Essay: Small scale industries

INTRODUCTION
1.1 OVERVIEW OF SMALL SCALE INDUSTRIES
In India, the small-scale industrial sector has been a key contributor to the Gross Domestic Product (GDP). This sector in India is measured to have a huge growth panorama with its wide range of products. With 40% contribution in total industrial output and 35% contribution towards exports, the small-scale industrial sector in India is performing as the engine of expansion.
1.1.1 SMALL-SCALE INDUSTRY: A CONCEPT
In the course of passing the years, the definition of small-scale industry has been modified many times. First, it deleted the employment factor from the point of view of promoting the official programme under successive plan periods. Secondly, it jumbled the fixed capital by redefining it to include machinery only in a phased manner. This change has necessitated the need to off-set the higher cost of machinery arising out of the rising prices and to a greater extent the opportunities to small-scale enterprises.
Presently, the Small Scale Industries are segregated into two categories- those using power with manpower less than 50 and those not using power with the manpower strength being more than 50 but less than 100. On the other hand, the capital resources invested on plant and machinery and buildings have been the primary decisive factor to differentiate the small-scale industries from the large and medium scale industries. An industrial unit can be classified as a small- scale unit if it fulfils the capital investment limit fixed by the Indian Government for the small-scale sector.
As the provision of Micro Small and Medium Enterprises Development Act, 2006 (Ministry of Micro, Small and Medium Scale Industries 2006) , Small and Medium Enterprises are categorized into two types:
1.1.1.1 Manufacturing Industries: The industries engaged in the manufacture or production of goods pertaining to any industry specified in the first schedule of the Industries Development and Regulation Act, 1951. (Development Commissioner MSME 2012) defined in terms of capital employed in plant and machinery.
1.1.1.2 Service Industries: The industries engaged in rendering services and are defined in terms of capital employed in equipment. The boundary for capital employed in plant and machinery, equipment for manufacturing or service industries, is as under:
According to MSMED Act, 2006, following industries whether Proprietorship, Hindu Undivided Family, Association of persons, Cooperative Society, Partnership, Undertaking or any other legal entity by whatsoever name called, in the case of industries engaged in the manufacturing or production of goods pertaining to any industry as per First Schedule to the Industries Development and Regulation Act 1951.
Small scale industries in which, the investment in fixed assets in plant and machinery is more than Rs. 25 lakhs but does not exceed Rs. 5crores. In the case of enterprises engaged in providing or rendering Services in which the investment in fixed assets in plant and machinery is more than Rs. 10 lakhs but does not exceed Rs. 2crores. The conventional small-scale industries evidently differ from their modern counterparts in many aspects. The conventional units are highly labour consuming with their age-old machineries and conventional techniques of production resulting in poor productivity rate where as the contemporary small-scale units are much more productive with reduced manpower and more sophisticated equipments. Cotton, Khadi and handloom, sericulture, handicrafts, coir and village industries are some of the traditional small-scale industries in India. The modern small scale industries offer a broad range of products ranging from simple items like hosieries, garments, leather goods, fishing hooks, etc., to more classy items like television sets, electronics control system, different engineering products particularly as ancillaries to large industrial undertakings. These days, Indian small-scale industries have become as modern Small-Scale Industries. Rejuvenation has established the list of products offered by the industry. The items produced in modern small-scale service and business enterprises in India now consist of hardware, electrical items, transport equipment, electronic components, rubber items, plastic items, chemical, glass and ceramics, mechanical engineering items, and equipments, auto parts, bicycle spares, instruments, sports items and stationeries etc.
Since independence, the Central Government has cherished this sector in order to encourage growth, expansion and more investment in the small-scale sector, and adopted a strategy of reservation for permitting some of the products to be exclusively manufactured by the small-scale sector. The small scale sector produces an extensive range of products, ranging from simple consumer products to classy end-products. As
Subsidiaries, they produce a huge variety of products required by the large scale industries. The small scale sector has became a major supplier of mass consumption goods like leather articles, plastics and rubber goods, paper products, fabrics and garments, cosmetic items, utensils, metal components, detergents and soaps, sports goods processed food and vegetables products, steel and wooden furniture etc. More classy items manufactured by the small scale sector now include television sets, electronic desk calculators, auto parts, drugs and pharmaceuticals, microwave parts, air conditioning products, electrical products etc. To give special attention, the Indian Government established the Small Industries Development Bank of India (SIDBI) in April 1990. The major objective of the bank is to ensure steady flow of funds to SSIs to relieve them from financial difficulties.
Regrettably all earlier attempts to expand, develop, and modernize the SSIs have not been of great use. On the other hand, the efforts like starting of the Technology Development Board, Technology Development and Modernization Funds, ISO 9000 Certifications support, stressing on improving the managerial talents are turning out to be much more productive in modernizing the small scale industries in the country.
1.1.2 IMPORTANCE, NEED AND PLACE OF SSIs
The importance and need of SSIs is all the more great in a developing economy like India, wherein nearly three fourth of the population is depending upon agriculture which is a seasonal one and results in large scale unemployment. The best way of dealing with this is to provide the cultivators with work through the development of SSIs, so that seasonal unemployment and underemployment could be eliminated or at least minimized. Along with this, small size of the farms keeps the villagers who own lands idle for about half the year. SSIs properly organized and developed will provide profitable employment for the agriculturists during periods of their enforced idleness and also make a vital contribution in maintaining their standard of living.
The promotion of small-scale industries has been widely recommended as one of the most appropriate means of developing industry in over populated backward countries. Japan is usually held up as the great example of what can be done in this way.
