Small Scale Industries form an integral part of the industry
sector. The Government has accorded high priority to this sector as it plays a vital role in a balanced and sustained economic development. It lays a crucial role in the process of economic development by value addition, employment generation, equitable distribution of national income, regional dispersal of industries, mobilization of capital and entrepreneurial skills and contribution to export earnings. It has all the characteristics of the decentralized sector such as small size and employment intensify and the entire lot belongs to private sector. The contribution of SSI sector to employment is next only to agriculture. It has emerged as a dynamic and vibrant sector of the economy. SSI units in the country contribute ! percent of the total industrial output, employ more than a crore persons and account for "# percent of the total exports from India. There are about ".$ million small%scale units in India, &hich manufacture about '#!! products. It employs about ()." million people, &hich makes it the second largest employer after the agricultural sector. The nature of activities ranges from factories to service organizations and the organization structure from proprietorship to corporate. In India SSIs are de*ned by the size on capital investment &hereas in most of the countries it+s on the basis of number of employees and,or measure of assets. Small and medium enterprises have come to play an increasing role in the industrial gro&th of developed as &ell as developing economies. In vie& of the increasing importance of the service sector enterprises and kno&ledge based industries in changing the structure of the Indian economy, there is a need for giving a fresh look to the de*nition aspect, bring in the extended service sector in its ambit and provide an element of competition in the global perspective. The small%scale sector in India comprises of modern and traditional industries. The modern segment includes SSIs under SI-. and po&er looms. The SSIs under SI-. also cover some units, &hich fall under the purvie& of /0I1, handlooms, handicrafts, coir, sericulture and silk boards etc. The o2ce of the -evelopment 1ommissioner 3SSI4 is a national body of the 1entral Government looking after the SSI except those covered under other statutory boards. The classi*cation of small%scale units is further done on the basis of the units falling in the .rganized and 5n%organized sectors based on the criteria of employment in combination &ith the use , non%use of electric po&er. The factory sector units or the units under the 6actories 7ct, ()8 are termed as organized sector units. 7ll industries in the traditional sector and the remaining units of the SSI segment not covered under the 6actories 7ct constitute the village and small industries sector and are termed as 5n%organized sector units. Such units generally employ less than 9! &orkers if po&er is not used by the unit concerned or less than (! &orkers if po&er is in use. Defnition of SSI The SSI sector covers &ide range of enterprises &ith diverse characteristics. There are tiny or micro enterprises on one hand and sophisticated modern small%scale units on the other. The de*nition of di:erent categories for the purpose of bank *nance is as follo&s; i4 Small Scale Industrial Undertakings are those, &hich are engaged in the manufacture, processing or preservation of goods and in &hich investment in plant, and machinery 3original cost4 does not exceed <s. ( crore. These &ould inter%alia= include units engaged in mining or quarrying, servicing and repairing of machinery. ii4 Ancillary Industrial Undertakings are those industrial undertakings &hich are engaged or is proposed to be engaged in the manufacturing or production of parts, components, subassemblies, tooling or intermediaries or rendering of services and undertaking or propose to supply or render not more than *fty percent of its production or services, as the case may be, to one or more other industrial undertakings and &hose investment in *xed assets in plant and machinery 3original cost4, &hether held on o&nership terms or on lease or on hire purchase, does not exceed <s. ( crore are to be classi*ed as small%scale industry. This limit in respect of some of the export oriented products like hosiery and hand tool subsectors have been allo&ed upto <s. # crore. N. B. >o small scale or ancillary industrial undertaking referred to above shall be subsidiary of or o&ned or controlled by any other industrial undertaking. iii4 Tiny Enterprises are those &hose investment in plant and machinery is upto <s. 9# lakh irrespective of the location of the unit. iii4 Small Scale ServiceBusiness Enterprises !SSSBEs" having investments in *xed assets 3excluding land and bulding4 upto <s. (! lakh and registered as such are also classi*ed as SSI for the purpose. iv4 T#e Decentrali$ed Sector includes artisans, khadi and village industries, handlooms, sericulture, handicrafts, coir etc. &hich have been categorized as ?0illage Industries@ under the Government of India+s ne& SSI policy of 7ugust ())(. v4 Artisans %illage and &ottage Industries is de*ned as artisans 3irrespective of the location4 or small industrial activities 3viz. manufacturing, processing, preservation and servicing4 in villages and small to&ns &ith a population not exceeding #!,!!! involving utilization of locally available natural resources and,or human skills 3&here individual credit requirements do not exceed <s. #!,!!!,%4 vi4 'oman Enterprises are those small%scale units &here one or more &omen entrepreneurs have not less than #( percent *nancial holding (ecent Trends in t#e SSI Sector Ta)le * + ,erformance of t#e SSI sector -ear No. of Units !In lak#" Employm ent !In .ak#" ,roduct ion of current prices !(s. In &rore" E/ports !in (s. &rore" SSE e/ports as a 0 of total e/ports ())%)# 9#.'( ($.#$ 9)888$ 9)!$8 (.8$ ())#%)$ 9$.#8 (#9.$( "$9$#$ "$'! 9#.#! ())$%)' 98.!" ($!.!! ((8#8 ")9) '.$( ())'%)8 9). ($'.9! $9$( 9 (".9" ())8%)) "!.8! ('(.#8 #9!$#! 8)') (!.9( ()))%!! "9.(9 ('8.#! #'988' #9!! (!.$$ 9!!!%!( "".(( (8#.$ $")!9 #))'8 (!.$$ 9!!(%!9 ".$ ()9.9" $)!#99 >7 >7 Source : DC (SSI), Ministry of Industry Ta)le 1 + ,roduction 2ro3t# (ate -ear SSI Sector 4anufacturing Sector 5verall Industry ())%)# (!.( ).( ).