Essay: Small scale industries

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In India, the small-scale industrial sector has been a key contributor to the Gross Domestic Product (GDP). This sector in India is measured to have a huge growth panorama with its wide range of products. With 40% contribution in total industrial output and 35% contribution towards exports, the small-scale industrial sector in India is performing as the engine of expansion.

In the course of passing the years, the definition of small-scale industry has been modified many times. First, it deleted the employment factor from the point of view of promoting the official programme under successive plan periods. Secondly, it jumbled the fixed capital by redefining it to include machinery only in a phased manner. This change has necessitated the need to off-set the higher cost of machinery arising out of the rising prices and to a greater extent the opportunities to small-scale enterprises.
Presently, the Small Scale Industries are segregated into two categories- those using power with manpower less than 50 and those not using power with the manpower strength being more than 50 but less than 100. On the other hand, the capital resources invested on plant and machinery and buildings have been the primary decisive factor to differentiate the small-scale industries from the large and medium scale industries. An industrial unit can be classified as a small- scale unit if it fulfils the capital investment limit fixed by the Indian Government for the small-scale sector.
As the provision of Micro Small and Medium Enterprises Development Act, 2006 (Ministry of Micro, Small and Medium Scale Industries 2006) , Small and Medium Enterprises are categorized into two types: Manufacturing Industries: The industries engaged in the manufacture or production of goods pertaining to any industry specified in the first schedule of the Industries Development and Regulation Act, 1951. (Development Commissioner MSME 2012) defined in terms of capital employed in plant and machinery. Service Industries: The industries engaged in rendering services and are defined in terms of capital employed in equipment. The boundary for capital employed in plant and machinery, equipment for manufacturing or service industries, is as under:
According to MSMED Act, 2006, following industries whether Proprietorship, Hindu Undivided Family, Association of persons, Cooperative Society, Partnership, Undertaking or any other legal entity by whatsoever name called, in the case of industries engaged in the manufacturing or production of goods pertaining to any industry as per First Schedule to the Industries Development and Regulation Act 1951.
Small scale industries in which, the investment in fixed assets in plant and machinery is more than Rs. 25 lakhs but does not exceed Rs. 5crores. In the case of enterprises engaged in providing or rendering Services in which the investment in fixed assets in plant and machinery is more than Rs. 10 lakhs but does not exceed Rs. 2crores. The conventional small-scale industries evidently differ from their modern counterparts in many aspects. The conventional units are highly labour consuming with their age-old machineries and conventional techniques of production resulting in poor productivity rate where as the contemporary small-scale units are much more productive with reduced manpower and more sophisticated equipments. Cotton, Khadi and handloom, sericulture, handicrafts, coir and village industries are some of the traditional small-scale industries in India. The modern small scale industries offer a broad range of products ranging from simple items like hosieries, garments, leather goods, fishing hooks, etc., to more classy items like television sets, electronics control system, different engineering products particularly as ancillaries to large industrial undertakings. These days, Indian small-scale industries have become as modern Small-Scale Industries. Rejuvenation has established the list of products offered by the industry. The items produced in modern small-scale service and business enterprises in India now consist of hardware, electrical items, transport equipment, electronic components, rubber items, plastic items, chemical, glass and ceramics, mechanical engineering items, and equipments, auto parts, bicycle spares, instruments, sports items and stationeries etc.
Since independence, the Central Government has cherished this sector in order to encourage growth, expansion and more investment in the small-scale sector, and adopted a strategy of reservation for permitting some of the products to be exclusively manufactured by the small-scale sector. The small scale sector produces an extensive range of products, ranging from simple consumer products to classy end-products. As
Subsidiaries, they produce a huge variety of products required by the large scale industries. The small scale sector has became a major supplier of mass consumption goods like leather articles, plastics and rubber goods, paper products, fabrics and garments, cosmetic items, utensils, metal components, detergents and soaps, sports goods processed food and vegetables products, steel and wooden furniture etc. More classy items manufactured by the small scale sector now include television sets, electronic desk calculators, auto parts, drugs and pharmaceuticals, microwave parts, air conditioning products, electrical products etc. To give special attention, the Indian Government established the Small Industries Development Bank of India (SIDBI) in April 1990. The major objective of the bank is to ensure steady flow of funds to SSIs to relieve them from financial difficulties.
Regrettably all earlier attempts to expand, develop, and modernize the SSIs have not been of great use. On the other hand, the efforts like starting of the Technology Development Board, Technology Development and Modernization Funds, ISO 9000 Certifications support, stressing on improving the managerial talents are turning out to be much more productive in modernizing the small scale industries in the country.

