe used to measure the size of businessunits. These include the number ofpersons employed in business, capitalinvested in business, volume of outputor value of output of business andpower consumed for business activities.However, there is no parameter whichis without limitations. Depending on theneed the measures can vary.

Amar, Akbar and Anthony are three good friends who have completed a vocationalcourse in entrepreneurship, after their school education. Finding the job markettough, they were contemplating the idea of setting up a small business, using theskills they had learnt in their course. However, they knew very little about business.They were wondering what business to start, where to locate it, how to procuremachinery and materials needed for the business, how to raise money and howto market. They came across a notification given by the District Industries Centrelocated near the Industrial Estate in Balanagar, Ranga Reddy district of AndhraPradesh regarding a seminar on government’s assistance for a small business,aimed at young entrepreneurs. Excited with the news, the three friends decidedto attend the seminar. They were told about the financial and other assistanceoffered by the Central and State Governments under the Rural EmploymentGeneration Programme to the educated youth. They found that toys were indemand and decided to manufacture toys. They started a small scale industry intheir village by taking financial assistance with the help of Khadi and VillageIndustries Commission. Today, they are successful makers of toys and in thenear future, they plan to get into export market as well.

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The definition used by theGovernment of India to describe smallindustries is based on the investmentin plant and machinery. This measureseeks to keep in view the socio-economicenvironment in India where capital isscarce and labour is abundant. Onemore important point to note is that adefinition exists only for small and tinyunits but not for large and mediumunits. Medium and large sizedenterprises are not defined. Anythingthat does not fall under the definitionof small can be large or medium.Taking capital invested as the basis thesmall business units in India can fallunder any of the following categories:(i) Small scale industry: A small scaleindustrial undertaking is defined asone in which the investment in fixedassets of plant and machinery does notexceed rupees one crore. However, tocater to the needs of small industrieswhose thrust is on export promotionand modernisation, investment ceilingin plant and machinery is rupeesfive crores.(ii) Ancillary small industrial unit:The small scale industry can enjoy thestatus of an ancillary small industry ifit supplies not less than 50 per cent ofits production to another industry,referred to as the parent unit. Theancillary small industry canmanufacture parts, components, sub-assemblies, tools or intermediateproducts for the parent unit. Apart fromcatering to the needs of the parent unit,it can do business on its own. Ancillaryunits have the advantage of assureddemand from parent units. Normally,

the parent unit assists the ancillaryunit by giving technical guidance aswell as financial help.(iii) Export oriented units: The smallscale industry can enjoy the status ofan export oriented unit if it exportsmore than 50 per cent of its production.It can avail the incentives like exportsubsidies and other concessions offeredby the government for exporting units.(iv) Small scale industries ownedand managed by women entre-preneurs: An enterprise promoted bywomen entrepreneurs is a small scaleindustrial unit in which she/theyindividually or jointly have sharecapital of not less than 51 per cent.Such units can avail the specialconcessions offered by the government,like low interest rates on loans, etc.(v) Tiny industrial units: A tiny unit isdefined as an industrial or businessenterprise whose investment in plant andmachinery is not more than Rs. 25 lakhs.(vi) Small scale service and business(Industry related) enterprises: Asmall scale service and businessenterprise is one whose investment infixed assets of plant and machineryexcluding land and building does notexceed Rs. 10 lakhs.(vii) Micro business enterprises:Within the tiny and small businesssector, micro enterprises are those whoseinvestment in plant and machinerydoes not exceed rupees one lakh.(viii) Village industries: VillageIndustry has been defined as anyindustry located in a rural area whichproduces any goods, renders anyservice with or without the use of power

210 BUSINESS STUDIES

and in which the fixed capital investmentper head or artisan or worker does notexceed Rs. 50,000 or such other sum asmay be specified by the centralgovernment, from time to time.(ix) Cottage industries: These are alsoknown as Rural Industries orTraditional industries. They are notdefined by capital investment criteriaas in the case of other small scaleindustries. However, cottage industriesare characterised by certain featureslike the following:

• these are organised byindividuals, with privateresources;

• normally use family labour andlocally available talent;

• the equipment used is simple;• capital investment is small;• produce simple products,

normally in their ownpremises;

• production of goods usingindigenous technology.

