SMALL SCALE

INDUSTRIES

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Introduction
 At present the Small Scale Industry (SSI) constitutes a Very
Important Segment of the Indian Economy & has emerged as a
Dynamic & Vibrant Sector of the Economy.

 The Small Scale Industry Sector holds the Key to

Economic Prosperity of the Indian Economy, Characterized by
abundant Labor Supply, Unemployment & Under Employment ,
Scarcity of Finance, Growing Modern Large Industries
providing scope for development of Ancillary Industries & so
on. The Small Scale Industry has grown phenomenally during
the last Six Decades & has acquired a very prominent place in
the Socio – Economic Development in the Country.

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Objectives of Developing
Small Enterprises :
 Reasons for Developing Small Enterprises in India can
be enumerated as follows :
1) To generate Large Scale Employment Opportunities
for the Unemployed speedily with relatively Low
Investment.
2) To Eradicate Unemployment Problem from the
Country.
3) To encourage dispersal of enterprises to all over the
country covering Rural Areas , smaller towns &
economically backward regions.
4) To bring Backward Regions too in the mainstream of
national development.

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 5) To promote balanced regional development in the Whole
Country.
6) To ensure more equitable distribution of National Wealth
& Income.
7) To encourage effective mobilization of Untapped
Resources of the Country.
8) To improve Socio – Economic Conditions & Standard of
Living of the people in the Country.
9) To seize the Vast Opportunities created for Small
Enterprises due to Liberalization & Globalization policies of
the Govt of India.
10) To help earn Vital Foreign Exchange for the Country thro
Exports of Goods / Services of Small Enterprises.
11) To bring more Revenue to the Central & State Govts by
way of Taxes.

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 This Sector accounts for about 40% of the Country’s Total Exports.

 Various Policy Initiatives undertaken by the Central Govt & Various

State Govts whether by way of Incentives or protection, have helped the
sector in acquiring the Status of a Major Contributor in the Growth Process.

 The Process of Liberalization & Economic Reforms, since 1991, while

creating Tremendous Opportunities for the Growth of Small Scale Industrial
Sector, have however thrown up new Challenges for the Sector. This
changed Industrial Scenario, has called for building Competitive Strengths,
Improving Quality & Productivity, Introducing Technology Up gradation,
reducing Wastages & Rejections, Intelligent Use of Resources, Employing
Modern Management Techniques etc in order to withstand growing
competition & for ensuring sustained growth.

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Concepts &
Definitions of Small
Scale Industry :
 It Comprises a Variety of Undertakings.

 These definitions generally relate to either the Capital Invested or

people employed or both or any other relevant criteria.

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Classification &
Definition of
Industries :
 The earlier concept of Industries has been changed to Enterprises.
Enterprises have been classified broadly into Two Categories as Under
:
1) Manufacturing Enterprises : Enterprises which are engaged in the
Manufacture / Production of Goods pertaining to any Industry are
referred to as “Manufacturing Enterprises”.

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2) Service Enterprises : Enterprises which are engaged in providing /
rendering of Services are referred to as “Service Enterprises.”
I) Manufacturing Enterprises : They have been defined in terms of
Investment on Plant & Machinery (Excluding Land & Buildings) & further
classified into 3 Categories as under :
a) Micro Enterprises : An Enterprise where the Investment on Plant &
Machinery is upto Rs. 25 Lakh is referred to as a “Micro Enterprise.”

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 b) Small Enterprises : An Enterprise where the
Investment on Plant & Machinery is above Rs. 25 Lakh
upto Rs. 5 Crore is referred to as “Small Enterprise.”
c) Medium Enterprises : An Enterprise where the
Investment on Plant & Machinery is above Rs. 5 Crore
& upto Rs. 10 Crore is referred to as “Medium
Enterprise.”
II) Service Enterprises :
They have been defined in terms of their
Investment in Equipment (excluding Land & Building)
& further classified into 3 Categories as under :

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 1) Micro Enterprises : An Enterprise where the
Investment in Equipment is upto Rs. 10 Lakh is
referred to as “Micro Enterprise.”

2) Small Enterprises : An Enterprise, where the

Investment in equipment is above Rs. 10 Lakh &
upto Rs. 2 Crore is referred to as “Small Enterprise.”

