SMALL SCALE INDUSTRIES IN INDIA ROLE AND GOVERMENT POLICY

MADE BY: NAVNEET AMAN KAMAL ABHISHEK MISHRA MBA (B.E) 4th SEM.

DEFINITION OF SSIs
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: 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.
YEAR 1960 1966 1975 1980 1985 1991 1997 1999 INVESTMENT LIMITS Upto Rs 5 lacs in Plant & Machinery Upto Rs 7.5 lacs in Plant & Machinery Upto Rs 10 lacs in Plant & Machinery Upto Rs 20 lacs in Plant & Machinery Upto Rs 35 lacs in Plant & Machinery Upto Rs 60 lacs in Plant & Machinery Upto Rs 100 lacs in Plant & Machinery Upto Rs 100 lacs in Plant & Machinery

CLASSIFICATION OF SSIs:
A common classification is between traditional small industries and modern small industries. Traditional small industries include khadi and handloom, village industries, handicrafts, sericulture, coir, etc. Modern SSIs produce wide range of goods from comparatively simple items t sophisticated products such as television sets, electronics, control system, various engineering products, particularly as ancillaries to the large industries.. The traditional small industries are highly labour-intensive while the modern small-scale units make the use of highly sophisticated machinery and equipment. For instance, during 1979-80, traditional small-scale industries accounted for only 135 of the total output but their share in total employment was 56%. As against this, the share of modern industries in the total output of this sector was 74% in 1979-80 but their share in employment was only 33%. Obviously, these industrial units would be having higher labour productivity. One special characterstic of traditional small-scale industries is that they cannot provide full time employment to workers, but instead can provide only subsidiary or part time employment to agricultural laborers and artisans. Among traditional village industries, handicrafts possess the highest labour productivity, besides handicrafts make a significant contribution to earning foreign exchange for the country. Nowadays Indian small-scale industries (SSIs) are mostly modern smallscale 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.

ROLE OF SMALL SCALE INDUSTRIES IN INDIAN ECONOMY

The small-scale industrial sector plays a pivotal role in the Indian economy in terms of employment and growth has recorded a high rate of growth since Independence inspite of stiff competition from large-scale industries. There are several important reasons why these industries are contributing a lot to the progress of the Indian economy:

1)

PRODUCTION:
The small-scale industries sector plays a vital role in the growth of the country. It contributes almost 40% of the gross industrial value added in the Indian economy. It has been estimated that a million Rs. of investment in fixed assets in the small scale sector produces 4.62 million worth of goods or services with an approximate value addition 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 0.87 million units in the year 1980-81 to over 3 million in the year 2000. When the performance of this sector is viewed against the growth in the manufacturing and the industry sector as a whole, it instills confidence in the resilience of the small-scale sector.

2.

EMPLOYMENT

SSI Sector in India creates largest employment opportunities for the Indian populace, next only to Agriculture. It has been estimated that 100,000 rupees of investment in fixed assets in the small-scale sector generates employment for four persons.

Office of the Development Commissioner M/O Micro & Small Enterprises Cluster Development Programme (Statistics & Data Bank Division) PERFORMANCE OF MICRO & SMALL ENTERPRISES Number of Enterprises (Lakh Production Empl. (Rs. Crs.) Growth Nos.) (Lakh Person) at Current Rate Registered Unregistered Total prices (%) 15.91 93.58 109.49 263.49 314850 8.68 16.97 96.98 113.95 275.30 364547 9.64 17.53 101.06 118.59 287.55 429796 10.88 18.71 104.71 123.42 299.85 497842 12.32 20.98 107.46 128.44 312.52 587196 12.65 24.68 108.99 133.67 322.28 695126 13.00

Share In GDP (%) 5.92 5.79 5.84 5.83 5.94

Year 2002-2003 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008 (Projected)

NA

3. EXPORT:

SSI Sector plays a major role in India's present export performance. SSI Sector contributes 45%-50% of the Indian Exports. Direct exports from the SSI Sector account for nearly 35% of total exports. 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 garments, leather and gems and jewellery units from this sector. The 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. The SSI sector is reorienting its export strategy towards the new trade regime being ushered in by the WTO.

4. OPPORTUNITY:
The opportunities in the small-scale sector are enormous due to the following factors:

Less Capital Intensive Extensive Promotion & Support by Government Reservation for Exclusive Manufacture by small scale sector Project Profiles Funding - Finance & Subsidies Machinery Procurement Raw Material Procurement Manpower Training Technical & Managerial skills

Tooling & Testing support Reservation for Exclusive Purchase by Government Export Promotion Growth in demand in the domestic market size due to overall economic growth Increasing Export Potential for Indian products Growth in Requirements for ancillary units due to the increase in number of greenfield units coming up in the large-scale sector. Small industry sector has performed exceedingly well and enabled our country to achieve a wide measure of industrial growth and diversification.

5.

WELFARE:

These industries are also very important for welfare reasons. People of small means can organize these industries. This in turn increases their income levels and quality of life. As such these can help in reducing poverty in the country. Further, these industries tend to promote equitable distribution of income. The reasons are obvious. One, a large proportion of income generated in these enterprises is distributed among the workers. Two, income are distributed among a vast number of persons throughout the country. All these benefits flow from the fact that these industries are highly labour-intensive, and that these can be set up anywhere in the country. Distributive aspect of small-scale industries further unravels their twofold beneficial character. On the one hand, these industries enable a vast number of people to earn income, and on the other hand, the very people among whom these are distributed generate this income.

MEASURES
To help the SSIs in meeting the challenges of globalization, the Government has taken several initiatives and measures in recent years.

Primarily among them is the enactment of the Micro, Small and Medium Enterprises Development Act, 2006, which aims to facilitate the promotion and development and enhance the competitiveness of MSMEs. The Act came into force from 2nd October 2006. The main features of the act are :

SALIENT FEATURES OF MSMEDACT 2006

Manufacturing enterprises defined in terms of investment in Machinery and Equipment (excluding land and building) classified into a. Micro enterprises - investment upto Rs 25 lakhs, b. Small enterprises - investment above Rs 25 lakhs and upto Rs 5 crores. c. Medium enterprises - Investment above Rs 5 crores and upto Rs 10 crores. Service enterprises defined in terms of their investment in equipment (excluding land and building) classified into a. Micro enterprises-investment upto Rs 10 lakhs b. Small enterprises-investment above Rs 10 lakhs and upto Rs 2 crore c. Medium enterprises-investment above Rs 2 crores and upto Rs 5 crores

MSMED Act 2006 and its Impact

Clause Salient Features Impact

1. Establishment of Specific representation Statutory Status, compact board and National Small for Women quarterly meetings will address and Medium Mandatory Quarterly problems of SMEs immediately to take Enterprises Meeting corrective action Board Maximum No. of members 47 2. Concept of Clear-cut demarcation of Facilitates SMEs to enter into service Enterprises manufacturing/production enterprises aggressively and rendering services 3. Definition of Specific ceiling limit for Existing small units can graduate into Enterprises manufacturing/production Medium units and avail facilities under and service enterprise the act. definition for Medium enterprises 4. Filing of Replacement of Facilitates SMEs to avail the benefits memoranda optional registration with of the act immediately after setting up for Micro and Small memorandum of the unit. enterprises in manufacturing and service sector Medium enterprises in Service Sector but mandatory for Medium enterprises in manufacturing sector

Clause 5. Procurement Policies

Salient Features Notification of preference policies by central or State Governments for goods and services provided by Micro & Small enterprises

Impact Facilitates opportunity for supply of goods/services without any hassles. Public Procurement Policy under Section 11 of MSME Act, yet to be notified

 Period of SMEs can plan their cash flow/financial payment by requirement the procuring organizations 45 days Penal interest 200% of PLR 7. Dispute Establishment of Easy financial planning and no waste of Resolution MSE facilitation human resources for chasing/follow up. Council; 90 days framework for dispute resolution 8. Delayed Payment Deduction This will encourage procurement allowable deduction disallowed agencies to ensure timely payment to under IT Act 1961 SMEs. 9. Closure of Statutory Facilitates expedition of liquidation Business notification of scheme for closure

6. Delayed Payment Penalty & dispute resolution

Other major initiatives taken by the government are setting up of National Manufacturing Competitiveness Council (NMCC) and the National Commission of Enterprises in the Unorganized Sector (NCEUS). Further, in recognition of the fact that delivery of credit continues to be a serious problem for MSEs, a Policy Package for Stepping up Credit to Small and Medium Enterprises (SME) was announced by the government with the objective to double the credit flow within the period of five years.

The Ministry of Micro, Small and Medium Enterprises (MSME) performs its tasks of formulation of policies and implementation of programmes mainly through two Central organizations. These are:

Micro, Small and Medium Enterprises Development Organization

The Micro, Small and Medium Enterprises Development Organization (earlier known as Small Industries Development Organization) set up in 1954, functions as an apex body for sustained and organized growth of micro, small and medium enterprises. As an apex organ, it provides a comprehensive range of facilities and services to the MSMEs through its network of 30 Small Industries Service Institutes (SISIs), 28 branch SISIs, 4 Regional Testing Centres (RTCs), 7 Field Testing Centres (FTSs), 6 Process-cum-Product Development Centres (PPDCs)

National Small Industries Corporation Ltd (NSIC) NSIC, since its inception in 1955 has being working with its mission of promoting, aiding and fostering the growth of micro and small enterprises. The Corporation has been introducing several new schemes from time to time for meeting the change aspirations of micro and small enterprises. The main objective of all these schemes is to promote the interest of the micro and small enterprises and to put them in competitive and advantageous position. The information pertaining to the schemes planned to be continued/implemented in the XI plan period by NSIC with Government support is given hereunder:

Measures for Export Promotion Export promotion from the MSE sector has been accorded a high priority. Following schemes have been formulated to help MSEs in exporting their products:

i.

Products of MSE exporters are displayed in international exhibitions and the government reimburses the expenditure incurred.

ii. iii.

To acquaint MSE exporters with latest packaging standards, techniques, etc., training programme on packaging for exporters are organized in various parts of the country in association with the Indian Institute of Packaging. Under the MSE Marketing Development assistance (MDA) scheme, assistance is provided to individuals for participation in overseas fairs/exhibition, overseas tours, or tours of individuals as member of a trade delegation going abroad.

GOVERNMENT POLICIES REGARDING SSI

Policy Of Reservation
Reservation of products for exclusive manufacture in the SSI Sector has been one of the important policy measures for promoting this sector. This policy was initiated in 1967 with 47 items which was enlarged to 807 items in 1978. At present 812 items are reserved for manufacture in this sector. This Policy got a legal backing when the I (D&R) Act was amended in March, 1984 empowering the Government to reserve items under this Act. This Act also provided for the Constitution of an Advisory Committee headed by Secretary (SSI & ARI). Other members of this Committee include Secretary (IP&P), Secretary (ID), Chairman BICP and AS&DC (SSI). GENERAL TRADE POLICY - IMPORTS & EXPORTS Exports from the small scale sector over a period of time have acquired great significance in India's foreign trade. The SSI Sector today constitutes a very important segment of India's economy and it accounts for nearly 40 of the gross value of output in the manufacturing sector and about 50% of the total exports from the

country. Direct exports from the SSI Sector accounts for 35% of the total exports. . Export Promotion from the small scale sector has been accorded a high priority in the India's export promotion strategy. The small industries due to their inherent strengths of low capital investment, high employment generation, maximum utilisation of capacity, flexibility in operation, etc. are highly conducive for rapid industrialization and generation of export surpluses. Integrated Technology Upgradation and Management Programme (UPTECH) Office of Development Commissioner (Small Scale Industries) has launched a new scheme on Integrated Technology Upgradation and Management Programme called 'UPTECH' in Feb., 1998. The special features of the scheme is that it encompasses all the areas of technology upgradation and also related issues. The programme is directed to a cluster, not to an individual unit, where there is a lot of commonality in the method of production. . The objective of the programme is given below:1. To carry out technology status and technology needs studies of identified clusters of traditional skills-based enterprises. 2. To scout for and identify appropriate technologies and their provided on the basis of the status and needs studies. 3. To facilitate contract/need based research, if any required, to adopt the available technology to the specific needs of the end users. 4. To facilitate and promote the demonstration of technologies to the largest groups of small enterprises. 5. To promote and facilitate the delivery of the technology from its producer to the recipient user.

6. To promote the assimilation and diffusion of the identified technology across the cluster of small enterprises.

ISO-9000 Certification The Government has been considering a scheme to enhance the international competitiveness of the Small Scale Sector. As a step in that direction, Govt. is operating a scheme to provide incentives to those Small Scale Undertakings who acquire ISO-9000 Certification or its equivalent. Salient features of the scheme - The scheme envisages reimbursement of charges of acquiring ISO-9000 or its equivalent to the extent of 50% of the cost subject to the maximum of Rs. 75,000/. - The Small Scale/Ancillary Undertakings are eligible to avail the incentives. - The scheme is applicable for one hundred Small Scale/ Ancillary Units on first come first serve basis. - The scheme is administered by Development Commissioner (SSI).

Entrepreneurship development programme The objective of the Programme is to identify persons with entrepreneurial quality, to motivate them and to train them through a structured training course so as to enable them to set up their tiny and small scale industrial ventures with the assistance available from different agencies. The programmes undertaken under this Scheme are:-

1. Identification, selection and motivation of potential entrepreneurs through intensive campaign and seminars at a cost of Rs. 5000/per programme and 2. A training course at an expenditure of Rs.20,000/- for 30 participants for a duration of 4 weeks. The financing pattern was set in 1986 and an upward revision is presently under consideration. A course fee of Rs.500/- per participant is charged in metropolitan cities and Rs.200/- per participant in non-metropolitan cities. 50% fee is charged for SC/ST participants. Tool Rooms: .

Tool Rooms provide toolings, dies, moulds and fixtures to small scale units at a very low price to enable them to produce quality goods to meet the requirements of supplies of components to large units as well as produce quality goods for direct sale. This enhances their competitiveness and export potentials. There are 10 Tool Rooms established in various parts of the country. Process-cum-Product Development Centres : .

There are 7 Process-cum-Product Development Centres. These Centres take up jobs from SSIs for specific product development as well process development to improve the quality of products, reduce cost of product and enhance marketability of goods. These Centres deal with specific product groups.

Preference in govt. procurement: Govt has reserved a large number of products which it purchases from a small scale industries. This is how SSIs have been given protection from competition in the matter of procurement of different kind of products e.g. khaki products, pickles, jams, sauce, handloom products etc.

Infrastructural Institutional Support : This kind of existence is provided through industrial estates, district industries centre (DICs), small industries service institute khadi & village industries commission (KVIC) and other specialised institutions provides infrastructural and technical support. Machinery on hire purchase: The national small industries corporations (NSIC) arranges supply of machines on hire purchase to small scale units. Marketing assistance : It includes export promotion assistance this is provided by institution like NSIC, small industries development organisation (SIDO), handicrafts and handlooms export promotion corporation, KVIC, etc. Financial Assistance: Financial assistance is provided at concessional terms by commercial banks, corporative banks, regional rural banks (RRBs), State Finance Corporations (SFCs), state level institutions etc. Also small industries development bank of India (SIDBI) was established in 1990 to co-ordinates for the availability of financial and non-financial inputs realized for the orderly growth of this sector.

Export Processing Zone (EPZ), Special Economic zone (SEZ), export & industrial parks: Special incentives for the firms small, large, medium, to undertake manufacturing of export and industrial items have been provided by the govt. through the establishment of EPZ, SPZ or through 100% export oriented units, There are also several technology parks spread all over the India. Any enterprise making its establishment in these parks an areas get many incentives provided by the govt. like tax holidays, electricity on concessional rates, infrastructural facilities. Integrated Infrastructural development (IID) Scheme: This scheme was announced by the Govt on 7th Mar. 1994. The schemes aims at augmenting infrastructural facilities in the rural and backward areas with

the special emphasis on the linkage between agriculture and industry. The scheme covered centrally developed backward districts other than those covered under growth center scheme. Cluster Development: SSIs operating in clusters derive their strength through a unique state of togetherness. They also benefit from backward and forward linkages since such units have similar cultural n social backgrounds clusters provide them an active base for social and business interaction. The economies of clusteration ensure a network of suppliers that provide raw material, equipment, machinery, spare parts, repairing which would otherwise have not been possible. Clusters encourage specialization, good inter firm relationship, and division of labor, sharing of information and experience etc. because of these advantages govt. and other agencies have been promoting clusters through development of infrastructure & technical consultancy.

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REFERENCES

INDIAN ECONOMY by RUDDAR DATT AND K.P.M. SUNDHARAM

INDIAN ECONOMY by A.N. AGRAWAL

INDIA 2008 by MINISTRY OF INFORMATION AND BROADCASTING

BUSINESS ENVIROMENT by Francis Cherunilam

Websites: http://indiabudget.nic.in

http://dcmsme.gov.in/ssiindia