9.3 ADMINISTRATIVE SETUP FOR THE

SMALL SCALE, AGRO AND RURAL

INDUSTRIES

The Government of India created theministry of Small Scale Industries andAgro and Rural Industries as the nodalministry for formulation of policy andcoordination of central assistance for thepromotion and development of smallscale industries in India. The Ministrywas bifurcated into two separateministries, viz., Ministry of Small ScaleIndustries and Ministry of Agro andRural Industries in September, 2001.

The Ministry of Small Scale Indus-tries designs policies, programmes, andschemes for the promotion and growthof SSIs. The Small IndustriesDevelopment Organisation (SIDO), alsoknown as the Office of the DevelopmentCommissioner (SSI) which is attachedto this ministry is responsible forimplementing and monitoring ofvarious policies and programmesformulated.

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Ministry of Agro and RuralIndustries is the nodal agency forcoordination and development ofVillage and Khadi industries, tiny andmicro enterprises in both urban andrural areas. It also implements PrimeMinister’s Rojgar Yojana. The variouspolicies, programmes and schemesrelated to agro and rural industries areimplemented by the ministry throughthe Khadi and Village IndustriesCommission (KVIC), Handicrafts Board,Coir Board, Silk Board etc.

State Governments also executedifferent promotional anddevelopmental projects and schemes toprovide number of supportingincentives for development andpromotion of SSIs in their respectivestates. These are executed through theState Directorate of Industries, who hasDistrict Industries Centers (DICs)under it to implement central/statelevel schemes.

9.4 ROLE OF SMALL BUSINESS IN INDIA

Small Scale Industries in India enjoy adistinct position in view of theircontribution to the socio-economicdevelopment of the country. Thefollowing points highlight theircontribution.

(i) Small industries in India accountfor 95 per cent of the industrialunits in the country. Theycontribute almost 40 per cent ofthe gross industrial value addedand 45 per cent of the total exports(direct and indirect exports) fromIndia.

(ii) Small industries are the secondlargest employers of humanresources, after agriculture.They generate more number ofemployment opportunities perunit of capital invested comparedto large industries. They are,therefore, considered to be morelabour intensive and less capitalintensive. This is a boon for alabour surplus country like India.

(iii) Small industries in our countrysupply an enormous variety ofproducts which include massconsumption goods, readymadegarments, hosiery goods,stationery items, soaps anddetergents, domestic utensils,leather, plastic and rubber goods,processed foods and vegetables,wood and steel furniture, paints,varnishes, safety matches, etc.Among the sophisticated itemsmanufactured are electric andelectronic goods like televisions,calculators, electro-medicalequipment, electronic teachingaids like overhead projectors, airconditioning equipment, drugsand pharmaceuticals, agriculturaltools and equipment and severalother engineering products. Aspecial mention should be made ofhandlooms, handicrafts and otherproducts from traditional villageindustries in view of their exportvalue. (see Box A which highlightsthe major industry groups thatcome under the purview of smallindustries as per the classificationlaid down by the government.)

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(iv) The contribution of smallindustries to the balanced regionaldevelopment of our country isnoteworthy. Small industrieswhich produce simple productsusing simple technologies anddepend on locally availableresources both material and labourcan be set up anywhere in thecountry. Since they can be widelyspread without any locationalconstraints, the benefits ofindustrialisation can be reaped byevery region. They, thus, contributesignificantly to the balanceddevelopment of the country.

(v) Small industries provide ampleopportunity for entrepreneurship.The latent skills and talents ofpeople can be channelled intobusiness ideas which can beconverted into reality with littlecapital investment and almost nilformalities to start a small business.Amar, Akbar and Anthony in ourstory proved that a small businesscan be started, if one has thedetermination to achieve.

