Micro Small and Medium Enterprises

1. Micro, Small and Medium
Scale Enterprises
(MSMEs)
Prof. Nithin Kumar S
Assistant Professor of Economics
JSS Banashankari Arts, Commerce and
Shantikumar Gubbi Science College
Vidyagiri, Dharwad -580004

2. Introduction
• In India, the enterprises have been classified
broadly into two categories:
a) Manufacturing; and
b) Those engaged in providing/rendering of
services.
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3. Manufacturing Enterprises
• The enterprises engaged in the manufacture
or production of goods pertaining to any
industry specified in the first schedule to the
industries (Development and Regulation Act,
1951).
• The Manufacturing Enterprises are defined in
terms of investment in Plant & Machinery.
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4. Service Enterprises
• The enterprises engaged in providing or
rendering of services and are defined in
terms of investment in equipment.
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5. • Both categories of enterprises have been
further classified into micro, small and
medium enterprises based on their
investment in plant and machinery (for
manufacturing enterprises) or on
equipments (in case of enterprises
providing or rendering services).
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6. • The Government of India has enacted the Micro, Small
and Medium Enterprises Development (MSMED) Act,
2006 in terms of which the definition of micro, small
and medium enterprises is as under:
a. Enterprises engaged in the manufacture or
production, processing or preservation of
goods as specified below:
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7. i. A micro enterprise, where the investment in Plant and
Machinery or Equipment does not exceed one crore rupees
and turnover does not exceed five crore rupees;
ii. A small enterprise, where the investment in Plant and
Machinery or Equipment does not exceed ten crore rupees
and turnover does not exceed fifty crore rupees;
iii. A medium enterprise, where the investment in Plant and
Machinery or Equipment does not exceed fifty crore rupees
and turnover does not exceed two hundred and fifty crore
rupees.
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8. b. Enterprises engaged in providing or
rendering of services and whose
investment in equipment (original cost
excluding land and building and
furniture, fittings and other items not
directly related to the service rendered or
as may be notified under the MSMED
Act, 2006 are specified below.
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9. i. A micro enterprise is an enterprise where
the Annual turnover is less than Rs.5 cr.
ii. A small enterprise is an enterprise where
the Annual turnover is between Rs. 5 Cr to
Rs. 75 cr.
iii. A medium enterprise is an enterprise where
the Annual turnover is between Rs. 75 Cr to
Rs. 250 cr.
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10. • The small scale industries sector consists
broadly of
i. Traditional cottage and household
industries, and
ii. Modern small scale industries.
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11. • "A cottage industry is one which is carried
on wholly or primarily with the help of
members of the family either as a whole or
a part time occupation.
• A small scale industry on the other hand
one which is operated mainly with hired
labour, usually 10 to 50 hands".
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12. Difference Between Small Scale
and Cottage Industries
1. While small scale industries are mainly located in urban
areas as separate establishments. The cottage industries are
generally associated with agriculture and provide subsidiary
employment in rural areas
2. Small scale industries produce goods with partially or wholly
mechanized equipment employing outside labour, the
cottage industries involve operations mostly by hand which
are carried on primarily with the help of the members of the
family.
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13. • Presently a small scale industry is defined
as a unit having investment in plant and
machinery up to Rs.5 crore. It also defines
a tiny unity as an enterprise having an
investment up to Rs.25 lakh.
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14. Importance of MSMEs in
Indian Economy
1. Employment Generation
2. Self Employment
3. Capital Light
4. Equitable Distribution of Incomes and Wealth
5. Advantage of Decentralization
6. Mobilisation of Latent Resources
7. Skill Light
8. Import Light
9. Quick Yield
10. Support to Large Scale Industries
11. Less Industrial Disputes
12. Contribution to Exports
13. Agent of Rural Development
14. Free from Ecological Problems
15. Capital Formation
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15. 1. Employment Generation
• The small scale industries are labour intensive.
• Accordingly, they have a substantially higher employment
potential as compared to the large scale industries, which are
generally capital intensive.
