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Small Scale Industries

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    IIM Lucknow, Noida Campus Table of Contents 1. Definition4 2. Role and Importance4 3. Trend in production6 4. Trend in investment7 5. Trend in employment and wages in the large and small scale12 A. Employment Trend12 B. Employment – Industry Group-wise13 C. State-wise Employment Distribution14 D. Trend in Average Wages16 6. Employment intensity of output in the large and small scale17 A. Employment intensity of output in small scale industries17 B. Small scale industry is job creator20 C. The key to maintaining high employment growth22 . New entrances in the market as a small scale22 8. Viability of small-scale sector in India’s globalized economy26 A. Capital intensity27 B. Generation of employment- industry GroupWise27 C. Per unit employment27 D. Opportunity27 E. Rural28 F. Urban28 G. State-wise Employment Distribution28 H. Quick yielding28 I. Controlled price level29 J. Skill formation29 K. Low import intensity29 L. Balanced regional development29 M. Proper utilization of local resources29 N. Creation of self employment29 O. Support to large scale industries29 P.

    Even distribution of income and wealth30 Q. Export potential30 9. Conclusion32 References33 Definition The industries in India which are organized on a small scale and produce goods with the help of small machines, hired labour and power, are the small scale industries present in India. In a developing country like India, the role and importance of small-scale industries is very significant towards poverty eradication, employment generation, rural development and creating regional balance in promotion and growth of various development activities. Role and Importance

    Based on the past records it is estimated that the growth of small scale industries have been contributing about 40% of the gross value of output produced in the manufacturing sector and the generation of employment by the small-scale sector is more than five times to that of the large-scale sector. This clearly shows the importance of small-scale industries in the economic development of the country. The small-scale industries have been playing an important role in the growth process of Indian economy since independence in spite of stiff competition from the large sector and not very encouraging support from the government.

    The following are some of the important role played by small- scale industries in India. 1. Employment generation: The basic problem that is confronting the Indian economy is increasing pressure of population on the land and the need to create massive employment opportunities. This problem is solved to larger extent by small-scale industries because small- scale industries are labour intensive in character. They generate huge number of employment opportunities. Employment generation by this sector has shown a phenomenal growth. It is a powerful tool of job creation. . Mobilisation of resources and entrepreneurial skill: Small-scale industries can mobilize a good amount of savings and entrepreneurial skill from rural and semi-urban areas remain untouched from the clutches of large industries and put them into productive use by investing in small-scale units. Small entrepreneurs also improve social welfare of a country by harnessing dormant, previously overlooked talent. Thus, a huge amount of latent resources are being mobilised by the small-scale sector for the development of the economy. 3. Equitable distribution of income:

    Small entrepreneurs stimulate a redistribution of wealth, income and political power within societies in ways that are economically positive and without being politically disruptive. Thus small-scale industries ensures equitable distribution of income and wealth in the Indian society which is largely characterised by more concentration of income and wealth in the organised section keeping unorganised sector undeveloped. This is mainly due to the fact that small industries are widespread as compared to large industries and are having large employment potential. 4. Regional dispersal of industries:

    There has been massive concentration of industries in a few large cities of different states of Indian union. People migrate from rural and semi urban areas to these highly developed centres in search of employment and sometimes to earn a better living which ultimately leads to many evil consequences of over-crowding, pollution, creation of slums, etc. This problem of Indian economy is better solved by small- scale industries which utilise local resources and brings about dispersion of industries in the various parts of the country thus promotes balanced regional development. . Provides opportunities for development of technology: Small-scale industries have tremendous capacity to generate or absorb innovations. They provide ample opportunities for the development of technology and technology in return, creates an environment conducive to the development of small units. The entrepreneurs of small units play a strategic role in commercialising new inventions and products. It also facilitates the transfer of technology from one to the other. As a result, the economy reaps the benefit of improved technology. 6. Indigenisation:

    Small-scale industries make better use of indigenous organisational and management capabilities by drawing on a pool of entrepreneurial talent that is limited in the early stages of economic development. They provide productive outlets for the enterprising independent people. They also provide a seed bed for entrepreneurial talent and a testing ground for new ventures. 7. Promotes exports: Small-scale industries have registered a phenomenal growth in export over the years. The value of exports of products of small-scale industries has increased to Rs. 393 crores in 1973-74 to Rs. 71, 244 crores in 2002-03.

    This contributes about 35% India’s total export. Thus they help in increasing the country’s foreign exchange reserves thereby reduces the pressure on country’s balance of payment. 8. Supports the growth of large industries: The small-scale industries play an important role in assisting bigger industries and projects so that the planned activity of development work is timely attended. They support the growth of large industries by providing, components, accessories and semi finished goods required by them. In fact, small industries can breathe vitality into the life of large industries. . Better industrial relations: Better industrial relations between the employer and employees help in increasing the efficiency of employees and reducing the frequency of industrial disputes. The loss of production and man-days are comparatively less in small- scale industries. There is hardly any strikes and lock out in these industries due to good employee-employer relationship. Of course, increase in number of units, production, employment and exports of small- scale industries over the years are considered essential for the economic growth and development of the country.

