1

THE IIS UNIVERSITY

DEPARTMENT OF ECONOMICS

IMPACT OF SMALL SCALE INDUSTRIES ON INDIAN
ECONOMY





SUBMITTED TO: MAAM VAISHALI
SUBMITTED BY: DEVIKA SHARMA
ENROLLMENT NO. : ICG/2013/15166
CLASS: B.A (H) ECO SEM-2

2

CONTENTS




S.NO. TOPI CS PAGE NO.
1. Introduction 3
2. Background 4
3. Definitions of SSI and classification 5
4. Administrative setup 6
5. Role of SSI in the development of
Indian economy
7
6. Problems of SSIs 14
7. Government assistance to SSIs 17
A. Institutional Support
B. Incentives 20
8. Conclusion 22
9. Bibliography 23
3

INTRODUCTION

Small Scale Industry (SSI) has been one of the most dynamic components of the Indian Industry
and it occupies an important place in Indias industrialization strategy. SSIs comprise of several
types of units producing a variety of goods and services. There are several subdivisions within
SSIs. It incorporates both organized and unorganized manufacturing and services sectors. They
range from modern production units with big investments in plant and machinery to small
handicraft units and even to women-run home based enterprises. SSI sector has been the most
labour-intensive sector after Agriculture because of its less capital intensive and high labour
absorption nature. SSI has enormous growth potential; it contributes significantly to industrial
production, employment, exports and rural industrialization as well as expansion of industrial
activity across the country. SSI units are flexible enough to adapt to changing business
conditions and customer requirements.

SSI sector is ideally suited to build on the strengths of our traditional skills and knowledge, by
infusion of technologies, capital and innovative marketing practices. Small industry sector has
performed exceedingly well and enabled our country to achieve a wide measure of industrial
growth and diversification. Another important feature of SSIs is that there are both registered and
unregistered SSI units.









4

BACKGORUND
India has traditionally always had a very vibrant and competitive SSI. Even after the dawn of
industrialization, British producers of textiles found handmade Indian textiles such a threat that
they lobbied hard to have its import banned, succeeding in the late eighteenth century. During
pre-economic liberalization period a wide variety of incentives, concessions and institutional
facilities were extended for the development of SSIs. But these socialistic promotional policy
measures, in many cases resulted in protection of weak units rather than the independent growth
of units under competitive business environment. Such situation was continued up to the mid of
1991. Under the regime of economic liberalization, the focus was shifted from protection to
competitive promotion

The public policy in India had been attaching lot of importance to village and SSI on the
following grounds. SSI being labor-intensive, helped to increase the volume of employment,
particularly in rural areas, it is estimated that about 2 crore persons are engaged in India in these
industries.














5

DEFINITION AND CLASSIFICATION OF SSIs

The definition of SSI sector has witnessed many changes over the years. The sector is defined in
terms of investment limits.
YEARS INVESTMENT
1977 Less than 10 lakhs
1991 Less than Rs 60 lakhs
2000 Less than Rs 1 crore
2006 onwards between Rs 25 lakhs and Rs 5 crores
CLASSIFICATION
The SSIs in India are broadly classified into two types: Traditional industries and Modern
industries. Both the types of SSIs are prevalent in India. Under traditional industries basically
Khadi village industries, handlooms, etc. are included while modern SSI industries include small
scale; export oriented and small scale service and business enterprise.



a









Small Scale Industries
Tradition
Khadi
Village Industries
Handlooms
Coir Industries
Sericulture
Cottage
Artisans



Modern
Small Scale
Export Oriented
Ancillaries
Tiny Enterprises
Small Scale Services and
Business Enterprises
With Power
Without
Power
Power Looms
6

ADMINISTRATIVE SETUP OF SSIs
The Government of India created the ministry of small scale industries and agro and rural
industries as the nodal ministry for the formulation of policy and coordination of central
assistance for the promotion of SSIs in India. The Ministry was bifurcated into two separate
ministries, viz., Ministry of Small Scale Industries and Ministry of Agro and Rural industries in
2001.
The Ministry of Micro, Small and Medium Enterprises acts as the nodal agency for growth and
development of SSIs in the country. The ministry formulates and implements policies and programmes
in order to promote small scale industries and enhance their competitiveness. It is assisted by various
public sector enterprises like:-
Small Industry Development Organization (SIDO) is the apex body for assisting the
Government in formulating and overseeing the implementation of its policies and
programmes/projects/schemes.
National Small Industries Corporation Ltd (NSIC) was established by the Government
with a view to promoting, aiding and fostering the growth of SSI in the country, with
focus on commercial aspects of their operation.
State Governments also execute different promotional and developmental projects and schemes
to provide number of supporting incentives for development and promotion of SSIs in their
respective states. These are executed through the State Directorate of Industries, who has District
Industries Centers (DICs) under it to implement central/state level schemes.