(vi) Small industries also enjoythe advantage of low cost ofproduction. Locally availableresources are less expensive.Establishment and running costsof small industries are on the lowerside because of low overheadexpenses. Infact, the low cost ofproduction which small industriesenjoy is their competitive strength.

(vii) Due to the small size of theorganisations, quick and timely

decisions can be taken withoutconsulting many people asit happens in large sizedorganisations. New businessopportunities can be captured atthe right time.

(viii) Small industries are best suitedfor customised production. i.e.designing the product as per thetastes/preferences/needs ofindividual customers, say for anexample tailor -made shirt ortrouser. The recent trend in themarket is to go in for customisedproduction of even non-traditionalproducts such as computers andother such products. They canproduce according to the needsof the customers as they usesimple and flexible productiontechniques.

(ix) Last but not the least, smallindustries have inherent strengthof adaptability and a personaltouch and therefore maintain goodpersonal relations with bothcustomers and employees. Thegovernment does not have tointerfere in the functioning of asmall scale unit. Due to the smallsize of the organisation quick andtimely decision can be takenwithout consulting many peopleas in large sized organisations.New business opportunities canbe captured at the right time, thusproviding healthy competition tobig business which is good for theeconomy.

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9.5 ROLE OF SMALL BUSINESS IN

RURAL INDIA

Traditionally, rural households indeveloping countries have been viewedas exclusively engaged in agriculture.There is an increasing evidence thatrural households can have highlyvaried and multiple sources of incomeand that, rural households can and doparticipate in a wide range of non-agricultural activities such as wageemployment and self-employment incommerce, manufacturing andservices, along with the traditional ruralactivities of farming and agriculturallabour. This can be largely attributedto the policy initiatives taken by theGovernment of India, to encourage andpromote the setting up of agro-basedrural industries.

The emphasis on village and smallscale industries has always been anintegral part of India’s industrialstrategy, more so, after the second FiveYear Plan. Cottage and rural industriesplay an important role in providingemployment opportunities in the ruralareas, especially for the traditionalartisans and the weaker sections ofsociety. Development of rural andvillage industries can also preventmigration of rural population to urbanareas in search of employment.

Village and small industries aresignificant as producers of consumergoods and absorbers of surplus labour,thereby addressing the problems ofpoverty and unemployment. Theseindustries contribute amply to othersocio-economic aspects, such as

Box AMajor Industry Groups in the Small Scale Sector

• Food Products

• Chemical and ChemicalProducts

• Basic Metal Industries

• Metal Products

• Electrical Machinery and Parts

• Rubber and Plastic Products

• Machinery and Parts exceptElectrical Goods

• Hosiery and Garments — WoolProducts

• Non-metallic Mineral Products

• Paper Products and Printing

• Transport Equipment andParts

• Leather and Leather Products

• Miscellaneous ManufacturingIndustries

• Beverages, Tobacco andTobacco Products

• Repair Services

• Cotton Textiles

• Wool, Silk, Synthetic Fibre andTextiles

• Jute, Hemp and Mesta Textiles

• Other Services

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reduction in income inequalities,dispersed development of industriesand linkage with other sectors of theeconomy.

In fact promotion of small scaleindustries and rural industrialisationhas been considered by theGovernment of India as a powerfulinstrument for realising the twinobjectives of ‘accelerated industrialgrowth and creating additionalproductive employment potential inrural and backward areas.’

However, the potential of smallindustries is often not realised fully,because of several problems related tosize. We shall now examine some of themajor problems that small businesseswhether in urban or in rural areas areencountering in their day-to-dayfunctioning.

9.6 PROBLEMS OF SMALL BUSINESS

Small scale industries are at a distinctdisadvantage as compared to largescale industries. The scale ofoperations, availability of finance,ability to use modern technology,procurement of raw materials are someof these areas. This gives rise to severalproblems.

Most of these problems can beattributed to the small size of theirbusiness, which prevents them fromtaking advantages, which accrue tolarge business organisations. However,the problems faced are not similar toall the categories of small businesses.For instance, in the case of smallancillary units, the major problemsinclude delayed payments, uncertainty

of getting orders from the parent unitsand frequent changes in productionprocesses. The problems of traditionalsmall scale units include remotelocation with less developedinfrastructural facilities, lack ofmanagerial talent, poor quality,traditional technology and inadequateavailability of finance.

