CHAPTER - I1. Small Scale Industries in India - A Background

Transcription

1 CHAPTER - I1 Small Scale Industries in India - A Background

2 Chapter - I1 SMALL SCALE INDUSTRIES IN INDIA - A BACKGROUND 2.0. Introduction This chapter provides a theoretical background for the study of the growth and structure of small scale industries in India at national, state and district levels. The meaning and evolution of the concept of small scale industries, the changing definition of small scale enterprises and the importance of this seclor are discussed briefly in the beginning of this chapter. The Industrial Policy Resolutions gave due importance to these industries. Accordingly, different Five Year Plans also laid emphasis and allocated hnds for the development of this sector. These are discussed in this chapter. The chapter also tries to a make a brief review list of programmes and schemes devised and implemented along with the policy initiatives for the growth of this sector. In fact, these programmes and schemes have made positive impact in thc growth and structure of small scale sector. Yet, the sector has been facing several problems and need time-to-time addressal. That is why, the Govt. of India has set up many Committees to study the problems faced by the small scale industries and suggest remedial schemes. The last section of this chapter reviews, briefly, the recommendations of various Committees. 2.1 Meaning and Classification of Small Scale Industries The term 'small scale industries' has been defined in three ways; the conventions! meaning, the operational definition and the one for national income accounting. The conventional definition includes cottage and handicraft industries which employ traditional labour intensive methods to produce traditional products, largely in village households. The handlooin textile industry is an example. The operational definition for policy purposes includes all those undertakings having an investment in fixed assets in plant and machinery, whether held on ownership terms or by lease or by hire purchase, 3 7

3 not exceeding Rs. 60 lakh. A tiny unit is one whose investment in fixed assets in plant and machinery does not exceed Rs. five lakh. An ancillary undertaking is one whose investment in plant and machinery does not exceed Rs. 75 lakh and is engaged in (a) the manufacture of parts, components, sub-assemblies, tooling or immediate; or (b) rendering of services or supplying 113 percent of their total service or production, as the zase may be, to other units for production of other articles. The investment ceiling has been raised to Rs. 3 crore for SSI units and to Rs. 25 lakh for tiny units. The Government has recently decided to lower the ceiling from Rs. 3 crore to Rs.1 crore. The operational definition is considered relevant for discussion in academic circles as well as policy decisions. The following table shows changing definitions of small scale industry. Changes in the Definition of Small Scale Industries S.No Year Units Investment Limit 1. The Industries (Development and Regulation Act, 1951) SS Rs. 5 lakhs and employing less than 50 persons with power and less than 100 persons wlthout power SS Not exceeding Rs. 7.5 lakh SS Rs. 10 lakh AU Rs. 10 lakh SS Rs. 20 lakh L AU Rs. 25 lakh SS Rs. 35 lakh AU Rs. 45 lakh SS Rs. 60 lakh and Rs. 75 lakh for EOU AU Rs. 75 lakh SS Rs. 3 crore - but later reduced to Rs. 1 crore Tiny Rs. 25 lakh The investment limits have now been revised upwards since Small scale industries are now been categorized in to micro, small and medium 38

4 enterprises all broadly classified into manufacturing and service sector. The investment limits are as follows. Manufacturing sector (Manufacturing enterprises are defined in terms of investment in Plant and machinery). The third definition of small scale industries relates to national income accounting. This includes all manufacturing and processing activities, including maintenance and repair services, undertaken by both household and nonhousehold small scale manufacturing units, which are not registered under the Factories Act, Evolution of the concept of SSIs The concept of small scale industries has undergone periodic changes since In order to streamline the flow of Governmental assistance for the development of small scale industries, the Small Scale Industries Board has evolved the working definition of small scale industries in January The Board defined the snlall scale unit as "a unit employing less than 50 persons, if 7 9

5 using power, and less than 100 persons, without the use of power, and with capital assets not exceeding Rs.5 lakhs" This definition was evolved to administer all the government programmes for the development of small scale industries, including financial assistance and extension facilities, the supply of machinery on hire purchase, marketing assistance, technological assistance and the provision of accommodation in an industrid estate. Within a short period, it was felt that the above definition would not serve the purpose, particularly from the use of capital equipment and capital outlay. On the recommendation of the Small Scale Industries Board in 1957, Ministry of Commerce and Industries modified the definition so as to cover the undertakings which employed less than 50 persons when using power and less than 100 persons when not using power per shift. In January 1960, the Ministry of Commerce and Industries has come up with a new definition shifting the focus from employment to capital investment. According to the new definition, small scale industries would include all industrial units with a capital investment of not more than Rs.5 lakh irrespective of the number of persons employed. The capital investment meant the investment in fixed assets. Since industrial units producing ancilliary items required by large industries needed higher level of mechanisation, which involves costly machinery and equipment, the ceiling of the capital investment of Rs. 5 lakh was relaxed and raised up to Rs. 10 lakh in the case of small industrial units manufacturing components of some selected industries. Capital investment for the purpose of this definition meant investment in fixed capital, land and buildings, machinery and equipment. It was felt that small scale industries would play greater role if they are modernised and rationalised. It was also felt that the concept of small scale industry had to be revised to enlarge the scope of assistance from the Government and financial institutions. A sub-committee has been appointed by the Small Scale Industries Board to review the definition of small scale industries. The Committee recommended the enlargement of the definition to cover small units with 40

