SMALL SCALE INDUSTRY

MODULE VI

SMALL SCALE INDUSTRY Meaning : SSI is the one which has the investment in fixed asset , plant in and machinery, whether held on ownership terms, lease, or on hire purchase is above 25 lakh and up to 5 crore, subjected to the condition that the unit is not owned, controlled or subsidiary of any other industrial undertaking.

CHARACTERISTICS OF SMALL SCALE INDUSTRY 1. Production output in small quantities : as the initial investment and level of operation of SSI is small similarly the quantity of production in SSI is small in quantity. 2. Lowest possible investment in plant and machinery : investment in fixed assets in plant and machinery whether hold on ownership or lease does no exceed the investment of 5 crore and SSI industry is more labour oriented then dependent on technology for its operations. 3. Small number of workers and employees : as level of operation sin SSI is small in accordance with it number of employees required in the company are also less.

4. Lower gestation period and are easy to set up in backward and rural areas : the step from the process of panning, conceptualization till implementation of business in case of SSI is relatively small compared to large scale and medium industries as the formalities required to undergo are relatively less. 5. The unit is not owned, controlled, or subsidiary of any other industrial unit : where two or more industrial undertaking has common proprietor or founder such an industrial unit is know to be subsidiary of another unit. So if formation of SSI is of this nature then this entity cannot be called as SSI unit.

6. Utilizes local resources and produces products to cater the needs of local market : as SSI utilizes local resources it can reduce the cost of sourcing raw materials and as local market are easily accessible they prefers producing and selling goods to customers in local market. 7. Present in the form of family business : SSI are usually formed in form of family business and are continued by next generation members of same family. 8. Informal management style : as SSI is usually in form of family business important matters of the business are not required to be discussed through meeting, these issues are informally discussed with in the family.

NEED , RATIONALE : OBJECTIVES : 1. Increase employment opportunities : as SSI are labour intensive in nature they generate more employment opportunities compare to LSI and as level of operation in SSI is simple in nature it also has scope to hire semi skilled and unskilled employees in company which proves to be relief for developing and underdeveloped countries. 2. Address the needs of local markets : local market customers look in for the products which are reasonably priced as they cannot afford to pay high price. As the operation cost of SSI is comparatively low they charge affordable price to local customers in the market.

3. Stimulate growth of local entrepreneurship : there are talented youth in various villages and rural areas who have efficient business idea but lack in terms of financial support for which there are various schemes such as Prime minister Rozgar Yojana which not only provides financial support but also gives in required guidance for opening of SSI. 4. Foster diversification of economic activities : initially government supported only LSI with mindset that they lead to economic development but that lead to problem of unequal distribution of wealth after which requirement of SSI was realized which lead to balanced economic development of the country.

5. Introduce new products : SSI are expected to crate new products for local markets without huge investment in R&D activities. For the same government has to provide necessary information and required infrastructure to come up with new business idea. 6. Improve standard of living : there is abundant scope for improvement in the standard of living of the local population when SSI generates employment, create new products, and mobilized resources available in local market.

7. Provide equitable dispersal of industries : many regions in country were deprived of development as LSI did not take much interest in setting up their unit as they did not find much scope in those areas but as SSI are established and operate in these areas it leads to overall development in all the regions in country. 8. Promote decentralized pattern of ownership : as SSI is usually opened by new entrants rather then establishes business house it reduces concentration of wealth in hands of LSI hose and leads to comparatively equal distribution of wealth in the country.

SCOPE OF SSI SSI sector in India has vast scope and comprises of modern and traditional industries. Traditional industries includes handlooms, handicrafts, coir, sericulture, khadi, and other village industries like food processing, forest based raw materials and other industries are considered as modern. Classification of SSI is furtherer done on the basis of organized and unorganized sector based on the criteria of employment, usage and non usage of power in the company. Units registered under the factories act 1984 are termed as organized sector. Nits not covered under the factories act, who employ 20 or less workers and if the power is not used in the process of operation are known as unorganized units.

