2ROLE OF SMALL SCALE INDUSTRIES IN INDIAN ECONOMY 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 economyIt 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 to over 3 million in the year 2000.ROLE OF SMALL SCALE INDUSTRIES IN INDIAN ECONOMY
3The definition for small-scale industrial undertakings has changed over time. Initially they were classified into two categories- those using power with less than 50 employees and those not using power with the employee strength being more than 50 but less than 100.However, the capital resources invested on plant and machinery buildings have been the primary criteria to differentiate the small-scale industries from the large and medium scale industries.An industrial unit can be categorized as a small- scale unit if it fulfils the capital investment limit fixed by the Government of India for the small-scale sector
4As per the latest definition which is effective since December 21, 1999, for any industrial unit to be regarded as Small Scale Industrial unit the following condition is to be satisfied:Investment in fixed assets like plants and equipments either held on ownership terms on lease or on hire purchase should not be more than Rs 10 million.However, the unit in no way can be owned or controlled or ancillary of any other industrial unit.
5Investment Limit YEAR INVESTMENT LIMITS 1960 Upto Rs 5 lacs in Plant & Machinery1966Upto Rs 7.5 lacs in Plant & Machinery1975Upto Rs 10 lacs in Plant & Machinery1980Upto Rs 20 lacs in Plant & Machinery1985Upto Rs 35 lacs in Plant & Machinery1991Upto Rs 60 lacs in Plant & Machinery1997Upto Rs 100 lacs in Plant & Machinery1999
6COMPARATIVE GROWTH RATES OF SSI SECTOR AND TOTAL INDUSTRIAL SECTOR YearSSI Sector Growth RateTotal Industrial Sector Growth Rate10.449.1011.4913.001.218.104.22.1687.844.107.098.045.006.062.707.685.708.066.099.96Source: SIDO Half Century by DCSSI, Govt. of India 2004 and Annual Report of the Ministry of SSI
7SSI Sector in India creates largest employment opportunities for the Indian populace, next only to Agriculture. It has been estimated that 100,000 rupees of investment in fixed assets in the small-scale sector generates employment for four persons.Office of the Development Commissioner M/O Micro & Small Enterprises Cluster Development Programme (Statistics & Data Bank Division)PERFORMANCE OF MICRO & SMALL ENTERPRISESYearNumber of Enterprises (Lakh Nos.)Empl. (Lakh Person)Production (Rs. Crs.)GrowthShare InRegisteredUnregisteredTotalat Current pricesRate (%)GDP (%)15.9193.58109.49263.493148508.685.9216.9796.98113.95275.303645479.645.7917.53101.06118.59287.5542979610.885.8418.71104.71123.42299.8549784212.325.8320.98107.46128.44312.5258719612.655.94(Projected)24.68108.99133.67322.2869512613.00NA
9MEASURESTo help the SSIs in meeting the challenges of globalization, the Government has taken several initiatives and measures in recent years.One of the primary measures is the enactment of the ‘Micro, Small and Medium Enterprises Development Act, 2006’, which aims to facilitate the promotion and development and enhance the competitiveness of MSMEs.The Act came into force from 2nd October The main features of the act are :
10SALIENT FEATURES OF MSMED ACT – 2006 Manufacturing enterprises defined in terms of investment in Machinery and Equipment (excluding land and building) classified intoa. Micro enterprises - investment upto Rs 25 lakhs,b. Small enterprises - investment above Rs 25 lakhs and upto Rs crorec. Medium enterprises - Investment above Rs 5 crores and upto Rs croresService enterprises defined in terms of their investment in equipment (excluding land and building) classified intoMicro enterprises-investment upto Rs 10 lakhsSmall enterprises-investment above Rs 10 lakhs and upto Rs 2 croreMedium enterprises-investment above Rs 2 crores and upto Rs 5 crores
11MSMED Act – 2006 and its Impact ClauseSalient FeaturesImpactEstablishment of National Small and Medium Enterprises Board – Maximum No. of members 47Specific representation for WomenMandatory Quarterly MeetingStatutory Status, compact board and quarterly meetings will address problems of SMEs immediately to take corrective action2.Concept of EnterprisesClear-cut demarcation of manufacturing/production and rendering servicesFacilitates SMEs to enter into service enterprises aggressively3. Definition of EnterprisesSpecific ceiling limit for manufacturing/production and service enterprise definition for Medium enterprisesExisting small units can graduate into Medium units and avail facilities under the act.4. Filing of memoranda optional for Micro and Small enterprises in manufacturing and service sector Medium enterprises in Service Sector but mandatory for Medium enterprises in manufacturing sectorReplacement of registration with memorandumFacilitates SMEs to avail the benefits of the act immediately after setting up of the unit.
