Introduction Ssi

7/29/2019 Introduction Ssi

http://slidepdf.com/reader/full/introduction-ssi 1/44

1

INTRODUCTION

A leading, industrially advanced developing country, India has large,medium and small industrial units of production in almost all branches of theindustry. Since the time of the independence in 1947, a significant feature ofthe Indian economy has been the rapid growth of the small industry sector.The small industry sector is considered to have a major role in the Indianeconomy due to its 40 percent share in the national industrial output alongwith an 80 percent share in industrial employment and nearly 35 percent sharein exports. The small scale industries sector has been assigned an importantrole in the industrialization of the country by the previous and current

governments of India.

Since Independence, the growth and development of the small-scale sector hasbeen favored by the GOI on the following grounds:

(1) Generation of employmentopportunities by SSIs,

(2) Mobilization of capital andentrepreneurship skills,

(3) Regional dispersal ofindustries and

(4) Equitable distribution ofnational income.

The policies pursued by the GOIover the years have helped in the growth of the SSIs to a considerable extent.



2

MEANING

There is a clear distinction between the traditional and modern small

industries. The traditional small industries include khadi and handloom, villageindustries, handicrafts, sericulture, coir, etc. Modern small industriesmanufacture a wide variety of goods from simple items to sophisticated itemssuch as television sets, electronics control system, various engineeringproducts, particularly as ancillaries to large industries. The traditional smallindustries are highly labor-intensive, while the modern small industries usehighly sophisticated machinery and equipment. The term small-scale industry ismostly used to represent modernsmall industries. The SSIs

manufacture many items whichinclude rubber products, plasticproducts, chemical products, glassand ceramics, mechanicalengineering items, hardware,electrical items, transportequipment, electronic componentsand equipments, automobile parts,bicycle parts, instruments, sports

goods, stationery items and clocks and watches.

Small Scale Industries may sound small but actually plays a very

important part in the overall growth of an economy. Small Scale Industries can

be characterized by the unique feature of labor intensiveness. The total

number of people employed in this industry has been calculated to be near

about one crore and ninety lakhs in India, the main proponents of Small scale

industries.

The importance of this industry increases manifold due to the immense

employment generating potential. The countries which are characterized by

acute unemployment problem especially put emphasis on the model of Small

Scale Industries. It has been observed that India along with the countries in the

Indian continent have gone long strides in this field.



3

DEFINITION

The terms “small scale industries,” has been defined in 3 ways. The

conventional definition includes cottage and handicraft industries whichemploy traditional labor-intensive method to produce traditional products,largely in village households. Theyemploy none or almost a fewhired hands. The handloom textileindustry is example. Though oncefamous, this sector has beensteadily declining.

The operational definition for policy purposes includes all thoseundertakings having aninvestments in fixed assets inplant and machinery, whether held on ownership terms or bylease or by hire-purchase, notexceeding Rs.1 crore. A tiny unit is one whose investment in fixed assets inplant and machinery d0oest not exceeds Rs 25 lakhs. The operational definition

is considered relevant for discussion in academic circles as well as policydecisions.

The third definition of small-scale industries relates to national income

accounting. This includes all manufacturing and processing activities, including

maintenance and repair services, undertaken by both household and non-

household small – scale manufacturing units, which are not registered under

the Factory Act, 1948.



4

CHARACTERISTICS OF SSI

1. Small capital investment: SSI requires a capital investment of

less than 25 crores which is not much and thus any small

entrepreneur can open a SSI.

2. Generates employment: SSI gives employment to a lot of

untrained employees as it is a labour intensive sector.

3. Personal contact: There is a personal contact between the

owner and the customer in SSI.

4. Location: SSI is located in s uburbs and other less developed

areas or special zones provided by the government for SSI.

5. Exploitation of human resource: Generally there are no

worker unions in SSI. Hence workers are exploited and do not get

facilities which employees of large scale industries usually get.

6. Technology: Very less technology is used in SSI because it is

labour intensive. As also the technology is outdated.

7. Dispersal of manufacturing activity: Many SSIs are ancillary

industries. They produce components for large industries. Thus

manufacturing activity is dispersed.

8. Poor organization and management: The entrepreneurs do

not know management concepts and therefore the organization

and management of SSI is poor.

9. Export potential: SSIs have a lot of export potential because

government provides support and promotes export of SSIproducts.



5

SIGNIFICANCE OF SMALL-SCALE INDUSTRIES

The small-scale sector has a high potential for providing employment, dispersalof industries, promoting entrepreneurship and earning foreign exchange to thecountry. The following points further demonstrate the importance of small-scale industries.

1. Smal l is beautiful: “small is beautiful,” said E. F. Schumacher. He

maintains that man’s current pursuits of profit and progress, whichpromotes giant organizations and increased specialization, has in factresulted in gross inefficiency, environmental pollution and inhuman

working conditions. Schumacher emphasizes on small working units,communal ownership and regional work places utilizing local labour andresources. For him, emphasis should be on person and not on product.

2. Innovative andproductive: it is thesmall units which arehighly innovative,though they do notmaintain their ownresearch anddevelopment wings.“….a disproportionateshare of innovationsuccess in businessseems to come from ‘skunk works’, tiny groups that tend to out -perform

the much larger labs that often have a cast of hundreds. We have now,several scores examples of effective skunk works.

