SMALL SCALE INDUSTRIES

The small scale industries play a vital role in the growth of the country. It
contributes almost 40% of the gross industrial value added in the Indian economy.
By less capital intensive and high labour absorption nature, SSI sector has made
considerable

contribution

to

employment

generation

and

also

rural

industrialization. Under the changing economic scenario, SSI has to face number of
diverse

problems

like

vast

population,

large

scale

un-employment

and

underemployment and scarcity of capital resources and the like. Hence, the
government has been providing some special facilities through different policies and
programmes to overcome the problems and for the growth and development of
small scale industries. The efforts of the government have resulted in the
phenomenal increase in the number of units in the SSI. The government also
introduced various schemes and incentives for the promotion of SSIs. Constant
support to SSI sector by the Govt. in terms of infrastructure development, fiscal and
monetary policies have helped to emerge as dynamic and vibrant sector of Indian
economy. Over the past six decades the sector has been highly vibrant and dynamic.
It has acquired a prominent place in the socio-economic development of the country.
Mostly this sector exhibited positive growth trends even during periods when other
sectors of the economy experienced either negative or nominal growth. It is a well
recognized fact that a vibrant small-scale sector holds the key to economic
prosperity in an economy like India. However, SSI has been facing multiple
problems, which make them uncompetitive and sick. In such a context, the paper
attempts to highlight the importance of SSI in Indian economy. It also analyze the
impact of economic reforms on growth pattern and productivity performance of SSI
in the country.

INTRODUCTION

Economic development of a country is directly related to the level of industrial growth.

The expansion of industrial sector leads to a greater utilization of natural resources,
production of goods and services, creation of employment opportunities and
improvement in the general standard of living. India has also been striving to develop the
countrys industrial base since independence. It has framed various policies aimed at
development of industries in the public and private sectors. Special emphasis has been
laid on SSI. SSI plays a key role in the planned development with its advantages of low
investment, high potential for employment generation, diversification of the industrial
base and dispersal of industries to rural and semi urban areas. The SSI sector has been
appropriately given a strategic position in planned economy for socio-economic,
equitable growth. P.N.Dhar and H.F.Lydall in introduction to their book, The Role of
Small Enterprise in Indian Economic Development have observed that 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,(Ministry of Small
Scale Industries , Government of India ,2006).
The definition of small scale sector is broadened from small-scale industries to small
scale enterprises that include all business enterprises in the services sector which provide
service to industrial sector in addition to small scale industries taking into account all
these factors, at present, Reserve Bank of India uses an expanded definition of small scale
industries, which constitute of Small scale industrial undertaking which are engaged in
the manufacturing, processing and preservation of goods in which the investment in plant
and machinery not to exceed Rs. 5 crore. These would include units engaged in mining or

quarrying servicing and repairing of machinery. These tiny enterprises investment in

plant and machinery should not exceeds Rs. 25 lacs. Traditional industries, which require
high workmanship and techniques and also village and household industries producing
common goods of consumption predominantly by using simple tools. It also constitutes
of decentralized and informal sector like handlooms and handicrafts. The industry related
to services/ business enterprises, food and agro-based industries, software industry also
form big part of small scale industries in India.The development of SSI is being given
due importance by the government in order to provide additional employment
opportunities, to mobilize resources and capital equitable distribution of national income
and promote the industrialization.
No doubt, in India the SSIs with their dynamism, flexibility and innovative drive
increasingly focusing on improved production methods, penetrative marketing strategies
and management capabilities to sustain and strengthen their operations, their share is only
30.8 per cent of total exports as on 2007-08 which are about 34.28 per cent of total
exports as on 2000-01 and reduced by 3.48 per cent from 2000-01 to 2007-08. From the
Table-4, it is evident that the share SSIs exports to total exports have been constantly
reduced over the years i.e., from 2000-01 to 2007-08.
The policies of liberalization, globalization and marketization (Government policies
are more inclined towards encouragement of the industries then selling of the assets)
brought out fundamental changes in the business environment in which industries
operate. The New Economic Policy followed by Structural Adjustment Programme
introduced by Government of India in 1991 substantially changed the rules of business
games as far as entry, pricing and host of other decision variables are concerned. This
changed the market structure, character and focus of marketing strategies. The changed
economic environment has forced Indian corporates to cope with process of liberalization
and globalization. In India, the entry of Multinational Companies (MNCs) has been
promoted and encouraged while impacts of MNCs on business and industrial
development have resulted in increased competition and equity participation in

manufacturing,

processing

and

marketing

of

goods

and

services.

THE SMALL SCALE INDUSTRIAL UNDERTAKING

An 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. 10 million (Rs. 1
crore) is regarded as a small-scale undertaking. These include manufacturing and service
units.

Ancillary Industrial Undertaking

An industrial undertaking which is engaged or is proposed to be engaged in the
manufacture or producing of parts, components, sub-assemblies, tooling or intermediates;
or the rendering of services is termed as an ancillary undertaking. The ancillary
undertaking is required to supply or render or propose to supply not less than 50 percent
of its production or services, as the case may be, to one or more other industrial
undertakings as the case may be. The investment in plant and machinery, whether held on
ownership basis or on lease or on hire purchase, should not exceed Rs. 10 million.
Tiny Enterprises

A unit is treated as a tiny enterprise where the investment in plant and machinery does
not exceed Rs. 2.5 million (Rs. 25 Lakhs) irrespective of the location of the unit. Many
shops, schools, parlours, Photostat and STD booths in your vicinity are all examples of
tiny units.

