ACKNOWLEDGEMENT

I express my gratitude and deep regards to my teacher for the subject Mrs. MitaliTiwari for
giving me such a challenging topic and also for her exemplary guidance, monitoring and
constant encouragement throughout the course of this thesis.

I also take this opportunity to express a deep sense of gratitude to my seniors in the college for
their cordial support, valuable information and guidance, which helped me in completing this
task through various stages.

I am obliged to the staff members of the Madhu Limaye Library, for the timely and valuable
information provided by them in their respective fields. I am grateful for their cooperation during
the period of my assignment.

Lastly, I thank almighty, my family and friends for their constant encouragement without which
this assignment would not have been possible.

TABLE OF CONTENTS

TENTATIVE CHAPTERISATION………………………………………….

1
1-INTRODUCTION………………………………………………………pg 3

2-LITERATURE REVIEW……………………………………………….pg 4

3-KEY ROLE OF SSI IN INDIAN ECONOMIC STRUCTURE………..……pg 5

4-DEFINITIONANDHISTORICAL CONTEXT ……………..…………..pg 6-9

5-PRESSURES AND CONSTRAINTS OF SSI……………..………...….pg 10-11

6-STRATEGY DEVELPOMENT BY INDIAN SSI……………….……..pg 12

7-DEVELPOMENT OF COMPETENCIES…………………………….…pg 13

8-INVESTMENT PRIORITITIES……………………………………pg 14-15

9- PERFORMANCE AND COMPETITIVENESS…………………......…pg 16-18

10-CONCLUSION………………………………………………...…….…pg 19

11- REFRENCES……………………………………………………..……pg 20

INTRODUCTION

The Small-Scale Industries (SSI) gathered momentum along with industrialization and economic
growth in India. It started growing due to the vision of our late Prime Minister Jawaharlal Nehru

2
who sought to develop core industry and have a sustaining sector in the form of small-scale
enterprises. Being a labor-intensive sector, they offer a higher productivity of capital than
capital-intensive enterprises due to low investment per worker. The SSI today constitutes a very
important segment of the Indian economy as they help in dispersal of industries, rural
development, and the decentralization of economic power.

The central discussion of this project highlights the importance of small industries and their role
in the economy and the impact of economic reforms on growth pattern and productivity
performance of small-scale industries. However, this is not to say that there are no shortcomings
within the industry, or in public policy relating to it. Small industries are faced with numerous
problems major and minor, which make them either uncompetitive, or sick. An attempt is made
to address some solutions that can improve their productivity by focusing on a sustainable vision.

LITERATURE REVIEW

3
For the purpose of the study the required information relating to number of SSI units, labor
employed, production and exports at all India level were complied from various issues of
Economic Survey and of Annual Survey of Industries. The data on number of sick SSI units
were complied from Report on currency and Finance, RBI bulletin, various issues. The average
annual growth rates, growth patterns and the number of times increase in growth of SSIs, their
employment, production and exports are calculated for the reference period.

Key role of SSI in the Indian economic structure

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India has traditionally always had a very vibrant and competitive SSI. Even after the dawn of
industrialization, British producers of textiles found hand made Indian textiles such a threat that
they lobbied hard to have its import banned, succeeding in the late eighteenth century (Gupta &
Sharma, 1996). During pre-economic liberalization period a wide variety of incentives,
concessions and institutional facilities were extended for the development of SSIs. But these
socialistic promotional policy measures, in many cases resulted in protection of weak units rather
than the independent growth of units under competitive business environment (Nyati, 1988).
Such situation was continued up to the mid of 1991. Under the regime of economic
liberalization, the focus was shifted from “protection” to “competitive promotion”(Raja
&Rajashekar, 2002). The public policy in India had been attaching lot of importance to village
and SSI on the following grounds. SSI being labor-intensive, helped to increase the volume of
employment, particularly in rural areas, it is estimated that about 2 crore persons are engaged in
India in these industries. The handloom industry alone employs 50 lakh people. They account for
6% of GDP, 95 % of all industrial units, and 34% of total exports. Around 39 lakhs SSIs in India
has emerged versatile producing over 8000 products, from traditional handicrafts to high-end
technical instruments. In developed OECD economies, about 60 % of GDP is generated by small
enterprises, i.e., enterprises with a maximum of 50 employees. The reason being large number of
small enterprises guarantees a high degree of competition, and variety of economic activities that
require millions of enterprises to be reasonable competitive and efficient. The indirect jobs
created through forward and backward linkages are no less important. In real terms, the SSI
recorded a growth rate of 10.1% in 1994-95 as against 7.1% in 1993-94 and 5.6% in 1992-93. By
the year 2025, if not controlled, this sector will grow even more rapidly (Parthasarathy, 1996).

