|
 

|
  
‡ In India the Small Scale Industries come under
the category of SMEs.
‡ The importance of SMEs is well recognized and
has acquired a place of pride in India.
‡ This sector accounts for around 95% of the
Industrial units of the country, contributing to
about 40% of the manufacturing sector output
and to approximately to one third of direct
exports.
 |
  |
 
‡ This sector has been consistently out
performing large industry even after
liberalization of Indian economy since July
1991 on crucial parameters in production.
‡ The SSI sector was protected against
international competition by high tariff
barriers and quantitative restrictions.
 Kole of SMEs in India
‡ Very important employment generating sector.
‡ Promotion of balanced regional development.
‡ Produces diverse range of items which includes
capital goods, intermediate goods, and
consumables.
‡ Significant export earnings ± about 42% of
country's total exports.
‡ Import substitution
‡ Significant contribution to GDP
‡ Higher growth rate ± when industry growth rate
was 8%, the SMEs growth rate was 12%.
 Kole of SMEs in India
‡ Small scale sector in India has emerged as a vibrant and
dynamic segment of the economy.
‡ During the last decade alone, the small scale sector has
progressed from the production of consumer goods to
the manufacture of many sophisticated products like T.V.
sets Micro wave components, Electro medical
equipments etc.
‡ The SSI sector has been registering a higher growth rate
than the overall industrial sector in the past few years
consistently.
‡ The concept of small enterprise includes not only
industrial but service sector also. It is the service sector
that accounts for a vast majority of the small units and
gives scope for individual initiatives and consumer
satisfaction.
Major sectors ± Presence of Indian
SMEs
‡ Agro and food processing
‡ Automobiles
‡ Building materials
‡ Furniture
‡ Gems & Jewellery
‡ Handicrafts
‡ Leather goods
‡ Packaging
‡ Textiles & Garments
 Ëlassification of MSMEs

Investment in plant and machinery (In Ks)

