Small Scale Industries
Advantages of running an SSI
A few definitions..
• Small scale undertakings - Engaged in manufacturing,
processing or preservation of goods; investment in plant and
machinery up to Rs. 1 crore
• Tiny enterprises - Investment in plant and machinery up to
Rs. 25 Lakh
• Small scale service/business enterprise - Investment in fixed
assets up to Rs.25 Lakh (excluding plant and machinery)
• Women enterprises- Small scale units with financial holding
of minimum 51% by one or more women entrepreneurs
• Artisans, village and cottage industries – Artisans and small
industrial activities in villages/towns with population of max.
50,000; utilising locally available natural resources;
individual credit requirement up to Rs.50,000/-
Characteristics of a SSI
• Small capital investment
• Generates employment, generally around 10 employees
• Located in rural and semi urban areas
• Generally a sole proprietorship business
• Funding from the entrepreneur’s personal funds
• Exploitation of human resources (Women and child labour)
• Organising and management skills are often neglected
• Financial discipline is weak
• Encourages entrepreneurial growth
• Balanced regional development is ensured
Importance of SSI
• Labour intensive
• Ensure an equal distribution of income and wealth
• Act as a link to large scale
• Act as a training ground for entrepreneurs
• Mobilize resources and services
• Give rise to capital formation
• Has a huge export potential
• Are extremely innovative and productive
Advantages of running a SSI
• Most do not need high level of technology and are labour
intensive and hence do not need huge start up or working
• SSI projects can be undertaken in a short time frame
• Use of abundant local natural resources is possible
• Small scale enterprises can be linked to large businesses
which help in their growth and progress
• Able to generate local and permanent employment
• Have a short gestation period
PROCEDURES FOR SMALL SCALE INDUSTRIAL LICENSING
According to economics license means:-
A government-issued permission to engage in an activity or to operate
Criteria For SSI in India
Industry employing less than 100 workers.
Having fixed assets of less than Rs 10 lakhs need not obtain any
(Subject to the condition that the unit is not owned, controlled or
subsidiary of any other industrial undertaking)
Small scale units have to conform to the rules and regulations
prescribed by state or local authority under the Factories Act.
The Industries (Development and Regulation) Act, 1951
Section ١٠ refers to the requirement of registration of existing
Section ١١ refers to the requirement of licensing of new industrial
Section ١١A deals with licences for the production of new articles.
Section ١٣ refers, inter alia to the requirement of licensing for effecting
LIST OF ITEMS RESERVED FOR THE SMALL SECTOR
EXEMPTION FROM INDUSTRIAL LICENSING
Licensing is exempted for industrial undertakings (including
MRTP/FERA companies)other than those in the small scale/ancillary
i) The proposed article(s) of manufacture is not included in Annex I, II
or is not reserved for small scale/ancillary sector.
ii) The proposed project is not located within 25 kms. from the
periphery of the standard urban area limits of a city having a
population of more than 1 mln. according to the 1991Census (list
This condition, however, will not apply to electronics, computer
software, printing industry and other non-polluting industries that may
be notified from time to time.
Those units who have received SIA or DTDG registrations for
manufacture of the reserved items.
Substantial expansion of existing units will also be exempt from licensing
provided the item of manufacture is not covered by Annex I, Annex II or
reserved for the small scale/ancillary sector.
Manufacture of New Article
Existing units will be permitted to manufacture any new article without
additional investment if the article is not otherwise subjected to
This facility would be available notwithstanding any location
FILING OF MEMORANDA
In respect of new projects for manufacture of articles not covered by
compulsory licensing or their substantial expansions the only
requirement would be that the industrial undertaking shall file a
memorandum in prescribed form to the Secretariat for Industrial
Approvals (SIA) in the Ministry of Industry.
Such a memorandum will also have to be filed by those industrial
undertakings to be engaged in non-scheduled industries i.e. those not
covered under the I(D&R) Act.
The memorandum will be accompanied by a crossed demand draft of
Rs. 1000/- in favor of the Pay and Accounts Officer, Department of
Industrial Development, Ministry of Industry, Nirman Bhavan, New
Delhi - 110011.
The receipt of the memorandum will be acknowledged by the SIA and
a reference number will be given. Industrial undertakings should quote
this reference number in all future correspondence, if any, with the
PROBLEMS IN SMALL SCALE INDUSTRIES
Classification of the problems
The internal problems.
The external problems.
a) Technical feasibility:-
- Lack of technical know-how.
- Locational disadvantage.
- Outdated production process.
b) Economic Viability:-
- High cost of inputs.
- Uneconomic size of the projects.
- Underestimation of financial requirements.
- Over estimation of demand.
a) Production Management:
- Poor quality control.
- Poor capacity utilization.
- Poor inventory management.
- Inadequate maintenance.
- High wastage.
b) Labour management:-
- Inefficient handling of labour problems.
- Excessive manpower.
- Lack of trained and skilled labour.
c) Marketing management:-
- Dependence on a single or small group of customers.
- Defective pricing policy.
- Lack of market research.
d) Financial management:-
- Liberal dividend policy.
- Inadequate working capital.
e) Administrative management:-
- Over centralization.
- Lack of professionalism.
- Lack of feed-back to management.
- Incompetent management.
A) Infrastructural bottlenecks:-
- Irregular supply of raw materials.
- Transport bottlenecks.
B) Financial bottlenecks:-
C) Government controls and policies:-
- Government price controls.
- Change in government policies.
D) Market constraints:-
- Market saturation.
- Technological advances rendering one’s product obsolete.
E) Extraneous factors:-
- Natural calamities.
- Political situation.
- Multiplicity of labour unions.
• Activities / efforts / analysis to measure the cost and benefit of a
business project in order to define the efficiency and effectiveness of
the project's method and tools is know as feasibility study
• The results determine whether the solution should be implemented.
