A STUDY ON THE DEVELOPMENT OF SMALL - SCALE INDUSTRIES IN TAMILNADU, INDIA ABSTRACT

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1 A STUDY ON THE DEVELOPMENT OF SMALL - SCALE INDUSTRIES IN TAMILNADU, INDIA N. Selvaraj Assistant Professor of Commerce, Saraswathi Narayanan College, Madurai, Tamilnadu, India M. Suganya Assistant Professor of Commerce, Saraswathi Narayanan College, Madurai, Tamilnadu, India ABSTRACT The small-scale industry evokes different meanings for different agencies and the financial institutions. However, the definition of small industry is an important aspect of government policy as it identifies the target groups. Comprehensive act was enacted during the year 2006 named as Micro Small and Medium enterprises development act, 2006 which bring these three segments under a single comprehensive legislation. The micro and medium enterprises have been defined for the first time in India. In Tamil Nadu, the SSI units are concentrated in industrially advanced districts like Chengalpattu, Coimbatore, Chennai and Madurai. The SIDCO promotes the SSI sector in the state of Tamil Nadu along with other organizations such as the TIIC and the Directorate of Industries and Commerce Keywords: small-scale industry, semi-log trend, Compound Growth Rate, Co-efficient of variation, Employment and investment id:- editorindus@gmail.com Page 84

2 INTRODUCTION The SSIs units are supplementary and complementary to large and medium scale units as ancillary units. Considering the large employment level and backlog of creation of new jobs to provide employment to all able hands today, hopes are pined on the small-scale sector. The government is making all efforts to provide conducive atmosphere, level playing ground and policy support to enable the SSIs sector to achieve higher levels of production, exports and employment. STATEMENT OF THE PROBLEM Different national and state level institutions operating in the country for meeting the credit requirements of the SSIs sector include Small Industries Development Bank of India, Commercial Banks, Regional Rural Banks, Co-operative Banks (State, Central and Primary), State Financial Corporations/ State Industrial Investment Corporations, State Small Industries Development Corporation, National Bank for Agriculture and Rural Development, statutory bodies (KVIC, COIR Board, Handloom Board and Handicraft Boards), National Small Industries Corporations Limited and the like. REVIEW OF LITERATURE Thilaka (1996) in her study A Study of Financing of Select Small-Scale Industries by Commercial Banks in Tamil Nadu, stated that one of the important problems of the small-scale industries was bank finance. Restriction on term on loan facilities small-scale industries acted as a stumbling block in the promotion of SSIs units. She stated that commercial banks provided only 75 per cent of the financial needs of the small-scale industrial units. Further the borrowers complained that they had to visit the bank more than ten times for getting their loans. Rudra Murthy (2001) in his study entitled Institutional Finance for the Development of the SSI in Karnataka, stated that availability of institutional finance has not met the demand from the SSIs sector. The educational background of the owner had little impact on the running of the unit. Proprietary and partnership firms were found to be more prompt and regular in repayment of loans than limited companies. The study suggests for setting up of an SSI mutual fund, more specialized SSIs branches and modification of Narasimham Committee report to suit the SSIs sector. id:- editorindus@gmail.com Page 85

3 Thillainayagam(2002), in his study entitled Small-Scale Industries and World Trade Organization, observed that large corporations could not do both production and marketing in an efficient way, but could concentrate on international marketing of products only. Large Corporation may develop horizontal networking through ancillarisation. Small units could be brought under sub-contract. The small and medium units could concentrate on production without worrying about marketing of their products. Wherever feasible, large international companies could function as assembling units, small and medium enterprises could produce intermediate products or ancillaries to the principal assembling units. technological tie-up between the principal units and ancillary units. production would take care of the equity problem of small-scale units. There could be This joint venture Rolland Le Brasseur, et al, (2003), utilized an empirical study of 145 new venture start-ups to explore a model of growth momentum as measured by sales. The primary interests are the relationship among pre-startup activities, intended and actual business expansion activities, and early stage performance. Results indicated that the sales level achieved in the second years had a positive correlation with (i) the breadth of pre-startup activities, and (ii) the range of expansion activities. Business performance had a negative correlation with the time s relative dependence on the technical skills of the owner-manager. In addition, the study revealed a consistent gap between owner-manager s expansion intentions and actual expansion. Vijay vayas (2005), outlined the essence of the strategies for the survival and growth of new ventures. According to him the productivity, profit and growth of and enterprise are closely linked to its ability to innovate successfully. The accelerating technological change, however, has made innovation increasingly difficult for the small business. Notwithstanding the high profile success of a few start-ups, innovation confrontations with mature business (sic) a large number of ordinary entrepreneurs are losing in this battle of the unequals. The very spirit of entrepreneurship embodied in over sprouting small enterprises it, a strategy of imitation facilitated entry and subsequent consideration through incremental innovation should be targeted at the lower part of the value chain. Muraliselvam (2007) in his article Small-Scale Industries for large employment, mentioned that SSIs sector in India creates the largest employment opportunities for the Indian populace, next only to agriculture and noted that the problems of small-scale industries are problems of id:- editorindus@gmail.com Page 86

