me final report

8/3/2019 ME Final Report

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IIM Lucknow, Noida Campus

ManagerialEconomics

2011

Submitted By

KUMAR SAURABH KANT- WMP710

MANISH GUPTA- WMP7101

MD. KAIF AKBAR QURAISHI- WMP71

MOITRAYEE MAJUMDAR- WMP710

NITIN KUMAR TONK- WMP7105

Nupur Mittal WMP106

Pankaj Gupta-WMP107

Growth of Small-Scale Industry in Ind


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Table of Contents

1.Definition.................................................................................................................3

2.Role and Importance...............................................................................................4

3.Trend in production.................................................................................................6

4.Trend in investment................................................................................................7

5.Trend in employment and wages in the large and small scale..............................13

A.Employment Trend..........................................................................................13

B.Employment - Industry Group-wise ................................................................15

C.State-wise Employment Distribution ..............................................................16

D.Trend in Average Wages.................................................................................17

6.Employment intensity of output in the large and small scale................................18

A.Employment intensity of output in small scale industries...............................19

B.Small scale industry is job creator..................................................................22

C.The key to maintaining high employment growth ..........................................25

7.New entrances in the market as a small scale......................................................25

8.Viability of small-scale sector in Indias globalized economy................................29

A.Capital intensity..............................................................................................30

B.Generation of employment- industry GroupWise............................................30

C.Per unit employment.......................................................................................31

D.Opportunity ....................................................................................................31

E.Rural................................................................................................................32

F.Urban...............................................................................................................32

G.State-wise Employment Distribution...............................................................32

H. Quick yielding................................................................................................32

I.Controlled price level.......................................................................................32


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262011 J.Skill formation..................................................................................................33

K. Low import intensity.......................................................................................33

L.Balanced regional development......................................................................33

M. Proper utilization of local resources...............................................................33

N.Creation of self employment...........................................................................33

O.Support to large scale industries....................................................................33

P.Even distribution of income and wealth..........................................................33

Q. Export potential.............................................................................................34

9.Conclusion.............................................................................................................36

References................................................................................................................37

1. Definition


4/38

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262011 The industries in India which are organized on a small scale and produce

goods with the help of small machines, hired labour and power, are the smallscale industries present in India.

In a developing country like India, the role and importance of small-scale

industries is very significant towards poverty eradication, employmentgeneration, rural development and creating regional balance in promotionand growth of various development activities.

2. Role and Importance

Based on the past records it is estimated that the growth of small scaleindustries have been contributing about 40% of the gross value of outputproduced in the manufacturing sector and the generation of employment by

the small-scale sector is more than five times to that of the large-scalesector.

This clearly shows the importance of small-scale industries in the economicdevelopment of the country. The small-scale industries have been playing animportant role in the growth process of Indian economy since independencein spite of stiff competition from the large sector and not very encouragingsupport from the government.

The following are some of the important role played by small- scaleindustries in India.

1. Employment generation:

The basic problem that is confronting the Indian economy is increasingpressure of population on the land and the need to create massiveemployment opportunities. This problem is solved to larger extent by small-scale industries because small- scale industries are labour intensive incharacter. They generate huge number of employment opportunities.Employment generation by this sector has shown a phenomenal growth. It isa powerful tool of job creation.

2. Mobilisation of resources and entrepreneurial skill:

Small-scale industries can mobilize a good amount of savings andentrepreneurial skill from rural and semi-urban areas remain untouched fromthe clutches of large industries and put them into productive use byinvesting in small-scale units. Small entrepreneurs also improve socialwelfare of a country by harnessing dormant, previously overlooked talent.


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262011 Thus, a huge amount of latent resources are being mobilised by the small-

scale sector for the development of the economy.

3. Equitable distribution of income:

Small entrepreneurs stimulate a redistribution of wealth, income and politicalpower within societies in ways that are economically positive and withoutbeing politically disruptive.

Thus small-scale industries ensures equitable distribution of income andwealth in the Indian society which is largely characterised by moreconcentration of income and wealth in the organised section keepingunorganised sector undeveloped. This is mainly due to the fact that smallindustries are widespread as compared to large industries and are havinglarge employment potential.

4. Regional dispersal of industries:

There has been massive concentration of industries in a few large cities ofdifferent states of Indian union. People migrate from rural and semi urbanareas to these highly developed centres in search of employment andsometimes to earn a better living which ultimately leads to many evilconsequences of over-crowding, pollution, creation of slums, etc. Thisproblem of Indian economy is better solved by small- scale industries whichutilise local resources and brings about dispersion of industries in the variousparts of the country thus promotes balanced regional development.

5. Provides opportunities for development of technology:

Small-scale industries have tremendous capacity to generate or absorbinnovations. They provide ample opportunities for the development oftechnology and technology in return, creates an environment conducive tothe development of small units. The entrepreneurs of small units play astrategic role in commercialising new inventions and products. It alsofacilitates the transfer of technology from one to the other. As a result, theeconomy reaps the benefit of improved technology.

6. Indigenisation:

Small-scale industries make better use of indigenous organisational andmanagement capabilities by drawing on a pool of entrepreneurial talent thatis limited in the early stages of economic development. They provideproductive outlets for the enterprising independent people. They alsoprovide a seed bed for entrepreneurial talent and a testing ground for newventures.


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262011 7. Promotes exports:

Small-scale industries have registered a phenomenal growth in export overthe years. The value of exports of products of small-scale industries hasincreased to Rs. 393 crores in 1973-74 to Rs. 71, 244 crores in 2002-03. This

contributes about 35% India's total export. Thus they help in increasing thecountry's foreign exchange reserves thereby reduces the pressure oncountry's balance of payment.