Generalizations are also difficult because though there are firms which are growing rapidly, there
also exist 1,38,000 sick units within the sector in India. The contribution of SSI in India to
national development was meager as compared to the contribution of SSI in other countries of
the world. India’s SSI shared 95 % of all establishments, 40 % of output, 45% of employment
and 35 % of exports. But Taiwan ranked first with a share of 97% of establishments, 81 % of
output, 7% of employment, 48 % of exports followed by Japan contributing highly with 99 % of
establishments, 52 % of output, 72 % of employment and 13 % of exports (SIDBI Report, 2000).

Definition and historical context

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The small companies are defined as those with less than US $180,000 in capital equipment (USAEP,
1996). In India the definition of SSI has undergone changes over the years in terms of investment limits
in the following manner.

Table-I Investment limit of SSIs

YEAR SSI REMARKS

1950 Gross Investment in Fixed Employment less than 50
Assets: not Exceeding Re. 0.5 Workers Per Day (with the Use
Million of Power) or Less than 100
Workers Per Day (Without the
Use of Power)
1958 Gross Investment in Fixed Employment less than 50
Assets: Less than Re. 0.5 Million Workers Per Day (with the Use
of Power) or Less than 100
Workers Per Day (Without the
Use of Power) except that the
Criteria based on the
employment ‘per day’ was
henceforth replaced by a ‘per
shift’ provision
1959 Gross Invesment in Fixed Assets: Employment less than 50
Value of Machinery (Original) Workers Per Day (with the Use
of Power) or Less than 100
Workers Per Day (Without the
Use of Power) except that the
Criteria based on the
employment ‘per day’ was
henceforth replaced by a ‘per
shift’ provision
1960 Gross Investment in Fixed The employment condition was
Assets: Value up to Re. 0.5 dropped from the definition
Million
1966 Up to Rs. 0.75 million No condition
1975 Up to Rs 1 million No condition

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 1977 Up to Rs 1 million No condition
1980 Up to Rs 2 million No condition
1985 Up to Rs 3.5 million No condition
1991 Up to Rs 6 million No condition
1997 Up to Rs 30 million No condition
1999 Up to Rs 10 million No condition

Source: SIDBI Report on Small Scale Industries Sector 2000

Table: II Growth pattern in the number of establishments of SSIs (in lakhs)

Year No. of GROWTH

RATE
SSIs
1980-81 8.74 -
1981-82 9.62 10.07
1982-83 10.59 10.08
1983-84 11.55 9.07
1984-85 12.4 7.36
Small Industries Development Bank
1985-86 13.53 9.11
of India. Growth 1986-87 14.62 8.06 patterns of SSI
during the 1987-88 15.83 8.28 reference period
1988-89 17.12 8.15
Small firms are 1989-90 18.23 6.48 often said to grow
faster than large 1990-91 19.48 6.86 firms. However,
1991-92 20.82 6.88
empirically it is 1992-93 22.46 7.88 observed that
though they have 1993-94 23.88 6.32 high growth rates,
1994-95 25.71 7.66
they as a group have a high death
1995-96 26.58 3.38
rate, that is, many 1996-97 28.03 5.46 firms do not last
very long. This 1997-98 29.44 5.03 means that the total
1998-99 30.8 4.62
effect on the 1999-00 32.12 4.29 economy may not
be much greater 2000-01 33.7 4.92 than that of
2001-02 34.6 2.67
2002-03 35.1 1.45
2003-04 38.6 9.97

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relatively larger firms. This section attempts to study the direction of growth in various aspects
of SSI.

Table III: Industry wise growth pattern of SSI

Description of
Working Units Working Units Working Units
Industry
Employ/Unit
1stCensu 2nd Census 3rd Census
s 1987- 2001- 2011-2012 CGR
88 2002
Food & Food Products 6577 96123 104489 14.82
Beverages, Tobacco &
469 3669 5851 13.44
Tobacco Products
Cotton Textiles - 1451 10876
Wool Silk & Synth.
- 1158 -
Fibre Textiles
Jute, Hemp & Mesta Textiles - 219 -

Hosiery & Garments 6178 39778 107565 15.35

Wood Products 12188 54975 77110 9.66
Paper Products & Printing 8332 33320 26104 5.87
Leather & Leather Products 5040 24028 17027 6.27
Rubber & Plastic Products 7688 25819 18228 4.41

