Small Scale Industries

Introduction

Small enterprises typically make a large contribution to manufacturing employment in

Poor countries. However, the developmental contribution of most of them is limited to

Generating subsistence employment of last resort. Hence, in the face of fast labour Force

growth and limited employment absorption in other sectors, developing country

Governments have mounted efforts to improve productivity and earnings in these firms .

This has spawned a plethora of policies and programmes, and an almost boundless

Literature documenting them.

This article is a review of one special subset of that literature, namely studies that Shed

light on measures aimed at improving technological performance. This aspect has

recently received less attention than other forms of assistance. Although much is being

written about so-called business development services (BDS), of which technology

Support is a component; most of that literature has a broader focus, dealing with

Management, organization, sales, employment, income and general quality issues. Few

Publications contain technical details about upgrading of products, processes and

Organization, the support needed to bring about such improvements and the effectiveness

of delivery mechanisms.

Yet technological competence is an especially important determinant of small

Manufacturers’ ability to hold their own in a context of liberalization and increasing

Integration of manufacturing into global networks. Many of their markets, even

traditional Ones are changing rapidly. In this situation, a lack of capability to produce

efficiently, meet deadlines, or upgrade product quality and design spells defeat.

The main objective is to identify important common factors behind the success and

Failure of technology assistance projects of public agencies and non-governmental

Organizations (NGOs).1 Insights into the question of what constitutes ª best practiceº in

this field is still sorely lacking. The rationale for technology support for small firms is

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Elaborated in Section 2. Lessons from past debates and interventions are drawn in

Section 3. Section 4 treats recent developments in the debate about small industry

Promotion more broadly, as these hold important lessons for current technical assistance

Practices. This sets the scene for the discussion of recent approaches to project Design

and implementation in Section 5, focusing on key principles behind the success of new

approaches that are likely to have more general validity. These are illustrated with project

case studies in Section 6. Conclusions are given in Section 7. The emphasis of this review

is on small-scale workshops, so common throughout the developing world. They

typically employ between five and 50 people, including

Some hired labour. They have some division of labour and use basic machinery, but their

managerial practices and technological characteristics are worlds removed from

Those of modern large companies. They tend to be engaged in well-established or even

traditional activities, making: basic wooden furniture; simple metal products such as

Tractor-trailers, ploughs and window frames; leather goods; local construction materials;

Or processed foodstuffs such as tofu and pasta. The customer base usually includes large

numbers of the poor and lower middle class. Except in some Asian newly industrialized

countries (NICs), few are in the forefront in new high-tech sectors and Successful

exporters. Only a small minority engages in formal R&D.2 Self-employed

Workers such as traditional blacksmiths, potters and weavers, and very small family-run

Micro-enterprises operating in the informal sector are not part of this review. The

Support programmes mounted for them are focused more on poverty alleviation than on

business growth, and a discussion of these programmes raises different issues.

2

Small Scale Industries

7.65 The small scale sector has played a very important role in the socio-

economic development of the country during the past 50 years. It has

significantly contributed to the overall growth in terms of the Gross

Domestic

Product (GDP), employment generation and exports. The performance of the

small scale sector, therefore, has a direct impact on the growth of the overall

economy. The performance of the small scale sectoring terms of parameters

like number of units (both registered and unregistered), production,

employment and exports

During the one year period i.e., 2000-01over 1999-2000, the number of SSI

units is estimated to have increased by 1,58,000, production at current prices

by Rs.72,609 crore and at constant prices by Rs. 33,714 crore. Employment

increased by 7,14,000 persons, while exports were higher by Rs. 5,778

crores.

7.67 According to projections made by the Ministry of Small Scale

Industries during2000-01, the SSI sector recorded growth introduction of

8.09 per cent over the previous year. The small scale industries sector has

recorded higher growth rate than the industrial sector as a whole (4.9 per

cent during

2000-01). It contributed about 40 per cent towards the industrial production

as a whole and 35 per cent of direct exports from thecountry.7.68 The

Government has been taking various measures from time to time in order to

enhance

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The productivity, efficiency and competitiveness of the SSI sector. In

pursuance of the comprehensive policy package announced last year, the

major developments that have taken place in the SSI sector during 2001-02

are briefly outlined

Sickness in the SSI Sector

7.69 As on March 31, 2001, there were2,49,630 sick SSI units which had obtained loans

from banks. An amount of Rs. 4,506 crore of bank credit was blocked in these units. Of

