THE ECONOMIC WEEKLY ANNUAL January 1956 Small-Scale Industries and The Second Plan Small, scale industries are Very much a matter of definition. While the Draft Plan-frame made a sharp distinction between factory consumer goods and "household and hand" industries' the latest Memorandum of the Plannning Contmission mentions small enter prises, village and small industries, agriculture and rural industries and cottage and small scale industries, at different, plates, without any attempt at classification. Definitions, however' can he tricky at tinier. There arc so many definitions of small scale industries for various administrative purposes' one under the Factories Act. another for the purpose of levy of excise duty and a third for purposes of grants and loans to Stale (Governments. It is the last one that matters: for assistance, small scale industries are those which come under the purview of the Board which has been set up for them! DESPITE the great importance assigned to.small enterprises in the Draft Memorandum on the second Five-year Flan, there is ;it present considerable eon fusion regarding the role or small-scale industries in the development of the economy during the next five years. The Draft Memorandum refers to 'small enterprises', 'village and small industries', 'agriculture and rural industries' and 'cottage and smallscale industries' at different placer., and is not too particular in distinguishing one from the other. Smaller enterprises will contribute Rs 795 crores to the national pro duct in 1960-61 as compared with Its 600 crores in 1955-56 and Us 525 crores in 1050-51. This represents an increase of 31 per cent during the five year 1956-61. Cottage and small-scale industries will provide new full-time jobs for 4.5 lakh persons, besides ensuring fuller and more remunerative employment to about 40 lakh persons. The outlay on village and small-scale industries in the second Plan will be Rs 200 crores, out of the total outlay of Rs 4800 crores in the public sector, i.e., 4 per cent of the total, as compared with Rs 30 crores or only one per cent of the total outlay during the first. Plan. In the private sector, it is estimated that 'agriculture and rural industries' will require an investment of Rs 200 crores in the monetised sector. The provision for village and small industries is of the same order as the new investment proposed for large-scale consumer goods industries. Village and small-scale industries are required to fulfil the following Objectives: U) The bulk of the increased production of consumer goods in common demand during the plan period has to to be provided by village and small-scale industries; (ii) Employment provided by these industries should progressively increase and (iii) Production and marketing in these industries should be organised mainly on co-operative lines, The theoretical and practical arguments for emphasising small-scale industries vis-a-vis' large-scale ones a.re well-known. The following extract from the Pratt Memorandum summarises all the main arguments for small-scale industries: "The emphasis on village and small industries is necessary in view of the emphasis on basic capital goods industries. Basic capital goods industries require a large amount of capital and generate comparatively little employment. It becomes necessary, therefore, to balance the emphasis on basic industries by an emphasis on capitalsaving and employment-giving methods of production in the manufacture of consumer goods. From this point of view, it is essential that, as far as possible, the additional demand for consumer goods in; met by increasing the technical efficiency and the productive capacity of village and small industries which have greater employment potential and which make a. comparatively modest claim on scarce capital resources. The Decentralised Sector "The need for revitalising the small-scale and village sector of industry is all the more in view of the large number of persons dependent on this sector and the extremely low levels of living it affords at present. The prosperity of rural India depends upon the extent to which a vigorous, decentralised industrial sector can be built up. Needless to soy. the emphasis on village and small industries must be read in the context of the overriding need for increasing exports and for producing the necessary amount of consumer goods as quick ly as required. Any measures to revitalise village and small industries should not make too great a claim on the all-too-scarce resources 133 of the public sector and they should not lead to a permanent or excessive transfer of incomes from one sector to the other. Within this framework of general considerations, there is considerable scope for initiating a process of higher production and productivity in the small-scale and village industries sector." The following table, which shows the distribution of development expenditure under various heads, also indicates broadly the scope of 'village and small-scale industries': All-India Boards There are at present six All-India Boards which are responsible for the development of these industries. These are: (i) The All-India Handloom Board; (ii) The All-India Khadi & Village Industries Board: (iii) The Small-scale Industries Board: (iv) The Ail-India Handicrafts Board; iv) The Central silk Board; and (vi) The Coir Board. Those numbered (i), (iii) and (vi) are under the Ministry of Commerce &. Industry, and Hi), (iv) and ( v) are under the Ministry 'of Production. The last two (v) and (vi) are statutory boards.
