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Small Scale industries

Introduction
 Small business has greatly contributed for the
growth of any economy in the world.
 It is easy to establish and manage.
 It is recognized on the principle “Small is beautiful”
and small is effective.

 Small industries comprises of
1.Small Scale industry
2.Tiny Industry
3.Ancillary Industry
4.Cottage Industry

Definition of SSI
 These are the industrial undertakings having fixed
investment in plant and machinery, whether held on
ownership basis or lease basis or hire purchase basis
not exceeding Rs 1 cr
 Unit engaged in manufacturing,servicing,processing
etc

Classification of SSI
 Traditional
 Modern

 Khadi
 Village industries
 Handlooms
 Coir industries
 Sericulture
 Cottage
 Artisans
Traditional

 Power loom
 Small scale industry
 Export – oriented
 Ancillaries
 Tiny enterprise
 Small scale service
Modern

Ancillary Industries
 An ancillary industry is a subsidiary industry or
supplementary industry to a main industry, having
fixed investment in plant and machinery not exceeding
Rs 1Cr.
 Eg:if food production is a main industry, then supply of
plastic cups and plates to the food industry will become
an ancillary industry

Tiny industry
 A unit is treated as tiny industry where investment
in plant and machinery does not exceed Rs.25lakhs.
 It includes laundry,xeroxing,repair and maintenance
etc
 Number of persons employed is less than 50

 Cottage industries are traditional in nature and
dependent on local raw materials.
 They are located at the homes of the producers.
 Cottage industries include carpet weaving,painting
on wood,silk etc
Cottage Industries

 SSI -1cr
 Ancillary – 1cr
 Tiny -25lakhs

 CHOCOLATES.
 PAPER NAPKINS,
 TOILET ROLLS & FACIAL TISSUE
 WOODEN TOOTHPICK.
 PAPER PLATES.
 CANDLE MAKING UNIT.
 PHENYL (BLACK & WHITE)
 POTATO CHIPS
 DISPOSABLE PLATES FROM BANANA LEAVES
The Government of India has taken
certain measures for the development of
cottage and small scale industries

Importance of SSI
 Employment generation
 Mobilization of resources and entrepreneurial skills
 Small is beautiful
 Happier in work
 Equitable distribution of income
 Regional dispersal of industries

 Indigenization
 Promotes export
 Supports the growth of large industries
 Better industrial relations
 Innovative


Features of SSI
 Ownership
 Management and control
 Gestation period
 Area of operation –indigenous resources
 Technology –labour intensive
 Dispersal of units
 Flexible

 Do not require a high level of technology
 Labour intensive
 Can be undertaken in a short period of time
 Utilize localized raw materials
 Earn foreign exchange by exporting the goods
 Act as a training ground for entrepreneurs
Advantages

 Equitable distribution of income
 Create jobs in rural area
 Growth of large industries create opportunity for
ancillary industry.
 Short gestation period
 Does not require heavy and costly infrastructure

Capital investment
 Any capital structure has three vital components
Capital Structure
Fixed Cost Variable Cost Revenue
(Fixed capital) (Working capital) (Income)

 Financial plan is a concept which clearly indicates
the total project cost.
 Total project cost can be classified into:
Fixed capital
Working Capital
Sources of finance
Revenue projection
Financial plan

 It is discussed in two dimensions
1.General investment decision(GID)
2.Capital investment in SSI
Capital investment

 Cost is associated with each and every sources of
funds.
Equity –cost of dividend
Debentures –cost of interest
Preference share –cost of dividend
 The process through which different projects are
evaluated is called capital budgeting.
1.General investment
decision(GID)

 Expenditure ,risk and uncertainties associated with
each project has to be evaluated and best project
should be selected for investment.

 Availability of funds
 Structure of capital
 Taxation policy
 Government policy
 Lending policies of financial institution
 Immediate need of the project
Factors influencing
investment decision

 Earnings
 Capital returns
 Economic value of the project
 Working capital
 Accounting practices
 Trends of earnings

 Sole proprietorship
 Partnership
 Co-operative society
 Joint stock company
Ownership Patterns

 Individual invest his own capital, uses his own skill
and intelligence.
 Solely responsible for the results of its operation.
 It is also known as individual entrepreneurship.
 It can be started in own house or in rented premises.
Sole proprietorship

 No legal formalities
 Unlimited liability
 Enjoys full profit
 One man control
 Unlimited risk
Features

