Entrep re neurship Dc\'e!

opmen' a nd Small Business Enll:rpri,el

To understand the role and imponanee 01 small-scale i1dustry (SSI)

To present the impact 01 globelisation and the WTD on SSI
To introduce concapts end definitions of SSI
To iNustrate government po~cy and development 01 the ....I-scale soctor in India
To trace the growth and performance 01 SSls in India
To analyse the lindings 01 third An India Census of SSI _tOf
To understand small and medium enterprises in other countries
To understand the problems and prospects of SSls

ROLE OF SMALL·SCALE INDUSTRIES

Today. the small -sca le industry (SSI) constitutes a very imponant segment of the
Indian economy. Credit for the development of this sector is due primarily to the
vis ion of former Prime Mini ster lawaharlal Nehru who sought to develop core
industry and put in supponing sectors in the fonn of small-sector enterprises. The
small-scale sector has emerged as a dynamic and vibrant sector of the economy. It is
a wel l-recogn ised fact that a vibrant small-scale sector holds the key to economic
prosperity in an economy like India. characterised by abundant labour supply,
unemployment and underemployment. capital scarcity. growing modem large
industrial sector providing scope for ancillarisation and so on. The sector has grown
phenomenally during the past five decades besides playi ng a vital role in fulfilling
India's soc io-economic objectives. The number of small-scale units has increased
from an estimated 8.74 lakh in 1980-8 1 to 32.25 lakh in 1999-2000. In fact. the
sma ll-sca le sector accounts for about 35 per cent of the country 's industrial
production. 40 per cent of exports and 60 per cent of employment opportunities. Over
ten years have passed since the process o f liberalisatio n and globalisation have
affected the fortunes of Indian small-scale enterprises (SSE).
The small-sr;:ale industry (SSt) sector has, over the past six
SNAPSHOT decades, acquired a prominent place in the socio-economic
Role of SSI deve lopment in the country. The sector has exhibited positive
• Dynamic and vibrant sector of growth trends even during the periods when other sectors of the
the economy economy experienced either negative or nominal growth.
• Prominent role in socio4co- Various policy initiati ves undertaken by the govern ment.
nomic transformation of the whether by way of incentives or protection. have helped the
country sector in acquiring the status of a major contributor in the growth
• Accounts for 35 per cent 01 process. In fact. though the SS) sector has demonstrated its
industrial production, 40 per strengths, the basic accent of the small-scale industrial policy has
cent of exports and 60 per cent been defensive, aiming to insulate the sector from the dynamics
01 employment opportunities
of competitive growth.
Modern Small Business Enterprises

The process of liberalisation and economic reforms,

Refer annual report 01 SlOB I since 1991 . while creating tr.:mendous opportunities
for the text on role and im · for the growth of SSIs. have, however. thrown up new
portance of 551 In India .
challenges for the sector. In the changing scenario,
building competitive strengths. introducing technol·
ogy upgradation and quality improvement are vital issues which need to be addressed
in order to build the capability to withstand emerging pressures and ensure sustained
growth. Also, the sector needs to reposition itself if it has to meet expanding demands
for ancillary items, subcontracting and job work from other industrial units, requiring
higher standards of quality, economies of scale. and strict delivery schedules.

The Importance 01 Small·scale Industries

• Provide increased employment through labour-intensive process.

• Require lower gestaUon period.
• Easy to set up in rural and backward areas.
• Need small/local market.
• Encourage growth of local entrepreneurship.
• Create a decentrallsed pattern of ownership.
• Foster diversification of economic activities.
• Introduce new producu par1iculat1y to cater to local needs.
• Influence the standard of living of local people.
• Provide equitable disperSal of Industries throughout rural and backward areas.

DISCUSSION FORUM

• Discuss in small groups role and importance of SSIs.

• Explain the contribution of the 55I in the socio-economic transformation of the
COUllb)'.

Impact of Globalisation on 551 in India

As discussed earlier, even before the introduction of economic reforms in 1991 fol -
lowing the inevitable globalisation, the SSl sector was somewhat overprotected. The
hope that the infant would grow into an adult who could be freed to face competition
has been completely belied. The small·scale industry never had a strong desire to
grow to medium and large scale because of the benefits of protection given to it.
Many of the policies also discouraged the growth of small-scale units into large ones
and had a stunting effect on manufacturing, employment and output growth. With
globalisation, the SSIs are now more exposed to severe competition both from the
large·scale sector---domestic and foreign-and from MNCs.
 Enuepteneutship Developmem :md Small Business Enterprises

The poor growth rale in the SSI sector during the post-liberalisation period can be
altritmted to various factors such as the new policies of the government towards )iber-
alisation and globalisation without ensuring the interesls or priority of the sector. Left
to the mercy of lending institutions and promotional agencies whose main agenda is
to serve big units and multinationals. the SSI sector has suffered deterioration in the
quality of its output. industrial sickness. and retrograde growth.
The problems ofSSls in the liberaliscd environment are multidimensional-delay
in implementation of projects, inadequate availability of finance and credit, expen-
sive mode of communication. marketing problems. cheap and low-quality products,
delay in payment . technological obsolescence, imperfect knowledge of market
condition, lack of infrastruclUre facilities, and deficient managerial and technical
skill s, to name some.
Now, world over. business environment is changing fast. Globalisation, whether
understood in a limited way in terms of muhilateraltrade liberaiisation or in the
broader sense of increasing internationalisation of production. distribution and so on,
has resulted in the opening up of markets. leading to intense competition. For
instance. the World Trade Organisation (WTO) regulates multilateral uade requiring
its member countries to remove impon quotas, restrictions and reduce impon tariffs.
India was also asked to remove quantitative restrictions 01) imports by 200J and all
expon subsidies by 2003. As a result, every single individual enterprise in India,
small or large, whether exponing or serving the domestic market. has to face
competition. The process was initiated for small-scale units by placing 586 of the 812
reserved items on the Open General Licence (OGL) list of impons. This opens up the
possibility of direct competition in the domestic market with the impons of high-
4uality goods from developed countries.
Competition in the domestic market has rurther intensified with the arrival of
multinational companies as the restrictions on foreign direct investments have been
removed. The 1990s witnessed the entry of many multinational companies in areas
such as automobiles and electronics.
In the changed environment. the SSI sector needs to integrate itself with the over-
all domestic economy and global markets by gearing itself to greater interdependence
by networking and subcontracting. To meet the present as well as future requirements
of the sector and the national economy satisfactorily, the policies and projects for the
SSI sector will have to be effective and growth oriented so as to achieve competitive-
ness. collective approach. and capacity to upgrade.
tn order to protect, suppon. and promote small enterprises as also to help them be-
come self-supponing, a number of protective and promotional measures have been
undertaken by the Central Government.
The promotional measures cover the following.
• Industrial extension services
• Institutional suppon in respect of credit facilities
• Provision of developed sites for construction of sheds
• Provision of training facilities
Modern Small Business Enlerpriscs

• Supply of machinery on hire·purchase tenns

• Assistance for domestic marketing as well as exports
• Special incentive for setting up enterprises in backward areas and elsewhere
• TechnicaJ consultancy and financiaJ assistance for technological upgradation.
While most of the institutional support services and some incc!)lives are provided
by the Central Government. others are offered in varying degrees by the state govern·
ments for attracting investments and promoting small industries with a view to en·
hancing industrial production and generating employment in their respective States.

Impact of the WTO on 551s

The emerging challenges to the s mall· scale sector are due to the impact of the
agreements under the WTO to which India is a signatory along with 134 member
countries. The setting up of the WTO in 1995 has altered the framework of
international trade towards non·distortive. market·oriented policies. This is in
keeping with the policy shift that occurred worldwide since the
SNAPSHOT early 1980s in favour of free market forces and a tilt away from
Impact of GIobaUutlon and lhe State regulation/intervention in economic activity. This is
WTOonSSI expected to lead to an expansion in the volume of international
• Ttghter patent laws through regu- trade and changes in the pattern of commodity fl ows. The main
lation 01 intellectual proper1v outcome ofWTO·stipulated requirements will be brought about
rights under the TRtPS Agree-
ment
through reduction in export subs idies. greater market access.
removal of non·tariff barriers and reduction in tariffs.
• Worktwide market and opportu-
nity to 8Xpc..n There will also be tighter patent laws through regulation of
• Intensified competition in the do· intellectual property rights under the Trade·Related Aspects of
mestic market Intellectual Property Rights (TRIPS) Agreement which lays
• tmport 01 high Quality 90005 down what is to be patented (both products and processes), for
what duration (20 years instead of the present 7 years under
India's 1970 Patent Law), and on what tenns.
The responses by trading countries and the reframing of domestic economic poli·
cies, which will result from the impact of the WTO and the repercussions on the
global economy of all these changes, are highly uncertain as they involve several un-
foreseeable factors. However. there are certain indications of the shape of future
trade patterns.
Increased market access to imports (of around 3 per cent of domestic production to
be raised to 5 per cent) will mean opening up the domestic market to large flows of
imports. The removal of Quantitative Restrictions (QRs) on imports has been
speeded up and imports of these items will soon be freed from all restrictions as
announced in the recent EXIM policy.
Increased market access under the WTO requirements will also mean that our in-
dustries can compete for export markets in both developed and developing countries.
But the expected surge in our exports can come about only if the SS! sector is restruc-
tured to meet the demands of global competitiveness, which is the key to the future of
smaJl industries in the present context.
 Entrepreneurshi p Development and Small Bu.inc: u E nterprises