SMALL SCALE SERVICE AND BUSINESS ENTERPRISE (SSSBES)

An industry related service/business enterprise with investment up to Re.0.5 million
(5 Lakhs) in fixed assets, excluding land and building, is treated as an SSSBE. E.g.
advertising agencies, Marketing consultancy, Auto repair, services and garages, Tailoring,
Desktop printing etc. The service sector has emerged as the major segment of the
economy.

Womens Enterprises
A Women Entrepreneurs Enterprise is termed as an SSI unit/industry-related service
or business enterprise, managed by one or more women entrepreneurs in proprietary
concerns, or in which she/they individually or jointly have a share capital of not less than
51 percent as partners/shareholders/directors of a private limited company/members of a
cooperative society
.

EXPORT ORIENTED UNIT (EOU)

A unit with an obligation to export at least 30 percent of its annual production by the
end of the third year of commencement of production and having an investment ceiling
up to Rs. 10 million (Rs. 1 crore) in plant and machinery is termed as an export oriented
Small Scale Industries (SSI) unit Sethi, Dr. Jyotsna, (2005).
In India no separate definition of medium enterprises exists and as such there is no
specific definition of Small and Medium Enterprises (SMEs.) Administratively, in the
Indian context, the industry universe is divided into three major segments.
These cover SSI units (both in the Factory and Non/Factory sectors) and power loom
units. Such units mostly use power driven machinery and possess superior production
techniques. Units in this sub-sector are generally located in close proximity to large
industrial centers or urban areas. These industries are moving away from the traditional
products to knowledge-based products. Traditional SSI comprises of tiny and cottage
industry segments like handlooms, khadi and village industries, handicrafts, sericulture
and silk, rubber and coir. These units are labour- intensive, are generally located in rural

and semi-urban areas and are artisan based. Usually the capital invested is also nominal,
Sethi, Dr. Jyotsna (2005).

Characteristics of SSI in India

Small-scale industries have certain unique features, which distinguish it from the
Large-scale sector. There are some salient characteristics of small-scale businesses. In
most small businesses the owners themselves are managers and so they can operate
independently. They can give customized service to their clients, which in many cases is
their USP (Unique Selling Point). Since most small businesses are a one-man show and
they do not have to go through a hierarchy to get permissions to make changes. Small
business can respond quickly to environmental trends. Nimbleness and agility are
characteristics that allow small entrepreneurs to understand market conditions and rapidly
respond to changes. Small businesses have tremendous capacity for employment
generation through their labour intensive techniques. Small businesses actually create
more jobs than big businesses. This feature of a small-scale unit is of great significance in
a country like India where the number of unemployed people is phenomenal. Small
businesses are largely local in operation; however the market for its products may be
local, regional or even international SIDBI report (1999). The capital investment in the
small sector is generally low and the time taken for production to commence is also less.
As a result of short gestation period the units give quick returns and consequently the
pace of economic development quickens
Another feature of the Indian economy and most of the developing economies is the
scarcity of capital. The modern large scale sector requires colossal investments whereas
the small sector is just the opposite. Not only is the employment capital ratio high for the
SSI but the output capital ratio is also high. SSIs are helpful in balanced regional
development. Dispersion of small business in all parts of the country helps in removing

regional

imbalances

by

promoting

decentralized

development

of

industries.

Role of SMEs for in the Indian economy

After Independence, the foremost task for the government was to achieve rapid
industrialization of the country within the overall framework of a welfare state. The plan
objective of economic growth with social justice was kept in view in the overall strategy
of industrial development. Large, medium and small industrial units have been assigned a
mutually complementary role with a view to facilitate an integrated and harmonious
growth of industrial sector as a whole. National accounts statistics classify manufacturing
income into income from registered and unregistered units. Income contributed by
enterprises governed by the Indian Factories Act 1948 (i.e. those units which employ on
any day of the year 10 or more workers while using power and 20 or more workers with
completely manual process of production) is the income from registered units.

Unregistered manufacturing income is the income originating from the establishment

other than registered factories. The categorization of large scale and small and medium
enterprises by labeling the registered manufacturing as the large scale and the
unregistered manufacturing as the SMEs is not correct because the registered
manufacturing also includes the SMEs registered under the Factories Act. Industrial
Policies of the Government of India and the respective State Governments have been
encouraging the small enterprises so as to fulfill the objectives of decentralization of
industries, employment generation and entrepreneurial development. In the absence of
adequate data, exclusively on the SMEs sector, it was difficult to make realistic
assessment of the performance of SMEs. It is clear from the inception of development
programs, the revival of various stagnant village and cottage industries were given a
prominent place in the countrys economic agenda. The guiding principles were
enshrined in the Directive Principles of State Policy in the Constitution of India, which
enjoined upon the state to strive to minimize income inequalities and regional disparities,
and promote cottage industries in the rural areas. Because of the historical background
and the constitutional mandate, the Government of India, while framing the industrial
policy, accorded special status and importance to theSmall and medium enterprises.

Present Policy Framework and Focus Areas:

Policy Micro, Small and Medium Enterprises Development (MSMED) Act, 2006
intended to promote the development of these enterprises and also enhance their
competitiveness. It provides the first- ever legal framework for recognition of the concept
of enterprise which comprises both manufacturing and service entities. It defines
medium enterprises for the first time and sees to integrate the three fires of these, namely,
micro, small and medium. The act also provides for a statutory consultative mechanism at
the national level with balanced representation of all sections of stakeholders, particularly
the three classes of enterprises, and with a wide range of advisory functions. It offers the
establishment of specific funds for the promotion, development and enhancing
competitiveness of these enterprises, notification of schemes/ programmers for this

purpose. It also makes provision for progressive credit policies and practices. As said by
Prof A.K.Sengupta that government prefers procurements of products and services of the
micro and small enterprises, more effective mechanisms for mitigating the problems of
delayed payments to micro and small enterprises and assurance of a scheme for easing
the closure of business by these enterprises are some of the other features of the act.

