Analysis of Problems and Prospects of Small Scale Industries in India

THE INDIAN INSTITUTE OF PLANNING AND MANAGEMENT NEW DELHI

THESIS ON “ANALYSIS OF PROBLEMS AND PROSPECTS OF SMALL SCALE INDUSTRIES IN INDIA”

SUBMITTED TO: IIPM, NEW DELHI

EXTERNAL GUIDE: Mr. Lawanya Kr. Agarwal Designation- CEO of Assam Industries

SUBMITTED BY: NAME: PRATEEK AGARWAL BATCH: FW SESSION:13-15/SS/FW Mob no: 9999566530 Email Id- [email protected] [email protected]

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ABSTRACT Agro based industry is regarded as the sunrise sector of the Indian economy in view of its large potential for growth and likely socio economic impact specifically on employment and income generation. Some estimates suggest that in developed countries, approximately 15 per cent of the total work force is engaged in agroprocessing sector directly or indirectly. However, in India, only about 4.5 per cent of the work force finds employment in this sector revealing its underdeveloped state and vast untapped potential for employment. There is no denying that India has to live with the problem of unemployment for many years to come. Therefore need arises to make all over development among all sections of the society especially in rural agro based industrial units. The present paper is an attempt to find out the status of agro based units such as rice mill industry in the Patiala district of Punjab and to analyze the various problems being faced by them. It has been found that Rice mill industry in Patiala district is in the crisis and facing the various problems regarding lack of financial assistance, improper marketing channel, high degree of breakdown of finished products and non availability of research lab for quality control. However, if this sector will be properly developed, it can make state Punjab a major player at the global level for marketing and supply of processed food for billion plus mouths to feed. All over the world, the unorganized manufacturing sector is known as Small and Medium Enterprises (SMEs) while in India this is known as SSI defined in terms of investment in plant and machinery. During last 50 years, the limit of investment has changed from Rs. 5 lacs in the sixties to Rs. 100 lacs in 2008 to 10-50 crore in 2014. Within the SSI sector, two sub segments have been created. : one for Tiny Units having investment in plant and machinery up to Rs. 25 lacs and the other for industry Related Service and Business Enterprise (SS and BE) sector defined as having investment in fixed assets excluding land and building not exceeding Rs. 10 lacs. The SP Gupta Study Group on Small Enterprises in its interim report has recommended that the time is ripe to move from Industry to Enterprise and also to include Medium Enterprises within the SSI sector. This is essential in order to bring Indian SSI sector at par with the global Small Medium Enterprises (SMEs) sector.

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CERTIFICATE OF ORGINALITY

This is to certify that the thesis titled “Analysis of Problems and Prospects of Small Scale Industries in India” is prepared and submitted by me to Indian Institute of Planning & Management, New Delhi in partial fulfillment for the award of the Post Graduate Diploma in Business Administration, and this report has not been submitted elsewhere.

Date: 1-10-2015

PRATEEKAGARWAL BATCH: PGP/SS-2007-09 SESSION:13-15/SS/FW IIPM, NEW DELHI Mob no: 9999566530 Email Id- [email protected] [email protected]

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ACKNOWLEDGEMENT

The present work is an effort to throw some light on “Problems and Prospects of Small Scale Industries in India” . The work would not have been possible to come to the present shape without the able guidance, supervision and help to me by number of people. With deep sense of gratitude I acknowledged the encouragement and guidance received by Mr Lawanya Kr Agarwal who helped and supported me during the course, for completion of my thesis.

Prateek Agarwal

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THESIS SYNOPSIS DETAILS OF THE STUDENT: Name

:

Prateek Agarwal

Batch

:

13-15/SS/FW

Specialization

:

Marketing and Finance

Section

:

FAB

Phone No

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9999566530

Email Id

:

[email protected] , [email protected]

DESIRED AREA OF RESEARCH: Marketing TITLE OF THE THESIS: “Problems and Prospects of Small Scale Industries in India”,

Research objective: 1

To understand the concept of Entrepreneurship

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To understand its applicability to the small scale sector in India.

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To study the crtical role of entrepreneurship in Small Scale Industry in India

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To study the present status and future prospects of Small Scale Industry in India

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To study the evolution of Special Economic Zones in India, with particular reference to Small Scale Industry in India

Introduction to the area of research: Since the time of the independence in 1947, a significant feature of the Indian economy has been the rapid growth of the small industry sector. The small industry sector is considered to have a major role in the Indian economy due to its 40 percent share in the national industrial output along with an 80 percent share in industrial

7 employment and nearly 35 percent share in exports. The small scale industries sector has been assigned an important role in the industrialization of the country by the previous and current governments of India. There are no clear official definitions of small. Small scale industries are usually distinguished from the large-scale and medium-scale industries on the basis of size, capital resources and labor force in the units. At one time the government of India had grouped small-scale industrial undertakings into two categories - those using power but employing less than 50 persons and those not using power and employing less than 100 persons. However, capital investment on plant and machinery by units is considered as main criteria for distinguishing between the large and small industries. An industrial unit can be classified as a small-scale unit only if it meets the capital investment limits set by the government of India (GOI). These limits have been steadily increased over the years. In 2005, the investment limit for small-scale industry (SSI) was raised from $6 million to $30 million. Production units that are ancillary to large-scale units are also considered as small if they sell not less than 50 percent of their manufactured products to one or more industrial units. The present research study is an attempt to study and highlight the implications, role, and importance of entrepreneurship in the light of small scale sector in India.

SCOPE OF THE STUDY: The scope of the study will be limited to undersatnd, what does the term Small Scale Sector means in the broader sense in India. 

To critically analyze the Financial Incentives available to the Small scale sector in India

8 RESEARCH METHODOLOGY: Research Methodology defines the purpose of the research, how it proceeds, how to measure progress and what constitute success with respect to the objectives determined for carrying out the research study. The appropriate research design formulated is detailed below. Exploratory research: this kind of research has the primary objective of development of insights into the problem. It studies the main area where the problem lies and also tries to evaluate some appropriate courses of action. The research methodology for the present study has been adopted to reflect these realties and help reach the logical conclusion in an objective and scientific manner. The present study contemplated an exploratory research. NATURE OF DATA Secondary data:- Data which is already available through various books, journals , magazines, internet etc. TOOLS AND TECHNIQES Analysis of data has been done with help of various statistical tools like the tables and graphs.

Justification for Choosing a Particular Research Proposal There seems to be considerable inertia in the supply of entrepreneurs. One reason is that the culture affects the supply, and the culture itself changes only very slowly. Entrepreneurship is one of the major avenues of social and economic advancement,

9 along with sport and entertainment. But the Horatio Alger myth that the typical entrepreneur has risen from rags to riches disguises the fact that as Frank Taussig and others have found, many of the most successful entrepreneurs are the sons of professionals and entrepreneurs. They owe much of their success to parental training and inherited family contacts. Thus, in most societies there is insufficient social mobility for entrepreneurial culture to change simply because of the changing origins of the entrepreneurial elite. In any case, "self-made" entrepreneurs often adopt the culture of t he elite, neglecting their business interests for social and political activities and even (in Britain) educating their children to pursue a more "respectable" career. In the long run, though, changes can occur that have profound implications for entrepreneurship. In modern economies large corporations whose shares are widely held have replaced the family firm founded by the self-made entrepreneur. Corporations draw on a wider range of management skill than is available from any single family, and they avoid the problem of succession by an incompetent eldest son that has been the ruin of many family firms. Corporations plan large-scale activities using teams of professional specialists, but their efficiency gains are to some extent offset by the loss of employee loyalty that was a feature of many family firms. Loyal employees do not need close supervision, or complex bonus systems, to make them work, because they are self-motivated. Historically, family firms have drawn on two main sources of "cultural capital": the paternalistic idea that employees are adopted members of the founder's family, and the founder's own religious and moral values. The first is effective only within small firms. DETAILS OF THE EXTERNAL GUIDE Guide Name: Mr Lawanya Kumar Agarwal

10 Designations: CEO Official Address: ASSAM INDUSTRIES, NEW MARKET ,HOJAI (ASSAM),

11 PIN CODE-782435TABLE

OF CONTENTS

CHAPTER-1: INTRODUCTION 1-15  Background  The promotional measures cover  Literature Review  Statistics on SSIs  Small-Scale Industry Policy  Small Industries Development Organization (SIDO)  Directorate of Industries  Small Industries Service Institutes (SISIs)  District Industries Centers (DIC)  National Small Industries Corporation (NSIC)  National Institute of Small Industry Extension Training (NISIET)  Role and Problems of Small Units in India  Small Industries Development Bank of India (SIDBI)  Techno-Managerial and Financial Problems  Regulatory Problems  Environmental Pollution Laws CHAPTER – 2: LITERATURE REVIEW 16-35  Problem contexts industry/ organization/ perspectives/ implications  Small industry development organization (SIDO)  National small industries corporation (NSIC) Ltd.  Small scale industries board  National commission for enterprises in the unorganized sector  National institutes for entrepreneurship development  SSI in Indian economy  Location-wise employment distribution - rural  Urban, Export  Major export markets  Increasing export potential for Indian products CHAPTER -3: OBJECTIVES OF THE STUDY  Scope of the study  Importance of industrialization in India

36-39

CHAPTER -4: RESEARCH METHODOLOGY  Research sampling and design  Type of research design

40-44

12  Nature of data  Tools and techniques  Research variables and measurement CHAPTER-5: DATA ANALYSIS 45-72  Data collection  Data analysis.  Limitation of the research  Presentation of data  Status classification of SSI  Data analysis  Problems in modernization of SSIS  Time series data for SSIS in India  Discussion and analysis  Introduction to small scale sector  Meaning of small-scale sector:  Need of small-scale sector:  Importance of small sector:  Problems of small sector in India:  Overview of small-scale sector in India  New policy for small sector, 2000: major thrust areas  Role of small scale sector in the economic development of India  Challenges for the SSI sector  SWOT analysis of the small scale industry CHAPTER-6: CONCLUSION & IMPLICATIONS   CHAPTER-7: RECOMMENDATIONS  Recent modernization efforts  Adoption of new definitions  Dereservation  Promoting clusters  Institutional credit

73-81 82-89

EXPORT PROMOTION  Rationale Behind Export Promotion  International Exposure to SSI Products BIBLIOGRAPHY/REFERENCES

90-93

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CHAPTER-1 INTRODUCTION

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INTRODUCTION BACKGROUND Since the time of the independence in 1947, a significant feature of the Indian economy has been the rapid growth of the small industry sector. The small industry sector is considered to have a major role in the Indian economy due to its 40 percent share in the national industrial output along with an 80 percent share in industrial employment and nearly 35 percent share in exports. The small scale industries sector has been assigned an important role in the industrialization of the country by the previous and current governments of India. There are no clear official definitions of small. Small scale industries are usually distinguished from the large-scale and medium-scale industries on the basis of size, capital resources and labor force in the units. At one time the government of India had grouped small-scale industrial undertakings into two categories - those using power but employing less than 50 persons and those not using power and employing less than 100 persons. However, capital investment on plant and machinery by units is considered as a main criteria for distinguishing between the large and small industries. An industrial unit can be classified as a small-scale unit only if it meets the capital investment limits set by the government of India (GoI). These limits have been steadily increased over the years. In 2005, the investment limit for small-scale industry (SSI) was raised from $6 million to $30 million. Production units that are ancillary to large-scale units are also considered as small if they sell not less than 50 percent of their manufactured products to one or more industrial units.

3 However, there is a clear distinction between the traditional and modern small industries. The traditional small industries include khadi and handloom, village industries, handicrafts, sericulture, coir, etc. Modern small industries manufacture a wide variety of goods from simple items to sophisticated items such as television sets, electronics control system, various engineering products, particularly as ancillaries to large industries. The traditional small industries are highly labor-intensive, while the modern small industries use highly sophisticated machinery and equipment. The term small-scale industries is mostly used to represent modern small industries. The SSIs manufacture many items which 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. The small scale industry sector output contributes almost 40% of the gross Industrial value-added 45% of the total exports from India (direct as well as indirect exports) and is the second largest employer of human resources after agriculture. The development of Small Scale Sector has therefore been assigned an important role in India's national plans. In order to protect, support and promote small enterprises as also to help them become self-supporting, a number of protective and promotional measures have been undertaken by the Government.