WTO: Pros and Cons

Policy literature on general impact of the WTO and its agreements on SSIs are not
different from its implications to industry in general because they comprise a major
part of the Indian industry. Even though extensive infonnation on the wro is avail-
able. studies which associate the WTO with SSIs in India are few in number and lim-
ited in scope. As mentioned earlier. SS Is contribute about 54 per cent of
non-tradi tional and 10 per cent of traditional product exports (taken together, about
35 per cent of total exports) of our country. However, SS ls have to face threats and
also avai l opportunities owing to the WTO and its agreements. The main opportuni-
ties of the WTO are classiried into three. Firstly. national treatment (or MFN) for ex-
portable items across the countries all over the world. wit h better market access
through the Internet. Second , enlightened entrepreneurs have greater opportunities to
benefit from the ir comparative advantages due to loweri ng of tariffs and dismantling
of other restrictions. Finally, industries that are in constant touch with the govern-
ment. which in tum negotiates in their best interests in the on-going dialogue with the
wro. are going to benefit (Laghu Udyog. 2003).
India has a real chance of becoming a superpower in the services sector. particu-
larly IT. It has already captured about 25 per cent of world exports. In contrast. SSls
have to face competition by way of cheap imports from different countries due to the
removal of Quantitati ve Restrictions (QRs) on impons and lowering of tariffs. As a
result. every single ind ividual enterprise, small or big. whether exporting or serving
the domestic market, has to face competition. In addition. OOL opens up the
possibil ity of direct competition in the domestic market with the import of high
quality goods from developed countries and cheap products from less-developed
countries. Subsequently. entry of multinatjonal companies has intensified competi-
tion in the domestic market. However. Indian SSls are not in a position to compete
with others due to inherent weaknesses like poor quali ty goods, costly credit. weak
infrastructure, traditional technology. inflexible labour laws. lack of in fonnation and
international exposure, and ineffective associations. Further, the export market will
become tougher because of competition among developing countries with similar
comparative advantages.
To overcome the above uncertainty, the WTO
Visil www.banknelllwJia.comand agreement suggests ways by which some of the ad-
wwvdaehu-ud)'OB.com (0 lcun more verse con sequence~ could be neutralised. These are
about lhc: Impact of WTO on 551 in India. the use of Agreement on Trade-Related Aspects of
Intellectual Property Rights (TRIPS), Agreement on
Trade-Related Investment Measures (TRIMS), and
stringent hygienic. environmental. and labour standards. In addition. these agree-
ments themse lves provide certain inbuilt safety mechanisms li ke anti-du mping.
countervailing and safeguard measures. Further. strict vigilance at the ports of enLry
is required to ensure that imported goods are as per quality standards invoiced and
carry thl! name of the manufacturer and the maximum retail price. The WTO prevents
subsid ies. which directly affect competition of the product . It helps activities of com-
mon interest. which act indirectly as subsidy to the enterprise.
Modcrn Small Busincss Enlcrpriscs

DISCUSSION FORUM

• Explain the role of the SSI sector in Indian economy.

• Discuss in small groups the impact of globali~tion on the SSI seclOr.
• Discuss the pros and cons of the WTO.

CONCEPTS AND DEFINITIONS OF SSI

Small-scale Industrial Unit (SS/): An industrial undenaking in which the investment
in fixed assets in plant and machinery, whether held on ownership terms or on lease
or by hire purchase, does not exceed Rs 100 lakh as on March 31. 2001. is to be
treated as a small-scale industrial unit.
Ancillary Unit: This is a s ub-class of SSts. An industrial undertaking which is
engaged or is proposed to be engaged in (i) the manufacture of pans, components.
sub-assemblies, toolings or intennediates: or (ii) rendering of services, or supplying
or rendering not less than 50 per cent of its production or its total services, as the case
may be, to other units for production of other articles and whose investment in fixed
assets in plant and machinery, whether held on ownership tenns or on iease oron hire
purchase, docs not exceed Rs I crore as on March 3 I, 200 I, is to be treated as an
ancillary enterprise.
Export-oriented Unit (EOU): An industrial undenaking in which the investment in
fixed assets in plant and machinery, whether held on ownership tenns. or on lease. or
by hire purchase, docs not exceed Rs 100 lakh and has an obligation to export 30 per
cent of production.
Tiny Unit: The investment limit in plant and machinery in respect of tiny enterprises
is Rs 25 lakh irrespective of the location of the unit.
Women entrepreneurs: A small-scale industrial unit/industry related service or
business enterprise, managed by one or more women entrepreneurs in proprietary
concerns, or in which shelthey individually or jointly have a share capital of not less
than 51 percent as partners/shareholders/directors of private limited company/mem-
bers of cooperative society.

Refer annual report of Min· Small-scale Service and Business (industry-related)

istry of Small· scale Indus· Enterprises (SSSBEsJ: Industry-related service and
tries, Government of India business-related enterprises with investment in fixed
for definitions of Small·scale
assets. excluding land and building, up to Rs 10 Inkh,
Industries.
irrespective of location as on March 3 1,2001. are to be
treated as SSSBEs. The illustrative li st ofscrvices (effective as on March 3 1. 2001)
covered under the definition of SSSBEs is given below.
• Advertising agencies
• Marketing consultancy
• Industrial consultancy
• Equipment rental and leasing
• TYping cenh"es
 Entn:prt'nt'u rship D t'vt' lopm t' nt and Small Bu. int'lt Entt'rpri.t'.

• Photocopying centres
• Industrial photography
• Industrial R&D laboratories
• Industrial testing laboratories
• Desktop publishing
• Internet browsi ng/selling up of cyber cafes
• Auto repair. services and garages
• Docu mentary film s on themes like family pl anning. soc ial forestry, energy con-
servation and commercial adverti sing
• Laboratories engaged in testing of raw materials. fini shed products
• "Servici ng industry" undertakings engaged in maintenance. repai r, testing or
electronic/electrical equ ipment/instruments. that is. measu ring/control instru-
ments. servicing of all types of vehicles and machinery of any description in-
cludi ng televi sions. tape recorders, VCRs. radios. transformers, motors.
watches. and so on.
• Laundry and dry cleaning
• X-ray clinic
• Tailoring
• Servicing of agriculture farm equipment. for example. tractors, pumps. rigs.
boring machines. and so on
• Weigh bridge
• Photographic laboratory
• Blue printing and enlargement of drawing/design facilities
• ISD/STD booths
• Teleprinter/fax services
• Subcontracting exchanges (SCXs) established by industry associations
• EDP institutes established by voluntary associations/non-governmental organi-
sations
• Coloured or black and white studios equipped wi th processing laboratory
• Ropcways in hilly areas
• Installation and operation of cable TV network
• Operating EPABX under franchi se
• Beauty parlours and creches
Activities not recognised as SSls and SSSBEs: The fo llowing activities are not recog-
ni sed as SS ls and SSSBEs.
• Transportation
• Storage (except cold storage)
• Retail/wholesale trade establishments
• General merchandise stores
• Sale outlets for industrial components
Modern Small Business Enlcrpriscs

• Heahh services including pathologicallaboralOries

• Legal services
• Educational services
• Social services
• Hotels

Calculation of the Value of the Plant and Machinery

For the purpose of calculating the value of plant and machinery, the original price
paid thereof, irrespective of whether the plant and machinery are new or second-
hand, shall be taken into account. In general, for being regarded as a tiny or small-
scale or ancillary industrial undertaking, the Government of India has issued the
following guidelines.
(a) In calculating the value of plant and machinery, the following shall beexcluded.
I. The cost of equipment such as tools, jigs, dies, moulds and spare parts for
maintenance and the cost of consumable stores
2. The cost of installation of plant and machinery
3. The cost of research and development (R&D) equipment and pollution
control equipment
4. The cost of power-generaling sets, extra transfonners, and so on. installed by
the undertaking as per the regulations of the State Electricity Board
5. The bank charges and serv ice charges paid to the National Small Industries
Corporation or the State Small Industries Corporation
6. The cost involved in procurement or installation of cables, wiring, bus bars,
electrical control panels which are not mounted on individual machines, oil
circuit breakers/miniature circuit breakers. and so on, which are necessarily
to be used for providing electrical power to the plant and machinery/safety
measures
7. The cost of gas producer plant
8. Transportation charges (excluding taxes. for example, sales tax. excise tax,
and others) for indigenous machinery from the place of manufacturing to the
site of the factory
9. Charges paid for technical know-how for erection of plant and machinery
10. Cost of such storage tanks which store raw materials and fini shed products
only and are not linked with the manufacturing process
11 . Cost of fire-fighting equipment.
(b) In the case of imported machinery, the following shall be included in calculating
the value.
I. Import duty (excl uding miscellaneous expenses such as transportation from
the port to the site of the factory, demurrage paid at the port)
2. Shipping charges
3. Customs clearance c harg~ s
4. Sales lax.
 Entrepreneurship Develop ment and SmaU BUline.. Enterprisea

Investment Ceiling for Small~Scale Industries (December 1999)

Type 01 551 uml Investment limit Remarks
Small-scale mdustry As 10 million Historical cosl 01 plant and machinery
Ancillary Rs 10 million AI least 50 per cent 01 its output should go 10
other industrial undertaking
Export oriented As 10 million Obligation to export 30 per cent of production
Tiny enterprise Rs 2.5 million No location limits
Women enterpnse As 10 million 51 per cent equity holding by women
Service and business enterprise As 0 .5 million No location limits

DISCUSSION FORUM

• Differentiale the investment ceiling limits of the foUowin, units:

(I ) SSI (b) Ancililry (0) Expon Oriented (d) TillY Ilo..rprises (0) Service and
Business IloI<rpriICl (I) Womeu Ilol<rprises
• List the various services covered uodcr the smaJl~ lCale service and business
e nterprises.

