ED-UNIT-V-Small Scale Industries Mark-Up

UNIT-V
SMALL SCALE INDUSTRIES

Concept of Small Scale Industries
❑ India is predominantly an agricultural country. Apart from agriculture,
small scale & large scale industries have been also developed. Small scale
industries are the backbone of our industrial structure as they provide a
variety of non-traditional, low technology products. They are also engaged
in the processing, preserving, manufacturing & servicing activities and play
a vital role in balanced and sustainable economic growth. Thus, a proper
development of small scale industries is essential for the healthy growth of
economy.
❑ The primary object of developing small scale industries in rural areas is to
generate better employment opportunities, raise income levels & standards
of living of people. Small scale industries are essential for providing
subsidiary or alternate occupations and utilization of local labour & raw
materials. They facilitate an effective mobilization of resources of capital
and skill and also stimulate the growth of industrial entrepreneurship. Thus,
the development of small scale industries is an integral part of the overall
economic, social and industrial development of a country.
DEFINITIONS OF SMALL SCALE
INDUSTRIES
A. The Small Scale Industries Board(1955) –
“A unit employing less than 50 persons if using power and less than
100 persons without the use of power and with capital assets not exceeding
Rs. five lakhs.”
B. Government of India (1980)-
“Undertakings having investment in fixed assets in plants and
machinery not exceeding Rs. 15 lakhs and engaged in the manufacturing of
parts of components, sub-assemblies or intermediaries and proposes to
supply at least 50% of its production to one or more parent unit and such
ancillary industry shall not be a subsidiary of or owned or controlled by any
other undertaking.”
C. Government of India (2000)-
“Small scale undertakings are those which are engaged in
manufacturing, processing or preservation of goods and in which
investment in plant and machinery (original cost) does not exceed Rs. 1
crore.”
DEFINITIONS OF SMALL SCALE
INDUSTRIES
a) In case of enterprises engaged in the manufacturing or production of goods, as –
i. a micro enterprises, where the investment in plant and machinery does not
exceed twenty-five lakh rupees;
ii. a small enterprises, where the investment in plant and machinery is more than
twenty five lakh rupees but does not exceed five crore rupees; or
iii. a medium enterprise, where the investment in plant and machinery is more
than five crore rupees but does not exceed ten crore rupees;
b) In the case of the enterprises engaged in providing or rendering of services, as –
i. a micro enterprise, where the investment in equipment does not exceed ten
lakh rupees;
ii. a small enterprises, where the investment in equipment is more than ten lakh
rupees but does not exceed two crore rupees; or
iii. a medium enterprise, where the investment in equipment is more than two
crore rupees but does not exceed five crore rupees.
Meaning of Small Scale Industries
❑ Small Scale Industries are those industries where fixed assets i.e. plant and machinery which is
owned or hired or taken on lease basis, does not exceed more than one crore. MSMED has classified
Small Scale Industries into Manufacturing sector and Services sector, and further into three
categories of business i.e. Micro business, Small business and Medium business. Subsequently over
a period of time, a new definition was introduced by MSMED Act, 2006 (Micro Small and Medium
Enterprises Development) is as follows
(A) Manufacturing Enterprises:
1. A micro enterprise, where the investment in plant and machinery is less than Rs 25 lakh.
2. A small enterprise, where the investment is more than Rs 25 lakh but less than Rs 5 crore.
3. A medium enterprise, where the investment in plant and machinery is more than Rs 5 crore but less
than Rs 10 crore.
(B) Service Enterprises:

