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The definition for small-scale industrial undertakings has Changed over time.Initially they were classified into two categories- those using power with less than50 employees and those not using power with the employee strength being morethan 50 but less than 100. However the capital resources invested on plant andmachinery buildings have been the primary criteria to differentiate the small-scaleindustries from the large and medium scale industries. An industrial unit can

be categorized as a smallscale unit if it fulfils the capital investment limit fixed bythe Government of India for the smallscale sector.According to 2001 census, Small scale industrial units are those engaged in themanufacture, processing or preservation of goods and whose investment in plantand machinery (original cost) does not exceed Rs.1 crore. These would, inter alia, include units engaged in mining or quarrying, servicingand repairing of machinery Small Scale Industries are located throughout thecountry,though predominantly in the rural areas. The small scale industries in the

rural areas are skill based, wherein the skill for manufacturing is passed on fromone generation to another. Some of the goods manufactured in these units aretextile handicrafts, woodcarving, stone carving, metal ware etc. Small scaleindustrial factories are also present in urban areas and usually they account for themaximum volume of production for that particular good.For e.g. Ludhiana in thestate of Punjab is the main center in the country for producing woolen hosiery,sewing machine

parts, bicycles and its parts, similarly Tiruppur in Tamil Naduaccounts for small scale firms that are involved in spinning,weaving and dying of cotton garments.The importance of cottage industries in the Indian economywas first understood by our first prime minister JawaharlalNehru . The development of such small scale industriesinfused much needed production efficiency into the ruralIndian economy. The Cottage Industries also helped theagricultural workers to have a better quality of life. This is dueto the additional profits generated by the farming community.The traditional small-scale industries clearly differ fromtheir modern counterparts in many respects. The traditional

units are highly labor consuming with their age-oldmachineries and conventional techniques of productionresulting in poor productivity rate whereas the modern smallscaleunits are much more productive with less manpower andmore sophisticated equipments.Khadi and handloom, sericulture, handicrafts, villageindustries, coir, Bell metal are some of the traditional smallscale



industries in India. The modern small industries offer awide range of products starting from simple items like hosiery

products, garments,leather products, fishing hook etc to moresophisticated items like television sets,electronics controlsystem, various engineering products especially as ancillariesto large industrial undertakings.

Nowadays Indian small-scale industries (SSIs) are mostlymodern small-scale industries. Modernization has widened thelist of products offered by this industry. The itemsmanufactured in modern Small-scale service & Businessenterprises in India now include rubber products, plastic

products, chemical products, glass and ceramics, mechanicalengineering items, hardware, electrical items, transportequipment, electronic components and equipments,

automobile parts, bicycle parts, instruments, sports goods,stationery items and clocks and watches.As on 10 October 2008, following items are reserved for exclusive manufacture by small enterprise sector:· Food and Allied Industries : Pickles & Chutneys,Bread, Mustard Oil (except solvent extracted), Groundnut oil (except solvent extracted).· Wood and Wood Products : Wooden furniture andfixtures· Paper Products : Exercise books and registers· Injection Moulding Thermo Plastic Product : PVCPipes, including conduits upto 110 mm dia, Fittings for PVC pipes· Other Chemicals & Chemical Products : Waxcandles, Laundry soap, Safety matches, Fire works,Agarbatties· Glass & Ceramics : Glass Bangles· Mechanical Engg. Excluding TransportEquipment : Steel almirah, Rolling shutters, Steel

chairs , Steel tables, Steel furniture, Padlocks,Stainless steel utensils, Domestic utensils ± AluminiumSMALL SCALE INDUSTRIAL UNDERTAKINGAn industrial undertaking in which the investment in plantand machinery,whether held on ownership terms or onlease/hire-purchase basis, does not exceed Rs.10million(Rs.1 crore) is regarded as a small scale undertaking. These



include manufacturing and service units.Status of Small Scale Industries Undertakinga)Ancillary Industries Udertaking :-Engaged inmanufacture of parts, component, Sub-assemblies, Theinvestment in fixed assets doesn¶t exceed 1 crore. In the caseof ancillary units, the investment in plant and machinery(original cost) should also not exceed Rs. 1 crore to beclassified under small-scale industry. It is engaged inmanufacture of parts, component, Sub-assemblies,