GOVERNMENT POLICY AND DEVElOPMENT OF THE SMAll-SCALE

SECTOR IN INDIA
India's concern and support for small-scale enterprises has foc used excessively on
the small-scale industry. This can, perhaps, be traced back to Mahatma Gandhi's
spedal concern for handicrafts and village-based industries. Various measures taken
by the Central and State governments, for the development of the SS I have included
produc t reservations, fiscal concessions, preferential allocation of cred it and interest
subsidy in a c redit-rationing framework, extension of business and technical serv-
ices, preference in government procurement, marketing assistance including export
promotion by institutio ns such as National S mall Industries Corporation, Small In-
dustrics Development Organisation, Handicrafts and Handloom Promotion Corpora-
tio n, and Khad i and Village Ind ustries Com miss io n, as also pro mo tio n of
ancillarisation, and so on.
Administratively, India's SSI sector is divided into seven industry groups.
Traditional Sector Modern Sector
I. Handicrafts 6. Powerlooms
2. Handlooms 7. Residual small-scale industries
3. Khadi, village and cottage industries
4. Coir
5. Sericulture
The first five sectors are collectively called the traditional sector and the last two
are known as the modem sector. The eligibility of SSI finns to talce advantage of me
various incentives offered depends o n the defi nition of SS I used. Whe reas most
Modern SmaU Business Enlcrpriscs

TABLE 1.2 Evolution on Investment Limits for Small·scale Industries

Year Investment limit Additional conditIOn

1950 Up to As 0 .5 million in fixed assets Less than 50 to tOO perSOIlS

with or without power
1960 Up to As 0.5 million in fixed assets No condition
1966 Up to As 0.75 million in plant and machinery No condition
1975 Up to As 1 million in plant and machinery No condition
1980 Up to As 2 million in plant and machinery No condition
1985 Up to As 3.5 million in plant and machinery No condition
1991 Up to As 6 million in plant and machinery No condillOn
1997 Up to As 30 million in plant and machinery No condition
1999 Up to As 10 mittion in plant and machinery No condition

countries define SSEs in tenns of employment levels, the Indian definition has been
based largely on the cumulative amount of investment in plant and machinery. These
investment limits have been periodically revised upwards (Table 1.2).

Industrial Policy 1991

The industrial policy measures announced in 1991 laid special emphasis on
promotion and strengthening of small , tiny. and village industries. Besides affecting
changes in investment limits and equity panicipation up to 24 per cent by other
undertakings. a new scheme of integrated infrastructure development for SSIs with
the participation of State government and financial institutions was initiated. The
policy also proposed to encourage and suppon industry assoc iations to establish
counselling and common testing facilities. and to pursue a reoriented programme of
modernisation and technological upgradation aimed at improving productivity,
efficiency. and cOSt effectiveness in the small scale sector.

Policy Initiatives Since 1999

The emerging economic scenario in the changed, liberalised. and competitive
economic environment necessitated structural and fundamental changes in the policy
framework, causing a shift in focus from protection to promotion. In the post-refonns

SNAPSHOT
• Administratively, India's 551 sector is divided into seven industry groups
• Tradtuonal Sector: Handicrafts, Handlooms, Khadi , Village and Conage Industries, Coir and Sericulture.
Modem Sector: Power looms and residual 551
• Indian definition 01 SSE based largely on cumulative amounl of investment in planl and machintlry whose
limits have been periodically revised upwards
• Emerging liberalised and competitive economic environment necessitated structural and fundamental
changes in the policy framework, causing a shift in focus Irom protection to promotion
 E nt N!prene urs hip Development and SmaU Bus ine.. E nte rprises

period, the government took a number of steps including panial de-reservation,

change in investment limits, facilities for foreign partic ipation, establi shment of
growth centres, e~po rt promotion. marketing assistance, incentives fo r quality
improvements. and so on. The more important steps among these are given below.
• To better foc us the atlention on the problems of the SSl sector, a new Ministry of
Small-scale Industries and Agro and Rural Industries was created on October
14, 1999. The ministry announced an Agenda for the Millennium policy.
• A new Credit Insurance Scheme was announced in the Budget 1999-2000 for
SS I security to banks and to improve the flow of investment credit to SSI units.
particularly export-oriented and tiny units.
• Banks on the basis of 20 per cent of their annual turnover determine the working
capital limit for SSI units. The turnover limit for Ihis purpose has been enhanced
from Rs 4 crore to Rs 5 crore.
• A national programme to boost rural industrialisation has been announced, with
a mission to set up 100 rural clusters every year.

Policy Initiatives on SSI Sector In 2003-04

• 75 Items ~rved for exclusive m.1nuf.acture In the 5S1 sector conststJna of chemluls .1nd m.tr
products, le.1ther and le.1ther products, labor.1tory re~nts etc. were dereserved In June 2003.
• Selective enh.1ncemenl of Investment In pUnt .1nd m.1Chlnery from Rs 1 crore to Rs 5 crore
carried out in respect of 13 Items In stationery sector and 10 Items In the drues and phann.aceu·
dcal sector from June 5, 2003.
• The Unktn bud,et 2003-04 .1nnounced that banks would provide credit to the 5S) sector within
an Interest rue band of 2 per cent above and below Prime lendlnl Rated (PlR). All publk sector
banks have adopted lhts nonn.
• The composite loan limit for SSI units was enhanced from Rs 25 lakh to Rs 50 lakh.
• In Its mid·tenn review of Monetary and Credit Policy 2003-04, the RBI .1nnounced that banks
may enhance the limit of dispensation of collateral requlremenu for lo.1ns from the exlstJna its 15
lakh to its 25 lakh on the basts of good [rack record and flruncbl posIdon of the unlu.
• The lower limit of Rs 5 lakh on loans covered under the Credit Guarantee Scheme has been
removed. All loans up to Rs 25 lakh made eltalble for &\Iirantee cover under the Credk Guaran-
tee Scheme.
• 417 SSI spe<:lallsed bank branches made operatJon.11 throulhout the country.
• The final results of third Alllndi.l Census of Sm.111-SCile IndustJ1es were rele~d on Jinuary 17,
2004.
• In the first phase, 60 clusten were IdendHed (July, 2003) for focused development, by Includlnl
their credit requlremenu In the respective SLue Oedll PI.1RS.
• Settina up of a Small and Medium Enterprises Fund (5MEF) of Rs 10,000 crore under SIDBt, to
Inter alLl, address the problems of In.1dequacy of flruncLlI resources at hlahly competitive rates
for smal'·scale sector.
• laghu Uddyaml Credit Card scheme liberalised with enhanced credit limit of Rs 10 Iakh (up from
Rs 2 lakh) for borrowers with satlsf.1C1.ory track records.
Modern Small Business Enterprises

To coordinate me latest development wim regard to the WTO, a cell has been set
up in me office of me Development Commissioner, to prepare policies for the SSl in
lune wim wro agreements and organise wro sensitisation seminars, workshops,
and so on.
Steps are being taken to accelerate the programme of SSI branches to ensure mat
every district and SSl cluster within a district is served by at least one specialised SSI
bank branch. Furthermore, to improve me quality of banking services, SSl branches
are being asked to obtain ISO certification.
To further help SSI entrepreneurs, the National Equity Fund Scheme was
introduced under which equity support is provided for projects up to a limit of Rs 15
takh. which may be further raised to Rs 251akh.
The single window scheme of Small Industries
Vi~it www.smallindustryindia.com for a
full text OD a Comprehensive Policy Development Bank of India is aJso being extended
Packqe for the small-scale and tiny sector to all districts. Thus. under the new policy.
as announced on Augu~ 30 and 31. 2000. emphasis has been laid on development of small-
scale sector by providing different facilities instead
of providing different types of protection. A Comprehensive Policy Package for
small-scale and tiny sector as announced on August 30 and 31, 2000 is given in
Appendix 1.1 .

DISCUSSION FORUM

• Name the seven industry groups of the 5S1 sectOf.

• Trace the evolution of invesunent limits in fixed assets for the SSI since 1950.
• Explain a shift in focus from protection to promotion policy initiatives since 1991
for the S51 sector.

GROWTH AND PERFORMANCE OF SMALL SCALE INDUSTRIES IN INDIA

Pre- and Post-liberalisation Periods
Since the beginning of planning in 1950--51. as discussed earlier, considerable efforts
have been made for the development of small-scale industries in view of their
potential for creating employment. Performance of me SSI sector in India during
1980s and 19905 is shown in Table 1.3 and Table 1.4.
The level of output by the SSls went up from Rs
28,060 crore in 1980--81 to Rs 5,78,470crore by the
VISit www.ui.nif;:.ia for policy
framework ror SSIIeCtOr. end of 1999-2000. showing an increase of nearly
20 times over a period of 20 years. Exports have
also gone up by nearly 40 times over a period of two
decades. The contribution ofSSI in exports was high during the period, especially up
to the year 1995. The trend reversed during the period 1995-2000 when the growth
rate recorded a declining trend.
 En lrep rcneurship Devdopment and Small Busi ness Enterprises

Performance 01 551 Units during the 19805

Yea' No. of units (fakh) Production (Rs Cr.) Employment (Iakh) ExpotTS (Rs Cr.)
1980-8 1 8.74 28.060 71 1643
198 1--82 9.62 (10.07) 32.600 (16.18) 75 (5.63) 2,070 (25.99)
1982--83 10.55 (9.67) 35.000 (7.36) 79(5.33) 2,095 (1.2 1)
1983-84 115. (9) 41,300 (18) 84 (6.33) 2,350( 12. 17)
1984-85 12.42 (8) 50,520 (22.32) 90 (7.14) 2.563(9.06)
1985-86 ' 3.56 (9.18) 6'.228 (21.2) 96 (6.67) 2.785 (8.66)
1986-87 14.64 (7 .96) 72.259 (18) 101(5.21) 3,63 1(30.38)
1987-68 15.86 (8.33) 87.300 (20.83) 107 (6.94) 4,373 (20.44)
1988-89 17.12 (7 .94) 1.06.400 (2 1.88) 113 (5.6 1) 5,490 (25.54)
1989-90 18.26(6.66) 1,32,320 (24.36) 120 (62 19) 7,626 (39.9 1)
Average 836 18.9 6 19.15
growth ra le
Source: Anlony. Valsamma (2002). "The Prospects and Growth of 5SIs in India: An Overview". Southem Economist, 41 .1.
NOle: Figures in mackets show Ihe percentage increase over the previous year.

