Growth and Sickness of Small-Scale Industries in India: World Research Journal of Economics

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World Research Journal of Economics

ISSN: 2277-6028, Volume 2, Issue 1, 2013, pp.-22-24.


Available online at http://www.bioinfopublication.org/jouarchive.php?opt=&jouid=BPJ0000057

GROWTH AND SICKNESS OF SMALL-SCALE INDUSTRIES IN INDIA

CHOPADE B.B.*
Department of Commerce, Art, Commerce and Science College, Sonai- 414 105, MS, India.
*Corresponding Author: Email- chopadebhanudas@yahoo.com

Received: November 07, 2013; Accepted: December 02, 2013

Abstract- In India S.S.I. sector is used as an efficient tool of progress. The recent data available indicate that the S.S.I. sector if India that
accounts for 95% of the country’s industrial units with 40% value addition in the manufacturing sector, shares 36% of the country’s total export,
contributes 9.50% GDP., employs nearly 9 lakhs per annum, registering a sectored growth rate of 9.20% as against 7.5% of the country’s over-
all industrial growth rate during 2011-12. During the 11th plan 5.7 million new jobs were created by the sector, while 7.6 million additional jobs
are expected to be creating by the 12th plan.
Keywords- manufacturing, creating, shares

Citation: Chopade B.B. (2013) Growth and Sickness of Small-Scale Industries in India. World Research Journal of Economics, ISSN: 2277-
6028, Volume 2, Issue 1, pp.-22-24.

Copyright: Copyright©2013 Chopade B.B. This is an open-access article distributed under the terms of the Creative Commons Attribution Li-
cense, which permits unrestricted use, distribution and reproduction in any medium, provided the original author and source are credited.

Introduction facturing enterprise) and on equipment for enterprises providing or


The small scale industrial sector plays a pivotal role in the Indian rendering services.
economy in terms of employments and growth. A small scale indus- The defined limit on investment for enterprises to be classified as
try is defined as “a unit having investment up to 5 crores in plant Micro, Small and Medium enterprises is as shown in [Table-1].
and machinery”, small scale industries may be classified into three
Table 1- Category-wise Definition of SSIs in India
categories:
Classification Manufacturing Enterprises Service Enterprises
 Cottage industries;
Micro ` 2.5 million / ` 25 lakh ` 1 million / ` 10 lakh
 Agro-based industries; Small ` 50 million / ` 5 crore ` 20 million / ` 2 crore
 Small-industries. Medium ` 100 million / ` 10 crore ` 50 million / ` 5 crore
Source: Annual Reports, Commissioner, SSI Development Board (2007-2012)
In developed nations also the employment potential of small scale * outlay bound in Plant & Machinery
industries (SSI sector has gained universal recognition). The bulk
66% of new jobs created in the United States during the last two Organizational Help for Small Scale Industries
decades were in the small-scale in Great Britain creates more than Steady help to SSI sector by the Government in terms of infrastruc-
2.5 lakh jobs every year. In Germany, Spain and the Netherland the ture development, fiscal and monetary policies have helped this
S.S.Es sector s equally important. sector to emerge as dynamic and vibrant sector of Indian economy.
In India S.S.I. sector is used as an efficient tool of progress. The  Small Industries Development Organisation (SIDO)
recent data available indicate that the S.S.I. sector if India that ac-
 National Small Industries Corporation (NSIC)
counts for 95% of the country’s industrial units with 40% value addi-
tion in the manufacturing sector, shares 36% of the country’s total  SSI Board
export, contributes 9.50% GDP., employs nearly 9 lakhs per an-  National Research Development Corporation (NRDC)
num, registering a sectored growth rate of 9.20% as against 7.5er  Small Industrial Bank of India (SIDBI)
cent of the country’s overall industrial growth rate during 2011-12.
The contribution of small scale industries to the field of employ-
During the 11th plan 5.7 million new jobs were created by the sec-
ments and productions is highly notable. [Table-2] presents the
tor, while 7.6 million additional jobs are expected to be creating by
overall performance and augmentation of the S.S.I. segment in
the 12th plan.
India.
Concept of Micro, Small and Medium Enterprises in India [Table-2] reveals that the value of output produced by the SSI has
Micro, small and medium enterprises as per MSMED Act, 2006 are steadily increased from ` 7,09,398 crores in the 2007-08 to
clear based on their investment in plant and machinery (for manu- 11,27,352 crores by the end of the end of March 1011-12. Similarly,

