SMALL SCALE INDUSTRY

Definition:(i) Small-Scale Industries:These are the industrial undertakings

having fixed investment in plant and machinery, whether held on ownership basis or lease basis or hire purchase basis not exceeding Rs. 1 crore.

(ii) SSI is defined as an unit engaged in manufacturing, serving, repairing, processing and preservation of goods and having investment in plant and machinery at an original cost of not exceeding Rs. 1 crore.

Characteristics of Small-Scale Industries(i) Ownership:Ownership of small scale unit is with one

individual in sole-proprietorship or it can be with a few individuals in partnership.

(ii) Management and control:A small-scale unit is normally a one man

show and even in case of partnership the activities are mainly carried out by the active partner and the rest are generally sleeping partners. These units are managed in a personalised fashion. The owner is activity involved in all the decisions concerning business.

(iii) Area of operation:The area of operation of small units is

generally localised catering to the local or regional demand. The overall resources at the disposal of small scale units are limited and as a result of this, it is forced to confine its activities to the local level.

(iv) Technology:Small industries are fairly labour intensive

with comparatively smaller capital investment than the larger units. Therefore, these units are more suited for economics where capital is scarce and there is abundant supply of labour.

(v) Gestation period:Gestation period is that period after which

teething problems are over and return on investment starts. Gestation period of small scale unit is less as compared to large scale unit.

(vi) Flexibility:Small scale units as compared to large

scale units are more change susceptible and highly reactive and responsive to socio-economic conditions.

They are more flexible to adopt changes like new method of production, introduction of new products etc.

(vii) Resources:Small scale units use local or indigenous

resources and as such can be located anywhere subject to the availability of these resources like labour and raw materials.

(viii) Dispersal of units:Small scale units use local resources and

can be dispersed over a wide territory. The development of small scale units in rural and backward areas promotes more balanced regional development and can prevent the influx of job seekers from rural areas to cities.

Objectives of Small Scale Industries:The objectives of small scale industries

are:1. To create more employment

opportunities with less investment.2. To remove economic backwardness of

rural and less developed regions of the economy.

3. To reduce regional imbalances.4. To mobilise and ensure optimum

utilisation of unexploited resources of the country.

5. To improve standard of living of people.6. To ensure equitable distribution of

income and wealth.7. To solve unemployment problem.8. To attain self-reliance.9. To adopt latest technology aimed at

producing better quality products at lower costs.

What are the types of Small Scale Industries found in IndiaAll types of small-scale industries found in

India whether in manufacturing sector or service sector are divided into five types:

1. Manufacturing Industries:Those units which are producing complete

articles for direct consumption and also for processing industries are called as manufacturing industries. For example : Powerlooms, engineering industries, coin industries, khadi industries, food processing industries etc.

2. Ancillary Industries:The industries which are producing parts

and components and rendering services to large industries are called as ancillary industries.

3. Service Industries:Service industries are those which are

covering light repair shops necessary to maintain mechanical equipments. These industries are essentially machine- based.

4. Feeder Industries:Feeder industries are those which are

specialising in certain types of products and services, e.g. casting, electro-plating, welding, etc.

5. Mining or Quarries.

Importance of SSIs in IndiaSSI is one of the significant segments of

the Indian economy, contributing about 7 per cent to the Indian GDP and providing employment to over 28 million people.

manufactures more than 8,000 diverse products, ranging from low-tech items to technologically-advanced products.

The SSI sector targets both domestic as well global markets. SSIs sector is recognized as the engine of growth, accounting for about 70% of employment and contributes a significant amount for the growth of GDP.

Globally, 99.7 percent of all enterprises in the world are SMEs and the balance 0.3 per cent is large-scale enterprises. By contrast, the SSI sector in India accounts for 95 per cent of all industrial units.

