CHAPTER 3 SMALL SCALE INDUSTRIES: A FRAMEWORK

Transcription

1 48 CHAPTER 3 SMALL SCALE INDUSTRIES: A FRAMEWORK 3.1 SMALL BUSINESS IN INDIA The Small Scale Industrial (SSI) sector plays a key role in the Indian economy in terms of its input to the exports, employment and the creation of an entrepreneurial base. This sector has witnessed a high growth rate since 1947 regardless of heavy competition from the large-scale sector. The rapid growth of the small-scale industries has a great persuasion in our national economic policies. The expansion of the small sector has also enhanced the production of non-durable consumer goods of mass consumption. The yielding period or the development period is faster in the small-scale industrial units dispersed around the country and are commonly set up to satisfy the local demand for goods, which may later cater to the overall economic and global requirements. Small-scale industries have significance in the overall economic growth of our country, since a small unit can be established with relatively less capital and offers more employment opportunities to those who are skilled, semi-skilled and unskilled Role of Small Business in India Small Scale Industries in India enjoy a different position in view of their contribution to the socio-economic development of the country. The following point emphasizes their contribution:

2 49 (i) Small industries in India account for 95 per cent of the industrial units in the country. They contribute almost 40 per cent of the gross industrial value added and 45 per cent of the total exports for the country. (ii) Small industries are the second largest employers of human resources, next to agriculture. They generate more number of employment opportunities against per unit of capital invested compared to large industries. So they are considered to be more labour intensive and less capital intensive. This is an advantage for a labour surplus country like India. (iii) Small industries in the country supply a vast variety of products which include mass consumption goods, readymade garments, hosiery goods, stationery items, soaps and detergents, utensils, leather, plastic and rubber goods, processed food and vegetables, wood and steel furnitures, paints, varnishes, safety matches and so on. Among the sophisticated items manufactured are electric and electronic goods like televisions, calculators, electro-medical equipments, electronic teaching aids like overhead projectors, air conditioning, drugs and pharmaceuticals, agricultural tools and equipments and several other engineering goods. A special mention should be made on handlooms, handicrafts and other products from traditional village industries in view of their export value. (iv) The contribution of small industries to the balanced regional growth of our country is significant. Small industries which produce simple goods using simple technologies and depend on local resources both material and labour can be set up

3 50 anywhere in India. Since they can be widely spread without any location constraints, the benefits of industrialization can be reaped by every region. They, thus, contribute significantly to the balanced development of the country. (v) Small industries provide plenty of opportunity for entrepreneurship. The hidden skills and talents of people can be channeled into business ideas which can be transformed into reality with little capital investment and almost no formalities to start a small scale industry. (vi) Small industries also enjoy the advantage of low cost of production. Locally available resources are less expensive. Establishment and running costs of small industries are on the lower side because of low overhead expenses. In fact, the low cost of production which small industries offer is their competitive power. (vii) Due to the small size of the organizations, speedy decisions can be taken without consulting many people like it happens in large organizations. New business opportunities can be captured at the right movement. (viii) Small industries are best suited for customized production. i.e., designing the product as per the taste of the customers. The latest trend in the market is to go in for customized production of even non-traditional products such as computers and other such products. They can manufacture according to the needs of the customers as they use simple and flexible production methods.

4 51 (ix) Small industries have in-built strength of flexibility and a personal touch and therefore maintain good personal relations with both customers and employees. The Government does not have to involve in the functioning of a small scale unit. New business openings can be captured at the right time, thus providing healthy competition to big business which is good for the economy Role of Small Business in Rural India Conventionally, rural households in developing nations have been sighted as exclusively engaged in agriculture. There is an increasing proof that rural households can have highly varied and multiple sources of income and that, rural households can and do participate in a wide range of non agricultural activities such as wage employment and self-employment in commerce, manufacturing and services, along with the conventional rural activities of farming and agricultural labour. This can be largely credited to the policy initiatives taken by the Government of India, to support and promote the setting up of agro-based rural industries. The emphasis on village and small scale industries has always been an integral part of industrial strategy, after the second Five Year Plan of the country. Cottage and rural industries play a vital role in providing employment opportunities to the rural, especially the traditionally weaker sections of society. Development of rural and village industries can also prevent movement of rural population to urban areas in search of employment. Village and small industries are important as producers of consumer goods and absorbers of surplus labour, thereby addressing the issues of poverty and unemployment.