 No separate legal entity
 No government regulations
 Undivided risk
Features

 Easy and simple formation
 Smooth management
 Promptness in decision making
 Direct motivation to work
 Personal touch with customers
Advantages of sole
proprietorship

 Secrecy
 Social advantages

 Limited financial resources.
 Limited managerial ability
 Unlimited liability
 Lack of continuity
Disadvantages

 Such organisation are governed by Indian
Partnership Act,1932.
 According to this Act defines partnership as,”the
relation between persons who have agreed to share
profits of a business carried on by all or any of them
acting for all”
Partnership organisation

 Google, a company founded by Larry Page and
Sergey Brin
 Proctor and Gamble is an iconic company named
after William Proctor and James Gamble.
Examples

 Atleast 2 persons must be there to form a partnership
organisation.
 20-for general business
 10-for banking business
 Contractual relationship
 No legal distinction between firm and its partners
 Unlimited liability
Features

 Assignment on detailed study of life history of any
entrepreneur and do the write-up on the same.
 Submit on : 5/8/2019(Monday)
Assignment

 Easy formation
 Flexibility
 Pooling of resources and skill (compared to sole
proprietor)
 Division of risks
 Encouragement of mutual trust, faith and goodwill.
Advantages

 Lack of harmony
 Limited resources (ideal no is 3-5 even though limit is 20)
 Unlimited liability
 Instability
 Social losses
Disadvantages

 According to Indian Companies Act,1956.The Act
defines a company as an artificial person created by
law, having a separate legal entity, with perpetual
succession and a common seal.
Joint –stock company

 A company is an incorporated voluntary association
of persons in business having joint capital divided
into transferable shares of a fixed value, along with
the features of limited liability, common seal and
perpetual succession

 Artificial legal person
 Perpetual Succession
 Separate legal entity
Features

 Jindal steel and power ltd
 Indian Oil Corporation
 Reliance industries
Examples

 Limited liability
 Transferability of shares (sold & purchased through stock
exchange)
 Large financial resources
 Continuity
 Social benefits (issue of shares,job,tax)
Advantages

 Costly formation
 Lack of personal touch with stake holders
Disadvantages

 It is a voluntary association of persons who work
together to promote their economic interest.
 Main purpose is to render service to its members and
to the society in general.
Co-operative society

 Main objective is to provide support to the members
and not to earn profit
 Co-operative societies has to be registered under Co-
operative Societies Act,1919.

 Voluntary association
 Service motive
 Separate legal entity
 State regulation
 Distribution of surplus (1/4 profit to general reserve,10% utilized for
social service and rest distributed in form of bonus)
Characteristics

 Co-optex
 Mother Dairy
 Amul
 Grameen Bank
Examples

 Finance
 Raw materials
 Idle capacity
SSI Problems

 Technology:
not fully exposed to latest technology
lack of modernization
obsolete methods of production

 Marketing
lack of market survey
lack of standardization
poor designing
poor quality
poor finish
lack of after sales services

 Infrastructure:
inadequate availability of transportation
power failure
poor facilities in backward areas
poor communication network

 License :
lot of time and energy are wasted to obtain
permission and license
Import and export procedure

 Poor project planning:
They do not study about
market,
marketing problem,
availability of raw materials,
proper infrastructure
before starting business

 Unskilled manpower:
located in remote area
skilled labours are not ready to work in
rural area

 Managerial Issues:
Modern Business demands Vision, knowledge
creativity etc
Many SSI turned to sick unit due to lack of managerial
competence

Institutions promoting SSI:
Directorate of industries
SIDO
Industrial development corporation
NSIC
KVIC
National Industrial Development Corporation
Steps taken to solve the
problems of SSI

 IFCI
 ICICI
 IDBI
 IRBI
 SIDBI
 KSFC
 KSIIDC
Institution offering
financial support

 State trading corporation
 EXIM
 Export promotion council
 Indian institute of packaging
Institution offering
marketing support

 CITD
 NID
 Product and process development centers
 Industrial and technical consultancy organization
Institution offering
technical support

 Center for entrepreneurship development
 EDII
 IIE
 NABARD
 TCOs
Institution promoting
entrepreneurship

 Meaning :
An intrepreneur is a person having all the
qualities and characters of an entrepreneur, but not
having economic and other support to take a business
activity on his own. Therefore he works for others as a
paid employee.
Eg: manager or employee at any level
Intrepreneur

 The govt of India has reserved certain products for
SSI
 Large companies can manufacture these products
reserved for SSI only if they obtain COB(carry on
business) license
Policies governing SSI

 Promote the export of SSI by simplifying export
procedure.
 NOC shall be obtained from state pollution control
board
 As per Industrial policy ,1956,facilities such as
industrial estate and rural community workshops to
promote SSI

 The government will grant Rs 75,000 to SSI if they
obtain ISO-9000 certification.
 Govt has launched National Manufacturing
Competitiveness Program(NMCP) to enhance
competitiveness of SSI.
 Marketingn Development Assistance (MDA) to SSI
to facilitate market research.

