Class: M.

Com

Writer: Dr. M.C. Garg

Subject: Entrepreneurship and Small Business Development

Course Code: MC-202
Lesson No.: 1
SMALL SCALE SECTOR IN INDIA
STRUCTURE
1.0

Objective

1.1

Introduction

1.2

Meaning and Definition of Small Scale Industry

1.3

Features of Small Scale Industries

1.4

Objectives of Small Scale Industries

1.5

Small Business as a Seedbed of Entrepreneurship

1.6

Relationship between Small and Large Industries

1.7

Rationale of Small Scale Industries

1.8

Importance of Small Scale Industries

1.9

Role of Small Sale Industries in India

1.10 Problems of Small Scale Industries

1.11 Remedial Measures
1.12 Steps taken to solve problems of SSIs
1.13 Summary

1.14 Keywords
1.15 Self Assessment Questions
1.16 Suggested Readings
1.0

OBJECTIVES

After reading this lesson, you should be able to:

(a) Define small scale industry and explain the features and
objectives of SSI.
(b) Discuss the relationship between small and large industries.
(c) Highlight the importance and role of small scale industries in
1

India.
(d) Describe the problems of small scale industries and explain
the remedial measures to overcome these problems.
1.1 INTRODUCTION
The Small-Scale Industries (SSI) have a crucial role in a
developing economy like India. They play a strategic role in the
progress of the country. These industries by and large represent a
stage in economic transition from traditional segments to modern
segments. The traditional nature of this process is reflected in the
diversities of these industries. Some small scale units employ
simple skills and mechanism while many other units use modern
and sophisticated technology. Now, our economy is facing a
challenge of economic growth. It has to accelerate the productivity
of many important areas like agriculture and industry by improving
their techniques of production. SSIs have been assigned to fulfil
these expectations in more economic and diversified way.
SSIs constitute an important part of the Indian economic
structure. They integrate a continuing element in the scheme of
national planning. They are a strategic part of the Indian economy
as well as a progressive and effective decentralized sector, which is
closely related with agriculture and medium and large-scale
industries. The whole scheme of a socialistic pattern of society with
employment for all rests on the decentralisation and wide
distribution of economic activity, enterpreneurship and economic
advantages.

The

basic

social

philosophy

underlying

Indian

Planning is to develop medium and large scale sector only to take

advantage of modern technology. Over the rest of the field, SSIs will
be encouraged to play their active role. If there is change in scale,
2

that has to be developed with the help of mutual co-operation, both

horizontal and vertical.
Thus, small and large-scale industries are two legs of
industrialisation

process

of

country.

Hence,

small-scale

industries are found in existence in every country. Small-scale

industries have been given an important place in the framework of
Indian planning since beginning both for economic and ideological
reasons. Today, India operates the largest and oldest programmes
for the development of small-scale industries in any developing
country. As a matter of fact, small sector has now emerged as a
dynamic and vibrant sector for the Indian economy in the recent
years. Before we discuss various aspects of small industry
development, it seems pertinent to begin with an introductory
framework of small industries in India.
1.2 MEANING AND DEFINITIONS OF SMALL SCALE INDUSTRY
Small-scale industry comprises of a variety of undertakings.
The definition of small-scale industry varies from one country to
another and from one time to another in the same country
depending upon the pattern and stage of development, Government
Policy and administrative set up of the particular country. As a
result, there are nearly 50 different definitions of SSIs found and
used in 75 countries. All these definitions either relate to capital or
employment or both or any other criteria. We trace here the
evolution of the legal concept of small-scale industry in India. There
can be two bases for defining small business and these are:
I.

Scale of Business: The size or scale of business can be

measured in various ways like :

(i)

Investment on plant and machinery

(ii)

Employment generation.
3

II.

(iii)

Investment and Employment.

(iv)

Volume and/or value of production.

(v)

Volume and/or value of sales.

Qualitative Aspects: These can be:(i)

Ownership of small business is in the hands of an

individual or a few individuals.

(ii)

Management and control of small-scale firm is with the

owner or owners.

(iii)

Technology adopted in small-scale unit is normally

labour intensive.

(iv)

Small-scale business is normally carried on in a limited

or local area.

Before Second World War a small concern was defined as a

unit having capital invested upto Rs. 30,000 and those concerns
having capital in excess of that amount were classified as largescale units.
The definition of small-scale enterprise has undergone
changes over years with the ceiling raised to take into account the
rising cost of machinery as well as falling value of rupee. Various
definitions of small-scale unit are as under:
According to Fiscal Commission, 1950 A unit operating
mainly with hired labour usually 10 to 50 hands.
According to Small Scale Industries Board, 1955 A unit
employing less than 50 persons if using power and less than 100
persons without the use of power and with a capital investment not
exceeding Rs. 5 lakhs.
According to Ministry of Commerce and Industry, 1960 An
industrial unit with a capital investment of not more than Rs. 5
lakhs irrespective of the number of persons employed.
4

According to Ministry of Commerce and Industry, 1966 An

undertaking having an investment in plant and machinery of not
more than Rs. 20 lakhs and 25 lakhs in case of ancillary units.
According to Government of India, 1985 An undertaking
having an investment in plant and machinery of not more than Rs.
35 lakhs and not more than Rs. 45 lakhs in case of ancillary units.
According to Government of India, 1991 An undertaking
having an investment in plant and machinery of not more than Rs.
60 lakhs and not more than 75 lakhs in case of ancillary units.
According to Government of India, 1997 An undertaking
having an investment in plant and machinery of not more than Rs.
3 crores.
According to Government of India, 2000 An undertaking
having an investment in plant and machinery of not more than Rs.
1 crores.
It is evident from the above definitions that there was upward
revisions in the investment limit on plant and machinery in small
scale sector from Rs. 5 lakhs to Rs. 3 crores over years but this
limit has been reduced to Rs. 1 crore in the year 1999-2000.
Tiny Industries : Very small industries with an investment of
less than Rs. 25 lakhs are included in the category of Tiny
industries. Capital investments for this purpose means investment
in plant and machinery. The location restrictions or the setting up
of Tiny Units have been removed by Small Industries Policy of
1992. The number of persons employed in these units must be less
than

50.

These

units

are

normally

operated

under

sole

proprietorship form of ownership. These units are managed by

family members and not professionals which result in lower profit
generation.
5

Ancillary Units: Industrial units having an investment in

plant and machinery, whether held on ownership or by lease or by
hire purchase does not exceed Rs. 1 crore and engaged or is
proposed to be engaged in the manufacture or production of parts,
components, sub assemblies, tooling and intermediaries, or the
rendering of service and supply or render at least 50 per cent of its
production or services as the cases may be to one or more other
industrial undertakings.
Cottage

Industries:

These

are

also

called

household

industries. They are organised by individuals and with the help of

members of the household (including family labour) and are
pursued as full time or part time occupation. The capital
investment is small and the components used are simple. These
industrial units normally use local resources and local skills. The
output produced in each industrial unit is generally sold in the
local market.
1.3 FEATURES OF SMALL SCALE INDUSTRIES
The following are the feature of small scale industries:
1. Ownership: Ownership of small-scale unit is with one
individual in sole proprietorship or it can be with a few individuals
in partnership.
2. Management and Control: A small scale unit is normally a
one man show and even in case of partnership the activities are
mainly carried out by the active partner and rest are generally
sleeping partners. These units are managed in a personalised
fashion. The owner is actively involved in all the decisions
concerning business.
3. Gestation Period: Gestation period is that period after which
teething problems are over and return on investment starts.
6

Gestation period of small-scale unit is less as compared to largescale unit.

4. Area of Operation: The area of operation of small scale unit
is generally localised catering to the local or regional demand. The
overall resources at the disposal of a small-scale units are limited
and as a result of this, it is forced to confine its activities to the
local level.
5. Technology: Small industries are fairly labour intensive with
comparatively smaller capital investment than the larger units.
Therefore these units are more suited for economies where capital
is scarce and there is abundant supply of labour.
6. Resources: Small scale units use local or indigenous
resources and as such can be located anywhere subject to the
availability of these resources like labour and raw materials.
7. Dispersal of Units: Small-scale units use local resources and
can be dispersed over a wide territory. The development of smallscale units in rural and backward areas promotes more balanced
regional development and can prevent the influx of job seekers from
rural areas to cities.
8. Flexibility: Small-scale units as compared to large-scale
units are more change susceptible and highly reactive and
responsive to socio-economic conditions. They are more flexible to
adopt changes like new method of production, introduction of new
products etc.
1.4 OBJECTIVES OF SMALL SCALE INDUSTRIES
The small scale sector can stimulate economic activity and is
entrusted

with

the

responsibility

of

realising

the

following

objectives:7

1. To create more employment opportunities with less

investment.
2. To remove economic backwardness of rural and less
developed regions of the economy.
3. To reduce regional imbalances.
4. To mobilise and ensure optimum utilisation of unexploited
resources of the country.
5. To improve standard of living of people.
6. To ensure equitable distribution of income and wealth.
7. To solve unemployment problem.
8. To attain self-reliance.
9. To adopt latest technology aimed at producing better
quality products at lower costs.
1.5 SMALL BUSINESS AS A SEEDBED OF ENTERPRENEURSHIP
Seedbed refers to the preparing of soil for the sowing of seeds
so that we may have good crop. Small business is regarded as a
seedbed for entrepreneurship as it provides conducive conditions
for the emergence and growth of entrepreneurs. Small-scale units
employ available technology and can be started with less
investment. They are going to use local resources and cater mainly
to local demand. These units normally revolve round one individual
who is called upon to perform various roles. He is the owner,
manager and risk bearer and hence can be called an entrepreneur.
The emergence, growth and success of entrepreneurs are linked
with the growth of small business. The Government of India too has
given small-scale industry an important place in the framework of
economic planning for economic and ideological reasons. Thus
setting up of more small scale units will create more opportunities
for entrepreneurial development and more and more educated
8

unemployed will come forward for setting up their own enterprises.