8. Supports the growth of large industries:

The small-scale industries play an important role in assisting biggerindustries and projects so that the planned activity of development work istimely attended. They support the growth of large industries by providing,components, accessories and semi finished goods required by them. In fact,small industries can breathe vitality into the life of large industries.

9. Better industrial relations:

Better industrial relations between the employer and employees help inincreasing the efficiency of employees and reducing the frequency ofindustrial disputes. The loss of production and man-days are comparativelyless in small- scale industries. There is hardly any strikes and lock out inthese industries due to good employee-employer relationship.

Of course, increase in number of units, production, employment and exportsof small- scale industries over the years are considered essential for theeconomic growth and development of the country. It is encouraging to

mention that the small-scale enterprises accounts for 35% of the gross valueof the output in the manufacturing sector, about 80% of the total industrialemployment and about 40% of total export of the country.

3. Trend in production

The small scale industries sector plays a vital role for the growth of the

country. It contributes 40% of the gross manufacture to the Indian economy.

It has been estimated that a lakh rupees of investment in fixed assets in thesmall scale sector produces 4.62 lakhs worth of goods or services with an

approximate value addition of ten percentage points.

The small scale sector has grown rapidly over the years. The growth rates

during the various plan periods have been very impressive.

Chart 1


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262011

The number of small scale units

has increased from an estimated

8.74 lakhs units in the year 1980-

81 to an estimated 31.21 lakhs inthe year 1999.

From the year 1990-91 this sector

has exhibited a comparatively

lower growth trend (though

positive) which continued during

the next two years. However, this

has to be viewed in the background

of the general recession in the economy. The transition period of the process

of economic reforms was also affected for some period by adverse factors

such as foreign exchange constraints, credit squeeze, demand recession,

high interest rates, shortage of raw material etc.

When the performance of this sector is viewed against the growth in the

manufacturing and the industry sector as a whole, it instills confidence in the

resilience of the small scale sector.

The estimates of growth for the year 1995-96 have shown an upswing. The

growth of SSI sector has surpassed overall industrial growth from 1991onwards. The positive trend is likely to strengthen in the coming years. This

trend augurs a bright future for the small scale industry.

4. Trend in investment

A. Investment productivity

Partial productivity ratios mainly refer to the labor and capital productivityindices which are most often used. So far we have analyzed the labor

productivity in detail, in terms of gross value of production per Employment.

Now we shall direct our attention to capital productivity, considering gross

value of production per unit of investment, production/fixed investment in

India. A higher rate of increase in capital productivity in India might be due

to higher rate of growth of value of production.


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262011 B. Factors affecting the flow of credit

1. Inability to meet Collateral Requirement:The small scale and otherunorganized units find the procedures and requirements of banks, toocumbersome and difficult. Most of the small entrepreneurs particularly of

the first generation, find it difficult to meet collateral requirements or thethird party guarantee.

2. High Cost of Credit: The rate of interest which is currently 3 per centover the prime lending rate i.e. 11 per cent + 3 per cent on loans aboveRs. 2 lakh charged from the SSI units along with other service chargesamounts to 15 to 16 per cent, which is much higher than the 7 per centto 8 per cent which is changed from large scale industries on the groundof better creditworthiness. Unorganized enterprises encounter anunwelcome attitude from banks as the processing of small loansinvolves a lot of paper work and higher transaction costs. The small

enterprises traditionally lack institutional finance for start ups and face ahigher cost of credit relative to large enterprises. This cost differentialultimately leads to the high cost of SSI products resulting into their un-competitiveness. The credit coming from DFIs like SIDBI is also very high.SIDBI feels that unlike commercial banks they have limited access tocheaper Funds.

3. High Non-Performing Assets: One of the major reasons fordiscrimination against the SSI sector as compared to large industries isthe high non-performing assets (NPA). As against an NPA of 8 per cent inrespect of large industries, it is as high as 15 per cent in the case of SSI

units.

C.Sources of Credit Support Multi Agency Approach

Institutional financial assistance to unorganized enterprises consist of (i)Direct credit (ii) Indirect credit (iii) Micro credit (iv) Subsidy undergovernment schemes to encourage the flow of credit and (v) Schemes toenhance the confidence of banks in favor of SSI lending.

Direct Credit

The major portion of credit (about 95 per cent) is in the form of direct creditfrom the banks wherein banks are in direct touch with the entrepreneurs andloans are advanced by the banks after appraisal of the project proposals,ascertaining their viability, assessing the creditworthiness of the customersand after the entrepreneurs fulfill all the conditions of the banks includingmargin money, collateral, third party guarantee and payment of servicecharges, etc. Banks undertake this task through their branches which are


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262011 spread to rural and urban areas depending upon the need of the area.

Important banking institutions engaged in this task are listed below:

Scheduled commercial banks consisting of public sector banks, privatesector banks and foreign banks- about 59000 branches

Regional rural banks- about 14500 branches Cooperative banks- about 13500 branches

Small Industries Development Bank of India (SIDBI)- 65 branches

State Financial Corporation (SFC)- in 18 states

Small Industries Development Corporation (SIDC)- in all states.

Indirect Credit

A very small segment of the loan goes to the small and unorganized

enterprises in the form of indirect credit to entrepreneurs by the banks in theform of micro credit. It is indirect, since entrepreneurs are not in directcontact with the banks. There are intermediacies in between in the form ofself-help groups (SHGs), NGOs, voluntary agencies and micro-financinginstitutions. Refinance from NABARD and SIDBI though seemingly to beindirect credit in reality it generates direct credit by the banks. Theinstitutions engaged in indirect credit and refinancing are as under:

National Bank for Agriculture and Rural Development (NABARD)

Small Industries Development Bank of India (SIDBI)

Credit through micro financing Institutions (MFIs).

