Module - 4

Modern Small Business Enterprises: Role of Small Scale Industries, Concepts and
definitions of SSI Enterprises, Government policy and development of the Small
Scale sector in India, Growth and Performance of Small Scale Industries in India,
Sickness in SSI sector, Problems for Small Scale Industries, Impact of Globalisation
on SSI, Impact of WTO/GATT on SSIs, Ancillary Industry and Tiny Industry
(Definition only).
Institutional Support for Business Enterprises: Introduction, Policies & Schemes of
Central–Level Institutions, State-Level Institutions.

CONCEPT OF SMALL SCALE ENTERPRISE: Small scale sector plays an

important role in the development of every country. In a developing country like
India this sector is indispensable. Since independence small scale units have made
significant progress. After agriculture small scale sector provides highest employment
to the labour force. Since small units are widely dispersed, they provide jobs to local
residents.

Manufacturing enterprises in which investment in plant & machineries is more than

Rs 25.00 lakhs but does not exceed Rs 5.00 crores and service sector industries in
which investment in equipment is more than Rs 10.00 lakhs but does not exceed Rs
2.00 crores are termed as small-scale enterprises.
The Small Scale Sector owes its definition to the Industries (Development and
Regulation) Act, 1951. The Sector is defined in terms of investment limits in plant &
machinery (original value), up to a prescribed value. It comprises a wide divergent
spectrum of industries, ranging from the micro and rural enterprises, using
rudimentary technology on the one hand to the modern small scale industries using
sophisticated technology on the other.

In India, small-scale industries (SSIs) occupy 12.3 million units, contribute to 40 per
cent of industrial production and 35 per cent of their exports and provide employment
to about 29.5 million people. The SSIs now produce more than 8000 products. By
recognising the importance I of SSI units in the development of economy, the
government has been continuously attempting to improve the availability of critical
input to this sector and create appropriate infrastructural environment. Recently,
significant policy initiatives have created easy availability of financial assistance,
incentives and subsidies and influenced many enterprises to start SSIs. This has
resulted in growth in the number of SSI units.
ROLE / IMPORTANCE OF SMALL SCALE INDUSTRY
Partner in nation building: provide numerous job opportunities to various classes of
people, they are not only paying them their salaries but also enabling them to improve
their lifestyle, sending their children to schools to gain education who will become
partners in the nation building in time to come and providing them with good and
hygienic food.

Customised Products: Instead of generic products already present in the market, you
want to provide some sort of customised products to your customers, then small
players can come to your rescue. Conglomerates and MNCs usually do not disturb
their already continuing chain of products for any order, unless it is big enough to
form part of company’s sizeable revenue. However, smaller players are always ready
to surprise you with their latest products which can be customised at your will.

Creation of jobs: In the modern era where larger corporates and MNCs are moving
more and more towards automation and mechanisation, SSIs which still cannot afford
such high-end technologies, seek to recruit more and more people into their labour
intensive industries. Recently, a large IT company laid off 3000 employees due to
increased level of automation and robots replacing humans. Whereas, even today
myriads of SSIs are labour intensive and provide earning to many skilled, semi-
skilled & unskilled workers.

Employment to local people: recruit more and more local people as they want to
build relations instead of just generating numbers. If the relations are good, the
employee remains loyal to the company and treats the company’s property, company’
profits & losses as his own. Employing local people instils confidence among the
workers which ultimately increases their productivity in the long-term.

Discipline into the industry: Nowadays there has been increased trend of big
corporates taking care of their customers. Some big players have even setup an
altogether different department just for the customer care. Even conglomerates are
aware that if they start ignoring customers and merely focus on maximising profits,
then those customers will ultimately shift to smaller players present in the industry.
Due to existence of smaller players into the market, bigger companies conduct their
businesses with required discipline.

Large Production: The small-scale industries also contribute a sizeable amount to

the industrial output of the country. Out of the total output of the manufacturing
sector, as much as 40% comes from these industries. And out of the total supplies of
industrial consumer goods a major part originates in the small-scale sector. Almost all
the products of this sector are in the nature of consumer goods, with a significant part
consisting of luxury goods. The adequate availability of consumer goods plays an
important role in stabilising and developing the economy.

Large Exports: Many products of the small-scale industries like handloom cotton
fabrics, silk fabrics, handicrafts, carpets, jewellery, etc. are exported to foreign
countries. Their share in the total exports is as much as 40%. In this way the small-
scale sector makes a very valuable contribution to the accumulation of foreign
exchange resource of the country.

