Some Aspects of Small Scale Industries in India

Findings Based on Two All-India Sample Surveys

R Nagaraj
Using two all-India sample surveys, conducted by the Reserve Bank of India and the National Small Industries
Corporation, respectively,an attempt has been made in this paper to understandthe rate,pattern and characteristics
of the growth of small scale industries in India.
Part I of the study, based on the Reserve Bank of India's sample survey of small scale industrial'units con-
ducted during 1976-77, discusses the broad trends in the growth in number of small enterprises and some
characteristics of the structure of this sector. In Part II, using the National Small Industries Corporation sample
survey data for 1979, some other aspects of the small scale sector like marketing of output, availability of inputs,
nature of competition, pricing, etc, are discussed.
[The first part of this paper was published last week; this is the second and concluding part.]
II manyentrepreneursin this surveyrefusedto unitswhichcould havesome bearingon our
furnishinformation.Thereforewe havetried findings. Table 9 (a) shows that on the
THIS part of the study is based on the all to minimise use of such figures. averagea sample unit employs 22 workers
India samplesurveyof smallscaleunitscon- The surveyhas its advantagesalso: It pro- and capital equipment worth about Rs 18
ducted by NSIC in 1979 apparentlyto ob- vides us with fairly recent data-probably lakh and has a sales turnover of nearly
tain reliableand up-to-date information to the latest survey of small units at the all- Rs 90 lakh. These figures are very much
aid their promotionalactivities.The results India level. Since we had access to the higherthan the averagefor estimatesbased
presentedherearebasedon a smallportionof primaryschedulesit permittedus to under- on RBI sample surveyand the official cen-
the informationcontainedin the schedules. take some detailed tabulations.The survey sus of small scale units.16 Size distribution
The data have a number of limitations. collected a good deal of qualitativeinfor- of the sampleunits, accordingto numberof
The survey mainly deals with the modern mation on questions like structureof com- employees, is also highly skewedin favour
segmentof the smallscale sector,whichpro- petition, marketingchannels,etc, which are of largerunits (Table9 b). Manufactureof
bablyreflectsthe interestsof the NSIC. The not usually capturedin NSS and ASI data. metalproducts(34) andtransportequipment
sample size is very small, over 1,900 units The industries broadly covered in this (37) form the largest and the smallest in-
from 46 industrial centres out of all the survey include plastics, engineering and dustrygroupsin the sample.Plastics,which
registeredsmall units in the country. The automobiles,which correspondto 30, 33 to is the only non-metalbased industrygroup,
sample surveyleavesout, as is the case with 37 of 2 digit National IndustrialClassifica- accountsfor about 12percent. Exclusivean-
most of the studies, the unregisteredsmall tion (NIC).15 Howeveron close scrutinyof
units, whose numberis allegedly as largeas the product description given in the sche- TABLE9(b): DlSrRIBUTION OFSAMPLE UNITS
that of the registeredsmall units. Moreover, dules, it was realised that these are very AccoRDN T NUmBER OFPERSONS EMPLOYED
the regional distribution of the sample is broadcategoriesand areinadequateto cap-
uneven. Very surprisingly, the Bombay- ture the specific structureof output of the No of Emp- Number of Percentage
loyees Units Distribution
Poona industrial belt has been completely small units. Eventhe 3-digitNIC was found
left out.'4 The centre-wisedistribution of unsuitable.Thereforewe developeda 4-digit 1 14 0.73
the sample is given in Appendix 2. classification(Appendix 1) which is collap- 2 32 1.67
The NSIC report of the sample survey sibleinto 2-digitNIC. The usefulnessof this 3 65 3.39
does not clearly mention the sampling will be evident later when the results are 4 108 5.58
frame. Hence it is difficult to judge its discussed. For the sake of brevitymost of 5 133 6.93
representativeness.Since the samplingpro- the resultsare discussed at the 2-digit NIC 6-10 584 30.43
cedure is not known it is not possible to level.Howeverwherevernecessarythe disag- 11-15 465 24.23
make estimates for the population. There- gregatedpicture is also presented. 16-20 376 19.59
fore the results presentedhere are strictly 21 and above 143 7.45
Beforegoing on to presentthe resultswe
valid for the sample units. However,since discuss the size distributionof the sample 'Ibtal 1919 100.00
the sampleunits arespreadacrossthe coun- TABLE 9(a): INDUSTRY-WISE DISrRIBUTIONAND AVERAGESIZE OF SAMPLEUNITS
try representingbig and small towns, older
centres like Calcutta as well as newer and (Value figures in Rs '000)
growingcities like Bangalore,it may not be Indus- Description Average Average Sales Average No Total No of
totallyincorrecthazardsome broadgenerali- try Value of Cap of Persons Units
sations based on this data. Since our aim is Code Equipment Employed
not to generateestimatesfor the concerned (Nos)
industriesbut to discernthe emergingstruc-
ture of production and its organisationin 30 Rubber, plastic, etc, products 2351.71 9398.67 19.36 233 ( 12.14)
the small scale sector the data could be 33 Basic metals and alloy
useful in many ways. industries 2023.90 12419.58 43.73 204 ( 1C.63)
Obtainingauthenticinformationon cer- 34 Metal products and parts 1339.05 4701.46 16.32 340 ( 38.98)
tain 'sensitive'questionsliketurnover,credit, 35 Machinery, excluding elec
machinery 1860.41 12458.77 22.87 340 ( 17.72)
etc, from small scale units is difficult. The
36 Electric equipment and
data furnished tend to be invariablycon- machinery 2450.42 13361.46 26.13 240 ( 12.51)
siderably different from their true values. 37 Transport equipment and
This is true not just of this but all surveys parts 2035.42 9533.86 24.86 154 ( 9.03)
except perhaps in surveys conducted by 1822.06 8937.53 22.57 1919 (100.00)
banks, since the bankers have a better
knowledge about the performance of the Note: Figures in brackets are percentages of the total. They do not necessarily add up to 100
units having dealings with them. Moreover due to rounding off error. This holds for the percentage distribution in all the tables.
Economic and Political Weekly
1790 Vol XX, No 42, October 19, 1985

