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SSI - Introduction
Small scale industries (SSI) play a key role in the industrialization of any developing countries like India. It is a vital component in Indian Economy. The Govt of India has recognized the importance of small-scale industry for achieving socio-economic objectives generating employment, removal of regional disparities and economic backwardness of rural areas. The small-scale sector has contributed about 55% of the total industrial production and account for about 40% of export from the country. The employment provided by this sector is 175 lakh people in 31.75 lakh units.
SSI - Introduction
The sector has developed from the production of simple consumer goods to manufacture of sophisticated and electronic components, medical equipments, TV sets and others. Over 7,500 products are manufactured by the small scale industry. Small-scale industries basically make use of local raw-materials, local skills, local finance and generally local markets. The small scale industries consists of small scale industrial undertaking, ancillary industrial undertaking, export-oriented units, tiny units, women entrepreneur enterprise.
Cottage Industry
Village Industry
Ancillary Industry
Classification of SSI
Traditional Industries
Modern Industries
Khadi and Village Industry Small scale industrial undertaking Hand loom Export oriented units Handicrafts Ancillary Industrial units
Coir Sericulture Tiny Industrial units Small business enterprises
Classification of SSI
1. Small Scale Industrial Undertaking An industrial undertaking in which the investment in plant and machinery does not exceed Rs. 10 million. 2. Ancillary Industrial Undertaking An industrial undertaking which is engaged in the manufacture of parts, components, sub-assemblies, tooling or intermediaries. It must supply not less than 50% of its production or services. The investment in plant and machinery does not exceed Rs. 10 million. 3. Tiny Units A unit where investment in plant and machinery does not exceed Rs. 25 lakh, irrespective of the location of the unit.
Classification of SSI
4. Women Entrepreneur Enterprise An SSI unit/industry related service or business enterprise, managed by one or more women entrepreneurs in proprietary concerns share capital of not less than 51% as partners of private limited company. 5. Modern Small Scale Industries These are small firms using modern techniques to produce a wide range of products. They make use of sophisticated machinery and equipment and are mostly located in large towns. They use hired labour and raw materials supplied by large scale enterprises.
Classification of SSI
Traditional Small Scale Industries These include village industries, khadi and handloom, handicrafts, coir etc. These are highly labour intensive and provide only subsidiary or part-time employment to agricultural laborers and artisans. These units are located mostly in rural and semi-urban areas. Cottage Industries These industries which provide part time or whole time work in rural and semi-urban areas. They are generally associated with agriculture. Agro-based Industries These industries are engaged in the processing of agricultural produce and provide inputs to agriculturalists. Large scale agro based industries are set-up in cities whereas small scale agro-based industries are located in rural areas.
Retailing 22.7%
Services 37.6%
Production in Crores
122.210 148.290 168.413 189.178 212.901 234.255 161.289 282.270 311.993
Employment in Lakhs
191.40 197.93 205.86 213.16 220.50 229.10 239.09 249.09 261.38
2003-04
2004-05 2005-06 2006-07 2007-08
15.54
16.57 18.70 20.32 21.46
98.41
102.02 104.70 108.12 110.10
113.95
118.59 123.46 128.44 133.68
364.547
429.796 497.886 585.112 695.126
271.42
282.57 299.35 312.52 322.28
97.644
1,24.417 1,50.242 1,77,600 1,96.750
100
120
19
20
40
60
80
0
-9 5 -9 6 -9 7 -9 8 -9 9 00
94 95 96 97 98
19 19 19 19 19 99 -2 0 00 -0 1 -0 2 -0 3 -0 4 -0 5 20 20 20 05 06 07 -0 6 -0 7 -0 8 01 02 03 04 20 20 20 20 20
Registered Unregistered
Definition contd.
Micro Enterprise: Investment in plant &machinery 25 lacs manufacturing & up to Rs 10 lacs in equipment in service sector S.S.I-Investment in P&M does not exceed Rs500lacs in P&M and Rs10 to 200 lacs in equipment in service sector Medium Enterprise: Above 500 lacs and up to Rs1000lacs in P&M in manufacturing and Above rs 200 lacs up to Rs500 lacs in P&M
Definition contd.