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The promotional measures cover Industrial extension services institutional support in respect of credit facilities, provision of developed sites for construction of sheds, provision of training facilities, supply of machinery on hire-purchase terms, 3 Assistance for domestic marketing as well as exports, special incentive for setting up enterprises in backward areas etc. technical consultancy & financial assistance for technological up gradation. While most of the institutional support services and some incentives are provided by the Central Government, others are offered by the state governments in varying degrees to attract investments and promote small industries in varying degrees to attract investments and promote small industries with a view to enhance industrial production and to generate employment in their respective States. The small-scale industries (SSI) constitute one of the vibrant sectors of the Indian economy in terms of employment generation, the strong entrepreneurial base it helps to create and its share in industrial production and exports. The Government created the Ministry of Small Scale Industries and Agro and Rural Industries (SSI&ARI) in October, 2008 as the nodal Ministry for formulation of policy and co-ordination of Central assistance relating to promotion and development of the small scale industries in India. The Ministry of Small Scale Industries and Agro and Rural Industries (SSI&ARI) was bifurcated into two separate Ministries, namely, Ministry of Small Scale Industries and Ministry of Agro and Rural Industries in September, 2010.

5 Taking into account the high potential for growth in the SSI sector in terms of output, employment and exports, the role of the Ministry of Small Scale Industries is to strengthen the SSI sector, to enable it to remain competitive in market-led economy and generate additional employment opportunities. For achieving these objectives, the endeavor of the Ministry is to provide the SSI sector proper and timely inputs like: 1

Adequate credit from financial institutions/banks;

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funds for technology up gradation and modernization;

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adequate infrastructure facilities;

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Modern testing facilities and quality certification laboratories;

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Modern management practices and skill up gradation through advanced training facilities; marketing assistance; and level playing field at par with the large industries sector;

LITERATURE REVIEW A leading, industrially advanced developing country, India has large, medium and small industrial units of production in almost all branches of the industry. Since Independence, the growth and development of the small-scale sector has been favored by the GoI on the following grounds: (1) generation of employment opportunities by SSIs, (2) mobilization of capital and entrepreneurship skills, (3) regional dispersal of industries and (4) equitable distribution of national income. The policies pursued by the GoI over the years have helped in the growth of the SSIs to a considerable extent.

6 Statistics on SSIs The total number of SSI units increased from 2.082 million units in 2000-01 to 2.724 million units in 2004-05. During the same period, at constant prices, the production increased from nearly $1.6 billion to approximately $2.2 billion. The total number of persons employed in SSIs increased from 12.9 million to 15.2 million. According to Second All-India Census of Registered SSI units, 42 percent of the units were functioning in rural areas, 48 percent in urban areas and 10 percent in metropolitan areas. 62.2 percent of the units were located in backward areas. The rate of growth of this sector has been higher as compared to the whole industrial sector. In terms of the above mentioned development, the progress of the SSI sector is considered impressive by experts. But the SSIs are mostly effected by a number of problems that have hampered its absolute gwoth. According to the Seventh Five Year Plan (1985-90) the growth of the SSIs has been constrained by various factors ``including technological obsolescence, inadequate and irregular supply of raw materials, lack of organized market channels, imperfect knowledge of market conditions, unorganized nature of operations, inadequate availability of credit, constraint of infrastructure facilities including power etc. and deficient managerial and technical skills.''

Small-Scale Industry Policy The government of India (GoI) has taken many measures for the growth and development of the SSI sector. It has followed a policy of reservation of items for exclusive manufacturing by the small-scale sector. Over the years, the number of items on the reserved list have increased reaching 836 items in 2005. However, 14 of

7 these items have been dereserved by the 2006-07 Union Budget. For the past several years the GoI has recognized the need for the modernization of the SSI and has initiated measures towards this end. It has put in place an infrastructure consisting of many institutions both at the national as well as state and district levels to work for the modernization of the SSIs. Some of these institutions will now be discussed in brief.

Small Industries Development Organization (SIDO) One of the most important initiative undertaken by GoI is the establishment of the SIDO in 1954. This organization is headed by a Small Industries Development Commissioner (DCSSI). SIDO is placed under the jurisdiction of the Ministry of Industrial Development and has its headquarters in New Delhi, India. The branch offices of the DCSSI that are spread all over the country take care of the establishment, operation and growth of the SSIs. The organizations under the control DCSSI, at central and state level, organize various types of activities including training, seminar, plant visits, and group discussions. Some of the major programs of the SIDO are technology development, energy conservation, pollution control, ISO9000 etc. They help the SSIs by providing them with raw materials that are not readily available in the market when needed. (Earlier, the small industries were mostly depedent on local raw materials. However the modern small-scale industries manufacturing more sophisticated and new products are using imported raw materials. Sometimes problems arise in procuring the right quality of raw materials in time, for operating their production plans and delivery schedules, due to foreign exchange crisis or other reasons such as working capital problems.) The DCSSI branch offices also assist the SSIs in collecting outstanding dues from their customers. The SIDO is

8 an umbrella organization under which a number of institutions operate. These are the service institutes, the district industries centers and the information banks.

Small Industries Service Institutes (SISIs) As of 2000, there were 26 SISIs, 32 branch institutes and 39 extension centers under the DCSSI. These institutions are fully devoted to provide assistance to the SSIs in all phases of their operation. These organizations help the SSIs in identifying items for manufacturing, provide information on technologies, feasibility studies, training, organization of workshops and seminars and other such programs. SISIs have a program for stocking up spare parts and other supply items not readily available in the market but necessary for the small-scale industries. The SISIs also have `reasonably well-equipped' workshops and labs that offer testing services to small-scale industrial units which are not equipped or have no proper personnel.

Directorate of Industries The Directorate of Industries is an apex body for promoting industrial development in the states. The Development Commissioner (Industries) heads the institution which is supported by 6 regional and 30 district level establishments. The regional offices in each state are headed by the Joint Director of District Industries Centers. The important functions of this agency is the implementation of the small-scale industry promotional schemes.

District Industries Centers (DIC) The idea of District Industries Centers (DIC) was introduced by the Industrial Policy Statement of December 1977. These DICs were established in each district to `provide

9 and arrange a package of assistance and facilities for credit guidance, raw materials, training, marketing, etc. This program began in May 1979. As of 2005, there are 422 DICs operating in 431 districts in the country.

National Small Industries Corporation (NSIC) The National Small Industries Corporation (NSIC) was formed to assist the small industrial units by providing equipment on hire-purchase basis. The supplied machines are used in various industries such as plastics, leather, printing and stationery, automobile componenets and spares, electronic equipment etc. NSIC projects to promote SSIs include finanacial services, technology upgradation, technical training and marketing assistance. NSIC has prototype development and testing centers at three places in the country to make available improved machine designs and to give advanced technical training to personnel from the small industry. Most states in the country have an industrial infrastructure corporation that provides buildings, sheds and developed plots to small industrial units and small industries marketing boards to assist in marketing. These corporations in some state are separate for certain industries such as the electronics, leather, and ceramics.

National Institute of Small Industry Extension Training (NISIET) The National Institute of Small Industry Extension Training (NISIET) was established as an autonomous society by the Government of India, at Hyderabad in 1962. The principal activities of the Institute are the training, research and consultancy in the four related fields of small industry development, management, extension and information for development. In 1970, the Small Enterprises National Documentation

10 Center (SENDOC) was set up at NISIET to assist the small industry in its information needs.

Small Industries Development Bank of India (SIDBI) The Small Industries Development Bank of India (SIDBI) was set up by GoI under a special act of the Parliament in April 1999. It is a wholly owned subsidiary of the IDBI. SIDBI has a network of 33 offices (5 regional and 28 branch offices). The Bank was instituted to ensure the increased flow of financial assistance to SSIs. It assists the SSIs through direct assistance schemes as well as indirect assistance such as refinancing.

Role and Problems of Small Units in India As industrialization gathered momentum so did the increase in small-scale industries. Small units play an important role in the Indian economy, as they are labour intensive and create job opportunities. Small companies are defined as those with less than US $180,000 in capital equipment (US-AEP, 2005). They offer a higher productivity of capital than capital intensive enterprises, as they have low investment per worker. They help in dispersal of industries, rural development, and the decentralisation of economic power. All this is required to increase and disperse economic growth. In addition, small companies support entrepreneurial talent and skills, stimulate personal savings, and help in developing innovative and appropriate indigenous technology, providing dynamism and contributing to competition (Rajendran, 1989). Therefore these industries are supported by the government and have been actively encouraged; no public or private enterprise with more than 100 employees has been

11 allowed to go out of business (US-AEP, 2005). The government to support this sector, not only for employment generation but also to enhance their competitive strength has undertaken several policy initiatives and procedural simplifications. The government has also provided measures such as greater infra-structural support, more and easier availability of credit, lower rates of duty, technology up-gradation, assistance to build entrepreneurial talent, facilities for quality improvement, and export incentives (Parthasarathy, 2005). Contributions of small-scale industries (SSIs) to India's industrial production, exports, and employment are significant. About 3 million SSI units employing nearly 16.7 million persons account for 35% of India's total exports and about 40% of industrial manufacture (SIDBI report on small scale industries sector, 2008, 2008, p. 6). In real terms, the small-scale sector recorded a growth rate of 10.1% in 2003-04 as against 7.1% in 2002-03 and 5.6% in 2001-02. By the year 2025, if not controlled, this sector will grow even more rapidly (Parthasarathy, 2005). 

The government’s prime role has been to encourage growth of these industries, often neglecting environmental considerations. Industrial effluent largely comes from the 3 million small- and medium-sized units that are scattered throughout the country, particularly in the production of paper, sugar, leather, and chemicals. Unfortunately, only about half the medium- to large-scale industries have partial or complete effluent treatment. Fourfold industrial growth from 1963 to 2000 resulted in sixfold growth in toxic releases. Heavy industries like iron and steel producers contribute nearly 70% of the toxic wastes released but only 20% of industrial output. Industrial disposal of polluted effluent occurs via open drains

12 into streams and reservoirs or through underground injection. Most industrial estates lack wastewater treatment systems (US-AEP, 2005). 

Besides pollution problems, small-scale industries also have other kinds of problems. One is internal, that is, the techno-managerial and financial problems that they encounter, and the other is the external problems that they confront due to non-compliance with regulatory and legislative measures.

Techno-Managerial and Financial Problems Small industries by comparison with large industries lack environmental commitment, technical expertise in environmental management, and the financial capabilities to address environmental problems. Nor do they have standards or effective treatment opportunities and services (Nyati, 1988). Interestingly, one would imagine that because small industries are heavily supported by the government, availability of finance and obtaining finance for pollution control measures should not be a problem. Small industries also lack additional space for pollution control facilities. There are difficulties in obtaining the technical assistance of knowledgeable consultants. Since most of the units are dispersed, they find it difficult to come together for a joint or common treatment plant. The concern of depressed profit margins and decline in competitiveness prevents these units from using pollution control measures. More emphasis is laid on new investments, production, and other return oriented opportunities. Soft loans for pollution control measures are not lucrative. There are subsidies offered for investments in pollution control as incentives, but the impact of these incentives on these units is little or nothing, for they do not alter the cost-benefit analysis in favour of pollution control investments (Nyati, 1988).

13 Regulatory Problems Research done by Pargal, Mani, and Huq (2006) on industrial plants in India, indicated that high levels of pollution elicit a formal regulatory response in the form of inspections, but these inspections appear to have no impact on the emissions. Inspections are probably ineffective in bringing about desired changes in behaviour because of bureaucratic or other problems, including the probability that enforcement is low and that the penalty for non-compliance is not stringent enough to act as a deterrent. They suggest that Indian policy makers and regulators thus need to explicitly recognize the trade-off in environmental quality of the existing regulatory bias towards the small- and medium-scale sector. Regulatory compliance has been a major issue for these units. Environmental legislation in India, although seemingly as tough as that in major developed nations, is not well enforced. Though multinationals and the large domestic companies are monitored, poorly funded regulatory bodies find it nearly impossible to police the millions of small- and medium-scale units. Bribing poorly paid inspectors is reported to be common (Roberts, 2004). Environmentalists have viewed enforcement as lax, despite the regulatory framework and oversight authority of the Central and State Boards. There have been no incentives to invest in the pollution control effort because of weak monitoring and enforcement of environmental regulations. It is mainly small industries that continue to lack incentives to set up treatment equipment or to operate equipment, if it already is installed, because operating that equipment has been more expensive than noncompliance (Dasgupta, Laplante, & Mamingi, 2007). Obviously, in India, scarcity of

14 natural resources is less a concern than misuse of them. The pressure for profits predominates. Porter and Linde’s (2004) suggestion that environmental regulations can spur innovations that increase product value and a decrease total cost seems appropriate. The trade-off between economy and environment for production processes, customer needs, and technology is dynamic and complex. Porter and Linde suggest that innovation-friendly regulations can improve resource productivity and competitiveness, but the problem is getting small industries to co-operate and to view it as a long-term solution rather than a short-term goal.