 Loan has been raised from 15lakhs to 25lakhs incase
of SSI with good track record.
 Infrastructure development scheme in rural areas
 Handloom,handicrafts,khadi and village industries
were given special attention.

 Supply of machinery on hire purchase, technical
consultancy and financial assistance for
technological up gradation

SSI sickness and
remedies


 Aircel
Sick units

 Ruchi Soya Industries Ltd

 Tungabhadra Steel Products Ltd

Reliance Communications (RCom)

 A sick industrial unit may be defined as one when it
fails to generate surplus on a continuous basis and
depends on external funds for its survival.
Definition

 According to RBI,”a sick unit should be considered if
it has incurred cash loss in the previous accounting
year and is likely to continue to incur cash loss in the
current accounting year and has an erosion on
account of cumulative cash losses to the extend of
50%of those of its net worth”

 Internal Cause
 External Cause
Causes of sickness

 Irregular supply of raw materials
 Power shortage
 Transportation problem
 Non-availability of finance
 Government price controls (eg:GST)
 Changes in government policies (demonitization)
 Market saturation
 Natural calamities
 War
 Strikes
External Cause

 Early detection of sickness
 FI and banks should initiate necessary corrective
actions.
 Restore sick units to financial health
 Retraining of workers
Preventive and remedial
measures for sickness

 Proposal to setup special institution
 Unit that has lost net worth will not be allowed to
manage that unit
 Management responsible for mismanagement
should not be allowed to get assistance from FI.
 Reconstruction of sick unit

 Incentives should be provided
Success of an industry depends on satisfactory
management of finance, inventory, marketing and
manpower.

 IRBI-Industrial Reconstruction Bank of India
 Special cell at IDBI for diagnostic study and suggest
remedial measures
 RBI has setup special cell to co-ordinate with
commercial bank to support sick unit.
Rehabilitation of sick
unit

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Small scale industry and its sickness

