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INTRODUCTION

Small enterprises typically make a large contribution to manufacturing employment in Poor


countries. However, the developmental contribution of most of them is limited to Generating
subsistence employment of last resort. Hence, in the face of fast labor Force growth and
limited employment absorption in other sectors, developing country Governments have
mounted efforts to improve productivity and earnings in these firms.

This has spawned a plethora of policies and programs, and an almost boundless Literature
documenting them.

Support is a component; most of that literature has a broader focus, dealing with
Management, organization, sales, employment, income and general quality issues. Few
Publications contain technical details about upgrading of products, processes and
Organization, the support needed to bring about such improvements and the effectiveness of
delivery mechanisms.

Yet technological competence is an especially important determinant of small Manufacturers’


ability to hold their own in a context of liberalization and increasing Integration of
manufacturing into global networks. Many of their markets, even traditional Ones are
changing rapidly. In this situation, a lack of capability to produce efficiently, meet deadlines,
or upgrade product quality and design spells defeat.

The main objective is to identify important common factors behind the success and Failure of
technology assistance projects of public agencies and non-governmental Organizations
(NGOs). They have some division of labor and use basic machinery, but their managerial
practices and technological characteristics are worlds removed from those of modern large
companies. They tend to be engaged in well-established or even traditional activities, making:
basic wooden furniture; simple metal products such as Tractor-trailers, ploughs and window
frames; leather goods; local construction materials; or processed foodstuffs such as tofu and
pasta. The customer base usually includes large numbers of the poor and lower middle class.
Except in some Asian newly industrialized countries (NICs), few are in the forefront in new
high-tech sectors and Successful exporters. Only a small minority engages in formal R&D.
Self-employed workers such as traditional blacksmiths, potters and weavers, and very small
family-run Micro-enterprises operating in the informal sector are not part of this review. The
Support programs mounted for them are focused more on poverty alleviation than on
business growth.

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SMALL SCALE INDUSTRIES
The small scale sector has played a very important role in the socio-economic development of
the country during the past 50 years. It has significantly contributed to the overall growth in
terms of the Gross Domestic Product (GDP), employment generation and exports. The
performance of the small scale sector, therefore, has a direct impact on the growth of the
overall economy. The performance of the small scale sectoring terms of parameters like
number of units (both registered and unregistered), production, employment and exports
during the one year period i.e., 2000-01over 1999-2000, the number of SSI units is estimated
to have increased by 1,58,000, production at current prices by Rs.72,609 crore and at constant
prices by Rs. 33,714 crore. Employment increased by 7,14,000 persons, while exports were
higher by Rs. 5,778 crores.

According to projections made by the Ministry of Small Scale Industries during2000-01, the
SSI sector recorded growth introduction of 8.09 per cent over the previous year. The small
scale industries sector has recorded higher growth rate than the industrial sector as a whole
(4.9 per cent during2000-01). It contributed about 40 per cent towards the industrial
production as a whole and 35 per cent of direct exports from thecountry.7.68 The
Government has been taking various measures from time to time in order to enhance the
productivity, efficiency and competitiveness of the SSI sector.

Small Scale Industrial Undertakings

The following requirements are to be complied with by an industrial undertaking to be


graded as Small Scale Industrial undertaking w.e.f. 21.12.1999

An industrial undertaking in which the investment in fixed assets in plant and machinery
whether held on ownership terms on lease or on hire purchase does not exceed Rs 10 million.
(Subject to the condition that the unit is not owned, controlled or subsidiary of any other
industrial undertaking)

Explanation: For the purpose of this note:-

a. "owned" shall have the meaning as derived from the definition of the expression "owner"
specified in clause (1) of section 3 of the said Act;

b. "subsidiary" shall have the same meaning as in clause (47) of section 2, read with section
4, of the Companies Act, 1956 (1 of 1956);

c. the expression "controlled by any other industrial undertaking" means as under:-

i. where two or more industrial undertakings are set up by the same person as a proprietor,
each of such industrial undertakings shall be considered to be controlled by the other
industrial undertaking or undertakings,

ii. where two or more industrial undertakings are set up as partnership firms under the Indian
Partnership Act, 1932 (1 of 1932) and one or more partners are common partner or partners