( ())#%)$ ((. (.( (".! ())$%)' ((." '." $.( ())'%)8 8. $.' $.' ())8%)) '.' . .( ()))%!! 8.($ '.( $.' 9!!!%!( 8.9" #." #.! 9!!(%!9 #.)# >7 >7 Source : DC (SSI), Ministry of Industry In the &ake of liberalization and opening up of the economy, the SSI sector is confronted &ith competition in the domestic segment from medium and large%scale sectors and from liberal imports after removal of quantitative restrictions 3A<s4. The A<s have been lifted in respect of import of '(# items &ith e:ect from ( st 7pril 9!!( and those done earlier and a large number of items have been placed under .pen General Bicense 3.GB4. Co&ever, the process of globalization has opened up opportunities for the sector to tap and gro&. The performance of SSI sector in terms of exports and their acceptability in the international market are testimony to the strength of the sector. The competition in the domestic and international market induces the units to take up technological and structural changes. The gro&th prospects for the year 9!!(%9!!9 based on the estimates released by the 1entral Statistical .rganization 31S.4 indicated that &hile the performance of agricultural sector is on the better side, the industry sector gro&th pattern is not so encouraging. The rate of gro&th in the production of the SSI sector during the period of the nineties has been some&hat lo& as comared &ith the earlier period. The most signi*cant achievement of the SSI sector is its performance in terms of exports. The share of the SSI exports in overall exports of India has increased from (#.$D in ()'"%' to around "#D of the countries total exports during 9!!!%!(. These include both direct as &ell as indirect exports. The products &here SSI sector dominates exports are gems and E&ellery, sports goods, readymade garments, &oolen garments and knit&ear, plastic products, processed food and leather products. Gro&ht in SSI exports has come largely from gems and E&ellery, garments, leather products. The contribution of the SSI sector to G-F is around 'D. There have been various initiatives taken by the Government and the <GI &hich are dealt &ith in later sections, some of these are relating to instruction to banks for providing collateral free loans upto <s. (# lakh based on good track record and *nancial position, setting up of the credit guarantee fund to allo& the SSIs to obtain guarantee for their loans upto <s. 9# lakh, the credit linked capital subsidy for technology upgradation in order to help the SSIs to upgrade their level of technology so that they can compete &ith the larger and international players. (ole of 2overnment6 (B.6 SIDB.6 SID56 NIS& ET& The Government has been playing a vital role in the development of the SSI sector. This sector has been on the high priority of the Government and it has been initiating various steps to ensure the development of this sector. The ongoing process of liberalization &arrants due attention to be given to the medium and long%term interests of the small%scale sector. This sector, nurtured hitherto in a protective frame&ork, needs to be enabled to take on the challenges posed to it by the process of liberalization and globalization. The Government is conscious of the role and importance of Small Scale Industries and is, therefore, committed to putting in place a policy frame&ork that &ould address the problems of this sector and help it become internationally competitive. It has been granting various subsidies,concessions and assistances for the smooth development of this sector. The various subsidies,concessions provided by the Govt. include the tax bene*ts 3sales tax, excise duty etc.4, concession on ra& material purchase, creation of a policy frame&ork and the setting up of the Hinistry of SSI. The compre#ensive policy package to enhance competitiveness of the small industries domestically and globally &as announced by the Frime Hinister in 7ugust 9!!!= some of the maEor features are as under; Increase in excise duty full exemption limit from <s. # million to <s. (! million. Increase in the limit of composite loan <s. ( million to <s. 9.# million. Industry related SSSGIs &ith maximum investment of <s. ( million to qualify for priority sector. 1apital subsidy of (9D of investment of investments in technology in select sectors. Setting%up of Inter%Hinisterial 1ommittee of experts to de*ne scope of technology upgradation and sectoral priorities To strengthen the TGSI set%up by SI-GI so that the former functioned e:ectively as a Technology Gank. .ne time grant of #!D to SSI 7ssociations &ho &ish to develop and operate testing laboratories. Increase eligible family income limit from <s. 9!!! to <s. !!!! per annum for incentives under FH<J 3Frime Hinister+s <ozgar JoEana4. 1onduct fresh census that &ould cover, inter%alia, the incidence of sickness and their causes. The period of assistance to the SSI sector for the purpose of IS. )!!! certi*cation has been extended till the (! th *ve%year plan. 1redit Guarantee Schemes providing loans &ithout collaterals upto <s. 9# lakh. 1redit linked 1apital subsidy scheme for technology upgradation. 7s per the announcement of the 6inance Hinister in the 5nion Gudget 9!!"%! Indian Ganks 7ssociation 3IG74 have already advised banks to adopt interest rate band of 9D above and belo& its Frime Bending <ate 3FB<4 for secured advances including SSI and agriculture. The recent amendments in the -<T 7ct as &ell as passing of the ?Securitization and <econstruction of 6inancial 7ssets and Inforcement of Securities Interest Gill@ by both houses of the parliament, the recovery climate in respect of >F7s is likely to improve. 5ndertakings penal provisions have been incorporated to take care of delayed payments to SSI units &hich inter%alia stipulates a4 agreement bet&een seller and buyer shall not exceed more than (9! days, b4 payment of interest by the buyers at the rate of one and a half times the FB< of SGI for any delay beyond the agreed period not exceeding (9! days. The (eserve Bank of India !(BI" has been playing signi*cant role in the development of the SSI sector. 0arious policy initiated by <GI for this sector are as under; I:ective 7pril 9!!