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TAMIL NADU

NATIONAL LAW SCHOOL

B.A.LL.B., (HONS.), THIRD SEMESTER


2015-16

ECONOMICS PROJECT
ON
SMALL SCALE INDUSTRIES

PROJECT BY:-
R.DINESH KUMAR
BA0140015
SECTION-A

SUBMITTED TO:-
Prof.
DECLARATION OF AUTHORSHIP

I, R.DINESH KUMAR, hereby declare that the project work titled DEVELOPMENT OF
SMALL SCALE INDUSTRIES IN INDIA , submitted to Tamil Nadu National Law School,
Tiruchirappalli,is the record of a bonafide work done by me under the supervision and guidance
of Prof. Murugesan Perumal, Faculty for Economics, Tamil Nadu National Law School,
Tiruchirappalli.All information furnished in the project is true to the best of my knowledge
devoid of plagiarism.

CERTIFICATE
This is to certify that the project entitled DEVELOPMENT OF
SMALL SCALE INDUSTRIES IN INDIA submitted to Tamil Nadu National
law school in partial fulfilment of requirement of award of degree of under
graduate in Law done by R.DINESH KUMAR under the supervision and
guidance of Professor Murugesan Perumal , Department of Economics, Tamil
Nadu National Law School.

Prof. Murugesan Perumal( )


ACKNOWLEDGEMENT

First of all, I thank my Economics Professor Mr. Murugesan Perumal for having allotted me such
a challenging and dynamic topic. Even repaying him through mere words in beyond the domain
of my lexicon that was the backbone during all hurdles that I confronted during the making of
this project, hence I am forever duly indebted to him as a student.
Also, I am grateful to the staff and administration of Tamil Nadu National Law School who
contributed useful resources tremendously in the making of this project by providing library
infrastructure and data connections.
This entire project wouldnt have been possible without the involvement of precious inputs of
my parents and friends who sacrificed their valuable time to guide and advice me at all times of
need to make this project a successful one.
Last but not the least, I am also grateful to God for giving me the courage and strength to
withstand all hindrances during this project and make it successfully finally since its inception.
I. Introduction

In Indian economy small-scale and cottage industries occupy an important place, because of
their employment potential and their contribution to total industrial output and exports.

Government of India has taken a number of steps to promote them. However, with the recent
measures, small-scale and cottage industries facing both internal competition as well as
external competition.

There is no clear distinction between small-scale and cottage industries. However it is


generally believed that cottage industry is one which is carried on wholly or primarily with
the help of the members of the family. As against this, small-scale industry employs hired
labour.

Moreover industries are generally associated with agriculture and provide subsidiary
employment in rural areas. As against this, small scale units are mainly located in urban areas
as separate establishments.

Definition:

The official definitions of a small scale unit are as follows:

(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) Ancillary Industries:

These are industrial undertakings having fixed investment in plant and machinery not
exceeding Rs. 1 crore engaged in or proposed to engage in,
(a) The manufacture of parts, components, sub-assemblies, tooling or intermediaries, or

(b) The rendering of services supplying 30 percent of their production or services as the case
may be, to other units for production of other articles.

(iii) Tiny Units:

These refer to undertakings having fixed investment in plant and machinery not exceeding
Rs. 23 lakhs. These also include undertakings providing services such as laundry, Xeroxing,
repairs and maintenance of customer equipment and machinery, hatching and poultry etc.
Located m towns with population less than 50,000.

(iv) Small-Scale Service Establishments:

These mean enterprises engaged in personal or household services in rural areas and town
with population not exceeding 50000 and having fixed investment in plant and machinery
not exceeding Rs. 25 lakhs.

(v) Household Industries:

These cover artisans skilled craftsman and technicians who can work in their own houses if
their work requires less than 300 square feet space, less than 1 Kw power, less than 5
workers and no pollution is caused. Handicrafts, toys, dolls, small plastic and paper products
electronic and electrical gadgets are some examples of these industries.

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.
Important trade policies

POLICY MEASURES

Some of the important policy measures announced and procedural simplifications undertaken
to pursue the above objectives are as under:

LIBERALISATION OF INDUSTRIAL LICENSING POLICY

The list of items requiring compulsory licensing is reviewed on an ongoing basis. At present,
only six industries are under compulsory licensing mainly on account of environmental,
safety and strategic considerations. Similarly, there are only three industries reserved for the
public sector. The lists of industries reserved for the public sector and of items under
compulsory licensing are at Appendix III and IV respectively.

INTRODUCTION OF INDUSTRIAL ENTREPRENEURS' MEMORANDUM (IEM)

Industries not requiring compulsory licensing are to file an Industrial Entrepreneurs'


Memorandum (IEM) to the Secretariat for Industrial Assistance (SIA). No industrial
approval is required for such exempted industries. Amendments are also allowed to IEM
proposals filed after 1.7.1998.