• Since capital is scarce and labour is abundant in India, small
enterprises should be developed to enlarge the volume of
employment and for absorption of the additions to the labour
force.
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16. 2. Self Employment
• These industries offer limitless
opportunities for self employment.
• This facilitates the creation of a wider
entrepreneurial base.
• They represent a diffusion of economic
power among a large number of small
entrepreneurs.
• It is these self employed persons who are
the backbone of the nation.
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17. 3. Capital Light
• Small scale industries are capital light, that
is, they require relatively low capital than that
required by large scale industries, because
the capital output and capital labour ratio is
comparatively very low.
• As there is scarcity of capital, it may be used
to greater advantage in small industries in
the early stages of development.
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18. 4. Equitable Distribution of
Incomes and Wealth
• The equality argument suggests that the
income generated in a large number of
small enterprises is dispersed more widely
in the economy than income generated in
a few large industries.
• In this way small industries bring about
greater equality of income distribution.
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19. 5. Advantage of
Decentralization
• These industries can develop in almost all
areas including backward, tribal, hilly and
inaccessible areas.
• Moreover these are mostly set up to satisfy
local demand, hence can be dispersed over all
the states very easily.
• Thus small-scale industries help in reducing
regional economic imbalances and also to
solve the problems of concentration and
congestion in the few industrial towns.
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20. 6. Mobilisation of Latent
Resources
• The small scale industries are capable of mopping up
latent and unutilized resources.
• A number of entrepreneurs are spread over small
towns and villages of the country.
• Given the credit, power and technical knowledge, a
large quantity of latent resources of the economy can
be mobilised for purposes of industrial development.
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21. 7. Skill Light
• In India there is scarcity of skill also.
• But small enterprises do not require much
skill. Besides the traditional occupations
are managed by persons who have
inherited the necessary skill.
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22. 8. Import Light
• Large industries require imported machinery raw-materials
and some times skill also.
• This creates a problem in the balance of payments because the
available foreign exchange resources are limited.
• On the other hand small scale industries use a relatively low
production of imported equipment.
• A low import intensity in the capital structure of small scale
industries reduces the need for foreign exchange.
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23. 9. Quick Yield
• In small scale industries the gestation
period is short.
• In India, with a high inflationary potential
need for rapid rise in the living standards.
• The importance of small scale industries
can hardly be exaggerated.
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24. 10. Support to Large Scale
Industries
• Small-scale industries can also play a
useful role in the development of large
scale industries.
• A number of products which are related to
large enterprises can be produced and
supplied by small units.
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25. 11. Less Industrial Disputes
• It is held that as most of the small
enterprises are proprietary or partnership
concerns, the relation between the workers
and the employers is more harmonious in
small enterprises than in large enterprises.
• As such, they are generally free from
strikes and lockouts.
• Consequently there is less loss of output.
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26. 12. Contribution to Exports
• The fact that the village and small
industries account for about one-third of
our total export earnings shows how
important they are to the Indian economy
constrained by shortage of foreign
exchange.
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27. 13. Agent of Rural
Development
• Small scale industries help to increase the
pace of rural development through the
generation of additional employment
opportunities and income, through its
input and output linkages with the other
sectors of the rural economy.
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28. 14. Free from Ecological
Problems
• In recent years, the village and small
industries have acquired more attention
due to the very less ecological problems
they create compared to the large
industries.
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29. 15. Capital Formation
• Besides, making possible economics in the eve of the
existing stock of capital small scale industries may also
promote capital formation.
• The spreading of industries over the country would
encourage the habits of thrifts and investment in rural
areas.
• Besides, it also help to top local resources such as raw
materials, idle savings.
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30. Problems of Micro, Small and
Medium Enterprises
1. Problem of Finance
2. Problem of Raw Materials
3. Problem of Marketing
4. Problem of Power
5. Problem of Dealing with Government Agencies
6. Competition from Large-Scale Industries
7. Under-Utilisation of Capacity
8. Inefficient Human Factor
9. Bogus Concerns
10. Export Difficulties
11. High Rate of Mortality
12. Fear of De- reservation
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31. 1. Problem of Finance
• The scarcity of finance and credit is the main obstacle
in the development of small scale industries.