Backward region endowed with a typical pattern of factor endowment, adoption of labour-intensive techniques involving low capital cost could increase employment opportunities, reduce regional imbalances, and check migration to urban areas. SSIs no doubt play all the roles ascribed to it in a developing country, but there is something more to it. In economies starved of capital and technical knowhow, the natural turn to small industries should not be looked upon as an economic compulsion of backwardness, but as an economic necessity.
Hence, there is no denying of the fact that SSIs play a vital role in activating the resources of the backward areas. There is urgent need for fostering the growth of small industries which supplement the income of the farmers in an over-populated agricultural economy with unemployment.
1.2 STATEMENT OF THE PROBLEM
The small-scale industries, regardless of their significance in the economy, are not contributing to their maximum towards the progress of the country (Rajendraprasad 2004) . It is for this reason that these industries are set with a number of troubles in regard to their functions. The issues that are emerged from Review of Literature are financial challenges (Reetu 2012) , productivity, performance, competitiveness, marketing problems and support (Arjunkumar 2012) , quality products, entrepreneurial skills, managerial competency, technological advancement, infrastructural facilities (Ram et al 2012) , rural development, awareness and utilization of available government support, availability and utilization of resources, etc. The Small-Scale Industries have serious problems with both longterm and short-term credits (Daniel2012) . This is clear from the fact that the supply of credit has not been corresponding with their needs associated with the capital required. The timing of the credit is another aspect. The credit situation is particularly hard for the very small or micro units. The methods of production which the small and micro industries use are older and incompetent (Umashankar2008) . The outcome is lower productivity, low quality of products and increased costs. The producers, due to lack of information system, know very little about modern technologies and training openings available for the Small-Scale Industries.
Another serious challenge which these industries face is that of competition from large-scale industries (Ismail 2006) . The problem of raw materials continues to plague the small scale industries (Malga1997) . Raw materials are available neither in sufficient quantity, nor of required quality and also not at normal price level. Being small customers, the producers are not able to go for bulk buying like the large industries. This leads to taking whatever quality is available in quality and at high prices. The small-scale industries face the acute problem of marketing their products. The challenges arise from such factors are production in small scale, lack of market knowledge, competition from technically more strong units, shortage of marketing amenities, etc.
Apart from the above problems, small-scale units have been constrained by a number of other challenges also. These include poor project planning capacity, lack of managerial talent (Siva 2012) , and older and traditional designs. Due to all these challenges, the development of smallscale industries could not reach a prestigious position. To face the above mentioned challenges, the Government is extending its support under different schemes and through many agencies but the awareness on these supports available to overcome the troubles is another major concern.
Therefore, the study focuses on these areas of concern to find out ways for the growth of SSI sector.
1.3 IMPORTANCE OF THE STUDY
Small Scale Industries that are performing better make a great positive effect on economic growth of the State and the Nation. The acceptance of this conjecture is evidenced by the policy recommendations of the State and the country. This is mainly due to the initiatives taken by the State and the Central Governments to encourage the Small Scale Industrial sector. These aspects indicate that the Small Scale Entrepreneurs have been facing many problems though they acquire significant prosperity. Study on these aspects in Gujarat is very little, and hence this fact makes this study important.
The outcome of this study will guide the new small business promoters, practicing Small-Scale Entrepreneurs, and the Government for better performance of the Small Scale Industries so as to achieve economic development in the State and the country. The study will address various problems/challenges faced by the Small Scale Entrepreneurs and prospective areas for the Small Scale Entrepreneurs to capitalize on that to improve their performance. The study will also throw light on various forms of support and subsidy extended to the Small Scale Entrepreneurs and awareness level on these aspects among the Small Scale Entrepreneurs.
The study will elucidate greater opportunities for the new entrepreneurs to gain meaningful information about pros and cons of the Small Scale Industries. To the Government, the study will indicate the areas of concern to be addressed in Small Scale Industries which will facilitate the government to take policy decisions to improve the SSI performance in future.
1.4 SCOPE OF THE STUDY
The Small Scale Industrial sectors have recorded noteworthy growth and remarkable performance. This study focuses on identifying and evaluating the factors accountable for survival of the SSI, Providing required resources for their business, helping the Government in formulating policies for Small-Scale Industries and reviving the sick units and facilitating them to perform better.
The study area for this thesis is North Gujarat Area. It is considered as one of the industrially forward states in the country. The growth of SSIs in This area is high compared to other states. Nature has blessed this area with modest resources of mineral wealth and forest wealth. These have been ingeniously exploited for a long time to bring about economic prosperity. For centuries the area has been well known for its trade with its neighbouring areas and in export and import, well-supported by its Small Scale Industries.
The recent economic history of this area also reveals that the State has in many ways been the pioneer in economic planning and development. It has set up a planning system even before any state in India had thought of industrialization, communication, electrification and banking in rural areas. There are 33 districts and out of these 33 districts Patan, Banaskantha, Sabarkantha, Mehsana and Aravalli districts were taken as sample districts for this study. These are the leading districts in one way or other. The sample respondents are chosen from these districts only. As such 35 Small Scale Industry samples from each district totally 350 were contacted with the questionnaire. The study outcome will support the new, existing SSI units and the Government to plan for renewed supporting programmes for the Small Scale Industries to facilitate the economic growth of the State.
1.5 OBJECTIVES OF THE STUDY
i. To study the theoretical framework of Small Scale Enterprises in general and in particular with reference to North Gujarat Region.
ii. To analyze the factors that influences the individuals to become Small Scale Entrepreneurs in North Gujarat Region.
iii. To identify the prosperity and the common problems faced by the Small Scale Entrepreneurs in North Gujarat Region.
iv. To suggest better ways and means to alleviate the problems faced by Small Scale Entrepreneurs in North Gujarat Region.
