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Small Scale Enterprises

This presentation explains about MSME and different types of ownership pattern of SSIs

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Small Scale Enterprises

  1. 1. SSI
  2. 2. SSI’s • Stands for Small Scale Industries • MSME in Indian Context • Governed by MSME Act, 2006
  3. 3. Small Scale Industries • A SSI is an industrial undertaking in which the investment in fixed assets in plant and machinery, whether held on ownership term or on lease or hire purchase, does not exceed Rs.1 Crore. • This investment limit is varied by the government from time to time. • Entrepreneurs in small scale sector are normally not required to obtain a licence either from the Central Government or the State Government for setting up units in any part of the country. Registration of a small scale unit is also not compulsory.
  4. 4. • The ministry of micro, small and medium enterprises acts as the nodal agency for growth and development of SSIs in the country. ( • Objective: To promote SSIs and enhance their competitiveness Various public sector enterprises assist it.
  5. 5. • Small Industry Development Organization. (SIDO) - It is the apex body for assisting the government in formulating and overseeing the implementation of its policies and programmes/projects/schemes. • National Small Industries Corporation Ltd. (NSIC): • It was established by the government with a view to promoting, aiding and fostering the growth of SSI in the country, with focus on commercial aspects of their operations
  6. 6. Importance of SMEs • Small and Medium Enterprises (SMEs) are vital for development of a country – Helps reshaping the productive sectors – Generates employment – Creating an environment for entrepreneurship – Promotes innovation • Globally, SMEs contribute over 90% of Business Enterprises and 50-60% of Total Employment. (UNIDO Report 2009-10)
  7. 7. Facts About MSME • This sector contributes 8% of India’s GDP. • It contributes 45% of manufactured output and 40% of its exports. • It provide employment to about 60 million people through 26 million enterprises.
  8. 8. • The Small Scale Industry Sector holds the Key to Economic Prosperity of the Indian Economy, Characterized by abundant Labor Supply, Unemployment & Under Employment , Scarcity of Finance, Growing Modern Large Industries providing scope for development of Ancillary Industries & so on. • The Small Scale Industry has grown phenomenally during the last Six Decades & has acquired a very prominent place in the Socio – Economic Development in the Country. 8
  9. 9. • The scenario of small scale sector changed with industrial policy establishment in 1991 • Liberalization came into existence • It was the post liberalization era (1991 to 2006) • This reflected the growth of SSI’s • In 1991 the growth rate of SSI was almost 3 times of the total industrial sector from 1992 to 1995 • However in 1995 the growth rate was slightly lower but again it increased in 1996
  10. 10. Classification MSME Manufacturing Investment in Machinery Service Investment in equipment.
  11. 11. Definitions After 2nd Oct. 2006 Investment Ceiling for Plant, Machinery or Equipments Classification Manufacturing Enterprises Service Enterprises Micro Up to Rs. 2.5 million Up to Rs. 1 million Small Between 2.5 to 50 million Rs. 1 to 20 million Medium Rs. 50 million to Rs. 100 million Rs. 20 to 50 million
  12. 12. MANUFACTURING ENTERPRISES MICRO ENTERPRISE • Micro enterprise generally refers to a small business employing 10 people or less • It is an enterprise in which investments in plant and machinery is between 5lakh to 25 lakh. • These enterprises works and operates not by choice but out of necessity
  13. 13. SMALL ENTERPRISE • Small enterprise generally refers to a business employing 50 persons or less • It is an enterprise in which investments in plant and machinery is between 25 lakh to 5 crores. • These enterprise works and operates to earn a small amount of profit.
  14. 14. MEDIUM ENTERPRISE • Medium enterprise refers to a business employing maximum to 250 employees • It is an enterprise in which investment in plant and machinery is between 5 crores to 10 crores • These enterprises works and operates to earn a fair amount of profits to increase their standard of living.