• The credit worthiness of small industries is generally
weak, and therefore, they fall into the clutches of the
money lenders who charge very high rates of interest
or else they borrow from the dealers of their goods
who badly exploit them to sell their products at very
low prices.
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32. 2. Problem of Raw Materials
• Scarcity of raw-materials has assumed the
shape of
– (i) an absolute scarcity,
– (ii) poor quality of materials, and
– (iii) high cost.
• Very often, the small sector, unable to
undertake bulk buying is forced to take
whatever quantity is available at high prices
and of whatever quality.
• Moreover small industries do not get raw
materials on time.
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33. 3. Problem of Marketing
• Most of the small industries are forced to restrict their sales to the
local market, tailoring their supplies to the local needs, for want of
adequate co-operatives and other facilities for selling.
• Not infrequently, a lack of demand and accumulation of stocks leave
them with no working capital to keep the production units moving.
• Moreover the difficulties of marketing lead the producer to devote
less time to production, which in turn lead to little production and
of low quality.
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34. 4. Problem of Power
• Shortage of power is one of the glaring problems faced by S.S.I
units in recent years.
• There are two aspects of the problem.
• One, power supply is not always available to the small
industry, and wherever it is available it is rationed out, limited
to a few hours in a day.
• Secondly, unlike large industries, the small industry cannot
afford to go in for alternative, like installing own thermal
units, because of the heavy cost involved.
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35. 5. Problem of Dealing with
Government Agencies
• It is an admitted fact that no type of state assistance is
available in abundance, or at least adequate enough
with relation to the needs.
• Therefore, there is a general practice to ration it out.
• In the process of rationing there is ample scope for
discrimination, made possible by government rules,
regulations, red-tapism and manipulation by the large
industries.
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36. 6. Old Methods and Inferior
Technique of Production
• Modern methods and techniques which have
revolutionised industrial production have not as yet
become an integral part of the set-up of India's small-
scale and cottage industries.
• They are neither able to buy new equipment, not do
they know much about new methods and technology.
• As a result their productivity remains low and the
quality of goods is poor.
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37. 7. Competition from Large-
Scale Industries.
• Large scale industries, organised as they are,
on modern lines, using latest production
technology and having access to many
facilities can easily outsell the small
producers.
• The small units are thus relegated to a
disadvantageous position.
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38. 8. Under-Utilisation of
Capacity
• A study by Arun Ghosh shows substantial
under-utilisation of capacity in small-scale
industries ranging from 45 to 60 in many
cases.
• There are sick units too in this sector.
• This indeed is a serious problem.
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39. 9. Inefficient Human Factor
• The small-scale industries sector also
suffers from inefficient human factor
owing to the illiteracy, poverty, ignorance
and out of date methods of cottage
craftsmen.
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40. 10. Bogus Concerns
• A good number of the small-scale
industries units in the country are bogus
and they exist for the sole purpose of
diverting their quotas of steel, aluminum,
basic chemicals and other scarce raw
materials in to the black market.
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41. 11. Export Difficulties
• The small-scale sector has contributed in a
large measure to the gradual expansion and
divergence of the country's export pattern.
• But in all this progress, the small scale sector
still faces problems in exports which make it
appreciable manner.
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42. 12. High Rate of Mortality
• Most of these units are marginal buyers of
inputs and marginal sellers of output.
• Any factor that adversely affects the input
or output situation tends to throw out a
number of existing units from operation.
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43. 13. Fear of De- reservation
• A significant problem facing the small industries is that when
they grow from small scale size and just pass the value limit in
plant and machinery, the earlier protection available to them is
withdrawn.
• They have to face open competition in every sphere of activity.
Neither the banks nor the financial institutions look upon them
with the benevolent attitude which they had hither to enjoyed.
• It has to compete openly with the large and medium sized units.
