UNIT 6

Small Scale Industry

Presentation
by
Dr .V . S.Krushnasamy M.Tech ., Ph.D (Engg..)
Associate Professor
Department of EIE
DSCE

Small Scale Industry

Introduction
India is a large country characterized by abundant
manpower, poor finances, problem of unemployment &
under Employment ,over dependence of agriculture,
transportation difficulty, lack of modern technological
knowhow etc., to name a few.
SSI have occupied an important place in the process of
industrialization in the country.
SSI basically use of local raw materials, local skills,
local finance, and generally local markets, all which
helps the cause of socio-economic development in all
corners of the country.
At present the Small Scale Industry (SSI) constitutes a
very important segment of the Indian economy & has
emerged as a dynamic & vibrant Sector of the
economy.

Small Scale Industry

Growing modern large industries providing scope for
development of ancillary industries & so on. The Small Scale
Industry has grown phenomenally during the last six
decades & has acquired a very prominent place in the Socio
Economic Development in the Country.
This Sector accounts for about 40% of the Countrys
Total Exports.
The process of liberalization & economic reforms,
since 1991, while creating tremendous opportunities for
the growth of Small Scale Industrial Sector, have however
thrown up new challenges for the sector.
This changed Industrial Scenario, has called for building
competitive strengths, improving quality & productivity,
Introducing technology up gradation, reducing wastages &
rejections, intelligent use of resources, employing modern
management techniques etc in order to withstand growing
competition & for ensuring sustained growth.

Concepts & Definitions of

Small Scale Industry
An industrial undertaking in which the investment
in fixed assets, plant and machinery does not cross
Rs 10 million treated as a SSI unit. This is
irrespective of whether the assets are held on
ownership terms, on lease or on hire purchase.
It is also subject to the condition that the unit is not
owned, controlled or a subsidiary of any other
industrial undertaking .
Units manufacturing ice creams,bread,biscuits,oil
extracts, rice mills, garments , auto repair and
services , health services, legal services and so on.

Classification & Definition of

Industries
Manufacturing Enterprises :
Enterprises
which are engaged in the Manufacture /
Production of Goods pertaining to any Industry
are
referred
to
as
Manufacturing
Enterprises.
Service Enterprises : Enterprises which are
engaged in providing / rendering of Services are
referred to as Service Enterprises.

Classification & Definition of

Industries
Manufacturing Enterprises :
They have been defined in terms of Investment on
Plant & Machinery (Excluding Land & Buildings) &
further classified into 3 Categories as under :
Micro Enterprises : An Enterprise where the
Investment on Plant & Machinery is up to Rs. 25 Lakh
is referred to as a Micro Enterprise.
Small Enterprises :
An Enterprise where the
Investment on Plant & Machinery is above Rs. 25 Lakh
upto Rs. 5 Crore is referred to as Small Enterprise.
Medium Enterprises :
An Enterprise where the
Investment on Plant & Machinery is above Rs. 5 Crore
& upto Rs. 10 Crore is referred to as Medium
Enterprise.

Classification & Definition of

Industries
Service Enterprises :
They have been defined in terms of their
Investment in Equipment (excluding Land & Building) &
further classified into 3 Categories as under :
Micro Enterprises :
An Enterprise where the
Investment in Equipment is up to Rs. 10 Lakh is referred
to as Micro Enterprise.
Small Enterprises :
An Enterprise, where the
Investment in equipment is above Rs. 10 Lakh & upto
Rs. 2 Crore is referred to as Small Enterprise.
Medium Enterprises :
An Enterprise, where the
Investment in Equipment is above Rs. 2 Crore & upto Rs.
5 Crore is referred to as Medium Enterprise.

Classification of SSI
SSI are broadly classified as
Traditional Industries
Khadi and Village Industry
Handloom
Handicrafts
Coir
Sericulture
Modern Industries
Small Scale Industrial Undertaking
EOU (Export Oriented Undertaking) SSI units
Ancillary Industrial Unit
Tiny Industrial Unit
Small Scale business and business enterprises.

Some More Definitions

EOU (Export Oriented Undertaking) SSI units
It has the same definition of a SSI unit but with an
obligation to export at least 30% of its production.
Ancillary Industrial Unit
An industrial undertaking which is engaged or is
proposed to be engaged in the manufacture or
production of parts, components, sub assemblies,
tooling or intermediaries, or the rendering of services .
It supplies at least 50 % of its production or services, to
other industries.
Tiny Industrial Unit
If the investment in plant and machinery is limited to Rs
25 lakh,irrespective of the location of the unit, it then
becomes a tiny industrial unit.
Ex-Laundry, hatching and poultry ,Xeroxing ,Garage etc

Classification of SSI
As can be seen from the above definitions of Micro,
Small & Medium Enterprises, the only criteria for
classification is Investment made on Plant &
Machineries
in
case
of
Manufacturing
Enterprises & Investment made on Equipment
in case of
Service Enterprises. None of the
following factors are considered in classifying the
enterprises.
1) Investment made on Land & Buildings.
2) Extent of Land & Built up area of the buildings.
3) Number of people employed.
4) Amount of Electric Power used & whether LT
(Low Tension) or HT(High Tension) power is used.
5) Amount of utilities like Water, Gases, Fuels etc
used.

