IRJMSH Vol 8 Issue 1 [Year 2017] ISSN 2277 – 9809 (0nline) 2348–9359 (Print)

Role and development of small scale industries in India

Tara Chand Saxena

Assistant Professor
Email Id- saxenatarun64@gmail.com
Abstract
The future of the industrial development of this country depends to a large extent on the growth
and development of the potentials of small scale industries. Small scale industries play a
considerable role in the employment of manpower and productivity, distribution of income
across the country through increased investments and profits. In fact, small scale industries are
termed as ‘nation developing motors’. The number of small scale industries in the country
increased from 67.6 lakhs to 510.3 lakhs in 1990-91 to 2014-15. By which, the employment
opportunities in country has increased from 158.3 lakh to 1171.3 lakh in 1990-91 to 2014-15 and
exports value has increased from Rs 9664 crores to Rs 849248 crores in the same time period.
however,SSI has both the challenges and opportunities before them. The business of small scale
industries product can compete on cost, quality and products at domestic and international level.

Objectives and research methodology

The objective of this study is to study growth and development of the small scale industries in
the country and also contribution in the distribution of national income and provide employment
opportunities in the rural people.
To deal with following objectives, the present study is based on primary as well as secondary
data collected by the different commission and organization. Different websites have also used
for the update data of this study.

Keywords: - Small scale industry, Five-year plan, Employment, Growth, Performance

Small-scale industries are easy to start and manage given the minimal scale of production. They
are set up to cater for the basic needs of the people within their locality. An example of a small-
scale industry is a laundry or small kiosk created to cater to the individual needs of the people in
the area in which it is located. These businesses require little starting and operating capital. They
require cheap labor that is easily found and their target market is the host community. Such
companies also realize a small annual turnover and, as a result, pay fewer taxes. The
classification of the industry as large or small scale depends on the rate of production and the
number of employees. An industry with a low rate of production and fewer employees is a small-
scale industry. Most governments implement policies that strengthen the small-scale industry
sector because of the role the industries play in economic development. The industries help in
alleviating poverty through provision of employment and other products.

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The definition of small scale sector is broadened from small-scale industries to small scale
enterprises that include all business enterprises in the services sector which provide service to
industrial sector in addition to small scale industries taking into account all these factors, at
present, Reserve Bank of India uses an expanded definition of small scale industries, which
constitute of Small scale industrial undertaking which are engaged in the manufacturing,
processing and preservation of goods in which the investment in plant and machinery not to
exceed Rs. 5 crores. These would include units engaged in mining or quarrying servicing and
repairing of machinery. These tiny enterprises investment in plant and machinery should not
exceed Rs. 25 lacs. Traditional industries, which require high workmanship and techniques and
also village and household industries producing common goods of consumption predominantly
by using simple tools. It also constitutes of decentralized and informal sector like handlooms and
handicrafts. The industry related to services/ business enterprises, food and agro-based
industries, software industry also form big part of small scale industries in India.
Consequent to the enactment of Micro, Small and Medium Enterprises Development (MSMED)
Act, 2006, the small and medium sector has been defined as micro, small and medium
enterprises with effect from October 2, 2006. Separate investment limit has been decided for
manufacturing and service enterprises.
A manufacturing micro enterprise where investment limit in plant and machinery does not
exceed Rs 25 lacs and a manufacturing small enterprise where the investment limit in plant and
machinery is more than Rs 25 lacs but does not exceed Rs 5 crore and a manufacturing medium
enterprise where the investment limit in plant and machinery is more than Rs 5 crore but does
not exceed Rs 10 crore.
A service micro enterprise where the investment limit in equipment does not exceed Rs 10 lacs
and a service small enterprise where the investment in equipment is more than Rs 10 lacs but
does not exceed Rs 2 crore and a service where the investment in equipment is more than
Rs 2 crore but does not Rs 5 crore
Classifications of SSI
This sector covers a wide spectrum with two clearly identifiable segments i.e. modem small-
scale industries, including tiny units and power looms and traditional industries like Khadi and
Village Industries, Handlooms, Handicrafts Sericulture and Coir industry. Both the segments
have their own special characteristics in terms of capital labour intensity, locational, orientation,
manufacturing process and skill requirements.