Use of Latent (domestic) resources: The small-scale industries used resources

which are available locally which would otherwise have remained unused. These
resources are, the hoarded wealth, family-labour, artisan’s skills, native
entrepreneurship, etc. Being thinly spread throughout the country, these resources
cannot be used by large-scale industries which need them in big amounts and at a few
specified places.

Promoting Welfare: The small-scale industries are also very important for welfare
reasons. People of small means can organise these industries. This in turn increases
their income-levels and quality of life. As such these industries help in reducing
poverty in the country. Further, these industries tend to promote equitable distribution
of income. Since income gets distributed among vast number of persons throughout
the country, this help in the reduction of regional economic disparities.

Facilitates Women Growth: It provides employment opportunities to women in

India.It promotes entrepreneurial skills among women as special incentives are given
to women entrepreneurs.

Brings Balanced Regional Development: promotes decentralised development of

industries as most of the small scale industries are set up in backward and rural
areas.It promotes urban and rural growth in India.

Paves for Optimisation of Capital: requires less capital per unit of output. It
provides quick return on investment due to shorter gestation period. The pay back
period is quite short in small scale industries.
Promotes Exports : SSI does not require sophisticated machinery. Hence, it is not
necessary to import the machines from abroad. On the other hand, there is a great
demand for goods produced by small scale sector. Thus it reduces the pressure on the
country’s balance of payments.

Meets Consumer Demands: SSI produces wide range of products required by

consumers in India. SSI meets the demand of the consumers without creating a
shortage for goods. Hence, it serves as an anti-inflationary force by providing goods
of daily use.

Ensures Social Advantage: SSI helps in the development of the society by reducing
concentration of income and wealth in few hands.SSI provides employment to people
and pave for independent living.SSI helps the people living in rural and backward
sector to participate in the process of development.It encourages democracy and self-
governance.

Develops Entrepreneurship: It helps to develop a class of entrepreneurs in the

society. It helps the job seekers to turn out as job givers.It promotes self-employment
and spirit of self-reliance in the society.Development of small scale industries helps
to increase the per capita income of India in various ways.It facilitates development
of backward areas and weaker sections of the society.Small Scale Industries are adept
in distributing national income in more efficient and equitable manner among the
various participants of the society.

Equitable distribution of income: Small entrepreneurs stimulate a redistribution of

wealth, income and political power within societies in ways that are economically
positive and without being politically disruptive.Thus small-scale industries ensures
equitable distribution of income and wealth in the Indian society which is largely
characterised by more concentration of income and wealth in the organised section
keeping unorganised sector undeveloped. This is mainly due to the fact that small
industries are widespread as compared to large industries and are having large
employment potential.
GOVERNMENT POLICY AND DEVELOPMENT OF THE SMALL SCALE
SECOTR IN INDIA

Industrial Policy Resolution (IPR) 1948: The IPR, 1948 for the first time, accepted
the importance of small-scale industries in the overall industrial development of the
country. It was well realised that small-scale industries are particularly suited for the
utilisation 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.’

Industrial Policy Resolution (IPR) 1956:

The main contribution of the IPR 1948 was that it set in the nature and pattern of
industrial development in the country. The post-IPR 1948 period was marked by
significant developments taken place in the country. For example, planning has
proceeded on an organised manner and the First Five Year Plan 1951-56 had been
completed. Industries (Development and Regulation) Act, 1951 was also introduced
to regulate and control industries in the country.

The parliament had also accepted ‘the socialist pattern of society’ as the basic aim of
social and economic policy during this period. It was this background that the
declaration of a new industrial policy resolution seemed essential. This came in the
form of IPR 1956.

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.Besides, the Small-Scale Industries Board (SSIB) constituted a
working group in 1959 to examine and formulate a development plan for small-scale
industries during the, Third Five Year Plan, 1961-66. In the Third Five Year Plan
period, specific developmental projects like ‘Rural Industries Projects’ and ‘Industrial
Estates Projects’ were started to strengthen the small-scale sector in the country.
Thus, to the earlier emphasis of ‘protection’ was added ‘development.’ The IPR 1956
for small-scale industries aimed at “Protection plus Development.” In a way, the IPR
1956 initiated the modem SSI in India.
Industrial Policy Resolution (IPR) 1977:
During the two decades after the IPR 1956, the economy witnessed lopsided
industrial development skewed in favour of large and medium sector, on the one
hand, and increase in unemployment, on the other. This situation led to a renewed
emphasis on industrial policy. This gave emergence to IPR 1977.