January 1956 THE ECONOMIC WEEKLY ANNUAL The rest of this article will be concerned with small-scale industries' falling under the purview of the 'Small-scale Industries Board' which is a Board consisting mainly of officials of the Central and State 'Governments and presided over by the Secretary of the Ministry of Commerce & Industry. There are two reasons for confining this article to small -scale industries. Firstly, it will he seen from the table given earlier that the largest increase in allocation during the second Plan (as compared with the estimated development expenditure during the first Plan) has been provided for 'small-scale industries'. Secondly, very little is known about this group of industries and the programmes of development of the Small-scale Industries Board. Indeed, only a page and quarter of the Karve Committee Report is devoted to this group, as' against 11 pages to hand looms, 16 to khadi &. village industries, one to handicrafts, one to sericulture and one to coir. Definition of smali-scale Industries What are the industries which fall under the purview of the Small-scale Industries Board and how is the scope of its work defined? The definition adopted by the Ministry of Commerce & Industry for purposes of grants and loans to State Governments includes all manufacturing units which have a capital investment of less than Rs 5 lakhs and employ leas than 50 persons when using power and less than 100 persons when not using power. This definition represents a negative approach to the problem of small-scale industries, inasmuch as ii takes over units which have been excluded from the scope of the Industries 'Development & Regulation) Act. -No lower limit has been set in defining a small-scale industry. Thus, small-scale industries include units registered under the Indian Factories Act (i.e. those employing 10 or more persons when using power and 20 or more person? when not using power), units not so registered, cottage establishments, household units, etc. The working definition of smallscale industry at present adopted by the Government might well lead to absurd results. For example, a manufacturing unit having an investment of Rs 4,99,999 and employing 49 persons with power represents an in vestment per worker of Rs 10,204, which is highly capital-intensive. In practice, the small entrepreneurs are confronted with so many definitions of small-scale industries; for various administrative purposes that they do not fully com-, prehend Governments policy and programmes and are unable to take advantage of Governmental assistance. The definition adopted under the Factories Act has already been given above. A slightly different definition is adopted for the purpose of collecting data for the Census of Manufactures. The latter includes all units employing 20 or more persons, whether using power or not. The definitions adopted for the purpose of levy of excise duty make the confusion worse confounded. Two examples may be cited here. In the case of leather footwear, manufacturing units employing 2 IIP or less power are exempt from the levy. On the other hand., in the case of automobile batteries, manufacturing units employing five workers or less are exempt from the exelse duty. Delimitation of Area While it is no doubt important to have a flexible definition of smallscale industries, the definition should 134
THE ECONOMIC WEEKLY ANNUAL January 1956 not be such that (i) It encourages the development of capital-intensive industries and discourages labour- Intensive methods of development and fill it creates overlapping of functions which are already being performed by other Boards. As regards/the first, unless the capital limit is lowered or the labour limit rained, there will be a tendency for most of the Governmental assistance to be channelled to capital-intensive rather than labour-intensive units. Further, there are some small-scale industries which would come under the 'capital' definition, but not the 'labour' definition merely because they employ more than 49 workers with power or more than 99 workers without power, e.g, units manufacturing glassware by pressing and blowing, carpentry and wood working units, etc. The excise definition for the automobile batteries industry might well result in displacement or skilled workers by machines, e.g., in grid casting or paste mixing to avail of the tax exemption. As regards overlapping of functions among the various Boards, the following are some of the common industries being tackled by the Small-scale Industries Board as well as the All-India Khadi & Village Industries Hoard: leather footwear, matches, wood-work, soap, etc. Similarly, there is scope for duplication of effort with the All-India Handicrafts Board, e.g. in leather goods, furniture, pottery, toys, brass & copperwear. Broad Divisions Despite this irrational and illogical definition, there is a large variety of industries which at present comes under the scope of 'small-scale industries'. These industries may be broadly divided into: (i) manufacturing industries, (ii) feeder industries, and (ill) servicing industries. In the North, there are foundry units casting parts of agricultural implements and sewing machines; engineering shops making bicyle parts, sewing machine parts, hardware, cutlery, locks, hand tools, mathematical and drawing instruments, machine tools and small machines etc.; and small units manufacturing furniture, sports goods, soap, scientific glass apparatus, toys, hollowwares, leather, fountain pen and ink, etc. In Western India, there are engineering shops manufacturing textile machinery parts, automobile parts, railway spare parts, oil engines, small machines, machine tools, agricultural implements, steel furniture, centrifugal pumps etc; automobile