6 capital assets ranging from Rs.5 la!& to Rs.10 lakh. The Committee however felt that, as a result of the revision in the definition proposed by them, there would be some strain on the limited resources available and therefore recommended the imposition of certain restrictions on various categories of facilities to be made available to small industries with a comparatively copious capital. The recommendations of the sub-ccmmittee were accepted by the Small Scale Industries Board and the report was submitted to Government of India. The definition of small scale industries was revised as per the recommendations of the Small Scale Industries Board in October According to this definition, "Small scale industries will- include all industrial units with a capital investment of not more than Rs.7.5 lakh irrespective of the number of persons employed. Capital investment for this purpose will mean investment in plant and machinery only". Ancillary industries were defined as "units which produce parts, components, subassemblies and tooling for supply against known or anticipated demand of one or more large units manufacturing, assembling complete products and which is not a subsidiary to or controlled by any large unit in regard to the negotiation of contracts for the supply of its goods to any large unit". During the decade , small scale industries have been established in large number all over the country producing a wide range of consumer goods, producer goods, ancillaries and components. They have also facilitated the broadening of entrepreneurial base and decentralised pattern of industrial growth. However, in view of the steep increase in the prices of capital equipment and of replacement costs, the need for an upward revision of ceiling on capital investment of Rs.7.5 lakh in the case of small scale industries and ~ s 10, in the case of small ancillary industries had become obvious. Small Scale Industries Board, keeping in view the increased prices of machinery and equipment and the need for modemisation of the units, commended the raising of ceiling on capital investme$. The Government o h

7 India has accepted the recommendations of the Board and the new definition came into force from May For effective promotion of cottage and small scale industries in rural areas and small towns a new sector i.e., the tiny sector was created in 1977 in consequence to the Industrial Policy Resolution All industries with capital investment of Rs. 2 lakh in plant and machinery and located in rural areas and small towns are in~luded in the tiny sector, so that financial institutions and other development agencies may give rapt attention. Small scale industries had been agitating for an increase in the investment limit of Rs. 10 lakh which they felt was inadequate. This had resulted in many illegal and unfair activities. The Government has considered and revised the level of investment in tiny, small scale and ancillary industries. The limit of investment in tiny units has been raised from Rs. 1 lakh to Rs. 2 lakh and for small scale units from Rs. 10 lakh to 20 lakh. The limit of investment in the ancillaries has been increased from Rs. 15 lakh to Rs. 25 lakh. During the Seventh Plan, to facilitate modernisation and to achieve rapid growth in the small scale sector, the Government of India has revised the definition of small scale industry. The upper limit on investment in plant and machinery has been raised in respect of small Scale units from Rs.20 lakh to Rs.35 lakh and in the case of ancillary units from Rs.25 lakh to Rs.45 lakh. The 1990's have witnessed rapid changes in the industrial'sector and along with that in the definition of Small Scale Industries. With a view to promoting the industrial economy of the country in a harmonious manner, the Government raised, the ceiling on investment in plant and machinery of small scale industries from Rs.35 lakh to Rs.60 lakh with effect from April 2, The investment limit would be Rs.75 lakh for ancillary units and small scale units undertaking to export at least 30 per cent of the annual production by the end of the third year from the date of commencement of production.