The Policy Statement categorically mentioned:

“The emphasis on industrial policy so far has been mainly on large industries,
neglecting cottage industries completely, relegating small industries to a minor role.
The main thrust of the new industrial policy will be on effective promotion of cottage
and small-scale industries widely dispersed in rural areas and small towns. It is the
policy of the Government that whatever can be produced by small and cottage
industries must only be so produced.”

The IPR 1977 accordingly classified small sector into three broad categories:
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 upto Rs.
10 lakhs and in case of ancillary units with an investment up to Rs. 15 lakhs.

Industrial Policy Resolution (IPR) 1980:

The Government of India adopted a new Industrial Policy Resolution (IPR) on July
23, 1980. The main objective of IPR 1980 was defined as facilitating an increase in
industrial production through optimum utilisation of installed capacity and expansion
of industries.
As to the small sector, the resolution envisaged:
(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.
Thus, the IPR 1980 reemphasised the spirit of the IPR 1956. The small-scale sector
still remained the best sector for generating wage and self-employment based
opportunities in the country.

Industrial Policy Resolution (IPR) 1990:

The IPR 1990 was announced during June 1990. As to the small-scale sector, the
resolution continued to give increasing importance to small-scale enterprises to serve
the objective of employment generation.

The important elements included in the resolution to boost the development of

small-scale sector were as follows:
(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.
(iv) 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).
(v) 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.
(vi) Greater emphasis on training of women and youth under Entrepreneurship
Development Programme (EDP) and to establish a special cell in SIDO for this
purpose.
(vii) Implementation of delicensing 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.
The other development of SSI are as follows:
The National Small Industries Corporation and the nationalised Commercial Banks
are taking measures to provide long term finance for the development of such
industries. The Central Government has now given loans to the State Government for
the institution of industrial estates.
In the rural areas, the Industrial Training Centres have been set up for the proper
education and training of cottage workers and artisans

The Indian Government has set up the Cottage Industries Board, the Khadi and
village Industries Board, Inventions Promotions Board, Small Industries
Development Board etc. for the development of small scale industries.

The Indian Government has also made provision for cheap electricity and small
machine tools in order to raise the labor productivity of small scale cottage industries.

With the help of the Reserve Bank of India, the nationalised Commercial Banks have
been taking suitable measures for the modernisation of machines and production
techniques of small scale and cottage industries as a complementary to large scale
units. We get quality products from the cottage industries.

GOWTH AND PERFORMANCE OF THE SMALL SCALE INDUSTRY IN

INDIA

Small-scale sector has broadened from SSIs to small-scale enterprises that include all
business enterprises in the services sector which provide service to industrial sector in
addition to SSIs. Taking into account all these factors, at present, Reserve Bank of
India uses an expanded definition of SSIs which includes:

1. Small-scale industrial undertaking which is engaged in the manufacturing,

processing and preservation of goods in which the investment in plant and
machinery does not exceed ` 50 million. These would include units engaged in
mining or quarrying servicing and repairing of machinery.

2. Tiny enterprises whose investment in plant and machinery does not exceed ` 2.5
million.

3. Power looms.
4. Traditional industries which require high workmanship and techniques and also
village and household industries producing common goods of consumption
predominantly by using simple tools.

5. The decentralised and informal sector like handlooms and handicrafts.

6. The industry related to services/business enterprises.

7. Food and agro-based industries.

8. Software industry.

The development of SSIs is being given due importance by the government in order
to achieve the following objectives:

1. To provide additional employment opportunities.

2. To mobilise resources of capital and skill from various parts of the country.

3. To provide a more equitable distribution of national income.

4. To provide a helping hand to large industries and facilitate them in their work.

Small-scale industries and economic development of India

Employment generation. The basic problem that the Indian economy is confronting
is increasing pressure of population on the land and the need to create massive
employment opportunities. This problem is solved to a large extent by SSIs because
SSIs are labour-intensive in nature. They generate large number of employment
opportunities. Employment generation by this sector has shown a phenomenal
growth. It is a powerful tool of job creation.

