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Bangladesh and Industrial Sector By Super Admin
Published 1 October 2006
Report, Assignment, Case Study and Term Paper
Rating:
Industry
Bangladesh will have within a decade a sizable industrial sector where manufacturing will account
for at least 25 per cent of the GDP and at least 20 per cent of the employed workforce. This will
mean a considerable rise from the figure of 10 per cent around which the sector's share in GDP and
employed population have hovered for most of the past two decades.
A vibrant and dynamic private sector will be the principal actor in Bangladesh's industrial arena. The
industrial sector of Bangladesh will be competitive in the liberalized internal market as well as in the
external market. The industrial sector of Bangladesh shall have a dominant export orientation.
The goal of external competitiveness implies the pursuit of industrialization in accordance with the
dynamic comparative advantage of the economy. Given Bangladesh's resource endowment, the
principle of dynamic comparative advantage means production of labor intensive manufactures with
skill up-gradation and productivity growth as its cutting edge. This however, does not preclude the
possibility of Bangladesh having a niche high-tech industrial sub-sector that may be externally
competitive.
Dispersal of small and medium industries will constitute an important element in the industrial
policy approach. Industrial development will be sustainable from the point of view of environmental
concerns and resource availability.
Industrial Policy 1999 aims at addressing these concerns building on earlier efforts and gains
towards industrialization of Bangladesh economy.
INFRASTRUCTURAL FACILITIES AND UTILITY SERVICES IN BANGLADESH
GENERAL:
The investors will, in general, find the infrastructural facilities and utility services available in
Bangladesh to be adequate. Bangladesh is now trying to establish itself as the next rising star in
South Asia as a location for foreign investment. The government has implemented a number of
policy reforms designed to create a more open and competitive climate for private investment, both
foreign and domestic. The issues relating to infrastructural facilities and utility services have been
given high priorities in those policy reforms and implementations.
COMMUNICATION:
The transport sector of Bangladesh consists of a variety of modes. The country being a flat plain, allthree modes of surface transport i.e. road, railway, and water are widely used in carrying both
passengers and cargo.
More than half of Bangladesh has access to an all-weather hard surface road within three miles
distance. There has been a dramatic expansion of road network in recent years. In 1997, the total
length of paved road under the Roads and Highways Department stood at more than 20,000
kilometers. It is increasing over time. It is estimated that mechanized road transport carry about
70% of the country's total passenger and cargo volume. Ports and important business centers are
well connected by roads and highways.
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In recent years, construction of a number of bridges such as the Bangabandhu Jamuna Bridge,
Meghna Bridge, Meghna-Gumti Bridge, Bangladesh-China Friendship Bridge, Shambhuganj Bridge
and Mahananda Bridge have been completed. The 4.8 kilometer long Bangabandhu Bridge which
has been opened to traffic in June, 1998, is the eleventh longest in the world. It has established a
strategic link between the East and West of Bangladesh, has integrated the country, is generating
multifaceted benefits to the people and promoting inter-regional trade. Apart from quick movement
of goods and passenger traffic, it is facilitating transmission of electricity and natural gas and has
integrated the telecommunication link.
About 32% of the total area of Bangladesh is effectively covered by the railways. It connects all the
administrative and business points of the country. Railway container service from Chittagong port to
Dhaka are available.
About two-thirds of Bangladesh is a wetland laced with a dense network of rivers, canals and
creeks. The navigable waterways vary between 8372 kilometer during the monsoon to 5200
kilometer during the dry season. Bangladesh Inland Water Transport Authority has been established
by the government for maintenance of navigability of ports and channels.
The entire coast along the Bay of Bengal is 710 Kilometer long. There are two major ports in the
country. Chittagong Port, the oldest port, has been an entry point for at least 1000 years. The
Mongla Port in Khula region serves the western part of Bangladesh. Worlds reputed shipping lines
are operating through these two ports.
There are now 11 operational airports in Bangladesh. Of these, the airports at Dhaka, Chittagong,
and Sylhet serve international routes.
WATER:
Water is supplied by the Water and Sewerage Authority (WASA) in the metropolitan areas. Very
high priority is attached regarding availability of water in industrial areas.
GAS:
Natural gas supply is available in major industrial areas.
