Small-Scale-Industries-and-Their-Role-in-Indian-Economy

Small Scale Industries And Their Big Role

A STUDY

On

Small Scale Industries and Their Role in Indian Economy

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TABLE OF CONTENTS

S.No. Page No.1. Acknowledgement 4

2. Interim Report 5

3. Introduction of the Industry 6

3. Objective 8

4. Literature Review 10

5. Questionnaire

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6. Methodology 17

7. Reference 21

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Small scale industries

Overview:-

Since the time of independence, the small-scale sector in India has been a

major contributor to country’s Gross Domestic Product (GDP). This traditional

sector in India is considered to have huge growth prospect with its wide range of

products. With 40 percent share in total industrial output and 35 percent share in

exports, the small-scale industrial sector in India is acting as Engine of Growth in

the new millennium.

The definition for small-scale industrial undertakings has changed over time.

Initially they were classified into two categories- those using power with less than

50 employees and those not using power with the employee strength being more

than 50 but less than 100. However the capital resources invested on plant and

machinery buildings have been the primary criteria to differentiate the small-scale

industries from the large and medium scale industries. An industrial unit can be

categorized as a small- scale unit if it fulfils the capital investment limit fixed by

the Government of India for the small-scale sector.

As per the latest definition which is effective since December 21, 1999, for

any industrial unit to be regarded as Small Scale Industrial unit the following

condition is to be satisfied: -

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Investment in fixed assets like plants and equipments either held on

ownership terms on lease or on hire purchase should not be more than Rs 10

million.

However the unit in no way can be owned or controlled or ancillary of any

other industrial unit.

The traditional small-scale industries clearly differ from their modern

counterparts in many respects. The traditional units are highly labor consuming

with their age-old machineries and conventional techniques of production resulting

in poor productivity rate whereas the modern small-scale units are much more

productive with less manpower and more sophisticated equipments.

Khadi and handloom, sericulture, handicrafts, village industries, coir, Bell

metal are some of the traditional small-scale industries in India. The modern small

industries offer a wide range of products starting from simple items like hosiery

products, garments, leather products, fishing hook etc to more sophisticated items

like television sets, electronics control system, various engineering products

especially as ancillaries to large industrial undertakings.

Nowadays Indian small-scale industries (SSIs) are mostly modern small-

scale industries. Modernization has widened the list of products offered by this

industry. The items manufactured in modern Small-scale service & Business

enterprises in India now include rubber products, plastic products, chemical

products, glass and ceramics, mechanical engineering items, hardware, electrical

items, transport equipment, electronic components and equipments, automobile

parts, bicycle parts, instruments, sports goods, stationery items and clocks and

watches.

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Since independence the Government of India has nurtured this sector with

special care with the following aims: -

To develop this sector as a major source of employment

To encourage decentralized industrial expansion

To ensure equitable distribution of income.

To mobilize capital investment and entrepreneurship skills.

Small scale industries were the dream of Mahatma Gandhi, father of our

nation. He has supported the growth of small sector industries in India, because he

had the vision that it will helped the poor people of India to come up. Small scale

industries or cottage industries are not capital based, but the talent and effort based

business. So even a middle class person can own run this.

History of Small ScaIe Industry

Ministry of Agro and Land Rural Industries and Ministry of SSI have been

merged into a single namely, Ministry of Micro Small & Medium Enterprises.The

President under Notification 9th May 2007 has amended the Government of India

(Allocation of business) Rules 1961, Pursuant to this amended Ministry of Agro

and rural Industries ( Krishi Evam Gramin Udyog Mantralay) and ministry of SSI

(Laghu Udoyag Mantralay) have been merged into a single Ministry, namely,

Ministry of Micro Small & Medium Enterprises ( Suksham Laghu Aur Medium

Udyam Mantralay )

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CONCEPT & DEFINATION OF SSI

In most parts of the world the nomenclature used is small and Medium

Enterprises (SMEs) and the citeria for defininig include the number of employees

and /or the turnover. In India the Small Scale Industry eoveks different meanings

for different agencies and the financial institution. For example for the purpose of

excise and sales Tax Exemption, the turnover alone is the determinig criterion.