batteries, electric fans, other electrical accessories; surgical instruments, metal buttons, glassware, leather, products, rubber products etc. In the Southern region, the main smallscale industries are matches, leather products, locks and builder's hardware, rubber products, furniture, hollowwares, electrical accessories, agricultural implements, glass beads and other glassware, cycle parts etc. In and around Calcutta, there are several small-scale engineering industries, e.g., sheet metal processing, machine parts, machine tools, mathematical instruments, bicycle parts, sewing machine parts, cutlery etc; automobile batteries, electric fans, electric lamps and electrical accessories; brass, copper and metal utensils, glassware, leather footwear, builder's hardware, agricultural implements, surgical instruments, small tools and hand tools etc. Manufacturing industries are those small-scale units which undertake a complete process of production resulting in the manufacture of an article or a complete component, e.g., locks, cutlery, bicycle parts, hardware, sewing machines, agricultural implements, machine and machine tools, sports goods etc. Feeder industries comprise those small shops which undertake foundry work, forging, tool and gauge making, electroplating, galvanising, welding, parts of machinery etc. Servicing industries are small repair shops, e.g., for automobile repairs, tractor repairs, machinery repairs etc. Organisation for Small-scale Industries The Government of India set up an organisation for the development of small-scale industries towards the end of 1954 and the beginning of 1955, following the recommendations of the international team of experts which visited India during 1953-54 on behalf of the Ford Foundation. It was announced by the Government of India at that time that the following recommendations of the Team would be implemented: 135 (i) establishment of four Regional Institutes of Technology for small-scale industries. These institutes will act as service agencies' and assist small-scale industries in improving their techniques of production and management, in obtaining credit and finance, in securing proper raw materials etc; (ii) establishment of a Marketing Service Corporation which would later integrate its activities with those of the Institutes; and (iii) establishment of a Small Industries Corporation to organise production for meeting Government orders. The Government of India appointed a Development Commissioner for Small-scale Industries in November 1954 to be In charge of the organisations for small-scale industries. At the same time, a Small-scale Industries Board, consisting of representatives of the Central and State Governments, was set up to co-ordinate: the activities of the various organisations and to frame and implement programmes for the development of small-scale industries in the country. Apart from the Board and the Office of the Development Commissioner, the principal organisations for the development of small-scale industries are: (1) Small Industries Service Institutes at Delhi, Bombay, Madras and Calcutta; (2) National Small Industries Corporation at Delhi, and (3.) Directorate of Industries in each State. The Government of India decided subsequently that instead of setting up a separate Marketing Service Corporation, there should be marketing divisions in each of the Institutes and in the National Small Industries Corporation. Functions and Programmes of Work Schemes for the development of small-scale industries and for assistance to them fall under the following categories: (a) Loans to small industries (for working capital, hire-purchase of machines etc ; (b) Organisation into Co-operatives, which would provide for procurement of raw materials, establishment of common processing workshops, and for marketing; (c) Organisation of industrial cooperatives; (d) Departmental organisations, for procurement of raw materials, processing and marketing, to be handed over later to co-operatives ; (e) Direct State enterprises for manufacturing items on' a small-scale basis; (f) Industrial Estates;
January 1956 THE ECONOMIC WEEKLY ANNUAL (g) 'Service' schemes for (i) training (ii) training-cum-production (iii) research (iv) quality-marking (v) surveys; and (h) Strengthening of industries staff in State Governments. According to the report of the Karve Committee, there are several schemes for the development of particular industries, of which the more prominent are carpentry, blacksmithy, cycle parts, cutlery & locks, tanning and leather, sports goods, woollen industry, surgical instruments, umbrella parts and pottery and ceramics. Regional Service Institutes The functions of the four regional Small Industries Service Institutes are to render expert advice to small units for the improvement of production techniques, marketing techniques, management techniques etc and to assist them in obtaining machinery, credit, raw materials etc. Each Institute is organised in the following ten divisions: (i) Business Management; (ii) Mechanical Engineering; (iii) Metallurgical; (iv) Ceramics; (V) Chemicals; (vi) Leather; (vii) Electrical; (viii) Training and Research Co-ordination; (ix ) Community Projects; and (x) Economics. The nature of services rendered by each Institute may be broadly divided into Commercial Services and Technical Services as follows; I Commercial Services i) Financial guidance, e.g., for securing working capital loans from State Governments and other financial agencies and long-term loans from finance corporations, the State Bank of India etc; ii) Machine lending on hire purchase system; iii) Market study and Marketing securing Government orders, advice on markets and improvement of marketing techniques; iv) Accounting and cost accounting