  15. 15. SERVICE ENTERPRISES MICRO ENTERPRISE • An enterprise in which investment in plant and machinery is up to 10 lakhs SMALL ENTERPRISE • An enterprise in which investment in plant and machinery is from 10 lakhs to 2 crores MEDIUM ENTERPRISE • An enterprise in which investment in plant and machinery is from 2crores to 5 crores.
  16. 16. Classification of SSIs TRADITIONAL SSIs • It includes khadi and handloom, village industries,handicrafts, sericulture, etc MODERN SSIs • Modern SSIs produce wide range of goods from comparatively simple items to sophisticated products such as television sets, electronics, control system, various engineering products etc.
  17. 17. Small scale industries • The definition – Varies from country to country – But usually dependent on size of employment it generates and the investment that is required 19 Type of Industry Capital Investment required Small scale industry Not exceeding 100 lacs Tiny industry < 25 lacs Ancillary industry Not exceeding 100 lacs 100% Export Oriented Unit As permitted by Govt. of India Mega project 100 crores and above Year Capital Investment in plants and machinery (lacs) 1950 5 (fixed assets) 1960 5 1966 75 1975 10 1980 20 1985 35 1991 60 1997 100
  18. 18. Small scale industries 20 SMALL TINY ANCILLARY • Industries producing components in support of other industries COTTAGE • Employs traditional labour intensive methods to produce traditional products, largely in village households
  19. 19. Product range • Food preserve products • Industrial products • Service products • Recreation products Small scale industries • Tools • Jigs • Moulds • Spare parts etc. Ancillary industries • Conventional products • Agro-based products • Forest based products • Chemical based products Khadi and village industries 21
  20. 20. Ownership patterns Depends on: • Nature of business • Size of business • Capital required • Ownership rights • Anticipated profits 22 Types of owners hip Sole Proprietorship Partnership Joint stock company Co-operative
  21. 21. Sole proprietorship• G S Gerstenberg defines it as “that form of business organization which is started and run by one person who bears profit and losses of it” 23 Features • Sole ownership • No separate entity • No legal formalities • Limited capital • Unlimited liability • All profits to proprietor • Ownership and management are different Pros Cons Easy and simple to form Limited financial resources Personal touch with customers Limited managerial ability Smooth management Unlimited liability Quick and prompt decisions Lack of continuity Secrecy Limited size Social advantages Tax advantages Easy dissolution Incentive to work
  22. 22. Partnership • Sec 4, of Indian partnership act, 1932 – “the relation between persons who have agreed to share the profits of business carried on by all or any of them acting for all” 24 Features • Two or more persons • Sharing of profits and losses • Unlimited liability • Voluntary agreement • Mutual agency • Existence of lawful business • No separate legal entity Pros Cons Easy formation Unlimited liability Flexibility Limited resources Pooling of resources and skills Limited life Division of risks Divided authority More capital Danger of personal disagreements Tax advantages Encouragement of mutual trust
  23. 23. Joint stock company • Could be private or public companies per sections 3(i)(iii) and 3(i)(iv) of the companies act 1956 25 Features • Artificial person created by law • Perpetual succession • Common seal • Limited liability • Large membership • Voluntary association • Transferability of shares • Separation of ownership from management Pros Cons Limited liability Lack of secrecy Perpetual succession Legal restrictions Representative management Heavy taxation Expansion potential Legalities of formation Transferability of shares Management mischiefs Diffusion of risk Lack of personal interest