7

ROLE OF SSI IN INDIAN ECONOMY

In a developing country like India, the role and importance of small-scale industries is very
significant towards poverty eradication, employment generation, rural development and creating
regional balance in promotion and growth of various development activities.
The small-scale industries have been playing an important role in the growth process of Indian
economy since independence in spite of stiff competition from the large sector and not very
encouraging support from the government.
Table 1: Units, Production, Employment and Export in SSI
Year Units
(Million
nos.)
Production (` Billion)
Employment
(Million
nos.)
Production per
Employee
(` thousand)
SSI Export
At constant
Prices
At current
prices
At constant prices ` Billion US $ Million
1 2 3 4 5 6 7 8
1977-78 0.67 528.00 143.00 5.40 98 8.00 987
1978-79 0.73 582.00 158.00 6.38 91 11.00 1303
1979-80 0.81 664.00 216.00 6.70 99 12.00 1518
1980-81 0.87 722.00 281.00 7.10 102 16.00 2078
1981-82 0.96 783.00 326.00 7.50 104 21.00 2309
1982-83 1.06 847.00 350.00 7.90 107 20.00 2116
1983-84 1.16 935.00 416.00 8.42 111 22.00 2093
1984-85 1.24 1046.00 505.00 9.00 116 25.00 2137
1985-86 1.35 1181.00 612.00 9.60 123 28.00 2263
1986-87 1.46 1336.00 723.00 10.14 132 36.00 2851
1987-88 1.58 1505.00 873.00 10.70 141 44.00 3372
1988-89 1.71 1699.00 1064.00 11.30 150 55.00 3790
1989-90 1.82 1899.00 1323.00 11.96 159 76.00 4579
1990-91 6.79 847.28 788.02 15.83 54 96.64 5386
1991-92 7.06 873.55 806.15 16.60 53 138.83 5632
1992-93 7.35 922.46 844.13 17.48 53 177.84 6140
1993-94 7.65 987.96 987.96 18.26 54 253.07 8068
1994-95 7.96 1087.74 1221.54 19.14 57 290.68 9258
8

1995-96 8.28 1211.75 1477.12 19.79 61 364.70 10903
1996-97 8.62 1348.92 1678.05 20.59 66 392.48 11056
1997-98 8.97 1462.63 1872.17 21.32 69 444.42 11958
1998-99 9.34 1575.25 2104.54 22.06 71 489.79 11642
1999-00 9.72 1703.79 2337.60 22.91 74 542.00 12508
2000-01 10.11 1844.01 2612.97 24.09 77 697.97 15278
2001-02 10.52 2822.70 2822.70 24.93 112 712.44 14938
2002-03 10.95 3067.71 3148.50 26.02 116 860.13 17773
2003-04 11.40 3363.44 3645.47 27.14 122 976.44 21249
2004-05 11.86 3729.38 4297.96 28.26 130 1244.17 27690
2005-06 12.34 4188.84 4978.42 29.49 140 1502.42 33935
2006-07 36.18+ - 13513.83 * 80.52 + - 1825.38 40309
2007-08 # 37.74 - 14351.79 84.22 - 2020.17 50202
2008-09 # 39.37 - 15242.35 88.11 - - -
2009-10 # 41.08 - 16193.56 92.22 - - -
2010-11 # 42.88 - 17215.53 96.57 - - -
2011-12 # 44.77 - 18343.32 101.26 - - -
Note 1. The data for the period up to 2005-06 is of Small Scale Industries (SSI). Subsequent to 2005-06, data with
reference to Micro, Small and Medium Enterprises (MSMEs) are being compiled.
2. For column 3, since 2001-02, production figures are at 2001-02 prices.