8 In 1997, on the recommendation of the Abid Hussain Committee, the Government raised the investment limit on plant and machinery for small units and ancillaries from Rs. 60 and Rs. 75 lakh to Rs. 3 crore for each sector respectively. The Government of India, in August 1999, reduced the investment limit on plant and machinery from Rs. 3 crore to Rs. 1 crore to the small scale sector and ancillary sector. The Covernrnent in 2000 has reduced the investment limit on plant and machinery from Rs. 3 crore to 1 crore, but the limit for investment in tiny units has been retained as Rs. 25 lakh Classification A common classification is between traditional small industries and n~odern small industries. Traditional small industries include khadi and handloom, village industries, handicrafts, sericulture, coir etc. Modem small scale industries produce wide range of goods from comparatively simple items to sophisticated products such as television sets, electronics control system, various engineering products, particularly as ancillaries to the large industries. The traditional small industries are highly labour-intensive, while the modem small scale units make use of highly sophisticated machinery and equipment. For instance, during 1970's traditional small industries are highly labourintensive, while the modem small-scale units make use of highly sophisticated machinery and equipment. During traditional small industries accounted for only 13 percent of the total output but their share in total employment was 56 percent. In the same year, total output of traditional small industries came to be Rs. 4,420 crores and this output was produced with the employment of 133 lakh workers and the average output of labour in traditional small industries was roughly Rs As against this, the share of modem small industries in the total output of this sector was 74 percent in but their share in employment was only 33 percent. Obviously, these industrial units be having higher labour productivity. For instance, in a total output of RS. 24,885 crores was produced by 78 lab workers in modem small scale industries the average product of labour being Rs. 31,900.

9 One special characteristic of traditional village industries is that they cannot provide full time employment to workers. Instead they can provide only subsidiary or part-time employment to agricultural labourers and artisans. Among traditional village industries, handicrafts possess the highest labour productivity besides foreign exchange for the country. Under these circumstances, active encouragement of handicrafts is a must. On the other hand, traditional village and small industries are largely carried on by labourers and artisans living below the poverty line, while modem small industries can provide a good source of livelihood. Hence, if with an expansion of employment, the number of persons living below the poverty line has also to be reduced, then a rapid and much larger expansion of the modem small sector will have to be planned. 2.2 Role of Small Scale Industries The small scale industries at the present, as in the past, occupy an important position in the economy. Despite this, the controversy has raged around their placement in the country's development profile, as also their future status. To have a correct perspective, we should analyse the arguments of those who advocate and those who oppose these industries. The most important single argument advanced in favour of these industries is that they generate a large volume of employment. This is considered to be of great relevance for a country like India where underemployment, unemployment and seasonal unemployment are rampant on a mass scale and where capital to industrialise on a massive scale is in acute short supply. In such a labour abundant and capital-scarce economy, it is argued that the way out is to go in for small-scale and cottage industries which are labour-intensive and which require a very small amount of capital for every person employed. These advocates do not question the need for large-scale industries; nor do they disagree with the strategy of establishing heavy industries. They do not go against the opinion which favours building up of a large economic and social infrastructure for the economy. In fact they approve 44

10 of all this. But these programmes require large amounts of capital for their implementation, specially because large-scale industries, in particular heavy industries and infrastructure, are capital-intensive. In order, therefore, to spare capital for such things, these advocates stress that it is all the more necessary that we opt for small-scale and cottage industries for whatever they can produce to employ the abundant resource, naniely, labour. Thus in the process they can contribute substantially to the solution of the unemployment problem. From the employment angle, it is further pointed out that these industries have certain peculiarities which make them eminently appropriate for India. Apart from the fact that these require a small amount of capital, they can be established everywhere and anywhere in the country. Besides, they can be set up at the very doorstep of the workers, mostly living in villages. These workers can combine the work in agriculture with that in these industries. The work in these industries, can be switched off and on as and when necessary. In this way seasonal unemployment can be very greatly eliminated. Thus work for the unemployed, more work for the underemployed, and supplementary work for the seasonally unemployed can be made available mainly through the medium of these industries. Advocates of small-scale and cottage industries make a case for them on the basis that these do not require much capital. As such these fit well in the country where capital is scarce. But some criticise small-scale and cottage industries on the ground that these industries will have unfavourable consequences for savings and capital formation. They argue that the establishment of these industries will, over a period of time, reduce further the availability of capital. Their argument runs as follows: one is that for every unit of output, these use more capital; two, these industries, being labour-intensive, use a major proportion of the sale proceeds of output to pay workers whose marginal propensity is low. Thus a larger part of their incomes will be used for consumption in a lower rate of saving and capital formation for the economy. ~ uthis t agument too is not very strong. Despite a low labour productivity total

11 production originating in this sector will be large because of the employment of large number of workers. For example, in case of cotton cloth, the sector of the textile industry (viz., handloom, powerlooms and khadi) accounts for as much as 47 per cent of the total output. The small scale industries can also bring about goods and services at low cost of production as the overheads for these industries are less, so that the price paid by the consumer is actually lower than the price paid for similar product turned out by a large scale industry. Since small industries produce for the local market, distribution cost tends to be low. Further, in recent times there have taken place certain technological developments like electric motors, internal combustion engines, etc., which are tending to reduce the cost of production in these industries. Also, these industries are definitely better placed, if we consider the social costs of production instead of only market (i.e., private money) cost of production. Large scale industries have to incur such costs for labourers as houses, community centres and other welfare activities of workers. As against these, small enterprises are located near worker's residence. As such these are not required to undergo these costs. Besides, the costs which the community has to bear in the form of air and water pollution in case of large-scale industries are non-existent in case of small enterprises, Thus, even in respect of cost, the small scale industries are not as handicapped as they appear to be. Certain organisational changes, in order to make available facilities which are at present within the reach of large-scale industries only, and encouragement for the adoption of better techniques of production, will redress the balance in favour of small industries. Even at present, in terms of social costs, they have a higher ranking than the large-scale Small-scale and cottage industries are eminently suitable for the fulfilment of the objective of social justice. As against large-scale industries which promote monopolistic trends and unequal distribution of incomes, small 46

