Unit II

Classification of Industries:
Initially Govt. of India classified Industries on the basis of
investment in plant and machineries. Investment criteria has been
changed from time to time and recently modified the definition
in May 2020.
Definition Pre May 2020
Criteria : Investment Based on plant and Machinery or
equipments
Classification Micro Small Medium large
Manufacturing Investment Investment Investment Investment
Sector < 25 Lac < 5 cr. < 10 cr. > 10 cr.
Service Sector Investment Investment Investment Investment
< 10 Lac < 2 cr. < 05 cr. > 05 cr.

Revised Definition ( May2020)

Composite Criteria : Investment Based on plant , Machinery ,
equipments and Annual turnover
Classification Micro Small Medium large
Manufacturing Investment Investment Investment Investment
and service < 1 cr. < 10 cr. < 20 cr. > 20 cr.
sector and and and and
Turnover < Turnover < Turnover < Turnover >
5 cr. 50 cr. 100cr. 100 cr.

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Importance of SSI in Indian economy:
Small scale industries are important because it helps in

increasing employment and economic development of India. It

improves the growth of the country by increasing urban and rural

growth. Role of Small and medium scale enterprises are to help the

government in increasing infrastructures and manufacturing

industries, reducing issues like pollution, slums, poverty, and many

development acts. Small scale manufacturing industries and cottage

industries play a very important role in the economic development of

India. If any amount of capital is invested in small scale industries it

will help in reducing unemployment in India and increasing self-

employment. The industry is a sector in which the production of

goods is a segment of the economy.

Every small-scale industry plays a big role in the Indian economy.

Apart from providing employment to crores of people, it has the

added benefit of minimum capital requirements. The government also

offers several tax benefits to SSI for this purpose.

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Furthermore, they can exist in urban as well as rural areas. Small

Scale Industries have been able to compete with large-scale industries

and multinational corporations because of this. Due to reasons like

these, they are of great importance.

There are about 2.7 million small scale units producing around Rs.

3,37,000 crores worth of goods and employing about 15 million

people. Exports from SSI sector for 1995-96 has been estimated at

about Rs. 34000 crores. At present, the small scale sector at present

accounts for about 40% of industrial production and 35% of the

exports of the country.

The following are some specific roles that SSIs play in the Indian

economy:

1. SSI Increases Production

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India is one of the world’s fastest growing economies in the world.

Consequently, its production output is massive. It is pertinent to note

that SSIs contribute almost 40% of India’s gross industrial value.

These industries produce goods and services worth over Rs. 40 lakhs

for every investment of Rs. 10 lakhs. Furthermore, the value addition

in this output increases by over 10%.

Here is another interesting statistic about Small scale industries. The

number of Small Scale Industries in India increased from around 8

lakhs in 1980 to over 30 lakhs in 2000.

This figure has grown even more in recent years owing to the

government’s ‘Ease of Doing Business’ policies.

As a result of this, the total industrial production output rose

tremendously in the last few years. SSIs are, therefore, strongly

responsible for the growth of India’s economy.

2. SSI Increases Export

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Apart from producing more goods and services, SSIs have been able

to export them in large numbers as well.

Almost half of India’s total exports these days come from small-scale

businesses.

35% of the total exports account for direct exports by SSIs, while

indirect exports amount to 15%.

Even trading houses and merchants help SSIs export their goods and

services to foreign countries.

3. SSI Improves Employment Rate

It is important to note firstly that Small Scale Industries employs

more people than all industries after agriculture.

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Almost four persons can get full employment if Rs. 10 lakhs are

invested in fixed assets of small-scale sectors.

Furthermore, SSIs employ people in urban as well as rural areas.

Consequently, this distributes employment patterns in all parts of the

country and prevents unemployment crisis.

4. SSI Open New Opportunities

Small-scale industries offer several advantages and opportunities for

investments.