3. Individual Tastes, Fashion and Personalized Services: small firms arequick in studying changes in tastes and fashions of consumers and in



6

adjusting the production process and production accordingly. Small firmsseem to have an edge in industries that call for personalized services,attention to detail and the flexibility to adapt quickly to changes in thebusiness or technological environment. For instance, in the garments and

electronic fields, the small units have ruled the roost; choruses ofgarment and TV industry voices say that big companies delegateresponsibility down the line and cannot swiftly change the trace whennecessary. Says a garment exporter: “… the garment business is

personalized, oriented to changing fashions and has to be tightlycontrolled. Professional managers do not have the motivation for all this.And most people in the electronic business agree that big firm had so far had limited success because of lack of flexibility.”

4. Symbols of national identity: small enterprises are all most alwayslocally owned and controlled, and they can strengthen rather thandestroy the extended family and other social systems and culturaltraditions that are perceived as valuables in their own right as well assymbols of national identity.

5. Happier in work:people who work insmall enterprises arehappier in their workthen those who workin large once in spite oflower wages and poor standards of safety,comfort and welfare

facilities.

6. Always winner of the game: Small companies and new entrepreneurswere at the forefront of practically every business boon of the last



7

decade, whether it was computer, television sets, consumer electronics,garment, diamond exports or advertising. And they frequently put theestablished large industrial houses in the shade with the quality of their performance, their ability to seize business opportunity and their

aggressive feeding of burgeoning markets. Remarkably enough, thegiants in the corporate sector fell flat on their faces in precisely theseareas. With losses piling up, the J.K.group had to pull out ofmanufacturing television sets, while the Sarabhai’s Telegrade limped

along. In garments, virtually all the big firms, including the cigarettebetemoth, the ITC, tested the waters to call it quits or retain a smallpresent in the field.

7. Dispersal over wide areas: it is only small-scale units which have atendency in disperse over wider areas. According to the second All IndiaCensus of Small-Scale units, 62.19% of the units are located in backwardareas.



8

ADVANTAGES ASSOCIATED WITH SMALL SCALE INDUSTRIES

This industry is especially specialized in the production of consumer

commodities.

Small scale industries can be characterized with the

special feature of adopting the labor intensive

approach for commodity production. As these

industries lack capital, so they utilize the labor power

for the production of goods. The main advantage of

such a process lies in the absorption of the surplus

amount of labor in the economy that was not beingabsorbed by the large and capital intensive industries. This, in turn, helps

the system in scaling down the extent of unemployment as well as

poverty.

It has been empirically proved all over the world that Small Scale

Industries are adept in distributing national income in more efficient and

equitable manner among the various participants in the process of good

production than their medium or larger counterparts.

Small Scale Industries help the economy in promoting balanced

development of industries across all the regions of the economy.

This industry helps the various sections of the society to hone their skills

required for entrepreneurship.

Small Scale Industries act as an essential medium for the efficient

utilization of the skills as well as resources available locally.



9

RELATIONSHIP BETWEEN SMALL AND LARGE UNITS:

1) Supplementary: Due to the supplementary role of small scale units

they can fill in the gaps between large scale productions. In Madras city a

small tricycle factory sustained and flourished alongside a large cyclefactory.

2) Competitive: Certain industries like tiles and bricks, preserved fruits,

perishable edibles and fresh baked goods required small engineering skill

and demands craftsmanship and artistry. The small scale industry can

compete in these selected products with the large scale sector.

3) Complementary: Today many small units produce intermediate

products for large units. Examples of such complementary items are

plastic dust cover for video recorders, electronic passive components

etc. under complementary relationship, small scale nits functions under

the cover of the large units and enjoy the advantage of protected

markets for their products.

4) Ancillarisation: Many small firms supply components parts and

accessories to large firms, in the sense they serve as ancillaries. E.g.

Maruti Udyog, Bajaj, Mahindra’s, Telco, etc. buys some components and

accessories used in their products.

Small scale

Large scale



10

5) Jobbing: Sometimes large enterprises provide components and

material to small scale units. The small units process these materials and

components into finished parts or sub-assemblies.

6) Merchandising: There are small scale units who do not undertake

marketing activities but distribute and sell their products through large

scale units. For e.g. Hindustan Lever Limited distributes cosmetics and

soaps produced by small firms. Even stabilizers, refrigerators, footwear

etc manufactured by small firms are marketed by large units.

7) Servicing: Many small firms have been assigned the job of repair and

maintenance of products manufactured by large unit’s e.g. digital

equipments, personal computers, calculators etc. Small scale industries

also start servicing and repairing shops for the products of large units.



11

Small Scale Industries

Manufacturing

(a) Village & CottageIndustries

(b)Handloom &Handicrafts

(c) Modern SSI

(i) Small ScaleUnits

(ii) Ancillary Units

(iii) Tiny Units

Trading

(a) Wholesale

(b) Retail

(c) CommissionAgents

Services

(a) ProfessionalServices e.g.medicine, law etc.

(b) CommercialServices e.g. realestate,

wharehousing,repair shop, etc.

(c) PersonalServices e.g. fashionshops, dry cleaningetc.



12

Small scale industries can be classified into five main groups.

1. Manufacturing industries i.e. industries manufacturing complete article.

2. Servicing Industries – It covers light repair shops necessary to maintain

mechanical equipment.3. Feeder Industries – It specializes in certain types of products and

services e.g. electroplating, casting welding etc.

4. Ancillary to Large Industries – It produces parts and components ad

rendering services.

5. Mining or quarrying.

Cottage Industries:

1) They produce mainly traditional goods.

2) They have pre-dominant use of manual

labor.

3) They are technically backward.

4) They derive raw material from local sources.

5) They are household enterprises employing very little hired labor.6) They cater to the needs of the local market.

Ancillary Industries :

1) The investment in plant and machinery can go up to Rs. 1 crore.

2) It supplies 50 percent of the production to one or more parent units.

3) It is engaged in the manufacture of parts, components, sub assembly’s

toolings and renders services to the parent units for production

purposes.