5 Challenges and Opportunities for the Small Scale Industries The various agreements entered into by WTO (World Trade Organization) member nations including India will have far-reaching implications on the Micro and Small Scale Industries, as they have traditionally been controlled by a number of factors obstructing their competitiveness. Some of the agreements which have already had a noteworthy impact on Indian industry and particularly the micro and small enterprises are GATT (General Agreement on Tariffs and Trade), TRIPS(Trade Related Intellectual Property Rights) and TRIMS(Trade Related Investment Measures) Agreement on Technical Barriers to Trade. Decrease in import duties under GATT and elimination of Quantity Restrictions (QRs) have improved the inflow of cheaper imports particularly from China and affected the domestic sales of micro and small enterprises leading to declining profit margins. On the positive side, reduction in duties on imports of good quality raw materials and accessories have improved the access of domestic industry to crucial raw materials resulting in improving the quality of finished products like high value ready-made garments, leather goods, gold jewellery etc., resulting in better export awareness. Widespread prospects to Indian manufacturers in the markets of other member countries are made possible as no favoritism is permitted between imports from member countries. In the domestic market this has given rise to competition for micro and small enterprises, which is expected to lead in the consolidation of industry. Those intending to survive will have to grow in size, set up best capacities, enter into strategic alliances with Large Scale Industries or their SME counterparts in other developing countries or enter into tie-ups with global manufacturers. Enterprises will have to

6 53 concentrate on manufacturing products in which they have a clear cost advantage. The Agreement on Technical Barriers to Trade (TBT) has permitted member countries to lay down their own stringent manufacturing standards on products imported from the developing countries to protect health and safety of their people and to protect the environment. Enterprises who are unaware of these internationally accepted manufacturing standards or have failed to adopt them have faced rejections of their exports as in the case of Azo dyes, which have been banned by European Union. To overcome technical and environmental barriers, enterprises will have to harmonize their production processes with international standards. This would require increased investments in latest technologies, Research and Development, Quality Certifications and in turn increase the cost of production of micro and small enterprise. Under the Agreement on Safeguard Measures counter availing duties on cheap imports that cause injury to domestic industry is permissible and this would safeguard the products made by micro, small and medium enterprises in the domestic market. Agreement on Anti-dumping Measures also allows Governments to take action against exporters who dump products into India, causing damage to domestic industry. Agreement on Trade Related Intellectual Property Rights (TRIPS) requires WTO member countries to amend their legislations for various Intellectual Property Rights including Trademarks, Copyrights, etc. This Agreement and the amendments in the Indian Patent Act will put severe restrictions on SSIs manufacturing patented products through reverse engineering. These enterprises being unable to mobilize huge resources for Research and Development and patenting of their products will have to tie up with large manufacturing companies as contract manufacturers.

7 54 Most of the restrictions imposed on foreign investors as in the agreement on TRIMS (Trade Related Investment Measures) have been relaxed so as to improve the flow of FDI (Foreign Direct Investment) into the Indian industry. Indian industry also benefit due to enhanced inflow of FDI which brought in the latest technology and extended market openings for these industries through strategic alliance. Already selective de-reservation of some sectors has started taking place with a view to enhancing exports and competing effectively in the global market. In order to fight the developments under the WTO regime, Government policies relating to trade and industry in India have been significantly liberalized and tailored to keep with the WTO related trade commitments. These actions have accelerated the competition, not only in the global markets, but also in the domestic market due to the improved inflow of low cost imports and significant FDI even in the Micro and Small Enterprisesdominated sectors. The rural industries function in a different scenario. They may have to strive for overcoming the problems which characterize them at present. The multitude of agencies involved in promotion of the sector has to address the contradictions between the programmes of the different departments/agencies with a view to integrate them. For instance, rural crafts are promoted and supported by separate agencies like KVIC, Development Commissioner (Handicraft), etc., with very little give and take. The same applies to agencies like NABARD, SIDBI, Coir Board, Central Silk Board, Banks, etc. In this regard a planned and systematic approach is imperative and the Cluster Approach may be regarded as the desirable one in this direction. The task would commence right from sensitizing and creating needed awareness among the entrepreneurs about the positive and challenging features under the WTO regime with a view of making them responsive to the

8 55 measures to be adopted to cope with the challenges and benefit from the opportunities. The agencies may also have to re-orient their approach and become proactive and responsive for intensive and coordinated action in a collaborative mode. Here again, the methodology perceived under the Cluster Approach may be regarded as a promising tool in achieving results through interventions towards organizing the widely dispersed production, standardization of products, quality development, technology up-gradation, infrastructure expansion, organized marketing efforts, patenting including registration for Geographical Indication (GI), export oriented activities and tie up with the Corporate. It would also be favorable for social interventions wherever desirable. The role of Banks and Financial Institutions is of greater importance in the highly competitive industrial surroundings as they are the main launch pad for all the above developmental initiatives. Finance at worldwide equivalent interest rates may have to be channelized into the enterprises and targeted at the entire range of promotional activities (technology or export-oriented) to bring in the necessary conversion of units into more competitive units. In the post -WTO environment, the financial needs of different sectors would vary and the priorities also vary. Suitable financial products and need-based financing schemes have to be developed to suit the various requirements of the sector. Major employment provider Employment in the manufacturing sector has been largely created by the small scale industries. In the total manufacturing sector, the share of organized small scale industries is about 49%. The household and unorganized SSIs together contribute 37% of the employment created. Together all SSIs, organized and unorganized create employment to the level of about 86% of the manufacturing sector.