3) Medium Enterprises : An Enterprise, where

the Investment in Equipment is above Rs. 2 Crore &
upto Rs. 5 Crore is referred to as “Medium
Enterprise.”

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EmErgEncE OF SSI UnITS In
InDIA

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 SSI Pre-independence
Before Independence, the present small scale industry was
meant to denote the village and the urban cottage industry.
This group included a variety of industries ranging from
manufacturing of Iron safes, locks, carpets, marble jigs, baskets,
hand-loom cloth and the like.
In fact, at that time the term „cottage and Small scale industries‟
was used in juxtaposition to large scale industries, which were
established under the British patronage.
They received encouragement and support during the freedom
movement.
The small scale industries found a prominent place in the
economic programme envisaged by the Indian National
Congress.

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 SSI Post-Independence
After 1947
Jawaharlal Nehru maintained separate entities of small scale industries. He was of the
view that a small industry was the middle sector and it would overlap both the cottage
and the large industries.
1977 industrial Policy
The basic policy support of SSI sector had its roots in the Industrial Policy Resolution
1977, laid emphasis on reservation of items.
The reservation economically viable and technologically feasible products to be
exclusively manufactured by small scale industry began with a list of 47 items which
was gradually extended to too many products.
At Present 812 items are in the reserved list.

The limit on the fixed capital investment for SSI’s was Rs 7.5 lakhs and for ancillaries it
was Rs 10 lakhs. After the Industrial Policy, the ceiling for investment for SSI’s was
raised to Rs 60 lakhs and Rs 70 lakhs for ancillaries .

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 WHY WE nEED SSI?
FOR EMPLOYMENT GENRATION
FOR BALANCE REGIONAL GROWTH
FOR MOBILISATION OF LOCAL RESOURCES
FOR EXPORT PROMOTION
FOR CONSUMER SURPLUS
FOR DEVELOPMENT OF ENTERPRENEURSHIP
FOR LARGE SCALE EMPLOYMENT WITH LOW
INVESTMENT
FOR ATTAINING SELF RELIANCE AND SELF
DEPENDANCE
FOR ENSURING EQUAL DISTRIBUTION OF
INCOME AND WEALTH

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Need & Rationale of
Small Scale Industry
Development in India :
 As per the IPR (Industrial Policy Resolution),1956, it
emphasizes the Need & Rationale as given below :

 “They provide immediate large scale employment, they

offer a method of ensuring a more equitable distribution of the
National Income & they facilitate an Effective Mobilization of
Resources of Capital & Skill which might otherwise remain
unutilized. Some of the problems that unplanned urbanization
tends to create will be avoided by the establishment of Small
Centers of Industrial Production all over the Country.”

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 SCOPE OF SSI IN
DIFFERENT SECTORS

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MANUFACTURING
INDUSTRIES

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TRADING INDUSTRIES
Person or firm that buys large
 quantity of goods from various
 producers or vendors, warehouses 
them, and resells to retailers. 

A business or person that sells goods to 
the consumer, as opposed to 
a wholesaler or supplier, who normally sell 
their goods to another business.

Commission agents thrive in a variety of 
businesses. International agents work in the 
export/import arena. Insurance and real estate 
agents also often work on a sales-based 
commission.

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SERVICES INDUSTRIES

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ROLE OF SSI IN ECONOMIC DEVELOPMENT
  The Role of Small Enterprises in Economic
Development of our Country can be discussed with
reference to the following parameters during the last
Four Decades :
1) Increase in the Number of Small Enterprises.
2) Increase in the Value of Production in Rupee
Terms.
3) Increase in the Number of People Employed.
4) Increase in the Export Earnings in Rupee
Terms.

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The Small Enterprises have registered phenomenal growth in their
Number, Production, Employment & Exports over the Last Four Decades.
In 1950, there were 16,000 Registered Small Scale Industries & this
has increased to 31.21 Lakh Registered SSI’s during 1998 – 1999.
During 1973 – 74, the Total Value of Production reported by SSI’s was
Rs. 7200 Crores & this has grown phenomenally by about 75 Times to Rs.
5,38,357 Crores during 1998 – 1999.
As regards Employment, about 40 Lakh People were employed in
SSI Sector during 1973 – 1974 & there is a Four Fold Increase in
Employment during 1998 – 1999, that is 175.2 Lakh People were
employed in SSI Sector during 1998 – 1999.