1. A micro enterprise, where the investment in equipment is less than Rs 10 lakh.
2. A small enterprise, where the investment in equipment is more than Rs 10 lakh but less than Rs 2
crores.
3. A mediuiri enterprise where the investment in equipment is more than Rs 2 crore but less than Rs 5
crores.
4. An industrial unit can be categorized as small business if it fulfills the above capital investment
criteria.
Classification of Small Scale Industries
Based on the amount of capital invested, a small business unit
can be divided into various types. Let us run through them
as follows:-
(1) Small Scale Industry classified before the year 2006:-
This is in reference to the above MSMED Act. Prior to its
execution, the small scale industries were those in which
✓ Investment in fixed assets of machinery and plant did not
exceed one crore.
✓ They were engaged towards modernization, export
improvement and expenditure ceiling in machinery and
plant exceeded five crores.
(2) Export Oriented Units is one of its exports that surpass
50 percent of its productions or manufacturing.
3) Ancillary Small Industrial Unit
✓ They are those industries that can hold the status of a small ancillary
industry on the condition that the supplies are minimum 50 percent of its
product to another business that is the parent unit.
✓ They hold the status also if they can produce components, machine parts,
standard products or tools for the parent unit.
(4) Tiny Industrial Units are those where the industry or company
expenditure on machinery and plant does not surpass Rs. 25 lakhs.
(5) Small Scale Service and Business
✓ Here the fixed asset financing on machinery and plant except land and
building should not exceed Rs. 10 lakhs
(6) Small Scale Industries Owned by Women
✓ These units can opt for the appropriate grants from the government, with
low-interest rates on loans, and other benefits provided the enterprise is
operated by women entrepreneurs and them alone or in merger hold share
capital which is minimum of 51 percent.
(7) Village Industries as the name suggests are those industries which are
placed in rural areas and produce any product or perform any service with
or without the use of power. Here the fixed investments on capital are not
to exceed Rs.50, 000.
(8) Micro Business Enterprises is a tiny and small business sector where the
investment in machinery and plant should not surpass Rs.1 lakh.
(9) Cottage Industries as again the name suggests they are traditional or rural
industries. The capital investment pattern does not include them.
Features of cottage industry are
✓ They use private resources.
✓ They employ labour within the family and locally available talent.
✓ Here simple instruments are made in use.
✓ Capital investment is small.
✓ Products are simple.
✓ Technology utilized is indigenous.
(10) Small-scale Service and Business (Industry
related) Enterprises (SSSBE) are those where
the investment limit in fixed assets of plant and
machinery has to be limited within Rs. 10 lakhs.
Some examples are that of a beauty parlour, a
marketing and advertising consultancy, an
industrial testing laboratory, garages and auto
repair, dry cleaning, a photocopying centre or a
Xeroxing centre.
(11) Trading Units generally include small retailers
found in the market places.
Characteristics of Small Scale
Industries
What are the Characteristics of Small Scale Industries?
In accordance with the small scale business meaning, such industries are characterized by the following features
–
I Ownership
✓ Generally, such businesses are sole proprietorships or, in some cases, partnerships. It means that the
ownership of the business rests on a single individual, in most cases.
II Labor Requirements
✓ Since capital investment in such industries is comparatively lower than that of the large-scale ones these
mostly rely on manpower, to carry out production activities.
III Management
✓ One of the most significant characteristics of SSI is that both the control and management of such
businesses lie with owners. The owner, thus, participates actively in the day-to-day business conduction.
IV Flexible
✓ Since they operate on a smaller scale, these industries are more privy to sudden and unforeseen
developments on the business front. They are more adaptable to changes in the business environment.
V Optimal Usage of Resources
✓ Since they do not have excess resources at their disposal, small-scale industries make optimal usage of the
available resources without wastage.
VI Operation Restrictions
✓ Most small-scale businesses are limited in their area of operation. As a result, they only operate either
locally or regionally. These are a few of the characteristics of a small business that helps to effectively
gauge its operation, administration, and scope.
The difference between Large and
Small-scale industries
Financial schemes and Policies for SSI
The top 6 government loan schemes for small scale industries:
1. PMMY OR PRADHAN MANTRI MUDRA YOJANA

