ABSTRACT

Small scale Industries are the driving forces for the fast and speedy
economic development of Indian Economy. It plays a vital role in the
development of India. Small scale Industries constitute a very
important segment of the Indian economy. It is a well-recognized fact
that a vibrant small scale sector holds the key to the economic
prosperity in an economy like India, characterized by abundant labour
supply, unemployment, underemployment, capital scarcity and
growing large industrial sector providing scope for ancillarisation.
This sector has recorded a high growth rate since 1947 despite stiff
competition from the large scale sector. It is proved by various
researches by now that the problem of sickness of small scale
industries is due to underutilization of capacity caused by shortage of
working capital, lack of demand, non availability of infrastructural
facilities including power & deficient management & technical skills.
With the emergence of World trade organization (WTO) the problem
of small scale industries is likely to further as they will be
increasingly posed to competition from foreign goods & from
multinational companies. This paper attempts to discuss the role of
small scale industries in India and explore the various problems faced
by it.

Key Words: Small Scale Industry, Economic Development.

1
INTRODUCTION
Small scale industries (SSI) refer to those small entrepreneurs who are
engaged in production, manufacturing or service at a micro scale.
Small scale industries play a focal role in the economic and social
development of India in the post-independence era. The SSI sector
continues to remain an integral part of Indian economy with
significant contribution to GDP, industrial production and
employment generation in India. The contribution of small-scale
industries (SSI’s) has been extraordinary in the industrial
development of the country. It has a share of 40% in the industrial
production and 35% of the total manufactured exports of the country
are directly accounted for by this sector. In terms of employment
generated, this sector is employing approximately 18 million people.
Employment in the manufacturing sector has been largely generated
by the small scale sector. In the total manufacturing sector, the share
of registered small scale enterprises (SSEs) is 48.8%. The household
and non-registered SSEs together contribute 37% of the employment
generated. Together all SSEs, registered and unregistered (informal)
generate employment to the degree of 85.8% of the manufacturing
sector.

The small scale sector produces a wide range of products, from

simple consumer goods to highly precision and sophisticated end user
products. As ancillaries, it manufactures a diversity of parts and
components required by the large enterprises. Rural and Traditional
Sector enterprises mostly from amongst the unregistered SSEs and
non-farm sector contribute to about 15 % of the total output of Small
Scale Industries but about 40% of the work force is employed in this
sector. Worldwide the SSI has been accepted as the engine of
economic growth and for promoting equitable development.

2
OBJECTIVES
 To examine the growth and performance of small scale
industries.
 To analyse the problems of small scale industries in India.

RESEARCH METHODOLOGY
The present study is based on secondary data. The data was collected
through Journals, books, magazines, internet and newspaper.

REVIEW OF LITERATURE
Srinivas K T, (2013) has studied the performance of micro, small and
medium enterprises and their contribution in India’s economic growth
and concluded that MSMEs play a vital role in the inclusive growth of
Indian economy.

Sumanjeet Singh and MinakshiPaliwal (2017) in “unleashing the

growth potential of Indian MSME sector” had concluded that
Undoubtedly the MSME sector has huge potential for generating
innovative entrepreneurship and massive employment but some
Problems confronting MSMEs are
 Lack of access to finance
 Lack of access to penetrate foreign market
 Lack of skilled manpower
 Lack of reliable and stable infrastructure
 Ineffective marketing network

Dr.Reetu Sharma (2012) in “problems and prospects of small scale

industrial units (a case study of exporting and non-exporting
units in Haryana) had concluded that SSI units are at a developing
stage and more expansion is required but some problems need
to be solved

 Underutilization of installed capacity.

3
  The marketing activities to be strength for selling SSI
manufactured products.
Sudan, F. K. (2005) described the challenges in Micro and Small
Scale Enterprises Development and policy issues by arising different
questions related to Micro and Small Enterprises. The study explained
the meaning, advantages, problems and policy options of MSE sector.
The study concluded that all the policies which were opted by GOI
were the efforts to form a dynamic MSE sector and a diversified
economy providing expanded employment opportunities to absorb all
new labour force and offer exciting career opportunities.

Subrahmanyabala, M.H. (2004) highlighted the impact of

globalization and domestic reforms on small-scale industries sector.
The study stated that small industry had suffered in terms of growth
of units, employment, output and exports. Researcher highlighted that
the policy changes had also thrown open new opportunities and
markets for the small-scale industries sector. The author suggested
that the focus must be turned to technology development and
strengthening of financial infrastructure in order to make Indian small
Industry internationally competitive and contribute to national income
and employment.

4
MEANING OF SMALL SCALE INDUSTRIES
A small scale industry is an industrial undertaking in which the
investment under fixed assets in plant and machinery or equipment,
whether held on ownership term or on lease or hire purchase, does not
exceed ₹ 10 crore for manufacturing enterprise and ₹ 5 crore for
service enterprise. However, the investment limit changes overtime as
prescribed by the government.