these only 13,076 units were considered potentially viable by the banks with outstanding

credit of Rs. 399 crore. Further, banks had identified2,25,488 units with outstanding bank

credit amounting to Rs. 3,943 crore as unviable. Rehabilitation of sick units is a costly

proposition

As it involves rescheduling of past overdoes with concessions on interest amount due,

additional credit for modernization and technology upgradation and provision for fresh

working capital. Presently, the State Level Inter-Institutional Committee (SLIIC) of

banks and financial institutions is the only forum looking into rehabilitation of potentially

viable sick SSI units. However, in the absence of statutory backing, Slices has no power

to enforce itsdecisions.7.70 To tackle the problem of rehabilitation of potentially viable

sick SSI units, the RBI constituted a working group on November 25,2000 under the

chairmanship of Sheri S.S. Kohli,

The then chairman of Indian Banks Association, to look into the issue. The Working

Group submitted its report in May, 2001. All the major recommendations of the working

group have been accepted by the RBI, including a change in

The definition of Sick SSI units, norms for deciding on the viability of sick units etc. The

revised definition would enable banks to take action at an early stage for revival of the

units. Based on the accepted recommendations of the Working Group, the RBI has drawn

up the revised guidelines for Rehabilitation of Sick SSI units, which have been circulated

on January 16, 2002 to all the Banks for implementation.

4

District Industries Centre

The availability of infrastructure facilities likes, Industrial space, power water, Transport,

Telecommunication linkage trained labour and financial assistance etc. is the important

factors which determine the Industrial growth of the area.

Industrial Land/Area The state Government has developed the following Industrial area's/Estate/Colonies in

the District where Industrial plots/sheds were made available to the entrepreneurs at most

reasonable prices

Other Fiscal Incentives Granted by the DIC

· Small Scale Industries

· Electricity duty exemption

· Exemption for electricity duty is granted to the units

· Set-up in the State for initial five years.

· Octroi Exemption

· Priority Telephone Connection

PRIME MINISTER ROZGAR YOJANA

The purpose of this scheme was to provide employment been made in the scheme to

become more popular and meet out job opportunities i.e. candidate who is middle pass

can take loan under this scheme. In case of S.C and female applicants age limit is

enhanced from 35 years to 45 years. A target of 7 lacs up to the end 8th Five-year plan

was fixed. The aim of the scheme is to self-dependence amongst youths by setting up

Industrial units, business venture, servicing units etc. The results of this scheme are

encouraging. The following are the achievements made under this scheme by the DIC,

Hisar.

5

Registration of small-scale industries

The industrial unit, which have investment up to Rs. One crore in plants and machinery

can be registered as small-scale industries by the General Manager, District Industries

Centre, Hisar.

Registration has been divided in two categories

1. Provisional registration and

2. Permanent registration

Documents required for provisional registration

· Application form

· Affidavit

· Copy of project report

· Copy of land ownership proof

· Copy of partnership deed in case of partnership firm

· General power of Attorney in case of partnership form

· Copy of resolution of Board of director in case Pvt. Ltd. / Ltd. Co.

· Copy of Memorandum articles in case of Pvt. / Ltd. Co.

· Any other documents required as per project.

SMALL SCALE INDUSTRIES FIGURES

6

NO OF UNITS INVESTMENT.

(RS. IN LACS)EMPLOYMENT

(IN NO.)TAXTILE 20 650.00 376HANDLOOM 180 36.00 380PHARMACEUTICALS 12 240.00 128M. S. PIPES 6 1218.00 323PVC PIPES 10 250.00 90CEMENT 1 52.00 15PAPER/PAPER PRODUCT 12 145.00 96CERAMICS 04 162.00 107CHEMICALS 26 26.20 104FOOD 258 1580.00 774COTTON GINNING & OIL 312 1896.00 3712AGRI IMPLEMENTSREPAIRING WORK SHOP

516 103.00 778

STEEL AND WOODEN FURNITURE

418 201.60 896

PAINTS 6 36.00 36UTENSILS 4 24.00 40ROLLING MILLS 5 440.00 214ENGGINEERING ITEMS 626 313.00 939LATHER SHOES/JUTI ETC. 398 19.00 597MISC & OTHERS 558 238.55 2408

Details of Export Year Items Amount (Rs. In

Lacs)Countries to which exported

1996-97 Polyster Buttons, Cotton Yarn.