The importance and need of SSIs is all the more great in a developing economy like India, wherein nearly three fourth of the population is depending upon agriculture which is a seasonal one and results in large scale unemployment. The best way of dealing with this is to provide the cultivators with work through the development of SSIs, so that seasonal unemployment and underemployment could be eliminated or at least minimized. Along with this, small size of the farms keeps the villagers who own lands idle for about half the year. SSIs properly organized and developed will provide profitable employment for the agriculturists during periods of their enforced idleness and also make a vital contribution in maintaining their standard of living.
The promotion of small-scale industries has been widely recommended as one of the most appropriate means of developing industry in over populated backward countries. Japan is usually held up as the great example of what can be done in this way.
Backward region endowed with a typical pattern of factor endowment, adoption of labour-intensive techniques involving low capital cost could increase employment opportunities, reduce regional imbalances, and check migration to urban areas. SSIs no doubt play all the roles ascribed to it in a developing country, but there is something more to it. In economies starved of capital and technical knowhow, the natural turn to small industries should not be looked upon as an economic compulsion of backwardness, but as an economic necessity.
Hence, there is no denying of the fact that SSIs play a vital role in activating the resources of the backward areas. There is urgent need for fostering the growth of small industries which supplement the income of the farmers in an over-populated agricultural economy with unemployment.

The small-scale industries, regardless of their significance in the economy, are not contributing to their maximum towards the progress of the country (Rajendraprasad 2004) . It is for this reason that these industries are set with a number of troubles in regard to their functions. The issues that are emerged from Review of Literature are financial challenges (Reetu 2012) , productivity, performance, competitiveness, marketing problems and support (Arjunkumar 2012) , quality products, entrepreneurial skills, managerial competency, technological advancement, infrastructural facilities (Ram et al 2012) , rural development, awareness and utilization of available government support, availability and utilization of resources, etc. The Small-Scale Industries have serious problems with both longterm and short-term credits (Daniel2012) . This is clear from the fact that the supply of credit has not been corresponding with their needs associated with the capital required. The timing of the credit is another aspect. The credit situation is particularly hard for the very small or micro units. The methods of production which the small and micro industries use are older and incompetent (Umashankar2008) . The outcome is lower productivity, low quality of products and increased costs. The producers, due to lack of information system, know very little about modern technologies and training openings available for the Small-Scale Industries.
Another serious challenge which these industries face is that of competition from large-scale industries (Ismail 2006) . The problem of raw materials continues to plague the small scale industries (Malga1997) . Raw materials are available neither in sufficient quantity, nor of required quality and also not at normal price level. Being small customers, the producers are not able to go for bulk buying like the large industries. This leads to taking whatever quality is available in quality and at high prices. The small-scale industries face the acute problem of marketing their products. The challenges arise from such factors are production in small scale, lack of market knowledge, competition from technically more strong units, shortage of marketing amenities, etc.
Apart from the above problems, small-scale units have been constrained by a number of other challenges also. These include poor project planning capacity, lack of managerial talent (Siva 2012) , and older and traditional designs. Due to all these challenges, the development of smallscale industries could not reach a prestigious position. To face the above mentioned challenges, the Government is extending its support under different schemes and through many agencies but the awareness on these supports available to overcome the troubles is another major concern.
Therefore, the study focuses on these areas of concern to find out ways for the growth of SSI sector.

Small Scale Industries that are performing better make a great positive effect on economic growth of the State and the Nation. The acceptance of this conjecture is evidenced by the policy recommendations of the State and the country. This is mainly due to the initiatives taken by the State and the Central Governments to encourage the Small Scale Industrial sector. These aspects indicate that the Small Scale Entrepreneurs have been facing many problems though they acquire significant prosperity. Study on these aspects in Gujarat is very little, and hence this fact makes this study important.
The outcome of this study will guide the new small business promoters, practicing Small-Scale Entrepreneurs, and the Government for better performance of the Small Scale Industries so as to achieve economic development in the State and the country. The study will address various problems/challenges faced by the Small Scale Entrepreneurs and prospective areas for the Small Scale Entrepreneurs to capitalize on that to improve their performance. The study will also throw light on various forms of support and subsidy extended to the Small Scale Entrepreneurs and awareness level on these aspects among the Small Scale Entrepreneurs.
The study will elucidate greater opportunities for the new entrepreneurs to gain meaningful information about pros and cons of the Small Scale Industries. To the Government, the study will indicate the areas of concern to be addressed in Small Scale Industries which will facilitate the government to take policy decisions to improve the SSI performance in future.