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in such firms, each such undertaking shall be considered to be controlled by other
undertaking or undertakings,

iii. Where industrial undertakings are set up by companies under the Companies Act, 1956 (1
of 1956), an industrial undertaking shall be considered to be controlled by other industrial
undertaking if:-

a. the equity holding by other industrial undertaking in it exceeds twenty four percent of its
total equity; or

b. the management control of an undertaking is passed on to the other industrial undertaking


by way of the Managing Director of the first mentioned undertaking being also the Managing
Director or Director in the other industrial undertaking or the majority of Directors on the
Board of the first mentioned undertaking being the equity holders in the other industrial
undertaking in terms of the provisions of the following items (a) and (b) of sub-clause (iv);

(iv) the extent of equity participation by other industrial undertaking or undertakings in the
undertaking as per sub-clause (iii) above shall be worked out as follows:-

a. the equity participation by other industrial undertaking shall include both foreign and
domestic equity;

b. equity participation by other industrial undertaking shall mean total equity held in an
industrial undertaking by other industrial undertaking or undertakings, whether small scale or
otherwise, put together as well as the equity held by persons who are Directors in any other
industrial undertaking or undertakings even if the person concerned is a Director in other
Industrial Undertaking or Undertakings;

c. equity held by a person, having special technical qualification and experience, appointed
as a Director in a small scale industrial undertaking, to the extent of qualification shares, if so
provided in the Articles of Association, shall not be counted in computing the equity held by
other industrial undertaking or undertakings even if the person concerned is a Director in
other industrial undertakings or undertakings;

(v) where an industrial undertaking is a subsidiary of, or is owned or controlled by, any other
industrial undertaking or undertakings in terms of sub-clauses (i); (ii); or (iii) and if the total
investment in fixed assets in plant and machinery of the first mentioned industrial
undertaking and the other industrial undertaking or undertakings clubbed together exceeds
the limit of investment specified in paragraphs (1) or (2) of this notification as the case may
be, none of these industrial undertakings shall be considered to be a small scale or ancillary
industrial undertaking.

Note2-

(a) In calculating the value of plant and machinery for the purposes of paragraphs (1) and (2)
of this notification, the original price thereof, irrespective of whether the plant and machinery
are new or second hand, shall be taken into account.

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(b) In calculating the value of plant and machinery, the following shall be excluded, namely:-

i. The cost of equipments such as tools, jigs, dies, moulds and spare parts for maintenance
and the cost of consumable stores;

ii. The cost of installation of plant and machinery;

iii. The cost of research and development equipment and pollution control equipment;

iv. The cost of generation sets and extra transformer installed by the undertaking as per the
regulations of the State Electricity Board;

v. The bank charges and service charges paid to the National Small Industries Corporation or
the State Small Industries Corporation;

vi. The cost involved in procurement or installation of cables, wiring, bus bars, electrical
control panels (not those mounted on individual machines), oil circuit breakers or
miniature circuit breakers which are necessarily to be used for providing electrical power
to the plant and machinery or for safety measures;

vii. The cost of gas producer plants;

viii. Transportation charges (excluding of sales tax and excise) for indigenous machinery
from the place of manufacturing to the site of the factory;

ix. Charges paid for technical know- how for erection of plant and machinery;

x. cost of such storage tanks which store raw materials, finished products only and are not
linked with the manufacturing process; and

xi. Cost of fire fighting equipments.

(c) In the case of imported machinery, the following shall be included in calculating the
value, namely:-

i. Import duty (excluding miscellaneous expenses as transportation from the port to the site
of the factory, demurrage paid at the port);

ii. Shipping charges;

iii. Customs clearance charges; and

iv. Sales tax.

Every industrial undertaking which has been issued a certificate of registration under section
10 of the said Act or a license under sections 11, 11A and 13 of the said Act by the Central
Government and are covered by the provisions of paragraphs (1) and (2) above relating to the
ancillary or small scale industrial undertaking, may be registered, at the discretion of the
owner, as such, within a period of one hundred and eighty days from the date of publication
of this notification in the Official Gazette.
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Ancillary Industrial Undertakings

• The following requirements are to be complied with by an industrial undertaking for being
regarded as ancillary industrial undertaking: -

An industrial undertaking which is engaged or is proposed to be engaged in the manufacture


or production of parts, components, sub-assemblies, tooling or intermediates, or the rendering
of services and the undertaking supplies or renders or proposes to supply or render not less
than 50 per cent of its production or services, as the case may be, to one or more other
industrial undertakings and whose investment in fixed assets in plant and machinery whether
held on ownership terms or on lease or on hire-purchase, does not exceed Rs 10 million.