Characteristics of SSI
SSI have special features which distinguish them
from large scale industries.
The different characteristics of SSI are
It is one man show at most SSIs.
Capital investment is low
Most SSIs employ less than 10 workers.
They can also be found rural and semi urban areas.
They are generally involved in the production of
light
consumer
goods
,specific
industrial
components, simple to process food item s, etc
Proprietorship and partnership are the dominant
forms of ownership in SSI
SSS units generally use local resources although the
market for its products can be far and wide.
SSIs are generally labor intensive.

Characteristics of SSI
Organization structure of an SSI would be very simple.
SSI have a tendency of folding up very soon.
They do not normally obey standards with respect to
human and environmental safety.
Human resources, especially women and children are
exploited.
The market share of SSI is usually very small. Scaling
up becomes a problem.
SSIs do virtually no R & D and hence depend on
known technology.
Division and Specialization of labor is low.

Need and Rationale of SSI

The need and the rationale for promoting
small
scale
industries
in
India
was
emphasized by industrial policy resolution in
1956 which stated,
SSIs
provide
immediate
large
scale
employment and effects a more equitable
distribution of national wealth. They also
mobilize resources of capital and skill which
might
otherwise
remain
unutilized.
Establishment of SSIs all over the country
and also reduces unnecessary and unplanned
urbanization and migration to cities.

Need and Rationale of SSI

Need of Employment
In a country of billion people, it is necessary to
provide large scale employment opportunities so as
to lift people above poverty line. Given India's
scarce
capital
resources
and
abundant
labour,encouraging SSI was one of the best
strategies.
Need for Equality
Large scale industries may tend to concentrate
income into a few hands where as small scale
industries ensure a more equitable distribution of
national income and wealth.

Need and Rationale of SSI

Need for Decentralization
SSIs can be opened in any corner of the country thus
promoting balanced regional development.
Decentralization of industries actually help in tapping
local resources like raw materials, local labor and talent
etc.,which in turn helps local economy.
Need for more Entrepreneurs
SSIs
basically
help
in
identifying
small
time
entrepreneurs who would not have to come up otherwise.
SSIs provide more opportunities for unearthing latent
entrepreneurial talents.
Need for Innovation
Innovation arises when getting the
jobs done with
limited available resources.

Advantages of Small Enterprises

They are the back bone of the industrial activity in the
country & are playing a very important role in
improving the Socio Economic Conditions of the
people. Advantages of these enterprises are as follows :
They create greater employment opportunities thro
labor intensive processes & thereby help in tackling the
Unemployment Problem.
They have Low Gestation Period (conceptual stage to
production stage) & thereby expensive financial
resources are not idled unproductively for long periods.
They can be set up easily in rural & backward areas(located
any where).
They need small / local / regional market.
They encourage growth of local entrepreneurship.
They create decentralized pattern of ownership.
They foster diversification of economic activities.

Advantages of Small
They innovateEnterprises
& introduce new products particularly to
supply to local needs.
Most units do not require high-end technology.
They influence & improve standard of living of local
people.
They provide equitable dispersal of enterprises
throughout rural & backward areas.
They earn vital foreign exchange for the country
through their exports of goods / services.
They increase revenue to central & state governments
by way of taxes paid by them.
They make use of the large semi skilled and unskilled
labor which is available in our country.
They inspire many more entrepreneurs to start their own
ventures which improves quality and competition.

Objectives of an SSI
To generate large scale employment opportunities for the
unemployed speedily with relatively low investment.
To eradicate unemployment & under employment problem from the
Country.
To encourage dispersal of enterprises to all over the country covering
rural areas , smaller towns & economically backward regions.
To bring backward regions too in the mainstream of national
development. To promote balanced regional development in the
whole country.
To ensure more equitable distribution of national wealth & income.
To encourage effective mobilization of untapped resources of the
country.
To improve Socio Economic conditions & standard of living of the
people in the Country.
To seize the vast opportunities created for small enterprises due to
liberalization & globalization policies of the Government of India.
To help earn vital foreign exchange for the country thro exports of goods /
services of small enterprises.
To bring more revenue to the central & state governments by way of taxes.

