TAMILNADU NATIONAL LAW UNIVERSITY,

TIRUCHIRAPPALLI

Submitted for the internal assessment for the course of BA., LL. B
(Hons.) First Semester; Academic Year – 2020-202

THE ROLE AND PERFORMANCE OF COTTAGE

AND SMALL INDUSTRIES IN INDIA

Faculty: Mr. Thomas Felix

TNNLU
Submitted By: K. Sanjay
BA0200046
TNNLU

Submitted on:31.12.2020
Thursday
DECLARATION
Declaration, K. Sanjay, reg no:BA0200046, hereby declare that this research project work
entitled, "The role and performance of cottage and small industries in India" under the
supervision of Dr Thomas Felix, Professor of Economics, Tamil Nadu National Law
University, Tiruchirapalli, 622027.This work has not been submitted either in whole or part
of any degree/diploma in any other University.
Place: Dharmapuri (study from home due to pandemic)
Date: 31.12.2020
 TABLE OF CONTENTS

 Introduction
 Objective
 Review of Literature
 Methodology
 Role and Performance of Cottage and SSI
 Industrial reforms in India
 Challenges of Cottage and SSI’s
 Conclusion
 Bibliography
INTRODUCTION
The emergence of cottage and small-scale industries in India and around the world begun
after the end of second world war. This period is very peculiar as world nations are
competing with each other through industrial power. India as a country always supported
these industries as it enhanced employment, latent resource, insurance against social tension.
Cottage industries created employment opportunities in part time for a particular family or
people who are dependent on it. Whereas, small scale industries hired labour and operated in
minimal functions and capital. These industries support equitable distribution of national
income and wealth and these are zone of lesser industrial disputes. India is basically an
agricultural country, next to agriculture people are engaged in this cottage and small scale
industry at large rate. After independence the ruling congress till 1977 brought various
industrial reforms to promote both heavy and small industries. In 1977 the first non-congress
party, Janata Party, formed government and introduced new aspects of industrial reforms.
The government under Jawaharlal Nehru to Manmohan Singh brought various reforms to
support industrial sector in India. Since 1991 government of India has withdrawn several
MSME policies and introduced promotional policies which paved way for the growth of
MSME sectors. The performance of cottage industries and SSIs have direct impact on Indian
economy. According to ‘National Manufacturing Policy-2011’ the MSME contributes 40%
of manufacturing outputs. Cottage and small-scale industry played a key role in change of
Indian economy from agricultural economy to industrial economy.

OBJECTIVES
This paper is based on the following objections,
 To briefly discuss about MSME
 To analyse the similarities and differences between cottage and small-scale industries
 To detail the relation between MSME and Indian economy
 To identify the role and performance of cottage and small-scale industries

`REVIEW OF LITERATURE

 Pendse & Choubey - Globalisation and Indian manufacturing sector

Pendse and Choubey in their book “Globalisation and Indian manufacturing sector” has
clearly illustrated the growth of small-scale sectors in India and their vital role in the
country’s economy. This efficient small-scale industry provided employment generation and
assisted in equitable distribution of national income. And moreover, paved way for
mobilisation of capital and entrepreneurial skills and regional disperse of industries across the
country. As stated by the author from the beginning the 1990’s these industries have been
constantly contributing in the export goods of India. While these SSIs have a rapid growth in
past years it also faced decline of few small and weak industries.
  Prakash - The Indian Economy Since 1991: Economic Reforms and performance

Author Prakash in his book “The Indian Economy Since 1991: Economic Reforms and
performance” has cited that after the post-liberalization era few small and weak industries
have been disappeared due to competitive market. When India tried to boost up the MSME
sectors by introducing economic reforms many entrepreneurs associated them in this small
industrial sector which led to the expansion of market, due to these some existing small and
weak industries have disappeared.