The following are some of the important role played by small- scale industries in India.
1. Expansion of SSI sector and its output:
The small- scale industrial sector has recorded a high growth rate since independence in spite of
stiff competition from the large sector and not so encouraging support from the government. This
is evidenced by the number of registered units which went up from mere 16,000 units in 1950 to
36,000 units in 1961 and to 10.11 million units in 2000-2001. During the last decade alone, the
small scale sector has progressed from production of simple consumer goods to the manufacture
of many sophisticated and precision products like electronics control systems, micro-wave
components, electro-medical equipments, T.V. sets etc.
As far as the output of the SSI unit is concerned, it was Rs.1,22,154 crore in 1994-95 and this has
considerably risen to Rs.4,18,263 crore in 2004-2005 (at current prices). Production in SSI sector
9

during the last ten years has recorded an annual average growth rate of 8.6 percent. The share of
small-scale industries in the countries industrial output is around 39 percent.




2. Employment generation:
A Small Scale is labour -oriented and labour intensive with relatively high labour-investment
ratio. A given amount of capital invested in this sector of industries is likely to provide more
employment, at least in short run, than the same amount invested in a large industry. It is
estimated that an investment of Rs.1.00 lakh, in fixed assets, in a large industry may create, on an
average, employment to 2-4 persons whereas the same amount of investment made in a small-
scale industry, for the same purpose, might do so for 10-12 persons. This is one of the main
0
10
20
30
40
50
Units (Million nos.)
Units (Million nos.)
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
20000
1
1
9
7
8
-
7
9
1
9
8
0
-
8
1
1
9
8
2
-
8
3
1
9
8
4
-
8
5
1
9
8
6
-
8
7
1
9
8
8
-
8
9
1
9
9
0
-
9
1
1
9
9
2
-
9
3
1
9
9
4
-
9
5
1
9
9
6
-
9
7
1
9
9
8
-
9
9
2
0
0
0
-
0
1
2
0
0
2
-
0
3
2
0
0
4
-
0
5
2
0
0
6
-
0
7
2
0
0
8
-
0
9

#
2
0
1
0
-
1
1

#
Production (`Billion) At constant
Prices
Production (`Billion) At current
prices
10

considerations for an overpopulated and developing country, where millions of people are either
unemployed or underemployed, to utilize the possible potentiality of this sector for providing
employment opportunity not only to the educated and technical manpower but also to the
unlimited labour force which have been increasing, day by day, at a relatively low capital cost
and very short gestation period.
Further, the encouragement to small scale would, no doubt, serve to counter the seasonal un-
employment of the agricultural labour force and thus utilize it which otherwise would go waste.
The small-scale industrial sector has employed a total of 191.4 lakh people in 1994-95 and this
number has consistently risen to 282.6 lakh people in 2004-05. Within the manufacturing sector
itself, small industrial sector contributes about four-fifths of manufacturing employment in India.
Given the acute unemployment, underemployment and disguised unemployment problem in
India, creation of employment opportunities will depend crucially to the development of small
scale industries. This would be clear from the fact that while employment in the industrial sector
as a whole including large scale, medium scale and small scale has increased by only2.21
percent per annum over the period from 1972 to 1987-88,employment in small-scale sector grew
at the rate of 5.45 percent per annum over the same period.

0
20
40
60
80
100
120
1
9
7
7
-
7
8
1
9
7
9
-
8
0
1
9
8
1
-
8
2
1
9
8
3
-
8
4
1
9
8
5
-
8
6
1
9
8
7
-
8
8
1
9
8
9
-
9
0
1
9
9
1
-
9
2
1
9
9
3
-
9
4
1
9
9
5
-
9
6
1
9
9
7
-
9
8
1
9
9
9
-
0
0
2
0
0
1
-
0
2
2
0
0
3
-
0
4
2
0
0
5
-
0
6
2
0
0
7
-
0
8

#
2
0
0
9
-
1
0

#
2
0
1
1
-
1
2

#
Employment (Million nos.)
Employment (Million nos.)
11



3. Mobilization of capital and entrepreneurial skill:
A country like India, where capital and entrepreneurial skill is scarce; the small scale industrial
sector has a distinct advantage so far as the mobilization of capital and entrepreneurial skill is
concerned. A large number of entrepreneurs are spread over small lvillages and towns
throughout the country. Obviously large industries cannot utilize them as effectively as the small
scale industries do. This is mainly because small scale industries are distributed over the length
and breadth of the country. Similarly, large scale industries cannot mobilize the savings done by
the people in rural and remote places far away from the towns and cities. This difficult task can
effectively be accomplished by setting up a network of small scale industries. In addition, a large
number of other resources spread over the country can be put in to an effective use by the small
scale industries.

