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Competitiveness of Small Scale Industries in

Project Submitted To:

Submitted By:
Aman Rai


Semester II
Section - B
Roll No: 18



Chapter: 1Importance of SSI in India..5-9
Chapter: 2 Contribution to GDP..10
Chapter: 3 Problems In India.11-15
Chapter: 4 Measures to remove.....16-17
Chapter: 5 Competitiveness in India.18
Chapter: 6 Market Survey.....19-20

6) CONCLUSION.....21



I Aman Rai, would like to humbly present this project to Ms. Eritriya Roy. I would first of all
like to express my most sincere gratitude to Ms. Eritriya Roy for her encouragement and
guidance regarding several aspects of this project. I am thankful for being given the opportunity
of doing a project on Competitiveness of Small Scale Industries in India

I am thankful to the library staff as well as the IT lab staff for all the conveniences they
have provided me with, which have played a major role in the completion of this project.
I would like to thank God for keeping me in good health and senses to complete this
Last but definitely not the least; I am thankful to my seniors for all their support, tips
and valuable advice whenever needed. I present this project with a humble heart.

Name Aman Rai



I, Aman Rai, hereby declare that, this project report entitled, Competitiveness of Small
Scale Industries in India submitted to Hidayatullah National Law University, Raipur is
record of an original work done by me under the guidance of Ms. Eritriya Roy , Faculty
Member, H.N.L.U., Raipur and that no part of this work has been plagiarized without

Name: Aman rai

Date: 8-10-2015

The Small-Scale Industries (SSI) gathered momentum along with industrialization and
economic growth in India. It started growing due to the vision of our late Prime Minister
Jawaharlal Nehru who sought to develop core industry and have a sustaining sector in the
form of small-scale enterprises. Being a labour-intensive sector, they offer a higher
productivity of capital than capital-intensive enterprises due to low investment per worker.
The SSI today constitutes a very important segment of the Indian economy as they help in
dispersal of industries, rural development, and the decentralization of economic power. The
central discussion of this project highlights the importance of small industries and their role
in the economy and the impact of economic reforms on growth pattern and productivity
performance of small-scale industries and the Competition of small scale industries.


Create large employment with low capital investment.

Mobilise unused resource of capital & skill
Ensure more equitable distribution of national income
Widen opportunities for medium & small units counter the tendencies towards

concentration of economic power.

The central Govt. set up the Small Scale Industries Development Organization
(SIDO) in 1954, under the Ministry of Industries, to develop SSI sector.


This research work is descriptive and Analytical in nature. It constitutes an important segment
of the Indian economy as they help in dispersal of industries and rural development.
This study is done with the help of secondary data. This secondary information has been
obtained from published sources such as books, journals, newspapers, official websites,
government publications and surveys etc.

A uniform mode of citation has been adopted and followed consistently throughout this


The importance of small scale industries in overall industries development of the country was
accepted for the first time.
The objectives were:

Create large employment with low capital investment.

Mobilise unused resource of capital & skill
Ensure more equitable distribution of national income
Widen opportunities for medium & small units counter the tendencies towards

concentration of economic power.

The central Govt. set up the Small Scale Industries Development Organization
(SIDO) in 1954, under the Ministry of Industries, to develop SSI sector.
The public policy in India had been attaching lot of importance to village and SSI on the
following grounds. SSI being labour-intensive, helped to increase the volume of employment,
particularly in rural areas, it is estimated that about 2 crore persons are engaged in India in
these industries. The handloom industry alone employs 50 lakh people. They account for 6%
of GDP, 95 % of all industrial units, and 34% of total exports. Around 39 lakhs SSIs in India
has emerged versatile producing over 8000 products, from traditional handicrafts to high-end
technical instruments.1
Some of the Government Policies for development and promotion of Small-Scale Industries
in India are: (1) Industrial Policy Resolution (IPR) 1948, (2) Industrial Policy Resolution
(IPR) 1956, (3) Industrial Policy Resolution (IPR) 1977, (4) Industrial Policy Resolution
(IPR) 1980 and (5) Industrial Policy Resolution (IPR) 1990.2
Since Independence, India has several Industrial Policies to her credit. So much so that
Lawrence A. Veit tempted to say that if India has as much industry as it has industrial policy,
it would be a far well-to-do nation. With this background in view, in what follows is a
review of Indias Industrial Policies for the development and promotion of small-scale
enterprises in the country.



