1.

Introduction
Small and medium scale industries definition
As per Section 7 of Micro, Small and Medium Size Industries development
( MSMED) Act, Small and Medium scale industries are defined as follows :
Enterprises where the investment in plant and machinery and equipment is
between Rs. 25 Lacs. to Rs. 10 Crore ( for manufacturing industries)
Enterprises where the investment in equipments is between Rs. 10 Lacs to Rs. 5
Crores ( Service sector industry )

Micro
Small
Medium

Manufacturing Sector
Enterprises
Investment in plant machinary
<25 lacs INR
>25 lacs but < 5 crore INR
>5 crore INR but < 10
crore

Enterprises

Service Sector
Investment in equipments

Micro
Small
Medium
Table 1.1

<10 lacs INR

>10 lacs but < 2 crore
>2 crore but <5 crore

Major attributes of SMEs are:

1) Ownership and Management:
SMEs are generally privately held with the ownership restricted to a select group
of individuals with very few active members involved in day-to-day decision
making.

2) Area of operation
The area of operation of small units is generally localized 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.

3) Technology
SMEs are fairly labor intensive with comparatively smaller capital investment
than the larger units. Therefore, these units are more suited for economies
where capital is scarce and there is abundant supply of labor.

4) 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.

5) 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.

6) Dispersal and Resource utilization

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.

2. Historical Background

Pre British
Even being predominantly an agrarian country, large varieties of SMEs existed in
India and Indian industrial products compared quite favorably to their European
counterparts. Pre- British period is mostly considered as a prosperous period
from point of view of Indian Small-Scale Industries. Indian Products were well
known all over the world for their quality, low cost and craftsmanship and the
balance of trade was always in favor of India. India was called the industrial
workshop of the world during the 17th and 18th centuries. Indian Goods were
prevalent in the European markets and to counter this, even legislations were
passed to impose duties on these goods. Acts were passed, first in 1700, then

again in 1720, to prohibit or restrict import trade of Indian cotton good, silks,
calicos, etc., by total prohibition or by imposing heavy duties.

British Raj
The beginning of British Raj in India marked the demise of Indian small and
medium scale industries. Large scale abuse of political initiated and accelerated
the destruction of Indian industries at the grass-root level to complement the
English manufacturing interests. The implementation of one-way trade led to
India becoming an importing nation and led to drainage of Indias wealth and
resources. These developments led to demise of Indias small0-scale industries
in following ways:
-

The raw materials were drained from India to Britain that led to dearth of
raw materials for Indian Industries.
The rapid industrialization of Britain led to widening the newly evolving
gulf between the quality and scale at which Britain manufactured the
goods, thus providing Britain with cheap raw materials to add on to
superior technological know-how
The fact that India was then used as a market by the British led to loss of
the final surviving market for the produce of Indian industries thus leading
to their extinction.
India was thus forcibly transformed from being a country of combined
agricultures and manufactures into a colonial market-place and material
drain-house for British manufacturers.

Post-Independence
Post-independence, the SMEs have had their fortunes revived in terms of
growth. Though it has to be kept in our consideration that high growth rate may
not always reveal that the best of policies are being enacted in best possible
ways, it may and most of the time is a result of end of a torturous regime hellbent on extinction of the enterprises, in our case, the British rule and of course
unsustainable utilization of resources.
Over-time, SMEs have emerged as ancillary units supporting large industries and
providing employments to many at lower capital cost. The number of small-scale
units was 5.5 lakh during 1975-76 and had increased to 19.40 lakh, small-scale
units in the year 1990-91.
Several policies have been framed to protect the interests of SMEs and to
facilitate their rapid development. Government has initiated various support
measures from time to time such as reservation in terms of production, revision

of investment ceiling, modernization of technology, marketing assistance, fiscal

initiatives etc.