(, the stiupulation of FB< being the Koor rate for loans above <s. 9 lakh is &ithdra&n and banks are free to lend at sub%FB< rates based on obEective and transparent policy subEect to the approval of its Goard, though FB< is still the ceiling rate for credit limit upto <s. 9 lakh. The banks have been advised to accord SSI units &ith good track records the bene*ts of lo&er spreads over the FB<. 6urther, banks also have been advised by <GI to set their interest rate on advances to SSI sector keeping in vie& prevailing general south&ard movement in interest rates. 1omputation of &orking capital requirements of SSI units on the basis of simpli*ed method of minimum 9!D of the proEected annual turnover of the units for borro&al limits up to <s. # crore 3as suggested by >ayak 1ommittee4. Ganks to ensure that out of total funds lent to SSI sector, at least !D should be made available to units &ith investment in Flant and Hachinery 3FLH4 <s. # lakh and 9!D should be made available to units &ith investment in F L H bet&een <s. # lakh and <s. 9# lakh. Thus $!D of funds earmarked for SSI sector should go to small units in tiny sector. Increase in exemption limit for borro&al account for obtention of collateral security from <s. ( lakh to the Honetary Folicy 39!!9%!"4 by the Governor that banks may on the basis of good track record and the *nancial health of the units increase the limit of dispensation of collateral requirement for loans from existing <s. # lakh to <s. (# lakh. <aising composite loan limit from <s. (! lakh to <s. 9# lakh, &hich has been further enhanced to <s. #! lakh recently. Inclusion of lending by banks to >G61s or other intermediaries for the purpose of on%lending to tiny sector &ithin the ambit of priority sector lending to enhance the reach of banks to the tiny sector. Ganks have been advised to open at least one Specialized SSI branch in each district. 6urther, banks have been permitted categorize their general banking branches having $!D or more of their advances to SSI sector as Specialized SSI branches in order to encourage them to open more Specialized SSI branches for providing better services to this sector as a &hole. Ganks have been advised to develop schemes to encourage investment by SSI units in technology upgradation. Scheme for granting <s. '#!!!,% to each unit for IS. )!!! certi*cation extended till the end of (! th *ve%year plan. Individual credit limit to 7rtisans, village and cottage industries for reckoning under advances to &eaker sections is increased to <s. #!!!!,% from the present limit of <s. 9#!!!,%. Mith a vie& to provide better customer service, it has been decided that all loan applications upto <s. 9#!!!,% should be disposed o: &ithin 9 &eeks and upto <s. # lakh should be disposed o: &ithin a period of four &eeks provided the loan applications are complete in all respects and accompanied by a ?1heck list@. Small Industries Development Bank of India !SIDBI" too has been playing an important role in the development of the SSI sector. The Small Industries -evelopment Gank of India 3SI-GI4 &as established in ())! as an apex bank for promotion, *nancing and development of industries in small sector and for coordination of all institutions engaged in these activities. SI-GI o:ers a &ide range of *nancial assistance through the schemes of direct *nance, re*nance and equity *nance, besides providing a diversi*ed range o support services to SSIs. Mhile serving the needs of the SSI sector, both in terms of lending and developmental support, the Gank has built a strong *nancial pro*le over the period of time. SI-GI has a net &orth of <s. "'.'( billion and total assets of <s. ('!.)! billion. The capital adequacy ratio of the bank &as 98.(D on "( st march 9!!(. -uring the year 9!!!%!(, SI-GI took strategic business initiatives and maintained the pace of its gro&th in sanctions and disbursements even against backdrop of slo& industrial gro&th. Total sanctions and disbursements during the year amounted to <s. (!8.9( billion and <s. $.( billion. The 17G< during the period ())!%9!!( &as ($.9D in terms of sanctions and (".D in terms of disbursements. The Govt. of India, in association &ith SI-GI, formulated a 1redit Guarantee 6und Scheme for Small Industries. The obEective of this scheme is to help ne& and existing industrial units in the SSI sector in getting collateral free,third party guarantee free credit by &ay of both term loan and &orking capital, from member institutions like scheduled commercial banks, <<Gs, or such those institutions as may be directed by Govt. and SI-GI, both of &hom have contributed <s. (.9# billion to the initial corpus of the trust for the year 9!!!%!( in the ratio of ;(. 6inancing and promotion of kno&ledge%based enterprises, &hich are primarily in the small and medium enterprises sector, have already emerged as the focus area. SI-GI has launched the SI-GI >ational Frogramme on Innovation and Incubation for Small Industries for the purpose of helping these kno&ledge based industries not only *nancially but in also other functional areas such as management support, strategic planning, seed,test marketing, etc. T#e Small Industries Development 5rgani$ation !SID5" &as set%up in ()# on the recommendations of the 6ord 6oundation 1ommittee for the purpose of promotion and development of Small Scale Interprises in the country. The main Indian partner to SI-. are SI-GI, >IS1, >ational Froductivity 1ouncil 3>F14, Gureau of Indian Standards 3GIS4, Technology Gureau for Small Interprises 3TGSI4, Indian Ganks 7ssociation 3IG74, and the 1entral Statistical .rganization 31S.4. The HaEor International partners to SI-. are as follo&s; 5> Industrial -evelopment .rganization 35>I-.4, 7sian Froductivity .rganization 37F.4, Morld Intellectual Froperty .rganization 3MIF.4, Gerellschaft fur Technische Nusammenarbeit 3GTN4 and International Small and Hedium Interprises >et&ork. The SI-. has set%up Small Industries Service Institutes !SISI"6 &hich are training, centers for the entrepreneurs and the small business o&ners. These training centers help to upgrade the kno&ledge of these entrepreneurs and keep them abreast &ith the latest on the technology front so that they too can be techno savvy and do not lose out to technically advanced players. SI-. participates in ' to 8 international exhibitions every year through Indian Trade Fromotion .rganization 3ITF.4, covering all continents, 5S7, Hexico, Grazil, 5/, Iuropean 5nion 3I54, <ussia, 7sia, and Hiddle