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Chartshows the classification of SSI

Small scale industries

Traditional Modern

With
Khadi power

Power looms Small-scale

Village industries

Handlooms Without
Export oriented
power
Coir industries
Ancillaries
Sericulture
Tiny
Cottage Enterprises

Small scale
Artisans services and
Business
Enterprises

Different Segments of SSI

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Traditional Industries includeModern Units include

1) Khadi and Village Industries 1) Small-scale industrial undertakings

2) Handlooms 2) Export oriented SSI units
3) Handicrafts 3) Ancillary industrial undertakings
4) Coir 4) Small-scale service and business enterprises
5) Sericulture 5) Power looms

Small-Scale Industrial Undertaking (SSI)

Following the Abid Hussain Committee (1997) Recommendation, the Government of India
raised the ceiling on investment in plant and machinery for SSI and ancillary undertaking to Rs.
3 crores. This definition of SSI and ancillary undertaking has been revised as per the government
order dated 24 December 1999. According to the order the industrial undertaking in which the
investment in plant and machinery, whether held on ownership terms or on lease hire purchase
basis does not exceed Rs. 1crore is regarded as small-scale industrial undertakings.
Ancillary Industrial Undertaking (ANC)
An industrial undertaking which is engaged or is proposed to be engaged in the manufacture or
production of parts, components, sub-assemblies, tooling or intermediates, or the rendering of
services and the undertaking supplies or renders or proposes to supply or render not less than 50
per cent of its production or services, as the case may be, to one or more other industrial
undertakings and whose investment in fixed assets in plant and machinery whether held on
ownership terms or on lease or on hire-purchase, does not exceed Rs 10 million.
Tiny Enterprise
A unit is treated as tiny enterprise where the investment in plant and machinery does not exceed
Rs.25 lakhs, irrespective of the location of the unit.
Small-scale Service and Business (Industry Related) Enterprise (SSSBE)
SSSBEs industry related service/ business enterprises with investment up to Rs 500,000 in fixed
assets, excluding land and building, are called Small Scale Service/ Business Enterprises
(SSSBEs). This limit has been raised to Rs.1 million w.e.f. September 2000.
Export Oriented Unit (EOU)
Export Oriented Units (EOUs) now constitute a very important sector in the country’s Export
Production scenario. They have become dominant players in our export strategy, and their share
in the Country’s export performance is about 10%. The export growth rate of 30% compares
very favorably with the National export growth rate.
Small-Scale Industries in Indian Scenario
Small-scale sector is recognized as an instrument of social transformation enlarging employment
opportunities and broadcasting entrepreneurship. It occupies a place of importance in the
economy of all labour surplus countries
Small-Scale Industry Under Five Year Plans
The small-scale industrial sector has played a vital role in shaping the destiny of the nation since
independence. It has emerged as a highly energetic and dynamic sector of Indian economy. In
fact, it is one of the success stories of modem India. The onset of planning era in 1951 saw the
village and small-scale industries sector being recognized as an important tool for employment