b)Tiny Industries :- A unit is treated as a tiny enterpriseswhere investment in plant nad machinery does not exceedRs.2.5 million (Rs.25 Lakhs) irrespective of the location of theunit.c)Export Oriented Units :- A unit with an obligation to

export at least 30 percent of its annual production bythe endof the third year of commencement of production and havingan investmentceiling up to Rs.10 million (Rs.1 crore) in plantand machinery is termed as an export oriented SSI unit.d) Small Scale Service & Business Enterprises (SSSBEs)Industry related service and business enterprises withinvestment up to Rs. 10 lac in fixed assets, excluding land and

building will be given benefits of small scale sector. For computation of value of fixed assets, the original price paid bythe original owner will be considered irrespective of the price

paid by subsequent owners.OBJECTIVES OF SMALL BUSINESS· To generate immediate and large scale employmentoppurtunities with relatively low investment.· To eradicate unemployment problem from the country.· To encourage dispersal of the industries all over thecountry covering small towns, villages and economicallylagging regions.· To bring backward areas too in the mainstream of national

development.· To promote balanced regional development in the wholecountry.· To ensure more equitable distribution of national income.· To encourage effective mobilisation of country¶s untappedcapital and human resources.· To improve the level of living of people in the country.



TYPES OF SMALL BUSINESSThe range of products manufactured by small scale industriesis very wide from baskets to precision electronic and opticalinstruments. Small scale industries can be classified into fivemain groups:-1. Manufacturing industries i .e. industries producingcomplete articles for direct consumption and also

processing industries.2. Feeder industries specialise in certain types productsand services. Eg. Casting, electroplating, welding etc.3. Serving industries covers light repair shops necessaryto maintain mechanical equipment.4. Ancillary units produce parts and components andrender services to large industries

5. Mining or quarryinThe Indian Small Scale Sector - An Overview

In India, an SSI Unit is defined as

SSI Unit

"one where investment in plant and machinery where held on ownership terms or on lease or by hire purchase does not exceed Rs. 10 million (1USD=Rs.49) ".There also exists a definition for micro-enterprises, which are popularly known as

"Tiny Units".

Tiny Unit

A tiny unit is one where investment in plant & machinery does not exceed Rs. 2.5million".From about 80,000 units in the late 1940s to over 3.3 million units today, the sector has been proving its mettle time and again. The last decade of 20th century has

been this sector maintaining its steady growth. The SSI sector in India can alonecontributes 7% to India's GDP. The performance of the Indian Small Scale Sector in terms of critical economic parameters such as number of units, production,employment.

SMEs have certain common characteristics, some of which are highlighted below:

y Born out of individual initiatives & skills



SME startups tend to evolve along a single entrepreneur or a small group of entrepreneurs; in many cases; leveraging on a skill set. There are other SMEs beingset up purely as a means of earning livelihood. These includes many trading andretail establishments while most countries continue SMEs to manufacturingservices, others adopt a broader definition and include retailing as well.

y Greater operational flexibility

The direct involvement of owner(s), coupled with flat hierarchical structures andless number of people ensure that there is greater operational flexibility. Decisionmaking such as changes in price mix or product mix in response to marketconditions is faster.

y Low cost of production

SMEs have lower overheads. This translates to lower cost of production, at leastupto limited volumes.

y High propensity to adopt technology

Traditionally SMEs have shown a propensity of being able to adopt and internalisethe technology being used by them.

y High capacity to innovate export

SMEs skill in innovation, improvisation and reverse engineering are legendary. By being able to meet niche requirements, they are also able to capture export marketswhere volumes are not huge.

y High employment orientation

SMEs are usually the prime drives of jobs, in some cases creating upto 80%. JobsSMEs tend to be labour intensive per se and are able to generate more jobs for every unit of investment, compared to their bigger counterparts.

y Utilisation of locally available human & material resources

SMEs provide jobs locally and hence utilise manpower available locally. Since it isavailable for them to transport materials over long distances, they often improvisewith materials which are available locally.



y Reduction of regional imbalances

Unlike large industries where divisibility of operations is more difficult, SMEsenjoy the flexibility of location. Thus, any country, SMEs can be found spreadvirtually right across, even through some specific location s emerge as 'clusters' for units of a similar kind. Nevertheless, the spread of SMEs is a fact which enhancestheir attraction from a national or regional policy.