TELECOMMUNICATION:
Comprehensive telecommunication services such as fully automatic telex, fax, e-mail, internet,
telephone including international direct dialing are available.
ELECTRICITY:
In Bangladesh, electric power is generated in hydro, steam, gas-turbine, and diesel power plants.
All the generating stations are interconnected through a national grid.
INDUSTRIAL LAND:
Once an industrial project is registered, the entrepreneur is eligible to apply for allotment of land to
the government. Price of land in most of the industrial estates/ areas is relatively lower than the
market rate. These estates are developed with necessary infrastructure facilities such as electricity,
gas, water, sewerage, etc.
Industrial plots are allotted by Bangladesh Export Processing Zones Authority (BEPZA) and
Bangladesh Small and Cottage Industries Corporation (BSCIC) in industrial areas developed by
them. Plots in other industrial estates/areas, owned by the government or owned/controlled by any
local authority, are allotted on the recommendation of the Board of Investment (BOI).
Ready-made Garments
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The ready-made garment industry in Bangladesh is not the outgrowth of traditional economic
activities but emerged from economic opportunities perceived by the private sector in the late
1970s. Frustrated by quotas imposed by importing nations, such as the United States,entrepreneurs and managers from other Asian countries set up factories in Bangladesh, benefiting
from even lower labor costs than in their home countries, which offset the additional costs of
importing all materials to Bangladesh. Bangladesh-origin products met quality standards of
customers in North America and Western Europe, and prices were satisfactory. Business flourished
right from the start; many owners made back their entire capital investment within a year or two
and thereafter continued to realize great profits. Some 85 percent of Bangladeshi production was
sold to North American customers, and virtually overnight Bangladesh became become the sixth
largest supplier to the North American market.
After foreign businesses began building a ready-made garment industry, Bangladeshi capitalists
appeared, and a veritable rush of them began to organize companies in Dhaka, Chittagong, and
smaller towns, where basic garments--men's and boys' cotton shirts, women's and girls' blouses,
shorts, and baby clothes--were cut and assembled, packed, and shipped to customers overseas
(mostly in the United States). With virtually no government regulation, the number of firmsproliferated; no definitive count was available, but there were probably more than 400 firms by
1985, when the boom was peaking.
After just a few years, the ready-made garment industry employed more than 200,000 people.
According to some estimates, about 80 percent were women, never previously in the industrial work
force. Many of them were woefully underpaid and worked under harsh conditions. The net benefit to
the Bangladeshi economy was only a fraction of export receipts, since virtually all materials used in
garment manufacture were imported; practically all the value added in Bangladesh was from labor.
SMALL AND COTTAGE INDUSTRIES
1. Small Industry means an industrial undertaking engaged either in manufacturing process or
service activity whose total fixed investment excluding the prices of the land, expenses for inland
transportation and commissioning of machinery appliances and duties and taxes , is limited to taka
three crore i.e. Tk. 30 million (including initial working capital). In the case of BMRE, even of the
total investment limit exceeds Tk. 30 million, it would still be considered as a small industry.
However , the extent of extended investment for BMRE shall not be more than 50% of the total
investment limit.
2. 'Cottage Industry ' means an industrial unit either engaged in manufacturing or servicing
generally run by the family members either as full time or part time and the total investment is
limited to taka five lac (Tk.500, 000).
3. For the development and expansion of Small and Cottage Industries, BSCIC will be responsible
for the registration, determination of import entitlement of raw materials and packing materials,
issue of import pass book recommendation for local raw materials, allotment of land in its own
industrial zones, and also for providing assistance in all other matters.
4. BSCIC will provide financial types of small and cottage industries; in this case, BSCIC shall have
to mobilize its own fund. The fund to the banks may not be utilized for this purpose.
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5. During the selection of investors for small and cottage industries, special priority shall be given to
women educated unemployed, skilled technicians, laborers, engineers, wage- earners and those
depended upon them.
6. Small Industries of the textile sector will enjoy similar facilities as those of small and cottage
industries from the Bangladesh Small and Cottage Industries Corporation.
