Small scale industries its objectives, scope, and MSMEs

1. UNIT 3- Business Intelligence and Entrepreneurship
Introduction of SSI:
Small scale industries are those industries in which the manufacturing, production and
rendering of services are done on a small or micro scale. These industries make a one-time
investment in machinery, plants, and industries, but it does not exceed Rs 5Crore.
OR
A small enterprise is an enterprise where the investment in plant and machinery is more
than Rs. 25 lakh but does not exceed Rs. 5 crore.
Essentially the small scale industries are generally comprised of those industries which
manufacture, produce and render services with the help of small machines and less
manpower. These enterprises must fall under the guidelines, set by the Government of
India.
The SSI’s are the lifeline of the economy, especially in developing countries like India. These
industries are generally labour-intensive, and hence they play an important role in the
creation of employment. SSI’s are a crucial sector of the economy both from a financial and
social point of view, as they help with the per capita income and resource utilisation in the
economy.
Examples and Ideas of Small Scale Industries
 Bakeries
 School stationeries
 Water bottles
 Leather belt
 Small toys
 Paper Bags
 Photography
 Beauty parlours
 Types of Small Scale Industries:
We can divide the small-scale industries into following three categories, viz.:
(a) Cottage industries,
(b) Agro-based industries, and
(c) Small industries.
(a) Cottage Industries:
ADVERTISEMENTS:

2. These are generally associated with agriculture and part-time and whole- time occupations
in rural and semi-urban areas. (Mahalanobis had used the term ‘hand industries’ for them.)
(b) Agro-Based Industries:
These industries are based on the processing of agricultural produce, or they cater to the
input needs of the agriculturist Agro-based industries may be organised on a (i) cottage
scale, (ii) small scale, or (iii) large scale. Large- scale agro-based industries are generally set
up in large cities, or in semi- urban areas. Rural agro-based industries are generally
organised either on a cottage or small-scale basis, and possess most of their characteristics.
(c) Small Industries:
We can distinguish between two types of small industries:
(i) Modern small-scale manufacturing enterprises:
These are small-firms using ‘modem techniques to produce modern product’. Technology
used by these firms is on par with or closely approximates the modem large-scale industry.
These firms, by their very nature, are located in large towns in order to take advantage of
external production economies; they use hired labour and raw materials supplied by large-
scale enterprises located at a long distance. Their market is also dispersed in a region or
throughout the country, sometimes they operate in export markets.
(ii) Intermediate group of small enterprises:
These firms use more or less traditional techniques to produce more or less modern
products’. Here machine production is substituted by labour-intensive non-mechanised
(capital-saving) techniques. The orientation of these enterprises, however, is towards urban
areas, rather than to villages as they have to procure their raw materials from towns, which
also provide market for finished products.
(iii) Cottage Industry and Small Industry:
We can distinguish between these two types on the basis of their links with the rest of the
system rather than in terms of their absolute size or technological considerations alone.
These links are of the technical or input-output kind as well as of the general economic kind.
Small industries are technically and economically connected with the large-scale sector
while the cottage industries generally are not
(iv) Small Industry and Large Industry:
The differences between the small and the large industries arise largely because of the
distinct organisational character of the former which is indicated by such factors as

3. ownership, management, technique, flow of inputs and output, localisation, and finally the
historic sequence of development.
In the official industrial policy formulation, a small industry is defined as a unit having
investment up to Rs. 1 crore in plant and machinery. (It takes into account investments in
plant and machinery only and does not consider money put into effluent treatment, quality
control, fire-fighting equipment and safety. It also excludes the ‘stand by” investments in
land and buildings) It also defines a ‘tiny unit’ as an enterprise having an investment up to
Rs. 25 lakh (95% of the small scale units are within the investment range of Rs.251akhs.)
 Rationale of Small Scale Industries:
IPR 1956 established the rationale of SSIs in terms of the following four arguments, viz.:
(i) Employment argument,
(ii) Decentralisation argument,
(iii) Equality argument, and
(iv) Latent resources argument.
In addition, there is also the argument relating to allocation efficiency and the on-going
debate about relative merits of lean production and mass production. Let us examine each
of these arguments.
(i) Employment Argument:
The most important argument in favour of the SSIs is that they have a potential to create
large employment opportunities. These are labour-intensive in character, i.e., they use more
of labour per unit of output and investment there has also been an implicit assumption in
this argument that small enterprises use less capital per unit of output. Therefore, in a
country where labour is surplus and capital is scarce, it is only to be expected that the
production process should be decentralised and should be divided into small units.
(ii) Decentralisation Argument:
There are two aspects to this argument— first, there is the need to prevent congestion in
large cities through prevention of growth of industries there; secondly, this negative
measure has to be reinforced by promoting industrial growth in semi-urban and rural areas
so that the local people can stay on their areas without emigrating to the nearby cities.