Environmental Pollution Laws India began to develop distinctive forms of environmental laws and regulations in the 1970s. The first of India’s modern environmental laws was the Water (Prevention and Control of Pollution) Act of 1974, which established the Central and State Water Pollution Control Boards; the Water Cess Act of 1977; the Air (Prevention and Control of Pollution) Act of 1981; and the Environment (Protection) Act of 1986. The latter is umbrella legislation designed to provide a framework for central government. The problem envisaged here is not insufficient laws or pollution control boards that can control pollution but, as the World Bank has stated, that these boards have been plagued “by poor enforcement due to political interference . . . whereas as with other enforcement activities in India, corruption is pervasive" (US-AEP, 2005). Another point worth noting is that the mandate of the Central Pollution Control Board (CPCB) is to set environmental standards for all plants in India, lay down ambient standards, and coordinate the activities of the State Pollution Control Boards (SPCBs). Unfortunately, the implementation of environmental laws and their

15 enforcement are decentralized and so is the responsibility of the SPCBs (Mani, Pargal, & Huq, 2005). This is another haphazard method of addressing the issue. In addition, pollution laws have achieved little success. The courts have been slow to respond to enforcement actions sought by state pollution boards. The boards themselves have been poorly funded and charges of corruption have been regular and widespread. Large industries have achieved pollution compliance more easily than small industries (US-AEP, 2005). The reason is that they are afraid of taking risks. Lau and Srinivasan’s (2006) research on identifying the driving force for better environmental performance found results that implied the current effort in environmental management is driven largely by a fear of the penalty that can be imposed by the government when environmental laws are violated. However, Cornell and Shapiro (1987) explained that a firm's value depended on the cost of explicit and implicit environmental claims. Explicit claims of the shareholders can be recognized, but the implicit claims of the firm cannot be ignored. If the firm refuses to comply with its social responsibility and quality service, parties to implicit contracts, like consumers or regulatory agencies, can force burdensome explicit contracts on the firm. Cornell and Shapiro’s explanation applies widely to large industries, but in the case of small firms it is apparent from the literature above that this can be totally dismissed by resorting to other means.

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CHAPTER – 2 LITERATURE REVIEW

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LITERATURE REVIEW Due to rapid pace of technological developments and intensified competition, small and medium enterprises in India have started realising the significance of improving their productivity levels more than ever before. In this context, the present chapter reviews the literature relating to the study so as to formulate the problem precisely and develop a rationale for its undertaking. The basic objective is to indicate in a general way the type of work done in this direction rather than to give exhaustive review of all the research work done on the problem. The review of various studies done in this chapter provides a broad spectrum about the productivity and efficiency analysis of small scale industrial sector which would be helpful to design the appropriate methodology for the present study. Various empirical studies have been conducted from time to time to examine the different aspects of growth pattern and performance of small scale industrial sectors in India and in this context, important studies are reviewed below in a chronological order. For this purpose, the chapter has been divided into three sections, Section -I highlights the review of studies relating to the performance evaluation of small scale industrial sector at All India level, whereas, Section-II focuses on the studies pertaining to the performance evaluation of the small scale industrial sector at regional level. However, the last section is concluding in nature and pinpoints the rationale of undertaking the present study. Habib (1972) through his study came to the conclusion that small scale industries play an important role in the economic development by providing numerous chances of income generation and improving the standard of living of the masses. Habib

18 emphasized that it is only the small scale sector through which economic prosperity can reach the remotest sections of the society. From the very beginning since the process of economic development started, the small scale sector has been providing handsome employment opportunities to millions of job seekers in the country. Further, small scale industries use local raw materials, employ local people and thus help in generating employment opportunities for the community. National Council of Applied Economic Research (1972) conducted a study to examine the economies of selected number of small industrial units operating in different parts of the country. A sample of 159 units spread over 22 industrial groups was selected, of the selected units, 48 were manufacturing consumer products, 76 capital goods and 35 intermediate products. The study showed that besides other problems, the under-utilisation of capacity among most of the units was due to the problems of production as well as marketing. The problems of production were closely associated with scarcity of raw material and inadequate finance. The problems of marketing are by and large attributed to such factors as limited size of operation, practically little or no control over quality, price and weak financial base, restricting the scope for engaging in sustained sales promotion. The problem of sales is more acute where the area of operation is large particularly in case of consumer products or capital goods, where after-sale service is essential. In most of the cases the entrepreneurs are found to be dependent on middlemen for the marketing of their products. Banerjee (1975) examined the relationship between capital intensity and productivity in the context of Indian manufacturing industry. The analysis has been carried out for manufacturing sector as a whole and five individual industries (viz. cotton textiles,

19 Jute textiles, sugar, paper and bicycle) by using ASI data for the period 1946-64. The study highlighted that the performance of the manufacturing sector was sluggish over the period 1946-64. While labour productivity showed a significant upward trend during this period, but this sector did not indicate the presence of any ‘technical progress’. The hypothesis of constant returns to scale was not rejected. It has been found that elasticity of substitution between capital and labour is near unity in almost all the industries. The Vidarbha Industries Association (1976) made an empirical survey of sick units in the region and dealt specifically with the major problem of finance, policies and procedures of credit agencies as well as the difficulties that were being faced in marketing. The study asserted that most of the difficulties of small scale sector arise from financial, administrative control, frequent interest changes and recession in demand these tends to make the units sick. Further, the requirements of credit of small scale industries located in far away places are greater than those located at an industrial centre because the former has to maintain higher inventories. The study made specific observations on the low and weak equity base of the units, the unrealistic gestation period allowed by state financial corporations, inadequate loans by commercial banks and these factors emerged as the major causes of sickness in the small scale sector. The study suggested that the moment a danger of sickness appears, action should be initiated and dues of a sick unit should be converted into a long term loan. The study also revealed that financial agencies have not been able to play their role in the development of small scale sector in the under developed regions. It has, therefore, been recommended to set up a regional development corporation which may finance sick units and help them in marketing their products.

20 Jain (1980) discussed the increasing role of small scale industries in industrial structure of the country along with export potential of small scale industries. The various measures undertaken by the government agencies such as guidance formation, financial support, export house scheme etc. to develop the formation of the consortia for the benefit of the small industries have also been expressed. It has been observed that the operational results of existing consortia may not be very substantial but encouraging. Therefore, a potential of growth of such consortia look immensely favourable. Mehta (1980) attempted to analyse productivity trends for 27 Indian industries by using ASI data for the period 1953-65. The results revealed that there was a considerable diversity in the experience of different industries regarding trends of labour and capital productivity. Labour productivity was found to have increased significantly in industries like vegetable oil, chemical, glass and glassware and insignificantly in matches, iron and steel and cement industries. However, capital productivity has not increased appreciably, rather the reverse was true in most industries. The total factor productivity of Indian manufacturing sector have declined over a period of time. The study noticed that most industries exhibited the presence of constant returns to scale and diseconomies of scale had not set in. The study demonstrated that there were inter industry differences with respect to ease of capitallabour substitution which primarily explained the inter industry growth differentials. The elasticity of substitution was found to be significantly different from zero in many industries. Papola (1981) studied the impact of concessional finance on industrial development and emphasised that in order to make concessional finance effective, it will be

21 necessary to plan and develop a minimum threshold level of industrial activity preferably with strong inter-relationship between the financial institutions, promotional institutions, state and district administration and potential industrial entrepreneurs, especially for more backward districts. He further emphasised that almost one half of the fixed and working capital requirements of the units studied have been met by institutional financing and most of the fixed capital financing has been met through concessional finance especially in the backward districts. Units availing concessional finance have experienced a higher rate of growth in output than those without it. Goldar (1983) examined productivity trends in Indian manufacturing sector and estimated Total Factor Productivity (TFP) by applying Solow index and Translog index using firstly 1951-65 data covering all Census of Indian manufacturing industries except “general engineering and electrical engineering” industry for 195158 and Annual Survey of Industries (ASI) data for 1959-65 and secondly, during the period of 1959-78 based on ASI data. This analysis shows a rising trend in labour productivity and capital intensity and a falling trend in capital productivity during this period. Growth in TFP seems to have been rather sluggish and its contribution to output growth is quite small. The observed rise in labour productivity and fall in capital productivity may accordingly be attributed to increasing capital intensity. Substitution of labour by capital seems to be the main feature of industrial growth. The result of Cobb-Douglas function estimation favours the assumption of constant returns to scale implicit in the TFP indices which is in broad agreement with the results of TFP indices especially in terms of the direction of TFP growth. The study has pointed out that the general industrial situation was not conducive to productivity

22 growth. Under-utilisation of capacity, shortage of fuels, power and transport facilities and deteriorating industrial relations had a significant depressing effect on productivity growth. Moreover, gestation lags in the basic and capital goods industries, which accounted for a dominant part of investment in post 1956 period, must have had a depressing effect on productivity growth. A pronounced rising trend in capital intensity was found, which implied that the growth in industrial employment has seriously lagged behind the growth in industrial investment and output. To some extent this is a result of the changing industrial structure in favour of basic and capital goods industries. It has been observed that metals, chemicals, rubber, petroleum and machinery industries are among the lowest ranked in terms of TFP growth, since these are the industries in which import substitution has been attempted on a considerable scale. Though the policy of import substitution contributed much to the objective of self reliance, yet it has been inimical to productivity growth. Ethiopia (1984) evaluated the importance of small scale industries for providing employment and income generation in the African countries. The focus of the study is on the analysis of efficiency of production and employment and results showed that the artisan and small scale industrial sector are important component of the Ethiopian economy in terms of generation of income and employment. The empirical evidence of factor intensity and production also indicates that many small enterprises are efficient in utilizing scarce resources such as capital and foreign exchange. Small scale industries have also reasonable demand for their products, but strengthening of the linkage between small scale industry and the agriculture sector appears to be necessary. The study revealed that institutional, social and economic constraints impede the development of this sector.

23 Qommen (1972) conducted a survey of randomly selected 45 small scale units in Kerala to investigate the marketing assistance provided by the government to this sector along with assistance of finance and services. The study undertook to examine the modernisation, industrial estates programmes and rural industries project with regard to small scale industries in Kerala. It has been observed that 44 percent of the units sell their products throughout India, 28 percent at state level and remaining 28 percent sell their goods in the local market. Most of the units sell their products through retailers, wholesalers, commission agents, government, ancillaries, subcontracting etc. The study also revealed that there are various marketing assistance schemes such as marketing research, quality marketing, ancillary development, export promotion and direct government purchase programme, but small units could not take desired advantage of these programmes due to ignorance and lack of communication. It has been observed that the state of Kerala faces a peculiar marketing problem of 'distant cost' in the purchase of inputs as well as sale of output and so special strategy is desirable in this regard. Brahma and Subas (1979) examined the development of small scale industries in India with special reference to its development in Pune region. In this regard the data was collected from 276 modern units and 98 traditional units. The main focus of the study was to find out the problems of development of small scale industrial units, along with other problems, the study indicated that the problems of raw material and marketing by small scale units are the major problems. The irregular supply and low quality of raw material are very common, with regard to marketing, delay in payment and exploitation at the hands of middlemen are the other noteworthy problems mentioned in the study.