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44. The Government Policy
Measures
1. Institutional Assistance
2. Financial Assistance
3. Technical Assistance
4. Training Assistance
5. Marketing Assistance
6. Industrial Estates
7. District Industries Centers
8. Supply of Raw-Materials
9. Modernisation
10. Fiscal Incentive and Reserving the Sphere
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45. Institutional Assistance
• To look after different aspects of the development programmes a
number of central and state level institutions have been set up.
• First, there is Small Industries Development Organisation (SIDO)
headed by the Development Commissioner (S.S.I) under the
Department of Industrial Development.
• It has a network of 25 Small Industries service Institutions, 18
branch institutions, 41 extension centers, 4 regional testing
centers.
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46. • SIDO acts as a policy formulating,
coordinating and monitoring agency for
the development of small scale industries.
• It also seeks to provide technical,
economic and management consultancy
services to small entrepreneurs.
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47. • Secondly there is the National Small
Industries Corporation (NSIC), started in
the year 1955.
• It provides machinery to small enterprises
on hire purchase basis and assists in
supplying raw-materials and in marketing.
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48. • In addition several boards with adequate power and funds were set up. They
are:
a. The Cottage Industries Board.
b. All India Handloom Board.
c. All India Khadi and Village Industries Board.
d. All India Handicrafts Board.
e. The Coir Board.
f. Central Silk Board.
g. The Small Scale Industries Board.
h. National Institute of Small Industries Extension Training (NISIT)
i. National Institute for Entrepreneurship and Small Business Development
(NIESBUD)
j. Small Industries Marketing Corporation (SMIC)
k. Small Industries Development Corporation (SIDC)
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49. Financial Assistance
• Apart from the central and state
governments, whose budgetary support to
small enterprises is channelized through the
specialised agencies, the banking system
comprising R.B.I, Commercial Banks,
National Small Industries Corporations meet
the financial needs of the small sector.
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50. Technical Assistance
• Technical assistance to small industry takes
the form of identification of new lines of
production provision of operational schemes,
assistance in installing plant and machinery
and in solving various production-problems
from time to time.
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51. Training Assistance
• The SIDO and its associated facilities organize training
programme aimed at in providing the technical skills
of the workers and acquainting the entrepreneurs with
advanced production and management techniques.
• A Village Industry Research Institute was set up to
encourage research programme.
• An Institute for Advanced Training in Tool Design and
Tool Making has been established at Hyderabad.
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52. 5. Marketing Assistance
• The marketing assistance provided by the government in the area has been
in the following forms:
i. 241 items have been reserved by the Directorate General of supplies and
disposal for exclusive purchase from the small scale sector.
ii. A price preference up to 15 is given to small scale enterprises in public
purchases.
iii. Assisting the products of small scale enterprises through opening sales
emporia under the state owned co-operative and assisted co-operative
societies.
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53. iv. Provision of quality control and testing facilities,
industrial information with a view to increasing
the competitiveness of the products of small scale
units.
v. Setting up of trade centers for organising
permanent exhibitions of small industry
products. 6. Sales emporia have been set up
under the state owned and assisted cooperative
societies to assist sale of SSI products.
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54. 6. Industrial Estates
• An industrial estate may be defined as a tract of land developed and subdivided into
plots according to a comprehensive plan with provision of roads, transport and public
utilities with or without built up factories, sometimes with common facilities and
sometimes without it for the use of a community of industrialists.
• Thus industrial estate is an attempt to provide on rental basis good accommodation
and other basic common facilities such as water, power to groups of small
entrepreneurs who otherwise find it difficult to secure these facilities at reasonable
prices.
• At present there are around 700 industrial estates where, 14,000 small-scale units are
functioning.
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55. 7. District Industries Centers
• District Industries Centers were introduced in 1978.
• They provide under one roof, all the services and support required
by small and village entrepreneurs at a pre-investment and post-
investment stage.
• District Industries Centre provides and arranges a package of
assistance and facilities for credit guidance, raw- materials, training,
marketing etc. including the necessary help to unemployed educated
young entrepreneurs in general and customs services.