9 56 Rural industries Rural and Traditional Sector industries largely from the unregistered SSIs and unorganized sector contribute about 15 % of the total output of Small Scale Industries but about 40% of the work force is employed in rural industrial sector. These industries are based on traditional skills and are based on simple manufacturing processes that are carried out by making use of hand tools regularly and in some cases by employing simple machines. This also makes clear how larger employment is generated in these units Institutional Finance for Small Scale Industries The following institutions through their various schemes provide financial support to small scale industrial sector under the overall policies and guidelines evolved by the Reserve Bank of India. At the National Level SIDBI (Small Industries Development Bank of India) -mainly in the course of re-finance, NABARD (National Bank for Agriculture and Rural Development), NSIC(National Small Industries Corporation), Khadi and Village Industries Commission, IDBI Ltd, IFCI, Nationalized Banks, DCSSI (Development Commissioner Small Scale Industries ). At the State Level SFCs (State Financial Corporations), SIDCs (State Industrial Development Corporations)-for Infrastructure / Finance, State Cooperative Banks, Khadi and Village Industries Board.

10 57 At Regional and District Level RRB (Regional Rural Bank), District Central Cooperative Banks, Primary Cooperative Banks, State level Institutions and Nationalized Banks, Khadi and Village Industries Commission, (DIC)District Industries Centre The Government Promotional Framework and Assistance to Small Scale Industries The State and Central Governments in India together established an elaborate structure for promoting the small scale industrial sector: National level, in pursuance of the suggestions of International Perspective Planning team ( ), numerous institutions have been set up. There is CSIO (Central Small Industries Organization) which has been renamed as SIDO (Small Industries Development Organization). During the last four decades, this institution has emerged as the core promotional agency at the national level with a professional staff of more than 13,000 in the year It consists of 28 SISIs (Small Industries Service Institutes), 30 branch SISIs, 37 extension centers in specific products and 74 workshops as on1993. However, over the years, some of these have been wound up because of their financial problems in continuing the business. These institutions provide technical and management consultancy services, arrange training programmes, conduct techno-economic study, prepare project profiles as demanded and help to prepare specific project reports. Besides, there are four regional testing laboratories with state of the art equipment and 19 field testing stations which are meant to promote awareness on quality control and standardization, provide testing facilities, provide pre-shipment inspection as required by the EPC (Export Promotion Councils), and organize related

11 58 training programmes. In addition, there are two PDTC (Prototype Development and Training Centers) to develop new technologies and upgrade the existing technology. There are many other technical institutions that are working with SIDO, which are more specialized in the fields of tool designing, Electronics and Measuring instruments, Prototype development and Hand tools, etc., Four CTRs (Central Tool Rooms) in Bangalore, Calcutta, Delhi and Ludhiana, have been set up under bilateral assistance programs. Keeping in view the contribution of small business to employment creation, balanced regional development of the nation, and promotion of exports, the Government of Ind s policy drive has been on establishing, promoting and developing the small scale industrial sector, predominantly 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 SSIs by offering support in different forms as listed below: i. Institutional support in respect of credit facilities ii. iii. iv. Provision of developed sites for construction of sheds Provision of training facilities Supply of machinery on hire purchase v. Assistance for domestic and export marketing vi. vii. Technical and financial assistance for technological up-gradation Special incentives for setting up of enterprises in backward areas All these are mainly concerned with the promotion of small and rural industries. Some of the support measures, institutions, and programmes

12 59 meant for the promotion of small scale industries and to offer the above mentioned supports are listed below: 9 National Bank for Agriculture and Rural Development (NABARD), 9 The Rural Small Business Development Centre (RSBDC), 9 National Small Industries Corporation (NSIC), 9 Small Industries Development Bank of India (SIDBI), 9 National Commission for Enterprises in the Unorganized Sector (NCEUS), 9 Women Entrepreneurship Development (RWED), 9 World Association for Small and Medium Enterprises (WASME), 9 District Industries Centers (DICs), 9 Integrated Rural Development Programme (IRDP), 9 World Association for Small and Medium Enterprises (WASME) 9 Prime Minister Rojgar Yojana (PMRY), 9 Scheme of Fund for Regeneration of Traditional Industries (SFURTI), 9 Schemes to provide skills - Training of Rural Youth for Self Employment (TRYSEM), 9 Schemes to strengthen the gender - Development of Women and Children in Rural Areas (DWCRA)