4) It is not controlled by any large unit



13

PROBLEMS OF SSI

A few internal problems:

Most of these units are set up by individual promoters. Theycome with personal egos and ideas, attitudes. In short its oneman show.

The progress of the company depends heavily on mindset,courage and vision of the owners.

The organization structure is not built. Targets and budgets are notworked out. The system and procedures are not transparent. Planning isnot corporate and dealings are informal.

The lack is of professional expertise with not much of real accountability. The emphasis is on short term gain even at the cost of quality. Rather a

penny wise pound foolish approach. Though personal loyalty may exist, logical reasoning, career plan and

motivation are somewhat lacking while pay scales are generallylow, goodwill and job security are less existent.

In many cases, business ideas and exposures are not up to dateand adequate, rules and regulations are less understood , productand market knowledge bare not up to the mark, business remainsconfined within local or regional market.



14

A few external problems

Surveys of the material and human resources of the countries to identifythe regions or areas for the development of small scale and medium

scale industrial enterprises. Identification of industrial projects for development. Project preparation and evaluation. Financial or credit support and investment promotion. Consultancy and counseling services. Technology development and applications, such as the

designing of prototype machines for productsidentified according to country resources andrequirements.

Development of infrastructure of various kinds in the appropriate areas. Entrepreneurship development. Industrial training and skill formation. Linkages between large and small scale industries and the creation of

sub-contracting facilities at the national, regional and international levels. Quality control and testing facilities. Market promotion, both domestic and export. Procurement of new materials and equipment. Scientific and industrial research.

Information collection and dissemination on technology, markets etc. Identification of and assistance to enterprise which are experiencing

difficulties. Management and reorganization or restructuring and small or medium

scale industry through various schemes. Productivity increases through modernization. Initiative measures by industry and by area. Local initiative. Creation of institutions and changes in prevailing institutional

arrangements. Regional and international technical and financial assistance. Co-operation among the developing countries.



15

Finance

Financial inadequacy is also reported to be one of the most important

causes leading to sickness of small-scale units. Undoubtedly, the government

has extended a number of incentives for the growth of small-scale industriesand some people feel that these have had negative effect on the small scale

industries. Some others feel that in order to obtain more and more finance and

concessions, the small entrepreneur often runs from one agency to another ad

consequently cannot concentrate on his industry. There have also been reports

that some of these incentives have been misused. However, the discussion

here is related the small scale industries who have genuinely suffered for want

of adequate and timely financing facilities. It is well-known that a Committee

set-up by the Government of India under the Chairmanship of Prof. A. M.

Khusro, Ex-Member, Planning Commission is already looking into the financing/

credit problems/ needs of SSI’s and it is hoped that a separate Apex Financing

Institution for small industries might be recommended. In addition, a separate

legislation to protect the genuine interests of SSI’s, including tiny and ancillary

sector is under consideration of the Government. It could also be expected

that the Apex Financing Institution or Bank solely devoted to meet the credit

needs of small industries of the sector and come out with remedial measures

to improve health of the weaker small units. The Bank may also provide

expertise in guiding small entrepreneurs in their financial management

problems and offer preventive assistance to them in case where sickness

anticipated.



16

Technology

Notable technological innovations and changes are taking place in

industry tribally advanced countries of the world and SSI’s in those countries

are also correspondingly responding by upgrading their technology. For example, use of computers is being made in the design and production of

individual components in job shops at costs comparable with costs of mass

produced techniques. This has meaningful implications for a country like India,

where at present a large number of small and ancillary industries are

competing with large industries in a number of common product areas. While

fiscal incentives given to SSI’s are, indeed of help, the ultimate answer will, of

course lie in the SSI’s upgrading and updating their own technology and skills

to meet the stringent within the country and by importers abroad. Small units

will have to be technologically modern and price-wise competitive to play a

significant role and keep their place in the total industrial structure of the

country. In this task, technocrat-entrepreneurs particularly, may have to play a

leading role,

There is a misconception in some quarters that modernization and up

gradation of technology necessarily involves costly equipment and labour

reduction. While the initial investment cost in modern plant facilities may besomewhat higher, the investment would ultimately result in long-term benefits

somewhat higher and consistent quality and higher productivity achievements.

Modern technology also need not necessarily mean adopting automation in

every case. In case of small industries, the process of modernization and up

gradation of technology could be undertaken in phases depending upon the

resources available with the units. Modernization would, of course need higher

ad better skills to operate, maintain and run modern plant facilities to get the

maximum productivity. While this might mean less demand for uneducated and

unskilled personnel, it would on the other hand create opportunities for many

skilled and educated operators, technicians and engineers in modern small

industries.



17

Marketing

The last but not the least, the important factor causing sickness is the

small industries inability to market their products in a systematic way. It is well-

known that small-scale industries are mostly one man show or a familybusiness and professional marketing is often not practiced in such units.

However, it may also be stated that during the last decade and a half, some of

the progressive small-scale industries have also realized the need for scientific

marketing methods and have therefore organized their own marketing

networks on regional and national basis. This is true in some cases of

manufacturers of domestic electrical appliances where these small-scale

industries have a national network and a chain of distributors and retailers.

Some of the large marketing organizations have also been helpful in

undertaking the field of the products of SSI’s mostly in the field of domestic

electrical appliances. Such contacts have been educative for small industries in

learning marketing techniques from their large-scale partners. In this context, it

may be admitted that concept of forming consortia of small industries to share

the marketing efforts has not been very successful and effective. A view is

often expr5essed that marketing is purely an entrepreneurial function and the

Government should only provide necessary training and other facilities with the

financing institutions providing necessary financial help in initiating market

surveys and other allied marketing activities.