4. Regional dispersal of industries:
There has been massive concentration of industries in a few large cities of different states of
Indian union. People migrate from rural and semi urban areas to these highly developed centers
in search of employment and sometimes to earn a better living which ultimately leads to many
evil consequences of over-crowding, pollution, creation of slums, etc. This problem of Indian
economy is better solved by small- scale industries which utilize local resources and brings about
dispersion of industries in the various parts of the country thus promotes balanced regional
development. They can also effect a qualitative change in the economy of the state. The most
0
50
100
150
1
9
7
7
-
7
8
1
9
7
9
-
8
0
1
9
8
1
-
8
2
1
9
8
3
-
8
4
1
9
8
5
-
8
6
1
9
8
7
-
8
8
1
9
9
2
-
9
3
1
9
9
4
-
9
5
1
9
9
6
-
9
7
1
9
9
8
-
9
9
2
0
0
0
-
0
1
2
0
0
2
-
0
3
2
0
0
4
-
0
5
2
0
0
6
-
0
7
Production per Employee (` thousand)
At constant prices
Production per Employee (`
thousand) At constant
prices
12

glaring example of this phenomenon is the economy of Punjab which has more small scale
industries than even the industrially developed State of Maharashtra.


5. Better industrial relations:
Better industrial relations between the employer and employees help in increasing the efficiency
of employees and reducing the frequency of industrial disputes. The loss of production and man-
days are comparatively less in small- scale industries. There is hardly any strikes and lock out in
these industries due to good employee-employer relationship.

6. Supports the growth of large industries:
The small-scale industries play an important role in assisting bigger industries and projects so
that the planned activity of development work is timely 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.

7. Equitable distribution of national income:
Small scale industries are instrumental in the equal distribution of wealth and income. The
income generated in large number of small scale and cottage industries are dispersed more
widely in the community and also among different geographical regions as compared to the
income generated by few large industries. In small scale industries the industrial capital is not
concentrated in a few hands rather it is widely distributed in small quantities among large
number of people throughout the country.
Small entrepreneurs stimulate a redistribution of wealth, income and political power within
societies in ways that are economically positive and without being politically disruptive. This is
accomplishes because of the following two considerations:
a) The ownership of SSIs is more widespread than the ownership of large scale industries,
and
b) They possess a much larger employment potential as compared to large industries.
13

8. Contribution to exports:
With the establishment of a large number of modern small scale industries in the post-
independence period, the contribution of small scale sector in export earnings has increased by
leaps and bounds. The major thrust areas for SSI exports are agriculture, chemicals, plastic items,
leather and textile product groups. The United States and European Union have been identified
as the potential markets for textile whereas export of chemicals product groups holds a potential
for Japan. Thus they help in increasing the country's foreign exchange reserves thereby reduces
the pressure on country's balance of payment.

It has been observed that a bulk of the SSI export consists of such non-traditional items (around
93%) like readymade garments, sports goods, finished leather, leather products, processed foods,
chemical and chemical products and a large number of engineering goods. The total export of
small scale industrial products has increased from rs 155 crores during 1971-72 to rs 2, 02,017
crore in 2007-08.The exports from SSI sector have been clocking excellent growth rates in this
decade.




0
10000
20000
30000
40000
50000
60000
SSI Export `Billion
SSI Export US $ Million
14

PROBLEMS OF SSIs

Small scale industries are at a distinct disadvantage as compared to large scale industries. The
scale of operations, availability of finance, ability to use modern technology, procurement of raw
materials is some of these areas. This gives rise to several problems.
Most of these problems can be attributed to the small size of their business, which prevents them
from taking advantages, which accrue to large business organizations.
In general the small businesses are faced with the following problems:

(i) Finance:
One of the severe problems faced by SSIs is that of non availability of adequate finance to carry
out its operations. Generally a small business begins with a small capital base. Many of the units
in the small sector lack the creditworthiness required to raise as capital from the capital markets.
As a result, they heavily depend on local financial resources and are frequently the victims of
exploitation by the moneylenders. These units frequently suffer from lack of adequate working
capital, either due to delayed payment of dues to them or locking up of their capital in unsold
stocks. Banks also do not lend money without adequate collateral security or guarantees and
margin money, which many of them are not in a position to provide.