methods; v) Information (both commercial and technical); vi) Organising associations of small industries; vii) Business management; viii) Supply of raw materials; and ix) Sample show-room. II Technical Services i) Survey and investigation of technical problems; ii) Preparation of industrial schemes; iii) Modernisation of existing schemes; iv) Advice on existing machinery, tools etc. and selection of new machinery, tools etc; v) Advice on methods and techniques of production; vi) Advice on problems of raw materials of correct specifications; 13ft vii) Preparation and supply of designs and drawings; viii) Dissemination of technical know-how by the establishment of model and mobile workshops; ix) Training; and x) Library. National Small Industries Corporation The National Small Industries Corporation was registered as a private limited Company in February 1955, with an authorised capital of Rs 10 lakhs, owned entirely by
THE ECONOMIC WEEKLY ANNUAL the Government of India, The primary objects of the Corporation are; (a) to accept contracts for Govvernment orders and sub-contract them to suitable smallscale industrial units; (b) 'to provide small-scale industrial units, to which such orders are sub-contracted, with such loans and other technical assistance as are considered necessary for the purpose of fulfilling orders and manufacturing articles of the type and the standard required; and (c) to effect co-ordination between large-scale and smallscale industries by similar methods in order to enable smallscale industries to manufacture ancillaries and other articles required by large-scale industrial units. Problems of Small-scale Units The Central Government's organisation for development, of.smallscale industries has been functioning now for a year. The functions and programmes of work of the various organisations laid down by Government are impressive. An appraisal of their impact on the small producer from his point of view can be made from the experience of the past year, though the period of one year is too short for any marked effects to be noticed, Self-Employment A Myth Although the census authorities would have us believe that the small entrepreneur Is an independent 'selfemployed' person, in actual fact most of the small-scale producers are in the clutches of middlemen financiers. The small producers are 'self-employed' in the sense that they are not directly employed by a proprietor of a company on timewages. However, most of them are either (i) employed by contractors on piece wages, the contractors in turn having a job contract with a 'financier' or 'trader', or 'supplier' or 'factor' or 'middleman' as he is variably called, who provides raw materials, working space etc; or (ii) do job work directly for a 'trader' or a 'contractor'; or (iii) manufacture and sell from day to day, leading a hand-to-mouth existence depending on the middleman for working capital or raw materials, or selling the product at throw-away prices, The acute shortage of working capital and the resulting lack of holding power, the absence of arrangements for supply of proper materials at reasonable prices, a period of three years. the absence of arrangements for joint marketing etc. force the small skilled artisans' and entrepreneurs to depend on the 'commercial' 'middleman', 'financier-cum-trader' community. The most pressing problems of the small producers, therefore, are those of finance, supply of raw materials and arrangements for marketing, and the formation of larger organisations (e.g. co-operratives) for this purpose. How are these problems being tackled? Are any direct contacts being established with the small manufacturer and is his dependence on the middleman being reduced? The very definition of small-scale industry, adopted by the Government, and the difficulties usually encountered in contacting Government organisations and getting anything done through them, make it more likely for the middlemen themselves to pose as small manufacturers and take advantage of Government assistance, leaving the small ekilled artisan and entrepreneur where they were. In the absence of further information on the activities of.central and State organisations, it is difficult to say whether this is actually the case. Short and Long Term Loans Particulars of loans made to small-scale industries by State Governments under the State Aid to Industries Act, if available, would make an interesting study in this connection. The requirement under the existing rules of furnishing two sureties in the case of small loans and considerable security in the case of larger loans would naturally tend to favour the financier-cum-trader rather than the small producer. The recent decision of the Small-scale Industries Board to request the State Governments to liberalise the rules and (i) to allow loans being granted to bona fide small manufacturers up to an amount of Rs 1000 on a personal bond, (ii) to allow loans up to Ra 5000 on the security of one or more personal sureties and (iii) to allow local industries officers to sanction loans up to Rs 2000 at their own discretion, are steps in the right direction. The Central Government sanctions long-term loans through State Governments, up to 75 per cent of the share capital and 75 per cent of the working capital for starting industrial co-operatives. It also gives as grant 50 per cent of the recuring expenditure on supervisory staff for 137 January 1956 To other small entrepreneurs and other types of co-operatives, the Central Government is now prepared to extend loans up to 50 per cent of the capital required (fixed and working), provided the State Government extends loans for 25 per cent., and the party requiring the loan contributes the remaining 25 per cent. The principle is that loans should be