This activity takes place during the project initiation phase and is made
before significant expenses are engaged.
Types of Feasibility Studies:
Market and Real Estate Feasibility
Technology and System Feasibility
• At this stage the client’s business needs are analyzed, information
about project participants is collected, and the requirements for the
system are gathered and analyzed.
• The client’s expectations for system implementation are studied and
the proposed solution is offered.
During the Feasibility Study stage, the project’s goals, parameters and
restraints are agreed upon with the client including:
Project budget and rules for its adjustment;
Project time frame;
Conceptual problem solution.
The following tasks are performed at this stage:
The project feasibility is estimated and the project scope is defined
Risks and benefits are identified
Project structure is elaborated
Project is roughly planned
Next project stage is planned precisely
Cost of the next phase is evaluated precisely and cost of the other
phases — approximately
Functionality development priorities are defined
System creation risks are estimated.
At the end of this phase the following documents are available:
Feasibility Report — description of the proposed solution and list of
high-level functional requirements
Project Structure — description of the project organization
Project Plan — project schedule
Risks List — list of potential project risks and possibilities of their
Some norms of Feasibility study:
The Feasibility Report must be agreed upon and signed by
Signing this document means that the client and the project
team have a common understanding of the project goals and
tasks and have reached agreement on the process for
Average duration of this phase is about 10% of the total
Steps of Business Feasibility Study
- general questions to answer
- specific questions to answer
Constructing a framework to answer those questions
Determining the data needed
Implementing the Business Feasibility Study
Framework of Feasibility Study.
General description of the business
1. Legal aspects (to be in line with the law and regulation)
2. Social aspects (to be in line with the social environment)
3. Management aspects (capability of the owner and top
managers and general methods of managing the business
4. Technical aspects (timing, location, capacity, tools,
production methods, technology, input, employees, etc.)
5. Market aspects (market structure, competitors, market target,
market share, advertisement, projected sales)
6. Financial aspects (funding, fund allocation, projected balance
sheet + income statement + cash flow, Net Present Value, IRR,
7 General Conclusion
Feasibility Report is “studying a situation and a plan to do
something about it, and then determines whether the plan is
"feasible" or it is practical.
It answers the question of whether a plan should be
implemented by stating "yes", "no", and sometimes
Not only recommendation, it should also provide the data
and the reasoning behind that recommendation
• An industrial feasibility study refers to the appropriate location
selection ,that is where the project should be located, because the site
may significantly influence the cost of production and distribution
,distribution efficiency ,the operating environment ,etc
• Factory design refers to plan for a particular type of building ,
arrangement of machinery and equipment, provision of service
facilities, lighting , heating , ventilation etc in the building.
• It influences the operational costs of the enterprise.
• It is a floor plan for determining and arranging the desired machinery
and equipment of a plant.
• Factors like nature of product, volume of production, material handling
,type of equipment, factory building , system of manufacture, service
facilities, etc ., should be taken into consideration while choosing a
• Factory design and layout should be flexible so that it may be adapted
easily to technological change, modernization , diversification and
expansion with minimum cost and time.
• The size and the scale of operations of the unit determines its
efficiency and profitability
• This is determined by the laws of returns to achieve equi-marginal
returns from all resources or factors of production.
• It indicates a rational allocation of resources and a combination of
inputs to secure maximum outputs under existing economic conditions
and maximum profit due to the lowest average cost.
Measure of size
DOCUMENTATION & REGISTRATION
WHAT IS DOCUMENTATION
Something transposed from a thought to a document; the written
account of an idea.
It is usually paper books or computer readable files (such as HTML
pages) that describe the structure and components, or on the other
hand, operation, of a system/product.
Subfield of Documentation include:
IMPORTANCE OF DOCUMENTATION
Mitigate risk from lawsuits and unforeseen events,
Outline the details of wealth distribution
Clearly define the specific roles of the partners, employees,
advisors, Board of Directors and other company stakeholders;
Raise capital; and
Define the business objectives and execution strategy.
Clearly define the specific roles of the partners, employees,
advisors, Board of Directors and other company stakeholders
A good but far from comprehensive documentation list...
Standard Operating Procedures
A document that outlines the relevant corporate policies,
decision making procedures, business processes, accountability
The incorporation documents should also serve to limit liability by
serving as a shield to protect the personal assets of investors,
A shareholder's agreement will help facilitate a smooth transition for
the remaining partners to enable the business to continue as an
Intellectual Property Rights Protection Agreements
Trademarks, copyrights and patents fall into this category.
These agreements are intended to provide legal safeguards to protect
the competitive advantage that is gained by the ideas and proprietary
information, processes, products, logos, etc. of the company.
Insurance is intended to mitigate the risk of unforeseen, unfortunate
and potentially catastrophic events that could substantially cripple or
kill the business.
Insurance is also used protect the employees of the business and
their beneficiaries from possible temporary or permanent life-altering
and/or financially paralyzing events, such as catastrophic injury or
disability, substantial property damage or destruction, death, serious
health concerns, etc.
Licensing agreements that are required to operate the business from
local, state, federal and international regulatory authorities.
A lack of compliance by not obtaining the appropriate licenses can
spell disaster and potentially shut down a business and/or cause
substantial liability to be incurred by the partners.
Defines the working relationship between employee and employer.
In addition, through a non-compete clause, they will typically provide
protection for a number of years to the company from the threat of
employee departure by preventing direct competition by the (former)
Prevent parties from sharing information with outside parties that
could have potentially damaging competitive, financial and/or business
implications (e.g., violation of the confidentiality in a merger
All business arrangements and agreements between parties should be
Though verbal agreements are enforceable, a written agreement
limits the potential for misunderstanding and can provide protection in