3132.00 Bangla Desh, Korea, Tiwan, Malasya, Hong kong, Nepal, South Africa, Dubai, France, & U.K.

1997-98 Cotton Yarn, Stainless, Steel Coils, Steel Tubes.

2924.02 Hong Kong, Bangla Desh, Malaysia, Italy, Nepal South, Africa, U.A.E., Berlin, & Egypt.

1998-99. Stainless Steel Strips, Plats, Coils, Sheets, Cotton Yarn, Button, Artificial Jewellary.

2834.00 Hong Kong, Italy, Nigeria, Nepal, Russia, Switzerland, USA, South Africa, U.K. France, South Korea, Sweden, Australia, Egypt, Bangla Desh, Germany.

1999-2000 ----do---- 13456.36 ----do----

Statistical Details of SSI-Registered Unit/Workers year wise

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UNITS---------

1997-98

98-99

1999-2000

Registered SSI working unit as on 31st Dec. 2000.

NO. 2897 3305 3402

Workers in registered working factories as on 31st

Dec. 2000.

Hundred 112 119 120

Large & Medium units

NO. 28 25 23

Employment Hundred 87 78 75

DETAILS OF SSE AND LARGE & MEDIUM INDUSTRIES.

NO. OF UNITS INVESTMENT.(RS. IN CRORE)

EMPOLYMENT(IN NO.)

TAXTILE INDUSTRIES

8 152.48 4654

VANASPATI GHEE 3 14.50 115G.I. PIPES 4 6.66 559PVC PIPES 2 9.48 218IRON & STEEL & OTHERS

6 173.37 1996

Small Scale Industrial Undertakings The following requirements are to be complied with by an industrial undertaking to be

graded as Small Scale Industrial undertaking w.e.f. 21.12.1999

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An industrial undertaking in which the investment in fixed assets in plant and machinery

whether held on ownership terms on lease or on hire purchase does not exceed Rs 10

million.

(Subject to the condition that the unit is not owned, controlled or subsidiary of any other

industrial undertaking)

(Subject to the condition that the unit is not owned, controlled or subsidiary of any other

industrial undertaking)

Explanation: For the purpose of this note:-

a. "owned" shall have the meaning as derived from the definition of the expression

"owner" specified in clause (1) of section 3 of the said Act;

b. "subsidiary" shall have the same meaning as in clause (47) of section 2, read with

section 4, of the Companies Act, 1956 (1 of 1956);

c. the expression "controlled by any other industrial undertaking" means as under:-

i. where two or more industrial undertakings are set up by the same person as a

proprietor, each of such industrial undertakings shall be considered to be

controlled by the other industrial undertaking or undertakings,

ii. where two or more industrial undertakings are set up as partnership firms under

the Indian Partnership Act, 1932 (1 of 1932) and one or more partners are

common partner or partners in such firms, each such undertaking shall be

considered to be controlled by other undertaking or undertakings,

iii. where industrial undertakings are set up by companies under the Companies Act,

1956 (1 of 1956), an industrial undertaking shall be considered to be controlled by

other industrial undertaking if:-

a. the equity holding by other industrial undertaking in it exceeds twenty four

percent of its total equity; or

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b. the management control of an undertaking is passed on to the other industrial

undertaking by way of the Managing Director of the first mentioned undertaking

being also the Managing Director or Director in the other industrial undertaking

or the majority of Directors on the Board of the first mentioned undertaking being

the equity holders in the other industrial undertaking in terms of the provisions of

the following items (a) and (b) of sub-clause (iv);

(iv) the extent of equity participation by other industrial undertaking or undertakings in

the undertaking as per sub-clause (iii) above shall be worked out as follows:-

a. the equity participation by other industrial undertaking shall include both foreign

and domestic equity;

b. equity participation by other industrial undertaking shall mean total equity held in

an industrial undertaking by other industrial undertaking or undertakings, whether

small scale or otherwise, put together as well as the equity held by persons who

are Directors in any other industrial undertaking or undertakings even if the

person concerned is a Director in other Industrial Undertaking or Undertakings;

c. equity held by a person, having special technical qualification and experience,

appointed as a Director in a small scale industrial undertaking, to the extent of

qualification shares, if so provided in the Articles of Association, shall not be counted in

computing the equity held by other industrial undertaking or undertakings even if the

person concerned is a Director in other industrial undertakings or undertakings;