Manufacturing Service

Micro Upto 2.5 Upto 1 million

million
Small Above To 50 Above 1 To 20
2.5 million million
Medium Above 50 To 100 Above 20 To 50
million million
 Government Support to SMEs
‡ The Government of India plans to launch
SME helpline to provide assistance on
issues like taxation, finance, laws,
marketing etc.
‡ Government implementing a national
strategy for manufacturing drawn up by
NMËË (National Manufacturing
Ëompetitiveness Ëouncil) to enable SMEs
to achieve competitiveness.
 Government Support to SMEs
‡ The strategy has identified priority areas
as Textiles & Garments, Food processing ,
IT Hardware & Electronics , Leather &
Footwear , Automobiles & Auto
components.
‡ Ëonsultants to be deployed to a cluster of
8 to 10 companies for 1 year to 18 months
and the costs to be borne by the
government.
Government Policy & SME in India
‡ Industrial policy resolution 1948 ± special role to
SSI sector for creating additional employment
with low capital investment by laying the basic
administrative foundation for the years to come.
‡ Industrial policy resolution 1956 ± the
government reserved 128 items for exclusive
production in the small scale sector to make SSI
sector self supporting and to make its
development integrated with that of large scale
industry. Also reserved 166 items for exclusive
purchase by the government from the small
sector.
 Government Policy & SME in India
‡ The industrial policy resolution 1956, puts forth four
arguments in favor of SSI units:
1. The employment argument ± SSI sector is an
important solution for a labor surplus economy like
India where population is suffering from intense
problems of unemployment.
2. The equality argument ± SSIs help in dispersal of
income more widely than income generated in a few
large enterprises. Large enterprises cause
concentration of economic power in a few hands and
also encourage monopolistic tendencies whereas SSI
bring about greater equality of income distribution.
 Government Policy & SME in India
ý. The latent resource argument ± small enterprises are
able to tap latent resources of the country.
Entrepreneurial ability, hoarded wealth , creativity etc
are brought up to the surface.
4. The decentralization 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. Decentralization of industry can
help in tapping local resources, such as raw materials,
idle savings , local talent etc.
 Government Policy & SME in India
‡ The industrial policy 1977 ± the salient
features of this policy are:
1. Ëlassification of small sector in three
categories: a. Small Scale Industries b. Tiny
Units c. Ëottage & Household
2. Keservation of production of 504 items in the
small scale sector.
ý. Establishment of DIËs 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.
Government Policy & SME in India
‡ The industrial policy 1980 ± this policy
ensured balanced growth of large,
medium, small & cottage industries. The
policy also had objectives to optimally
utilize 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.
 Government Policy & SME in India
‡ The industrial policy 1980 ± the salient
features of this policy are:
1. Small scale, tiny units, ancillary units were
redefined.
2. The DIËs were replaced by nucleus plants in
each industrial backward districts 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.
Government Policy & SME in India
ý. Keservations of items continued
4. Financial support to small units was
strengthened.
5. Village industries including handlooms,
handicrafts, khadi etc received greater
attention.
6. The policy also stressed to build up
buffer stocks of critical items.
Government Policy & SME in India
‡ Post liberalization scenario ± new challenges
thrown to the Indian SSI sector. Ëompetitive
pricing, meeting quality standards and
environmental compliance are some of them.
‡ Small Scale Industrial policy 1991 laid stress on
providing free access to capital, technology and
market so as to include greater industrial
efficiency and international competitiveness. The
central excise duty exemption limit was
increased from rupees 5 million to 10 million.
 Government Policy & SME in India
‡ New policy measures for SSI announced in
Aug 2000:
1. Increase in the limit for composite loans from
rupees 1 million to 2.5 million.
2. Industry related service and business
enterprises with a maximum investment of
rupees 1 million to qualify for priority lending.
ý. Ëapital subsidy of 12% for investment in
technology in select sector.
4. Kupees 75,000 to each unit that obtains ISO
9000 certification.
 Policy Initiatives to SSI Sector
during last 5 Years
‡ SIDBI has established a SME growth fund with a
corpus of Ks.500 crores.
‡ The Technology Upgradation Fund (TUF)
continued with an enhanced allocation of Ks.
5ý5 crores.
‡ Life insurance scheme and health insurance
package for the weavers introduced.
‡ The ceiling for SSI exemption limit based on
turnover from the level of Ks. ý crores increased
to Ks. 4 crores per year.
 Policy Initiatives to SSI Sector
during last 5 Years
‡ Micro, Small & Medium Enterprises Development
Act (MSMED) enacted in 2006.
‡ An empowered group of administrators set up to
lay down a comprehensive policy cluster
development and oversee its implementation.
‡ A package for promotion of micro & small
enterprises announced in Feb-2007 includes
measures addressing concerns of credit, fiscal
support, cluster based development,
infrastructure, technology and marketing.
Ëapacity building of MSME associations and
support to women entrepreneurs are the other
important features of this package.
 Growth & Performance of SME Sector
Financial No. of units Employees Production
year in million in million Ks billion
200ý-04 10.9 26.ý7 ý148.5

2004-05 11.4 27.5ý ý645.5

2005-06 11.9 28.76 4298

2006-07 12.ý ý0.00 4978.4

2007-08 12.8 ý1.25 5872

| 
   |
    |

 Growth Kates of Production

Year Growth rate of Overall Industrial

SSI sector (%) Growth (%)
2002-0ý 8.68 5.70

200ý-04 9.64 6.90

2004-05 10.88 8.40

2005-06 12.ý2 8.10

 Ëontribution of SSI in GDP
Year Ëontribution of SSI (%) at 1999-2000
prices in
Total indl. prodn GDP
1999-2000 ý9.74 5.86
2000-2001 ý9.71 6.04
2001-2002 ý9.12 5.77
2002-200ý ý8.89 5.91
200ý-2004 ý8.80 5.82
 v   |


The main barriers for growth for Indian SMEs

were :
‡ Market related
‡ Finance related
‡ Government policies and regulations
‡ Worker inefficiencies
‡ Technical
 v   |

‡ Finance
‡ Kaw material
‡ Technology
‡ Idle capacity
‡ Infrastructure
‡ Marketing
‡ Underutilization of capacity
‡ Skilled manpower
‡ Project planning
‡ Managerial
 v   |