(ii) Raw materials:
Another major problem of small business is the procurement of raw materials. If the required
materials are not available, they have to compromise on the quality or have to pay a high price to
get good quality materials. Their bargaining power is relatively low due to the small quantity of
purchases made by them. Also, they cannot afford to take the risk of buying in bulk as they have
no facilities to store the materials. Because of general scarcity of metals, chemicals and
extractive raw materials in the economy, the small scale sector suffers the most. This also means
a waste of production capacity for the economy and loss of further units.

(iii) Managerial skills:
15

Small business is generally promoted and operated by a single person, who may not possess all
the managerial skills required to run the business. Many of the small business entrepreneurs
possess sound technical knowledge but are less successful in marketing the output. Moreover,
they may not find enough time to take care of all functional activities. At the same time they are
not in a position to afford professional managers.

(iv) Labour:
Small business firms cannot afford to pay higher salaries to the employees, which affects
employee willingness to work hard and produce more. Thus, productivity per employee is
relatively low and employee turnover is generally high. Because of lower remuneration offered,
attracting talented people is a major problem in small business organizations. Unskilled workers
join for low remuneration but training them is a time consuming process. Also, unlike large
organizations, division of labour cannot be practiced, which results in lack of specialization and
concentration.

(v) Marketing:
Marketing is one of the most important activities as it generates revenue. Effective marketing of
goods requires a thorough understanding of the customers needs and requirements. In most
cases, marketing is a weaker area of small organizations. These organizations have, therefore, to
depend excessively on middlemen, who at times exploit them by paying low price and delayed
payments. Further, direct marketing may not be feasible for small business firms as they lack the
necessary infrastructure

(vi) Quality:
Many small business organizations do not adhere to desired standards of quality. Instead they
concentrate on cutting the cost and keeping the prices low. They do not have adequate resources
to invest in quality research and maintain the standards of the industry, nor do they have the
expertise to upgrade Technology. In fact maintaining quality is their weakest point, when
competing in global markets.

(vii) Capacity utilization:
16

Due to lack of marketing skills or lack of demand, many small business firms have to operate
below full capacity due to which their operating costs tend to increase. Gradually this leads to
sickness and closure of the business.

(viii) Technology:
Use of outdated technology is often stated as serious lacunae in the case of small industries,
resulting in low productivity and uneconomical production.

(ix) Sickness:
Prevalence of sickness in small industries has become a point of worry to both the policy makers
and the entrepreneurs. The causes of sickness are both internal and external. Internal problems
include lack of skilled and trained labour and managerial and marketing skills. Some of the
external problems include delayed payment, shortage of working capital, inadequate loans and
lack of demand for their products.

(x) Global competition:
Apart from the problems stated above small businesses are not without fears, especially in the
present context of liberalization, privatization and globalization (LPG) policies being followed
by several countries across the world. Remember, India too has taken the LPG path since 1991.
Let us look into the areas where small businesses feel threatened with the onslaught of global
competition.
(a) Competition is not only from medium and large industries, but also from multinational
companies which are giants in terms of their size and business volumes. Opening up of trade
results in cut throat competition for small scale units.
(b) It is difficult to withstand the quality standards, technological skills, financial
creditworthiness, managerial and marketing capabilities of the large industries and
multinationals.
(c) There is limited access to markets of developed countries due to the stringent requirements of
quality certification like ISO 9000.