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Production From Small Scale Industries
 Production per 
employee (Rs. 
Employment (Lakh thousand) at 
Year Nos.) 1993-94 prices
1990-91 158.3 54
1991-92 166 53
1992-93 174.8 53
1993-94 182.6 54
1994-95 191.4 57
1995-96 197.9 61
1996-97 205.9 66
1997-98 213.2 69
1998-99 220.6 71
1999-00 229.1 74
2000-01 238.7 77
2001-02 249.3 78
2002-03 260.2 81
2003-04 271.4 84
2004-05 282.6 89
2005-06 294.9 93
EMPLOYMENT
  SSI Sector in India creates largest employment opportunities 
for the Indian populace, next only to Agriculture.

  It has been estimated that 100,000 rupees of investment in 
fixed assets in the small-scale sector generates employment 
for four persons. 
Generation of Employment - Industry
Group-wise
  Food products industry has ranked first in generating 
employment, providing employment to 0.48 million persons 
(13.1%).
  The next two industry groups were Non-metallic mineral
products with employment of 0.45 million persons (12.2%) 
and Metal products with 0.37 million persons (10.2%). 
  In Chemicals & chemical products, Machinery parts, Wood
products, Basic Metal Industries, Paper products &
printing, Hosiery & garments, Repair services and Rubber
& plastic products, the contribution ranged from 9% to 5%, 
the total contribution by these eight industry groups being 
49%.
  In all other industries the contribution was less than 5%.  
 Employment Distribution

Rural
 Non-metallic products contributed 22.7% to employment generated in rural 
areas. Food Products accounted for 21.1%, Wood Products and Chemicals 
and chemical products shared between them 17.5%.
Urban 
 As for urban areas, Food Products and Metal Products almost equally shared 
22.8% of employment. Machinery parts except electrical, Non-metallic 
mineral products, and Chemicals & chemical products between them 
accounted for 26.2% of employment. 

 In metropolitan areas the leading industries were Metal products, 
Machinery and parts except electrical and Paper products & printing (total 
share being 33.6%). 
State-wise Employment
Distribution
  Tamil Nadu (14.5%) made the maximum contribution to 
employment. 
  This was followed by Maharashtra (9.7%), Uttar Pradesh 
(9.5%) and West Bengal (8.5%) the total share being 27.7%. 
  Gujarat (7.6%), Andhra Pradesh (7.5%), Karnataka (6.7%) 
and Punjab (5.6%) together accounted for another 27.4%. 
STATE-wISE EMPlOyMENT
DISTRIbUTION

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  No of Employment in Small Scale Industries in India.
30
 EXPORT
SSI Sector plays a major role in India's
present export performance.
This takes place through merchant
exporters, trading houses and export
houses. They may also be in the form of
export orders from large units or the
production of parts and components for use
for finished exportable goods.
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.
SSI Sector contributes about 45%-50% of
the Indian Exports.

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 Major Export
DEstination
S. NO PRODUCT GROUP MAIN DESTINATION

1 READYMADE GARMENT USA,WEST ASIA,NORTH AFRICA

2 SPORTS GOODS
3 SPICES
4 LEATHER &LEATHER ITEMS
5 WOOL& WOOLEN KNITED GARMENT
6 PROCESSED FOOD ITEMS
7 TABACCO AND TABACCO ITEMS
8 ELECTRONIC ITEM AND COMPUTER
SOFTWARE
9 CASHEW ITEM
10 MARIENE PRODUCT
UK,USA,GERMANY
EAST ASIA, UNION ,NORTH AFRICA
GERMANY , UK, ITALY,USA,FRANCE
EUROPE,BANGLADESH ,JAPAN ,SHRI
LANKA , BHUTAN ,
EUROPE,BANGLADESH ,JAPAN, USA
EAST EUROPE
USA , UK , HONGKONG UAE,JAPAN
USA ,UK , JAPAN ,NEATHERLAND
UK,USA,GERMANY
EUROPE,BANGLADESH
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Characteristics of
Small Enterprises :
 “Small Enterprise is Beautiful” because of its following Important Characteristics :
1) A Small Enterprise is generally a “One Man Show”. Even Small Enterprises which run by a
Partnership Firm or a Private Limited Company, in most cases, the activities are mainly carried
out by one of the Partners or Directors. In Practice, the others mainly assist in providing
Capital / Funds.
2) Owner himself / herself is also a Manager of the Enterprise. Thus, a Small Enterprise is
managed in a personalized manner. The Owner has First Hand Knowledge of all aspects of
the Enterprise & knows what is actually going on in the Business. He takes effective
participation in all matters of Business Decision Making.