    It is encouraging to mention that the small-scale enterprises accounts for 35% of the gross value of the output in the manufacturing sector, about 80% of the total industrial employment and about 40% of total export of the country. Trend in production The small scale industries sector plays a vital role for the growth of the country. It contributes 40% of the gross manufacture to the Indian economy. It has been estimated that a lakh rupees of investment in fixed assets in the small scale sector produces 4. 2 lakhs worth of goods or services with an approximate value addition of ten percentage points. The small scale sector has grown rapidly over the years. The growth rates during the various plan periods have been very impressive. Chart 1 The number of small scale units has increased from an estimated 8. 74 lakhs units in the year 1980-81 to an estimated 31. 21 lakhs in the year 1999. From the year 1990-91 this sector has exhibited a comparatively lower growth trend (though positive) which continued during the next two years.

    However, this has to be viewed in the background of the general recession in the economy. The transition period of the process of economic reforms was also affected for some period by adverse factors such as foreign exchange constraints, credit squeeze, demand recession, high interest rates, shortage of raw material etc. When the performance of this sector is viewed against the growth in the manufacturing and the industry sector as a whole, it instills confidence in the resilience of the small scale sector.

    The estimates of growth for the year 1995-96 have shown an upswing. The growth of SSI sector has surpassed overall industrial growth from 1991 onwards. The positive trend is likely to strengthen in the coming years. This trend augurs a bright future for the small scale industry. Trend in investment A. Investment productivity Partial productivity ratios mainly refer to the labor and capital productivity indices which are most often used. So far we have analyzed the labor productivity in detail, in terms of gross value of production per Employment.

    Now we shall direct our attention to capital productivity, considering gross value of production per unit of investment, production/fixed investment in India. A higher rate of increase in capital productivity in India might be due to higher rate of growth of value of production. B. Factors affecting the flow of credit 1. Inability to meet Collateral Requirement: The small scale and other unorganized units find the procedures and requirements of banks, too cumbersome and difficult.

    Most of the small entrepreneurs particularly of the first generation, find it difficult to meet collateral requirements or the third party guarantee. 2. High Cost of Credit: The rate of interest which is currently 3 per cent over the prime lending rate i. e. 11 per cent + 3 per cent on loans above Rs. 2 lakh charged from the SSI units along with other service charges amounts to 15 to 16 per cent, which is much higher than the 7 per cent to 8 per cent which is changed from large scale industries on the ground of better creditworthiness.

    Unorganized enterprises encounter an “unwelcome” attitude from banks as the processing of small loans involves a lot of paper work and higher transaction costs. The small enterprises traditionally lack institutional finance for start ups and face a higher cost of credit relative to large enterprises. This cost differential ultimately leads to the high cost of SSI products resulting into their un-competitiveness. The credit coming from DFIs like SIDBI is also very high. SIDBI feels that unlike commercial banks they have limited access to cheaper Funds. 3.

    High Non-Performing Assets: One of the major reasons for discrimination against the SSI sector as compared to large industries is the high non-performing assets (NPA). As against an NPA of 8 per cent in respect of large industries, it is as high as 15 per cent in the case of SSI units. C. Sources of Credit Support – Multi Agency Approach Institutional financial assistance to unorganized enterprises consist of (i) Direct credit (ii) Indirect credit (iii) Micro credit (iv) Subsidy under government schemes to encourage the flow of credit and (v) Schemes to enhance the confidence of banks in favor of SSI lending.

    Direct Credit The major portion of credit (about 95 per cent) is in the form of direct credit from the banks wherein banks are in direct touch with the entrepreneurs and loans are advanced by the banks after appraisal of the project proposals, ascertaining their viability, assessing the creditworthiness of the customers and after the entrepreneurs fulfill all the conditions of the banks including margin money, collateral, third party guarantee and payment of service charges, etc. Banks undertake this task through their branches which are spread to rural and urban areas depending upon the need of the area.

    Important banking institutions engaged in this task are listed below: ? Scheduled commercial banks consisting of public sector banks, private sector banks and foreign banks- about 59000 branches ? Regional rural banks- about 14500 branches ? Cooperative banks- about 13500 branches ? Small Industries Development Bank of India (SIDBI)- 65 branches ? State Financial Corporation (SFC)- in 18 states ? Small Industries Development Corporation (SIDC)- in all states. Indirect Credit

    A very small segment of the loan goes to the small and unorganized enterprises in the form of indirect credit to entrepreneurs by the banks in the form of micro credit. It is indirect, since entrepreneurs are not in direct contact with the banks. There are intermediacies in between in the form of self-help groups (SHGs), NGOs, voluntary agencies and micro-financing institutions. Refinance from NABARD and SIDBI though seemingly to be indirect credit in reality it generates direct credit by the banks. The institutions engaged in indirect credit and refinancing are as under: National Bank for Agriculture and Rural Development (NABARD) ? Small Industries Development Bank of India (SIDBI) ? Credit through micro financing Institutions (MFIs). Subsidy under Government Schemes to encourage flow of credit (general) – Major Schemes The central government has been implementing a large number of schemes to encourage the poor people particularly those who find it difficult to meet banks, conditionality directly to go for self employment by raising loans from the banks. The government helps the poor through a subsidy on the loan or through margin/equity money.