Economic and Political Weekly, Vol. 20, No. 42 (Oct. 19, 1985), pp. 1790-1796
ECONOMIC AND POLITICAL WEEKLY October 19, 1985

cillary units form about 10 per cent of the
sample.This low figureseems to be broadly
similar to the estimate based on the RBI
sample survey discussed in Part I of this
paper.
TEMPORAL DISTRIBUTION OF SAMPLE
UNITS
Using the information about 'year of
commencementof production',an industry-
wise temporaldistributiontable is drawn.It
reflectsthe growthof small scale units sub-
ject to the same limitationdiscussedearlier.
As can be seen from Table 10 (a) the
proportionof the sample units which com-
mencedproductionbefore 1950is insignifi-
cant.Thereis gradualincreasein the number
of units starting production over time
(Table10b). However,the increaseis percep-
tibly sharpin the 1960sand the 1970scom-
pared to the fifties. When the data is re-
classified into two periods, 1950-65 and
1966-79,the proportionof units commenc-
ing productionin the post mid-sixtiesperiod
is more than twice the proportion in the
earlierperiod (Table10 c). This again, as in
the case of the RBI sample survey,suggests
that the growthof this segmentof the small
scale sector seems to be a post mid-sixties
phenomenon. Howeverthis is not equally
true of all the industry groups in the sam-
ple. While in plastics (20-NIC) 80 per cent
of the units started after the mid-sixties,
in the transport equipment (37-NIC)-a
majority of whom are manufacturersof
bicyclesand their parts-about 50 per cent
of the units are relativelymuch older units.
PATTERN OF OUTPUT
As mentioned earlier,we have developed
a 4-digit classification (collapsible into the
2-digit NIC) to describe the range of pro-
ductsmanufacturedby the sampleunits.The
2-digitclassificationof the smallunitscould
give the impression that they produce a
similar rangeof productsas the large scale
sector belonging to the same groups. This
does not seem to be quite true. We find that
the small units producea relativelylimited
range of items using apparently simple
technology. Moreoverin certain categories
like manufactureof machinery(35-NIC)the
smaller units mostly concentrateon manu-
factureof componentsand veryfewproduce
complete machinery.
Secondly, it is found that the usual pro-
duct classification does not seem to ade-
quatelycapturecertainactivitiesof the small
units.A good numberof the sampleunits- Faridabad,respectively.As is well known,
158 out of 748 units belonging to the in- Ludhianais the biggest bicycle producing
dustrygroup34-described theirproduct(or centrein the countryand two majortractor
principalactivity) as 'job-work'.These are producers are located in Faridabad. It is
relativelysmallerunitsemployingaround10 likely that the sample units are in fact sub-
workers.Theseunitsinvariablymanufacture contractors to the larger firms located in
components and part or simply undertake these places. The data seems to supportthe
some machining operations (like turning, often repeated statement that the bigger
plaining, shaping, drilling, boring, etc) on firmsin fact are apparentlyjust assemblers.
a contract basis from larger units. The In a numberof schedulesin category 3701
customeralso usuallysuppliesdrawingsand it is clearly stated that they producedparts
specifications and at times provides raw for Escorts.
materials,like iron and steel, and may also The same could be true, probably to a
undertakequality control checks. lesserextent, for the machinerycomponent
If our aboveunderstanding is correct,then manufacturersin the industry group 35.
the detailed product description seems to However,it shouldbe notedthat a good pro-
providesome insightsinto the emergingrela- portion of the component manufacturers
tionship betweenthe largerand small units, may be producing for the replacement
known as industrialsubcontracting.It has marketand not-for the original equipment
been argued 17 that since the mid-sixties, manufacturers.Therefore,to this extentthe
when the industrial sector in general and component manufacturershave little con-
engineering industries in particular faced nectionswith the largeproducersand hence
widespreadrecession, there seems to be a cannot be categorised as subcontractors.
growing tendency of subcontracting to
reducecosts of productionand increasepro- MARKETINGOF OUTPUT
ductivity of capital and labour resources. Table 11 shows the number (and percen-
Given the lower wages and overheadcosts tage) of the sample units marketingtheir
in smaller units, and plentiful supply of output to variouscategoriesof customers.18
labour,it seemsprofitablefor the largerunits As the data on quantityof output marketed
to offload manufacturingof simpler com- through various channels is incomplete in
ponents (or certain simpler mechanical a largenumberof scheduleswe do not have
operations) to the smaller units. the corrosponding data on the quantity
Although the argumentis fairly simple, marketed.The Tible showsthat the majority
the evidence to support this alleged grow- of producersmarkettheiroutput directlyto
ing tendency is very little. The official firms in the privatesector, small scale sec-
surveysof smallscaleunitshavenot attemp-
TABLE 10(C): INDUSTRY-WISE
TEMPORAL
ted to collect data on such questions.In our
UNITSBy YEAR
OFSAMPLE
DIsTRIBuTION
classification'job-work'seems to be a clear OFCOMMENCEMENTOFPRODUCrION
case of subcontracting.This could be true
of a number of other categories also, like Industry
'fabricationand welding' (3402), 'turning, Code 1951-65 1966-79 ibtal
drilling, shaping, plaining, etc' (3403).
The otherexamplesof subcontractingap- 30 45 (19.31)187 (80.26) 233
33 68 (33.33) 120 (58.82) 204
pearsto be in transportequipment,'bicycle
34 227 (30.35) 501 (66.98) 748
components and spare parts' (3705) and 35 117 (34.41)206 (60.59) 340
'components and spare parts for auto in- 36 69 (28.75) 166 (79.17) 240
dustry'(3701).Geographicallymost of these 37 62 (40.26) 84 (54.55) 154
units are concentrated in Ludhiana and
TABLE 10(b): INDUSTRY-WISE
TEMPORALDISTRIBUTION
OF SAMPLEUNITh BY YEAR OF
COMMENCEMENT OF PRODUCTION
Industry Code 1951-60 1961-70 1971-79 Total
30 17 ( 7.30) 63 (27.04) 152 (65.24) 233
33 33 (16.18) 72 (35.29) 83 (40.69) 204
34 93 (12.43) 289 (38.64) 346 (46.26) 748
35 54 (15.88) 133 (39.12) 136 (40.00) 340
36 39 (16.25) 68 (28.33) 128 (53.33) 240
Total 265 (13.81) 685 (35.69) 902 (47.00) 1919