World Research Journal of Economics


ISSN: 2277-6028, Volume 2, Issue 1, 2013

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Growth and Sickness of Small-Scale Industries in India

there was tremendous Increase ti the level of employment (70 lakh Industrial Sickness has Brought Disastrous Consequence
to 172 lakh). It is very clear that overall performance of SSI is quite  The closure of industrial units leads to aggravation of the prob-
satisfactory after introduction of the new economic policy in India. lem of unemployment.
The growth of SSI is 272.79 lakhs in 2007-08 and it consistently
growth up to 332.12 lakhs in end of March 2011-12.  Wastage of huge resources invested in the industrial units
 The closure also leads to wide spread labor unrest, threatening,
Table 2- Overall Performance and Growth of the SSI Sector in India
disturbance in the industrial environment.
No. of units in Production Employment
Year  Industrial sicknesses result in huge financial losses for banks
lakhs (` In crores) (lakhs)
272.79 7,09,398 626.34 and other terms lending financial institutions.
2007-2008
(4.47) (42.49) 5.15
 The closure of industrial units will have adverse impact on the
285 880805 659.38
2008-2009
(4.53) (11.39) (5.27)
other related units through backward linkages.
298.08 9,82,919 695.38  In incurs heavy loss of revenue to center, state and local gov-
2009-2010
(4.53) (11.59) (5.46) ernment.
311.52 10,95,758 732.17
2010-2011
(4.51) (11.48) (5.29)
 Foreign trade is also affected because of such industrial sick-
2011-2012 332.12 11,27,352 763 ness.
(March) (2.21) (8.25) (3.21) The implementation of certain agreements under the “World Trade
Average growth rate 8.76 27.21 5.35 Organisation” (WTO) has jeopardized the existence of many SSIs.
Source: Annual Reports, Commissioner, SSI Development Board (2007-2012)
Note: Figures in parenthesis percent growth rate for previous year.
The most important aspect is the complete reservation of SSIs list
by 2005. There is an anomaly in the price of raw materials. Steel is
In present-day world is confronted by small scale industries sold to the local industries in higher price is much lower. As a result,
amongst which industrial sickness is of paramount importance. The China buys Indian steel at a cheaper rate and dumps the finished
magnitude of industrial sickness is depicted in the [Table-3]. products in the India at higher price, which is quite less than the
price of Indian finished goods. The result is very simple, SSIs would
Table 3- Position of Sick SSI Units Financed by SCBs
be like dinosaurs.
Year No. of Sick SSI Outstanding (` In lakhs)
2007-08 3,06,221 4,313.48 The sickness of SSIs is mainly confined to the north-east and the
2008-09 3,04,235 4,608.43 state like West Bengal, Bihar, Orissa, Madhya Pradesh an Uttar
2009-10 2,49,630 4,505.54 Pradesh. One of the important reasons is lack of credit facility. The
2010-11 1,77,336 4,818.82 overall credit to SSIs has decline from 17.3% in 1998-1999 to
2011-12 1,67,980 5,706.35 11.1% in 2003-2004. The other reasons are the marketing and loca-
Source: Annual Reports, Commissioner, SSI Development Board (2007-2012) tion.
From [Table-3] following finds are drawn The survey conducted by all India Management Association (AIMA)
 There were 3,06,221 small industries which were affected by indicates a fall of 5.2% in the sale growth of SSI units in 1998-2002.
industrial sickness, whereas 2,49,630 numbers of small units This was primarily concentrated in North India where sales decline
became sick in 2009-10, thus compared to both years sick SSI by 18.6% as a contrast, SSIs sale in South India grew 25.8%.
decreases, the problem of industrial sickness is more concen- What should be Measure?
trated in small-scale industries. Further, it is revealed that the
 In order to compete with the MNCs and large scale Industries
magnitude of industrial sickness, particularly to small scale in-
dustries outstanding has risen from 4,313.48to 5,706.35 units in SSIs must concentrate hard on marketing.
2008 to 2012.  The Finance Minister must ensure that the Loans are extended
 There were 1, 67,980 no. of small industries which have ob- to SSIs at lower rates of interest as on other countries.
tained loans from Bank. Their no. has further increased to  A certain ear-marked fund for credit must be maintained for
5,706.35 in the year 2012. SSIs.
 Further, the [Table-3] shows that the problem of industrial sick-  The modernizations and technological up gradation of the SSIs
ness of SSI. Is gradually decreased from 5,706.35 lakhs to 1, is a must. The government is trying to help SSIs with incentives
67,980 units due to outstanding bank credit. But, the industrial like subsidies for upgrading technology.
sickness has not been completed to desirable extent.
 The must bring legislation to ensure that the government de-
Causes and Consequence of Industrial Sickness in SSIs partment buy SSIs products.
Government policy pertaining to production, distribution and price  The of protection are over but before withdrawing the protection
change in the outlay blueprint, subsequent new priorities in the the measures to promote them have to be found out.
strategy, scarcity of power, transport, raw material and deterioration
 The SSIs must diversify their range of products.
of industrial relations etc., can result industrial sickness. Indigenous
factor such as mismanagement, diversion of funds, wrong dividend  The government must initiate to launch an awareness pro-
policies, excessive overheads, lack of fully responsible for aggravat- gramme so that the owners of SSIs can know the implication of
ing the situation of industrial sickness in a serve manner. Further, WTO and can prepare to prevent the sickness of these SSIs.
the government policies regarding price distribution, export, import, Therefore, WTO reality for SSIs has its own relevance in terms
licensing and taxation are the major factors for industrial sickness. if their role in export and employment.