    This helps them to approach banks for a term loan and a working capital loan. Some of the major schemes being implemented by the government are listed below: ? Prime Minister’s Rojgar Yojana (PMRY) (Ministry of A & RI) ? Rural Employment Generation Programme (REGP) for Village Industries by KVIC (Ministry of A & RI) ? Interest Subsidy Eligibility Certification (ISEC) Scheme for Khadi by KVIC (Ministry of A & RI) ? Swarnjayanti Gram Swarozgar Yojana (SGSY) (Ministry of Rural Development) ? Swarnjayanti Shahari Swarozgar Yojana (SSSY), (Ministry of Urban Employment & Poverty Alleviation. . Subsidy for Technology Up-gradation Modernisation and technology upgradation is one of the principal requirements for enhancing competitiveness. Competition has further intensified in the wake of liberalisation and globalisation. Modernisation, however is a costly proposition. In order to encourage small entrepreneurs to modernize the Government of India has been implementing a few schemes of interest subsidy and capital subsidy. Some of these schemes are as given below: ? Interest and / or Capital Subsidy for Technology Up-gradation of Textile Units (Ministry of Textile) ?

    Credit-Linked Capital Subsidy Scheme for Technology Up-gradation of SSI (Ministry of SSI). ? SME Rating Agency of India Ltd. (SIDBI with CIBIL and others) Schemes to enhance comfort level of the Banks to Finance Small Scale and Tiny Enterprises Banks being commercial enterprises do not prefer lending to small enterprises and other non-farm informal enterprises because of the high risk, high transaction cost, higher NPAs and lower and erratic repayments by the enterprises. Many entrepreneurs even though in great need of credit, are not able to obtain bank loans because of their inability to arrange collaterals.

    In order to enhance the confidence of banks in small loaning, the government has launched a few schemes for example: ? Credit Guarantee Scheme (Ministry of SSI) ? Credit Rating Scheme for SSIs (Ministry of SSI). D. Support by Govt. for the growth of SSI The Small Scale Industry today constitutes a very important segment of the Indian economy. The development of this sector came about primarily due to the vision of our late Prime Minister Jawaharlal Nehru who sought to develop core industry and have a supporting sector in the form of small scale enterprises. Policy Support: The investment limit for the Tiny Sector will continue to be Rs. 25 lakhs. ? The investment limit for the SSI sector will continue to be at Rs. 1 crore. ? The Ministry of SSI & ARI will bring out a specific list of hi-tech and export oriented industries which would require the investment limit to be raised upto Rs. 5 crores to admit of suitable technology up gradation and to enable them to maintain their competitive edge. ? The Limited Partnership Act will be drafted quickly and got enacted. Attempt will be made to bring the Bill before the next session of the Parliament. Fiscal Support: To improve the competitiveness of Small Scale Sector, the exemption for excise duty limit raised from Rs. 50 lakhs to Rs. 1 crore. Credit Support ? The composite loans limit raised from Rs. 10 lakhs to Rs. 25 lakhs. ? The Small Scale Service and Business (Industry Related) Enterprises (SSSBEs) with a maximum investment of Rs. 10 lakhs will qualify for priority lending. ? In the National Equity Fund Scheme, the project cost limit will be raised from Rs. 25 lakhs to Rs. 50 lakhs. The soft loan limit will be retained at 25 per cent of the project cost subject to a maximum of Rs. 10 lakhs per project.

    Assistance under the NEF will be provided at a service charge of 5 per cent per annum ? The eligibility limit for coverage under the recently launched (August 2000) Credit Guarantee Scheme has been revised to Rs. 25 lakhs from the present limit of Rs. 10 lakhs. ? The Department of Economic Affairs will appoint a Task Force to suggest revitalisation/restructuring of the State Finance Corporations. ? The Nayak Committee’s recommendations regarding provision of 20 per cent of the projected turnover as working capital are being recommended to the financial institutions and banks. Infrastructural Support The Integrated Infrastructure Development (IID) Scheme will progressively cover all areas in the country with 50 per cent reservation for rural areas. ? Regarding upgrading the Industrial Estates, which are languishing, the Ministry of SSI & ARI will draw up a detailed scheme for the consideration of the Planning Commission. ? A Plan Scheme for Cluster Development will be drawn up. ? The funds available under the non-lapsable pool for the North-East will be used for Industrial Infrastructure Development, setting up of incubation centres, for Cluster Development and for setting up of IIDs in the North-East including Sikkim.

    Technological Support and Quality Improvement ? Capital Subsidy of 12 per cent for investment in technology in select sectors. An interministerial Committee of Experts will be set up to define the scope of technology up gradation and sartorial priorities. ? To encourage Total Quality Management, the Scheme of granting Rs. 75,000/- to each unit for opting ISO-9000 Certification will continue for the next six years i. e. till the end of the 10th plan. Marketing Support ? SIDO will have a Market Development Assistance (MDA) Programme, similar to one obtaining in the Ministry of Commerce & Industry.

    It will be a Plan Scheme. ? The Vendor Development Programme, Buyer-Seller Meets and Exhibitions will take place more often and at dispersed locations. Streamlining Inspections/Rules and Regulations ? To minimise harassment to Small Scale Sector a Group will be set up to recommend within 3 months, means of streamlining inspections. This will include repeal of laws and regulations applicable to the sector that have since become redundant. ? Self-certification will be progressively encouraged in lieu of inspections, which should be prescribed under the three following conditions: – On receipt of specific complaint; Selection of unit for sample check (Say 10 per cent of total units); and – For audit and safety purposes. Entrepreneurship Development ? Capacity building in the MSME sector, both for entrepreneurs as well as workers, will be given top priority. The Ministry of MSME & ARI and Ministry of Labour will work out the strategy jointly. ? The Reserve Bank of India is being requested to appoint a Task Force to go into the question of strengthening and popularizing factoring services, without recourse to the MSME suppliers. The Task Force shall give its report within six months of its constitution. RBI is being requested to take up with the banks, the question of sub-allocating overall limits to the large borrowers specifically for meeting the payment obligations in respect of purchases from the MSMEs, either on case basis or on bills basis. Rehabilitation of sick units ? RBI is being requested to draw up revised guidelines for the rehabilitation of currently sick but potentially viable MSME units. Such guidelines should be detailed, transparent and non-discretionary. Promoting Rural Industries ? To support the Handloom Sector “Deendayal Hathkarga Protsahan Yojna” has been announced.