Scope of Small Scale

Industry
Scope of SSI generally means the range of activities and
the type of products that comes under the SSI sectors.
Some of the important activities that SSIs are normally
involved in are
Manufacturing activities
Construction activities
Public utilities
Service / Repairing activities
Financial activities
Retailing activities
Wholesale business

Scope of Small Scale

Industry

In India the SSS is protected by the

government, by the way of reservation.
This means that the Indian government has
made a list of 114 items which are reserved
for exclusive production in small sector.
No large scale industry may produce any of
these items reserved in favor of SSIs.
The main objective of this reservation policy
is to insulate the small sector from unequal
competition
with
large
industrial
establishments. Although this policy has some
negative effects ,by and large it has helped
SSI

Some of the items in the Reserved List

Leather products
Rubber products
Natural essentials oils
Boat making
Tricycles and perambulators
Stationery item
Sports goods
Ceramics
Electroplating
Food processing
Lock making
Scientific instruments
Auto ancillary
Electrical goods
Printing presses

Role of SSI in Economic

Development(Main 6 Points)
Providing Employment
Since SSIs are more labor intensive and less sophisticated
technology, they provide employment on a large scale.
Since India has a large number of semi-skilled and unskilled labor, this helps in the cause of development . In
facts' accounts for 75% of total employment in the
industrial sector and about 20 million people are currently
employed in SSI in India.
Mobilization of Local Resources
SSI uses local resources with respect to raw material,
labor, talent, savings etc., thus improving local economy.
SSI also helps in promotion of traditional family skills and
handicrafts and therefore facilitates the identification and
growth of local entrepreneurs.

Role of SSI in Economic

Development(Main 6 Points)
Feeding Large Scale Industries
SSI industries complement the large scale industries by
providing
them
parts,
components,
subassemblies,
accessories, services etc.
Promotion of Exports
SSI helps to improve India's balance of payments in two ways
They do not require importing of sophisticated equipment thus
saving foreign exchange.
They export their goods and earn foreign exchange.
In recent years, there has been a substantial increase in exports
from Indian SSIs which accounts for around 25% of total India's
exports.
Inspiring New Entrepreneurs
Existing and successful SSI inspire many more entrepreneurs to
start their own which improves quality and competition which in
turn helps the cause of Indian economy.

Role of SSI in Economic

Development(Main 6 Points)
Equitable Distribution of Wealth
SSI help an equitable distribution of Indian's income and
wealth by creating more small businesses than large
businesses.
Promoting Regional Development
Since SSIs can be set up in rural and semi-urban areas of the
country, they help promoting a balance regional development.
This also reduces congestion in cities, migration of villagers to
cities, pollution in cities etc,.
Capital Optimization
SSI require less capital per unit of output produced.
They also provide quick return investments due to shorter
gestation period(time taken to start an industry and produce
goods).
Both these factors help capital optimization and profitability.

Disadvantage/Drawback of SSI
Raw Material:The problem with respect to raw material
could in the shape of
1.Absolute scarcity
2.Poor quality
3.High costs
Finance
The problem of finance in small sector is mainly due to two
reasons
1.It could be partly due to scarcity of capital in the country
as a whole.
2.It is due to weak creditworthiness of small units in the
country.
Marketing
SSI unit may lack professional marketing executives as
employed by large executives. Hence marketing can be a
weakness.

Disadvantage/Drawback of
SSI
Capacity under-utilization
Studies have shown that capacity in SSI is not fully utilized
leading to lower optimization and profitability.
Outdated Technology
Continued usage of old technology and no upgradation
brings down their efficiency.
Over protection
Most SSI units do not have desire to grow to medium and
large scale because of the benefits of protection and
reservation given to them.
Inefficient entrepreneurs
Entrepreneurs who are young, and lack industrial
experience, and also whose financial background is weak
and those who are stressed out, are all likely fail faster.

Disadvantage/Drawback of
SSI
Zero R&D
SSS hardly invest in R&D which prevents them from
introducing any innovation into the market.
Lack of Successors
When many entrepreneurs who run SSI units become
old
1.They may transfer the responsibility to their children
who might be inefficient.
or
2.They may have children who are unwilling to continue
family business.
Due to both these reasons the unit may die a slow death.

Steps to Start the SSI

Before any steps are taken to start a SSI, the
entrepreneur familiarize himself on following aspects.
Priorities and policies of government.
Assistance ,subsidies and facilities offered by various
states.
Various organizations like KIADB,SIDBI etc.,which help
budding entrepreneurs.
Government incentives available for starting a new
industry.
Licensing and registration requirements
Policies
and
regulations
concerning
imports,exports,laws(legal and industrial),taxes etc.,

