New Delhi, 30 June 2007 

Industrial Spectrum Of India

SMALL SCALE SECTOR VITAL FOR INDIA’S GROWTH

By T.D. Jagadesan

Small Scale Industries (SSI) sector has emerged as a vibrant and dynamic area of the Indian economy. Not only in terms of employment generation the entrepreneurial base it helps to create but also because nearly 40 per cent of the total industrial production and over 34 per cent of the national exports falls in this sector. Moreover, it constitutes an important means to tackle the problem of unemployment and can be used as an important tool to prevent concentration of economic power in the hands of a few individuals. By assisting the development of semi-urban and rural areas through the utilization of local skills, raw materials and resources.

The SSIs are industrial undertaking in which the investment in fixed assets (plant and machinery) whether on ownership basis, terms lease or hire purchase does not exceed Rs.one  crore. Over the past five decades, the Governments policies have been to protect the interests of the SSIs sector and facilitate its rapid development. The Government in pursuance of these policies has initiated various support measures from time to time which include the policy of reservation, revision of investment ceilings, modernization, technological upgradation, marketing assistance and fiscal incentives etc.

The small scale sector which owes its definition to the industries (Development and Regulation) Act, 1951, comprises a divergent spectrum of industries, ranging from micro and rural enterprises, using rudimentary technology to modern small scale industries employing sophisticated technology.  At present, the sector accounts for over 95 per cent of the industrial units in the country, 34.29 per cent of the national exports, 6.86 per cent of the GDP, generates employment to 193 lakhs people and produces 7,500 items. Also, 749 items are reserved for exclusive manufacture and about 358 items are earmarked for exclusive purchase from the SSIs. The constant support by the Government in terms of infrastructure, fiscal and monetary policies have helped this sector emerge as a dynamic sector.

In recognition of this role, the SSI sector has been assigned targets of 12 per cent annual growth in production and creation of 4.4 million additional employment opportunities in the Tenth Five Year plan even as the investment limit for it continues to be Rs.one crore. However, the Ministry of Small Scale Industries has brought out a specific list of hi-tech and export-oriented industries whose investment limit has been raised to Rs.5 crore to facilitate suitable technology upgradation and enable them to maintain a competitive edge in the global economy. The exemption from excise duty continues to be Rs.one crore.

Additionally, the Integrated Infrastructural Development (IID) scheme has been extended to cover the entire country with 50 per cent reservation for rural areas. The Small Industries Development Organization (SIDO), set up in 1954, functions as an apex body for sustained and organized growth of the SSIs. Sadly, due to competition with large scale producers, multi-nationals and paucity of financial resources, the SSIs do not get raw material of good quality and in some cases they do not get enough supplies even of the inferior quality of raw materials.

Also, the SSIs have to pay comparatively higher prices for raw materials, resulting in an increase in the cost of production, decrease in profit and their ability to complete with large scale industries. Worse, the old and obsolete methods of production, leads to technical inefficiency which in turn increases the cost of production and renders them unfit to compete with large industries and the MNC. Moreover, the marketing methods of the products are defective. There are no communication channels between the small scale producers and the ultimate consumers. In many cases, the producers do not know the domestic and international markets where their products are consumed and who purchases them. Lack of adequate statistical data is also posing a serious problem in the development and growth of the SSIs. Without reliable statistics regarding production cost, labour, wages prices and extent of market, it is quite impossible to assess their economic potentialities.

A majority of the SSIs need financial resources for modernization and expansion. However, due to low wages and poor working conditions of these units, skilled and trained human resources are not attracted towards them. They also do not have funds to invest on advertising their products. The access to adequate credit, technological obsolescence, infrastructural bottlenecks, marketing constraints and a plethora of rules and regulations are major problems infecting the SSIs.

In order to provide a favourable business environment for the growth and development of the SSI sector, the Government took many initiatives to give an impetus to the growth of the sector in 2004-05. These include the National Commission on Enterprises in the Unorganized Informal Sector set up in September 2004. Recommended measures for improvement in the productivity of these enterprises, generation of large scale employment opportunities, linkage to an institutional framework in areas like credit, raw material supply, infrastructure, technology upgradation, marketing facilities and skill development.

To facilitate technology upgradation and enhancing competitiveness, the investment limit (in plant machinery) was raised in October, 2004 from Rs. one crore to Rs.5 crore in respect of 7 items of sports goods, reserved for manufacture in the small scale sector.  The Small and Medium Enterprises (SME) fund of Rs.10,000 crore was operationalized by the SIDBI in April 2004. Wherein 80 per cent of it lending was at an interest rate of 2 per cent. The Reserve Bank on its part, enhanced the composite loan limit to Rs. 1 crore from Rs.50 lakh.

More, with a view to integrate small and medium enterprises facilitate growth and enhance competitiveness (including freeing the SSIs from “inspector raj”) a suitable legislation is being finalized. A new “promotional package for small enterprises” is being formulated. This would include measures to provide adequate credit, incentives for technology upgradation, infrastructural and marketing facilities etc.

In sum, the small scale sector occupies an important position in the industrial spectrum of the country. The Government needs to play a pivotal role and take strong action in solving the problems faced by this sector.  As it is the best sector for rural and semi-urban development, the Government must pay particular attention to its development so that it grows in a challenging environment of India.---INFA

 (Copyright, India News and Feature Alliance)