Advantages and problems of small scale industries in India.Labor intensive in nature.Prevent congestionSuitable for people with limited resourcesPrevents concentration of economic powerLeads to better distribution of incomeHelps to put idle resources to productive

usersSuitable for lean productionLead to allocate efficiently

Problem of financeProblem of raw material Problem of powerProblem of marketingExport dutiesProblem of technical know howProblem of industrial relationGrowing mortality among the units

Steps to Set Up Small Scale IndustrySmall scale industries have a large

contribution in the growth of an economy.Another advantage of small scale

enterprises is that they are easy to set up and can fulfill one’s dream to become an entrepreneur.

First of all, you need to prepare the description for the small scale industry you want to set up. You have to decide whether you wish to have a corporation, proprietorship or partnership.

Next, you need to describe the product you wish to manufacture or the service you wish to offer.

While choosing the product or service you want to offer, you must conduct a good market research and learn about the prevailing competition in the market.

The next step is to choose a location to set up your small scale industry. Make sure you consider things like availability of raw materials, labor, transportation services and other such things while choosing the location.

The next big step is to arrange for finance. If you don’t have enough finance, the best way is to borrow a loan. You may learn about financial aid offered by the government of your state or country.

Production management is the next step, once you are able to start your small scale industry. This includes allocating space for different operations and choosing your production methods

Make sure that you follow the practices for quality testing and keep on improving. You have to purchase required machinery and hire employees and workers for different departments.

Marketing and business advertising form the next big step of setting up a small scale industry.

You have to decide prices for your products or services, keeping in mind the profit margin.

What is Government support to SSI during five year plans?Immediately after independence,

government of India has given great importance to the development of small-scale sector in the successive five year plans. The expenditures for SSI during the eight Five Year Plans

First Plan: In the first Five Year Plan Rs. 48 crores was spent on small-scale sector alone. During this plan six boards were constituted namely All India Handloom Board, All India Handicraft Board, All India Khadi and Village Industry Board, Small-Scale Industries Board, Coir Board and Central Silk Board. The Boards were established to cover the entire field of small-scale and cottage industries.

Second Plan: As per the recommendations of Karve Committee, the second Five Year Plan focused on dispersal of industries.

During this plan 60 industrial estates were established for providing basic facilities like water, power, transport etc. at one place.

The total expenditure during this plan towards SSI was Rs. 187 crores. In addition some items were reserved for exclusive production in small-scale industries.

Third Plan: The third Plan focused on extension of coverage of small scale industries. During this plan Rs. 248 crores were spent.

Fourth Plan: The programmes adopted during the third plan were extended during fourth plan also.

As a result, small-sector witnessed significant diversification and expansion during the fourth plan period, during which 346 industrial estates had been completed and small-scale sector provided employment to almost 82,700 persons.

Fifth Plan: The main thrust of the fifth plan was to develop small-scale industries to remove poverty and inequality stacking the land. During this plan the expenditure incurved is Rs. 592 crores.

Sixth Plan: Because of the massive development programmes initiated for the development of promising small-scale sector, the actual expenditure of Rs. 1945 crores surpassed the plan 836 items were reserved for manufacturing in small-scale industries and reserved 409 items for exclusive purchase from small scale industries. In addition, SIDO (Small-Industries Development Organization) was established to provide consul-tancy services in technical, managerial and marketing. In 1982 CART (Council for Advancement of Rural Technology) was established for providing necessary technical input to 23 rural industries. By the end of sixth plan, the production from small and cottage industries increased to Rs. 65,730 crores, exports touched Rs. 557 crores and employment in SSI sector reached 315 lakh persons accounting 80% of the total industrial employment.

Seventh Plan: The main thrust of this plan was upgradation of technology to increase competitiveness of small sector. The new watch word was “competition” and “not reservation”.

The actual expenditure of Rs. 3,249 crores surpassed the plan outlay of Rs. 2,752 crores. The value of production increased from Rs. 57,100 crores to Rs. 91,681 crores.

Eighth Plan: The main thrust of the eighth plan was the employment generation as the motive force for economic growth. To achieve this, small and village industries have been assigned an extremely important role. The proposals of this plan are 

(i)       The plan reiterated that timely and adequate availability of credit is more important than concessional credit. For this purpose SIDBI was established, certain new initiatives like sanction of composite loans under ‘single window system’, concessional loans to state corporations for infrastructural developments were introduced.