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generation and balanced regional development. In view of this, plan outlays for this sector also
rose unprecedented over the years. The state of affairs, in which small-scale industries were at
that time, is well described in the plan document: "There have been hardly any considered and
coordinated programmes of development of technical improvement and a great deal of small
industry has grown up without much direction and assistance from the government".
In the First Five Year Plan (1951-1956) it was outlined that the supply of thebasic raw
materials should be assured, a sphere of production ear-marked and perhaps a small cess
enforced on large-scale industry with a view to reducing the difference in the cost of production
or merely with the object of providing funds for improving the efficiency and organisation of
small-scale units. From the experience of the first five-yearplan, it was recognised that
satisfactory arrangements for meeting the required amount of finance has a vital role to play in
the development programmes for small industries. The Second Five Year Plan (1956-61)
stressed the need for a " coordinated policy based on close collaboration between the Reserve
Bank of India, the State Bank of India, State Financial Corporation and Central Co- Operative
Bank" The outlay on small-scale industry was amounted Rs. 42.00 crores, which was 2.14 % of
the total outlay. '
During the Second Five Year Plan period more than 60 industrial estates were established to
provide factory adjustment and a number of common facilities like power, water, transport etc.
the small scale industries will contribute Rs 795 crores to the national product in 1960-61 as
compare with its Rs 600 crore in 1955-56. Cottage and small-scale industries will provide new
full-time jobs for 4.5 lakh persons, beside ensuring fuller and more remunerative employment to
about 40 lakh persons. The out-lay on village and small-scale industries in the second plan was
Rs 200.The outlay of the small-scale industry during this Plan period was Rs.187.00 crores,
which was 4% of the total outlay.
During the Third Five Year Plan (1961-1966) Small-Scale Industries Board(SSIB) constituted
a working group to formulate a plan for the development of smallscaleindustries. Intensive
development of these industries was taken up in selected areasknown as "rural industries
projects" Among other developments in the field of smallscaleindustries proposed in this plan
reference may be made to the proposeddevelopment of depots for stocking raw materials, which
are in short supply, to be madeavailable to small units with a view to assisting in the fuller
utilization of existingcapacity. It was also proposed to set-up an industrial design institute and
about more than300 new industrial estates (apart from 60 already established) of various sizes
and types during the third plan period.the total outlay of Rs. 241.00 crores were spent towards
the organization of various programs for promotion of small-scale industry.
The Fourth Five Year Plan (1969-1974) document stated as follows "Themain aims of the
development programmes for small-scale industries was fullerutilization of the capacity already
established, intensive development of selectedindustries including ancillaries and industrial co-
operatives
and subject to criteria offeasibility, promotion of industries in semi urban, rural and
backward areas"Duringthis period, the Administrative Reforms Commission made several
recommendations forthe development of small-scale sector. Stress was laid on training and
common servicefacilities, quality marketing and credit facilities. total outlay of Rs. 693.00 crores
were allocated for the development of village and small-scale industries. Out of which, Rs.
293.00 crores were from the public sector and Rs. 400.00 crores were from private sources.
The Fifth Five Year Plan (1974-1979) stressed the development of differentsmall industries so
as to remove poverty, generate employment and reduce inequalities.The broad strategy proposed
to be followed in the Fifth Plan was to entail a considerableenlargement of the development

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programmes for providing assistance and facilities invarious forms to these industries.Some of
the important measures proposed to beinitiated were:
1) Package and consultancy service
2) Technical emp1oyment and research
3) Dispersal of industries
The Sixth Five Year Plan (1980-1985) for India has importance the shiftfrom industrial
development through publicly owned large industrial units to assist forthe expansion of small-
scale private industries units. The objectives of this plan wereto improve the levels of production
and earnings of artisans by upgrading their skills andtechnologies, creation of additional
employment opportunities on a scatter anddecentralised basis, establishment of wider
entrepreneurial base by providing trainingand package of incentives, create on of a feasible
structure of the village and smallindustries sector so as to progressively reduce the role of
subsidies and to expand effortsin export promotion. The total outlay of Rs.1829.90 crores was
made available for small-scale industry during this plan period which was 1.70 times higher over
the outlay during 1974-78.
The seventh Five Year Plan (1985-1990) laid stress on technologyupgradation, increased
ancillarisation, design and testing facilities and comprehensivemarketing support to small-scale
industries. During the Seventh Plan the policy wouldaim at rationalisation of fiscal dominion to
ensure the rapid growth of village and smallscaleindustries. Infrastructure facilities would be
build up at various levels.Adoption of modem management and technique will be encouraged.
Development anddissemination of appropriate technology to reduce plodding, improve
productivity andquality and lessen the dependence on subsidies would receive due emphasis. The
overallobjective is to improve the intensity of employment, income, quality of products and
levelof living of standard of artisans. During the Seventh Plan the number of items reserved
forexclusive manufacture in small sector was increased to 847 items reserved for
exclusivepurchase from small industries stood at 409. The total outlay of Rs. 2752.70 crores
were made available for small-scale industry during this plan period which was 9.20 %of total
industrial outlay.
In the eighth Five Year Plan (1992-1997) For the Eighth Plan, a sum of Rs.6334.20 crores was
allotted for the village and small-scale industries. In absolute terms, this amount seems to be very
large. But in terms of proportion of the total expenditure in the Plan, it is very negligible. The
amount is barely 1.46 per cent of the total outlay of the Eighth Plan; and this share has come
down from 1.45 per cent in the Seventh Plan.the following measures wereproposed for the
development of small-scale industries in this plan period
1) Timely and adequate availability of credit.
2) Technological upgradation through tool room and training institutes.
3) Growth centres to encourage dispersal of industries and establishment of functional industrial
estates
4) Integrated infrastructure development centres for tiny units in rural and backward areas.
5) Incentives for the development of villagehouse hold industries including
Khadi and Village Enterprises, Handlooms, Handicrafts, Sericultureetc.
6)Continuation of reservations and subsidies.
In the Ninth Five Year Plan (1997-2002) The provision in the Ninth Plan is of the order of an
outlay of Rs. 12467.50 crores which is slightly lower than the amount allotted to this sector
during the Eight Plan period. Besides Plan-resources, quite a large investment has taken place on