12Period of payment by the procuring organizations – 45 days ClauseSalient FeaturesImpact5. Procurement PoliciesNotification of preference policies by central or State Governments for goods and services provided by Micro & Small enterprisesFacilitates opportunity for supply of goods/services without any hassles.Public Procurement Policy under Section 11 of MSME Act, yet to be notified6. Delayed Payment Penalty & dispute resolutionPeriod of payment by the procuring organizations – 45 daysPenal interest 200% of PLRSMEs can plan their cash flow/financial requirement7. Dispute ResolutionEstablishment of MSE facilitation Council; 90 days framework for dispute resolutionEasy financial planning and no waste of human resources for chasing/follow up.8. Delayed Payment – allowable deduction under IT Act 1961Deduction disallowedThis will encourage procurement agencies to ensure timely payment to SMEs.9. Closure of BusinessStatutory notification of scheme for closureFacilitates expedition of liquidation
1310. Notification of guidelines or instructions for promotion of SMEs – wrt. To Funds appropriation and releaseStatutoryMandatory on all facilitating development of SMEs ensuring fast growth11. Facilitating CreditMandatory on all providing credit. Guidelines for credit for 20% year on year growth
14Other major initiatives taken by the government Setting up ofNational Manufacturing Competitiveness Council (NMCC)The National Commission of Enterprises in the Unorganized Sector (NCEUS).A ‘Policy Package for Stepping up Credit to Small and Medium Enterprises (SME)’ was announced by the government with the objective to double the credit flow within the period of five years to help these small organization to tide over the cash flow
15The government has initiated several policies for the growth and development of small scale industries.They included reservation of certain items to be manufactured only by the small scale sector. Other measures include credit marketing, technology, and entrepreneurship development, fiscal, financial and infrastructural support.In 1999, the government established the Ministry of Small Scale Industries and Agro and Rural industries to make policy decisions for the development and well being of the small scale industries.
16SSI-LocationSmall Scale Industries are located throughout the country, though predominantly in the rural areas. The small scale industries in the rural areas are skill based, wherein the skill for manufacturing is passed on from one generation to another.Some of the goods manufactured in these units are textile handicrafts, woodcarving, stone carving, metal ware etc.Small scale industrial factories are also present in urban areas and usually they account for the maximum volume of production for that particular good in the country. For e.g. Ludhiana in the state of Punjab is the main center in the country for producing woolen hosiery, sewing machine parts, bicycles and its parts, similarly Tiruppur in Tamil Nadu accounts for small scale firms that are involved in spinning, weaving and dying of cotton garments.
17Post LiberalizationPost liberalization economic conditions has created immense growth prospect for the small scale industries. The government has also supported the small scale industries by the way of implementing policies like investment ceiling for the SSI sector and priority lending. The formation of WTO in 1995 resulted in a major challenge to the well being of the SSI. The protection given to the SSI in the form of reservation and quantitative restrictions has been withdrawn. More than 160 items reserved under the SSI category have been de reserved. It has been found that if the SSI upgrades the technology, adopt better management practices, reengineer the factories to improve productivity and provide qualitative product, they would be competitive in the post WTO scenario. The advancement in computer and telecommunication technology, increase in e commerce, opening up of markets due to WTO, mergers and acquisitions, improved infrastructure and outsourcing no core area of business have all contributed to the growth of SSI.
19The enactment of Micro, Small and Medium Enterprises Development Act, 2006, the Government fulfilled one of the needs felt and articulated by this segment for long.This Act seeks to facilitate promotion and development and enhancing competitiveness of these enterprises.It provides the first-ever legal framework for recognition of the concept of “enterprise” (comprising both manufacturing and services) and integrating the three tiers of these enterprises, namely, micro, small and medium.Apart from clearer and more progressive classification of each category of enterprises, particularly the small, the Act provides for a statutory consultative mechanism at the national level with wide representation of all sections of stakeholders, particularly the three classes of enterprises; and with a wide range of advisory functions.
