CHAPTER II

Review of Literature of
Small Scale Industry
 CHAPTER II

REVIEW OF LITERATURE OF SMALL SCALE INDUSTRY

A lot of studies have been made on small Scale Industries, in general.

Both the Central and State Governments have taken a number of researches on

small scale industries through people from the academic and non-academic side

since they provide employment potentialities to millions of workers besides

bringing enhanced national income in terms of domestic income and foreign

exchange.

There are numerous works dealing with various problems of SSI units.

This field of study is so voluminous and flexible views of various kinds are in

existence regarding financial, production, marketing and personnel management of

SSI Units. Every aspect of small scale units and its problems is studied and some

concrete results are arrived at. Still the scope to study the management and the

problems of small scale industrial units is open and wide, as ever.' This chapter

attempts to review literature related to small scale units.

In his study on industrial entrepreneurship in Madras State, James J. Bema

has analysed the reasons for the problem of SSI units as follows.

1. Raw material Problem

2. Problem of Working capital

3. Labour Problems

1. James J. Bema, Industrial Entrepreneurship in Madras State: Asia Publishing House,

Bombay, 1960 p. 10

47
 Though he has analysed the various aspects of the SSI units he did not

study the financial and marketing problems of SSI units, Since it was beyond the

scope of his research work.

George Rosan (1955) studied the potential expansion of SSI and growth of

government owned industries and its cumulative effect of supporting a relative

risk in industries contribution to national income.^ the substitution of more labour

extensive technologies were also studied by the author.

The Report of Japanese Delegation (1959) on Small Scale Industries stated,

that the most knotty point in the operation of small scale and cottage industry was

that it was isolated from the market and unable to understand quickly and

accurately the trend of the market ^. The delegation was of the opinion that lack

of market was the underlying cause for poor performance of SSI in India.

Staley and Morse (1956) discussed the issues connected with the

development of small industries and technical assistance, guidance and promotion

of modernisation'^. It was stressed that the SSIs are lagging far behind the

modernisation.

Lakshmanan, T.R (1966) took an attempt to find out the various issues and

problems of cottage and small industries while conducting a study on "Cottage

2. George Rosan, Industrial Change in India, New Delhi, Asia Publishing House,
1995
3. Government of India, Report Of Japanese Delegation On Small Scale Industries,
Ministry of Commerce and Industry, New Delhi, 1959, p.54
4. Staley and Morse, Modern Small Industry for Developing Countries, New York,
McGraw Hill, 1965.
5. Lakshmanan, T.R. Cottage And Small Scale Industries in Mysore, Rao and
Ragavan Publishers, 1966, p. 35.

-48-
and SSI in Mysore", he has discussed the definition, concept and role of small

industries and presented fifteen case studies covering economic and techno -

economic aspects, integrating all into a composite picture ^. The study reveals the

contribution of SSI towards the economic development. Further the issues like

equipment, obsolescence, capacity utilization, productivity, raw material supply,

marketing and problems of finance have been discussed.

George Rosen (1975) studied the potential expansion of SSI and growth of

Government owned industries and its cumulative effect of supporting a relative

rise in Industry's contribution to national income ^. The substitution of more

labour-intensive technologies and social requirements for the expansion of the

small scale industries were also studied by the author.

Vasant Desai (1979, 1985, 1988) critically examined the problem and

prospects of small industries ^ . According to him this sector accounts for roughly

45 percent of total industrial production in our country. However, small industries

face a lot of problems relating to finance, marketing arrangements and

modernization. The author suggests ways & means to overcome all the hurdles

with the co-ordinate efforts of all concerned namely the Government, the financial

institutions and the small entrepreneurs.

6. George Rosen, Industrial Change In India. Asia Publishing House, New Delhi.
1975, p. 230.
7. Vasant Desai, Management of Small Scale Industry, S.Chand & Co. Ltd., New
Delhi, 1979, p. 112.

49
 Bala, Shasi conducted a study (1980) on the 'Management of Small Scale

Industries, Government Policy and its Implementation'. She has made an attempt

to make it a comprehensive study of all aspects related to the management of

small scale industries ^. The field survey for the study was done in Ludhiana

District of Punjab. The study stated that the procedure for choosing the method of

scale was determined by trial and error and small industries did not make

organized sales. Regarding the selection of area of sales, the selection was made

not on the basis of market research or information. Its main focus was towards

selling of products of SSL

It is found from the Kotharis Industrial Directory that the Industrial Policy

Statement of February 1973 emphasised that the state industrial sector should

cover wider field to promote growth with social justice, self-reliance and

satisfaction of basic minimum needs, which would be possible by the development

of small scale industries ^'

Raghunathan (1988) focused his attention in his study on 'Small Scale

Sector has a long way to go' towards the growth trends of SSI units. '° He points

out that the rate of growth of industries has not been even as between different

states and territories. Besides, progress has not been to the expectations in

realising certain objectives like rapid development of ancillary industries.