The problems of exporting smallscale units include lack of adequatedata on foreign markets, lack ofmarket intelligence, exchange ratefluctuations, quality standards, andpre-shipment finance. In general thesmall businesses are faced with thefollowing problems:(i) Finance: One of the severeproblems faced by SSIs is that of non-availability of adequate finance to carryout its operations.

Generally a small business beginswith a small capital base. Many of theunits in the small sector lack the creditworthiness required to raise as capitalfrom the capital markets. As a result,they heavily depend on local financialresources and are frequently thevictims of exploitation by the moneylenders. These units frequently sufferfrom lack of adequate working capital,either due to delayed payment of duesto them or locking up of their capital inunsold stocks. Banks also do not lendmoney without adequate collateralsecurity or guarantees and marginmoney, which many of them are not ina position to provide.(ii) Raw materials: Another majorproblem of small business is theprocurement of raw materials. If the

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required materials are not available,they have to compromise on the qualityor have to pay a high price to get goodquality materials. Their bargainingpower is relatively low due to the smallquantity of purchases made by them.Also, they cannot afford to take the riskof buying in bulk as they have nofacilities to store the materials. Becauseof general scarcity of metals, chemicalsand extractive raw materials in theeconomy, the small scale sector suffersthe most. This also means a waste ofproduction capacity for the economyand loss of further units.(iii) Managerial skills: Small businessis generally promoted and operated bya single person, who may not possessall the managerial skills required to runthe business. Many of the smallbusiness entrepreneurs possess soundtechnical knowledge but are lesssuccessful in marketing the output.Moreover, they may not find enoughtime to take care of all functionalactivities. At the same time they are notin a position to afford professionalmanagers.(iv) Labour: Small business firmscannot afford to pay higher salaries tothe employees, which affects employeewillingness to work hard and producemore. Thus, productivity per employeeis relatively low and employee turn overis generally high. Because of lowerremuneration offered, attractingtalented people is a major problem insmall business organisations.Unskilled workers join for lowremuneration but training them is a

time consuming process. Also, unlikelarge organisations, division of labourcannot be practised, which resultsin lack of specialisation andconcentration.(v) Marketing: Marketing is one of themost important activities as it generatesrevenue. Effective marketing of goodsrequires a thorough understandingof the customer’s needs andrequirements. In most cases, marketingis a weaker area of small organisations.These organisations have, therefore, todepend excessively on middlemen, whoat times exploit them by paying lowprice and delayed payments. Further,direct marketing may not be feasiblefor small business firms as they lackthe necessary infrastructure.(vi) Quality: Many small businessorganisations do not adhere to desiredstandards of quality. Instead theyconcentrate on cutting the cost andkeeping the prices low. They do nothave adequate resources to invest inquality research and maintain thestandards of the industry, nor do theyhave the expertise to upgradetechnology. In fact maintaining qualityis their weakest point, when competingin global markets.(vii) Capacity utilisation: Due to lackof marketing skills or lack of demand,many small business firms have tooperate below full capacity due to whichtheir operating costs tend to increase.Gradually this leads to sickness andclosure of the business.(viii) Technology: Use of outdatedtechnology is often stated as serious

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lacunae in the case of small industries,resulting in low productivity anduneconomical production.(ix) Sickness: Prevalence of sickness insmall industries has become a point ofworry to both the policy makers and theentrepreneurs. The causes of sicknessare both internal and external. Internalproblems include lack of skilled andtrained labour and managerial andmarketing skills. Some of the externalproblems include delayed payment,shortage of working capital, inadequateloans and lack of demand for theirproducts.(x) Global competition: Apart from theproblems stated above small businessesare not without fears, especially in thepresent context of liberalisation,privatisation and globalisation (LPG)policies being followed by severalcountries across the world. Remember,India too has taken the LPG path since1991. Let us look into the areas wheresmall businesses feel threatened withthe onslaught of global competition.(a) Competition is not only from

medium and large industries, butalso from multinational companieswhich are giants in terms of theirsize and business volumes.Opening up of trade results in cutthroat competition for small scaleunits.