‡ The market barriers included low sales and less
demand for products, competitive market, lower
prices of imported products, stagnancy and
market fluctuations.
‡ Some units have taken corrective measures to
overcome the barriers through cost cutting
measures, training of manpower to increase
productivity, market expansion measures.
‡ SSI units are aware of the advantages of IT and
usage of Internet in expanding their activities.
 Problems for SMEs
1. Teething troubles ± project report preparation,
data collection
2. Obtaining license from industries dept
ý. Nonavailability of updated handbooks with SISI
4. Inadequate technical support in respect of
product identification and machinery
installation
5. Delays in payment of bills creating liquidity
problem
6. Lack of coordination between banks & SFËs
and other agencies in assisting SSI units
7. Too many laws relating to labor, excise, taxes
etc and records of the same to be kept by the
unit.
 Problems for SMEs
8. Unequal Ëompetitions with larger units
and MNËs
9. Overlapping of many items reserved for
small sector
10. Necessary infrastructure not provided by
the government
11. Militant trade unionism in some parts of
the country.
 Sickness in SME
‡ Sickness is a gradual process and does not
develop suddenly. In the initial stages, it gets
reflected in the form of defects and mistakes in
the unit¶s functional areas like production,
finance etc.
‡ A sick industrial unit may be defined as one that
fails to generate surplus on a continuous bases
and depends on frequent infusion of external
funds for its survival.
‡ As per KBI, an SSI is considered sick if it has
incurred cash loss in the previous accounting
year and is likely to continue to incur cash loss in
the current accounting year, and has an erosion
on account of cumulative cash losses to the
extent of 50% of that of its Networth.
 Sickness in SME
‡ A sick industry is one whose financial viability is
threatened by adverse factors present and
continuing. The adverse factors might relate to
management, market fiscal burden, labor
relations etc.
‡ The sick industrial companies (special provision)
Act 1985 identifies sickness in terms of cash
losses for two consecutive financial years and
accumulated losses equal to or exceeding the
networth of the company at the end of the
second financial year.
 Symptoms of Sickness
‡ Irregular or unsatisfactory turnover in the
account
‡ Slow and unsatisfactory movement of stocks
‡ Decline in production
‡ Decline in sales
‡ Decline in profitability
‡ Frequent violation of terms & conditions
‡ Asking for additional grants
 Symptoms of Sickness
‡ Ëurrent ratio
‡ High cost of capital
‡ Piled up inventory
‡ Default in payment of interest to debenture
holders
‡ Operating below breakeven point
 Ëauses of Sickness

Internal External

1. Planning 1. Infrastructural bottlenecks

2. Implementation 2. Financial bottlenecks
ý. Production ý. Government controls & policies
4. Market constraints
5. Extraneous factors
 Planning
 

 
‡ Knowhow inadequate
‡ Locational disadvantage
‡ Outdated production process


 
 
‡ High cost of inputs
‡ Break-even point too high
‡ Uneconomic size of project
‡ Under-estimation of financial requirement
‡ Unduly large investment in fixed assets
‡ Over-estimation of demand
 Implementation
‡ Ëost overruns due to various delays

‡ Inadequate mobilization of finance

 Production
. v 
    
‡ Inappropriate product mix
‡ Poor capacity utilization
‡ Poor quality control
‡ Poor inventory management
‡ High wastage
     
‡ Excessively high wage structure
‡ Inefficient handling of labor problems
‡ Excessive manpower
‡ Poor labor productivity
‡ Poor labor relations
 Production
 !  
‡ Dependence on single customer or limited number of
customers
‡ Defective pricing policy
‡ Lack of knowledge of marketing techniques
‡ Lack of market research
‡ Lack of customer feedback
‡ Poor sales realization
" 
   
‡ Poor financial planning
‡ Faulty costing
‡ Absence of cost consciousness
‡ General financial indiscipline
 External Ëauses
‡ Infrastructural - Power, transport
‡ Financial - Nonavailability of
adequate finance
‡ Govt. controls - Price controls,
fiscal duties, abrupt change
in policies
‡ Market constraints - Market saturation
revolutionary advances in
technology
‡ Extraneous factors - Natural calamities war,
multiplicity of unions
 Kemedial Measures
1. Early detection of sickness ± proper MIS to
provide early warning signals
2. Ëorrective action by banks & financial
institutions based on diagnostic studies
ý. Financial institutions to assume management
responsibility where they are confident of
restoring the sick unit to good health
4. Divestment of sick unit to someone with
requisite experience before the situation gets
out of control
5. Keduce concern over unemployment. Set up
a separate fund for retraining of workers
 Kemedial Measures
6. Apply to BIFK
7. For reconstruction of a sick unit all the
shareholders should bear sacrifices on equitable
& just basis
8. The main criterion for take over of a sick unit by
another company should be whether that company
has the skills, technology finance etc and
considerations of MKTP/FEKA should not come in
the way
9. Incentives should be provided to professional
managers who help in reviving sick units.
 Kemedial Measures
‡ Some remedial measures taken by the government
are:
1. Sick industries policy, 1978
2. Sick industries policy, 1981
ý. Sick industrial companies act, 1985
4. Sick industrial undertaking Ëell setup by KBI
5. Guidelines to the bank by KBI
6. Assistance by SFËs
7. The industrial reconstruction bank of India setup in
1971.
8. BIFK set up in 1985
 Ëriteria to identify sickness
‡ Ëontinuous decline in gross output
compared to the previous two financial
years.
‡ Delay in repayment of institutional loan for
more than 12 months.
‡ Erosion in the networth to the extent of
50% of the networth during the previous
accounting year.
 Ëriteria to identify sickness
Ö " 
  