Performance of Small-scale Industries during the 1990s

Year No. of units (Iakh) ProductIon (Rs Cr.) Employment (Iakh) ExpotTS (Rs Cr.)
199 1-92 20.82 178699 130 13883
1992-93 22.35 (7.35) 2.09,300 (17. 12) 134(3) 17,785 (28)
1993-94 23.84 (6.67) 2,4 1,648 (15.46) 139 (3.7) 22.764 (28)
1994-95 25.71 (7.8) 2,93.990 (2 1.67) 146.56 (5.4) 29.068 (27.6)
1995-96 27.20 (5.8) 3,56,2 13 (2 1) 152.61 (4.1) 36,470 (25.5)
1996-97 28.57 (5) 4,12.636 (15.B) 160 (4.8) 39.248 (7.6)
1997-98 30. 14 (5.5) 4.65.17 1 (12.7) 167.20 (4 .5) 43.948 (12)
1998-99 31.2 1 (3.6) 5,38.357 ( t 5.7) 172 (2.9) 49,48 1 (12.6)
1999-2000 32.25 (3.3) 5.78 ,470 (9.7) 178 (4.0) 53,975 (10.2)
Average 5.63 16.1 4 4.05 18.93
Source: Economic Survey, Government 01 India 2000-2001.
NOle: Figures in brackets show the increase over the previous year.

T he g rowth rate in employment in the SS I sector over the years had been o n the
decline. An all-time decrease was seen between 1995 and 2000.
It would also be wonhwhile to look. at the progress o f the SSI sector in the post-
Iiberalisation period compared to that of the I 980s. The increase in productio n and
expons was more impressive than that of lhe number of units and e mployment. A
stagnation or reversal of trend is noticeable in the performance of the SS I ind ustries
afte r 1995 in creation of employment as well as in the number of units set up.
Modern SmaU Busine88 Enterprises

'41:"'" Comparative Performance 01 SSls in Terms of Average Growth Rates

Areas 01 performance Average growth rates (%)

1980-1990 1991-2000
No. 01 units 8.6 5.63
Production 19.9 16. 14
Employment 6 4.05
Export 19.15 18.93

A comparison between the growth rates in the performance le vel of the SSls
between the two periods (Table 1.5) indicates wide disparities. The pace of growth
during the 1990s was relatively lower compared to that of the pre-liberalisation
period.

Performance of Small-scale Industries in India

The SS] sector continues to remain an imponant sector of the e"Co.nomy with a
noteworthy contribution to GOP. industrial production, employment generation and
exports. The performance of the small-scale sector based on the final results of the
third All India Census of SSls, 2004, is given in Tabl~ 1.6. As per the Census of
registered and unregistered units held for the year 2001--D2, there were 105.21 lakh
SSI units in the country, out of which 13.75 lalm were registered working units and
91.46 lakh unregistered units. Their contribution to production was Rs 2.82,270
crore and 249.09 lakh persons to employment. It is estimated that during 2003-04,
the number ofSSI units has increased to 115.221akh from 110. 10 lakh in the previous
year, registering a growth of 4. 7 per cent. The value of production at current prices by
the SSl units also increased to Rs 3,48,059 crore from Rs 3, II ,993 crore during

IM:""ij Overall Performance of Small-scale Sector in India

Yea, Number of units Production (Rs CrOfe) Employment Exports
(Iakh) (at current prices) (at constant pnces) (Iakh) (Rs Crore)
1994-95 79.60 1.22,210 1,09,116 191.40 29.068
199!>-96 82.84 148.290 1.21.649 197.93 36,470
1996-97 86.21 1,68,413 1.35.380 205.86 39.248
1997-98 89.71 1.89,178 1,47,824 213.16 44,442
199&-99 93.36 2,12,901 1,59,407 220.55 48.979
1999-2000 97.15 2,34,255 1.70,709 229.10 54,200
200<H)1 101.10 2,61,289 1,84,428 239.09 69.797
2001-02 105.21 2,82,270 1,95,613 249.09 71,244
2OO2-<l3 110.10 3.11,993 2,10.636 261.38 86,013
l!OO:>-<l4 115.22 3,48,059 2.26,392 273.97 NA
Source: Ministry 01 SSI. Third All India Census on SSI (Constant prices 1993·94)
 Entrepreneurship Dcvclopmem and SmaU 8u. ine.. Enterprise.

2002--03. The sector is esti mated to have grown at the rate of 7.5 per cent at constant
prices over the previous year. Employment is estimated to have increased to 273.97
lakh persons from 261.38 1akh persons in the previous year.

Share of Small-scale Industrial Units in Total Exports

With the growing trend towards liberalisation and globalisation. export is one of the
focu s areas of SSt units. Since 1950. policy framework indicated the need for
increased exports to meet the import requi rements over a period of time; the SS}
share in total exports has been increasing. As can be seen fro m Table 1.7. the overall
percentage of SSt units in total exports was 9.6 per cent. The percentage recorded a
high of 26.5 per cent exports in 1981-82. The same percentage touched a peak level
of 3 1.5 per cent in 199 1-92 and 36.4 per cent in 1993·94. The share of SSI sector in
total exports was 35.2 per cent in 1994-95.34.3 per cent in 1995- 96.33.4 percent in
1996-97. 35.2 per cent in 1997- 98 and 34.6 per cenl in 1998-99. During 1971-72.
the total exports were Rs 1,608 crore of which the share oflhe SS I sector was Rs ISS
crore. The tolal all -Indiaexpon during 1998- 99 increased to Rs 1.41 .603.5 crore and
the share of the SSt sector was Rs 48,979.2 crore. The overall performance of the SSI
sector in total exports was fairly satisfactory. The late en try of MNCs and large
companies in the area reserved for the SSt sector has given a big jolt to the sector.
The com modity-wise expon of major products by SS t units has also been
increasing over a period of time . As can be concluded from Table 1.8, among the
non-traditional goods, the readymade garments exports increased from Rs 5.654.2
crore in 1991 - 92 to Rs 22.209 crore in 1998- 99. The fini shed leather products
exports increased from Rs 2.547 crore in 199 1- 92 to Rs 3.438.5 crore in 1998-99.
The basic chemicals. pharmaceuticals and cosmetics exports of the SS I sector
increased from Rs 1,936.2 crore in 1991 - 92 to Rs 3.427 crore in 1998- 99. The share
of the non-traditional sector. which was Rs 13.287 .7 crore in 1991 - 92. increased to
Rs 45.890.4 crore in 1998- 99. Among the traditional commodities. cashew kernel
exports increased from Rs 537.2 crore in 1991 - 92 to Rs 1.613 .2 crore in 1998-99.
The spices exports increased from Rs 36.2 crore in 1991 - 92 to Rs 1.406.4 crore in
1998-99. Exports by SSI un its (listed as " lac" under "Trad itional Products" in
Table 1.7), which stood at Rs 27.4 crore in 199 1- 92. increased to Rs 69.3 crore in
1998-99. The above analysis indicated that non-traditional products accounted for
the major share of the export of SS I units as compared to the trad iti onal product
exports.
The overall analysis of growth and development of entrepreneu rship in India
indicates that in different States. the number of units promoted by entrepreneurs is
increasing manifold . Their contribution in the overall production . employment,
investment. and exports had a multiplier impact on the different sectors. Various
factors had affected the performance of entrepreneurship over a period of lime. The
government changed its policy to give a boost to entrepreneurship in the counlf)'.
Risky projects are being promoted and financed by venture funds. With the advent of
an era of liberalisation and globalisat ion. small-scale entrepreneurs are faci ng acute
competi tion. With the coming in force of the wro agreement on April I. 200 I, the
SSl units have to face challenge fro m MNCs and other large-scale units. Budding
Modcrn Small Business Entcrprises

't!1:I!,"
Yesr
Share of Small-scale Industries

Totsl e1CpOrts %age

In Total Exports
Exports (rom %age %age share
(Rs Crare) incresse small·scale sector increase ofSSI
(Rs Crore)
1971-72 1,608.0 155.0 9.6
1972-73 1,971.0 22.6 305 .8 97 .3 15.5
1973-74 2,523.4 28.0 393.2 28.6 15.6
1974-75 3,332.9 32.1 540.7 37.5 16.2
1975-76 4.042.3 21.3 532 .1 (-)1 .6 13.2
1976-77 5.142.3 27.2 765.8 43.9 14.9
19n-78 5,484.3 6.7 844 .8 10 3 15.4
1978-79 5,726.3 4.4 1.069.2 26.6 18.7
1979-80 6,458.8 12.8 1.2263 14 .7 19.0
1980-81 6,710.7 3.9 1,643.2 34.0 24.5
1981-82 7.805.9 16.3 2,070.6 26.0 26.5
1982-83 8,907.8 14.1 2.045.0 (-)1 .2 23.0
1983-84 9.872.1 10.8 2,164 .0 5.8 21.9
1984-65 11,493.7 16.4 2.540.8 17.4 22 .1
1985-86 10,894.6 (-)5.2 2.769.1 9.0 25.4
1986-87 12,566.6 15.3 3,643.7 31.6 290
1987--88 15,741.2 25.3 4,373.0 20.0 27 .8
1988-89 20,295.2 28.9 5,489.6 25.5 27.0
1989-90 27.681.5 36.4 7.625.7 38 .9 27.5
1990-91 32,553.3 17.6 9.664.1 26.7 297

1991-92 44,041.8 35.3 13.883.4 43.7 31.5

1992-93 53.350.5 21.1 17.784.8 28.1 33.3
199:>-94 69,547.0 30.4 25.307.1 42.3 36.4
1994-95 82.674.1 18.9 29.068.2 14.9 35.2
1995-96 10.6,464.9 28.8 36.470.2 25 .5 34 .3
1996--97 11,7,525.0 10.4 39.248.5 7.6 33.4
1997-98 12,6,286.0 7.5 4,442.2 13.2 35 .2
1998-99 1,41,603.5 12.1 48.979.2 10.2 34.6

Source: Government of India. Handbook of Indusrrial Sratisrics. 2000

Product·wise Exports of Small Scale Industrial Sector
 E ntre preneurship D C\'c:lopmc nt and Small 8usi ncu Entcrp rises