(b) It is difficult to withstand thequality standards, technologicalskills, financial creditworthiness,managerial and marketing capa-bilities of the large industries andmultinationals.

(c) There is limited access to marketsof developed countries due to thestringent requirements of qualitycertification like ISO 9000.

9.7 GOVERNMENT ASSISTANCE TO

SMALL INDUSTRIES AND SMALL

BUSINESS UNITS

Keeping in view the contribution ofsmall business to employmentgeneration, balanced regionaldevelopment of the country, andpromotion of exports, the Governmentof India’s policy thrust has been onestablishing, promoting and developingthe small business sector, particularlythe rural industries and the cottage andvillage industries in backward areas.Governments both at the central andstate level have been activelyparticipating in promoting self-employment opportunities in ruralareas by providing assistance in respectof infrastructure, finance, technology,training, raw-materials, and marketing.The various policies and schemes ofGovernment assistance for thedevelopment of rural industries insiston the utilisation of local resources andraw materials and locally availablemanpower. These are translated intoaction through various agencies,departments, corporations, etc., allcoming under the purview of theindustries department. All these areprimarily concerned with the promotionof small and rural industries.

Some of the support measures andprogrammes meant for the promotion

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of small and rural industries arediscussed below:

A. INSTITUTIONAL SUPPORT

1. National Bank for Agricultureand Rural Development(NABARD)

NABARD was setup in 1982 topromote integrated rural development.Since then, it has been adopting amulti-pronged, multi-purpose strategyfor the promotion of rural businessenterprises in the country. Apart fromagriculture, it supports smallindustries, cottage and villageindustries, and rural artisans usingcredit and non-credit approaches. Itoffers counselling and consultancyservices and organises training anddevelopment programmes for ruralentrepreneurs.

2. The Rural Small BusinessDevelopment Centre (RSBDC)

It is the first of its kind set up by theworld association for small andmedium enterprises and is sponsoredby NABARD. It works for the benefitof socially and economicallydisadvantaged individuals and groups.It aims at providing management andtechnical support to current andprospective micro and smallentrepreneurs in rural areas. Since itsinception, RSBDC has organisedseveral programmes on ruralentrepreneurship, skill upgradationworkshops, mobile clinics and trainerstraining programmes, awareness

and counselling camps in variousvillages of Noida, Greater Noidaand Ghaziabad. Through theseprogrammes it covers a largenumber of rural unemployed youthand women in several trades, whichincludes food processing, soft toysmaking, ready-made garments,candle making, incense stickmaking, two-wheeler repairing andservicing, vermicomposting, and nonconventional building materials.

3. National Small IndustriesCorporation (NSIC)

This was set up in1955 with a view topromote, aid and foster the growth ofsmall business units in the country.This focuses on the commercial aspectsof these functions.

• Supply indigenous and importedmachines on easy hire-purchaseterms.

• Procure, supply and distributeindigenous and imported rawmaterials.

• Export the products of smallbusiness units and developexport-worthiness.

• Mentoring and advisory services.• Serve as technology business

incubators.• Creating awareness on techno-

logical upgradation.• Developing software technology

parks and technology transfercentres.

A new scheme of ‘performanceand credit rating’ of small businessesis implemented through National Small

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Industries Corporation (NSIC) with thetwin objectives of (i) sensitising the smallindustries about the need for creditrating and (ii) encouraging the smallbusiness units to maintain goodfinancial track record. This is to ensurethat they score higher rating for theircredit requirements as and when theyapproach the financial institutions fortheir working capital and investmentrequirements.

4. Small Industries DevelopmentBank of India (SIDBI)

• Set up as an apex bank to providedirect/indirect financial assistanceunder different schemes, to meetcredit needs of small businessorganisations.

• To coordinate the functions ofother institutions in similaractivities.