• At present 427 DIC's are operating to cover 431 districts
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56. 8. Supply of Raw-Materials
• In order to ensure the availability of the scarce raw-
materials to small industries, the State SSIC's have
been entrusted with the responsibility of distributing
these materials through distribution depots located in
different parts of each state.
• The small-scale units are also entitled to import raw
materials according to the Import Trade Control Policy
as announced every year.
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57. 9. Modernisation
• A programme of modernisation has been launched by
the SIDO. The salient features of the programme are:
i. Modernisation of management techniques including the
modernisation of attitude and skills and personnel.
ii. Modernisation of products in terms of design
standardisation.
iii. Modernisation of organisation structure.
iv. Modernisation of machinery and equipment
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58. 10. Fiscal Incentive and
Reserving the Sphere
• Government has offered temporary protection by means of subsidy
and by reserving the sphere of production exclusively for such
industries.
• The number of such reserved items has gone up, to 839 during 1989.
• However at present only 21 items have been reserved for MSMEs.
• It granted tax holiday to new undertakings It also provided
investment allowances, excise duty exemption etc.
• The government contributed to the development of ancillaries
around 26 specified major industries.
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59. Impact of Globalisation on
MSME
 Globalization May Be Defined As The Process Of
Integrating Various Economies Of The World Without
Creating Any Hindrances In The Free Flow Of Goods
And Services, Technology, Capital And Even Labour
Or Human Capital.
 Therefore, It Signifies Internationalization Plus
Liberalization, Through Which The World Has
Become A Small Global Village.
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60. Opportunities
1. Exposure to foreign markets
2. Emerging areas of business.
3. Flow of foreign investment and technology
4. Less government intervention
5. Employment generation
6. Better performance by the MSMES
7. Better customer satisfaction
8. Short and long term capital
9. Export contribution
10. Removal of regional disparity
11. Better industrial relations
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61. Exposure to Foreign Markets
• Globalization has opened up the economy and integrated with the
world economy.
• The MSMEs enjoy the benefits of selling their products and services
to the world market rather than being confined into domestic or
local market.
• The free economy leads to accessibility to bigger markets, greater
linkages for MSMEs with larger & multi- national companies and
marketing outfits, improved manufacturing techniques and
processes to achieve maximum output and profit.
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62. Emerging Areas Of Business
• MSMEs have been able to identify many
uncommon but highly promising business areas
like outsourcing, medical transcription, clinical
research trials, sub-contracting, ancillarization
and many new technologies like biotechnology,
nanotechnology etc., which are attractive for the
new generation MSME entrepreneurs
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63. FLOW OF FOREIGN INVESTMENT AND
TECHNOLOGY
• The MSMEs in India suffer from outdated technology and
sub-optimal scale of operation.
• Many foreign companies have tied up with Indian MSMEs and
helped them to use better technology, managerial skill etc.
• Thus, a proper collaboration between the small and large
companies can help the small firms to develop technology
base through Research & Development activities, contribution
from the technological institutes, universities etc.
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64. Less Government Intervention
• As the economy is mainly market driven;
there is less Govt. intervention, red tapes,
less control on import and export etc.
• The MSMEs would be allowed to work in a
free environment created by the concept of
Globalization.
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65. Employment Generation
• Being labour-intensive in nature, the MSMEs make
significant contribution in employment generation and
expanding industrial network in rural areas.
• This sector takes care of the traditional skills and
knowledge based small and cottage industries.
• The workers inherit and transfer skills from generation
to generation.
• The handicrafts and other products produced by this
sector have good demand in market.
• The MSMEs have been a good source of employment
generation and can be even more if the sector gets
support in terms of mixture of technology, capital and
innovative marketing techniques etc.
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66. Better Performance By The
MSMEs
• Before globalization, the MSME sector was a highly
protected sector.
• Suddenly, after globalization they discover that many
of such protective measures were withdrawn and they
have to fight for their existence in the market.
• This competitiveness in domestic and global market
may bring out superior performance.
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67. Better Customer Satisfaction
• As the domestic market gets competitive,
small and medium firms try to satisfy the
consumers in every possible way.