4. A third variant of this argument is that small industry helps in fostering enterprises from
amongst the members of castes, classes and professions which have hitherto not
contributed or contributed poorly to the entrepreneurial class in India. These include, apart
from others, SCs, backward/poor classes, STs, technicians and other professionals.
(iii) Equality Argument:
Large-scale industries, generally, lead to inequalities of income and concentration of
economic power. An SSI, on the other hand, it is asserted, “will lead neither to swearing nor
to inequitable distribution but will result in a large and more widely distributed sharing of
the productive function and therefore to a more equitable distribution of the produce of
industry.” It is also held that as most of the small enterprises are either proprietary or
partnership concerns, the relations between workers and employers are more harmonious
in small enterprises than in large enterprises.
(iv)Latent Resources Argument:
This argument justifies the cause of SSIs on three grounds as follows: first, it presumes that
there is to be found a large number of small and potential entrepreneurs who are capable of
running industrial units efficiently if appropriate opportunity and help is extended to them.
Secondly, there are a large number of potential enterprises whose full capacities have not
been used so far. Thirdly, SSIs will be helpful in putting idle savings in productive use.
Lean Production Vs. Mass Production:
Another persuasive line of argument developed concerns the debate regarding the relative
merits of mass production and lean production. The first industrial revolution had brought
about mass production. It was much more efficient than the then prevailing craftsman type
of production. In an effort to find a way to surpass the Americans, Japanese invented a new
system of production: this came to be known as lean production.
There are two key organisational features of a lean production facility:
(i) It transfers the maximum number of tasks and responsibilities to those workers actually
adding value on the line,
(ii) It has in place a system for detecting defects.
It quickly traces every problem, once discovered, to its ultimate cause. Mass production
does precisely the opposite. It transfers responsibilities away from the value-adding worker.
He is left with a single repetitive task. It increases the efficiency of that worker, but he then
needs a battery of supporting specialists to be able to concentrate on their task. When all
the support services are taken into account, the overall productivity drops.

5. A lean producer is able to offer greater variety and far better quality at a lower cost, such
that the mass producer is simply unable to compete. A small-scale industry, rather than a
range industry, is in a better position to be a lean producer.
As a result of its limited resources, it can invent lean production methods that make it
cast-efficient. This largely explains why many industries like pharma, soaps and
detergents, automobiles, etc.,
OR
Rationale behind the development of Small-scale industries
Small scale industry is an industry that is independently owned and operated and is not
dominant in its field of operation. Such units are generally under single ownership. So it is a
sole proprietorship or sometimes a partnership.
The rationale behind the development of small scale industries in developing countries –
Lack of finance –This including weak equity base, poor utilization of assets, inefficient
working capital management, an absence of costing & pricing, an absence of planning and
budgeting and inappropriate utilization or diversion of funds.
Bad production Policies – The another important reason for sickness is a wrong selection of
site, which is related to production, inappropriate plant and machinery, bad maintenance of
plant, lack of quality control and so on.
Marketing and sickness – This is another part which always affects the health of any sector
as well as SSI. This including wrong ‘demand forecasting, selection of appropriate product
mix, the absence of product planning, wrong market research method and bad sales
promotions.
Inappropriate Personnel Management – Another internal reason for the sickness of SSI is
Inappropriate Personnel Management politics which includes bad wages and salary
administration, bad, labour relation etc.
Ineffective Corporate Management – Another reason is Ineffective Corporate which
includes improper corporate planning, lack of integrity in for management, Lack of
coordination and control etc.
Small scale units are more change vulnerable and highly imprudent and accessible to socio-
economic conditions. They are more flexible to adopt changes like the introduction of new
products, a new method of production, new materials, new markets and the new form of
organization etc

6. per to sub-contract than produce all their requirements by themselves.
 Characteristics of SSI
o Ownership: SSI ’s generally are under single ownership. So it can either be a
sole proprietorship or sometimes a partnership.
o Management: Generally both the management and the control is with the
owner/owners. Hence the owner is actively involved in the day-to-day
activities of the business.
o Labor Intensive: SSI’s dependence on technology is pretty limited. Hence
they tend to use labour and manpower for their production activities.
o Flexibility: SSI’s are more adaptable to their changing business environment.
So in case of amendments or unexpected developments, they are flexible
enough to adapt and carry on, unlike large industries.
o Limited Reach: Small scale industries have a restricted zone of operations.
Hence, they can meet their local and regional demand.
o Resources utilisation: They use local and readily available resources which
helps the economy fully utilise natural resources with minimum wastage.
 Scope of Small Scale Industries:
Reasons behind growth in SME business
There are various reasons due to which the small scale business in India has witnessed a
spurt of growth. Some of these factors are:
• High contribution to domestic production
• Low investment requirements
• Significant export earnings
• Capacities to develop appropriate indigenous technology
• Operational flexibility
• Contribution towards defense production
• Technology – oriented industries
• Import substitution
• Location wise mobility
• Low intensive imports
• Competitiveness in the domestic market
 No-Objection Certificate from Pollution Control Board
Central Pollution Control Board (CPCB) that comes under The Ministry of Environment,
Forest and Climate in India works for checking the air, water, and noise pollution by
ensuring the quality is maintained. It also issues guidelines for the purpose. Additionally,
every state has its own Pollution Control Boards.