  24. 24. Public vs private companies Area Public companies Private companies Formation • At least 7 members • Formation is difficult • Min 3 directors • No restriction on number of members • At least 2 members • Formation is simpler • Min 2 directors • Maximum 50 members Prospectus • Required with registrar of companies Documents • Members have to sign memorandum • Same • Articles of association not required if table A of companies act adopted • Required Shares • Cannot be allotted till maximum subscription is reached • Can issue only equity and preference shares • Same, but with option of disproportionate voting rights • Invitation to public for shares, debentures or • No public invitation 26
  25. 25. Co-operative society • Per section 4, Indian co-operative act 1912, “society which has its objectives, the promotion of economic interests of its members in accordance with co- operative principles” 27 Features • One man one vote • Voluntary organization • Democratic management • Service motive • Governance control • Distribution of surplus Pros Cons Social service Corruption State assistance Lack of mutual trust Democratic management Lack of interest Perpetual existence Lack of secrecy Tax benefits Lack of managerial expertise
  26. 26. For the purpose of administration of India’s Micro & Small Enterprises have been divided into Seven Groups as under into Traditional Sector & Modern Sector. Traditional Sector : 1) Handicrafts. 2) Handlooms. 3) Khadi, Village & Cottage Industries. 4) Coir. 5) Sericulture. 28
  27. 27. Modern Sector : 6) Power Looms. 7) Residual Micro & Small Enterprises. 29
  28. 28. CONTRIBUTION & PERFORMANCE OF MSME’s 31 Million Employment 13 Million MSME’s producing more than 8000 Products 10 % Exports 45 % Industrial production MSME’s
  29. 29. Leading banks providing loans to MSME’s
  30. 30. EMPLOYMENT IN MSME’s SECTOR 0 100 200 300 400 500 600 700 800 2009-10 2010-11 2011-12 2012-13 2013-14 EMPLOYMENT number in lakh person 595.66 626.34 695.38 695.40 732.24 YEAR
  31. 31. Generation of Employment - Industry Group- wise • Food products industry has ranked first in generating employment, providing employment to 0.48 million persons (13.1%). • The next two industry groups were Non-metallic mineral products with employment of 0.45 million persons (12.2%) and Metal products with 0.37 million persons (10.2%). • In Chemicals & chemical products, Machinery parts, Wood products, Basic Metal Industries, Paper products & printing, Hosiery & garments, Repair services and Rubber & plastic products, the contribution ranged from 9% to 5%, the total contribution by these eight industry groups being 49%. • In all other industries the contribution was less than 5%.
  32. 32. Employment Distribution Rural • Non-metallic products contributed 22.7% to employment generated in rural areas. Food Products accounted for 21.1%, Wood Products and Chemicals and chemical products shared between them 17.5%. Urban • As for urban areas, Food Products and Metal Products almost equally shared 22.8% of employment. Machinery parts except electrical, Non-metallic mineral products, and Chemicals & chemical products between them accounted for 26.2% of employment. • In metropolitan areas the leading industries were Metal products, Machinery and parts except electrical and Paper products & printing (total share being 33.6%).
  33. 33. State-wise Employment Distribution • Tamil Nadu (14.5%) made the maximum contribution to employment. • This was followed by Maharashtra (9.7%), Uttar Pradesh (9.5%) and West Bengal (8.5%) the total share being 27.7%. • Gujarat (7.6%), Andhra Pradesh (7.5%), Karnataka (6.7%) and Punjab (5.6%) together accounted for another 27.4%.
  35. 35. SECTOR OF MSME This chart shows the percentage of types of MSME enterprises 13% enterprises are engaged in service sector and 87 % enterprises are engaged in manufacturing sector SERVICE MANUFACTURING 13% 87%
  36. 36. MSME’s CLIPS…..
  37. 37. Manipur handicraft factory…..
