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Notes on Small Scale Industries

Notes on Small Scale Industries

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Published by Shailesh Gururani

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Published by: Shailesh Gururani on Jun 04, 2011
Copyright:Attribution Non-commercial


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There is a growing recognition worldwide that small and mediumenterprises (SMEs) have an important role to play in the present contextgiven their greater resource-use efficiency, capacity for employmentgeneration, technological innovation, promoting inter-sectoral linkages,raising exports and developing entrepreneurial skills. Their locationalflexibility is an important advantage in reducing regional imbalances. Thefuture of SMEs is of major policy concern given their strategic importancein any discussion of reshaping the industrial sector. This is more so in thecase of India, which has one of the longest histories of government supportto the small-scale industrial sector since independence compared to mostdeveloping countries.
Definitions of Micro, Small & Medium Enterprises
 In accordance with the provision of Micro, Small & Medium EnterprisesDevelopment (MSMED) Act, 2006 the Micro, Small and MediumEnterprises (MSME) are classified in two Classes:(a)
Manufacturing Enterprises
- The enterprises engaged in themanufacture or production of goods pertaining to any industry specified inthe first schedule to the industries (Development and regulation) Act,1951). The Manufacturing Enterprise are
defined in terms of investment inPlant & Machinery.
Service Enterprises
: The enterprises engaged in providing or renderingof services and are
defined in terms of investment in equipment
The limit for investment in plant and machinery / equipment formanufacturing / service enterprises, as notified,vide S.O. 1642(E) dtd.29-09-2006are as under:
Manufacturing SectorEnterprises
Investment in plant & machinery
 MicroEnterprisesDoes not exceed twenty five lakhrupeesSmallEnterprisesMore than twenty five lakh rupeesbut does not exceed five crorerupeesMediumEnterprisesMore than five crore rupees butdoes not exceed ten crore rupees
Service SectorEnterprises
Investment in equipments
 MicroEnterprisesDoes not exceed ten lakh rupees:SmallEnterprisesMore than ten lakh rupees but doesnot exceed two crore rupeesMediumEnterprisesMore than two crore rupees butdoes not exceed five core rupees
In the Indian context, we have not so far defined medium enterprises clearly. Whatis neither small nor large is being loosely defined as medium. Further, enterpriseencompasses businesses, services and industries. In the broadband of ' small', the
discussion extends to medium as well. Another possible connotation for the SMEsis the small manufacturing enterprises.
 Small and medium enterprises, both in size and shape, are not uniformacross the globe. This asymmetry comes in the way of any effort of theirintegration. The way they are defined depends on the stage of economicdevelopment and the broad policy purposes for which the definition isused. According to a World Bank study, there are said to be more than 60definitions of small and medium industries used in 75 countries surveyed(cited in Kim Seung Jin and Suh Jang-Won, 1992, 9). The most commonlyused definitions relate to either size of employment and/or quantum ofcapital investment /fixed assets. As the process of economic developmentleads to changes in industrial sector shares in GDP and the contribution ofsub-sectors within industry, the definition is extended to include not onlymanufacturing industries but all enterprises which fall within or below thedefined cut-off point. In the ASEAN countries in general, the definition isrestricted to SMIs in the manufacturing sector only, whereas in the OECDgroup, the definition is broadened to include all Small and MediumEnterprises.In India, small-scale industries (SSIs) were given due importance in theprocess of industrialization as far back as 1951 when post-independenceeconomic planning was initiated. The Industries Development andRegulation Act legislated by the Centre in that year, became the frameworkfor the small-scale industrial sector's development. The Act determinedlicensing policies for the sector and the reservation of products, amongseveral other important provisions. The definition of small-scale industriesis mainly in terms of investment ceilings which have changed over theyears to keep pace with economic development. Though employment andturnover are also used to define small industries, as these indicators areimplicit in the requirement for registration under the Factories Act, the coredefinition of SSIs in India remains based on investment limits - "historicalcosts of plant and machinery."

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