Iast 7frica. The National Small Industries &orporation !NIS&" &as set%up in ()## to oversee the marketing e:orts of the small industries. The National Institute for Small Industry7s E/tension and Training !NISIET" &as set%up in ()$! in Cyderabad to concentrate on the training of entrepreneurs. In ())) a separate ministry for Small Scale Industries and 7gro and <ural Industries &as set%up. It is kno&n as the 4inistry of SSI 8 A(.. &ommittee7s on Small Scale Industries &ommittees set up )y 25I(BI to revie3 9o3 of Institutional credit to SSIs The nationalization of maEor commercial banks in ()$), inter alia, helped in the mobilization of additional funds, &hich, in turn, could be used for industrial development and enhanced lending for the SSI sector. The banking system &as called upon to play a leading role in the development of the economy, in general and meeting *nancial requirements of the social sector, in particular, especially that of agriculture, small%scale industries and services. Mhile the system of institutional credit has helped in substantial increase of Ko& of credit of the SSI sector, there have also been certain constraints relating to the timeliness and adequacy of credit, etc. In order to examine various aspects of credit dispensation, the Government of India,<eserve Gank of India has constituted various committees from time to time. These committees have come out &ith a number of recommendations covering di:erent aspects relating to Ko& of credit to the small%scale and measures for strengthening the *nancial system, etc. In the above backdrop, an endeavor has been made to put together key *ndings and recommendations of the follo&ing important committees; Nayak &ommittee : *;;1 1onsidering the contribution of the SSI sector to the overall industrial production, exports and employment and also recognizing the need to give *llip to this sector, a committee &as set up by the <eserve Gank of India on -ecember ), ())(, under the chairmanship of Shri. F. <. >ayak, the then -eputy Governor of <GI to examine the adequacy of institutional credit to the SSI sector and related aspects thereto. The committee submitted its report in ())9. Some of the maEor recommendations of this committee &ere; a4 Give preference to village industries, tiny industries and other small%scale units in that order, &hile meeting the credit requirements of the small%scale sector. b4 Grant &orking capital credit limits to SSI units computed on the basis of minimum 9! percent of their estimated annual turnover &hose credit limit in individual cases is upto <s. 9 crore 3since raised to <s. # crore4. c4 Frepare annual credit budget on the Obottom%up+ basis to ensure that the legitimate requirements of the SSI sector are met in full. d4 Ixtend OSingle Mindo& Scheme+ of SI-GI to all districts to meet the *nancial requirements 3both &orking capital and term loan4 of SSIs. e4 Insure that there should not be any delay in sanction and disbursal of credit. In case of reEection,curtailment of credit limit of the loan proposal, a reference to higher authorities should be made. f4 >ot to insist on compulsory deposit as a Oquid pro%quo+ for sanctioning the credit. g4 .pen specialized SSI bank branches or convert those branches, &hich have a fairly large number of SSI borro&al accounts, into specialized SSI branches. h4 Identify sick SSI units and take urgent action to put them on nursing programmes. i4 Standardize loan application forms for SSI borro&ers. E4 Impart training to sta: &orking at specialized branches to bring about attitudinal change in them. Gank have implemented of the above recommendations. E/pert &ommittee on Small Enterprises <A)id =ussain &ommittee> : *;;? The small%scale sector has a prominent place in the Indian economy. The onset of economic reforms and opening up of the economy has posed ne& challenges before SSIs. It has been &idely ackno&ledged that there is need for reforms in the la&s, policies and programmes governing the establishment, promotion and expansion of SSIs. Given this background, the -epartment of Small Scale Industries and 7gro and <ural Industries, Hinistry of Industry, Government of India, in -ecember ())#, set up an Ixpert 1ommittee under the 1hairmanship of Shri. 7bid Cussain, 6ormer Hember Flanning 1ommission. The 1ommittee submitted its report in Panuary ())'. The recommendations contained in the report submitted to the Hinistry of Industry, Government of India are unique in nature. The committee not only examined issues relating to the availability of credit to small Industry, but also covered the impact of globalization and technological changes on the small% scale sector. 7 fe& of the maEor recommendations of the Ixpert Group &ere; 3a4 7bolition of all 8"$ items reserved for SSI production and transitional arrangement of <s. # billion per annum for rehabilitation of units a:ected by de%reservation. 3b4 Iarmarking '! percent of priority sector credit going to SSI sector for the tiny sector. 3c4 Separate la&s for the small enterprises and removal of Inspector <aE. 3d4 <estructuring and strengthening of -istrict Industries 1entres 3-I1s4, State 6inancial 1orporations, Small Industries -evelopment 1orporations. 3e4 1orporatisation of government extension agencies to set up to support the SSI sector. @apoor &ommittee : *;;A In spite of the detailed instructions,directions issued by the <eserve Gank of India in accordance &ith the recommendations &ith the >ayak 1ommittee, the problems earlier faced by SSIs still persisted. 