The Small Scale Industrial sectors have recorded noteworthy growth and remarkable performance. This study focuses on identifying and evaluating the factors accountable for survival of the SSI, Providing required resources for their business, helping the Government in formulating policies for Small-Scale Industries and reviving the sick units and facilitating them to perform better.
The study area for this thesis is North Gujarat Area. It is considered as one of the industrially forward states in the country. The growth of SSIs in This area is high compared to other states. Nature has blessed this area with modest resources of mineral wealth and forest wealth. These have been ingeniously exploited for a long time to bring about economic prosperity. For centuries the area has been well known for its trade with its neighbouring areas and in export and import, well-supported by its Small Scale Industries.
The recent economic history of this area also reveals that the State has in many ways been the pioneer in economic planning and development. It has set up a planning system even before any state in India had thought of industrialization, communication, electrification and banking in rural areas. There are 33 districts and out of these 33 districts Patan, Banaskantha, Sabarkantha, Mehsana and Aravalli districts were taken as sample districts for this study. These are the leading districts in one way or other. The sample respondents are chosen from these districts only. As such 35 Small Scale Industry samples from each district totally 350 were contacted with the questionnaire. The study outcome will support the new, existing SSI units and the Government to plan for renewed supporting programmes for the Small Scale Industries to facilitate the economic growth of the State.

i. To study the theoretical framework of Small Scale Enterprises in general and in particular with reference to North Gujarat Region.
ii. To analyze the factors that influences the individuals to become Small Scale Entrepreneurs in North Gujarat Region.
iii. To identify the prosperity and the common problems faced by the Small Scale Entrepreneurs in North Gujarat Region.
iv. To suggest better ways and means to alleviate the problems faced by Small Scale Entrepreneurs in North Gujarat Region.

The small-scale industry sector has emerged over five decades as a highly vibrant and dynamic sector of the Indian economy. Today, this sector accounts for about 95 percent of industrial units and is contributing about 40 percent of value addition in the manufacturing sector, nearly 80 percent of manufacturing employment and about 35 percent of exports (both direct and indirect). More than 34 lakh units are spread all over the country producing over 7503 items and providing employment to more than 192 lakh persons. Definition of SSI The official definition of SSI in India was first evolved in 1950 in terms of the size of gross investment in fixed assets (plant and machinery, land, building etc.) as well as in terms of the strength of the workforce in the unit concerned. This criterion underwent several changes over a period of time. In the late fifties, a shift from a workforce-based definition to investment-based definition was affected. In 1966, the original amount invested in plant and machinery was adopted as the sole norm for defining a unit small-scale or otherwise. Other concepts, namely ancillary and tiny were introduced in 1960 and 1977 respectively. Industry related business-oriented service enterprises were classified for the first time as Small-scale Service Establishments (SSSEs) in 1985 and later in 1991 redefined as Small-scale Service and Business (industry related) Enterprises (SSSBES). The government in 1988 defined the term. In India small-scale industry refers to manufacturing activity. Recently, it has also come to include to a limited extent, servicing activities such as repair and maintenance shops and few community services. Table 1.1 shows the scope of small – scale industry in selected countries.

Table: 1.1 Scopes of Small Scale Industries in Selected Countries
Country Terminology Scope
Japan Small enterprise Manufacturing, Mining, Services, Trading, etc
India Small Scale Industry Manufacturing, repair, Maintenance
Korea Small Enterprises Manufacturing, Mining, Construction, commerce etc.
USA/Canada Small Businesses Manufacturing, Services, Trading, etc
UK Small firms Manufacturing, Commerce, Construction, Mining, Transport, etc
Indonesia Small Industry Manufacturing services
Source: SIDBI report on Small-Scale Industry, 2000

1.7 Classifications of SSI
This sector covers a wide spectrum with two clearly identifiable segments traditional and modern small-scale industries, including tiny units and power looms and traditional Small industries like Khadi and Village Industries, Handlooms, Handicrafts Sericulture and Coir industry. Both the segments have their own special characteristics in terms of capital labour intensity, location, orientation, manufacturing process and skill requirements. Chart 1.1 on next page shows the classification of SSI:

According to the third SSI census, 62.13 percent of the units were engaged in manufacturing/assembling/processing, 7.54 percent in repairs and maintenance and 30.33 percent in service activities. Of the total SSI units 97.8 percent were tiny units, 0.67 percent were export-oriented units. Periodic Revision in the Definition of SSI Periodic revisions in the definition of SSIs made by the Government of India are listed in the Table 1.2.
Chart:1.1 Classification of SSI in India

Source: SIDBI report on Small-Scale Industry, 2000

In the table 1.2, we can see the data from year 1966 to 1999 for SSI sector in India. All the criteria which are applicable in India and the changes made in it are given here. In 1966 investment in Plant and Machinery in SSI is up to Rs.75 Lakh comes to Rs.100 Lakh in 1999. In between this duration, tiny business and ancillary business criteria are also given by the authority.
Table: 1.2 Original Value of Plant and Machinery Only
1966 Up to Rs. 75
lakh Up to Rs. 10 Lakh
1975 Up to Rs.10 Lakh Up to Rs. 15 Lakh
1977 Up to Rs. 10 Lakh Up to Rs. 1 Lakh Units located in rural areadtowns
with a maximum population of up
to 50000 as per 1971 census.
1980 Up to Rs. 20 Lakh Up to Rs. 25 Lakh Up to Rs. 2 Lakh Units located in rural areadtowns
with a maximum population of up
to 50000 as per 1971 census.
1985 Up to Rs. 35 Lakh Up to Rs. 45 Lakh Up to Rs. 2 Lakh Units located in rural areasltowns
with a maximum population of up
to 5 lakh as per 1981 census. The
SSSE classification suspended from 1991 and replaced by SSSBEs.
1991 Up to Rs. 60 Lakh Up to Rs. 75 Lakh Up to Rs. 5 Lakh Up to Rs. 75 Lakh Up to Rs. 5 Lakh @ The location specific condition
was removed.
1997 Up to Rs. 300 Lakh Up to Rs. 300 Lakh Up to Rs. 25 Lakh
1999 Up to Rs. 100 Lakh Up to Rs. 10 Lakh Up to Rs. 25 Lakh Up to Rs. 10 Lakh
Source: SIDBI report on Small-Scale Industry, 2000

1.8 Different Segments of SSI
1.8.1 Small-Scale Industrial Undertaking (SSI)
Following the Abid Hussian Committee (1997) Recommendation, the Government of India raised the (ceiling on investment in plant and machinery for SSI and ancillary undertaking to Rs. 3 crore. This definition of SSI and ancillary undertaking has since been revised as per the government order dated 24 December 1999. According to the
Table 1.3 The guidelines with regard to investment in plant and machinery or equipment as defined in the MSMED Act, 2006 are:
Nature of activity of the Enterprise Investment in plant and machinery excluding land and building for enterprises engaged in manufacturing or production, processing or preservation of goods Investment in equipment excluding land and building for enterprises engaged in providing or rendering of services (loans up to Rs 1 crore)
Micro Not exceeding Rs.25.00 Lakhs Not exceeding Rs.10.00 Lakhs
Small More than Rs.25.00 lakhs but does not exceed Rs.500.00 lakhs More than Rs.10.00 lakhs but does not exceed Rs.200.00 lakhs
Medium More than Rs.500.00 lakhs but does not exceed Rs.1000.00 lakhs More than Rs.200.00 lakhs but does not exceed Rs.500.00 lakhs
order the industrial undertaking in which the investment in plant and machinery, whether held on ownership terms or on lease/hire purchase basis does not exceed Rs. 1 crore is regarded as small-scale industrial undertakings.
1.8.2 Ancillary Industrial Undertaking (ANC)
An Industrial undertaking which is engaged in or is proposed to be engaged in the manufacture or production of parts, components, subassemblies, tooling or intermediates or the rendering of services is termed as ancillary undertaking. The ancillary undertaking is required to supply not less than SO percent of its production or services, as the case may be t3 one or more other industrial undertakings. The investment in plant and machinery, whether held on an ownership basis or on lease or on hire purchase, should not exceed E.s. 1 crore.
1.8.3 Tiny Enterprise: A unit is treated as tiny enterprise where the investment in plant and machinery does not exceed Rs. 25 lakh, irrespective of the location of the unit.

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