In this context, it may also be stated that the Government has been quite

responsive to the marketing needs of small-scale entrepreneurs producing

variety of items and has reserved over 800 items to be procured exclusively

from small-scale sector under the Central Government Store Purchase Program

implemented by the DGS & D. in addition, instructions have been issued to the

public sector enterprises and purchasing organizations of the Central

Government to provide price preference to the products of the SSIs wherever

they compete with large scale manufacturers against tenders floated by the

purchasing organizations. While the above measures are indeed helpful in

providing some sort of marketing assurance to SSIs, this meets only a small



18

part of small industries production. For a bulk of their production the small

industries have necessarily to depend upon their own initiative, drive and

innovations. It is here that training program in modern methods of marketing

will be helpful to small industries in upgrading their marketing technology on

modern lines.



19

OTHER PROBLEMS

Regional economic or industrial surveys can identify BOTH the growth

points or potentially expanding areas I the country ad the industrial projects

that are likely to be developed successfully in the areas. This stage should befollowed by the preparation of industrial projects and appraisal of all aspects –

economic, marketing, financial, social, commercial, managerial, technological

and environmental. I other words, a cost-benefit analysis of the projects,

including the likely social impact, should be prepared.

The preparation of a project and cost-benefit analysis are, however,

highly skilled jobs ad the services of experts or consultants and advisers with

appropriate skills in more than one discipline may be needed. A further important requirement is the availability of a group of persons or

entrepreneurs willing to initiate projects, take risks and put in capital although

financing agencies are necessary to help with credit. Obtaining information

about technologies available and their appropriateness to the identified

projects presents a serious problem o the intending industrialists. Thus

technical advice, counseling and information become very important. No

projects in an area can develop without essential infrastructure, such as,

transport, power supply etc. in addition, industrial training designed t impart tothe available labour force a variety of skills must also be given priority.

A matter of importance in facilitating the development of small and

medium scale enterprises is to ensure the mutuality of interests and the

linkages between the large enterprises and the small enterprises so that the

former offer a demand for the products of the latter. In many cases, the main

role of the mall enterprise is to supply the large-scale industries with inputs

such as parts, components and accessories. To establish and facilitate suchlinkages, it is necessary to identify the products needed by the large-scale

enterprises and the methods of producing them effectively and efficiently. For

instance, in India which is industrially and technologically advanced among the

developing countries, the National Small Industries Corporation has now given

a priority to identification and development of the types of products needed by



20

the large-scale industries and the designing of the proto-type machines for

producing them.

The quality of the products must be emphasized: unless modern small-

scale industrial enterprises are able to produce good quality products, the largeenterprises will rarely buy them. The designing of the machines has, however,

to be tailored to the local needs and the resources available within the country.

The role of small enterprise in Singapore and Hong Kong, for example, is

almost wholly to support large industrial enterprises. The same role is

becoming increasingly important for the modern small and medium-scale

enterprises in the large countries of the Asian and Pacific region, small-scale

and cottage enterprises is of course in addition to the traditional small-scale

and cottage enterprises which play an important part in the economies of theregion. In the reorientation of the small-scale industrial enterprises to the

requirements of large-scale industries, the development and application of

appropriate technologies as well as the formation and diffusion of technical

skills are of importance.

Other factors are extremely important for the development of traditional

small-scale and cottage enterprises in such countries as Bangladesh, Nepal and

Sri Lanka. These include the upgrading of skill through industrial training, thepromotion of markets, and the procurement of raw materials particularly those

which must be imported and of equipment.

As the developing countries of the Asian and Pacific region for the

development of the modern small-scale industries as well as for traditional

handicrafts or cottage enterprises vary in different countries.



21

CONSTRAINTS IN MODERNISATION

While the need for upgradation of technology and modernization of

production process and marketing methods is appreciated by SSIs, there are

certain constraints experienced in bringing about desired level ofmodernization in a definite limited time. These constraints may be stated as

follows:

Investment limit

A view is very often expressed by number of people in various quarters

that modernization cannot be brought about by SSIs within the present

investment limits of Rs 3 crores in case of small scale investment and Rs 3

crores in case of small scale ancillary units. The investment level of tiny sector

has been raised to 25 lakhs with effect from 07.02.97. An opposite view is also

expressed that since more than 90% of small units have an investment in the

plant and equipment of less than 5 lakhs any increase in the investment limits

would only benefit a very small percentage of small scale units. Since both

points of view have their own merits, the whole question would need to be

studied in greater depth to weigh the pros and cons of bringing in an increasing

investment of small scale industries.

Pace of change in technology

Due to increase in R and D activities,

undertaken by industries in the advance countries,

technological changes of far reaching importance are

taking place rapidly and SSIs often find it extremely

difficult to keep up with these changes. Even in case of foreign technical

collaboration from abroad into this country, only such technologies are givenwhich have become partly out modeled in the collaborating countries. Many

examples of this type are not difficult to seek in the field of electronics,

electrical, automobiles, components, etc. This rapidly changing technology in

certain industries in developed countries like USA, Japan, UK and West



22

Germany have forced them to vacate certain areas of production in favour of

developing countries where the cost of labour element is still less. The

investment dynamics in the field of electronics have resulted in a large number

of US and European countries establishing a part of their manufacturing

processing facilities in far eastern countries like Malaysia, Taiwan, Korea,

Indonesia and Thailand. Even in these countries there has not been any

marked transfer of technology upgradation in the small scale sector. It has also

been experienced in these countries that in most cases the foreign

collaborators have not bothered to upgrade the technology of small and

medium sector units. The situation in India is perhaps not totally different.