7. Any and every industry, operation or process which may result in the discharge of sewerage
into the environment and if is likely to emit any substance into the environment that may
cause any form of pollution mandatorily has to obtain a consent from the State Pollution
Consent Board. This consent is as per the Water (Pollution & Control of Pollution) Act,
1974 and Air (Pollution & Control of Pollution) Act, 1981.
In a similar manner, the industries or processes which generates, stores, dispose of,
transports, or handles any hazardous waste as per the Hazardous waste (Handing and
Management) Rulesmust obtain authorization from the State Pollution Control Board.
According to Biomedical Waste (M & H) Rules, any medical institutions generating
biomedical waste should also obtain appropriate Authorization.
Such consents are collectively known as No-Objection Certificate (NOC)
 What are the types of consents or NOC?
Mainly three types of consent are applied:
 Consent to Establish
 Consent to Operate
 Renewal of Consent to operate
 What are the Permissions/ Clearances required?
Every industry/ operation/ process should obtain several Environment and Pollution Related
clearances and permissions according to the nature of the unit and the products
manufactured.
1. A No Objection Certificate (NOC) must be obtained from the State Pollution Control Board
before the commencement of any activity. For some industries which fall in the categories
of highly polluting industries, an Environmental Impact Assessment (EIA) study is carried out
and submitted to the State Pollution Control Board for approval.
2. For the Industries that require a system of Water and Affecting Effluent Disposal, a No
Objection Certificate (NOC) from the State Pollution Control Board should be obtained.
3. For the industrial units that function outside the designated Industrial Area, appropriate
permissions have to be taken from the Municipal Corporation, Municipality or the
Panchayat. When required, a permission to convert agricultural land into the industrial area
has to be taken from the appropriate authority.
4. An appropriate registration and licensing of the Boiler by the Chief Inspector of Boiler is
required as a safety clearance before commencing the operations.

8. 4. Special clearances of the Development Commissioner of the Export Processing Zone (EPZ)
is required for registering as a 100% Export Oriented Unit (EOU) which enjoy several
additional concessions.
 What are the categories of Industries?
The Ministry of Environment, Forest and Climate Change, by a notification in 1989
introduced the concept of stricter guidelines for certain industries to protect ecology.
The concept of such categorization of industries as “Red”, “Orange”, “Green” and
“White” is now accepted and extends to the whole country has is a part of the Water and
Air Acts.
The categorization extends to not only the location of industries but also for the Consent
Management, granting NOC and formulation of guidelines. The concept of categorization of
industries continues to evolve.
 What is the procedure to obtain the Consent to establish and Consent to Operate?
 The procedure is completely online and there is no need to visit the offices of the authority.
 AN application form has to be filled up and uploaded on the official site.
 The required documents can be uploaded on the official site along with the prescribed fee.
 To bring some ease to the process and for the speedy disposal of applications, the powers
have been delegated to the various members and committees.
 The authorized officer assigns the application to a Field officer who reviews the application.
Along with visiting the industry. A Visit Report is prepared and submitted to the Sub
Regional Officer.
 Upon further scrutiny of the documents and other aspects, the application may be approved
or rejected.
What are the documents required for obtaining NOC from the Pollution Control Board?
The lists of documents that are required to be annexed and uploaded with the application
form vary as per each state and nature of the activity, process, and operation.
Some basic documents required are listed as follows-
 A location plan or site plan of the industry.
 A Proprietorship Certificate, Partnership Deed, Memorandum or Article of Association as
applicable to the industry, operation or process.
 Valid documents of the land like Jamabandi, Registration deed or Lease Deed indicating
specific details of the property.
 Brief Project Report with a flow chart indicating the Manufacturing Process.
 Compliance report of any previous Consent to Operate granted to the entity.