TABLE 10(a): INDUSTRY-WISE TEMPORAL. DISTRIBUTION OF SAMPLE UNITS BY YEAR OF COMMENCEMENT OF PRODUCTION

Industry Code Before 1950 1951-55 1956-60 1961-65 1966-70 1970-76 1976-79 Total
30 1 (0.43) 3 (1.29) 14 (6.01) 28 (12.02) 35 (15.02) 87 (37.34) 65 (27.90) 233
33 16 (7.84) 6 (2.94) 27 (13.24) 35 (17.16) 37 (18.14) 47 (23.04) 36 (17.65) 204
34 20 (2.67) 31 (4.14) 62 ( 8.29) 134 (17.91) 155 (20.72) 202 (27.01) 144 (19.25) 748
35 17 (5.00) 12 (3.53) 42 (12.35) 63 (18.53) 70 (20.59) 107 (31.47) 29 ( 8.53) 340
36 5 (2.08) 10 (4.17) 29 (12.08) 30 (12.50) 38 (15.83) 71 (29.58) 57 (23.75) 240
37 8 (5.19) (8.19) 21 (13.64) 33 (21.43) 27 (17.53) 33 (21.43) 24 (15.58) 154
Total 67 (3.49) 70 (3.65) 195 (10.16) 323 (16.83) 362 (18.86) 547 (28.50) 355 (18.50) 1919