Technology versus employment

One of the biggest constraints felt in upgrading the technology through

automation is the fear that it might result in reduction of labour required.

Since employment generation is one of the basic objectives of growth of small

scale industries in India any proposal to induct modern technology, which

would ultimately result in loss of employment, is not received favourably. Here

also perhaps such industrial activities could be identified where modernization

would not necessarily mean automation resulting into reduction in overall

employment in SSIs. For example, in the field of electronic technology, theupgradation, which is continuously taking place, is also providing a lot of scope

for horizontal growth in ancillary, as well as assembly based industries in small

scale sector, providing thereby increasing scope of employment. It is one of

the major industries where small industries are thriving. New technologies are

also coming in the field of automobiles an area where the scope of

ancillarisation is considered to be of a very high order. Instead of replacing

labour from the small scale sector, the input of technology will provide more

employment in the ancillary and auxiliary sectors in these groups of industries.



23

Inadequate availability of inputs

Another factor which restricts the pace of modernization is the non-

availability of necessary financial, technical, raw material and other input

needed by SSIs for modernization. Also many small scale industries would findit difficult to pay the cost of new technology individually and therefore, it

would be necessary to identify and design and effective mechanism for import

of modern technology for selected fields and delivering them to the needy

SSIs. There could be several ways for transfer of technology imported from

abroad and the large scale industries in the private sector have to play a very

important role in acting as carriers of technology from foreign countries to the

small sector in India. An alternative may be to identify a government

organization to negotiate and buy appropriate modern technology in selected

areas of development and industrial production.



24

SICKNESS OF SSIs

Small scale industry has been accorded an important place in the nationaleconomy by the national decision makers. Small units generate employment at

relatively small capital cost, mobilize resources of capital and skill atmicrolevels and are expected to meet the rising demand for various goods andservices required by the economy. Smallscale industry forms an important sector constituting nearly 40 percent of thetotal output in the private sector. Muchmore significant is the employmentgeneration capacity of small scaleindustry. India operates today in sheer

size what is perhaps the largest smallindustries program in any developingcountry. Small scale sector as a priority sector of the national economy isprotected and promoted in a number of ways. The growth of small industry hasbeen sought to be promoted over years through various government policiesand measures.

However, presently the small scale industrial sector suffers from a highrate of mortality and growing incidence of sickness. According to latestestimates, the percentage of sick unit in the small scale industry varies from ten

to fifty percent in various states. The closure of debilitated existence of anindustrial unit involves heavy cost to the society: it renders idle its manpower;lays waste scarce financial and material resourced invested in land andbuildings, machinery and equipment inventories and stocks. The social costinvolved is much more.

An industrial unit is defined as ‘sick’ when it fails to generate internal

surplus on a continuing basis and depends for its survival on frequent infusionof external funds. This definition is based on economic criteria. From a

sociological point of view however, a unit is ‘sick’ when it fails to meet its socialobligations to society as a creator of employment potential and net economicsurplus needed for the development of national economy. The sick status of aunit is further an outcome of its role performance failure along with those ofthe social entities in its environment.



25

If we compare the performance of ‘healthy’ and ‘sick’ units in respect oftheir basic functional subsystems like finance, production, material inputs,manpower and marketing it is revealed that their performance in their respective functional subsystems differs markedly. In the case of ‘sick’ units we

find that they faced difficulty in securing adequate working capital. They werehowever, able to start production and earned marginal profits in the first twoyears. From the third year onward their performance began to deteriorate dueto internal and external factors. Among the internal factors the most importantwas the inability of the entrepreneurs to stabilize and consolidate their relationship with the market. It led them to a situation where they failed fromthird year onward to secure adequate orders and volume of business to cover their operational costs. Disturbed labour relations brought about by their poor financial position further aggravated their low capacity utilization and led them

towered a situation of continuing losses.

The external factors include the non-availability of assistance regardingmarketing, shortages of basic raw materials and working capital needs fromthe state agencies apart from the damaging delays in the units dealing with thestate agencies.

The ‘healthy’ units on the other hand were not crippled by the lack ofworking capital and they succeeded in stabilizing their market position after

the first two years of their operation. With a relatively more adequate financialresource base, they could secure enough volume of business so as to earnmodest profits. However, they too have not been able to utilize their production capacity fully due to the constraints they share with the ‘sick’ units.They are far from the realization of their full production potential and theutilization of growth opportunities.

It is seen that the social entities in the environment of small units havefailed in their normative role performance. Both ‘healthy’ and ‘sick’ units have

encountered the apathy and unresponsiveness of the small scale serviceorganizations. The service rendered by these organizations has beencharacterized by inordinate delays, inadequacy and lack of understanding. Theentrepreneurs perceive the role performance of the state institutions asunhelpful and indifferent.



26

The work of the state agencies and financial organs is seen to lackcoordination and follow-up measures that are indispensable for sustaining theoperation of new units. The role failure of these agencies has contributed tothe sickness of weak units on the one hand and prevented the proper growth

of the healthier units on the other. The state agencies attribute their ineffective role performance to the policy and resource constraints imposed onthem by the higher level state organs. They also realize that the depletion oftheir resources by the sick units and policy implementation lapses on their ownpart have contributed to their ineffective role performance.

Policy inferences are basically of two types:1. Policies to promote fuller growth of small units by providing required

measure of help to the growing units.

2. Policies to identify and revive the weak and sick units in order to makethem viable.

An important point is that the problem of sick units cannot beunderstood merely in terms of the surface characteristics of the entrepreneurs.All the entrepreneurs of the study are characterized by a set of commonattributes mentioned earlier i.e., education, technical qualifications, workexperience etc.