13 60 Schemes to provide wage employment like 9 Jawahar Rojgar Yojana (JRY), and 9 Food for Work. twin objective of All the rural development programmes are aimed to achieve the 9 Creation of rural infrastructure, and 9 Generation of additional income for the rural poor, particularly during the lean agricultural season. Furthermore, there are schemes for specific groups of industries such as khadi, handlooms, and handicrafts. Some of the common incentives offered to SSIs, as a token of encouragement, are discussed as below: (i) (ii) (iii) (iv) Land -Every State provide developed plots for setting up of industries. The terms and conditions may vary. Some States do not charge rent in the initial years, while some allow payment in installments. Power- is supplied at a concessional rate of 50 per cent, while some states exempt such units from payment in the initial years. Water- is supplied on a no-gain, no-loss basis or with 50 per cent concession or exemption from water charges for a period of five years. Sales Tax- In all Union Territories, industries are exempted from sales tax, while some States extend exemption for five years.

14 61 (v) (vi) Octroi - Most States have abolished octroi. Raw materials - Units located in backward areas get preferential treatment in the matter of allotment of scarce raw materials. (vii) Finance - Subsidy of per cent is given for building capital assets. Loans are also offered at concessional rates. (viii) Industrial estates - Some States prefer setting up of industrial estates in backward areas. (ix) Tax holiday - Exemption from paying taxes for 5 or 10 years is given to industries established in backward, hilly and tribal areas Industrial Agency Administrative Department / Ministry These are the Ministries and Departments in the country to encourage/support SSIs: Ministry of Industry-Small Scale Industries, Small Industries Development Organization, Department of Small Scale, Agro and Rural Industries, and Ministry of Textiles. National Small Industries Corporation (NSIC) is a vital institution set up in Primarily it facilitates supply of imported machinery on easy finance terms, provides marketing assistance, operates PDTC (Prototype Development and Training Centres) in specific fields like injection moulding industries, machine tools, leather manufacturing equipments etc., NIESBUD (National Institute of Entrepreneurship and Business Development) has been set up to train and promote personnel, industrial managers and entrepreneurs. Other national level institutions that are assisting the small scale sector are NRDC (National Research Development Corporation), BIS (Bureau of Indian Standards), NPC (National Productivity Council), CDC (Consultancy Development Centre) and ETDC (Electronics Test and Design Centre). The

15 62 central financial institutions have also set up the EDII (Entrepreneurship Development Institute of India) at the national level to encourage entrepreneurship. All the above mentioned institutions are largely meant for the modern small scale industry. For promoting khadi and village industries, a separate commission has been formed by the Ministry of Industry. Likewise, for the handlooms, handicrafts, sericulture, and other non-modern small units, there are separate divisions to encourage them. At the state level, the Governments have set up institutions as follows: SIDCs (Small Industry Development Corporations) to expand infrastructure in the form of industrial plots and industrial sheds, SFCs (State Financial Corporations) to support long term credit requirements, and State Exports Promotion Corporations to provide marketing assistance for exports from the small scale sector. TCOs (Technical Consultancy Organizations) that provide technical, financial and marketing support to the sector. CEDs (Centre for Entrepreneurship Development) and IEDs (Institute of Entrepreneurship Development) have been set up to promote entrepreneurship through training. At District level, in 1978, the Central Government launched a programme for establishing District Industries Centres to provide under a one roof clearance, all types of support services, licences, and certificates required by the SSI promoters. There are more than 400 centres, covering many districts The Non-government Promotional Structure There are three national associations representing entire industries in the country. These associations are FICCI (Federation of Indian Chambers of Commerce and Industries), CII (Confederation of Indian Industries) and ASSOCHAM (Association of Chambers of Commerce and Industries). These associations represent mainly the interests of large scale industries. Though these associations have membership of the small sector as well and represent mainly the policy related interests of small scale industrial sector. The exclusively small industry related associations are diversified geographically

16 63 and sector wise, these are supposed to have been linked with FASSI (Federation of All India Small Scale Industries), FOSMI (Federation of Small and Medium Industries) and also ICSI (Indian Council of Small Industries). However these institutions are weak in character due to their working for cross purposes and lack of vibrant perspective for small scale sector expansion. They have almost no linkages with the small industry in general and their local associations in specific. Another institution that is concerned with the small and medium enterprises is WASME (World Assembly of Small and Medium Enterprises). There are only a few of the local associations that are involved in providing specific individual level services to the small industries. However, all the associations are concerned with lobbying the Government to provide one or the other facilities or benefits to the small scale sector Development of Small Scale Industries During Five Year Plan Periods It has been demonstrated that the SSIs have received a stepmotherly treatment at the hands of the British rulers and have been made to disintegrate. But the national movement, ever since its commencement, has made every effort to protect and organize them. The Government considers the small-scale sector as an important necessary instrument for attaining the economic and social objectives and has evolved a programme for the development of these industries as an integral part, development of other sectors of the economy. This approach was first laid down in the Industrial Policy Resolution (IPR) of 1948 and was later adopted as the basis for policy in the First Five Year Plan. The same was reiterated and further elaborated in the IPR of It has subsequently become a part of the strategy for economic development in the consecutive plan periods.

