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BACKGROUND
Since the time of the independence in 1947, a significant feature of the Indian economy has been
the rapid growth of the small industry sector. The small industry sector is considered to have a
major role in the Indian economy due to its 40 percent share in the national industrial output
along with an 80 percent share in industrial employment and nearly 35 percent share in exports.
The small scale industries sector has been assigned an important role in the industrialization of
There are no clear official definitions of small. Small scale industries are usually distinguished
from the large-scale and medium-scale industries on the basis of size, capital resources and labor
force in the units. At one time the government of India had grouped small-scale industrial
undertakings into two categories - those using power but employing less than 50 persons and
those not using power and employing less than 100 persons. However, capital investment on
plant and machinery by units is considered as a main criteria for distinguishing between the large
and small industries. An industrial unit can be classified as a small-scale unit only if it meets the
capital investment limits set by the government of India (GoI). These limits have been steadily
increased over the years. In 2005, the investment limit for small-scale industry (SSI) was raised
from $6 million to $30 million. Production units that are ancillary to large-scale units are also
considered as small if they sell not less than 50 percent of their manufactured products to one or
However, there is a clear distinction between the traditional and modern small industries. The
traditional small industries include khadi and handloom, village industries, handicrafts,
sericulture, coir, etc. Modern small industries manufacture a wide variety of goods from simple
items to sophisticated items such as television sets, electronics control system, various
industries are highly labor-intensive, while the modern small industries use highly sophisticated
machinery and equipment. The term small-scale industries is mostly used to represent modern
small industries. The SSIs manufacture many items which include rubber products, plastic
products, chemical products, glass and ceramics, mechanical engineering items, hardware,
electrical items, transport equipment, electronic components and equipments, automobile parts,
bicycle parts, instruments, sports goods, stationery items and clocks and watches. The small
scale industry sector output contributes almost 40% of the gross Industrial value-added 45% of
the total exports from India (direct as well as indirect exports) and is the second largest employer
of human resources after agriculture. The development of Small Scale Sector has therefore been
In order to protect, support and promote small enterprises as also to help them become self-
supporting, a number of protective and promotional measures have been undertaken by the
Government.