The Ministry of MSME (Micro, Small and Medium Enterprises) has also taken a
view, in the light of the liberalized provisions of the MSMED Act 2006, to do away with
the restrictive 24% ceiling prescribed for equity holding by industrial undertakings,
whether domestic or foreign, in the erstwhile Small Scale Industries (now MSEs). This
coupled with an expected legislation on Limited Liability partnerships (introduced in the
Parliament by the Ministry of Corporate Affairs, 2006) should pave the way for greater
corporatization of the Small and Medium Enterprises- thereby enhancing their access to
equity and other funds from the market of these products in keeping with the global
standards. The Ministry of Micro, Small and Medium Enterprises has drawn up a road
map and has been holding detailed consultations with stakeholders to generate condenses
on further trimming this list (Prof. A.K Sengupta, Project Report, Planning Commission,
GOI).

Impact of Small Business on National Economy

Small business has played a very crucial role in transforming the Indian economy
from a backward agrarian economy to its present stature. Its benefits range from creating
job opportunities for millions of people, including many with low levels of formal
education. It has nurtured the inherent entrepreneurial spirit in far flung corners of the
nation resulting in the growth and development of all regions. It has been instrumental in

raising the standard of living of the multitudes. The small scale sector has contributed
specifically in the following areas:
The SSI sector in India is the second largest manpower employer in the country next
only to the agriculture sector. India is characterized by abundant labour supply and is
plagued by unemployment and underemployment. Under these circumstances the smallscale sector is a boon. For every Rs.0.1million of investment, the small-scale sector
provides jobs to 26 people as compared to 4 jobs created in the large-scale sector (C.B
Gupta, S.S Khanka, 2003). It helps in industrialization of rural and backward areas. Many
small units produce sub-parts, assemblies, components and accessories for the large scale
sector especially in the electronic and automotive sectors. The most significant
contribution of the SSI has been in the field of exports. There has been a significant
increase in the exports from this sector of both traditional and non-traditional goods
including jewellery, garments, leather, hand tools, engineering goods, soft ware etc.
Development of entrepreneurship is one of the major objectives of SSIs. Small business
taps the latent potential available locally. This way they facilitate the spirit of enterprise,
which results in overall growth, and development of all the regions /sectors of the nation
(Charantimath Poornima, 2006).

PROBLEMS OF SMALL BUSINESS

While the small entrepreneurs can set up a unit even with less capital, enjoy quick
returns and have the flexibility to handle the vagaries of the market, they have to face
many problems. Paucity of finance is a major problem for SSIs. The small entrepreneurs
possess a weak financial structure and find it extremely difficult to obtain credit because

of lack of collateral security. This acts as a big handicap, especially in the initial stages, in
most of their operations like their ability to hire the best workers or to purchase the latest
machinery and equipment or to acquire sophisticated technology. Poor availability of
power and other infrastructure is another barrier for development. Though infrastructural
bottlenecks are problems for big businesses too, yet they can overcome these problems to
some extent because of their financial strength e.g. generating their own power, or even
influencing the government in framing its policies sometimes. The small entrepreneur on
the other hand has to battle with them. Obsolete Technology for SSIs is the problem
which does not allow firms to be competitive. Most small businesses use old
technologies because they cannot afford better. The problems of SMEs are classified as
under:
1. Market Structure Problems
2. Logistic Problems
3. Managerial Problems
4. Economic Problems
5. Communication Problems
6. Socio-psychological Problems.
As a result the quality of their goods is inferior and the cost of production is higher than
in case of other big ventures. This has acted as a serious handicap especially after
opening up of the economy when they have had to compete with imported goods. The
small entrepreneur cannot supply standardized goods of high quality and as a result
cannot compete with products of large companies or MNCs. They usually do not have a
brand name or loyalty, as there are hardly any funds for advertising or sales promotion.
All these increase their marketing woes. Poor managerial and organizational skills do not
allow SSIs to be efficient and effective. Usually the entrepreneur has to perform a
multitude of diverse functions invariably without having any exposure to professional
education or formal training. The large sector on the other hand can hire the best qualified
and trained people.High incidence of sickness is prevalent in SSI as 7 out of 10 small

businesses usually fall sick and die within 3 to 5 years. Main causes for this are a wrong
choice of product, poor managerial skills, lack of experience, poor quality of products
because of the use of old technologies, etc (Sethi, Dr. Jyotsna 2005).Apart from the
above-mentioned problems the small entrepreneur has weak bargaining power to deal
with suppliers and financial institutions, has to face bureaucratic red tapism and is unable
to invest in Research and Development. After the opening up of the economy the small
sector has been finding it extremely difficult to compete with the high quality goods
available in the market.Industrial sickness is the key event of modern industrial age; and
incidence of sickness has been growing in such a large proportion that a large number of
new units covering all types of units in small, large and medium sectors are added in this
category. The rapid growth and magnitude of industrial sickness is puzzling issue not
only for present but also for all time to come, especially for India coming into 21st
Century. The society is also affected by the phenomenon, of sickness as unemployment in
the wake of retrenchment of workers, spreads widely leading to them out of job. It also
affects availability of goods and services and price soar up. The share holders loss their
hard earned savings creditors lose their cash and future prospect of business, Besides
entrepreneurs, managers face numerous problems, difficulties in wake of closing down
their units or at low productivity that leads financial loss, Sengupta, Prof. A.K, Project
Report, Planning Commission Government Of India.Therefore the strategy for attacking
sickness may be classified in two category; first is preventive and second is curative for
the eradication of sickness. These measures can be considered at several stages and levels
of organisation and stakeholder such as government agencies, institutional finance,
entrepreneurs and workers.The constraints for the SSI in India for export competitive
include product reservations, regulatory hassles, both at the entry and exit stages,
insufficient finance at affordable terms, inflexible labor markets and infrastructure related
problems - like high power tariff, and insufficient export infrastructure. Some important
characteristic are identified as the greatest obstacles to the internationalization of SMEs
by UNICEF.First one is lack of entrepreneurial skills which does not allow optimum
utilization of opportunity and resources. Lack of managerial and marketing skills does