9.  Undertaking that the proposed site is located in the designated Industrial area as notified
and the plan of the establishment is permissible. It should also indicate the detailed revenue
entries.
 Other documents as per the State in which it situates, the location, activity etc
 Any industry specific documents or certificates.
 For a renewal application, a Request Letter must be submitted giving the reason for non-
completion of the project in the time as stipulated earlier along with the current status.
 Role Of SSI in Economic Development of India:
o Employment: SSI’s are a major source of employment for developing
countries like India. Because of the limited technology and resource
availability, they tend to use labour and manpower for their production
activities.
o Total Production: These enterprises account for almost 40% of the total
production of goods and services in India. They are one of the main reasons
for the growth and strengthening of the economy.
o Make in India: SSI’s are the best examples for the Make in India initiative.
They focus on the mission to manufacture in India and sell the products
worldwide. This also helps create more demands from all over the world.
o Export contribution: India’s export industry majorly relies on these small
industries for their growth and development. Nearly half of the goods that
are exported from India are manufactured or produced by these industries.
o Public Welfare: These industries have an opportunity to earn wealth and
create employment. SSI’s are also important for the social growth and
development of our country.
 Objectives of SSI
The objectives of the small scale industries are:
o To create more employment opportunities.
o To help develop the rural and less developed regions of the economy.
o To reduce regional imbalances.
o To ensure optimum utilisation of unexploited resources of the country.
o To improve the standard of living of people.
o To ensure equal distribution of income and wealth.
o To solve the unemployment problem.
o To attain self-reliance.
o To adopt the latest technology aimed at producing better quality products at
lower costs.
 Registration of SSI
SSI registration is a registration provided by the Ministry of MSME. A business should obtain
SSI registration in order to be eligible for a number of schemes, subsidies and other

10. incentives provided by the Government to such SSI’s. SSI registration can be obtained online
too. Let’s look at the process of SSI registration online:
Overview of SSI registration
SSI registration is provided by the Ministry of Micro, Small and Medium Enterprises through
the Directorate of Industries of the State Government. The main logic behind the SSI
registration is to set up new SSI businesses in India. SSI registration helps the business to be
eligible for a number of subsidies given by the Government. We can also get SSI registration
online.
Eligibility Criteria for SSI registration
SSI registration can be obtained for:
o Manufacturing enterprise; and
o Service enterprise
Manufacturing Enterprises (MSME)
Enterprises Investment in Plant and Machinery
Micro Enterprises Up to Rs. 25 lakh
Small Enterprises Up to Rs. 5 crore 25 lakh
Medium Enterprises Up to Rs. 10 crore
Services Enterprises (MSME)
Enterprises Investment in Plant and Machinery
Micro Enterprises Up to Rs. 10 lakh
Small Enterprises Up to Rs. 2 crore
Medium Enterprises Up to Rs. 5 crore
Benefits of obtaining SSI registration
o There are various tax rebates offered to SSI’s
o A credit for Minimum Alternate Tax (MAT) is allowed to be carried forward
for up to 15 years instead of 10 years
o There are many government tenders which are only open to the SSI.
o They get easy access to credit.
o Once registered the cost of acquiring a patent, or the cost of setting up the
industry reduces as many rebates and concessions are available.
o Business registered as SSI are given higher preference for government license
and certification.
 Business registered as SSI are given higher preference for government
license and certification / SSI Registration Procedure:

11. o To do the registration the SSI owner has to fill a single SSI online registration
form. It can be done in the offline mode as well.
o If a person wants to get registration for more than one industry then also
he/she can opt for an individual SSI registration done.
o To get registered he/she has to fill a single form which is available at the
website.
o The documents required for the SSI registration are Aadhar number, industry
name, address, bank account details and some common information.
o Here, the person can provide self-certified certificates.
o No registration fees is required for the registration.
o Once the SSI registration form is filled and uploaded, very soon you will
obtain the SSI registration number.
 Problems faced by SSIs:
The organisational pattern of SSIs places them at a distinct disadvantage vis-a-vis well-
organised real, i.e., the organised urban industries and large- sale industries. This
disadvantage, in turn, gives rise to a number of problems with which these industries have
to contend. As a preparatory note to these problems two observations need be made.
i. Most of the problems of these industries arise from their being small in size. They seem to
be caught in a vicious circle. Their small size prevents them from taking advantages which
can accrue only to large units; lack of these: advantages prevents them from moving up the
ladder.
ii. Most of the SSIs refuse to move up the ladder, primarily because that prevents them from
taking advantage of many benefits and incentives mat are extended by the State only to the
small units. With this preparatory note, we discuss the major problems being faced by these
industries in India.
(i) Problem of Finance:
The most important problem faced by these industries is that of finance. Partly, the financial
problem of SSIs is a part of the wider problem of capital scarcity in the economy as a whole,
and partly because of the peculiarity of small industry organisation.
It is common to find several firms involved in a related business and operating from the
same office. Usually, the same people manage different firms and the multiplication is
merely to get around the excise net. It is difficult to find willing lenders for unknown firms.
SSIs cannot resort to capital market, nor float CPs or tap GDR/Euro- route, they have poor
capital base and are also compelled to sell their products/services on credit basis to their
clients which in turn impairs their resource availability.