12 enterprises tend to create a situation of more equitable distribution of income. At least three arguments can be advanced in support of this. One, a large proportion of income generated in these enterprises gets distributed among workers. Two, income gets distributed among very large number of people. Three, incomes get spread over a vast number of persons throughout the country. All these three benefits flow from tile fact that these industries are labour-intensive and that these can be set up anywhere in the country. Distributive aspects of small-scale and cottage industries unravel their two-fold beneficent character. On the one hand, these industries enable a vast number of people to earn income and, on the other hand, these incomes are generated by the very people among whom they are distributed. Thus the two processes distribution and production take place through the same medium, i.e., labourers. As such, these industries become instruments of social justice par excellence. The promotion of these industries is, therefore, an essential feature of any programme which aims at removal of unemployment and poverty. Another strong argument in favour of these industries is that these make it possible to use the latent resources which otherwise would lie idle. With the help of these industries, the country can use for the benefit of its development such resources as hoarded wealth, native entrepreneurship, family labour, artisans, skills, workers with little formal training, small savings of proprietors who will not use the banking system etc. Being thinly spread throughout the country, these resources cannot be used in large scale industries. May be quite a sizable part of these resources is not fit to be used in modem large scale industries. But these dormant resources can be made alive through small scale and cottage industries to aid the development of the country. Another important and beneficent aspect of the spread of small scale and cottage industries is the decentralization of economic activities. The growth of large factory industries that has so far taken place has been centralized in a few big cities like Bombay, Ahmedabad, Nagapur, Calcutta etc. The rest of the country, and in particular rural areas, are almost without industries. Such a 47

13 concentration of industries in small number of places had led to many evil consequences: overcrowding of cities; pollution of air injurious to health and efficiency; other social evils that results from over concentration of population in areas like cities, etc., Centralization of industrial towns are easy targets for enemy bombardment. Such a calamity can finish off into no time the life line of the economic body. Spreading industries throughout the country is, therefore, of vital importance. Besides using local resources, these industries will reduce the i~balances among regions and between urban and rural areas. By providing employment and income to people throughout the country, these industries will reduce the tension among people of different states, and promote national integration. For the decentralization of economic activities, small scale and cottage industries are eminently suitable. Because of low initial establishment costs, and because they do not require an elaborate economic 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 establish such industries in every village because even small industries are subject to business laws such as market size. In such cases a group of villages can be made the basis for setting up of these industries to cater to the needs of the people living around them. The small scale industries, predominantly producers of consumer goods, have a key place in the mechanism of development. Industrialization of the country, with emphasis of heavy industries, requires large capital investment, leaving little for large consumer goods industries. Besides, capital goods industries have long gestation periods. During the long interval of time, income gets generated without a corresponding increase in goods. Further, the goods produced by these industries are producer goods whlch can help in the production of consumer goods only at a much later stage. In the meantime, consumer goods need to be increased to match rising income in the modem industrial sector. If this is not done, the result will be rise in the prices, leading to rise in the cost of production. Such a rise in prices will thus not only lower

14 the standard of living of the poor workers, but will also jeopardise the very process of growth. Small-scale and cottage industries, which can be set up with small investment and with local resources, are capable of producing the much needed consumer goods within a short period of time. It is precisely for this reason that even India's strategy of industrialisation biased in favour of heavy industries lays great emphasis on small-scale and cottage industries. From the angle of balance of payments, the small scale industries are justified on two counts. One, they do not require much foreign exchange resources for their establishment and to that extent there will be almost no extra burden on balance of payments position. Two, these industries can contribute to the foreign exchange kitty of the country through adding to exports. Already, the demand for such products as cotton handloom fabrics, silk fabrics, coir products, handicrafts, etc., exists. Further, many new products of the non- traditional sector small industries have begun to be exported. The small scale industries also confer certain valuable political and social benefits. They can help in awakening the powerful dormant forces among masses for use in constructive activities. The freedom of work, self- reliance, self-confidence, enthusiasm to achieve, and all such traits of a healthy nation can be built around the material activities performed in these industries. These activities will be helpful in the preservation of the inherited skill of our artisans which would otherwise languish and disappear. A great many people in villages and small towns will be saved from the mechanical, monotonous and robot-like life associated with big industrial cities. These non-economic considerations cannot be concretised into cold statistics, but they speak volumes for themselves. These in fact are the essence of life. It is thus obvious that the Small Scale Industries are of great importance in the economic life and development of the Indians. They provide immediate large-scale employment; they offer a method of ensuring a more equitable distribution of the national income and they facilitate 'an effective mobilisation of capital and skill which might otherwise remain unutilized. Some of the 49