not allow optimum coordination, production, pricing and revenue generation for the firm.
Lack of accessibility to investment and financial resources become obstacle for the
expansion of firm and also generation of further revenue, employment generation and
being helpful min in socio economic enhancement of the people. Lack of government
incentives for internationalization of SMEs has also discouraged SSIs from being
competitive and become a large firm then just being SSIs. Lack of accessibility to
information and knowledge does not allow firm to be updated and forward moving for
the attainment of firms objective. Competition of indigenous SMEs in foreign markets is
big threat cut throat competition for market share could of the main thereat for the firm.
Due to low marginal revenue and slow it becomes quite difficult in accessing the
financial resources, lack of capital. Inadequate behaviors of multinational companies
against domestic SMEs due to substandard product and services, high risk and low
revenue generation. Lack of government supply-supporting programs are not effective
enough. Product and service range is very thin and its usage differences are limited. Due
to substandard product and services there is huge risks in selling and marketing in abroad
market. Language barriers and cultural differences, also plays major in discouraging the
firms. Inadequate intellectual property protection does not allow technology to be
transferred and it does not allow up gradation of the technology. Encroachment of SSIs
by Medium and Creamy layer industries, and it did not allowed growth of the SSIs units.
Infrastructural problems like high power tariff, insufficient export infrastructure not
affordable for small units due high cost. Red tapism and regulatory hassles both at entry
and exist stages create lots of problems for the firms to be operational or for the
expansion. Insufficient finance at affordable terms is not available even thou government
scheme are there, due to low percentage of revenue generation and high risk (Bharathi Dr.
G. Vijaya, Subbalakshumma Dr. P. and Reddy P. Harinatha 2011). Demand for
international quality standards in the WTO regime is increasing by each passing day and
most of the firms are using obsolete technology and system. Due to recession and
economy slowdown cost reduction by customers is going on that is also creating
problems by low demand. There is need of fund for modernization and technology up

gradation, stringent statutory laws of government, exploitation by major industries,

increase of MNCs with modern technology & machines (Ministry of Small Scale
Industries and Agro & Rural Industries ,2007).

DEFINITION OF SSIs
The definition for small-scale industrial undertakings has changed over time.
Initially they were classified into two categories- those using power with less than 50
employees and those not using power with the employee strength being more than 50 but
less than 100. However, the capital resources invested on plant and machinery buildings
have been the primary criteria to differentiate the small-scale industries from the large
and medium scale industries. An industrial unit can be categorized as a small- scale unit if
it fulfils the capital investment limit fixed by the Government of India for the small-scale
sector.
As per the latest definition which is effective since December 21, 1999, for any
industrial unit to be regarded as Small Scale Industrial unit the following condition is to
be satisfied: Investment in fixed assets like plants and equipments either held on ownership
terms on lease or on hire purchase should not be more than Rs 10 million.

However, the unit in no way can be owned or controlled or ancillary of any other
industrial unit.
Year

Investment Limits

1960

Upto Rs 5 Lacs In Plant & Machinery

1966

Upto Rs 7.5 Lacs In Plant & Machinery

1975

Upto Rs 10 Lacs In Plant & Machinery

1980

Upto Rs 20 Lacs In Plant & Machinery

1985

Upto Rs 35 Lacs In Plant & Machinery

1991

Upto Rs 60 Lacs In Plant & Machinery

1997

Upto Rs 100 Lacs In Plant & Machinery

1999

Upto Rs 100 Lacs In Plant & Machinery

CLASSIFICATION OF SSIs:
A common classification is between traditional small industries and modern small
industries. Traditional small industries include khadi and handloom, village industries,
handicrafts, sericulture, coir, etc. Modern SSIs produce wide range of goods from
comparatively simple items t sophisticated products such as television sets, electronics,
control system, various engineering products, particularly as ancillaries to the large
industries..
The traditional small industries are highly labour-intensive while the modern small-scale
units make the use of highly sophisticated machinery and equipment. For instance, during
1979-80, traditional small-scale industries accounted for only 135 of the total output but
their share in total employment was 56%. As against this, the share of modern industries
in the total output of this sector was 74% in 1979-80 but their share in employment was
only 33%. Obviously, these industrial units would be having higher labour productivity.
One special characterstic of traditional small-scale industries is that they cannot provide
full time employment to workers, but instead can provide only subsidiary or part time
employment to agricultural laborers and artisans.
Nowadays Indian small-scale industries (SSIs) are mostly modern small-scale industries.
Modernization has widened the list of products offered by this industry. The items
manufactured in modern Small-scale service & Business enterprises in India now include
rubber products, plastic products, chemical products, glass and ceramics, mechanical
engineering items, hardware, electrical items, transport equipment, electronic components
and equipments, automobile parts, bicycle parts, instruments, sports goods, stationery
items and clocks and watches.