12. The creditworthiness of small borrowers is generally weak, and, therefore, they find
themselves face to face with reluctant creditors who may be induced to lend only at higher
rates of interest. A rough estimate would indicate that in the small-scale sector about 15 per
cent manage their affairs with their own funds and about 35 per cent with funds borrowed
from private sources such as friends. The remaining units depend on funds secured from
institutional credit agencies.
The institutional agencies smack of a number of evils. Not only are the funds allocated by
them inadequate, but also entrepreneurs are often required to furnish detailed information
about many aspects. More often than not, much of the initial enthusiasm and energy of
entrepreneurs is spent on proving eligibility and justifying the quantum of assistance sought.
(ii) Problem of Raw Materials:
Another major difficulty facing the SSIs is the procurement of raw materials. Scarcity of raw
material means a waste of productive capacity for the economy, and a loss for the unit.
The problem has assumed the shape of:
(i) An absolute scarcity,
(ii) A poor quality of materials, and
(iii) A high cost.
A scarcity of metal, chemical and extractive raw materials is a general problem faced by the
economy. Because of scarcity, competition has increased, and the small units competing
with the large-scale producers have suffered severely.
(iii) Problem of Power:
The problem of shortage of power has become so widespread that for the last few years it
has been among the most glaring and telling problems of the economy. But its impact is
decidedly fatal on small producers; large industries manage to escape somehow.
There are two aspects to the problem:
i. Power supply is not always, everywhere, available to the small industry on the mere
asking, and wherever it is available, it is rationed out, limited to a few hours in a day. It
means that if a small unit can manage to take advantage of the supply at fixed hours, well
and good, otherwise, it will have to let its capacity go un-utilised, thus adding to cost.

13. ii. Unlike large industries the SSIs cannot afford to go in for alternatives, like installing own
thermal units, because of heavy costs involved. A small unit has to manage as best as it can
within the available means.
(iv) Problem of Marketing:
Most of the SSIs, except a few urban-based units which act as ancillaries to the large
industry, are forced to restrict their sales to the local market, tailoring their supplies to the
local needs.
Not infrequently, a lack of demand and accumulating stocks leave with them no working
capital to procure more raw materials and other physical resources to keep the production
units moving. The inability to procure clientele from distant markets compels them to
restrict their scale of operation, and forgo economies of scale, which a unit of an optimum
size can derive.
Further on, in the post-WTO scenario SSIs would have to face increasing competition from
imports. The process of removal of quantitative and non-quantitative restrictions across
countries has led to agree movement of goods between countries including India. The SSIs
would have to gear themselves up for these realities.
Ancillary industries have their own problems, like:
(i) Delayed payments by parent units,
(ii) Inadequacy of technological support extended and/or supply of critical raw materials by
parent units,
(iii) Non-adherence to quality and delivery schedules, thus disturbing the programme of the
parent units,
(iv) Frequent changes in fiscal levies, and
(v) Absence of a well-defined pricing system and regulatory agency.
(v) Export Difficulties:
The systematic evolution of the small sector in India with its economies of operation
particularly in the case of labour-intensive or batch-process items has contributed in a large
measure to the gradual expansion and divergence of the country’s export pattern. But the
sector faces problems in exports which make it difficult for it to undertake exports in an
organised and appreciable manner.

14. Linkages like those provided by the Shogososha in Japan and the large trading houses in
Korea are lacking. So far very little organised effort seems to have been made by this sector
towards organising specific export-oriented industries.
(vi) Problem of Technical Know-How:
Except for a small segment of modern small-scale industry that makes use of state of art
technology, the sector is saddled with obsolete technology. With no access to latest
developments in the field of knowledge and skills, productivity in this sector continues to be
low.
The new policy regime, with a virtual ‘open door’ policy towards foreign investment and
technology in most areas of industry and infrastructure, is likely to intensify and accelerate
the process of technological polarisation between the large and small-scale sectors.
Further, there is a growing tendency for small units to go in for capital- intensive and labour-
saving techniques of production, defeating the very concept and the very justification of
small units. This can be attributed to the large measure to entrepreneurs’ fear of getting
involved in employment- related laws and of getting victimized.
These laws warn the entrepreneur of a jungle of formalities of Factories Act, E.S.I., P.F. and
so on, of penalties, damages, court proceedings, fines, convictions and even imprisonments
for violating any of the innumerable provisions. The entrepreneur becomes vulnerable to all
these if he employs enough people to get ‘covered’ under any of these Acts, and hence his
preference to switch over from labour to capital.
(vii) Exogenous Forces:
The exogenous forces acting on SSI performance are both direct and indirect. They come
from multiple sources and influence the policy environment within which the SSIs operate.
Such forces are exposing SSIs to a world of intense competition, risks and uncertainties,
technological progress, mandatory and voluntary standards.
Some of these exogenous forces are as under:
1. Advancement in generic technology of computers and telecommunications.
2. Rise in E-commerce
3. Globalisation and liberalisation policy including unilateral liberalisation
4. Multilateral trading rules under the WTO.