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private account financed party by government financial institutions, and party from promoters
own financial and non-financial sources.
Tenth Five Year Plan (2002 to 2007) Although growth has strong direct poverty reducing
effects, the frictions and rigidities in the Indian economy can make these processes less effective,
and the Tenth Plan had therefore to be formulated in a manner that explicitly addresses the need
to ensure equity and socialjustice. The total outlay of Rs. 23489.20 crores were made available
for small-scale industry during this plan period which was 26.41 % of total industrial outlay.
Eleventh Five Year Plan (2007 to 2012)Given the recent performance, however, the Eleventh
Plan target of 10 per cent annual industrial growth appears eminently achievable. As the country
enters into the first year of the 11th Plan, the sustained growth of the industrial sector is crucially
dependent on removing the infrastructural impediments, especially, in the power sector. Capacity
additions through investment are critical for accelerating growth in industry. The investment
scenario looks quite optimistic, particularly with rising domestic savings rates and FDI inflows
sustained economic growth, fiscal consolidation and an enabling policy environment will
continue to provide incentive to capacity addition in industry and sustaining its high growth. The
total outlay of Rs. 45196.40 crores were made available for small-scale industry during this plan
period which was 41.88 % of total industrial outlay.

PLAN OUTLAY FOR AND SMALL SCALE INDUSTRIES OVER THE

PLAN PERIODS (SSI)
Five Year Plan Total Outlay for Outlay & SSI Percentage Percentage
Plan Industrial for (Rs.In SSI of SSI of Total
Outlay Sector (Rs. In crores) Industrial Plan outlay
(Rs. In Crore) Sector Outlay
Crores)

I Plan (1951-1956) 1960 97 42.00 43.5 2.14

II Plan 4672 1121 187.00 16.68 4.00

(1956-61)

IIIPlan(1961-1966) 8577 1726 241.00 13.96 2.80

IVPlan (1969-1974) 15779 3107 243.00 7.8 1.50

39426 9581 592.60 6.18 1.50

V Plan (1974-1979)

VI Plan (1980-1985) 109292 16948 1829.90 10.80 1.70

VII Plan (1985-1990) 218730 29220 2752.70 9.20 1.50

VIIIPlan(1992-1997) 434100 46922 6334.20 13.50 1.46

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IX Plan (1997-2002) 859200 46922 12467.50 17.82 1.80

1525639 88939 23489.20 26.41 1.70

X Plan
(2002-2007)

XI Plan (2007-2012) 2192078 107906 45196.40 41.88 1.90

XIIplan 2710840* Na Na Na Na
(2012-2017)

Sources:1. The Government of India – Economic Survey, 2015 – 2016.