4 finance, lack of adequate raw material, scarcity of power and irregular availability of power poor marketing facilities, problem of technical know-how, poor transport facilities, competition from large scale industries, lack of machinery and equipment. Karthihaselvi, Neelamegam and Magesan (2010) desorbed that small-scale industries were dreams of Mahatma Gandhi come true. He supported the growth of small-scale industries in India, because he had the vision that it would help the poor people of India to come up. Smallscale and micro industries are not capital based, but the talent and effort based business. So even a middle class person can own and run this. According to new international poverty line of $1.25, around 40 per cent of Indian population is under poverty line. As it is hard to provide employment to all, at least we can encourage the self employment through small-scale industries. Fortunately the country is endowed with adequate natural resources. So it is a propitious time for the growth of small-scale industries, government can come up with the loan facility and proper training for these industries. This may encourage unemployed people to start their career in this sector. With the government s scheme and succor, the dream of Mahatma Gandhi can come true. OBJECTIVES OF THE STUDY The specific objectives of the present study are To study on the development of the SSI units in Tamilnadu. To conclude and suggest measures to ensure more flow of development to the SSI units on the basis of findings of the study. Collection of Data The secondary data were collected from various published and unpublished sources such as annual reports of DIC, Lead Bank, TIIC, Chennai, SIDBI, RBI and from relevant Journals, magazines, news papers and websites. Tools of Analysis In order to analayse the trend and growth of financial assistances given by the bank under study to the SSI units the following semi-log trend equation was fitted. Where, Log y = a+bt y = Amount of loans granted to SSIs units t = Time Variable id:- editorindus@gmail.com Page 87

5 a and b are constants to be estimated. The above model was computed by the method of least squares. The following formula was used to calculate compound growth rate. Compound Growth Rate (CGR) = (Antilog b-1) 100 The co-efficient of variation was calculated with the following formula in order to analyse the extent of variation in the loans granted by banks to the SSIs units. Standard deviation (σ) Co-efficient of variation = x 100 Arithmetic mean ( X) σ = Σ (x x ) 2 N 1 Where, X = ΣX N = Loans given by banks to SSI units N= Number of years. Definition of Small-Scale Industry The small-scale industry evokes different meanings for different agencies and the financial institutions. However, the definition of small industry is an important aspect of government policy as it identifies the target groups. The first official criterion for small-scale industry dates back to the second Five Year Plan when it was in terms of gross investments in land, building, plant and machinery and the strength of the labour force. Subsequently, on the recommendation of the of the Federation of Association of Small Industry of India (FASSII), an apex level organization of small-scale industry, set up under the aegis of the Ford Foundation team. Only the investment in fixed assets in plant and machinery, whether held in ownership terms or by id:- editorindus@gmail.com Page 88