1.6 SSI IN INDIA
The small-scale industry sector has emerged over five decades as a highly vibrant and dynamic sector of the Indian economy. Today, this sector accounts for about 95 percent of industrial units and is contributing about 40 percent of value addition in the manufacturing sector, nearly 80 percent of manufacturing employment and about 35 percent of exports (both direct and indirect). More than 34 lakh units are spread all over the country producing over 7503 items and providing employment to more than 192 lakh persons. Definition of SSI The official definition of SSI in India was first evolved in 1950 in terms of the size of gross investment in fixed assets (plant and machinery, land, building etc.) as well as in terms of the strength of the workforce in the unit concerned. This criterion underwent several changes over a period of time. In the late fifties, a shift from a workforce-based definition to investment-based definition was affected. In 1966, the original amount invested in plant and machinery was adopted as the sole norm for defining a unit small-scale or otherwise. Other concepts, namely ancillary and tiny were introduced in 1960 and 1977 respectively. Industry related business-oriented service enterprises were classified for the first time as Small-scale Service Establishments (SSSEs) in 1985 and later in 1991 redefined as Small-scale Service and Business (industry related) Enterprises (SSSBES). The government in 1988 defined the term. In India small-scale industry refers to manufacturing activity. Recently, it has also come to include to a limited extent, servicing activities such as repair and maintenance shops and few community services. Table 1.1 shows the scope of small – scale industry in selected countries.
Table: 1.1 Scopes of Small Scale Industries in Selected Countries
Country Terminology Scope
Japan Small enterprise Manufacturing, Mining, Services, Trading, etc
India Small Scale Industry Manufacturing, repair, Maintenance
Korea Small Enterprises Manufacturing, Mining, Construction, commerce etc.
USA/Canada Small Businesses Manufacturing, Services, Trading, etc
UK Small firms Manufacturing, Commerce, Construction, Mining, Transport, etc
Indonesia Small Industry Manufacturing services
Source: SIDBI report on Small-Scale Industry, 2000
1.7 Classifications of SSI
This sector covers a wide spectrum with two clearly identifiable segments traditional and modern small-scale industries, including tiny units and power looms and traditional Small 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, location, orientation, manufacturing process and skill requirements. Chart 1.1 on next page shows the classification of SSI:
According to the third SSI census, 62.13 percent of the units were engaged in manufacturing/assembling/processing, 7.54 percent in repairs and maintenance and 30.33 percent in service activities. Of the total SSI units 97.8 percent were tiny units, 0.67 percent were export-oriented units. Periodic Revision in the Definition of SSI Periodic revisions in the definition of SSIs made by the Government of India are listed in the Table 1.2.
Chart:1.1 Classification of SSI in India
Source: SIDBI report on Small-Scale Industry, 2000
In the table 1.2, we can see the data from year 1966 to 1999 for SSI sector in India. All the criteria which are applicable in India and the changes made in it are given here. In 1966 investment in Plant and Machinery in SSI is up to Rs.75 Lakh comes to Rs.100 Lakh in 1999. In between this duration, tiny business and ancillary business criteria are also given by the authority.
Table: 1.2 Original Value of Plant and Machinery Only
Year SSI ANC Tiny EOU SSSE SSSBE Remarks
1966 Up to Rs. 75
lakh Up to Rs. 10 Lakh
1975 Up to Rs.10 Lakh Up to Rs. 15 Lakh
1977 Up to Rs. 10 Lakh Up to Rs. 1 Lakh Units located in rural areadtowns
with a maximum population of up
to 50000 as per 1971 census.
1980 Up to Rs. 20 Lakh Up to Rs. 25 Lakh Up to Rs. 2 Lakh Units located in rural areadtowns
with a maximum population of up
to 50000 as per 1971 census.
1985 Up to Rs. 35 Lakh Up to Rs. 45 Lakh Up to Rs. 2 Lakh Units located in rural areasltowns
with a maximum population of up
to 5 lakh as per 1981 census. The
SSSE classification suspended from 1991 and replaced by SSSBEs.
1991 Up to Rs. 60 Lakh Up to Rs. 75 Lakh Up to Rs. 5 Lakh Up to Rs. 75 Lakh Up to Rs. 5 Lakh @ The location specific condition
was removed.
1997 Up to Rs. 300 Lakh Up to Rs. 300 Lakh Up to Rs. 25 Lakh
1999 Up to Rs. 100 Lakh Up to Rs. 10 Lakh Up to Rs. 25 Lakh Up to Rs. 10 Lakh
Source: SIDBI report on Small-Scale Industry, 2000
1.8 Different Segments of SSI
1.8.1 Small-Scale Industrial Undertaking (SSI)
Following the Abid Hussian Committee (1997) Recommendation, the Government of India raised the (ceiling on investment in plant and machinery for SSI and ancillary undertaking to Rs. 3 crore. This definition of SSI and ancillary undertaking has since been revised as per the government order dated 24 December 1999. According to the
Table 1.3 The guidelines with regard to investment in plant and machinery or equipment as defined in the MSMED Act, 2006 are:
Nature of activity of the Enterprise Investment in plant and machinery excluding land and building for enterprises engaged in manufacturing or production, processing or preservation of goods Investment in equipment excluding land and building for enterprises engaged in providing or rendering of services (loans up to Rs 1 crore)
Micro Not exceeding Rs.25.00 Lakhs Not exceeding Rs.10.00 Lakhs
Small More than Rs.25.00 lakhs but does not exceed Rs.500.00 lakhs More than Rs.10.00 lakhs but does not exceed Rs.200.00 lakhs
Medium More than Rs.500.00 lakhs but does not exceed Rs.1000.00 lakhs More than Rs.200.00 lakhs but does not exceed Rs.500.00 lakhs
Source: http://www.kvb.co.in/msme/definition.html
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. 1 crore is regarded as small-scale industrial undertakings.