It will usher in an era wherein enterprising persons will assume
entrepreneurial career in future.
Small enterprises are called seedbed of entrepreneurship due
to the following reasons:
1. Small-scale

enterprises

can

be

started

with

lesser

investment, which can be contributed by the promoter or

arranged from friends and relatives.
2. Small-scale units carry on business on a small scale and
as such the element of risk is less.
3. Small-scale units are generally based on local resources
and

as

such

there

is

no

problem

regarding

their

availability.
4. Small-scale

entrepreneur

adopts

labour

intensive

technology. Thus he generates employment for himself as

well as for others.
5. Small-scale units can be located anywhere and thus help
in the development of backward areas of the country.
6. Small-scale units generally cater to local demand and
necessary modifications can be made in the products
keeping in mind the changing demand of people.
7. Small-scale units provide ample opportunities for creativity
and experimentation.
8. Small-scale units have shorter gestation period and hence
waiting period for getting return on investment is less.
9. These units are relatively more environmental friendly.
10.

Small-scale

units

help

in

building

achievement

motivation amongst entrepreneurs.

11.

Small-scale

units

are

viewed

favorably

by

the

government and society because these help in equitable

distribution of income and wealth.
Keeping in mind the above potentials of small scale industry
as a developer of entrepreneurial talent, the government of India
has facilitated this sector by providing it with various concessions
and incentives.
1.6 RELATI0NSHIP BETWEEN SMALL AND LARGE INDUSTRIES
After going through the distinct characteristics of small-scale
industries, one should not assume that the both small and large,
are antithetic to each other. In other words, the both cannot
sustain in an economy. But, fact is that one is complementary to
each other. The relationship between the small and the large
industrial units can be seen in various respects, which are stated
below:
1. Supplementary: Small industry can fill in the gaps
between large production and standard outputs caused by largescale industries. This is due to this supplementary role of small
industries that a small tricycle factory sustained and flourished
alongside a large cycle factory in Chennai city.
2. Complementary: Apart from supplementary relationship,
small industry has been a complementary to its large counterparts.
In the real world, many small units produce intermediate products
for large units. Such subcontracting relationship between the small
and large was particularly marked in the economic history of
todays industrially developed Japan. As industrialisation proceeds,
small firms seem naturally to shift from activities that compete with
large firms to complementary ones. Similarly, China too continues
to rely on Maos aphorism of walking on two legs one being
10

small and the other large. Under complementary relationship, small

units function under the tutelage of the large units and enjoy the
advantage of protected market for their products then, the
flourishment of such small units remains beyond doubt.
3.

Competitive:

Though

Small-scale

industry

cannot

compete with large industry in certain circumstances and in

selected products, but they have comparative advantage in some
products. Example of such industries are bricks and tiles, fresh
baked goods and perishable edibles, preserved fruits, goods
requiring small engineering skill, items demanding craftsmanship
and artistry.
4. Servicing: Small industries do also install servicing and
repairing shops for the products of large units. In the case of India,
such small servicing units can be seen proliferating in respect of
large industries like refrigerators, radio and television sets, watches
and clocks, cycles and motor vehicles.
5. Initiative: Attracted by the high profits of large units,
small units can also take initiative to produce the particular
product. If succeeds, the small unit grows to large over a period of
time. Staley quotes such initiation that many of the automobile
factories started this way in the United States of America. In our
country too, the electronic industry looks like following to this
initiative pattern of development.
1.7 RATIONALE OF SMALL SCALE INDUSTRIES
Following are the main rationales to support small-scale
industries in India:
1. The Factor Price Argument: It is commonly argued that
for various institutional reasons, labour used in large enterprise is
priced well above the levels at which it is used in small-scale
11

industries. The SSI sector, which uses more labour and less capital
per unit of output, will have relatively lower costs as their training
and development costs are quite low. Besides, large enterprises are
ready to pay more as they have to attract more stable migrants
from rural areas. Cost of developing commitments among them to
firm specific is also quite high. But small units make greater use of
the unstable labour with high turnover because in their case the
stability efficiency relationship for the work force is much weaker.
Their labour cost is much less expensive as they generally use less
expensive often second hand machines which need less training to
use and whose cost of damage from misuse is less. The high labour
productivity in large firms enables the firm specific labour to claim
a share of profit. The motivation of an exclusive labour force can
only be sustained if management is sympathetic to profit sharing
ideas. Unionisation of labour force in large enterprises is another
important variable. But these types of problems are not available in
small-scale enterprises.
2. Employment Argument: In view of Indias scarce capital
resources and abundant labour, the most important argument
advanced in favour of the SSIs is that they have a potential to
create

immediate

large-scale

employment

opportunities.

The

increasing emphasis on SSIs in developing countries like India

stems largely from the widespread concern over unemployment
hovering in the country. There are many research findings
available, which well establish that small-scale units are more
labour intensive, than large units. In other words, small units use
more of labour per unit of output than investment.
According to a study, while the output-employment ratio is
the lowest in the small-scale sector, employment-generating
12

capacity of small sector is eight times that of the large-scale sector.

P.C. Maha Lvoyis also supports the view that small industries are
fairely

labour

intensive.

He

mentions that with any given

investment, employment possibilities would be ten or fifteen or even

twenty times greater in comparison with corresponding factory
system.
3. Equality Argument. One of the main arguments put
forward in favour of the small-scale industries is that they ensure a
more equitable distribution of national income and wealth. This is
accomplished

because

of

the

two

major

considerations:

(i)

compared to the ownership of large-scale units, the ownership

pattern in SSI is more widespread (ii) their more labourintensive
nature, on the one hand, and their decentralisation and dispersal
to rural and backward areas, on the other, provide more
employment opportunities to the unemployed. This results in more
equitable distribution of produce of the small-scale units. It is also
held that as most of the small enterprises are either proprietary or
partnership concerns, the relations between the workers and the
employees are more harmonious in small enterprises than in the
large enterprises.
4. Decentralisation Agrument: Decentralisation argument
impresses the necessity of regional dispersal of industries to
promote balanced regional development in the country. Big
industries are concentrated everywhere in urban areas. But, small
industries can be located in rural and semi-urban areas to use
local resources and to cater to the local demands. Admittedly, it
will not be possible to start small enterprises in every village, but it
is quite possible to start small enterprises in a group of villages.

13

Decentralisation of industrial enterprises will help tap local

resources such as raw materials, idle savings, local talents and
ultimately improves the standard of living even in erstwhile
backward areas. The most glaring example of this phenomenon is
the economy of Punjab, which has more small-scale units than
even the industrially developed state of Maharashtra.
5. Latent Resources Argument: This argument suggests
that small enterprises are capable of mapping up latent and
unutilized resources like hoarded wealth, ideas entrepreneurial
ability, etc. However, Dhar and Lydall say that the real force of
latent resources argument lies in the existence of entrepreneurial
skill. They argue that there is no evidence of an overall shortage of
small entrepreneurs in India. Hence, they doubt the force of this
latent resources argument. Their assertion does not appear to be
very sound simply because of the fact that if small entrepreneurs
were present in abundance, than what obstructed the growth of
small enterprise.
1.8 IMPORTANCE OF SMALL SCALE INDUSTRIES
Small-scale industries play an important role in industrial
development of a country. It is all the more important in case of
developing countries like India. The socio-economic transformation
of India cannot be achieved without the development of small-scale
industries. It has been estimated that the small-scale industries
contribute about 47 per cent of gross value of output manufactured
in the country. Their importance can be further highlighted by
noting that SSIs provided nearly five times the employment as
compared to the large-scale sector. SSI is an important segment of
the economy contributing substantially in the form of production,
employment and export.

Let

us

now

discuss

the

various
14

advantages of small-scale industries to highlight the importance of

this sector. The main advantages are as follows:
1. Generation of Employment: The small-scale industries
are labour intensive i.e. the ratio of labour to investment is very
high in their case. A given amount of capital invested in a smallscale industry provided more employment than the same amount of
capital invested in a large-scale industry. Since capital is scarce
and labour abundant in India, the generation of employment is the
advantage that can be put forward for the support of small-scale
industries in India. Moreover, these industries can be set-up at the
very doorstep of workers and, thereby, provide work for the
unemployed, more work for the underemployed and supplementary
work for the seasonally unemployed workers.
2. Self Employment: The small-scale industries offer almost
limitless

opportunities

for

self

employment

and

hence

are

particularly suited to a developing country like India where there is

a big problem of unemployment and underemployment.
3. Lesser Capital Requirement: Another advantage of smallscale industries is that they need relatively lesser amount of capital
than that required by large-scale industries. As capital is very
scarce in an underdeveloped country like India, it may be used to
greater advantage in small-scale sector.
4. Mobilisation of Capital: Small-scale industries not only
make economies in the use of capital but also mobilise capital that
would not otherwise have come into existence. Large-scale
industries cannot mobilise the savings from rural areas, while this
task can be effectively accomplished by setting up a network of
small-scale industries in such areas.

15

5. Mobilisation of Entrepreneurial Skill: Another advantage

of small-scale industries is the lesser requirement of skill and
expertise, which is also scarce in a developing country like India.
Further,

large-scale

industries

cannot

utilise

number

of

entrepreneurs who are spread over small towns and villages of the
country. On the other hand, small-scale industries can effectively
mobilise such entrepreneurial skills.
6. Equitable Distribution of Income: Small-scale industries
secure a more equitable distribution of income and wealth. They
are particularly suitable for the fulfillment of the objective of social
justice. This is ensured because the ownership of small-scale
industries is more widespread and they offer a much longer
employment potential as compared to the large-scale industries.
The development of large-scale industries tends to concentrate
large incomes and wealth in a few hands.
7. Balanced Regional Development: Small-scale industries
utilise local resources, bring about dispersion of industries and
promote balanced regional development. The growth of large-scale
industries

on

the

other

hand

have

tendency

towards

concentration of industries at a few places leading to many evil

consequences such as overcrowding, pollution, creation of slums,
etc. Concentration of industries at a few places is undesirable from
the point of view of national defence also, as during war times,
there

is

greater

risk

of

destroying

different

industries

concentrated at one place.