Small scale enterprises were defined for the first time after independence under the industries (Development and Regulation) Act, 1951. Under the Act a smallscale unit was that which employed not more than 50 persons when using power and 100 when not using power and with capital assets not exceeding Rs. 5 lakhs.

In order to cover the business units working on multiple shifts under theGovernment assistance scheme for the small scale sector, this definition wasmodified in March, 1959. Under the modified definition all undertakingsemploying less than 50 persons with power and less than 100 persons without

power per shift were considered small enterprises. The number of employees wasconsidered an arbitrary and deceptive criterion and it was felt necessary to changethe definition so a to increase employment in the small scale sector.

In 1960 all industrial units with capital investment of not more than Rs. 5 lakhsirrespective of the number of persons employed were classified as small industries.Capital investment of the purpose of this definition comprised investment in fixedassets like land, buildings, machinery and equipment, furniture and fixtures, etc.Labour-intensive units welcomed the new definition. In vie of a sharp increase inthe cost of fixed assets, an upward revision of the definition became necessary.Therefore, in 1966 the small scale units were defined as undertakings having acapital investment of not more than Rs. 10 lakhs. Capital investment for this

purpose means original cost of plant and machinery only. An ancillary unit wasdefined as an undertaking engaged in (a) manufacture of parts, components, sub-assemblies, tooling or intermediaries; or (b) the rendering of services andsupplying or proposing to supply at least 50 per cent of its production or services toother unit (s) for production of other articles provided that it is not a subsidiary toor owned/controlled by any large unit (s) in regard to the negotiation of contracts



for supply of its goods and services.

The Government of India again revised the definition of small business in May,1975 due to further rise in prices. Any undertaking with a capital investment of not

more than Rs. 10 lakhs and an ancillary unit with a cap[ital investment of not morethan Rs. 15 lakhs were to be considered small scale enterprises. The IndustrialPolicy Resolution of December 23,1977 stated that all industrial units having fixedinvestment in plant and machinery of not more than Rs. 1 lakhs and situated intowns with a population of less than 5,0 as per the 1971 census will be known astiny sector enterprises.

Characteristics of Small Business

The foregoing description reveals the following features of small scale enterprises

1. Personal Character: A small scale unit is generally owned and organized by asingle entrepreneur or a group of persons. Personal character is an outstandingfeature of small business. A census of small scale units in India revealed that out tothe 1.4 lakhs units, about 16% were sole proprietorships and 35% were partnershipconcerns.

2. Independent Management: Management in small business is independent inthe sense that owners themselves act as mangers. There is little divorce betweenownership and control. In the words of Kaplan ³simplicity of organization thatmarks an enterprise as small is reflected int the identify of ownership andManagement.´ The management structure is simple not complex, as number of employees is limited. Due to proprietary ownership and management, success of these enterprises depends upon the initiative, skill and judgment of the owner (s).

3. Limited Investment: A small enterprise requires relatively less capitalinvestment which is [provided buy the owner(s) though own resources and

borrowings. Capital investment is comparatively small because it does not employhighly mechanized means of production.

4. Simple Technology: Small enterprises are generally labour intensive. Themachinery and equipment used are not very sophisticated and they are generallyoperated manually. Amount of working capital is generally bigger then fixed



capital indicating their labour intensity. Labour is the primary input.

5. Local Area of Operations: A small scale unit depends largely on localresources and its operations are localized. It operates in a compact area and there is

personal touch between the employers employees. However, the products of smallscale in duties are exported all over the world.

Role of Small Business in Indian Economy

Small scale industries are small in size but play a big role in the economicdevelopment of a developing country like India. India has adopted the ideal of asocialistic pattern of society with full employment balanced regional developmentand self-reliance as the major objectives.