15. 5. Bilateral/regional agreements
6. Mergers and acquisitions
7. Labour and environmental standards
8. Liberalisation of services/infrastructure
9. ‘Sourcing out’ of activities to outside firms
10. Growth in world demand for variety of services, such as web- marketing, mark, research-
based advertising, customize’ products, micro retail marketing, etc.
(viii) Other Problems:
There are a few other problem also that merit immediate attention of the policy-makers.
(a) A significant problem facing the small industry is that when they grow from small-scale
size an just pass the value limit of in-plant and machinery, i.e., the sacrosanct ‘Lakshman
Rekha ‘the ‘Sita’ of spate of concessions and protection available to them is withdrawn.
They have to face open competition in every sphere of activity. A major problem that the
small units face all over the country is on account of delayed payments by their large-sized
customers.
Government undertakings and departments are just as guilty in this respect as the industrial
houses in the private sector. The general pattern on which the small units function is that
they purchase their raw materials against cash and effect their supplies to large houses on
credit Any delay in payments is only a test of patience for survival for them.
This problem remains as it is despite enactment of the Interest on Delayed Payment to
Small-scale and Ancillary Industrial Undertakings Act, 1999 which makes payment of interest
obligatory of delayed payments.
(b) Although SSIs have been taken off from location, restrictions under the IDR Act, there
are various kinds of locational bars under various land development regulations and local
body laws such as Municipal Acts, Urban Land Development Act, Gram Panchayat Act, etc.
In addition, site clearance and approval are also required under the Factories Act and
Pollution Control Acts. A related problem being faced, in more receive times, is the lack of
accommodation.

16. (c) The entrepreneurs are being forced to set up their unit in rented accommodation.
However, such units a very often not in authorised industrial areas. Even these happen to be
in industrial areas, the entrepreneurs are denied registration since they will not that original
allottees of the plots. Denial of registration means that they cannot avail of any of the
benefits applicable to small-scale units, this problem arises in part due to the fact that
contrary to expectations SSIs have tended to concentrate at a few places only.
(d) Another major problem being faced by SSI is that of deteriorating industrial relations. In
the organised sector of industry, labour is well organised; there exist established channels of
negotiation between the employer and the employees.
Any disturbance in a large unit also attracts the attention of the government. But it is not so
in a small unit. The direct communication between the employer and the employees is the
only source of negotiation; if their relations are strained, tempers boil up spoiling the peace
of the unit.
This adversely affects the production and utilisation of installed capacity. There is the
problem of high rate of mortality among units. 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 existence. Sickness among
small units is a widespread malady.
(e) The States worst affected are West Bengal, Tamil Nadu, Uttar Pradesh, Andhra Pradesh,
Maharashtra and Madhya Pradesh in that order. The problem of sickness in SSI, as recently
noted by the Small-Scale Industries Board- the highest government body dealing with policy
formulation relating to SSI-is two-fold: One, the inability to detect sickness at the incipient
stage; and two, incidence of large number of non-viable sick units with both the
entrepreneur and the bank saddled with idle non-performing assets.
Talking about sickness in the small sector, we get confronted with a few other problems:
(a) Faulty planning and inadequate appraisal of projects. Majority of the SSI units are started
without feasibility studies or detailed project reports.
(b) Problem of recoveries. It is an established practice for buyers to expect credit from
sellers. This practice is forced upon the small industrialists by the large ones. A situation has
developed in which buyers do not pay for fairly long and get away with it.
(c) Small sector does not have the advantage of latest technology which alone can ensure
quality and a high rate of productivity.

17. (d) There is a lack of interest on the part of financial and banking institutions in the revival of
sick units.
(e) Small industries lack resources for modernisation which is essential in many cases for
rehabilitating them.
(f) In view of the difficulty in achieving rationalisation of operations, small industries find it
difficult to improve quality standards and productivity.
 Machinery & Equipment Selection in SSI:
1. Hire Purchase of Machinery:
Small-scale industries can obtain machinery and equipment on “Hire-Purchase” basis
through the National Small Industries Corporation. For obtaining machinery, application on
prescribed form should be submitted to the District Industries Officer/Assistant Director, to
supply machinery to the S.S.I. Units offering a long repayment period with moderate rate of
interest.
When imported machines are required, the N.S.I.C arranges the foreign exchange and
import licence obviating the need for the small industrialists to go through this time
consuming process. Another advantage is that the industrialist is not required to block his
funds in these assets; he can use the bulk of his resources towards working capital.
Interest is charged by the corporation at the following rate:
(i) From units in declared backward areas – 11% per annum
(ii) From technocrats – 11% per annum
(iii) From others – 13% per annum
A rebate of 2% is allowed in case the installment is paid before the due date of its payment.
(a) Administrative charges (payable by inclusion in installment)
(i) Imported machines – 4% of the value calculated on the basis of landed cost.
(ii) Indigenous machines – 2% of work price.
(b) Clearing charges (Payable by inclusion in installments)
(i) Towards marine insurance: 1½ of the C and F value of goods.