For example, they receive many tax benefits and rebates from the

government. The opportunity to earn profits from SSIs are big due to

many reasons.

SSIs are less capital intensive. They even receive financial support

and funding easily.

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Secondly, procuring manpower and raw materials is also relatively

easier for them. Even the government’s export policies favour them

heavily.

5. SSI Advances Welfare

Apart from providing profitable opportunities, Small Scale Industries

play a large role in advancing welfare measures in the Indian

economy as well.

A large number of poor and marginalized sections of the population

depend on them for their sustenance.

These industries not only reduce poverty and income inequality but

they also raise standards of living of poor people. Furthermore, they

enable people to make a living with dignity.

Organisation to assist SSI

Central Level

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1. All India SMALL SCALE INDUSTRIES BOARD

:Established in 1945 to provide effective coordination and inter-

institutional linkages for the benefit of small scale sector. It is

responsible for overall planning, coordination and development of

SSI in the country. It consists of state and central govt officers,

representative of various institution, financial bodies, Industries ,

trade etc. It deals with the supply of raw material , credit policies,

review policies and formulate new policies for the development of

SSI.

2. SMALL INDUSTRIES DEVELOPMENTORGANISATION

(SIDO) Constituted in 1954 to develop support services for

promotion of SSS. Main objectives of SIDO are:♦ To formulate

policy for promotion of SSI Its main object is to maintain close

relation with different organization and institution at central and

state level. Its main function are

 coordination

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  Industrial development: It helps in procure of raw

material and machinery. It also provide technical advice.

 Industrial extension services : It works for marketing

assistance , training to improve productivity and

competitiveness.

3. NATIONAL SMALL INDUSTRIESCORPORATION (NSIC)

Set up by government of India in 1955. Main functions are:

Supply of machinery and equipment., Provision of financial

assistance. Assistance for arrangement of raw materials.

Establishment of technology transfer centers. Arrangement of

marketing assistance. Priority in government purchase programme,

Construction of industrial estate , establishment and running of

proto type production cum training center.

4. Small industry service Institute (SISI):

It provides a wide range of services, predominantly promotional in
character, to small-scale industries.

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Its main functions are to:

a. Provide machinery on hire-purchase scheme to small-scale industries.

b. Provide equipment leasing facility.

c. Help in export marketing of the products of small-scale industries.

d. Participate in bulk purchase programme of the Government.

e. Develop prototype of machines and equipments to pass on to small-

scale industries for commercial production.

f. Distribute basic raw material among small-scale industries through

raw material depots.

g. Help in development and up-gradation of technology and

implementation of modernization programmes of small-scale industries.

h. Impart training in various industrial trades.

i. Set up small-scale industries in other developing countries on turn-key
basis.

j. Undertake the construction of industrial estates.

State Level Agencies

1. Directorate of Industries

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Function and Objectives

The primary function and objectives of the Directorate of Industries

are supervision and control of District Level functionaries, i.e., the

District Industries Centers in implementation of the various

schemes and programmes of the Department.

The basic objective of the Department is also to act as the Nodal

Promotional Agency in the development of industries and industries

activities in the State as a whole.

And to promote and achieve the above-mentioned purpose, the

Department organises and implements various programmes and

schemes to provide the basic infrastructural facilities for the

creation of industrial awareness and atmosphere viz.,

• Investment Awareness Programmes

• Entrepreneurship Development Programmes

• Workshop and seminars etc.

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Besides, the Department also runs regular vocational training

courses for creation of skilled manpower in the following trades: –

• Knitting

• Tailoring and Embroidery

• Carpentry and Furniture making

• Leather, Blacksmith and Fabrication

• Carpet Weaving

To achive the above purpose, regular sponsoring with stipend is also

offered to local youths for under-going training and study courses

both inside and outside the State.

The Department also provides grants-in-aid loans to some of the

autonomous bodies and subsidiaries , every year.