17

GOVERNMENT ASSISTANCE TO SSIs
Keeping in view the contribution of small business to employment generation, balanced regional
development of the country, and promotion of exports, the Government of Indias policy thrust
has been on establishing, promoting and developing the small business sector, particularly the
rural industries and the cottage and village industries in backward areas. Governments both at the
central and state level have been actively participating in promoting self employment
opportunities in rural areas by providing assistance in respect of infrastructure, finance,
technology, training, raw-materials, and marketing. The various policies and schemes of
Government assistance for the development of rural industries insist on the utilization of local
resources and raw materials and locally available manpower. These are translated into action
through various agencies, departments, corporations, etc., all coming under the purview of the
industries department. All these are primarily concerned with the promotion of small and rural
industries.
Some of the support measures and programmes meant for the promotion of small and rural
industries are discussed below:

A. INSTITUTIONAL SUPPORT
1. National Bank for Agriculture and Rural Development (NABARD)
NABARD was setup in 1982 to promote integrated rural development. Since then, it has been
adopting a multi-pronged, multi-purpose strategy for the promotion of rural business enterprises
in the country. Apart from agriculture, it supports small industries, cottage and village industries,
and rural artisans using credit and non-credit approaches. It offers counseling and consultancy
services and organises training and development programmes for rural entrepreneurs.

2. The Rural Small Business Development Centre (RSBDC)
It is the first of its kind set up by the world association for small and medium enterprises and is
sponsored by NABARD. It works for the benefit of socially and economically disadvantaged
individuals and groups. It aims at providing management and technical support to current and
prospective micro and small entrepreneurs in rural areas.

18

3. National Small Industries Corporation (NSIC)
This was set up in1955 with a view to promote aid and foster the growth of small business units
in the country. This focuses on the commercial aspects of these functions.
Supply indigenous and imported machines on easy hire-purchase terms.
Procure, supply and distribute indigenous and imported raw materials.
Export the products of small business units and develop export-worthiness.
Mentoring and advisory services.
Serve as technology business incubators.
Creating awareness on technological upgradation.
Developing software technology parks and technology transfer centres.
A new scheme of performance and credit rating of small businesses is implemented through
National Small218 BUSINESS STUDIES Industries Corporation (NSIC) with the twin
objectives of (i) sensitising the small industries about the need for credit rating and (ii)
encouraging the small business units to maintain good financial track record. This is to ensure
that they score higher rating for their credit requirements as and when they approach the
financial institutions for their working capital and investment requirements.


4. Small Industries Development Bank of India (SIDBI)
Set up as an apex bank to provide direct/indirect financial assistance under different schemes,
to meet credit needs of small business organisations.
To coordinate the functions of other institutions in similar activities.
5. The National Commission for Enterprises in the Unorganized Sector (NCEUS)
The NCEUS was constituted in September, 2004, with the following objectives:
To recommend measures considered necessary for improving the productivity of small
enterprises in the informal sector.
To generate more employment opportunities on a sustainable basis, particularly in the rural
areas.
To enhance the competitiveness of the sector in the emerging global environment.
To develop linkages of the sector with other institutions in the areas of credit, raw materials,
infrastructure, technology upgradation, marketing and formulation of suitable arrangements for
skill development. The commission has identified the following issues for detailed consideration:
19

Growth poles for the informal sector in the form of clusters/hubs, in order to get external
economic aid.
Potential for public-private partnerships in imparting the skills required by the informal sector.
Provision of micro-finance and related services to the informal sector.
Providing social security for the workers in the informal sector

6. The District Industries Centers (DICs)
The District Industries Centers Programme was launched on May 1, 1978, with a view to
providing an integrated administrative framework at the district level, which would look at the
problems of industrialization in the district, in a composite manner. In other words District
Industries Centers is the institution at the district level which provides all the services and
support facilities to the entrepreneurs for setting up small and village industries. Identification of
suitable schemes, preparation of feasibility reports, arranging for credit, machinery and
equipment, provision of raw materials and other extension services are the main activities
undertaken by these centers. Broadly DICs are trying to bring change in the attitude of the rural
entrepreneurs and all other connected with economic development in the rural areas. Even within
the narrow spectrum, an attempt is being made to look at some of the neglected factors such as
the rural artisan, the skilled craftsman and the handloom operator and to tune up these activities
with the general process of rural development being taken up through other national
programmes. The DIC is thus emerging as the focal point for economic and industrial growth at
the district level.