  40. 40. Paper Mache small enterprise
  41. 41. Features of SSI Ownership Management and Control Gestation Period Area of operations Technology Resources Flexibility
  42. 42. Characteristics of Small Enterprises : • A Small Enterprise is generally a “One Man Show”. • Owner himself / herself is also a Manager of the Enterprise. Thus, a Small Enterprise is managed in a personalized manner. • A Small Enterprise has lesser Gestation Period compared to a Large Enterprise. • Small Enterprises generally carryout their operations so as to cater to the Local & Regional Markets. 44
  43. 43. Characteristics of Small Enterprises : • Small Enterprises use indigenous resources & therefore can be located anywhere subject to the availability of these resources like Raw Materials, Labor, Transport Facilities etc. • They are fairly Labor Intensive with comparatively smaller Capital Investment than the Larger Units. • Using Local Resources, Small Units are decentralized & dispersed to Rural Areas & Smaller Towns • Small Enterprises are more susceptible & highly reactive & receptive to Socio – Economic conditions compared to larger enterprises 45
  45. 45. 1. EMPLOYMENT • SSIs are labor intensive so there is a great employment potential. • Large-scale industries are capital intensive, hence not in a position to solve acute unemployment problems in India. • SSI employed 129.80 lakh people in 1991-92 which increased to 239.09 lakh in 2000-01 and further to 294.91 lakh in 2005-06. 2. CAPITAL LIGHT • India is a capital scarce country, which is why we need to make optimum use of all the capital and resources available in terms of employment and productivity. • SSIs are capital light and hence more suitable to underdeveloped nations. • Limited capital is needed to start an SSI, the returns are quick, and those returns can again be reinvested.
  46. 46. 3. SKILL LIGHT AND IMPORT LIGHT • No technological skill or managerial skill required. • More suitable to underdeveloped countries where literacy rate is low and skilled labor is scarce. • Require less import of machinery, technical skill hence placing little or no strain on the scarce foreign exchange reserves of developing nations. 4. MOBILIZATION OF CAPITAL RESOURCE AND ENTREPRENEURIAL SKILL • Easy mobilization of capital, entrepreneurial skill and other sources all over the country. • Savings in rural areas can be mobilized by SSIs more easily then large scale industries. • Idle resources can be put to effective use.
  47. 47. 5. SUPPORT TO AGRICULTURE AND LARGE- SCALE INDUSTRIES • They help supply inputs , processing facilities as well as consumer goods to rural masses. • Rural based SSIs help absorb all the surplus labor in villages and towns thus improving the productivity in the agricultural sector. • SSIs also help large scale industries by supplying spare parts, components etc. 6. REGIONAL DISPERSAL OF INDUSTRIES AND BALANCED REGIONAL DEVELOPMENT • Political, social and economic factors affect the development of all regions. • Some regions are more developed while others continue to lag behind. • Large scale industries are mostly centered in some big cities, while SSIs help decentralize industries thus helping avoid, space crunch, slum development problems etc. • Since SSIs are easy to set up, they can be set up anywhere and hence contribute to a balanced regional development.
  48. 48. 7. REDUCTION IN INCOME-INEQUALITIES AND EQUITABLE DISTRIBUTION OF NATIONAL INCOME • SSIs help equitable distribution of national income because of 2 reasons: a) Ownership of SSI is more widespread than large-scale industries. b) SSIs possess large employment potential. 8. CONTRIBUTION TO EXPORTS AND INDUSTRIAL OUTPUT • 45%-50% of the Indian Exports is being contributed by SSI Sector. • Direct exports from the SSI Sector account for nearly 35% of total exports. • It is estimated that small scale industrial units contribute around 15% to exports indirectly. • The exports from SSI sector has been clocking excellent growth rates mostly fuelled by the performance of garment, leather and gems and jewellery units from this sector. • No. of industrial units has grown from 23.9L in ‘93-94 to 118. 59L in ‘04-05. Output has increased from 241,648 cr in ‘93-94 to 4,18,263 cr in ‘04-05.
  49. 49. 9. LESS INDUSTRIAL DISPUTES • Do not face problem of frequent strikes and lockouts. Hence no loss of man-days and output in SSIs.