8. Saving in Foreign Exchange: Another advantages of the
small-scale industries are the savings they offer in the scarce
foreign exchange resources of the country. Firstly, small-scale
industries do not require much foreign exchange resources for their
16

establishment and secondly, these industries can contribute to the

foreign exchange resources of the country through adding to
exports.
9. Quick Investment: The time lag between the execution of
investment project and the start of production of goods is relatively
short in case of small-scale industries. These quick investment type
of industries are particularly suitable for developing countries like
India.
10.

Beneficial

to

large-scale

industries:

Large-scale

industries can also prosper and develop, if small-scale industries

manufacture and supply their small parts and semi-finished goods
required by them. Infact, small-scale industries are a must for the
development of large-scale industries.
11. Other advantages: These industries also confer certain
other social and political benefits such as overcoming territorial
immobility, reduction of pressure on land, relieving congestion in
urban areas, self-employment, etc.
1.9 ROLE OF SMALL SCALE INDUSTRIES IN INDIA
Small-scale and cottage industries have been playing an
important role in Indian economy in terms of employment
generation and growth. It is estimated that this sector has been
contributing about 47 per cent of the gross value of output
produced in the manufacturing sector and the generation of
employment by the small-sector is more than five times to that of
large-scale sector. The following are some of the important roles
played by small-scale industries in India:
1. Number of Units: Total number of registered small-scale
and cottage units has been increasing rapidly from 16,000 in 1950
to 36,000 in 1961 and 8.53 lakh units in 1985-86 to 14.96 lakh
17

units

in

1991-92.

Moreover,

there

were

about

5.84

lakh

unregistered small-scale units in India. In 2000-01 the total

number of small-scale and cottage units further increased to 33.7
lakh. But as per the census of SSI units, about 30 to 40% of these
registered units might be non-functional. The Second All India
Census of registered small-scale industrial units was conducted by
Small Industries Development Organisation in 1987-88. Findings of
the census also give added empirical support to the generally
accepted hypothesis about the distinct characteristics of the SSI
sector compared with those of the large and medium sector, namely
lower capital base, lower capital/labour ratio, lower productivity of
labour and higher productivity of capital and lower wage rates.
These small-scale industries are also producing various types of
commodities

starting

from

simple

consumer

goods

to

the

manufacture of sophisticated electronic goods.

2. Employment Generation: Small-scale industries are
labour-intensive and thus are generating a large number of
employment opportunities. Total employment generated by these
small-scale industries has increased from 39-7 lakhs in 1973-74 to
96 lakhs in 1985-86. Employment of the small-scale sector has
again increased from 129.8 lakh in 1991-92 to 219.7 lakh in 200405, showing an increase of about 4% over the previous year.
3. Investment: Investment in the small-scale sector has been
increasing at a faster rate. As per the statistics made available by
SIDO, total amount of investment in the small-scale units of India
has increased significantly from Rs. 2233 crores in 1972-73 to Rs.
4431 crores in 1978-79 and then to Rs. 14,730 crores in 2004-05.
Fixed investment per employee which was Rs. 6.4 thousand in

18

1972 as per SSI census gradually rose to Rs. 92.07 thousand in

2004-05 as per the results of Annual Survey of Industries (ASI).
4. Output: Total production of the small-scale units has
increased from Rs. 7200 crores in 1973-74 to Rs. 57,100 crore in
1985-86. The value of output of the SSI sector in 2004-05 is at Rs.
7,89,620 crores showing an increase of 10.2% over the output of
Rs. 5,72,887 crores in 1999.
5. Contribution to Exports: The contribution of SSI sector
towards export has been increasing at a faster rate. The value of
exports of the products produced by the small-scale sector has
increased from Rs.393 crore in 1973-74 to Rs. 9,100 crore in 199091 and then to Rs. 68,280 crore in 2004-05. Again in dollar terms,
the value of exports from SSI sector has also increased from Dollar
8.87 billion in 1993-94 to Dollar 15.18 billion in 2004-05. The
share of export from small-scale sector in the total export has
increased from 9.6% in 1971-72 to 42% in 2004-05.
6. Equitable Distribution of Income: Small-scale and
cottage industries has been resulting more equitable distribution of
national income and wealth. This is mainly due to the fact that the
ownership of small-scale industries is quite widespread as
compared to large-scale industries and small-scale sector is having
a higher employment potential than that of large-scale sector.
7. Mobilisation of Capital and Entrepreneurial Skill:
Small-scale industries can mobilise a good amount of savings and
entrepreneurial skill from rural and semi-urban areas which
remained untouched from the clutches of large-scale sector. Thus,
a huge amount of latent resources are being mobilised in the SSI
sector for the industrial development of the country.

19

8. Regional Dispersal of Industries: Small-scale industries

are playing an important role in dispersing the industrial units of
the country in the various parts of the country. As the large-scale
industries are mostly located in some states like Maharashtra,
West Bengal, Gujarat, Tamil Nadu, thus dispersal of SSI units
throughout the country can achieve the balanced pattern of
industries development in the country.
9. Better Industrial Relation: The small-scale industries are
maintaining a better industrial relations between employers and
employees and thus can lessen the frequency of industrial
disputes. But the large-scale industries are facing the problems of
strikes and lockouts and hence good industrial relations in these
industries are very difficult to maintain. Thus, the loss of
production and mandays are comparatively less in small-scale
sector.
It is due to the above mentioned factors the growth rate of
small-scale industrial sector has remained faster in terms of its
number, employment and output.
1.10 PROBLEMS OF SMALL SCALE INDUSTRIES
Small scale industries plays a very vital role in the economic
development of our country. This sector can stimulate economic
activity and is entrusted with the responsibility of realising various
objectives like generation of more employment opportunities with
less investment, reducing regional imbalances etc. Small-scale
industries are not in a position to play their role effectively due to
various constraints. The various problems faced by small-scale
industries are as under:
(i) Inefficient Labour: Labour is major but active player in
small-scale industries. But they lack training and developmental
20

opportunities in small-scale sector. So they are unable to

contribute as expected from them. Since size of small units is not
always optimal so they are also unable to understand the
importance of training and development. Level of education of
workers working in small-scale sector is also low and they fail to
cope up with the challenges of modern production system.
Professionals and technocrats are also not interested to join small
scale as this sector is not ready to compensate them properly. So
small entrepreneurs are facing the constraint of inefficient labour
force and unable to improve their productivity.
(ii) Defective System of Supply of Raw Materials: Smallscale industries are facing the problem of short supply of raw
materials. Small size and weak financial position also force them to
unutilize the services of middlemen to get raw materials on credit
from suppliers. Canalising agencies like state level small industry
corporations,

STC,

MMTC

and

Handloom

Development

Corporations are not providing much help in arranging adequate

supply of raw materials at right price in right time. So they fail to
utililse their full production capacity and it also increases their cost
of production which adversely affect their competitive strength in
the market.
(iii) Absence of Credit Facility: Historically, SSIs have had
privileged access to bank finance through cheap priority sector
lending. Since interest rates were fixed lower for them than the
market rates, they did not reflect the higher risks and costs of
investing in small borrowers. SSIs also benefited from the subsidies
implicit in the tax standards for provisioning for bad and doubtful
debts. The deregulation of interest rates in present scenario forces
them to pay more. The bench mark rate of interest for banks is the
21

price lending rates a higher rate reflects the risks of lending to

individual borrowers. Consequently, interest rates have risen
sharply for small-scale units. The priority sector lending scheme
hardly softens the burden since not more than Rs. 2 lakh can be
borrowed under this scheme. Besides, SSIs are also unable to
generate resources as they lack systematic way to communicate
their work to the capital markets and muster support from the
intermediaries. Due to poor financial image, they generally fail to
get their credit facility at reasonable costs.
(iv) Lack of Machinery and Equipment: SSIs are also facing
the problem of inferior supply of machinery and equipments etc.
Most of companies which are engaged in production of plants and
machineries are meant for medium and large scale companies.
Only selected companies or few producers are engaged in the
production of plant, machineries and equipments for small-scale
sector. So they generally charge high price for their capital goods
supplies from small-scale units. Besides, bargaining power of SSIs
is not so much and they have to work with available machinery and
equipments in the market. They have also been forced to use
second-hand machines. It also affects the production performance
of SSIs.
(v) Huge Number of Bogus Small Firms: Government policy
favours SSIs in terms of concessions, subsidy and incentives. This
has prompted the so-called entrepreneurs to develop bogus firms
on paper to avail government subsidies and incentives. It makes
impossible for the genuine firms to get due concessions, subsidies
etc. from the Government. They indirectly help the medium and
large-scale enterprises in availing raw materials etc. at reduced

22

rates. Availability of cheap finance also encourages the bogus firms

to operate in the small-scale sector.
(vi) Unsuitable Location: Selection of location for the
development of plants etc. also creates problem before the SSIs.
The

choice

of

location

is

generally

governed

by

different

consideration like availability of infrastructural facility, the cost

and tenure of acquisitions, availability of labour and the proximity
of markets. Small entrepreneurs are not properly trained in
deciding about suitable location. Actually, they select their location
due to other consideration like availability of cheap land, family
business, sentimental attachment to their traditional ancestral
property etc.
(vii) Competition from Large Scale Units: SSIs are facing
the problem of competition from their other counterparts medium
and large scale industries. Since 1991, a large number of items
reserved for small industries are now freely importable. The
Government has also announced that it is considering a phased
removal of quantity restrictions on consumer goods imports over a
period of five years. Medium and large-scale industries are also
producing goods, which are competiting with the goods being
produced by the SSIs. So in practice, SSIs are unable to complete
with large-scale units as their size is small and products are not
cost effective.
(viii) Obsolete Technology: SSIs lack latest technology as
they do not have any technological support from the Government
and other technological institutes and laboratories. But in practice,
technology alone can ensure quality and high level of productivity.
R & D efforts are costly venture and SSIs do not have resources to
finance these programmes individually and internally. Small
23

enterprises have a very limited choice with regard to foreign

collaboration

and

technological

support

too.