However in broder terms, currently, an SSI is defined in terms of investment

ceiling on the original value of instlled plant and machinery.

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 sector in terms of parameters like number of

units (both registered and unregistered), production, employment and exports is

given in Table 7.15. 7.66 During the one year period i.e., 2000-01

Over 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

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by the Ministry of Small Scale Industries during 2000-01, the SSI sector recorded

growth in production 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 the country.

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

to enhance 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

Small Scale and Ancillary Industries:-

Small scale industrial units are those engaged in the manufacture, processing

or preservation of goods and whose investment in plant and machinery (original

cost) does not exceed Rs.1 crore. These would, inter alia, include units engaged in

mining or quarrying, servicing and repairing of machinery. In the case of ancillary

units, the investment in plant and machinery (original cost) should also not exceed

Rs. 1 crore to be classified under small-scale industry.

The investment limit of Rs. 1 crore for classification as SSI has been

enhanced to Rs.5 crore in respect of certain specified items under hosiery, hand

tools, drugs & pharmaceuticals, stationery items and sports goods by the

Government of India.

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Small scale businesses operating in India:-

In order to encourage growth, expansion and more investment in the small-

scale sector the Government has adopted a policy of reservation for allowing

certain products to be exclusively manufactured by the small-scale sector.

The number of items in the reserve list has changed over time. As per the

revision done on March 2005, total 506 items are there in the reserve list for SSIs.

The details of the items reserved for SSIs are given below:

Food and allied industries (9)

Wood and wood products (9)

Paper products (19)

Plastic products (53)

Chemicals and chemical products (7)

Natural essential oils (2)

Organic chemicals, drugs and drug intermediates (33)

Other chemicals and chemical products (67)

Glass and ceramics (27)

Mechanical engineering excluding transport equipment (137)

Electrical machines, appliances & apparatus (17)

Electronic equipments and components (1)

Transport equipment boats and truck body building (3)

Auto parts components and ancillaries and garage equipments (36)

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Bicycle parts, tricycles and perambulators (41)

Miscellaneous transport equipment (4)

Sports goods (7)

Stationery items (13)

Others (21)

The Government of India under the purview of a special Parliamentary Act

established The Small Industries Development Bank of India (SIDBI) in April

1990. The primary objective of this bank was to ensure steady flow of funds to

SSIs to ease their financial constraints.

Unfortunately all previous attempts for development, expansion and

modernization of SSIs have not been of much use. However the recent measures

like setting up of the Technology Development Board, the Technology

Development and Modernization Fund, ISO 9000 Certification, stress on

improving managerial skills are turning out to be much more fruitful in

modernizing the SSIs in India.

As per the latest definition which is effective since December 21, 1999, for any

industrial unit to be regarded as Small Scale Industrial unit the following condition

is to be satisfied: -

Investment in fixed assets like plants and equipments either held on ownership

terms on lease or on hire purchase should not be more than Rs 10 million.

However the unit in no way can be owned or controlled or ancillary of any other

industrial unit.

Opportunities in Small Scale Business:-

As Small Scale Businesses are less capital intensive and highly labor

intensive, there are huge opportunities for this sector in a labor-abundant capital-

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scarce economy like India. The other factors that are cater to the fast growth of this

sector are Extensive Promotion & Support by the govt., available grants &

Subsidies, raw material procurement, rising export demand for Indian products and

rising domestic demand which is the result of overall economic growth. But, the

growth rates can increase further if more development measures are taken to

improve the Technology and Marketing side of Small Scale Business and thus

small-scale businesses can construct the most dynamic and vibrant sector of the

economy.

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

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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.