18. (ii) Towards clearing charges: 1½%.
(c) Insurance. 0.5% of the value of machines is charged and recovered along with
installments.
The hire-purchase value is recovered in 13 half yearly installments.
2. Directly Purchase own Machinery & equipment
 Micro, Small, Medium Enterprises( MSMEs)
Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 which was notified
on October 2, 2006, deals with the definition of MSMEs. The MSMED Act, 2006 defines the
Micro, Small and Medium Enterprises based on
1. the investment in plant and machinery for those engaged in manufacturing or
production, processing or preservation of goods and
2. the investment in equipment for enterprises engaged in providing or rendering
of services.
 Features / Significance/ Importance/ Role of MSMEs for Indian
Economic Development
 Employment: It is the second largest employment generating sector after agriculture. It
provides employment to around 120 million persons in India.
 Contribution to GDP: With around 36.1 million units throughout the geographical
expanse of the country, MSMEs contribute around 6.11% of the manufacturing GDP and
24.63% of the GDP from service activities.
o MSME ministry has set a target to up its contribution to GDP to 50% by 2025 as India
becomes a $5 trillion economy.

19.  Exports: It contributes around 45% of the overall exports from India.
 Inclusive growth: MSMEs promote inclusive growth by providing employment
opportunities in rural areas especially to people belonging to weaker sections of the
society.
o For example: Khadi and Village industries require low per capita investment and
employs a large number of women in rural areas.
 Financial inclusion: Small industries and retail businesses in tier-II and tier-III cities create
opportunities for people to use banking services and products.
 Promote innovation: It provides opportunity for budding entrepreneurs to build creative
products boosting business competition and fuels growth.
Thus, Indian MSME sector is the backbone of the national economic structure and acts as a
bulwark for Indian economy, providing resilience to ward off global economic shocks and
adversities.
 Government schemes to promote MSMEs / MSMEs Schemes
 Udyami Mitra Portal : launched by SIDBI to improve accessibility of credit and
handholding services to MSMEs.
 MSME Sambandh : To monitor the implementation of the public procurement from
MSMEs by Central Public Sector Enterprises.
 MSME Samadhaan -MSME Delayed Payment Portal –– will empower Micro and Small
entrepreneurs across the country to directly register their cases relating to delayed
payments by Central Ministries/Departments/CPSEs/State Governments.
 Digital MSME Scheme : It involves usage of Cloud Computing where MSMEs use the
internet to access common as well as tailor-made IT infrastructure
 Prime Minister Employment Generation Programme : It is a credit linked subsidy
program under Ministry of MSME.
 Revamped Scheme of Fund for Regeneration Of Traditional Industries (SFURTI) :
organizes traditional industries and artisans into clusters and make them competitive by
enhancing their marketability & equipping them with improved skills.
 A Scheme for Promoting Innovation, Rural Industry & Entrepreneurship (ASPIRE) :
creates new jobs & reduce unemployment, promotes entrepreneurship culture, facilitates
innovative business solution etc.
 National Manufacturing Competitiveness Programme (NMCP) : to develop global
competitiveness among Indian MSMEs by improving their processes, designs, technology
and market access.
 Micro & Small Enterprises Cluster Development Programme (MSE-CDP) - adopts cluster
development approach for enhancing the productivity and competitiveness as well as
capacity building of MSEs.

20.  Credit Linked Capital Subsidy Scheme (CLCSS) is operational for upgradation of
technology for MSMEs.
 Major Problems/ Challenges of Micro and Small Enterprises
Some of the major problems faced by micro and small enterprises are as follows:
1. Problem of Raw Material:
A major problem that the micro and small enterprises have to contend with is the
procurement of raw material. The problem of raw material has assumed the shape of:
(i) An absolute scarcity,
(ii) A poor quality of raw materials, and
(iii) A high cost.
The majority of micro and small enterprises mostly produced items dependent on local raw
material. Then, there was no severe problem in obtaining the required raw materials. But,
ever since the emergence of modem small-scale industries manufacturing a lot of
sophisticated items, the problem of raw material has emerged as a serious problem on their
production efforts.
The small units that use imported raw material face raw material problem with more
severity mainly due to difficulty in obtaining this raw material either on account of the
foreign exchange crisis or some of other reasons
Even the micro and small enterprises that depend on local resources for raw material
requirements face the problem of other type. An example of this type is handloom industry
that depends for its requirement of cotton on local traders.
These traders often supply their cotton to the weavers on the conditions that they would
sell their ready clothes to these traders only. Then, what happens that the traders sell
cotton to them at fairly high prices. This becomes a clearest example of how the poor
weavers are subjected to double exploitation at the hands of traders.