1791
October 19, 1985 ECONOMICAND POLITICAL WEEKLY

tor and public sectOrin descending orders its members. This tendency could enable, receiverawmaterialsfrom their customers.
of importance.The role of distributorsand small enterprisesto overcomethe disecono- This is particularlytrue for the category
agents is not significant. However,a larger mies of small productionby obtainingcer- 'job-work' (3400). It seems to provide
number of the units sell directly to in- tain goods and services collectively. evidence to support our earlier argument
dividuals/households, which gives the im- Another interestingfinding is that some about the plausiblesubcontractingrelation-
pressionthat they either sell their output to sample units, though very small in number, ship between the large and small units.
final consumersor that they havetheir own TABLE 12: DISTRIBUTION
OF ToTAL NUMBEROF CUSTOMERS
marketingnetwork.But neitherseems to be
correct.When we looked into the schedules Industry 1 2-3 4-5 5-10 11-20 21 and Total
we found that in the majorityof cases 'out- Above
put sold to traders' is filled under the 30 4 7 7 19 20 176 233
heading 'individuals/households'.It seems 33 8 7 6 20 36 127 204
to suggest that it is not the established 34 44 49 32 69 95 459 748
distributorsbut probablypetty traderswho 35 - 1 - - 4 335 340
mediate between the actual users and the 36 2 - 2 3 4 229 240
producers.It appearsthat the role of traders 37 - - - 2 2 150 154
is significantin the marketingof consumer Total 58 64 47 113 161 1476 1919
products,like plasticgoods, though it is dif-
ficult to make a categorical statement. TABLE 13: NUMBEROF CUSTOMERSBY SIZE OF UNITS
It is interestingto note (Table12)that the
proportionof the sample units selling their SI No of Wo-kers 1-2 3-5 6-10 11-20 21 and Total
No Above
output to a limited number of customers,
less than five, is very small. Majorityof the 1 1 4 8 4 48 13 77
units have20 or more customers.Moreover, 2 2 1 1 1 22 30 55
as can be seen in Table 13, no systematic 3 3 0 1 1 51 60 113
association between the size of the unit 4 4 8 1 2 64 94 169
(measuredin termsof numberof employees) 5 5 3 4 4 96 124 231
and the numberof customersis discernible. 6 6-10 38 32 35 323 498 926
These resultsseems to question the usually 7 11-15 53 22 30 274 370 749
acceptedview on this issue. It is quite often 8 16-20 41 25 15 209 288 578
said that the small units in general are 9 21 and above 17 5 14 61 106 203
'dependent' on a limited number of large
firms/distributors for orders. This is con- TABLE 14: DISTRIBUTION
OF SAMPLEUNITS ACCORDINGTO MAJOR SOURCEOF RAWMATERIALS
sideredto be a cause of an 'unequal' rela-
Industry Customer Agents/ Public Private Public Sec- Total No of
tionship betweenthe large and small firms. Supplied Distributors Sector Sector tor Agency Others Units
H-owever, at the disaggregatedlevelsome in-
dustries,like 'job-work',are relativelymore 30 1 84 83 99 16 46 233
dependenton a limitednumberof customers 33 3 70 90 48 15 67 204
(less than 5). 34 - 272 125 173 45 284 748
35 - 163 59 88 17 127 340
PURCHASE OF INPUTS 36 - 113 68 131 17 64 240
37 - 76 22 64 11 43 154
As can be seen from Table 14, agents and Total 5 778 447 603 121 631 1919
distributorsform the single largestsourceof
raw materialsupplies for the sample units. Note: Row totals are much higher than the total number of units. This is because a number of
The residual category 'others' forms the units have reported multiple source of raw materials.
second largest source. A close look at the
schedulesrevealedthat in a largenumberof TABLE 15: NATUREOF THE PkODUCT
cases 'traders'areclassifiedunderthis group. Industry Consumer Industrial Both Unspecified Total
Interestinglyin a numberof cases we found Product Product
that the industry associations providedthe
raw materials to its members. If this kind 30 97 (41.63) 75 (32.19) 59 (25.32) 2 (0.86) 233 ( 12.14)
of arrangementis fairly widespread, and 33 43 (21.08) 139 (68.14) 22 (10.78) - 204 ( 10.63)
growing,then it points to an emergingform 34 222 (29.68) 431 (57.62) 94 (12.57) 1 (0.13) 748 (38.98)
of organisationof production in the small 35 39 (11.47) 283 (83.24) 17 ( 5.00) 1 (0.29) 340 (17.72)
scalesectorwherethe collectivebody of pro- 36 58 (17.06) 136 (40.00) 46 (13.53) - 240 (12.51)
ducers(in a region and in an industry)pro- 37 27 (17.53) 106 <68.83) 21 (13.64) - 154 ( 8.03)
Total 486 (25.33) 1170 (60.97) 259 (13.50) 4 (0.21) 1919 (100.00)
vides for common facilities and inputs for
TABLE 11: NUM,BEROF UNITS MARKETINGI
THiEIROUTPIUTTO DIFFERENTCHANNELS

Industrv Distributors Government Dept Public Sector Private Sector Small Scale Sector Households

30 62 (26.61) 38 (16.31) 51 (21.89) 113 (48.50) 77 (33.05) 100 (42.92)

33 38 (18.63) 54 (26.47) 66 (32.35) 108 (52.94) 82 (40.20) 54 (26.47)
34 122 (16.31) 153 (20.45) 198 (26.47) 376 (50.27) 25 (34.69) 293 (39.17)
35 67 (19.71) 72 (21.18) 126 (37.06) 205 (60.29) 110 (32.35) 76 (22.35)
36 87 (36.25) 84 (35.00) 74 (30.83) 105 (43.75) 65 (38.08) 57 (23.75)
37 56 (36.36) 24 (15.58) 23 (14.94) 50 (38.31) 28 (18.18) 60 (39.96)
Total 432 425 538 966 620 640

Note: The percentage figures in brackets are usually more than 100 since the same producer can be using more than one marketing channel.