❖ : The Mudra loan can be availed by small businesses that are engaged in the field of
agriculture, retail, manufacturing, and services. Under this scheme, you can avail a loan of up
to Rs 10 lakhs. The rate of interest and repayment tenure in the scheme differs from bank to
bank, but the one rule that remains the same is that you can get the loan without collateral.
2. CGS OR CREDIT GUARANTEE SCHEME
❖ : CGS can only be availed by upcoming and existing micro and small enterprises that are
engaged in services or manufacturing activities. Agriculture businesses, training, and
educational institutions can also apply for this scheme. Under CGS, you can avail a loan of up
to Rs 200 lakhs.
3. BANK CREDIT FACILITATION SCHEME
❖ : This scheme is facilitated by the NSIC (National Small Industries Corporation) for fulfilling
the credit requirements of the micro, small, and medium enterprises or MSME units. This
scheme lets you avail a loan amount of up to Rs 5 crores. The rate of interest under the plan
might vary from one bank to another, and the repayment tenure can range from 5 to 7 years.
MSMEs that are registered in India are eligible to qualify for this loan.
Financial schemes and Policies for SSI
4. STAND-UP INDIA SCHEME:
❖ This offers funding requirements to ST (scheduled tribes), SC (scheduled castes),
and women entrepreneurs. You can avail of this loan if you are engaged in sectors
like trading, manufacturing, or services. If you are eligible under this scheme, then
you can avail a loan amount of Rs10 lakhs to Rs 1 crore. The repayment tenure in
this scheme is 7 years.
5. SMILE OR SIDBI MAKE IN INDIA LOAN FOR ENTERPRISES:
❖ SMILE has been introduced for fostering innovation, safeguarding intellectual
property, enhancing skill development, and facilitating investment for MSMEs.
Under this scheme, you are eligible for a loan amount of Rs 25 lakhs to Rs 50 lakhs.
The rate of interest for SMILE ranges between 9.45% to 12.70% p.a.
6. MSME LOANS FOR START-UPS IN 59 MINUTES:
❖ You can avail MSME loans only if you are IT and GST compliant. Under this loan,
you can qualify for an amount of Rs 10 lakhs to Rs 1 crore. The rate of interest
starts from 8% p.a. and the repayment tenure depends upon the bank.
Government Policies for Development and
Promotion of Small Scale Industries in India
❑Some of the Government Policies for
development and promotion of Small-Scale
Industries in India are:
1. Industrial Policy Resolution (IPR) 1948,
4. Industrial Policy Resolution (IPR) 1980 and
5. Industrial Policy Resolution (IPR) 1990.
1. Industrial Policy Resolution (IPR) 1948:
It was well realized that small-scale industries are
particularly suited for the utilization of local resources
and for creation of employment opportunities.
However, they have to face acute problems of raw
materials, capital, skilled labour, marketing, etc. since a
long period of time. Therefore, emphasis was laid in the
IPR, 1948 that these problems of small-scale
enterprises should be solved by the Central
Government with the cooperation of the State
Governments. In nutshell, the main thrust of IPR 1948,
as far as small-scale enterprises were concerned, was
‘protection.’
The IPR 1956 provided that along with continuing policy support to the
small sector, it also aimed at to ensure that decentralised sector acquires
sufficient vitality to self-supporting and its development is integrated with
that of large- scale industry in the country. To mention, some 128 items
were reserved for exclusive production in the small-scale sector.
1. Cottage and Household Industries which provide self-employment on a
large scale.
2. Tiny sector incorporating investment in industrial units in plant and
machinery up to Rs. 1 lakh and situated in towns with a population of less
than 50,000 according to 1971 Census.
3. Small-scale industries comprising of industrial units with an investment of
up to Rs. 10 lakhs and in case of ancillary units with an investment up to
Rs. 15 lakhs.
(i) Increase in investment ceilings from Rs. 1 lakh to Rs.
2 lakhs in case of tiny units, from Rs. 10 lakhs to Rs. 20
lakhs in case of small-scale units and from Rs. 15 lakhs
to Rs. 25 lakhs in case of ancillaries.
(ii) Introduction of the concept of nucleus plants to
replace the earlier scheme of the District Industry
Centres in each industrially backward district to
promote the maximum small-scale industries there.
(iii) Promotion of village and rural industries to generate
economic viability in the villages well compatible with
the environment.
(i) The investment ceiling in plant and machinery for small-scale industries (fixed in 1985) was raised
from Rs. 35 lakhs to Rs. 60 lakhs and correspondingly, for ancillary units from Rs. 45 lakhs to Rs.
75 lakhs.
(ii) Investment ceiling for tiny units had been increased from Rs. 2 lakhs to Rs. 5 lakhs provided the unit
is located in an area having a population of 50,000 as per 1981 Census.