Mobilisation of resources and entrepreneurial skill. SSIs can mobilise a good

amount of savings and entrepreneurial skill from rural and semi-urban areas which
remain untouched from the clutches of large industries and put them into productive
use by investing in small-scale units. Small entrepreneurs also improve social welfare
of a country by harnessing dormant, previously overlooked talent. Thus, a huge
amount of latent resources is being mobilised by the small-scale sector for the
development of the economy.
Equitable distribution of income. The SSIs ensure equitable distribution of income
and wealth in the Indian society which is largely characterised by more concentration
of income and wealth in the organised sector keeping unorganised sector
undeveloped. This is mainly due to the fact that small industries are widespread as
compared to large industries and have large employment potential.

Regional dispersal of industries. There has been massive concentration of industries

in a few large cities of different states of India. People migrate from rural and semi-
urban areas to these highly developed centres in search of employment and
sometimes to earn a better living which ultimately leads to many evil consequences
like overcrowding, pollution, creation of slums, etc. This problem of Indian economy
is better solved by SSIs which utilise local resources and bring about dispersion of
industries in various parts of the country thereby promoting balanced regional
development.

Providing opportunities for development of technology. SSIs have tremendous

capacity to generate or absorb innovations. They provide ample opportunities for the
development of technology and technology in turn, creates an environment conducive
to the development of small units. The entrepreneurs of small units play a strategic
role in commercialising new inventions and products. They also facilitate the transfer
of technology from one to the other. As a result, the economy reaps the benefit of
improved technology.

Promotion of exports. SSIs have registered a phenomenal growth in export over the
years. The value of exports of products of SSIs has increased from ` 6979.7 million in
2000-01 to ` 28,384.7 million in 2011-12. Thus they help in increasing the country’s
foreign exchange reserves thereby reducing the pressure on country’s balance of
payments.

Supporting the growth of large industries. The SSIs play an important role in
assisting bigger industries and projects so that the planned activity of development
work is timely attended. They support the growth of large industries by providing
them components, accessories and semi-finished goods. In fact, small industries
breathe vitality into the life of large industries.

Better industrial relations. Better industrial relations between the employer and
employees help in increasing the efficiency of employees and reducing the frequency
of industrial disputes. The loss of production and man days are comparatively less in
SSIs. There are hardly any strikes or lockout in these industries due to good
employee-employer communication and relationship. Of course, increase in number
of units, production, employment and exports of SSIs over the years are considered
essential for the economic growth and development of the country.

Sickness in SSI - The SSI sector now faces problems such as fierce competition and
natural threat to indigenous technology. The process of liberalisation, privatisation
and globalisation (LPG) posed several threats and challenges for SSIs in India. As a
consequence of this, several SSIs flourished and several became sick. The reason for
sickness in SSIs include:

1. Inadequacy of working capital

2. Delay in sanction of working capital and time gap between sanction of term loan
and working capital

3. Poor and obsolete technology

4. Problems related to availability of raw material

5. Inadequate demand and other marketing problems

6. Erratic power supply

7. Labour problem

8. Infrastructural constraints

9. inadequate attention to research and development

10. Inability of the units to face growing competition due to liberalisation and
globalisation

11. Slow technology adaptation in mitigation of environmental management,

technology system and lack of enforcement of existing procedure.

12. Shortage of liquid funds

13. Growing of excessive investors

14. Government policy

15. Planning and decision making

Problems faced by the small-scale industries in India

Problem of skilled manpower. The success of a small enterprise revolves around the
entrepreneur and its employees, provided the employees are skilled and efficient.
Inefficient human factor and unskilled manpower create innumerable problems for
the survival of small industries. Non-availability of adequate skilled manpower in the
rural sector poses problem to SSIs.

Inadequate credit assistance. Inadequate and untimely supply of credit facilities is

an important problem faced by SSIs. This is partly due to scarcity of capital and
partly due to weak creditworthiness of the small units in the country.

Irregular supply of raw material. Small units face severe problems in procuring the
raw materials whether they use locally-available raw materials or imported raw
materials. The problems arise due to faulty and irregular supply of raw materials.
Non-availability of sufficient quantity of raw materials, sometimes poor quality of
raw materials, increased cost of raw materials, foreign exchange crisis and above all
lack of knowledge of entrepreneurs regarding government policies are other few
hindrances for the small-scale sector.

Absence of organised marketing. Another important problem faced by small-scale

units is the absence of organised marketing system. In the absence of organised
marketing, their products compare unfavourably with the quality of the product of
large-scale units. They also fail to get adequate information about consumer’s choice,
taste and preferences of the type of product. The above problems do not allow them
to stay in the market.

