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2 Main Problems Faced by Small Scale Industry in India are described below: Problems of SSI: (1) Finance and

Credit (2) Underutilization of Capacity (3) Production and Marketing (4) Inadequate and Incomplete (5) Machine and Equipment Production of Raw Material (6) Inefficient Management (7) Power Production not Normal (8) Slow Responsiveness or Production Pattern (9) Burden of Excessive Tax (10) Competition from Large Scale Industries (11) Poor Transport Facilities (12) Technology in Many Cases not up to Date. Scarcity of finance and credit is main obstacle in the development of small scale industries and situation is worse in the case of cottage and village industries. According to the Nayak Committee Report, the small scale sector was getting working capital only to the extent of 8.1 percent of its annual output as against the normative requirement of 20 percent. As per a report of the RBI, out of 40 percent earmarked for priority sector lending; only 15 percent is being funded to SSIs. The internal capabilities of SSIs in financial management are comparatively weak and support for overcoming this weakness is inadequate. The banker is still seen as an inquisitor and not as a development partner. S.L. Kapoor committee has given some important recommendations for their development-like i. give more power to branch manager of Banks to grant loan, ii. simplification of forms-strengthening of recovery mechanism iii. opening of more specialised SSI branch etc. a. Most of the SSI units are underutilized. This may be due to lack of raw materials, or power shortage or managerial problem etc. By one estimate in SSI 50% capacity are not utilised.

b. Poor quality and high production cost leads to competitive disadvantage vis-a-vis large scale units, although State Trading Corporation and Trade Development Authority help SSI to find market. c. Improved technology leads to productive efficiency but the technological base of small units is weak. There is also no clear idea yet of the technology absorptive capacity of small units. The inability of rural enterprises to adopt to the changing market conditions has quite often proved detrimental to rural industrialisation. d. Marketing continues to be a major problem facing small units. As most of the units are in the unorganised sector, they do not pay proper attention to technological up gradation and quality controlcontrol measures. Marketing becomes a big problem when big units to start producing products like soap which can easily be produced in the small scale sector. b. Together with this export financial mechanism is not fully in place. The establishment and enlargement of pre and post shipment credit facilities, export credit guarantees, insurance and exchange rate cover can help improve the competitiveness of small firms. a. Majority of SSI and cottage industries depends on local raw materials e.g. cotton, tobacco etc. but in many modern SSI raw material constraints are due to foreign exchange and import policy. b. Lack of proper database creates difficulties in devising suitable policy for development of SSI. c. Burden of excessive laws, inspections and taxes also creates problems for SSI. Even today, the single man units are subject to a minimum of 37 inspections, 52 laws and 116 forms and registers. d. The conservative and selfish policy of some SSI units also acts as an obstacle in the overall development of this sector. The various fiscal incentives offered to the small scale sector are often misused. Though these incentives are offered with good intention, they produce negative results. For instance, in order to enjoy incentives, some units refused to grow and remained small. The Seventh Plan also highlighted number of constraints in the development of SSI and cottage industries. These are: i. Inadequate and irregular supply of raw material. ii. Imperfect knowledge of market condition iii. Unorganised nature of operation iv. Infrastructure constraints e.g. power v. Lack of managerial skill. vi. Lack of organised market vii. Lack of effective coordination among various supporting organisation. All these led skewed cost structure keeping SSI on disadvantageous position as compared to large scale in both domestic and international market.

Small-scale industries in India could not progress satisfactorily due to various problems that they are confronted with while running enterprises. In spite of having huge potentialities, the major problems, small industries face are given below. 1. Problem of skilled manpower: The success of a small enterprise revolves around the entrepreneur and its employees, provided the employees are skilled and efficient. Because inefficient human factor and unskilled manpower create innumerable problems for the survival of small industries. Non-availability of adequate skilled manpower in the rural sector poses problem to small-scale industries. 2. Inadequate credit assistance: Adequate and timely supply of credit facilities is an important problem faced by small-scale industries. This is partly due to scarcity of capital and partly due to weak creditworthiness of the small units in the country. 3. Irregular supply of raw material: Small units face severe problems in procuring the raw materials whether they use locally available raw materials or imported raw materials. The problems arise due to faulty and irregular supply of raw materials. Nonavailability of sufficient quantity of raw materials, sometimes poor quality of raw materials, increased cost of raw materials, foreign exchange crisis and above all lack of knowledge of entrepreneurs regarding government policy are other few hindrances for small-scale sector. 4. Absence of organised marketing: Another important problem faced by small-scale units is the absence of organised marketing system. In the absence of organised marketing, their products compare unfavourably with the quality of the product of largescale units. They also fail to get adequate information about consumer's choice, taste and preferences of the type of product. The above problems do not allow them to stay in the market. 5. Lack of machinery and equipment: Small-scale units are striving hard to employ modern machineries and equipment in their process of production in order to compete with large industries. Most of the small units employ outdated and traditional technology and equipment. Lack of appropriate technology and equipment create a major stumbling block for the growth of small-scale industries. 6. Absence of adequate infrastructure: Indian economy is characterized by inadequate infrastructure which is a major problems for small units to grow. Most of the small units and industrial estates found in towns and cities are having one or more problems like lack of of power supply, water and drainage problem, poor roads, raw materials and marketing problem. Thus absence of adequate infrastructure adversely affect the quality, quantity and production schedule of the enterprises which ultimately results in under-utilization of capacity. 7. Competition from large-scale units and imported articles:

Small-scale units find it very difficult to compete with the product of large-scale units and imported articles which are comparatively very cheap and of better quality than small units product. 8. Other problems: Besides the above problems, small-scale units have been of constrained by a number of other problems also. They include poor project planning, managerial inadequacies, old and orthodox designs, high degree of obsolescence and huge number of bogus concerns. Due to all these problems the development of small-scale industries could not reach a prestigious stage.

Prospects in the 21st


century The present trend does indicate qualitative and quantitative growth in terms of industrial production and up gradation of technology, etc., the next decade should witness certain changes in the structure of small industries. The entrepreneurs should play a pivotal role in accelerating the industrial process in the country. The process of liberalization and economic reforms while creating tremendous opportunities for the growth of small-scale industries, have thrown up new challenges to the sector. Small enterprises started by groups of traditional small businesses setup by sole proprietors in retail trade, services and consumer industries have wrongly diversified. The development process itself has given rise to new economic opportunities for entrepreneurs. Small enterprises are able to successfully adapt the rose less to the changing situations. Competitiveness is the name of the hottest game now days. Countries that are more competitive tend to grow faster. As India has already entered the new millennium where the order of the day is increasing economic liberalization across-the borders and growing globalization of world economy under the World Trade Organisation (WTO) regime, the small-scale sector is going to face major challenges in the form of intensified competition, both domestic and external. For its

existence it has to be competitive otherwise with present levels of technology in use and infrastructural and environmental constraints, it may find itself in a fierce battle for survival. Both the products and producers need international exposure. 252

The sector has vast potential for being developed into a major economic player but there is need for change in strategy adopted so far for its survival and growth. This change in strategy calls for a shift from individual industries to a cluster approach, linkages between large and small units, use of state-of-art technology, efficient systems of delivery of input and output with full support and active involvement of financial institutions, associations and the government. It is also necessary to adopt electronic commence which has brought about a revolution in the field of marketing. The strategy required has to be multi-dimensional. The present mode of micro level production is becoming irrelevant in the present global context. The future of international trade will primarily be based on global product and trading chain. For being a part of a global village, the industrial units will have to be part of the globalization. There are at present two types of international production networks, (1) producer driven commodity chains and (ii) Buyer driven commodity chains. K.V.Ramaswamy in his article Exporting in a globalized economypublished in the India Development Report 1999-2000 suggests that the linkages with the global economy can be viewed as connected through four export roles: # Export processing assembly operations # Component supply sub-contracting # Original Equipment Manufacturing, and # Original brand name manufacturing. 253

The newly industrialized economies of both East Asia and Latin America have been engaged in this kind of labor-intensive production. A country like Mexico, which has the worlds largest export processing sector has extended the benefits of export processing by locating them in the special zones. China has set up special economic zones within which all-economic activities manufacturers, banking, export and import, and foreign investment take place in a more liberal environment. The East Asian experience in the electronics industry where firms gain entry by OEM, and secured a market channel and acquire technology is another example worth consideration. India has greater opportunities to assume and develop the export role of assembly component supplier and OEM exporter. The main avenue to enter the international network according to Ramasamy is through foreign direct investment. Cross-country studies of foreign direct investment indicate that infrastructure quality, labour cost and domestic market size are predominant factors that influence international investors vis--vis short-term incentives like corporate tax rebates. India has the advantage of a large domestic market but the critical problem areas are in infrastructure and labour productivity. Labour costs are rising in South Korea, Taiwan, Indonesia and Singapore; foreign investors from developed countries could be looking for cheap labour cost locations with macro-economic stability. If India could improve its infrastructure and provide for relatively liberal economic zones of China, it would be possible to attract large-scale Foreign Direct Investment in India. 254

A study of Indias garments exports by K.V.Ramaswamy reveals

the absence of structural change and policy reforms. Buyers in world markets are expecting more services in terms of minimum performance standards. Delivery and service emerged as the main weaknesses of Indian exports as perceived by importers in the E.U, Japan and the U.S. Access to imported inputs, shipping facilities and proximity to fabric sources have become more important determinants of outsourcing by foreign firms than mere manufacturing capacity. In this context, the policy of product reservation of garments also needs to be looked into afresh. The new slogan for development of small-scale industries should be Export and Expand to help India become a global economic player in the Twenty First Century. The production and marketing strategy should change from, I will sell what I make to I will make what you need.

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