Tiny Enterprises

Investment limit in plant and machinery in respect of tiny enterprises is Rs 2.5 million
irrespective of location of the unit.

Women Entrepreneurs

A Small Scale Industrial Unit/ Industry related service or business enterprise, managed by
one or more women entrepreneurs in proprietary concerns, or in which she/ they individually
or jointly have a share capital of not less than 51% as Partners/ Shareholders/ Directors of
Private Limits Company/ Members of Cooperative Society.

Investment Limits

The definition of small scale industries has undergone changes over the years in terms of
investment limits in the following manner:-

Computation of Plant and Machinery

(For calculating investment limit)

In calculating the value of plant and machinery, the original price thereof irrespective of
whether the plant and machinery are new or second hand, shall be taken into account.
However, to determine the price of second hand imported machinery, the original vale of the
said plant and machinery will be taken in foreign currency terms. The value of foreign
currency will be converted into rupee using the "current" exchange rate, i.e. exchange rate
prevalent at the time of import. The import duty will be added on the basis of "current" rate
of import duty, i.e. the rate of import duty prevalent at the time of import.

In calculating the value of plant and machinery, the following shall be excluded, namely:-

i. Cost of equipments such as tools, jigs, dies, moulds and spare parts for maintenance and
the cost of consumable stores.
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ii. Cost of installation of plant and machinery.

iii. Cost of Research and Development (R&D) equipment and pollution control equipment.

iv. Cost of generation sets extra transformers, etc., installed by the undertaking as per the
regulations of the State Electricity Board.

v. Bank charges and service charges paid to the National Small Industries Corporation or the
State Small Industries Corporation.

vi. Cost involved in procurement or installation of cables, wiring, bus bars, electrical control
panels (not those mounted on individual machines), oil circuit breaker/miniature circuit
breakers, etc. which are necessarily to be used for providing electrical power to the plant
and machinery safety measures.

vii. Cost of gas producer plants.

viii. Transportation charges (excluding taxes e.g., Sales tax, excise, etc.) for indigenous
machinery from the place of manufacturing to the site of the factory.

ix. Charges paid for technical know-how or erection of plant and machinery.

x. Cost of such storage tanks which store raw materials, finished products only and are not
linked with the manufacturing process.

xi. Cost of fire-fighting equipments.

xii. Cost of those items of plant and machinery installed purely for power generation using
non-conventional energy sources such as wind, solar energy, ocean waves, bio-gas etc.

In case of imported machinery, the following shall be included in calculating the value
namely:-

i. Import duty, excluding miscellaneous expenses such as transportation from the port to the
site of the factory, demurrage paid at the port.

ii. Shipping charges

iii. Customs clearance charges and

iv. Sales tax

IMPORTANCE OF SMALL SCALE INDUSTRIES

1. Employment aspect:

SSI Sector in India creates largest employment opportunities for the Indian population, next
only to Agriculture. It has been estimated that a lakh rupees of investment in fixed assets in
the small scale sector generates employment for four persons.
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According to the SSI Sector survey conducted by the Ministry and National Informatics
Centre with the base year of 1987-88, the following interesting observations were made
related to employment in the small scale sector.

Generation of Employment - Industry Group-wise

Food products industry has ranked first in generating employment, providing employment to
4.82 lakh persons (13.1%).

The next two industry groups were Non-metallic mineral products with employment of 4.46
lakh persons (12.2%) and Metal products with 3.73 lakh persons (10.2%).

In Chemicals & chemical products, Machinery parts and except Electrical parts, Wood
products, Basic Metal Industries, Paper products & printing, Hosiery & garments, Repair
services and Rubber & plastic products, the contribution ranged from 9% to 5%, the total
contribution by these eight industry groups being 49%.

In all other industries the contribution was less than 5%.

Per unit employment

Per unit employment was the highest (20) in units engaged in Beverages, tobacco & tobacco
products mainly due to the high employment potential of this industry particularly in
Maharashtra, Andhra Pradesh, Rajasthan, Assam and Tamil Nadu.