ROLE OF SMALL SCALE INDUSTRIES IN INDIAN ECONOMY

The small-scale industrial sector plays a pivotal role in the Indian economy in terms of
employment and growth has recorded a high rate of growth since Independence inspite of
stiff competition from large-scale industries. There are several important reasons why
these industries are contributing a lot to the progress of the Indian economy:
1.

PRODUCTION:

The small-scale industries sector plays a vital role in the growth of the country. It
contributes almost 40% of the gross industrial value added in the Indian economy. It has
been estimated that a million Rs. of investment in fixed assets in the small scale sector
produces 4.62 million worth of goods or services with an approximate value addition of
ten percentage points.
The small-scale sector has grown rapidly over the years. The growth rates during the
various plan periods have been very impressive. The number of small-scale units has
increased from an estimated 0.87 million units in the year 1980-81 to over 3 million in
the year 2000.
When the performance of this sector is viewed against the growth in the manufacturing
and the industry sector as a whole, it instills confidence in the resilience of the smallscale sector.

COMPARATIVE GROWTH RATES OF SSI SECTOR AND TOTAL

INDUSTRIAL SECTOR

Year

SSI Sector Growth Rate

Total

Industrial

Sector

Growth Rate
1994-95
10.44
9.10
1995-96
11.49
13.00
1996-97
1.29
6.10
1997-98
9.19
6.70
1998-99
7.84
4.10
1999-2000
7.09
6.70
2000-01
8.04
5.00
2001-02
6.06
2.70
2002-03
7.68
5.70
2003-04
8.06
6.09
2004-05
9.96
8.04
Source: SIDO Half Century by DCSSI, Govt. of India 2004 and Annual Report of the
Ministry of SSI 2005-06

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

of
Micro

the
&

Small

Development
Enterprises

Commissioner

Cluster

Development

Programme

(Statistics & Data Bank Division)

PERFORMANCE OF MICRO & SMALL ENTERPRISES
Number of Enterprises (Lakh
Year

Nos.)

Empl.
(Lakh

Registered Unregistered Total

Person)

Production
(Rs. Crs.)
at

Current

prices

Growth Share In
Rate (%) GDP (%)

2002-2003 15.91

93.58

109.49 263.49 314850

8.68

5.92

2003-2004 16.97

96.98

113.95 275.30 364547

9.64

5.79

2004-2005 17.53

101.06

118.59 287.55 429796

10.88

5.84

2005-2006 18.71

104.71

123.42 299.85 497842

12.32

5.83

2006-2007 20.98

107.46

128.44 312.52 587196

12.65

5.94

108.99

133.67 322.28 695126

13.00

NA

2007-2008
(Projected)

24.68

EXPORT

SSI Sector plays a major role in India's present export performance. SSI Sector
contributes 45%-50% of the Indian Exports. Direct exports from the SSI Sector account
for nearly 35% of total exports. Besides direct exports, it is estimated that small-scale
industrial units contribute around 15% to exports indirectly. This takes place through
merchant exporters, trading houses and export houses. They may also be in the form of
export orders from large units or the production of parts and components for use for
finished exportable goods.
It would surprise many to know that non-traditional products account for more than 95%
of the SSI exports.
The exports from SSI sector have been clocking excellent growth rates in this decade. It
has been mostly fuelled by the performance of garments, leather and gems and jewellery
units from this sector.
The product groups where the SSI sector dominates in exports, are sports goods,
readymade garments, woolen garments and knitwear, plastic products, processed food
and leather products.
The SSI sector is reorienting its export strategy towards the new trade regime being

OPPORTUNITY:

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

Less Capital Intensive

Extensive Promotion & Support by Government

Reservation for Exclusive Manufacture by small scale sector

Project Profiles

Funding - Finance & Subsidies

Machinery Procurement

Raw Material Procurement

Manpower Training

Technical & Managerial skills

Tooling & Testing support

Reservation for Exclusive Purchase by Government

Export Promotion

Growth in demand in the domestic market size due to overall economic

growth Increasing Export Potential for Indian products Growth in Requirements

for ancillary units due to the increase in number

of greenfield units coming up

in the large-scale sector. Small industry sector has performed exceedingly well
and enabled our country to achieve a wide measure of industrial growth and
diversification.
I.

Fashion Technology:
OPPORTUNITIES
Glamour & Limelight
Creative
High Value Addition
Coverage (Extensive)
Clothes

 Dresses
Garments
Textile
Footwear
Various Leather Products
Jewellery
Travel Goods
Fashion Accessories (purses, bags, carryon, watches etc.)
Personal Embellishment (Face, Hair, Hands, Feet, Cosmetics, Perfumes
etc.)

II.

Information Technology

OPPORTUNITIES

III.

Media & Entertainment

Contents,

Animation,

Games,
Design Technology

OPPORTUNITIES

Interiors - (Furniture & Furnishing homes, work places, community, hospitals,

schools, shopping places, recreation, sports)

Exteriors - (Architectural)

Industrial products

Textiles

Electrical appliances

White goods

Leather products

Engineering products

Machinery

Dies and tools

Watches

Jewellery

Hospital equipments

Medical instruments

Electronics and Communication Products and Equipments

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

INDIAN SME SECTOR AT A GLANCE

2005-06

SSI units :

12.3 million

Employment generated in SSIs :

29.5 million

Production : At current Prices

Exports :

SSI account:

Rs.4762.01 billion
Rs. 1215 billion

Industrial Production:

40%

Exports:

35%
(50% of Direct & Indirect)

GDP Share:

7%

Ownership pattern :
Proprietorships :

78%

Partnerships :

16%

Corporate & Others :

6%

Industrial Units :

96%

Service Enterprises :

3%

Ancillary Units :

1%

Produces Diverse range of products (more than 8000- consumer items, capital
goods and intermediates)

DISABILITIES
Small enterprises are presently seriously handicapped in comparison with larger units
by an inequitable allocation system for scarce raw materials and imported components,
lack of provision of credit and finance; low technical skill and managerial ability; and
marketing contracts. It is, therefore, essential to develop an overall approach to remove
these disabilities.
1.