Their

potential

partners overseas have a better reputation for innovation but the

investment climate in India is not yet hospitable enough to attend
them in small-scale sector. Special steps have not yet been taken to
address the issues of collaboration between Indian and overseas
small industries.
(ix) Absence of Organised Marketing Facility: Small-scale
industries are unable to spend huge amount on the development of
marketing facilities as they lack resources. Lack of standardisation,
poor design and quality, lack of precision and proper finish,
absence of after-sale service, ignorance about potential market,
financial weakness are some of the problems in their selling
process.
(x) Poor Recoveries: It is general practice for buyers to avail
credit facility from sellers. SSIs lack bargaining power in dictating
their terms to the potential buyers for their products. Provision for
credit facility with regard to sales is forced upon the SSIs by
potential purchasers. Initially, credit period ranges between one
month to three months. But purchasers generally avoid timely
payments. A situation has now developed in which buyers do not
pay their dues to SSIs for more than 12 months. It created working
capital problems before the SSIs.
1.11 REMEDIAL MEASURES
SSIs are holding a very important place in the industrial
system of the country. Thus, suitable measures are necessary to
remove these bottlenecks in the optimum operation of SSIs. These
remedial measures are as follows:

24

1. Effective Planning: SSIs are required to conduct detailed

survey of the existing situations prevailing in small-scale sector and
draw productive programmes for them. Study suggests that very
few small entrepreneurs launch their operations on the basis of a
careful plan. A detailed feasibility study or detailed project report is
highly essential for small entrepreneurs to start their units.
Without proper planning, they may be affected by improper
location, inexperienced consultancy services, improper technology,
under estimation of costs, etc. So SSIs are required to initiate
effective action plan for their survival.
2. Improvement in Techniques of Production and Proper
Technology: SSIs should try to improve their techniques of
product and adopt modern technology. Government consultancy
organisations and laboratories have an important role to play in
this context. They have to arrange viable and modern techniques of
production to them, as they are unable to expend money on this
count. Besides SSIs should keep themselves in touch with
development in technology. They should also try to give a lead, if
possible financially, in research and development efforts. They
should also believe in continuous innovation and then they can
remain in their business.
3. Training and Development: SSIs should make concerted
efforts in imparting proper education and training to workers
engaged in this sector as they are valuable asset of industry.
Expenditure on training and development activities should be
treated as an investment. Small Industries Associations should also
involve themselves in providing knowledge and skills required for
them in the changing environment. Workers should be encouraged
to innovate themselves in the production process as it would enable
25

the

SSIs

to

compete

with

their

medium

and

large

scale

counterparts. For this purpose effective motivation and reward

system is highly desirable.
4. Provision of Infrastructural Facilities: Development
finance, power arrangement, water supply, etc. are necessary for
the smooth functioning of SSIs. State Development Corporation,
Small

Industries

Corporation,

State

Technical

Consultancy

Organisations are engaged in provision of these facilities. But their

support system needs further improvement. Development of
industrial estates has solved this problem to a certain extent but
efforts

are

needed

to

develop

more

industrial

estates

to

accommodate more small units.

5. Regular Supply of Raw Materials: Small Industries
Development

Corporations

and

other

canalising

agencies

responsible for the supply of raw materials to small scale sector

should take necessary action to maintain a continuous but proper
supply of raw material to SSIs. They should also ensure that bogus
firms are to be excluded from this type of support. Government
should also intervene from time to time in arranging cheaper
imports of raw materials for them.
6. Adequate Credit Arrangement: For SSIs, traditional
sources of financing offer little scope for expansion and alternative
means like venture capital are yet to be developed for them. SIDBI
has formulated guidelines for venture capital and there is hope for
better finance facility for this sector. Besides, priority sector lending
scheme should be made more broad-based and credit limits is to be
enhanced. The SSIs depend more on their own funds and loaned
fund from non-banking sector as they are unable to get proper
support from banks and other funding agencies. The SIDBI is
26

trying to provide these facilities but intermediaries involved in the

system are creating problems for them. So SIDBI should try to
bring transparency and effectiveness in its functioning.
7. Effective Marketing Arrangements: SSIs should focus on
brand, product and market development. They should try to remain
in the market and special trust should be given on quality
improvement programme. Products at low costs and passing on the
benefits to consumers would go in long way to improve their
marketing performance. The large companies earn handsome
profits from marketing the products of small units by charging a
much higher price from the customers. The reason is they have
brands. So SSIs should try to popularise their products in the
market which will provide them separate product and brand
identity. This strategy will benefit them in the long run. However,
efforts should be made to maintain standards and quality of the
output then they will get positive support from their potential
customers.
8. Development of Suitable Machinery: SSIs should try to
develop separate suitable machineries for taking initiative with
regard to problem faced by them. SSIs have different typical
problems and that have to overcome by taking offensive strategies.
SSIs Association should be offensive and objectively clear in their
goals in pleading their cases with the Government. Associations
like FICCI, Assocham and CII are more powerful in maintaining
their relations with the Government. They should also involve
themselves in focusing attention on the problems being faced by
their members through seminar, conferences etc. So similar
strategies should be adopted by the small industries associations to
protect their members interest with the Government.
27

1.12 STEPS TAKEN TO SOLVE PROBLEMS OF SSIs

This phenomal growth of SSI in India has been striking
feature

in

the

economy

development

of

the

country

since

independence. It has contributed to the overall growth or the GDP

as well as in employment generation and exports. Actions taken by
Government are based on Department-Related Parliamentary
Standing Committee on Industry. The Report of the Committee was
laid on the table of the Lok Sabha on May 5th, 2005. Actions taken
are:
(i)

RBI has advised the banks to display in the branch

premises, the limit upto which collateral-free loans are
available and other relevant information.

(ii)

State Bank of India came out with a Charter for SSI.

The Indian Banks Association (IBA) has also issued
circular dated 31st March 2003 to all member banks to
come out with similar charter for SSI sector. All 27
public sector banks have issued Charter for SSI.

(iii)

The Small Industries Development Bank of India (SIDBI)

has been disseminating information on schemes of
assistance

among

seminars/workshops

SSI

entrepreneurs

organised

by

through

various

Local

Industries Associations, Confederation of India Industry

(CII), Federation of Small and Medium Industries
(FOSMI) etc. In order to create greater awareness
amongst SSI units, business campaigns/meets are
organised at district headquarters, industry centres and
SSI clusters by SIDBI. SSI entrepreneurs are given
information on relevant schemes on one-to-one basis
during discussion on their projects.
28

(iv)

The CGTSI has been taking necessary steps to publicise

the Credit Guarantee Fund Scheme for Small Industries
and create awareness of the scheme among member
banks, lending institutions, SSI entrepreneurs and
other stakeholders. The CGTSI posters have been
displayed to Zonal and Regional offices of banks for the
SSI borrowers. The advertisements relating to the
scheme have also been published in Hindi.

(v)

RBI through its circular has advised all banks to

conduct

entrepreneurship

development

training

programmes and also give exhaustive training to their

staff members sensitizing them to the needs of SSI
sector. The feed back received from the bank show that
some banks have taken necessary steps in this regard.
(vi)

The committee feels that there is lack of awareness

amongst

SSI

entrepreneurs

about

various

schemes/facilities being offered by the Government and

financial institutions. It has largely resulted in under
financing of various schemes. The committee, therefore,
recommends that the Government and FIs should give
wide publicity and conduct awareness campaigns on the
loan schemes among SSI entrepreneurs so that the
benefits of various schemes percolate down to grass root
level.
(vii)

On the recommendation of the Committee, the NSIC has

established a permanent display centre to show case the
products of SSI units at Okhla, New Delhi. The SSI
units from Khurja and adjoining areas have been
provided facilities to display their projects free of cost.
29

(viii) The National Small Industries Corporation (NSIC) in

association with SIDBI and SISI organised an awareness
compaign at Bulandshahr on 22nd September, 2003
where 150 SSI units participated in the event. NSIC also
organised Handicrafts Expo 2004 on 12th March to 16th
March, 2004 where built-up-stalls were provided free of
cost to the participating units.
(ix)

The number of branches of Public Sector Banks has

increased. As on 31st March, 2004 the Public Sector
Banks had 497 specialised SSI branches all over the
country.

(x)

The Ministry of SSI has been taking up problems faced

by SSI sector in credit flow from banks and institutional
sources with RBIs Standing Advisory committee (SAC)
from time to time and based on the decisions taken, the
banks have been advised by the RBI to take the needful
action accordingly. The flow of credit to SSI sector from
the public sector banks have gone up form Rs. 29,482
crore in March, 1996 to Rs. 58,227 crore in March,
2004 in absolute terms.

(xi)

To ensure adequate flow of credit to SSI sector, the

Government and RBI have taken various measures,
which

inter

alia

include

simplified

procedure

for

computing the working capital requirements of SSI

units. The calculation of working capital will be made on
the basis of minimum 20 per cent of projected annual
turnover of the borrowing unit.
(xii)

The RBI has advised the banks to fix self-target for

growth in advances to SSI sector, fix time frame for
30

disposal of loan application enhancement in composite

loan limit from Rs. 50 lakh to Rs. 1 crore, to dispense
with collateral security requirement for loans upto Rs.
25 lakh to SSI having

good track record financial

position, enhancement of credit limit under Laghu

Udhyami Credit Card (LUCC) from Rs. 2 lakh to Rs. 10
lakh based on satisfactory track record etc.
(xiii) A Small and Medium Enterprises (SME) Fund has been
structured by SIDBI spread over two years, i.e. FY 2005
and FY 2006 for providing impetus to growth of SME
sector.
(xiv) The RBI has instructed the bank not to harass the
entrepreneur in the guise of rules and procedures. The
procedure to apply for the loan and its sanction has
been simplified. A time frame has been fixed for disposal
of loan application, viz. upto Rs. 25,000 within 2 weeks
and upto Rs. 5 lakh, within 4 weeks provided the loan
application

are

complete

in

all

respects

and

accompanied by a Check List. The banks have also

been advised to extend composite loans (the limit for
which has been enhanced from Rs. 50 lakh to Rs. 1
crore) through a single window so that the entire
financing requirement is met by single documentation
and security creation process to reduce the hardships
faced by SSI entrepreneurs in securing loan and
working capital.
Government in its endeavour to provide assistance in the
growth of small scale sector has reserved certain items for

31

production in small scale sector alone i.e. medium or large scale

units are dissuaded from producing these items.
LIST OF ITEMS RESERVED FOR EXCLUSIVE MANUFACTURE
IN SMALL SCALE SECTOR (AS ON 28TH MARCH 2005)
The present policy of encouraging growth of small scale
industries is based on several promotional measures. One of these
is reservation of products for exclusive manufacture in the small
scale sector in areas where there is techno-economic justification
for

such

an

approach.