20Establishment of specific Funds for the promotion, development and enhancing competitiveness of these enterprises, notification of schemes/programmes for this purpose, progressive credit policies and practices, preference in Government procurements to products and services of the micro and small enterprises, more effective mechanisms for mitigating the problems of delayed payments to micro and small enterprises and simplification of the process of closure of business by all three categories of enterprises are some of the other features of this legislation.The Government also announced a Policy Package for Stepping up Credit to Small and Medium Enterprises assuring, a 20 per cent year-on-year growth in credit flow.Significant improvements have also been made in the Credit Linked Capital Subsidy Scheme for Technological Up gradation, leading to a spurt in the number of units availing of its benefits
22CREDIT SUPPORTIn line with the Policy Package for Stepping up Credit to Small and Medium Enterprises(SME), the Reserve Bank of India (RBI) has already issued guidelines to the public sector banks to ensure 20 per cent year-on-year growth in credit to the SME. Action has also been initiated to operationalise other elements of the said Policy Package. Implementation of these measures will be closely monitored by the RBI and the GovernmentThe Small Industries Development Bank of India (SIDBI) will scale up and strengthen its credit operations for micro enterprises and cover 50 lakh additional beneficiaries over five years beginning Government will provide grant to SIDBI to augment SIDBI’s Portfolio Risk Fund for this purpose.
23Government also provided grant to SIDBI to enable it to create a Risk Capital Fund (as a pilot scheme in ) so as to provide, directly or through intermediaries, demand-based small loans to micro enterprises.SIDBI’s direct lending operations will be expanded by increasing the number of branches from 56 to 100 in two years beginning , with a view to catering to the credit needs of more clusters of micro and small enterprises (MSEs).The eligible loan limit under the Credit Guarantee Fund Scheme will be raised to Rs.50 lakh. The credit guarantee cover will be raised from 75 per cent to 80 per cent for micro enterprises for loans up to Rs.5 lakh. Accordingly, to strengthen the Credit Guarantee Fund, the corpus of the Fund will be raised from Rs.1189 crore as on 01 April 2006 to Rs.2500 crore over a period of five years
24Moreover, to encourage public sector banks and public financial institutions to contribute to the corpus of the Fund, the feasibility of allowing deduction of their contributions to the Fund for income tax purposes would be examined.The Fund will continue to be maintained with and managed by the Credit Guarantee Fund Trust for Small Industries (CGTSI). The Trust will be renamed as “Credit Guarantee Fund Trust for Micro and Small Enterprises” (CGTMSE).
26Taking into consideration all the relevant factors, including the new definition of small manufacturing enterprises, under the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006, the Government will examine the feasibility of:Increase in the General Excise Exemption (GEE) limit and the existing eligibility limit for GEEExtending the time limit for payment of excise duty by micro and small enterprisesExtending the GEE benefits to small enterprises on their graduation to medium enterprises for a limited period.
28Four Training-cum-Product Development Centres (TPDCs) for agro & food processing industries would be set to facilitate promotion and development of micro and small enterprises in the food processing sector.The two existing Central Footwear Training Institutes (CFTIs) (at Chennai and Agra) will be further strengthened to expand their outreach and assist the MSE in upgrading their technology.New Technology would be promoted for adoption by MSEs engaged in manufacturing bricks to make them energy efficient and eco-friendly. For this, one-time capital subsidy (limited to 30 per cent of the cost or Rs.2 lakh, whichever is less) will be provided to micro and small brick manufacturing enterprises
29SUPPORTS FOR ENTREPRENEURIAL AND MANAGERIAL DEVELOPMENT
3020 per cent of the entrepreneurship development programmes (EDP) will be organised for SC/ST, women and physically challenged persons with a stipend of Rs.500 per capita per month for the duration of the training.50,000 entrepreneurs will be trained in information technology, catering, agro and food processing, pharmaceuticals, biotechnology, etc., through specialised courses run by SISIs, over the period co-terminus with the XI Plan.A new scheme will be formulated to provide financial assistance to select management/business schools and technical institutes, to conduct tailor-made courses for new as well as existing micro and small entrepreneurs. A new scheme will also be formulated to provide financial assistance to 5 select universities/ colleges to run 1200 entrepreneurial clubs.
32Under the Credit Guarantee Fund Scheme, 80 per cent guarantee cover will be provided to micro and small enterprises operated and/or owned by women.Under the SICDP/MSECDP financial assistance of up to 90 per cent of the cost, subject to ceiling of Rs. 9 crore, will be provided for clusters developed exclusively for micro and small enterprises operated and/or owned by women.Associations of women entrepreneurs will be assisted under the SICDP/MSECDP in establishing exhibition centres at central places for display and sale of products of women- owned micro and small enterprisesTo encourage entrepreneurship among women, 50 per cent concession in fees would be given to women candidates in entrepreneurship/ management development programmes conducted by SISIs.To facilitate export by women entrepreneurs, the National Small Industries Corporation Ltd. (NSIC) will assist them to participate in exhibitions