SMALL-SCALE & COTTAGE INDUSTRIES

Kunal Upadhyay

INTRODUCTION

• According to 1949-50 finance-commission

– A small scale industry operated with 10-50 labours– A cottage Industry operated with help of family

members as whole time or part time occupation– Small scale Industries highly located in urban area– Cottage Industries located in rural area – Small scale industries classify into two category

Cont…• Traditional Small Scale Industries– Make use of traditional method of production– Handicrafts with help high-skill workmanship

• Mordent Small Scale Industries– Make use of modern technology like cycle parts,

razor blades

CLASSIFICATION OF SSI

• The industrial policy of 1977 has classified the SSI as– Small-Sector Industries– Ancillary Industries (subsidiary)– Tiny Unit

Cont…• Those units having the investment not more

than Rs.10 lakhs known as SSI• Those units having the investment not more

than Rs.15 lakhs known as Ancillary Industries• Those units having the investment not more

than Rs.1 lakhs known as Tiny unit• After period of time in 1997 the investment

limit for SSI & Ancillary & tiny unit was raised to Rs. 3 crores and Rs.25 lakh respectively.

IMPORTANCE OF SSI IN INDIA

• Employment– The cottage and small scale ind. Based on labour

• More output with less Investment– Labour intensive Ind. – They can adapt changed as per market demand

• Export Earning– Exports product like handicrafts, embroidery,

handloom– 30% export earning based on these industries

Cont…

• Labour Intensive• Low Gestation Period– Starts in low period of time– Based on labour intensive Ind.

• Decentralized economy and more even distribution of Income – Require less capital and provide large number of employment

• Balanced regional Growth– Easily set up in different part of country as the use local raw

material, labour, skill

Cont…

• Saving in Social cost– like infrastructure road, power supply, housing

provision for drinking water, health care, education facilities

• Use of locally available inputs– Like use of land, forest, animal waste.

• Subsidiary industries – Also provide semi finished product to large scale

industries like nut n bolt, carriers for bicycle

Problems of SSI

• Problem of finance• Problem of Availability of Raw Materials• