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BY Asst Prof. Arvind Gajakosh B.E.

MBA, NET

In India the SME is generally referred as small scale industry including the tiny sector. Companies with fewer than 10 employees called as Micro enterprise. Companies with fewer than 50 employees called as Small enterprise. Companies with fewer than 250 employees called as Medium enterprise.

In accordance with the MSMED (Micro, Small & Medium Enterprises Development) Act, 2006 they are classified into two classes. 1) Manufacturing Enterprises: according to Development & Regulation Act, 1951) the manufacturing enterprises are defined in terms of investment in P & M.
Type of Enterprise Micro Small Medium Investment in P&M <25 lakh 25 lakh - <5 Crore 5 Crore - <10 Crore

2) Service Enterprises: The enterprises engaged in providing or rendering of services & are defined in terms of investment in equipment.
Type of Enterprise Micro Small Medium Investment in P&M <10 lakh 10 lakh - <2 Crore 2 Crore - <5 Crore

A small scale industry is an industry that is privately owned and operated, with a small number of employees & relatively low volume of sales. Small business are normally privately owned corporations, partnerships, or sole proprietorships. In India small business is categorized into following groups: 1) Small scale industries: a unit in which invst in P&M doest exceed 5 crore rupees. 2) Ancillary units: an undertaking SSI unit, which sells more than 50% of its output to other industrial undertaking.

3) Export Oriented Units: is a SSI unit which exports >30% of its output. 4) Tiny Units: a units are nothing but micro enterprises. 5) Small Scale Service & Business Enterprises: a SSSBM is one whose investment in fixed assets of P&M is <10lakh rupees. 6) Cottage Industries: also known as rural or traditional industries. The features of cottage industries are as under: i) organised by individuals with pvt resources ii) capital invest is small iii) produce simple products iv) the equipment used is simple.

India is largely an agricultural country and major part of the population lives in villages. SME are small in size but play a big role in economic development of our nation. Small scale firms are helpful in the achievement of economic goals in the following ways. Employment : small scale firms use labor intensive techniques therefore they have high potential to provide employment to a larger no. of people. Balanced Regional Development: stops migration Optimization of Capital : small scale industries require less capital per unit of output therefore, greater output can be obtained with small invest.

Mobilization of local resources & skills: Exchange earnings: they can earn valuable foreign exchange through exports. Feeder to large Industries: various types of components , spare parts, tools & accessories which are required by the large scale sector. Opportunity for artisans: because of lack of opportunities their skills do not come into limelight. Increase standard of Living: Equitable Distribution of Income: Social Advantage: they offer savings in social overheads like education, housing & medical facilities by taking industry nearer to the people.

The main objectives of policy framework are: 1) To encourage & facilitate the entry of new entrepreneurs in small sector. 2) To support the growth of small-scale units. 3) To protects small firms from acute competition from large sector. 4) To solve the problems faced by the small scale industries. 5) To encourage technology up gradation, productivity improvement and export production in the small-scale sector.

Industrial policy resolution 1948 attributed an important role to the SSI sector. The karve committee (1955) and the international perspective planning team also emphasized the need to develop small scale and village industries to meet the following objectives: To create large-scale employment at relatively small capital costs. To mobilize unused resources of capital and skills. To ensure a more equitable distribution of national income including regional dispersal of industries.

Industrial policy resolultion,1956: Industrial policy resolultion,1977: Industrial policy resolultion,1980:

It stated that besides continuing the policy of supporting cottage village and small industries by differential taxation or direct subsidies. To ensure that decentralized sector acquires sufficient vitality (essential function) to be self supporting and its development is integrated with that of LSI. To counter the tendencies towards concentration of economic power by widening opportunities for new entrants and medium and small sized units.

This policy specified the following measures : Reservation of 504 items for exclusive production in the small scale sector. Establishing of district industries centre. (DIC) Special assistance to tiny sector and cottage and household industries. Special marketing arrangements through the provision of services like product standardization, quality , control, market survey, etc. Encouragement for technological Up-gradation in the traditional sector. Promotion of khadi and village industries and the handloom sector

Definition of small scale, tiny units and ancillaries units was redefined; The DIC were replaced by nucleus plants in each industrially backward district to promote cottage and small industries. Reservations of items continued; Financial support to small units was strengthened; Village industries including handloom, handicrafts, khadi etc. received greater attention;

The major problems confronting the sector are as follows: Technology obsolescence: up gradation of the technology & achieving economies of scale is one of the major problems facing the sector. They cannot afford new machines & equipments and are therefore not development on a continuing basis. Small businesses face the following three essential problems: Lack of Technological Knowledge Barriers in Implementation Funding Problem

Managerial Inadequacies: as the business grows owner finds it difficult to manage even small business effectively with managerial functions. Credit & Finance: inadequate access to credit is a major problem facing MSME Organizational structure: there is lack of proper division of work and benefits of specialization are not available. Raw materials & Products: non availability of quality raw materials on a timely basis in an adequate quantity. Ex: handloom industry is facing shortage of yarn.

Marketing & Export: MSME face greater difficulty in the marketing & distribution of their products. Some of these are:
Competition from large firms Lack of mktg networks Lack of resources Low negotiating power

Infrastructure: transportation facility, adequate power supply, channels of telecommunication.


Increasing Competition:

Meaning & Definition of Sick Unit According to the sick industrial companies act 1985, : A sick industrial company indicates an industrial unit which is showing accumulated losses equal to or exceeding its present net worth at the end of any financial year. An industrial unit was defined as sick if: It was registered for at least 7 yrs. It incurred cash losses for the current and the preceding yr and Its net worth has eroded.

Following criteria were adopted to identify sick units are: Continuous decline in gross output compared to the previous two FYs Delay by more than 12 months in repayment of loan taken from institutional sources Erosion in the net worth to the extent of 50% of the net worth during the previous accounting yr.

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