To accelerate the pace of industrialization process, infrastructure

development and development of industrial areas and estates are

being given importance.

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Financial Assistance is made available to tiny/ cottage, to large/

medium sector of industrial units in the form of grants-in-aid to

technical entrepreneurs to package scheme of incentives and central

transport subsidy.

Some of the scarce raw materials like paraffin wax, iron and steel

materials are also allotted to registered industrial units at

concessional rates.

Every year, a number of local entrepreneurs are nominated for

selection of National Awards to: –

• Small Scale Industries and

• Handloom and Handicrafts Artisans.

2. District Industries Center(DIC):

A District Industries Center is an institution established at the

district level so as to provide them to set up small and village

industries there.

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Before the setting up of DIC, a prospective entrepreneur has to go to

several agencies, many of them far from his district, in order to get

the necessary assistance and facilities. This caused considerable

delay, waste of time and money.

Now suitable powers have been delegated by several departments of

the State Government to the District Industries Center. Thus an

entrepreneur can get all the assistance he needs from a single agency

itself i.e. DIC.

Function:

• 1. Survey and Investigation

• 2. Training Courses
• 3. Machinery and Equipment
• 4. Raw Materials
• 5. Arrangements for Loans
• 6. Marketing
• 7. Khadi and Village Industries

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3. TECHNICAL CONSULTANCY ORGANISATIONS (TCOs)

All India financial institutions and state governments have set

up a net work Of technical consultancy organizations. .

The functions of the TCOs include, conducting surveys on

industrial potential, preparing project profiles, undertaking

techno-economic appraisal of projects, carrying out market

research, providing technical and managerial assistance to

entrepreneurs, assistance in modernisation, technology up

gradations and rehabilitation programmes and organising

information cell and Data Bank concerning industrial and

economic activities and provide these to entrepreneurs.

Financial Institution for SSI:

1. State Finance Corporations (SFCs)

2. Commercial Banks

3. Small Industries Development Bank of India (SIDBI)

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4. Industrial Finance Corporation of India (IFCI)

5. Small Industries Development Fund (SIDF)

6. National Small Industries Corporation

7. National Bank for Agriculture and Rural Development

(NABARD)

8. Central Government Stores Purchase Programme

9. SIDO and Marketing Assistance to Small Scale Industries

Reservation of items for SSI:

The reservation policy was initiated in 1967 with 47 items which

was enlarged to 504 items by 1978. In 1978, the reservation list

was recast into NIC codes which converted these items to 807.

Since then, from time to time some items have been added and

also some items have been delated from the list. In addition

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 based on the requirements, the nomenclature of certain items

has also been changed. As on today, there are 836 items

reserved for exclusive manufacture in the small scale sector. It

may be mentioned that the small scale sector produces over

7500 items. As per the second All India Census of small scale

industries held for 1987-88, reserved items accounted for 11.3%

of the total number of items produced and 28.3% of the total

production in the SSI sector. Factors considered for reservation

of items are as under

i) Interests of small industries.

ii) The minimum economic scale of production.

iii) The need for technological upgradation.

iv) National and international competitiveness.

v) Productivity.

vi) Serving consumer interests.

vii) The import and export policy particularly export orientation of

small enterprises.

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viii) Labour intensity.

ix) Other related considerations as deemed appropriate.

Facilities , incentives and Concession to SSI

Many incentives are provided both by the Central and State

Governments to promote the growth of small-scale industries

and also to protect them from the onslaught of the large-scale

sector. Among the various incentives given to small-scale

industries the following deserve special mention:

1. Reservation of items:

2. Preference in Government purchases:

3. Price preference:

The SSI units are given price preference up to a maximum of 15

per cent in respect of certain items purchased both from small-

scale and large-scale units.