8. Bala, Shashi, Management Of Small Scale Industries, Deep and Deep Publications,
New Delhi, 1984, pp. 152-158
9. Kothari Enterprises, Kothari's Industrial Directory Of India, Chennai, 1988, pp. 1-62
10. Raghunathan, N., Small Scale Sector Has A Long Way To Go. Yojana,
March 1-15, 1988, p.l2.

50
 Inspite of a number of measures already undertaken to prevent the

incidence of sickness, it is still defying meaningful solution. More concerted

efforts are required for prevention of sickness at the incipient stage itself as well as

rehabilitation of potentially viable sick units.

Rao K.Vepa (1988) in his study "Modem Small Industry in India Problems

and Prospects" identified the challenges encountered for industrial development

programme in Japan, India, Asia. Middle East Africa and Latin America "" He

has identified the problems of SSI and compare the environmental factors

favourable and unfavorable for the development of SSI in different countries.

Patnaik's (1989) studies on " Growth of Small Industries and Problems of

Small Entrepreneurs" with the prime objective of finding the rate of growth of the

SSI sector in the country and discussed the important problems faced by them. He

has analysed the growth pattern of small industries before the starting of the DIG

programmes and after the launching of the programme. In his study he took four

variables to find out the growth of SSI sector. They are (i) Number of Units, (ii)
10

production, (iii) Export and (iv) Employment generation and investment.

The Industrial Policy of the Government of India (1977) placed

considerable emphasis on the development of small industries. With a view to

11. Vepa.K.Rao, Modern Small Industry In India - Problems and Prospects, Sage
Publications, New Delhi, 1988, p.52.
12. Patnaik, Growth Of Small Industries And Problems Of Small Entrepreneurs,
Published by SEDME, Vol.XVI, Hyderabad, June. 1989.p.84
13. Markandeya Jha, Lead Bank Scheme And Regional Development, Deep and Deep
Publications, New Delhi, 1989, p.220.

51
accelerate the pace of small industries development, the Government enlarged

District Industries Centers (DIG) were set up in all districts in the country ' The

idea was that whatever could be produced by the small and cottage industries

should be produced in that sectors only.

After attaining independence in 1947 the Government of India realised the

importance of the small scale industries as the chief means of livelihood for a large

number of people. Accordingly, a conference was convened by the Government

of India in 1947. At that conference the importance of cottage and small scale

industries was recognised ^^.

Sahedeo Pande (1990) observed that the SSI units suffer from innumerable

problems which scuttle their growth. Unhealthy competition with large scale

industries coupled with poor financial support further aggravate their problem. ^^.

To ensure quick development of these industries their problems are to be sorted

out urgently. The New Industrial Policy will go a long way in salvaging these

industries from decay. In addition, SSI face a number of other problems like non

availability of cheap power, unchanging and irresponsive production parties,

burden of local taxes and interference by local politicians. He suggests that SSIs

need a comprehensive change in the policy of Government to make them more

efficient and productive.

14. Sivayya, K.V., Das, V.B.M., Cottage And Small Industries , Sultan Chand & Company
Ltd., Publishers, 1990, p.65.
15. Sahdeo Pande, A Critique Of Problems Of Small And Cottage Industries In India,
Khaio Gramodyog-Nov, 1990 (Monthly Journal)

52
 T.A Bhavani, (1991) analyses in his study on 'Factor Substitution and

Factor Demand in Indian Modem Small Enterprise' that these are possibilities for

substitution of labour for other factors namely capital and materials in the modem

small scale sector. The capital and labour are complementary to each other and it

implies that any small increase in the cost of capital would affect at the demand

for labour adversely thereby reducing its share in the total output and vice versa. ^^

Balu (1991) in his study on ' Development of Small Industry' observed that

most of the consumer's day to day useable products are from the small scale sector

and this sector attracts small savings and divert them towards productive channels

in the mral and semi-urban areas. He also observed that sickness has been

spreading faster with SSI sector than in the large and medium scale sector. He

suggested that SSI units must be assured of prompt supply of raw material,

innovation and entrepreneurship should go together in order to retain success in

the marketing front.