LIBERALISATION OF THE LOCATIONAL POLICY

A significantly amended locational policy in tune with the liberlised licensing policy is in
place. No industrial approval is required from the Government for locations not falling
within 25 kms of the periphery of cities having a population of more than one million except
for those industries where industrial licensing is compulsory. Non-polluting industries such
as electronics, computer software and printing can be located within 25 kms of the periphery
of cities with more than one million population. Permission to other industries is granted in
such locations only if they are located in an industrial area so designated prior to 25.7.91.
Zoning and land use regulations as well as environmental legislations have to be followed.

POLICY FOR SMALL SCALE INDUSTRIES

Reservation of items of manufacture exclusively for the small scale sector forms an
important focus of the industrial policy as a measure of protecting this sector. Since 24th
December 1999, industrial undertakings with an investment upto rupees one crore are within
the small scale and ancillary sector. A differential investment limit has been adopted since
9th October 2001 for 41 reserved items where the investment limit upto rupees five crore is
prescribed for qualifying as a small scale unit. The investment limit for tiny units is Rs. 25
lakhs. 749 items are reserved for manufacture in the small scale sector. All undertakings
other than the small scale industrial undertakings engaged in the manufacture of items
reserved for manufacture in the small scale sector are required to obtain an industrial licence
and undertake an export obligation of 50% of the annual production. This condition of
licensing is, however, not applicable to those undertakings operating under 100% Export
Oriented Undertakings Scheme, the Export Processing Zone (EPZ) or the Special Economic
Zone Schemes (SEZs).

NON-RESIDENT INDIANS SCHEME

The general policy and facilities for Foreign Direct Investment as available to foreign
investors/company are fully applicable to NRIs as well. In addition, Government has
extended some concessions specially for NRIs and overseas corporate bodies having more
than 60% stake by the NRIs. These inter-alia includes
- NRI/OCB investment in the real estate and housing sectors upto 100% and
- NRI/OCB investment in domestic airlines sector upto 100%.
NRI/OCBs are also allowed to invest upto 100% equity on non-repatriation basis in all
activities except for a small negative list. Apart from this, NRI/OCBs are also allowed to
invest on repatriation/non-repatriation under the portfolio investment scheme.
ELECTRONIC HARDWARE TECHNOLOGY PARK (EHTP)/SOFTWARE
TECHNOLOGY PARK (STP) SCHEME

For building up strong electronics industry and with a view to enhancing export, two
schemes viz. Electronic Hardware Technology Park (EHTP) and Software Technology Park
(STP) are in operation. Under EHTP/STP scheme, the inputs are allowed to be procured free
of duties.
The Directors of STPs have powers to approved fresh STP/EHTP proposals and also grand
post-approval amendment in repsect of EHTP/STP projects as have been given to the
Development Commissioners of Export Processing Zones in the case of Export Oriented
Units. All other application for setting up projects under these schemes, are considered by the
Inter-Ministerial Standing Committee (IMSC) Chaired by Secretary (Information
Technology). The IMSC is serviced by the SIA.

POLICY FOR FOREIGN DIRECT INVESTMENT (FDI)

Promotion of foreign direct investment forms an integral part of India's economic policies.
The role of foreign direct investment in accelerating economic growth is by way of infusion
of capital, technology and modern management practices. The Department has put in place a
liberal and transparent foreign investment regime where most activities are opened to foreign
investment on automatic route without any limit on the extent of foreign ownership. Some of
the recent initiatives taken to further liberalise the FDI regime, inter alia, include opening up
of sectors such as Insurance (upto 26%); development of integrated townships (upto 100%);
defence industry (upto 26%); tea plantation (utp 100% subject to divestment of 26% within
five years to FDI); Encenhancement of FDI limits in private sector banking, allowing FDI up
to 100% under the automatic route for most manufacturing activities in SEZs; opening up
B2B e-commerce; Internet Service Providers (ISPs) without Gateways; electronic mail and
voice mail to 100% foreign investment subject to 26% divestment condition; etc. The
Department has also strengthened investment facilitation measures through Foreign
Investment Implementation Authority (FIIA).
Production
The small-scale industries sector plays a vital role in the growth of the country. It contributes
almost 40% of the gross industrial value added in the Indian economy.

It has been estimated that a million Rs. of investment in fixed assets in the small scale sector
produces 4.62 million worth of goods or services with an approximate value addition of ten
percentage points.

The small-scale sector has grown rapidly over the years. The growth rates during the various
plan periods have been very impressive. The number of small-scale units has increased from
an estimated 0.87 million units in the year 1980-81 to over 3 million in the year 2000.

When the performance of this sector is viewed against the growth in the manufacturing and
the industry sector as a whole, it instills confidence in the resilience of the small-scale
sector.

Year Target Achievement

1991-92 3.0 3.1

1992-93 5.0 5.6

1993-94 7.0 7.1

1994-95 9.1 10.1

1995-96 9.1 11.4

1996-97 9.1 11.3

1997-98 * 8.43

1998-99 * 7.7
1999-00 * 8.16

2000-01 (P) * 8.90

P-Projected (April-December)

* Target not fixed at constant prices

Role of small scale industries

What is the Role and Importance of Small Scale Industry in India?