1: Industrial Policy Resolution (IPR) 1948

The IPR, 1948 for the first time, accepted the importance of small-scale industries in the
overall industrial development of the country. It was well realized that small-scale industries
are particularly suited for the utilization of local resources and for creation of employment
However, they have to face acute problems of raw materials, capital, skilled labour,
marketing, etc. since a long period of time. Therefore, emphasis was laid in the IPR, 1948
that these problems of small-scale enterprises should be solved by the Central Government
with the cooperation of the State Governments. In nutshell, the main thrust of IPR 1948, as
far as small-scale enterprises were concerned, was protection.
2. Industrial Policy Resolution (IPR) 1956:
The main contribution of the IPR 1948 was that it set in the nature and pattern of industrial
development in the country. The post-IPR 1948 period was marked by significant
developments taken place in the country. For example, planning has proceeded on an
organised manner and the First Five Year Plan 1951-56 had been completed. Industries
(Development and Regulation) Act, 1951 was also introduced to regulate and control
industries in the country.
The parliament had also accepted the socialist pattern of society as the basic aim of social
and economic policy during this period. It was this background that the declaration of a new
industrial policy resolution seemed essential. This came in the form of IPR 1956.
The IPR 1956 provided that along with continuing policy support to the small sector, it also
aimed at to ensure that decentralised sector acquires sufficient vitality to self-supporting and
its development is integrated with that of large- scale industry in the country. To mention,
some 128 items were reserved for exclusive production in the small-scale sector.
Besides, the Small-Scale Industries Board (SSIB) constituted a working group in 1959 to
examine and formulate a development plan for small-scale industries during the, Third Five
Year Plan, 1961-66. In the Third Five Year Plan period, specific developmental projects like
Rural Industries Projects and Industrial Estates Projects were started to strengthen the
small-scale sector in the country. Thus, to the earlier emphasis of protection was added

development. The IPR 1956 for small-scale industries aimed at Protection plus
Development. In a way, the IPR 1956 initiated the modem SSI in India.
3. Industrial Policy Resolution (IPR) 1977:
During the two decades after the IPR 1956, the economy witnessed lopsided industrial
development skewed in favour of large and medium sector, on the one hand, and increase in
unemployment, on the other. This situation led to a renewed emphasis on industrial policy.
This gave emergence to IPR 1977.
The Policy Statement categorically mentioned:
The emphasis on industrial policy so far has been mainly on large industries, neglecting
cottage industries completely, relegating small industries to a minor role. The main thrust of
the new industrial policy will be on effective promotion of cottage and small-scale industries
widely dispersed in rural areas and small towns. It is the policy of the Government that
whatever can be produced by small and cottage industries must only be so produced.
The IPR 1977 accordingly classified small sector into three broad categories:
1. Cottage and Household Industries which provide self-employment on a large scale.
2. Tiny sector incorporating investment in industrial units in plant and machinery up to Rs. 1
lakh and situated in towns with a population of less than 50,000 according to 1971 Census.
3. Small-scale industries comprising of industrial units with an investment of upto Rs. 10
lakhs and in case of ancillary units with an investment up to Rs. 15 lakhs.
The measures suggested for the promotion of small-scale and cottage industries included:
(i) Reservation of 504 items for exclusive production in small-scale sector.
(ii) Proposal to set up in each district an agency called District Industry Centre (DIC) to
serve as a focal point of development for small-scale and cottage industries. The scheme of
DIC was introduced in May 1978. The main objective of setting up DICs was to promote
under a single roof all the services and support required by small and village entrepreneurs.
What follows from above is that to the earlier thrust of protection (IPR 1948) and
development (IPR 1956), the IPR 1977 added promotion. As per this resolution, the small
sector was, thus, to be protected, developed, and promoted.