Choose a line
Decide form of ownership-sole proprietary,partnership,coopertive or company.
Decide whether to purchase a going concern or start a new one.
Obtain project report from SISI/elsewhere/prepare yourself.
Decide on location & Site
Arrange the work shed with facilities(preferably on rent)
Obtain clearance for state/local authorities & SSI registration number
Plan finance
Plan sources of machinery
Place order for machinery(preferably on hire purchase)
Apply for material
Plan buying
Install machinery
Procure material
Recruit personnel
Trail run
Decide on pricing policy
Organize marketing
Produce& Sell
Plough back profits
Diversification
Modernization
Compete with others
Grow bigger
Ancillary development

Project Product
Identification
identification is the process of identifying

Project
broad
areas where opportunities for new business ventures exist.
Product identification is the selection actual product to be
made and is the first major step in the setting up of a
business enterprise.
A new product idea can be pulled from a study of what
people need and what people love. This can be known as
Market-Pull.
A new product idea can be pushed into the market with
help of R&D. This is known as Technology Push.
Example: Plastic was invented and pushed in to the market
.
Whatever is the product, one has to become aware of
following aspects with respect to the product market
potential, existing competition, availability of raw
material ,technology, man power, future demand etc.,

Selecting the form of

Ownership
This is an important decision taken by the
entrepreneur.
Some commonly chosen forms of ownership for SSI
would be
1.Sole proprietorship
2.Family ownership
3.Partnership
4.Private Limited Company
Each type of ownership has both short-term and
long-term advantages and disadvantages.

Location of Unit
Factors which are normally considered while
deciding the location of the unit are
Proximity to the source of raw materials
Nearness to the market
Availability of all kinds of manpower
Infrastructure available with respect to factory
sheds ,industrial estates ,transportation facility ,
availability of power ,
water ,waste disposal
,essential services etc.,
General business climate of the region
Climate and environmental factors.

Registration of Project
Report
Registration of SSI is done in two stages
Provisional registration
Permanent registration
Provisional registration is a temporary registration which is
needed at planning stage in order to bring the unit in to
existence. It is issued by district unit directorate of
industries.
Provisional registration is given for one year initially and
then extended by six months(for valid reasons ) for a
maximum of four times.
The permanent registration is then applied for when
entrepreneur is ready to commence commercial
production.

Impact of Liberalization, Privatization &

Globalization of Small Enterprises
Due to globalization the SSI are now more exposed to
intense competition both from large sector domestic
and foreign-as well as from MNCs.
In a liberalized environment ,the SSIs do not have to face
the following problems which were prevalent earlier
Delay in project implement
Inadequate availability of finance and credit
Marketing problems
Delay in payment
Lack technological up graduation
Lack of infrastructure facilities
Deficient managerial and technical skills.

Impact of Liberalization, Privatization

& Globalization of Small Enterprises
Globalization resulted in the opening up of markets,
leading to intense competition.
WTO regulates multilateral trade requiring its member
countries to remove import quotas, restrictions and
reduce import tariffs.
There is now no restriction on FDI ( Foreign Direct
Investment) which has lead to the entry of MNCs
especially in areas such as automobiles and electronics.
Competition in the domestic market has intensified with
arrival of cheap and low / high quality products from
developed countries.
Globalization on the other hand, also made the world truly
flat. Indian SSI units can now market their products
allover the world and if their products and services good,
they strike it rich.

Impact of Liberalization, Privatization

& Globalization of Small Enterprises
SSI units have shifted their strategy somewhat
post globalization. Earlier they were producing a
wide variety of products of lower quality for
Indian markets.
Now they concentrate and produce a lesser
variety products but of higher quality in order to
be accepted globally. This has paid rich dividends.

Effect of WTO/GATT on
Indian SSI
WTO stands for World Trade Organization
GATT stands for General Agreement for Trade &Tariffs.
The effect of GATT/WTO on Indian SSI have been more bad
than good
They can be summarized as follows
Many import quotas have been removed. This allows
importing any quantity of foreign raw materials and goods
for local processing and consumption.
Import tariffs were reduced which again allowed a higher
quantity of foreign products in to Indian markets.
Removal quantitative restrictions on imports in 2001 and
all export subsidies in 2003 made every industrial unit
small or large,export oriented or domestic oriented, face
intense competition.

Effect of WTO/GATT on Indian SSI

Out of 812 reserved item that were listed In favor of
SSI,586 items were removed and placed on the OGL(Open
General License) list of imports.
This again reduced protection to small sector. The number
of reserved items now stands at 114.
Patent laws were tightened through regulation of IPR.This
discouraged Indian companies for imitating or downright
copying of foreign products.
WTO has given many Indian SSI units, a platform to
market their products anywhere in the world, especially
with the help of internet.
Enlighten entrepreneurs who had feel of the worldwide
market benefitted for WTO.
Service sector in India has been especially benefitted by
WTO and already captured 25% of Indian total exports.
WTO has also introduced antidumping, strict labor
standards,enviornment safety and other safeguard
measures which benefits mankind as whole.