Subsidy under Government Schemes to encourage flow of credit(general) Major Schemes

The central government has been implementing a large number of schemesto encourage the poor people particularly those who find it difficult to meetbanks, conditionality directly to go for self employment by raising loans fromthe banks. The government helps the poor through a subsidy on the loan orthrough margin/equity money. This helps them to approach banks for a termloan and a working capital loan. Some of the major schemes beingimplemented by the government are listed below:

Prime Ministers Rojgar Yojana (PMRY) (Ministry of A & RI)

Rural Employment Generation Programme (REGP) for Village Industriesby KVIC (Ministry of A & RI)

Interest Subsidy Eligibility Certification (ISEC) Scheme for Khadi byKVIC (Ministry of A & RI)


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262011 Swarnjayanti Gram Swarozgar Yojana (SGSY) (Ministry of Rural

Development)

Swarnjayanti Shahari Swarozgar Yojana (SSSY), (Ministry of UrbanEmployment & Poverty Alleviation.).

Subsidy for Technology Up-gradation

Modernisation and technology upgradation is one of the principalrequirements for enhancing competitiveness. Competition has furtherintensified in the wake of liberalisation and globalisation. Modernisation,however is a costly proposition. In order to encourage small entrepreneurs tomodernize the Government of India has been implementing a few schemesof interest subsidy and capital subsidy. Some of these schemes are as givenbelow:

Interest and / or Capital Subsidy for Technology Up-gradation of Textile

Units (Ministry of Textile) Credit-Linked Capital Subsidy Scheme for Technology Up-gradation of

SSI (Ministry of SSI).

SME Rating Agency of India Ltd. (SIDBI with CIBIL and others)

Schemes to enhance comfort level of the Banks to Finance SmallScale and Tiny Enterprises

Banks being commercial enterprises do not prefer lending to smallenterprises and other non-farm informal enterprises because of the high risk,high transaction cost, higher NPAs and lower and erratic repayments by the

enterprises. Many entrepreneurs even though in great need of credit, are notable to obtain bank loans because of their inability to arrange collaterals. Inorder to enhance the confidence of banks in small loaning, the governmenthas launched a few schemes for example:

Credit Guarantee Scheme (Ministry of SSI)

Credit Rating Scheme for SSIs (Ministry of SSI).

D.Support by Govt. for the growth of SSI

The Small Scale Industry today constitutes a very important segment of theIndian economy. The development of this sector came about primarily due tothe vision of our late Prime Minister Jawaharlal Nehru who sought to developcore industry and have a supporting sector in the form of small scaleenterprises.

Policy Support:


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The investment limit for the Tiny Sector will continue to be Rs. 25lakhs.

The investment limit for the SSI sector will continue to be at Rs. 1crore.

The Ministry of SSI & ARI will bring out a specific list of hi-tech andexport oriented industries which would require the investment limit tobe raised upto Rs. 5 crores to admit of suitable technology upgradation and to enable them to maintain their competitive edge.

The Limited Partnership Act will be drafted quickly and got enacted.Attempt will be made to bring the Bill before the next session of theParliament.

Fiscal Support:

To improve the competitiveness of Small Scale Sector, the exemptionfor excise duty limit raised from Rs. 50 lakhs to Rs. 1 crore.

Credit Support

The composite loans limit raised from Rs. 10 lakhs to Rs.25 lakhs.

The Small Scale Service and Business (Industry Related) Enterprises(SSSBEs) with a maximum investment of Rs. 10 lakhs will qualify forpriority lending.

In the National Equity Fund Scheme, the project cost limit will be raisedfrom Rs. 25 lakhs to Rs. 50 lakhs. The soft loan limit will be retained at25 per cent of the project cost subject to a maximum of Rs. 10 lakhsper project. Assistance under the NEF will be provided at a servicecharge of 5 per cent per annum

The eligibility limit for coverage under the recently launched (August2000) Credit Guarantee Scheme has been revised to Rs.25 lakhs fromthe present limit of Rs. 10 lakhs.

The Department of Economic Affairs will appoint a Task Force tosuggest revitalisation/restructuring of the State Finance Corporations.

The Nayak Committee's recommendations regarding provision of 20per cent of the projected turnover as working capital are beingrecommended to the financial institutions and banks.

Infrastructural Support


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262011 The Integrated Infrastructure Development (IID) Scheme will

progressively cover all areas in the country with 50 per centreservation for rural areas.

Regarding upgrading the Industrial Estates, which are languishing, theMinistry of SSI & ARI will draw up a detailed scheme for the

consideration of the Planning Commission. A Plan Scheme for Cluster Development will be drawn up.

The funds available under the non-lapsable pool for the North-East willbe used for Industrial Infrastructure Development, setting up ofincubation centres, for Cluster Development and for setting up of IIDsin the North-East including Sikkim.

Technological Support and Quality Improvement

Capital Subsidy of 12 per cent for investment in technology in selectsectors. An interministerial Committee of Experts will be set up to

define the scope of technology up gradation and sartorial priorities.

To encourage Total Quality Management, the Scheme of grantingRs.75,000/- to each unit for opting ISO-9000 Certification will continuefor the next six years i.e. till the end of the 10th plan.

Marketing Support

SIDO will have a Market Development Assistance (MDA) Programme,similar to one obtaining in the Ministry of Commerce & Industry. It willbe a Plan Scheme.

The Vendor Development Programme, Buyer-Seller Meets andExhibitions will take place more often and at dispersed locations.

Streamlining Inspections/Rules and Regulations

To minimise harassment to Small Scale Sector a Group will be set up torecommend within 3 months, means of streamlining inspections. Thiswill include repeal of laws and regulations applicable to the sector thathave since become redundant.

Self-certification will be progressively encouraged in lieu of inspections,which should be prescribed under the three following conditions:

- On receipt of specific complaint;

- Selection of unit for sample check (Say 10 per cent of totalunits); and

- For audit and safety purposes.