3) A Small Enterprise has lesser Gestation Period compared to a Large Enterprise. i.e., the
period after which the return on Investment starts.
4) Small Enterprises generally carryout their operations so as to cater to the Local & Regional
Markets.
5) Small Enterprises use indigenous resources & therefore can be located anywhere subject to
the availability of these resources like Raw Materials, Labor, Transport Facilities etc.
6) They are fairly Labor Intensive with comparatively smaller Capital Investment than the
Larger Units. That is, for the same Investment, a Small Enterprise provides more jobs to the
people compared to a Large Enterprise.

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 7) Using Local Resources, Small Units are decentralized & dispersed to Rural
Areas & Smaller Towns. Thus, the development of Small Enterprises in Rural Areas
& Smaller towns promotes more Balanced Regional Development & thereby prevents
influx of job seekers from rural areas & smaller towns to bigger cities & urbanizing
centers.
8) Small Enterprises are more susceptible & highly reactive & receptive to Socio –
Economic conditions compared to larger enterprises. They are more flexible to adapt
changes like Diversification to New Products, adopting to New Production
Techniques, substituting New Raw Materials, Changes in Organization Structure,
New Market etc

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 Advantages of Small Enterprises :
 They are the Back Bone of the Industrial Activity in the Country & are playing a very
important role in improving the Socio – Economic Conditions of the people. Advantages
of these Enterprises are as follows : (12 Points)
1) They create greater Employment Opportunities thro Labor Intensive processes &
thereby help in tackling the Unemployment Problem.
2) They have Low Gestation Period & thereby Expensive Financial Resources are not
idled unproductively for long periods.
3) They can be set up easily in Rural & Backward Areas.
4) They need Small / Local / Regional Market.
5) They encourage growth of Local Entrepreneurship.
6) They create Decentralized pattern of Ownership.
7) They foster Diversification of Economic Activities.
8) They Innovate & Introduce New Products particularly to cater to Local Needs.
9) They influence & improve Standard of Living of Local People.
10) They provide equitable dispersal of enterprises throughout Rural & Backward Areas

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HOW TO START A SMALL SCALE INDUSTRY
36
STEPS IN SETTING UP SSI

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proBLEMs FaCE BY ssi

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 Government Policy towards SSI :
Small Scale Enterprises have been given an important place in the frame work of
Indian Planning for both ideological & Economic Reasons. Development of Small Scale
Enterprises have been taken up with various important objectives to be realized. These are :
(1) The generation of Immediate Employment Opportunities with relatively Low
Investment.
(2) The promotion of more equitable distribution of National Income.
(3) Effective mobilization of untapped Capital & Human Skills.
(4) Dispersal of Manufacturing activities all over the Country, leading to growth of
Villages , Small Towns & economically Backward Regions. For the purpose of
administration of India’s Micro & Small Enterprises have been divided into Seven Groups
as under into Traditional Sector & Modern Sector.
Traditional Sector :
1) Handicrafts.
2) Handlooms.
3) Khadi, Village & Cottage Industries.
4) Coir.
5) Sericulture.
Modern Sector :
6) Power Looms.
7) Residual Micro & Small Enterprises.