1792
 NATUREAND END USES OF PRODUCTS stituted consumer products. There is little producedgoods which havetheir industrial
Table 15 shows that three-fifths of the systematicassociation between the size of and household uses. The data seem to sug-
sample units produced industrial products the unit and the nature of the products gest that a major portion of the output of
while only a quarter of them manufactured manufactured(Table16). Howeverthis pro- this segmentof the small industriesenteras
consumer goods. A very small proportion portion is much higher in plastics and a inputsinto furtherprocessing,mainlyin the
of the metal-based industries' output con- quarterof the units in this industrygroup private and public sector manufacturing
units. Thereforeone can infer that this seg-
TABLE 16: NATURE OF THE PRODUCT PRODUCED BY SIZE OF UNIrS ment of the small scale sector seems to be
Si Size of Units Nature of the Product Total No of well integratedinto the overall cycle of in-
No Consumer Industrial Both Unspecified Units dustrial production.
An overwhelminglylarge percentageof
I 1 5 9 - - 14 the units have reportedproducing'finished
2 2 12 17 3 - 32 products'as against 'intermediateproducts'
3 3 20 39 6 - 65 (Table 17). No relationship is discernible
4 4 35 54 18 - 107 betweenthe end uses of theiroutput and the
5 5 55 56 21 1 133 size of the unit (Table18). This seems to be
6 6-10 171 333 79 1 584 questionablesince the informationis based
7 11-15 93 298 74 - 465 on the responseof the entrepreneurs and not
8 16-20 67 266 42 1 376
on any objectivecriteria.An examinationof
9 21 and above 28 98 16 1 143 the schedules does seem to confirm our
Total 486 1170 259 4 1919
doubt. For example,a 'turned'component
TABt E 17: END USES OF THE PRODUCT
manufacturedfor a customer accordingto
the latter'sspecificationis objectivelyan in-
Industry Intermediate Finished Product UnSpecified Total termediateproduct used in the production
Product of anotheritem. But suchcases arerecorded
as finished productsin many schedules. If
30 13 ( 5.58) 218 (93.56) 2 (0.86) 233
a finished product is defined as one which
33 63 ( 30.88) 135 (66.18) 6 (2.94) 204
6 (0.80) 748 is producedas an 'interchangeable' partwith
34 66 ( 8.82) 676 (90.37)
317 (93.24) 340 standardengineeringdimensionsusable by
35 23 ( 6.76) -
14 ( 5.83) 225 (93.75) 1 (0.42) 240 a variety of customersand/or can be sold
36
37 9 ( 5.84) 145 (94.16) - 154 'off the shelf' as an independentproduct,
Total 188 ( 9.80) 1716 (89.42) 15 (0.78) 1919 then in our view a largenumberof the pro-
ducts of the small units cannot conform to
TABLE 18: END USES of PRODUCTSPRODUCEDBYSIZF OF UNITS this definition.
No of Workers End Uses of the Products Total No of NATUREOF COMPETITIONAND PRICING
Si
No Intermediate Finished Units As can be seen from Table 19 the sample
Unspecified
units face very little competition from the
I I 1 13 - 14 public sector units and imports. However,
2 2 2 30 32 the privatesector does seem to offer some
3 3 1 64 - 65 competitionto the small producers.But the
4 4 8 98 1 107 most important source of competition
5 5 10 121 2 133 comes from within the sector:The number
6 6-10 55 524 5 584 of competitors on average is very large
7 11-15 54 411 - 465 (Table20).
8 16-20 46 325 5 376 Sincemost of the smallunits seem to pro-
9 21 and above 11 130 2 143 duce technologicallysimpler products-as
Total 188 1716 15 1919 evidenced in the 4-digit classification-
which probably requiresmall amounts of
PATTERNOF CONIPETITION
TABLE 19: INDUSTRY-WISE
capital, and since labour is availablefairly
Industry No Competition from Total No of in abundance,it seems naturalfor these in-
Code Competition Public Private SS Sector Foreign Units dustries to be competitive. Moreover,the
Sector Sector Supplies promotionalefforts like the fiscal conces-
sions offered, reservation of a growing
30 5 6 56 207 3 233 numberof productsfor the small scale sec-
33 5 12 70 184 2 204 tor and the soft loans from the financial in-
34 27 25 196 666 7 748 stitutionscould definitelyhave contributed
35 14 23 119 281 9 340 towardsincreasingthe level of competition
36 10 28 111 196 10 240
in this sector.
37 5 11 62 133 4 154
1919
This resultseems to give rise to a number
Total 66 105 614 1666 35
of questions. If the industriesin this sector
are competitive then how do the units fix
TABLE 20: DISTRIBUTION OF TOTAL NUMBER OF COMPETITORS
their prices and how intensively does the
Industry Number of Competitors Total No capacity gets utilised.
Code 0 1-5 6-10 11-20 21-50 51 and of Units The data shows that the entrepreneurs
Above mainly rely on to two criteria: 'cost-plus'
principleand 'the currentprice chargedby
30 9 48 31 37 37 71 233 their competitors' (Table 21). A small
33 6 52 43 22 18 63 204 number of the sample units have also
34 29 131 119 89 76 304 748 reported'price recommendedby customer'
35 17 82 47 46 29 119 340 as one of the considerationsin decidingthe
36 11 79 47 23 18 62 240 price. Howevier,the majority of them use
37 7 32 26 24 29 36 154
1919
one, or at best two, criteria for price fixa-
Total 79 424 313 241 207 655
tion (Table22).
1793
October 19, 1985 ECONOMIC AND POLITICAL WEEKLY

TABLE 21: RANKING OF VARIOUS PRINCIPLES USED IN PRICING relativelylimitedrangeof productsusingap-