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262011 Entrepreneurship Development

Capacity building in the MSME sector, both for entrepreneurs as well asworkers, will be given top priority. The Ministry of MSME & ARI andMinistry of Labour will work out the strategy jointly.

The Reserve Bank of India is being requested to appoint a Task Forceto go into the question of strengthening and popularizing factoringservices, without recourse to the MSME suppliers. The Task Force shallgive its report within six months of its constitution.

RBI is being requested to take up with the banks, the question of sub-allocating overall limits to the large borrowers specifically for meetingthe payment obligations in respect of purchases from the MSMEs,either on case basis or on bills basis.

Rehabilitation of sick units

RBI is being requested to draw up revised guidelines for therehabilitation of currently sick but potentially viable MSME units. Suchguidelines should be detailed, transparent and non-discretionary.

Promoting Rural Industries

To support the Handloom Sector "Deendayal Hathkarga Protsahan Yojna" has been announced. The scheme has a total financialimplication of Rs. 447 crores and will provide comprehensive financialand infrastructural support to weavers.

The Government is working out new comprehensive package tostrengthen Khadi and Village Industries that will further upgrade theskills of Khadi Workers.

5. Trend in employment and wages in the

large and small scale

A. Employment Trend

After agriculture, small scale industries provides second largest employmentopportunities for the Indian people. It has been estimated that 100,000rupees of investment in fixed assets in the small-scale sector generatesemployment for four persons.


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262011 As per fourth census, the total employment in this sector with Reference

Year 2006-07 was 594.61 lakh persons and as per the estimates compiled forthe year 2009-10, the employment was 695.38 lakh persons. The belowtable provides the employment growth trend. On an average employment isgrowing with rate of 4-5 % per year.

Table 1

Sl.No

Year TotalMSMEs (lakh

numbers)

Employment

(lakhperson)

Employment Growth

(%)

12001-

02105.21 249.33 4.44

22002-

03109.49 260.21 4.36

3 2003-04

113.95 271.42 4.31

42004-

05118.59 282.57 4.11

52005-

06123.42 294.91 4.37

62006-

07261.01 594.61 101.62

72007-

08272.79 626.34 5.34

8

2008-

09 285.16 659.35 5.27

92009-

10298.08 695.38 5.46


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262011 Chart 2 Employment Growth Trend

B. Employment - Industry Group-wise

If we see the industry wise employment trend then, textile industry has

ranked first in generating employment by providing employment to 16 lacpersons which is 17.41%. The next two industry groups are Non-metallicmineral products with employment of 5.3 lac persons (5.82%) and Metalproducts with 6 lac persons (6.55%).

In Chemicals & chemical products, Machinery parts except Electrical parts,Wood products, Basic Metal Industries, Paper products & printing, Hosiery &garments and Rubber & plastic products, the contribution ranged from 5% to3%, All other industries the contribution was less than 3%. The industry wiseemployment is provided in below table

Table 2


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262011 C. State-wise Employment Distribution

Table 3

State Employment

%

Punjab 1729062 2.91Chandigarh 94474 0.16

Uttarakhand 399737 0.67

Haryana 1367915 2.30

Delhi 2821657 4.75

Rajasthan 2422543 4.07

Uttar Pradesh 5791479 9.74

Bihar 1639977 2.76

Sikkim 25017 0.04

ArunachalPradesh

41591 0.07

Nagaland 69984 0.12

Manipur 116967 0.20

Mizoram 37639 0.06

Tripura 165685 0.28

Meghalaya 102485 0.17

Assam 1234356 2.08

West Bengal 5831566 9.81

Jharkhand 712596 1.20

Orissa1931929 3.25

Chhattisgarh 732306 1.23

Madhya Pradesh 2609646 4.39

Gujarat 3060899 5.15

Daman & Diu 76436 0.13

Dadra & NagarHaveli

81187 0.14

Maharashtra 6465654 10.87

Andhra Pradesh 5943242 10.00

Karnataka 3710228 6.24

Goa 141028 0.24Lakshadweep 2328 0.00

Kerala 3024124 5.09

Tamil Nadu 6257596 10.52

Pondicherry 80987 0.14

Andaman &Nicobar island

12035 0.02


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262011 All India 59460703 100.0

0

Maharashtra (10.87%) and Tamil Nadu (10.52%) made the maximumcontribution to employment. This was followed by Andhra Pradesh (10.0%),

Uttar Pradesh (9.74%) and West Bengal (9.81%) the total share being29.55%.

Karnataka (6.24%), Gujarat (5.15%) and Kerala (5.09%) together accountedfor another 16.48%.

D. Trend in Average Wages

The average wages were less than Rs 200 which has grown to more than Rs300 in year 2007-08. The salary growth rate is roughly 9 % per year

Chart 3

If we analyses the average wages worker type wise we observe that theaverage salary of female worker is less than half of male worker.


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Chart 4There are several explanations for the general wage discrepancies acrossworkers or classes of workers. Workers doing the same job might be willingto accept a lower wage for increased job stability, better fringe benefits, orother positive job attributes. In fact, research has found that many workersaccept lower wages in exchange for health benefits.

Demographics may offer a plausible explanation: Women and minoritiestypically earn less than their male counterparts. But evidence shows that,with the exception of Hispanics, women and minorities are generally more

likely to work for larger firms. Village people make up about 10 percent ofsmaller firms (less than 500), compared to 13 percent of larger firms (Head).Similarly, women make up 45 percent of smaller firms but 48 percent oflarger firms. This pattern holds for higher paying jobs as well. Professionalwomen are disproportionately employed by large establishments. The sameis true for minorities in science and engineering fields. Only Hispanics show acontrary trend, making up 12 percent of smaller firms but only 9 percent oflarger firms.