advanced to the actual parties up to at least 75 per cent of the value of the security offered, whether in the form of lands, buildings, plants, machinery, stocks or other assets created out of the. loan. Loans would be given to individual small units at an interest of 3 per cent and to co-operatives at 2½ per cent. The amounts sanctioned for loans to small units, however, have not, been fully utilised, on account of the cumbersome rules and complicated procedure for sanction of the loans. Machinery on Hire-purchase Another form of financial assistance to small units is the supply of machinery on hire-purchase. Applications had been invited a few months ago by the Regional Small Industries Service Institutes for supply of machinery. It is understood that applications far about Rs 10 lakh worth of machinery were recommended by the Small Industries Service Institutes. However, recently the National Small Industries Corporation, which will actually execute the agreement and supply the machines, decided that the Director of Industries of the State where the factory is situated should also recommend the application, Small units are to pay outright. 20 to 40 per cent of the cost of the machines, depending on the nature of the machine; and the balance would be realised in suitable instalments spread over a period of five years or 50 per cent of the estimated life of the machine, whichever is earlier. A rate of interest of 5 per cent from industrial Corporations and 6 per cent from other small units would be charged on the block capital. It should be noted that the rate of interest charged on 'machinery' loans is double that, charged on 'money' loans. Supply of Standard Materials Another scheme for assistance to small-scale industries, viz. ; supply of raw materials, 'also seems to have foundered. Small engineering.shops experience considerable difficulty in
January 1956 THE ECONOMIC WEEKLY ANNUAL obtaining standard steel of the required size and specifications and have to pay at the 'third column' rate and even at the black market rate for the types of steel required by them. It was proposed that the National Small Industries Corporation should open depots at various important centres, stock indigenous and imported steel and supply small quantities to these units. Later, it was suggested that the regional Small Industries Service Institute should take up this work. It is now whispered that the scheme may not be put through at all on account of the shortage of steel in the country! Small units experience difficulties in respect of many other types of raw materials besides steel, e.g., wood, leather, brass, imported materials etc.; and this is one sphere where the middlemen are able to 'exploit' them. Governmental initiative for the supply of raw materials in small quantities on credit would have gone a long way in improving the holding power of small units. In the sphere of marketing, it appears that Government has now moved away from the original idea of organising a chain of retail stores. Government does not apparently want to disturb the private sector from the retail trade. The assistance at present envisaged is for obtaining Government and semi- Government contracts for products of small-scale producers through the National Small Industries Corporation, Much can be done even in this field. The rules and regulations and procedures for inviting tenders and giving contracts should be considerably modified so that small units are enabled to obtain a substantial share of Government purchases. For example, it would be almost impossible for most small units to pay advance deposits when tenders are invited. Finally, there is a scheme for the construction of industrial estates, for which a provision of Rs 10 crores has been made in the second Fiveyear Plan. Factory space would be provided on a rental basis in these estates, which will also have electric power, water supply, access to transportation, workers' housing etc. Better factory space would make possible a more orderly arrangement of work, clean and better quality work, safer and more healthful conditions for the workers, less wear on machines and thus improve productivity and lower cost. Apart from negative policies, e.g., reservation of spheres of production, non-expansion of capacity of largescale industry, imposition of cess or excise on products of large-scale industry etc., the Government would have to carry through a programme of positive assistance to improve production techniques, marketing techniques, management techniques etc. in existing small-scale industries and provide facilities for the development of a network of smallscale industries throughout the country. The problems are well known, and even with the available resources, much can be done, provided there is initiative on the part of Government agencies and oganisations. The departments at the Centre and the States concerned with smallscale industries are being strengthened for this purpose. But the whole Government machinery and not merely the departments concerned with small-scale industries has to be geared to the job. For example, the Transport and Railway Ministries have to help in solving the transport, bottlenecks for 'smalls' traffic. The Power Department has to help in taking electricity to the villages. The Ministries of Commerce & Industry, Production, and Iron & Steel have to assist in making available reasonable quotas of scarce raw materials for small units. The Works, Housing & Supply Ministry has to assist by making large Government purchases from small units. This is a colossal task. And yet, if this task is not undertaken right now and properly executed, how can small-scale industries augment the supply of consumer goods during the period of the second Plan? 138