17 64 Development of Small Scale Industries During Pre-Plan Era In the first phase of development of SSIs, the accent was laid on providing favorable climate conducive to the setting up of new units as well as the modernization and nationalization of existing small-scale units. Manufacturing units in this sector have been protected from competition from the better organized large-scale units by providing subsidies and preferential excise duties as well as by imposing restriction on the production pattern in large scale units. Industrial Policy Resolution 1948 and the Ford Foundation Team Recommendations are the other major events with regard to SSIs during the pre plan era. Industrial Policy Resolution (IPR) 1948 was the basis to frame the First Five Year Plan. It recommended mon Production Programme to ensure both Large Scale Industries (LSI) and SSI sectors make their contributions to the total requirement of the community. The Ford Foundation International Planning Team on SSIs was invited to formulate plans for the development of SSIs. It recommended the setting up of four regional institutions at Gauhati, Faridabad, Poona and Madura. First Five Year Plan ( ) The First Five Year Plan had two-fold objectives. Firstly, it aimed at correcting the disequilibrium in the economy caused by the war and the partition of the nation. Secondly, it planned to initiate simultaneously a process of all-round balanced development which would guarantee raising the national income and steady improvement in living standards over the period. Second Five Year Plan ( ) The principal objective of the Second Five Year Plan was to increase the national income by about 25 per cent over the plan period and creation of employment opportunities for about 10 to 12 million persons.

18 65 In the thinking and the formulation of the Second Five Year Plan also the village and small industries assumed a dominant role. Industrial Policy Resolution (1956) based on the recommendations of the Karve Committee stated that lack of technical and financial assistance and suitable working accommodation were among the serious handicaps of small producers. Observations: The State has been following a policy of supporting SSIs by restricting the volume of production in the large-scale sector by differential taxation. The aim of the state policy will be to ensure that the decentralized sector acquires sufficient vitality to be self-supporting and its development is integrated with that of large-scale industry. An effort has been made with the establishment of industrial estates to support these deficiencies. The progress during the first and second plans of village and small industries were reviewed in the middle of the second plan by a number of working groups. During the First Five Year Plan, agriculture got all the importance and during the Second Five Year Plan large-scale industries received the prominence. The thinking of the policy makers at that time was to consider SSIs as a supporter to LSIs. SSIs were to play the supportive role by providing the requirements of the employees of the large-scale sector i.e., to say SSIs role was limited only to the production of consumer goods. Third Five Year Plan ( ) During this period credit facilities which were an essential requirement of all village and small industries had to be organized on a larger scale. A substantial provision had been made for loans under State Aid to Industries Act to meet the need for long and medium term capital as well as working capital.

19 66 Considerable progress was also made in providing credit facilities to Small Industries from institutional agencies. In pursuance of the recommendations of the Rural Industries Planning Committee which was constituted in April 1962, rural industries projects were taken up in selected rural areas. Table 3.1 Actual Expenditure in Third Five Year Plan ( ) Sl. No Sector Planned Expenditure `In crores Actual Expenditure `In crores Percentage of Actual Expenditure to planned Expenditure `In crores 1 Agriculture Industries Village and Small Industries (-) Total Source: Commerce Annual Number on Industries, 1968, pp.306. It is evident from the above table that the actual expenditure crossed the planned expenditure in both agriculture and industrial sectors, but in the case of Small Scale Industries sector, actual expenditure is less than the planned expenditure. Fourth Five Year Plan Period ( ) The objectives and approach in the fourth five year plan were drafted by keeping in view the wide range of industries that are covered by Village and Small Industries. This sector had been designed to achieve the objectives of widening employment opportunities, mobilizing the resources of capital and skill particularly in the countryside, and providing more equitable distribution of national income.

20 67 The number of units (SSIs) registered on voluntary basis with the Industries Directorates of the States and Union Territories became increased from nearly 2 lakhs in 1969 to about 3.18 lakhs in 1972 and the total employment in these units was estimated to be at 41.4 lakh persons. A further list of 77 items was added to those reserved for exclusive development of the small-scale sector bringing the total to 124. And there was a substantial increase in the flow of institutional credit for these industries. The Credit Guarantee Scheme administered by the Reserve Bank of India was further extended and liberalized. A total of 183 credit institutions including all the major commercial and cooperative banks and the SFCs have joined the scheme. Fifth Five Year Plan ( ) The fifth five year plan emphasized that small industries had an important role to play in the eradication of poverty, removal of disparities in income, wealth and regional imbalances. The sector had definite potential for providing increasingly large employment opportunities with relatively smaller capital investment. During the Fifth Five Year Plan, the emphasis was on the development of SSI and their role as ancillaries to large undertakings. The combined development programmes of the Centre, States and Union Territories were expected to create additional jobs for lakh persons. The progress made during this plan period was not encouraging due to various factors but mainly due to inflation and political disturbances. But the progress made in the field of providing infrastructural facilities to SSI sector was satisfactory. The fifth five year plan could not continue its full term due to the changes that took place at the Union Government in January The plan was scrapped by the Janata Government in 1977 and in its place the Rolling Plan was introduced.