1.8.2 Ancillary Industrial Undertaking (ANC)
An Industrial undertaking which is engaged in or is proposed to be engaged in the manufacture or production of parts, components, subassemblies, tooling or intermediates or the rendering of services is termed as ancillary undertaking. The ancillary undertaking is required to supply not less than SO percent of its production or services, as the case may be t3 one or more other industrial undertakings. The investment in plant and machinery, whether held on an ownership basis or on lease or on hire purchase, should not exceed E.s. 1 crore.
1.8.3 Tiny Enterprise: A unit is treated as tiny enterprise where the investment in plant and machinery does not exceed Rs. 25 lakh, irrespective of the location of the unit.
1.9 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 vibrant 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 generation and balanced regional development. In view of this, plan outlays for this sector also rose phenomenally 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 the basic 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 year plan, it was recognised that satisfactory arrangements for meeting the required amount of finance have 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 collaborator between the Reserve Bank of India, the State Bank of India, State Financial Corporation and Central Co- operative Bank”. During the Second Five Year Plan period as many as 60 industrial estates were established. Certain items were renewed for exclusive introduction in small-scale sector.
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 small scale industries. Intensive development of these industries was taken up in selected areas known as “rural industries projects” Among other developments in the field of small scale industries proposed in this plan reference may be made to the proposed development of depots for stocking raw materials, which are in short supply, to be made available to small units with a view to assisting in the fuller utilization of existing capacity. It was also proposed to set up an industrial design institute and about more than 300 new industrial estates (apart from 60 already established) of various sizes and types during the third plan period.
The Fourth Five Year Plan (1969-1974) document stated as follows “The main aims of the development programmes for small-scale industries was fuller utilization of the capacity already established, intensive development of selected industries including ancillaries and industrial co-operatives and subject to criteria of feasibility, promotion of industries in semi urban, rural and backward areas”. During this period, the Administrative Reforms Commission made several recommendations for the development of small-scale sector. Stress was laid on training and common service facilities, quality marketing and credit facilities.
The Fifth Five Year Plan (1974-1979) stressed the development of different small 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 considerable enlargement of the development programmes for providing assistance and facilities in various forms to these industries. Some of the important measures proposed to be initiated were:
a) Package and consultancy service
b) Technical emp1oyml:nt and research
c) Dispersal of industries.
It was decided to expand the activities of Central Small Industries Organization, National Small Industries Corporation, Small Industry Extension Training Institute and Small Industry Service Institutes to facilitate the small industry sector. It was emphasised that small-scale entrepreneurs should get all facilities under the same roof. Accordingly setting up of District Industries Centre was recommended for the development and growth of small-scale and village industries.
The Sixth Five Year Plan (1980-1985) for India has emphasised the shift from industrial development through publicly owned large industrial units to assist for the expansion of small-scale private industries units. Is the objectives of this plan were to improve the levels of production and earnings of artisans by upgrading their skills and technologies, creation of additional employment opportunities on a dispersed and decentralised basis, establishment of wider entrepreneurial base by providing training
and package of incentives, creation of a viable structure of the village and small industries sector so as to progressively reduce the role of subsidies and to expand efforts in export promotion.
The seventh Five year Plan (1985-1990) laid stress on technology up gradation, increased ancillarisation, design and testing facilities and comprehensive marketing support to small-scale industries. During the Seventh Plan the policy would aim at rationalisation of fiscal regime to ensure the rapid growth of village and small scale industries. Infrastructure facilities would be strengthened at various levels. Adoption of modem management and technique will be encouraged. Development and dissemination of appropriate technology to reduce drudgery, improve productivity and quality and lessen the dependence on subsidies would receive due emphasis. The overall objective is to improve the intensify of employment income quality of products and level of living of artisans. During the Seventh Plan the number of items reserved for exclusive manufacture in small se(:tor was increased to 847.Items reserved for exclusive purchase from small industries stood at 409.
In the eighth Five Year Plan (1992-1997) the following measures were proposed for the development of small-scale industries
a) Timely and adequate availability of credit.
b) Technological up gradation through tool room and training institutes.
c) Growth centres to encourage dispersal of industries and establishment of
functional industrial estates
d) Integrated infrastnlcture development centres for tiny units in rural and backward areas.
e) Incentives for the development of village/house hold industries including
Khadi and Village Enterprises, Handlooms, Handicrafts, Sericulture etc…
f) Continuation of reservations and subsidies.
The overall thrust of the eighth plan will be to ensure that small-scale sector should result in the generation of an entrepreneurial revolution in the community as a whole in addition to serve as a source of productive employment.
According to the Ninth Five Year Plan (1997-2002) the major problems faced by the SSI sector are:
1) Inadequate flow of credit
2) Use of obsolete technology in machinery and equipment.
3) Poor quality standards and
4) Inadequate infrastructure facilities.
In order to increase the flow of credit, the government has started setting up specialised branches of banks exclusively meant for providing credit to SSIs For the purpose of improving the technology of SSIs, SIDBI has already set up a technology development and modernisation fund with a corpus of Rs.200 crores. The government has also set up Technology Trust Fund with contribution from state governments and industry associations for the transfer and acquisitions of the latest technologies. Under the scheme of Integrated Infrastructure Development Centres (IIDCs) infrastructure facilities are being developed in backward rural areas. To help the SSI sector, the government has taken a number of policy initiatives like allowing 24 percent of equity participation in large and medium SSI units
With a view to provide technological support and training to the small-scale sector, tool rooms with German, Danish and Italian assistance are being set up at Indoor, Ahmedabad, Bhubneshwar, Jarnshedpur and Aurangabad. The credit provided to the SSI sector by the financial institutions is considered credit to ‘priority sector’.