7. BSCIC will continue its efforts in creating infrastructure facilities in the growth centers similar to
those available in the industrial estates. In the regions, where there are no industrial estates, the
relevant authorities on the recommendation of BSCIC, will provide infrastructural facilities to the
small and cottage industries on a priority basis. Irrespective of the amount of investment, BSCIC
will approve the plans and lay-outs of the buildings of all the industries situated in the BSCIC,
industrial states and are their controlling authorities, but for the sake of expansion of small
industries, no permission shall be granted for the establishment of any new large or medium
industry in the BSCIC industrial estates.
8. To assist in the marketing of products of small and cottage industries, the government, semi-
government and autonomous bodies will ensure the purchase of these products, as per rules and
the government purchase policy. By utilizing their own funds, the Thana Parishads will also try to
support BSCIC and the related institutions by organizing fairs and exhibition, setting up of sales and
exhibition centers and providing infrastructural facilities like setting up of special Hat Corner.
9. The Jurisdiction, Sector and amount of investment and the type of production to be controlled by
the Board of investment and the BSCIC will be clearly demarcated.
10. Small and cottage industries which have been granted credits by financial institutions/banks
must be registered with BSCIC.
11. A Review committee will be formed in the Ministry of Industries with members from BSCIC,
Bangladesh Bank, relevant banks/financial institutions and representatives from Chamber of
Commerce and Industry and NASCIB for reviewing the implementation of the investment schedule
of the small and cottage industries and monitoring the credit, policy being followed by the banks
and other financial institutions.
12. Machinery/spare parts required by the new and existing heavy and medium industries and
Government. Semi-Government and Autonomous bodies have to be procured from small industries
and in these cases subcontracting will be given preference.
13. In addition to the existing facilities, the following special incentives and facilities will be
provided to intensify the expansion of small and cottage industries:
a. Small Industry Credit Guarantee Scheme will be introduced with joint collaboration of Bangladesh
Small and Cottage Industries Corporation, Government / Private General Insurance Corporation,
Government / Private General Insurance Corporation / companies.
b. Based on the recommendation of the BSCIC, the National Board of Revenue will provide taxholiday to appropriate small and cottage industries.
c. To assist the sub-contracting banks and financial institutions will make provisions for funds in
accordance with their rules; the sub-contracting industries shall enjoy incentives and facilities
similar to those provided in the SCI sector irrespective of their locations.
Traditional and other sectors
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Traditional Sectors
The industrial sector produces around 10 percent of GDP, and long-term national strategies in thelate 1980s did not anticipate a major increase in that percentage. The greatest need and the
greatest opportunities remained predominantly in the agricultural sector.
Eastern Bengal was known for its fine muslin and silk fabric before the British period. The dyes,
yarn, and cloth were the envy of much of the pre modern world. Bengali muslin, silk, and brocade
were worn by the aristocracy of Asia and Europe. The introduction of machine-made textiles from
England in the late eighteenth century spelled doom for the costly and time-consuming handloom
process. Cotton growing died out in East Bengal, and the textile industry became dependent on
imported yarn. Those who had earned their living in the textile industry were forced to rely more
completely on farming. Only the smallest vestiges of a once-thriving cottage industry survived.
At independence, Bangladesh was one of the least industrially developed of the populous nations.
Annual per capita consumption of steel and cement was only about one-third that of India, forexample, and electric power consumption per capita was less than one-fifth.
Other Industries
Not all industrial growth in Bangladesh was stimulated by anticipation of foreign sales. The national
economy stood to benefit equally from domestic production that could eliminate the need for
imports of one kind or another. A good example of import substitution manufacturing was the
pharmaceutical industry, a field that attracted both foreign and domestic investment in the first
decade of independence, based on the large potential domestic market. The Drug Ordinance of
1982 introduced controversy and claims by foreign firms that they were victims of discrimination
vis--vis local pharmaceutical firms. The foreign firms found that the ordinance restricted the kinds
of drugs they could manufacture, import, and sell; specifically, foreign pharmaceutical firms could
no longer manufacture drugs that Bangladeshi-owned companies were capable of producing. Thedifficulties foreign investors have encountered seem to have been limited essentially to this one
industry, and even there the foreign firms already established have managed to cope more or less
successfully. In 1988 one United States firm announced a decision to expand its Bangladeshi
manufacturing operations by moving into production of highly specialized medicines with greater
profit margins.
