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ESS

M & E UNIT 6

Unit -6 Small Scale Industry and Institutional Support.

1. Discuss steps to start a small scale industry (SSI).

A. Steps to start SSI

· Selection of the product

· Location of the enterprise

· Preparation of the project report

· Registration with authorities

· Arranging finance

· Statuary license

· Obtaining land and building

· Procurement of machinery

· Arranging working capital

· Recruitment of staf

· Installation of machinery

· Procurement of raw material

· Power connection / power supply

· Production

· Marketing

· Repayment of loans

· Profit generation

· Avoiding sickness

· Modernization and upgradation of technology

2. Discuss the contribution of Small scale Industries in Indian economy.

A.

In a developing country like India, the role and importance of small-scale industries is very significant
towards poverty eradication, employment generation, rural development and creating regional balance
in promotion and growth of various development activities.

It is estimated that this sector has been contributing about 40% of the gross value of output produced in
the manufacturing sector and the generation of employment by the small-scale sector is more than five
times to that of the large-scale sector.

This clearly shows the importance of small-scale industries in the economic development of the country.
The small-scale industry have been playing an important role in the growth process of Indian economy
since independence in spite of stif competition from the large sector and not very encouraging support
from the government.

The following are some of the important role played by small- scale industries in India.

1. Employment generation:

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

2. Mobilisation of resources and entrepreneurial skill:

Small-scale industries can mobilize a good amount of savings and entrepreneurial skill from rural and
semi-urban areas 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 ;re being mobilised by the small-scale sector for the
development of the economy.

3. 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.

4. Regional dispersal of industries:

There has been massive concentration of industries m a few large cities of diferent states of Indian
union. 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 of
over-crowding, pollution, creation of slums, etc. This problem of Indian economy is better solved by
small- scale industries which utilise local resources and brings about dispersion of industries in the
various parts of the country thus promotes balanced regional development.

5. Provides opportunities for development of technology:

Small-scale industries have tremendous capacity to generate or absorb innovations. They provide ample
opportunities for the development of technology and technology in return, 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. It also facilitates the transfer of technology from one to
the other. As a result, the economy reaps the benefit of improved technology.

6. Indigenisation:

Small-scale industries make better use of indigenous organisational and management capabilities by
drawing on a pool of entrepreneurial talent that is limited in the early stages of economic development.
They provide productive outlets for the enterprising independent people. They also provide a seed bed
for entrepreneurial talent and a testing round for new ventures.

7. Promotes exports:

Small-scale industries have registered a phenomenal growth in export over the years. The value of
exports of products of small-scale industries has increased to Rs. 393 crores in 1973-74 to Rs. 71, 244
crores in 2002-03. This contributes about 35% India's total export. Thus they help in increasing the
country's foreign exchange reserves thereby reduces the pressure on country's balance of payment.

8. Supports the growth of large industries:

The small-scale industries 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, components, accessories and semi finished goods required by them. In fact, small industries
can breath vitality into the life of large industries.

9. Better industrial relations:

Better industrial relations between the employer and employees helps in increasing the efficiency of
employees and reducing the frequency of industrial disputes. The loss of production and man-days are
comparatively less in small- scale industries. There is hardly any strikes and lock out in these industries
due to good employee-employer relationship.

Of course, increase in number of units, production, employment and exports of small- scale industries
over the years are considered essential for the economic growth and development of the country. It is
encouraging to mention that the small-scale enterprises accounts for 35% of the gross value of the
output in the manufacturing sector, about 80% of the total industrial employment and about 40% of
total export of the country.

3. Explain objectives of small scale industries.

A. The significance contribution in the economic and social development of a country

1. To utilize locally available raw material

2. To meet local demands

3. To utilize locally available skills and technologies

4. To create employment opportunities by making use of locally available traditional technologies

5. To contribute to balanced regional development

6. To promote production

7. To contribute to exports SSI must help the economy by contributing to the exports basket in large
measures

8. To adopt modern technologies

4. Discuss the sources of finance for small scale Industries.

A. The government has always accorded significance to the small scale sector as a means of self –
employment and ensuring balance economic development of various regions.

Investment in small scale in successive five years plans:

Public sector investment in small scale increased from Rs. 5.2 crore in 1st five year plan (1951-1956) and
Rs. 616 crore in stock (1985-90)

A new products and processes capable of being manufactured in the small scale sector are identified,
they are added to the reserved list.