Equipment in service sector ancillary units-proposes to supply 50% of its production or services Tiny units-Investment in p & m does not exceed Rs. 25 lacs Village & cottage industry.-population not exceeding 50000.
Definition contd.
Women enterprises--SSI related service where share of the women as partner shareholders, directors not less than 51%. Export oriented units--exports at least 30% of its production. SSSBE--An industry related Service Business Enterprises with investment in fixed assets up to 5 lacs except land & bldg.
SL No.
1. 2. 3. 4.
Year
1950 Capital assets up to Rs. 5 lakhs 1958 Capital investment up to Rs. 5 lakhs 1960 Gross value of fixed assets up to Rs. 50 lakhs 1966 Value of plant and machinery up to Rs. 7.5 lakhs
5.
6. 7. 8. 9. 10.
11.
Scope of Small scale industry The scope for small scale industries is quite vast, covering a wide range of activities requiring less sophisticated technology. Some of the important activities that SSIs are normally involved in are
1. Manufacturing activities 3. Public utilities 2. Construction activities 4. Repairing activities
5. Financial activities
7. Wholesale business 9. Communication etc
6. Retailing activities
8. Transport activities
12. Cotton hosiery 13. Scientific instruments 14. Auto ancillary 15. Electrical goods
Lay off employees at all levels. Factories have been closed or relocated.
Cost cutting has permeated the economy, and have begun to reassess their thinking about small business. With the progression to a more diverse economy, assumptions about small business have changed. For the beginner or those in mid-career, starting a small business is increasingly viewed as a viable option.
Small business is the chief job generator in the United States The trends seen in the small business growth
In the slow economy of the 1990s, the small business sector hired almost 9 out of 10 workers From 1980 through 1986, 31.8 million jobs were created by start-ups From 19861988, small business contributed over 45% of the 6.17 million new jobs In 1998, 99% of an estimated 24.8 million tax returns were filed by small business firms
Between 1990 and 1995, small business (firms with fewer than 500 employees) created three-fourths of net new jobs. U.S. Office of Advocacy projected that from 1992 to 2005, about 68 percent of future employment growth likely will come from small firms.
Success or Failure
Starting and/or operating a small business includes the possibility of success as well as the risk of failure. An entrepreneur must take into account factors that influence the success or failure of the venture.
There appears to be a direct link between start-up dynamics and the size of the enterprise.
The odds of survival and future expansion of a new firm can be related directly to the number of employees that the firm needs and can afford to hire.
Can maintain a closer relationship with its customers, employees, and its suppliers Has a smaller base, and hence can provide more individual attention to its customers Because of lower overhead, smaller firms can perform more efficiently. Small firms have greater flexibility because their size lets them adopt new processes, services, materials, and products.
Small companies encourage competition in design and efficiency and help prevent larger firms from forming monopolies. The owner of a small business retains an element of control and autonomy that is dispersed in a larger company. Small businesses tend to produce well-rounded people because they provide a greater variety of learning experiences and more potential for diversified interaction.
The opportunities for freedom in decision making and the variety of activities leads to more creative and aggressive leadership. Small businesses tend to attract good management personnel and so reduce the overall chance of failure.
Management people are attracted to smaller firms because: Advancement within smaller firms can be accelerated. Personnel tend to have greater responsibilities and duties. Work experience tends to be more diversified.
Many of these disadvantages can be linked directly to improper planning and misuse of funds Success or failure revolves around
Inadequate managerial ability Inadequate financing Poor competitive position
The business plan is a written description of the firm, its objectives, and the steps necessary to achieve them.
Reasons a Business Might Fail A small business owner is expected to also contend with employee issues, such as
The number needed initially Task specialization Compensation Scheduling Amount and extent of delegation of responsibility
As the owner, one must act as a financial advisor for the business and be able to interact well with employees, customers, and suppliers.