    The scheme has a total financial implication of Rs. 447 crores and will provide comprehensive financial and infrastructural support to weavers. ? The Government is working out new comprehensive package to strengthen Khadi and Village Industries that will further upgrade the skills of Khadi Workers. Trend in employment and wages in the large and small scale Employment Trend After agriculture, small scale industries provides second largest employment opportunities for the Indian people. It has been estimated that 100,000 rupees of investment in fixed assets in the small-scale sector generates employment for four persons.

    As per fourth census, the total employment in this sector with Reference Year 2006-07 was 594. 61 lakh persons and as per the estimates compiled for the year 2009-10, the employment was 695. 38 lakh persons. The below table provides the employment growth trend. On an average employment is growing with rate of 4-5 % per year. Table 1 |Sl. No |Year |Total |Employment |Employment Growth (%) | | | |MSMEs (lakh numbers) |(lakh person) | | |1 |2001-02 |105. 1 |249. 33 |4. 44 | |2 |2002-03 |109. 49 |260. 21 |4. 36 | |3 |2003-04 |113. 95 |271. 42 |4. 31 | |4 |2004-05 |118. 59 |282. 57 |4. 11 | |5 |2005-06 |123. 42 |294. 91 |4. 7 | |6 |2006-07 |261. 01 |594. 61 |101. 62 | |7 |2007-08 |272. 79 |626. 34 |5. 34 | |8 |2008-09 |285. 16 |659. 35 |5. 27 | |9 |2009-10 |298. 08 |695. 38 |5. 46 | Chart 2 Employment Growth Trend Employment – Industry Group-wise

    If we see the industry wise employment trend then, textile industry has ranked first in generating employment by providing employment to 16 lac persons which is 17. 41%. The next two industry groups are Non-metallic mineral products with employment of 5. 3 lac persons (5. 82%) and Metal products with 6 lac persons (6. 55%). In Chemicals & chemical products, Machinery parts except Electrical parts, Wood products, Basic Metal Industries, Paper products & printing, Hosiery & garments and Rubber & plastic products, the contribution ranged from 5% to 3%, All other industries the contribution was less than 3%.

    The industry wise employment is provided in below table Table 2 State-wise Employment Distribution Table 3 |State |Employment |% | |Punjab |1729062 |2. 91 | |Chandigarh |94474 |0. 16 | |Uttarakhand |399737 |0. 67 | |Haryana |1367915 |2. 30 | |Delhi |2821657 |4. 75 | |Rajasthan |2422543 |4. 7 | |Uttar Pradesh |5791479 |9. 74 | |Bihar |1639977 |2. 76 | |Sikkim |25017 |0. 04 | |Arunachal Pradesh |41591 |0. 07 | |Nagaland |69984 |0. 12 | |Manipur |116967 |0. 20 | |Mizoram |37639 |0. 06 | |Tripura |165685 |0. 8 | |Meghalaya |102485 |0. 17 | |Assam |1234356 |2. 08 | |West Bengal |5831566 |9. 81 | |Jharkhand |712596 |1. 20 | |Orissa |1931929 |3. 25 | |Chhattisgarh |732306 |1. 23 | |Madhya Pradesh |2609646 |4. 39 | |Gujarat |3060899 |5. 5 | |Daman & Diu |76436 |0. 13 | |Dadra & Nagar Haveli |81187 |0. 14 | |Maharashtra |6465654 |10. 87 | |Andhra Pradesh |5943242 |10. 00 | |Karnataka |3710228 |6. 24 | |Goa |141028 |0. 24 | |Lakshadweep |2328 |0. 00 | |Kerala |3024124 |5. 9 | |Tamil Nadu |6257596 |10. 52 | |Pondicherry |80987 |0. 14 | |Andaman & Nicobar island |12035 |0. 02 | |All India |59460703 |100. 00 | Maharashtra (10. 87%) and Tamil Nadu (10. 52%) made the maximum contribution to employment. This was followed by Andhra Pradesh (10. 0%), Uttar Pradesh (9. 74%) and West Bengal (9. 81%) the total share being 29. 55%. Karnataka (6. 24%), Gujarat (5. 15%) and Kerala (5. 9%) together accounted for another 16. 48%. Trend in Average Wages The average wages were less than Rs 200 which has grown to more than Rs 300 in year 2007-08. The salary growth rate is roughly 9 % per year Chart 3 If we analyses the average wages worker type wise we observe that the average salary of female worker is less than half of male worker. Chart 4 There are several explanations for the general wage discrepancies across workers or classes of workers. Workers doing the same job might be willing to accept a lower wage for increased job stability, better fringe benefits, or other positive job attributes.