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Khadi & Village Industries Commission
(KVIC ) :
 This is a Statutory Body created by an act of the Parliament in 1956. It is
concerned with Planning, Promotion, Organization, & Implementation of the
Programme for the Development of Khadi & other Village Industries in the Rural
Areas in Coordination with other agencies engaged in Rural Development
whenever necessary. The Various Functions are :

 Build up a Reserve of Raw Materials & implements for supply to rural

industries.
 Create common service facilities for converting Raw Materials into Semi
Finished goods to be used as inputs by the Rural Industries.
 To market the Products of KVIC.
 To Organize Training of Artisans engaged in Rural Industries & to
encourage Co-operative efforts amongst them.
 To Provide Financial Assistance to Institutions or Persons engaged in the
Development & Operation of Khadi & Village Industries.
 To Provide necessary Technical Information & Guidance thro supply of
Designs & Prototypes etc. to Khadi & Village Industries.

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National
Productivity
Council (NPC) :
 This is an Autonomous Institution functioning under the Overall
Supervision of the Ministry of Industry, Govt of India. Its Head Office
is at New Delhi. It has got Regional Directorates at almost all the State
Capitals. Its Primary Objective is to Act as a Catalyst in enhancing the
Productivity of all the Sectors of the Economy , including Industry &
Agriculture.

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Governmental Support to
Small Scale Enterprises :
Immediately after independence, Govt of India initiated various steps
for promotion & development of Small Scale & Cottage Industries. Govt
of India has attached great importance to the development of Small
Enterprises Sector in all the Five Year Plans since the beginning in
1951.

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 Details of the same are seen below :

The Plan Expenditure on Small Enterprises Sector has been continuously

increasing. In the First Five Year Plan (1951 – 56), Rs 48 Crores constituting
47.8 % of the Total Plan Expenditure was spent in Small Scale Sector alone.
By the end of First Five Year Plan, there were Six Statutory Boards
created to help the Small Scale Sector.

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 These are :

a) All India Handloom Board.

b) All India Handicrafts Board.
c) All India Khadi & Village Industries Board.
d) Small Scale Industries Board.
e) Coir Board.
f) Central Silk Board.

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 Impact of Liberalization, Privatization
& Globalization of Small Enterprises :
The process of Liberalization & Economic Reforms , since
1991, have thrown up new challenges to the small enterprises
sector , simultaneously creating tremendous opportunities for the
growth of this sector.

In this changed scenario, building Competitive Strengths,

introducing Technology Up gradation & Quality Improvement
are important issues which need to be addressed in order to build
the capacity to withstand emerging pressures & ensure sustained
growth. Also small enterprises sector needs to reposition itself
if it has to meet the growing demands for ancillary items ,
subcontracting etc from other Medium & Large Enterprises ,
requiring higher standards of Quality, Economies of Scale &
strict delivery schedules.

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 Even before introduction of the Economic Reforms in
1991, following the inevitable Globalization, the Small
Enterprises sector was somewhat overprotected. With
Liberalization & Globalization, they are now more exposed
to severe competition from Large Domestic Private
Enterprises & from Foreign & other MNC’s.

The problems of Small Enterprises in the Liberalized

Environment are many – Delay in Implementation of
Projects, Lack of Timely assistance of Finance & Credit
from the Financial Institutions, Marketing Problems, Lack
of Proper Infrastructural Facilities, Delay in receiving
payment against the goods sold, outdated technology, poor
quality of raw materials & consumables & lack of
managerial skills etc.

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Effect of WTO / GATT on
Small Enterprises :
 The Emerging Challenges to Micro & Small Enterprises
Sector are due to impact of the agreements under the WTO to
which India is a Signatory.

 The setting up of WTO in 1995 has altered the Basic

structure of International Trade towards supportive, Market
Oriented Policies. This is in keeping with the Policy shift from
State Regulations / Interventions in economic Activity. This has
lead to an expansion in the Volume of International Trade &
Changes in the Pattern of Commodity Flows. The main outcome
of WTO stipulated requirements has been brought about thro a
gradual reduction in Export Subsidies, greater market access,
removal of Non Tariff Barriers, & reduction in Tariffs.

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 More stringent Patent Laws have been brought into force
thro regulation of Intellectual Property Rights (IPR) under the
Trade related aspects of the Intellectual Property Rights
(TRIPS) Agreement which stipulates the Products & Processes
which can be patented for what duration of time (20 Years) & on
what terms.

 Because of WTO Agreement , there will be Large Inflows

of Imports in the Domestic Market , from around 3 % of
Domestic Production to 5 %. The removal of Quantitative
Restrictions (QR’s) on Imports has been speeded up & Imports
of these items will soon be freed from all restrictions in our
EXIM Policy. (Export - Import Policy.)