• They try to produce products as per the needs
and preferences of the consumers and satisfy
the customers in best possible way.
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68. Short And Long Term Capital
• In a liberalized economy, banks would try
to find out new possibilities of giving
credits to increase their profitability.
• Thus, supply of funds may be easier.
• Development in money market would
initiate development in capital market.
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69. Export Contribution
• The products produced by MSME sector (like
sports goods, readymade garments, woolen
garments and knitwear, plastic products,
processed food and leather products, handicrafts
etc) have an excellent foreign market.
• As per the results of fourth MSME census (2006-
07), this sector has registered an export earning of
Rs 202017 crores in 2007-08.
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70. Removal Of Regional
Disparity
• People from remote areas have the tendency to migrate to urban
areas in search of jobs.
• This creates excessive pressure on urban areas and initiates social
and personal problems.
• This problem can be addressed by setting up a network of micro,
small and medium enterprises in economically backward areas.
• MSME sector can take care of local needs, improve economic
condition of the area and most importantly, can bring a qualitative
change in the economy of the country.
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71. BetterIndustrial Relations
• The MSMEs are less prone to industrial
disputes.
• However, the truth behind the scene is the
workers in small sectors are mostly from
unorganized sector and cannot raise their
voice collectively.
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72. Constraints
1. Financing problems
2. Poor technology base
3. Cut throat competition
4. Lack of infrastructure facilities
5. Lack of skilled workers
6. Marketing and distribution problems
7. Delayed payments
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73. Financing Problems
• Financing has always been a major
problem for the small and medium
industries in India.
• The MSMEs mostly depend on internal
sources of finance (personal savings, loan
from relatives, and loan from local money
lenders) than that of institutional
financing by banks and other financing
institutions.
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74. Poor Technology Base
• There exists considerable heterogeneity
among the MSMEs in India.
• A small percentage of firms operate with
sophisticated technology base whereas
majority of firms use outdated technology.
• They suffer from low productivity and
poor product quality.
• Due to their small size, they cannot enjoy
large- scale production economies.
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75. Cut Throat Competition
• The MSMEs face ruthless competition from the large
domestic firms and multinationals armed with
improved technology, managerial ability, skilled
workers, marketing skills, better product quality, and
wide range of products.
• The small firms find it difficult to maintain their
existence as the cases of merger and acquisition are
continuously increasing.
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76. Lack of Infrastructure
Facilities
• Lack of infrastructure facilities includes inadequate power supply,
transportation, water supply etc.
• Small firms cannot bear the cost of setting up independent power
supply unit.
• They have to depend on irregular power supply from
the electricity boards.
• Inadequate transportation system increases cost of production.
• The MSMEs producing beverages, tobacco products, medicines etc
face the problem of inadequate water supply.
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77. Lack of Skilled Workers
• Though India has no shortage of human resource,
most of them are unskilled workers.
• Large firms pay higher remuneration and employ
skilled workers.
• The MSMEs have to operate with unskilled or semi-
skilled workers.
• Thus, the MSMEs suffer from low managerial
capabilities.
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78. Marketing And Distribution
Problems
• Marketing is probably the most neglected and less explored problem
for Micro and Small firms.
• Most of them do not have any well formulated marketing strategy,
market research programmes, innovative advertisement techniques
etc.
• Most of the MSMEs do not have adequate monetary support to
develop marketing section and many are not aware of modern low-
cost marketing techniques (blogging, sending mails, developing
website for the company).
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79. Delayed Payments
• The small firms find it difficult to recover their dues from the
large firms and even from Government departments due to
complex payment procedure and corruption.
• Due to lack of funds, they cannot employ credit collection
machineries (like factoring services).
• The large firms force them to offer long credit period and even
pay advance to ensure timely supply of materials.
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80. Large Scale Industries In
India

81. Structure of Large Scale
Industries in India
• During the British period very few large-scale industries were
developed in India.
• During the post-independence period large scale industries started
to grow with the introduction of planning in India.
• The progress of industrialization since 1951 has been a striking
feature of Indian economic development.