In the present policy to promote SSI that is the growth of micro industries is based on several promotional measures which includes the reservation of products exclusively for SSI industries n area where their is economic justification of such an approach.

1. List of items reserved for MSE a. Food and allied industries : o Pickles and chutneys o Bread o Mustard oil o Groundnut oil 2. Wood and wood products : o Wooden furniture's and fixtures 3. Paper products : o Exercise books and registers 4. Inspection moulding thermoplastic products : o PVC pipes including conduits ( up to 110 diameter ) o Fittings for PVC pipes including conduits ( up to 11mm diameter )

5. Glass ceramics : o Glass bangles 6. Other chemicals and chemical products : o Wax candles o Laundry soap o Safety matches o Fireworks o Agarbatties 7. Mechanical engineering excluding transport equipment : o Steel almirah o Rolling shutters o Steel chairs o Steel tables o Steel furniture's o Padlocks o Stainless steel utensils o Domestic utensils.

ADVANTAGES OF SSI 1. Require lesser capital resources : due to small scale operations SSI requires lesser capital resources. Central and state government have created financial institutions to support SSI and they provide funding to SSI entrepreneurs at lucrative terms. 2. Have lower gestation period : lesser initial capital investment in establishing SSI makes it easy for the SSI to recover invested amount in less gestation period. 3. Provide local employment opportunities : as many of the SSI are located in rural and backward areas their level of operations are simple in nature which can be performed by semiskilled employees thus creating employment for the local public living in the region where company operates.

4. Attract subsidies from government : government gives in lot of conisation to SSI industry in form of subsidies, incentives, tax benefits thus attracting young population of the country towards establishing their own SSI. 5. Earn valuable foreign exchange : handicrafts and khadi garments are popular in developed nations due to their exclusivity and lower prices. These are the unique products manufacture by SSI which are exported and help earn revenue in form of foreign exchange. 6. Enjoy privileges for exclusive manufacturing : under the scope of SSI, small enterprise are protected by the government of the country by imposing restrictions on LSI in manufacturing items identified exclusively for SSI.

7. Mobilize local resources : SSI utilize the skill and talent of local population and use local natural resources and raw materials required for production thus ensuring proper utilization of resources available in surrounding sources. 8. Helping in shifting the concentration of industrial activity : due to larger market big cities will be successful in attracting LSI which creates hindrance for growth of rural areas. As SSI is established in rural and semi rural area it ensures balanced level of industrialization through out the country.

9. Enjoy preferential purchase of products : as studied in scope of SSI government has given more reference of purchase of products produced by SSI rather then LSI in country. 10. Demonstrate entrepreneurial acumen and ability : entrepreneurship helps in restoring the confidence and pride of people having entrepreneurial acumen and talent, particularly the unemployed youth in the country.

Twenty one major industries are grouped in SSI o Food products o Chemical and chemical products o Basic metal industries o Electrical machinery and parts o Rubber and plastic parts o Machinery and parts except electrical goods o Hosiery and garments o Wood products o Non-metallic mineral products o Paper products and printing o Transport equipment and parts o Leather and leather products o Repair services o Cotton textiles o Wool, silk synthetic fibre textiles o Jute , hemp and Mesta textiles o Other services

 Survey by indices industrial production maintained for these industries group reveals that sunrise industries are and which segments sun has set. SSI produce variety and type of products. 6000 products are known to be manufactured in this sector. SSI has emerged as major supplier of mass consumption item like o Leather and leather goods o Plastic and rubber goods o Ready made garments o Hosiery goods, sheet metal goods o Stationery items o Soap and detergents o Domestic utensils o Tooth paste and tooth powder.

Role of SSI in economic development : Micro and SSI in India accounts for 40% of total industrial production and 34% of exports in country. They manufacture over 6000 products listed in scope of SSI. SSI is the second largest employer in india after agriculture. The total employment from the SSI sector in country as per estimates of 2005 -06 is 294.91 lakh. It is estimated that with an investment of 10 lakh in fixed assets in small sector produces goods and services worth 46.2 lakh with an value addition of 10 %.