7larmed at the continuing problems and non%adherence of its guidelines on the Ko& of credit to SSI sector, the <GI set up a high%po&ered committee under the 1hairmanship of Shri. S. B. /apoor, Hember, GI6< and former secretary 3SSI L 7<I4 to revie& the &orking of credit delivery system for the SSIs. Some of the maEor recommendation of the 1ommittee &ere; Special treatment should be accorded to smaller among the small industries. The quantum of limits of composite loans should be enhanced. The procedural di2culties in obtaining loans by SSIs should be removed. The issues relating to mortgages of land including removal of stamp duty and permitting equitable mortgages should be sorted out. The small Industries -evelopment Gank of India 3SI-GI4 should be allo&ed access to lo&%cost funds for re*nancing SSI loans. The obtaining of collaterals for loans upto <s. 9 lakh should be dispensed &ith. 7 collateral reserve fund to provide support to *rst party guarantees should be set up. Mith a vie& to building industrial areas in,around metropolitan and urban areas, a Small Industries Infrastructure -evelopment 6und should be put in place. The de*nition of sick units requires appropriate changes in the emerging scenario. The State Bevel Inter Institutional 1ommittees 3SBC1s4 should be armed &ith statutory po&ers. 7 separate guarantee organization and (,!!! additional special bank branches should be set up. The role de*ned for an the status accorded to SI-GI should be so as to match &ith that of >ational Gank for 7griculture and <ural -evelopment 3>7G7<-4. .ut of the (9$ recommendations of the 1ommittee, 8$ have been accepted and implemented by <GI , banks , >7G7<- , SI-GI , other agencies. .f the remaining ! recommendations, (8 have not been accepted and 99 are under examination by the Government of India. B.B Dr. S. ,. 2upta Study 2roup on Development of Small Enterprises : 1CCC 7t the instance of the -eputy 1hairman, Flanning 1ommission, a Study Group on -evelopment of Small Interprises &as set up under the 1hairmanship of -r. S. F. Gupta, Hember, Flanning 1ommission. Mhile constituting this Study Group, &ide representation &as given to SSI associations, economists, Hanagement Institute, SSI entrepreneurs, <GI, SI-GI etc. Some of the Important recommendations of the Study Group &ere;% A. 7 three%tier de*nition of SSIs covering tiny, small and medium sector. Hedium sector de*nition has been brought in for the *rst time to help SSI units to graduate to medium and then to large scale. Hedium scale units 3<s. ( crore to <s. (! crore4 &ould not be provided *scal and other policy support as available to SSI units .Co&ever, these units &ould be helped by providing credit for technology up%gradation and modernization from a separate fund. B. >eed of bringing a&areness in small industries sector about MT. implications and its impact on SSI sector, particularly due to bringing more items under .GB as per MT. obligation. Setting up of a ne& cell in the o2ce of -1 3SSI4 for matters relating to MT. and its implications on SSI sector. &. >eed for a single comprehensive la& for SSI sector, like Small Gusiness 7dministration 3SG74 7ct of 5nited States. D. This Study Group has recommended that presently reservation should be continued for SSI sector. Co&ever, to enhance exports, the Study Gropu has recommended that non%SSI units can take up production of reserved items &ith "! percent export obligation to be completed over three years. Fresently, this limit is #! percent. E. The Study Group has recommended to raise investment ceiling from <s. ( crore to <s. # crore for plant and machinery for export%oriented industries like leather products, garments, hosiery, hand tools, toys, packaging materials, auto components, pharmaceuticals, food processing etc. D. 6or infrastructure development, the Study Group has recommended a corpus of <s. 9!!! crore so that adequate infrastructure facilities are available to the SSI sector. 2. To encourage technocrat entrepreneurs in high%tech industries like electronics, information technology, biotechnology, pharmaceuticals, an Infrastructure -evelopment 6und &ith a corpus <s. (!!! crore has been recommended by the Study Group for setting up of Incubation 1entres 3I1s4 in the Tenth Flan. These I1s &ould provide all facilities and *nance, technical consultancy, etc. to encourage technocrats and *rst generation entrepreneurs to successfully take up production based on recent technologies having potential, but not tried so far. Such incubation centres have given good results in developed countries as &ell as South Iast 7sian countries. =. Mith a vie& to encourage large units to make prompt payment to SSI units against deliveries made by SSI units, the Study Group has recommended; Bead role of associations as done by 1II by issuing a code of ethics on prompt payment to its members. -enial of H.-07T credit to defaulters in respect of payment to SSI units for more than (9! days+ delay. 7mendment of Income Tax 7ct to disallo& unpaid SSI bills from business expenditure. Strengthening of factoring services, and Honitoring of implementation of Interest on -elayed Fayments to Small Scale and 7ncillary Industrial 5ndertakings 7ct, ())", by -1 3SSI4. I. To encourage better linkages bet&een large and medium units, the Study Group has recommended; 6-I to be encouraged in SSIs technology transfer 3&ithin the permitted ceiling of equity participation by large scale units in the equity of SSI units4. 7llo&ing excise exemption on SSI manufactured goods for large units under brand name in urban areas as is presently allo&ed for rural areas. E. The Study Group has recommended enactment of Bimited Fartnership 7ct to bring in more risk capital in SSI sector and the concept of limited liability. S7H7-C7> scheme for one time settlement of dues of sick SSI units so that assets could be re%utilized. Sick units to make one time payment including interest not more than double of the credit,loan amount. This &ould provide an exit route to entrepreneurs of sick units. @. To free the SSI sector from rigid and harassing regulatory la&s applicable to the SSI sector and to reduce inspector+s visits, the Study Group has recommended a number of measures, like 3i4 need for a single uni*ed 7ct for small enterprises, 3ii4 replacement of inspection by self% certi*cation, 3iii4 simpli*cation of regulatory la&s, etc. .. To enhance the data base for the SSI sector, the Study Group has recommended 3i4 conduction of fresh census for SSI sector, 3ii4 collection of detailed data on clusters, 3iii4 Sample surveys by the o2ce -1 3SSI! to be conducted annually, and 3iv4 involvement of SSI associations in the census and other data collection activities. 4. The Study Group has made a number of recommendations for human resource development of SSI sector, &hich includes inputs like training, skill upgradation, ne& management practices, etc. N. The Study Group has also made a number of recommendations on *scal and *nancial measures covering; Setting up of targets for tiny and SSI units for credit from banks and 6Is under priority sector lending. >eed for reduction of cost of credit for SSI sector. Heasures for strengthening resource support to SI-GI and to make available cheaper resources for on lending at lo& interest rates to SSI sector. 