4. Industrial Policy Resolution (IPR) 1980:

The Government of India adopted a new Industrial Policy Resolution (IPR) on July 23, 1980.
The main objective of IPR 1980 was defined as facilitating an increase in industrial
production through optimum utilization of installed capacity and expansion of industries.
As to the small sector, the resolution envisaged:
(i) Increase in investment ceilings from Rs. 1 lakh to Rs. 2 lakhs in case of tiny units, from
Rs. 10 lakhs to Rs. 20 lakhs in case of small-scale units and from Rs. 15 lakhs to Rs. 25 lakhs
in case of ancillaries.
(ii) Introduction of the concept of nucleus plants to replace the earlier scheme of the District
Industry Centres in each industrially backward district to promote the maximum small-scale
industries there.
(iii) Promotion of village and rural industries to generate economic viability in the villages
well compatible with the environment.
Thus, the IPR 1980 reemphasised the spirit of the IPR 1956. The small-scale sector still
remained the best sector for generating wage and self-employment based opportunities in the
5. Industrial Policy Resolution (IPR) 1990:
The IPR 1990 was announced during June 1990. As to the small-scale sector, the resolution
continued to give increasing importance to small-scale enterprises to serve the objective of
employment generation.
The important elements included in the resolution to boost the development of small-scale
sector were as follows:
(i) The investment ceiling in plant and machinery for small-scale industries (fixed in 1985)
was raised from Rs. 35 lakhs to Rs. 60 lakhs and correspondingly, for ancillary units from Rs.
45 lakhs to Rs. 75 lakhs.
(ii) Investment ceiling for tiny units had been increased from Rs. 2 lakhs to Rs. 5 lakhs
provided the unit is located in an area having a population of 50,000 as per 1981 Census.
(iii) As many as 836 items were reserved for exclusive manufacture in small- scale sector.

(iv) A new scheme of Central Investment Subsidy exclusively for small-scale sector in rural
and backward areas capable of generating more employment at lower cost of capital had been
mooted and implemented.
(iv) With a view, to improve the competitiveness of the products manufactured in the smallscale sector; programmes of technology up gradation will be implemented under the umbrella
of an apex Technology Development Centre in Small Industries Development Organisation
(v) To ensure both adequate and timely flow of credit facilities for the small- scale industries,
a new apex bank known as Small Industries Development Bank of India (SIDBI) was
established in 1990.
(vi) Greater emphasis on training of women and youth under Entrepreneurship Development
Programme (EDP) and to establish a special cell in SIDO for this purpose.
(vii) Implementation of delicencing of all new units with investment of Rs. 25 crores in fixed
assets in non-backward areas and Rs. 75 crores in centrally notified backward areas.
Similarly, delicensing shall be implemented in the case of 100% Export Oriented Units
(EOU) set up in Export Processing Zones (EPZ) up to an investment ceiling of Rs. 75 lakhs.

Contribution in percentage of small scale industries at 1999-2004 to GDP


Total industries

Gross domestic product










Source: - ministry of small scale industries .GOI. Annual Report 2006-07.

Small-Scale Industrial Undertaking (SSI)

Following the Abid Hussian Committee (1997) Recommendation, the Government of India
raised the (ceiling on investment in plant and machinery for SSI and ancillary undertaking to
Rs. 3 crore. This definition of SSI and ancillary undertaking has since been revised as per the
government order dated 24 December 1999. According to the order the industrial undertaking
in which the investment in plant and machinery, whether held on ownership terms or on lease
hire purchase basis does not exceed Rs. 1 crore is regarded as small-scale industrial