parentlyrelativelysimple technology. Cer-
Indus- Description 'Cost-plus' Principle Current Price Charged by Other tain productdescriptionsgive us the impres-
try I Rank II Rank Small Producers sion that a fairly good numberof units sell
Code I Rank 11 Rank their output directly to the private,public
30 Rubber, plastic and small scale sectors. The role of distri-
etc, products 161 37 55 55 butors and agents in selling is minimal but
33 Basic metal and traders, who are classified.as individuals/
alloy industries 143 26 41 31 households, are fairly important. A very
34 Metal products largeproportion,over four-fifths,of output
and parts 574 91 108 165 of the metal-basedindustriesis used as in-
35 Machinery ex- puts for industrialproduction.This propor-
cluding elec- tion is much smaller for plastics. The small
tric mach 257 32 38 74 units sell their output to a large numberof
36 Electric Equip- customersand exclusivelyancillaryunits are
ment and very few. There is no relationshipbetween
machinery 178 31 37 40 the size of the units and the number of
37 Transport equip- customersthey have.
ment and
parts 117 25 20 42 The sampleunits face major competition
Total 1430 242 299 407 from within t-hesmall scale sector,though,
to a limited extent, from the private sector
TABLE 22: NUMBEROF PRINCIPLESUSED IN PRICE-FIXATION also. They decide their prices mostly on
'cost-plus'basis. The price chargedby their
Industry Number of Principles Used in Price Fixation Total No of competitors is the second important con-
Code 1 2 3 4 5 Units sideration. Capacity utilisation on the
30 105 93 27 8 - 233 averageis just round 50 per cent.
33 104 76 22 2 - 204 Our analysisof the variousaspectsof the
34 363 297 73 12 - 748 sampleunit seem to providesome empirical
35 183 119 20 6 - 340 basis to supportthe argumentof a growing
36 110 85 37 7 1 240 subcontractingrelationship between large
37 61 68 23 1 - 156
and small engineeringfirms. The evidence
Total 926 738 211 36 1
cannot be taken to be conclusive and the
Note: Since some units have not reportedthis information, the row totals do not add up to the total question requiresfurther enquiry.
number of units.
CONCLUSIONS
TABLE 23: NUMBEROF SHIFTSOPERATED utilisation of capacity in the sample units.
To sum up: Admittedly the data have a Using two all-India sample surveyscon-
Industry I Shift 2 Shift 3 Shift Tbtal numberof problemswhich severelyrestrict ductedin 1976-77and 1979by ReserveBank
Code No of of India (RBI) and National Small In-
Units
any attempt at a generalisation of these
results.However,since the surveycovereda dustries Corporation(NSIC), respectively,
30 126 67 40 233 fairly large and varied group of industrial an attempt has been made in this study to
33 164 35 5 204 centres it may not be totally incorrect to understandthe rate,patternand characteris-
34 592 139 17 748 draw some broad inferences based on the tics of the growth of small scale industries
35 237 83 20 340 data. The results of the study are tentative in India. The data analysedhave a number
36 196 27 17 240 and the explanationsprovidedare,we think, of limitations which have to be recognised
37 122 29 3 154 indicativeof the emergingtrendsin the small before highlightingthe main findings.Both
1btal 1437 380 102 1919 scale sector which warrantfurtherenquiry. the surveys are confined to the registered
The distributionof the sample units ac- small scale sector. They leave out a large
CAPACITYUTILISATION cordingto the year commencementof pro- chunkof small enterpriseswhich do not get
duction suggests, even if one discounts for registeredwith the concerned government
As the data on the number of shifts a fairly high morality rate, that they seem department.The NSIC data is much more
operated is incomplete in a large number of to have grown rapidlyafter the mid-sixties. restrictiveas it is confined to the engineer-
schedules we could not get the average for The detailedclassification-as the conven- ing, and chemicals and plastic industries
1977 to 1979, but just for the year 1978. tional classificationdoes not seem to repre- only. The age distribution of the sample
Therefore, we do not know if it represents sent the output patternof the sample units units,whichis used as a proxyfor the growth
the situation of a 'normal' year. Moreover adequately-indicates that they produce a (in number)of small enterprises,has to be
the concept of an 8-hour shift may not in
fact apply to small scale units where there TABLE 24: QUARTILEDISTRIBUTIONOF CAPACITYUTILISATION
are no strong labour unions to protect the
Industry I Quartile II Quartile III Quartile IV Quartile Total No of
interests of the workers. It is said that in Code Units
these units a shift could mean anything from
8 to 12 hours of work. 30 17 82 51 83 233
The data (Table 23) shows that in all the 33 36 81 46 41 204
industry groups the majority of the units 34 54 308 170 199 748*
35 21 111 93 115 340
operated only one shift, though second and
36 21 75 61 83 240
third shifts are not uncommon. About 50 per
37 14 78 32 30 154
cent of the units reported capacity utilisa- 163 (8.49)
Total 735 (38.30) 453 (23.61) 551 (28.71)
tion of over 50 per cent (Table 24). It can
be said that there is considerable under- Note: * Some units have not specified the capacity utilisation.

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ECONOMIC AND POLITICAL WEEKLY October 19, 1985