''4:''1':1 Commodlty~wlse Export of Small-scale Industrial Units

S.No. Product groups : 991- 92 1992-93 199~94 1994- 95 199fr96 1996--97 1997- 98 1998-99
Non-tradttfonal (A)
1. Engineering 1.390 1.950 2.056 2,325 3.025 3,390 4,400 4,815
Goods
2. Basic Chemicals, 1,936.2 1,992.8 2,432.8 2.676.2 3.002.5 4.331 .2 6.502 3,427
Pharmaceuticals
and Cosmetics
3. Chemical and 150 119 174.4 237 .7 250 353.4 480 484.9
Alliled Products
4. Plastic Products 80 175.4 267 356.1 265 714.6 985 957.1
5. Finished Leather 2,547 2,954 3,311 .5 4,400.5 4.910.5 3.200 3,262.6 3,438 .5
and leather
Products
6. Marine Produc!s 519.8 506 .8 609.6 664 .5 624.3 953 2692 .1 1204.6
7. Processed Foods 603.9 840.5 1716 1761.7 5158 .8 4868.6 4620.2 6253.1
8. Woolen 123.6 208 .1 300.2 319.8 896.1 863.4 1353.1 1589.9
Garments and
Knitwears
9. Spons Goods 76.5 93.6 t32.2 179.9 207.5 217.5 240.7 247.8
10. Readymade 5,654.2 7,956.7 11 .771 13,240 14,807 16,729 16.551 22.209
Garments
11 . Rayon Synthetic 14.3 15.7 1.163.3 1.416.9 1.686.2 1.61 3.3 1,365.4 720
Products
12. Processed 187.4 240.1 193.7 111 .8 237.6 520.3 358.4 543.5
Tobacco, Snuff
and Bidi
Non-Iradillonal 13.288 17.053 24 .137 27,690 35,067 37 ,755 42,810 45,890
Total (A)
Traditional Products (8)
13. Cashew Kernel 537.2 642.5 1027.6 1244.3 1230.2 1283 1427 1613.2
Cashew Nul
Sheet liquid
14. Lac 27.4 51.5 88.6 72 .8 98.7 92.9 64 .4 69.3
15. Spices, Spice 38.2 38.2 54 60.7 74 .3 118 140.8 1406.4
Oils, OIeoresins
T radilional 600.7 732.2 1170.2 1377.8 1403.2 1493.9 1632 3088.8
Total (8)
Total (A + 8) 13,883 17.785 25,307 29,068 36.470 39,249 4,442 48,979
Source: Government 01 India, Handbook of Industrial Statistics, 2000
Modern Small BusineSl Enterpriscs

entrepreneurs will have to follow a strategic management approach in the starting,

working and management of their units. This study intends to examine the
managerial performance of the SSI units, socio-economic profile of the
entrepreneurs, analysis of policy perspective of the government, problems in the
promotion of S5! units, and entrepreneurship development. The study will help
policy-makers. researchers, government. financial institutions and all those
concerned with the development of industrial entrepreneorship in the country to build
a policy perspective in this regard.

DISCUSSION FORUM
• Analyse the performance of SSt in India in terms of
<a> GOP (b) Employment potenlial (C) Production (dJ Expons
• Compare the export potential of S51 with the tOlal expom
- - - ' - - -..................!J
THIRD All INDIA CENSUS OF SSI SECTOR
The main highlights of the third Census of Small-scale Industries are classified under
the following headings and are given below.
1. Registered SS! Sector
2. Unregistered SSI Sector
3. Total SSI Sector
4. Sickness in SSt Sector
In the third census , the units permanently
registered up to March 3 1, 200 1 were covered on
~ Vi~il hup:llindiabudgcl.nic.in for the complete enumeration basis. A total of 22,62,401
perfonnancc of SSI seetor in India units were surveyed. Out of these. 13,74.974 units
, ...... J
were found to be working and the remaining
8,87,427 units were found to be closed. Thus. the
Visit wwwsmcnelwork.nctand number of working units works out to be 60.77 per
www.smallidustryilldia .comrorcomplclc cent and those of closed 39.23 per cent. The
repon on. the Third All India Census on dispersal -of working and closed units in rural and
SSl's
urban areas is given in Fig 1. 1. Table 1.9 and Fig 1.2
show sector-wise di stribution of registered working
and closed units.

Perc.nlage of working and ctoud units In the Registered SSt Sector

39.23~ El Wori<ing units

60.77
o Closed units

Rgure 1.1 • Peroentage of Working and Closed Units in the Registered SSI Sector
 Enueprl'nl'ufship O l'\'clopnu: m :lntl Sm:lll Busi ness E nt erpri ses

Registered 551 sector

• All the 551 units pennanently regiStered up to March 312001, numbering 22,62,401, were
surveyed on a complete enumeration basis. Of these 13,74,974 units (61 %) were found to be
wooing and 8,87,427 units (39 %) were found to be closed.
• Of the 13,74,974 wortcing units, 9,01,291 were 551s and 4,73,683 were 555BEs. Thus, the
proportion ofS51s was 65.55 per cent. About 5.08 per cent of the 551 units were ancillary units.
The proportion of units operating in rural areas was 44.33 %.
• In tenns of the number of wortclng units, six St.1tes, viz., Tamil Nadu (13.09 %), Uttar Pradesh
(11.S5 %). Kerala (10.69 %). Gular.. (IO.OS %). Kamataka (S.04 %) . and Madhya Pradesh
(7.41 %).hadashareof61.16%.
• With regard to closed units, six States, viz., Tamil Nadu ( 14.33 %), Uttar Pradesh ( 13.78 %),
Punjab (9.32 %). Kerala (S .43 %). Madhya Pradesh (7 .4 %). and Maharashtra (6.11 %) had
a share of 59.37 %.
• The per unit employment was 4.48. The employment per Rs 1 lakh investment In fixed assets
was 0.67.
• The rice milling industry topped the list in tenns of gross output. In tenns of exports, the textile
&aments and clothing accessories Industry was on top.
• Compared to the Second Census, the Third Census brought out some structural changes in the
repstered 551 sector. While the proportion of working units remained the same, by and large, the
domination of 551s among the working units has been reduced conslderabty from 96 % to 66 %.
This Is mainly due to an increase in the number of units engaged In services. The per unit
emp4oy1'T1ent has gone down from 6 .29 to 4.48. The per unit fixed Investment has gone up from
Rs 1.60 lakh to Rs 6.68 lakh . This could be due to technological upgradation .

Sector-Wise Distribution of Workmg and Closed Units

Rural IJrban Total
Working units 44 .33 % 55.67 % 100.00 %
Closed units 37.92% 62.08 % 100.00 %
Total 41 .82 % 58.18 % 100.00 %

Percentage distribution of Registered 551 units by location

100% /' ,/

/'
59.98% 62.08%

50%

/' /'
44.33" 37.92%
[] Urna,
0%
Wondng units Closed units
III Rural

Rgure 1.2 • Percentage Distribution 01Registered SSt Units by Location

Modern Sma ll Business Enterprises

Unregistered 551 Sector

• This sector was surveyed using a twO'SL1ge mollified sampling design. Out of the 9,94,357
villages and urban blocks, 19,579 villages and urban blocks were surveyed to identify the units of
unregistered SSI sector. Out of these, information was complete received in respect of 19,278
villages and urban blocks. In these villages and urban blocks, the enumerators selected 1,68,665
unregistered SSI units for survey, but they could actually survey 1,67,665 units.
• The size of the unregistered SSI sector is estimated to be 91,46,216. Of these, only 38.75 %
were SSls and the rest were SSSBEs.
• The reasons for non-registration were eliCited in the Third Census. Interestingly, 53.13 % of the
units Infonned that they were not aware of the provision for registration, while 39.86 % of the
units indicated that they were not interested.
• About 45.38 % of the units were engaged in services while 36.12 % were engaged in manufac-
turing and the remaining 18 .S % in repair/ maintenance.
• The maximum number of unregistered SSI units (16.89 % ) were located in Uttar Pradesh.
Other States with a high concentration of unregistered SSI units were Andhra Pradesh, West
Bengal, Maharashtra, Madhya Pradesh, Tamil Nadu, Karnauka, Bihar, Rajasthan and Gujarat.
• About 96.9 % were proprietary units and 1.13 % partnership units.
• The average employment was 2.05 and the employment generated per Rs I lakh fixed invest-
ment was 3 persons.
• About 10.13 % of the units were women enterprises and the socially backward classes managed
57 % of the units.

Total 551 sector

• The size of the (0L11 551 sector is estimated to be over one crore ( I ,05 ,21,190). About 42.26%
of these units were SSls, the rest were S55BEs. The number of ancillaries among SSls was 2.98 %.
• About 47 .22% o f the units were located in UtL1r Pradesh, Andhra Pradesh, Maharashtra, Madhya
Pradesh and Tamil Nadu .
• The .services sector emerged as the dominant component in the t0L11 551 sector with a share of
44% of the units.
• Although registration is volunwy in the 551 sector, the registered 551 sector was found to be the
cream of the t0L11 551 sector. In terms of size, it was only 13%, but in terms of investment Its
share was 59 % and it coiuributed to 59% of the total production.
• About 95 .8% of the units were of the proprieL1ry type of ownership. Entrepreneurs belonging to
socially backward classes managed about 56% of the unilS.
• The percenuge of women enterprises was 10. I I %. The percenL1ge of enterprises <lctually man-
aged by women was 9.46%.
• The percentage of women employees was 13. 3 I % . The employees belonging to socially back·
ward classes was to the tune of 57.45 % .
.!2 Entrepreneurshi p Dcvelo p m cnl and Small Busi n ess E nt erp rises

Sickness in 55) sector

• 5ickness WJS Identifi ed through the latest definitio n of RBI given by the Kohli Commlnee. Inclpl·
e nt sickness was identified in te rms of continuous decline In gross output.
• 5ick ness in the total 551 secto r was to the tun~ of 1%, whereas In the registered and unregistered
551 sectors it was 3 . 38 % and 0 .64% respectively.
• The maximum number o f sick units- about 59.33 % was located in Wesl Bengal, Kerala,
Maharashtra, Karnata ka, a nd Andhra Pradesh.
• OUl of the units havi ng loan outstanding with institutional sources such as banks and flnanclal
institutions, sic kness was reported (0 be about 19.6 % in (he registered 551,5eCtor and 16.61 % In
the unregiste red 551 sector. In (he to tal 551 sector, this perce ntage was 17.8.
• inCipient sickness, identified in [e mu of a continuous decline In gross output was I 1.5% In the
registered 551 sector and 6.48 % in the unregistered 551 sector. In the total 551 sector, this
pe rce nLage was 7 .4 .
• Combinin g [he th ree yardsticks used to measure sickness, viz ., (a) delay In rep.1ytTtfnt of loon
over o ne year, (b) decline In net wo rth by 50% , and (c) decline In output In last three years,
about 13. 98 % of the units In the regiSlered 551 SKlor were Idel1tified to be either skk or
incipient sic k. This percentage was only 6 .89 In the case of unregistered units. In the total 5S1
sec tor, this percentage was 7 .82 .
• The States of Kerala, Tamil Nadu, A ndh ra Pradesh, Ka mataka, and Maharashtra had maximum
number of sicklincipiently sick 551 units. These five SLUes together accounted for 54. 28% of the
sick/ incipiently sick SSi units in the country.
• " l ack or demand " .lnd "Shortage of working capital " were the main reason.Ii for sickness/incipient
sickness in bo th the registered and unregistered 551 sectors .