(ii)       Eighth plan proposed to establish tool room and training institutes in order to upgrade technology.

(iii)      Growth centre approach has been accepted and 70 growth centers were established. In addition establishment of functional industrial estates with agricultural and horticulture products was also proposed.

(iv)      Proposed to establish integrated infrastructure development centers for tiny units. For this the centre, the state governments and industry associations were also involved.

Expenditure towards SSI in Five Year Plans

Plan/periodTotal expenditure towards SSI

(in crores)    First (1951-56) 48.00Second (1956-61) 187.00Third (1961-66) 248.00Fourth (1969-73) 242.00Fifth (1974-78) 592.00Sixth (1980-85) 1,945.00Seventh(1985-90) 3,249.00Eighth (1992-97) 6,334.00

Globalization, Liberalisation and Privatisation in IndiaGlobalization:The term globalization can be used in

different contexts. The general usages of the term Globalization can be as follows:

i. Interactions and interdependence among countries.

ii. Integration of world economy.iii. Deterritorisation.

By synthesising all the above views Globalization can be broadly defined as follows:

It refers to a process whereby there are social, cultural, technological exchanges across the border.

The term “global village” is also frequently used to highlight the significance of globalization. This term signifies that revolution in electronic communication would unite the world.

Effect of Globalization on India:Globalization has its impact on India

which is a developing country. The impact of globalization can be analysed as follows:

1. Access to Technology:Globalization has drastically, improved the

access to technology. Internet facility has enabled India to gain access to knowledge and services from around the world. Use of Mobile telephone has revolution used communication with other countries.

2. Growth of international trade:Tariff barriers have been removed which

has resulted in the growth of trade among nations. Global trade has been facilitated by GATT, WTO etc.

3. Increase in production:Globalization has resulted in increase in

the production of a variety of goods. MNCs have established manufacturing plants all over the world.

4. Employment opportunities:Establishment of MNCs have resulted in

the increase of employment opportunities.5. Free flow of foreign capital:Globalization has encouraged free flow of

capital which has improved the economy of developing countries to some extent. It has increased the capital formation.

Negative effect of globalization:Globalization is not free from negative

effects. They can be summed up as follows:

1. Inequalities within countries:Globalisation has increased inequalities

among the countries. Some of the policies of Globalization (liberalisation, WTO policies etc.) are more beneficial to developed countries. The countries which have adopted the free trade agenda have become highly successful. E.g.: China is a classic example of success of globalization. But a country like India is not able to overcome the problem.

2. Financial Instability:As a consequence of globalization there is

free flow of foreign capital poured into developing countries. But the economy is subject to constant fluctuations. On account of variations in the flow of foreign capital.

3. Impact on workers:Globalization has opened up employment

opportunities. But there is no job security for employees. The nature of work has created new pressures on workers. Workers are not permitted to organise trade unions.

4. Impact on farmers:Indian farmers are facing a lot of threat

from global markets. They are facing a serious competition from powerful agricultural industries quite often cheaply produced agro products in developed countries are being dumped into India.

5. Impact on Environment:Globalization has led to 50% rise in the

volume of world trade. Mass movement of goods across the world has resulted in gas emission. Some of the projects financed by World Bank are potentially devastating to ecological balance. E.g.: Extensive import or export of meat.

6. Domination by MNCs:MNCs are the driving force behind

globalization. They are in a position to dictate powers. Multinational companies are emerging as growing corporate power. They are exploiting the cheap labour and natural resources of the host countries.

Liberalisation:It is an immediate effect of globalization.

Liberalisation is commonly known as free trade. It implies removal of restrictions and barriers to free trade. India has taken many efforts for liberalisation which are as follows:

New economic policy 1991.Objectives of the new economic policy.i. To achieve higher economic growth rate.ii. To reduce inflationiii. To rebuild foreign exchange reserves.