Public sector corporations produced a substantial part of the country's paper and newsprint
requirements, as well as carrying on sugar-refining operations at modest-sized mills in several parts
of the country. They also produced about 100,000 tons of steel per year, 1 million tons of petroleum
products, and gasoline pumps, radios, television sets, bicycles, paints and varnishes, cement, and
industrial chemicals.
INDUSTRIAL SECTOR EXPANSION MEASURES
As a complement to building a vibrant economy and achieving a sustainable growth, the
government has been taking comprehensive package of measures for expansion of the industrial
sector and consolidation of the industrial base for the last few years.
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Moving along the path of free market economy, almost all industries except defense have been
made open to private sector.
To accelerate the pace of industrialization, the process of approval of projects has been simplified.
Identical provisions have been made in respect of bank loans, tax holiday, duty concessions and
extension of other facilities for setting up industrial projects without any discrimination between thelocal and foreign entrepreneurs.
Apart from guarantee for full security of investment and arrangement for easy repatriation of
dividends and invested capital, provision has also been made to grant permanent
residence/citizenship to foreign entrepreneurs making large investments.
The Privatization Board has been transformed into the Privatization Commission and strengthened
further to expedite transfer of public sector industrial units as well as government shares in other
industrial enterprises to the private sector. A good number of government-owned industrial units
and government shares in other industrial enterprises have already been off-loaded to private
hands.
In order to rejuvenate the prospective sick industries, a Special Committee has been formed foridentifying such industries and allowing remission of interest on loans taken by them. Based on
recommendations of the committee, the government will pay 50% of the interest remission in the
form of bonds to the concerned banks.
A number of fresh measures has been taken during the year under report under the new industrial
policy of 1999 for development and nourishment of industrial sector.
With a view to creating funds for long term industrial finance, arrangement has been made for
issuance of 5- year and 7-year government-guaranteed Industrial Development Bonds worth Tk.500
crores through the Agrani Bank, and 5-year Bangladesh Industrial Development Bonds worth $100
million through the Sonali Bank.
For enabling financial institutions to provide long term industrial finance as well as strengtheningthe capital market of the country, a US$57.69 million Financial Institutions Development Project
(FIDP) has been put in place during the year under report. Technical and financial assistance will be
given to the financial institutions from this project in securitization of their loan/lease and issuance
of their medium and long term debentures/bonds.
Two new organizations, namely, the Infrastructure Facilitation Center and the Infrastructure
Development Company Limited have been established to help development of industrial
infrastructure in the country.
Necessary law has been enacted for establishment of Private Export Processing Zones (PEPZ) in the
country. Initiative has already been taken to set up four PEPZs, one each at Mongla, Ishwardi,
Saidpur and Comilla. Besides, the process of establishment of 5 Industrial Parks and High-tech
Parks in the country has been started. As a result of these measures, the potential for strengtheningof the pace of industrialization in the country has been brightened.
A total of 1,563 industrial projects involving a total investment outlay of Tk.17, 215 crores (1428
local and 135 joint venture/100% foreign) were registered during 1999-2000.
The amount of investment during the year was 15.4 per cent higher than in the previous year.
Alongside increased registration of industrial projects, the amount of industrial loans disbursed
during the year also increased. Compared to the level in the preceding year, the amount of working
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capital finances and term loans disbursed in the industrial sector during 1999-2000 increased by
33.3% to Tk.12,309 crores (wthe previous year. Alongside increased registration of industrial
projects, the amount of industrial loans disbursed during the year also increased. Compared to the
level in the preceding year, the amount of working capital finances and term loans disbursed in the
industrial sector during 1999-2000 increased by 33.3% to Tk.12,309 crores (working capital
Tk.10,681.74 crores, and term loans Tk.1,627.26 crores).
The Credit Guarantee Scheme which was introduced for encouraging expansion of employment
creating and income generating small industries by mobilizing small entrepreneurial initiatives in the
country remained in operation during the year under report. Credit covered by guarantee under the
Scheme against loan given to investors in small industries stood at Tk.27.23 crores as on 30th June,
2000. Under the Khudra Uddyog Rin Karmosuchi (Small Initiatives Credit Scheme) introduced for
self-employment of the voluntarily retired officers/staff, a total of Tk.4.92 crores were disbursed up
to 30th June,2000 against which refinance provided by Bangladesh Bank stood at 3.69 crores.