In accordance with the provision of Micro, Small & Medium

Enterprises Development (MSMED) Act, 2006 the Micro, Small and
Medium Enterprises (MSME) are classified in two classes:

1. Manufacturing Enterprises: The enterprises engaged in the

manufacturing or production of goods pertaining to any industry
specified in the first schedule to the industries (Development and
regulation) Act 1951 or employing plant and machinery in the process
of value addition to the final product having a distinct name or
character or use. The Manufacturing Enterprise are defined in terms
of investment in Plant and Machinery.

2. Service Enterprises: The enterprises engaged in providing or

rendering of services and are defined in terms of investment in
equipment.

The limit for investment in plant and machinery / equipment for

manufacturing / service enterprises is shown in Table I.
Table I- Limit for investment in plant and machinery / equipment
Enterprises Investment in plant and machinery/equipment
Manufacturing sector Service sector
Micro < ₹ 25 lakh < ₹ 10 lakh
Small > ₹ 25 lakh but < ₹ 5 crore > ₹ 10 lakh but < ₹ 2 crore
Medium > ₹ 5 crore but < ₹ 10 crore > ₹ 2 crore but < ₹ 5 crore

5
Industrial units are generally classified as small, medium and large
scale units considering their size, capital invested and the number of
human resource employed. The concept of small scale business has
been defined by different countries in different ways; however the
definition changes over time. The criteria adopted in different
countries are shown in Table II.

Table II- Criteria of defining small business in various countries

Criterion Countries
Employment USA and UK
Investment in Plant and Machinery India, Pakistan, Indonesia
Investment and Employment Japan, Korea, Philippines
Employment and Sales turnover Korea(commerce)
Investment and Sales turnover Malaysia
Production / Sales turnover China, UK(commercial)

Source: Gupta C.B. & Khanka S.S., ‘Entrepreneurship and Small

Business Management (2010)’, Sultan Chand & Sons, NewDelhi,
page- 2.4

6
TYPES OF SMALL SCALE INDUSTRIES
The small scale industries in India whether in manufacturing sector or
service sector are split up into five parts:

1. Manufacturing industries: These units are producing

merchantable articles for direct consumption and also for processing
industries, example: khadi industries, food processing industries,
power looms, etc.

2. Ancillary industries: The ancillary industries produce parts and

components for large industries.

3. Service industries: Service industries are known for covering all

light repairs shop that is essential to maintain mechanical equipment.
These industries completely depend on machinery.

4. Feeder industries: These industries produce certain specialised

products like electroplating, casting, welding, etc.

5. Mining or Quarries: These industries caters the demand of

different types of stones and minerals of the Indian and foreign
market.

7
Role and Importance of Small Scale Industry in
India

In a developing country like India, the role and importance of small

scale industries is very significant towards poverty eradication,
employment generation, rural development and creating regional
balance in promotion and growth of various development activities.

The following are the some of the important role played by small
scale industries in India.

1. Employment generation

The basic problem that the Indian economy is confronting is

increasing pressure of population on the land and the need to create
massive employment opportunities. This problem is solved to a large
extent by SSIs because SSIs are labour-intensive in nature. They
generate large number of employment opportunities. Employment
generation by this sector has shown a phenomenal growth. It is a
powerful tool of job creation.

2. Mobilisation of resources and entrepreneurial skill

SSIs can mobilise a good amount of savings and entrepreneurial skill

from rural and semi-urban areas which remain untouched from the
clutches of large industries and put them into productive use by
investing in small-scale units. Small entrepreneurs also improve social
welfare of a country by harnessing dormant, previously overlooked
talent. Thus, a huge amount of latent resources is being mobilised by
the small-scale sector for the development of the economy.

3. Equitable distribution of income

The SSIs ensure equitable distribution of income and wealth in the

Indian society which is largely characterised by more concentration of
income and wealth in the organised sector keeping unorganised sector

8
undeveloped. This is mainly due to the fact that small industries are
widespread as compared to large industries and have large
employment potential.

4. Regional dispersal of industries

There has been massive concentration of industries in a few large

cities of different states of India. People migrate from rural and semi-
urban areas to these highly developed centres in search of
employment and sometimes to earn a better living which ultimately
leads to many evil consequences like overcrowding, pollution,
creation of slums, etc. This problem of Indian economy is better
solved by SSIs which utilise local resources and bring about
dispersion of industries in various parts of the country thereby
promoting balanced regional development

5. Providing opportunities for development of technology

SSIs have tremendous capacity to generate or absorb innovations.

They provide ample opportunities for the development of technology
and technology in turn, creates an environment conducive to the
development of small units. The entrepreneurs of small units play a
strategic role in commercialising new inventions and products. They
also facilitate the transfer of technology from one to the other. As a
result, the economy reaps the benefit of improved technology.