In a developing country like India, the role and importance of small-scale industries is very
significant towards poverty eradication, employment generation, rural development and
creating regional balance in promotion and growth of various development activities.

It is estimated that this sector has been contributing about 40% of the gross value of output
produced in the manufacturing sector and the generation of employment by the small-scale
sector is more than five times to that of the large-scale sector.

This clearly shows the importance of small-scale industries in the economic development of
the country. The small-scale industry have been playing an important role in the growth
process of Indian economy since independence in spite of stiff competition from the large
sector and not very encouraging support from the government.

The following are some of the important role played by small- scale industries in India.
1. Employment generation:-

The basic problem that is confronting the Indian economy is increasing pressure of
population on the land and the need to create massive employment opportunities. This
problem is solved to larger extent by small-scale industries because small- scale industries
are labour intensive in character. They generate huge number of employment opportunities.
Employment generation by this sector has shown a phenomenal growth. It is a powerful tool
of job creation.

2. Mobilization of resources and entrepreneurial skill:-

Small-scale industries can mobilize a good amount of savings and entrepreneurial skill from
rural and semi-urban areas remain untouched from the clutches of large industries and put
them into productive use by investing in small-scale units. Small entrepreneurs also improve
social welfare of a country by harnessing dormant, previously overlooked talent.

Thus, a huge amount of latent resources are being mobilized by the small-scale sector for the
development of the economy.

3. Equitable distribution of income:-

Small entrepreneurs stimulate a redistribution of wealth, income and political power within
societies in ways that are economically positive and without being politically disruptive.

Thus small-scale industries ensures equitable distribution of income and wealth in the Indian
society which is largely characterized by more concentration of income and wealth in the
organized section keeping unorganized sector undeveloped. This is mainly due to the fact
that small industries are widespread as compared to large industries and are having large
employment potential.

4. Regional dispersal of industries:-


There has been massive concentration of industries m a few large cities of different states of
Indian union. People migrate from rural and semi urban areas to these highly developed
centers in search of employment and sometimes to earn a better living which ultimately leads
to many evil consequences of over-crowding, pollution, creation of slums, etc. This problem
of Indian economy is better solved by small- scale industries which utilize local resources
and brings about dispersion of industries in the various parts of the country thus promotes
balanced regional development.

5. Provides opportunities for development of technology:-

Small-scale industries have tremendous capacity to generate or absorb innovations. They


provide ample opportunities for the development of technology and technology in return,
creates an environment conducive to the development of small units. The entrepreneurs of
small units play a strategic role in commercializing new inventions and products. It also
facilitates the transfer of technology from one to the other. As a result, the economy reaps the
benefit of improved technology.

6. Indigenisation:-

Small-scale industries make better use of indigenous organizational and management


capabilities by drawing on a pool of entrepreneurial talent that is limited in the early stages
of economic development. They provide productive outlets for the enterprising independent
people. They also provide a seed bed for entrepreneurial talent and a testing round for new
ventures.

7. Promotes exports:-

Small-scale industries have registered a phenomenal growth in export over the years. The
value of exports of products of small-scale industries has increased to Rs. 393 crores in
1973-74 to Rs. 71, 244 crores in 2002-03. This contributes about 35% India's total export.
Thus they help in increasing the country's foreign exchange reserves thereby reduces the
pressure on country's balance of payment.

8. Supports the growth of large industries:-

The small-scale industries play an important role in assisting bigger industries and projects
so that the planned activity of development work is timely attended. They support the growth
of large industries by providing, components, accessories and semi finished goods required
by them. In fact, small industries can breath vitality into the life of large industries.

9. Better industrial relations:-

Better industrial relations between the employer and employees helps in increasing the
efficiency of employees and reducing the frequency of industrial disputes. The loss of
production and man-days are comparatively less in small- scale industries. There is hardly
any strikes and lock out in these industries due to good employee-employer relationship.

Of course, increase in number of units, production, employment and exports of small- scale
industries over the years are considered essential for the economic growth and development
of the country. It is encouraging to mention that the small-scale enterprises accounts for 35%
of the gross value of the output in the manufacturing sector, about 80% of the total industrial
employment and about 40% of total export of the country.

A look at the group-wise classification of SSI shows Hosiery and Readymade Garments units
at the top list with 89,464 units accounting for a little over 22.2% of the total number of
units. Other Manufacturing industries are far behind with 58,777 units which is around 15%
of the total. Manufacturing sector is closely followed by Food Products with 37,152 units
which is close to 10%. Share of all other groups are of single digit and the share of Jute,
Hemp and Mesla Products and Beverages, Tobacco & Tobacco Products together is below
1%.
Export:-
SSI Sector plays a major role in India's present export performance. 45%-50% of the Indian
Exports is contributed by SSI Sector. Direct exports from the SSI Sector account for nearly
35% of total exports. Besides direct exports, it is estimated that small-scale industrial units
contribute around 15% to exports indirectly. This takes place through merchant exporters,
trading houses and export houses. They may also be in the form of export orders from large
units or the production of parts and components for use for finished exportable goods.

It would surprise many to know that non-traditional products account for more than 95% of
the SSI exports.