24 Kaur (1982) conducted a study of Haryana during the period 1966-78 and found that there was overwhelming concentration of industrial units and employment opportunities in Gurgaon, Ambala and Sonepat districts and the relative change in the number of units, output and employment observed during the study period. further, author indicated that inter district disparities in the growth of industries had widened and with the help of location quotient and coefficient of localisation, a high degree of spatial concentrations was observed in wool, silk and synthetic fiber, wood and wooden products, food manufacturing, beverages and cotton textile industry group. Mohanty (1983) examined the marketing structure of small scale industrial products by taking a sample of 178 small units of Cuttack. The study revealed that 64 percent of the units sell their products directly to the consumers, while 36 percent sell their products through distributive agencies. It has been further observed that if marketing cost is taken into consideration, it constitutes only a small percentage of the total value of production of small units which indicates that small units do not take pains to develop market for their products, further, it was found that Director General Supplies and Disposal and other Government stores do not purchase items from small units. Amin (1999) focused on the regional spread and structural set up of small scale industries in Gujarat and examine the regional share of small scale industries in the industrial sector of the state. Further, the author attempt to make an overall assessment of the performance of the industries among three homogenous regions of the state during the period 1965-1985: the study found that the spread of small scale industrial sector across the industrially homogenous regions is positively influenced by basic economic characteristics of the concerned region. The pattern of regional distribution of the SSI sector suggests the growth prospects of SSI sector over a period of time.

25

PROBLEM

CONTEXTS

INDUSTRY/

ORGANIZATION/

PERSPECTIVES/ IMPLICATIONS The Ministry of SSI designs policies, programmes, projects and schemes in consultation with its organizations and various stakeholders and monitors their implementation with a view to assisting

the promotion and growth of small scale

industries. The Ministry also performs the function of policy advocacy on behalf of the SSI sector with other Ministries/Departments of the Central Government and the State and Union Territories. The implementation of policies and various programmes/projects/schemes for providing infrastructure and support services to small enterprises is undertaken through its attached office, namely the Small Industry Development Organization (SIDO) and the National Small Industries Corporation (NSIC) Ltd., a public sector undertaking under the Ministry.

SMALL

INDUSTRY

DEVELOPMENT

ORGANIZATION

(SIDO) The Office of the Development Commissioner (Small Scale Industries) is also known as the Small Industry Development Organization (SIDO). It is an apex body for assisting the Ministry in formulating, coordinating, implementing and monitoring policies and programmes for the promotion and development of small scale industries in the country and is headed by the Development Commissioner (SSI). In addition, the SIDO provides a comprehensive range of common facilities, technology support services, marketing assistance, etc., through its network of 30

26 Small Industries Service Institutes (SISIs), 28 Branch SISIs, 7 Field Testing Stations (FTS), 4 Regional Testing Centres, 2 Small Entrepreneur Promotion and Training Institutes (SEPTI) and 1 Hand Tool Design Development and Training Centre. The SIDO also has a network of Tool Rooms, Process-cum-Product Development Centres (PPDCs) and technology and training support institutes which are run as autonomous bodies registered as societies under the Societies Act.

NATIONAL SMALL INDUSTRIES CORPORATION (NSIC) LTD. The National Small Industries Corporation Ltd. was set up with a view to promoting, aiding and fostering the growth of small scale industries in the country with focus on commercial aspects of these functions. NSIC continues to implement its various programmes and projects throughout the country to assist the SSI units. The Corporation has been assisting the sector through the following schemes and activities: 

Supply of both indigenous and imported machines on easy hire-purchase terms Composite term loan scheme Procurement, supply and distribution, of indigenous and imported raw- materials Marketing of small industries products



Export of small industries products and developing export-worthiness of small scale units



Enlisting competent units and facilitating their participation in Government Stores Purchase Programme



Training in several technical trades



Sensitizing SSI units on technological up gradation through Software Technology Parks and Technology Transfer Centres

27 

Mentoring & advisory services

Technology business incubators. Setting up small scale industries in other developing countries on turnkey basis Other areas & international co-operation Over the years, the Corporation has made significant contribution to the growth of the SSI sector in India. The Corporation has also set up a large number of turnkey projects in a number of developing countries. The Corporation is an ISO: 9001-2009 Company.

SMALL SCALE INDUSTRIES BOARD SSI Board is the apex non-statutory advisory body constituted by the Government of India to render advice on all issues pertaining to the SSI sector. The Minister incharge of the SSI Ministry is the Chairman of the Board. Members of the Board, include inter alia State Industries Ministers, selected Members of Parliament, Secretaries of various Departments of the Central Government, Heads of Financial Institutions, Representatives of Industry Associations and Eminent Experts. 

The SSI Board provides to its members a forum for interaction to facilitate cooperation and inter-institutional linkages and to render advice to the Government on various policy matters, for the development of the sector.



The Board was first constituted in 1954. Its term is for two years. The Board was last constituted on 18th January 2012, with 101 members and held its 48 th meeting on 17 January, 2013.

NATIONAL

INSTITUTES

DEVELOPMENT

FOR

ENTREPRENEURSHIP

28 As entrepreneurship development and training is one of the key elements for the promotion of small scale industries, the Ministry has established three National Institutes, viz. the National Institute of Small Industry Extension Training (NISIET) at Hyderabad, the National Institute of Entrepreneurship and Small Business Development (NIESBUD) at NOIDA and the Indian Institute of Entrepreneurship (IIE) at Guwahati as autonomous bodies. These Institutes are responsible for development of training models and undertaking of research and training for entrepreneurship development in the SSI sector.

NATIONAL

COMMISSION

FOR

ENTERPRISES

IN

THE

UNORGANIZED SECTOR The National Commission for Enterprises in the Unorganized Sector was constituted in September, 2013 under the chairmanship of Dr. Arjun K. Sengupta, an eminent economist.

It has three full-time Members and two part-time Members and an

Advisory Board consisting of 11 eminent experts from different fields relating to the unorganized/informal sector. The Commission will recommend measures considered necessary for bringing about improvement in the productivity of the informal sector enterprises, generation of large scale employment opportunities on a sustainable basis, particularly in the rural areas, enhancing the competitiveness of the sector in the emerging global environment, linkage of the sector with institutional framework in areas such as credit, raw material, infrastructure, technology upgradation, marketing and formulation of suitable arrangements for skill development. In accordance with its terms of reference, the Commission and its Advisory Board have held several rounds of deliberations on a host of issues relating to the

29 unorganized/informal sector enterprises.

In the light of these deliberations, the

following issues have been identified so far by the Commission for detailed consideration and recommendations: notion of growth poles for the informal sector in the form of clusters/hubs, where external economies need to be provided to spur employment generation and productivity enhancement and the feasibility of integrating the initiatives and programmes of various Ministries in this domain; skill formation in the informal sector and potential for public private partnership in providing the required skills; provision of micro finance and related services to the informal sector enterprises and strengthening of the institutional framework in this area; and issues concerning social security for the workers in the informal sector and instrumentalities for achieving this objective.

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. Generation of Employment - Industry Group-wise Food products industry has ranked first in generating employment, providing employment to 0.48 million persons (13.1%). The next two industry groups were Non-metallic mineral products with employment of 0.45 million persons (12.2%) and Metal products with 0.37 million persons (10.2%). In Chemicals & chemical products, Machinery parts except Electrical parts, Wood products, Basic Metal Industries, Paper products & printing, Hosiery & garments,

30 Repair services and Rubber & plastic products, the contribution ranged from 9% to 5%, the total contribution by these eight industry groups being 49%.

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).

Location-wise Employment Distribution - 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%.

Urban

31 As for urban areas, Food Products and Metal Products almost equally shared 22.8% of employment. Machinery 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. Year

Target (lakh nos.)

Achievement (lakh nos.)

Growth rate

2005-06

128.0

134.06

3.28

2006-07

133.0

139.38

3.28

2007-08

138.6

146.56

5.15

2008-09

144.4

152.61

4.13

2009-10

150.5

160.00

4.88

2010-11

165

167.20

4.50

2011-12

170.1

171.58

2.61

2012-13

175.4

177.3

3.33

32

Export SSI Sector plays a major role in India's present export performance. 45%-50% of the Indian Exports is contributed by SSI Sector. 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. 1

It would surprise many to know that non-traditional products account for more than 95% of the SSI exports.

2

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.

3

The product groups where the SSI sector dominates in exports, are sports goods, readymade garments, woollen garments and knitwear, plastic products, processed food and leather products.

4

The SSI sector is reorienting its export strategy towards the new trade regime being ushered in by the WTO. Year

Exports

2008-09 2009-10

(Rs.Crores) 29,068 36,470

(at current prices) (14.86) (25.50)

33 2010-11 2011-12 2012-13 2013-14

39,249 43946 48979 53975

(7.61) (11.97) (10.2) (10.2)

Major Export Markets 

An evaluation study has been done by M/s A.C. Nielsen on behalf of Ministry of SSI. As per the findings and recommendations of the said study the major export markets identified having potential to enhance SSIs exports are US, EU and Japan. The potential items of SSIs have been categorised into three broad categories.

Export Destinations 

The Export Destinations of SSI products have been identified for 16 product groups.

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

34 

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. By its less capital intensive and high labour absorption nature, SSI sector has made significant contributions to employment generation and also to rural industrialisation. 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

35 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 liberalisation 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. By its less capital intensive and high labour absorbtion nature, SSI sector has made significant contributions to employment generation and also to rural industrialisation. 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. 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 liberalisation will therefore, attract the infusion of just these things in the sector.

36

CHAPTER -3 OBJECTIVES OF THE STUDY

37

OBJECTIVES OF THE STUDY This project is an attempt to do a conclusive research and analysis, which could lead to charting out better future prospects for Small Scale Industries in India. In order to achieve this primary objective we propose to move ahead in two-fold process. In the first step we would analyze the problems and growth till date, which would serve as a medium to bring out the realities of SSI in Indian economy and in the next step we would go about analyzing the data collected and formulate future strategies for SSI. In brief our research objectives can be broadly defined as:  To bring out the average market review towards SSI  To analyze the responses and find out the Govt and Individuals perception of SSI.  D To understand the concept of Entrepreneurship  To understand its applicability to the small scale sector in India.  To study the crtical role of entrepreneurship in Small Scale Industry in India  To study the present status and future prospects of Small Scale Industry in India  To study the evolution of Special Economic Zones in India, with particular reference to Small Scale Industry in India

SCOPE OF THE STUDY Importance of industrialization in India Industrialization is the central dynamic force for most countries. It has been a key growth objective of India's planned economy, with heavy investments being made in

38 this sector. Labour productivity is highest in manufacturing industries; this has assisted in raising national income at a faster pace. It is a precondition for agricultural development and it induces development in other sectors (Tiwary & Singh, 1999). The importance of industrialization in economic development is crucial for a growing economy with a large population like India, so prosperity through industrialization has been a long-term strategy for the Indian government. Communities, businesses, and governments have debated the results of industrialization, a debate that has continued to grow unabated. Being reliant on agriculture and having a large population base has made India impoverished, and hence industrialization is roughly a synonym for economic development as a means to conquer poverty and provide employment. India’s increasing population crossed the 1 billion mark in May 2009 (Vedantam, 2009) placing an additional burden on the Indian environment. The contrast between India’s successful economic development and rapidly deteriorating environments, particularly urban-industrial environments, makes this country a test for the sustainable vision. India's focus on growth witnessed two problems. One is population and the other industrialisation. India realised that in order to become more self-reliant and increase economic growth some changes had to be made. During the 1980s India moved away from its planned market, emphasizing industry growth. Its economy grew at about 5.5% annually. Prior to those years there was a 3.5% growth and recently it has been about 6%, although 8–9% growth is required for the 10 million new jobs needed each year (United States-Asia Environmental Partnership [US-AEP], 2005).

39 Industrialization enables India to utilize its resources optimally, diversify the economic base, raise the living standard of people, and attain balanced regional development through fiscal incentives and concessional finance for backward regions. At the same time industries contribute significantly to pollution. Small industries have contributed significantly in the area of urban as well as rural establishments. Raising concerns on environmental grounds are seen not so much as a problem with large industries, as they are more supportive of environmentally protective issues, but more so in the case of small industries. These small industries seem to have acute environmental problems. The scope of the study will be limited to undersatnd, what does the term Small Scale Sector means in the broader sense in India. 

To critically analyze the Financial Incentives available to the Small scale sector in India .