6. Employment intensity of output in the

large and small scale

The employment growth rate in Indias large-scale industries has acceleratedsignificantly in recent years, according to the countrys Central StatisticalOrganization.

Over the period, 2005-2011, the jobs grew at an annual average rate of 7.5per cent. During the previous eight years employment in this sector hadcontracted at an annual average rate of 1.5 per cent.

Employment in public limited companies grew at an annual average rate of6.1 per cent during 2005-2011. Household handloom and village industrialunits are of course much more labor intensive than public and privatecorporations.

Furthermore, ASI data shows that the share of factories employing between1000 to 1999 persons, each has increased by two per cent during 2005-2011


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262011 while the share of factories employing less than 49 persons each has

declined by three per cent during this period.

Employment growth rate during 2005-2011 has been relatively high inseveral relatively rich and technologically advanced states such as Gujarat,

Haryana, Himachal Pradesh, Karnataka, Tamil Nadu, Punjab and Goa.

A. Employment intensity of output in small scale industries

India has adopted mixed economic planning as a method to achieve

economic development. Along with the Large Scale sector the thrust was on

Small Scale sector because of it decentralized, its small size, use mainly

indigenous technology, employment intensity and its suitability for rural area

with limited techno-economic structure.

The major advantage of the sector is its employment potential at low capitalcost. As per available statistics, this sector employs an estimated 31 million

persons spread over 12.8 million enterprises and the labor intensity in the

SSL sector is estimated to be almost 4 times higher than the large

enterprises.


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262011 Small scale industry (SSI) is a major sub-sector of Indian economy in view of

its size in terms of number of units, number of employment, value of output

and value of exports, absolutely as well as relatively. In 2002-03, the SSI

sector comprised 3.57 million units, generated production worth of Rs 7,420

billion and employed nearly 20 million persons. The sectors exports stood at

Rs 698 billion in 2000-01. In 2000-01, SSI, with an investment of nearly Rs

797 billion, accounted for about

40% of the industrial production,

nearly 7% of the Gross Domestic

Product (GDP), 34.3% of the total

exports of Indian economy, and

manufactured more than 7,500

products. Thus, SSI has a

diversified and prominent

presence in Indian economy.

Small Scale Industries are the

second largest segment of Indian

economy in terms of employment

as well as exports. Their

sustained economic performance

is imperative for Indias economic

development. Individually, asmall scale units energy

consumption may not be high but

together the consumption in

millions of small scale units

across the country will add up to

a very large quantity and likely to

place a very high demand on limited energy resources.

Small scale industries provide immediate large scale employment, they offer

a method of ensuring a more equitable distribution of National Income, and

they facilitate an effective mobilization of capital and skill, which might

otherwise remain unutilized.


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262011 The average annual growth rate of employment in the small scale industry

for the period 1980-81 to 1993-94, worked out to be 5.3 percent, and that of

production to be 18.0 percent. The growth rate of employment is

commendable, but the production figures, conceal the rise in inflation as

indicated by the Table 1.

The annual growth of production of the small scale industry of 10.9 percent

is much higher than the growth rate of industrial production, in the large

sector has been faster, both in term of output and employment (Datt, 1997).

Source: All India report on functions and activities (1992-93), small industries

development organization, department of small scale industry.

Small scale industries being labor-intensive, helped to increase the volume

of employment, particularly in rural areas, it is estimated that about 2 crores

persons are engagement in India in these industries. The handloom industryalone employs 50 lakh people.

There are about 2.7 million small scale units producing around Rs. 3, 37,000

crores worth of goods and employing about 15 million people. Employment

generated by the sectors stood at 160 lakhs, indicating a growth of 4.8 per

cent in the year and exports increased by 7.6 per cent in 1996-

97.Employment growth of 4.8 per cent in 1996-97 was also higher than the

target of 4.2 per cent for the year . As per a report about 273 lakh people are

working in small scale sector with a turnover of about 348,059 crores

currently.The domestic talents are put to good use to produce commoditiesthat have found market worldwide.

Small Scale industry play an important role as less capital-intensive

producers of consumer goods and providers of employment to labour there

by addressing the problems of reducing the poverty and unemployment.

According to rough estimates of 2003-04 there are about 113.95 lakh small

scale industry units(registered and unregistered) in the country accounting

for more than 40 percent of gross value of output in the manufacture sector

and about 35 percent of the total export of the country. It provides

employment to about 271.36 lakhs persons, which is second only toagriculture.

SSIs have contributed greatly in nurturing private enterprise and inhastening the economic development by generating employment, exports,and reducing local unevenness. Small scale industries to a degree avertneedless urbanization. The number of people migrating to cities in search of


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262011 jobs shrinks by the employment options domestic industries create thereby

reducing pollution and over population in cities and also helps indecentralized industrial expansion.

The main reason of a small scale industry is to achieve self-reliance by

utilizing the resources available and harnessing the skills of local people tolay a platform that yields a steady income.

The industries are characterized by the wise utilization of labor for thecommodity production and the advantage lies in the fact that is consumptionof ample laborers who are not qualified to work for the large scale industriesand thus reducing unemployment and poverty in the country as well. SmallScale Industries help the financial system in promoting evenhandeddevelopment of industries across all the regions of the economy and also inthe efficient distribution of money.

B. Small scale industry is job creator

SSIs have always been regarded for their high employment intensity. SSIstoday employ over 192 lakhs persons and this is targeted to grow at 4% peryear.