    In fact, research has found that many workers accept lower wages in exchange for health benefits. Demographics may offer a plausible explanation: Women and minorities typically earn less than their male counterparts. But evidence shows that, with the exception of Hispanics, women and minorities are generally more likely to work for larger firms. Village people make up about 10 percent of smaller firms (less than 500), compared to 13 percent of larger firms (Head). Similarly, women make up 45 percent of smaller firms but 48 percent of larger firms. This pattern holds for higher paying jobs as well.

    Professional women are disproportionately employed by large establishments. The same is true for minorities in science and engineering fields. Only Hispanics show a contrary trend, making up 12 percent of smaller firms but only 9 percent of larger firms. Employment intensity of output in the large and small scale The employment growth rate in India’s large-scale industries has accelerated significantly in recent years, according to the country’s Central Statistical Organization. Over the period, 2005-2011, the jobs grew at an annual average rate of 7. 5 per cent.

    During the previous eight years employment in this sector had contracted at an annual average rate of 1. 5 per cent. Employment in public limited companies grew at an annual average rate of 6. 1 per cent during 2005-2011. Household handloom and village industrial units are of course much more labor intensive than public and private corporations. Furthermore, ASI data shows that the share of factories employing between 1000 to 1999 persons, each has increased by two per cent during 2005-2011 while the share of factories employing less than 49 persons each has declined by three per cent during this period.

    Employment growth rate during 2005-2011 has been relatively high in several relatively rich and technologically advanced states such as Gujarat, Haryana, Himachal Pradesh, Karnataka, Tamil Nadu, Punjab and Goa. Employment intensity of output in small scale industries India has adopted mixed economic planning as a method to achieve economic development. Along with the Large Scale sector the thrust was on Small Scale sector because of it decentralized, its small size, use mainly indigenous technology, employment intensity and its suitability for rural area with limited techno-economic structure.

    The major advantage of the sector is its employment potential at low capital cost. As per available statistics, this sector employs an estimated 31 million persons spread over 12. 8 million enterprises and the labor intensity in the SSL sector is estimated to be almost 4 times higher than the large enterprises. Small scale industry (SSI) is a major sub-sector of Indian economy in view of its size in terms of number of units, number of employment, value of output and value of exports, absolutely as well as relatively. In 2002-03, the SSI sector comprised 3. 7 million units, generated production worth of Rs 7,420 billion and employed nearly 20 million persons. The sector’s exports stood at Rs 698 billion in 2000-01. In 2000-01, SSI, with an investment of nearly Rs 797 billion, accounted for about 40% of the industrial production, nearly 7% of the Gross Domestic Product (GDP), 34. 3% of the total exports of Indian economy, and manufactured more than 7,500 products. Thus, SSI has a diversified and prominent presence in Indian economy. Small Scale Industries are the second largest segment of Indian economy in terms of employment as well as exports.

    Their sustained economic performance is imperative for India’s economic development. Individually, a small scale unit’s energy consumption may not be high but together the consumption in millions of small scale units across the country will add up to a very large quantity and likely to place a very high demand on limited energy resources. Small scale industries provide immediate large scale employment, they offer a method of ensuring a more equitable distribution of National Income, and they facilitate an effective mobilization of capital and skill, which might otherwise remain unutilized.

    The average annual growth rate of employment in the small scale industry for the period 1980-81 to 1993-94, worked out to be 5. 3 percent, and that of production to be 18. 0 percent. The growth rate of employment is commendable, but the production figures, conceal the rise in inflation as indicated by the Table 1. The annual growth of production of the small scale industry of 10. 9 percent is much higher than the growth rate of industrial production, in the large sector has been faster, both in term of output and employment (Datt, 1997).

    Source: All India report on functions and activities (1992-93), small industries development organization, department of small scale industry. Small scale industries being labor-intensive, helped to increase the volume of employment, particularly in rural areas, it is estimated that about 2 crores persons are engagement in India in these industries. The handloom industry alone employs 50 lakh people. There are about 2. 7 million small scale units producing around Rs. 3, 37,000 crores worth of goods and employing about 15 million people. Employment generated by the sectors stood at 160 lakhs, indicating a growth of 4. per cent in the year and exports increased by 7. 6 per cent in 1996-97. Employment growth of 4. 8 per cent in 1996-97 was also higher than the target of 4. 2 per cent for the year . As per a report about 273 lakh people are working in small scale sector with a turnover of about 348,059 crores currently. The domestic talents are put to good use to produce commodities that have found market worldwide. Small Scale industry play an important role as less capital-intensive producers of consumer goods and providers of employment to labour there by ddressing the problems of reducing the poverty and unemployment. According to rough estimates of 2003-04 there are about 113. 95 lakh small scale industry units(registered and unregistered) in the country accounting for more than 40 percent of gross value of output in the manufacture sector and about 35 percent of the total export of the country. It provides employment to about 271. 36 lakhs persons, which is second only to agriculture. SSIs have contributed greatly in nurturing private enterprise and in hastening the economic development by generating employment, exports, and reducing local unevenness.

    Small scale industries to a degree avert needless urbanization. The number of people migrating to cities in search of jobs shrinks by the employment options domestic industries create thereby reducing pollution and over population in cities and also helps in decentralized industrial expansion. The main reason of a small scale industry is to achieve self-reliance by utilizing the resources available and harnessing the skills of local people to lay a platform that yields a steady income.