Large/medium

units

can

however

manufacture such reserved items provided they undertake to

export 50% or more of their production.
The

issue

of

reservation/dereservation

of

products

is

examined on a continual basis by an Advisory Committee on

Reservation, Constituted under ICDR Act 1951, which is presently
headed by Secretary (SSI) as Chairman, Other members of the
committee are Secretary (Commerce), Secretary (IP & P), Advisor
(VSI) Planning Commission with Additional Secretary and DC(SSI)
as Member Secretary. The total number of items reserved for small
scale sector as on March 2005 is 506. Detail of 506 items are given
as under. (However, 108 items have further been dereserved in
Budget 2006-07).
Food And Allied Industries

Wood and Wood Products

Paper Products

Plastic Products

Chemicals and Chemical Products

Natural Essential Oil

Organic Chemicals & Drugs and Drugs Intermediaries

33

Other Chemical and Chemical Products

67
32

Glass and Ceramics

27

Mechanical Engineering excluding Transport Equipmen

137

Electrical Machines, Appliances Apparatus

17

Electronic Equipments & Components

Transport Equipment Boats & Truck Body Building

AutoParts Components and Ancillary and Garage Equipment 36

Bicycle Parts, Tricycle and Perambulators

41

Miscellaneous Transport Equipment

Sports Goods

Stationary Items

13

Others

21

1.13 SUMMARY
Small Scale Sector occupies on important position in the
industrial structure of our country. In a country like India, wherein
on one hand there is the acute problem of unemployment and on
the other hand scarcity of capital, it is only the small scale sector
which is best suited under these circumstances. Small scale
enterprises play an important role in employment generation,
resource mobilisation and utilisation, income generation and in
helping to promote change in a gradual and phase manner. Small
scale industries have vast potentialities but they could not progress
satisfactorily. Their performance is not good as they face the
problems of labour, availability of raw material, absence of credit
facility, lack of machinery and equipment unsuitable location
completion from large scale units obsolete technology, marketing
facilities etc. Suitable measures are necessary to remove these
bottlenecks in the optimum operation of SSI.

33

1.14 KEYWORDS
Small Scale Unit: An understanding having an investment in plant
and machinery of not more than Rs. 1 crore is called Small Scale
Unit.
Tiny Enterprise: A unit is treated as tiny enterprise where
investment in plant and machinery does not exceed Rs. 25 lakh.
Idle capacity: When there is under utilisation of installed capacity,
it is a situation of idle capacity.
1.15 SELF ASSESSMENT QUESTIONS
1.

Define small scale industry. Discuss the features of small

scale industry.

2.

Small Scale Industries are the seedbed of entrepreneurship

development. Discuss.

3.

Discuss the role of small scale industries in developing

countries like India.

4.

Explain the problems of small scale industries in India. Give

suggestions to overcome then.

5.

What are the objection of small scale industries? Discuss the

present position of small scale industries in India.

1.16 SUGGESTED READINGS

1. Vasant Deasi

Problems and Prospects of Small Scale

Industries

in

India,

Himalaya

Publishing House, Mumbai.

2. S. Krishnamurthi

Small

Scale

Industries

Orient

Publishing House, New Delhi.

3. S.S. Khanka

Entrepreneurial

Development,

S.

Chand & Co. Ltd., New Delhi.

4. Swedberg

Entrepreneurship, Oxford University

Press, New Delhi.
34

Class: M.Com

Writer: Dr. M.C. Garg

Subject: Entrepreneurship and Small Business Development

Course Code: MC-202

Vettor: Prof. B.S. Bodla

Lesson No.: 2

SSIs AND GOVERNMENT POLICIES

STRUCTURE
2.0

Objective

2.1

Introduction

2.2

Industry Policy Resolution, 1948

2.3

Industrial Policy Resolution, 1956

2.4

Third Five Year Plan

2.5

Industrial Policy, 1977

2.6

Industrial Policy, 1980

2.7

Seventh Five Year Plan

2.8

Post Liberalisation Scenario

2.9

Small Scale Industrial Policy, 1991

2.10 Tenth Five Year Plan

2.11 Other Measures
2.12 Policy Initiatives in SSI Sector during 2004-05
2.13 Policy Initiatives in SSI Sector during 2005-06
2.14 Policy Initiatives in SSI during 2006-07
2.15 Summary

2.16 Keywords
2.17 Self Assessment Questions
2.18 Suggested Readings
2.0

OBJECTIVE

After reading this lesson, you should be able to:

(a) Explain the various Government policies towards SSI after
independence.
(b) Highlight the post-liberalisation scenario for small sector in
India.
(c) Discuss the various initiatives taken by the Government for
SSI during different five year plan.
2.1 INTRODUCTION
Industrial development plays a crucial role in a countrys
development

particularly

with

regards

to

the

objectives

of

structural diversification, modernisation and self-reliance. The

progress of industrialisation over the last forty-nine years in India
has been a striking feature of Indian economic development.
Moreover, Govternment has been laying tremendous stress on the
strategy of development through the SSI sector. The promotion of
industries has been regarded as an important element of
development strategy during our Five Year Plans.
The modern small sector is akin to the large and medium
industries sector in terms of technology in use, production
facilities, labour intensity, capital intensity etc. The traditional
industries include segments like handlooms, khadi and village
industries, handicrafts sericulture, coir etc. The SSI sector has

been receiving special attention from the policy makers in

addressing its requirements of credit, marketing, technology,
entrepreneurship development, fiscal and infrastructural support
etc. It enjoys the status of priority sector for seeking financial
assistance.
As is well known, until 1991, the Indian economy was
practically isolated from the world economy, with stress being on
indigenous production of manufactured goods and domestic
industries being protected from both internal and external
competition. The protection from internal competition was through
a system of licensing and controls and that from external
competition through restrictions on imports as well as high tariff
barriers. In this background the entire industrial sector became
inward looking. Let us consider the policy environment for SSI
sector in the context of Indias overall industrial policy right from
the year of independence.
2.2 INDUSTRIAL POLICY RESOLUTION, 1948
Industrial Policy Resolution 1948 ascribed an important role
to

the

SSI

sector.

The

Karve

Committee

(1955)

and

the

International Perspective Planning Team (1953-54) also emphasised

the need to develop small scale and village industries to meet the
following objectives:
(i)

To create large-scale employment at relatively small

capital costs.

(ii)

To mobilise unused resources of capital and skills.

(iii)

To ensure a more equitable distribution of national

income including regional dispersal of industries.

(iv)

To counter the tendencies towards concentration of

economic power by widening opportunities for new
entrants and medium and small sized units.

To develop SSI sector, the Central Government set up Small

Industries Development Organisation (SIDO) in 1954 under the
Ministry of Industries. Besides, six All India Boards were set up in
place of Single Cottage Industries Board to deal with separate
groups of industries.
Thus, this Industrial Policy Resolution 1948 gave a special
role to SSI sector for creating additional employment with low
capital investment by laying the basic administrative foundation for
the years to come.
2.3 INDUSTRIAL POLICY RESOLUTION, 1956
In 1950, the Government grouped small-scale industrial
undertakings into two categories those using power but
employing less than 50 persons and those not using power but
employing less than 100 persons. Karve Committee 1955, stated,
The principle of self-employment is atleast as important to a
successful democracy as that of self-government.
During

Industrial

Policy

Resolution

1956,

Government

reserved 128 items for exclusive production in the small scale

sector in order to make SSI sector self-supporting and to make its
development integrated with that of large scale industry. Other
than reservation of 128 items, the Resolution also reserved 166
items for exclusive purchase by the Government from the small
sector. In 1959, the Small Scale Industries Board constituted a

working

group

to

examine

the

formulate

to

plan

for

the

development of small scale industries during the third plan.

The Reserve Bank of India evolved a Credit Guarantee
Scheme for small industries in 1960. The RBI took upon itself the
role of a guarantee organisation for the advances which are left
unpaid including interest overdue and recoverable charges. Not
only working capital but even advances for the creation of fixed
capital are covered under the scheme. The RBI sanctioned loans
under the scheme on the basis of guarantee as follows:
Period

(Rs. in crores)

1961-62

Rs. 7.6

1968-69

Rs. 163.00

End of March 1990

Rs. 16,826.00

This shows the steady increase in the flow of institutional

credit to SSI Sector.
The Industrial Policy Resolution, 1956 puts forth four
arguments in favour of small scale industrial units:
(i) The Employment Argument: This argument assumes
that small enterprises are labour-intensive and more employment
oriented as compared to the large-scale units per unit capital
employed.
It argues that SSI sector is an important solution for a
labour-surplus economy like India where population is suffering
from intense problems of unemployment, underemployment and
seasonal unemployment. Most of the small enterprises in India are

either run by sole-traders or by partnership firms and it helps in

better, healthy and harmonious employer-employee relationships.
(ii) The Equality Argument: The argument states that the
small-scale enterprises help in disposal of income more widely than
income generated in a few large enterprises. Large enterprises
cause concentration of economic power in few hands and also
encourage monoplistic tendencies whereas small-scale industries
bring

about

enterprises

greater
also

equality

encourage

of

the

income

distribution.

competitive

element

Small
in

the

entrepreneur and generate the impulses of self-development.

(iii) The Latent Resource Argument: The argument suggests
that small enterprises are able to tap latent resources of the
country.

Entrepreneurial

ability,

hoarded

wealth,

creativity,

innovativeness etc. are brought up to the surface. It helps to

emerge

the

dynamic

entrepreneurs

of

the

economy.

If

entrepreneurs are given an environment conducive to their growth

and development, then the latent talents of entrepreneurs find selfexpression in making innovations and saving the costs making
them more competitive. Needless to say, SSI sector is playing a
critical role in the Indian economy. Its contribution has increased
in various fields and its ability to tap latent resources is too
significant to escape notice. The functional vibrance of the sector is
visible from its contribution of 40 per cent

in industrial

production, 35 per cent in countrys total exports and providing

employment to 167 lakh persons in over 30 lakh small scale
industries which is next to agriculture.