Chart 5

As shown in the below schematic the bulk of net new jobs are generated byfirms with less than 20 employees. Net new jobs are the total of new jobs

created by firm startups and expansions (gross job creation) minus the totalnumber of jobs destroyed by firm closures and contractions (gross jobdestruction). From 1990 to 2003, small firms (less than 20 employees)accounted for 79.5 percent of the net new jobs, despite employing less than18.4 percent of all jobs in 2003. Midsize firms (20 to 499 employees)accounted for 13.2 percent of the net new jobs, while large firms (500 ormore employees) accounted for 7.3 percent. At first glance, the net new jobfigures are difficult to reconcile with the fact that, over the same period,


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262011 small firms share of total employment actually fell. In 1990, small firms

employed 20.2 percent of all workers, while large firms employed 46.3percent. In 2003, the numbers for small firms dropped to 18.4 percent butclimbed to 49.3 percent for large firms. The explanation lies in the migrationof firms across size classes from year to year. In any given year, some small

firms will grow beyond 20 workers and join a larger size class. Suchmigration trims the share of firms in the smallest class size, in the same waythat small business failures trim the class size. Likewise, some large firmswill contract, falling below the 500-employee level and dropping into asmaller size class.


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262011 Chart 6

Also, new small businesses are born, increasing the share of jobs in thesmall-firm class. The data, thus, suggest that the effects of migration ofsmall firms into larger size classes and small business failures outweigh theeffects of the migration of large firms into smaller size classes and smallbusiness startups. Migration also makes it difficult to attribute job growth tofirm size. Clearly, net employment figures mask a great deal of volatility inthe labor market.

The relatively high share of net new jobs created by small businesses stemsmainly from relatively large gross job losses among larger firms not frommassive job creation by small firms. From 1990 to 2003, small firms createdalmost 80 percent of net new jobs but less than 30 percent of gross jobs.Small firms also accounted for about 24 percent of gross job losses. Largefirms created almost 40 percent of gross new jobs but suffered 43.5 percentof gross job losses.


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262011

Chart 7

C. The key to maintaining high employment growth

The integration of large-scale and small sector production so that

technological and marketing skills and finance flow from large scale to smalland medium scale enterprises on the one hand and on the other largeenterprises fully exploit the opportunities of supply chain integration andlocal sourcing.

7. New entrances in the market as a small

scale

The micro, small and medium enterprises (MSME) sector contributessignificantly to the manufacturing output, employment and exports of thecountry. It is estimated that in terms of value, the sector accounts for about45 per cent of the manufacturing output and 40 per cent of the total exportsof the country.The sector is estimated to employ about 59 million persons in over 26 millionunits throughout the country. Further, this sector has consistently registereda higher growth rate than the rest of the industrial sector. There are over6000 products ranging from traditional to high-tech items, which are beingmanufactured by the MSMEs in India. It is well known that the MSME sectorprovide the maximum opportunities for both self-employment and jobs after

agriculture sector.

Recognizing the contribution and potential of the sector, the definitions andcoverage of the MSE sector were broadened significantly under the Micro,Small and Medium Enterprises Development (MSMED) Act, 2006 whichrecognized the concept of enterprise to include both manufacturing andservices sector besides, defining the medium enterprises. For collecting andcompiling the data for the MSME sector (including khadi, village and coir


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262011 industries), the Fourth All India Census of MSMEs with reference year 2006-

07, was launched during 2007-08 in the country.

Table 4

YEAR NUMBEROF SSI(INLAKHS)

FIXEDINVESTMENT(In Rs.CRORES)

PRODUCTION(INRCRORES)

EMPLOYMENT

(LAKHS)

EXPORTS(In Rs.CRORES)

2001-02

2002-

03

2003-04

2004-05

2005-06

2006-07

2007-08

2008-09

2009-10

105.21

109.49(4.07)

113.95(4.07)

118.59(4.07)

123.42(4.07)

261.01

(111.48)

272.79(4.51)

285.16(4.53)

298.08(4.53)

154349

162317(5.16)

170219(4.87)

178699(4.98)

188113(5.27)

500758(166.20)

558190(11.47)

621753(11.39)

693835(11.59)

282270

314850(11.54)

364547(15.78)

429796(17.90)

497842(15.83)

709398(42.49)

790759(11.47)

880805(11.39)

982919(11.59)

249.33

260.21(4.36)

271.42(4.31)

282.57(4.11)

294.91(4.37)

594.61(101.62)

626.34(5.34)

659.35(5.35)

695.38(5.47)

71244

86013(20.73)

97644(13.52)

124417(27.42)

150242(20.76)

182538(21.50)

202017(10.67)

N. A.

N. A.


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262011

Comparative data on growth rates of ssi vs overall industrial growthTable 5

YEAR GOWTH RATE WITH 2001-2002 AS BASE OVERALL INDUSTRIAL GROWTH OF INDUSTRIES

2002-2003

2003-2004

2004-2005

2005-2006

2006-2007

2007-2008

2008-2009

2009-2010

8.68

9.64

10.88

12.32

12.60

13.00

Not Available

Not Available

5.70

7.0

8.40

8.20

11.60

8.50

2.80

10.40


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262011

Contribution of SSI in gross domestic product (GDP) Table 6

YEAR Total Industrial Production Gross Domestic Product (GDP)

1999-2000

2000-2001

2001-2002

2002-2003

2003-2004

2004-2005

2005-2006

2006-2007

2007-2008

2008-2009

39.74

39.71

39.12

38.89

38.74

38.62

38.56

45.62

45.24

44.86

5.86

6.04

5.77

5.91

5.79

5.84

5.83

7.20

8.00

8.72

GROWTH IN NUMBER OF SMALL SCALE INDUSTRIES IN INDIA


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262011 Chart 8

SIZE OF REGISTERED SSI IN INDIA

The size of the registered MSME sector is estimated to be 15, 63,974.Of the total working enterprises,the proportion of micro, small and mediumenterprises were 4.94%,4.89% and 0.17% respectively.This comprises of 67.10% manufacturing enterprises and 32.90% servicesenterprises. About 45.23% (7.07 lakh) of the units were located in ruralareas.

