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SMALL BUSINESS IN

INDIA
INDIAN SMALL BUSINESS
- At a
Glance
12.3 Million
SSI Units in India
29.5 Million
People employed in Small
Businesses.
4762.01 Billion
Production at current prices.
1215 Billion
Value of exports from Micro,
Small and Medium Units
What These Facts Mean…
7%
Share of small businesses in GDP
95 %
The proportion of Micro, Small and
Medium Units in the total industrial units in
India
40 %
Employment provided by small
businesses.
50 %
Percentage of exports accounted by
Small Business is indeed
the driving force of the
Indian Economy
Definition Criteria
• The common criteria used to measure the
size of business are
– The number of people employed
– The amount of capital invested
– The value of annual sales turnover.

• In India, at present, small scale industries


are defined and classified on the basis of
total investment in plant and machinery.
Definition of Small Business in
India
• According to the latest Micro, Small and
Medium Enterprises Development Act,
2006, small enterprises are classified as –

Manufacturing Service Enterprises


Enterprises
Units Investment Units Investment
Criteria Criteria
Micro Enterprise < 25 Lakh Micro Enterprise < 10 Lakh

Small Enterprise 25 Lakh - 5 Small Enterprise 10 Lakh - 2


Crore Crore
Medium 5 Crore - 10 Medium 2 Crore -5 Crore
Enterprise Crore Enterprise
Changes in Definition of SSIs and
Ancillaries
Year Units Investment Criteria
The Industrial (Development SS Rs 5 lakh and employing less than 50
and Regulation) Act, 1951 people with power and less than 100
persons without power
1966 SS Not exceeding 7.5 lakh
1975 SS Rs 10 lakh
AU Rs 10 lakh
1980 SS Rs 20 lakh
AU Rs 25 lakh
1985 SS Rs 35 lakh
AU Rs 45 lakh
19990 SS Rs 60 lakh and Rs 75 lakh for EOU
1991 AU Rs 75 lakh
1997 SS Rs 3 Crore - but later reduced to 1
Crore
Tiny 25 lakh
Investment Ceilings for Small
Scale Industries in the Year 2004
Type of Unit Investment Ceiling Limit in Conditions
IRS
Small Scale Industry 1 crore (10 million) Original value of plant
and machinery
Ancillary 1 crore (10 million) At least 50% of its
output to go together
other industrial
undertakings
Export Oriented Unit 1 crore (10 million) Obligation to export
50% of production
Tiny Enterprise 25 lakhs (2.5 million) No location condition
Service and Business 10 lakhs (1 million) No location condition
(industry related)
Enterprise
Women Enterprises 1 crore (10 million) 51% equity holding by
women
High Tech and Export 5 crore (50 million) Total only for 64 items
oriented units
Objectives For Periodic
Changes In Definition
• To facilitate growth of this sector with changing
economic scenario
• To facilitate growth within the framework of
social and economic policy of the country
• To encourage technology modernization
• To promote entrepreneurship among
technically qualified persons
• To improve product standards
• To create opportunities for in house R&D
• To provide greater export thrust
Characteristics of Small
Business
• Personal Character

• Independent Management

• Limited Investment

• Simple Technology

• Local Area of Operation


Scope of Small Business

• Manufacturing

• Wholesale Trade

• Retails Trade

• Services
Rationale of Small Business
• Limited Demand

• Specialized Services

• Flexibility

• Employee Relations

• Introduction of New Products

• Direct Motivation
Role of Small Business in
Indian Economy
• Employment
• Balanced Regional Development
• Optimisation of Capital
• Mobilisation of Local Resources
• Exchange Earnings
• Egalitarian Society
• Feeder to Large Industries
• Social Advantage
Comparative Growth Rates of SSI
Sector and Total Industrial Sector
Year SSI Sector Growth Total Industrial
Rate Sector Growth
Rate
1993-94 5.65 6.00
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
1999-00 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
Growth of SSI Sector
Year No of Units Output at Employment Export
(In lakhs Current (Rs Cr) Earnings (Rs
Prices Cr)

1991-92 20.82 1,78,669 129.80 13,883


1992-93 22.46 2,09,300 134.06 17,785
1993-94 23.90 2,41,648 139.40 25,307
1994-95 25.71 2,96,886 146.56 29,068
1995-96 26.60 3,62,656 152.61 36,470
1996-97 28.00 4,11,858 160.00 39,249
1997-98 29.40 4,62,641 167.20 43,946
1998-99 30.80 5,20,650 171.50 48,979
1999-00 32.10 5,72,887 178.50 53,975
2001-01 33.12 6,39,024 185.60 59,978
2001-02 34.42 6,90,316 192.23 NA
2002-03 35.72 7,42,021 199.65 NA
Problems Faced by Small
Businesses
• Shortage of Material and Power

• Lack of Adequate Finance

• Outdated Technology

• Inadequate Marketing Facilities

• Weak Organisation and Management

• Lack of Trained Personnel

• Competition From Large Sector


Problems Faced by SSIs as Barriers to
Growth
Market Related 70 %
Finance Related 25 %
Government Policy 12.78 %
Related
Power Related / 14 %
Infrastructure
Technology 14.60 %