• Over the last nearly 60 years, industrial production went up by
about five times, making India the tenth most industrial country of
the world.
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82. • Large scale industries are those industries whose
investment on plant and machinery is in excess of
medium scale industries, that is above Rs. 10 crores.
• These organisations also employ more than 500
labourers.
• They carry on production on a large-scale on modern
line.
• These industries are organised and managed under
Joint Stock Company form of organisation.
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83. Major Large-Scale Industries
in India
• Sugar Industry
• Cotton Textile Industry
• Iron and Steel Industry
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84. Sugar Industry
• Sugar industry is one of the major organized industries of India.
• After Russia, Brazil and Cuba, India is the 4th largest producer of sugar in the world.
• It ranks second among the agro based industries.
• Sugar industry had its origin in 1903 when a sugar factory was established each in
Bihar and Uttar Pradesh.
• Its contribution to the revenues of both the Central and the State Governments in the
form of various taxes is quite high.
• It provides direct employment to about 3.25 lakh workers.
• The industry contributes an estimated Rs.1600 crore annually to the Central and
State exchequers.
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85. Production of Sugar in India
Year Production (in Million
Tones)
1950-51 1.1
1970-71 3.7
1990-91 11.8
2000-01 18.5
2010-11 24.3
2011-12 27.4
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86. Cotton Textile Industry
• The cotton industry is one of the major large scale and
oldest private sector industries in India.
• The first cotton textile mill came up in Calcutta in
1818.
• The real growth of the industry started with the setting
up of the Bombay Spinning and Weaving Mills in 1854.
The initial location of the cotton textile industry was in
the city of Mumbai.
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87. • The cotton textile industry in India is
having its three distinct categories in the
organized sector:
a) spinning mills,
b) coarse and medium composite mills, and
c) fine and super fine mills.
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88. Production of Fabrics in India
Year
Production of Cloth (in Million sq meters) Percentage Share
Mill
Sector
Decentra
lised
Sector
Total
Mill
Sector
Decentra
lised
sector
1950-51 3730 1010 4740 79 21
1970-71 4050 3550 7600 53 47
1990-91 2590 20340 22930 11 89
2000-01 1670 38563 40233 4 96
2010-11 2205 60337 62542 3 97
2011-12 2313 58140 60453 4 96
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89. Iron and Steel Industry
• The iron and steel industry is the "key" of basic
industry of the country.
• Indeed, steel is the backbone of all development,
industrial as well as agricultural sector.
• India has many intrinsic advantages in the production
of steel.
• Some of the richest iron ore mines with the highest
iron content are to be found in India.
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90. Production of Steel Industry
Year Production (in million Tones)
1950-51 1.0
1980-81 6.8
1990-91 9.6
2000-01 30.3
2010-11 66.0
2011-12 73.4
2020-21 82
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91. Financing of an Industry

92. Introduction
• Finance is considered to be the life-force of industry.
• Although India is a developing economy the progress of
industry is very slow.
• This is mainly due to lack of adequate finance.
• Hence, without getting adequate finance industrial
development is not at all possible.
• All industries, whether large or small require finance for the
organization of real resources for production.
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93. Meaning of Industrial Finance
• The term "industrial finance" is used to convey the organization
of various types of finance needed by industries for their activities
concerned with the production of goods and services.
• Modern industries are capital-intensive and they require huge
amounts of capital for investment.
• Money invested in industries will have to be managed
systematically with accurate planning without any interruption for
the smooth functioning and the growth of business.
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94. Types of Finance
• Short-Term Finance
• Medium-Term Finance
• Long-Term Finance
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95. Short-Term Finance
• Short-term finance usually refers to the funds
required for a period of less than one year.
• Short-term finance required to meet variable,
seasonal or temporary working capital
requirements.
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96. Medium-Term Finance
• The period of one year to five years may be
regarded as a medium-term.
• Medium-term finance is usually required for such
purposes as permanent working capital,
modernization, repairs, replacements, to purchase
small tools, implements, small expansions etc.