Table 1. 10 shows the summary results of the Third All India Census of SSI and
Table 1. 11 shows the details of the units covered in this Cens us. Table 1.12 gives the
comparative statement of Second and Third A ll India Census on SSI.
Registered SSls A ll SS Is registered permane ntly with State D irectorates of
IndustrieslDistrict Industries Centres as on Marc h 3 1, 2001. are called registered
SS Is. Some SS I units were earlier registered when the upper ceiling limit in plant and
machinery was Rs 100 lakh. These units are also to be treated as registered SSIs.
Unregistered SSls All the SS Is not registered permanently with State Directorates of
Industriesl District Industries Centres on or before March 31. 2001, are called
unregistered SS ls. SSls temporari ly registe red on o'r before March 3 1. 2001 , as also
units that are te mporarily or permanently registered afte r March 3 1. 2001. till the date
of survey will be treated as unregiste red SS ls. during the third all-India Census on
SSI.
Registered SSSBEs All SSS BEs registe red w ith State Direc torates of Industries!
District Industries Centres as on March 31 . 2001 . are called registered SS~ B Es .
Unregistered SSSBEs All SSS BEs not registered permanently w ith State Directorates
of IndustrieslDiSirict Industries Centres on or before March 3 1. 200 1, are called
unregistered SSSBEs.
Modem 5,,:<111 Bus iness Enterprises

TABLE 1.10 Summary Results of Third Census Reference Period 2001-02

Characteristics Registered SSI Sector Unregd. Sector Total S51 Sector

1. Size 01 the sector 13,74,974 91,46,216 1.05,21,190
2. No. of rural unils 6,09,537 51.98,822 58,08,359
(44.33%) (56.8%) (55'%)
3. No. of 551s 9,01,291 35,44,577 44,45,868
(65.55%) (38.75%) (42.26%)
4. No. 01 S5SBEs 4,73,683 56,01,639 60,75,322
(34.45%) (61.25%) (57.74%)
5. No. of ancillary units 45,797 86,516 1,32,313
(% age of no. 01 551s) (5.08%) (2.44%) (2.98%)
6. No. olliny units among 551s 8,82,496 35,43,091 44.25,587
(97.9%) (99.9%) (99.5%)
7. No. 01 women enterprises 1,37,534 9,26,187 10.63,721
(10%) (10.13%) (10.11%)
8. Nature of activity
Manufacturing/Assembling/ 8,72,449 33.03,366 41,75,815
Processing (63.45%) (36.12 %) (39.69%)
Repairing & Maintenance 28,843 16,92,6153 17,21,500
(2.10%) (18.50%) (16.36%)
Services 4,73,682 41.50.187 46,23,869
(34.45%) (45.38%) (43.95%)
9. Type 01 organisation
Proprietary 12.21.702 88,62,548 1,00.84.250
(88.85%) (96.9%) (95.8%)
Partnership 99,190 1,03.662 2,02,852
(7.21%) (1.13%) (1 .9%)
Pvt. Company 33,284 38.153 71,437
(2.42°/0) (0.42%) (0.68%)
Cooperatives 4.715 9.854 14,569
(0.34%) (0.11%) (0.14%)
Others 16,083 1,31,999 1,48.082
(1.17%) (1.44%) (1.41%)
10. No. of units managed by
SC 1,07,934 9.43,969 10.51,903
(7.85%) (10.32%) (10%)
ST 48,560 4.74,271 5,22,831
(3.53%) (5.19%) (4.97%)
CBC 5.29,406 38.11,372 43,40,778
(38.50%) (41.67%) (41.26%)
Others 6.89,074 39,16,604 46,05,678
(50.12%) (42.82%) (43.8%)
11. No. of units managed by 1,14,361 8,80,780 9,95,141
women (8.32 %) (8.37 %) (9.46 %)
Con/d.
IH Enncprencuuhip DC\'clopmcnI ::I nd Small Busi ne ss Ente rprises

12. Main source of power

No power needed 3,60,611 38,55,035 42,15,646
(26.23%) (42.15%) (40%)
Coal 28,841 2.95,165 3,24,006
(2.10%) (3.23%) (3.1%)
Oil 40,401 5,55,416 5,95,817
(2.94%) (6.07%) (5.66%)
LPG 7,222 55,237 62,459
(0.53%) (0.60%) (0.59%)
Electricity 8,99,657 40,25,262 49,24,919
(65.43%) (44.01%) (46.8%)
Non-conventional energy 7,142 60,539 67,681
(0.52%) (0.66%) (0.64%)
Traditional energy/Firewood 31,100 2,99,562 3,30,662
(2.26%) (3.28%) (3.14%)
13. No. of units having outstanding 2,76.333 5,01,306 7,n,63g
loan as on March 31, 2002 (20.1%) (5.48%) (7.39%)
14. No. of units having outstanding 1,96,137 2,82,267 4,78,404
loan with institutional sources (14.26%) (3.09%) (4.55%)
as on March 31, 2002
15. No. of SICk units (with erosion of 46.431 58,338 1,04,769
networth by more than 50 % or (3.38%) (0.64%) (1%)
delay in repaymen, 01 institutional
loan by more than 12 months)
, 6. No. 01 InCIpient Sick units 1,58,023 5,92,893 7,50,922
(declinP. In gross output over (11.5%) (6.48%) (7. 14%)
three consecutive years)
17, No. 01 sick units as per RBI criteria, 38.4C3 46,887 85,290
I,e .• those that are sick among units ( 19.6%) ( 16.61%) (17 .8%)
having outstanding loan With
institutional sources
18. No. 01 sick/Incipient sick units 1,92,328 6,30,568 8,22,896
(With erosion of net worth by (13.98%) (6.89%) (7.82%)
more than 50 % or delay in
repayment 01 institutional loan
by more than 12 months or
decline in gross output over three
consecutive years)
19. Reasons lo r slckness/incipient
Sickness
lack 01 demand 1,11 ,508 4,35,121 5 ,46.629
(58%) (69%) (66%)
Shortage 01 working capilal 1,09,844 2,69,648 3,79,492
(57%) (43%) (46%)
Non-availability 01 raw matt/rial 23,493 76,029 99,522
(12%) (12%) (12%)
Contd.
Modern Small Business Enterprises 25
Power shortage 33,099 77.345 1,10,444
(17%) (12~'o) (13%)
Labour problems 12,182 26,282 38,464
(6%) (4'%) (5~~)

Marketing problems 70,202 2,24.002 2.94.204

(37%) (36%) (36%)
Equipment problems 16.995 76.038 93,033
(9%) (12%) (11%)
Management problems 9,124 21.088 30.212
(5%) (3%) (4%)
20. Per unit employment 4.48 2.05 2.37
21. Total emplovment 61.63,479 1.87.69.284 2.49.32.763
22. Per unit original value of 2.21 0.27 0.52
Plant & Machinery (in As lakh)
23. Total original value of 30,32.868 24.56,492 54.89.360
Plant & Machinery (in As lakh)
24. Per unit fixed investment 6.68 0.66 1.47
(in As lakh)
25. Total fixed investment (in A::; lakh) 91,79,207 6~55.660 1.54.34.867
26. Per unit Gross Output (in As lakh) 14.76 0.86 2.68
27. Total Gross Output (in Rs lakh) 2.03.25,462 79,01.536 2.82.26.998
28. No. 01 exporting units 7.344 43.262 50.606
29. Value of exports (in As lakh) 12.30.826 1.89.130 14.19.956
30. Employment per As one lakh 0.67 3.00 1.62
investment
31. Units maintaining accounts 4.04.672 5.98.533 10,03.005
(29,43%) (6.54'Yo) (9.53%)
32. No. of economic activities as per 672 619 672
National Industrial Classilir:ation ~998.
pursued In SSt sector
33. No. 01 products! services as per 5.963 2.680 6,003
ASICC produced! rendered in
SSt sector
34. No. of reserved products 877 382 878
(as per the reserve list effective on
March 31. 2001) produced in SSt sector

Unregistered S5l sector All unregistered SSls and unregistered SSSBEs constitute
the unregistered SSI sector. SSIs and SSSBEs that are temporarily registered on or
before March 31, 2001, as also units that arc temporarily or permanently registered
after March 31 , 200 I, (ill the date of survey (Third All India Census on SSI) will be
treated as unregistered for the purpose of this survey.
 Entrepreneurship Developme nt and SmaU Business Enterprises

TABLE 1.11 Details of Umts Covered

Registered 551 Seclor
Total no. 01 units surveyed 22,62.401
Number of working units 13,74 ,974 (6 1%)
Number 01closed units 8,87,427 (39%)
Unregistered 551 Sector
No. 01villages/urban blocks surveyed 19,579
No. 01villages! urban blocks for which data was received 19,278 (98%)
No. 01unregd. 551s! S5SBEs selected lor survey 1,68,654
No. ofunrp.gd. S51s! S5S8Es actually surveyed t ,67,665 (99%)
Estimated no. 01 units w.r.t. reasons tor non-registration
Not aware 01 the provisions lor registration 53.13%
Nol interested 39.86%
Complicated procedures 3.87%
Local laws! regulations do not permit 1.76%
Ctearance not available from Municipality etc 1.38%