Chemical & Chemical 11837 25941 11177 -0.28

Products
Non-Metallic Mineral
7794 315891 25128 6.02
Products (Glass & Ceramic)
Basic Metal Products 5073 14937 7876 2.22
Metal Products 34011 65868 80636 4.41
Machinery & Parts
12701 40802 8776 -1.83
Except Electrical
Electrical 4409 12283 5626 1.22
Machinery/Apparatus
Transport Equipment & Part 6049 11325 2100 -5.15
Misc..Manufacturing 3489 8852 4726 1.52
Industries
Repair Services 7197 80412 75385 12.46

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 Services not e.c. - 613 1200
Other Services & Products - 9206 160222
Total 139577 582368 750102 8.77

Source: Small Scale Industries in India, Ministry of SSI, Govt. of India.

A highest growth rate was observed in Hosiery & Garments following the Food &
Food Products Beverages and the Tobacco Products. The growth in these sectors was
mainly due to export oriented production rather than domestic sales
.

Pressures and Constraints of SSIs

            In general, smaller firms experience greater market and customer uncertainty. Those who
own and manage the smaller business exhibit a vastly greater range of aspirations than owners/
managers of large firms. The smaller firms rationally respond by favouring short over longer-
term gains and flexible over specific investments even where there is some cost penalty (Chen
&Hambric, 1995). The main barriers to be competitive for SSIs are inadequate technologies as
well as inadequate in house human expertise and poor financial resources (Armstrong and Coyle,
1999). Resource scarcity can impact on the ability of smaller firms to enter export markets and
can also limit a smaller firm’s ability to reach more advanced stages of internationalisation
(Moen, 1999).

            The results of this study for various pressures being faced by Indian SSIs on a Likert
scale of five are presented in Table . It is being observed that the highest pressure is to reduce

9
cost (3.62), which is followed by pressure to improve quality (3.45) and to reduce delivery time
(3.28). Pun et al. (2004) have observed that for electronics industry in Hong Kong,
product/service quality and customer services have emerged as the critical success factors. Singh
et al. (2004) have also observed same findings in their study for Indian auto component sector.
Various constraints felt by Indian SSIs to become competitive in the market are given in Table 3.
Most of the constraints are significantly below moderate level. Lack of growth conducive
environment (2.66), inadequate government support (2.61) and poor infrastructure for training
(2.53) are observed as most severe constraints. In creating growth conducive environment,
government policies play important role  Government policies have played a facilitative role in
countries like Japan, South Korea, Taiwan etc (Wang et al., 1995) but in India, poor
infrastructure, red tapism and various government policies are still considered as main barriers
for the growth of the industry.

SN Pressures from customer/market Mean SD t value

i.   To reduce cost 3.62 1.08 4.90*

ii.   To improve quality 3.45 1.01 3.81*

iii.   To increase range of products 3.25 .94 2.24*

iv.   To reduce delivery time 3.28 1.08 2.26*

v.   Frequent change in supply schedules 2.73 1.13 -2.06#

vi.   To deliver in small lots 2.54 1.10 -3.59#

Constraints of SSIs

SN Constraints to become competitive Mean SD t value

     i Inadequate governmental 2.61 1.26 -2.64#

support/incentives

       ii.     Shortage of technical man power 2.50 1.13 -3.82#

      iii.     Raising funds from market 2.47 1.17 -3.81#

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      iv.     Poor financial position 2.49 1.07 -4.05#

       v.     Lack of quality consciousness 2.41 1.10 -4.56#

     vi.     Underutilization of capacity 2.38 1.05 -5.02#

    vii.     Lack of growth conducive 2.66 1.15 -2.48#

environment

  viii.     Poor infrastructure for training 2.53 1.25 -3.19#

     ix.     Poor brand image 2.37 1.12 -4.75#

       x.     Unreliable Vendors 2.36 1.18 -4.60#

     xi.     Lack of support from customers 2.48 1.11 -4.02#

# Significantly lower than moderate value at p<0.05

Strategy Development by Indian SSIs

According to ErenErrin (2004), in order to compete with their competitors, firms have to develop
competitive strategies. Competitive strategy is a long-term phenomenon. A firm can not have a
strategy of a month. Organizations need to develop their competencies proactively. As SSIs have
many resource constraints therefore SSIs should make investments carefully for developing
effective strategies. Strategies adopted by SSIs for competency development and making
investment in various areas will be discussed in the following sections.