World Research Journal of Economics


ISSN: 2277-6028, Volume 2, Issue 1, 2013

|| Bioinfo Publications || 23
Chopade B.B.

Policy Measurements University of Cambridge, University of Amsterdam, University of


 SSIs should concentrate more in internal and specific environ- Oxford.
ment. This means giving attention for improving accounting [2] Beck. T., Klapper L., Mendoza J.C. (2008) The Typology of
procedures, technology up gradation, product improvement Partial Credit Guarantee Funds around the World, The World
work culture etc. Bank Development Research Group.
 Government should buy minimum of 15% of its requirement [3] Benavides G., Huidobro A. (2004) Are Loan Guarantees Effec-
from SSIs sector. tive? The Case of Mexican Government Banks, Dirección Gen-
eral de Investigación Económica y Dirección de Intermediarios
 Reinvest government agencies like SCIDO, TIIC, SIDBI etc. By
Financieros de Fomento, Banco de México.
reediting their roles.
[4] Cowan K., Drexler A. & Yanez A. (2008) The Effects of Partial
 Technology support for SSI should be strengthened and gov-
Credit Guarantees on the Credit Market for Small Businesses,
ernment assistance for export marketing should be stepped up.
PCG Conference, Washington, DC.
 All rules and regulations relating to SSI should be simplified and [5] Green A. (2003) Credit Guarantee Schemes for Small Enter-
comprehensive law should be enacted. prises: An Effective Instrument to Promote Private Sector-Led
 In order to disseminate information on technology, market, Growth?, UNIDO Working Paper No. 10.
product etc., a technology information forecasting council has [6] Levitsky J. (1997) Financier-Burr Ridge, 4, 5-11.
been set up. Efforts should be channelized to leverage maxi-
mum benefit out of this exercise. [7] Levitsky J. (1997) Small Enterprise Development, 8(2), 4-17.
 Packing of export products is one problem area generating a lot [8] Levitsky J. (1997) Financier-Burr Ridge, 4, 86-94.
of grievances from exporters. This problem should be ad-
dressed by fine-tuning our packaging industry.
New Policy set up for SSIs
After declaring industrial policy in July 1991, the government an-
nounced its policy towards the small-scale sector on 6th august
1991. Under this policy investment limits for tiny units have been
increased from ` 2 lakhs to 5 lakhs, irrespective of the location of
the unit. The government again extended this limit to ` 25 lakhs
accepting the recommendation of AbidHussain Committee.
The Government in its Industrial Policy of July, 1991 has already
announced increase I the investment limit in plant and machinery of
SSIs. Ancillary units and export oriented units to ` 60 lakh, 75 lakh
respectively. Again on Feb. 7, 1997 this limit was extended to ` 3
crorefor all such industrial unit was abolished.
In 1996-97 budget proposals, the Finance Minister had proposed
the Small Industrial Development Bank of India (SIDBI) should pro-
vide reference facilities to State Finance Corporations (SFC) and
commercial Bank. Their financial facilities were available under
single window scheme of SFCs. Up to loan limits ` 50 lakh which
was extended up to ` 100 lakh in 1996-97 budgets.
Although the several policies have been launched to protect the
unhealthy competition of large scale industries with the SSIs, the
policy makers as well as the planners are still grappling for the
World Trade Organization. Under the reign of World Trade Organi-
zation, the integration of Indian Economy with the global economy
has brought much confusion over a number of emerging issues like
the gap on capital investment Foreign Direct Investment (FDI) ceil-
ing, interest subsidy, de-reservation of items, relations a technology
up gradation fund and so on.
For the healthier growth of the small-scale industries (SSIs) sector,
top priority should be given to financial support just like the mother
protects her children. Similarly India should protect her small scale
sector; otherwise the current stalemate of rural employment cannot
be tackled.
References
[1] Arping S., Morrison A., Lóránth G. (2008) Public Initiatives to
Support Entrepreneurs: Credit Guarantees versus Co-Funding,

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ISSN: 2277-6028, Volume 2, Issue 1, 2013

|| Bioinfo Publications || 24

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