15 problems that unplanned urbanization tends to create will be avoided by the establishment of small centres of production all over the country." The slnall is, no doubt, beautiful. 2.3 Industrial Policy for Small Scale Industries The lndustrial Policy constitutes the framework of guidelines for appropriate decision-making at various levels. They generally consist of policy statements that direct the development of the sector in the economy. For a developing country like India, the growth of small scale industries is of utmost significance. Apart from increased production, the growth of small scale industries help to serve as an important milestone in the country's march towards industrial democracy. In this section, an attempt is made to review the main features of industrial policy resolutions for small scale industries since Independence lndustrial Policy Resolution, 1948 The Industrial Policy Resolution 1948 stated that the cottage and small scale industries have a very important role in the national economy, these industries are well-suited for the productive utilisation of available local resources. The Resolution also stated that the healthy expansion of cottage and small scale industries depends on a number of factors such as the provision of raw materials, cheap power, technical advice, organised marketing of products and necessary safeguards against intensive competition by large scale manufacturers. Moreover, it depends on the education of the workers in the use of best available techniques. The International Perspective Planning Team jointly sponsored by the Government of India and Ford Foundation, visited India in 1953 to study the nature and problems of small scale industries and to make recommendation for the future developments. A positive programme for the development of modem small scale industry was suggested by the team. The team recommended for the establishment of four regional institutes of technology for small scale

16 industry (Small Industries Services Institutes) and the establishment of Marketing Service Corporation and Small Industries Corporation (The National Shall Industries Corporation). The above recommendations were accepted by the ck~emment of India and as a follow up, the Small Scale Industries Board was constituted towards the end of 1954 and the Central Small Industries Organisation came into existence simultaneously. Several programmes were taken up to assist small scale units which include provision of technical advice, supply of machinery on hire purchase, liberalisation of procedures for granting loans under the State Aid to Industries Act, participation in Government Stores Purchase Programme and construction of industrial estates. The Industrial Estate Programme was taken up in 1955 to ensure integrated development of industries, particularly to facilitate better guidelines to small scale units to ensure healthy working conditions and to provide opportunities to make use of common services and facilities and to effect economies in costs Industrial Policy Resolution, 1956 The Industrial Policy Resolution 1956 laid down the guiding principles of state policy regarding the development of industries. The Industry Policy Resolution of 1956 recognised the important role of small scale industries in Indian economy. It was stated that the small scale industries "provide immediate large scale employment, offer a method of ensuring a more equitable distribution of national income and facilitate an effective mobilisation of resources of capital and skill which may otherwise be unutilized. Some of the problems that unplanned urbanisation tends to create will be avoided by the establishment of small scale centres of industrial production all over the country" The Industrial Policy Resolution reiterated that the state should continue its policy of restricting the value of production in large scale sector by differential taxation or by direct subsidies. The state, policy should be to ensure that the decentralised sector acquires sufficient vitality to be self-supporting for its development is integrated with that of large scale industry. The state 51

17 Ulerefore, would concentrate on measures designed to Improve the competitive saength of the small scale producer. For this purpose, the resolution stated that it is essential that the techniques of production should be constantly improved and modernised and the pace of transformation should be so regulated as to avoid, so far as possible, technological unemployment. Lack of technical and financial assistance, lack of suitable working accommodation and inadequacy of facilities for repair and maintenance are among the serious handicaps of the small scale producers. A start has been made with the establishment of industrial estates and rural community workshops to make good of these deficiencies. The extension of rural electrification and the ava~lability of power at prices which the workers can afford will also be of considerable help. Many of the activities relating to small scale production would be helped by the organisation of industrial cooperatives. The Resolution recognised the importance of locational factors like transport facilities, etc. It reiterated explicitly that these facilities will be provided in those regions where they are not available at present so that the unbalanced growth in the various regions may be corrected Industrial Policy Resolution, 1977 The main thrust of the industrial policy of 1977 was on effective promotion of cottage and small industries widely dispersed in rural areas and small towns, on the ground that whatever can be produced by small and cottage industries must only be so produced. The list of industries which would be exclusively reserved for the small scale sector has been expanded, and included more than 500 items reserved for this sector, tiny sector has also been identified within the small scale sector and special attention would be paid to the units with an investment machinery and equipment upto Rs.1 lakh and situated in small towns and villages. The new policy statement noted that there has been a tendency to proliferate schemes, agencies and organisations which have confised the average small and rural entrepreneur contrary to encourage and help him. It was, therefore, proposed to shift the focal point of development