 Sudip Chaudhri – Manufacturing Trade Deficit and Industrial Policy in India

Author Sudip Chaudhri in his journal article “Manufacturing trade deficit and Industrial
Policy in India” detailed about the liberalisation on import and market orientation. He stated
that manufacturing trade deficit in India have been reduced till from the economic reforms of
1991 to 2000, later in 2000’s India again begun to face the manufacturing trade deficit, this is
because of the under developed industry in the country. The economic reforms of 1991,
withdrawn licensing, import taxation and freed FDI investment, these reforms helped
pharmaceutical industry at large rate and boosted its growth in this period. Though economic
reforms supported other industries to attain growth, the pharmaceutical industry boomed after
1991 because the earlier reforms didn’t support the pharma industry at large rate. From this
we infer that though economic reforms is brought for whole heavy and small industry, the
growth that an industry attain is peculiar that the policy introduced by the government
supports it or not. And the manufacturing trade deficit begun peaking in 2000’s due to under
developed industry in the nation.

METHODOLOGY
The research methodology is predominantly doctrinal using sources such as books, journals,
articles, legislations, and online sources. Additionally, considering the current pandemic-
situation, all the resources are online-based.
ROLE AND PERFOMANCE OF COTTAGE AND SSI
The cottage and small-scale industry in India are engaged by small entrepreneurs who
monitors the production and manufacturing sector at small level. These industries play vital
role in providing employment opportunities to creation of social ecosystem. After
independence may countries boosted their industrial sectors to compete the world market.
India right from Nehru era brought up many reforms to accelerate the small-scale sector in
country, right from independence to till now these industries have undergone several reforms
and now contributing about 30% to the country’s GDP. The following are the role and
performance of cottage and small industries in India.

 The performance of cottage and small industries have overall impact on economy,
production in number of units and exports.

 After independence cottage and SSI’s become accepted originator for promoting
equitable development and economic growth.

 At present India consist of more than 63.4 million units of SSI’s and it produces more
than 6000 products from traditional handcraft products to high tech industrial
equipment.

 These industries contribute about 6.11% towards GDP and 45% of export and 33.4%
of manufactured output of the country.

 National manufacturing policy is expected to increase the manufacturing sector

contribution towards GDP about 25% and to create 100 million job opportunities bu
the end of 2020

 It is expected that the National manufacturing policy with the help of SSI’s will
enhance the country’s dollar economy from 2 trillion to 20 trillion dollars economy.

 Indian economy is basically a agricultural economy, most of the people in India are
directly or indirectly allied with agriculture. The cottage and small-scale industry
could be a bust for employment generation in both urban and rural areas.
 In India nearly 45 million of women are engaged with this industry which expose
them to business development skills, access to markets and developing financial
skills.

 The cottage and small scale industries are zone of lesser industrial disputes as
compared to that of heavy industries. Mostly, the industries operating in semi-urban
and rural areas have no industrial disputes among each competitive industry.

 The heavy or large scale industries are mostly dispersed in urban and developed areas
but cottage and small scale industries are dispersed in under developed areas which
not only provide employment opportunities to rural peoples but also helps in creation
of social environment.

 The minimum capital investment and maximum employment opportunity is the main
element of small industry. For example, a cottage or small scale industry producing
hand made potteries and plastic wares employ many workers as compared to large
scale industry where the crafting and carving works are done by computerised
machines

 The cottage industries in India not only generate employment opportunities but also
exhibit traditional making of hand made crafts, utensil products, statues of idols,
furniture cravings and gallery products

 The labours of cottage and small scale industries are generally directed and cordial,
they never exploit against each other or protest against industry.

 These industries act as economic catalyst of a country where the capital accumulate
in large sections for achieving the goal of economic development.

 In order to promote the SSI sector, the CII of India taken up many initiatives, quality,
corporate governance, knowledge management, energy efficiency and environment
management to cope up with the higher production and also for quality of life of the
community.
  Though it contributes towards National income and financial sectors of India the
cottage and SSI’s nurse first generation entrepreneur, promote individual creativity
and innovation.