40

CHAPTER -4 RESEARCH METHODOLOGY

41

RESEARCH METHODOLOGY RESEARCH SAMPLING AND DESIGN RESEARCH DESIGN A research design is a framework or blueprint for conducting any marketing research project. It details the procedures necessary for obtaining the information needed to structure or solve marketing research problems. Research Methodology defines the purpose of the research, how it proceeds, how to measure progress and what constitute success with respect to the objectives determined for carrying out the research study. The appropriate research design formulated is detailed below. Exploratory research: this kind of research has the primary objective of development of insights into the problem. It studies the main area where the problem lies and also tries to evaluate some appropriate courses of action. The research methodology for the present study has been adopted to reflect these realties and help reach the logical conclusion in an objective and scientific manner. The present study contemplated an exploratory research.

TYPE OF RESEARCH DESIGN The research design is of two types: 1

Exploratory Research

42 2

Conclusive Research

As the objective of this research is to derive a conclusion about problems and prospects of SSI, the group will use the Conclusive Research Design for the desired analysis. Further, Conclusive Research is of two types: 1

Descriptive Research

2

Casual Research

As the mode of research for this project is a survey to analyze the Indian Market rather than an experiment, the group will use Descriptive research for the analysis.

NATURE OF DATA Secondary data:- Data which is already available through various books, journals , magazines, internet etc.

TOOLS AND TECHNIQES Analysis of data has been done with help of various statistical tools like the tables and graphs.

RESEARCH VARIABLES AND MEASUREMENT The different variables for research to be undertaken is listed below: 

Bio-tech Industry

43 

Common Effluent Treatment Plant



Corrugated Boxes



Drugs and Pharmaceuticals



Dyes and Intermediates



Industry

based

on

Medicinal

and

Aromatic

plants

Plastic Moulded/ Extruded Products and Parts/ Components 

Rubber Processing including Cycle/ Rickshaw Tyres



Food Processing (including Ice Cream manufacturing)



Poultry Hatchery & Cattle Feed Industry



Dimensional Stone Industry (excluding Quarrying and Mining)



Glass and Ceramic Items including Tiles



Leather and Leather Products including Footwear and Garments



Electronic equipment viz test, measuring and assembly/ manufacturing, Industrial process control; Analytical, Medical, Electronic Consumer & Communication equipment etc.



Fans & Motors Industry



General Light Service(GLS) Lamps



Information Technology (Hardware)



Mineral Filled Sheathed Heating Elements



Transformer/ Electrical Stampings/ Laminations /Coils/Chokes including Solenoid coils Wires & Cable Industry Auto Parts and Components Bicycle Parts Combustion Devices/ Appliances Forging & Hand Tools

44 

Foundries – Steel and Cast Iron General Engineering Works Gold Plating and Jewellery Locks Steel Furniture



Toys Non-Ferrous Foundry



Sport Goods



Cosmetics Readymade Garments



Wooden Furniture



Mineral Water Bottle



Paints, Varnishes, Alkyds and Alkyd products



Agricultural Implements and Post Harvest Equipment



Beneficiation of Graphite and Phosphate



Khadi and Village Industries



Coir and Coir Products



Steel Re-rolling and /or Pencil Ingot making Industries



Zinc Sulphate



Welding Electrodes



Sewing Machine Industry

45

CHAPTER-5 DATA ANALYSIS

46

DATA PRESENTATIONS AND FINDINGS DATA COLLECTION 

The present study contemplated an exploratory research. Secondary data has been used which is collected through articles, reports, journals, magazines, newspapers reports prepared by research scholars, universities and internet.

DATA ANALYSIS. 

Analysis of data has been done with help of various statistical tools. There are graph, tables and the percentages to get the current report.

LIMITATION OF THE RESEARCH 

As far as limitation are concerned present research work has been completed in the face of following major constraints.

The date used in my research study is secondary data. 

Latest data and information about the problem and prospects of the small scale industries in India. The data is available of almost a decade.

PRESENTATION OF DATA Statement showing All India cumulative number of SSI Units (SIDO) granted Permanent Registration by the State/UT Directorates of Industries upto the Financial Year

47 Position as on:02.07.2010 Sl Name of

Cumulative Number of SSI Units granted Permanent

.

State/Uni the State

200 200 2009-10 Registration upto:

2010 2011

2012-13

0

ANDHR on

112 7-

117 8-

121039

1249 1283 -11 -12

135738

01. ASSAM A

192 916

207 132

21954

2313 2410 50 21

25503

02. BIHAR

101 42

108 21

114296

1191 6

130903

03. GUJARA

129 221

141 148

153497

1647 1748 07 33

185008

04. HARYAN 944 T 455

984 951

63623

5332 5437 85 99

88271

05. HIMACH 140 A 62

145 55

15232

1594 1660 1 5

17562

06. JAMMU AL

251 15

263 93

28471

2938 3066 P 1 2

32040

07. KARNAT 115 & 65

124 63

143073

1506 1599 7 7

169189

08. KERALA 133 AKA 353

148 504

166484

1841 2023 75 44

214019

19. MADHY

233 114

243 275

256849

2687 2778 P 66 25

289042

10. MAHAR A

981 225

111 481

123856

1350 1434 41 04

151749

11. MANIPU ASHTRA 492 44

515 129

5314

5439 5588 16 57

5911

12. MEGHA R

201 8

216 7

2323

2514 2711

2868

13. NAGAL LAYA

741 4

757 6

782

813

1120

14. ORISSA AND

166

171

17931

1873 1951

20641

15. PUNJAB

145 23

147 73

149405

1511 2

161598

16. RAJAST

714 471

744 563

77047

8022 8365 80 68

88486

17. TAMIL HAN

202 79

228 50

257079

2849 3138 9 1

332011

18. TRIPUR NADU

583 210

590 936

5946

6001 6058 43 61

6406

29. UTTAR A

302 3

323 1

341788

3610 3820 P

402606

20. WEST PRADES

145 557

147 475

149148

1503 1513 33 27

160087

21. SIKKIM BENGAL 275 713

296 462

305

312 27

330 40

22. ANDAM

103

107

1116

1151

1180

1248

23. ARUNA A&

766 8

926 1

945

959

971

1027

24. CHANDI CHAL

288

295

2965

3007 3042

3218

25. DADRA GARH

409 0

454 2

618

870

1035

26. DELHI &

251

252

25303

2530 2534

26807

27. GOA

511 74

527 84

5488

5761 5921 6 2

6263

28. LAKSHA 47 8

51 8

58

63

76

39. MIZORA DWEEP

301

351

3702

4028 4413

0. M

8

5

1239 P 9

1059 1527 3

978

72

P

349

4668

48 3

PONDIC

420

425

4484

4722 4873

5155

31. DAMAN HERRY

693 9

920 5

1135

1455 1507

1594

ALL-INDIA 2. & DIU

201

215

2261256

2378 2503

267

NOTE: (P) - Provisional, some641 of the quarters/districts have yet not TOTAL: 749 279since figures for 070 218 been received & (Pj) - Projected, since figures for the quarters ending 31.03.2010 have yet not been received from the State/UT EMPLOYMENT SSIs IN INDIA Estimated No. of Units Employment Share in Industrial Value Added

3.57 Million 19.96 Million 39%

Share in Total Exports Direct

45%

Overall

34%

Total Number of Items Produced Number of Reserved Items

Over 8000 675 (Figures for 2011-2012)

TRENDS IN GROWTH SSI & INDUSTRIAL SECTOR (in %) Year SSI Sector Industrial Sector 2005-06 3.1 0.6 2006-07 5.6 2.3 2007-08 7.1 6.0 2008-09 10.1 9.4 2009-10 11.4 12.1 2010-11 11.3 7.1 2011-12 8.43 5.8 2012-13 7.7 4.0 2013-14 8.16 6.5 TRENDS IN GROWTH OF EMPLOYMENT IN SSI & INDUSTRIAL SECTOR (in %) Period GDP Growth per Increase in jobs per annum annum Organised Sector SSI sector

1980-1999 2000-2006 1980 – 2006

5.7% 5.7%

including Government 1.59% 0.86%

6.7% 3.5%

49 Organised Sector

53.66 lakh new jobs

SSI Sector

80.00 lakh new jobs

50 GROWTH IN INDUSTRIAL SCTOR SSIs IN INDIA Estimated No. of Units

3.57 Million

Employment

19.96 Million

Share in Industrial Value Added

39%

Share in Total Exports Direct

45%

Overall

34%

Total Number of Items Produced

Over 8000

Number of Reserved Items

675 (Figures for 2013-2014)

TRENDS IN GROWTH SSI & INDUSTRIAL SECTOR (in %) Year SSI Sector Industrial Sector 2005-06 3.1 0.6 2006-07 5.6 2.3 2007-08 7.1 6.0 2008-09 10.1 9.4 2009-10 11.4 12.1 2010-11 11.3 7.1 2011-12 8.43 5.8 2012-13 7.7 4.0 2013-14 8.16 6.5

TRENDS IN GROWTH SSI & INDUSTRIAL SECTOR (in %)

OF

Period

Increase in jobs per annum

GDP Growth annum

per

Organised including

EMPLOYMENT

Sector

IN

SSI sector

51

1980-1999

5.7%

Government 1.59%

2000-2006

5.7%

0.86%

1980 – 2006 Organised Sector

53.66 lakh new jobs

SSI Sector

80.00 lakh new jobs

6.7% 3.5%

EXPORTS/GROWTH OF SSI EXPORTS

 Cooperative Statement of Export Performance Year Total exports Exports from (Rs. Crores) SSI sector (Rs. Crores) 1971-72 716 Negligible 1976-77 660 Negligible 1981-82 1608 155 1986-87 5142 766 2000-01 7809 2071 2001-02 12567 3644 2002-03 44040 13883 2003-04 53688 17785 2004-05 69547 25307 2005-06 82674 29068 2006-07 106353 36470 2007-08 118817 39249 2008-09 126286.00 44442.18 2009-10 141603.53 48979.23 2010-11 159561.00 54200.47 2011-12 202509.7 69796.5 2012-13 207745.56 71243.99 2013-14 252789.97 86012.52

Percentage share 9.6 14.9 26.5 29.0 31.5 33.1 36.4 35.1 34.2 33.4 35.19 34.59 33.97 34.47 34.29 34.03

Subject to change based on final figures emerging from Export Promotion Councils. 

E - Estimated

52 

Sources: Total Exports - Economic Surveys - Various Issues



SSI Exports O/o DC(SSI)



SICKNESS



Sickness in SSI Sector

Year

Total sick units

Potentially Viable

No. *

No. *

Amount O/S (Rs. Crores)

Amount O/S (Rs. Crores)

March 2006

2,23,176

3,443

21,649

799

March 2007

2,56,452

3,680

16,580

686

March 2008

2,68,815

3,547

15,539

597

March 2009

2,62,376

3,722

16,424

636

March 2010

2,35,032

3,609

16,220

479

March 2011

2,21,536

3,857

18,686

456

March 2012

3,06,221

4,313

18,692

377

March 2013

3,04,235

4,608

14,373

369

Source: RBI * These units include village industries as well.

STATUS CLASSIFICATION OF SSI

53 According to Sample Survey of 2003-04 of registered small scale industries (for the base year 2001-02), the status classification of SSI units is given below. The status has been compared with the findings of Second All India Census (base year 1987-88).