    The industries are characterized by the wise utilization of labor for the commodity production and the advantage lies in the fact that is consumption of ample laborers who are not qualified to work for the large scale industries and thus reducing unemployment and poverty in the country as well. Small Scale Industries help the financial system in promoting evenhanded development of industries across all the regions of the economy and also in the efficient distribution of money. Small scale industry is job creator SSI’s have always been regarded for their high employment intensity.

    SSIs today employ over 192 lakhs persons and this is targeted to grow at 4% per year. Chart 5 As shown in the below schematic the bulk of net new jobs are generated by firms with less than 20 employees. Net new jobs are the total of new jobs created by firm startups and expansions (gross job creation) minus the total number of jobs destroyed by firm closures and contractions (gross job destruction). From 1990 to 2003, small firms (less than 20 employees) accounted for 79. 5 percent of the net new jobs, despite employing less than 18. percent of all jobs in 2003. Midsize firms (20 to 499 employees) accounted for 13. 2 percent of the net new jobs, while large firms (500 or more employees) accounted for 7. 3 percent. At first glance, the net new job figures are difficult to reconcile with the fact that, over the same period, small firms’ share of total employment actually fell. In 1990, small firms employed 20. 2 percent of all workers, while large firms employed 46. 3 percent. In 2003, the numbers for small firms dropped to 18. 4 percent but climbed to 49. percent for large firms. The explanation lies in the migration of firms across size classes from year to year. In any given year, some small firms will grow beyond 20 workers and join a larger size class. Such migration trims the share of firms in the smallest class size, in the same way that small business failures trim the class size. Likewise, some large firms will contract, falling below the 500-employee level and dropping into a smaller size class. Chart 6 Also, new small businesses are born, increasing the share of jobs in the small-firm class.

    The data, thus, suggest that the effects of migration of small firms into larger size classes and small business failures outweigh the effects of the migration of large firms into smaller size classes and small business startups. Migration also makes it difficult to attribute job growth to firm size. Clearly, net employment figures mask a great deal of volatility in the labor market. The relatively high share of net new jobs created by small businesses stems mainly from relatively large gross job losses among larger firms— not from massive job creation by small firms.

    From 1990 to 2003, small firms created almost 80 percent of net new jobs but less than 30 percent of gross jobs. Small firms also accounted for about 24 percent of gross job losses. Large firms created almost 40 percent of gross new jobs but suffered 43. 5 percent of gross job losses. Chart 7 The key to maintaining high employment growth The integration of large-scale and small sector production so that technological and marketing skills and finance flow from large scale to small and medium scale enterprises on the one hand and on the other large enterprises fully exploit the opportunities of supply chain integration and local sourcing.

    New entrances in the market as a small scale The micro, small and medium enterprises (MSME) sector contributes significantly to the manufacturing output, employment and exports of the country. It is estimated that in terms of value, the sector accounts for about 45 per cent of the manufacturing output and 40 per cent of the total exports of the country. The sector is estimated to employ about 59 million persons in over 26 million units throughout the country. Further, this sector has consistently registered a higher growth rate than the rest of the industrial sector.

    There are over 6000 products ranging from traditional to high-tech items, which are being manufactured by the MSMEs in India. It is well known that the MSME sector provide the maximum opportunities for both self-employment and jobs after agriculture sector. Recognizing the contribution and potential of the sector, the definitions and coverage of the MSE sector were broadened significantly under the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 which recognized the concept of “enterprise” to include both manufacturing and services sector besides, defining the medium enterprises.

    For collecting and compiling the data for the MSME sector (including khadi, village and coir industries), the Fourth All India Census of MSMEs with reference year 2006-07, was launched during 2007-08 in the country. Table 4 |YEAR |NUMBER OF SSI (IN LAKHS) |FIXED INVESTMENT | | | |(In Rs. CRORES) | |2002-2003 |8. 68 |5. 0 | | | | | |2003-2004 |9. 64 |7. 0 | | | | | |2004-2005 |10. 88 |8. 0 | | | | | |2005-2006 |12. 32 |8. 20 | | | | | |2006-2007 |12. 60 |11. 0 | | | | | |2007-2008 |13. 00 |8. 50 | | | | | |2008-2009 |Not Available |2. 0 | | | | | |2009-2010 |Not Available |10. 40 | Contribution of SSI in gross domestic product (GDP) Table 6 |YEAR |Total Industrial Production |Gross Domestic Product (GDP) | |1999-2000 |39. 4 | 5. 86 | | | | | |2000-2001 |39. 71 |6. 04 | | | | | |2001-2002 |39. 2 |5. 77 | | | | | |2002-2003 |38. 89 |5. 91 | | | | | |2003-2004 |38. 4 |5. 79 | | | | | |2004-2005 |38. 62 |5. 84 | | | | | |2005-2006 |38. 6 |5. 83 | | | | | |2006-2007 |45. 62 |7. 20 | | | | | |2007-2008 |45. 4 |8. 00 | | | | | |2008-2009 |44. 86 |8. 72 | | | | | GROWTH IN NUMBER OF SMALL SCALE INDUSTRIES IN INDIA

    Chart 8 SIZE OF REGISTERED SSI IN INDIA The size of the registered MSME sector is estimated to be 15, 63,974. Of the total working enterprises,the proportion of micro, small and medium enterprises were 4. 94%,4. 89% and 0. 17% respectively. This comprises of 67. 10% manufacturing enterprises and 32. 90% services enterprises. About 45. 23% (7. 07 lakh) of the units were located in rural areas. Chart 9 Viability of small-scale sector in India’s globalized economy The small scale industry plays a vital role in the India’s globalized economy.