7. Scheme of Fund for Regeneration of Traditional Industries (SFURTI)
To make the traditional industries more productive and competitive and to facilitate their
sustainable development, the Central Government set up this fund with Rs. 100 crores allocation
to begin within the year2005. This has to be implemented by the Ministry of Agro and Rural
Industries in collaboration with State Governments. The main objectives of the scheme are as
follows:
To develop clusters of traditional industries in various parts of the country;
20

To build innovative and traditional skills, improve technologies and encourage public-private
partnerships, develop market intelligence etc., to make them competitive, profitable and
sustainable; and
To create sustained employment opportunities in traditional industries.


B. INCENTIVES
Special emphasis on the industrial development of backward, tribal and hilly areas has been the
concern of the Government of India expressed in all the Five Year Plans and industrial policy
statements. Realising that backward areas development is a long-term process, several
committees were appointed to identify the criteria for identifying backward areas and also to
suggest schemes to take up the Herculean task of balanced regional development. The
implementation of integrated rural development programme is one such attempt made by the
government to develop backward areas. The rural industries project programme initiated by the
Government of India was meant to develop small business units in select rural areas. Though the
backward area development programmes varied from state to state, they cumulatively
represented a significant package of incentives to attract industries in backward areas.

Some of the common incentives offered are discussed as below:

Land: Every state offers developed plots for setting up of industries. The terms and conditions
may vary. Some states dont charge rent in the initial years, while some allow payment in
installments.
Power: Power is supplied at a concessional rate of 50 per cent, while some states exempt such
units from payment in the initial years.
Water: Water is supplied on a no-profit, no-loss basis or with 50 percent concession or
exemption from water charges for a period of 5 years.
Sales Tax: In all union territories, industries are exempted from sales tax, while some states
extend exemption for5 years period.
Octroi: Most states have abolished octroi.
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Raw materials: Units located in backward areas get prefer entail treatment in the matter of
allotment of scarce raw materials like cement, iron and steel etc.
Finance: Subsidy of 10-15 per cent is given for building capital assets. Loans are also offered at
concessional rates.
Industrial estates: Some states encourage setting up of industrial estates in backward areas.
Tax holiday: Exemption from paying taxes for 5 or 10 years is given to industries established in
backward, hilly and tribal areas.

To sum up, it may be stated that the small business sector in India is getting the support of
government through various institutions in different forms for different purposes.




















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CONCLUSION
Small industry sector has performed exceedingly well and enabled our country to achieve a wide
measure of industrial growth and diversification. By its less capital intensive and high labor
absorption nature, SSI sector has made significant contributions to employment generation and
also to rural industrialization.

Under the changing economic scenario, SSI has both the challenges and opportunities before
them. The business can compete on cost, quality and products at domestic and international level
only if ideal investment in technology production process and marketing are made. The
promotional activities for SSI in India need to concentrate on improved credit flows, human
resource development, appropriate technology and funds for modernization.
Government should reorient its assistance to the small business sector by acting as a facilitator
and promoter and not as a regulator. New strategies have to be evolved to foster partnership
between large and small industries, adopt cluster approach, develop creative marketing, improve
technological skills by upgradation, building export competitiveness by identifying the core
competencies of the small businesses. In fact small business sector should view globalization as
an opportunity for its active participation as suppliers of specialized component and parts. If
small businesses are to maintaining their market share and healthy growth.

In short the mantra of success for small businesses in this modern era has to be think global, act
local.




23

BIBLIOGRAPHY

BOOK-
1. V.K. Puri & S.K.Misra, Indian Economy, 31
st
Edition, Himalaya Publication House
2. Bussiness Studies-textbook for 11
th
, NCERT

PAPER/ARTI CLES-
1. Vidya Suresh & P shashidhar, Competitiveness of Small-Scale Industries of India
2. Natinal productivity Council Of India, Impact of Dereservation on SSI sector
3. Dr. Ritu Sharma, Problems and prospects of small scale industrial units
4. Ministry of SSIs Annual Reports of SIDO,Govt. of India New Delhi

I NTERNET-
1. http://www.preservearticles.com/201101153374/problems-faced-by-small-scale-industries-in-
india.html
2. Reserve bank of Indiahttp://rbi.org.in/Scripts/PublicationsView.aspx?Id=15156
3. http://www.preservearticles.com/201101153373/role-and-importance-of-small-scale-industry-
in-india.html
4. Ministry of Micro, Small and Medium Enterprises-http://msme.gov.in/msme_ars.htm