  • 2.  Introduction  Small business has greatly contributed for the growth of any economy in the world.  It is easy to establish and manage.  It is recognized on the principle “Small is beautiful” and small is effective.
  • 3.   Small industries comprises of 1.Small Scale industry 2.Tiny Industry 3.Ancillary Industry 4.Cottage Industry
  • 4.  Definition of SSI  These are the industrial undertakings having fixed investment in plant and machinery, whether held on ownership basis or lease basis or hire purchase basis not exceeding Rs 1 cr  Unit engaged in manufacturing,servicing,processing etc
  • 5.  Classification of SSI  Traditional  Modern
  • 6.   Khadi  Village industries  Handlooms  Coir industries  Sericulture  Cottage  Artisans Traditional
  • 7.   Power loom  Small scale industry  Export – oriented  Ancillaries  Tiny enterprise  Small scale service Modern
  • 8.  Ancillary Industries  An ancillary industry is a subsidiary industry or supplementary industry to a main industry, having fixed investment in plant and machinery not exceeding Rs 1Cr.  Eg:if food production is a main industry, then supply of plastic cups and plates to the food industry will become an ancillary industry
  • 9.  Tiny industry  A unit is treated as tiny industry where investment in plant and machinery does not exceed Rs.25lakhs.  It includes laundry,xeroxing,repair and maintenance etc  Number of persons employed is less than 50
  • 10.   Cottage industries are traditional in nature and dependent on local raw materials.  They are located at the homes of the producers.  Cottage industries include carpet weaving,painting on wood,silk etc Cottage Industries
  • 11.   SSI -1cr  Ancillary – 1cr  Tiny -25lakhs
  • 12.   CHOCOLATES.  PAPER NAPKINS,  TOILET ROLLS & FACIAL TISSUE  WOODEN TOOTHPICK.  PAPER PLATES.  CANDLE MAKING UNIT.  PHENYL (BLACK & WHITE)  POTATO CHIPS  DISPOSABLE PLATES FROM BANANA LEAVES The Government of India has taken certain measures for the development of cottage and small scale industries
  • 13.  Importance of SSI  Employment generation  Mobilization of resources and entrepreneurial skills  Small is beautiful  Happier in work  Equitable distribution of income  Regional dispersal of industries
  • 14.   Indigenization  Promotes export  Supports the growth of large industries  Better industrial relations  Innovative
  • 15.
  • 16.  Features of SSI  Ownership  Management and control  Gestation period  Area of operation –indigenous resources  Technology –labour intensive  Dispersal of units  Flexible
  • 17.   Do not require a high level of technology  Labour intensive  Can be undertaken in a short period of time  Utilize localized raw materials  Earn foreign exchange by exporting the goods  Act as a training ground for entrepreneurs Advantages
  • 18.   Equitable distribution of income  Create jobs in rural area  Growth of large industries create opportunity for ancillary industry.  Short gestation period  Does not require heavy and costly infrastructure
  • 19.  Capital investment  Any capital structure has three vital components Capital Structure Fixed Cost Variable Cost Revenue (Fixed capital) (Working capital) (Income)
  • 20.   Financial plan is a concept which clearly indicates the total project cost.  Total project cost can be classified into: Fixed capital Working Capital Sources of finance Revenue projection Financial plan
  • 21.   It is discussed in two dimensions 1.General investment decision(GID) 2.Capital investment in SSI Capital investment
  • 22.   Cost is associated with each and every sources of funds. Equity –cost of dividend Debentures –cost of interest Preference share –cost of dividend  The process through which different projects are evaluated is called capital budgeting. 1.General investment decision(GID)
  • 23.   Expenditure ,risk and uncertainties associated with each project has to be evaluated and best project should be selected for investment.
  • 24.   Availability of funds  Structure of capital  Taxation policy  Government policy  Lending policies of financial institution  Immediate need of the project Factors influencing investment decision
  • 25.   Earnings  Capital returns  Economic value of the project  Working capital  Accounting practices  Trends of earnings
  • 26.   Sole proprietorship  Partnership  Co-operative society  Joint stock company Ownership Patterns
  • 27.   Individual invest his own capital, uses his own skill and intelligence.  Solely responsible for the results of its operation.  It is also known as individual entrepreneurship.  It can be started in own house or in rented premises. Sole proprietorship
  • 28.   No legal formalities  Unlimited liability  Enjoys full profit  One man control  Unlimited risk Features
  • 29.   No separate legal entity  No government regulations  Undivided risk Features
  • 30.   Easy and simple formation  Smooth management  Promptness in decision making  Direct motivation to work  Personal touch with customers Advantages of sole proprietorship
  • 32.   Limited financial resources.  Limited managerial ability  Unlimited liability  Lack of continuity Disadvantages
  • 33.   Such organisation are governed by Indian Partnership Act,1932.  According to this Act defines partnership as,”the relation between persons who have agreed to share profits of a business carried on by all or any of them acting for all” Partnership organisation
  • 34.   Google, a company founded by Larry Page and Sergey Brin  Proctor and Gamble is an iconic company named after William Proctor and James Gamble. Examples
  • 35.   Atleast 2 persons must be there to form a partnership organisation.  20-for general business  10-for banking business  Contractual relationship  No legal distinction between firm and its partners  Unlimited liability Features
  • 36.   Assignment on detailed study of life history of any entrepreneur and do the write-up on the same.  Submit on : 5/8/2019(Monday) Assignment
  • 37.   Easy formation  Flexibility  Pooling of resources and skill (compared to sole proprietor)  Division of risks  Encouragement of mutual trust, faith and goodwill. Advantages
  • 38.   Lack of harmony  Limited resources (ideal no is 3-5 even though limit is 20)  Unlimited liability  Instability  Social losses Disadvantages