21 68 Another vital development during this period had been the establishment of District Industries Centres (DICs). It was an umbrella for the growth of SSIs. The District Industries Centre programme was launched in first May 1978 by the Government of India as a focal point for promotion of small, cottage and village industries to provide all services and support to the decentralized sector under a single roof at pre-investment, investment and lost-investment stages. All the assistance required for developing existing industries or supporting the new ones under one roof at the district level itself were provided so that the delays and difficulties faced by the industrialists and entrepreneurs were solved locally. Under this scheme of DIC, the entrepreneurs were to get all special assistance from one agency. Of the more than 420 districts in the country, 380 were covered by DIC scheme during Sixth Five Year Plan ( ) Promotion of SSIs continued to be an important element in the development strategy because of its favorable capital output ratio and the high employment intensity. The RBI continues to operate the credit guarantee scheme for SSIs. For target or priority sector lending through the commercial banks was increased from 33 per cent to 40 per cent. However, some of the long-term objectives set for the VSI (Village and Small Industries) sector are still to be achieved. The growth and development of this sector had been constrained by several factors like lack of technological advancement, availability of raw materials, lack of marketing channels, availability of credit facility and deficient managerial skills, etc.

22 69 Seventh Five Year Plan ( ) The SSI sector had played a vital role in the development of the economy and still there was scope for increase in production and productivity by this sector. To facilitate modernization and achieve rapid growth in this sector, the upper limit on the investment on plant and machinery had been raised with respect to small scale units from `20 lakhs to `35 lakhs and in the case of auxiliary industries from ` 25 lakhs to ` 45 lakhs. Promotion of industries in this dispersed sector primarily fell within the responsibility of the State Governments. The Centre, however, supplemented their efforts. Within the overall aim of food, and work productivity laid down in the Seventh Five Year Plan, this sector contributed towards improving the occupational profile of rural, semi-urban economic and weaker sections of urban communities through promotion of VSIs. Eighth Five Year Plan ( ) The plan proposeda growth rate of 5.6 percent per annum on an average during the plan period. The level of investment proposed to be at ` 798 crores and Public Sector outlay was proposed to be at ` 4, 34,100 crores. Acceptance of significance of industrialization had been a basic tenet of policy in India during all these years since the execution of the Second Five Year Plan. But, for this, the country would not have had the capital goods base, the highly diversified nature of the industrial sector and the skills and the technical know-how all that it possesses today. The outlay on VSIs was ` 4778 crores (`34,075 crores for large and medium industries),a departure in 8 th plan was in respect of the significant distribution of investment in both the public and private sectors in view of the shift in economic policy, placing greater reliance in the market. The private sector was expected to shoulder a greater responsibility in investment.

23 70 After going through the approach paper on Eighth Plan, it appears that the Eighth Five Year Plan was less fussy about targets and more about such industrial restructuring as could automatically make for better use and enlargement of resources in industrial sector through the spurt of private enterprises and initiatives including foreign investment. Ninth Five Year Plan ( ) Ninth plan recognized that the biggest problem facing the small scale sector was the inadequate availability of credit and proposed a number of initiatives in this regard like strengthening the financial and managerial base of State Financial Corporation and Small Industries Development Organizations to enable them to provide better services to the small scale sector. However, there had been lack of effective coordination among the various support organizations setup over the period of time for the promotion and development of these industries. The productive activities in over 67% of firms were constrained due to inadequate physical infrastructure. Small scale industries had to depend upon the State Electricity Board for meeting their power requirements, but these in turn did not supply the regular and adequate power. Regarding road transport is concerned, poor conditions of roads and vast delays in octroi and entry points had the most lasting adverse effects on SSI sector. Following the adoption of the import liberalization policy during the 1990s, tariff material like steel, copper and many non-ferrous metals, plastics, several chemicals, papers, etc., remained high in comparison to tariff on manufactured goods. This in turn had created the problem of significant inversion in tariff structure, which specifically hurt small firms since they were more labour intensive and had high material to output ratios. Competition became increased under the WTO regime and posed a threat to many obsolete and uncompetitive small scale units which might lead to the closure of several of them. Following the removal of quantitative restriction,