2. Laghu Udyog Samachar-Various Issues.
3. The SIDBI Report on Small Scale Industrial Sector.
4. www.indiabudget.in, industry.
Growth of Small-Scale Industries in India

Small-scale industries units can undoubtedly serve the economy in a vast way. The small-scale
industrial sector has played a vital role in shaping the destiny of the nation since independence.
During the period of Mahatma Gandhi, the small scale industry movement has been largely
regarded as a vehicle for up-lifting the weaker sections of the society in the country. After
independence, when the problem of regional imbalances began to appear, small scale industry
was considered as the natural vehicle for redressing such imbalances. More recently when the
problem of unemployment has begun to take an acute form, the ability of small scale industry to
provide job at a comparatively lower cost has made it an attractive pattern of economic
development for the planners and administrators.
The range of products of SSI is so wide that there is hardly any product we see around in our
day-to-day life, which is not produced either directly or indirectly by the SSI sector. It
manufactures more than 7500 products. The small scale industries covering a wide spectrum of
industries in small tiny and cottage sector occupy an important position in the planned
development of theIndian economy and have grown to be the most vital sector of our nation. The
small-scale sector has emerged as a dynamic vibrant sector of the Indian economy.
It could be seen from Table that number of small-scale industries increased from 67.9 lakhs units
in 1990-91 to 510.6 lakhs units in 2014-2015. The increase was the highest during the year 2006-
2007, with the increase of 137.59 lakhs units comparing to that of previous year. The whole data
of increase in the number of small scale units and the percent increase in the units can be seen in
given table.

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Growth of Small-Scale Industries in Indiafrom 1990-91 to2014- 2015

Years No. of small Increase/Decrease Percentage

scale industries (In lakhs) Increase/Decrease
(In lakhs)
1990-91 67.9 -- --

1991-92 70.6 2.7 3.97

1992-93 73.5 2.9 4.11

1993-94 76.5 3 4.08

1994-95 79.6 3.1 4.05

1995-96 82.8 3.2 4.02

1996-97 86.2 3.4 4.10

1997-98 89.7 3.5 4.06

1998-99 93.36 3.66 4.08

1999-00 97.15 3.79 4.05

2000-01 101.10 3.95 4.06

2001-02 105.21 4.11 4.06

2002-03 109.49 4.28 4.06

2003-04 113.95 4.46 4.07

2004-05 118.59 4.64 4.07

2005-06 123.42 4.83 4.07

2006-07 261.01 137.59 111.48

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2007-08 272.79 11.78 4.51

2008-09 285.16 12.37 4.53

2009-10 298.08 12.92 4.53

2010-11 311.00 12.92 4.33

2011-12# 447.6 136.6 43.92

2012-13# 467.5 19.9 4.44

2013-14# 488.6 21.1 4.51

2014-15# 510.6 22 4.50

SOURCES: -1. Ministry of Micro, Small & Medium Enterprises, Government of India.
2. Ministry of Small-Scale Industry in India, 1990 to 2015.
3. Annual Report of Trend & Progress of Banking of India, RBI. 2016
4. # indicates projected figures.

Overall Performance of Small-Scale Industry

The performance of the small-scale sector, on various parameters, such as, number of units,
value of production, and number of persons employed, and exports in the recent years has been
impressive. The small-scale sector, which plays a pivotal role in the Indian economy in terms of
employment and growth, has recorded a high rate of growth since independence in spite of tough
competition from the large sector. It is now one of the fastest growing sectors in the country. It
has made stable progress during recent years. The good performance of the small-scale units is
evident from their number, production, employment and foreign exchange earnings. During the
last decade alone, the small sector has progressed from the production of simple consumer goods
like soaps, detergents or leather goods to the manufacture of many sophisticated products like
electronic control systems, microwave components, electronic medical equipment, TV sets, etc.