(iv) The Decentralisation Argument: This argument stresses

the need of regional dispersal of industries. Society and people
living therein can take the benefit of industries if the location of
industry is suitable to them. Setting up small industries in remote
and rural areas can give more benefit to Indian population rather
than

concentration

of

only

larger

enterprises

located

in

metropolitan cities. Decentralisation of industry can help in tapping

local resources, such as raw materials, idle savings local talent.
The International Perspective Planning Team (1963) rightly pointed
out, a policy of trying to implant large amount of industry in the
most backward areas as directly in villages is doomed to failure and
cannt

be

justified

economically.

The

focus

for

industrial

development under a dispersal policy should be neither the

metropolis nor the village, but rather the large range of potentially
attractive cities and towns between these two extremes.
Thus, Government has been trying to grow and develop SSI
sector by protecting them and creating an environment conducive
to their growth.
2.4 THIRD FIVE YEAR PLAN (1961-66)
During

the third plan of period, intensive development of

small industries was taken up in selected project areas known as,

Rural Industries Projects. The actual expenditure on village and
small industries during the Third Plan was estimated at Rs. 241
crores and during Annual Plans (1966-69) at Rs. 132 crores as
against Rs. 42 crores and Rs. 187 crores during the first and
second plans respectively. Industrial Estate Programmes was

oriented towards promoting industries in smaller towns and rural

areas as a part of policy of industrial dispersal.
2.5 INDUSTRIAL POLICY, 1977
The policy laid out that its main thrust will be on effective
promotion of cottage and small industries widely dispersed in rural
areas and small towns. The policy had the following salient
features:
1. Classification of small sector in three categories:
(i)

Small Scale Industries

(ii)

Tiny Units

(iii)

Cottage and household industries which provide

self-employment in large numbers.

2. Reservation of production of 504 items in the small scale

sector.
3. Establishment of District Industries Centres (DICs) in all
districts of the country to serve as a focal point of
development for small and cottage industries.
4. Special marketing services to be provided like product
standardisation, quality control etc.
Other than these measures, the policy also targeted to meet
some objectives like increased employment, improved techniques of
production, ensuring more suitable distribution of national income,
balanced regional development, promotion of Khadi and Village
Industries (KVIC), promotion of indigenous technology.

2.6 INDUSTRIAL POLICY, 1980

Industrial Policy of 1980 emphasised the need for intensifying
the need for promotion of small industries through integrated
industrial development and fostering complementarity between
large and small sectors. Its features were:
(i)

Definition of small scale, tiny units and ancillaries units

was redefined;

(ii)

The District Industries Centres (DICs) were replaced by

nucleus plants in each industrially backward district to
promote cottage and small industries. The nucleus
plants were to concentrate on assembling the products
of ancillary units and to produce inputs needed by large
number of small units;

(iii)

Reservations of items continued;

(iv)

Financial support to small units was strengthened;

(v)

Village industries including handloom, handicrafts,

khadi etc. received greater attention.

(vi)

The policy also measured to build up buffer stocks of

critical inputs.

Other than these salient features, the policy also ensured the
balanced growth of large, medium, small and cottage industries.
The Policy also had primary objective to optimally utilise the
installed capacity, higher employment generation, removal of
regional balances, consumer protection against high price and bad
quality, prevention of sickness of units, merger of sick units with
healthy ones etc.

2.7 SEVENTH FIVE YEAR PLAN (1985-90)

The Seventh Plan focussed to upgrade the technology and
modernisation to improve competitiveness of small industry.
Ancillarisation was given great emphasis. More items of mass
consumption were to be brought under quality control inspection.
Comprehensive marketing support was to be provided to small
units through market counselling, research, fairs and exhibitions
etc. The seventh plan reviewing the progress of small industries
clearly states, The modern small industries including power looms
have not dispersed widely; most of these are concentrated in the
developed states and within these states also, a few areas which
are either large cities, developed urban concentration or industrial
complexes account for most of the activity.
2.8 POST LIBERALISATION SCENARIO
Since 1991, the economy is gradually opened up and integrated
with the global economy and the stress is on qualitative
upgradation

of

the

industry

and

improving

international

competitiveness of manufactured goods and services. Due to

liberalisation and globalisation, more and more foreign companies
had been allowed to enter the Indian economy. Globalisation
implies cheaper alternatives becoming increasingly accessible and
as a consequence domestic small enterprises are required to
confront a new challenge, remaining competitive. Keeping in view
the above, Government of India has been laying emphasis on
providing financial and technological support to SSI, among others,
in 1990s.

The post liberalisation (1991) era has thrown up new

challenges to the Indian SSI sector. Being competitive in pricing,
meeting quality standards, and environmental compliance have
been foremost among them. Small entrerprises cover a wide
spectrum of industries and play an important role in developed and
developing countries. India is no exception where small and
medium sector accounts for 45 per cent of industrial production,
40 per cent of total exports and 80 per cent of manufacturing
employment.

There

are

nearly

7500

different

products

manufactured by SSI sector either directly producing consumer

goods or serving as suppliers to larger industries. Over the years,
small enterprises have emerged as the leaders in the industrial
sector in India. In recognition of their importance and statute, the
Government

announced

policy

measure

for

promoting

and

strengthening of small, tiny and village enterprises on August 6,

1991 for the first time in the post-independence period.
2.9 SMALL SCALE INDUSTRIAL POLICY, 1991
The economic reform measure initiated by the Government in
the form of Small Scale Industrial Policy, 1991 changed the
business environment in the country. The thrust of the new policy
has been to provide free access to capital, technology and market
so as to include greater industrial efficiency and international
competitiveness. The policy titled Policy Measures for Promoting
and Strengthening and Supplementing Small, Tiny and Village
Enterprises, for the first time on August 6th, 1991 is a landmark in
the direction to impart more vitality and growth impetus to small
sector in the country. The policy proposed to deregulate and

debureaucratise the small sector to remove all fetters on its growth

potential.
(i)

The central excise duty exemption limit to increase from Rs. 5

million to Rs. 10 million.

(ii)

To go for fresh census that will cover, interalia, the incidence

of sickness & its causes.
The package for Khadi and Village Industry Sector was

separately announced on May 14, 2001 to enhance the role of the

sector to meet the objectives of creating more jobs in rural areas
and empowering the women and backward area.
Following measures have been taken to meet the objectives of
various policies:
New Policy Measures for Small Scale Enterprises
Prime Minister announced following Policy measures at the
National Conference of the Small Scale Industries in August 30,
2000 which are as under:
(i)

Increase in the limit for composite loans from Rs.1

million to 2.5 million,

(ii)

Industry related service and business enterprises with a

maximum investment of Rs. 1 million to qualify for
priority lending,

(iii)

Capital subsidy of 12 per cent will be provided for

investment in technology in select sector.

(iv)

To continue for the next six years, granting Rs. 75,000

to each unit that obtains ISO 9000 series certification,

(v)

To give a one time capital grant of 50 per cent to SSIs

associations e.g. Confederation of Indian Industries
(CII), Federation of Indian Chamber of Commerce and
Industry (FICCI) etc. who wish to develop and operate
testing laboratories, provided they are of international
standard.

2.10 THE TENTH FIVE YEAR PLAN

The Tenth Five Year Plan (2002-07) has placed heavy reliance
on small scale sector. The ceiling on investment in plant and
machinery in respect of industrial undertakings manufacturing
specified 13 items of the Stationery Sector and 10 items of Drugs
and Pharmaceuticals Sector, was enhanced by Government of India
from Rs. 1 crore to Rs. 5 crore, during 2003-04.
A new scheme called Baba Sahab Ambedkar Hastshilp Vikas
Yojana (AHVS) has been formulated for artisan community.
Another integrated and comprehensive scheme called Den Dayal
Hathkargha Protsahen Yojana was launched on April 1, 2000 to
provide assistance for the entire gamut of handloom sector
activities like product development, infrastructure and institutional
support, training to weavers, supply of equipment, marketing
support to weavers at micro and macro level. The scheme is
intended to be in operation till the end of 10th Five Year Plan. The
outlay envisaged is Rs. 690 crore, including the central share of Rs.
360 crore to be given to the states on submission of project
proposals.
The plan has simplified laws and procedures for investment
and reform of development financial institutions for long-term

financing of small and medium enterprises. The plan envisages a

comprehensive and coherent strategy for attaining rapid growth of
SSI sector. It has brought various economic reforms to create a
positive investment climate in order to make the industries
internationally competitive.
REVIEW OF 10TH PLAN BUDGET ALLOCATION
ANNUAL PLAN (BE/RE) AND EXPENDITURE OF SIDO
(RS CRORE)
S.No

Name of the
Scheme/Programmes

10th
plan
Approve
d Outlay

Budget
Utilisation
(2002-03
to 200405)

BE

RE

Santioned
upto
28.02.2006

Actual
Expenditure
upto
28.02.2006

Promotion of Small
Scale Industries

57.00

34.95

9.91

9.91

8.99

8.75

Science
&
Technology, Research
and Development

35.00

25.03

11.20

9.94

9.08

9.08

a)
Training
Manpower
Development

&

(b)Trade Related
Entrepreneurship
Assistance &
Development for
Women (TREAD)

