Small Scale

Industries: An
Important Catalyst
for the Growth of
India’s Economy

ESBD REPORT

TANYA GUPTA ( 131)

MBA, SECTION -B
9/20/2010
 The definition for small-scale industrial undertakings has
changed over time.Initially they were classified into two
categories- those using power with less than 50 employees and
those not using power with the employee strength being more
than 50 but less than 100. However the capital resources
invested on plant and machinery buildings have been the
primary criteria to differentiate the small-scale industries from
the large and medium scale industries. An industrial unit can
be categorized as a small- scale unit if it fulfils the capital
investment limit fixed by the Government of India for the small-
scale sector.

According to 2001 census, Small scale industrial units are

those engaged in the manufacture, processing or preservation
of goods and whose investment in plant and machinery
(original cost) does not exceed Rs.1 crore. These would, inter
alia, include units engaged in mining or quarrying, servicing
and repairing of machinery

Small Scale Industries are located throughout the country,

though predominantly in the rural areas. The small scale
industries in the rural areas are skill based, wherein the skill
for manufacturing is passed on from one generation to
another. Some of the goods manufactured in these units are
textile handicrafts, woodcarving, stone carving, metal ware
etc. Small scale industrial factories are also present in urban
areas and usually they account for the maximum volume of
production for that particular good.

For e.g. Ludhiana in the state of Punjab is the main center in

the country for producing woolen hosiery, sewing machine
parts, bicycles and its parts, similarly Tiruppur in Tamil Nadu
accounts for small scale firms that are involved in spinning,
weaving and dying of cotton garments.
The importance of cottage industries in the Indian economy
was first understood by our first prime minister Jawaharlal
Nehru. The development of such small scale industries
infused much needed production efficiency into the rural
Indian economy. The Cottage Industries also helped the
agricultural workers to have a better quality of life. This is due
to the additional profits generated by the farming community.

The traditional small-scale industries clearly differ from

their modern counterparts in many respects. The traditional
units are highly labor consuming with their age-old
machineries and conventional techniques of production
resulting in poor productivity rate whereas the modern small-
scale units are much more productive with less manpower and
more sophisticated equipments.

Khadi and handloom, sericulture, handicrafts, village

industries, coir, Bell metal are some of the traditional small-
scale industries in India. The modern small industries offer a
wide range of products starting from simple items like hosiery
products, garments,leather products, fishing hook etc to more
sophisticated items like television sets,electronics control
system, various engineering products especially as ancillaries
to large industrial undertakings.

Nowadays Indian small-scale industries (SSIs) are mostly

modern small-scale industries. Modernization has widened the
list of products offered by this industry. The items
manufactured in modern Small-scale service & Business
enterprises in India now include rubber products, plastic
products, chemical products, glass and ceramics, mechanical
engineering items, hardware, electrical items, transport
equipment, electronic components and equipments,
automobile parts, bicycle parts, instruments, sports goods,
stationery items and clocks and watches.

As on 10 October 2008, following items are reserved for

exclusive manufacture by small enterprise sector:
• Food and Allied Industries: Pickles & Chutneys,
Bread, Mustard Oil (except solvent extracted), Ground
nut oil (except solvent extracted).
• Wood and Wood Products: Wooden furniture and
fixtures
• Paper Products: Exercise books and registers
• Injection Moulding Thermo Plastic Product: PVC
Pipes, including conduits upto 110 mm dia, Fittings for
PVC pipes
• Other Chemicals & Chemical Products: Wax
candles, Laundry soap, Safety matches, Fire works,
Agarbatties
• Glass & Ceramics: Glass Bangles
• Mechanical Engg. Excluding Transport
Equipment: Steel almirah, Rolling shutters, Steel
chairs , Steel tables, Steel furniture, Padlocks,
Stainless steel utensils, Domestic utensils – Aluminium
 SMALL SCALE INDUSTRIAL UNDERTAKING
An industrial undertaking in which the investment in plant
and machinery,whether held on ownership terms or on
lease/hire-purchase basis, does not exceed Rs.10million
(Rs.1 crore) is regarded as a small scale undertaking. These
include manufacturing and service units.
Status of Small Scale Industries Undertaking
a)Ancillary Industries Udertaking :-Engaged in
manufacture of parts, component, Sub-assemblies, The
investment in fixed assets doesn’t exceed 1 crore. In the case
of ancillary units, the investment in plant and machinery
(original cost) should also not exceed Rs. 1 crore to be
classified under small-scale industry. It is engaged in
manufacture of parts, component, Sub-assemblies,
b)Tiny Industries :- A unit is treated as a tiny enterprises
where investment in plant nad machinery does not exceed
Rs.2.5 million (Rs.25 Lakhs) irrespective of the location of the
unit
.c)Export Oriented Units :- A unit with an obligation to
export at least 30 percent of its annual production bythe end
of the third year of commencement of production and having
an investmentceiling up to Rs.10 million (Rs.1 crore) in plant
and machinery is termed as an export oriented SSI unit.