The problem of industrial sickness in this study is seen to be the outcome

of the varying degrees of role failure of the entrepreneurs and the socialentities in their environment. Effective role performance of the social entities inthe environment could have potentially prevented the role performance of theenterprises from worsening. The poor performance and role failure of the ‘sick’

units who cannot repay the borrowed funds in turn depletes the resource baseof the state agencies and adversely affects their capacity to help the needyunits more effectively and adequately. The sociological nature of the problemhence is one of a cascading set of role failures amongst an interrelated andinteracting set of social entities involved in the problem situation.



27

REMEDIAL MEASURES

1. Early detection of sickness, it was generally felt, could go a long way in

initiating remedial measures for restoring potential sick units to health.Need was stressed for the establishment of a proper management

information system for providing early warning signals from within. The

management should be able to understand the signals and be ready to

take prompt action. They must be responsive to problems and even small

problems should not be neglected.

2. Financial institutions and banks should

initiate necessary corrective action for

sick or prone-to-sickness units based on

diagnostic studies. In case of growing

sickness, they should also consider

assumptions of management

responsibility where they are confident of

restoring a unit to health. The rate of

interest and the securities required

should be scraped for the sick units which will help them to revive.

3. Wherever possible, attempts should be made to restore sick units to

financial health. However where the judgement is that a sick unit cannot

be retrieved, it should be allowed to be wound up. The divestment of a

sick unit, if desired by an industrial group, for handing it over to someone

else with the requisite experience of running such a unit should be

allowed expeditiously so that it can be restored to health before the

situation gets out of control. The winding up should be the last resort

and efforts must be taken so that the winding up causes the minimumlosses to the owners.

4. Excessive concern over unemployment resulting from the closure of a

sick unit is unwarranted. This can be taken care of through other

measures, such as the setting up of a national fund for the purpose and

strengthening of the facilities for retraining of workers.



28

5. The proposal to set up a special institution-the Board for Financial and

Industrial Reconstruction-appears to be a sound one. It should play the

role of a single window clearing agency. However, the Board should not

be asked to go merely by mechanical indicators to determine sickness in

industry. For instance, the criterion of erosion in net worth for

determining the seriousness of sickness, although it does indicate that

everything is not well with a unit, is not meaningful. Erosion could take

place by internal as well as external factors. There is, therefore, no

justification for punishing management for erosion in net worth if it is

caused by factors beyond its control.

6. Similarly, the proposal visualizing that the management of a unit that has

lost net worth in entirety will not be allowed to manage that unit any

more, needs to be considered. Before branding the management as a

bad one, all the aspects of the case ought to be examined.

7. The proposal that managements responsible for mismanagement should

not be allowed assistance from financial institutions even for new

ventures too, needs re-thinking.

8. Nothing will do greater damage to the development of the spirit of

entrepreneurship in the community than the fear that one is likely to be

punished for sickness which is not of one’s own market but is the resultof lapses committed elsewhere.

9. It is important that in any scheme of reconstruction of a sick unit, all the

stake-holders bear sacrifices on equitable and just basis.

10. The important criterion for take-over of a sick unit by another company

should be whether the company taking over the sick unit has skill,

technology and finance to save it. Considerations on MRTP/FERA

accounts should not come in the way.

11. There is need for a fresh look at Income-tax Act to remove the inhibitioncaused to companies taking over sick units by insistence on the part of

income-tax authorities for prior full implementation of the revival

schemes before tax benefits can accrue.



29

12. Debt-equity ratio ought to be realistic. Fiscal policy, too, requires

rationalization.

13. Incentives should be provided to professional managers helping in

reviving sick units.

14. Treatment of capital intensive units prone to sickness has to be on a

different footing than tackling of sickness in industry in general.



30

SSI AND WTO

The post-liberalization business environment has become harsh for the small-scale industries (SSI) sector because of increased internal and externalcompetition. In addition, the far-reaching impact of the various WTO norms arenow threatening to further affect the fortunes of small and mediumenterprises. Unfortunately, despite sufficient notice and the growingawareness of the impending threats, the SSI sector does not appear to beadequately prepared for the new challenges. While a number of units in thesector have been striving hard to obtain ISO or BIS certifications and competeagainst cheaper imports, the overall picture appears gloomy for want of proper policy support.

Even after several committees and study group reports over the pastdecade, the policymakers are still groping for a WTO-compatible policy for thissector. There is much confusion over a number of issues such as the cap oncapital investment, foreign direct investment (FDI) ceiling, interest subsidy, de-reservation of items, and creation of a technology up gradation fund and so on.It has become fashionable for successive governments to promise a new dealfor the SSI sector, but deliver practically nothing.

Even the creation of a new Ministry of Small-scaleIndustry and Agro and Rural Industries in 1999 did not makeany difference to the sector's plight. Soon after its creation,the new Ministry decided to do a detailed sector-wise studyof the impact of various WTO agreements on the SSI sector but nothing seems to have happened since. Not surprisingly,though the sector has grown at a rapid pace post-Independence, the incidence of sickness is on the rise.

While the official figures show only about 10 per cent ofthe over 32 lakh SSI units as sick, the unofficial figures putthis figure at over 40 per cent.

Given the crucial importance of the SSI sector to the economy with 40 per cent share in the total industrial output, 35 per cent in exports and over 80 per cent in industrial employment, it deserves all the policy support theGovernment can offer. What the small entrepreneurs need is not protectionbut institutional support to fund modernization and technology up gradation,infrastructural support, and adequate working capital finance from the bankingsector.



31

There is also a need for small entrepreneurs to keep pace with the structuraland technological changes taking place in large industries. The accent shouldbe on the much greater degree of ancillarisation and on providing services asthe larger companies are keen on offloading a number of job works to smaller

units. True, a section of the SSI sector is already undergoing structural changesbut the process is still quite slow.