11.70

10.73

6.19

6.01

5.84

4.70

Ancillary
Development

9.00

0.17

0.40

0.40

0.17

0.17

Scheme
Rooms

Tool

65.10

60.74

25.50

25.50

25.50

25.50

Marketing Assitance
and
Export
Promotion Scheme

10.00

5.37

2.30

2.30

1.70

1.62

Regional
Testing
Centres
&
Field
Testing Stations

25.00

8.10

4.05

4.05

3.05

1.31

Technology
Upgradation

85.50

47.29

27.00

29.25

20.21

19.54

for

CAD/CAM
Chennai

Centre,

10

Infranstructural
Development of SSI

11

Collection
Statistics

12

(a) Credit Guarantee

Fund Scheme for
SSI Sector

of

(b) Micro
Finance
Programme

15.00

0.00

0.10

Scheme being dropped

58.80

28.30

26.97

17.32

12.06

10.22

40.50

38.06

4.50

4.50

3.29

3.24

810.00

489.73

180.00

180.00

180.00

180.00

4.50

4.50
2.48

2.48

6.30

2.05

13

Credit Linked Capital

Subsidy Scheme

535.50

11.96

18.00

25.94

17.94

17.90

14

NE Region & Sikkim

195.30

76.07

35.72

35.72

28.94

28.62

Total

1968.70

849.84

357.34

356.34

320.24

28.62

Source: Economic Survey

2.11 OTHER MEASURES
(i) Reservation Policy: The policy of reservation of items for
manufacturing in Small Scale Industries (SSI) was introduced in
1967 which received a proper statutory backing in 1984 through
amendment in Industries (Development Regulation) Act, 1951.
Initially only 47 items were reserved in 1967, which went upto to
873 in 1984. The total number of items on the reserved list has
been coming down year after years, and at present, there are 675
items reserved for SSI units. Even at present, the policy of
reservation for SSI does not bar large industries from entering into
production of items reserved provided agree to export 50 per cent of
their production. As many as 75 items of laboratory chemicals and
reagents, leather & leather products plastic product, chemicals &
chemicals products and paper products were deserved on June 3,
2003. In addition, SSI investment limits (in plant and machinery) of
hosiery, hand tools, stationery and drugs and pharmaceuticals
industries were enhanced from Rs. 1 crore to Rs. 5 crore to enable

technology upgradation, modernization and to meet the present day

global requirements.
The policy of reservation of products exclusive manufacture in
SSI sector was initiated in 1967 beginning with 47 items and
touched a peak level of 873 items in October 1984. Reservation is
given as a promotional and protective measure for the small scale
sector.
Year

Items Reserved

Items Deserved

1967

47

1984

873

1990

836

1997

851

1999

821

2001

799

2002

749

51

2003

674

75

2004

604

85

2005

497

108

The policy of reservation is applicable to manufacturing

segment and not to the servicing and repairing activities. Further,
the policy applies only to those product lines that technoeconomically suitable for manuacture by SSIs. The Reservation
Policy has following objectives:

(i)

To ensure increased production of consumer goods in

the small scale sector,

(ii)

To increase employment opportunities through setting

up of SSIs,

(iii)

To make SSIs economically viable.

The product reserved for SSIs can be manufactured by nonSSI units but with 50 per cent of export obligation. The SSIs that
manufacture reserved items and grow in size and cross the
investment ceiling prescribed for SSIs are also allowed to continue
manufacture of these products as per their existing capacity. Such
units have only to register themselves with the secretriate of
Industrial Approvals.
The Export Committee on Small Enterprises set up under the
chairmanship of Shri Abid Hussain has considered various aspects
pertaining to the reservation of items. The committee recommended
total

de-reservation

of

the

products.

The

committee

also

recommended that the Government should provide Rs. 5 billion per

year over the next five years as equity support and interest
concessions for upgrading technologies to SSI units affected by
total de-reservation. This recommendation of committees report
submitted in 1997 have not been accepted totally but the process
of partial de-reservation has been adopted.
(ii) Exclusive Purchases from Small Scale Sector: The
Government of India (GOI) in pursuance of the Industrial Policy,
1948,

had

initiated

for

government

procurement

through

preferential purchases from small scale units. The NSIC has been
registering the small units and promoting the marketing of SSI

products to the Government under the Preferential Purchase Policy.

The SSI units so registered are treated at par with these registered
with the DGS & D and do not require any separate registration
with

any

other

Central

Government

Department

or

Public

Enterprises.
The Purchase Policy gives marketing support to SSIs in two
ways as against large scale units/other suppliers:
(a) Purchases are made exclusively from SSI units for
specified items known as items reserved for exclusive
purchase from SSIs.
(b) Purchases of these items which are not reserved for
government procurement, qualify for a price preference of
15 per cent as against the quotations from large scale
units/other suppliers is given to the SSI units.
Thus, the SSI get protection from market competitions in the
matter of purchase made by the DGS & D.
(iii) Revision of Investment Limit of SSI: Government has
raised the investment ceiling of SSIs. SSI is defined as, An
industrial undertaking in which the investment in fixed assets in
plant and machinery, whether held on ownership terms or lease or
on hire-purchase doesnt exceed Rs. 10 million. There has been
increase in the investment limits in plant and machinery of Small
Scale Units, ancillary units and export oriented units to Rs. 60
lakhs, Rs. 75 lakhs and Rs. 75 lakhs respectively. Tiny units
located in villages and towns with a population of less than 50,000
would have the investment limit raised from Rs. 2 lakhs to Rs. 5
lakhs irrespective of the location of the unit.

Women

Entrepreneur

Enterprise

is

termed

as

SSI

unit/industry related service or business enterprise, managed by

one or more women entrepreneurs in proprietry concerns or in
which she/they ca individually or jointly have a share capital of not
less than 51% as partners/shareholders/directors.
Raising
modernisation

the
and

investment
technological

limit

is

expected

upgradation,

to

help

particularly

of

export-oriented units, and would also encourage economies of

scale.
(iv)

Export-Oriented Units

(a) The concept of Export-Oriented Units was introduced

among SSIs in 1991. EOUs have an obligation to export at
least 30% of its annual production by the end of third year
of commencement of production and having an investment
ceiling of Rs. 10 million.
(b) Free import of capital goods/raw materials and other
essential inputs, and in certain cases duty free or with
concessional rate of custom duty, so as to ensure higher
production for exports.
(c) With a view to make Indian products competitive in the
world market, a large number of incentives have been
provided to the exporters from time to time. Such
incentives include refund of duties paid on raw material
used in export production by a system of duty drawback,
pre and post shipment credit to the exporters at
concessional rates of interest etc.

(d) Export policy of the Government has remained liberal as

there are hardly any restrictions on exports of items from
small scale sectors.
(e) Export procedures have been simplified from time to time
to promote exports.
(f) The Government has been providing assistance to small
industries for exhibiting their products, in international
exhibitions. The Government also organises training
programmes on latest packing standards, techniques etc.
besides providing technical and managerial consultancy
services. The SSIs have 812 products exclusively reserved
for production and contributes more than 50 per cent of
total exports of the manufacturing sector and about 35 per
cent of the total exports of the country. It produces a wide
range of 7500 products covering every range of products.
(v) Modernisation Progamme: Under its programme of
modernisation of small industry units, the Government of India
aims to update technology, by identifying the inputs needed for
small industry. The main objectives of this programme are:
(a) To improve production technology;
(b) To improve product design and development;
(c) To promote utilization of appropriate technology for
achieving operational results;
(d) To promote higher quality standards.
For promoting quality standards, awards like Rajiv Gandhi
National Quality Award, CII-EXIM Business Excellence, Golden

Peacock National Quality Award and many state level awards have
been instituted. Government of India also gives subsidies to small
enterprise in getting ISO certificates.
(vi) Administrative Reforms: Under new policy measures,
the Government has introduced a number of administrative
reforms:
(a) Licensing restriction in production in small scale sector
has been removed;
(b) Locational restriction have been reduced to the minimum;
(c) Industry related services have been brought under small
industry development programmes and given greater
encouragement;
(d) Registration procedure has been simplified;
(e) Various

steps

have

been

taken

to

transform

the

enforcement of labour laws for small industry from an era

of regulation to an era of self discipline and voluntary
compliance.
(f) Environmental clearance procedures for SSIs have been
rationalised and simplified.
(g) In the administration of excise duty, major procedural
simplications have been introduced.
(vii) Marketing Assistance: Initially, the SSIs production was
confined to domestic market but gradually, production has been
enlarged to cater to both national and international markets. There
are about 7500 products manufactured by 115.22 lakh SSI units
but still SSIs suffer from marketing difficulties as their products

are often unstandardised and of variable quality. No scientific

market research is carried out by SSIs due to poor data base.
Installed capacity, level of production, market information and
other information required for market research are not available for
SSI products. Therefore, Government intervention is needed to
eliminate these imperfections by improving the marketing network
and bringing producers and dealers into close contact with one
another. The Government has taken some steps:
(a) In order to provide guarantee for sale, the Government
gives preference upto 15 per cent on some of the products
sold by the small firms.
(b) The National Small-Scale Industries Corporation assists
small firms in obtaining a greater share of govt. and
defence

purchases

but

does

not

take

marketing

responsibility.
(c) NSIC established in 1955 has helped in the establishment
of 21,384 small-scale units besides securing purchase
orders for small industries from the Director-General of
Supplies and Disposals.
(d) The NSIC would concentrate on marketing of mass
consumption items under comman brand name.
(e) An expert development centre would be set up in SIDO to
serve the small-scale industries through its network of
field offices to promote exports.
(viii) Technical Assistance: The growth of SSIs is obstructed
by the present low level of technology and shortage of trained,
experienced and competent supervisory personnel. Realising the

need for less expensive training and consultancy service for

achieving wider geographical disporsal of small enterprises all over
the country, the Government has taken these steps:
(a) Central

Small-Scale

Industries

Organisation

(CSIO)

through its Service Institutes and Extension Centres,

provides a staff of technically qualified people whose job is
to advise the small entrepreneurs to technical problem
faced by them.
(b) IDBI (Industrial Development Bank of India) took the
initiative in the early seventies to promote Technical
Consultancy Organisations (TCOs) and Institutes for
Entrepreneurship Development (IEDs). TCOs provide a
total package of consultancy services to entrepreneurs
covering all stages in project cycle.
(c) Entrepreneurship Development Institute of India was set
up

in

Ahmedabad

Entrepreneurship

in

1983

Development

and
was

Institute

of

established

in

backward states like Bihar, Orissa, Uttar Pradesh, Assam.