(v) where an industrial undertaking is a subsidiary of, or is owned or controlled by, any

other industrial undertaking or undertakings in terms of sub-clauses (i); (ii); or (iii) and if

the total investment in fixed assets in plant and machinery of the first mentioned

industrial undertaking and the other industrial undertaking or undertakings clubbed

together exceeds the limit of investment specified in paragraphs (1) or (2) of this

notification as the case may be, none of these industrial undertakings shall be considered

to be a small scale or ancillary industrial undertaking.

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Note2-

(a) In calculating the value of plant and machinery for the purposes of paragraphs (1) and

(2) of this notification, the original price thereof, irrespective of whether the plant and

machinery are new or second hand, shall be taken into account.

(b) In calculating the value of plant and machinery, the following shall be excluded,

namely:-

i. the cost of equipments such as tools, jigs, dies, moulds and spare parts for

maintenance and the cost of consumable stores;

ii. the cost of installation of plant and machinery;

iii. the cost of research and development equipment and pollution control equipment;

iv. the cost of generation sets and extra transformer installed by the undertaking as

per the regulations of the State Electricity Board;

v. the bank charges and service charges paid to the National Small Industries

Corporation or the State Small Industries Corporation; vi. the cost involved in procurement or installation of cables, wiring, bus bars,

electrical control panels (not those mounted on individual machines), oil circuit

breakers or miniature circuit breakers which are necessarily to be used for

providing electrical power to the plant and machinery or for safety measures;

vii. the cost of gas producer plants;

viii. transportation charges (excluding of sales tax and excise) for indigenous

machinery from the place of manufacturing to the site of the factory;

ix. charges paid for technical know how for erection of plant and machinery;

x. cost of such storage tanks which store raw materials, finished products only and

are not linked with the manufacturing process; and

xi. Cost of fire fighting equipments.

(c) In the case of imported machinery, the following shall be included in calculating the

value, namely:-

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i. import duty (excluding miscellaneous expenses as transportation from the port to

the site of the factory, demurrage paid at the port);

ii. the shipping charges;

iii. customs clearance charges; and

iv. Sales tax.

Every industrial undertaking which has been issued a certificate of registration under

section 10 of the said Act or a license under sections 11, 11A and 13 of the said Act by

the Central Government and are covered by the provisions of paragraphs (1) and (2)

above relating to the ancillary or small scale industrial undertaking, may be registered, at

the discretion of the owner, as such, within a period of one hundred and eighty days from

the date of publication of this notification in the Official Gazette.

Ancillary Industrial Undertakings

The following requirements are to be complied with by an industrial undertaking

for being regarded as ancillary industrial undertaking: -

An industrial undertaking which is engaged or is proposed to be engaged in the

manufacture or production of parts, components, sub-assemblies, tooling or

intermediates, or the rendering of services and the undertaking supplies or renders or

proposes to supply or render not less than 50 per cent of its production or services, as the

case may be, to one or more other industrial undertakings and whose investment in fixed

assets in plant and machinery whether held on ownership terms or on lease or on hire-

purchase, does not exceed Rs 10 million.

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Tiny Enterprises

Investment limit in plant and machinery in respect of tiny enterprises is Rs 2.5 million

irrespective of location of the unit.

Women Entrepreneurs

A Small Scale Industrial Unit/ Industry related service or business enterprise, managed

by one or more women entrepreneurs in proprietary concerns, or in which she/ they

individually or jointly have a share capital of not less than 51% as Partners/ Shareholders/

Directors of Private Limits Company/ Members of Cooperative Society.

Investment Limits

The definition of small scale industries has undergone changes over the years in terms of investment limits in the following manner:-

YEAR INVESTMENT LIMITS ADDITIONAL CONDITIONS

1950 Up to Rs 5 lacs in fixed assets Less than 50/100

persons with

or without power

1960 Up to Rs 5 lacs in Plant & Machinery No condition

1966 Up to Rs 7.5 lacs in Plant & Machinery No condition





13

1997

(Dec)

Up to Rs 100 lacs in Plant & Machinery No condition

Computation of Plant and Machinery

(For calculating investment limit)

In calculating the value of plant and machinery, the original price thereof irrespective of

whether the plant and machinery are new or second hand, shall be taken into account.