(iii) As many as 836 items were reserved for exclusive manufacture in small- scale sector.
(iv) A new scheme of Central Investment Subsidy exclusively for small-scale sector in rural and
backward areas capable of generating more employment at lower cost of capital had been mooted
and implemented.
(v) With a view, to improve the competitiveness of the products manufactured in the small-scale sector;
programmes of technology up gradation will be implemented under the umbrella of an apex
Technology Development Centre in Small Industries Development Organisation (SIDO).
(vi) To ensure both adequate and timely flow of credit facilities for the small- scale industries, a new apex
bank known as ‘Small Industries Development Bank of India (SIDBI)’ was established in 1990.
(vii) Greater emphasis on training of women and youth under Entrepreneurship Development Programme
(EDP) and to establish a special cell in SIDO for this purpose.
(viii) Implementation of delicencing of all new units with investment of Rs. 25 crores in fixed assets in
non-backward areas and Rs. 75 crores in centrally notified backward areas. Similarly, delicensing
shall be implemented in the case of 100% Export Oriented Units (EOU) set up in Export Processing
Zones (EPZ) up to an investment ceiling of Rs. 75 lakhs.
Problems Faced by Small Scale
Industries
❑ Every small-scale industry is different, and the growth trajectory is
not the same. However, the challenges of small-scale industries are
very common globally. Here are the main problems experienced:
1. Not Getting Enough Funding
✓ For small-scale industries, finance is a major problem, no
organisation can grow without adequate funds. Entrepreneurs have
difficulty getting loans from banks and lack creditworthiness since
they are building a new business model. Most small-scale business
owners do not have any of their own resources and have to borrow
money from lenders at exorbitant interest rates.
✓ For this reason, many small-scale businesses choose to apply
for loans from non-banking financial corporations (NBFCs) and
private lenders instead of commercial banks.
Industries
2. Lack of Technology
✓ Small-scale enterprises are not equipped with the latest technology to manage their factories and
machinery. There is a lack of automation in doing manual, labour-intensive tasks as well, and they
cannot compete with larger-scale players because of obsolete production techniques.
Other challenges the service sector faces are lower quality, increased production costs, and outdated
hardware and software for their technology solutions (if any).
3. No Marketing
✓ Small-scale industries do not know how to advertise themselves effectively. There is a lack of
marketing strategies, and small-scale enterprises cannot get good market information. There is no
strategy for building ideal customer personas, and most business owners do not think about
demographics. Building brand awareness is a common problem, and small-scale businesses in
India don't have a high marketing budget.
✓ Since small-scale industries cannot ship internationally in most cases or do not have superior quality
products, they can't get a wider reach. However, times are changing, and the Government is
launching initiatives to extend a helping hand to such businesses, thus improving access to both
domestic and international markets. Some business owners aren't good with social media marketing
and cannot afford to hire professional help.
✓ Many small-scale industries are based offline and don't have any online presence. This is detrimental
in the long term because customers tend to gravitate towards businesses with a strong social media
image over those that don't.
Industries
4. Unskilled Labor
✓ If a business hasn't built its reputation yet or grown in revenue, it can be difficult to
get good hired help. Small-scale units are forced to resort to employing unskilled
labour or manpower. Skilled workers do not want to work for small-scale
businesses and are not usually happy with the wages. Enterprises cannot also offer
the facilities and amenities that these workers demand.
5. Inferior Quality Products
✓ Due to the shortage of funds, raw materials, or labour, small-scale industries cannot
produce high-quality products. And in the event business owners can, they're not
able to sell it at the market rates they want. Markets are competitive, and sellers
face competition constantly from big players, which makes it hard to grow. The top
reasons why product quality is not up to the mark are the increased production
costs, low capital, lack of research, and non-availability of resources.
✓ Production is tied to performance, and staff may not be motivated to do their best
work. If the business is too small, getting a trading license granted by the state can
be an issue.
Sickness of SSI
❑ Some of the important symptoms which characterize
industrial sickness are listed as follows:
(i) Persisting shortage of cash;
(ii) Deteriorating financial ratios;