0enture capital for SSIs. Setting up of a special venture capital type fund of <s. #!! crore to be named as Bagu 5dyog >irman >idhi for equity support. Standardization of procedure and simpli*cation of forms by banks. Statutory backing to State Bevel Inter%Institutional 1ommittees 3SBC1s4. <ising of present excise exemption limit from <s. #! lakh to <s. (!! lakh. 6ive percent notional H.-07T credit to large units buying components, etc. from SSI units. Ixemption from excise registration and visits of excise inspectors until the turnover reaches a limit of <s. #! lakh &ith a system of self%declaration. Ixtension of 1redit Guarantee 6und Scheme &ith a corpus of <s. 9#!! crore. 7llo&ing additional (!%percentage point abatement over and above the existing rate of abatement under Haximum <etail Frice 3H<F4 based assessment to levy excise duty on SSI products. Fresently large and small units are allo&ed "! to #!%percentage point abatement on H<F for levying excise duty. Hore e:ective monitoring of credit Ko& to SSI sector by the Honitoring 1ommittee of <eserve Gank of India. To make available credit to SSI sector at a reasonable cost, viz. FB< plus three percent. <aising the limit of composite loans from <s. (! lakh to <s. 9# lakh to encourage tiny units to get term loan and &orking capital from same bank,6I. >ot to cover all future *xed assets of assisted units for securing its advances. >eed for restructuring of S61s. Heasures to enhance resource support to SI-GI. Heasures for time%bound disposal of loan applications and easy documentation. 5. The Study Group has recommended follo&ing measures for technology up%graduation and modernization of SSI units namely Setting up of a Technology Gank for collection and dissemination nof information about technology sources. 7 technology 5p%gradation L Hodernization 6und of <s. #!!! crore &ith an internet subsidy of *ve percent. 7ccelerated depreciation on plant and machinery installed for technology up%gradation and modernization. 6ive percent custom duty on capital goods &ith import obligation and *ve percent interest subsidy as recommended for technology modernization. ,. To provide increased marketing support to the SSI sector, the Study Group has recommended that; Statutory backing and continuation of the Frice Freference 3up to (# percent to SSI products4 under Government Furchase Frogramme and Furchase Freference Scheme in respect of "#8 items on purchases made by government departments. 5p to "" percent of government purchases may be done from SSI sector on the lines of 5S7. Industry status of all types of consortium industries so that they can avail *nance from banks and 6Is. Subsidization of participation of SSI units up to #! percent in airforce for export related buyer%seller meets. Timely releases of institutional *nance for export orders of SSI units. The recommendations made by the study group are far ranging and important. They under consideration o the Government of India. It is important that these are accepted and incorporated in letter and spirit, so as to provide maximum bene*ts to the SSI sector. Dlo3 of &redit to SSI sector 7s you kno&, the development of Small Scale Industries 3SSI4 sector has been an important plan of India+s industrial policy. SSIs in India have been given a distinct identity and the Government has accorded high priority to this sector on account of the vital role it plays in balanced and sustainable economic gro&th. It plays a crucial role in the process of economic development by value addition, employment generation, equitable distribution of national income, regional dispersal of industries, mobilization of capital and entrepreneurial skills and contribution to the country+s expert earnings . 7t the end of Harch 9!!9, ". lakh SSI units in the country have been contributing !D of the total industrial output, "#D of national export and giving employment to ()9.9 lakh persons. 6uther, &ith the *xing of the target for ne& Eob creation at .# million by the SSI sector and gro&th target at (9D under the (! th Flan, the requirement of credit dispensation to this sector &ill be much higher than at the present levels. 1redit Ko& to SSI sector is mainly through 9' public sector banks. 1redit Ko& to SSI sector is mainly through 9' public sector banks. Gesides, credit is extended to this sector through the Indian private sector banks and foreign banks in India. The <egional <ural Ganks and Bocal 7rea Ganks supplement the e:orts of the scheduled commercial banks. 1redit to this sector is also provided by urban cooperative banks, state and -istrict 1entral cooperative banks, state *nancial corporations, non% banking *nancial companies 3>G61s4, SI-GI and >7G7<-. 1redit Ko& to this sector extended by the public sector banks since ())$ vis%Q%vis the net bank credit is indicated belo&; !(s. In crores" As at t#e end of 4arc# Net Bank &reditTotal Advances to SSI 0 to net Bank &redit ())$ (8")( 9)89 ($.! ())' (8)$8 "(#9 ($.$ ())8 9(89() "8(!) ('.# ())) 9$9!" 9$' ('." 9!!! 9)9)" #'88 (#.$ 9!!( "!88' 8# (.9 9!!9 ")$)# )'" (9.# 9!!" ''8)) #9)88 ((.( The details of outstanding advances 3provisional4 in respect of the Fublic sector banks are furnished in the 7nnexure. It may be observed from the above that Ko& of credit to SSI has gone up considerably from <s. 9)89 crore in Harch ())$ to <s. #9)88 crore in Harch 9!!" 3provisional available data4 in absolute terms. Co&ever, in terms of percentage to >et Gank 1redit 3>G14 as &ell as year%on%year gro&th, it has come do&n considerably. 6urther, the year to year gro&th in bank credit to SSI in percentage terms also sho&s a slo&ing do&n 3except 9!!9%!"= $.#D4. 3())8%)); (9.!D, ()))%9!!!; '."D= 9!!!%!(; #.8D= 9!!(%!9; 9.'D4. Some of the maEor problems,challenges faced by the SSI sector in India are as under; >on%availability of collateral free loans, 1ost of loans -elayed payments Harketing. 