Possess strong management and organizational skills, which are required for the daily operation In addition to knowing the business thoroughly, one must keep abreast of important aspects, such as:
Competition Cyclical trends of the industry Technical advances The operational environment for related industries
Be aware of the external environment and the forces that impact upon his or her operations.
Good overall planning looks at several factors, such as site analysis, good merchandising policies, thorough record keeping and expense analysis, and the determination of break-even point.
Site planning
An important reason for business failure is poor location.
Marketing
Price, place, product, promotion
Record keeping
Maintaining detailed information about purchases, sales, orders, expenses, and cash balances from a double-entry bookkeeping system
Poor management is the main reason businesses fail, according to Dun & Bradstreet.
Incompetence Lack of experience and knowledge Requirement of additional funds to finance operation and growth
Energy Initiative Organization Appearance Technical competence Administrative ability Good Judgment Restraint and patience Ability to communicate well Leadership qualities Pre-ownership experience Good managerial ability
1. 2. 3. 4. 5. 6. 7. 8. 9.
Employment Generation Use of Local Raw-materials Balanced Regional Development Decentralisation of Industries Mobilisation of capital Developing Entrepreneurship Equitable Distribution of Wealth Efficient use of productive factors Promotion of Exports
1. Employment generation The small-scale industries are labour intensive and they can provide more employment per unit of capital. The employment generating capacity of small scale sectors is eight times that of large scale sector. In cottage and household industries, with given investment, employment possibilities would be ten or fifteen times greater in comparison with corresponding factory industries. In an economy, characterized by abundant labour supply and scarce capital, the small-scale industry assume special significance.
2. Mobilisation of Local Resources Small scale industries help to mobilise and utilize local population, local natural resources local raw-materials, local market, local laborers etc. which might otherwise remain idle and unutilized. They help to perfect and promote traditional family skills and handicrafts. These industries facilitate the growth of local entrepreneurs and self-employed professionals in small towns and villages.
3. Export Promotion Small scale industries help in reducing pressure on the countrys balance of payments in two ways. First, they do not require imports of sophisticated machinery or raw-materials. They are now producing electro-medical equipment, drugs etc which were being imported earlier. Secondly, small scale industries earn valuable foreign exchange through exports. There has been a substantial increase in exports from the small scale sector. Small scale sector contributes about 35% of Indias total exports and 90% of non traditional exports.
4. Consumer surplus Small scale industries now produce a wide range of mass consumption items. Over 5,000 products are being manufactured in the small scale sector. By providing goods of daily use on a large scale small scale industries serve as an anti-inflationary force. About one half of the output of manufacturing sector in India comes from small scale and village industries.
5. Feeder to Large Scale Industries Small scale industries play a complementary role to large scale sector. They provide parts, components, accessories to large scale industries. They serve as ancillaries to large units. Social Advantage Small scale sector contributes towards the development of a socialistic pattern of society by reducing concentration of income and wealth. They provide an honorable and independent living to people with limited resources. They facilitate wider participation of public in the process of development and thereby serve the cause of democracy and selfgovernance.
6. Development of Entrepreneurship Small scale units have helped to develop a class of entrepreneurs. These units facilitate self-employment and spirit of selfreliance in the society. The development of small scale industries contributes to increase in per capita income or economic development in various ways. It generates immediate employment opportunities with relatively low capital investment, makes effective utilization of untapped local resources, facilitates development of backward areas and weaker sections of society.
7. Decentralisation of Industries The concentration of industries in urban areas encourages migration of people from rural areas to urban areas encourages migration of people from rural areas to urban centers in large numbers. This creates a number of problems such as pollution, slums and shortage of civic facilities. The dispersal of small industries in different areas reduce the intensity of the problem. Further, decentralization helps to tap the local resources such as raw materials idle savings, local talents.