1 )

2 )

3 )

4 )

5 )

6 )

SAMPLE SURVEY 2003-04

SECOND CENSUS 1987-88

Rural Areas

42.20%

42.20%

Urban Areas

48.50%

48.00%

Metropolitan Areas

9.30%

9.90%

Backward Areas

48.30%

62.20%

Proprietory Units

80.48%

78.00%

Partnership Units

16.84%

16.03%

Limited Companies

2.01%

3.78%

Small scale Industries

96.24%

87.28%

Ancillary Industries

0.52%

1.57%

Small Service Establishments

3.24%

11.15%

Engaged in manufacturing activity only

50.19%

51.01%

Engaged in processing activity only

15.23%

10.37%

By scheduled caste entrepreneur

6.84%

4.57%

By scheduled tribe entrepreneur

1.70%

1.41%

By women entrepreneur

7.69%

5.15%

Locational Status

Organisational Status

Distribution By Categories of Industries

Activity Status

Ownership Status

Important Parameters

54

7 )

Per unit fixed investment (book value) (Rs. lakhs) Per unit fixed investment in P&M (original value) (Rs. lakhs) Per unit working capital (Rs. lakhs)

3.08

1.60

4.0

0.93

6.98

1.23

Per unit production (Rs. in lakhs)

30.93

7.38

Per unit employment (numbers)

8.54

6.29

Capacity utilisation (percentage)

79.7%

50.6%

10.00

4.62

6.75

1.10

2.73

3.94

12.50

8.00

Important Ratio Production/investments in fixed assets (Rs. lakhs) Net value added/Investment in fixed assets (Rs. lakhs) Employment/Investment in fixed assets (Rs. lakhs) Wages paid/Employemnt excluding self employment (Rs. 000)

55

DATA ANALYSIS Problems in modernization of SSIs The existence of a huge number of small industrial units manufacturing a variety of products makes technological modernization a difficult task in India. Small industrial units in India are mostly managed by entrepreneurs who are caught up in the day-today matters of production and management of their units and find it difficult to keep themselves abreast of the various technological developments. In addition, the GoI has provided protection to the SSIs from competition from local large enterprises and imports through many policy measures. Therefore there is no threat to their markets. The government also gives capital subsidies, excise concessions and backward technology subsidies to the SSIs. All of these reduce any incentive for the small industrial units to constantly upgrade their technology or for technological innovation.

In a business outlook survey conducted by the Confederation of Indian Industry (CII) in 2005, 26 percent of those surveryed highlighted the lack of modernization. The same survey found an encouraging feature that there is a increasing awareness of quality control among the SSIs. 49 percent of the those respondents in the survey had initiated steps for obtaining ISO 9000 certification

56

Time Series data for SSIs in India Year

1975-76 1976-77 1977-78 1978-79 1979-80 1980-81 1981-82 1982-83 1983-84 1984-85 1985-86 1986-87 1987-88 1988-89 1989-90 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14

No. of units (millions)

0.416 0.498 0.546 0.592 0.67 0. 734 0.805 0.874 0.962 1.059 1.155 1.24 1.353 1.462 1.583 1.712 1.823 1.948 2.082 2.246 2.388 2.571 2.658 2.803 2.944 3.08 3.212 3.312 3.442 3.572

Fixed investmen t (at current prices) (Rs. billion) 22.96 26.97 32.04 35.53 39.59 44.31 55.40 58.50 62.80 68.00 73.60 83.80 95.85 108.81 126.10 152.79 N.A. N.A. N.A. N.A 35.376 40.799 49.620 54.698 60.549 86.106 72.633 79.703 84.329 90.450

Productio n

Employmen t

Export

(at current prices) (Rs. Bn.)

Nos. million

(Rs. billion )

72.0 92.0 110.0 124.0 143.0 157.0 216.35 280.6 326.0 350.0 416.2 505.2 612.28 722.5 873.0 1064.0 1323.2 1553.4 1786.99 2093.0 2416.48 2988.86 3626.56 4118.58 4626.41 5206.5 5728.87 6390.24 6903.16 7420.21

3.97 4.04 4.59 4.98 5.40 6.38 6.70 7.10 7.50 7.90 8.42 9.00 9.60 10.14 10.70 11.0 11.96 12.53 12.98 13.406 13.938 14.656 15.261 16.0 16.72 17.158 17.85 18.564 19.223 19.965

in

3.93 5.41 5.32 7.66 8.45 10.69 12.26 16.43 20.71 20.45 21.64 25.41 27.69 36.43 43.72 54.89 76.25 96.64 138.83 177.84 253.07 290.68 364.7 392.48 444.42 489.79 542.00 697.97 712.44 860.12

Source: Development Commissioner (SSI), Ministry of Small Scale Industries, Government of India

DISCUSSION AND ANALYSIS

57

INTRODUCTION

TO

SMALL

SCALE

SECTOR MEANING OF SMALL-SCALE SECTOR: In the official industrial policy formulation, a small industry is defined as a unit having investment up to Rs.1 crore in plant and machinery. In 2013-14 investment limit has been raised from Rs.1crore to Rs. 5 crore in respect of 69 items reserved for manufacture in small scale sector. Small scale Sector are mainly located in urban centres as separate establishments and produce goods with partially or wholly mechanized equipment employing hired labor. Small Sector operate as full time occupation and meet the demand of large area. It depends on the conditions of expanded market and the nature of business here is permanent.

NEED OF SMALL-SCALE SECTOR: The need for the small-scale Sector has acquired more relevance today on account of the following grounds: 

Growing population pressures in the rural areas;



Rapid expansion of the labour forces, especially among the marginal farmers and landless agricultural labours;



Inadequate opportunities for non-agricultural work;



Limitation of the organized sector in absorbing the labour force;



Existence of considerable under-employment in the economy;



To avoid the problems created by urbanization;



To ensure self-reliance.

58

59

IMPORTANCE OF SMALL SECTOR: The promotion of small Sector has been regarded as an important element of the development strategy underlying our five year plans. The rationale behind such an approach is that small Sector provide substantial scope for increasing employment as they are labour-intensive, and they require comparatively less capital. These sector have a special place in the economic development. The main roles played by this sector in the Indian economy are as under: 

Encourage the philosophy of self-sufficiency, self-reliance and coordination;



Removal of economic backwardness of the rural and under developed segments by developing industrial activities in the rural India;



Create greater employment opportunities and raise levels of output, income and standard of living;



Contribution of these Sector in the promotion of exports;



Reduction in regional imbalances;



Integrate large-scale industrial sector with agriculture and allied sectors leading to harmonious growth of the total industrial sector;



Creation of effective demand;



Meet substantial part of the economy’s requirement of consumer goods and producer goods;



Facilitate the development of economically weaker sections i.e. povertystricken population;

60 

Upgrade not only the skill of traditional artisans but also induce the unemployed youths to undertake entrepreneurship with special emphasis on the women;



Check the migration of rural mass from the villages to the urban conglomerations;



Entail equitable distribution of national income;



Facilitate mobilization of resources, capital and skills and their optimum utilization;



Exercise a stabilizing influence on the vagaries and uncertainties of rural economy;



Ensure a harmoniously balanced, integrated and egalitarian socio-economic order in the country.

PROBLEMS OF SMALL SECTOR IN INDIA: The growth and development of small sector units has been constrained by several factors. Undoubtedly, the smooth development of cottage and small Sector is a prerequisite for economic growth of our country. But they can play their vital role only under their sound conditions. The major problems faced by these Sector in India are: I. FINANCIAL PROBLEMS Finance is as crucial to an enterprise as is blood to the human body. The requirement of finance is inevitable for setting up a new enterprise almost everywhere in the world. Easy availability of credit both in terms of need and cost is the prerequisite of all enterprises. In India despite of the government having taken several measures to

61 expand availability of credit to small enterprises through commercial banks for working capital and through term lending institutions (SIDBI, SFC), the problems of SSIs are far over. The sector has been facing the following major problems in financial area: a) Long term capital b) Working capital c) Recovery d) Taxation e) Inadequate finance SSIs cannot resort to capital market, nor float CPs or tap GDR/Euro-route, they have poor capital base and are compelled to sell their products and services on credit basis to their clients which in turn impairs their resource availability.

II. ADMINISTRATIVE PROBLEMS In this environment of competitiveness, it is essential that all the resources are put to optimal use. In this context, the Human Resources are assuming importance as optimal usage of other resources would largely depend on them. SSIs have experience both quantitative and qualitative skill shortages. Most of the small enterprises in India are “one man show” of the human resources. Also the industry associations will have to work in close collaboration and liaison with the vocational training institutions to ensure that job-oriented training skills are imparted to the youth not only to ensure availability of right type of skills but also from the point of view of the employability of trained manpower for the new and modernizing SSIs. The following are the major problems in administrative area:

62 

Faulty planning.



Poor project implementation.



Poor management.



Labor problems.



Capacity utilization.



Lack of vertical and horizontal integration.



Inadequate training skills.



Lack of strategies.



Infrastructural problems (location, power, water, communication).



Lack of scientific and industrial research.



Bureaucratic red tape and regulations.

III. MARKETING PROBLEMS As regards marketing, this stands out to be the crux for the ultimate success of an enterprise. Goods produced must be sold because the small entrepreneur can hardly afford inventory build-up. In India, it has been noted that small enterprises supplying manufactured products in the open market as well as to large scale units as ancillaries continue to remain at the receiving end due to irregular payments. This seriously affects the production cycle and is one of the main reasons for closure of many small units. SSIs are facing the following marketing problems: 

Lack of knowledge of markets.



Competition with medium and large size Sector.

63 

Branding problems.



Lack of after sales services.



Distribution problems.



Advertising and sales promotion problems.



Poor bargaining power.



Unfamiliarity with export activities.

IV. PRODUCTION PROBLEMS Technology and modernization of the industry particularly of the small sector is going to play a very important role. So far as the small sector is concerned the thrust of technology policy has been on indigenization and improved technologies through indigenous effort till few years ago. Coming to Indian small scale sector, the thrust of technology policy has been on indigenization and development of improved technologies through indigenous R & D centers. The different problems faced in production area are: 

Lack of raw material.



Low capacity utilization.



Poor quality.



Inadequate utility services.



Technological problems.



Scale of production.



Lack of standardization.

64 

High cost of production

The new policy regime, with a virtual ‘open door’ policy towards foreign investment and technology in most areas of industry and infrastructure, is likely to intensify and accelerate the process of technological polarization between the large and small-scale sectors.

OVERVIEW OF SMALL-SCALE SECTOR IN INDIA The small scale Sector has acquired pre-eminent position in the economic structure of the country. The contribution of the sector both towards the economic advancement/development and removal of economic disparities among across sections of the society has been tremendous.

Since independence, a series of six Industrial Policy Resolutions aimed at promoting industrial growth and determining a pattern of state intervention and assistance have been announced by the Central Government. While spelling out the framework of the basic and strategic Sector, the Industrial Policy Resolution, 1948, emphasized that the cottage and small scale Sector to be particularly suited for better utilization of local resources and achievement of “local self-sufficiency” in respect of certain types of industrial goods.

The Industrial Policy measures announced in 2000 laid special thrust on promotion and strengthening of small, tiny and village Sector. Besides effecting changes in investment limits, equity participation, etc., a new scheme of Integrated Infrastructure Development for SSIs with the participation of State Governments and

65 Financial Institutions was initiated and a pro-active role for Non-Government Organization (NGO) sector was mooted.

The definitional criteria of SSI are closely linked to the question of ownership since SSI units cannot either be controlled or owned or be a subsidiary of any other industrial undertaking. This suggest that in the case of proprietary/partnership firms, the combined investment of all the units set up by the same proprietor/partners should not exceed the total investment limit fixed for an SSI unit. The equity investment by other companies should not exceed 24 percent of the total equity. The objectives of such changes in classification are aimed at: 

Facilitating and boosting the growth of SSIs in private sector;



Promoting SSIs within the framework of the social and economic policies of the country;



Encouraging technology up gradation among existing units;



Helping technically qualified entrepreneurs to set up new units with advanced technology;



Improving product standards;



Creating opportunities for in-house R&D;



Providing thrusts to exports.

NEW POLICY FOR SMALL SECTOR, 2000: MAJOR THRUST AREAS

66 The future growth of SSIs under a liberalized regime is constrained by a number of factors, among which the more important are as follows: a) Change in consumer preference b) Outmoded technology c) Uneconomic sales of operation d) Lack of organization e) Total disregard of environment standards f) High incidence of sickness In a partial response to this situation, the government announced on August 6, 2000, a joint package of policy measures for small, tiny, handloom, handicraft and village Sector. 1. 2. 3. 4. 5. 6. 7. 8. 9.

Major Features Emphasis to shift from subsidies/cheap credit to adequate credit. Equity participation by other undertakings domestic/foreign up to 24 percent Introduction of factoring services through banks Marketing of mass consumption goods under common brand name Industry associations to be involved in setting up Sub-contracting Exchanges (SCXs) Technology Development Cell in Small Industry Development Organizations (SIDO) Industry association to establish quality counselling and common testing facilities Technology Information Centers and TBSE Reoriented modernization and technology up gradation programmes-cluster-based approach

ROLE

OF

SMALL

SCALE

Objectives To meet the emerging demand for credit

To strengthen small industry marketing

To upgrade technology and promote

SECTOR

ECONOMIC DEVELOPMENT OF INDIA

IN

THE

67 Needless to comment that the cottage and small scale Sector play a significant role in the growth of Indian economy. Despite the importance and development of large scale industry, SSIs have an influential stature of their own, their growing present position in the economy with the long strides during the various plans period and hold out a commitment of bright prospects. These Sector economically speaking, compromise with the available country’s resource endowments.