4. Supply of raw materials:

5. Excise duty/ GST :

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In respect of SSI units excise duty concessions are granted to

both registered and unregistered units on a graded scale

depending upon their production value. Full exemption is

granted up to a production value of Rs.30 lakhs in a year and 75

% of normal duty is levied for production value exceeding Rs.30

lakhs but not exceeding Rs.75 lakhs. If the production value

exceeds Rs.75 lakhs, normal rate of duty will be levied.

6. RBI’s credit guarantee scheme:

7. Financial assistance:

Small-scale industries are brought under the priority sector. As

a result, financial assistance is provided to SSI units at

concessional terms by commercial banks and other financial

institutions. With a view to providing more financial assistance

to the small-scale sector, several schemes have been introduced

in the recent past the Small Industries Development Fund

(SIDF) in 1986, National Equity Fund (NEF) in 1987 and the

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Single Window Scheme (SWS) in 1988. SIDF provides refinance

assistance to small-scale and cottage and village industries and

the tiny sector in rural areas. NEF provides equity type support

to small entrepreneurs for setting up new projects in the

tiny/small-scale sector. In 1996, the small-scale sector received

42.3 per cent of the total priority sector advances from public

sector banks.

8. Technical consultancy services:

The Small Industries Development Organisation, through its

network of service and branch institutes, provides technical

consultancy services to SSI units. In order to provide the

necessary technical input to rural industries, a Council for

Advancement of Rural Technology was set up in October, 1982.

The Technical Consultancy Organisation renders consultancy

services to SSI units at a subsidised rate. Many financial

institutions are also providing subsidies to SSI units for availing

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of consultancy services. For instance, small entrepreneurs

proposing to set up rural, cottage, tiny or small-scale units, can

get consultancy services at a low cost from the Technical

Consultancy Organisations approved by the All-India and State-

level financial institutions.

They have to pay only 20% of the fees charged by a technical

consultancy organisation. The entire balance of 80% or

Rs.5, 000 whichever is lower is subsidized by the Industrial

Finance Corporation of India.

9. Machinery on hire purchase basis:

The National Small Industries Corporation (NSIC) arranges

supply of machinery on hire purchase basis to SSI units,

including ancillaries located in backward areas which qualify

for investment subsidy. The rate of interest charged in respect of

technically qualified persons and entrepreneurs coming from

backward areas are less than the amount charged to others. The

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earnest money payable by technically qualified persons and

entrepreneurs from backward areas is 10% as against 15% in

other cases.

10. Transport subsidy:

The Transport Subsidy Scheme, 1971 envisages grant of a

transport subsidy to small-scale units in selected areas to the

extent of 75 % of the transport cost of raw materials which are

brought into and finished goods which are taken out of the

selected areas.

11. Training facilities:

The Entrepreneurship Development Institute of India, financial

institutions, commercial banks, technical consultancy

organisations, and NSIC provide training to existing and

potential entrepreneurs.

12. Marketing assistance:

The National Small Industries Corporation (NSIC), the Small

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Industries Development Organisation (SIDO) and the various

Export Promotion Councils help SSI units in marketing their

products in the domestic as well as foreign markets. The SIDO

conducts training programmes on export marketing and

organises meetings and seminars on export promotion.

13. District Industries Centres (DICs):

The 1977 Industrial Policy Statement introduced the concept of

DICs. Accordingly a DIC is set up in each district. The DIC

provides and arranges a package of assistance and facilities for

credit guidance, supply of raw materials, marketing etc..

Procedure to set up SSI

Here are some steps to set up a small scale industry:-

1. Selection of Product

2. Location of Enterprise

3. Deciding Organisation Pattern

4. Preparation of Project/Feasibility Report

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5. Registration with Authorities

6. Statutory Licences/Clearances

7. Arranging Finance

8. Obtaining Land and Building , Machinery, Power connection,

water supply and Few Others.

Ministry of micro, small and medium enterprises (MSME)

defined 8 distinct step to micro, small and medium industries ,

which can be seen at

http://dcmsme.gov.in/howtosetup/getstart.htm

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