Year SSI Sector Growth Rate Total Industrial Sector Growth Rate

1994-95 10.44 9.10

1995-96 11.49 13.00

1996-97 1.29 6.10

1997-98 9.19 6.70

1998-99 7.84 4.10

1999-2000 7.09 6.70

2000-01 8.04 5.00

2001-02 6.06 2.70

2002-03 7.68 5.70

2003-04 8.06 6.09

2004-05 9.96 8.04

Source: SIDO Half Century by DCSSI, Govt. of India 2004 and Annual Report of the Ministry of SSI 2005-06

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COMPARATIVE GROWTH RATES OF SSI SECTOR AND TOTAL INDUSTRIAL SECTOR


By its less capital intensive and high labor 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. 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

bugbear of the sector has been the inadequacies in capital, technology and

marketing. The process of liberalization 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.

Small scale industry in INDIA:-

In India, the latest definition of a small-scale industry (SSI) is any unit with

an upper limit on investment (in plant and machinery) of from Rs. 0.20 million to

Rs. 0.35 million in the case of SSI and Rs. 0.45 million in the case of ancillary

units. What is called the village and small industries (VSI) sector comprises both

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traditional and modern small industries; it is constituted by eight specific group’s

viz. Handloom, Handicrafts, Coir, Sericulture, Khadi, Village Industries, Small-

Scale Industries and Power looms. The last two items constitute the modern group

of industries, the others being traditional.

INDIAN SME SECTOR – AT A GLANCEINDIAN SME SECTOR – AT A GLANCE

2005-062005-06

•• SSI units : 12.3 millionSSI units : 12.3 million•• Employment generated in SSIs : 29.5 millionEmployment generated in SSIs : 29.5 million•• Production : At current Prices Rs.4762.01 billionProduction : At current Prices Rs.4762.01 billion•• Exports : Rs. 1215 billionExports : Rs. 1215 billion•• SSI account:SSI account:

Industrial Production: 40%Industrial Production: 40%

Exports: 35% Exports: 35%

(50% of Direct & Indirect)(50% of Direct & Indirect)

GDP Share: 7%GDP Share: 7%

•• Ownership pattern : Ownership pattern : –– Proprietorships : 78% Proprietorships : 78% –– Partnerships : 16%Partnerships : 16%–– Corporate & Others : 6%Corporate & Others : 6%

•• Industrial Units : 96%Industrial Units : 96%•• Service Enterprises : 3%Service Enterprises : 3%•• Ancillary Units : 1% Ancillary Units : 1% •• Produces Diverse range of products (more than 8000- consumer items,Produces Diverse range of products (more than 8000- consumer items,

capital goods and intermediates)capital goods and intermediates)

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In the economic development of India, a strategic position has been given to

the development of village and small industries (VSI) which constitute an

important segment of the overall economy. Next to agriculture, the VSI sector

provides the greatest employment opportunities, a considerable portion of which is

in rural and semi-rural areas. It contributes about fifty percent of the value added in

manufacturing.

India's overall policy on all industrial development is contained in the

Industrial Policy Resolution of 1956, as amended from time to time. New priorities

have been developed as and when required including some designed to reduce the

basic handicaps of small-scale industries. The latest of these is the Industrial Policy

of July 1980 which alms to harmonize growth in the small-scale sector with that in

the large and medium sectors and to remove the dichotomies between the two

sectors.

During the sixth plan period (1979-80 to 1984-85) production in this sector

increased from Rs. 335380 million to Rs. 657300 million at current prices and

employment from 23.37 million to 31.50 million persons. The latter figure

represents nearly 80 percent of the entire industrial employment. Of this total,

modern small-scale industries employ 9 million people; next in importance is the

handloom subsector which employs about 7.5 million people. During the seventh

plan period (1985-90) the total value of production of the VSI sector is expected to

increase by about 52.4 percent and employment by 27 percent to 40.0 million. The

seventh plan also lays emphasis on the necessity of providing a new thrust for tiny

units having fixed investment of less than Rs. 0.2 million. They form nearly 90

percent of the total number of small-scale industrial enterprises. A modified

strategy will provide adequate facilities in rural and semi-urban areas which will

increase dispersion of these industries.