Thus so far, we have learnt aboutthe various institutions operating at thecentral level and state level in supportof the small industries.

5. The National Commission forEnterprises in the UnorganisedSector (NCEUS)

The NCEUS was constituted inSeptember, 2004, with the followingobjectives:

• To recommend measuresconsidered necessary forimproving the productivity ofsmall enterprises in the informalsector.

• To generate more employmentopportunities on a sustainable

basis, particularly in the ruralareas.

• To enhance the competitiveness ofthe sector in the emerging globalenvironment.

• To develop linkages of the sectorwith other institutions in theareas of credit, raw materials,infrastructure, technologyupgradation, marketing andformulation of suitable arrange-ments for skill development.

The commission has identifiedthe following issues for detailedconsideration:

• Growth poles for the informalsector in the form of clusters/hubs, in order to get externaleconomic aid.

• Potential for public-privatepartnerships in imparting the skillsrequired by the informal sector.

• Provision of micro-finance andrelated services to the informalsector.

• Providing social security for theworkers in the informal sector.

6. Rural and WomenEntrepreneurshipDevelopment (RWED)

The Rural and Women Entrepreneur-ship Development programme aims atpromoting a conducive businessenvironment and at buildinginstitutional and human capacities thatwill encourage and support theentrepreneurial initiatives of ruralpeople and women. RWE provides thefollowing services:

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• Creating a business environmentthat encourages initiatives of ruraland women entrepreneurs.

• Enhancing the human andinstitutional capacities required tofoster entrepreneurial dynamismand enhance productivity.

• Providing training manuals forwomen entrepreneurs andtraining them.

• Rendering any other advisoryservices.

7. World Association for Smalland Medium Enterprises(WASME)

It is the only International Non-Governmental Organisation of micro,small and medium enterprises basedin India, which set up an InternationalCommittee for Rural Industrialisation.Its aim is to develop an action planmodel for sustained growth of ruralenterprises.

Apart from these, there are severalschemes to promote the non-farmsector, mostly initiated by theGovernment of India. For instance,there are schemes for entrepreneurshipthrough subsidised loans likeIntegrated Rural DevelopmentProgramme (IRDP), Prime MinisterRojgar Yojana (PMRY), schemes toprovide skills like Training of RuralYouth for Self Employment (TRYSEM),and schemes to strengthen the gendercomponent like Development of Womenand Children in Rural Areas (DWCRA).There are schemes to provide wage

employment like Jawahar RojgarYojana (JRY), food for work etc., onrural works programmes to achieve thetwin objectives of creation of ruralinfrastructure and generationof additional income for the ruralpoor, particularly during the leanagricultural season. Last, but not theleast, there are schemes for specificgroups of industries such as khadi,handlooms and handicrafts.

8. Scheme of Fund for Re-generation of TraditionalIndustries (SFURTI)

To make the traditional industriesmore productive and competitive andto facilitate their sustainabledevelopment, the Central Governmentset up this fund with Rs. 100 croresallocation to begin within the year2005. This has to be implemented bythe Ministry of Agro and RuralIndustries in collaboration with StateGovernments. The main objectives ofthe scheme are as follows:

• To develop clusters of traditionalindustries in various parts of thecountry;

• To build innovative and traditionalskills, improve technologiesand encourage public-privatepartnerships, develop marketintelligence etc., to make themcompetitive, profitable andsustainable; and

• To create sustained employmentopportunities in traditionalindustries.

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9. The District Industries Centers(DICs)

The District Industries CentersProgramme was launched on May 1,1978, with a view to providing anintegrated administrative framework atthe district level, which would look atthe problems of industrialisation in thedistrict, in a composite manner. Inother words District Industries Centersis the institution at the district levelwhich provides all the services andsupport facilities to the entrepreneursfor setting up small and villageindustries. Identification of suitableschemes, preparation of feasibilityreports, arranging for credit, machineryand equipment, provision of rawmaterials and other extension servicesare the main activities undertaken bythese centers. Broadly DICs are tryingto bring change in the attitude of therural entrepreneurs and all otherconnected with economic developmentin the rural areas. Even within thenarrow spectrum, an attempt is beingmade to look at some of the neglectedfactors such as the rural artisan, theskilled craftsman and the handloomoperator and to tune up these activitieswith the general process of ruraldevelopment being taken up throughother national programmes. The DICis thus emerging as the focal point foreconomic and industrial growth at thedistrict level.