The exports from SSI sector have been clocking excellent growth rates in this decade. It has
been mostly fuelled by the performance of garments, leather and gems and jewellery units
from this sector.
The product groups where the SSI sector dominates in exports, are sports goods, readymade
garments, woollen garments and knitwear, plastic products, processed food and leather
products.

The SSI sector is reorienting its export strategy towards the new trade regime being ushered
in by the WTO.

Exports from SSI are healthy : The small scale sector in India contributes directly to 35% of
the total exports from the country. It is estimated that another 15% of the exports are
indirectly contributed by this sector. Some of the major items of exports, e.g., 'Hosiery and
Garments', 'Leather and leather products', 'Diamonds, Gems & Jewelry' have large clusters in
more than one locations and these contribute significantly to the exports. As per the statistics
of 'Center for Monitoring of Indian Economy', total exports for the year 1995-96 were USD
31,828 million. Small scale sector has been contributing significantly to the export basket.

Export MarketingAssistancetamilnadu
In line with today's changing scenario, SIDCO is also taking up certain innovative and non-
conventional initiatives for the promotion of Small Industries in the state. A new scheme has
been inaugurated on 2-11-1998 for assisting the small and medium units to find export
marketing. SIDCO, in collaboration with TANSTIA - FNF Service Centre, shall assist the
units enrolled with SIDCO by developing web-sites for them and displaying their products
on the web-sites and then marketing them effectively. This will render the much-needed
institutional support for the prospective small scale exporters and SIDCO will act as a
COMMON EXPORT MANAGER rendering a variety of services to market SSI products to
the world.

SIDCO has also been participating in the India International Trade Fair being conducted at
New Delhi every year for generating Export enquiries for the benefit of SSI units. It is
proposed to take up the export activity in a wider scale since the SSI units can no longer
depend on internal marketing alone and have to export their products for their growth.
Internal and External Causes of Sickness :-

Most of the Indian authors and researches have classified the various causes of industrial
sickness under two broad categories: Internal causes, pertaining to the factors within the
control of the management. have listed the various internal and external causes of sickness
separately under the four functional areas finance, production, marketing and personnel
besides corporate management in general. They identify the internal causes of sickness,
arising due to internal disorders in areas, like Finance functions including weak equity base,
poor utilization of assets, inefficient working capital management, absence of costing and
pricing, absence of financial planning, budgeting, and inappropriate utilization or diversion
of funds. Production functions including wrong selection of site, inappropriate plant and
machinery, inadequate materials control inadequate maintenance of plant and machinery,
lack of quality control and lack of emphasis on research and development. Marketing
functions including inaccurate demand forecasting, selection of inappropriate product-mix,
absence of product planning, dependence on a few buyers, lack of market research and
inappropriate sales promotion. Personnel functions including inappropriate wage and
salary administration, bad labour relations, lack of behavioral approach causing disasters-
faction among the personnel, and absence of work -force planning. 96 Corporate
management including improper corporate planning, lack of coordination and control,
resistance to change, strife and lack of integrity in top management.

Opportunity:-
The opportunities in the small-scale sector are enormous due to the following factors:

Less Capital Intensive

Extensive Promotion & Support by Government

Reservation for Exclusive Manufacture by small scale sector


Project Profiles

Funding - Finance & Subsidies

Machinery Procurement

Raw Material Procurement

Manpower Training

Technical & Managerial skills

Tooling & Testing support

Reservation for Exclusive Purchase by Government

Export Promotion

Growth in demand in the domestic market size due to overall economic growth

Increasing Export Potential for Indian products

Growth in Requirements for ancillary units due to the increase in number of


greenfield units coming up in the large scale sector. Small industry sector has performed
exceedingly well and enabled our country to achieve a wide measure of industrial growth and
diversification.

By its less capital intensive and high labour absorption nature, SSI sector has made
significant contributions to employment generation and also to rural industrialisation. This
sector is ideally suited to build on the strengths of our traditional skills and knowledge, by
infusion of technologies, capital and innovative marketing practices. This is the opportune
time to set up projects in the small-scale sector. It may be said that the outlook is positive,
indeed promising, given some safeguards. This expectation is based on an essential feature of
the Indian industry and the demand structures. The diversity in production systems and
demand structures will ensure long term co-existence of many layers of demand for
consumer products / technologies / processes. There will be flourishing and well grounded
markets for the same product/process, differentiated by quality, value added and
sophistication. This characteristic of the Indian economy will allow complementary existence
for various diverse types of units. The promotional and protective policies of the Govt. have
ensured the presence of this sector in an astonishing range of products, particularly in
consumer goods. However, the bugbear of the sector has been the inadequacies in capital,
technology and marketing. The process of liberalisation coupled with Government support
will therefore, attract the infusion of just these things in the sector.

Small industry sector has performed exceedingly well and enabled our country to achieve a
wide measure of industrial growth and diversification.