1hallenges emanating from MT. related issues. Cigh Bevel of >F7s and sickness. Gased on the recommendations of the >ayak 1ommittee and /apoor 1ommittee, the <eserve Gank of India and Govt. of India have Initiated the follo&ing policy measures to increase credit Ko& to SSI sector as &ell as address some of the above problems; i4 1omputation of &orking capital requirements of SSI units on the basis of simpli*ed method of minimum 9!D of the proEected annual turnover of the unit for borro&al limits up to <s. # crore. ii4 Ganks to ensure that out of their total funds lent to SSI sector, at least !D should be made available to units &ith investment in pland and machinery up to <s. # lakh and 9!D should be made available to units &ith investment in plant and machinery bet&een <s. # and 9# lakh. Thus $!D of the funds earmarked for SSI sector should go to small units in tiny sector. iii4 Increase in the exemption limit for all SSI borro&al accounts for obtention of collateral security for loans from the existing <s. (# lakh to <s. 9# lakh based on good track record and *nancial position of the units. iv4 Ganks &ere advised to enhance the composite loan limit from <s. 9# Bakh to <s. #! lakh. v4 Inclusion of lending by banks to >G61s or other intermediaries for the purpose of on%lending to the SSI sector &ithin the ambit of priority sector lending to enhance the reach of banks to the tiny sector. vi4 Introduction of ne& 1redit Guarantee Scheme for Small Industries by SI-GI. 1olateral free loans up to <s. 9# lakh is covered for guarantee 5nder the scheme. vii4 7s per decision of the " rd meeting of Standing 7dvisory 1ommittee on 1redit Ko& to SSI sector, banks have been advised to set the interest rate on advances keeping in vie& prevailing general south&ard movement in interest rates. viii4 7s per the announcement made by the Con+ble 6inance Hinister in the 5nion Gudget 9!!"%!, IG7 have already advised the banks to adopt the interest rate band of 9 percent above and belo& its prime lending rate 3FB<4 for secured advances. 7ll the public sector banks have advised having issued necessary instructions to their controlling o2ces,branches in this regard. ix4 Ganks have been advised to open at least one Specialized SSI branch in each district. 6urther banks have been permitted to categorise their general banking branches having $!D or more of their advances to SSI sector as specialized SSI branches in order to encourage them to open more specialized SSI branches for providing better service to this sector as a &hole. x4 5nder the 7mendment 7ct, ())8 of Interest on -elayed Fayment to Small Scale and 7ncillary Industrial 5ndertakings, penal provisions have been incorporated to take care of delayed payments to SSI units &hich inter%alia stipulates. agreement bet&een seller and buyer shall not exceed more than (9! days. payment of interest by the buyers at the rate of one and a half times the prime lending rate 3FB<4 of SGI for any delay beyond the agreed period not exceeding (9! days. 6urther, banks have been advised to *x sub%limits &ithin the overall &orking capital limits to the large borro&ers speci*cally for meeting the payment obligation in respect of purchases from SSI. xi4 Ganks have been advised to develop schemes to encourage investment by SSI units in technology up% gradation. Govt. have also introduced the scheme of 1redit Binked 1apital Subsidy for the up%gradation of the Small Scale Industries. Ixtension of the scheme for granting <s. '#,!!!,% to each unit for IS. )!!! till the end of (! th Flan. xii4 The individual credit limit to artisans, village and cottage industries for reckoning under advances to &eaker sections is increased to <s. #!!!!,% from the present limit of <s. 9#!!!,%. xiii4 7s per the decisions taken at the Standing 7dvisory 1ommittee Heetings the banks have been advised to *x self set target for gro&th in advances to SSI sector over the previous year+s achievement and overall trends in gro&th of net bank credit. xiv4 To address the incidence of sickness, <GI has issued a complete set of revised guidelines in Panuary 9!!9 based on recommendations of the Morking Group under the 1hairmanship of Shri. S. S. /ohli. xv4 7s per decision of the th meeting of Standing 7dvisory 1ommittee on 1redit Ko& to SSI sector, banks have been advised to examine having at least " slabs of rate of interest for loans up to <s #!!!!, bet&een <s #!!!! L <s. 9 lakh and above <s. 9 lakh and above <s. 9 lakh. xvi4 Ganks have been advised to incorporate in their 7nnual 1redit Flans for the year 9!!"%! the credit requirement in the clusters identi*ed by the Hinistry of SSI, Govt. of India. xvii4 Ganks have been advised to recognize Interest Subsidy Iligibility 1erti*cates 3ISI14 issued by /0I1 for extending credit to entrepreneurs. To mitigate the problem of delayed payment, banks have been advised to *x sub%limits &ithin the overall &orking capital limits to the large borro&ers speci*cally for meeting the payment obligation in respect of purchases from SSI. To make available timely credit to the sector a time frame has been *xed for disposal of loan applications i.e. up to <s. 9#!!!,% &ithin 9 &eeks and up to <s. # lakh, &ithin &eeks provided the loan applications are complete in all respect and accompanied by a Ocheck list+ and banks have been instructed to adhere to the guidelines. To tackle the marketing problems, besides bank *nance for marketing related activities, dissemination of requisite information on demand pattern, futuristic trend, etc. could be made available by the -evelopment Institutions , SSI 7ssociations, etc. To supplement the measures initiated by <GI to&ards this sector, Hinistry of SSI, Govt. of India has also been taking some important steps for improved credit Ko& to the SSI sector and also to promote the healthy gro&th of the sector., 0iz. i4 Inhancement in investment limit to <s. # crore in respect of certain speci*ed items such as hosiery, handtools, drugs L pharmaceuticals and stationery items. ii4 Hore emphasis on cluster based approach for development of SSI sector. So far Hinistry has identi*ed $! 