FEMA:Foreign exchange Regulation Act 1973

was repealed and Foreign exchange Management Act was passed. The enactment has incorporated clauses which have facilitated easy entry of MNCs.

i. Joint ventures with foreign companies. E.g.: TVS Suzuki.

ii. Reduction of import tariffs.iii. Removal of export subsidies.iv. Full convertibility of Rupee on current

account.

v. Encouraging foreign direct investments.The effect of liberalisation is that the

companies of developing countries are facing a tough competition from powerful corporations of developed countries.

The local communities are exploited by multinational companies on account of removal of regulations governing the activities of MNCs.

Privatisation:In the event of globalization privatisation

has become an order of the day. Privatisation can be defined as the

transfer of ownership and control of public sector units to private individuals or companies.

It has become inevitable as a result of structural adjustment programmes imposed by IMF.

Objectives of Privatisation:To strengthen the private sectors.Government to concentrate on areas like

education and infrastructure.In the event of globalization the

government felt that increasing inefficiency on the part of public sectors would not help in achieving global standards. Hence a decision was taken to privatise the Public Sectors.

Causes of Inefficiency of Public Sectors:

i. Bureaucratic administrationii. Out dated Technologyiii. Corruptioniv. Lack of accountability.v. Domination of trade unionsvi. Political interference.vii. Lack of proper marketing activities.

Privatisation has its own advantages and disadvantages Advantages:i. Efficiencyii. Absence of political interferenceiii. Quality service.iv. Systematic marketingv. Use of modern Technologyvi. Accountabilityvii. Creation of competitive environment.viii. Innovationsix. Research and developmentx. Optimum utilisation of resourcesxi. Infra structure.

However, privatisation suffers from the following defectsi. Exploitation of labour.ii. Abuse of powers by executives.iii. Unequal distribution of wealth and

income.iv. Lack of job security for employees.Privatisation has become inevitable in the

present scenario. But some control should be exercised by the government over private sectors.

ORIGIN AND OBJECTIVES OF WTOThe World Trade Organization (WTO) was

established on 1st January 1995.  The ‘Marrakesh Declaration' of 15th April 1994,  affirmed that the results of the Uruguay Round would ‘Strengthen the world economy and lead to more trade, investment and employment and income growth throughout the world.

The WTO is the embodiment of the Uruguay Round Results and successor to the GATT. From 1947 to 1994, General Agreement on Trade and Tariff (GATT) was the forum for negotiating lower customs duty rates and other trade barriers. When the GATT came into WTO's umbrella, it has annexes dealing with specific sectors such as agriculture and textiles, and with specific issues such as State Trading, Product Standards, Subsidies and Actions taken against dumping. WTO aims to develop the country's economy by encouraging its export among the member countries.

Key subjects in WTOWTO not only frames rules regarding the

marketing of produces in  agriculture, textiles and clothing sectors, but also it fixes international standardized labour wages and working conditions, globalizes the trade and weeds out the corruption at Government level in Government procurement policies.

Further, it facilitates for availing new technologies from various countries at a lower cost.

Positive impact of WTO on SSIsAfter the origin of WTO, the SSIs in India

enjoy the following privileges:Enabling India to export goods to the

member countries of the WTO with fewer restrictions. Reduction of tariffs on the export products to India i.e., Tariff based protection has become the rule.

Export in India has been increased from Rs.13883 crores in 1992 to Rs.53975 crores in the year 2000 in SSI sector.

Prospects in agricultural exports as a result of likely increase in the world prices of agricultural products due to reduction in domestic subsidies and barriers to trade.

Greater Market orientationRadical trade in SSI sector opened new

investment opportunities thereby the acceleration of economic growth.

Availability of modern technologies from the other countries at reduced cost.

In India, there has been a significant and absolute gain in trade under WTO. Exports increased marginally from $ 30.63  billion during the year 1995 to $ 44.2 billion in the year 2000 though share in the global trade increased marginally from 0.6 to 0.65 percent. India has been a net gainer, though in a limited way. Growth in India's exports has been marginally above the growth in world exports. This shows that WTO has made significant contribution to the expansion of world trade