(iii) Widespread use of creative accounting;
(iv) Continuous tumble in the prices of the shares;
(v) Frequent request to banks and financial institutions for
loans;
(vi) Delay and default in the payment of statutory dues;
(vii) Delay in the audit of annual accounts; and
(viii) Morale degradation of employees and desperation among
the top and middle management level.
MAJOR REASONS OF SICKNESS IN
SMALL SCALE INDUSTRIES
❑ Small Scale Industries (SSIs) play vital role in the economic development
of a country. Some SSIs turn out to be sick due to various reasons. Some of
the major causes for sickness in small scale industries are dealt in brief.
1. INADEQUACY OF WORKING CAPITAL
✓ Some units turn out sick due to inadequacy of working capital. There may
exists delay in sanction of working capital by financial institutions.
Industrial units find it difficult to meet out day to day operations due to the
time gap between sanction of term loan and working capital needs.
Shortage of Working Capital is one of the main reasons for sickness.
2. NON-AVAILABILITY OF CREDIT
✓ Sickness in SSI sector may be attributed to non-availability of credit. Delay
in getting loans may result in stoppage of work or lead to production loss.
Low production may lead to reduced sales which in turn may lead to
financial loss.
MAJOR REASONS OF SICKNESS
IN SMALL SCALE INDUSTRIES
3. POOR AND OBSOLETE TECHNOLOGY
✓ Some industrial units use technology which is outdated. Out dated technology may affect the
quantity and quality of production. This results in production loss and reduces demand for the goods.
4. NON AVAILABILITY OF RAW MATERIAL
✓ Some units may require raw material which are scarcely available. Sometimes, the raw material
required by the unit may not be available in abundance. Hence, this affects the production and the
sales of the goods. If the raw material is not abundantly available, then the industrial units have to
spend a large amount of money to buy them. This may result in financial loss.
5. MARKETING PROBLEMS
✓ Sometimes, the industrial units may not know as to how to create demand for the products. Lack of
marketing knowledge may result in less demand for the goods. Similarly, there may be less demand
for the goods produced by the SSI due to competition or change in the taste of the buyers.
✓ For example, lot of units producing dyes and ceramics have been found sick in Gujarat and Tirupur.
6. ERRATIC POWER SUPPLY
✓ Shortage in power supply affects the industries. This results in delay in production of goods and
leads to financial losses.
7. LABOUR PROBLEMS
✓ The relationship between the employer and the employees may not be cordial.
Some of the labour problems such as strike, lay off, lock out may lead to industrial
sickness.
8. POOR MANAGEMENT
✓ The entrepreneur must be a good planner, organizer and a manager. If the Industrial
Unit promoters lack managerial skills, then it may lead to several problems.
9. INADEQUATE ATTENTION TO R&D
✓ Industries have to allocate a part of money in research and development to survive
and compete with competitors. Failure to focus on the above may lead to industrial
sickness
10. DIVERSION OF RESOURCES
✓ If the employer utilizes the funds obtained for the business for any personal
purposes, then diversion of funds will lead to industrial sickness. The funds used for
personal purposes cannot be regenerated and hence it may result in delay in
payment of loans or financial crisis for the borrower of the loan.
11. GLOBALIZATION
✓ Small scale industrial units may find it very difficult to compete
with large scale industries and foreign competitors. Inability of the
units to face growing competition due to liberalization and
globalization may lead to industrial sickness.
12. DISPUTE AMONG PARTNERS
✓ There may arise dispute between the partners or family members
running the unit. This results in stoppage of work and leads to
industrial sickness.
13. OVERAMBITIOUS PROJECTS
✓ The project may not be technically feasible, such an overambitious
project is one of the reasons for industrial sickness.
REMEDIAL MEASURES TO
OVERCOME SICKNESS
❑ Some of the remedial measures to curb and overcome sickness in industrial undertakings are as
follows:
1. IDENTIFYING SICKNESS AT INITIAL STAGE
✓ Sickness in Small Scale Industries are not a sudden phenomenon but it is a gradual process taking 5
to 7 years eroding the health of a unit beyond cure. Therefore, the identification and detection of the
sickness at incipient stage is the first and foremost measure to detect and reduce industrial sickness.
Sickness must be identified at initial stage.
2. FINANCIAL ASSISTANCE
✓ Lending agencies need to relax their lengthy process and other norms for extending credit to the
SSIs. To combat the incidence of sickness financial institutions should grant credit without delay to
SSI sector.
✓ A number of initiatives can be undertaken to overcome credit problems such as:.