  50. 50. Role of Small enterprises in Indian economy Employment Generation Self Employment Optimum Use of Capital Facilitate Entrepreneurial development Use of local resources
  51. 51. Balanced regional development Conservation of foreign exchange Equal distribution of Income Support agriculture & large industries Increase in Industrial output
  52. 52. Role of Small Enterprises in Economic Development : 54  Economic Development of a Country can be defined in terms of Increase in Real Per Capita Income of Persons resulting in Improvement in Standard of Living. The Development of Small Enterprises contributes to the Increase in Per Capita Income & leads to Overall Economic Development.  It generates Vast Employment Opportunities quickly with relatively Low Investment , Promotes more equitable distribution of National Income, makes effective mobilization of Unutilized Capital & Skilled Manpower & leads to dispersal of Manufacturing Activities all over the Country , leading to Growth of Villages , Small Towns & Economically Backward Regions. This leads to Balanced Regional Development throughout the Country.
  53. 53. 55  The Role of Small Enterprises in Economic Development of our Country can be discussed with reference to the following parameters during the last Four Decades : 1) Increase in the Number of Small Enterprises. 2) Increase in the Value of Production in Rupee Terms. 3) Increase in the Number of People Employed. 4) Increase in the Export Earnings in Rupee Terms.
  54. 54. 56 The Small Enterprises have registered phenomenal growth in their Number, Production, Employment & Exports over the Last Four Decades. In 1950, there were 16,000 Registered Small Scale Industries & this has increased to 31.21 Lakh Registered SSI’s during 1998 – 1999. During 1973 – 74, the Total Value of Production reported by SSI’s was Rs. 7200 Crores & this has grown phenomenally by about 75 Times to Rs. 5,38,357 Crores during 1998 – 1999. As regards Employment, about 40 Lakh People were employed in SSI Sector during 1973 – 1974 & there is a Four Fold Increase in Employment during 1998 – 1999, that is 175.2 Lakh People were employed in SSI Sector during 1998 – 1999.
  55. 55. EMPLOYMENT IN MSME’s SECTOR 0 100 200 300 400 500 600 700 800 2009-10 2010-11 2011-12 2012-13 2013-14 EMPLOYMENT number in lakh person 595.66 626.34 695.38 695.40 732.24 YEAR
  56. 56. 58 There is a Phenomenal Growth in Exports Revenue during the last Four Decades. During 1973 -1974, SSI Sector exported Rs. 393 Crores worth of Goods & Services & this has grown nearly 150 times to Rs. 57, 488 Crores during 1998 -1999. This statistics shows that the SSI Sector has been contributing tremendously in overall economic development of the Country by creating Vast Employment Opportunities , increased Value of Production, & increased Value of Exports & Foreign Exchange Earnings. Another way of looking at the SSI Sector for the Economic Development of the Country is to look at its Relative Position in terms of Country’s Total Production, Employment & Exports. It is encouraging to note that Small Scale Enterprises accounts for 35 % of the Gross Value of the Output in the Manufacturing Sector , about 80 % of the Total Industrial Employment & about 40 % of the Total Exports of the Country.
  57. 57. Advantages of Small Enterprises : 59  They are the Back Bone of the Industrial Activity in the Country & are playing a very important role in improving the Socio – Economic Conditions of the people. Advantages of these Enterprises are as follows : 1) They create greater Employment Opportunities thro Labor Intensive processes & thereby help in tackling the Unemployment Problem.
  58. 58. 2) They have Low Gestation Period & thereby Expensive Financial Resources are not idled unproductively for long periods. 3) They can be set up easily in Rural & Backward Areas. 4) They need Small / Local / Regional Market. 5) They encourage growth of Local Entrepreneurship. 6) They create Decentralized pattern of Ownership. 7) They foster Diversification of Economic Activities. 60
  59. 59. 8) They Innovate & Introduce New Products particularly to cater to Local Needs. 9) They influence & improve Standard of Living of Local People. 10) They provide equitable dispersal of enterprises throughout Rural & Backward Areas. 11) They earn Vital Foreign Exchange for the Country through their Exports of Goods / Services. 12) They Increase Revenue to Central & State Govts by way of Taxes Paid by them. 61