During 2013-14, the average annual growth in the number of units was around 4.1 percent and in employment 4.3 percent annually. Further, the annual average growth in production, at current and constant prices, was 12.4 percent and 8.1 percent respectively. Thus, there has been a significant increase in contribution of this sector in the economic development of the country.

SSI sector should be encouraged to grow the natural way in the new economic environment. Artificial barriers and protection may not help in the long run. Innovativeness and efficiency must be rewarded in order to enable SSIs to emerge competitive. The role of SSIs can be understood in terms of the following arguments:

I. EMPLOYMENT GENERATION

68 300 249.09

239.09

250

260.13

271.36

282.91

200 158.34 150

EMPLOYMENT (Lakh Persons)

100 50 0 2008-09

2009-10

2010-11

2011-12

2012-13

2013-14

This sector has a high potentiality of employment orientation. These are labourintensive in character i.e., they use more of labour per unit of output and investment. The most important single argument advocated in favor of these Sector since a long compass of time is that they are capable to create a large volume of employment for the people relevant particularly in India where the problem of unemployment and underemployment and seasonal unemployment are rampant on a mass scale which is also characterized by the feature of lack of resources. In such a grave and contrast situation, i.e. labour-abundant and capital-scarce economy, it is argued that the development of this sector is the only alternative strategy which is labour intensive and the level of employment can be enlarged by a smaller dose of capital. The contribution of this sector in employment generation in different years is presented below: II. PROMOTION OF EXPORTS

69 120000 97,644

100000 86,013 80000

69,797

60000

71,244 EXPORT (Rs. Crore)

40000 20000

9,664

0 2009-10

2010-11

2011-12

2012-13

2013-14

One of the main arguments put forward in support of the growth of cottage and small scale Sector in the country is that the contribution of these Sector in the field of foreign exchange has increased abnormally. The bulk of exports of small scale Sector consist of such non-traditional goods like ready-made garments, sports goods, finished leather, leather products, woolen garments, processed foods, chemicals and engineering goods. In the year 1999-2000, the contribution of SSIs in exports was worth Rs. 9664 cores, than in the year 2009-10, it increased to Rs. 69,797 crores. By the end of 2012-13, the total contribution of SSI sector in the total exports was worth Rs. 97,644 crores. Thus, small scale sector plays a very important role in the promotion of countries exports. The share of SSIs in total exports is illustrated in the following graph:

III. REMOVAL OF REGIONAL DISPARITY Another significant role of this sector is that it removes the burning problem of regional disparity and promotes the wider scope of balanced regional development in

70 the country on account of decentralization of Sector which is not governed by the factors of localization as we see in case of large scale Sector. A great bottleneck in our industrial setup has been that the regional dispersal of Sector is uneven because the large and medium scale Sector can be developed only in a special geographical zoning factor which leads to disproportionate growth by concentrating in a particular zone. The development of small Sector tends to solve this problem of uneven distribution.

IV. BOOSTING CAPITAL FORMATION The establishment of these Sector is conducive for capital formation of the country on the ground of spreading of Sector over the countryside which could encourage the habits of thrifts and investment in the rural areas. These Sector have a distinct advantage as far as the mobilization of capital and entrepreneurial skill is concerned.

CHALLENGES FOR THE SSI SECTOR The growth and development of small scale sector units has been constrained by several factors including technological obsolescence, inadequate and irregular supply of raw materials, lack of organized marketing channels, imperfect knowledge of market conditions, unorganized nature of operations, inadequate availability of credit, constraints of infrastructural facilities including power and deficient managerial and technical skills. There has been lack of effective co-operation among the various support organization set up over the period for the promotion and development of these small Sector. Quality consciousness has not been generated to the desired level.

71 A major challenge facing the sector today is the compulsion to become selfsupportive with the phase dismantling of protective barriers. So far, Indian SMEs have survived due to the protected environment in the form of product reservation, market

reservation,

price

preference,

priority

sector

lending,

fiscal

exemptions/concession etc. With the emergence of WTO and its conditionality which considers protection as discriminatory or barrier to trade, many of existing support systems for protection of small scale sector will have to be dismantled. As a result, SSI will have to compete on its own to find a place for itself in the domestic as well as international market.

The challenge o SSI sector against the emerging global environment is to become globally competitive. The small scale sector will have to upgrade its technology and modernize, adopt modern marketing, management practices and improve the quality of its products in order to be efficient and competitive. In the absence of these changes, its survival may be at peril. Most of the small scale units are unaware of the challenges thrown by the WTO agreements and negotiations because of the lack of understanding about these agreements and negotiations. Thus makes it imperative for the Government to review its policies concerning the sector with a view to not only making them compatible with the WTO regime but also preparing them completely to respond to the emerging environment as an opportunity rather than a threat.

SWOT Analysis of the Small Scale Industry After the detailed study of small scale sector, a SWOT analysis of this sector reveals its strengths and weaknesses to meet the challenges thrown open by liberalization

72 and globalization as well as the opportunities available and threats faced by the sector in the new millennium. a) STRENGTHS 

Flexible manufacturing systems.



Lower cost of production.



Low level of capital investment per unit of output and employment.



Operational flexibility.



High contribution to domestic production.



Knowledge about internal markets.



Ability to make adjustment in changing economic and trading scenario.



Inherent ability to invent and innovate.



Utilization of local resources.



Location wise mobility



Import substitution

b) WEAKNESSES 

Inadequate capital for investment/expansion.



Inadequate working capital



Expensive bank loans.



Technologically weak.



Absence of brand equity for made in India labels.



Lack of development policy framework; relook at reservation policy.



Lack of infrastructural facilities.

73 

Lack of professionalism.



Lack of well developed information system.



Inability to face impact of WTO regime.

c) OPPORTUNITIES  Untapped export potential in sectors such as computer software, leather and leather products, light engineering products, hand tools and implements, auto components and ancillaries, garments including hosiery, etc. 

Growing service sector.



Security and stability of access under the WTO regime.



Tariff reduction by all countries.



Establish ‘Backward Forward Linkages’, both nationally and inter-nationally.



Joint ventures.



Technology up gradation.

d) THREATS  Slow adoption of quality culture.  Poor infrastructure support.  Technological obsolescence.  Inadequate use of information and communication technologies.  International environmental agenda which is in stark contrast to low emphasis laid by Indian firms.  Non-compliance with non-tariff barriers particularly environmental, health and safety standards.

74  Growth of cheap imports.  High cost of funds.

CHAPTER-6

75

CONCLUSION & IMPLICATIONS

76

CONCLUSION & IMPLICATIONS The promotion of small-scale industry has been a consistent theme of postindependence Indian planning. While various protectionist measures and fiscal concessions had been put in place in the 1950s, it was not until the late 1960s that planners began to use directed credit as a tool of policy. A series of policies introduced from 1967 onwards, and facilitated by the nationalisation of most of the commercial banks in 1969, demanded sharp increases in the share of bank lending going to designated 'priority' sectors. The post-liberalisation business environment has become harsh for the small-scale industries (SSI) sector because of increased internal and external competition. In addition, the far-reaching impact of the various WTO norms are now threatening to further affect the fortunes of small and medium enterprises. Unfortunately, despite sufficient notice and the growing awareness of the impending threats, the SSI sector does not appear to be adequately prepared for the new challenges. While a number of units in the sector have been striving hard to obtain ISO or BIS certifications and compete against cheaper imports, the overall picture appears gloomy for want of proper policy support. Even after several committees and study group reports over the past decade, the policymakers are still groping for a WTO-compatible policy for this sector. There is much confusion over a number of issues such as the cap on capital investment, foreign direct investment (FDI) ceiling, interest subsidy, de-reservation of items, and creation of a technology upgradation fund and so on. It has become fashionable for

77 successive governments to promise a new deal for the SSI sector, but deliver practically nothing. Even the creation of a new Ministry of Small-scale Industry and Agro and Rural Industries in 2008 did not make any difference to the sector's plight. Soon after its creation, the new Ministry decided to do a detailed sector-wise study of the impact of various WTO agreements on the SSI sector but nothing seems to have happened since. Not surprisingly, though the sector has grown at a rapid pace postIndependence, the incidence of sickness is on the rise. While the official figures show only about 10 per cent of the over 32 lakh SSI units as sick, the unofficial figures put this figure at over 40 per cent. Given the crucial importance of the SSI sector to the economy with 40 per cent share in the total industrial output, 35 per cent in exports and over 80 per cent in industrial employment, it deserves all the policy support the Government can offer. What the small entrepreneurs need is not protection but institutional support to fund modernisation and technology upgradation, infrastructural support, and adequate working capital finance from the banking sector. There is also a need for small entrepreneurs to keep pace with the structural and technological changes taking place in large industries. The accent should be on the much greater degree of ancillarisation and on providing services as the larger companies are keen on offloading a number of job works to smaller units. True, a section of the SSI sector is already undergoing structural changes but the process is still quite slow.

78 There is an urgent need to refashion the policies governing the sector so as to improve its competitive strength and long-term outlook. The recast and reform of the SSI policy will have to largely concentrate on the following areas: As can be inferred from the information in the preceding section, the various Indian governments have proclaimed many policies and also implemented several initiatives and programs. Most of the policies before the 1999s were aimed at protecting the small sector rather than making it competitive. Some of the major issues that these policies did not address are as follows: Problems in obtaining credit One of the serious problems affecting the small scale sector is the hardship of obtaining credits from the banking sector. Although this has been a problem for past several years and though the issue has been mentioned in budget speeches by government, none of the policies seem to solve it. Many entrepreneurs who had been drawn into industrial activities hoping to receive financial assistance have subsequently found that working capital is not forthcoming[4]. The internal financial resources of the SSIs are held to be so small that have no surplus money in times of business strain. This along with the situation of unstable profits prevent the banks from issuing them unsecured loans. As a result, many of these SSIs are still dependent for funds on money-lenders who charge high interest rates. And those who have tried to obtain loans from the various financial institutions have only faced corruption associated with grant of loans and long delays in delivery. In a 2005 survey of small entrepreneurs by the Confederation of the Indian Industry (CII), a large proportion of the respondents attributed their problems to delayed payments, high cost of borrowing and inadequate credit.