Lack of machinery and equipment. Small-scale units are striving hard to employ
modern machineries and equipment in their production process in order to compete
with large industries. Most of the small units employ outdated and traditional
technology and equipment. Lack of appropriate technology and equipment creates a
major stumbling block for the growth of SSIs.

Absence of adequate infrastructure. Indian economy is characterised by inadequate

infrastructure which is a major problem for small units to grow. Most of the small
units and industrial estates found in towns and cities are having one or more problems
like lack of power supply, water and drainage problem, poor roads, raw materials and
marketing problem.
Competition with large-scale units and imported articles. Small-scale units find it
very difficult to compete with the product of large-scale units and imported articles
which are comparatively very cheap and of better quality than products manufactured

Other problems. Besides the above problems, small-scale units have been
constrained by a number of other problems which include poor project planning,
managerial inadequacies, old and orthodox designs and high degree of obsolescence.
Due to all these problems, the development of SSIs could not reach a prestigious
stage.

Poor capacity utilisation: In many of the Small Scale Industries, the capacity
utilisation is not even 50% of the installed capacity. Nearly half of the machinery
remains idle. Capital is unnecessarily locked up and idle machinery also occupies
space and needs to be serviced resulting in increased costs.

Problems in Export: They lack knowledge about the export procedures, demand
patterns, product preferences, international currency rates and foreign buyer
behaviour. Small Scale Industries are not able to penetrate foreign markets because of
their poor quality and lack of cost competitiveness. In countries like Taiwan, Japan
etc. products produced by Small Scale Industries are exported to many foreign
countries. But in India not much thought and focus has gone into improving the
export competitiveness of Small Scale Industries.

Lack of technology up-gradation: Many Small Scale Industries still use primitive,
outdated technology leading to poor quality and low productivity. They do not have
adequate funds, skills or resources to engage in research and development to develop
new technologies. Acquiring technology from other firms is costly. Therefore Small
Scale Industries are left with no choice but to continue with their old techniques.

Inability to meet environmental standards: The government lays down strict

environmental standards and Courts have ordered closure of polluting industries.
Small Scale Industries which are already facing shortage of funds to carry out their
business are not able to spend huge sums on erecting chimneys, setting up effluent
treatment plants etc.

Delayed payments: Small Scale Industries buy raw materials on cash but due to the
intense competition have to sell their products on credit. Buying on cash and selling
on credit itself places a great strain on finances. The greater problem is payments are
delayed, sometimes even by 6 months to one year. It is not only the private sector but
even government departments are equally guilty. Delayed payments severely impact
the survival of many Small Scale Industries.

Lack of awareness: The government has set up many organisations to support and
provide assistance to Small Scale Industries. But, many of the entrepreneurs running
Small Scale Industries are not aware of the various support services.

IMPACT OF GLOBALISATION ON SSI

Globalisation refers to the process of integration of the world into one huge market. It
provides several things to several people with removal of all trade barriers among
countries. Globalisation happens through three channels: trade in goods & services,
movement of capital and flow of finance. Globalisation in India is generally taken to
mean ‘integrating’ the economy of the country with the world economy. The real
thrust to the globalisation process was provided by the new economic policy
introduced by the Government of India in July 1991 .

Globalisation has led to an ‘Unequal Competition’- a competition between ‘giant

MNC’s and dwarf Indian enterprises’. The small scale sector is a vital constituent of
overall industrial sector of the country. The small scale sector forms a dominant part
of Indian industry and contributing to a significant proportion of production, exports
and employment. Therefore, the present study analyses the impact of globalisation on
Indian Small Scale Industries. The main theme of the paper is to evaluate the
performance of SSI, before and after liberalisation and compare them with average
annual growth rates, to know the impact of Globalisation on the performance of SSI.

Before the introduction of new economic reforms in 1991 following the inevitable
globalisation, the SSI sector was overprotected. The small scale industry never had a
strong desire to grow to medium and large scale because of the benefits of protection
given to it. Many of the policies also discouraged the growth of small scale units into
large ones and had a stunting effect on manufacturing, employment and output
growth. With the globalisation, the SSIs are now exposed to sever competition both
from large-scale sector, domestic and foreign and MNCs.

The effect of globalisation can be summarised as below.