 The cottage and small-scale industry became a integral part of the society they help
the poorest strata of people from escaping perpetual poverty and facilitate effective
mobilization of private sectors.

 At present this industry become a development platform form first generation

entrepreneur which not only develop their skills but also contribute towards the micro
finance at individual level.

INDUSTRIAL REFORMS IN INDIA

The first major industrial reform is introduced in the year 1948, Industrial Policy – 1948 was
enacted. This policy categorised the industries at four level, the classification is of follows,

 Strategic Industries (Public sector)

 Basic or key Industries (Public cum private sector)
 Important Industries (Controlled Private sector)
 Other Industries (Private and co-operative sector)

This policy was mainly drafted to depart India’s industry from British laissez fair and to turn
India towards a mixed economy nation. Later, the Industrial Policy Resolution 1956 was
introduced which is also called as
Mahalanobis model. In addition to that the Monopoly and Trade restriction act and Industry
development and regulation act was also enacted. Mahalanobis model founded by Nehruvian
socialism helps the small business runners and consumers to prevent the exploitation of
monopolistic conglomerates. It was Indianization of old Russian model by PC Mahalanobis.
This model laid that there should be emphasis on heavy industry which would retain India in
a long-term growth. The four-fold classification introduced in Industrial Policy 1948 was
change to three-fold classification under this act. The three-fold classification are of follows,

 Schedule A industries – It comprised of 17 industries which were directly under the

control of central government. It includes Defence equipment, Iron and steel, Atomic
energy etc
  Schedule B industries – It comprises of 12 industries which state government has to
undertake along with private sector. It includes fertilizers, road and sea transport.

 Schedule C industries – It consist of industries which were not mention below the
Schedule A & B industries.

So far, the industrial policy adopted by the government mainly focused on the heavy industry.
The Industrial Policy Statement of 1977 enacted by Janata Party gave priority to small and
tiny industry. It was for the first time since independence a non-congress party at centre
demonstrated new industrial policy. The Janata Party had new vision on industrial planning
so they focused on small industries. The main objectives of the policy are listed below,

 Establishment of district industries centre to meet up each district industrial

requirement.

 Industrial Development Bank of India (IDBI) was setup manage the need for small
industry and to standardise, market and have a quality control over small industries.

 To boost the advancement of small-scale sector this policy complimented the role of
SSI’s to that of heavy industries. Exclusive production of products from small-scale
sector increased from 180 to more than 500.

 This policy stated that government will undertake the weak industries to bear the
minimum possible loss and to rehabilitate the undertaken industry.

 This policy restricted the use of foreign technology and promoted indigenous
technology in production. However, it will import foreign aid from abroad if needed.

 This policy removed restrictions on import duties that are needed for development of
industries. It promoted minimum export and maximum self sufficiency

 No licence will be issued for establishment of industry in certain metropolitan cities

where the population exceeds more than 10 lakhs.
  It also promoted the participation of workers in management and restricted foreign
investment in undeveloped areas i.e., areas which don’t contribute any development
to the country.

Indian economic policy was introduced in the year 1991, abolishment of industrial licence,
large industrial houses were freed from taking up permission for investment and expansion,
industries that were listed to public sectors was reduced, foreign capital and technology
access had been made freer and moreover import duties have been reduced. This
industrialisation pattern is expected not only to be competitive but also sufficiently labour
intensive. The important reforms of economic policy of 1991 are of follows,
 In the previous three-fold classification Scheduled A category consisted of 18
industries which were drastically brought down to 3 industries. The defence aircraft
and warships, atomic energy and railways were alone under the direct authority of
central government.

 The central government have almost abolished the industrial licence, the monopoly
and restrictive trade act was abolished and new competitive law was enacted.

 The capital market freed firms to fix their own issues instead of pricing fixed by a
government regulator, it was a major good brought to the industrial sector.

 De-reservation on industrial sectors boosted private firms in the market and FDI and
FPI were allowed to attract foreign investment.

