Small Scale and Village Industry

 All the industrial policy resolutions have emphasized the

importance of developing the village and small industries. The
Small scale industries have a place of pride in our economy.
They have a high potential for generating employment, dispersal
to semi-urban and rural areas, promoting entrepreneurship and
earning foreign exchange.

 The importance of the small scale industries has been

highlighted by its inclusion in the Twenty Point programme which
has reiterated the need for giving all facilities to the SSIs.

 The village and small scale sector in India consists of a very wide
spectrum of industries categorized under small, tiny and cottage
segments. It consists of:

 Traditional cottage and household industries

 Modern small scale industries including tiny units and
powerlooms.
Definition
 Small Scale Industrial Undertaking:
 The conventional definition included cottage and handicraft
industries which employ traditional labor intensive methods to
produce traditional products, largely in village households. Eg:
Handloom textile industry.
 The operational definition includes all those undertakings having
an investment in fixed assets in plant and machinery, whether
held on ownership terms or by lease or by hire purchase, not
exceeding Rs. 60 lakhs. The investment ceiling has been raised
to Rs. 3 crore for SSI units. However, in 1999 the Government
decided to lower the investment ceiling to Rs. 1 crore.
 The third definition relates to national income accounting. This
includes all manufacturing and processing activities, including
maintenance and repair services, undertaken by both household
and non-household small-scale manufacturing units, which are
not registered under the Factories Act, 1948.
Different segments of SSI:
Ancillary Industrial Undertaking:
 An ancillary undertaking which is engaged or is proposed to be engaged in the
manufacture or production of parts, components, tooling or intermediates or the
rendering of services is termed as Ancillary Undertaking.
Tiny Enterprise:
 A unit is treated as tiny enterprise where investment in plant and machinery does not
exceed Rs. 25 lakhs irrespective of the unit location.
Small scale service and Business Enterprise:
 Enterprises rendering industry related service/business with investment upto Rs. 5
lakhs in fixed assets, excluding land and building are called SSBEs.
Export Oriented Units:
 A unit with an obligation to export 30% of annual production by the end of the third
year of commencement of production and having investment ceiling in fixed assets –
plant and machinery upto Rs. 1 crore is regarded as an EOU.
Organised and Unorganised Sector:
 Units in the Factory sector Are termed as organized sector units. These units are
registered under the Factories Act, 1948. The remaining units of the SSI segment and
other traditional industries fall under the VSI sector and are termed as unorganized
sector. Such units are not registered under the Factories Act as they employ either
less than 20 workers (if power is not used) or less than 10 workers(if the unit is using
power) in the industrial units.
Objectives of the SSI
 To assist in the growth and widespread dispersal of industries.
 To increase the level of earnings by artisans.
 To sustain and create avenues of self employment.
 To ensure regular supply of goods and services through use of
local skills and resources.
 To develop entrepreneurship in combination with improved
methods of production
 To preserve craftsmanship and art heritage of the country.