Appendix 1
PERCENTAGE DISTRIBUTION OF SAMPLE UNITS WITHIN EACH TWO-DIGIT INDUSTRY GROUP

30 Manufacture of rubber, plastic, petroleum and coal products 3440 Miscellaneous metal products 9.22
3000 Job orders 1.29 Sub-total 748 100.00
3001 PVC Industrial products and components 5.58
3002 Textile industry products, like obins 4.29 35 Manufactureof machinery, machine tools and parts except electrical
3003 PVC electrical components 3.00 machinery
3004 Polyethylene granules and powder from 3500 Machinery repair and reconditioning work 5.88
used plastic 2.58 3501 Machinery spare parts and components 22.65
3005 Blow mould plastics 1.72 3502 Spare parts and components for tractors
3006 Plastic packing natural, like box strap 3.86 and agricultural implements 5.29
3007 Nylone and PVC ropes, yarn and resin 3.00 3503 Spare parts and components for boilers,
3008 PVC footware, raincoats, etc 3.43 diesel engines and pumps 6.76
3009 PVC bloun films, bags, sheets, tubes, 3504 Spare parts and components for textile
monofilament 24.89 machinery and food industry 10.29
3010 Buttons and combs 1.29 3505 Machine tool accessories and components 6.76
3011 PVC containers, injection moulds, plastic 3506 Precision tool of machinery components,
toys, plastic caps, tops, etc 11.59 gauge and components 3.24
3012 PVC pipes and tubes 7.30 3507 Gears and pinions, worms 2.35
3013 PVC stationery, pens and ball pens 3.43 3520 Earth moving, construction, material
3014 Miscellaneous PVC, rubber and plastic handling equipment 2.35
products 22.75 3521 Boilers and oil engines 2.06
Sub-total 233 100.00 3522 Food industry equipment 2.94
3523 Textile machinery equipment 5.00
33 Basic metal and alloy industries
3524 Chemical and pharmaceutical equipment 2.65
3310 Cast iron casting, forgings 41.67 3525 Industrial machinery 3.53
3311 (Unspecified) ferrous castings 6.86 3526 Machine tools 8.53
3312 (Unspecified) non-ferrous castings 3.43 3528 Pumps 3.82
3313 Bars, rods, sheets, angles, billets, beams 3529 Miscellaneous non-electrical equipment 5.83
rounds and plates 11.27 Sub-total 340 100.00
3314 All types of wires and wire products 11.76
3315 Tubes and pipes 5.39 36 Electric equipment and machinery
3316 Die and die castings 2.94
3317 Cast iron products 0.49 3600 Repair of electrical equipment, rewinding,
3328 Aluminium castings, forgings and products 4.41 job work 3.33
3330 Lead, bronze, brass, copper castings and 3601 Electric motor and components 8.75
products 7.84 3602 Transformers 12.50
3340 Alloy casting 3.92 3603 Insulated wire, cables, magnetic tape,
Sub-total 204 100.00 battery eliminator and transformer coil 4.58
34 Manufacture of metal products and parts except machinery and 3604 Electric fan, lamps, bulbs, choke starter 9.58
transport equipment 3605 Battery and components 3.75
3606 Electrical instruments, motor starters 4.58
3400 Job work 16.44 3.75
3607 Electric switch, plug, holder, switch gear
3401 Job work plus other manufacturing but for
3608 Electrical appliances, heaters, wet grinders 3.33
job work is at least 50 per cent of the 3.33
3609 Radios, TV sets, and components
total manufacturing 4.68
3610 Electrical hardware like bus bar, resistors,
3402 Fabrication, welding 11.76
insulators 18.33
3403 Turning, drilling, shaping, plaining, etc 5.21
3404 Metal utensils and vessels 4.28 3611 Electric meters, control panels, switch
3405 Electroplating 2.01 boards, dampers for meters 7.92
3406 Agricultural implements, sugar cane 3612 Electronic components, capacitors, etc 5.75
crushers 5.21 3613 Miscellaneous electrical products 12.50
3407 Shafts, rigs, piston and components, Sub-total 240 100.00
cylinder and parts 1.74
3420 Nuts, bolts, screws, riverts, nails, hinges, 37 Manufacturing of transport equipment and parts
caps, etc 7.89
3700 Job work for auto industry, repairs and
3421 Grills, nets, gales, shutters and other
reconditioning of auto parts 14.29
structural products 7.49
3422 Springs and clips, industrial valves and 3701 Components and spare parts for auto
components 2.94 industry 31.82
3423 Steel trunks, almirahs, steel furniture, 3702 Bus and truck body building 7.14
buckets, etc 9.49 3703 Tractor trailer 3.90
3424 Moulds, dies and die casts, figs and fixtures 1.60 3704 Mopeds and bicycles 1.30
3425 Hand tools, cutting tools 2.81 3705 Bicycle components and spare parts 37.66
3426 Metal printing, metal stationery, 3706 Spare parts and components for railways 3.90
tin containers, pins of various types 7.22 Sub-total 154 100.00

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October 19, 1985 ECONOMIC AND POLITICAL WEEKLY

taken with considerablecircumspectionas
it does not takeinto account theirmortality
which may not be insignificant.
Registeredsmall enterprisesseem to have
grown(in number)relativelyrapidlyafterthe
mid-sixties. And this is more true in the
'modern'industrieslike engineering,chemi-
cals and plastics, etc. Further, these in-
dustries are also the ones which form a
greaterpart of the value added in the small
scale sector comparedto the traditionalin-
dustrieslike handloomsthough they have a
greater share in terms of number.
Wagesin the smallscalesectorcan be con-
sidered to be low. While wages across in-
dustries do not differ very much variation
in productivityis verysignificant.It suggests
that wagesaredeterminedby the competitive
conditions in the labour marketand gains
due to increase in productivitymainly ac-
crues to capital. Moreover,industrieswith
higher productivity seem to offer greater
volume of employment.
Comparisonof profitabilitybetweenthe
privatecorporateand the smallscalesectors,
and within the small scale sectoracrosssize
class of units is revealingsince the findings
are at variancewith some of the accepted
views on this issue. Profitabilitywithin the
small scale sector is inverselyrelatedto size
of units as measuredby the 'originalvalue
of plant and machinery'.Further,profit-
ability in the small scale sector as a whole
is higherthan that in the privatecorporate
sector.The second resultcould be attributed
to lower wage costs and fiscal concessions
to the smallscalesector.A partof the reason
for the observedinverserelationshipwithin
the small scale sector could be the use of
family labour in the smaller sized units
whose costs are not imputed in the survey
data. But anotherplausiblereasoncould be
the greaterexploitabilityof labour as size
decreases. Smaller units use their labour
more intensivelyand also seem to substitute
labour for capital to a considerableextent.
This is very clear from the fact that capital
efficiency is also inverselyrelatedwith size.