Next came Cotton textile products (17), Non-metallic mineral products (14.1), Basic metal
industries (13.6) and Electrical machinery and parts (11.2.) The lowest figure of 2.4 was in
Repair services line.

Per unit employment was the highest (10) in metropolitan areas and lowest (5) in rural areas.

However, in Chemicals & chemical products, Non-metallic mineral products and Basic metal
industries per unit employment was higher in rural areas as compared to metropolitan
areas/urban areas.

In urban areas highest employment per unit was in Beverages, tobacco products (31 persons)
followed by Cotton textile products (18), Basic metal industries (13) and Non-metallic
mineral products (12).

Rural

Non-metallic products contributed 22.7% to employment generated in rural areas. Food


Products accounted for 21.1%, Wood Products and Chemicals and chemical products shared
between them 17.5%.

Urban
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As for urban areas, Food Products and Metal Products almost equally shared 22.8% of
employment. Machinery and parts except electrical, Non-metallic mineral products, and
Chemicals & chemical products between them accounted for 26.2% of employment.

In metropolitan areas the leading industries were Metal products, Machinery and parts except
electrical and Paper products & printing (total share being 33.6%).

State-wise Employment Distribution

Tamil Nadu (14.5%) made the maximum contribution to employment.

This was followed by Maharashtra (9.7%), Uttar Pradesh (9.5%) and West Bengal (8.5%) the
total share being 27.7%.

Gujarat (7.6%), Andhra Pradesh (7.5%), Karnataka (6.7%), and Punjab (5.6%) together
accounted for another 27.4%.

Per unit employment was high - 17, 16 and 14 respectively - in Nagaland, Sikkim and Dadra
& Nagar Haveli.

It was 12 in Maharashtra, Tripura and Delhi.

Madhya Pradesh had the lowest figure of 2. In all other cases it was around the average of 6.

2. EXPORT CONTRIBUTION:

SSI Sector plays a major role in India's present export performance. 45%-50% of the Indian
Exports is being contributed by SSI Sector. Direct exports from the SSI Sector account for
nearly 35% of total exports. The number of small scale units that undertake direct exports
would be more than 5000.

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 nontraditional 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 garment, leather and gems and jewellery units
from this sector.

The lucrative product groups where the SSI sector dominates in exports are sports goods,
readymade garments, woolen garments and knitwear, plastic products, processed food and
leather products.

3. INCREASED PRODUCTION:

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The small scale industries sector plays a vital role for the growth of the country. It contributes
40% of the gross manufacture to the Indian economy.

It has been estimated that a lakh rupees of investment in fixed assets in the small scale sector
produces 4.62 lakhs 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 8.74 lakhs units in the year
1980-81 to an estimated 31.21 lakhs in the year 1999.

From the year 1990-91 this sector has exhibited a comparatively lower growth trend (though
positive) which continued during the next two years. However, this has to be viewed in the
background of the general recession in the economy. The transition period of the process of
economic reforms was also affected for some period by adverse factors such as foreign
exchange constraints, credit squeeze, demand recession, high interest rates, shortage of raw
material etc.

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.

The estimates of growth for the year 1995-96 have shown an upswing. The growth of SSI
sector has surpassed overall industrial growth from 1991 onwards. The positive trend is likely
to strengthen in the coming years. This trend augurs a bright future for the small scale
industry.

4. LABOR INTENSIVE:

Small scale and cottage industries are by their nature ‘labour-intensive’; they require less
capital and more labour to produce a given output. Therefore, such industries are most
suitable for countries like India which are characterized by shortages of capital on the one
hand and abundance of labour on the other.

5. LOW CAPITAL OUTPUT RATIO:

Small scale and cottage industries have low capital output ratio, that is, they require less
capital to produce a given output. In large scale industries, the capital-output ratio is high. But
small scale industries, being labor intensive, require less capital investment. Thus, more
production can be obtained with less investment. Besides, as the capital intensity of the small
scale industries is low, they can easily adapt themselves with changing trends in the market
demand-both domestic and foreign and changes in technology.

6. LOW GESTATION PERIOD:

Small scale industries have a low gestation period, that is, as compared to large scale
industries, they start giving production in a relatively shorter span of time. In other words, the
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time lag between investment and production is less in the case of small industries, and
therefore they can increase the flow of consumer goods more rapidly and thereby help in
meeting the shortage of essential goods and commodities. Thus, these industries by
increasing the supplies help in keeping inflationary pressure under control.