6 lease or by hire-purchase instead of fixing the limit on overall investment, was considered for granting the status of a SSIs unit. From time to time, there have been many changes in the ceiling limit of investment in plant and machinery in the beginning, for a small scale industry the investment level was Rs.5 lakhs and employment limit of less than 50 persons when using power and less than 100 persons without using power. As per government of India notification 1999, an industrial undertaking in which the investment in plant and machinery. There was a drastic change in the definition of SSI in Comprehensive act was enacted during the year 2006 named as Micro Small and Medium enterprises development act, 2006 which bring these three segments under a single comprehensive legislation. The micro and medium enterprises have been defined for the first time in India. Growth of Small-Scale Sector in Tamil Nadu Traditionally, Tamil Nadu is one of the well-developed states in terms of industrial development. In the post-liberalization era, Tamil Nadu has emerged as one of the front-runners by attracting a large number of investment proposals in recent times. At present, Tamil Nadu is the third largest economy in India and its current state domestic product is well over US $ 23 billion. In Tamil Nadu, the first of the major financial institutions set up in 1949 was the Madras Industrial Investment Corporation which was later renamed as the Tamil Nadu Industrial Investment Corporation (TIIC). The other principal promotional organizations in the state are the Tamil Nadu Industrial Development Corporation (TIDCO), the State Industries Promotion Corporation (SIPCOT), the Small Industry Development Corporation (SIDCO) and the Tamil Nadu Corporation for Industrial Infrastructure Development (TACID) and the National Small Industrial Corporation (NSIC). The TIDCO, SIPCOT and the TACID cater mainly to large and medium industries while the SIDCO and the NSIC provide support mainly to the SSIs sector. In Tamil Nadu, the growth of the small-scale industries is in consonance with National Plans and objectives. Tamil Nadu has occupied the fifth position regarding the number of the SSI units among the different states in India. Tamil Nadu stood second (next to Maharashtra) in respect of output, investment in fixed assets and employment in the SSI sector. In Tamil Nadu, the SSI units are concentrated in industrially advanced districts like Chengalpattu, Coimbatore, Chennai and Madurai. The SIDCO promotes the SSI sector in the state of Tamil Nadu along with other id:- editorindus@gmail.com Page 89

7 organizations such as the TIIC and the Directorate of Industries and Commerce. The growth of the SSI in Tamil Nadu is considerable in relation to its neighboring states namely, Andhra Pradesh, Kerala and Karnataka. In Tamil Nadu, the SSI units cover a wide product range comprising food, textiles, hosiery, paper, leather, chemicals, metals, machinery, automobile parts and other miscellaneous products. i) Growth of Small-Scale Industries Units in Tamil Nadu Table 1 shows the growth of the SSI units in data pertaining to cumulative number of units and increase /decrease percentage in the small-scale industries units in Tamil Nadu from to TABLE 1 GROWTH OF SSI UNITS IN TAMILNADU FROM TO Year No. of Units Percentage Increase/Decrease (Cumulative) Increase/Decrease Sources: 1. The Department of Industry and Commerce, Chennai The Ministry of Small Scale Industries in Tamil Nadu. 3. Economic Survey, Government of India, New Delhi. It could be observed from Table 1 that the small-scale industries units increased from units in to units in The percentage of increase was the highest during the year , with the increase of units. The growth of the SSIs units in Tamil Nadu id:- editorindus@gmail.com Page 90

8 ranged between 3.18 and percent during the study period, further the lowest growth rate (3.18) was observed in the year To study the trend in the growth of the number of the SSI units and the growth rate, the trend coefficient were computed and are presented in Table 2. TABLE 2 COMPOUND GROWTH RATE AND MAGNITUDE OF VARIATION IN GROWTH OF Sl. No. Variables Growth of SSI 1. Units Source: Computed value. Constant (a) SSI UNITS IN TAMILNADU Log Linear ** Significant at one per cent level. Co- efficient (b) id:- editorindus@gmail.com Page 91 R 2 C.G.R (Percent/ Per annum) C.V. (Percent) ** It is observed from the Table 2 that the small-scale industrial units in Tamil Nadu significantly increased at the rate of 6.08 per cent per annum. It is also inferred from the table that there was per cent variation in the growth of the SSI units in Tamil Nadu during the period under study. Growth of Employment in SSI Sector in Tamil Nadu The number of employment in the small-scale industrial units in Tamil Nadu for the study period, year to year increase and percentage of increase over relevant previous year are furnished in Table 3. TABLE 3 GROWTH OF EMPLOYMENT IN SMALL-SCALE UNITS IN TAMILNADU FROM TO Year No. of Employment (Person) Increase/Decrease Percentage Increase/Decrease