EXPORT PROCESSING ZONES (EPZ) IN BANGLADESH AND BEPZA
Introduction
In order to stimulate rapid economic growth of the country, particularly through industrialization,
the government has adopted an 'Open Door Policy' to attract foreign investment to Bangladesh. The
Bangladesh Export Processing Zones Authority (BEPZA) is the official organ of the government to
promote, attract and facilitate foreign investment in the Export Processing Zones.
The primary objective of an EPZ is to provide special areas where potential investors would find a
congenial investment climate, free from cumbersome procedures. Two EPZs, one in Chittagong and
the other near Dhaka are now operational.
Following information is provided to the potential investors for investment in EPZs of Bangladesh.
Eligible investors
100% foreign owned including Bangladesh nationals ordinarily resident abroad (Type-A).Joint
venture between foreign and Bangladesh entrepreneurs resident in Bangladesh (Type-B) 100%
Bangladesh entrepreneurs resident in Bangladesh (Type-C).
Mode of Investment
Investment is convertible in foreign currencies by foreign investors. Option to establish
public/private Ltd companies or sole proprietorship/partnership concerns.
Investment Guarantee
Foreign Private Investment (Promotion and Projection) Act 1980 secures all foreign investment in
Bangladesh. OPIC"s (Overseas Private Investment Corporation, USA) insurance and finance
programs operable. Security and safeguards available under Multi-national Investment Guarantee
Agency (MIGA) of which Bangladesh is a member. Arbitration facility of the International Center for
the Settlement of Investment Dispute (ICSID) available.
Tele-communications
Telex, Fax and International Dialing Services connected through satellite system available.
Communications
Adequate sea, rail, road and air communications services are available.
BEPZA
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Sanctions projects generally within one week.
Issues required Import/Export Permits.
Issues required Work Permits for foreign nationals working in EPZ enterprises.
Provides required infrastructure facilities in EPZs.
Offers 'One Window Same Day Service' to investors in EPZs.
PRODUCTION ORIENTED LABOR LAWS
Law forbids formation of any labor union in EPZs.
BEPZA is vested with responsibility to administer labor matters for all enterprises in EPZs.
Minimum Wages (Monthly)
Apprentices/Trainee US $22.00, Unskilled US $38.00, Semi-skilled US $45.00, Skilled US $63.00
Other benefits include Conveyance Allowance, House Rent, Medical Allowance and Festival Bonus.
Working Hours
48 hours a week in a factory. 40 hours a week in an office. 5 working days in a week
Employees leave
10 days Casual leave, 17 days Annual leave
FACILITIES AND INCENTIVES
FACILITIES
a. Land and factory building are available on rental basis.
b. Electricity, water, gas and telecommunications are provided by the zones.
c. Import and export permits are issued by EPZ within 24 hours.
d. Work permits are issued by BEPZA.
e. EPZ is a secured and protected area.
f. Recreational facilities are available.
g. Availability of food stuff and beverage on payment of nominal tax foreigners working in EPZs.
h. Potential investors are required to deal only with BEPZA for investment and all other operational
purposes.
INCENTIVES
Fiscal
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I. Tax Exemption
a. Tax holiday for 10 years
b. Exemption of income tax on interest on borrowed capital.
c. Relief from double taxation subject to bilateral agreement.
d. Complete exemption from dividend tax for tax holiday period for foreign nationals.
e. Exemption of income tax on salaries of foreign technicians for 3 years subject to certain
conditions.
II. Duty Free Import and Export
a. Duty free import of machinery's, equipment and raw materials.
b. Duty free import of three motor vehicles for use of the enterprises in EPZs under certain
conditions.
c. Duty free import of materials for construction of factory buildings in the zones.
d. Duty free export of goods produced in the zones.
Non-Fiscal
I. Investment
a. All foreign investment secured by law.
b. No upper limit on extent of foreign investment.
c. Full repatriation of profit and capital permissible.
d. Repatriation of investment including capital gains, if any, permissible.
e. Remittances allowed in following cases:
f. All post tax profit and dividend on foreign Capital.
Savings from earnings, retirement benefits, personal assets of individual on retirement/termination
of services. Approved royalties and technical fees. No permission required for expansion of the
project or product diversification.
II. Project financing and banking
a. Off-shore banking facilities available.b. Local and international banking facilities also wide-open.
