The document discusses the importance of small-scale industries (SSI) in the Indian economy, highlighting their rapid growth since independence and their pivotal role in employment and industrial output. It outlines various challenges faced by these enterprises, such as financial limitations, marketing issues, and technology gaps, alongside the government policies aimed at supporting their development. The document also presents historical changes in investment limits for small-scale industries and specific measures taken to enhance their competitiveness and sustainability.

1. Indian Economy
BY:
Dr. Shuchi Goel
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2. Syllabus
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3. Unit 3-Industrialization
3.1 Growth and problems of major industries- Iron and Steel
3.2 Growth and problems of major industries- Cotton Textiles
3.3 Growth and problems of major industries- Cement
3.4 Growth and problems of major industries- Sugar and Petroleum
3.5 Industrial Policy
3.6 Small Scale Industries- Problems and Policy
3.7 Regional Imbalances
3.8 Parallel Economy
3.9 India’s Foreign Trade and Balance of Payments
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4. 3.6 Small Scale Industries-
Problems and Policy
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5. Suggested Readings
1. Author: Datt and R. Sundhram
Title of the Book: Indian Economy
Chapter’s Name: Small Scale Enterprises
2. Author: Ramesh Singh
Title of the Book: Indian Economy
Chapter’s Name: Industry and Infrastructure
https://indianexpress.com/article/explained/coronavirus-india-lockdown-msme-se
ctor-crisis-government-relief-package-6395731/
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6. Introduction
•About SSI
•Role of Small-Scale Industries in Indian Economy
•Problems
•Small Scale Industrial Policy
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7. 3.6 Small Scale Industries- Problems and Policy
• A significant feature of the Indian economy since Independence is the rapid
growth of the small industry sector.
• In the Industrial Policy Resolutions of 1948 and 1956, the small sector was given
special role for creating additional employment with low capital investment. A
new thrust was given in favour of small units by the Industrial Policy Statement
of 1977.
• In 1950, the government grouped small-scale industrial undertakings into two
categories--those using power but employing less than 50 persons and those not
using power but employing less than 100 persons. All small-scale enterprises,
however, had capital investment of less than 35 lakhs.
• In 1966, the small-scale enterprises were defined as undertakings with a fixed
capital investment of less than 7.5 lakhs and ancillaries with a fixed capital
investment of 10 lakhs. Investment will imply investment in fixed assets in plant
and machinery, whether held in ownership term or by lease or by hire purchase.
• In 1975 this limit was revised to 10 lakhs for small-scale enterprises and 20 lakhs
in case of ancillaries.
• Subsequently, under the Industrial Policy Statement of 1980, this limit was
further raised to 20 lakhs in case of small-scale units and 25 lakhs in case of
ancillary units.
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8. • Simultaneously, in the case of tiny units, the limit of investment has been
raised from 1 lakh to 2 lakhs.
• In March 1985, the Government has again revised the investment limit of
small-scale industries to 35 lakhs and for ancillary units to 45 lakhs.
• As per the Industrial Policy Statement of May 1990, the investment ceiling
in plant and machinery for small scale industries has been raised from 35
lakhs to 60 lakhs and correspondingly for ancillary units from 45 lakhs to
375 lakhs. Investment ceiling with respect to tiny units has been increased
from 2 lakhs to 5 lakhs.
• During 1997, on the recommendation of Abid Hussain Committee, the
Government has raised the investment limit on plant and machinery for
small units and ancillaries from 60/75 lakhs to 3 crores and that for tiny units
from 5 lakhs to 25 lakhs.
• The Government in 2000 has reduced the investment limit on plant and
machinery from 3 crores to 1 crore, but the limit for investment in tiny units
has been retained as 25 lakhs.
• Until now, the Government had defined small scale industries and within the
small scale, it provided a definition of tiny enterprises.
• However, from the small scale, there was direct shift to large scale units and
no definition was provided for medium scale enterprises.