TABLE 1.12 Comparison of the Third Census with Second Census

(Registered 551 Sector)

S.No. Indicator 2nd Census ( 1987·88) 3rd Census (200J-02)

1. Percentage of Working Units 62.75 so.n
2. Percentage 01 WOrking Units In rural areas 42.20 44.33
3. Percentage 01 Working Units that are
SSts 96.24 65.55
Ancillaries 0.52 5.08
SSSBEs 3.24 34 .45
4. Percentage 01 Proprietorship Working Units 80.48 88.85
5. Percentage 01 Proprietorship WO:1<ing Units 65.42 63.45
engaged in Manufacturing/Assembly/Processing
6. Percentage of Working Units that are
owned/managed by
SC, 6.84 7.85
ST, 1.70 3.53
Women 7.69 8.32
7. Per Working Unit Fi)(ed tnvestment (As lakh) I.SO 6.68
8. Per Working Unit Investment (Original) in 0.95 2.21
P&M (As lakh)
9. Per Working Unit production (As lakh) 7.38 14.78
10. Per Working Unit Employment (number) 6.29 4.48
11 . Employment per As one lakh of investment 3.94 0.67
in Fi)(ed Assets
12. ProductiorVEmployment (As lakh) 0.04 3.30
Modern Small Business Enlerprises

DISCUSSION FORUM

• Diseuss ill smallpoups. the _ . . oflbinl AU India Ceaaus OQ SSb ill India
held for the year 2001-02.

SMAll AND MEDIUM ENTERPRISES (SME) IN OTHER COUNTRIES

There is a growing recognition worldwide that small and medium enterprises (SMEs)
have an important role to play in the present contex.t given their greater resource-use
efficiency, capacity for employment generation, technological innovation, promoting
inter-sectoral linkages, raising exports and developing entrepreneurial skills. Their
locational flexibility is an important advantage in reducing regional imbalances. The
future of SMEs is of major policy concern given their strategic importance in any
discussion of reshaping the industrial sector. This is more so in the case of India,
which has one of the longest history of government support to the small-scale
industrial sector since independence compared to most developing countries.

International SME Network (lNSME)-Background

In the Bologna Charter on SME policies adopted in June 2000, ministers and
representatives of governments of countries participating in the first OECD
Ministerial Conference on SMEs welcomed Italy 's offer to finance and promote a
feasibility study, including a need assessment, to define the
SNAPSHOT potential design and development of an International Network
Small and Medium Enterprise (SME) for SMEs (lNSME) .
• Intemational SME network (INSME) The INS ME is designed to work as a hub of networks and
is a hub 01 netwcrks and structure
structures of services aimed at strengthening and enhancing the
01 services among members.
dissemination and quality of infonnation, service supply, and
• Definition 01 an SME varies hom
one counTry TO another.
partnership opportunities for SMEs. The INSME should
pursue these objectives mainly through the creation and the use
of an internet portal. This portal will aim at networking service providers with their
users, since the existing service providers at the international. national and regional
level do not often interact with their customers and with each other sufficiently.
By means of an appropriate management unit. the INS ME should also contribute
to attain the following objectives:
(a) Enabling SMEs to benefit from globalisation by connecting, extending, and
maximising the use of the existing networks for SMEs operating on a
geographical , sectoral, and functional basis, thus improving the quantity,
quality, and updating ofproduclS, infonnation and services available online, and
promoting internationalisation and possible integration and coordination, by
taking advantage of the advancements in information and communication
technolm!ies:
128 Entrepn:neurship Developmenl and Small Bus ine.. Enlerprises

(b) Strengthening the coord ination among the networks for SMEs and for the
intennediary bodies supporting SMEs already operating at local level, in order
to improve and to better qualify their supply as well as to make information and
services more accessible to those countries and geographical areas that are less
familiar with SME issues; and
(c) Promoting the development of new networks for SMEs and for their
intermediaries, the creation of new web sites and Internet portals, with a
multiplier effect, especially in countries where they are lacking.
Following the Bologna Conference, the Italian Mini stry of Industry, with the
support of the Institute for Industrial Promotion (IPI), has promoted the setting up of
a specific international Steering Group for the lNSME feasibility study (lNSME SO).
This Steering Group was established in July 2000 in order to benefit from the support
by interested countries and international bodies in identifying the objectives and the
scope of the feasibility study. receive inputs from the private sector in this regard. and
work on the road map for the carrying out the feasibi lity study.

Composition of INSME Steering Group

The INSME Steering Group was set up in July 2000 on a voluntary basis. It is made
up of representatives from the Italian government and from the OECD, co-organisers
of the Bologna ('on ference, as well as of those countries and organisations which
attended the conference and manifested their interest in the INSME feasibility study
and in its aftermath.
An Italian representative appointed directly by the Italian Minister of Industry
chairs the Group and its work is coordinated by IPI, which provides the secretariat of
the Oroup. SO members have the following specifications.
(a) Be a member of a national public administration (ministry or agency) or of an
international organisation or NOD concerned with SME policy issues
(b) Be an expert in networks for SMEs andlor intermediary bodies supporting
SMEs
(c) Be an expert in Internet applications, in planning and managing Internet portals.
So far. 41 countries. 17 international organisations and 9 networks/intermediaries
have joined the Group, whose composition remains open and flexible. Further
participation from other OECD and non-OECD countries and from international
organisations and NGDs interested in the Bologna process are weico":1e any time.
India is a member country and the SENET project works close ly with INSME.
Table 1. 13 li sts the members of the INSME steering group.
The ongoing work of the INSME Secretariat, hosted by IPl, aims at establishing
INSME ·as a formal community of political and technical stakeholders. taking the
form of a non-profit assoc iation at the international level . focused on innovation and
technology transfer services. The association will launch an open, multi-action
political dialogue in this area. to encourage the sharing of knowledge, expertise and
methodologies as well as to promote new transregional and transnational activities,
Modern Small Bus iness Enterprises

TABLE 1.13 Members of the INSME Steering Group

Countries Intemational Organisations and NGGs Networks and Intermediaries

1. Algeria 1. Development Gateway 1. CEGETEC(Uruguay)
2. Argentina 2.Devnet 2. Cyprus Institute 01 Technology
3. AUS1ralia 3. Inter-American Development Bank (lAOS) 3. FISME (India)
4. Austria 4.IKED 4. Galicia e-commerce
5. Brazil 5.0ECD Leveraging Centre (Spain)
6. Canada 6. PECC 5. MEDEF (France)
7. Chile 7. UNCTAD 6. SARETEK (Spain)
8. Chinese Taipei 8. UNIOO 7. SBC (Korea)
9. Czech republic 9. WIPO 8. UMIS·SMEA (Croatia)
10. Egypt 10. World Bank 9. Walloon Business House for
11 . Finland Europe (Belgium)
12. France
13. Gennany
14. Greece
15. Hungary
16. India
17 . Israel
18. Italy
19. Japan
20. Mexico
21. Morocco
22. New Zealand
'2'3_ Pakistan
24. Poland
25. Portugal
26. Republic 01 Korea
27. Romania
28. Russia
29. South Africa
30. Spain
31. Sweden
32. Swilzertand
33. Tunisia
34. Turkey
35. Vietnam
0......,.
1. Denmark
2. Luxembourg
3. Mauritius
4. Paraguay
5. Syria
"~KIngdom
 Enucprcncurship Developmcnt and Small Bu.inc.. Entcrpri.c.

projects. and financing programmes specifically targeted to intermediaries and/or

their networks. Moreover. from an operational point o f view. INSME aims to
strengthen linkages. cooperation and pannerships in thi s field to maximise the
mutual benefits among the members of the communi ty, and contribute to
specialising, integrating, to the final benefit of SMEs.
By laking advantage of the use of ler. lNSME
VISit www..m.sme.ne.iprorJdtillBinfor- will act as an information hub. a faci litator and
mMioa on SMEs ill VUlOUl countries. catalyst of existing, relevant in termed iaries and
their net works promoting the launch of new
projects, de veloping synergies and economies of
scale. The network has lake me form of a non-profit legal entity such as an interna-
tional association from 2004.

Definitions of SMEs in Various Countries

Definitions of what constitutes a SME vary from one country to anomer. In many
European countries. they are defined as independent firm s with fewer than 250
employees. [n Japan, a SME can has as many as 300 empl9yees. according to official
definitions. and in the United States 500. Common to all countries, however, is me
vital role SMEs play in job creation. In the European Union. such firms provide
employment for more than 70 million people. or two-thirds of all EU jobs. In Japan.
such firm s provide 78 per cent of jobs.
In the Indian context, we have so far not defined medium enterprises
clearly. What is neither small nor large is being loosely defined as medium.
Further, enterprise encompasses businesses, services and industries. In the
broadband of' small', the discussion extends to medium as well. Another
possible connotation for the SMEs is the small manufacturing enterprises.
In India mere exists no definition ofSMEs. What prevails here is on ly the concept
of small-scale. ancillary, and tiny industry which are related to the historic value of
the investment in plant and machinery. In other countries, SMEs are defined on the
basis of quantitative and qualitati ve elements. such as the number of workers
employed andlor annual turnover or the level of fix ed in vestment. However.
employment is an omnipresent criterion for determining the size of the unit in these
countries. The official definitions of Small and Medium Enlerprises used in various
countries are given in Appendix 1.2.