6. Promotion of exports

SSIs have registered a phenomenal growth in export over the years.

The value of exports of products of SSIs has increased from RS.
6979.7 million in 2000-01 to Rs.28,384.7 million in 2015-16. Thus
they help in increasing the country’s foreign exchange reserves
thereby reducing the pressure on country’s balance of payments.

9
 7. Supporting the growth of large industries

The SSIs play an important role in assisting bigger industries and

projects so that the planned activity of development work is timely
attended. They support the growth of large industries by providing
them components, accessories and semi-finished goods. In fact, small
industries breathe vitality into the life of large industries.

8. Better industrial relations

Better industrial relations between the employer and employees help

in increasing the efficiency of employees and reducing the frequency
of industrial disputes. The loss of production and man-days are
comparatively less in SSIs. There are hardly any strikes or lockout in
these industries due to good employee-employer communication and
relationship.

Of course, increase in number of units, production, employment and

exports of SSIs over the years are considered essential for the
economic growth and development of the country. It is encouraging to
mention that the small scale enterprises accounts for 35% of the gross
value of the output in the manufacturing sector, about 80% of the total
industrial employment and about 40% of total export of the country.

10
Problems faced by the small-scale industries in India

Despite of recommendable contribution to the nation's economy, the

SSI sector does not get the required support from the concerned
Government Departments, Banks, Financial Institutions and
Corporate, which become a handicap for more competitive in the
National and International Markets. 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.
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 SSIs.

2. Inadequate credit assistance

Inadequate and untimely supply of credit facilities is an important

problem faced by SSIs. This is partly due to scarcity of capital and
partly due to weak creditworthiness of the small units in the country.
Lack of finance is the main obstacle for the development of small
scale industries.

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. Non-availability 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

11
entrepreneurs regarding government policies are other few hindrances
for the 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 large-scale 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 production process 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 creates a major stumbling block for the growth of SSIs.

6. Absence of adequate infrastructure

Indian economy is characterised by inadequate infrastructure which is

a major problem 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 power supply, water and drainage problem, poor
roads, raw materials and marketing problem. Thus absence of
adequate infra structure adversely affects the quality, quantity and
production schedule of the enterprises which ultimately results in
underutilisation of capacity.

7. Competition with 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

12
cheap and of better quality than products manufactured and produced
by small-scale units.

8. Other problems

Besides the above problems, small-scale units have been

Constrained by a number of other problems which include poor
project planning, managerial inadequacies, old and orthodox designs
and high degree of obsolescence Due to all these problems, the
development of SSIs could not reach a prestigious stage.

Findings

 Small scale industrial sector contribute to the increase of

industrial productivity and rise of national exports, generating
more employment opportunities. This sector also contributes
very impressively to the GDP.

 The contribution of small-scale industries (SSI’s) has been

extraordinary in the industrial development of the country. It has
a share of 40% in the industrial production and 35% of the total
manufactured exports of the country.

 Employment in the manufacturing sector has been largely

generated by the small scale sector. In the total manufacturing
sector, the share of registered small scale enterprises (SSEs) is
48.8%. The household and non-registered SSEs together
contribute 37% of the employment generated. Together all
SSEs, registered and unregistered (informal) generate
employment to the degree of 85.8% of the manufacturing sector.

 The small scale sector are still hampered by the problems of

finance, marketing, inadequate infrastructure, irregular supply of
raw materials etc.

13
Conclusion

Small scale industries have been playing an important role in Indian

economy in terms of employment generation and growth. In spite of
having huge potentialities, the small scale industries in
India could not progress satisfactorily as these industries are suffering
from various weaknesses. If remedial measures are taken in proper
time and spirit the small scale sector will be able to utilize huge
development potential available in the country and the SSI sector will
prove itself as one of the most dynamic and vibrant sector of the
economy of the country.

14
References

1. Banik Subhamoy(2018) ”Small Scale Industries in India:

Opportunities and challenges”. International Journal of Creative
Research Thoughts, Volume 6, Issue 1.

2. Jadhav D Umesh(2016) ”Problems of Small Scale Industries in

India”. Research Nebula, Volume 5, Issue 3.

3. Lakshmi Packia(2013) “The Performance of Small Scale

Industries in India”. Facts For You.

4. Jitendra Jayashri(2018) “Problem And Prospectus For Small

Scale Industries In India”. KRSCMS Management Journal,
Volume 8, Issue 1.

5. Venkatesh Sudha(2012) “SME in India: Importance and

contribution”. Asian Journal of Management Research,
Volume 2, Issue 2.

6. Patil G Sangita(2014) “Problem of Small Scale Industries in

India”. International Journal of Engineering and Management
Research, Volume 4, Issue 2.

15