Small Scale Industries: An Important Catalyst for the Growth of Indias Economy

ESBD REPORT

TANYA GUPTA ( 131) MBA, SECTION -B 9/20/2010

The definition for small-scale industrial undertakings has changed over time.Initially they were classified into two categories- those using power with less than 50 employees and those not using power with the employee strength being more than 50 but less than 100. However the capital resources invested on plant and machinery buildings have been the primary criteria to differentiate the small-scale industries from the large and medium scale industries. An industrial unit can be categorized as a small- scale unit if it fulfils the capital investment limit fixed by the Government of India for the smallscale sector. According to 2001 census, Small scale industrial units are those engaged in the manufacture, processing or preservation of goods and whose investment in plant and machinery (original cost) does not exceed Rs.1 crore. These would, inter alia, include units engaged in mining or quarrying, servicing and repairing of machinery Small Scale Industries are located throughout the country, though predominantly in the rural areas. The small scale industries in the rural areas are skill based, wherein the skill for manufacturing is passed on from one generation to another. Some of the goods manufactured in these units are textile handicrafts, woodcarving, stone carving, metal ware etc. Small scale industrial factories are also present in urban areas and usually they account for the maximum volume of production for that particular good. For e.g. Ludhiana in the state of Punjab is the main center in

the country for producing woolen hosiery, sewing machine parts, bicycles and its parts, similarly Tiruppur in Tamil Nadu accounts for small scale firms that are involved in spinning, weaving and dying of cotton garments. The importance of cottage industries in the Indian economy was first understood by our first prime minister Jawaharlal Nehru. The development of such small scale industries infused much needed production efficiency into the rural Indian economy. The Cottage Industries also helped the agricultural workers to have a better quality of life. This is due to the additional profits generated by the farming community. The traditional small-scale industries clearly differ from their modern counterparts in many respects. The traditional units are highly labor consuming with their age-old machineries and conventional techniques of production resulting in poor productivity rate whereas the modern smallscale units are much more productive with less manpower and more sophisticated equipments. Khadi and handloom, sericulture, handicrafts, village industries, coir, Bell metal are some of the traditional smallscale industries in India. The modern small industries offer a wide range of products starting from simple items like hosiery products, garments,leather products, fishing hook etc to more sophisticated items like television sets,electronics control system, various engineering products especially as ancillaries to large industrial undertakings. Nowadays Indian small-scale industries (SSIs) are mostly modern small-scale industries. Modernization has widened the list of products offered by this industry. The items manufactured in modern Small-scale service & Business

enterprises in India now include rubber products, plastic products, chemical products, glass and ceramics, mechanical engineering items, hardware, electrical items, transport equipment, electronic components and equipments, automobile parts, bicycle parts, instruments, sports goods, stationery items and clocks and watches. As on 10 October 2008, following items are reserved for exclusive manufacture by small enterprise sector:

Food and Allied Industries: Pickles & Chutneys, Bread, Mustard Oil (except solvent extracted), Ground nut oil (except solvent extracted). Wood and Wood Products: Wooden furniture and fixtures Paper Products: Exercise books and registers Injection Moulding Thermo Plastic Product: PVC Pipes, including conduits upto 110 mm dia, Fittings for PVC pipes Other Chemicals & Chemical Products: Wax candles, Laundry soap, Safety matches, Fire works, Agarbatties Glass & Ceramics: Glass Bangles Mechanical Engg. Excluding Transport Equipment: Steel almirah, Rolling shutters, Steel chairs , Steel tables, Steel furniture, Padlocks, Stainless steel utensils, Domestic utensils Aluminium

SMALL SCALE INDUSTRIAL UNDERTAKING An industrial undertaking in which the investment in plant and machinery,whether held on ownership terms or on lease/hire-purchase basis, does not exceed Rs.10million (Rs.1 crore) is regarded as a small scale undertaking. These include manufacturing and service units. Status of Small Scale Industries Undertaking a)Ancillary Industries Udertaking :-Engaged in manufacture of parts, component, Sub-assemblies, The investment in fixed assets doesnt exceed 1 crore. In the case of ancillary units, the investment in plant and machinery (original cost) should also not exceed Rs. 1 crore to be classified under small-scale industry. It is engaged in manufacture of parts, component, Sub-assemblies, b)Tiny Industries :- A unit is treated as a tiny enterprises where investment in plant nad machinery does not exceed Rs.2.5 million (Rs.25 Lakhs) irrespective of the location of the unit .c)Export Oriented Units :- A unit with an obligation to export at least 30 percent of its annual production bythe end of the third year of commencement of production and having an investmentceiling up to Rs.10 million (Rs.1 crore) in plant and machinery is termed as an export oriented SSI unit. d) Small Scale Service & Business Enterprises (SSSBEs) Industry related service and business enterprises with investment up to Rs. 10 lac in fixed assets, excluding land and building will be given benefits of small scale sector. For computation of value of fixed assets, the original price paid by

the original owner will be considered irrespective of the price paid by subsequent owners.

OBJECTIVES OF SMALL BUSINESS To generate immediate and large scale employment oppurtunities with relatively low investment. To eradicate unemployment problem from the country. To encourage dispersal of the industries all over the country covering small towns, villages and economically lagging regions. To bring backward areas too in the mainstream of national development. To promote balanced regional development in the whole country. To ensure more equitable distribution of national income. To encourage effective mobilisation of countrys untapped capital and human resources. To improve the level of living of people in the country.

TYPES OF SMALL BUSINESS The range of products manufactured by small scale industries is very wide from baskets to precision electronic and optical instruments. Small scale industries can be classified into five main groups:-

1.