7. DECENTRALIZATION:

For the decentralization of economic activities, small scale and cottage industries are most
suitable. Because of low initial establishment costs and also because they do not require an
elaborate infrastructure like roads, rails, houses, etc., these industries can be set up quickly in
different parts of the country. Of course, it may not be possible to start small enterprises in
each village, but it should be possible to select a ‘group’ or ‘cluster of villages’ and start
small enterprises to cater to the needs of the people living around them. Such decentralization
also helps to tap local resources such as raw materials, idle savings, and local talents and also
improve the living standards in the backward regions. Besides, decentralization would also
help in solving the problems of congestion in the few industrial cities by enlarging the area of
employment.

8. EQUITABLE DISTRIBUTION OF INCOME:

It has been said that small scale and cottage industries ensure a more equitable distribution of
income in following ways:

a) The ownership of small scale industries is more widespread than the ownership of
large scale industries.

b) Small industries possess a much larger employment potential and therefore income
gets distributed amongst a very large number of people.

In other words, income generated in small enterprises is dispersed more widely than income
generated in a few large enterprises. The income benefit of small industries therefore is
derived by a large population. In this way small enterprises bring about greater equality of
income distribution.

9. BALANCED REGIONAL DEVELOPMENT:

Small scale and cottage industries can be set up easily in the different regions of the country
according to the development potentialities and availability of resources in each region and in
this way they can help in achieving the objective of balanced regional development. Thus, as
these industries, by and large, use locally available raw materials, labor, skill, capital etc are
set up mostly to cater to the local demand; they can be dispersed in the different regions of
the country very easily. It may not be possible to set up a large scale industries in each region
or in each district or in each taluka, but the small scale industries can be dispersed in the
different areas easily and thus help in balanced regional development of the country.

10. USE OF LATENT RESOURCES:

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Small scale industries make possible the use of latent resources like hoarded wealth, native
entrepreneurial ability, family-labor, artisans’ skill, workers with little formal training, small
savings of the community, etc. It is rather a bit difficult task for the large scale industries to
use these resources as they are thinly spread throughout the country. Small industries
encourage the growth of a small entrepreneur class which introduces a dynamic element in
the economy. Small enterprises help in creating a favorable environment which provides
opportunities and training fields in which the local entrepreneurs take risk, experiment and
innovate.

11. SAVING IN SOCIAL COSTS:

The development of these industries helps in economizing social cost as they discourage
large scale migration to big cities and metropolitan areas. As the workers and the artisans get
employment in the very areas where they live, the social cost in terms of creating
infrastructure like roads, power supply, housing, provision for drinking water, sanitation,
health care, educational facilities etc in urban areas is reduced. Besides, the concentration of
large scale industries in big urban centers very often give rise to certain social and economic
evils like growth of slums, gambling and illicit and adulterated use of liquor, air and water
pollution etc.

12. USE OF LOCALLY AVAILABLE INPUTS:

These industries, by and large, use locally available man power and physical resources which
leads to more intensive use of land, forest and mineral resources as also products of
agriculture and animal waste. This helps in developing other sectors of the rural economy.

13. OPPORTUNITIES:

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 labor absorption nature, SSI sector has made significant
contributions to employment generation and also to rural industrialization. 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.

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

- Less Capital Intensive

- Extensive Promotion & Support by the Government

- Reservation for Exclusive Manufacture by small scale sector

- Project Profiles

- Funding

- Finance & Subsidies


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- Machinery Procurement

- Raw Material Procurement

- Manpower Training

- Technical & Managerial skills

- Tools & Tools utilization 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.

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
liberalization will therefore, attract the infusion of just these things in the sector.

PROGRESS MADE OF SMALL SCALE INDUSTRIAL SECTORS:

1991-92 2005-06

Number of small scale 20.82 lakhs 123.42 lakh


industries

Value of output Rs 1,78,669 cr Rs 4,76,201 cr

Employment 130 lakh 295 lakh

Export earnings Rs 14,000 cr Rs 1,24,417 cr


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PROBLEMS OF SMALL SCALE INDUSTRIES
The following are some of the major problems faced by SSI

1. PROBLEM OF FINANCE:

The problem of finance-both for the short term and long term by far is one of the most
important problems which the small scale industry is facing. This is evident from the fact
that the supply credit has not been commensurate with the needs of working capital and
fixed capital. Further, most often the credit is not made available in time and this has
been a major factor in causing much of the industrial sickness in this sector.