B. INCENTIVES

Special emphasis on the industrialdevelopment of backward, tribal and

hilly areas has been the concern of theGovernment of India expressed in allthe Five Year Plans and industrial policystatements. Realising that backwardareas development is a long-termprocess, several committees wereappointed to identify the criteria foridentifying backward areas and also tosuggest schemes to take up theHerculean task of balanced regionaldevelopment. The implementation ofintegrated rural developmentprogramme is one such attempt madeby the government to developbackward areas. The rural industriesproject programme initiated by theGovernment of India was meant todevelop small business units in selectrural areas. Though the backward areadevelopment programmes varied fromstate to state, they cumulativelyrepresented a significant package ofincentives to attract industries inbackward areas.

Some of the common incentivesoffered are discussed as below:Land: Every state offers developed plotsfor setting up of industries. The termsand conditions may vary. Some statesdon’t charge rent in the initial years,while some allow payment ininstalments.Power: Power is supplied at aconcessional rate of 50 per cent, whilesome states exempt such units frompayment in the initial years.Water: Water is supplied on a no-profit,no-loss basis or with 50 per centconcession or exemption from watercharges for a period of 5 years.

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Sales Tax: In all union territories,industries are exempted from sales tax,while some states extend exemption for5 years period.Octroi: Most states have abolishedoctroi.Raw materials: Units located inbackward areas get preferentialtreatment in the matter of allotment ofscarce raw materials like cement, ironand steel etc.Finance: Subsidy of 10-15 per cent isgiven for building capital assets. Loansare also offered at concessional rates.Industrial estates: Some statesencourage setting up of industrialestates in backward areas.Tax holiday: Exemption from payingtaxes for 5 or 10 years is given toindustries established in backward,hilly and tribal areas.

To sum up, it may be stated that thesmall business sector in India is gettingthe support of government throughvarious institutions in different formsfor different purposes. Despite specialattention being given to backwardareas, it is observed that imbalances indevelopment are still there. There is aneed to develop infrastructural facilitiesin these areas, as no amount of

subsidies or concessions can overcomethe natural handicaps caused by a lackof such facilities.

9.8 THE FUTURE

The present era is the regime of theWorld Trade Organisation (WTO), inwhich the rules of trade are subject tofrequent changes as per globalexpectations. As a founder member ofWTO, India too has committed itself tothe policy framework of WTO. As aresult, small business is also movingaway from the pre-liberalisation era ofprotection. With the Indian economygetting integrated with the globaleconomy, it is inevitable for the smallbusinesses to gear up their capabilitiesto explore, penetrate and develop newmarkets. They have to steadily reorientthemselves to face the challenges posedby increased competition, domesticallyand internationally too. With theirdynamism, flexibility and innovativeentrepreneurial spirit, small businesseshave to adapt themselves to the fastchanging needs of the market driveneconomy. Government should reorientits assistance to the small businesssector by acting as a facilitator andpromoter and not as a regulator. New

Forms of Support Offered to Small Industries by the Government

• Institutional support in respect of credit facilities• Provision of developed sites for construction of sheds• Provision of training facilities• Supply of machinery on hire purchase terms• Assistance for domestic and export marketing• Technical and financial assistance for technological up-gradation• Special incentives for setting up of enterprises in backward areas

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strategies have to be evolved to fosterpartnership between large and smallindustries, adopt cluster approach,develop creative marketing, improvetechnological skills by upgradation,building export competitiveness byidentifying the core competencies ofthe small businesses.