There is an urgent need to refashion the policies governing the sector so asto improve its competitive strength and long-term outlook. The recast andreform of the SSI policy will have to largely concentrate on the following areas:

Adoption of new definitions: The Government should think of

creating a separate category of medium-scale units with investment

limits of Rs 10-15 crore and encourage them to raise equity capital,

including foreign equity to supplement institutional finance. While the

broad policies should be the same for the SMEs, the tiny units could be

given a much higher level of institutional support to promote self-

employment.

De-reservation: The argument against reservations are:

The policy has not actually helped the growth of small-scale industries.

The units in the unreserved sector have actually grown faster than those

in the reserved list. In other words, the SSI units have shown moredynamism in areas where they had to compete with larger units.

Reservation in many areas has become irrelevant since a large number of

reserved products are not being produced by SSIs. It is also inconsistent

with the new trade policy that allows the items reserved for the SSI

sector to be freely imported.

Reservation has hurt India's ability to expand exports in many crucial

areas, including textiles and leather.

Hence the government should remove the reservation system and de-reserve

the SSI sector.



32

Promoting clusters: International experience suggests that the small-

scale enterprises flourish in situations where they can be clustered

together in areas where it is easier to develop common infrastructure

facilities of high quality. Many such clusters have already emerged. But

the number is very low. Hence the clusters should be encouraged.

Institutional Credit: Ensuring adequate flow of institutional credit to

the SSI sector has remained a major problem despite several attemptsmade by the Reserve Bank of India over more than a decade to improvethe situation. Worse, according to the estimates, only 15-20 per cent ofthe SSI units could access bank credit. Others have to depend onborrowings from private sources at exorbitant interest rates. Thisproblem has also to be solved.

To bring the SSI to the level of the international competition thegovernment must take the above steps.



33

SOME INSTITUTIONS HELPING IN SOLVING SSI PROBLEMS

Small Industries Development Organization (SIDO): One of the most important initiative undertaken by GoI is theestablishment of the SIDO in 1954. This organization is headed by a SmallIndustries Development Commissioner (DCSSI). SIDO is placed under thejurisdiction of the Ministry of Industrial Development and has itsheadquarters in New Delhi, India. The branch offices of theDCSSI that are spread all over the country takes care of theestablishment, operation and growth of the SSIs. Theorganizations under the control DCSSI, at central andstate level, organize various types of activitiesincluding training, seminar, plant visits, and groupdiscussions. Some of the major programs of the SIDOare technology development, energy conservation,pollution control, ISO-9000 etc. They help the SSIs byproviding them with raw materials that are not readilyavailable in the market when needed. (Earlier, the small industries weremostly dependent on local raw materials. However the modern small-scale industries manufacturing more sophisticated and new products areusing imported raw materials. Sometimes problems arise in procuringthe right quality of raw materials in time, for operating their productionplans and delivery schedules, due to foreign exchange crisis or other reasons such as working capital problems.) The DCSSI branch offices alsoassist the SSIs in collecting outstanding dues from their customers. TheSIDO is an umbrella organization under which a number of institutionsoperate. These are the service institutes, the district industries centersand the information banks.

Small Industries Development Bank of India (SIDBI)The Small Industries Development Bank of India (SIDBI) was set up by

GoI under a special act of the Parliament in April 1990. It is a wholly

owned subsidiary of the IDBI. SIDBI has a network of 33 offices (5

regional and 28 branch offices). The Bank was instituted to ensure the

increased flow of financial assistance to SSIs. It assists the SSIs through

http://www.cherry.gatech.edu/sim/students/papers97S/perumalla.html#SECTION00010000000000000000







34

direct assistance schemes as well as indirect assistance such as

refinancing.

Small Industries Service Institutes (SISIs)As of 1991, there were 26 SISIs, 32 branch institutes and 39 extension

centers under the DCSSI. These institutions are fully devoted to provideassistance to the SSIs in all phases of their operation. Theseorganizations help the SSIs in identifying items for manufacturing,provide information on technologies, feasibility studies, training,organization of workshops and seminars and other such programs. SISIshave a program for stocking up spare parts and other supply items notreadily available in the market but necessary for the small-scaleindustries. The SISIs also have `reasonably well-equipped' workshops andlabs that offer testing services to small-scale industrial units which are

not equipped or have no proper personnel.

District Industries Centers (DIC)The idea of District Industries Centers (DIC) was introduced by theIndustrial Policy Statement of December 1977. These DICs wereestablished in each district to `provide and arrange a package ofassistance and facilities for credit guidance, raw materials, training,marketing, etc. This program began in May 1979. As of 1996, there are422 DICs operating in 431 districts in the country.

National Small Industries Corporation (NSIC)The National Small Industries Corporation (NSIC) was formed to assistthe small industrial units by providing equipment on hire-purchase basis.The supplied machines are used in various industries such as plastics,leather, printing and stationery, automobile componenets and spares,electronic equipment etc. NSIC projects to promote SSIs includefinanacial services, technology upgradation, technical training and

marketing assistance. NSIC has prototype development and testingcenters at three places in the country to make available improvedmachine designs and to give advanced technical training to personnelfrom the small industry. Most states in the country have an industrialinfrastructure corporation that provides buildings, sheds and developedplots to small industrial units and small industries marketing boards to









35

assist in marketing. These corporations in some state are separate for certain industries such as the electronics, leather, and ceramics.

Information banks

The GoI has established information banks in certain areas for assistingacademic institutions and industry. This system is called the NationalInformation System for Science and Technology (NISSAT). Theseinformation banks help the small industrial units with information,particularly with respect to the latest developments in the field oftechnology.