OUTPUT vs EMPLOYMENT
One argument is that the emphasis on employment is irrelevant, as the basic thing

is the output that the economy needs for its growth. From this angle, it is contended
that, since the productivity of these industries is low compared to that that of large
industries, the small industries simply waste the capital which is very scarce, and which
, if diverted to large industries, can produce more. From this viewpoint, small industries
are more capital-intensive. It is also argued that the labour-productivity in the small
industries is also small compared to large industries.
2.

ADVERSE EFFECT ON CAPITAL FORMATION

It is also contended by some that small industries have unfavorable consequences

on saving and capital formation. They argue that the establishment of these industries
will, over a period of time, reduce the availability of capital for large-scale industries
with higher productivity of capital. First, it will happen because capital, used
inefficiently in the small industries, will not be available for large-scale industries.
Second, these industries being labour-intensive, use a major proportion of the sale
proceeds of output to pay workers whose marginal propensity to save is low. As a
result, a large part of their incomes will be used for consumption resulting in a lower
rate of saving and capital formation for the economy.

3.

INEFFICIENT PRODUCTION
Another charge against these industries is that the cost of production is higher than

in the large industries, because these industries suffer from several inefficiencies. No
doubt, the fact of large scale entails, what is described as economies of scale, lowering
the costs.
4.

LARGE SICKNESS
There are two main issues in respect of sick SSIs: (i) existence of a large number

of sick units which are non-viable; and (ii) rehabilitation of potentially viable units. As
far as former is concerned, there were 1, 67,980 sick SSI units as on March 31,2003.
These units are those that had obtained loans from banks. An amount of Rs. 5,706 crore
was blocked in these units. Of these, as many as 1,62,791 units with outstanding bank
credit of Rs. 4,569 crore were identified by banks as being non-viable. As far as the
latter issue is concerned, of the 1,67,980 sick SSI units as on March 31, 2003, only
3,626 units with outstanding bank credit of Rs. 625 crore were found to be potentially
viable by the banks.

5.

SEVERAL DIFFICULTIES:
It is thus obvious that these industries, despite their importance in the economy,

are not contributing to their full towards the development of the country along the
desirable lines. It is because these are beset with a number of problems concerning their
operations. These may be described as under:

TRENDS OF LENDING BY BANKING SECTOR TO SSI

Rs. in Crores
As at end March Total

advances

byTotal Advances to SSIProportion of SSI to

1999

Banking Sector
246203

Sector
42674

Total Advances
17.30

2000

292943

45788

15.63

2001

469153

56002

1.94

2002

536727

57199

10.66

2003

669534

60394

9.02

2004

764383

65855

8.62

2005*

972587

76114

7.83

Source : RBI Report on Trend and Progress of Banking in India

* Provisional

Difficulties of Marketing: These industries are also up against the crucial

problem of marketing their products. The problem arises from such
factors as small scale of production, lack of standardization, inadequate
market intelligence, competition from technically more efficient units,
etc. Apart from the inadequacy of marketing facilities, the cost of
promoting and selling their products too is high.

Shortage of raw materials: Then there is the problem of raw materials

which continues to plague these industries. Raw materials are available
neither in sufficient quantity, nor of requisite quality, nor at reasonable
price. Being small purchasers, the producers are not able to undertake
bulk buying as the large industries can do. The result is taking whatever
is available, of whatever quality and at high prices.

Low-level technology: The methods of production, which the small and

tiny enterprises use, are old and inefficient. The result is low productivity
and high costs. There is little of research and development in this field in
the country. There is almost no agency to provide venture capital to cover
risks associated with the introduction of new technologies.

Competition from large-scale industries: Another serious problem, which

these industries face, is that of competition from large-scale industries.
Large-scale industries, organized as they are on modern lines, using
latest production technology and having access to many facilities, can
easily outsell the small producers.

The following table depicts the various problems that the SSIs have to
face:
AIMA Impact Assessment Impediments To Growth
Problems Faced by SSIs as Barriers to Growth
Market Related

70%

Finance Related

25%

Government Policy Related

12.78%

Power Related/Infrastructure

14.0%

Technology

14.60%

MEASURES
To help the SSIs in meeting the challenges of globalization, the Government has taken
several initiatives and measures in recent years. Primarily among them is the enactment
of the Micro, Small and Medium Enterprises Development Act, 2006, which aims to
facilitate the promotion and development and enhance the competitiveness of MSMEs.
The Act came into force from 2nd October 2006. The main features of the act are :
SALIENT FEATURES OF MSMED ACT 2006

Manufacturing enterprises defined in terms of investment in Machinery and

Equipment (excluding land and building) classified into

a. Micro enterprises - investment upto Rs 25 lakhs,

b. Small enterprises - investment above Rs 25 lakhs and upto Rs 5 crore
c. Medium enterprises - Investment above Rs 5 crores and upto Rs 10 crores

Service enterprises defined in terms of their investment in equipment (excluding

land and building) classified into
a. Micro enterprises-investment upto Rs 10 lakhs
b. Small enterprises-investment above Rs 10 lakhs and upto Rs 2 crore
c. Medium enterprises-investment above Rs 2 crores and upto Rs 5 crores

MSMED Act 2006 and its Impact

Clause
1. Establishment

Salient Features
Impact
of Specific representation forStatutory Status, compact board and quarterly

National Small and Women

meetings will address problems of SMEs

Medium Enterprises Mandatory

Quarterlyimmediately to take corrective action

Board Maximum Meeting

No. of members 47
2. Concept
ofClear-cut
Enterprises

demarcation

manufacturing/production

ofFacilitates SMEs to enter into service enterprises

aggressively

and rendering services

3.