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PERFORMANCE OF MICRO & SMALL ENTERPRISES

Year

Number of Enterprises (Lakh Nos.) Empl.

(Lakh Person)

Production (Rs. Crs.)

Growth Share In

Registered Unregistered Totalat Current prices

Rate (%) GDP (%)

2002-2003 15.91 93.58 109.49 263.49 314850 8.68 5.92

2003-2004 16.97 96.98 113.95 275.30 364547 9.64 5.79

2004-2005 17.53 101.06 118.59 287.55 429796 10.88 5.84

2005-2006 18.71 104.71 123.42 299.85 497842 12.32 5.83

2006-2007 20.98 107.46 128.44 312.52 587196 12.65 5.94

2007-2008 (Projected)

24.68 108.99 133.67 322.28 695126 13.00 NA

Problems in small scale industries:-

Majority of the small scale units use old techniques of production and out

dated machinery and equipment. Up gradation of the technology and achieving

economies of scale is one of the major problems facing the sector? They cannot

afford new machines and equipments and are therefore not in a position to use the

latest techniques of production. They do not find it possible to conduct research

and development on a continuing basis. Therefore, productivity and quality in

small scale firms tends to be low while unit cost of production is generally high.

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But with liberalization of the economy, the MSMEs are facing stiff competition

from imports and need technological up gradation in order to produce better

quality products at cheap rates.

Problems Faced by SSIs as Barriers to Growth Problems Faced by SSIs as Barriers to Growth

Market RelatedMarket Related 70%70%

Finance RelatedFinance Related 25%25%

Government Policy Related Government Policy Related 12.78%12.78%

Power Related/Infrastructure Power Related/Infrastructure 14.0%14.0%

TechnologyTechnology 14.60%14.60%

As far as sourcing technology is concerned, small businesses face the following

three essential problems:-

Obtaining information about technology is the first important issue. For

most of them, information about available technology options is through

word of mouth or from a visit to an advanced unit. Few have access to

technical literature, professional journals or information about new product

launches. But with the advent of internet, new vistas are opening up through

electronic journals, catalogue downloads and advanced search facilities.

Actual procurement of the technology is the next important issue because

even if information is obtained, there are barriers to import of technology

and other problems relating to technology transfer, vendor capability, after

sales support, import procedures, etc which impede procurement.

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Acquiring finance for technology up gradation is also a problem. Small

enterprises generally look to external sources of funding for upgrading

technology as withdrawing money from business entails its own costs.

With a view to foster the growth of MSME sector in the country, government has

taken up several initiatives:

ISO 9000/14001 Certification Fee Reimbursement Scheme was introduced

in order to incentivize technological up gradation, quality improvement and

better environment management by the MSEs. The scheme provides

incentive to those small scale/ ancillary undertaking who have acquired ISO

9000/ISO 14001/HACCP certifications.

In order to reduce the cost of funds, a scheme called Credit Linked Capital

Subsidy Scheme (CLCSS) for Technology Up gradation in Small Scale

Industries has been put into place. It aims at facilitating technology up

gradation by providing upfront capital subsidy to small scale industry units,

including tiny, Khadi, village and coir industrial units, on institutional

finance (credit) availed of by them for modernization of their production

equipment (plant and machinery) and techniques.

National Manufacturing Competitiveness Programme (NMCP) has been

launched by the government in order to help MSMEs improve their

competitiveness. The schemes under this Programme are aimed at

addressing the technology/quality up gradation needs of the sector, mainly in

the public-private partnership mode.

Small Industries Development Bank of India (SIDBI) in collaboration with

United Nations-Asian Pacific Centre for Transfer of Technology (UN-

APCTT) had established Technology Bureau for Small Enterprises (TBSE)

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to bring synergy between Technology and Finance for Small and Medium

Enterprise (SME) sector. The objectives of the company are to:

Provide professional services for technology transfer in order to

enhance market competitiveness of small and medium

enterprises and promote sustainable development.