24 71 many SSIs especially in the consumer goods sector found it difficult to survive as more imported product would find an easier access to the Indian market. Due to the absence of marketing organization, their products compared unfavorably with the quantity of products from multinational companies and large scale Indian industries. Poor infrastructural facilities and competitive strength, slow technical upgradation, ignorance of WTO provisions, lack of international exposure and flow of costly credit were the main factors responsible for the low performance recorded in these industries. This low performance can be seen from the statistics that the expenditure had been ` crores against the outlay of `600 crores for village and small industries during the ninth plan. Tenth Five Year Plan ( ) During the Tenth Five Year Plan the sectorial share of industry in the GDP started rising after continuous decline. The contribution of manufacturing also maintained an increasing trend after falling in the first year of the Tenth Plan. The Annual Survey of Industries (ASI) is the vital source of data for the registered units and no reliable data were available for the unorganized units from the ASI. In this situation, the Central Statistics Organization (CSO) has been using the limited Index of Industrial Production (IIP) to project growth of both the organized and the unorganized units at a two digit level for manufacturing. Cotton, textiles, paper and paper products, metals and alloys, machinery and transport equipment, and other manufacturing industries scored substantial rate of growth, while beverages, tobacco products, chemicals and chemical products maintained notable rates of growth. After recording negative growth in the first two years of the Plan period, cotton textiles made remarkable growth in the last three years, which created a level

25 72 playing field between the small-scale and large industries. The performance of the textile industries other than cotton was striking. The performance of the capital goods industry was another positive feature in view of the implication it had about the rising investment in manufacturing. The production of metals with both steel and non-ferrous metals showing a good response, rushed ahead. Although paper and paper products showed good overall growth, the performance was uneven. Chemical products were lifted by the accelerating growth in the export of pharmaceutical products. Another key industry that seemed to be on a high growth path was automobiles and parts, in which both domestic and export demands had been increasing. The three areas that have shown negative growths were jute, textiles, wood products, and leather and leather products. Quantitative restrictions on trade had already been progressively eliminated before the Tenth Five Year Plan period and import tariffs on nonagricultural products were drastically reduced after the introduction of economic reforms in The process was carried forward strongly and peak tariffs on non-agricultural products were brought down from 30% in to 10% in the Union Budget for The Foreign Direct Investment (FDI) policy was also successively liberalized during the Tenth Five Year Plan. Eleventh Five Year Plan ( ) In order to achieve an average growth rate of 9% per annum in GDP during the Eleventh Five Year Plan, it has been projected that, individually, industry and manufacturing will have to grow at an average annual rate of 9.8%. Innovation and Entrepreneurship hold the key to enhancing the role of SMEs in improving the Indian economy. As their importance is not well realized, countrywide programmes on entrepreneurship

26 73 and innovation have been launched in the shape of a national movement. Recognition for innovation and entrepreneurship in the clusters and education institutes has been given. Self Help Groups (SHGs) of Women and their associations and networks, etc., have been encouraged with increased micro financing and revolving credit during the 11 th five year plan. The potential of the organized sector linking up for quality and international attainability has been brought to the light and encouraged. A strong requirement for preparing sectoral technology profiles of the SMEs has been felt. These technology profiles will help in critically addressing technology needs in line with the business requirements of the sector. To begin with, 10 SME sectors namely Food and allied industries, Wood and wooden products, Paper, Leather and leather goods, Rubber goods, Plastic goods, Glass and ceramics, Electrical machines, appliances, apparatuses, Bicycle parts, tricycles and Sports goods can be taken up for technology profiling. There is another strong need for creating awareness about IPR (Intellectual Property Rights) amongst the SMEs. Patenting should be encouraged by offering financial support and subsidies. Similarly, quality assurance, eco-labelling, bar coding of products should also be encouraged. There are a large number of engineering and professional societies in the country. They are content with interactions with the big companies, who support them by way of corporate membership and sponsorship of events. There is a need to bring a paradigm change in this approach so that these professional societies would evolve, during the 11 th Plan, specific programmes which will go a long way in enhancing the scientific and technological capabilities of the SMEs.

27 74 Twelth Five Year Plan ( ) The recommendations of the Working Group are considered to be vital to support the growth of the MSME sector during the12 th Five Year Plan period. The Group would like to point out the following aspects in the recommendations given wherein the execution of which will be essential for the ski-jumping of MSME Sector in the global market place. Finance SME exchanges operations for facilitating access to Equity Finance Technology Scheme for attainment and up-gradation of technology Infrastructure Developing clusters of excellence, setting up of 100 Tool Rooms and PPDCs (Process cum Product Development Centers). Marketing Procurement policy for Goods/services from MSEs by the Government Depots and Central PSUs (Public Sector Undertakings). B2B (Business to Business) International portal. Enabling global footprints of MSMEs. Leveraging Defence Offset Policies in favour of MSMEs. Skill Development Skill Development and Capacity Building Programmes are aiming at encouraging youngsters/first Generation Entrepreneurs by up-scaling