1.10 Government Support to Small-Scale Industries
Support to small-scale industries virtually is a universal phenomenon and exists in one form or the other in almost all countries whether developed or developing. The processes of liberalisation and market reforms have created tremendous opportunities for the growth of small-scale industries. At the same time, the changing world scenario has thrown up new challenges. Government policies have been reoriented from time to time so that the sector could adapt itself and face the challenges boldly and effectively. Holtz, Secretary General of the International Federation of small and medium size industrial enterprises in his note on “Collective development scheme for small, medium size firms in Europe” has indicated that for optimum development of small and medium size firms certain specific action should be taken.
The Government laid stress on the promotion of village and small industries as this sector could play an important role in the overall process of economic development. The government policies have, thus aimed at the simultaneous development of all the segments of small industry. The policy frame and the promotional measures intended to enable the small-scale units to withstand competition from the large-scale enterprises. Redefining the role of the government in reflecting the changed circumstances facing the economy must be an important aspect of future strategy. This redefinition is necessary both at the central government level and also at the state government level.
So far, a total of six Industrial Policy Resolutions Statements have been formulated to promote Industrial growth and also to determine the pattern of state assistance to small industries for fulfilling socio-economic objectives. The Industrial Policy Resolution 1948 aimed zit balanced growth of different manufacturing sectors and focused on the co-existence of .age, cottage and small industries. This policy resolution underlined that cottage and small-scale industries are particularly suited for better utilisation of local resources and for the achievement of local self-sufficiency in respect of certain types of essential consumer goods. Thus in the first resolution itself, the Government had taken note of the importance of small-scale sector and the possible safeguards needed to develop it. In accordance with the recommendations of the Ford Foundation Team of 1953-54, the Government set up an organisation known as the Central Small Industries Organisation (SIO). A Development Commissioner for small scale industries at the centre heads the organisation.
In the Industrial Policy Resolution 1956 emphasis was placed on the creation of facilities such as industrial estates and rural community workshops to provide the required production technologies, other amenities and incentives. In this policy resolution, the Government of India was following a policy-supporting cottage and village and small-scale industries by restricting the volume of production in the large scale sector, by differential taxation or by direct subsidies. The resolution reads while such-measures (above) will continue to be taken, whenever necessary, the aim of the state policy will be to ensure that the decentralised sector acquires sufficient vitality to be self supporting and it’s development is integrated with that of large-scale industry. The state will, therefore, concentrate on measures designed to improve the competitive strength of small-scale producer. The Industrial Policy Statement 1977 stressed the wider dispersal of cottage and small Industries into rural areas and small towns. It emphasised that ‘whatever could be produced by small and cottage industries must only be so produced” This led to the expansion of the list of reserved items for exclusive production by the SSI sector. The concept of District Industries Centres was also mooted so that in each district a single agency could meet all the requirements of village and small industries under one roof. .” The Industrial Policy Statement of 1980 focused on integrated industrial development and suggested the setting up of nucleus plants in these districts, which were identified as industrially backward with the expectation that these would help the spatial dispersal of small ancillary units and the existing network of SSI would grow faster. It was further proposed the policy regarding marketing support to the decentralised sector and reservation of items for smlll-scale industries shall continue to be in force in the interest of growth of small-scale industries. SSI units were also redefined by raising the ceiling of investment in plant and machinery.
The Industrial Policy Statement of 1985 had the same concept for backward areas as mentioned in the Industrial Policy Statement of 1980. The operative instrument of this concept is to plan and build the momentum of industrial growth in the backward areas through nucleus plants with necessary forward and backward linkages in the shape of ancillaries. The ancillarisation concept would create an effect of higher employment, dispersed investment and higher per capita income in the backward areas.
1.11 Growth of Small-Scale Industry in India.
Small-scale units, though small, can undoubtedly serve the economy in a big way. The small-scale industrial sector has played a vital role in shaping the destiny of the nation since independence. From the days of Mahatma Gandhi the small industry movement has been largely regarded as a vehicle for up-lifting the weaker sections of the population. After independence, when the problem of regional imbalances began to appear, small industry was (considered as the natural vehicle for redressing such imbalances. More recently when the problem of unemployment has began to take an acute form, the ability of small 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 industries covering a wide spectrum of industries in small tiny and cottage sector occupy an important position in the planned development of the Indian 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. The sector amounts for 40 percent of the industrial production, 33 percent of total exports and employs about 192 lakh persons in about 34.40 lakh SSI units in the country. The sector acts as a nursery for the development of entrepreneurial talent. It caters to the sophisticated requirements of consumers at the upper income level and advanced technological requirements of industries both in India and abroad. The cumulative number of units as per Small Industry Development Organisation estimates from 1974 onwards is given Table 1.4
Table no:1.4 No. Of SSI Units in India 1974 to 2002
Year (as at end march) Cumulative No of Units (in Lakhs) Year (as at end march) Cumulative No of Units (in Lakhs)
1974 4.2 1989 17.1
1975 5.0 1990 18.2
1976 5.5 1991 19.5
1977 5.9 1992 20.8
1978 6.7 1993 22.5
1979 7.3 1994 23.9
1980 8.1 1995 25.7
1981 8.7 1996 27.2
1982 9.6 1997 28.6
1983 10.6 1998 30.1
1984 11.6 1999 31.21
1985 12.4 2000 32.25
1986 13.5 2001 33.70
1987 14.6 2002 34.40
1988 15.8
Source: DC (SSI), Ministry of SSI, A & RI.