The Micro Small Medium Enterprise Development (MSMED) Act, 2006 was amended to
promote ease of business and align industry towards indirect tax regime. The MSMED Act
paved way for the direct and direct employment in MSMED sectors of India. The MSME
sector is the second largest employment generation sector in India next to agriculture, the
amendment in this act boosted the small scale industry in course of production and expansion
of its units. This MSME sector contributes about 6.11% towards GDP and 45% of export of
the country and 33.4% of total manufactured products within the territory of the country. This
MSME amendment Act of 2006 classified three types of enterprises,

 Micro Enterprise – Where annual turnover dose not exceed five crores
  Small Enterprise – When annual turnover exceeds five crores and not more than 75
crores

 Medium Enterprise – Where annual turnover exceeds 75 crores but not more than 250
crores.

This classification in MSME sectors helps in ascertaining the GST figures and it eliminates
the need for inspections. This classification helps government to amend the MSME sectors
easily in case of any economic scenario in future. This MSME Act of 2006 provided first
ever legal framework to the word enterprise. At present the MSME of India support various
factors like export promotion, man power training, raw material procurement, tootling and
testing support and mainly increasing export potential for Indian products. By its nature of
less capital investment and more employment opportunities the MSME sectors in India
accelerated its growth after the 2006 amendment. The cottage industries here not only
generate employment opportunities but also strengthens traditional skills of making products
like pottery and clay works. It builds rural industrialization and helps in creation of social
environment. This amendment transferred the unorganised cottage and small scale industries
into a legal framework under the three enterprise classification. Moreover, it redefined the
term enterprise and provided them legal network for development. These reforms from 1948
to 2006 shaped both heavy and small scale industry from primitive to advanced level.