C.E.Karanakaran (1991) in his paper submitted to Development Seminar

analysed the small industry scenes in Tamil Nadu. '^ He observed that in SSI units

registered with the DIC are increasing tremendously and a countless number

16. Bhavani.T.A.Factor Substitution And Factor Demand In Indian Modem Small

Enterprise A Case Study Of Metal Products, Artha Vijanana xxxiii(i) March, 1991,
pp.41-45
17. Balu.V., Development of Small Industry - Some Issues, Southern Economist, 15th
June, 1991,pp.9-ll
18. Karunakaran, C.E., Promotion of Small Industry In TamilNadu, The mission
Dimension - Development Seminar Bulletin of Madras development seminar series 21
(2) Feb, 1991, pp. 80-89.

53
of units, not registered with them also exist. There is also the certainty that a good

part of the registered unit do not exist for one reason or the other. If all of them do

exist, they would probably employ 7 lakhs persons in one year. Credit delivery

through banks and the revenue administration have not worked well. He stated

that the impact of financial assistance was very negative.

"Small Scale Industry" is a comprehensive term used in common parlance

to refer to manufacturing activity carried on in a relatively small establishment.

The concept of smallness is with reference to the scale of operation and its

definition differs from country to country. Usually the definition of small scale

industry is based on a single index that is either on the basis of investment in plant

and machinery or labour and power. Now-a-days almost all countries consider

investment in plant and machinery as the yard-stick to define small industry.'^

Vijay Shukla (1993) in his article on, " A study on Development of Small

Scale Industries in India" has stated that small scale industries are no doubt very

important for the Indian economy. But they can play their rightful role if they are

run on sound lines' •^° Most of the small scale industries are faced with many

difficulties and inadequacies which undermine their efficiency and stand in the

way of their development and expansion. Old methods and inferior techniques of

production have resulted in low productivity and poor quality of goods.

19. Math, S.M.Gulbarga University, Rural Development Grovs'th Of Small Scale

Industries In India, Rural India - June - July, 1991, p. 16
20. Vijay Shukla, A Study Of Development of Small Scale Industries In India,
Economic affairs, vol 38 Qr. 2 June, p. 104.

54.
 These industxies face other difficulties such as inadequate transport,

shortage of efficient management, lack of research and development facilities

K.R.Pillai Executive Director of SIDBI (during 1995-96) analysed the role

of the SSI sector in evolving economic setting, and the challenges it may face to

sustain its place as an important contributor to the development process?' . The

following are the findings of the Executive Director.

• Credit needs of the sector are inadequately served.

• Sound management principles are often not followed

• SSI managements rarely make efforts at market penetration to

improve their market share

• Products of the sector are often not competitive in terms of quality and

price.

• Operational efficiency of units impinges on a slender profit margin

• Research and Development efforts in this sector are less than adequate.

According to the Report submitted by the RBI, the TANSTIA, as the apex

organisation of small scale industries in Tamil Nadu highlighted that with the

present liberalised poUcy there has been a mixed feeling of threat and

opportunities for the SSI sector and the past few years performance of SSI sector

shows that they were constantly growing and if this trend has to continue, banks

which play a very vital role in the development of the small scale sector, will have

21. Pillai, K.R., SSI In The New Economic Setting Tamilnadu Small And Tiny
Industries Association, Monthly Journal, Aug, 1995, p.7
22. TANSTIA Report To RBI, TANSTIA, Nov, 1995, pp. 10-11

-55-
to tune themselves to the changing scenario^^. This organisation highlights the

importance of institutional finance for the growth of SSI in the changing economic

scenario.

R. Mohan kumar (1996) in his study observed that, " Success of SSI sector

during the era of industrial development is determined by the positive trend of

human resources"^'^ He suggested that, SSI should take effective steps to reduce

over-emphasis on certain work related extensive values . Steps should also be

taken to eradicate the disappointment arising out of poor attitudes towards work

values. In his study his attention was focused towards the workers and supervisors

of SSI.

Prasad C.S. (1997) in his study discusses "Policy for SSI in India" In detail

the development strategy pursued in the country to promote SSIs since

independence, elaborating on institutional support, integration with larger units,

protection, fiscal incentives and concessions and credit support.^"^ He has also

discussed the policy initiatives taken since the adoption of liberalisation policy in

1991, to ensure that SSIs are not subjected to serious competitive disadvantage in

the process of opening up of our economy to MNCs and globalisation. He has

also covered the latest package of economic reforms for SSIs recommended by

Abid-Hussain Committee and the follow up action thereon.