By its less capital intensive and high labour absorbtion nature, SSI sector has made
significant contributions to employment generation and also to rural industrialisation. This
sector is ideally suited to build on the strengths of our traditional skills and knowledge, by
infusion of technologies, capital and innovative marketing practices. So this is the opportune
time to set up projects in the small scale sector. It may be said that the outlook is positive,
indeed promising, given some safeguards. This expectation is based on an essential feature of
the Indian industry and the demand structures. The diversity in production systems and
demand structures will ensure long term co-existence of many layers of demand for
consumer products / technologies / processes. There will be flourishing and well grounded
markets for the same product/process, differentiated by quality, value added and
sophistication. This characteristic of the Indian economy will allow complementary existence
for various diverse types of units. The promotional and protective policies of the Govt. have
ensured the presence of this sector in an astonishing range of products, particularly in
consumer goods. However, the bug bear of the sector has been the inadequacies in capital,
technology and marketing. The process of liberalisation will therefore, attract the infusion of
just these things in the sector.
Profile of small-scale industries:-

95 % of industrial units in the country. 39.92 % of value added in the manufacturing


sector. 34.29 % of national exports. 6.86 % of Gross Domestic Product (GDP).
Employment to 193 lakh persons. 1. Ruddu Datt & KPM. Sundram, Indian Economy
S.Chand&Co., Ltd., P.No:581, 1999. 26 Over 7500 items are produced in the small-scale
industrial sector. 749 items have been reserved for exclusive manufacture in the small-scale
industrial sector. 358 Items have been reserved for exclusive purchase from the small-scale
industrial sector.

Small Scale industries Relevance to Indian Economy:-

At the dawn of independence, India was beset with an appalling state of the economy, poor
infrastructure, lack of funds, scarcity of food and social tensions arising out of the division of
the country into India and Pakistan. The first government under the leadership of Pundit
Jawaharlal Nehru inherited the Philosophy of Mahatma Gandhi and was for fostering cottage
industries and the use of traditional skills as a means of attaining a self reliant rural
structure. Village and cottage industries have remained close to the hearts of our policy
makers since then. The philosophy of economic development in the post independence era
provided a key thrust to large-scale public enterprises. While the Second Five Year Plan
based on the Mahalanobis model set out to build an efficient infrastructure to meet the
emerging needs of industry and consumers, small industries were accorded an important
place in the framework of Indian economic planning. Village and Cottage industries has
remained the darling of politicians and bureaucrats alike for a variety of social economic,
ideological and political reasons. 12 The Small Scale Sector has been assigned pride of place
in the countrys industrial development programme due to the following reasons: 1. A given
amount of capital invested in a small-scale unit provides more employment than the same
amount in a large undertaking. This is very important, particularly in a country like India
where there is surplus work force. 2. Small-scale industries provide employment without
adversely affecting the prime occupation, namely agriculture. The illiterate masses can
undertake work during the off-season in these industries. 3. India is short in two important
factors of production, namely i. Capital ii. Technical and managerial skill. Small-scale
industrial economies contribute to capital formation and act as a nursery to raise managerial
skill. 4. Small-scale industries mobilize untapped resources of capital and rural skill that may
otherwise remain unutilized in this vast country. Large-scale industries as they cluster around
cities cannot attract these resources. 45 5. Unlike large-scale industries, small-scale industries
need relatively shorter gestation periods. 6. Small-scale industries are less dependent on
imported machinery and raw materials. 7. Small-scale industries help dispersal of economic
power and thus ensure balanced economic growth in the country. 8. Small-scale industries
help to meet a substantial part of increased demand for consumer goods and simple producer
goods. 9. The creation of a network of small-scale units opens up more sources of supply and
demand opportunities for large-scale industries and imparts strength and viability to the
industrial sector. 10. Small-scale industries also can develop handicrafts and promote
aesthetic values.13 For the above reasons, the small-scale sector and its development in a
developing country like India is essential

Tamil Nadu Small Industries Development Corporation Limited (SIDCO) The Tamil
Nadu Small Industries Development Corporation Limited (SIDCO) was established on
16.3.1970 by the Government of Tamil Nadu with the main objective of assisting and
promoting the interests of Micro, Small and Medium Enterprises in the State. Since its
inception, SIDCO is actively striving to achieve its goal and commitment towards its vision:
To forge sustainable partnerships with the MSMEs for enhancing their competitiveness.
SIDCO strives towards the development of Industrial Estates and associated social
infrastructure, promotion of Clusters and Common Facility Centres, enabling the access of
MSMEs towards Technology, Inputs, Best Management and Manufacturing Practices,
Capital and Markets. Currently, SIDCO is maintaining 35 Industrial Estates created by
Government of Tamil Nadu and 59 Industrial Estates established on its own

Procedures involved in allotment of Plots/Sheds:-


A transparent procedure is followed in allotting the sheds / plots by advertising the
availability of shed/ plots in newspapers. A Screening Committee constituted with the
officials of SIDCO, Directorate of Industries & Commerce, TIIC and representatives of
TANSTIA as members, interview the applicants and the eligible applicants are selected on
merit. Plots are allotted by way of lot system. SIDCO develops industrial plots of various
sizes ranging from 5 cents to 100 cents (1 acre) and above as per the requirements of the
manufacturing units in the Industrial Estates and the industrial plots are allotted to them
either on Outright sale or Hire Purchase basis depending upon the demand existing in the
area. As per G.O.(Ms) No.7, Micro, Small and Medium Enterprises Department , dated
31.01.2009, 30% of the saleable area of the Industrial Estates are earmarked for Micro
Enterprises. Priority is given in allotment of developed plots / sheds to the following
categories: 1) 30% for Women Entrepreneurs. 2) 10% for Ex-servicemen 3) 10% for SC/ST
and Transgenders. If sufficient numbers of the applicants are not available in these
categories, these reserved plots/sheds will be taken up for allotment to other categories.