Contribution of SSI in total industrial production and GDP of country

Year Contribution of SSI

Total industrial production

Gross domestic product

1999 2000
2000 2001 2001 2002 2002 2003 2003 - 2004

39.74
39.71 39.12 38.89 38.80

5.86
6.04 5.77 5.91 5.82

GOVERNMENT POLICIES TOWARDS DEVELOPMENT OF SSI Reservation items for exclusive manufacture in small scale sector : in order to strengthen SSI ad make them economically viable, policy on reservation of products for exclusive manufacture in the SSI sector was initiated in 1967 with 47 items being reserved to promote and protect SSI. Reservation on items for exclusive purchase from SSI : under the government store purchase program the director general of supplies and disposal arranges for the purchase and delivery of all stores indented. It tries to support SSI in two ways that is firstly purchases are made from SSI units, secondly for those items which are not reserved a purchase price preference of 15% against quotation of LSI in country.

 Excise duty exemption on third part branded goods manufactured by SSI units in rural areas : policy promotes entrepreneurship in rural areas where entrepreneurs can manufacture their goods, which are later supplied to other companies for selling them with their brand. SSI allowed to pay excise duty on a monthly basis as against payment of the duty at the time of removal of goods from factory : this policy provides flexibility to SSI to make excise duty payment for all the supplies made by them in a month. All industrial units in north eastern regions are exempted from excise duty for 10 years starting from 17 august 1999 to respective date of commencement of production. These regions of country was deprived from industrial activity from long time to cover up the same this benefit is been given to SSI.

Grant of 75000 to each SSI which opts for ISO certification quality of products produced by SSI has been the major concern for which government brought this grant into picture to enhance concept of total quality management in SSI in country. One time grant of 50% for SSI which wish to develop and operate testing laboratories provided they are of international standards. Policy aims to strengthen the SSI who are willing to set up their own lab and testing centres.

No liability for SSI under sales tax law for import of goods into or export of goods out of country. State government through this policy has provide great relief to SSI operating in country. Export sales for SSI exempted from levy of sales tax under central sales tax under act of 1956 : central government has provided this exemption to encourage SSI to export their products abroad and lead to earning of foreign exchange in country.

GOVERNMENT SUPPORT FOR SSI DURING FIVE YEAR PLAN o During formation of five year plan in the country government included some special policies to support small scale industry in the country : 1. First five year plan : 1951 -1956 o Establishment of all India board to advice and assist in the formulation of program for the development of handloom industry, khadi and village industry, small scale industry, handicraft industry, sericulture, coir. o If the quality of products produced by SSI and cottage industry are comparable then it would receive preference from government in terms of goods requirement compare to that of other manufacturers.

o Four SSI services institutes were set up to provide technical and advisory support to SSI in country. o All India khadi and village board set up technological institute to village industries and also established regional and central institutions for training workers. o All India handicraft board brought in new design and pattern to improve process of production and organized survey to market handicrafts products both within and outside the country. o Coir board promoted the formation of cooperative societies for the collection of husk and production, supply of yam.

o Essential feature of first year plan was to assist SSI in form of credit, training facility, technical advice, supply of improved tool and equipment on easy term and establishment of sales report. o Emporia and sales depots for handloom, handicrafts and village industries were established during first five year plan.

2. Second five year plan ( 1956 1961 ) o One of the major development during second year plan was the establishment of statutory khadi and village industries commission with more extensive powers then enjoyed by khadi and village industries. o At the end of second plan extension officers for the industry has been provided in more than 1650 development blocks out 3110 blocks. o About 60 industrial estates were set up for providing factory accommodation and a number of common facilities for promotion of SSI.

3. Third five year plan ( 1961 1966 ) : o In third plan the main objective of SSI were to improve the productivity of worker to enlarge the availability of institutional finance and to pay special attention to the growth of small industries in rural areas and small towns. o Development related to plan was in incremental mode during first two year plan but later due to non availability of raw materials following the hostilities of 1962 and 1965 was with china and Pakistan. o During this planning period about 346 industrial estates had been completed by the end of march 1969. 8670 sheds along with 6600 sheds had been occupied.