79 Sickness in the SSIs As of September 2001, about 233 thousand small-scale units were sick. Many of the sick units ultimately close down due to finance and marketing problems. Poor management has also be identified as a major cause of sickness. Therefore a need exists to countinously provide help in terms of training for the small enterprises to manage themselves. The recent policies and programs providing management training by the SIDBI is hopefully a step towards solving this problem. Negative impacts of reservation policy The previous and current small-scale industries policies have followed the policy of reserving certain items to be manufactured only by the SSIs. Many of the items that are reserved are in the mechanical engineering, chemical products and auto-ancillary industry groups. Though the policy was mainly aimed at protecting the small firms from competition from the large firms, the lack of any licensing to identify SSIs has resulted in the entery by large firms into those areas. There is no enforceable penalty for moving into reserved areas. It is also held by many authors that the policy is actually counterproductive as those producing nonreserved items have performed better than those in reserved areas. Hence the reservation policy tends to become large redundant. The Equity policyThe New Small Industry Policy allows the large firms to have equity in SSIs. This policy is contended to be a bad one as it only encourages the small units to continue to act as dependent on the large firm. A fear that the large firms might at a later stage takeover the small units is also expressed by some industry experts. Apart from the abovementioned critical issues, there are several other issues such as non-classification of a separate medium enterprise under the Indian industrial sector, regional imbalances in the concentration of small scale industries and survey data

80 showing that government institutions were the ``least important sources of technological information.'' More information on these issues could not be obtained. Another concern is the lack of coordination between the various support organizations set up by the government. It would also be interesting to know if any evaluation systems are in place for these institutes and their programs. Information on this aspect could not be gathered. An article by Ira Gang mentions that policies intended to support the small industry such the reservation, financial incentives, etc. are ``neither promoting employment nor improving the competitive base of small firms. Rather, they are working as strong disincentives for growth of small firms.'' Though all the previous efforts at helping the SSIs to grow and modernize seem to have had very little effect, the recent modernization efforts such as the setting up of the

Technology

Development

Board,

the

Technology

Development

and

Modernization Fund, greater emphasis on providing management skills and in obtaining ISO 9000 certification seem more focused and promising. Since these have very new, no specific conclusions as to their success or impact can be drawn at this time. Hopefully, some systematic methods to ensure that SSIs are actually receiving benefits and necessary assistance will be put in place The major environmental concerns in India today are poverty coupled with growing population and the side effects of enhanced industrial activities. As long as poverty remains the main stumbling block, industrialization provides hope of significantly improving the standard of living. One of the measures most talked about that might gain recognition within these industries is sustainable development. Removal of poverty and environmental protection are two sides of the same coin that is

81 sustainable development (Dwivedi & Khator, 2004), but policy makers, governments, politicians, and industrialists have challenged many of the underlying values and assumptions of sustainability. Sustainability or sustainable development can also be described as development or progress that meets the needs of the present without compromising the ability of future generations to meet their own needs. Although, industrialization is seen as a solution to providing economic growth and increasing employment levels, irrespectively, industries, whether large or small, lowtech or hi-tech, manufacturing or agricultural, all inevitably produce discharges and wastes that are capable of polluting. Where high population and economic growth demands resources (inputs) and discharges (outputs) in the form of pollutants, not many industries have arrived at suitable suggestions on sustainable measures, thus putting pressure on the environment. Hart (2006), in fact, recognised the problem of a growing population, rapid economic development in emerging economies, and political and social issues that exceed the mandate and the capabilities of any corporation. However, the suggestion that learning to balance ecological principles, economic growth, and social responsibility be priorities of businesses (Johannson, 2003) does eventually make more sense. Sustainable development challenges industry to produce high levels of output while using lower levels of inputs and generating less wastes with a more effective use of raw materials in production that would eventually result in diminishing costs. This greener corporate image could then lead to an increased market share (Welford & Bhargava, 2005). Hart (2006) states that the business logic for greening has been largely operational or technical, and bottom up pollution prevention programs have saved billions of dollars, but few have realised that environmental opportunities might actually become a major source of revenue

82 growth. The suggestion made by Hart, and the concept of sustainable development should, in fact, be made the core objective within the operations of small industries. Small industries could also go one step further in addressing a sustainable vision i.e. a trade-off between economic growth, profitability, and sustainable environment. Within industries, management should be charged with the responsibility of implementing this concept of the sustainable vision into action by firms. One such measure is Johannson's (2003) trisect of sustainable business. It is founded on the concept of balancing ecology, economic, and social factors that are included in the industry’s value system, and included in the business planning or design phase resulting in profits through ecologically sound products, processes, or services. In a complex relationship between population, economy, industry, and ecology, managing the environmental responsibility is a prime issue in India. Population will always be a problem if not properly curtailed, but in the case of industrialization there is a growing need for a sustainable vision where industries are made responsible for their acts. With today's current technology and strategic management systems, industries can be effective in reducing the gravity of environmental impacts. The green challenge is an issue that is relevant to every industry big or small. Every business faces pressure to improve its eco-performance. As regards regulatory pressure and compliance, many businesses spend more time in fighting regulations and take a less proactive, strategic approach to environmental management (Schoemaker and Schoemaker, 2004). Although Indian courts closed almost 1,000 factories for pollution problems, and the Supreme Court fined 15 plants, including some multinationals (Shaman, 2005), the effectiveness of these regulatory pressures and compliance has still to be realized. Johannson (2003) addresses a

83 “green firm” as one that does not look at regulatory or legal compliance as a first step. The ability to assure that a firm is “in compliance” is therefore a poor tactic, and very cost-ineffective. Managers who understand environmental laws can be counted on. In other words, regulation, compliance, and environmental laws will take care of themselves if managers adopt a sustainable vision or green objectives for industries. Much of the literature seeks to establish that there is an acute need for regulatory and legal measures. However, pressure for sustainable vision in these small industries lies within themselves. They must realize the importance of environmental management and quality and that it could be highly effective if it is administered by the small units themselves.

84

CHAPTER-7 RECOMMENDATIONS

85

RECOMMENDATIONS Recent modernization efforts Inspite of the existence of all the aforementioned organizations to help the development of the SSI, an increasing spread of sickness is reported in the sector. Acknowledging this fact, the DCSSI set up a working group in 1985 to make recommendations for a suitable action. The suggestions made by this group included the following: 

Establish a well-equipped design and technology development cell in the office of the DCSSI to coordinate programs of modernization in the small small-scale sector.



Special cells called ``Product-cum-Process Development Centers'' will be necessary for undertaking research, locating sources of modern technology, identifying suitable technology for transfer and help the small-scale industries in obtaining inputs.



Liberal imports of technology and equipment should be allowed to modernize the small-scale sector.



Incentives should be provided to enterprises with modern technologies to transfer them to the SSIs.



In August 2000, the GoI announced its new policy towards the small scale sector. The government announced that a Technology Development Cell would be set up in the Small Industries Development Organization (SIDO). This Cell would provide technology inputs ``to improve productivity and competitiveness of the

86 products of the small scale sector''. The Technology Development Cell would coordinate with other industrial research and development organizations to achieve its objectives. Information on whether such a Cell had been set up was not available. 

Under its scheme of direct assistance, the SIDBI had launched the Technology Development and Modernization Fund. The main objective of this fund is ``to encourage existing industrial units in the small scale sector to modernize their production facilities and adopt improved and updated technology so as to strengthen their export capabilities''. Through this fund, its helps the SSIs meet the costs of purchasing capital equipment, acquisition of land, expenditure incurred in obtaining ISO 9000 series certification and also the costs for improvements in packaging. The SSIs have to meet some criteria before they can apply for financial assistance under this schemee, for e.g. units must be in operation for atleast three years. It is also working towards prospects of marketing the products of SSIs in the internal and international markets.



One of Development and Support Services extended by the SIDBI is the Enterprise Strengthening service. Under this service, there are specific programs including technology transfer, technology upgradation in indentified industry clusters and management development.



In the 2005-06 Union Budget, the government announced the setting up of a Technology Development Board and this has been instituted under the Department of Science and Technology. During the presentation of the budget, the Union Minister for Finance proposed that the unutilized corpus of $1.75 billion under the

87 Technology Development and Modernization Fund Scheme of the SIDBI should be provided to the State Financial Corporations and commercial banks. These banks will in turn be able to make it available for the SSIs for modernization projects. 

In addition, the SIDO and SISIs have introduced a program for promoting technological modernization of the SSIs. Under this initiative, the small production units are provided information, advice and training. Reports are distributed among them for spreading modernization information. The SSIs can register for these programs for a fee. As of March 1986, there were 570 enterprises registered under the modernization scheme of the SIDO. However only 24 of these have been provided with modernization guides.



A recent change in the small-scale industrial policy allows the large firms to hold up to 26 percent of equity in small enterprises without the requirement of consolidation of accounts. This is considered as a good way to induce the transfer of technology and skills from large industrial units to SSIs. Industry experts are however skeptical about this. Most large units use the small-scale sector as subcontractors. Doubts have been expressed whether these large units would allow for transfers of technology to SSIs and enable them to grow and become independent units in their own right.

Adoption of new definitions In most countries, small- and medium-scale units are clubbed together for policy purposes and called SMEs. Hence, the Planning Commission Study Group on Development of Small Enterprises, which submitted its final report in May 2010, has

88 suggested that tiny, small and medium establishments could be redefined in terms of investment limits of Rs 25 lakh, Rs 5 crore and Rs 10 crore respectively. The Government should think of creating a separate category of medium-scale units with investment limits of Rs 10-15 crore and encourage them to raise equity capital, including foreign equity to supplement institutional finance. While the broad policies should be the same for the SMEs, the tiny units could be given a much higher level of institutional support to promote self-employment. The clubbing together of small and medium enterprises for policy purposes and raising the investment limit would encourage technology upgradation and facilitate seamless growth of small to medium and eventually even to large-scale units. This would also attract more foreign investment in the sector. The present policy discourages the small units to grow into bigger ones because of the low investment limit in plant and machinery and the artificial props such as excise duty exemptions.

Dereservation The rationale behind the policy of SSI reservation was studied by the Expert Committee on Small Enterprises (the Abid Hussain Committee), which submitted its report in 2006. The Committee listed the following arguments against reservation: 

The policy has not actually helped the growth of small-scale industries.



The units in the unreserved sector have actually grown faster than those in the reserved list. In other words, the SSI units have shown more dynamism in areas where they had to compete with larger units.

89 

Reservation in many areas has become irrelevant since a large number of reserved products are not being produced by SSIs. It is also inconsistent with the new trade policy that allows the items reserved for the SSI sector to be freely imported.



Reservation has hurt India's ability to expand exports in many crucial areas, including textiles and leather.



A number of subsequent studies also recommended the de-reservation of items, the latest being the CII study, covering over 200 small enterprises, to analyse the impact of the removal of quantitative restrictions on the SSI sector. The study says the government's reservation policy is hindering the SSI sector's growth. It is, therefore, time to do away with SSI reservation and offer other forms of promotional support.

Promoting clusters International experience suggests that the small-scale enterprises flourish in situations where they can be clustered together in areas where it is easier to develop common infrastructure facilities of high quality. Many such clusters have already emerged. However, at present we do not have any policy for providing special assistance for the development and upgradation of specific industry clusters. The Abid Hussain Committee had recommended that the States should identify the existing clusters and promote joint ventures between the State government or local authority and business associations in these clusters. The Planning Commission Study Group went a step further and recommended that the Centre should provide additional resources through a special centrally-sponsored scheme aimed at upgrading infrastructure in areas where well-defined industry clusters have already emerged.

90 According to a UNIDO study, there are 354 industrial clusters in India, of which 34 have a turnover exceeding Rs 1,000 crore. A few have a gross turnover exceeding Rs 10,000 crore. There is evidence to suggest that the new SSIs are increasingly moving towards clusters to be near the centres of demand. The units that were initially lured to the backward areas by the capital subsidy provided by the government found themselves at a greater disadvantage. While in 1987-88 about two-thirds of the total SSI units in the country were in backward areas, this proportion declined to 50 per cent by 2003-04, according to a survey of SSIs. This proportion must have come down further by now.

Institutional credit 

Ensuring adequate flow of institutional credit to the SSI sector has remained a major problem despite several attempts made by the Reserve Bank of India over more than a decade to improve the situation.



A number of studies have clearly established that the major cause for the largescale incidence of sickness in the SSI sector is the non-availability of adequate and timely working capital from the banking sector. For instance, the S. L. Kapur Committee Report (2007) bemoaned that despite the central bank's instructions and guidelines from time to time, banks have not been following the P. R. Nayak Committee recommendations (2001) emphasising the need to improve the flow of funds to this sector. It had recommended a minimum level of working capital finance by banks to SSI units at 20 per cent of the value of their output.



Even today, this recommendation remains only on paper. Worse, according to the estimates of the Kapur Committee, only 15-20 per cent of the SSI units could access bank credit. Others have to depend on borrowings from private sources at

91 exorbitant interest rates. Now there is a new urgency to provide a new deal to this crucial sector, which successive governments have been promising over the past decade. 

Instead of indulging in their popular pastime of appointing committees and commissioning new studies to rediscover already well-known problems afflicting the small industries, the policymakers would do well to focus on implementing the pragmatic recommendations of the earlier committees.

EXPORT PROMOTION Rationale Behind Export Promotion The capability of Indian SSI products to compete in international markets is reflected in its share of about 34% in national exports. In case of items like readymade garments, leather goods, processed foods, engineering items, the performance has been commendable both in terms of value and their share within the SSI sector while in some cases like sports goods they account for 100% share to the total exports of the sector. In view of this, export promotion from the small scale sector has been accorded high priority in India’s export promotion strategy which includes simplification of procedures, incentives for higher production of exports, preferential treatments to SSIs in the market development fund, simplification of duty drawback rules, etc. Products of SSI exporters are displayed in international exhibitions free of cost under SIDO Umbrella abroad.

92

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93

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