3.9 Marketing Assistance Scheme SIDCO:-

assists the Micro and Small Entrepreneurs through Marketing Assistance Scheme. SIDCO
approaches the Government Departments / Local Bodies on behalf of these Micro and Small
units which are registered with SIDCO under this scheme. The orders so received are
distributed among Micro and Small Enterprises and SIDCO ensures the execution of these
orders to effect good quality and timely supply. Payments received from the Government
Departments / Undertakings / Local Bodies for the supplies effected are released to the units
after deducting 3% as consultancy fees. SIDCO has executed orders worth Rs.125.91 Lakhs
upto March 2013. For 2013- 14, target has been fixed as Rs.180.00 Lakhs to make a
substantial progress. 3.10 e-Governance Computerization of activities of SIDCO with an
objective to revamp the organisation has been taken up to simplify the office procedures and
formalities and to accelerate the performance of the Corporation. This will in turn enhance
the productivity and efficiency. As a first step, SIDCO has introduced downloading of
application forms for allotment through website. With the assistance of ELCOT, software is
being developed to bring all the activities of SIDCO online. Further, action is being taken for
mapping of all Industrial Estates located in all over Tamil Nadu for envisaging better
economic governance, understanding of the emerging infrastructure and planning
requirements, value addition and value from waste. Apart from mapping, the various details
with respect to an Industrial Estate such as name of the unit, line of activity, environmental
parameters, details of production and turnover, export, employment generated and other such
parameters will be made online.

Taking care of small scale

Small Scale Industries Directorate of Industries and Commerce:-

The Directorate of Industries and Commerce is the nodal agency for planning and
implementing various schemes for the promotion of Small Scale Industries in Tamil Nadu. It
provides various services through the District Industries Centres such as registration of SSIs,
training of entrepreneurs, Industrial guidance, promotes Village and Small Industries by
organising Industrial Co-operatives (particularly for match, tea & coir industries) and
identifies and promotes craftsmen and artisans engaged in the handicrafts industry. The
Department of Industries and Commerce also implements a variety of programmes to
provide financial assistance, technical support and guidance service to the existing as well as
new industries. These programmes are implemented with an accent on the development and
modernisation of industries, up-gradation of technology and quality control. It operates
through a network of District I

Handlooms :-

Handlooms form a part of heritage of India and richness and diversity of our country and
artistry of the weavers. It plays a very important role in the economy. Handloom is the largest
economic activity after agriculture. This sector is estimated to provide direct and indirect
employment to more than 30 lakh weaver households and about 130 lakh weavers in the
country (!999-2000). Due to effective State intervention through financial assistance and
implementation of various developmental and welfare schemes, this sector has been able to
withstand competition from the powerloom and mill sectors. Production in this sector was
6792 million sq.meters in 1998-99. This sector contributes substantially to the export income
of the country. According to the 1987 Handlooms census, there were 4.27 lakh Handlooms in
Tamil Nadu. There are as on 31.3.2002, 2.83 lakh handlooms functioning in 1414 Primary
Handloom Weavers' Co-operative Societies. The Weavers' Co-operative Societies exist in
rural and semi-urban areas where there is a large concentration of handloom weavers. All the
benefits of the development and welfare schemes implemented by the State Government and
the Government of India are channelised through these societies. The average annual
production of various varieties of handloom goods by these societies is around 950 lakh
metres and the annual sales turn over around Rs. 450 crores. Tamil Nadu has always
occupied a pride of place in having the maximum number of handlooms in the country. This
sector continues to be alive in spite of setbacks on account of quantum jump in Powerlooms.
Although major areas of the State which are dependent heavily on handlooms have been
affected on account of lack of demand in the market, there are sectors where handlooms are
progressing well. There are about 3 lakh handlooms, of which 1.50 lakh handlooms are
within the Co-operative fold. Handloom Weavers Co-operative Societies have been fairly
successful in breaking the element of bondedness among Master Weavers and their
subordinates. Better wages, welfare measures and the like have gone a long way in this. Co-
operative Societies need to continue to be patronised as a welfare measure without ignoring
those outside the Cooperative fold.