However, to determine the price of second hand imported machinery, the original vale of

the said plant and machinery will be taken in foreign currency terms. The value of foreign

currency will be converted into rupee using the "current" exchange rate, i.e. exchange

rate prevalent at the time of import. The import duty will be added on the basis of

"current" rate of import duty, i.e. the rate of import duty prevalent at the time of import.

In calculating the value of plant and machinery, the following shall be excluded, namely:-

i. Cost of equipments such as tools, jigs, dies, moulds and spare parts for

maintenance and the cost of consumable stores.

ii. Cost of installation of plant and machinery.

iii. Cost of Research and Development (R&D) equipment and pollution control

equipment.

iv. Cost of generation sets, extra transformers, etc., installed by the undertaking as

per the regulations of the State Electricity Board.

v. Bank charges and service charges paid to the National Small Industries

Corporation or the State Small Industries Corporation.

vi. Cost involved in procurement or installation of cables, wiring, bus bars, electrical

control panels (not those mounted on individual machines), oil circuit

breaker/miniature circuit breakers, etc. which are necessarily to be used for providing

electrical power to the plant and machinery safety measures.

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vii. Cost of gas producer plants.

viii. Transportation charges (excluding taxes e.g., Sales tax, excise, etc.) for

indigenous machinery from the place of manufacturing to the site of the factory.

ix. Charges paid for technical know-how or erection of plant and machinery.

x. Cost of such storage tanks which store raw materials, finished products only and

are not linked with the manufacturing process.

xi. Cost of fire-fighting equipments.

xii. Cost of those items of plant and machinery installed purely for power generation

using non-conventional energy sources such as wind, solar energy, ocean waves,

bio-gas etc.

In case of imported machinery, the following shall be included in calculating the value

namely:-

i. Import duty, excluding miscellaneous expenses such as transportation from the

port to the site of the factory, demurrage paid at the port.

ii. Shipping charges

iii. Customs clearance charges and

iv. Sales tax

Employment Generation

SSI Sector in India creates largest employment opportunities for the Indian populace,

next only to Agriculture. It has been estimated that a lakh rupees of investment in fixed

assets in the small scale sector generates employment for four persons.

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According to the SSI Sector survey conducted by the Ministry and National Informatics

Centre with the base year of 1987-88, the following interesting observations were made

related to employment in the small scale sector.

Generation of Employment - Industry Group-wise

Food products industry has ranked first in generating employment, providing

employment to 4.82 lakh persons (13.1%).

The next two industry groups were Non-metallic mineral products with employment of

4.46 lakh persons (12.2%) and Metal products with 3.73 lakh persons (10.2%).

In Chemicals & chemical products, Machinery parts and 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%.

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

Per unit employment

Per unit employment was the highest (20) in units engaged in Beverages, tobacco &

tobacco products mainly due to the high employment potential of this industry

particularly in Maharashtra, Andhra Pradesh, Rajasthan, Assam and Tamil Nadu.

Next came Cotton textile products (17), Non-metallic mineral products (14.1), Basic

metal industries (13.6) and Electrical machinery and parts (11.2.) The lowest figure of 2.4

was in Repair services line.

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

areas.

However, in Chemicals & chemical products, Non-metallic mineral products and Basic

metal industries per unit employment was higher in rural areas as compared to

metropolitan areas/urban areas.

In urban areas highest employment per unit was in Beverages, tobacco products (31

persons) followed by Cotton textile products (18), Basic metal industries (13) and Non-

metallic mineral products (12).

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%.

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Urban

As for urban areas, Food Products and Metal Products almost equally shared 22.8% of

employment. Machinery and parts except electrical, Non-metallic mineral products, and

Chemicals & chemical products between them accounted for 26.2% of employment.

In metropolitan areas the leading industries were Metal products, Machinery and parts

except electrical and Paper products & printing (total share being 33.6%).

State-wise Employment Distribution

Tamil Nadu (14.5%) made the maximum contribution to employment.