Small scale firms are helpful in the achievement of these goals in the followingways:

1. Employment: Small scale firms use labour-intensive techniques and, therefore,they have high potential to provide employment to a larger number of people per unit of capital. For every worker employed in large scale industries about threeworkers are engaged in small scale and cottage industries. Next to agriculture small

business constitutes the most popular occupation of people in India. Small firms promote self-employment particularly among the educated and professional class.They also provide employment to agriculturists who remain idle during a part of the year. In fact, the healthy growth of small scale industries can be an effectiveapproach to the pressing problem of unemployment in the country. Severalempirical studies have revealed that the employment generating capacity of smallscale industries in about in times more than that of the large scale industries.

2. Balanced Regional Development: small scale industries promote decentralizeddevelopment and help to remove regional disparities in industrialisation.Decentralized development contributes to the process of self-sustained growth and

avoids concentration of industries in particular areas. By providing employment inrural areas they help to check migration and overcrowding in urban areas. Smallscale firms can be a useful means of rural reconstruction and development.Development of decentralized sector also improves the standard of living of peoplein backward regions.

3. Optimization of Capital: Small scale firms require less capital per unit of



output and, therefore, greater output can be obtained with small investment. TheAnnual Surveys of industries reveal that fixed capital per employee in case of small scale industry was Rs. 3,706 as compared to Rs. 27,757 in case of large scaleindustry. Small firms also provide quick returns after their establishment onaccount of short gestation period. In India where the rate of capital formation islow, small scale industries are very suitable.

4. Mobilization of Local Resources: Small scale industries facilitate Mobilizationand utilization of local resources and family skills which might otherwise remaintalent or utilized. Small business promotes a new cadre of small entrepreneurs andself-employed and encourages local talent. The growth of small enterprises helpsin tapping talent resources like entrepreneurial skills and small savings specially inrural areas. Small business helps to protect technical skills and handicrafts.

5. Exchange Earnings: Small scale industries help in reducing pressure on thecountry's balance of payments in two ways. First, they do not require imports of sophisticated machinery and equipment. Secondly, they earn valuable foreignexchange through exports of their products. The exports of small scale industriesincreased from Rs. 637 crores in 1975-76 to Rs. 2785 crores in 1985-86. Smallscale sector accounts for 40 percent of the exports of non-traditional items andabout 25 per cent of the country's total exports. About 90 per cent of its exports areof non-traditional items.

6. Egalitarian Society : Small scale industries help in reducing concentration of economic power in a few hands. They promote a more equitable distribution of national income and wealth. Development of small scale industries helps to reducemonopolies and exploitation of consumers. Benefits of small scale firms arederived by a wider population. A large part of the earnings is distributed amongworkers.

7. Feeder to Large industries: small scale sector is complementary to the largescale industries. Small scale industries manufacture various types of components,spare parts, tools and accessories which are required by the large scale sector.

8. Social Advantage: Small scale units offer opportunity for an independent wayof life to people with small means. They offer savings in social overheads likeeducation, housing and medical facilities by taking industry nearer to the people.They help to raise per capita income an standard of living in the country. A systemof widely diffused ownership permits wider participation of people in the processof economic development. Small scale sector provides a base for democracy,



socialism and self-government.

At present there are about 16 lakh small scale units in India producing more than500 times. The Seventh Fiver Year Plan envisages a growth rate of 10 per cent inthe small scale sector. By the end of 1990 the production of small scale sector isexpected to be Rs. 8,000 crores and employment 1.19 crore persons.

At current prices the total output of small scale sector in 198-87 amounted to Rs.72,250 crores.

PROBLEMS IN SMALL SCALE INDUSTRIES

Classification of the problems

� The internal problems.� The external problems.

Internal problems

� A) Planning :� a) Technical feasibility :-� - Lack of technical know-how.� - Locational disadvantage.� - Outdated production process.� b) Economic Viability :-� - High cost of inputs.� - Uneconomic size of the projects.� - Underestimation of financial requirements.� - Over estimation of demand.� B) Imp lementation. � C) Production. � a) Production Management :� - Poor quality control.� - Poor capacity utilization.� - Poor inventory management.� - Inadequate maintenance.� - High wastage.

b) Labour management :-

� - Inefficient handling of labour problems.� - Excessive manpower.� - Lack of trained and skilled labor.