23. Mohan Kumar.R, Work Values of Workers And Supervisors In SSI- A Sample
Survey , SEDME XXm (4) December, 1996.
24. Prasad.C.S. Policy For Small Scale Industries In India, Indian, Journal of Public
Administration, Special Number XXXX m (3) July-Sept, 1997, pp.528-552.

-56
 Nagaiya (1998) has made a study of the "Role of Infrastructure in

Industrialisation of Backward Regions". In his study he concentrated on primary

investigation of sample small scale units from industrial estates in industrial

areas and comparable small scale units in town adjoining the estate / area. His

study highlighted the view that less developed regions used capital and labour

more economically than developed regions as revealed by the corresponding

productivity indices. He finally examined the effectiveness of the programme of

industrial estates and industrial areas from the angle of realisation of expectation

of the sponsoring organisation and beneficiaries.

Patnaik's study (1998) points out that the industrial policy provides the

instrument for accelerating- the rate of economic growth speeding up of

industriahsation, providing increasing opportunities for gainful employment

improving living standards and working conditions of the mass of people and

reducing disparities in income and wealth. There are three types of policies

towards the development of small industries such as passive, protective and

promotional. An inactive policy is simply doing nothing in particular about small

industry. It may result from indifference or lack of information or sufficient

leadership and personnel to give attention. Next a protective policy is one

designed to defend existing small industry against the competition from modem

25. Nagaiya.D, Effectiveness of Industrial Estates, SEDME, Vol. XV Hyderabad,

January, 1998, pp.70-79.
26. Patnaik, Development Strategy For Small Industries, Himalaya, Publishing House,
Mumbai 1998, p. 123.

57
industry. Then there is the promotional approach. It is concerned with improving

the productive efficiency of existing small industry to encouraging the

establishment and growth of modem small manufacturing units in suitable type of

production. ^^

Ajay Lakhanpal, In his book, "Entrepreneurial Development - An

institutional Approach" has studied financial facilities, various schemes of

assistances the role of commercial and regional rural banks, various boards

constituted by the Government in the development of industries. He insisted on

the need for training the entrepreneurs for the promotion of SSI units. However,

he did not touch upon the managerial skill of the entrepreneurs for efficient

promotion of SSI units as well as he did not point out the marketing problems in

small scale industry. '

In his book, ' Emerging trends in Entrepreneurship Development, Theories

and practice, Nagendra.P.Singh explains the importance of SSI units' development

in India and also several myths which stood in the way of their development. He

stresses the need to develop this technique to the interest of India.

Two studies conducted by UNESCO, (1962 and 1966) about Entrepreneurs

of Bombay, Howrah, Okhla Estate, Ludhiana, Rajkot and Hyderabad revealed

that the small scale units were successful but they were reluctant to expand the

27. Ajay Lakhanpal, Entrepreneurial Development, Common wealth publishers, Delhi

1960 p. 123
28. Nagendra.P. Singh, Emerging Trends in Entrepreneurship Development, hitercultural
foundation for Development Management 1985.

58
business further due to the problem of inefficient managerial ability of the

entrepreneurs.

P.D.Malgavkar (1991) in his studied analysed the reservation,

segmentation, sick units and the changed structure of small industry and its needs,

emphasised that these industries have to be encouraged. On the whole, the small

industry development should fit into the overall industrial development policy

which also needs to be looked into afresh as the industrial development needs a

fresh look to revitalize it. '

J.C.Sandesare (1991) in his study analysed the new small enterprise policy.

The primary objective of the NSEP is to import, more vitality and growth impetus.

The definition of SSI is changed and a separate package for promotion of SSI

sector is introduced. The third major change relates to equity participation and the

introduction of a new legal form of organisation of business.

C.E. Karunakaran (1991) in his paper submitted to Development Seminar

analysed the small industry sense in Tamil Nadu. He observed that units

registered with the DIG are increasing tremendously and a countless number of

units, not registered with them also exist. There is also the certainty that a good

part of the registered unit do not exist for one reason or the other. If all of them do

29. P.D.Malgavkar, Promotion of Small Scale Industries some issues SEDME September
1991, vol.XVm. Page. 157
30. J.C.Sandesara, New Small Enterprise Policy implications and prospects Economic
and Political. Oct. 19. 1991 page 23, 24
31. C.E.Karunakaran, Promotion of Small Industry in TamilNadu - The Mission
Dimension - Jan. Development Seminar. Bulletin of Madras development seminar
series 21 (2) Feb 1991. P- 80-89.