28 75 PMEGP (Prime programmes. Employment Generation Programme) and other Institutional Structure Strengthening of Institutions MSME-DIs, EDIs and KVI Institutions Application of E-tools in promotional and regulatory matters for facilitating easy entry. Real time Statistical and Policy Analysis through strengthening of Database. The Working Group recommends 6 umbrella schemes relating to six verticals, i.e Credit and Finance, Technology and Innovation, Infrastructure, Marketing, Skill and Entrepreneurship Development, and Institutional Structure. The schemes mentioned under each vertical would be treated as components of the Umbrella Scheme. Table 3.2 Umbrella scheme-proposed plan allocation for 12 th five year plan ( ) Sl. No. Source: Allocation Projected Expenditure for 12 th Plan (` in cr.) 1 Credit and Finance 19,450 2 Technology Up gradation 9,500 3 Infrastructure Development 11,360 4 Marketing and Procurement 2,110 5 Skill Development and Training 3,600 6 Institutional Structure 3,100 7 Khadi and Village Industries sector 14,800 8 Coir Sector 870 Total 64,790 Report of the working group on micro, small and medium enterprises growth for 12 th five year plan ( )

29 76 Recommendations of the 12 th plan It is suggested that the scheme should be promoted to support the development and strengthening of the small, tiny and micro enterprises in the following manner. i. From among the already existing / newly formed SHGs, Producers Collectives etc. identification and recognition of the cluster of SHGs within the cluster or concentration of SHGs within a radius of geographical area should be done. ii. iii. iv. These SHGs should be notified as Enterprise and Business Resource Centres or each member of SHG as an own account worker and therefore an enterprise. The mapping and grading as per their age, competencies, etc., should be done for the notified SHGs / Producer Collectives. Based on the above, needs would be assessed and based on the need assessment, the different technical, commercial, and academic institutions would be identified which will provide the needed inputs to the SHGs / Producer Collectives. These institutions / agencies / universities will conduct workshops, trainings, case studies, and work on technology inputs and technical services as per the need. v. To integrate the micro enterprises into mainstream trade, these SHGs / Producer Collectives / micro enterprises under Enterprise and Business Resource Centres should be given stimulus by (a) Providing tools and equipments, (b) Infrastructure,

30 77 (c) Tax and duty exemptions, (d) Access to softer credit, (e) Certification to the products, (f) Brand building, (g) Marketing and related inputs including organizing buyer- seller meet etc., (h) Designing and product development inputs, and (i) Access to and application of modern technology to the use of unorganized sector workers. vi vii This could be further supported and it lead to the development of IT centres, technology parks etc. for the workers from the unorganized sector. Micro Enterprises in the unorganized sector should be given need based loans at reasonable rates of interest along with the provision for adequate period of moratorium to help the Micro enterprises to face the initial period of teething trouble. Enterprise and Business Resource Centre is an effort towards accelerated approach to empowerment of informal economy workers. This will lead to development of owned and managed micro enterprises by the unorganized sector workers. Further it will enhance the linkages and partnerships between the existing technical institutes, agencies and facilitate the access and application of the existing knowledge, resource and application to strengthen the unorganized sector workers enterprises. Through the Enterprise and Business Resource Centers, effort should be made to identify the potential of the

31 78 individual or group keeping in view their hereditary skills capacity for innovating products for the contemporary market. The Sub-group has identified three major areas to focus. These are: 1. Skill Development, 2. Credit and handholding support, and 3. Infrastructural support. Table 3.3 Details of cost component of the schemes (for 5 years ) Sl. No. Scheme development No. of persons Cost involved (`in Crore) 1 Skill development 1.5 crore Hand holding support 50 lakh Credit support 25 lakh Source: Infrastructure development 25 lakh Creation of database of Unorganized sector 2000 Total cost Report of the working group on micro, small and medium enterprises growth for 12 th five year plan ( ) Proposed Outlay during the 12 th Plan Period The following outlay is required for completion of the schemes / programmes recommended by sub group during the 12 th Plan Period to considerably enhance the marketing potential of MSMEs.

32 79 Table 3.4 Proposed outlays during the 12 th plan period ( ) Sl. No Name of the scheme I Existing Schemes Marketing Development Assistance (MDA) Scheme, Marketing 1 Assistance Scheme and International Co- Operation scheme 2 3 Financial Assistance for using Global Standards (GSI) Bar Coding Performance and Credit Rating scheme for Micro and small Enterprise Total cost of the scheme (`in Crores) Contribution by implementing agency (`in Crores) Budgetary support (`in Crores) Total (Existing Scheme) II New Schemes Establishment of 1 Marketing Organization (SPVs) in Clusters Scheme for Development of Marketing Infrastructure for MSMEs under Public Private Partnership Total (New Schemes) Total Outlay (Existing and New Schemes) Source: Report of the working group on micro, small and medium enterprises growth for 12 th five year plan ( )