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Overall Performance of Small-Scale Industry in India from 1990-91 to 2014-

15
Years No. of Production Employment Export
units
In % Rs(crores) % (Lakhs) % Rs(Crores) %
lakhs increase at constant increase increase increase
prices
1990-91 67.9 --- 84728 --- 158.3 --- 9664 ---

1991-92 70.6 3.97 87355 3.10 166.0 4.86 13883 43.65

1992-93 73.5 4.11 92246 5.59 174.8 5.30 17784 28.09

1993-94 76.5 4.08 98796 7.10 182.6 4.46 25307 42.30

1994-95 79.6 4.05 108774 10.09 191.4 4.81 29068 14.86

1995-96 82.8 4.02 121175 11.40 197.9 3.39 36470 25.46

1996-97 86.2 4.10 134892 11.31 205.9 4.04 39248 7.61

1997-98 89.7 4.06 146263 8.43 213.2 3.54 44442 13.23

1998-99 93.36 4.08 157525 7.69 220.6 3.47 48979 10.20

1999-00 97.15 4.05 170379 8.15 229.1 3.85 54200 10.65

2000-01 101.10 4.06 184401 8.22 240.9 5.15 69797 28.77

2001-02 105.21 4.06 282270 53.07 249.3 3.48 71244 2.07

2002-03 109.49 4.06 306771 8.67 260.2 4.37 86013 20.73

2003-04 113.95 4.07 336344 9.64 271.4 4.30 97644 13.52

2004-05 118.59 4.07 372938 10.87 282.6 4.12 124417 27.41

2005-06 123.42 4.07 418884 12.32 294.9 4.35 150242 20.75

2006-07 261.01 111.48 1198818 186.19 805.2 + 173.04 182538 21.49

2007-08 272.79 4.51 1322777 10.34 842.0 4.57 202017 10.67

2008-09 285.16 4.53 1375589 3.99 880.8 4.60 --- ---

2009-10 298.08 4.53 1488352 8.19 921.8 4.65 391159 ---

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2010-11 311.00 4.33 1653622 11.10 965.2 4.70 507739 29.80

2011- 447.6 43.92 1788584 8.16 1011.7 4.81 630105 24.10

12#

2012- 467.5 4.44 1809976 1.19 1061.4 4.91 698166 10.80

13#

2013- 488.6 4.51 Na -- 1114.3 4.98 806878 15.57

14#

2014- 510.6 4.50 Na -- 1171.3 5.11 849248 5.28

15#

SOURCES: -1. Ministry of Micro, Small & Medium Enterprises, Government of India.
2. Ministry of Small-Scale Industry in India, 1990 to 2015.
3. Annual Report of Trend & Progress of Banking of India, RBI. 2016
4. # indicates projected figures.

Number of Units
The number of small-scale industrial units has since steadily increased over the years. This trend
can be seen from 1990-91 to 2014-2015 in above table. the number of small-scale units have
increased from 67.9 lakh in 1990-91 to 510.6 lakh in 2014-15. It is eight-time increase in total
number of small scale units Within 25 years.
Value of Production
The price value of production of goods and services in the small-scale sector has reached from
Rs.84728crores in 1990-1991 to Rs1809976 in 2012-13. It was higher by the Rs.1725248 crore
compared with the initial year. The year-wise details of value of production in the small-scale
industrial sector from 1990-91 to 2014-2015 has been given in above table.
Number of Persons Employed
The level of employment in small-scale industries was 158.3 lakh persons in 1990-91. It rose to
1171.3 lakh persons in 2014-2015. The employment level in small scale industries has increased
640% from 1990-91 to 2014-15.
Value of Exports
Exports of small-scale industries have continued to be on the rise. During 1990-1991 the exports
of small scale industries were only Rs.9664 crores. This rose to Rs 849248 crores in 2014-15.
The trend of increase in the value of exports of small scale industries may be assessed from table.
Conclusion and suggestions
Small scale industry sector has performed distinctly well and empower our country to achieve a
wide measure of industrial growth and diversification. By its less capital intensive and high labor
absorption nature, SSI sector has made significant contributions to employment generation and
also to rural industrialization and rural development. Under the changing economic scenario, SSI
has both the challenges and opportunities before them. The business of small scale industries
product can compete on cost, quality and products at domestic and international level only if
ideal investment in technology production process, R&D and marketing are made. Infrastructure
bottlenecks are not completely solved. The promotional activities for SSI in India need to

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concentrate on improved credit flows, human resource development, appropriate technology and
funds for modernization. So, this is the appropriate time to set up projects in the small-scale
sector.

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