Training cum production centres have been set up in the
North-Eastern states to provide extension services in the
area of training and consultancy.
(d) SIDBI has also contributed in training first generation
entrepreneurs.
(ix) Industrial Estates: An industrial estate means a place to
provide on rental basis, good accommodation and other basic
common facilities to group of small entrepreneurs who would
otherwise find it difficult to secure these facilities at a reasonable

price. The creation of industrial estates which includes industrial

areas and development of plots and industrial sheds for allotment
to SSI entrepreneurs was initiated in 1955. It was a Centrally
Sponsored Programme to be implemented through State/UT
Governments. The creation of industrial estates has following
objectives:
(i)

To attract entrepreneurs to set up small industries,

(ii)

To shift existing units to industrial areas provided with

infrastructure facilities like water, electricity, developed
roads, banks, canteen, watch and ward, communication
facilities etc.

(iii)

To achieve decentralised development in rural areas,

develop sub-contracting relationships and to establish
common facility centres.

The first industrial estate was established in Okhla (near

Delhi) in 1957 and since then the programe continued till 1979
with the assistance from Central Government of India and 796
industrial estates were established by then. After 1979, the states
took over the activity of promoting industrial infrastructure and
inducing SSIs to shift out of non-conforming areas to such areas
which were providing wide variety of facilities including common
production and testing facilities. These facilities included:
(i) subsidy on rent for factory accommodation.
(ii) allotment of sheds an hire-purchase basis as well as on
outright
sale,

(iii) incentives like concessional charges for water and power,

(iv) exemption from Sales tax and Octroi duty,
(v) transport subsidy etc.
However industrial estates programme did not provide
facilities like separate power generation plants in the developed
area, common effluent treatment plans, waste disposal, pollution
control devices etc. However, the performance of industrial estates
has not been commendable because of:
(i) Wrong location,
(ii) Unsuitability of sheds to the needy,
(iii) Underutilisation of capacity
(iv) Occupation of sheds by government agencies,
(v) Opposition by large or medium scale units.
(x) Excise Relief: For SSIs the first Rs. 30 lakhs turnover is
exempt from levy. From Rs. 30 lakhs to 50 lakhs, duty is levied at
normal rate less 10 per cent, subject to 5 per cent advalrom. For
clearance beyond Rs. 75 lakhs turnover, normal duty is payable.
Concessions can be enjoyed only when total clearance does not
exceed Rs. 2 crores. This excise exemption limit has been raised to
Rs. 3 crores sales from Rs. 2 crores sales in the budget for 199596. Besides, excise rates have been reduced on a number of items
that go into SSI production.
(xi) Miscellaneous Programmes
(a) As per Government policy, around 589 items are reserved
for SSI production. They are also given price preference in

Government purchases. There are important institutional buyers

like

Army

Purchase

Organisation

(APO),

Canteen

Stores

Department (CSD) for defence services, as well as hospitals,

schools, hotels and restaurants who make large purchases. They
also enforce strict quality control through the laboratories.
(b) A separate ministry of Small Scale Industries and Agro &
Rural Industries was established by the Government in 1999. Both
at the federal and states levels, host of institutions are functioning
to promote small sector.
(c) To provide access to the capital market and to encourage
modernisation and technological upgradation, it was decided to
allow equity participation by other industrial undertaking in SSI,
not exceeding 24 per cent of the total shareholding. This would
provide a powerful boost to ancillarisation and sub-contracting
leading to expansion of employment opportunities.
(d) Factoring services have been introduced by State Bank of
India in Western India in collaboration with Small Industries
Development Bank of India (SIDBI) to solve the problems of delayed
payments to small industries. Factoring services means that SIDBI
or SBI will buy the manufacturers invoices from SSI units and take
the responsibility for collecting payments due to them by charging
a commission.
(e) Support from National Equity Funds will be given for
projects upto Rs. 10 lakhs.
(f) Single window loans will cover projects upto Rs. 20 lakhs.
(g) In August 2000, the Government launched a Credit
Guarantee Scheme to increase the flow of bank credit to small and

medium enterprises and to resolve the issue of collaterals. Under

the scheme, all loans extended by banks to SME borrrowers upto
Rs. 2.5 million and where no collaterals have been obtained, would
qualify for guarantee cover.
(h) The SENET or Small Enterprises Information and
Resources Network has been launched with the help of INSME of
Italy. The main objective of the portal is to create an electronic
network

for

small

and

medium

enterprises,

Central/State

Governments, other agencies in the promotion and development of

SME sector, national/state level industry association, NGOs and
entrepreneurs of SENET Scheme.
(i) To promote the quality of handloom sector, Janta Cloth
Scheme will be replaced by omnibus project scheme under which
substantial funds will be provided for modernisation of looms,
training, provision of better designs, provision of better dyes and
chemicals and marketing assistance.
2.12 POLICY INITIATIVES IN SSI SECTOR DURING 2004-05
The

National

Commission

on

Enterprises

in

the

Unorganized/Informal Sector was set up in September 2004.

The

Commission

will,

inter-alia,

recommend

measures

considered necessary for improvement in the productivity of

these

enterprises,

generation

of

large

scale

employment

opportunities on a sustainable basis, linkage of the sector to

institutional framework in areas like credit, raw material supply,
infrastructure, technology upgradation, marketing facilities and
skill development.

85 items reserved for exclusive manufacture in the SSI sector

were deserved in October 2004. The total number of reserved
items not stands at 605.
To

facilitate

technology

upgradation

and

enhancing

competitiveness, the investment limit (in plant and machinery)

has been raised in October 2004, from Rs. 1 crore to Rs. 5 crore,
in respect of 7 items of sports goods, reserved for manufacture
in the small scale sector.
The Small and Medium Enterprises (SME) Fund of Rs. 10,000
crore was operationalised by the SIDBI since April 2004. Eighty
percent of the lending from this fund will be for SSI units, at
interest rate of 2 per cent below the prevailing PLR of the SIDBI.
The Reserve Bank of India enhanced the composite loan limit for
the SSI sector to Rs. 1 crore from Rs. 50 lakh.
With a view to integrate small and medium enterprises,
facilitating their growth and enhancing their competitiveness
(including measure for freeing the sector from Inspector Raj) a
suitable legislation is being finalised.
A new Promotional Package for small enterprises is being
formulated. This would include measures to provide adequate
credit, incentives for technology upgradation, infrastructural and
marketing facilities etc.
2.13 POLICY INITIATIVE IN SSI SECTOR DURING 2005-06
1. 108 items reserved for exclusive manufacture in SSI sector were
dereserved on Feb. 28, 2005. The number of items now stands

at 497. Among them, 30 items are in the category of textile

products, including hosiery.
2. The provision for Promotion of SSI scheme under capital
Subsidy scheme has been enhanced to Rs. 173 crore in 2005-06
as compared to Rs. 13 crore in 2004-05.
3. Small industries Development Bank of India has established a
SME of Growth fund with a corpus of Rs. 500 crore. Small and
medium units in knowledge-based industries such as pharma,
biotech and IT will be provided equity support through this fund.
4. A

new

scheme

programme

will

called,
be

Manufacturing

launched

which

will

competitiveness
strengthen

the

operations of SSI sector and sharpen their competitiveness.

5. A 10% capital subsidy scheme is introduced for Textile
Processing Sector in addition to the normal benefits available
under the TUF scheme.
6. Two schemes namely Life Insurance Scheme for handloom
weaves and a health insurance package for the weaves have
been introduced.
7. The ceiling for SSI exemption based on turnover from the level of
Rs. 3 crore has been increased to Rs. 4 crore per year.

2.14 POLICY INITIATIVES IN SSI DURING 2006-07

1. Employment : 5 Industries, namely, textiles, food processing,
petroleum,

chemicals

and

petro-chemicals,

leather

and

automobiles, with employment opportunities have been identified

in manufacturing sector.

2. Textiles: Fund allocation for Technology Upgradation Fund

(TUF) Scheme increased from Rs. 435 crore to Rs. 535 crore. Rs.
189 crore has been allocated for Scheme for Integrated Textiles
Parks (SITP); Jute Technology Mission will be launched; a National
Jute Board shall be established.
3. Handlooms: 100 more clusters to be added to cluster
development as a cost of Rs. 50 crore; provision for handloom
sector shall be increased to Rs. 241 crore from Rs. 195 crore; a
handloom mark will be launched.
4. Small Enterprises: 180 items identified for dereservation;
corpus of Credit Guarantee Fund to be raised to Rs. 2,500 crore
from Rs. 1132 crore in five years; Credit Guarantee Trust for Small
Industries to reduce guarantee fee from 2.5% to 1.5% for all loans;
10 schemes drawn up under Five Year National Manufacturing
Competitiveness Programme.
2.15 SUMMARY
Government has been active with regards to development of
SSI in the form of various Industrial Policy Resolutions. Small Scale
Industrial Policy in 1991 assigned special role of small scale
industries which changed to business environment of our country.
The Government adopted various measures to attract people to
start their own units. Such attractions include changes in
reservation policy, incentives to exporters, revision of investment
limit to SSIs, modernisation programmes and many other types of
assistance.
2.16 KEYWORDS

Industrial Estate: It means a place to provide an rental basis good

accomodation and other basic common facilities to group of small
entrepreneurs at a reasonable price.
Equality Argument: It states that SSI help in dispersal of income
more widely than income generated in few large enterprises.
Small Scale Industrial Policy, 1991: This policy emphasis to
provide free access to capital, technology and market so as to
include

greater

industrial

efficiency

and

international

competitiveness.
2.17 SELF ASSESSMENT QUESTIONS
1.

Enumerate the various policies of the Government towards

SSI after indepedence of India.

2.

What are the various initiatives taken by the Government of

India for SSI during five year plans.

3.

Explain the various arguments put forth in the Industrial

Policy Resolution, 1956 in favour of SSI.

4.

Comment upon the post liberalisation scenario for small

enterprises in India.

2.18 SUGGESTED READINGS

1. Vasant Deasi

Problems and Prospects of Small Scale

Industries

in

India.

Himalaya

Publishing House, Mumbai.

2. S. Krishnamurthi

Small

Scale

Industries

Orient

Publishing House, New Delhi.

3. S.S. Khanka

Entrepreneurial

Development,

Chand & Co. Ltd. New Delhi.

4. Swedberg

Entrepreneurship, Oxford University

Press, New Delhi.

S.