III. Import
a. Freedom from national import policy restrictions.
b. Import of raw materials also allowed on Documentary Acceptance (DA) basis.
c. Advantage of opening back to back LC for certain types of industries for import or raw materials.
d. Import of goods from the domestic tariff area permissible.
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IV. Project Implementation
Re-location of existing industries from one zone to another within the country permissible.
V. Operation
a. Sub-contracting within EPZ allowed.
b. Inter-zone and intra-zone export permitted
c. All customs formalities done at the gate site of the respective factory building within the zone.d. Permission for import/export given in the same day.
e. Repairing and maintenance's of machinery's and capital equipment from domestic tariff area
allowed.
VI. Employment
a. Liberal employment of foreign technicians/experts allowed.
b. Foreigners employed in the zones enjoy equal rights similar to those of Bangladesh nationals.
c. Law forbids formation of any labor union in the zones. Strike within the zones prohibited.
VII. Support Services
Customs office, Post Office, Medical center, Fire station, Police station etc
DHAKA EXPORT PROCESSING ZONE
Location: Savar
35 km from Dhaka city center
25 km from Zia International Airport, Dhaka
Zone Area: 58 hectares (142 acres)
Land
Total number of plots: 100
Size of each plot: 2000 M2
Tariff: US $ 1.50/M2/year
Standard Factory Building
Space: 72,000 M2 in 16 blocksTariff: US $ 2.00/M2/month
Warehouse
Space: 2,300 M2
Tariff: US $ 2.00/M2/month
Utility Services
Water supply: CEPZ gets water from Chittagong WASA
Storage Capacity: 45, 20,000 litters/day
Tariff: Tk. 13.56 per M3
Power Supply: 11 kV, 3 phases, and 50 cycles
Tariff: Tk. 2.86 per kWh (Industrial use)
Gas supply: 1, 36,000 M3/day or 5,667 M3/hourTariff: Tk 3.64 per M3 (Industrial use)
CHITTAGONG EXPORT PROCESSING ZONE
Location: 2.40 km from Chittagong Sea Port
5.63 km from the main business center of Chittagong
7.24 km from the Chittagong International Airport
Zone Area: 255 hectares (630 acres)
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Land
Total number of plots (planned): 430
Size of each port: 2044 M2
Tariff: US $ 1.50/M2/year
Standard Factory Building
Space: 39,000 M2 in 16 blocksTariff: US $ 2.00/M2/month
Utility Services
Water supply: DEPZ gets water from its own water supply system
Tariff: Tk. 13.56 per M3
Power Supply: 11 kV, 3 phases, and 50 cycles
Tariff: Tk. 2.70 per kWh (Industrial use)
Gas supply: DEPZ gets gas from the Titas Gas Field
Tariff: Tk 3.64 per M3 (Industrial use)
Cottage Industries
Main Cottage Industries
Handloom industry
Silk industry
Hand-spinning industry
Pottery industry
Biri-making industry
Conch-shell and Ivory industry
Coir industry
Salt industry
Cane and Bamboo industry
Soap industry
Brass and bell metal industry Wood industry
Miscellaneous
Importance of cottage industries
1. Supplementary occupation for the farmers
2. Additional source of income
3. Cottage industry is labor intensive
4. Female employment
5. Economy of labor
6. Economy of capital
7. Earning of foreign exchange
8. Balanced industrial development
9. Freedom of work and homely atmosphere10. Preservation of arts and skills
11. Use of by-products of large industries
12. Equitable distribution of income
13. Raw materials of cottage industries are easily available
Problems of cottage industries
1. Lack of capital
2. Want of credit
3. Low wages
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4. Scarcity of raw materials
5. Scarcity of modern tools
6. Lack of education
7. Lack of technical training
8. Lack of power (gas, electricity etc.)
9. Absence of government patrons
10. Competition with large scale industries
11. Uncertainty of market
12. Lack of gradation and standardization of product
Suggested Solution
1. Improvement of credit facilities
2. Up to date technique of production
3. Supply of raw materials
4. Marketing facilities
5. Education and training
6. Supply of cheap power
7. Creation of external market
8. Removal of competition by the large scale industries
9. Classification and standardization of cottage product
10. Development of transport and communication11. Organization of cottage workers
12. Purchase by the government
13. State support