• The new policies of the government towards liberalisation and globalisation

without ensuring the interest or priority of small-scale sector resulted in poor
growth rate of SSI sector. The SSI sector has suffered because of the lending
 institutions and promotional agencies, whose main agenda is to serve big units and
multinationals

• The problems of SSI in liberalised environment have become multidimensional

delay in implementation of project, inadequate availability of finance and credit,
marketing problems, cheap and low quality products, technological obsolescence,
lack of infrastructural facilities, deficient managerial and technical skills, to name
some.

• Globalisation resulted in opening up of markets, leading to intense competition.

For example, the World Trade Organisation (WTO) regulates multilateral trade,
requiring its member countries to remove its import quotas, restrictions and reduce
import tariffs. India was also asked to remove quantitative restrictions on import
by 2001 and all export subsidies by 2003. As a result every enterprise in India
whether small-scale or large scale has to face competition. The process was
initiated for small-scale units by placing 586 of its 812 reserved items on the open
general license list of imports.

• With the removal of restrictions of foreign direct investment, multinational

companies entered India which further intensified the competition in the domestic
market. The 1990’s witnessed the entry of multinational companies in areas such
as automobiles, electronics and IT based sectors.

In the changed environment after globalisation and liberalisation, the policies and
projects for the SSI sectors will have to be effective and growth oriented (not just
protecting) so as to achieve competitiveness. In order to protect, support and promote
small enterprises, a number of protective and promotional measures have been
undertaken by the central government.

The promotional measures cover the following:

1. Industrial extension services

2. Institutional support in respect of credit facilities

3. Provision of developed sites for construction of sheds

4. Provision of training facilities

5. Supply of machinery on hire purchase terms

6. Assistance for domestic marketing as well as exports

7. Special intensive for setting up enterprises in backward areas

8. Technical consultancy and financial assistance for technological upgradation

IMPACT OF WTO/GATT ON SSI

The challenges to the small-scale sector are due to the impact of agreements under
WTO. The setting up of the WTO in 1995 has altered the framework of international
trade towards non - distortive, market oriented policies. This is in keeping with the
policy shift that occurred world wide in favour of the free market forces and tilt away
from state regulation/intervention in economic activity. This is likely to lead to an
expansion in the volume of international trade and changes in the pattern of
commodity flows. The main outcome of WTO stipulated requirements will be
brought about through reduction in export subsidies, greater market access, removal
of non-tariff barriers and reduction in tariffs.

There will also be tighter patent laws through regulation of intellectual property
rights under Trade-Related Intellectual Property Rights (TRIPS) Agreements, which
laid down what is to be patented, for what duration and on what terms.

Increased market access to imports will mean opening up the domestic market to
large flows of imports. The removal of quantitative restrictions on imports of these
items will soon be freed from all restrictions as announced in the recent import-export
policy. Increased market access will also mean that our industries can compete for
export markets in both developed and developing countries. But the expected surge in
our exports can come about only if SSI sector is restructured to meet the demands of
global competitiveness, which is the key to the future of small industries in present
contest.

SSIs have to face threats and also avail opportunities owing to the WTO and its
agreements. The main opportunities of the WTO are classified into three. Firstly,
national treatment of exportable items across the countries all over the world, with
better market access through the internet. Second, enlightened entrepreneurs have
greater opportunities to benefit from their comparative advantages due to lowering of
tariffs and dismantling of other restrictions. Finally, industries that are in constant
touch with government, which in turn negotiates in their best interests in the on-going
dialogue with the WTO, are going to benefit. India has real chance of becoming
superpower in the service sector, particularly IT. It has already captured about 25
percent of world exports.
The World Trade Organisation (WTO) was established on 1st January 1995.
During 15th April1994“Marrakesh Declaration” was made where by affirmation was
done that the Uruguay Round would strengthen the world economy thereby leading
towards more trade, investment, employment and income growth throughout the
world. The WTO is the embodiment of the Uruguay Round Results and the successor
to the GATT. It was the only forum for negotiating lower customs duty rates and
other trade hurdles starting from 1947 to 1994.When GATT came under the WTO
umbrella, it has certain annexes regarding sector like agriculture and textiles, burning
issues like State Trading, Product Standards, Subsidies and Actions taken against
dumping. It aims to boost country’s economy by accelerating exports among the-
member countries.