    The small scale enterprise touches every part of the Indian economy like employment, export, import substitution etc and so vigorous growth with strong macroeconomic fundamentals has characterized developments in the Indian economy. The products also form a large percentage of our domestic market too with SSI producing a number of products mainly:- 1) Confectionaries 2) Spices 3) Beverages 4) Natural essence oils 5) Dyes 6) Sports goods 7) Wooden furniture 8) Glass 9) Ceramic and earthen wares 10) Cotton and woolen knitted products 11) Silk and synthetic wear 2) Leather shoes and bags 13) Garments and novelty items 14) Plastic items 15) Survey instruments 16) Auto parts 17) Clocks and watches 18) Musical instruments 19) Lab chemicals 20) Basic metallic and non-metallic mineral products. The main characteristics of these small scale units can be illustrated below: Capital intensity Small-scale industries are less capital intensive. So these types of industries are more suitable to the economies like Indian because in India, there is a problem of capital inadequacy. Generation of employment- industry GroupWise

    Food products industry has ranked first in generating employment, providing employment to 4. 82 lakh persons (13. 1%). The next two industry groups were Non-metallic mineral products with employment of 4. 46 lakh persons (12. 2%) and Metal products with 3. 73 lakh persons (10. 2%). In Chemicals & chemical products, Machinery parts and except Electrical parts, Wood products, Basic Metal Industries, Paper products & printing, Hosiery & garments, Repair services and Rubber & plastic products, the contribution ranged from 9% to 5%, the total contribution by these eight industry groups being 49%.

    In all other industries the contribution was less than 5%. Per unit employment It was the highest (20) in units engaged in Beverages, tobacco & tobacco products mainly due to the high employment potential of this industry particularly in Maharashtra, Andhra Pradesh, Rajasthan, Assam and Tamil Nadu. Next came Cotton textile products (17), Non-metallic mineral products (14. 1), Basic metal industries (13. 6) and Electrical machinery and parts (11. 2. ) The lowest figure of 2. 4 was in Repair services line. Per unit employment was the highest (10) in metropolitan areas and lowest (5) in rural areas.

    However, in Chemicals & chemical products, Non-metallic mineral products and Basic metal industries per unit employment was higher in rural areas as compared to metropolitan areas/urban areas. In urban areas highest employment per unit was in Beverages, tobacco products (31 persons) followed by Cotton textile products (18), Basic metal industries (13) and Non-metallic mineral products (12). Opportunity Small industry sector has also performed exceedingly well and enabled our country to achieve a wide measure of industrial growth and diversification in past years as per below graph:-

    By its less capital intensive and high labour absorbtion nature, SSI sector has made significant contributions to employment generation and also to rural industrialization. This sector is ideally suited to build on the strengths of our traditional skills and knowledge, by infusion of technologies, capital and innovative marketing practices. Chart 10 Rural Non-metallic products contributed 22. 7% to employment generated in rural areas. Food Products accounted for 21. 1%, Wood Products and Chemicals and chemical products shared between them 17. 5%. Urban

    As for urban areas, Food Products and Metal Products almost equally shared 22. 8% of employment. Machinery and parts except electrical, Non-metallic mineral products, and Chemicals & chemical products between them accounted for 26. 2% of employment. In metropolitan areas, the leading industries were Metal products, Machinery and parts except electrical and Paper products & printing (total share being 33. 6%). State-wise Employment Distribution Tamil Nadu (14. 5%) made the maximum contribution to employment. This was followed by Maharashtra (9. 7%), Uttar Pradesh (9. 5%) and West Bengal (8. %) the total share being 27. 7%. Gujarat (7. 6%), Andhra Pradesh (7. 5%), Karnataka (6. 7%), and Punjab (5. 6%) together accounted for another 27. 4%. Per unit employment was high – 17, 16 and 14 respectively – in Nagaland, Sikkim and Dadra & Nagar Haveli. It was 12 in Maharashtra, Tripura and Delhi. Madhya Pradesh had the figure of 2. In all other cases it was around the average of 6. Quick yielding The small scale industries are quicker yielding in nature than large scale units. Controlled price level The problem of inflation and deflation can be controlled by small scale industries.

    So we can control the price level. Skill formation The small-scale industries are not required sophisticated technology and it required technologies which are locally available. So the entrepreneur does not require more training and skills. Low import intensity The small scale unit requires machines which are developed locally. So the entrepreneur is not required to import them. So these units are suitable to the countries like India which have scarce reserve of foreign exchange. Balanced regional development The small scale industrial units can be started in any barked area.

    So the growth of small scale units can provide development of industrially backward area. Proper utilization of local resources Small scale industries are mostly depending on raw materials and labour which are locally available. So it provides efficient and effective utilization of local resources. Creation of self employment The small scale industries provide lots of self employment opportunities to educated youths in India. Support to large scale industries Another highly useful role of small scale industry in India is the great support that the development of large scale industries in the society.