59
exist, they would probably employ 7 lakhs persons in one year. Credit delivery

through banks and the revenue adniinistration have not worked well. .

Dr. C M . Choudhary, (1992) in his study observed the problems of cottage

and small scale sectors. He states that the production in this sector is adversely

affected due to lack of research and managerial efficiency. Firms with fewer than

5 employees showed consistent annual net job creation during the past decade.

Small Firms not only displayed the greatest job creations during downturns, they

also contributed the most job growth during economic expansion.

Parampal Singh and Pankaj Munshi (1994) in their study observed that

services given by banks, Governments guidelines, currency risks, increased

competition and transportation are the major problems faced by the exporters of

the region irrespective of their industry. Enhancing the company's image by

improving the product through technological updating is the main motivational

force entailing small exporters to explore international markets.

Dr.C.S.Prasad (1994) observed that the SSI sector is facing numerous

constraints which are typical because of the small size of the enterprise. Most of

these revolve around technological, managerial, financial and marketing aspects.

He suggested that, there is a need to bridge the gap which exists in the form of

32.Dr.C.M.Choudhary, Cottage and Small Industries. Problems and Prospects- Rural

India September. 1992. Page 224
33.Pararapal Singh, Pankaj Munshi, Problems and Prospects of Exploring
International Markets: Perceptions of Small Exporters. SEDMEDec. 1994.
V0I.XXI (4)
34. Dr.C.S.Prasad, Small Sector, Big achievements - Yojana, March 15, 1994, Page 8-10.

60
inputs like credit, raw material, marketing, skilled labour, infrastructure followed

by the needs of technology information network environment and is to develop a

new relationship between the large and small scale industries. ^'^.

Among growing small and medium sized business, firms with sales under

$1 million proportionally spend two to three times more on Research and

Development than their larger counterparts. Research and Development is one of

the most significant determinants of small business success.

TANSTIA, as the apex organisation of small scale industries in Tamilnadu

highlighted that with the present liberalised policy there has been a mixed feeling

of threat and opportunities for the SSI sector and the past few years' performance

of SSI sector shows that they were constantly growing and if this trend has to

continue, banks which play a very vital role in development of the small scale

sector, will have to tune themselves to the changing scenario.

N. Pattnayak, (1995) and R.K.Agarwal in their paper focused the attention

on the technological upgradation programme for improvement in the productivity

of the SSI sector. They observed that the SSI sector suffers from the drawbacks of

inadequacies in infrastructure and technology. The world wide technological

changes along with the improvements in material and manufacmring processes

35. Statistics Canada, Strategies for Success: A Profile of Growing Small and Medium,
Sized Enterprises in Canada, Catalogue 61-523 R, (1994)
36. TANSTIA Report to RBI - TANSTIA- Nov 1995 page 10-11.
37. J.N.Pattanyak and R.K.Agarwal - Transfer of Technology for Small scale Industries
in India. The Institutionalframe-work,Asian Economic Review Apr.1995, p.193-213.

61
pose a threat to the functioning of SSI sector. They suggest that the ultimate

strategy for the development of this sector would be the improvement of

technologies for the sector, keeping an eye towards the prevailing economic
'in

environment and trends of the global market. .

Family incomes of employers and the self-employed tend to be lower than

the family incomes of employees. In 1995, the median family income of

employers and the self employed was about $ 44,000 compared to about

$ 57,000 for families headed by paid employees.

James Manalel (1997) in his study observed the role and relevance of the

SSI sector in a developing country like India. He believes that the SSI units will
on

continue to predominate in developing countries at both ends of the spectrum. .

Prasad.C.S (1997) discusses in detail the developmental strategy pursued in

the country to promote SSIs since independence, elaborating on institutional

support, integration with larger units, protection, fiscal incentives and concessions,

credit support, etc. He has also discussed the policy initiative taken since the

adoption of liberalisation policy in 1991, to ensure that SSIs are not subjected to

serious competitive disadvantage in the process of opening up of our economy to

MNCs and globalisation. He also covers the latest package of economic reforms

for SSIs recommended by Abid-Hussain Committee and the follow up action

thereon.^^

38. James Manaiel' How Beautiful is Small!' SEDME, December 1997.vol XXIV (4)
39. C.S. Prasad ' Policy for Small Scale Industries in India' - Indian Journal of Public
Administration Special Number XXXX HI (3) - July-Sept 1997 Page 528-552.