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9. • With effect from October 2, 2006, not only the three categories have been
clearly defined (Micro or tiny enterprises would cover all enterprises with
investment in plant and machinery of less than 25 lakhs; for small enterprises
with investment between 25 lakhs and 5 crores and for medium enterprises with
investment between 5 crores and 10 crores), but a comprehensive act, called the
Micro, Small and Medium Enterprises Development Act, 2006 came into force.
• The Act is aimed at facilitating the growth of small enterprises so that they
graduate to medium enterprises, thus improving their competitive strength.
ROLE OF SMALL-SCALE INDUSTRIES IN INDIAN ECONOMY
• The small-scale industrial sector which plays a pivotal role in the Indian
economy in terms of employment and growth has recorded a high rate of growth
since Independence in spite of stiff competition from the large sector and not so-
encouraging support from the Government.
• This is evidenced by the number of registered units which went up from 16,000
in 1950 to 36,000 units in 1961 and to 33.7 lakh units in 2000-2001.
• During the last decade alone, the small-scale sector has progressed from the
production of simple consumer goods to the manufacture of many sophisticated
and precision products like electronics control systems, micro-wave
components, electro-medical equipment, T.V. sets, etc.
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10. Problems
•Small enterprises are presently seriously handicapped in comparison with larger
units by an inequitable allocation system for scarce raw materials and imported
components, lack of provision of credit and finance; low technical skill and
managerial ability; and lack of marketing contracts.
•It is therefore, essential to develop an overall approach to remove these disabilities
so as to strengthen their competitive position.
•The Report of the Second All-India Census of Small Scale Industries Units stated:
“Financial Problems" was stated as the reason for closure of 35 per cent of the
units. This was more or less the case in every industry.
•In case of 14.4 per cent of units, "marketing problems" was stated as the reason for
closure.
• "Raw material non-availability" was stated as the reason for closure by 5.6 per
cent of units.
•2.2 per cent were stated to be closed down due to labour problems, while 19 per
cent reported to have closed for other reasons.
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11. (i) Credit and Finance.
• The financial disability of small enterprises is beyond question. Their internal
resources are so small that they have no surplus to live on during the period of
business strain.
• This leads to instability of their profits which deters banks from giving
unsecured loans.
(ii) Marketing Assistance.
Small-scale firms suffer from marketing difficulties as their products are often
unstandardised and of variable quality.
Undoubtedly, the originality of design is their special quality but it leads to
imperfection of the market, which tends to confer benefits to branded and
advertised commodities.
There is, therefore, a clear case for government intervention to eliminate these
imperfections by improving information, and bringing producers and dealers
into close contact with one another.
(iii) Allocation of Raw Materials, Imported Component and Equipment
• The Second International Team studied the problem of availability of raw
materials imported components for production and selected imported
equipment to the small enterprises and emphasised the the small-scale industry
has not shared proportionately in the growing supplies of scarce raw materials.
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12. • While various measures have been taken for supply of raw materials to the small
scale units through State Small Industries Development Corporations, import
quota etc., in actual practice the sector gets more or less a 'residuary' treatment in
raw material distribution/allocation.
(iv) Technical Assistance
• The development small-scale enterprises is hampered by the present low level of
technology and shortage of trained and experienced supervisory personnel.
• Provision of technical service is therefore, an important and justified form of aid
to stimulate increased productive efficiency and encourage new product lines.
(v) Industrial Estates
• An industrial estate is a attempt to provide, on a rental basis, good
accommodation and other basic common facilities to groups of small
entrepreneurs who would otherwise find it difficult to secure these facilities at a
reasonable price.
• However, India's experience proved to be a partial success.
• Major factors accounting for the poor output and employment performance of
many estates include wrong location unsuitability of sheds and space to the
needy, low use of capacity in functioning firms, and occupation of factory sheds
by government agencies.