4. Fourth five year plan ( 1969 1974 ) : o Establishment of regional testing centres and a few branches of small industries services institutes. o 455 industrial estates functioning by march 1974, 347 were located in urban and semi urban areas and the remaining 108 in rural areas. o Massive scheme for training 30000 carpets weavers was initiated to promote larger exports of woollen carpets.

5. Fifth five year plan ( 1974 1979 ) : o By march 1980, 382 district industries centre were sanctioned covering 392 districts with the objective of providing all the facilities and support facilities under one roof. o Central scheme of rural marketing centre at bock level was taken up on pilot basis in 1978 1979 to cater the marketing requirements of artisans and tiny units. o For external marketing number of export promotion councils for important manufactured products were set up, these are export promotion councils for handloom, gems and jewellery and leather products. o In case of SSI 834 items were reserved for exclusive productions.

6. Sixth five year plan ( 1980 1985 ) : o Production in SSI sector increased from 33,580 crores in 1979 80 to 65730 crores in 1984 -85 and exports from 1979 80 to 4557,56 crores in 1984 85. o In relation to employment it increased from 233,72 lakh to 315,00 lakh persons in 1984 85. o 5035 new model charkas for spinning of khadi yarn were installed.

7. Seventh five year plan ( 1985 1990 ) : o To facilitate modernization and achieve rapid growth in the sector, the upper limit on the investment was raised in respect of small scale units from 20 lakh to 35 lakh and in case of ancillary units from 25 lakh to 45 lakh. o Small industrial bank of India was established in 1990 for timely and adequate disbursement of credit to SSI.

8. Eight five year plan ( 1992 1997 ) : o the ceiling of investment in the case of tiny enterprise was raised to 5 lakh local restriction on setting of these enterprise were removed and their scope was enlarged to include all industry related to service and business enterprise. o Equity participation not exceeding 24 percent, by other industrial undertaking including that foreign collaboration in small-scale sector was permitted with view to encourage modernization and technological up gradation. o Greater emphasis on private initiative in industrial development. Greater emphasis was laid on the establishment of tools room and provision for training facilities.

9. Ninth five year plan ( 1997 2002 ) : o Adequate availability of modern infrastructure facilities was sought to be ensured by setting up integrated infrastructure development centres. o During the period the village and small industries sector was growing at the rate of two to three percentage points higher than the large and medium industries sector. o It contributed more then 40 percent of value addition in the manufacturing sector and 80 percent of total employment in the industries sector. o Its contribution to export was significant and accounted for more than 40 percent ( both direct and indirect ). o During ninth plan period SSI created over 3.2 million jobs.

10. Tenth five year plan ( 2002 2007 ) : o Enhancement of excise duty exemption limit for SSI units from 50 lakh to Rs 100 lakh. o Increase in composite loan limit to 25 lakh. o Credit linked capital subsidy at 12 percent of cost of technological up gradation of SSI units for modernisation of SSI units. o the service and business related small scale units with maximum investment limit of Rs 10 lakh would also be covered under priority lending. o Enhancement of investment limit to Rs 500 lakh for Hi tech and export oriented sector.

o Technology bank to set up for SSI sector by strengthening the existing technology bureau for small enterprise. o One time capital grant for 50 percent to SSI associations for setting up international level testing laboratories for SSI units. o Preference to be given to tiny units while organizing buyer seller meet, vendor development programmes and exhibitions. o Conduct third census on SSI. o Integrated infrastructure development centres scheme extended to all areas.

11. Eleventh five year plan ( 2007 2012 ) : o Eleventh plan approach to the MSE sector marks shift from the welfare approach to that of empowerment. Strategy is prolonged it focuses on the livelihood and social security. o Policy initiatives are proposed to incentivise MSE to achieve economies of scale by expanding production. o MSE sector including handloom and handicrafts presents an opportunity for exports. Effort during plan period will therefore be to organize this sector to create cluster of weavers to improve their bargaining power and to enable them to pool resources. o Banks will be encouraged to ensure that all loans up to Rs 5 lakh to MSE are given free of collateral at the interest rate of 8%.