18 from the big cities and state capitals to the district headquarters, where the District Industries Centre is located. Financial institutions and the nationalised banks would also set up separate wings to deal exclusively to the credit requirements of small scale sector. The new Industrial Policy envisaged the setting up of District Industries Centre to promote widely dispersed development of cottage and small scale industries in rural areas and small towns. The District Industries Centres would provide to small entrepreneurs, under the single roof, all the services and support required at pre-investment, investment and post-investment stages, including feasibility reports, arrangements for supply of machinery and equipment, provision of credit, raw materials, electric power, land and buildings and facilities for quality control, research, extension and entrepreneurial training, and marketing support The Industrial Policy Resolution, 1980 The Industrial Policy Statement 1980 sought to harmonise the growth in the small scale sector with that in the large and medium sectors. The emphasis in the policy was on fostering complementarily between the large and small sectors so that the dichotomies between the two sectors do not distort the economic pattern. An important element of the industrial Policy was the raising of the investment limits of the tiny and small scale sectors. These limits have been fixed at Rs.2 lakh instead of Rs.1 lakh for the tiny sector, Rs.20 lakh for the small scale sector instead of Rs. I0 lakh and Rs.25 lakh instead of Rs.15 lab for ancillaries. According to the Industrial Policy statement of July 1980, Government was determined to promote such a form of industrialist ion in the country as can generate economic viability in the villages. Handlooms, handicrafts, khadi and other village industries will receive greater attention to achieve faster rate of growth in the villages. Laying emphasis on balanced and harmonious development of all sectors of industries, the statement added that "while

19 making all efforts towards integrated industrial development, it was proposed to Promote the concept of economic federalism with the setting up of nucleus plants in each district, identified as industrially backward to generate as many ancillaries and small and cottage units as possible". It was also remarked in the policy statement that "policy regarding marketing support to the decentralised sector and reservation of items for small scale industries shall continue to be in force in the interest of growth of the small scale industries" New Industrial Policy Resolution, 1991 The New Industrial Policy initiating far reaching structural reforms to lead Indian industries away from regulatory and protective to a free, market oriented, competitive and globalised environment was announced in 1991The main thrust of new policy is to impart more vitality and growth to employment and exports. The salient features of the new policy are (i) de-regulation, de-bureaucratization and simplification of statutes, regulations and procedures; (ii) increase in the investment limit in plant and machinery of tiny enterprises from Rs.2 lakh to Rs.5 lakh irrespective of the location of the unit; (iii) inclusion of industry-related services and business enterprises irrespective of their location, as small scale industries; (iv) ensuring adequate flow of credit on normative basis and quality of its delivery for viable operation of the small scale industry sector; (v) setting up of a special monitoring cell to oversee the genuine credit needs of the small sector; (vi) introduction of suitable legislation to ensure prompt payment of small industries bills; (vii) implementation of the scheme of Integrated Infrastructural (including technological back-up) services for industries; (viii) Setting up of a Technology Development Cell in the Small Industries Development Organisation; (ix) market promotion of small scale industry products through cooperative and public sector institutions, other specialised professional 1 marketing agencies and the consortia approach and (x) Setting up of an Export Development Centre in the Small Industries Development Organisation.

20 The emerging economic scenario in the changed, liberalised and competitive economic environment, due to initiation of economic reforms, necessitated structural and fundamental changes in the policy framework for the development of small scale industries, causing a shift in focus from protection to promotion. In the post-reform period the Government took a number of steps including partial de-reservation, change in investment limits, facilities for foreign participation, establishment of growth centres, export promotion, marketing assistance, incentives for quality improvements, etc. Important among these are given below: To focus better attention on the problems of the small scale sector, a new Ministry of Small Scale Industries and Agro and Rural Industries was created in October 1999, which, later on announced an 'Agenda for the Millennium' policy. A new Credit Insurance Scheme was announced in the Budget ( ) for Small Scale Industries as security to banks and thus to improve the flow of investment credit to the SSI units, particularly export-oriented and tiny units. The working capital limit for small scale industrial units was to be turned over. The turnover limit for this purpose was enhanced from Rs.4 crore to 5 crores. r To co-ordinate the latest development in the context of policy of the World Trade Organisation, a cell was set up in the ofice of the Development Commissioner, Small Scale Industry to impart information to small scale industries associations regarding recent developments, prepare policies for them in tune with the World Trade Organisation agreements and organise WTO sensitisation seminars and workshops. r To take necessary steps to accelerate the programmes of Small Scale Industries branches to ensure that every district and small scale industries cluster within the district were served by at least one 55