62-
 Use of the Internet by SMEs varies province to province. Firms in the

Yukonand NWT are the country's most enthusiastic Internet users, with more than

40 percent plugged in. Firms in British Columbia and Nova Scotia, with usage

above 30 percent, are also ahead of the national average.

Mukesh Gulati observed that though the small industry remained high on

the policy agenda, it faces several challenges due to technological, obsolescence,

product quality, information deficiency and inadequate management systems in

several substracts of the industry. Most of these enterprises compete only on basis

of low cost of labour and not through improvement of their products, technologies

and skills. He suggests that there the need to achieve competitiveness at global

level has become a matter of primary concern. '^^

W.R.Parthasarathy, (1998) Vice-President, Ambattur Industrial Estate

Manufacturers' Association expresses that in India what we have is heavy paper

work, poor flow of credit to small scale industries and high interest rates on

borrowing, antiquated labour policies, poor infrastructure including power supply,

innumerable taxes and these factors burden the small scale industry to turn around

and perform more efficiently. ^

40. Canadian Federation of Independent Business, Results of our Member's Opinion 39

(JAN 1997)
41. Mukesh Gulati, Managing Small Enterprise Development. TANSTIA, Monthly Journal
Feb. 1997, Page 3 to 6.
42. W.R.Parthasarathy, Managing Small business 'Cry for Help' Typical Small Business
Problems with Institutions-Proxis-BusinessLine- Aug 1998.

63
 Poms P.Munshi (1998) observed the recurring reasons for failure of SSI

units as poor interpersonal skills, fear of failure, fear of success, poor management

efficiency including poor product on services, lack of planning and foresight,

unrealistic assessment of the market, inadequate capitalisation, leadership or

managerial inexperience.'^^

Vikram Chadha (1999) in his study on "financing the Modernisation of

Small Industries in India-Opportunities and Constraints", stated that the problems

encountered by the SSIs range from the shortage of credit and finances, under-

utilisation of capacities, incompetitiveness in the output and product markets to the

inadequacy of industrial facilities like power. '*'*.

Gopal Ratnam observed in his study that "One of the biggest forces behind

the success of small business in the US" is the franchising concept. A Successful

business recipe is transplanted across the country through this route by thousands

of small business owners. The risk is spread out and individual initiative is put to

the test. '^^

Sujit Sikidar (1985) in his research work " Development Banking: A study

of the workings of SFCs with special reference to Assam " has examined the

functioning of Assam SFC in the North-Eastem Region. This work has identified
43. Porus P. Munshi, Managing Small Business ' Surviving Failure' Proxis-Business Line
August 1998, Volume n Issue -2.
44. Vikram Chadha, Financing the Modernisation of Small Industries in India: Opportunities
and Constraints-Southern Economist May 15 1999. Vol.38 Number 2 Page 5.
45. Gopal Ratnam - Small is Wonder All Proxis - Busiess Line Agu - 1998 Vol.2 issue-2.
Page No. 30 & 31
46. Sujit Sikidar, "Development Banking: A Study of the workings of State Financial
Corporations", S.Chand & Co. Ltd., New Delhi, 1985.

64
that finance is not the constant factor always for industrial development of the

State, and the entrepreneurial talents and skill are not present adequately here to

enable it to avail of the assistance from the Corporation. There has been a

growing tendency on the part of the Loanees not to refund money provided by the

Corporation since, such money is conceived to be public fund and thereby its

refund is not regarded as a prima facie duty. The entrepreneurs are not conversant

modem industrial finance and hence they should be educated in this respect. The

study has incidentally marked that without any regional credit policy suitable for

different regions of the country particularly in small scale sector, industrial

development and aim of removal of regional economic disparities will remain a far

cry. The study discloses that Assam Financial Corporation has been instrumental

in administering and disbursing the development finance provided by IDBI. But

the discharge of the agency function assigned to the Corporation for disbursing the

assistance out of funds provided by the Government of Assam has not at all been

successful. "^^

Appa and Sujatha (1985) in their study "Recovery Performance of SFC: An

Analysis" have concluded that the bulk of funds of SFC is blocked as Over dues.

Quite large number of loans are overdue even for more than 5 years. This sort of

financing will not contribute to industrial progress of the country. The lending

activities of the SFCs is quite satisfactory quantitatively but qualitatively it is

47. Appa Rao.B.& Sujatha, "Recovery Performance of SFCs: An Analysis", Lok

Udyog Aug.l985,PP 21-27.