However, these services are not used by the SSIs for various reasons includingthe lack of information and lack of time to pursue such avenues among others.

There is also corruption in these institutions making the SSIs reluctant to takeany help from these institutions.






36

PRIMARY DATA

R D KNITS

This is a small scale unit producing hosiery knitted fabrics. It

originated in the year 1989 with two persons i.e., an owner and one

labourer with an investment of around 50,000 and now it has progressed

so much that everything is mechanized. With the growth of technology

and the changing trends where modernization comes into picture the

investment limit has also increased to lakhs and crores of rupees. There is

no certification like BIS or ISO because they do not exports and there isno requirement to maintain such standards.

This company is a capital intensive industry employing 30 machines

and 10-15 labourers. The labourers are consequently trained with the

changing technology and expert people are hired so that the company

does not lag behind the competitors when it comes to modernization in

technology. The experts visit the company twice a week and upgrade the

machines at regular intervals. They have mostly Indian machines that are

purchased from Ludhiana namely Punjab Machinery Works (PMW) and

Teja Singh Machinery Works (TSM).

This company does not directly export its fabrics but it indulges in

indirect exports i.e., they sell their fabrics to those companies whose

prepare the finished product which can be in the form of loungeries,

track pants, night suits, undergarments, T-shirts etc. The latest wear i.e.,

tights which are extremely stretchable, the fabric used for making that

cloth is also produced in this company. In these clothes a special type of

rubber called ‘lycra’ is knitted which makes the cloth come to the original

shape inspite of stretching it so much.



37

It was started with the money which the owner possessed and

with the help of some private sources. In case of financial scarcity loans

are taken from both public as well as private sources.

Process

1. Purchasing yarn

2. Making grey fabric

3. Dyeing or printing

Explanation:

1. Purchasing yarn: They purchase yarn from various sources which can

be synthetic or cotton depending upon the requirement of the

customers. They do not believe the just in time concept which says that

the goods should be purchased only when the need arises. They believein keeping stock of both the raw materials i.e., cotton and synthetic so

that there is no scarcity, no delay in delivering which means good

relations.

2. Making grey fabric: The yarn which is in the rolled form is given a grey

colour or bleached depending upon the requirement. The grey colour is

provided so that the colour easily sets on it. This is done by the company

itself and the machine with the help of which it is done is called “Circular Knitting Machine.” This machine varies for different fabrics and width of

the cloth. This machine works on the diameter i.e., as per the width of

the cloth and they have nearly 30 circular knitted machines depending

upon various diameters. If they do not have the machine as for the fabric

required by the customer they get it done from Asiad Knitting Works.

3. Dyeing or printing: After the second stage the fabric is either sent for

dyeing or for printing depending on the requirement of the customer.

This dyeing work is not done at the company itself, they get it done from

other industries like Maxwell Industries, Chirag Textile Prints etc. If the



38

customer wants the colour first then they get it dyed or if the customer

wants the print first they get it printed and then dyed.

They market their products through salesman and they do not

have any branches. The owner himself visits the various trade fairs held

anywhere in India and enhances his knowledge about the changing

trends and upgradation in the market. Since the factory is located in a

place where there are no power cuts so the industry do not face any

problem of power failure which means no stoppage of activities. There

are no departments, there is centralization of activities.

The company produces a lot of pollution that is in the form of fine

cotton particles because the system which can prevent the pollution is

very costly that is not affordable by the company. But for the society

they give charity to orphanages, to places where there is no water

pipeline etc. and there is no fixed amount but as per the capacity of the

company but every year they make it sure to fulfill their social

responsibility. The workers are also provided free accommodation,

bonus and an yearly increment of 5-15%.

Due to recession, the company’s cost of production is increasing

and they have to face losses. And during this time itself they are thinking

of collaboration with some process house so that they can overcome this

situation and also it will be a boost to their company as they will also be

able to produce the final output as well. In future they are thinking to

have their branch at Borivali, expand their business, have various

departments, have agents employed who will be looking the marketing

of the products. Presently their sales are mainly to Maharashtra andGujarat.



39

Complaints to government:

The government has set various institutions for small scale

industries who are exporting and various schemes are also provided to

them but they have overlooked the textile industries which is the most

aspiring industry in the world and “due to lack of government support

India is behind China” was the statement made by the owner. They

suggestion was that government should loans at low interest rates and

they also complained that the charges charged by ‘Reliance Energy’ is

very high, their cost for industries ranges between Rs9pu – Rs12.15pu

which is very costly. This shows that small scale units are not happy with

the government.



40



41

We wish to express our heartfelt gratitude to those

individuals who have been a constant source of

inspiration and support professionally and personally.

First and foremost, we would like to thank Prof.

Sanchita Dutta for her constant encouragement, help

and support whenever needed.

We would also like to thank Prof. A. E.

Lakdawala and Prof. Kamala. We would also like toexpress our gratitude to our colleagues for their

support and help.



42



43

INDEX

SR

NO.

CONTENTS

1. Introduction

2. Meaning

3. Definition

4. Characteristics of SSI 5. Significance of small-scale industries

6. Advantages

7. Relationship between small and large units:

8. Classification of SSI

9. Problems of SSI

10. Remedial measures11. SSI and WTO

12. Some institutions helping in solving SSI problems

13. Primary data

14. Bibliography



BIBLIOGRAPHY

MANAGEMENT OF SMALL SCALE

INDUSTRIES

http:/indiabudget.nic.in

http://ssi.nic.in/ssischeme.htm#schbk4

R D KNITS



Introduction Ssi

Documents

Transcript of Introduction Ssi