21 specialised SSI bank branch. Furthermore, to improve the quality of banking services, the SSI branches were asked to obtain IS0 certification. TO help small scale industries entrepreneurs, further the National Equity Fund Scheme was introduced under which equity support was provided for projects up to the limit of Rs.15 lakh, which was further raised to Rs.25 lakh. The single window scheme of Small Industries Development Bank of India was also extended to all districts. Thus, under the new policy, emphasis had been laid on the development of small scale sector by providing different facilities instead of providing different types of protection Small Scale Industries in India Five Year Plans In the Five Year Plans also, the small scale industries have received varied assistance, such as marketing assistance, tax exemptions, financial subsidies and so on. The development of small scale industries has continued to be one of the important elements in the national overall development strategy because of its favourable capital output ratio and high employment intensity. The National Planning Commission, set up in 1938 under the chairmanship of Pandit Jawaharlal Nehru, constituted a Committee to study the development of small scale industries. Recognizing the pivotal role, the small scale industries play in india's economic development in particular, small scale industries have been assigned due priority in the successive Five Year Plans. First Five Year Plan ( ) During the First Five Year Plan period a major step was taken for the development of small industrial units by establishing the All India Boards to advise and assist in the formulation of the developmental programmes of small industrial units. Store purchase and replacement of imports were the two directions in which the demand for products of small industries could be deliberately developed. New centres of small industries production, 56

22 estabhshment of new townships as river valley projects, training research and finance were the various aspects which were stressed in the First Plan. A network of various All India Boards, such as the Khadi and Village Industries Boards (KVIB), the Handloom Board and the Sericulture Board were established. Four regional Small Industries Service Institutes (SISI) were set up to provide technical assistance to small industries. Twelve State Financial Corporations have been established. Again the value of purchases made from Cottage and Small Industries Units by the Directorate General of Supplies and Disposal has increased from Rs lakh in to Rs. 105 lakhs in The First Plan was a rehabilitation Plan to bring up the Indian Economy which was ravaged by the partition of the country and the consequent refugee influx, the shortages that existed in the economy and to make up a sound base for the more rapid advance in future. Hence the Plan tried to lay the foundation stone to improve the small industrial units. The total outlay for the small industrial units was Rs. 5.2 crores during the First Plan period. The Karve Committee was appointed by the Planning Commission in June Second Five Year Plan ( ) The Second Five Year Plan emphasized that small industries would play a pivotal role as ancillaries to large scale industries. The Karve Committee which envisaged Plans for the development of village and small industries in the Second Five Year Plan, recognized their importance for obtaining increased supplies of consumer goods and for reducing unemployment and underemployment. Common production programmes were drawn up in the case of sewing machines, bi-cycle and storage batteries. In addition, M e r expansion of capacity in respect of some items was restricted in the large scale sector. A sub Committee of Small Scale Industries Board prepared a list of items which could be produced in the small scale sector. To encourage the development of small scale industries, the government launched an assistance programme which includes i) providing information on prospects of industries,

23 (ii) drawing up of schemes for the manufacture of various items, (iii) Technical assistance, (iv) Assistance in procurement of machinery, or machinery on hire purchase basis, (v) Training, (vi) Factor space in industrial estates, (vii) Credit facilities on liberalized terms, (viii) Participation in Government stores purchases development. and (ix) Modernization and techcal The Govt. of India, through SSI Board and the Central Small Industries Organisation (CSIO), continued to play an important role in planning and co-ordinating the various developmental programmes. One of the most important functions of the CSIO was the operation of the industrial extension service. This service was set up as a direct servicing agency to small scale industries and functioned through the small industries service Institutes and the network of Extension Centres set up all over the country. In response to various measures and assistance provided to small scale industries, there was significant development in small scale industries towards the end of Second Five Year Plan and these industries were in a position to produce wide range of products requiring the high degree of technical skill. The small scale industries have taken up the production of many goods which were being imported previously. The Plan outlay for village and small scale industries was Rs. 187 crore accounting for 4 percent of the total Plan outlay. Out of the total outlay of the village and small scale industries sector, an amount of Rs. 56 crores has been allotted to modem small scale industries. Third Five Year Plan ( ) In the Third Plan, the major objectives of the small industries programmes were a) to improve the productivity of the workers ii) to enlarge the availability of institutional finances and the growth of small industrial units in rural areas and small towns. iii) to reduce progressively the role of subsidies, sales rebates and sheltered markets iv) to organize artisans and craftsman in co- operative lines. During the Third Five Year Plan the outlay of Rs crores was proposed but the actual expenditure incurred was Rs crores, an 58