21. Keeping in view the raw material problem of micro and small enterprises, the Government
makes provisions for making raw material available to these units. Nonetheless, micro and
small enterprises with no special staff to liaise with the official agencies, these units are left
with inadequate supplies of raw material. As a result, they have to resort to open market
purchases at very high prices. This, in turn, increases their cost of production, and, thus,
puts them in an adverse position vis-a-vis their larger rivals.
2. Problem of Finance:
An important problem faced by micro and small enterprises in the country is that of finance.
The problem of finance in micro and small sector is mainly due to two reasons. Firstly, it is
partly due to scarcity of capital in the country as a whole.
Secondly, it is partly due to weak credit worthiness of micro and small enterprises in the
country. Due to their weak economic base, they find it difficult to take financial assistance
from the commercial banks and financial institutions.
As such, they are bound to obtain credit from the money lenders on a very high rate of
interest and are, thus, exploitative in character. It is a happy augury that ever since the
nationalisation of banks in 1969, the credit situation has improved still further.
The positive change in attitude of banks would be clear from the fact that whereas the
amount of credit outstanding (of public sector banks) to small-scale industries stood at only
Rs. 251 crores in June 1969, it rose to a staggering figure of Rs. 15,105 crores in March 1990.
From the above figures, it appears that the availability of institutional credit to micro and
small enterprises is certainly increasing. Nevertheless, the fact remains that the criterion of
‘credit worthiness’ still weights heavily with the nationalised commercial banks. This would
be clear from this fact that of the units assisted by commercial banks up to June 1976, about
69 per cent of the total credit was availed of by 11 per cent of the (bigger) units in the small-
scale industries sector, which accounted for 55 per cent of the total production. This

22. underlines the need to change the outlook of the banks towards MSEs. For this, it is
necessary to further liberalise the rules and practices of banking in the country.
3. Problem of Marketing:
One of the main problems faced by the micro and small enterprises is in the field of
marketing. These units often do not possess any marketing organisation. In consequence,
their products compare unfavourably with the quality of the products of the large-scale
industries. Therefore, they suffer from competitive disadvantages vis-a-vis large-scale units.
In order to protect micro and small enterprises from this competitive disadvantage, the
Government of India has reserved certain items for the small- scale sector. The list of
reserved items has continuously expanded over the period and at present stands at 824
items.
Besides, the Trade Fair Authority of India and the State Trading Corporation (STC) help the
small-scale industries in organising their sales. The National Small Industries Corporation
(NSIC) set up in 1955 is also helping the small units in obtaining the government orders and
locating export markets.
Ancillary units face the problems of their own types like delayed payment by parent units,
inadequacy of technological support extended by parent units, non- adherence to quality
and delivery schedules, thus, disturbing the programmes of the parent units and absence of
a well-defined pricing system and regulatory laws.
4. Problem of Under-Utilization of Capacity:
There are studies that clearly bring out the gross under-utilization of installed capacities in
micro and small enterprises. According to Arun Ghosh, on the basis of All India Census of
Small-Scale Industries, 1972, the percentage utilization of capacity was only 47 in
mechanical engineering industries, 50 in electrical equipment, 58 in automobile ancillary
industries, 55 in leather products and only 29 in plastic products. On an average, we can
safely say that 50 to 40 per cent of capacity were not utilized in micro and small enterprises.

23. The very integral to the problems of under-utilization of capacity is power problem faced by
micro and small enterprises. In short, there are two aspects to the problem: One, power
supply is not always available to the small units on the mere asking, and whenever it is
available, it rationed out, limited to a few hours in a day.
Second, unlike large-scale industries, the micro and small enterprises cannot afford to go in
for alternatives; like installing own thermal units, because these involve heavy costs. Since
micro and small units are weak in economic front, they have to manage as best as it can
within their available meager means.
5. Other Problems:
In addition to the problems enumerated above, the micro and small enterprises have been
constrained by a number of other problems also. According to the Seventh Five Year Plan
(GOI 1985: 98), these include technological obsolescence, inadequate and irregular supply
of raw materials, lack of organised market channels, imperfect knowledge of market
conditions, unorganised nature of operations, inadequate availability of credit facility,
constraint of infrastructure facilities including power, and deficient managerial and technical
skills.
There has been lack of effective co-ordination among the various support organisations set
up over the period for the promotion and development of these industries. Quality
consciousness has not been generated to the desired level despite various measures taken
in this regard.
Some of the fiscal policies pursued have resulted in unintended splitting up of these
capacities into uneconomic operations and have inhibited their smooth transfer to the
medium sector. All these constraints have resulted in a skewed cost structure placing this
sector at a disadvantage vis-a-vis the large industries, both in the domestic and export
markets.