Definition

ofSpecific ceiling limit forExisting small units can graduate into Medium

Enterprises

manufacturing/production
and

service

definition

units and avail facilities under the act.

enterprise

for

Medium

enterprises
4. Filing of memorandaReplacement of registrationFacilitates SMEs to avail the benefits of the act
optional for Micro andwith memorandum
Small

enterprises

manufacturing

immediately after setting up of the unit.

in
and

service sector Medium

enterprises

in

Service

Sector but mandatory for

Medium enterprises in
manufacturing sector

Clause

Salient Features

5. Procurement
Policies

Notification

Impact
ofFacilitates

opportunity

for

supply

of

preference policies bygoods/services without any hassles.

central

or

State

Governments for goodsPublic Procurement Policy under Section 11 of

and services providedMSME Act, yet to be notified
by

Micro

&

enterprises
Period

6. Delayed

Small
ofSMEs

can

Payment Penalty

payment by therequirement

&

procuring

dispute

plan

their

cash

flow/financial

resolution

organizations
45 days

Penal

interest

200% of PLR
7. Dispute Resolution Establishment of MSEEasy financial planning and no waste of human
facilitation Council; 90resources for chasing/follow up.
days

framework

for

dispute resolution
8. Delayed Payment Deduction disallowed

This will encourage procurement agencies to

allowable

ensure timely payment to SMEs.

deduction

under IT Act 1961

9. Closure of Business Statutory notification ofFacilitates expedition of liquidation
scheme for closure

10.

Notification ofStatutory

guidelines

or

instructions

for

Mandatory on all facilitating development of

SMEs ensuring fast growth

promotion of SMEs
wrt.

To

appropriation

Funds
and

release
11. Facilitating Credit Statutory

Mandatory on all providing credit. Guidelines for

credit for 20% year on year growth

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

The government has also announced a comprehensive package for promotion of micro
and small enterprises, which comprises the proposals/schemes having direct impact on
the promotion and development of the micro and small enterprises , particularly in view
of the fast changing economic environment, wherein to be competitive is the key of
success.

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

Micro, Small and Medium Enterprises Development Organization

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

National Small Industries Corporation Ltd (NSIC)

NSIC, since its inception in 1955 has being working with its mission of
promoting, aiding and fostering the growth of micro and small enterprises. The
Corporation has been introducing several new schemes from time to time for
meeting the change aspirations of micro and small enterprises. The main objective
of all these schemes is to promote the interest of the micro and small enterprises
and to put them in competitive and advantageous position. The information
pertaining to the schemes planned to be continued/implemented in the XI plan
period by NSIC with Government support is given hereunder:
I. Performance & Credit Rating Scheme
NSIC, in consultation with Rating Agencies and Indian Banks Association,
has formulated Performance & Credit Rating Scheme for Small Industries.
The scheme is aimed to create awareness among small enterprises about the
strengths and weaknesses of their existing operations and to provide them an
opportunity to enhance their organizational strengths and credit worthiness.
The rating under the scheme serves as a trusted third party opinion on the
capabilities and credit worthiness of the small enterprises. An independent
rating by an
accredited rating agency has a good acceptance from the Banks/Financial
Institutions. Under this scheme, rating fee to be paid by the SSIs is
subsidized for the first year only and that is subject to maximum of 75% of
the fee or Rs. 40,000/-, whichever is less.
II. Marketing Assistance Scheme
This is an ongoing old scheme. Marketing, a strategic tool for business
development, is critical for the growth and survival of SSIs in todays

intensely competitive market. One of the major challenges before the SSIs is
to market their products/services
NSIC acts as a facilitator to promote marketing efforts and enhance the
competency of the small enterprises for capturing the new marketing
opportunities by way of organizing and participating in various domestic
and international exhibitions/trade-fairs, buyers-sellers meet intensive
campaigns, seminars and consortia formation at the subsidized rates.
In addition, the Ministry has three National Level Entrepreneurship
Development Institutes namely, Indian Institute for Entrepreneurship (IIE),
Guwahati, National Institute for Entrepreneurship and Small Business
Development (NIESBUD), Noida and National Institute for Micro, Small
and Medium Enterprises (NIMSME), Hyderabad.

Infrastructure Development
For setting up of industrial estates and to develop infrastructural facilities for
MSMEs, the Integrated Infrastructure Development Scheme (IID) was launched
in 1994. The scheme covers districts which are not covered under the Growth
Centres scheme. The scheme covers rural as well as urban areas with a provision
of 50% reservation for rural areas and 50% industrial plots are to be reserved for
tiny units. For the promotion and development of MSEs in the country, cluster is
one of the thrust areas of the Ministry in the 11th plan.

Technology Upgradation in MSE Sector

The opening up of economy has exposed MSE sector to global and domestic
competition. With a view to enhancing the competitiveness of this sector, the
Government has taken several steps such as:

i.
Assistance to industry association for setting up of testing centres and to State
Governments and to their autonomous bodies for modernization/expansion
of their Quality Marking Centres.
ii.

Regional Testing Centres and Field Testing Centres to provide testing

services and services for quality upgradation.

iii.