d) Small Scale Service & Business Enterprises (SSSBEs)

Industry related service and business enterprises with
investment up to Rs. 10 lac in fixed assets, excluding land and
building will be given benefits of small scale sector. For
computation of value of fixed assets, the original price paid by
the original owner will be considered irrespective of the price
paid by subsequent owners.

OBJECTIVES OF SMALL BUSINESS

• To generate immediate and large scale employment
oppurtunities with relatively low investment.
• To eradicate unemployment problem from the country.

• To encourage dispersal of the industries all over the

country covering small towns, villages and economically
lagging regions.
• To bring backward areas too in the mainstream of national
development.
• To promote balanced regional development in the whole
country.
• To ensure more equitable distribution of national income.

• To encourage effective mobilisation of country’s untapped

capital and human resources.
• To improve the level of living of people in the country.

TYPES OF SMALL BUSINESS

The range of products manufactured by small scale industries
is very wide from baskets to precision electronic and optical
instruments. Small scale industries can be classified into five
main groups:-
1. Manufacturing industries i.e. industries producing
complete articles for direct consumption and also
processing industries.
2. Feeder industries specialise in certain types products
and services. Eg. Casting, electroplating, welding etc.
3. Serving industries covers light repair shops necessary
to maintain mechanical equipment.
4. Ancillary units produce parts and components and
render services to large industries
5. Mining or quarrying
 ADVANTAGES OF SMALL-SCALE INDUSTRIES

- Labor intensive in nature

- Useless capital per unit of output
- Prevent congestion
- Suitable for people with limited resources
- Prevent concentration of economic power
- Lead to better distribution of incomes
- Help in putting idle resources to productive user
- Suitable for lean production
- Lead to allocate efficiency

PROBLEMS OF SMALL-SCALE INDUSTRIES

- Problem of finance
- Problem of raw material
- Problem of power
- Problem of marketing
- Export difficulties
- Problem of technical know how
- Problem of industrial relations
- Growing sickness and mortality among these units
 SUGGESTIONS FOR GROWTH

- Part gains be consolidated

- Development measures be spread
- A discriminating program of assistance be formulated
- Productivity need be improved
- Assistance programs needs be tacked
- Skill based needs be improved
- Inter-industry linkages be provided
- World class facilities need be provided
- Marketing assistance be provided
- Exports need be provided
- Market intelligence be sup pled
- Low-cost automation should be encouraged
 ROLE OF SMALL BUSINESS IN INDIAN
ECONOMY

Small scale industries play a very vital role in

India’s economy in the following ways:-

 PRODUCTION

 Small industries in India account for 95 per

cent of the industrial units in the country
 They contribute almost 40 per cent of
the gross industrial value added and 45 per
cent of the total exports (direct and indirect
exports) from India
 The small-scale sector has grown rapidly
over the years. The number of small-scale
units has increased from an estimated 0.87
million units in the year 1980-81 to over 3
million in the year 2000
 YEAR SSI SECTOR TOTAL INDUSTRIAL
GROWTH RATE GROWTH RATE