65
poor as their operations have not achieved the desired objectives. It is true

that some industrial units do not repay loans because of some genuine difficulties,

yet major reasons for genuine defaults is that SFCs on the whole do not function

as supporting agents for the problems encountered by small and medium

entrepreneurs. The absence of a system of regular inspection and follow-up of

assisted units by SFC is also responsible for over dues.

Vinod Batra (1986) in his work "Development Banking In India" has

attempted a diagnostic and comparative analysis of two SFCs, namely,

Maharashtra and Rajasthan SFCs. The prime objective of the study had been to

examine organisational effectiveness and operational efficiency of the Rajasthan

SFC as a development bank. The study has clearly assessed the financial

performance of these two public sector entities in terms of their capital structure,

and other financial performance parameters. Besides, the qualitative aspects of the

functioning of the corporations have also been studied. The study has vividly

identified the role of financial and developmental agency in realistic terms and

functioning in collaboration with the development of the state, on a practical

1 48

plane.

K. Natarajan (1988) in his study entitled "Utilisation of Incentives by small

scale industrial units" dealt at length the industrial development in India and

Tamilnadu and the different types of incentives, both financial and non-financial
48. Vinod Batra, "Development Banking in India",
49.Natarajan K. "Utilisatin of Incentives by Small Scale Industrial Units",
Unpublished Doctoral Dissertation, Madurai Kamaraj University, Madurai, 1988.

66
available for small scale industries and the impact of these incentives on the small

scale industries. '^^

Sharma (1989) in the research study entitled "Industrial Entrepreneurship in

a Developing Economy" highlighted the role of Punjab Finance Corporation in

accelerating the industrial development of the State . The study has identified that

the formalities required for getting loan are so numerous that many intending

borrowers feel discouraged even for sending applications for the loans. The loans

are some time not disbursed even after they are sanctioned. It further reveals that

the small entrepreneurs felt that they are not in a position to provide huge

securities demanded for the loans. ^°

Gupta & Vashishat (1992) in their research study entitled, "Haryana

Financial Corporation and Inter District Disparities" analysed the operational

performance of HFC. The study discloses that the HFC is playing a vital role in

financing and nurturing small and medium scale industrial units in all the districts

of the State so as to remove regional imbalances in the industrial growth.

Sanctioning and disbursement by HFC has been quite impressive but recovery

position has been very poor because of lack of proper monitoring system. ^'

50. Sharma R.K. "Industrial Entrepreneurship in a Developing Economy", Kalyani

Publishers, 1989.
51. Gupta.P.K. and Vashishat, A.K. "Haryana Financial Corporation and Inter-District
Disparities", Journal of Accounting and Finance, Vol.VI. No.l., Spring, 1992.

67
 Dangwal and Nagi (1992) in their esearch study entitled " Institutional

Financing and Industrialisation of Garhwal Region" have revealed that the

financial assistance by the UPFC in Garhwal Region covered a wide range of

industries. The study points out that the Corporation's objectives financial

assistance sanctioned by the UPFC in Garhwal Region covered a wide range of

industries. The study points out that the Corporation's objectives of promoting

industrial development especially in the less developed area has not been fulfilled.

But at least the hotel industry has been given special attention by UPFC owing to
52

the region's potential for tourism and pilgrimage

Rakesh kumar Gupta (1993) in his research work entitled "The role of

Development Banks in the Industrial Development of Himachal Pradesh" threw

CO

light on the various issues such as;

• The rationality of procedures and operation of these development banks

while providing financial assistance to the entrepreneurs in the state.

• Problems faced by the entrepreneurs in seeking assistance from those

development banks.

• The promotional activities undertaken by these development banks in

the state.

The Research and Planning Department of IDBI's research article on

Performance of SFCs " in the P.R.Shukla and Roy Chowdhry edited book titled
52. Dangwal R.C. and Negi,K.S., "Institutional Financing and Industrialisation of
Garhwal Region". Journal of Accounting and Finance, VoI.12,No.2,1992.
53. Rakesh Kumar Gupta, " The Role of Development Banks in the Industrial
Development of Himachal Pradesh", Finance India, Vol.ni, No.l, March 1994, PP
85-90.
54. Shukla.P.R & Roy Chowdhry., "Banking System Credit and Development".