� c) Marketing management :-� - Dependence on a single or small group of customers.� - Defective pricing policy.� - Lack of market research.� d) Financial management :-� - Liberal dividend policy.� - Inadequate working capital.� e) Administrative management :-� - Over centralization.� - Lack of professionalism.� - Lack of feed-back to management.� - Incompetent management.

External problems� A) I nfrastructural bottlenecks :-� - Irregular supply of raw materials.� - Transport bottlenecks.� B) F inancial bottlenecks :-� C) G overn ment controls and policies :-� - Government price controls.� - Change in government policies.� D) M arket constraints :-

� - Market saturation.� - Technological advances rendering one¶s product obsolete.� E) Ex traneous factors :-� - Natural calamities.� - Political situation.� - War.� - Strikes.� - Multiplicity of labour unions.

POLICY SUPPORT TO SMALL SCALE INDUSTRIES INTRODUCTION

After attaining independence in 1947 India adopted mixed economic planning asa method to achieve economic development. Along with the Large Scale sector the



thrust was on Small Scale sector because of it decentralized, its small size, usemainly indigenous technology, employment intensity and its suitability for ruralarea with limited techno-economic structure.

Industrial policies over the year have focused to promote SSIs through variousincentives related to financial, fiscal and infrastructure measure; along with aheavy industrial base.

The various provisions under Industrial Policy Resolutions formulated bythe government in assisting the small scale industries (SSI)

The various fiscal incentives for SSIs

INDUSTRIAL POLICY RESOLUTION AND SSIs

1. INDUSTRIAL POLICY RESOLUTION 1948

1 SSIs are particularly suited for the utilization of local resources andcreation of employment opportunities .

2 The primary responsibility for developing small industries by creatinginfrastructure has been provided to state government .

3 Central government frame the broad policies and coordinates the efforts of

State Government for development of SSIs.

2. INDUSTRIAL POLICY RESOLUTION 1956

1 It stated that besides continuing the policy support to cottage, village and smallindustries by differential taxation or direct-subsidies, the aim of state policy would

be that the development of this sector is integrated with that of large scale industry.

2 The focus was to improve the competitive strength of SSIs.2.1 to achieve these 128 items were exclusively reserved for production in

SSIs, and 166 items were reserved for exclusive purchase by government from thissector.



3 INDUSTRIAL POLICY RESOLUTION 1977

The main thrust of policy was effective promotion of cottage ,village and smallindustries widely dispersed in rural area and small towns.

This thinking specified the following things:

1. 504 items were reserved for exclusive production in the small scaleindustries .

2. The concept of District Industrial Centers (DICs) was introduced to that ineach district a single agency could meet all the requirement of SSIs under one roof.

3. Technological up gradation was emphasized in traditional sector .

4. Special marketing arrangement through the provision of services, such as, production standardization, quality control, market survey, were laid down.

4 INDUSTRIAL POLICY RESOLUTION 1990

Main feature of this resolution are as follows:

1. It raised the investment ceiling in plant and machinery for SSIs.

2. It created central investment subsidy for this sector in rural and backward area.

Also, assistance was granted to woman entrepreneurs for widening theentrepreneurial base.

3. Reservation of items to be produced by SSIs was increased to 836.

4. Small Industries Development Bank of India was established to ensure adequateflow of credit to SSIs.

5. Stress was reiterated to upgrade technology to improve competitiveness.

6. Special emphasis was laid on training of woman and youth under Entrepreneurial Development Programme.

7. Activities of Khadi and Village Industries Commission and Khadi and VillageIndustrial Board were to expand.



5.INDUSTRIAL POLICY RESOLUTION 1991

The basic thrust of this resolution was to simplify regulations and procedures by delicensing, deregulation . Its salient feature are:

1. SSIs were exempted from licensing for all articles of manufacture.

2. The investment limit for tiny enterprises was raised to Rs.5 lacs irrespectiveof location.

3. Equity participation by other industrial undertaking was permitted up to alimit of 24% of shareholding in SSIs.

4. Factoring services were to launch to solve the problem of delayed paymentto SSIs.

5. Priority was accorded to small and tiny units in allocation of indigenous andraw materials.

6. Market promotion of products was emphasized through co-operatives, publicinstitutions and other marketing agencies and corporations.