Sickness in SSI Units


Year No of Units Amount Outstanding
(Rs Cr)
1999 3,06,221 4313.48
2000 3,04,235 4608.43
2001 2,49,630 4505.54
2002 1,77,336 4818.95
2003 1,67,980 5706.35
Source : Reserve Bank of India, Handbook of Statistics on the Indian Economy, 2003-04
Closed Shops : Plagued with
Problems
Reasons No of Units (In ‘000) % of Total

Labour Problems 7 2.3


Disputes among 11 3.7
Owners
Raw Materials Problems17 5.6

Finance Problem 105 34.9


Marketing Problem 43 14.3
Natural 10 3.3
More than One Reason 50 26.6

Others 58 19.3
Total 301 100
Source : Second Census of Small Industries Report
Trends Of Lending By Banking
Sector To SSI
As at end March Total advances byTotal Advances to SSI Proportion of SSI to
Banking Sector Sector Total Advances

1999 2,46,203 42674 17.30

2000 2,92,943 45788 15.63

2001 4,69,153 56002 1.94

2002 5,36,727 57199 10.66

2003 6,69,534 60394 9.02

2004 7,64,383 65855 8.62

2005* 9,72,587 76114 7.83

Source : RBI Report on Trend and Progress of


Banking in India
Measures Taken by the
Government

• Protective Measures

• Promotional Measures

• Institutional Measures
Protective Measures
• Reservation of products exclusively for small
sector. At present, the number stands at more
than 800.

• A cess imposed on certain products of the


organized sector to enable the small sector
industries to compete successfully in the market.

• Government proposes to provide legislative


protection to small scale industries
Promotional Measures
• Providing raw materials at a reasonable prices and on
priority basis.

• Setting up of Small Industries Development Bank of India


(SIDBI) and Small Industries Development Fund (SIDF) for
providing financial assistance.

• Increasing the money earmarked for the development of


small scale industries under the successive five year plans.

• Providing technical assistance and improved tools and


methods.
Institutional Measures
• National Small Industries Corporation

• Small Scale Industries Development Organisation

• All India Boards

• District Industries Centers

• Industrial Estates

• Industrial Cooperatives
Industrial Policy Resolution ( 6th August,
1991)

Objective
• To impart more vitality and growth-impetus to the
sector to enable it to contribute its mite fully to
the economy, particularly in terms of growth of
output, employment and exports.

• Substantial delicensing of the sector.

• To deregulate and debureaucratise the sector


with a view to remove all fetters on its growth
potential, reposing greater faith in small and
young entrepreneurs.
Tiny Enterprises
• Increase in the limit of investment in plant and machinery
 Small Scale Industries – up to 60 lakhs
 Ancillary Units – up to 75 lakhs
 Export Oriented Units – up to 75 lakhs

• All Industry-related service and business enterprises, irrespective


of their location, would be recognised as small scale industries
and their investment ceilings would correspond to those of Tiny
Enterprises.

• To widen the scope of the National Equity Fund Scheme to cover


projects upto Rs.10 lakh for equity support (upto 15 %).

• Single Window Loan Scheme enlarged to cover projects upto


Rs.20 lakh with working capital margin upto Rs.10 lakh.
Financial Support Measures
• Emphasis shifted from subsidised/cheap credit, except for
specified target groups, and efforts were made to ensure
both adequate flow of credit on a normative basis, and the
quality of its delivery, for viable operations of this sector.

• To provide access to the capital market and to encourage


modernisation and technological upgradation, it was
decided to allow equity participation by other industrial
undertakings in the SSI, not exceeding 24 per cent of the
total shareholding.

• Regulatory provisions relating to the management of


private limited companies are being liberalized.
Small Industries Development
Bank of India
• Set up as a wholly owned
subsidiary of Industrial
Development Bank of India by an
Act of Parliament in 1989.
• Commenced its operation on 2nd
April, 1990.
• The move came after
establishment of Small Industrial
Development Fund (SIDF) by IDBI
was unsuccessful in meeting the
demand of small scale sector
Functions of SIDBI
• Refinancing of term loans granted by SFCs, SIDCs/banks.

• Providing assistance for development of marketing


infrastructure and creating new marketing channels.
• Assistance for developing industrial estates.

• Resource support to National Small Industries Corporation


and Small Industrial Development Corporations for raw
material supply.

• Providing equity type of assistance to get special target


groups like new promoters and women under National
Equity Fund, Mahila Udyam Nidhi etc.
Small Sector : THE SWOT
STENGTHS
Analysis
WEAKNESS
• Flexibility in production • Often lack in management,
volumes and design changes marketing or financial skills
• Faster decision making • Technological obsolesce
• Lower labour costs • Poor financing
• Lower overhead costs • Lack of marketing strength
OPPOPTUNITIES THREATS
• Large companies are • With concessions disappearing,
outsourcing more to reduce their inefficient units will die
own costs. • With dereservation,
• Promising export market competition will come from large
• Higher investment limits mean companies
companies can expand and • With import liberalisation,
modernise competition will come from MNCs
• Big companies can take a and cheap units
larger equity stake in small ones • Smaller, less aggressive
companies will suffer
“The entrepreneur always searches
for change, responds to it, and
exploits it as an opportunity.”

- Peter F Drucker

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