The number of units in India during 1974 was only 4.2-lakh units, this increased to 34.40 lakh units during the year 2002. There has been more than eight times increase in the number of units in India during this period. Table 1.4 shows the trend in the growth rate of number of units. From the chart it can be seen that, there is an average annual growth of 1.13 lakh units per year
Overall Performance of Small-Scale Industry SSI sector is accorded high priority and distinct identity in view of the vital role it can play to accomplish balanced and sustainable economic growth. This sector has emerged victorious even in the phase of rising threats from the large industrial sector inside and the multinationals from outside. The performance of small-scale industries sector in terms of critical parameters, like the number of units, (both registered and unregistered) production, employment and export has been shown in Table 1.5
Table No 1.5 Overall performance of Small Scale Industry in India from 1990-91 to 2001-02
Year No. Of Units Production Employment Export
(In Lakhs) % increase (In Crore) % increase (In Lakhs) % increase (In Crore) % increase
1990-91 19.48 – 155340 – 125.3 – 9664 –
1991-92 20.82 6.88 178699 15.04 129.8 3.59 13883 43.66
1992-93 22.46 7.88 209300 17.12 134.06 3.28 17785 28.11
1993-94 23.81 6.01 241648 15.46 139.38 3.97 25307 42.29
1994-95 25.71 7.98 293990 21.66 146.56 5.15 29068 14.86
1995-96 27.24 5.95 356213 21.17 152.61 4.13 36470 25.46
1996-97 28.57 4.88 412636 15.84 160.00 4.84 39248 7.62
1997-98 30.14 5.50 465171 12.73 167.2 4.50 44437 13.22
1998-99 31.21 3.55 527515 13.40 171.58 2.62 49481 11.35
1999-00 32.25 3.33 578470 9.66 178.5 4.03 53975 9.08
2000-01 33.7 4.50 645496 11.59 186.00 4.20 59978 11.12
2001-02 34.4 2.08 697522 8.06 192.00 3.23 62377 4.00
AAG 4.97 14.12 3.89 15.06
Source: SIDBI report on small-scale industries, p.35 and annual reports of SIDBI.
1.11.1 Number of SSI Units
The growth rate in the number of units is above 5 percent up to 1995-96. The year 94-95 witnessed well above 7 percent. The high growth rate slipped to 4.88 percent in 1996-97. The year 1997-98 has been a turnaround in favour of a high rate of growth of 5.5 percent as compared to 4.88 percent in the previous year. The growth period was, Export however short lived as the sect01 started showing signs of downturn by 1998-99 and this came down to 2.08 percent a: the end of the period under study. The average annual Employment growth rate in number of units is 4.97 percent.
1.11.2 Production
The statistics for production reveals that the production of SSI sector registered an increase from Rs. 155340 crores in 1990-91 to Rs.697522 crores in 2001- 02. The increase was more than four times. The percentage of increase was 15.04 percent at the beginning of the period came down to 8.06 percent at the end of the period. However it shows an average annual growth rate of 14.12 percent. Employment The number of persons employed in the SSI sector increased from 125.30 lakh in 1990-91 to 192 lakh in 2001-02. All the years show an above 3 percent increase over the previous year except 1998-99. During the year 1998-99 the percentage of increase was only 2.62. The average annual growth rate during this period was 3.89 percent.
1.11.3 Export
The most significant achievements of the SSI sector have been its performance in the field of exports. The export from SSI sector increased from Rs.9664 crores in 1990-91 to 62377 crors in 2001-02,showing more than six fold rise. The growth rate was 43.66; in 1991-92, this came down to 4 percent at the end of the period. The average annual growth rate during this period is 15.06 percent.
1.11.4 Ownership Pattern of the SSI Sector
A comparative position of ownership pattern of SSI units based on the third all India census is shown in Table no 1.6
Table no 1.6 Ownership Pattern in SSI Sector
Type of organisation Registered SSI sector Unregistered SSI sector
Enterprises Total Percentage to total Enterprises Total Percentage to total
Proprietary 675779 90.09 93725 97.2
Partnership 47683 6.36 1208 1.25
Pvt. Company 15917 2.12 430 0.45
Co-operatives 2355 0.31 118 0.12
Others 8388 1.12 950 0.98
Source: Quick results, third all India census report of small-scale industries 2001-02.
In the registered SSI sector majority (90.09%) are proprietary concerns and partnership concerns rank second. Number of units in the co-operative sector is least (0.31%). In the unregistered sector also majority (97.2%) are proprietary concerns. Here also there are only few units in the co-operative sector.
1.12 SSI IN GUJARAT
1.12.1 Introduction
Gujarat, since many years has been known as the land of entrepreneurs. It is this entrepreneurial spirit that usher the process of emergence of a sector characterized by many small scale industries in the state. Small scale industries are the major contributors to the economy of any region. Looking to the nature of investment and technology adopted by them, they offer wide scope for employment opportunities thus helping to alleviate the core problems of unemployment in our country, the sector has matured over a period of time driven by the business acumen of the entrepreneurs in terms of their technical skills and capability to run units with lower overheads. However, with the Indian economy steadying aligning with the global environment, a need is now felt to strengthen small sector units in terms of an array of needs like capacity building, infrastructural support, financing, technology up gradation, research and development activities, quality improvement, market access and many more. So as to enable them to have competitive advantages in the international market. As above discussed that small scale industries play very important role in the economic development of any developing or under developed country or state. These industries meet the twin needs viz. solution of unemployment problem and checking the economic concentration in the hands of a few. These industries encourage self sufficiency, self reliance and co-ordination they provide beneficial reallocation of available resources and their proper utilization. The traditional village and cottage industries provide a vital means of livelihood to village artisans. These industries create the scope of employment to the rural person.