In fact small business sectorshould view globalisation as anopportunity for its active participationas suppliers of specialised component

Key Terms

Small scale industries Cottage industries Micro business enterprises

Expert oriented units Rural industries Women enterprises

Ancillary Khadi industries Tiny industries

SUMMARY

On the basis of the capital invested, small business units can be categorisedinto various categories, which include Small Scale Industry, Ancilliary SmallIndustrial Units, Export Oriented Units, Small Scale Industries owned andmanaged by Women Entrepreneurs, Tiny Industrial Units, Small ScaleServices and Business (Industry related) Enterprises, Micro BusinessEnterprises, Village Industries and Cottage Industries.

Administrative setup: The administrative set up for small scale industryconsists of two ministries viz., the Ministry of Small Scale Industries andMinistry of Agricultural and Rural Industry, Government of India, theMinistry of SSIs is the nodal ministry for formulation of policy andcoordination of central assistance, for the promotion and development ofSSIs in India.

Similarly, the ministry of Agro and Rural Industries is the nodal agency forcoordination and development of village and Khadi Industries, Tiny andMicro Enterprises in both urban and rural area. State Governments alsoexecute different promotional development projected schemes to provide anumber of supporting incentives for development and promotion of SSIs intheir respective states.

and parts. If small businesses are tomaintain their market share andhealthy growth, they have to createa level-playing field for themselves.The long-term competitive positionfor the small businesses will dependon how well they learn to manage,adopt and improve their competitivestrength.

In short the mantra of success forsmall businesses in this modern erahas to be ‘think global, act local.’

223SMALL BUSINESS

Role of small business in India: Small Scale Industries play a veryimportant role in the socio economic development of the country. Theseindustries account for 95 per cent of industrial units, contributing up to 40per cent of the gross industrial value added and 45 per cent of the totalexports. SSIs are the second largest employers of human resources, afteragriculture and produce a variety of products for the economy. These unitscontribute to the balanced regional development of the country by usinglocally available material and indigenous technology. These provide amplescope for entrepreneurship; enjoy the advantage of low cost of production;quick decision making, and have quick adaptability and are best suited tocustomised production.

Role of small business in rural India: Small business units provide multiplesource of income, in wide range of non agricultural activities and provideemployment opportunities in rural areas, especially for the traditionalartisan and weaker sections of the society.

Problems of small industries: Small Industries suffer from various problemsincluding that of (i) Finance, (ii) Non-availability of raw material,(iii) Managerial skills (iv) Skilled labour (v) Marketing of their goods(vi) Maintaining Quality standards (vii) Low capacity utilisation, (viii) Useof traditional technology (ix) Prevalence of sickness and (x) Facing globalcompetition.

Governmental assistance to small industries: In view of the contributionof small business in various areas including employment generation,balanced regional development, and promotion of export the central andstate government have been providing assistance in respect ofinfrastructure, finance, technology, training etc., to SSI units.

Some of the major institutions providing support include National Bank forAgriculture and Rural Development, Rural Small Business DevelopmentCentre, National Small Industries Corporation, Small IndustriesDevelopment Bank of India (SIDBI)), The National Commission forEnterprises in Unorganised Sector (NCEUS), Rural and WomenEntrepreneurship Development (RWE), World Association for Small andMedium Enterprises (WASME), Scheme of Fund for Regeneration ofTraditional Industries (SFURM) and the District Industries centre (DIC).

EXERCISES

Short Answer Questions

1. What are the different parameters used to measure the size of business?

2. What is the definition used by Government of India for Small ScaleIndustries?

224 BUSINESS STUDIES

3. How would you differentiate between an ancillary unit and a tiny unit?

4. State the features of cottage industries.

Long Answer Questions

1. How do small scale industries contribute to the socio-economicdevelopment of india?

2. Describe the role of small business in rural India.

3. Discuss the problems faced by small scale industries.

4. What measures has the government taken to solve the problem offinance and marketing in the small scale sector?

5. What are the incentives provided by the Government for industries inbackward and hilly areas?

Projects/Assignments

1. Prepare a questionnaire to find out the actual problems faced by anowner of a small scale unit. Prepare a project report on it.

2. Survey about five small scale units in your vicinity and find out if theyhave received any assistance by the institutions set up by theGovernment.