National equity fund:

To help entrepreneurs to set up more small units, the government set up the national equity fund in
1987, by Industrial Development Bank of India (IDBI) SSI. In Feb 1988 government established separated
open bank called the Small Industries Development Bank of India (SIDBI) as a subsidiary of the IDBI
under national equity fund.

Reserve bank policy for credit to SSI:

In 1993 the RBI directed the commercial banks to meet the working capital needs of small units by
working out the normative requirement at 20% of the annual output subject to a limit of Rs.1 crore. RBI
also suggested the banks to set up specialized branches in 85 specific districts where small unit had
sizeable concentration.

Banks and financial institutions:

A network of state financial corporations, National small industries corporation, state small industries
corporations, commercial banks, co-operative banks, regional rural bank provide financial assistance to
small scale units. SIDBI provides refinance to the industrial loans advanced by these institutions to the
small scale sector.

5. Explain concept and characteristics of small scale Industries.

A. The definition of small scale industry varies from one country to another country. The first official
criterion for small scale industry dates back to the second five year plan when it was in terms of gross
investments in land, building plant and machinery and the strength of the labour force.

Characteristics of small scale industries:

· Organized proprietary units in India -70% SSG proprietary.

· Operate in localized area -catering to local requirement

· Required limited capital

· Using simple technologies –extensive use of individual skill

· Individual tastes and fashions, personalized services to their customers.

· High degree of flexibility – their survival and growth in changing business environment

· Started easily without much legal formalities

· Benefits of the state protection, concession and facilities from government

· System is owner managed so decisions are quicker and automatically co ordinate

· Personal touch with labours and consumers

6. Discuss scope of small scale industries in India.

A. Suitable for the Indian economy which is shorted of capital and labour intensive.

In India small scale enterprise provided 140 lakh new jobs with the establishment of 23 lakh small unite
in 1993-94 alone.

They contribute as much as 35 to 40% of direct exports

Higher per unit output of capital invested and per unit of energy used

They reinvest a major portion of their profits out of necessity and thus help in increasing national
production

They are more flexible and innovative than large firms.

They may be loss damaging to the environment

They help in harnessing youth

7. Identify the sickness signals among small scale industries.

A.

· Persisting irregular in cash credit account

· Slow turnover in the account

· Bill/cheques returned unpaid

· Routing transactions with the other bank

· Large cash drawing

· Irregularity of submission of stock statements

· Heavy rejection of goods dispatched

· Heavy dependence on external fund

· Continuous increase in losses

· Undepreciated fixed assets

· Unsatisfactory market report

· Recession among partners

· Labour unrest
8. Discuss causes of sickness in small scale industries.

A. Causes of sickness in small scale industries

Some of the common causes discussed as follows:-

Problem in production:

Problem in production may arise due to,

- Machine breakdowns, poor maintenance

- Poor quality of raw materials use

- Poor labour productivity

- Power shortage

- Lack of production planning and control

- Delayed supplies from sub contractors

- Poor industrial relations

Lack of orders:

A unit may sufer as it does not get enough order to match its production target. The lack of
order could be due to,

- Competition

- Recession

- Irregular deliveries

- Poor marketing eforts

Lack of raw materials:

 Poor supply of raw material could be due to,

- National or regional shortage

- High cost

- Lack of planning

- Poor quality

- Uncertain suppliers

Cash crunch:

This arises due to diversions of fund, poor collections, unplanned payments to creditors, high
inventory

Increased cost of raw material:

Increased overhead cost:

9. Identify and explain preventions group of Sickness units.

A. Four group can play a dominate role in preventing units from sickness. There are term lending
institutions, commercial banks, entrepreneurs, and the government.

Term lending institutions:

( organization such as bank, credit union or finance company that makes loans)

If the term lending institutions take the following step, sickness can be prevented.
- Proper appraisal of management of the project

- Extra care in assessing the suitability, technical feasibility of plant and machinery

- Ensuring the timely implementation of the project

Commercial banks:

The commercial banks are the one providing resources for serving successfully they have to take
following steps to prevent sickness.

- Give notice to unit if their withdrawals in the account is exceed to the permissible drawing power

- Frequent interaction with the entrepreneur

The entrepreneur:

The success of the unit surely depends on the ability and sustainable eforts of the entrepreneur.
They can prevent sickness by,

- Selecting the appropriate supplier

- Doing the homework properly

- Paying adequate attention to the deficiencies in the unit

- Careful selection of the partners

The government:
 The government can help in controlling sickness by not making sudden changes in the industrial
policy.