 
‡ Operating statements that give details of current
assets, current liabilities, profitability, inventory,
market research etc.
‡ Katio analysis ± various ratios such as cost of
production to sales, current ratio, inventory
turnover ratio, interest coverage ratio etc.
‡ Ëonduct of accounts ± fluctuations in account
too high, frequent requests made for changes in
repayment schedules, number and amount of
bills tendered decreasing, sanctioned bills limit
not fully availed of.
 Ëriteria to identify sickness
]#
 
‡ Stocks slow moving or non moving
‡ Production witnessing falling trend
‡ Negotiable instruments like bills, cheques returned
unpaid
‡ Keconstitution of the firm at short intervals
‡ Labor problems
‡ Denial on the part of the suppliers to supply raw
materials & components
‡ Persistent disagreement or disharmony among the
directors / partners
‡ Low employee morale
 Ëlassification of Sickness
‡ Genuine sickness ± beyond the control of the
persons who float the unit, who may be capable,
honest and experts.
‡ Incipient sickness ± capacity utilization of the
unit less than 50% of the highest achieved
during the preceding 5 years. Such sickness
occurs due to non-viability of the project.
‡ Induced sickness ± the causes are more internal
than external. Managerial incompetence, faulty
financial structure and pursuance of wrong
policies could be some of the reasons. It could
also be the malafide intentions of the promoters.
 Institutional Support for SMEs

‡ SIDBI
‡ KVIË
‡ NIESBUD
‡ IDBI
‡ NSIË
SIDBI ± Small Industries Development Bank of
India
‡ Was established in April 1990 for Promotion,
Financing, Development of industries in the small
scale sector and coordinating the functions of other
institutions engaged in similar activities.
‡ Some of the schemes
1. For setting up SSI units ± project cost not to exceed Ks
ý00 lakhs.
2. Schemes for acquisition of
(a) In-house quality control facilities ± limit 7.5 lakhs
(b) DG sets & pollution control equipment ± need based
(c) Ëomputers ± limit 5 lakhs
(d) Indigenization / import substitution ± limit 5 lakhs
(e) Installation of renewable energy/energy saving
systems ±need based
SIDBI ± Small Industries Development Bank
of India
ý. Schemes for marketing activities:
(a) Scheme for marketing organizations ± cost of project
not to exceed Ks 25 lakhs and down payment of
atleast 50% of value of goods purchased.
(b) Scheme for purchase of mobile sales ---- not to exceed
Ks ý lakhs per vehicle
4. Schemes for infrastructure development
(a) Schemes for setting up industrial estates ± project cost
not to exceed Ks ý00 lakhs
(b) Scheme for development, construction and
maintenance of roads ± need based.
SIDBI ± Small Industries Development Bank
of India
5. Scheme for women entrepreneurs
Mahila Udyam Nidhi scheme ± cost of
the project not to exceed Ks 10 Lakhs.
Loan limit 15%.
6. Special scheme for Ex ± serviceman
7. Bill discounting schemes
 KVIË ± Khadi and Village
Industries Ëommission
‡ KVIË makes available finance to the
implementing agencies in the form of
capital expenditure loans. They finance
right from the procurement of raw
materials and tools and implements to the
production of goods and their marketing.
The loans for Khadi are interest free while
for village industries the interest is 4% p.a.
 NIESBUD ± The National Institute for
Entrepreneurship and Small Business
Development
‡ Established in 198ý by the Ministry of
Industry.
‡ Ëoordinates & oversees the activities of
various institutions / agencies engaged in
entrepreneurship development, particularly
in the area of small industry and small
business.
 V
|]  V    

 | ]
 
‡ Activities of NIESBUD are:

(a) Assisting/supporting EDPs

-- Evolving syllabi for training target groups

-- Formulation of standardized procedures of identification
and
selection of potential entrepreneurs
-- Preparation of training materials