  • 39.   According to Indian Companies Act,1956.The Act defines a company as an artificial person created by law, having a separate legal entity, with perpetual succession and a common seal. Joint –stock company
  • 40.   A company is an incorporated voluntary association of persons in business having joint capital divided into transferable shares of a fixed value, along with the features of limited liability, common seal and perpetual succession
  • 41.   Artificial legal person  Perpetual Succession  Separate legal entity Features
  • 42.   Jindal steel and power ltd  Indian Oil Corporation  Reliance industries Examples
  • 43.   Limited liability  Transferability of shares (sold & purchased through stock exchange)  Large financial resources  Continuity  Social benefits (issue of shares,job,tax) Advantages
  • 44.   Costly formation  Lack of personal touch with stake holders Disadvantages
  • 45.   It is a voluntary association of persons who work together to promote their economic interest.  Main purpose is to render service to its members and to the society in general. Co-operative society
  • 46.   Main objective is to provide support to the members and not to earn profit  Co-operative societies has to be registered under Co- operative Societies Act,1919.
  • 47.   Voluntary association  Service motive  Separate legal entity  State regulation  Distribution of surplus (1/4 profit to general reserve,10% utilized for social service and rest distributed in form of bonus) Characteristics
  • 48.   Co-optex  Mother Dairy  Amul  Grameen Bank Examples
  • 49.   Finance  Raw materials  Idle capacity SSI Problems
  • 50.   Technology: not fully exposed to latest technology lack of modernization obsolete methods of production
  • 51.   Marketing lack of market survey lack of standardization poor designing poor quality poor finish lack of after sales services
  • 52.   Infrastructure: inadequate availability of transportation power failure poor facilities in backward areas poor communication network
  • 53.   License : lot of time and energy are wasted to obtain permission and license Import and export procedure
  • 54.   Poor project planning: They do not study about market, marketing problem, availability of raw materials, proper infrastructure before starting business
  • 55.   Unskilled manpower: located in remote area skilled labours are not ready to work in rural area
  • 56.   Managerial Issues: Modern Business demands Vision, knowledge creativity etc Many SSI turned to sick unit due to lack of managerial competence
  • 57.  Institutions promoting SSI: Directorate of industries SIDO Industrial development corporation NSIC KVIC National Industrial Development Corporation Steps taken to solve the problems of SSI
  • 58.   IFCI  ICICI  IDBI  IRBI  SIDBI  KSFC  KSIIDC Institution offering financial support
  • 59.   State trading corporation  EXIM  Export promotion council  Indian institute of packaging Institution offering marketing support
  • 60.   CITD  NID  Product and process development centers  Industrial and technical consultancy organization Institution offering technical support
  • 61.   Center for entrepreneurship development  EDII  IIE  NABARD  TCOs Institution promoting entrepreneurship
  • 62.   Meaning : An intrepreneur is a person having all the qualities and characters of an entrepreneur, but not having economic and other support to take a business activity on his own. Therefore he works for others as a paid employee. Eg: manager or employee at any level Intrepreneur
  • 63.   The govt of India has reserved certain products for SSI  Large companies can manufacture these products reserved for SSI only if they obtain COB(carry on business) license Policies governing SSI
  • 64.   Promote the export of SSI by simplifying export procedure.  NOC shall be obtained from state pollution control board  As per Industrial policy ,1956,facilities such as industrial estate and rural community workshops to promote SSI
  • 65.   The government will grant Rs 75,000 to SSI if they obtain ISO-9000 certification.  Govt has launched National Manufacturing Competitiveness Program(NMCP) to enhance competitiveness of SSI.  Marketingn Development Assistance (MDA) to SSI to facilitate market research.
  • 66.   Loan has been raised from 15lakhs to 25lakhs incase of SSI with good track record.  Infrastructure development scheme in rural areas  Handloom,handicrafts,khadi and village industries were given special attention.
  • 67.   Supply of machinery on hire purchase, technical consultancy and financial assistance for technological up gradation
  • 69.
  • 71.   Ruchi Soya Industries Ltd
  • 74.   A sick industrial unit may be defined as one when it fails to generate surplus on a continuous basis and depends on external funds for its survival. Definition
  • 75.   According to RBI,”a sick unit should be considered if it has incurred cash loss in the previous accounting year and is likely to continue to incur cash loss in the current accounting year and has an erosion on account of cumulative cash losses to the extend of 50%of those of its net worth”
  • 76.   Internal Cause  External Cause Causes of sickness
  • 77.   Irregular supply of raw materials  Power shortage  Transportation problem  Non-availability of finance  Government price controls (eg:GST)  Changes in government policies (demonitization)  Market saturation  Natural calamities  War  Strikes External Cause
  • 78.   Early detection of sickness  FI and banks should initiate necessary corrective actions.  Restore sick units to financial health  Retraining of workers Preventive and remedial measures for sickness
  • 79.   Proposal to setup special institution  Unit that has lost net worth will not be allowed to manage that unit  Management responsible for mismanagement should not be allowed to get assistance from FI.  Reconstruction of sick unit
  • 80.   Incentives should be provided Success of an industry depends on satisfactory management of finance, inventory, marketing and manpower.
  • 81.   IRBI-Industrial Reconstruction Bank of India  Special cell at IDBI for diagnostic study and suggest remedial measures  RBI has setup special cell to co-ordinate with commercial bank to support sick unit. Rehabilitation of sick unit