8. Balanced Regional Development Large industries are mostly concentrated in big cities and metropolitan cities. The small towns and rural areas are deprived of the benefit of industrialisation. In order to benefit the country as a whole, the industries should be dispersed in all regions. It is possible to start small-scale industries in almost all areas such as villages, hill areas and even remote corner of the country. Thus small-scale industries are helpful in achieving wider dispersal of industries and thereby ensure balanced regional development.
Disadvantages of small scale industries 1. Problem of Raw-materials 2. Problem of Finance 3. Problem of Marketing 4. Problem of under utilisation of capacity 5. Outdated technology 6. Poor project planning 7. Inadequate Infrastructure 8. Regulations 9. Competition 10. Sickness
1. Problem of Raw-materials The availability of raw material is a great problem for small-scale units. These units use either local raw materials, or imported raw materials. The problem of raw material has assumed the shape of an absolute scarcity a poor quality of raw material and a high cost. Earlier, the majority of small scale units mostly produced items dependent on local raw materials. The shortage of right type of raw materials at standard price affects the capacity utilisation and production programme.
2. Problem of Finance Inadequate finance is the major problem for small scale units. Since most of the SSI units are either proprietary concerns or partnership firms their internal resources are small. The credit provided by the various institutional agencies such as banks, SFCs and SIDBI are inadequate to meet the requirements of small units. The initial investment of small units comes from relatives, friends, non-banking and non-governments sectors..The institutional agencies are still reluctant to advance money to small industries as they are unable to offer security or guarantee required by them. The shortage of funds makes it difficult to install modern machinery and maintain well organised and fully equipped factories.
3. Problem of Marketing One of the main problems faced by small scale units is in the field of marketing.. The small units have to face competitions from other small units and large scale industries. The small units do not possess their own marketing organization. They do not have the resources and expertise to market their products effectively. Therefore, the small industries suffer from a comparative disadvantage vis-a-vis large scale units. Further, their products are often not standardized and of variable quality. These small units often do not possess any marketing network they often to sell at local area at lower prices.
4. Problem of Underutilisation of Capacity The small industries have an inherent problem of underutilization of capacity due to two reasons 1. Frequent power cut 2. Inability to go for alternatives like generators and installation of thermal units.
There are studies that clearly bring out the gross underutilization of installed capacities in small scale industries. On an average 40% to 50% of the capacity is not utilized in small units.
5. Outdated Technology Most of the small scale units use only obsolete and outdated technology and old machineries and equipment. Adoption of latest technology alone can ensure good quality and higher productivity. Due to limited capital, the small industries find difficult to modernize their plant and machinery. As a result, the cost of production tend to be higher and quality of products lower as compared to the products of large industries. The small industries are financially weak to undertake research and development activities.
6. Problem of Recovery One of the basic problems of small-scale industry is recoveries from sales. The buyers do not pay their dues in time, most of the Principals do not pay the ancillaries for six months or even longer after purchase of goods. The financial assistance obtained from a bank is taken advantage of by the customers of small scale units. 7. Poor Project Planning In the absence of education and experience, small scale businessmen often depend upon consultants. They do not fully understand project details. Due to poor planning of projects, cost and time overruns arise.
8. Problem of Recovery One of the basic problems of small-scale industry is recoveries from sales. The buyers do not pay their dues in time, most of the principals do not pay the ancillaries for six months or even longer after purchase of goods. The financial assistance obtained from a bank is taken advantage of by the customers of small-scale units. 9. Inadequate Infrastructure Insufficient quality and quantity of transportation, communications and other basic services particularly in backward areas is another problem. Infrastructural gap results in underutilization of capacity and wastages. For example instability of voltage, unscheduled power cuts and long delays in getting power connections are common. Poor communication and transportation, low quality of civic services etc.
10. Regulations Small scale units face endless hassles from government agencies. As many as 30-4- inspectors from various departments visit them. Small entrepreneurs face cumbersome procedures. 11. Competition Small units face severe competition from large firms, MNCs and cheap imports from china and Korea. 12. Sickness There is widespread sickness in small scale sector. More than 10% of the small scale units are sick due to one reason or the other.