1.12.2 SSI Scenario in Gujarat
Planning for the industrialisation in the country and the State during the initial plan periods was directed not only toward accelerating growth of output and employment but also at achieving certain socio-economic objectives such as, regional dispersal of industries, promotion of village and small industries, prevention of monopolies and concentration of economic power.
Gujarat, until it became a separate state in 1960, had industries concentrated in the cities of Ahmadabad, Rajkot, Surat and Vadodara. The factories were mostly related to textile, gems and machine tools. The major economic activities around the urban centres in the State were trading and merchandise of the products exported and imported from its numerous ports. The State had good trade network in both the hinterland of India as well as the countries off the coasts in Middle East, Europe and Africa. The pre-Independent India had Sindh as important port nearest to Gujarat along with Surat, though the latter had declined after increased trade through Mumbai.
1.12.3 Industrial Development: Policy Perspective
The industrialisation phase for the State started taking shape during second and third plan periods, i.e. from 1957-58 to 1964-65. Huge amount of investments were made during the fourth plan in the public sector units involving the State for the development and distribution of industries. The investment through the State intervention continued until the late 1980s. The following section gives the brief outline of various initiatives aimed at industrialisation of the State
There were only 2169 small scale industrial units in 1961. The number of SSI increased to 15,849 in 1970; 43,712 in 1980; 1,15,384 in 1990; crossed a figure of 2,50,000 and were at 2,51,088 in 2000. The number of small scale industrial units has increased to 3,12,782 by September 2006. Ahmadabad leads among districts with highest number of small scale industrial units at 65,763 constituting 21.03% of total SSI units in the state. Ahmadabad is followed by surat with 47,404 units (15.16%) and Rajkot with 32,461 units (10.38%), thereby constituting 47%of total SSI units among these three districts. besides, Vadodara (18,498), Valsad(15,966),Mehsana(14,602), Bharuch (14,328), Kheda (13,521), Jamnagar (13,236) and Bhavnagar (11,821) have more than 10,000 small scale industrial units as on 31.09.2006. among different industrial sectors where small scale sector have witnessed impressive development include textiles, machinery and parts and metal products. textile sector with 66,914 units continues to have prime position among SSI units. machinery and part (23,792), metal products (23,421), food products [ 16,467] , chemical &chemical products (15,553), wood products [13,498], rubber & plastic products [11,780], non metallic mineral products (11,345), basic metal industries (8,795), paper and printing (8,244) and electrical machinery and apparatus (6451) are other important industrial sectors among SSI. Gujarat has registered an impressive industrial development since its formation as a separate state in 1960. The industrial sector at present comprises of over 1200 large industries and over 4,00,000 micro, small and medium industries. As per the results of the Annual Survey of Industry (ASI), 2009-10 carried out by the Central Statistical Organization (CSO), under Ministry of Statistics and Program Implementation, Government of India, Gujarat accounts for 18% of fixed capital investment, 17.22% of gross output and 15.20% of net value added in industrial sector in India. This survey further reinforced the position of Gujarat as the most industrially developed state in India in respect of first ranking in industrial investment and second in terms of value of production and value addition in industrial sector.
Over the years, Gujarat has diversified its industrial base substantially. In the year 1960-61, textiles and auxiliaries were the major contributor to industrial economy of the state. In the span of over 52 years, the industrial spectrum has completely transformed and today 13 major industry groups together account for 83% of factories, 94% of fixed capital investment, 93% of value of output and 93% of value addition in the state’s industrial economy. In the recent years, refined petroleum products has emerged as one of the largest industrial groups having 37% share, followed by chemicals having 14% share. Other important groups Basic Metal (8%), food products (7.14%), textiles (5%), machinery and equipment (3.36%), non-metallic mineral based products (2.8%), plastic and rubber products (1.81%), fabricated metal products (2.74%). The industries in Gujarat produce a wide variety of products. The products which have substantial contribution in terms of production in India include: Soda Ash having 94% share, Salt (80%), Processed Diamond (80%), Polyester Filament Yarn (63%), Caustic Soda (42%), Phosphatic Fertilizers (37%), Sponge iron (35%), Textile Fabrics (34%), Refined Petroleum Products (33%), Nitrogenous Fertilizers (19.5%), and Cement (10%) so on. Over a period of time, Gujarat has also succeeded in widening its industrial base. At the time of inception in 1960, the industrial development was confined only to four major cities namely Ahmadabad, Baroda, Surat and Rajkot and some isolated locations such as Mithapur and Valsad. Today, almost all the districts of the state have witnessed industrial development in varying degree. Such a massive scale of industrial development has been possible on account of judicious exploitation of natural resources, such as minerals, oil and gas, marine, agriculture and animal wealth. The discovery of oil and gas in Gujarat in the decade of 60s has played an important role in setting up of petroleum refineries, fertilizer plants and petrochemical complexes. During the same period, the state government has also established a strong institutional network. Gujarat Industrial Development Corporation (GIDC), established industrial estates providing developed plots and ready built-up sheds to industries all across the state. Institutions were also set up to provide term finance, assistance for purchase of raw materials, plant and equipment and marketing of products. Later, District Industries Centres (DICs) were set up in all the districts to provide assistance in setting up industrial units in the form of a support services. The state also developed infrastructure facilities required for industries, such as power, roads, ports, water supply and technical education institutions. The Government also introduced incentive schemes, from time to time, to promote industries mainly in the under-developed areas of the state to correct regional imbalances. All these initiatives have made Gujarat to emerge as the highly industrialized state in the country today.