9 Sources: 1. The Department of Industrial and Commerce, Chennai The Ministry of Small-Scale Industries in Tamil Nadu. 3. Economic Survey, Government of India, New Delhi. It could be observed from Table 3 that the percentage increase in the number of employment increased from persons in to employments in The percentage increase was the highest during the year with an increased number of employments compared to previous year. To study the trend in the growth of number of employment in SSI units and the growth rate, the trend co-efficient were computed and presented in Table 4. Sl.No 1. TABLE 4 COMPOUND GROWTH RATE AND MAGNITUDE OF VARIATION IN Variables Employment in Small-Scale Industries Source: Computed value. Constant (a) EMPLOYMENT Log Linear ** Significant at one per cent level. Co-efficient (b) R 2 C.G.R (Percent/ Per annum) C.V (Percent) ** It is observed from Table 4 that the number of persons employed in small-scale industries in Tamil Nadu significantly increased at the rate of 4.47 per cent per annum. It is also inferred from id:- editorindus@gmail.com Page 92

10 the Table that there was per cent variation in the growth of the SSI units employment opportunities in Tamil Nadu during the period under study. Growth of Investment in SSI Units in Tamil Nadu Data pertaining to investment in the small-scale industrial units in Tamil Nadu for the study period to are presented in Table 5. TABLE 5 GROWTH OF INVESTMENT IN SMALL-SCALE UNITS IN TAMILNADU FROM Year Investment (Rs. In Crores) TO Increase/Decrease Percentage Increase/Decrease Sources: 1. The Department of Industrial and Commerce, Chennai The Ministry of Small Scale Industries in Tamil Nadu. 3. Economic Survey, Government of India, New Delhi. Table 5 shows that the investment value of small scale industries sector in Tamil Nadu at constant prices had increased from Rs crore in to Rs crore in id:- editorindus@gmail.com Page 93

11 11. The percentage increase was the highest during the period with the increase of Rs crore compared to the previous year. To study the trend in the growth of the investment and the growth rate, the trend co-efficient were computed and are presented in Table 6. Sl. No 1. TABLE - 6 COMPOUND GROWTH RATE AND MAGNITUDE OF VARIATION IN Variables Investment in SSI Units Source: Computed value. Constant (a) Log Linear INVESTMENT Co-efficient (b) R 2 C.G.R (Percent/annum) C.V (Percent) ** ** Significant at one per cent level. It is observed from Table 6 that the growth in investment in SSIs at Tamil Nadu significantly increased at a compound growth rate of 6.82 per cent per annum. It is also inferred from the Table that there was per cent variation in the investment in small-scale industrial units Tamil Nadu during the period under study. Growth of Production of SSI Units in Tamil Nadu The growth of production of the SSI units in Tamil Nadu in terms of rupees and its percentage of increase/ decrease over previous year during the period under review are presented in Table 7. TABLE 7 GROWTH OF PRODUCTION OF SMALL-SCALE UNITS IN TAMILNADU FROM Year Production (Rs. In. Crores) TO Increase/Decrease Percentage Increase/Decrease id:- editorindus@gmail.com Page 94

12 Sources: 1. The Department of Industrial and Commerce, Chennai The Ministry of Small-Scale Industries in Tamil Nadu. 3. Economic Survey, Government of India, New Delhi. It could be observed from Table 7 that the production value the SSIs sector in Tamil Nadu increased from Rs crore in to Rs crore in The percentage increase was the highest during the year with the increase of Rs crore when compared to previous year. To study the trend in the growth of production and the growth rate, the trend computed and are presented in Table 8. Sl. No TABLE 8 COMPOUND GROWTH RATE AND MAGNITUDE OF VARIATION IN Variables Constant (a) Log-Liner PRODUCTION Co-efficient (b) co-efficient were id:- editorindus@gmail.com Page 95 R 2 C.G.R (Percent/ annum) C.V (Percent) Production in ** SSI units Source: Computed value. ** Significant at one per cent level. It is observed from Table 8 that the small-scale industries achieved significant increase of production with a compound growth rate of 7.77 per cent per annum. It is also inferred from the