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 Increased Market Access under the WTO requirements will
also mean that our Small Enterprises have a bigger World
Market & can compete for Export Markets in both Developed &
Developing Countries. This requires restructuring of our Small
Enterprises to meet the demands of Quality & Global
Competitiveness for their survival & growth.

 Small Enterprises contribute about 54 % of the Non

Traditional & 10 % of Traditional Exports ( Together 35 % of
the Total Exports ) of our Country. However, they have to face
Threats & also avail opportunities owing to the WTO & its
agreements.

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 In addition, the Open General License (OGL)
opens up the possibility of Direct Competition in the
Domestic Market with the Import of High Quality
Goods from developed Nations & Cheap Products from
Less Developed Countries. Also, the entry of MNC’s
has intensified Competition in the Domestic Market.
Also, these Enterprises are finding it extremely difficult
to compete due to certain inherent problems like Poor
Quality of Goods, Costly Credit, not so well developed
Infrastructure, Traditional Technology, Strict Labor
Laws, Lack of Information & International Exposure &
ineffective Small Enterprises association.

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Suggestions
Development measures should be spread
Rising productivity needs to be made sustainable
Assistance programs need to be tackled
Skill based needs need to be improved
CASE STUDY
The samples have been taken from the register of the industries
maintained by the District Industry Centre (DIC),Varanasi on the
random basis. Initially, a sample of 250 units belonging to different
categories were taken, but in the course of survey it was observed that
a large number of units have disappeared from the actual place of
work. It may be noted that every year several units are registered with
the DIC but due to one reason or the other most of them could not
survive on sound footing and eventually die in due course of time.
Further, there were units which could not response our queries
satisfactorily. At last, we had to satisfy with only 101 units which could
response our queries in a satisfactory manner.

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MARKETING PROBLEMS
FACED
Lack of relevant information of demographic features.
Lack of relevant information regarding economic factors. Lack of
relevant information about appropriate technology.
Lack of sufficient entrepreneurial skills and talents.
Lack of eagerness to ascertain socio-cultural influences.
Unnecessary reliance on traditional methods and approaches.
Lack of understanding of setting marketing objectives.

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Lack of information about user’s status, usage rate, benefits sought
attitudes, etc.
5. Insufficient understanding and expertise of procedure of segmenting
market.
6. Unnecessary reliance on past experience and practices regarding the
selection of market

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 CONCLUSION
Effective management requires leadership plus administrative skills in
planning, organising, directing and controlling the entire business
operations. Because of limited financial resources and inability to hire
professional managerial personnel, small-scale units lack specialisation
in the execution of various functions of management. The majority of
small-scale units are sole proprietorship organisations and as such
these units are highly personal in nature, i.e., the single man’s show. It
is very difficult to take quick decisions in all respects and implementing
these decisions promptly since the sole proprietor is neither a
production oriented engineer nor sales oriented merchant. He has no
time to look after other functions. Moreover, the majority of sole
proprietors are illiterate or have low level of education and lack
managerial skill.

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They also do not possess the qualities like motivation, sense of
commitment and business morality. Consequently, the small-scale units
suffer from dearth of efficient management and poor managerial skill
resulting in sickness of units.

Thus, it is evident that SSI sector faces difficulties at every stage of their
activities, whether it is buying materials for production, organising
production, selling products in the market, they are put to a number of
difficulties. No wonder than that their products are small in quantity
and shoddy in quality. Therefore, more concerted efforts, particularly in
the area of marketing, are required on the part of the Government,
Entrepreneurs, Promotional agencies and Financial agencies, so that
the growth rate of SSI sector can be accelerated further.

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Summary :
 India has a Good Potential to become a
Superpower in the Service Sector, particularly
Information Technology (IT) enabled services.
India has already captured 25 % of World Exports.
However, they face challenges due to competition
by way of Cheap Imports from other Countries
due to Removal of Quantitative Restrictions
(QR’s) on Imports & Lowering of Tariffs. Due to
this, there is Stiff Competition for both Small &
Big Enterprises in both Domestic & Export
Markets.

57
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