    Even distribution of income and wealth Small scale and cottage industries have the additional advantages that, with decentralized industries they secure a more even distribution of income and wealth. Export potential The small scale industries offer vast opportunities to promote exports. Now a day, the small scale industry units contribute 34 % of total export. Export destinations (country) of the SSI products are majorly as following:- Table 7 |S. No. |PRODUCT GROUP |MAIN DESTINATION (COUNTRIES) | |1. Readymade Garments |USA, Europe, Canada, West Asia, North Africa. | |2. |Plastic items |UAE, China, Italy, Saudi Arabia, Oman. | |3. |Marine products |Japan, USA, European Union, China, South East Asia. | |4. |Sports goods |UK, USA, Australia, Germany, South Africa | |5. |Spices |East Asia, European Union, North African Zone & American Zone | |6. Cashew items |USA, Netherlands, UK, Japan & UAE | |7. |Shellac items |Indonesia, Germany, Arab Republic Emirates, USA & Italy. | |8. |Synthetic items (MADEUPS) |UAE, UK, Turkey, USA & Italy | |9. |Leather & Leather items |Germany, UK, Italy, USA & France | |10. |Engineering & Elect. tems |USA Europe, Japan, Hong Kong, UAE, Germany, Belgium & France | |11. |Basic Chemical & Cosmetic |USA, Japan, Saudi Arab, China, Singapore & Netherlands. | |12. |Chemical & Allied products. |Japan, Belgaum, Italy, France, Bangladesh, USA & UK. | |13. |Wool & Woolen (MADEUPS), Knitted Garments etc |Europe, Japan, Bangladesh | |14. |Processed Food items |USA, Europe, Japan | |15. Electronic items & Computer Software |USA, Hong Kong,, UAE, UK, Germany & Japan | |16. |Tobacco & Tobacco items |East Europe | Below are data for growth of SSI exports from data available through MSME:- Table 8 |Year |Total exports |Exports from SSI sector |Percentage share | | |(Rs. Crores) |(Rs. Crores) | |1951-52 |716 |Negligible |- | |1961-62 |660 |Negligible |- | |1971-72 |1608 |155 |9. 6 | |1976-77 |5142 |766 |14. 9 | |1981-82 |7809 |2071 |26. | |1986-87 |12567 |3644 |29. 0 | |1991-92 |44040 |13883 |31. 5 | |1992-93 |53688 |17785 |33. 1 | |1993-94 |69547 |25307 |36. 4 | |1994-95 |82674 |29068 |35. | |1995-96 |106353 |36470 |34. 2 | |1996-97 |118817 |39249 |33. 4 | |1997-98 |126286. 00 |44442. 18 |35. 19 | |1998-99 |141603. 53 |48979. 23 |34. 59 | |1999-00 |159561. 00 |54200. 47 |33. 7 | |2000-01 |202509. 7 |69796. 5 |34. 47 | |2001-02 |207745. 56 |71243. 99 |34. 29 | |2002-03 |252789. 97 |86012. 52 |34. 03 | In terms of Export contribution, SSI Sector plays a major role in India’s present export performance. 45%-50% of the Indian Exports is being contributed by SSI Sector. Direct exports from the SSI Sector account for nearly 35% of total exports.

    The number of small scale units that undertake direct exports would be more than 5000. Besides direct exports, it is estimated that small scale industrial units contribute around 15% to exports indirectly. This takes place through merchant exporters, trading houses and export houses. They may also be in the form of export orders from large units or the production of parts and components for use for finished exportable goods. It would surprise many to know that nontraditional products account for more than 95% of the SSI exports. The exports from SSI sector have been clocking excellent growth rates in this decade.

    It has been mostly fuelled by the performance of garment, leather and gems and jewelry units from this sector. [pic] Chart 11 The lucrative product groups where the SSI sector dominates in exports are sports goods, readymade garments, woolen garments and knitwear, plastic products, processed food and leather products. In short, all above characteristics play major roles in the viability of SSI in India’s globalized economy. Conclusion Depending upon the facts described above this is the opportune time to set up projects in the small scale sector. It may be said that the outlook is positive, indeed promising, given some safeguards.

    This expectation is based on an essential feature of the Indian industry and the demand structures. The diversity in production systems and demand structures will ensure long term co-existence of many layers of demand for consumer products / technologies / processes. There will be flourishing and well grounded markets for the same product/process, differentiated by quality, value added and sophistication. This characteristic of the Indian economy will allow complementary existence for various diverse types of units. The promotional and protective policies of the Govt. ave ensured the presence of this sector in an astonishing range of products, particularly in consumer goods. However, the bug bear of the sector has been the inadequacies in capital, technology and marketing. The process of liberalization will therefore, attract the infusion of just these things in the sector. References Websites http://www. dcmsme. gov. in/ssiindia/statistics/ssidata. htm http://theviewspaper. net/small-scale-industries-an-important-catalyst-for-the-growth-of-india%E2%80%99s-economy/ http://exim. indiamart. com/ssi-corner/performance. html http://www. dcmsme. gov. in/ssiindia/performance. tm#Employment http://www. economywatch. com/world-industries/small-scale. html Articles ? Development Commissioner Ministry of Micro, medium and Small Scale enterprises ? Labour Bureau Government of India ? Fourth All India Census of Micro, Small, Medium Scale Industries 2006-2007 -End of the Document- ———————– Submitted By KUMAR SAURABH KANT- WMP7100 MANISH GUPTA- WMP7101 MD. KAIF AKBAR QURAISHI- WMP7103 MOITRAYEE MAJUMDAR- WMP7104 NITIN KUMAR TONK- WMP7105 Nupur Mittal –WMP106 Pankaj Gupta-WMP107 Managerial Economics 2011 Growth of Small-Scale Industry in India ———————– Aug. 26 2011 33

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