13 Table that there was per cent variation in the growth of production in SSI units in Tamil Nadu during the period under study. ii) Share of the SSI units of Tamil Nadu Compared with All India Level In Tamil Nadu the growth of small-scale industries is in consonance with the national plans and their objectives. The objectives of SSI units are to bring about a balanced regional development, to tap the potential at the block level by promoting entrepreneurship, to generate employment and to induce personal savings. The focus on the development of SSIs sector began only during the Second Five Year Plan. A systematic programme for the development of the small-scale sector was formulated and there was also a concentration on the development of ancillary units during the second plan period. The share of the number of small-scale industries of Tamil Nadu compared to that of the number of units in the whole of India from to is presented in Table 9. TABLE 9 SHARE OF THE SSI OF TAMILNADU TO THE WHOLE OF INDIA DURING Year 1999 TO Number of SSI Units All India (Rs. In lakhs) Tamil Nadu Percentage Share of SSI Units in Tamil Nadu to Total SSI Units in the Country id:- editorindus@gmail.com Page 96

14 Sources: 1. Annual Report of Ministry of Small-Scale Industries 1998 to Tamil Nadu an Economic Appraisal, Various Issues. 3. Annual Repot of RBI, 1998 to Directorate of Industries and Commerce, Government of Tamil Nadu, Chennai. *Statistics from Development Commission (Small-Scale Industries), New Delhi. Table 9 discloses the number and share of the SSI units in Tamil Nadu state compared to that of the whole of India. A close analysis of the data reveals that both in India as a whole and in Tamil Nadu state the same pattern of growth in terms of the increase in the number of units have taken place. At the all India level, the units increased from 93.4 lakhs in the year to lakhs in the year So far as Tamil Nadu is concerned, the number of units increased from 3.25 lakhs in the year to 7.64 lakhs in the year The percentage share of the number of units in Tamil Nadu to the total increased continuously and steadily from 3.47 per cent in to 4.90 per cent in This is not a surprising trend, since Tamil Nadu is one of the leading industrial states of India. SUMMARY The small-scale industrial units in Tamil Nadu significantly increased at the rate of 6.08 per cent and per cent variation in the growth.it could be observed the number of employment increased from persons in to employments in The percentage increase was the highest during the year with an increased number of employments compared to previous year. The investment value of small scale industries sector in Tamil Nadu at constant prices had increased from Rs crore in to Rs crore in The production value the SSIs sector in Tamil Nadu increased from Rs crore in to Rs crore in At the all India level, the units increased from 93.4 lakhs in the year to lakhs in the year So far as Tamil Nadu is concerned, the number of units increased from 3.25 lakhs in the year to 7.64 lakhs in the year The percentage share of the number of units in Tamil Nadu to the total increased continuously and steadily from 3.47 per cent in to id:- editorindus@gmail.com Page 97

15 per cent in This is not a surprising trend, since Tamil Nadu is one of the leading industrial states of India. SUGGESTIONS The Bank under study may have specialized branches in each district to the loan requirements of the small-scale industries. The lead banks in all districts may have periodical meetings with the DICs and the Association of the SSI units to assess the nature, type and amount of loans required by SSI units. The banks may conduct sample surveys of the performance of the SSI accounts to find whether they are getting adequate bank credit for their operations. BIBLIOGRAPHY 1. Agarwal, A.K., North Eastern Economy-Problems and Prospects, Mittal Publications, Delhi, Arora R.C., Industry and Rural Development, S. Chand & Company Ltd., New Delhi, Bharti, R.K., Industrial Estate in Developing Economies, National Publishing House, New Delhi, Dhar, P.N. and Lydall, H., The Role of Small Enterprises in India s Economic Development, Asia Publishing House, Bombay, Gunnar Myrdal, Asian Drama, Vol.1, Kalyani Publishers, New Delhi, Lianzela, Economic Development of Mizoram, Spectrum Publications, Guwahati, Mathur S.P., Economics of Small Scale Industries, Sundeep Prakashan, Delhi, Prabin Baishya, Small and Cottage Industries of Assam, Manas Publications, Delhi, Srinivas.Y.Thakur, Rural Industrialisation in India Strategy and Approach, Sterling Publishers Ltd., New Delhi, Venkata Reddy K., Rural Development in India, Himalaya Publishing House, Delhi, id:- editorindus@gmail.com Page 98

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