1lusters for focused development of SSI and banks have been advised by <GI for initiating necessary steps to meet their credit requirements of the SSIs in these clusters e:ectively. iii4 Frovision of *scal incentives to the SSI units in terms of complete exemption from excise duties or payment of lo&er rates, income tax exemption, etc. iv4 Baunching of schemes for technological up%gradation and modernization, protection of &orkers a:ected by technological up%gradation and modernization, infrastructure development, entrepreneurship development, etc v4 To face the challenges emanating from the MT. agreement by the SSI units irrespective of their size need technology up%gradation and modernization, an a&areness about the implications of MT. agreement has been created by the Government as &ell as entrepreneurs and the corporate. The Government has been making e:orts to provide good infrastructure and create level playing *eld for the industry. 1onsidering the fund constraints &ith SSI sector Government has introduced the credit linked capital subsidy scheme for Technology up gradation of Small Scale Industries under &hich (9D back ended capital subsidy &ould be admissible on the loans advanced to the SSIs by banks,*nancial institutions for technology up%gradation in certain select sectors. -ata on Ko& of credit to SSI sector, including collateral free and composite loan are being obtained by <GI from all implementing banks on quarterly basis and consolidated at our end. 1opy of the same is being for&arded to the Hinistry of 6inance and Hinistry of SSI for information and necessary action. The performance of the banks are critically revie&ed in di:erent for a such as -11,-B<1,SBG1 &here besides the representatives of <GI, implementing banks, representatives from concerned State Government departments participate in the discussion. Gesides all the above fora, credit Ko& to this sector is being critically revie&ed at the 7pex level in the meetings of standing 7dvisory 1ommittee 3S714 under the chairmanship of the -eputy Governor of <GI. Gesides the Senior level o2cials of Hinistry of 6inance, Hinistry of SSI, Govt. of India, 1H-s of maEor public sector banks, representatives from >ational and State level SSI associations participate in the discussion. The issue of *xing of a separate Sub%target to SSI &ithin the overall target of Friority Sector &as discussed in the last 39 nd L " rd 4 Standing 7dvisory 1ommittee Heetings. It &as observed that if sub%target for both agriculture and SSI are prescribed at (8D and 3say4 ($D of >et Gank 1redit 3>G14 very little &ould be left for other deserving areas under priority sector such as education, rural housing, small business, retail trade, micro *nance etc. and it may result in a cro&ding out e:ect. Co&ever, in order to achieve the desired obEective of increased credit Ko& to SSI sector, in the " rd Heeting of Standing 7dvisory 1ommittee and <evie& Heeting on Implementation of 7ction Foints of " rd S71 Heeting, it &as agreed that banks shall consider budgeting their gro&th in advance to SSI sector keeping in vie& the trends in gro&th of net bank credit less food credit and consider *xing self%set target for gro&th in advances to SSI sector over the previous year+s achievement and overall trends in gro&th of net bank credit. 7lmost all the public sector banks have advised having *xed self set target for gro&th to SSI sector for the year 9!!"%!. Me &ill be monitoring the credit Ko& to SSI sector accordingly. ?7reas of concern@ relating to this sector -emand side Though the quantum of credit to SSI sector has been going up and the total credit to this sector by public sector banks stood at <s. #9)88 crore in Harch 9!!" 3provisional available data4, year to year gro&th in percentage terms sho&s a slo&ing do&n 3())8%));(9.! D, ()))%9!!!; '."D= 9!!!%!(; #.8D= 9!!(%!9; 9.'D4. Globalization,liberalization and recent MT. agreement% increased competition and challenges from H>1s and others. The solution to face such challenges lies in technology upgradation, modernization, emphasis on core competence and promoting clusters,industrial estates. To facilitate this R ?Technology 5p%gradation 6und Scheme@ of SI-GI and ?1redit Binked 1apital Subsidy scheme for Technology 5p%gradation of SSI@ of Hinistry of SSI L 7<I. >eed for entrepreneurship -evelopment Frogramme. <GI has advised banks to set up training institutes in the lines of ?<5-SITI@ Eointly &ith State Governments by utilizing their existing infrastructures of it is, SISIs. Me have also advised our <egional .2ces to take up the matter &ith SBG1 convener banks for setting up of training institutes in the lines of <5-SITI in their states. SI-GI has been undertaking Intrepreneurship -evelopment Frogramme for promotion of enterprises &ith speci*c focus on less privileged sections of the society like &omen, S1,ST, Ix%servicemen. Supply Side Cigh cost of 1redit. 7s per extent guidelines the banks are required to *x their o&n prime lending rates 3FB<s4 and the maximum band over the FB<. The interest rates on loans up to <s. 9 lakhs should not exceed the FB< and that beyond <s. 9 lakh is left to the discretion of the banks subEect to FB< and the maximum bands. The banks have been advised to accord SSI units &ith a good track record the bene*t of lo&er spreads over the FB<. Co&ever, the lending rates have come do&n considerably in recent times as a result of <GI follo&ing the Folicy of softer interest rate bias. -elays in sanctioning of loans,credit and inadequate provision, vis%Q%vis, requirements. Ganks have been instructed to observe a time schedule of a fortnight for disposal of loan applications up to <s. 9#!!! and &eeks for disposal of loan applications up to <s. # lakhs provided loan applications are complete in all respect and accompanied by O1heck list+. They have also been advised to communicate the decisions, sanction or other&ise, promptly. Gro&ing >F7 and incidence of sickness. Sector%&ise >F7s in SSI sector to total >F7s in the books of public sector banks for last " years 3as at the end of Harch4 is as under;
3<s. In crore4 -ear N,As in SSI sector Total N,As ,ercentage 1CC* *CFF;.B* GF6*?B.*1 *;.G 1CC1 *CGAF.;G GH6GCH.FB *A.? 1CCF *C*H*.GF G16GCH.FB *;.1 To address the incidence of sickness, <GI has issued a complete set of revised guidelines in Panuary, 9!!9 based on recommendations of the Morking Group under the chairmanship of Shri. S. S. /ohli. Hicro%6inance%SCG%Gank linkage programme is an important tool for development of this sector. Specialized 6inancial Institutions set up under the patronage of State Governments namely State 6inance 1orporations 3S61s4 for development of this sector have failed to live up to the expectation%one of the main reasons being very high level of their >F7s.