Problems in prospects of small scale industries in India

The decade of the 1990s was marked by consideration deregulated of the industrial
economy through delicensing and dereservations. The problem of sickness in small-scale
industries is due to under-utilisation of capacity caused by shortage of working capital, lack
of demand, non-availability of raw material, technological obsolescence, absence of
organised market channels, constraint of infrastructural facilities, including power, and
deficient managerial and technical skills. With the emergence of World Trade Organization
(WTO) the problem of small-scale units are likely to rise further as they will be increasingly
exposed to competition from foreign goods and from multi-national companies. Therefore it
is suggested that the government formulates comprehensive policy framework to protect the
growth and survival of these industrial. Policy makers must appreciate the importance of
small scale industries and empower them face to face competition both in domestic and
international market.4
Small scale industries play a vital role in the economic development of our country. This
sector can stimulate economic activity and is entrusted with the responsibility of realising
various objectives generation of more employment opportunities with less investment,
reducing regional imbalances etc. Small scale industries are not in a position to play their role
effectively due to various constraints. The various constraints, the various problems faced by
small scale industries are as under:
Major problems faced by the small scale industries are:
(1) Finance:
Finance is one of the most important problem confronting small scale industries Finance is
the life blood of an organisation and no organisation can function proper in the absence of
adequate funds. The scarcity of capital and inadequate availability of credit facilities are the
major causes of this problem.



Firstly, adequate funds are not available and secondly, entrepreneurs due to weak economic
base have lower credit worthiness. Neither they are having their own resources nor are others
prepared to lend them. Entrepreneurs are forced to borrow money from money lenders at
exorbitant rate of interest and this upsets all their calculations.
After nationalisation, banks have started financing this sector. These enterprises are still
struggling with the problem of inadequate availability of high cost funds. These enterprises
are promoting various social objectives and in order to facilitate then working adequate credit
on easier terms and conditions must be provided to them.
(2) Raw Material:
Small scale industries normally tap local sources for meeting raw material requirements.
These units have to face numerous problems like availability of inadequate quantity, poor
quality and even supply of raw material is not on regular basis. All these factors adversely
affect t e functioning of these units.
Large scale units, because of more resources, normally corner whatever raw material that is
available in the open market. Small scale units are thus forced to purchase the same raw
material from the open market at very high prices. It will lead to increase in the cost of
production thereby making their functioning unviable.
(3) Idle Capacity:
There is underutilisation of installed capacity to the extent of 40 to 50 percent in case of small
scale industries. Various causes of this under-utilisation are shortage of raw material problem
associated with funds and even availability of power. Small scale units are not fully equipped
to overcome all these problems as is the case with the rivals in the large scale sector.
(4) Technology:
Small scale entrepreneurs are not fully exposed to the latest technology. Moreover, they lack
requisite resources to update or modernise their plant and machinery Due to obsolete methods
of production, they are confronted with the problems of less production in inferior quality and
that too at higher cost. They are in no position to compete with their better equipped rivals
operating modem large scale units.


(5) Marketing:
These small scale units are also exposed to marketing problems. They are not in a position to
get first-hand information about the market i.e. about the competition, taste, liking, disliking
of the consumers and prevalent fashion.
With the result they are not in a position to upgrade their products keeping in mind market
requirements. They are producing less of inferior quality and that too at higher costs.
Therefore, in competition with better equipped large scale units they are placed in a relatively
disadvantageous position.
In order to safeguard the interests of small scale enterprises the Government of India has
reserved certain items for exclusive production in the small scale sector. Various government
agencies like Trade Fair Authority of India, State Trading Corporation and the National Small
Industries Corporation are extending helping hand to small scale sector in selling its products
both in the domestic and export markets.
(6) Infrastructure:
Infrastructure aspects adversely affect the functioning of small scale units. There is
inadequate availability of transportation, communication, power and other facilities in the
backward areas. Entrepreneurs are faced with the problem of getting power connections and
even when they are lucky enough to get these they are exposed to unscheduled long power
Inadequate and inappropriate transportation and communication network will make the
working of various units all the more difficult. All these factors are going to adversely affect
the quantity, quality and production schedule of the enterprises operating in these areas. Thus
their operations will become uneconomical and unviable.
(7) Under Utilisation of Capacity:
Most of the small-scale units are working below full potentials or there is gross
underutilization of capacities. Large scale units are working for 24 hours a day i.e. in three
shifts of 8 hours each and are thus making best possible use of their machinery and