COMPREHENSIVE POLICY PACKAGE FOR SSIS AND TINYSECTOR 2000

1. The exemption for excise duty limit raised from 50 lakhs to Rs One crore toimprove the competitiveness.

2. The third census of small scale industries by the ministry of SSI wasconducted. which also covered sickness and its causes in SSI¶s.

3. The limit of investment was increased in industry related service and business enterprises from Rs 5 lakhs to Rs 10 lakhs.

4. The scheme of granting Rs 75000 to each small scale enterprise for obtaining ISO 9000 certificate was continued till the end 10 th plan.

5. SSI associations were motivated to develop and operate testing laboratories.One time capital grant of 50% was given on reimbursement basis to eachassociation.



6. The limit of composite loan was increased from Rs10 lakhs to Rs 25 lakh.

7. The coverage of ongoing Integrated Infrastructure Development (IID) wasenhanced to cover all area in the country with 50% reservation for rural area

and 50%earmarking of plots for tiny sector.8. The family income eligibility limit of Rs 24000 was enhanced to Rs 40000

per annum under the Prime Minister Rozgar Yozna (PMRY).

INDUSTRIAL POLICY PACKAGE FOR SSI 2001-02

This policy emphasizes the following:

1. The investment limit was enhanced from Rs 1crore for to Rs 5 crore for units in hosiery and hand tool sub sectors.

2. The corpus fund set up under the Credit Guarantee Fund Scheme wasincreased from 125 crore to 200 crore .

3. Credit Guarantee cover was provided against an aggregate credit of Rs 23crore till December 2001.

4. 14 items were de-reserved in June 2001 related to leather goods, shoes andtoys.

5. Market Development Assistant Scheme was launched exclusively for SSIsector.

6. Four UNIDO assisted project were commissioned during the year under theCluster Development Programme .

INDUSTRIAL POLICY ON SSIS 2004-05

Policy initiatives for this year are as follows:

The national commission on Enterprises in the Un-organized/InformalSector was set up in September 2004.It suggested measures considerednecessary for improvement in the productivity of these enterprises,generation of large scale employment opportunities, linkage of the sector toinstitutional framework in area like credit ,raw material supply,



infrastructure, technology up gradation ,marketing facilities and skilldevelopment by training .

85 items were de-reserved in October 2004.

The investment limit in plant and machinery was raised from Rs One croreto Rs 5 crore in October 2004,in respect of seven item of sports goods tohelp to upgrade the technology and enhance competitiveness.

The Small and Medium Enterprise (SME) fund of Rs 10000 crores wasstared by SIDBI since April 2004,with 80% of the lending for SSI units. Theinterest rate was 2%below the prevailing Prime Lending Rate (PLR) of theSIDBI.

The reserve Bank of India raised the composite loan limit from Rs 50 lakhsto Rs One crore.

Promotional Package for small enterprises was initiated.

POLICY PACKAGE FOR SME 2005-06

THIS POLICY PACKAGE CONTAINS THE FOLLOWING POINTS

1. 180 items were dereservation.

2. Small and Medium Enterprises were recognized in the services sector , andwere treated on par with SSIs in the manufacturing sector.

3. The corpus of the Credit Guarantee Fund was raised from Rs 1132 crore inMarch 2006 to Rs 2500 crore in five years.

4. Credit Guarantee Trust for Small Industries (CGTSI) was advised to reducethe one time guarantee fee from 2.5% to 1.5% for all loans.

5. Insurance cover was extended to proximately 30,000 borrowers, identified aschief promoters, under the CGTSI. The sum assured would be Rs 200000

per beneficiary and the premium will be paid by CGTSI.

6. The emphasis was laid on Cluster Development model not only to promotemanufacturing but also to renew industrial towns build new industrialtownship . The model is now being implemented, in nine sector including



khadi and village industries, handlooms, textiles, agricultural products andmedicinal plants.

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