1. Increasing Working capital limit.
2. Enhancing the powers of bank managers of specialized bank branches in offering credit to SSI.
3. Strengthening the mechanism for discounting bills.
4. Reduced rate of interest.
✓ These measures would improve the flow of credit and keep a check on the incidence of sickness.
OVERCOME SICKNESS
3. IMPROVING INFRASTRUCTURE
✓ Infrastructure facilities can be improved by setting up industrial estates. Common
testing centres etc., infrastructural problems can be solved by improving the
roadways, waterways, establishing telecommunication systems.
4. TECHNOLOGY UP-GRADATION
✓ Funds may be provided by the financial institutions for adoption of advanced
technology. Similarly, some sort of training may be provided for use of the latest
technology to overcome technological problems. Technological up-gradation can
help to overcome technological obsolescence.
5. MARKETING ASSISTANCE
✓ Marketing assistance may be provided to entrepreneurs for marketing the goods
produced by them. Government must help to market the goods. Government and
Non Government Organizations (N.G.Os) can come forward for marketing the
goods produced by the SSI sector. The problem of poor marketing of the products
can be solved by coordinated efforts of entrepreneurs and promotional agencies.
6. LIQUIDATION
✓ It is better to wind up the business when there is no possibility to revive the unit.
OVERCOME SICKNESS
7. GOVERNMENT INTERVENTIONS
✓ Interventions must be made by the government to prevent sickness.
Periodic review of financial statements can help to identify and
prevent sickness at initial stage.
8. TRAINING
✓ A proper environment must be created where an entrepreneur will be
educated and will have a proper knowledge, skill and experience
about internal and external environment of business to compete with
large-scale industries and multinational companies.
9. REHABILITATION
✓ Potentially viable sick units should be dealt well for the purpose of
rehabilitation. Rehabilitation is a remedy considered for industrial
units, which have already become sick and for the units that are on
the verge of collapse.
OVERCOME SICKNESS
❑ Under the provisions of SICA, 1985, the Government of India has
established Board for Industrial and Financial Reconstruction (BIFR) in
January 1987 for determining the preventive, ameliorative, remedial and
other measures which are required to be taken in respect of sick industrial
company and for expeditious enforcement of rehabilitation schemes.
❑ The main objective of SICA is to determine sickness and expedite the
revival of potentially viable units or closure of unviable units (unit here in
refers to a Sick Industrial Company). It was expected that by revival, idle
investments in sick units will become productive and by closure, the locked
up investments in unviable units would get released for productive use
elsewhere.
The measures taken by BIFR are
1. Legal
2. Financial restructuring
3. Managerial
OVERCOME SICKNESS
REHABILITATION PROGRAMMES
❑ Taking into consideration the many sick micro, small and medium (MSM)
industries, the MSM policy has provided a separate package for
rehabilitation of such industries in India.
❑ The policy proposes to set up a rehabilitation fund for sick industries,
which will be managed by the Industries Commissioner and the Director of
Industries and Commerce. Funds will be infused into the committee based
on the recommendation of a State-Level Rehabilitation Committee (SLRC).
❑ The rehabilitation fund, among other things, will be used for meeting 75
percent of the cost of the cause that made the industry unviable, and to
sanction an interest subsidy of 4 per cent for two years on
rehabilitation/bridge loans up to Rs.15 lakh to the sick MSM industries.
❑ The rehabilitation measures would ensure that most units under lockout
would be able to open at an early date and appealed to MSM units to avail
of the facilities the government was providing them.
OVERCOME SICKNESS
The rehabilitation programme involves the following depending upon
the nature of sickness.
1. Change of Management
2. Development of a suitable management information system
3. Settlement with the creditors for payment of their dues in a phased
manner, taking into account the expected cash generation as per
viability study.
4. Determination of the sources of additional funds needed to
refinance.
5. Modernization of plant and equipment or expansion of an existing
programme or even diversification of the products being
manufactured.
6. Concession or relief or assistance allowed by the state level
corporation, financial institutions and Central Government.

ED-UNIT-V-Small Scale Industries Mark-Up

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

ED-UNIT-V-Small Scale Industries Mark-Up

Uploaded by

Copyright:

Available Formats

UNIT-V

SMALL SCALE INDUSTRIES

(B) Service Enterprises:

1. PMMY OR PRADHAN MANTRI MUDRA YOJANA

You might also like