- Several changes related to existing unit

- Policy to discourage new investment

- Withdrawal of suboidies

- Opening up of reserved items for big industries

10. Write notes on –National Small Industries Corporation (NSIC).

A. In context of liberalization NSIC has been reorienting its strategies for developing competition
ability in small scale units. NSIC ofers an integrated package of financial services of long range interest to
the small scale. NSIC is planned to highlight the innovative approaches to strengthen the small scale
units at technological upgradation, adoption of new processes and technologies, diversification and
improvement of R&D capability apart from export orientation.

NSIC was established by the union ministry of industry in 1955 to promote, aid and foster the growth of
small scale industry in the country. NSIC continues to remain in the forefront of industrial development
throughout the country with its multifaceted program and projects for SSI. On 19th April 1995 NSIC
celebrated 40th anniversary.

NSIC and the government stores purchase scheme:

The NISC was set up with the objective of supplying machinery and equipment to small enterprise on a
hire purchase basis and assisting them in procuring government orders for various items of stores.

It is mainly concerned with central government stores purchases, consortia ( a combination of financial
institutions ) marketing, marketing development centers etc.

The main objective of marketing program of NSIC are as follows :-

- To ensure fair margin to production of goods

- To ensure standardization and quality control and make provision for testing facilities

- To introduce a common brand name

- To give publicity to small industries’ product

- To upgrade technology by supplying modern sophisticated machinery and equipment

- To make available to the customers quality goods at fair price

11. Write notes on –District Industries Center (DIC).

A. In each district one agency to deal with all requirements of small and village industries. This is
called “DIC”.

DIC have undertaken various program for investment promotion at the grass root level such as organizing
seminars, workshops, extending support for trade fairs and exhibitations organized by various industries
associations.

The center has separated wing to look after the special needs of cottage and house hold industries as
district from small industries.

Functions of DICs:-

- Registration

- Recommendation

- Seminars

- Other activities

- Self employment scheme

- Co –operative package scheme

12. Write notes on –Small Industries Development Bank of India (SIDBI).

A. For ensuring layer flow of financial and non-financial assistance to the small scale units, the
government of India set up the SIDBI and the special act of parliament in 1989 as a owned subsidiary of
the IDBI.
The important function of IDBI are as follows:

- To initiate steps for technological upgradation and modernization of existing units

- To expand the channels for marketing the products of SSI

- To promote employment oriented industries especially in semi-urban areas

In 1992-93 it has introduced two new schemes:

The first is equipment finance scheme for providing direct finance to existing well run small scale
units taking up technology upgradation.

The other scheme was venture capital and exclusively for small scale units, with an initial croups
of RS. 10 crore. SIDBI also providing leasing, hire purchase and marketing support to the industrial units
in the small scale sector.

13. Write notes on –Small Scale Industries Board (SSIB).

A. The government of India constituted a board SSIB in 1954 to advice on development of small scale
industries in the country. The SSIB is also kwon as central small industries board. It is an apex advisory
body constituted to render advice to the government on all issues pertaining to the development of
small scale industries.

The industries minister of the government of India is the chairman of the SSIB. The SSIB comprises of 50
members of parliament and secretaries of various department of government of India, financial
institutions, public sector undertakings, industry associations and eminent experts in the field.

14. Write notes on –Industrial Development Bank of India (IDBI).

A. Refer question no. 12

15. Write notes on –Small Industries Development Organization (SIDO).

A. SIDO is the subordinate office of department of SSI and ARI. It is a nodal agency for identifying the
needs of SSI units coordinating and monitoring the polices and program of training, consultancy,
evaluation for needs of SSI and development of industrial estates. All these functions are taken care with
27 offices, 31 SSI extension centers, 7 center related to production and process development.
The activities of SIDO are divided into three categories.

1. Coordination activities of SIDO:

To maintain relation with central industry ministry, planning commission, state level industries ministry
and financial institutions.

Implement and coordinate in the development of the industrial estates.

2. Industrial development activities of SIDO:

Develop import substitutions for components and products based on the data available for various
volume wise and value wise imports.

To give support and guideline for the development of ancillary units.

To provide guideline to SSI units in term of costing market competitions and to encourage them to
participate in the government stores and purchase tenders.

To recommend the central government for reserving certain items to produce at SSI level only.

3. Management activities of SIDO:

To provide training, development and consultancy services to SSI to develop their competitive strength.

To provide marketing assistance to various SSI units.

To assist SSI units in selection of plant and machinery, location, layout, design and appropriate process.
To help them get updated in various information related to the small scale industries activities.

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