Powerlooms: -

The decentralised powerloom sector plays an important role in meeting the clothing needs of
the country. The powerloom industry produces a variety of cloth both grey as well as
processed bearing intricate designs. The contribution of the powerlooms sector to the total
cloth production in the country is about 59%, excluding the cloth produced by non-SSI,
weaving and hosiery /knitting units. This sector also contributes significantly to the export
earnings. There are 3.20 lakh registered powerlooms in Tamil Nadu. These powerlooms are
situated within and outside the Co-operative fold. There are nearly 25,000 powerlooms
operating in 149 Powerloom Weavers' Cooperative Societies with about 9,000 weaver
members. These societies produced 154.22 lakh metres of cloth valued at Rs. 20.74 crores
and effected sales to the tune of Rs. 19.68 crores during 2001-02. The 10.2 Village and Small
Industries 617 Powerloom Weavers Co-operative Societies mainly produce the cloth required
for scheme of free supply of uniforms to school children and distribution of sarees and
dhoties.

Textiles: -

The Textile Industry of the State is the forerunner in Industrial development and is providing
massive employment. It is predominantly spinning oriented. Out of 1937 large and medium
textile mills in the country, 893 mills are located in the State. Similarly, out of 921 small
units in the country, 745 are located in the State. The 893 large and medium textile mills
include 18 Co-operative Spinning Mills, 17 NTC Mills and 25 Composite Mills. The
spinning capacity is 14.30 million spindles and the labour force 2.32 lakhs. The Textile
Industry has a very important role in the industrial field with regard to employment potential
and overall economic and commercial activities. This industry enables the Central and State
Governments to earn revenue besides foreign exchange through exports. 25% of Indian yarn
is exported and 35% of Indian yarn is from Tamil Nadu.

Garments: -

Garments occupy a predominant position in World trade as it is the second fastest growing
product category next only to office and telecom equipment. In India, 12% of total exports in
India is from the Garment Industry and it provides direct employment to over 20 lakh people.
In Tamil Nadu, the garment sector is located substantially around Chennai, with
specialisation in cotton fibre garments (2/3 of the total garment exports). Garments includes
knitwear but for the purpose of understanding, knitwear has been taken as a separate sub-
category. The garments industry around Chennai accounts for over Rs. 2000 crores in
exports. 45% of all garment exports is to the EU and 35% to the U.S. The garment sector has
been functioning without any Government help.

Knitwear: -
The Knitwear Industry in the Country is located at Tiruppur in Coimbatore District.
Estimated at over Rs. 4000 crores in exports, this industry has been at the helm of textile
exports for a long period of time and has acquired international fame. Its strength is due to
skilled manpower and rich raw material base.

Processing: -

Pre-loom and Post-loom processing facilities have not grown adequately to meet the demand
of the textile industry. In Tamil Nadu, processing facility is mainly in the unorganised hand
dyeing/ hand printing sector.

Major problems faced by the small scale industries are :

(1) Finance

(2) Raw Material

(3) Idle Capacity

(4) Technology

(5) Marketing

(6) Infrastructure

(7) Under Utilisation of Capacity

(8) Project Planning!

Small scale industries play a vital role in the economic development of our country.
This sector can stimulate economic activity and is entrusted with the responsibility of
realising various objectives generation of more employment opportunities with less
investment, reducing regional imbalances etc. Small scale industries are not in a position to
play their role effectively due to various constraints. The various constraints, the various
problems faced by small scale industries are as under:

(1) Finance:-

Finance is one of the most important problem confronting small scale industries Finance is
the life blood of an organisation and no organisation can function proper in the absence of
adequate funds. The scarcity of capital and inadequate availability of credit facilities are the
major causes of this problem.

Firstly, adequate funds are not available and secondly, entrepreneurs due to weak economic
base, have lower credit worthiness. Neither they are having their own resources nov are
others prepared to lend them. Entrepreneurs are forced to borrow money from money lenders
at exorbitant rate of interest and this upsets all their calculations.

After nationalisation, banks have started financing this sector. These enterprises are still
struggling with the problem of inadequate availability of high cost funds. These enterprises
are promoting various social objectives and in order to facilitate then working adequate
credit on easier terms and conditions must be provided to them.

(2) Raw Material:-

Small scale industries normally tap local sources for meeting raw material requirements.
These units have to face numerous problems like availability of inadequate quantity, poor
quality and even supply of raw material is not on regular basis. All these factors adversely
affect t e functioning of these units.
Large scale units, because of more resources, normally corner whatever raw material that is
available in the open market. Small scale units are thus forced to purchase the same raw
material from the open market at very high prices. It will lead to increase in the cost of
production thereby making their functioning unviable.

(3) Idle Capacity:-

There is under utilisation of installed capacity to the extent of 40 to 50 percent in case of


small scale industries. Various causes of this under-utilisation are shortage of raw material
problem associated with funds and even availability of power. Small scale units are not fully
equipped to overcome all these problems as is the case with the rivals in the large scale
sector.

(4) Technology:-

Small scale entrepreneurs are not fully exposed to the latest technology. Moreover, they lack
requisite resources to update or modernise their plant and machinery Due to obsolete
methods of production, they are confronted with the problems of less production in inferior
quality and that too at higher cost. They are in no position to compete with their better
equipped rivals operating modem large scale units.