(i)

1977 Policy Statement: Extension of products reservation

A landmark for the development of SMEs was the Industrial Policy Statement of
1977.The guarded mind-set of previous years were cast aside to initiate a zeal
for expansion for the sector. The reservation of products for exclusive
manufacturing by the small industry, begun in 1967, was extended.
The important planks of the 1977 industrial policy statement were:
-

Whatever can be produced by small, cottage industries must only be so

produced.
The number of products reserved for SSI was increased from 180 to 504
an further to 836 items in 1996.
Special attention to be given to the `Tiny Sector defined as enterprises
with investment in plant and machinery of up to Rs. 1 lakh and situated in
towns and in villages with population less than 50,000.
Special Legislation will be introduced to give due recognition and
adequate protection to the self-employed in cottage and household
industries.
The focal point of development for small sector and cottage industries will
be taken away from big cities and state capitals to the district
headquarters. In each district, there will be one agency to deal with all
requirements of small and village industries. This will be called District
Industries Center.
Special arrangements for marketing of the products of Small Scale Sector
will be made by providing services such as product standardization,
quality control, marketing surveys, etc.

(ii)

1980 Policy Statement: Emphasis on ancillaries

The 1980 policy statement laid emphasis on ancillaries. The program for
development of rural and backward areas was also accelerated.

(iii) Industrial Policy Statement of 1985: Raise of Investment

ceiling
The Industrial Policy Statement of 1985 made incremental changes and took
into account the impact of inflation. The investment ceiling for SSI was raised to
Rs. 35 lakh and for ancillaries to Rs. 45 lakh.

Promotional measures:
A number of promotional measures have been implemented by government.
They include:
-

Industrial extension services

Institutional support in respect of credit facilities,
Provision of developed sites for construction of sheds,
Provision of training facilities,
Supply of machinery on hire-purchase terms,
Assistance for domestic marketing as well as exports,
Special incentive for setting up enterprises in backward areas etc.
Technical consultancy & financial assistance for technological upgradation.

Committees and their recommendations:

Several committees have been appointed by Government who have presented
their recommendations for development of SMEs in India. They are:
-

S.L. Kapur Committee (Credit)

Review report of List of Items in SSI (Vijayraghavan)
Abid Hussain Committee Report
Nayak Committee Report (Credit)
S.P. Gupta Committee Report
S.S.Kohli Committee Report on Rehabilitation of Sick SSI Units
National Commission for Enterprises in the un-organized Sector (NCEUS).

These committees have come out with various findings, the principal
among them being about marketing. Based on the recommendations of
the Industrial Conference held during 1947, the Small-Scale Industrial
Board was formed in 1952. This Board was vested with the power of
overall control of industries in the country. Later during 1955, the National
Small Industries Corporation (NSIC) was started to assist small-scale units.
The Corporation was also assigned the role of hiring high cost machines to
the small-scale units; Setting up of Small Industries Service Institutes
(SISI) during the Second Plan period marked another important step taken
by the Government in tackling the problems of small-scale industries. The
Small Industries Development Corporation (SIDCO) set up in each state,
also helped the small-scale units. They procure orders from government
departments and pass their on to the small-scale units

3. Growth story
The growth of the SSI has been prominent. In 1980-81, the number of SSI units
was 8.74 lakhs where-as at the end of 1995-96 the number had gone up to 28
lakhs. The total value of output in 1993-94 at current prices was Rs. 241,648 Cr
and exports were of the order of Rs. 24,000 Cr. To compare the increase, figures
from the two All India Censuses in 1972 and 1988 depict the production increase
from Rs. 2,603 Cr to Rs. 13,528 Cr, both at 1972-73 prices thus representing an
increase of 420 % during that period3. Overall, the small industry sector has
done quite well and has enabled the country to achieve considerable industrial
growth and diversification. Being generally low capital intensive, SSIs suit the
Indian economic environment with scarce financial resources and large
population base. In addition, it is highly labor intensive and has a scope for
building upon the traditional skills and knowledge.