Manufacturing industries i.e. industries producing complete articles for direct consumption and also processing industries. Feeder industries specialise in certain types products and services. Eg. Casting, electroplating, welding etc. Serving industries covers light repair shops necessary to maintain mechanical equipment. Ancillary units produce parts and components and render services to large industries

2.

3.

4.

5. Mining or quarrying

ADVANTAGES OF SMALL-SCALE INDUSTRIES - Labor intensive in nature - Useless capital per unit of output - Prevent congestion - Suitable for people with limited resources - Prevent concentration of economic power - Lead to better distribution of incomes - Help in putting idle resources to productive user - Suitable for lean production - Lead to allocate efficiency

PROBLEMS OF SMALL-SCALE INDUSTRIES - Problem of finance - Problem of raw material - Problem of power - Problem of marketing - Export difficulties - Problem of technical know how - Problem of industrial relations - Growing sickness and mortality among these units

SUGGESTIONS FOR GROWTH - Part gains be consolidated - Development measures be spread - A discriminating program of assistance be formulated - Productivity need be improved - Assistance programs needs be tacked - Skill based needs be improved - Inter-industry linkages be provided - World class facilities need be provided - Marketing assistance be provided - Exports need be provided - Market intelligence be sup pled - Low-cost automation should be encouraged

ROLE OF SMALL BUSINESS IN INDIAN ECONOMY Small scale industries play a very vital role in Indias economy in the following ways:-

PRODUCTION

Small industries in India account for 95 per cent of the industrial units in the country

They contribute almost 40 per cent of the gross industrial value added and 45 per cent of the total exports (direct and indirect exports) from India The small-scale sector has grown rapidly over the years. The number of small-scale units has increased from an estimated 0.87

million units in the year 1980-81 to over 3 million in the year 2000

YEAR

SSI SECTOR GROWTH RATE

TOTAL INDUSTRIAL GROWTH RATE

1994-95 1995-96 1996-97 1997-98 1998-99 1999-2000 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10

10.44 11.49 1.29 9.19 7.84 7.09 8.04 6.06 7.68 8.06 9.99 9.5 10.03 12.45 7.00 8.12

9.10 13.00 6.10 6.70 4.10 6.70 5.00 2.70 5.70 6.09 8.04 8.36 9.65 10.78 6.12 8.45

 EMPLOYMENT

Small industries are the second largest employers of human resources, after agriculture They generate more number of employment opportunities per unit of capital invested compared to large industries They are,therefore, considered to be more labour intensive and less capital intensive. This is a boon for a labour surplus country like India

YEAR

NO. OF ENTERPRISES (Lakhs) 15.91 16.97 17.53 18.71 20.98 24.68 25.04 26.32

EMPLOYMENT (Lakhs) 93.58 96.98 101.06 104.71 107.46 108.99 106.87 109.42

GDP (%)

2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10

5.92 5.79 5.84 5.83 5.94 5.99 5.74 5.89

EXPORTS

SSI Sector plays a major role in India's present export performance. SSI Sector contributes 45%-50% of the Indian Exports Direct exports account for nearly 35% of total exports

 15% to exports indirectly It would surprise many to know that non-traditional products account for more than 95% of the SSI exports The product groups where the SSI sector dominates in exports, are sports goods,readymade garments, woolen garments and knitwear, plastic products, processed food and leather products

REGIONAL BALANCE DEVELOPMENT

Small industries which produce simple products using simple technologies and depend on locally available resources both material and labour can be set up anywhere in the country Since they can be widely spread without any locational constraints, the benefits of industrialisation can be reaped by every region Also help to reduce problems of congestion, slums, pollutionby providing employment and incomes in rural areas Help improve standard of living in suburban and rural areas They, thus, contribute significantly to the balanced development of the country

DEVELOPMENT OF ENTREPRENEURSHIP

Their significance in terms of fostering new entrepreneurship is well-recognized. This is because, most entrepreneurs start their business from a small unit which provides them an opportunity to

harness their skills and talents, to experiment, to innovate and transform their ideas into goods and services and finally nurture it into a larger unit. Provides ample opportunity for entrepreneurship

The latent skills and talents of people can be channelled into business ideas which can be converted into reality with little capital investment and almost nil formalities to start a small business

facilitate self employment and spirit of self reliance in society

LOW COST

Small industries also enjoy the advantage of low cost of production Locally available resources are less expensive Establishment and running costs of small industries are on the lower side because of low overhead expenses Infact, the low cost of production which small industries enjoy is their competitive strength

SIZE

Due to the small size of the organisations, quick and timely decisions can be taken without consulting many people as in large sized organisations New business opportunities can be captured at the right time

 Small industries are best suited for customised production. i.e. designing the product as per the tastes/preferences/needs of individual customers, say for an example tailor-made shirt or trouser The recent trend in the market is to go in for customised production of even non-traditional products such as computers and other such products They can produce according to the needs of the customers as they use simple and flexible production techniques thus providing healthy competition to big business which is good for the economy

RELATIONSHIP

small industries have inherent strength of adaptability and a personal touch and therefore maintain good personal relations with both customers and employees

CONSUMER SURPLUS

Produce wide range of products More than 8000 consumer items, capital goods and intermediat goods are produced

SSI UNITS (million) EMPLOYMENT GENERATED IN SSI (million) PRODUCTION: AT CURRENT PRICES (billion) EXPORTS (billion) SSI ACCOUNT INDUSTRIAL PRODUCTION EXPORTS GDP SHARE OWNERSHIP PATTERN: PROPRIETERSHIP PARTNERSHIP CORPORATE AND OTHERS INDUSTRIAL UNITS SERVICE ENTERPRISE ANCILLARY UNITS

12.3 29.5 4762.01 1215 40% 35% 7% 78% 16% 6% 96% 3% 1%

SSIs are doing an enormous trade in promoting export and international relations with their Desi caliber and talents