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97. Long-Term Finance
• Long-term finance is one which is to be repaid
over a long period, extending from 5 years to 10 or
15 years and even more.
• Long-term finance is required for procuring fixed
assets, for the establishment of a new business, for
substantial expansion of existing business, for the
construction of buildings, to purchase costly
machineries etc.
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98. Internal Sources of Finance
1. Shares or Share Capital
2. Ploughing Back of Profit
3. Reserves
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99. External Sources of Finance
1. Debentures
2. Public Deposits
3. Commercial Banks
4. Indigenous Bankers
5. Term Lending Institutions
6. Foreign Capital
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100. Sources of Industrial Finance
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101. Internal Sources of
Finance

102. 1. Shares or Share Capital
• In India, many large scale industries are set up as joint stock
companies.
• These companies have the right of issuing shares for building up fixed
capital.
• A large part of fixed investments comes from different types of shares
such as ordinary, cumulative and non- cumulative preference shares.
• Shares are issued in small denominations of ten rupees so as to enable
the largest number of people to participate in providing long-term
finance.
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103. 2. Ploughing Back of Profit
• Another important internal source of finance for industries
is the savings generated internally in the form of retained
earnings by the process of ploughing back of profit.
• A profitable company may retain with it a part of the net
profits as undistributed profits to strengthen the financial
position of the company, or to meet some of the present or
future financial requirements of replacement, modernization
and expansion.
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104. 3. Reserves
• Business units accumulated a part of its own profits in
the form of reserves.
• Reserves are undistributed profits of the business
units.
• For meeting emergencies funds could also be raised
through the reserves.
• The reserves can be used for a limited and specific
purpose in emergencies only.
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105. External Sources of
Finance

106. 1. Debentures
• The term debenture is defined as, a document under the company's seal
which provides for the payment of a principle sum and interest thereon at
regular intervals which is usually secured by a fixed or floating charge on
the company's property or undertaking which acknowledge a loan to the
company.
• Debentures are credit instruments which are widely used by companies to
raise medium and long term funds.
• The buyers of debentures are the creditors of companies.
• Industries accumulated a part of its financial need in the form of
debentures.
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107. 2. Public Deposits
• Another source of industrial finance is the deposit raised from the public.
• In recent years, many industrial firms have joined hands in inviting
deposits from public for one to three years by offering attractive rates of
interest.
• The public invests in such fixed deposits in industries.
• But this method of finance is not very reliable.
• The main defect of this source of finance is that these deposits may be
withdrawn at any moment and cannot be used for long term investment
projects.
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108. 3. Commercial Banks
• In India commercial banks are offering loans on cash credit
basis on the security of stock and on the additional guarantee
of the managing agent.
• The commercial banks are generally advancing short-term
loans for meeting working capital needs of the industries in
the form of overdraft, and cash credit facilities against
government securities and pledge of stocks.
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109. 4. Indigenous Bankers
• In India indigenous bankers have been rendering
important services to industry in time of their
difficulty.
• But these indigenous bankers charged very high rates
of interest.
• Their capacity to lend money is also very limited.
• Therefore, indigenous bankers never formed good
sources of industrial finance.
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110. 5. Term Lending Institutions
• After independence, realizing the urgent needs of industry, various term
lending institutions have been developed by the Government to advance
loan in order to meet financial requirement of the industries.
• These institutions include Industrial Finance Corporation of India (IFCI),
Industrial Credit and Investment Corporation of India (ICICI), Industrial
Development Bank of India (IDBI), Industrial Reconstruction Corporation
of India, (IRCI), State Financial Corporations and State Industrial
Development Corporations at state level in different states, Besides, Life
Insurance Corporation of India (LICI) and Unit Trust of India (UTI) are
also providing a good amount of loan to Indian industries.
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111. 6. Foreign Capital
• Apart from the above external sources, industries
also borrow foreign capital for meeting their
medium and long term financial requirement.
• The World Bank, Aid India Club in Paris and loans
given by different foreign companies also has
helped the Indian industries to meet their
financial needs.
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