Appendix 2 According to NSIC sample survey data

engineering,chemicalsand plasticindustries
CENTRE-WISEDISTRIBUTION
OF THE SAMPLEUNITS in the smallscalesectorareverycompetitive.
Centre Two-Digit NIC Total Per Whilemultipleshiftsarenot uncommon,the
Cent majorityof enterprisesoperatedsingle shift
30 33 34 35 36 37 in 1978.The cost-plus principleis the most
widely used basis for pricing among the
1 Calcutta 14 39 150 36 0 10 249 12.98 sample units.
2 Cuttack 2 6 46 0 0 5 59 3.07
3 Rourkela 4 5 25 18 0 1 53 2.76 Our detailed tour-digitindustrial classi-
4 Ranchi 2 3 17 5 0 1 28 1.46 fication revealssome interestingfacts about
5 Dhanbad 0 1 1 5 0 0 7 0.36 the productrangeof the sampleunits.It sug-
6 Jaipur 0 2 5 2 0 9 18 0.94 gests that they produce a relativelylimited
7 Patna 5 8 11 7 0 3 34 1.77 range of items using apparently simple
8 Muzzafarpur 2 1 15 3 0 0 21 1.09 technologies. The classification revealed
9 Durbhanga 0 0 17 3 0 0 20 1.04 clear signs of the subcontractingnatureof
10 Deoria 0 0 6 2 0 1 9 0.47 the work done by a sizable proportion of
11 Gorakhpur 1 1 10 8 0 3 23 1.20 units in the engineeringindustry.
12 Agra 2 22 19 9 0 4 67 3.49
13 Delhi 19 5 12 14 0 5 55 2.87 A majorityof enterprisesdirectlysupply
14 Gwalior 0 1 6 2 0 2 11 0.57 their output-which invariably are inter-
15 Indore 7 9 12 11 0 1 40 2.08 mediateproducts-to unitsin private,public
16 Ujjain 3 0 12 2 0 0 17 0.89 and small scale sectors. The role of inter-
17 Rohtak I 0 4 3 0 2 10 0.52 mediariesin marketingseems to be minimal
18 Hissar 0 0 0 0 0 0 - - except in the case of consumer goods in
19 Gurgaon 4 1 1 1 0 0 7 0.36 plastic manufacturing.In the majority of
20 Faridabad 9 3 9 17 0 11 49 2.55 cases the sample enterprisesobtained their
21 Hyderabad 20 12 33 9 54 7 135 7.03
22 Warangal 1 1 1
inputs fromthe market.However,in certain
0 0 0 3 0.16
23 Vishakapatnam 1 0 3 0 0 0 4 0.21 cases, like 'job-work',inputs are invariably
24 Vijayawada 0 0 2 0 0 1 3 0.16 supplied by the customers.
25 Guntur 0 0 1 0 0 0 1 0.05
26 Bangalore 32 28 114 49 0 6 229 11.93 (Concluded)
27 Mysore 0 1 6 1 0 0 8 0.42
28 Dharwar 1 0 0 3 0 0 4 0.21 Notes
29 Belgaum 5 2 11 2 0 1 21 1.09
30 Tumkur 0 2 8 2 0 2 14 0.73 14 Apparently the NSIC could not cover this
31 Hubli I 1 13 4 0 2 21 1.09 region for some logistic reasons.
32 Bellary 2 2 3 0 0 1 8 0.42 15 The survey also covered about 200 units
33 Madras 14 8 34 11 181 7 255 13.29 belonging to the leather industry (NIC-27)
34 Salem 6 0 4 which are not included in our study.
3 0 0 13 0.68
35 Coimbatore 10 5 18 9 0 5 47 2.45 16 See (1) "Survey of Small Scale Industrial
36 Quilon 4 4 50 18 0 12 88 4.59 Units, 1977",Vol I, Reserve Bank of India,
37 Trivandrum 2 0 7 0 0 2 11 0.57 1979. (2) Report of Census of Small Scale
38 Ludhiana 2 4 19 14 0 43 82 4.27 Industrial Units, Vol I and II, Government
39 Ahmedabad 17 9 of India, DCSSI, New Delhi, 1977.
16 42 0 5 89 4.64
40 Surat 5 1 2 17 See R Nagaraj: "On Crisis and Accumula-
8 0 0 16 0.83
41 Valsad 6 1 2 5 5 0 tion: An Attempt Towards Understanding
19 0.99
42 Vadodara 19 1 13 10 0 2 the Development Tendencies of Capital in
45 2.34
43 Shimoga 2 1 1 0 0 0 India since the Mid-Sixties' 1980 (mimeo).
4 0.21
44 Pondicherry 6 S Mundle: "Growth, Disparity and Capital
1 6 0 0 0 13 0.68
45 Varanasi 2 2 2 2 0 0 8 0.42 Reorganisation in Indian Economy: Some
46 Bhadhravati Speculations",EPW, Annual Number 1981.
0 0 1 0 0 0 1 0.05
Total 18 Number of firms exporting is not presented
233 204 748 340 240 154 1919 100.00
in the table as their number is negligible.

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