The other measures taken by the government for betterment of these industries includes
establishment of National Small Industrial Corporation (NSIC). The NSIC provides
machinery to small industry and hire purchase scheme for the purchase of machinery. For
industry with less capital support NSIC also facilitate the equipment leasing i.e., equipment is
leased for the industry for considerable amount for a particular period of time. One of the
main challenges that a small scale industry faces is the lack of marketing, the finished
products from these industry fails to reach the consumer due to lack of marketing. The NSIC
supports small scale industry in export marketing of the products. The entrepreneur of cottage
and small scale industry lack knowledge of raw material to accommodate this the government
organise bulk purchase programme through NSIC where the entrepreneur are able to
purchase goods at bulk quantity. NSIC also develop prototype equipment for the usage of
small industries to produce commercial products and it holds raw materials depos to
distribute raw materials among the small industries. This NSIC regulates the modernization
of cottage and small scale industry and helps in upgradation of technology used in these
industries. This NSIC setup by government of India not only supports small industries at
specific levels it helps in facilitating technology support, marketing support and credit
assistance. While discussing credit assistance, the NSIC creates platform between
entrepreneurs of small industry and commercial banks, where, transaction of term loans and
working capitals are facilitated as per the wish of entrepreneur. If the entrepreneur lacks
knowledge on documentation or procedures of imports and export the NSIC helps them by
taking care of all documentation and export process. The motto of NSIC is to enhance the
cottage and small industries in the country to technological advancement and exposure
towards international markets by facilitating them in all levels of the industrial process.
CHALLENGES OF COTTAGE AND SSI’s
Though this cottage and small-scale industries provide opportunities to millions of peoples,
create social environment and contribute towards national income it faces crisis like
indispensable response from government authority, lack of finance, banks, corporates and
competition in national and international market. The major crisis that every cottage and
small-scale industry faces at primary level is lack of finance, the scarcity in credit assistance
crumble these industries and the creditworthiness of this small borrowers lead them to get
money at higher rate interests. This becomes a major barrier for cottage and small-scale
industry. The lack of knowledge in procurement of raw materials is another huge problem for
small scale industrialist. The heavy or large-scale industries possess high economy and
purchase raw materials cheaper compared to market rate and sell those products for
affordable prices. Whereas, in cottage and small industry the entrepreneur is unaware of
quantity and quality of the raw materials and purchase it at exorbitant prices. These industries
do not have a organised marketing process to review their products quality while the large
scale sectors hire peoples to review their product and have a quality check of it. This easily
become a comparison to consumer who buys the product, the product from a large-scale
industry look appealing here whereas the product of cottage and small-scale industry due to
lack of quality check appear less appealing to the consumer. Hence, it becomes another
challenge for these industries. The lack of infrastructure is another challenge faced by these
industries, it’s a barrier for their growth, these industries are mostly located in semi-urban and
rural areas where the transport facility is not convenient than urban areas. And this rural area
faces inadequate power supply which become impossible to run big machines and power cut
interrupts the production. Mostly cottage and small-scale industry holds out dated machine
which is not equivalent to that of large-scale industry’s imported machines. Hence, this too
become a challenge for these industries in process of production. Beside this most common
challenge these industries suffer other challenges like managerial capabilities. The
entrepreneur of the cottage or small-scale industry is responsible for the process of
production and quality of the finished products. It is not possible that the entrepreneur will
have all knowledge of his product, here these industries lack the managerial capability. This
cottage and small scale industry functioning at semi-urban and rural areas possess minimum
space for production and storage of finished products as compared to large scale sector which
holds large warehouses for storage. Hence, it become impossible for free supply of goods.
Though cottage and small scale industry provide employment opportunities to millions of
people it is not assured that they all are skilled labours. People enrol themselves in this to
escape from poverty and to run their daily life. Hence, the insufficiency of skilled labours
become a challenge to these industries. Beside all the challenges faced by this cottage and
small scale industry, it becomes evident that people in modern days refuse to encourage the
products of cottage and small scale industry. The willing of purchase in people always tends
to buy a product that comes from a big market rather than a product that is produced in semi
urban and rural areas if India. This is the major reason why these industries always stay one
step behind from the international market. Now a days, a product reaches a consumer not by
its standard quality and affordable price that a producer fix. It reaches a consumer by the
marketing that is done by the producer, the advertisement through media and Internet
influence buyers to purchase a product. But, the entrepreneurs of cottage and small scale
industry are mostly unaware of this marketing concept and fails to make their product reach
the consumer. In this digital world it is fairly hard to drive the attention of a buyer towards a
product unless the marketing is done by the producer. These challenges faced by the cottage
and small scale industries make them impossible to expand their production and leave them
one step behind the international market.

COCNLUSION
The cottage and small scale industries play a vital role in Indian economy, its contribution
towards national income, manufactured and export products is larger than any other sector’s
contribution towards national economy. These industries help in employment generation,
creation of social environment and acts as a best platform for first generation entrepreneurs.
The government of India undertakes various measures and introduce many reforms to
promote the industrial sector of the country. The role and performance of cottage, small and
heavy industry paved way for turning Indian economy from agricultural economy to
industrial economy. The reforms undertaken by government in the year 1948, 1956,
1977,1991 and 2006 put these industries in a growth line and supported for expansion and
advancement of these industries. At present, India is home to 63.4 million small scale
industry and produces more than 6000 products ranging from hand crafted to high tech
technologies. These industries not only contribute towards economy of the nation, 45 million
women in India are engaged in this sector which help them in exposing towards business
development skill, access to markets and financial development skill. Though government of
India introduce many reforms and take measures to improvise this sector there are few
drawbacks like unawareness of entrepreneur in purchase of raw material, lack of marketing
and managerial skills and other challenges which act a barrier for the expansion of small
industries and keep them one step below the international markets.

If the government facilitated these industries overcoming the challenges, the cottage and
small scale industry will be established as a prominent industry in the country where an
entrepreneur could make minimum investment and achieve maximum of profit. The point I
infer from this project, for betterment of these industries it’s our step to buy the products of
cottage and small scale industry to promote them. We could assist them by a small gesture of
purchasing the products from this industry.

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