(b) Training for trainers

-- Accreditation programme for entrepreneurial
motivational trainers
-- Programmes for support organizations such as SISIs,
DIËs etc.
 NIESBUD ± The National Institute for
Entrepreneurship and Small Business
Development
(c) Evolving standardized material and research
publication:
-- Handbooks on Industrial laws, commercial laws
-- Keady reckoner for product selection
-- Newsletters covering topics like new products,
process & technology
(d) Ëreation & capacity building of EDP institutions
(e) National/International forum for exchange of
ideas & expressions
(f) Developing entrepreneurial culture
 IDBI ± Industrial Development
Bank of India
‡ Promotion of the growth of industries in
backward regions

‡ Ëoncessional finance to SFËs & banks for

their loans to SMEs.
 NSIË ± National Small
Industries Ëorporation Ltd
‡ Established in 1955
‡ Mission is promoting, aiding & fostering the
growth of small scale industries and related
small scale services.
‡ Promoting modernization, technology
upgradation, quality awareness, strengthening
linkages with large & medium scale enterprises.
‡ NSIË operates through 9 regional offices, 21
branches and more than 500 professionals
across the country.
‡ Has offices in Dubai & Johannesburg
 NSIË ± Schemes & Activities
‡ Supply of machinery on hire purchase
‡ Procurement of imported / indigenous raw
material
‡ Export of small industries products
‡ Training in technical trades
‡ Technology business incubators
NSIË ± Support & Services Offered
‡ Managing globalization
J A focused sectoral approach
J Upgradation of these identified sectors in terms of
product design, quality control, marketing, packaging etc
J Setting up of sector- specific JAGs
J Identification of potential global players in each sector
J Assigning of BDM in each sector
J Ëommon programmes with the stakeholders in the
identified sectors like buyer-seller meets
J Offering integrated support through marketing support,
financial support etc
J Focus on specific sectors
 NSIË ± Support & Services
Offered
‡ Technology
J NSIË offers SSI units the following
support and services:
a. Technology audits & benchmarking
b. Technology needs assessment
c. Technology sourcing
d. Technology acquisition
e. Training for skill upgradation
 $
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a To evolve strategies and methodologies for different target groups and

locations and conduct field tests.
a To organize and conduct training for entrepreneurship development
a To identify training needs and offer training programmes to Government and
non-Government organizations engaged in promoting and supporting
entrepreneurship.
a To document and disseminate information needed for policy formulation and
implementation related to self-employment.
a To identify, design and conduct training programmes for existing
entrepreneurs.
a To prepare and publish literature related to entrepreneurship and industrial
development.
a To organize seminars, workshops and confer conferences for providing a
forum for interaction and exchange of views by various agencies and
entrepreneurs.
| ( !
| ]
|
1. Innovative and Techno-managerial Skills
2. The Enterprising Spirit:
ý. Employment Generation
4. Distribution of Economic Power
5. Exports Potentiality
6. Adjustability and Adaptability
7. Decentralization of Industry
8. Investment and Ëapital Oriented
9. Mobilization of Kesources
10. Variety in the Product Offered
11. Social Equilibrium
12. Optimum Use of Ëapital
1ý. Dependence of Big Business on Small-scale industries Ë


14. Optimal Utilization of Local Kesources

| ( !
| ]
 ( !
a Small businesses that have not undergone proper planning have more
chances of failure than those that have proper planning strategies.
a Initiators with weak financial background are more likely to fail than those
having strong investment avenues.
a Entrepreneurs without proper experiences of industry are more liable to
fail than those having experience in industry area. The experience may
be a training on spot or learning on their ancestral business. But a
related experience would be a facilitator in running a business and
saving him from handicaps and mishaps.
a Younger generation with less dynamism/ experience/learning are more
prone to failures than the older ones.
a Entrepreneurs who have undergone some training or education of the
industrial area are less prone to sickness than those who have started
Ë

without any technical knowledge.
| ( !
| ]
a A single handed small business with all responsibilities lying on one
shoulder will have greater chance of neglect and failure than those
where responsibilities are shared by more than one persons with clarity
and specialization.

a Knowledge of marketing is the key to successful venture; lack of which

leads to distress for the enterprises.

a A high technology profile generally conjures up images of such emerging

industries. It is a hard faced fact that industries in Uttar Pradesh are
highly lacking the technological base which makes them more weak.