68
"Banking System, Credit and Development" has vividly explained the

comparative evaluation of the performance of 18 SFC's during the five year period

1978-79 to 1982-83. The comparative evaluation has been made in terms of

several indices of performance such as

• Growth in assistance sanctioned

• Utilisation of Sanctioned assistance.
• Per Capital assistance sanctioned
• Share of assistance to small sector
• Share of assistance to backward areas and
• Percentage of arrears and recovery rate.

Besides, the above inter-SFCs variations in industry-wise distribution of

assistance, size-wise distribution of assistance, sources and requirement of funds,

debt-service coverage ratio and debt-equity ratio have also been highlighted. The

analysis in the study is based mainly on data obtained in various returns for annual

report on development banking in India.^'*

Hilla M.Wadia, In his study "Role of All India Term Lending

Institutions in the Industrial Development of Backward areas", made a critical

assessment of the role of financial institutions by studying the resultant cost and

time over runs and in this study specific attention has been paid to the impact of

such institutional finance on industrial units in backward areas specially with

respect to cost over runs since 1973. IDBI assisted projects have been studied

intensively to provide information on the reasons for their cost over-run, based on
55. Wadia Hilla M. "Role of ALI India Term Lending Institutions in the Industrial
Development of Backward Areas" Finance India, Vol.in, No.3, Sep, 1994, pp.693-695.

-69-
statewise, industry- wise, sector-wise and purpose-wise analysis and operation

performance of a sample of 50 industrial units, 25 each in backward and

developed areas has been assessed through a series of ratios.

B.Appa Rao & Kameswari Chinta in their research article entitled, "The

Overdues Syndrome in APSFC", have analysed the problems, magnitude and

other related aspects of overdues. The incidence of over dues in the industrial

credit system has been increasing over the years and has been steadily eroding the

financial soundness of the system. 56

Neelamegam. R. (1981) in his doctoral thesis "Institutional Finance To

Small Scale Industries - A Study with special reference to TamilNadu" sheds

light on the finance which are available to small scale industrial units through

State Level and National Level Financial Institutions. He suggested the formation

of an exclusive fund at the national level to suit the requirements of Small Scale
en

Industries.

Upaulthus Selvaraj.M. (1992) in his Doctoral Thesis titled, "Working of

Financial Incentives in Small Scale Industrial Units in Composite Madurai

District" dealt at length the small industrial entrepreneurs' level of utilisation of

financial incentives, growth caused by utilisation of financial incentives, if any,

56. Appa Rao & Kameswari Chinta, " The Overdues Syndrome in APSFC", Finance
Indira , Vol.Vm No.3, September, 1994, pp 667 - 674.
57. R.Neelamegam, Unpublished Doctoral Dissertation on "Institutional Finance to
Small Scale Industries - A Study with reference to TamilNadu, Madurai Kamaraj
University, Madurai. 1981.
58. Upaulthus Selvaraj. M, Unpublished Doctoral Dissertation on "Working of n
Financial Incentives in Small Scale Industrial Units in Composite Madurai
District", Alagappa University, Karaikudi. 1992.

70
and entrepreneurial growth as caused by these small scale industrial units that have
Utilised the financial incentives.
Nambiar K.A. 1989 in his article titled " Small Units: Tamil Nadu plan to
Tone up Infrastructure" has explained that the Government wants to strengthen the
infrastructure instead of providing fiscal incentives as a long term measure to
stabilize industrial growth. 59
Dr. Vimal Shankar Singh in his book "Development banking in India"
presents an incisive analysis of the financial and promotional assistance provided
by the IDBI and its role as an apex development bank of the country. Further,
promotional role of IDBI has been examined in relation to its efforts in the area of
identification and development of project ideas and potential entrepreneurs,
industrial potential survey and feasibility studies, formulation, appraisal and
implementation of projects etc. It also examined the institutional arrangements
made by IDBI in order to co-ordinate and guide the activities of other
development banks in the country. 60
E.A.Parameshwara Gupta (1997) in his study stressed that, this sector needs
particular attention as it can play a positive role in the development of
entrepreneurs and managers. He has also stated that the problem of SSI include:
long gestation period, accounting problem, restriction on use of new technology,
opposition from trade unions on many issues, weak infrastructure facilities, lack
of industrial experience, and long period of realisation.^'

59. Namibiar.K.A., "Small Units: Tamilnadu Plan to Tone Up Infrastructure", Financial

Express, Dec 15, 1989.
60. Vimal Shanker Singh, Development Banking in India
61. E.A.Parameshwara Gupta SSI Reservation Policy has become obsolete Southern
Economist - Oct 1997 Vol.36. Number 11, Page 17,18

71