Maintain and provide data base on technology options available

from different countries.

Provide micro small & medium enterprises information on

sources of technology and means of accessing them.

Provide background information on technology seeking

enterprises to technology suppliers and collaborators.

Identify business partners willing to collaborate and extend

support to tie up financial assistance and other requirements

such as drafting agreements, obtaining various approvals and

preparation of business plans required for transfer of

technology.

Provides financial syndication through banks and financial

institutions.

Besides, National Small Industries Corporation Ltd. (NSIC) has taken up an

initiative to enhance technology options for small scale industries. An ISO 9001

certified company, it has been working to fulfill its mission of promoting, aiding

and fostering the growth of small scale industries and industry related small scale

services/business enterprises in the country. Over a period of five decades of

transition, growth and development, NSIC has proved its strength within the

country and abroad by promoting modernization, up gradation of technology,

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quality consciousness, strengthening linkages with large medium enterprises and

enhancing exports - projects and products from small industries.

Also, Small Industries Development Organization (SIDO) has set up 10

Tool Rooms and Training Centers in the country in order to assist small scale units

in their technical up gradation by providing good quality toolings.

Further, in order to facilitate investments for technological up gradation and

higher productivity in the micro and small enterprises, the phased deletion of

products from the list of items reserved for the exclusive manufacture by such

enterprises is being undertaken.

Small scale industry in Rajasthan:-

Rajasthan started experiencing industrial development between 1950 and

1960. Large and small scale industries started springing up in the Kota, Jaipur,

Udaipur, Bhilwara and other Industrial Estates of Rajasthan. The main industries of

Rajasthan include textile, rugs, woolen goods, vegetable oil and dyes. Heavy

industries consist of copper and zinc smelting and the manufacture of railway

rolling stock. The other industries related to Private Sector include steel, cement,

ceramics and glass wares, electronic, leather and footwear, stone and other

chemical industries. Altogether the industrial sector accounts for about 32.5 per

cent of the total share of the state’s economy. During 1995- 96 and 2001-02, the

industrial sector of Rajasthan experienced growth at the rate of 6.9% per annum

Textile Industry

Textile is the chief industry and the Rajasthan is considered as India’s

second largest producer of Polyester Fiber. It is grown in the Bhilwara district of

Rajasthan. Besides these, Rajasthan is also involved in the large scale production

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of cotton and wool in the country. In total the production of Textiles accounts

21.96 % in the state. Rajasthan also produces huge quantities of spun yarn and

hence is the fourth largest producer in India.

Cement Industry

The state of Rajasthan is also the major producer of cement and accounts for

15 per cent of the cement output of the country.

Salt Production-

Rajasthan is the third largest producer of salt (sodium chloride) in the

country and accounts for the country’s one-tenth of salt production.

The large mineral and metal deposits like zinc, copper, lignite, gypsum and mica in

the state have also fostered the growth of a large number of industries that are

involved in producing by-products by utilizing these natural resources.

Wooden handicraft:-

Wooden handicrafts are specialized skills passed on from one generation to the next. The term 'wooden handicrafts' refers to a wide range of wooden items carrying utilitarian and artistic value that are made by hand, or with the use of simple tools. Indian wooden handicrafts reflect unmatched workmanship, fine designs, and subtle elegance. This makes India one of the chief exporters of wooden handicrafts in the world market.

The wooden handicrafts industry plays an important role in the Indian economy.

This industry requires low capital investment and other resources. The wooden

handicraft sector provides a high ratio of value addition, and has emerged as one of

the major sources of foreign exchange earnings for India.

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Indian wooden handicrafts are much sought after the world over, and form

an important export commodity of India. Although India's handicraft exports show

a consistent increase of sixteen per cent every year, its share in the international

market is not more than two per cent.

The Indian wooden handicraft sector is the second largest employment

provider (after agriculture). It employs about six million artisans. Women

constitute a large section of the handicrafts industry, including people belonging to

the weaker sections of society.

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