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13. SMALL SECTOR INDUSTRIAL POLICY
•The Government announced its policy towards the small sector on 6th August
1991. The main features of the Policy were:
•The Small-Scale Industrial Sector has emerged as a Dynamic and vibrant sector
of the economy during the eighties.
•At the end of the Seventh Plan period, it accounted for nearly 35 per cent of the
gross value of output in the manufacturing sector and over 40 per cent of the total
exports from the country.
•It also provided employment opportunities to around 12 million people.
•The primary objective of the Small Sector Industrial Policy during the nineties
was to impart more vitality and growth impetus to the sector to enable it to
contribute fully to the economy, particularly in terms of growth of output,
employment and exports.
i.Financial Support Measures
•Inadequate access to credit-both short term and long term remains a perennial
problem facing the small scale sector.
•Emphasis would henceforth shift from subsidised/cheap credit, except for
specified target groups, and efforts would be made to ensure both adequate flow
of credit on a normative basis, and the quality of its delivery, for viable operations
of this sector.
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14. • To provide access to the capital market and to encourage modernisation and
technological upgradation, it was decided to allow equity participation by other
industrial undertakings in the SSI, not exceeding 24 per cent of the total
shareholding.
• A beginning has been made towards solving the problem of delayed payments
to small industries by setting up of 'factoring services through Small Industries
Development Bank of India (SIDBI). Network of such services would be set up
throughout the country and operated through commercial banks. Factoring
services imply that SIDBI or any commercial bank will buy the manufacturer's
invoices from SSI units and take the responsibility for collecting payments due
to them by charging a commission.
(ii) Infrastructural Facilities
• A Technology Development Cell (TDC) would be set up in the Small
Industries Development Organisation (SIDO) which would provide technology
inputs to improve productivity and competitiveness of the products of the
small-scale sector.
• The TDC would coordinate the activities of the Tool Rooms, Process-cum-
Product Development Centres (PPDs), existing as well as to be established
under SIDO, and would also interact with the other industrial research and
development organisations to achieve its objectives.
•
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15. (iii) Marketing and Exports
•National Small Industries Corporation (NSIC) would concentrate on marketing of mass
consumption items under common brand name.
•Though the Small Scale Sector is making significant contribution to total exports, both
direct and indirect, a large potential remains untapped.
•The SIDO (Small Industries Development Organization) has been recognized as the
nodal agency to support the small-scale industries in export promotion.
(iv) Modernisation, Technological and Quality Upgradation
•Industry Associations would be encouraged and supported to establish quality
counselling and common testing facilities.
•Technology and markets would be established.
(v) Promotion of Entrepreneurship
•Government will continue to support first generation entrepreneur through training and
will support their efforts.
•Large number of EDP trainers and motivators will be trained to significantly expand the
Entrepreneurship Development Programmes (EDP).
•Industry Associations would also be encouraged to participate in this venture effectively.
Women entrepreneurs will receive support through special training programmes
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16. (vi) Village Industries : Handloom Sector
•Handloom sector contributes about 30 per cent of the total textile production in
the country.
•It is the policy of Government to promote handloom to sustain employment in
rural areas and to improve the quality of life for handloom weavers.
•Handicraft Sector--The key areas in handicrafts that could contribute towards a
faster pace of rural industrialisation are production and marketing. Scheme for
training and design development and for production and marketing assistance will
be given encouragement.
•The activities of the Khadi and Village Industries Commission and the State
Khadi and Village Industries Boards would be expanded and the organisations
strengthened to discharge their responsibilities more effectively.
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17. Conclusion
•A significant feature of the Indian economy since
Independence is the rapid growth of the small industry
sector.
• In the Industrial Policy Resolutions of 1948 and 1956, the
small sector was given special role for creating additional
employment with low capital investment. A new thrust was
given in favour of small units by the Industrial Policy
Statement of 1977.
•Various problems have been faced by SSI.
•As a result, the Government has come up with a policy to
address these problems.
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