Development of Competencies

            Chaston and Mangles (1997) have found that the areas of competence concerned with
new product development, human resource management practices, organizational productivity
and the management of quality etc. According to Nonaka and Takeuchi (1995) knowledge and
skills have become company’s means to gain a competitive advantage because it will help in
developing various competencies by organizations for sustaining their market position.

            Results of competencies development by SSIs are given in Table . In past three years,
SSIs had given maximum focus for developing competencies in the area of using information to

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optimize decisions (3.54), use of customer to define quality standards (3.48) and optimization of
work environment (3.47). In next three years, identification of market changes (3.99), use of
information to optimize decisions (3.94) and use of customer to define quality standards (3.83)
will remain as major areas of competency development

Development of Competencies by SSI

SN Competencies In past three years In next three years

Mean SD t Mean SD t
value value

i.                               To identify niches 2.94 1.09 -0.44 3.48 1.04 3.78*

ii.                                To develop new 3.41 0.99 3.52* 3.74 0.99 6.14*
products

iii.                               To optimize work 3.47 0.86 4.42* 3.74 0.85 6.89*

environment

iv.                               To use customer to 3.48 0.84 4.79* 3.83 0.91 7.57*

define quality
standards

v.                               To introduce new 3.31 1.07 2.46* 3.81 0.93 7.14*

technology

vi.                               To use information to 3.54 1.02 4.47* 3.94 0.94 8.22*

optimize decisions

vii.                               To identify market 3.43 0.91 3.94* 3.99 0.92 8.81*

changes

* Significantly higher than moderate value at p<0.05

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Investment Prioritities

            According to Chanaron and Jolly (1999), global competitive strategies are increasingly
becoming technology driven in the context of extremely dynamic and turbulent environments.
Technology operates on competitiveness in two ways. First by altering the price structure
through the development of more efficient and flexible processes and second by enabling the
creation of better products of greater quality, better design, after sales service and short delivery
periods etc (Vinas et al., 2001).

            It is also commonly reported that quality and consistency of the manufacturing
performance of SSIs can be improved as a consequence of the use of the most appropriate
information technology (IT) tools without any major changes in business practices,
manufacturing operations or the production facilities (Chan and Tang, 1995). Several
studies (Lal, 2004, Hodgkinson and Mcphee, 2002) have found that users of advanced e-
business technology perform better than non-user in the export market.

            In this study, Research and development, Automation of processes, Information

technology, Training of employees, Welfare of employees, Market research and Advertisement
were considered as potential areas of investment. Respondents were asked to prioritize these
areas. The results of this study regarding investment priorities are shown in Table 5. It is
observed that for SSIs, market research (3.07), welfare of employees (3.00), research and
development (2.85) are the major areas of priority for investment in past three years. SSIs are
giving maximum focus on market research due to highly dynamic nature of market after
globalization. In past, employees turn over and poor R&D had been the major problems for SSIs
but observations of this study shows that now SSIs are giving due focus on these areas also. This
is a new change observed in context of SSIs.

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            Above findings show that level of investments in some areas is not at moderate level.
Specifically in areas of information technology, training of employees and advertisement, it is
significantly less than moderate level. Correlation analysis Table shows that Research and
development, Information technology and Training of employees are significantly correlated
with competitiveness of organization. Study made by Oyelaran-Oyeyinka (2004) also observed
that internal training opportunities greatly contribute in improving the performance of
organization. Findings of this study also imply that SSIs should focus on developing their human
resource and IT applications to improve their performance.

Table - Investments Priorities of SSIs

SN Investments During past three Years Relationship with

Competitiveness

Mean SD t value Correlation

Coefficient

i.   Research and 2.85 1.19 -1.07 0.311*

development

ii.   Automation of 2.78 1.11 -1.69 -0.180

processes

iii.   Information 2.29 1.12 -5.37 0.287*

technology

iv.   Training of 2.49 1.00 -4.32 0.365**

employees

v.   Welfare of 3.00 0.90 0.00 0.235

employees

vi.   Market research 3.07 1.171 0.50 0.098

vii.   Advertisement  2.52 1.026 -3.93 0.083

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* Correlation is significant at p<0.05, ** Correlation is significant at p<0.01

Performance and Competitiveness

            Neely et al. (1994) defined performance measurement as the process of quantifying the
efficiency and effectiveness of manufacturing system. Performance of an enterprise is often
measured as a ratio of output to input. The outputs constitute the products of the enterprise and
the inputs are the resources used by the enterprise (Choudhary, 2001). For measuring
performance both subjective and objective measures are considered. Performance of an
organization relative to its industry standards is termed as its competitiveness (Ghemawat, 1990).