24 excess of Rs. 1.5 crores and the actual expenditure incurred in annual Plan was Rs crores. During the Third Plan and the annual Plans nearly 1,40,000 small industrial units were registered with the state Industries Directorates and 346 Industrial Estates were completed by the end of March The small industrial units set up in these estates provided employment to 82,700 persons. Their annual production of the small industrial units during was Rs crores. The progress of small industrial units in the Third and Annual Plans has been quite satisfactoly and greater success in urban areas than in rural and semi-urban areas. Fourth Five Year Plan ( ) The main objectives of the Fourth Plan were i) to promote coordinated development of large and small industries a) reserving krther expansion either exclusively or partly for the small scale sector in certain industries. b)developing small industries more vigorously as ancillaries to large industries, and encourage the participant of small industries ii) to promote decentralization and dispersal of industries iii) to foster technical development and managerial skills in the small industries sector and managerial skills in the small industries sector as to achieve higher productivity and better quality, reduction in cost and efficient utilization of available resources and iv) to encourage organization of cooperatives by small entrepreneurs to supply them service and marketing activities. The main thrust of the developmental programmes of the small scale industries sector and managerial skills in the small industries during the Fourth Five Year Plan was utmost utilization of the existing capacity, intensive development of selected industries and promotion of industries in semi-urban, rural and backward areas. During the Fourth Plan, it was proposed to continue the existing reservations to products of small industries to undertake the programe of modernization of machinery and equipment for selected industries, to encourage the production of import substitute items and to formulate schemes for training and financial assistance to technically qualified persons so 59

25 as to enable to set up industries. For the effective implementation of the above programmes, the Plan proposed to strengthen the Small Scale Industries Development Organizations, Small Scale Industries Service Institutes, and the State Industries Directorates and Small Industries Corporations. To achieve the objectives an outlay of Rs crores was proposed, but the actual expenditure incurred was Rs crores with :he gap of Rs crores. Fifth Five Year Plan ( ) The principal objective in the Fifth Plan was the removal of poverty and inequality in the living standards of those depending on traditional industries through creation of large scale opportunities for hller and additional productivity of employment and improvement of their skills so as to improve their level of earnings. The Plan also had proposal to reorient the programme to step up the production of some of the basic and essential articles for masses and also the products which have a larger export potential. The broad strategy of the programmes for the development of small industries was i) to develop and promote entrepreneurship and provide a package of consultancy services, so as to generate, maximum opportunities for employment particularly selfemployment, ii) to facilitate optimum utilization of the skills and equipment of the persons already engaged in different small industries iii) to progressively improve the production techniques of these industries to bring them to a viable level and iv) to promote these industries in selected growth centres in semiurban and rural areas including backward areas. During the Fifth Plan, it was proposed to reorient the development programmes of Small Scale Industries with emphasis on the promotion of ancillaries and provision of marketing services. It was also proposed to boost the Central Small Industries Development Organization including the small Industries Services Institutes and Extension Centres with technical staff and equipment and to set up new institute and centres in selected backward areas. The Central Institute of Design would be expanded and the Regional Testing Centres would be established. The Plan proposed to assist the private 60

26 consultants and consultancy services. The other measures to be undertaken for the development of small scale industries were expansion of activities of the small industries extension training institute and the Appropriate Extension Training Institute and the Appropriate Technology Cell, to increase the equity base and interest subsidy to enable the National Small Industries Corporation for obtaining institutional finance as so to supply a large number of machinery on hire-purchase basis. Provisions have been extended to enlarge the range of assistance and facilities to the small industries, particularly in backward areas. The Plan had also given top priority for the establishment of industrial areas and industrial estates supplying installment credit and a package of consultancy services and marketing assistance. Sixth Five Year Plan ( ) The Sixth Five Year Plan marked a significant stage in the development of small scale industry. The promotion of village and small scale industries was to continue to be an important element in the national development strategy because of its favourable capital output ratio and high employment intensity. During the Sixth Five Year Plan, the programmes for the village and small industries sector were framed with the following objectives. i) Improvement in the levels of production and earnings particularly of the artisans, through measures like upgradation of skills and technology and producer-oriented marketing ii) Creation of additional employment opportunities on a dispersed and decentralized basis (iii) Significant contribution to growth in the manufacturing sector through inter alia, a fuller utilization of existing installed capacities; iv) The establishment of a wider entrepreneurial base by providing appropriate training and package of incentives; v) Creation of a viable structure of the village and small industries sector to progressively reduce the role of subsidies; and vi) To expand efforts in export promotion.