Chart 9

8. Viability of small-scale sector in Indias

globalized economy

The small scale industry plays a vital role in the Indias globalized economy.

The small scale enterprise touches every part of the Indian economy like

employment, export, import substitution etc and so vigorous growth with

strong macroeconomic fundamentals has characterized developments in the

Indian economy.

The products also form a large percentage of our domestic market too with

SSI producing a number of products mainly:-

1) Confectionaries

2) Spices

3) Beverages

4) Natural essence oils

5) Dyes


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262011 6) Sports goods

7) Wooden furniture

8) Glass

9) Ceramic and earthen wares

10) Cotton and woolen knitted products

11) Silk and synthetic wear

12) Leather shoes and bags

13) Garments and novelty items

14) Plastic items

15) Survey instruments

16) Auto parts

17) Clocks and watches18) Musical instruments

19) Lab chemicals

20) Basic metallic and non-metallic mineral products.

The main characteristics of these small scale units can be illustrated below:

A. Capital intensity

Small-scale industries are less capital intensive. So these types of industriesare more suitable to the economies like Indian because in India, there is a

problem of capital inadequacy.

B. Generation of employment- industry GroupWise

Food products industry has ranked first in generating employment, providing

employment to 4.82 lakh persons (13.1%). The next two industry groups

were Non-metallic mineral products with employment of 4.46 lakh persons

(12.2%) and Metal products with 3.73 lakh persons (10.2%).

In Chemicals & chemical products, Machinery parts and except Electricalparts, Wood products, Basic Metal Industries, Paper products & printing,

Hosiery & garments, Repair services and Rubber & plastic products, the

contribution ranged from 9% to 5%, the total contribution by these eight

industry groups being 49%. In all other industries the contribution was less

than 5%.


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262011 C. Per unit employment

It was the highest (20) in units engaged in Beverages, tobacco & tobacco

products mainly due to the high employment potential of this industry

particularly in Maharashtra, Andhra Pradesh, Rajasthan, Assam and Tamil

Nadu.

Next came Cotton textile products (17), Non-metallic mineral products

(14.1), Basic metal industries (13.6) and Electrical machinery and parts

(11.2.) The lowest figure of 2.4 was in Repair services line.

Per unit employment was the highest (10) in metropolitan areas and lowest

(5) in rural areas. However, in Chemicals & chemical products, Non-metallic

mineral products and Basic metal industries per unit employment was higher

in rural areas as compared to metropolitan areas/urban areas.

In urban areas highest employment per unit was in Beverages, tobacco

products (31 persons) followed by Cotton textile products (18), Basic metalindustries (13) and Non-metallic mineral products (12).

D. Opportunity

Small industry sector has also performed exceedingly well and enabled our

country to achieve a wide measure of industrial growth and diversification in

past years as per below graph:-

By its less capital intensive

and high labour absorbtion

nature, SSI sector has made

significant contributions to

employment generation and

also to rural industrialization.

This sector is ideally suited to

build on the strengths of ourtraditional skills and

knowledge, by infusion of

technologies, capital and

innovative marketing practices.

Chart 10


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262011 E. Rural

Non-metallic products contributed 22.7% to employment generated in rural

areas. Food Products accounted for 21.1%, Wood Products and Chemicals

and chemical products shared between them 17.5%.

F. Urban

As for urban areas, Food Products and Metal Products almost equally shared

22.8% of employment. Machinery and parts except electrical, Non-metallic

mineral products, and Chemicals & chemical products between them

accounted for 26.2% of employment.

In metropolitan areas, the leading industries were Metal products, Machinery

and parts except electrical and Paper products & printing (total share being

33.6%).

G. State-wise Employment Distribution

Tamil Nadu (14.5%) made the maximum contribution to employment. This

was followed by Maharashtra (9.7%), Uttar Pradesh (9.5%) and West Bengal

(8.5%) the total share being 27.7%.

Gujarat (7.6%), Andhra Pradesh (7.5%), Karnataka (6.7%), and Punjab (5.6%)

together accounted for another 27.4%.

Per unit employment was high - 17, 16 and 14 respectively - in Nagaland,

Sikkim and Dadra & Nagar Haveli. It was 12 in Maharashtra, Tripura and

Delhi. Madhya Pradesh had the figure of 2. In all other cases it was aroundthe average of 6.

H. Quick yielding

The small scale industries are quicker yielding in nature than large scale

units.

I. Controlled price levelThe problem of inflation and deflation can be controlled by small scale

industries. So we can control the price level.


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262011 J. Skill formation

The small-scale industries are not required sophisticated technology and it

required technologies which are locally available. So the entrepreneur does

not require more training and skills.

K. Low import intensity

The small scale unit requires machines which are developed locally. So the

entrepreneur is not required to import them. So these units are suitable to

the countries like India which have scarce reserve of foreign exchange.

L. Balanced regional development

The small scale industrial units can be started in any barked area. So the

growth of small scale units can provide development of industrially backward

area.

M. Proper utilization of local resources

Small scale industries are mostly depending on raw materials and labour

which are locally available. So it provides efficient and effective utilization of

local resources.

N. Creation of self employment

The small scale industries provide lots of self employment opportunities to

educated youths in India.

O. Support to large scale industries

Another highly useful role of small scale industry in India is the great support

that the development of large scale industries in the society.

P. Even distribution of income and wealth

Small scale and cottage industries have the additional advantages that, with

decentralized industries they secure a more even distribution of income and

wealth.


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262011 Q. Export potential

The small scale industries offer vast opportunities to promote exports. Now a

day, the small scale industry units contribute 34 % of total export.

Export destinations (country) of the SSI products are majorly as following:-

Table 7

S.No.