Importance:
 The Small Scale Industry Sector has emerged as India's engine
of growth in the New Millennium. By the end of March 2000, the
SSI sector accounted for nearly 40 per cent of gross value of
output in the manufacturing sector and 35 per cent of total
exports from the country. Through over 32 lakh units, the sector
provided employment to about 18 million people.
The distinguishing features and major advantages of these
industries particularly khadi and village industries are:
 In a country like India, which has abundant labor supply and
unemployment and underemployment and a rapidly rising labor
force, the small scale industry assumes significance due its
employment potential.
 Another advantage is its ability to provide employment especially
to the agriculturists in the off season.
 This also provides considerable employment to women,
children, old aged etc. It is also able to provide part-time
employment.
 Some of these industries are able to provide employment within
the household premises. Thus it has the locational advantage.
 In these industries the capital output and the capital labor ratios
are very low which is of advantage to a labor abundant and
capital scarce economy.
 These industries are of help to the weaker sections of society.
 These industries promote economizing of resource utilization
and conservation of resources. They ensure maximum
utilization of locally available raw materials by adopting easily
adaptable techniques.
 These industries can be developed in all areas including
backward, hilly and tribal inaccessible areas.
 Help increase the pace of rural development.
 They have comparatively less ecological problems in
comparison to the large industries.
 As they use very little electric power or oil, they do not cause
energy crisis and foreign exchange crisis.
 These industries account for about one-third of our total export
earnings.
 Income generated is dispersed more widely in the community
than income generation in a few large enterprises which brings
about greater equality of income distribution
Policy Initiatives
 Small Industry Policies and incentives: All the industrial policy resolution gave a
thrust to the promotion of small units through various incentives. These incentives
pertained to financial, fiscal and infrastructure related measures targeted at
achieving the growth of the SSI sector. In addition the State Government also
design suitable incentives to encourage the growth of the SSI sector. There is also
a policy of reservation of items for exclusive manufacture by small units. There is
also the Preferential Purchase Policy designed to help SSIs to market their
produce better.
 Economic Reforms and SSI Policy: Economic reforms initiated since 1991
facilitate the growth of the SSI sector. Eg: Foreign Direct Investment is allowed
upto 24% in the equity of a SSI unit.
 Infrastructural Facilities: The Central and State Governments have devised
schemes for the development of suitable infrastructure to encourage the growth of
the SSI sector. There are schemes like Integrated Infrastructural Development
Scheme and the Growth Schemes.
 Small Industry Clusters: SSIs operating in cluster derive their strength from being
together and benefit from backward and forward linkages since such units have
similar cultural and social backgrounds. The GOI have evolved unique schemes
for the development of clusters.
 Industrial Growth Centres: The GOI promotes industries in the backward areas.
There are 66 such centres for which the GOI has provided funds. The objective of
the scheme was to provide the best of the infrastructure facilities in these Growth
Centres nation wide. The important prerequisite is that its sphere of influence
should cover an area of 400 to 800 hectares.
 Pollution Control: The GOI has notified 17 industries where an SSI
unit needs to obtain clearance from the Central Pollution Control
Board. For other units, an acknowledgement by the State Pollution
Control Board of the application form would serve as consent for the
SSI unit.
 Women Entrepreneurs: In order to promote and develop units owned
by women, a number of exclusive facilities have been provided. SIDBI
and SIDO (Small Industries Development Organisation) have been
conducting development programmes for the women entrepreneurs.
 Marketing: The marketing infrastructure, for SSIs consists of a
combination of agencies and incentives:
 National Small Industries Corporation (NSIC) to promote the marketing of
SSIproducts under the preferential purchasing policy.
 16 sub contracting exchanges to identify items for ancilliarisation from
various PSUs
 Marketing Development Assistance (MDA) to reimburse expenses incurred
by SSI delegations that visit foreign countries.
 Training programmes for export packing.
 Organising exhibitions and international trade fairs.
 Export Promotion Councils
 Quality certification by the Bureau of Indian Standards.
Major problems of the small scale units are:
 Problem of inputs: Non availability of quality inputs at reasonable prices is an
important problem facing this unit.
 Financial Problems: The increased flow of industrial credit has not covered the
artisan sector adequately which continues to raise credit at high interest rates.
 In order to achieve performance, small scale units need efficient and willing
human resources. However these units are unable to provide the packages
required by such manpower.
 Technology modernization has become a problem particularly because of the
asset limit being fixed at Rs. 50 lakhs. To circumvent this problem many
entrepreneurs set up new units with modern technology.
 Marketing Problems: Small entrepreneurs do not have the resources and
expertise to market their products effectively. Financial constraints do not allow
them to offer attractive credit terms to marketing intermediaries.
 Competition from Large Units: Increasing global competition poses a big
challenge. 550 items on the list reserved for SSI are now freely importable.
 Institutional Constraints: The small entrepreneurs have to overcome many
hurdles to obtain assistance from the institutions set up for their assistance. The
District Industries Centres have not performed as per expectations. There are
many criticisms about the functioning of the organizations meant to assist the
SSI sector.
 The organizational base of many of the SSI units has remained weak. The
recent transformation of the Indian capital market has not benefited the SSI
sector which continues to operate as proprietary concerns.
Khadi and Village Industries
Khadi and Village Industry means any cloth woven on
handlooms in India from cotton, silk or woolen yarn handspun
in India or from mixture of any two or all such yarns. The
Khadi and Village Industries Commission (KVIC) is a statutory
organization engaged in the task of promoting and developing
khadi and village industries with a view to creating
employment opportunities in the rural areas and thereby
strengthening the rural industry. The broad objectives of the
KVIC are:
 The social objective of providing employment
 The economic objective of producing saleable articles
 The wider objective of creating self reliance amongst the
people and building up a rural community
Small Sector Industrial Policy 1991
Primary objective was to impart more vitality and growth impetus to the sector to
enable it to contribute fully to the economy, particularly in terms of growth of
output, employment and exports.

Salient Features of New Policy:

 Equity participation of upto 24% by other industrial undertakings including
foreign companies.
 Hike in investment limit for tiny sector from Rs. 2 lakh to Rs. 5 lakh.
 Support from National Equity Fund for projects upto Rs. 10 lakh.
 Single window loans to cover projects upto Rs. 20 lakhs. Banks to be involved.
 Relaxation of certain provisions of labor laws.
 Subcontracting Exchanges to be set up by industry associations
 Easier access to institutional finance
 Factoring services through SIDBI to overcome the problem of delayed
payments.
 Women enterprises redefined
 Package for handloom and handicraft sector
 Export development centre in SIDO
 Marketing of mass consumption items by NSIC under a common brand name.
Micro, Small and Medium Enterprises
Development Act, 2006 (MSMED Act)
 The Act provides the framework fir recognition of enterprises
(Manufacturing and services) and integrating the micro, small
and medium enterprises.
 Categorisation of SMEs: SMEs have been categorised into
manufacturing and service industry within which the classification
based on investment in plant and machinery or in equipments
has been made:
 Manufacturing Enterprise:
 Micro: investment upto Rs. 25 lakhs
 Small Enterprises: investment above Rs. 25 lakhs and upto Rs. 5
crore
 Medium Enterprise: investment above Rs. 5 crore and upto Rs.
10 crore
Micro, Small and Medium Enterprises
Development Act, 2006 (MSMED Act)
 Service Enterprises:
 Micro: investment upto Rs. 10 lakhs
 Small Enterprises: investment above Rs. 10 lakhs and upto Rs. 2
crore
 Medium Enterprise: investment above Rs. 2 crore and upto Rs. 5
crore
 Other Features:
 Establishment of funds for promotion, development and
enhancement of competitiveness of these enterprises.
 Notification of schemes / programmes for this purpose
 Progressive Credit Policies and practices.
 Preference in Government procurement of products and services
of micro and small enterprises.
 More effective mechanism for mitigating problem of delayed
payment to micro and small enterprises.
 Simplification of process for closure of business by all three
categories of business