Table No 1.6 SSI In Gujarat
Year AGR of Registered Factories AGR of Closed Units % of Closed Units AGR of Employment
1985 – – 11.88 –
1990 4.45 -12.31 13.72 7.02
1991 4.22 20.45 16.51 1.75
1995 9.08 9.93 17.58 1.61
1996 5.27 0.38 16.72 2.04
1997 2.94 20.47 20.40 1.36
1998 3.82 13.46 22.68 0.63
1999 1.29 0.47 22.49 0.48
2000 3.06 4.34 22.79 0.24
2001 2.34 26.54 30.30 -11.46
2002 2.92 0.41 29.54 4.64
2003 2.27 -0.97 28.59 6.96
2004 3.69 -0.64 27.36 5.40
2005 1.53 -1.97 26.42 5.29
2006 3.61 9.17 28.04 5.77
2007 3.77 4.32 28.20 5.02
2008 3.45 5.43 28.79 6.98
As shown in the above table that the growth of SSI was as high as 9% per annum during 1995. However, during the recent times, the rate of growth of SSI has declined and has between 2-4% per annum. During the recent times, despite government policy to encourage the growth of SSI, the growth of SSI has not only been low but has also declined compared to the previous years. In absolute terms, the number of SSI units has risen from 14861 in 1985 to 33621 in 2008. During the initial years, the employment did not grow at significant rate and the rate of growth of employment was not more than 2% per annum. In fact, during some of the years, the employment even declined. During 1989, it was more than 8% per annum. During the 1990s, the rate of growth of employment in SSI improved and was positive during the entire decade. Barring the year 2001, the rate of growth of employment in SSI has been positive and has been improving over the years. In the recent times, the SSI sector in Gujarat is labour absorbing. This is a positive sign for a labour abundant country. Thus, growth of SSI has resulted into growth of employment. From the point of view of policy perspective, SSI should be encouraged in a labour surplus economy such as India. However, one disturbing aspect of growth of SSI is the rising sickness and closing down of the units. As shown in the data that the number of closed units has increased over the years. The percentage of closed units as proportion of total registered units has been increasing over the years. During the 1980s and 1990s, this percentage was between 11% to 20%. The cause of concern is the growing percent of units as proportion of total registered units, which is more than 25% during the recent times. Hence, on the one hand, the SSI sector is becoming labour intensive and on the other, there is a trend towards closure of the units. As is shown in the table that during the entire period from 2001 to 2008 the percentage of units closed has been high compared to the previous years. Compared to All India during 2000 the % share of sick industrial units in Gujarat was 1.94% which has grown in 2008 to 3.54%. However, when one looks at the data then in absolute terms, the number of sick industrial units has declined from 5928 in the year 2000 to 3017 in 2008. The relative increase in the proportion of sick units is due to a sharp decline in the number of sick units in the country but in case of Gujarat, the pace of decline in sickness in industrial units has not been so. There can be several reasons for this closure. One of these reasons is the availability of finance. Here, an attempt has been made to understand the role of financial institutions in the growth of SSI units in the state.
1.13 SSI IN NORTH GUJARAT
There are specified four region of Gujarat i.e. North Gujarat, South Gujarat, Saurashtra and Kutch. Aslo six district covered under the North Gujarat region and they are Sabarkantha, Banaskatha, Mehsana, Patan, Gandhinagar and aravalli. The rtesearcher has selected four district of North Gujarat by Random Sampling Method i.e. Sabarkantha, Banaskatha, Mehsana, and aravalli.
North Gujarat region is developed since Independence with respect to Small Scale Industries. Now-a-Days , there are approximate 234 Registered units in North Gujarat on 30-11-2015. Total Investment is Rs. 45906.54 Lakh and employment generation is 4532. The district wise analysis isgiven below:
Table No1.7 SSi in North Gujarat
Sr. No. District No of Units Total Investment Employment
1. Aravalli 09 2859.56 117
2. Banaskantha 39 10388.61 1088
2. Gandhinagar 81 13589.88 1537
3. Mehsana 81 13422.77 1412
4. Patan 08 2311.56 109
5. Sabarkantha 16 3334.16 269
TOTAL 234 45906.54 4532
Source: Industries Commissionar, Gandhinagar, Gujarat
Also the SSI promoted ny various agencies including Government, GIDC and District Panchayat, Banks and Big or Giant Corporates as given below:
Table No1.7 SSi in North Gujarat
Sr. No. Item 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07
1. Units promoted by S.C. Entreprenuers 291 363 259 530 691 866 518 188
2. Units promoted by S.T. Entreprenuers 187 348 278 291 327 491 394 161
2. Units promoted by SEBC Entreprenuers 481 658 526 558 310 369 863 242
3. Units promoted by Women Entreprenuers 1234 1172 929 928 1765 1249 1485 466
TOTAL 2193 2541 1992 2307 3093 2975 3260 1057
% increase – 15.87 -21.61 15.81 34.07 -3.81 9.58 –
Source: Industries Commissionar, Gandhinagar, Gujarat (Data Up to Date 30-5-2007)
Table 1.7 shows that industries are established from al types of entrepreneurs whether they are coming of SC, ST, OBC, Women or other caste. Each and every people from every stage of life the entrepreneurs come and show their talent towards the industry. Ups and downs come but there is fluctuation in no of entrepreneurs.
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