Because of low profitability of these units, they possess low credit worthiness. As such,
they have to depend on private finance, which however, is made available to them at a
much higher rate of interest. This increases their cost of production and as a result they
find it difficult to stand in competition of large scale industries.

2. PROBLEM OF AVAILABILITY OF RAW MATERIAL:

Another problem of these industries is the problem of obtaining raw materials. The quota
allotted to them by the government is much less than their requirements. In fact, this
sector gets a ‘residuary’ treatment in the allocation of raw materials. So is the case with
critical inputs like iron and steel, coal and coke, petro-chemicals, supply of power etc.
These industries do not receive equal treatment vis-a-vis large scale industries in the
distribution of these scarce inputs. The small enterprises have to obtain the inputs from
the black market at a higher price. Also the quality of raw material is sub-standard. Also
being small industries they are not able to buy in bulk like large industries. The result is
that they have to accept whatever is available, of whatever quality and at higher prices.
This adversely affects the quality and cost of their products.

3. PROBLEM OF MARKETING:

Small scale industries have also to face the crucial problem of marketing their products.
The problem arises because of such factors:

a. Small scale of production.

b. Lack of proper grading and standardization.

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c. Inadequate market intelligence.

d. Lack of information in regard to changes in consumers’ preferences and market


trends.

e. Competition from technically more efficient units.

f. Insufficient holding capacity in case of over production or deficient demand.

4. LOW LEVEL TECHNOLOGY:

Many of the units in the small scale industries use traditional techniques of production
which, besides being uneconomical and time consuming leads to poor quality of the
products at high costs. The producers in this sector know little about latest modern
technology for want of suitable information mechanism. Besides, there is very little of
research and development in this field. Likewise, whenever and whatever new is
available, it is not easily transferred to them due to lack of suitable delivery mechanism.
There is also no effective arrangement for imparting training in emerging technologies.

5. COMPETITION FROM LARGE SCALE INDUSTRIES:

Another serious problem which these industries face is that of competition from the large
scale industries. The large scale industries are organized on modern lines and have access
to latest production technology. Besides, they have the economies of scale, benefit of
quality control, market surveys and market research, advertising and publicity, etc. These
advantages are not available in an adequate measure to small scale industries with the
result that they cannot stand up against the large scale industries. With the liberalization
and globalization of the economy in recent years, this problem has become all the more
serious and acute. Although there are still about 240 items reserved for production in
small scale sector, difficulties arise when these industries seek markets in areas where
substitutes are available. They have to face severe competition from the large scale units
and multinationals and ultimately find themselves in a very precarious position.

6. INEFFICIENT FUNCTIONING:

Many of the small scale units are found to be functioning very inefficiently. Thus, for
example, about 50 to 60 percent of their production capacity remains unutilized. In many
cases, their managerial operations do not fully conform to sound commercial principles.
Quite a good many of them have trend to become unviable because there is very little by
the way of research, survey, evaluation etc in matters like location, financial viability,
market study, etc. The result is high cost and poor quality products.

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7. UNEVEN DISPERSAL:

Small scale industries have also been found to be unevenly dispersed from the
geographical view point. Thus, for example, most of the small industrial units have
remained confined to a few states. According to a recent study about 60% of the
registered small units are located in a few states like Punjab, Uttar Pradesh, Madhya
Pradesh, West Bengal, Gujarat, Maharashtra, Karnataka, Andhra Pradesh, Tamil Nadu
etc. And even here also, there is an excessive concentration of these units in metropolitan
areas and large cities for example, Mehsana-Vapi belt in Gujarat, Mumbai-Pune belt in
Maharashtra etc. In other words, there has been in inadequate spread of these units
between different regions as also between urban and rural areas.

8. INDUSTRIAL SICKNESS:

One of the serious problems of small scale industries is their growing sickness. At the
end of March 2006, the total number of sick small scale units was about 1.38 lakh. The
bank funds locked up in these small scale sick units was about Rs 5,380 crores at the end
of March 2006. The loss of sickness is confined not only to finances, but there
substantial losses in real terms also like less production, less exports and less
employment.

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