            Subjective performance of responding Indian SSIs in comparison to national standards is

given in Table . Respondents were asked to mark their performance in comparison to national
standards on five point Likert scale (1-Very inferior, 2-Inferior 3-Equal, 4-High, 5-Very high) for
various measures. Performance of Indian SSIs in comparison to national standards is
significantly higher than moderate level for measures such as manufacturing cost, level of
inventory, delivery speed, percentage rejection, employee turnover rate, customer satisfaction
and supplier satisfaction. In comparison to international competitors, performance of SSIs is
significantly lower than moderate value in most of the measures. Objective performance is
measured in terms of average percentage change in past three years on certain financial
parameters such as market share, return on investment, profit after tax, sales turn over and
export. Objective performance of SSIs is given in Table . It is observed that average growth rate
on all business parameters is higher than moderate value. SSIs have observed highest growth rate
in terms of sales turn over.

            Competitiveness of SSIs is measured at three levels i.e. local, national and international.
Results are given in Table 8. SSIs have highest competitiveness at local level and lowest
competitiveness at International level. This is because most of the SSIs are working in local
market and not thinking to enter in international market due to their constraints of finance,
technology and infrastructure etc. Although trend is changing as SSIs have started working in
partnerships with larger organizations and thinking to enter in global market.

15
           

Table - Comparative Performance of SSIs

SN Measures In comparison to the In comparison to the

national competitors international competitors

Mean SD t value Mean SD t value

i.      Manufacturing cost 3.37 0.73 4.15 2.61 0.82 -3.89

ii.    Level of inventory 3.24 0.74 2.64 2.33 0.77 -7.02

iii.   Delivery speed 3.40 0.69 4.72 2.49 1.15 -3.27

iv.  Flexibility in 2.90 0.99 -0.85 2.29 1.17 -4.51

production

v.    Percentage rejection 3.66 0.82 6.64 2.52 0.77 -5.12

vi.  Labor productivity 3.00 0.87 0.00 2.24 0.91 -6.13

vii.                i Capacity utilization 2.91 0.95 -0.77 2.19 0.97 -6.16

viii.              v Employee turnover 3.37 0.81 3.75 2.42 0.77 -6.11

rate

ix.  Throughput (Rs/hr) 2.59 0.92 -3.48 2.08 1.05 -6.21

x.    Employee satisfaction 3.06 0.91 0.53 2.52 1.11 -3.18

xi.  Customer satisfaction 3.53 0.97 4.50 2.71 1.08 -1.99

xii.                x Suppliers satisfaction 3.40 0.84 3.81 2.70 1.18 -1.79

Table -Growth Oriented Performance

SN Parameters Mean SD t value Sig

         i.            Market share 3.41 0.61 4.854 0.000

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        ii.            Sales turn over 3.54 0.61 6.519 0.000

      iii.            Profit after tax 3.39 0.63 4.558 0.000

     iv.            Return on 3.35 0.56 4.489 0.000

investment

       v.            Export  3.15 0.36 2.38 0.023

Table- Competitiveness at different levels

SN  Level Mean SD T

         i.             Local 3.55 0.97 4.782*

       ii.             National 3.01 1.01 0.12

      iii.             International 2.05 1.16 -6.57#

CONCLUSION

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 labor
absorption nature, SSI sector has made significant contributions to employment generation and
also to rural industrialization. Under the changing economic scenario, SSI has both the
challenges and opportunities before them. The business can compete on cost, quality and

17
products at domestic and international level only if ideal investment in technology production
process, R&D and marketing are made. Infrastructure bottlenecks are not completely solved. The
promotional activities for SSI in India need to concentrate on improved credit flows, human
resource development, appropriate technology and funds for modernization. So, this is the
appropriate time to set up projects in the small-scale sector. It may be said that the stance is
optimistic, indeed promising, given some protection. This expectation is based on an essential
feature of the Indian industry and the demand structures. The variety in the 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.

REFERENCES

 SIDBI report on small-scale industries sector, 1999. (1999). Lucknow, India: Small
Industries Development Bank ofIndia
   Ajitabh and Momaya, K (2004), “Competitiveness of Firms: Review of theory,
Frameworks and Models”, Singapore Management Review, Vol. 26, No. 1
 Indian Economy by AN AGARWAL

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 BUSINESS ENVIROMENT by Francis Cherunilam
 Competitiveness of Small-Scale Industries of India Vidya Suresh, P shashidhar
 Websites:
 http://indiabudget.nic.in
http://dcmsme.gov.in/ssiindia
http://www.indianjournals.com/glogift2k6/glogift2k6-1-1/theme_2

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