Implementation of Micro and Small Enterprise Cluster Development

Programme (MSECDP), under which 91 clusters have been taken up,
including national programme for the development of toy, stone, machine
tools and hand- tool industry in collaboration with UNIDO.

iv.

A scheme of promoting ISO 9000/14001 Certification under which SSI units

are given financial support by way of reimbursing 75% of their expenditure
to obtain certification subject to maximum of Rs.75,000 per unit

v.

Setting up of Biotechnology Cell in SIDO.

Further, a scheme on Credit Linked Capital Subsidy was launched in the year

2000 to facilitate technology upgradation of small enterprises.

Measures for Export Promotion

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

Products of MSE exporters are displayed in international exhibitions and

the government reimburses the expenditure incurred.

ii.

To acquaint MSE exporters with latest packaging standards, techniques,

etc., training programme on packaging for exporters are organized in
various parts of the country in association with the Indian Institute of
Packaging.

iii.

Under the MSE Marketing Development assistance (MDA) scheme,

assistance is provided to individuals for participation in overseas

fairs/exhibition, overseas tours, or tours of individuals as member of a

trade delegation going abroad.

Entrepreneurship and Skill Development

The Ministry conducts Entrepreneurship Development Progamme (EDPs) to

cultivate the skill in unemployed youths for setting up micro and small enterprises.
Further, under the management Development Programmes(MDPs), existing MSE
entrepreneurs are provided training on various areas to develop skills in management,
to improve their decision-making capabilities resulting in higher productivity and
profitability. To encourage more entrepreneurs from SC/ST, women and physically
challenged groups, the Ministry of MSME provides them a stipend of Rs.500 per capita
per month for the duration of the training.
From the above description of the government approach and measures, it is clear that
these are by and large on the right lines. If, however, the SSIs still suffer from various
handicaps, it is obviously, because these measures are not implemented effectively. It is
that the efforts are more in direction of protection of this sector, and there is very
little by way of raising its efficiency and competitive strength. Unless this becomes the
centre-theme of the policy, the SSIs will not become a dynamic sector.

REFERENCES
INDIAN ECONOMY by RUDDAR DATT AND K.P.M. SUNDHARAM
INDIAN ECONOMY by A.N. AGRAWAL

 INDIA 2008 by MINISTRY OF INFORMATION AND BROADCASTING

BUSINESS ENVIROMENT by Francis Cherunilam

Websites:
http://indiabudget.nic.in
http://dcmsme.gov.in/ssiindia
Q:
How do you get a loan when you're on SSI?
A:
People who receive Supplemental Security Income can obtain loans from financial
institutions, relatives, friends and other individuals without risking the loss of their
benefits because a loan is not income, reports the Social Security Administration.
However, if SSI recipients do not spend all the cash that they borrow within a month, the
SSA counts the balance as part of their resources that contribute to their resource limit.
SSI recipients can borrow cash or non-cash items such as mortgage, rent, utilities or food
without impacting their eligibility for benefits, explains the SSA. The borrower and
lender can confirm the loan in writing or orally as long as state law considers it valid. If
cash that an SSI recipient borrows counts as a resource, the resource value limit before
losing benefits is $2,000 for a single person or $3,000 for a couple, as of 2016.
Resources that do not count for SSI benefit purposes include shelter items such as homes
that recipients live in and the land under the homes, according to the SSA. The SSA also
allows SSI recipients a vehicle as long as they use it to transport themselves or their
household members. Other exempt resources include household items, personal effects,

educational funding, and life insurance policies or burial funds worth no more than
$1,500. SSI recipients can receive loans of any of these items without risking a loss of
their benefits.

Q: WHO QUALIFIES TO RECEIVE SSI BENEFITS FOR ADULTS?

To qualify for Supplemental Security Income, a person must be blind, disabled or at least
65 years old, and meet many additional requirements, according to the Social Security
Administration. Only poor U.S. citizens and U.S. nationals can qualify, with the
exception of specific categories of aliens.
To be considered blind, a person must have visual acuity worse than 20/200 while
wearing a correcting lens or a field of view worse than 20 degrees, explains the Social
Security Administration. To be considered disabled as an adult, a person must have a
condition that makes it impossible to work and can be expected to cause death or last
more than 12 months from the time it started. People cannot qualify for Supplemental
Security Income while living in prison or in an institution. In addition, they cannot be
absent from the country for more than a month.
To qualify for Supplemental Security Income as an alien, a person must fall under one of
several categories, notes the Social Security Administration. For example, people who are
lawfully admitted for permanent residence in the United States may qualify. However,
there are many additional conditions that aliens must meet. For example, an alien cannot
be subject to active warrant for removal or deportation.
Q:HOW DO YOU GET A COPY OF AN SSI AWARD LETTER?
A:Recipients of Supplemental Security Income, or SSI, may obtain a benefit
verification letter by ordering it online, over the telephone or in person at a Social
Security office. Some agencies refer to this letter as a budget letter, a benefits letter or an
award letter.
The benefit verification or award letter is an official document from the Social Security
Administration that a benefit recipient may need as proof of income when applying for a
loan or mortgage or when applying for housing assistance or some other form of state or
local aid.

Recipients who wish to order an SSI award letter online can log into their My Social
Security accounts and follow the prompts to request the letter. The client can customize
the letter online to include or omit information. Once the client submits the request, the
Social Security Administration mails the letter to the client's address on file.
Customers who do not wish to create an online Social Security account or who do not
have Internet access may call their local office or the main customer service number for
Social Security at 800-772-1213 to request the SSI benefit verification letter and have it
mailed. If a customer needs the letter immediately, he may visit the nearest Social
Security office in person and request the letter. Most offices are able to accommodate this
request or provide an acceptable alternative.