Key Subjects in WTO The WTO is the umbrella organisation for overseeing the
implementation of all agreement -multilateral (signed by all WTO members)
and pluryilateral (signed by a group of members regarding a particular issue) that
have been discussed underUruguay Round or will be dealt in due course of
time.Secondly , it frames international standardised labour wages and working
conditions , globalises the trade and weeds out the corruption at Government level
while dealing with its procurement policies. Thirdly, it is responsible for settlement of
disputes among member nations. Fourthly, it facilitates procuring new technologies
from different countries at lower cost.Fifthly, it monitors periodically trade policies
among member nations.

WTO Agreements - The WTO Agreements cover

Goods (main agreement (GATT) e.g. all

industrial products, FMCGs (consumer durables) etc.

Services (main agreement GATS) e.g.

Banking, Insurance, consultancy etc.

Intellectual property (TRIPS) e.g.

Patents,Copyrights, and Trademarks etc.

WTO And SSI Sector

It has been realised that the repercussions ofWTO and its agreements have been felt
on every economic activity whether it is agriculture, trading, service or
manufacturing.

Enlightened and awakened entrepreneurs can avail of the opportunities arising from
comparative advantages as world markets are opening up due to lowering of tariffs
and dismantling of other restrictions undeveloped and developing countries.

It will pose a threat to domestic markets due to lowering of tariffs thereby leading to
forestry of foreign goods and because of foreign companies establishing base locally

The developed countries will receive benefits by opening up of service sector and
tightening of Intellectual Property Regime, while developing countries will receive
greater economies from cost based comparative advantages like textiles, agriculture
etc. opportunities in sectors

Emergence of tough competition among developing countries having similar

comparative advantage.

The breeze of standardisation swept across the globe ,products from developing
countries have to face strict quality standards in developed markets specifically in the
areas where they have comparative cost advantage.

Positive impact of WTO on SSIs

It enabled India to export goods to the member countries of the WTO with lesser
restrictions. Tariff based protection has come to the scene for tariffs was reduced on
export products to India.

Exports have shown an upward trend registering Rs.13883 cores during 1991-92 to
Rs.150242crores during 2005-06.

Better prospects of agricultural exports due to likely increase in the world prices of
agricultural products as a result of lowering domestic subsidies and hindrances to
trade.

Developing market orientation.

Exploration of new investment opportunities due to remarkable trade in SSI thereby

boosting economic growth.
Ancillary Industry - Meaning of AncillaryAncillary means 1. Subordinate;
subsidiary. 2. Auxiliary; helping. Ancillary is used to describe something of
secondary importance. One common use of the word is to describe an estate
administration done in another state where the decedent owned real property. An
ancillary administration is done in addition to the primary administration in the state
where the decedent died.

Ancillary industries are those which manufacture parts and components to be

used by larger industries. Eg- Companies like GE (ancillary) produce engines for the
aircraft industry.

Ancillary industries are companies that manufacture parts for larger

companies. Most ancillary industries are considered non essential in the business
world.

Tiny Industry - Tiny Scale industry is one in which the investment in plant and
machinery is less than Rs.25 lakhs irrespective of the location of the unit.

INSTITUTIONAL SUPPORT FOR BUSINESS ENTERPRISES

The Institutional support system is necessary to provide all help needed by the small
scale industries, as small industries lack information about the existing support
systems developed by the Central Government as well as the State Governments.
They also lack the technical and managerial skills, strong financial background,
knowledge about Government sponsored infrastructural facilities, subsidies and tax
incentives. These institutions include Government owned agencies, statutory
corporations, semi- autonomous and autonomous organisations.

FINANCIAL INSTITUTION IN INDIA ARE AS FOLLOWS:

1. Central Level

2. State Level
Central Level - there are 2 types, they are as follows:

Financial Aid

SIDBI - Small industries development bank of india .

NABARD - National bank for agricultural & rural development.

IDBI - Industrial development bank of india.

SIDO - small industries development organisation .

SSIB - Small scale industries board .

KVIC - Khadi and Village industries commission .

Non Financial Aid

IIE - Indian institute of entrepreneurship.

NISIET - National institute of small industry extension and training.

EDII - Entrepreneurship development institute of india

NIESBUD - National Institute of entrepreneurship and small business

development

State Level - there are 2 types, they are as follows:

Financial Aid

SFCs - State finance corporation

SIDCs / SIICs - State industrial development / investment corporation

SSIDCS - State small industrial development corporation

Non Financial Aid

DIs - Directorate of industries

DICs - District industries centre