This was followed by Maharashtra (9.7%), Uttar Pradesh (9.5%) and West Bengal (8.5%) the

total share being 27.7%.

Gujarat (7.6%), Andhra Pradesh (7.5%), Karnataka (6.7%), and Punjab (5.6%) together

accounted for another 27.4%.

Per unit employment was high - 17, 16 and 14 respectively - in Nagaland, Sikkim and Dadra

& Nagar Haveli.

It was 12 in Maharashtra, Tripura and Delhi.

Madhya Pradesh had the lowest figure of 2. In all other cases it was around the average of

6.

Production

The small scale industries sector plays a vital role for the growth of the country. It

contributes 40% of the gross manufacture to the Indian economy.

It has been estimated that a lakh rupees of investment in fixed assets in the small scale

sector produces 4.62 lakhs worth of goods or services with an approximate value addition

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of ten percentage points.

The small scale sector has grown rapidly over the years. The growth rates during the

various plan periods have been very impressive.

The number of small scale units has increased from an estimated 8.74 lakhs units in the

year 1980-81 to an estimated 31.21 lakhs in the year 1999.

From the year 1990-91 this sector has exhibited a comparatively lower growth trend

(though positive) which continued during the next two years. However, this has to be

viewed in the background of the general recession in the economy. The transition period

of the process of economic reforms was also affected for some period by adverse factors

such as foreign exchange constraints, credit squeeze, demand recession, high interest

rates, shortage of raw material etc.

When the performance of this sector is viewed against the growth in the manufacturing

19

and the industry sector as a whole, it instills confidence in the resilience of the small scale

sector.

The estimates of growth for the year 1995-96 have shown an upswing. The growth of SSI

sector has surpassed overall industrial growth from 1991 onwards. The positive trend is

likely to strengthen in the coming years. This trend augurs a bright future for the small

scale industry.

Export contribution

SSI Sector plays a major role in India's present export performance. 45%-50% of the

Indian Exports is being contributed by SSI Sector. Direct exports from the SSI Sector

account for nearly 35% of total exports. The number of small scale units that undertake

direct exports would be more than 5000.

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.

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 garment, leather and gems and jewellery

units from this sector.

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The lucrative product groups where the SSI sector dominates in exports are sports goods,

readymade garments, woolen garments and knitwear, plastic products, processed food

and leather products.

Opportunities

Small industry sector has performed exceedingly well and enabled our country to achieve

a wide measure of industrial growth and diversification.

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By its less capital intensive and high labour absorption nature, SSI sector has made

significant contributions to employment generation and also to rural industrialization.

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.

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

- Less Capital Intensive

- Extensive Promotion & Support by the Government

- Reservation for Exclusive Manufacture by small scale sector

- Project Profiles

- Funding

- Finance & Subsidies

- Machinery Procurement

- Raw Material Procurement

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- Manpower Training

- Technical & Managerial skills

- Tools & Tools utilization 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.

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 liberalization will therefore, attract the infusion of just these things in the

23

sector.

Economic Indicators

The Small Scale Industry today constitutes a very important segment of the Indian

economy. The development of this sector came about primarily due to the vision of our

late Prime Minister Jawaharlal Nehru who sought to develop core industry and have a

supporting sector in the form of small scale enterprises.

Small Scale Sector has emerged as a dynamic and vibrant sector of the economy.

- Today, it accounts for nearly 35% of the gross value of output in the manufacturing

sector and over 40% of the total exports from the country.

- In terms of value added this sector accounts for about 40% of the value added in the

manufacturing sector.

- The sector's contribution to employment is next only to agriculture in India. It is

therefore an excellent sector of economy for investment.

The Importance of Technology Support

The importance of institutional (i.e. public and NGO) technology support to industry In

general derives from the argument that investments in technological upgrading and

Learning is subject to widespread market failure. Without corrective intervention, Private

companies will under-invest in technological effort relative to the social optimum (Stone

24

man, 1995; Dasgupta, 1987). First, new knowledge created by a company Tends to leak

out to competitors, reducing its incentive to innovate. Second, investments in

technological upgrading are subject to risk due to uncertainty. Third, new Knowledge

often becomes substantially useful only in fairly large amounts, so that the required

minimum investment outlay and risk will sometimes exceed the capacity of Individual

investors. Scale advantages also occur in the form of benefits from interactive

Technological learning, which creates positive externalities by sparking new knowledge

and ideas. Co-coordinated action can: balance innovators’ and imitators’ interests; help

Decide which industries and projects should receive priority in the national research

effort; help mobilize sufficient resources to that end; get private actors to co-operate

Towards the achievement of those goals; and reduce risk through improved access to

Information and knowledge.