PRODUCT GROUP MAIN DESTINATION(COUNTRIES)

1. Readymade Garments USA, Europe, Canada, West Asia,North Africa.

2. Plastic items UAE, China, Italy, Saudi Arabia,Oman.

3. Marine products Japan, USA, European Union, China,South East Asia.

4. Sports goods UK, USA, Australia, Germany, SouthAfrica

5. Spices East Asia, European Union, NorthAfrican Zone & American Zone

6. Cashew items USA, Netherlands, UK, Japan & UAE

7. Shellac items Indonesia, Germany, Arab RepublicEmirates, USA & Italy.

8. Synthetic items (MADEUPS) UAE, UK, Turkey, USA & Italy

9. Leather & Leather items Germany, UK, Italy, USA & France

10. Engineering & Elect. items USA Europe, Japan, Hong Kong, UAE,Germany, Belgium & France

11. Basic Chemical & Cosmetic USA, Japan, Saudi Arab, China,Singapore & Netherlands.

12. Chemical & Allied products. Japan, Belgaum, Italy, France,Bangladesh, USA & UK.

13. Wool & Woolen (MADEUPS),Knitted Garments etc

Europe, Japan, Bangladesh

14. Processed Food items USA, Europe, Japan

15. Electronic items & ComputerSoftware

USA, Hong Kong,, UAE, UK, Germany& Japan


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262011 16. Tobacco & Tobacco items East Europe

Below are data for growth of SSI exports from data available

through MSME:- Table 8

Year Totalexports

(Rs. Crores)

Exports from SSIsector

(Rs. Crores)

Percentageshare

1951-52 716 Negligible -

1961-62 660 Negligible -

1971-72 1608 155 9.6

1976-77 5142 766 14.9

1981-82 7809 2071 26.5

1986-87 12567 3644 29.0

1991-92 44040 13883 31.5

1992-93 53688 17785 33.1

1993-94 69547 25307 36.4

1994-95 82674 29068 35.1

1995-96 106353 36470 34.2

1996-97 118817 39249 33.4

1997-98 126286.00 44442.18 35.191998-99 141603.53 48979.23 34.59

1999-00 159561.00 54200.47 33.97

2000-01 202509.7 69796.5 34.47

2001-02 207745.56 71243.99 34.29

2002-03 252789.97 86012.52 34.03

In terms of Export contribution, SSI Sector plays a major role in India'spresent export performance. 45%-50% of the Indian Exports is beingcontributed by SSI Sector. Direct exports from the SSI Sector account fornearly 35% of total exports. The number of small scale units that undertakedirect exports would be more than 5000.

Besides direct exports, it is estimated that small scale industrial unitscontribute around 15% to exports indirectly. This takes place throughmerchant exporters, trading houses and export houses. They may also be in


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262011 the form of export orders from large units or the production of parts and

components for use for finished exportable goods.

It would surprise many to know that nontraditional products account formore than 95% of the SSI exports. The exports from SSI sector have been

clocking excellent growth rates in this decade. It has been mostly fuelled bythe performance of garment, leather and gems and jewelry units from thissector.

Chart 11The lucrative product groups where the SSI sector dominates in exports are

sports goods, readymade garments, woolen garments and knitwear, plastic

products, processed food and leather products.

In short, all above characteristics play major roles in the viability of SSI in

Indias globalized economy.

9. Conclusion

Depending upon the facts described above this is the opportune time to setup projects in the small scale sector. It may be said that the outlook ispositive, indeed promising, given some safeguards. This expectation is basedon an essential feature of the Indian industry and the demand structures.The diversity in production systems and demand structures will ensure long

term co-existence of many layers of demand for consumer products /technologies / processes. There will be flourishing and well groundedmarkets for the same product/process, differentiated by quality, value addedand sophistication. This characteristic of the Indian economy will allowcomplementary existence for various diverse types of units. The promotional and protective policies of the Govt. have ensured thepresence of this sector in an astonishing range of products, particularly inconsumer goods. However, the bug bear of the sector has been the


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262011 inadequacies in capital, technology and marketing. The process of

liberalization will therefore, attract the infusion of just these things in thesector.

References

Websites

http://www.dcmsme.gov.in/ssiindia/statistics/ssidata.htm

http://theviewspaper.net/small-scale-industries-an-important-catalyst-for-the-

growth-of-india%E2%80%99s-economy/

http://exim.indiamart.com/ssi-corner/performance.html

http://www.dcmsme.gov.in/ssiindia/performance.htm#Employmenthttp://www.economywatch.com/world-industries/small-scale.html

Articles

Development Commissioner Ministry of Micro, medium and Small Scale

enterprises

Labour Bureau Government of India

Fourth All India Census of Micro, Small, Medium Scale Industries 2006-

2007
http://www.dcmsme.gov.in/ssiindia/statistics/ssidata.htmhttp://theviewspaper.net/small-scale-industries-an-important-catalyst-for-the-growth-of-india%E2%80%99s-economy/http://theviewspaper.net/small-scale-industries-an-important-catalyst-for-the-growth-of-india%E2%80%99s-economy/http://exim.indiamart.com/ssi-corner/performance.htmlhttp://www.dcmsme.gov.in/ssiindia/performance.htm#Employmenthttp://www.economywatch.com/world-industries/small-scale.htmlhttp://www.dcmsme.gov.in/ssiindia/statistics/ssidata.htmhttp://theviewspaper.net/small-scale-industries-an-important-catalyst-for-the-growth-of-india%E2%80%99s-economy/http://theviewspaper.net/small-scale-industries-an-important-catalyst-for-the-growth-of-india%E2%80%99s-economy/http://exim.indiamart.com/ssi-corner/performance.htmlhttp://www.dcmsme.gov.in/ssiindia/performance.htm#Employmenthttp://www.economywatch.com/world-industries/small-scale.html


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-End of the Document-

me final report

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