Introduction to SSI Sector

Small Scale Industries form an integral part of the industry

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

3<s. In crore4
-ear N,As in SSI sector Total N,As
,ercentage
1CC* *CFF;.B* GF6*?B.*1 *;.G
1CC1 *CGAF.;G GH6GCH.FB *A.?
1CCF *C*H*.GF G16GCH.FB *;.1
To address the incidence of sickness, <GI has issued a
complete set of revised guidelines in Panuary, 9!!9 based on
recommendations of the Morking Group under the
chairmanship of Shri. S. S. /ohli.
Hicro%6inance%SCG%Gank linkage programme is an important
tool for development of this sector.
Specialized 6inancial Institutions set up under the patronage
of State Governments namely State 6inance 1orporations
3S61s4 for development of this sector have failed to live up to
the expectation%one of the main reasons being very high level
of their >F7s.