DISCUSSION FORUM

• Discuss the role of lmernational SME Network in promOling SMEs across the
globe .
• Compare the definition of Small-scale Industries in India with the definitions of
SMEs in other countries. What are the main distinguishing features?
Modern Small Business Enterprises

PROBLEMS FOR SMALL-SCALE INDUSTRIES

We may divide the problems of small industries into two groups-extemal and
internal. External problems are those which result from factors beyond the control of
the induslrialist. such as the availability of power and other infrastructure facilities
required for the smooth running of small-scale industries. Inlernal problems are those
which are not influenced by external forces and relale to organisation. structure-,
production channel, distribution channel, technical know-how, training, industrial
relations, inadequacy of management, and so on. However, the two kinds of
problems are not mutually exclusive; they are co-related.
The problems of industries, whether in the small-scale sector or in the organised
sector, are almost identicaL However, the organised industry being·financially very
strong and its resources large, it can face its problems more effectively. Given its
weak financial structure, the resources.of the small sector are limited. The large
sector can employ trained and experienced managers; in the small industry, the
proprietor or the partners, or if the unit is a company, its director or directors, have to
take care of all the problems on their own. The large sector can influence raw material
suppliers, customers and, at times, even the government in framing its policies, but
the small entrepreneur is helpless in this respect. The lauer, therefore, has to look
after the entire spectrum of problems despite the great limitations under which he
functions. The problems faced by the s mall-scale industries is given in Box 1.7 and
Box 1.8.

External and Internal Problems Faced by Small-scale Industries

InternJl ExcerflJl
(i) Choice of idea (i) Infrastructure
(ii) Feeble structure (a) location
(iii ) Faulty planning (b) Power
(Iv) Poor project implementation (e) Water
(v) Poor management (d) Post Office and so on
(vi) Poor production (e) Communication
(vii) Quality ( Ii) Financial
(viii) Marketing (a) Capital
(Ix) Inadequate finance (b) Working capital
(x) labour problems (c) long-term funds
(xl) Capacity utilisatk>n (d) Recovery
(xli) lack of vertical and horizontal integration (iii) Marketing
(xiii) Inadequate training In skills (Iv) Taxation
(xlv) Poor and loose organisation (v) Raw Material
(xv) lack of strategies (vi) Industrial and financial regulations
(vii) Inspections
(viii) Technology
(Ix) Policy
(x) Competitive and volAtile environment
 Entrepreneurship Development and Small Business Enterprisel

Problems Faced by Small-scale Industries

• Difficulty in obtaining credi l from commercial banks because of their general in.1blllty to provide
security.
• In.1bility to offer liberal credit terms in the sale of their products.
• A~e nce of man.1gement expertise. Often managed by one person who performs a number of
functions usually with no fo rmal training.
• Difficulty in competing with imported products due to high production cosu.
• Competition from other local entrepreneurs in the same line of business competing for the lim-
ited loe;:1 market.
• Difficulty in obtaining industrial land in towns and cities. The shortage of Industrial land Is giving
rise to more and more backward operations.
• Under capitalisation.
• Difficulty in identifying appropriate technology lnd technical asslstante.
• The m.1nner In which both the needs of the economy and linkage with the exlSllng Industry an
best be served.
• Bureaucratic red tape Jnd regulations.
• Surveys of material and human resources of the countries are not available to idemify the rqions
or areas fo r the development of small-scale and medium-scale Industrial enterprises.
• !dentilicalion of industrial projem for development.
• Project preparation and evaluation.
• Financial or credit suPPOrt Jnd invesunellt prOmotic l.
• Consultlncy and counselling ~rvices.
• Technology development and applications such as (he deslgn!ng of protO[),pt machines for prod-
ucts jd~nllfied according to country resources and requirements.
• Development of Infrastructure of various kinds in the .1ppropriate .1re.1s.
• Entrepreneurship development.
• InduStrial tr;dning and sk ill formation.
• linkages between large Industries and small Industries and the cre.uJon of subconuacdna: f.1dlldes
.1t the natlon.1l, regional. and International levels.
• Quality ~ontrol and testing facilities.
• Market promotion, both domestic and export.
• Procurement of raw materials and equipment.
• Scientific and industrial rese.1rch; information collection ;lRd dlssernln.ldon on technology, mar-
kets and so on.
• Identification of and assistance to enterprises, which are experiencing difficulties.
• Man.lgement and reorganisation or restructuring of smzll· and/or medlum-sc.1~ enlef'prises throueh
various schemes.
• Productivity increases through modemisation.
Contd.
Modern Small Business Enlerprises

• Incentive measures, by Industry and by area.

• local initiative.
• Creation of institutions and changes In prevailing Institutional arrangements.
• Regional clOd international technical and financial assistance.
• Cooperation among developing countries.

PROSPECTS OF THE SMAll-SCALE INDUSTRIES IN A FREE ECONOMY

The small-scale industries occupy a very imponant position in any economy.
Traditionally, they produce cenain specialised items over which they enjoy vinual
monopoly because of the skill and expertise developed over the years. Many items
produced in the small-scale sector are also used as
Visit www.lubiactiuq 10 Jeuo more raw materials in the large-scale industry. Thus,
about the problems ad prospec:u of SSI small-scale industries contribute to large-scale
in India. production in no small measure. In a controlled
economy. the small-scale industries are protected
from competition from the large-scale sector by means of subsidies, grants, monetary
incentives from the government, reservation of certain items of production in the
small-scale sector. and so on. In a free economy. however. the small-scale industrial
sector i~ not insulated from competition from the large-scale sector for their survival
and growth; they have to face competition from the large-scale sector with their own
ingenuity and resources. For this purpose. they will have to take effective measures in
the following areas .

Quality control
The products of large-scale industries are of high quality and precision. In a free
economy. the products of the small-scale industry can compete with those of the
large-scale sector only if the high quality is maintained. To meet the competition from
the large-scale sector, small-scale industries should get a good share of the export
market where high-quality products are essential. It would thus be necessary for
small-scale industrial units to introduce quality control measures. If necessary, they
can enlist the assistance of reputed outside agencies in this regard. In a competitive
environment where low-cost quality output is necessary, the choice of technology
assumes great importance. In a free economy. small-scale units would have to select
such technology from the available alternatives which would generate cost-efficient
and high-quality optimal output. In order to ensure this. small-scale entrepreneurs
should preferably have a technical background or. at least. an understanding of the
technical processes involved in production.

Marketing Arrangements
Many small-scale units have perished because of their inability to sell what they
produced. This happened because of lack of proper marketing arrangements. In a free
economy. inadequate marketing arrangements would only accelerate the downfall of
 Enucpreneurship Developmenl and SmaU Business Enlerprises

small-scale units, as they would have to counter competition from the large-scale
sector, which enjoys a ready market for its products. The smaJl-scale units need to
conduct systematic and continuous market research and arrange to tie up with
prospective buyers in order that their products may be readily sold.

Advertisement
The products of the large-scale sector are wide ly advertised on TV, radio and
newspapers and are well kno,¥n. Since small-scale industrial units suffer from
resource inadequacy, most ohhem cannot advertise their products on the mass
media. As a result, the products of the small-scale units remain largely unfamiliar to
the public and the units find it very difficult to attai n their sales goals. But in a free
economy, where the small-scale units will have to thrive by competing with the large-
scale sector, the former must adequately publicise their products. Some funds need to
be set aside for this purpose. Although initially the profits may be low, such publicity
expenditure will serve the cause of future profitability.

Recovery of Receivables
The fund s of many small-scale industrial units are blocked in receivables. As a result,
recycling of funds is affected and production suffers. In a-competitive environment. it
must be ensured that receivable dues are realised without delay. The small-scale units
will have to make special effort to collect their dues for their growth. They may have
to utilise the services of factoring companies for the purpose.

Professionalism in Management
Many small-scale industri al units have s uffered an account of proprietary
management. Barring very tiny and s mall units. management of s mall -scale
industries has become complex. Hence. small-scale industrial units must be managed
by profess ional managers in order to compete successfully with the large-scale
sector. which is professionally managed.

Inventory Control
Proper inventory control is an essential prerequi site for optimum production of an
industrial unit. Yet, a large number of s mall -scale units remain unaware of thi s
requirement. As a result, they have to remain content with a sub-optimal level of
production that affects their profitability adversely. It is. therefore. imperative that
small-scale units familiarise themselves with inventory contro l techniques and
introduce them at work. particularly in the context of competition in a free economy
from the large-scale sector where modem inventory control techniques are widely
adopted . Many small-scale units have become sick from neglecting the above-men-
tioned areas. The other causes of sickness of small-scale industries are mainly as
given below.
• Diversion of funds
• Dissension among partners
• Shortage of power
Modern Small Business Enlerprises

• Technological obsolescence
• Overdependence on purchases by government
The small-scale units need to scrutinise these areas properly to guard against
sickness. India is now largely a free-enterprise economy. Despite a liberalised
economy, the small-scale sector in India is performing well. The policies of the
government are also directed towards the growth of the small-scale industries. The
government has since enhanced the investment limit in plant and machinery from
Rs 60 lakh'(Rs 75 lakh for ancillaries and exporting SSIs) to a common limit of Rs I
crore. This would encourage modernisation of the existing small-scale industries
with the adoption of appropriate new technologies in the sector and stimulate the
growth of new small-scale units. The government is also keen to provide adequate
institutional credit to the small scale sector by ensuring that working capital limits of
these units are fixed by the financial institutions at a minimum of20 per cent of their
projected turnover, as prescribed by the Nayak. Commiuee. The government plans to
educate the small-scale entrepreneurs about economies of scale, arrange for
upgradation of skills and technologies and strengthen export capabilities for the
promotion of small-scale industries. In India, the small-scale industries are, therefore,
poised for growth and development provided they ildopt the above strategies to
overcome competition from the large-scale sector. The prospects of small-scale
industries in a free economy are quite encouraging provided the government plays a
supportive role and adequate measures are taken to meet the challenges posed up by
the large-scale sector.

Opportunities
By its less capita) intensive and high labour absorption nature, the SSI sector has
made significant contributions to employment generation and also to rural
industrialisation. This sector is ideally suited to build on the strengths of India's
traditional skills and knowledge. by an infusion of technology, capital, and
innovative marketing practices. 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 fealUre of the Indian
industry and demand structure. The diversity in production systems and demand
structures will ensure long tenn coexistence 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 addition, 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 government have ensured the presence of this sector in a wide range of prod·
ucts, particularly consumer goods. However, the bugbear of the sector has been the
inadequacies in capital, technology, and marketing. The process of liberalisation
coupled with government support will, therefore. attract the infusion of just these in
the sector. The small industry sector has perfonned exceedingly well and enabled
India to achieve a wide measure of industrial growth and diversification.