Support policies are particularly vital in less-developed countries (LDCs), where

Problems of appropriability, co-ordination and information are especially severe. The

Financial, research and human capital base of firms tends to be weak. Most of their

Technological efforts are relatively easy to copy because they are, for the most part,

Adaptive and incremental, not amenable to patenting. Inter-firm communication and Co-

operation are cumbersome because of poorly developed physical infrastructure, and Risk

is high in an information-poor environment. Even relatively easy tasks become

Difficult, costly and risky (Lall & Teubal, 1998, p. 1371). Small firms generally and it

more difficult to cope than medium and large ones.

Their technological capabilities are weaker, and they are usually not in a position to get

Funding for innovation on reasonable terms through the regular financial system. Owing

To resource constraints, their information search efforts and investments in training and

Education tends to be quite restricted. Lack of performance, skill and expertise combined

with High uncertainty also lead to risk-averse behavior, depressing investments in

technological Effort. In some industries, modern, efficient techniques of production

suitable

For a small scale of operation are also lacking. Moreover, problems associated with

economies of scale affect small firms worse than large ones. While the latter can to some

extent overcome scale problems and capture externalities from inter-personal interaction

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Within the cones of their own walls, small firms can create critical mass only through

inter-firm co-operation and market exchange, which is often precluded by intense

competitive rivalry, lack of trust, poorly functioning factor markets and underdeveloped

private-sector services. The large majority of the workshops that are the

Subject of this paper are caught in a vicious circle of low-tech, low-productivity

production, unable to embark on substantial technological upgrading efforts without help.

Potential benefits of institutional support to small firms are large. By improving access to

information, performance and suitable technologies, support can help all the

Missing middle observed in the manufacturing size structure in poor countries.

Dynamic small firms could also contribute significantly to national exports. Moreover,

Clusters of geographically close producers may create significant positive dynamic

externalities.

3. Early Programmes

The small enterprise sector was firmly put on the mental map of LDC policy-makers in

the early 1970s as part of a general disenchantment with industrialization strategies

favoring top-down modernization through expansion of the modern large-scale sector that

had been pursued in the 1950s and 1960s. As the benefits of trickle-down were

Apparently limited, income-creation approaches based on direct targeting of poorer

sections of the population gained widespread favor. The International Labour

Organization took the lead in documenting the precariousness of those working in small

Enterprises, and the serious constraints they faced (e.g. Sethuraman, 1981). Early

technology support programmes predominantly adopted a supply-push approach (UNDP

et al., 1988). It was thought that the provision of a variety of services could overcome

producers’ resource constraints and thereby fosters competitiveness. Many countries set

up state-run small and medium industry development organizations

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(SMIDOs) charged with providing services such as technical and management training,

marketing assistance, advice about technology choice, assistance with technology

procurement And provision of subsidized performance. The scope of the programmes

was

Generally broader than technological upgrading alone. However, there were also a

Number of bodies, both state and NGO, focusing specially on technology. These

Programmes achieved some good results, but they were also beset with a large number of

problems. Here, we only discuss some issues that bear especially on technological

Support. It is inevitably a broad-brush approach that does not do justice to the Special

cities associated with particular programmes across different countries. Products

(Stewart, 1987; Bhalla, 1985; Stewart & Ranis, 1990; Haggblade et al., 1990). Both

arguments carried some weight. These policy-makers to promote

Research in institutes aimed at the development of small-scale efficient technologies.

Various strategies were identified (Bhalla et al., 1984; James, 1989). Foreign donors were

much involved in such projects; it was the golden age of the appropriate technology

movement. This approach achieved a degree of success, though many so-called

appropriate technologies failed at the commercialization stage. One big lesson was that

technology

Development in the public domain and its subsequent diffusion in top-down, supply push

fashion was not an effective model. Technology institutes often had competent

Engineers, but they knew little about the requirements of poor producers and

communicator.

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Small Scale Industries

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