On the other hand small scale units are making only 40 to 50 percent use of their installed
capacities. Various reasons attributed to this gross under- utilisation of capacities are
problems of finance, raw material, power and underdeveloped markets for their products.
(8) Project Planning:
Another important problem faced by small scale entrepreneurs is poor project planning.
These entrepreneurs do not attach much significance to viability studies i.e. both technical
and economical and plunge into entrepreneurial activity out of mere enthusiasm and
They do not bother to study the demand aspect, marketing problems, and sources of raw
materials and even availability of proper infrastructure before starting their enterprises.
Project feasibility analysis covering all these aspects in addition to technical and financial
viability of the projects, is not at all given due weight-age.
Inexperienced and incomplete documents which invariably results in delays in completing
promotional formalities. Small entrepreneurs often submit unrealistic feasibility reports and
incompetent entrepreneurs do not fully understand project details.
Moreover, due to limited financial resources they cannot afford to avail services of project
consultants. This result is poor project planning and execution. There is both time interests of
these small scale enterprises.
(9) Skilled Manpower:
A small scale unit located in a remote backward area may not have problem with respect to
unskilled workers, but skilled workers are not available there. The reason is Firstly, skilled
workers may be reluctant to work in these areas and secondly, the enterprise may not afford
to pay the wages and other facilities demanded by these workers.
Besides non-availability entrepreneurs are confronted with various other problems like
absenteeism, high labour turnover indiscipline, strike etc. These labour related problems
result in lower productivity, deterioration of quality, increase in wastages, and rise in other
overhead costs and finally adverse impact on the profitability of these small scale units.


(10) Managerial:
Managerial inadequacies pose another serious problem for small scale units. Modern business
demands vision, knowledge, skill, aptitude and whole hearted devotion. Competence of the
entrepreneur is vital for the success of any venture. An entrepreneur is a pivot around whom
the entire enterprise revolves.
Many small scale units have turned sick due to lack of managerial competence on the part of
entrepreneurs. An entrepreneur who is required to undergo training and counselling for
developing his managerial skills will add to the problems of entrepreneurs.
The small scale entrepreneurs have to encounter numerous problems relating to
overdependence on institutional agencies for funds and consultancy services, lack of creditworthiness, education, training, lower profitability and host of marketing and other problems.
The Government of India has initiated various schemes aimed at improving the overall
functioning of these units.5



Measures to remove difficulties faced by Small-Scale Industries in India!

It will be noted that small scale industrial units experience serious handicaps by an
inequitable allocation system for scarce raw materials, inadequate institutional finance, poor
technical skill and managerial ability, and lack of marketing channels.
It is, therefore, essential to develop an overall approach to remove these difficulties and put
the small-scale industrial sector on a sound path of development.6
In this connection, the following measures may be suggested:
(1) Equitable Allocation of Raw Materials, Imported Components and Equipment:
The small scale industrial units should be given adequate degree of priority in the allocation
pattern of essential, but scarce, raw materials, imported components and equipment.
(2) Improvement in the Methods and Techniques of Production:
The small scale industrial units should be encouraged to replace their outmoded equipment
with that incorporating an up-to-date technology, and facilities and incentives should be
provided wherever required.
Up-dating the methods and techniques of production of quality goods conforming to
standards. The role of the Government in this respect is quite significant. Standardisation of
certain products should be ensured, the quality of products should be guaranteed, and
malpractices like adulteration, misrepresentation, etc., need to be curbed drastically.
(3) Provision of Adequate Finance:
Promoters own capital in the small-scale industrial units is generally small and generation of
internal resources small and slow. They depend, therefore, on the external sources of finance
in a substantial measure.
This factor requires, therefore, a system of integrated credit whereby the long-term as well as
short-term finance is made available in an adequate measure and at a rate of interest which
these undertakings can bear.
(4) Marketing Assistance:


Marketing of their products at remunerative prices is the major problem of small-scale

industrial units. There is, therefore, a clear case for government intervention with a view to
reducing the disadvantages arising out of market imperfections. Market research, intelligence
and information systems should be strengthened and the results made available to those units.
(5) Industrial Education and Training:
With full advantages of changing technique of production, dispensation of technical
knowledge, both to the small-scale entrepreneurs as well as their workers, should form an
essential element of the overall strategy. Provision of adequate facilities for industrial
education and training, therefore cannot be over-emphasised.
(6) Demarcation of Spheres of Large-Scale and Small-Scale Industrial Units:
Once the role of small-scale industries in the national economy is recognised, it becomes
imperative that a secured berth is provided to it. In this connection the guiding principle
should be to clearly demarcate, as possible, the spheres of production for these units. It may
be pointed out that all the measures suggested above should be viewed as a package and
applied simultaneously.7




Gandhi ji once said the poor of the world cannot be helped by mass production; it can be
achieved only through production by the masses. If large number of producers were to exist
for wider markets, the entities that produce should necessarily be small. The focus of this
project is involved in making the Small Scale Industries sector in India more competitive in
the changing global environment. Global competitiveness is considered by all countries to be
a prerequisite for maintaining high levels of income, employment and sustainable growth.
Greater competitiveness allows diversifying from a traditional commodity exports and
moving up the skills, technology ladder and permitting greater economies of scale in
production. Competitiveness is not only dependent on macroeconomic parameters and
adjustments or natural endowments but al soon the ability to achieve high productivity by
effectively utilizing the factors of production.8




In order to attain success in this competitive and dynamic business environment of the day, a
planned effort in every direction of business activity is essential. But a proper plan target can
be set only when the management has acquired a thorough and adequate knowledge about the
prevailing market condition of the product in question i.e. consumers preference, activities of
his counterparts in the market etc. This can be made possible only when the enterprise makes
a market a market survey, before the project is started and so also on a periodical basis of an
on-going project. A detail market research enables management to remain Consumer
oriented in its decision and to select the best among the alternatives. It would also help in
planning the units future requirements and lead for its successful functioning to cope with the
changing environment.9
No doubt, market survey is not an easy task that can be accomplished by anybody. It requires
specialised knowledge in the line or outside professional agencies. Small scale industries in
general, do not possess technical persons of their own can undertake such a function on a
regular basis, nor it becomes possible for the small entrepreneurs to employ professional
exports to accomplish such function, for in many cases, the units run only on a marginal basis
and are unable to undertake such Promotional activities incurring heavy cost. Even in many
cases, if the unit possesses capacity to do so, does not care for such a need, and as a result,
suddenly faces marketing setback. Still there are some entrepreneurs who are rather rational
in their approach and realise the importance of market research and even sometime do so,
though not on a regular basis. But they fail to make best use of their incompetency in
managerial skill.
In present study, it has been observed that only 4 units (5.06%) spent money on market
survey of their products, while only 1 (1.3%) units does on a recurring basis. It has been seen
in course of the survey that most of the entrepreneurs do not have any plan for their future
course of action and they are unware of the importance of market research or survey.
Among all the sales promotion activities, advertising is the most popular in the present
business world. Advertising informs and reminds the consumers about the existence of a
particular brand of product in the market, its quality and comparative superiority etc. An
9 S. Rustom Davar, Modern Marketing Management In Indian Context pp. 152155


attractive advertisement can considerably influence consumers to buy a particular brand and
thus helps to boost up sales of brand.
As Fedrick R. Gamble, former President of an American Association of advertising Agencies
rightly mentions that Advertising is the greatest accelerating force in distribution reaching
many people rapidly with low cost, advertising speed. Therefore, advertising has the greatest
opportunity and responsibility for finding consumers in an economy with mass production
and high consumption.



The small-scale industry is a key to India's growth and alleviation of poverty and
unemployment in the country Therefore, promotion of such enterprises in developing
economies like India is of paramount importance since it brings about a great distribution of
income and wealth, economic self-dependence, entrepreneurial development employment and
a host of other positive, economic uplifting factors. Moreover, in a country like India with an
adverse Balance of Payment situation, the growing contribution of the SSI sector in India's
export portfolio goes a long way in generating forex and smoothening out the adverse BoP
situation. This study, therefore, analyses the impact on the Indian economy caused due to the
growth of this sector and the factors responsible for its growing contribution towards the
export performance of India.