(5) Marketing:-

These small scale units are also exposed to marketing problems. They are not in a position to
get first hand information about the market i.e. about the competition, taste, liking, disliking
of the consumers and prevalent fashion.

With the result they are not in a position to upgrade their products keeping in mind market
requirements. They are producing less of inferior quality and that too at higher costs.
Therefore, in competition with better equipped large scale units they are placed in a
relatively disadvantageous position.
In order to safeguard the interests of small scale enterprises the Government of India has
reserved certain items for exclusive production in the small scale sector. Various government
agencies like Trade Fair Authority of India, State Trading Corporation and the National
Small Industries Corporation are extending helping hand to small scale sector in selling its
products both in the domestic and export markets.

(6) Infrastructure:-

Infrastructure aspects adversely affect the functioning of small scale units. There is
inadequate availability of transportation, communication, power and other facilities in the
backward areas. Entrepreneurs are faced with the problem of getting power connections and
even when they are lucky enough to get these they are exposed to unscheduled long power
cuts.

Inadequate and inappropriate transportation and communication network will make the
working of various units all the more difficult. All these factors are going to adversely affect
the quantity, quality and production schedule of the enterprises operating in these areas. Thus
their operations will become uneconomical and unviable.

(7) Under Utilisation of Capacity:-

Most of the small-scale units are working below full potentials or there is gross
underutilization of capacities. Large scale units are working for 24 hours a day i.e. in three
shifts of 8 hours each and are thus making best possible use of their machinery and
equipments.

On the other hand small scale units are making only 40 to 50 percent use of their installed
capacities. Various reasons attributed to this gross under- utilisation of capacities are
problems of finance, raw material, power and underdeveloped markets for their products.
(8) Project Planning:-

Another important problem faced by small scale entrepreneurs is poor project planning.
These entrepreneurs do not attach much significance to viability studies i.e. both technical
and economical and plunge into entrepreneurial activity out of mere enthusiasm and
excitement.

They do not bother to study the demand aspect, marketing problems, and sources of raw
materials and even availability of proper infrastructure before starting their enterprises.
Project feasibility analysis covering all these aspects in addition to technical and financial
viability of the projects, is not at all given due weight-age.

Inexperienced and incomplete documents which invariably results in delays in completing


promotional formalities. Small entrepreneurs often submit unrealistic feasibility reports and
incompetent entrepreneurs do not fully understand project details.

Moreover, due to limited financial resources they cannot afford to avail services of project
consultants. This result is poor project planning and execution. There is both time interests of
these small scale enterprises.

(9) Skilled Manpower:-

A small scale unit located in a remote backward area may not have problem with respect to
unskilled workers, but skilled workers are not available there. The reason is Firstly, skilled
workers may be reluctant to work in these areas and secondly, the enterprise may not afford
to pay the wages and other facilities demanded by these workers.

Besides non-availability entrepreneurs are confronted with various other problems like
absenteeism, high labour turnover indiscipline, strike etc. These labour related problems
result in lower productivity, deterioration of quality, increase in wastages, and rise in other
overhead costs and finally adverse impact on the profitability of these small scale units.
(10) Managerial:-

Managerial inadequacies pose another serious problem for small scale units. Modern
business demands vision, knowledge, skill, aptitude and whole hearted devotion.
Competence of the entrepreneur is vital for the success of any venture. An entrepreneur is a
pivot around whom the entire enterprise revolves.

Many small scale units have turned sick due to lack of managerial competence on the part of
entrepreneurs. An entrepreneur who is required to undergo training and counseling for
developing his managerial skills will add to the problems of entrepreneurs.

The small scale entrepreneurs have to encounter numerous problems relating to


overdependence on institutional agencies for funds and consultancy services, lack of credit-
worthiness, education, training, lower profitability and host of marketing and other problems.
The Government of India has initiated various schemes aimed at improving the overall
functioning of these units.

The following measures may be suggested:-

1. Equitable allocation of raw materials, imported components and equipment.

2. Improvement in the methods and techniques of production.

3. Provision for adequate finance.

4. Marketing assistance.

5. Provision for industrial education and training.

6. Demarcating spheres for large-scale and small-scale units.

Conclusion:-
The Small-Scale Industries has acquired an important place in the socio-economic
development of the country. The number of Small-Scale Industries stood at 28.03 lakhs in
1996-97 and increased to 34.64 lakhs in 2001-02. After the policy of liberalization and
establishment of the WTO several challenges and new opportunities have grown for the
Small-Scale Industries. The structural and infrastructural aspects of any enterprise can be
strongly integrate by taking into account the relation between strategic planning activities
which have to be effectively prepared based on the environment, resources, and capabilities
available, and the physical issues which should be use in order to full-fill the goals and
objectives for all of the operations and functions within the organization whatever its a large,
medium, or small in its size, simple or complex in its structure, local or international in its
market. Mission statements can and do vary in length, content, format, and specificity. Most
practitioners and academicians of strategic management feel that an effective statement
exhibits nine characteristics or components. Because a mission statement is often the most
visible and public part of the strategic-management process, it is important that it includes all
of these essential components.