1994-95 10.44 9.10

1995-96 11.49 13.00

1996-97 1.29 6.10

1997-98 9.19 6.70

1998-99 7.84 4.10

1999-2000 7.09 6.70

2000-01 8.04 5.00

2001-02 6.06 2.70

2002-03 7.68 5.70

2003-04 8.06 6.09

2004-05 9.99 8.04

2005-06 9.5 8.36

2006-07 10.03 9.65

2007-08 12.45 10.78

2008-09 7.00 6.12

2009-10 8.12 8.45

  EMPLOYMENT

 Small industries are the second largest employers of human

resources, after agriculture

 They generate more number of employment opportunities

per unit of capital invested compared to large industries

 They are,therefore, considered to be more labour intensive

and less capital intensive. This is a boon for a labour surplus
country like India
 YEAR NO. OF EMPLOYMENT GDP (%)
ENTERPRISES (Lakhs)
(Lakhs)
2002-03 15.91 93.58 5.92

2003-04 16.97 96.98 5.79

2004-05 17.53 101.06 5.84

2005-06 18.71 104.71 5.83

2006-07 20.98 107.46 5.94

2007-08 24.68 108.99 5.99

2008-09 25.04 106.87 5.74

2009-10 26.32 109.42 5.89

 EXPORTS

 SSI Sector plays a major role in India's present export

performance. SSI Sector contributes 45%-50% of the Indian
Exports

 Direct exports account for nearly 35% of total exports

  15% to exports indirectly

 It would surprise many to know that non-traditional products

account for more than 95% of the SSI exports

 The product groups where the SSI sector dominates in exports,

are sports goods,readymade garments, woolen garments and
knitwear, plastic products, processed food and leather products

 REGIONAL BALANCE DEVELOPMENT

 Small industries which produce simple products using simple

technologies and depend on locally available resources both
material and labour can be set up anywhere in the country

 Since they can be widely spread without any locational

constraints, the benefits of industrialisation can be reaped by
every region

 Also help to reduce problems of congestion, slums, pollutionby

providing employment and incomes in rural areas

 Help improve standard of living in suburban and rural areas

They, thus, contribute significantly to the balanced development of
the country

 DEVELOPMENT OF ENTREPRENEURSHIP

Their significance in terms of fostering new entrepreneurship is

well-recognized. This is because, most entrepreneurs start their
business from a small unit which provides them an opportunity to
 harness their skills and talents, to experiment, to innovate and
transform their ideas into goods and services and finally nurture it
into a larger unit.

 Provides ample opportunity for entrepreneurship

 The latent skills and talents of people can be channelled into
business ideas which can be converted into reality with little
capital investment and almost nil formalities to start a small
business

 facilitate self employment and spirit of self reliance in society

 LOW COST

 Small industries also enjoy the advantage of low cost of

production

 Locally available resources are less expensive

 Establishment and running costs of small industries are on the

lower side because of low overhead expenses

 Infact, the low cost of production which small industries enjoy is

their competitive strength

 SIZE

 Due to the small size of the organisations, quick and timely

decisions can be taken without consulting many people as in large
sized organisations

 New business opportunities can be captured at the right time

  Small industries are best suited for customised production. i.e.
designing the product as per the tastes/preferences/needs of
individual customers, say for an example tailor-made shirt or
trouser

 The recent trend in the market is to go in for customised

production of even non-traditional products such as computers
and other such products

 They can produce according to the needs of the customers as

they use simple and flexible production techniques

 thus providing healthy competition to big business which is good

for the economy

 RELATIONSHIP

small industries have inherent strength of adaptability and a personal

touch and therefore maintain good personal relations with both
customers and employees

 CONSUMER SURPLUS

 Produce wide range of products

 More than 8000 consumer items, capital goods and intermediat

goods are produced
 SSI UNITS (million) 12.3

EMPLOYMENT GENERATED IN 29.5

SSI (million)
PRODUCTION: AT CURRENT 4762.01
PRICES (billion)
EXPORTS (billion) 1215
SSI ACCOUNT 40%
• INDUSTRIAL PRODUCTION 35%
• EXPORTS 7%
• GDP SHARE
OWNERSHIP PATTERN: 78%
• PROPRIETERSHIP 16%
• PARTNERSHIP 6%
• CORPORATE AND OTHERS
INDUSTRIAL UNITS 96%
SERVICE ENTERPRISE 3%
ANCILLARY UNITS 1%

SSI’s are doing an enormous trade in promoting export and

international relations with their “Desi” caliber and talents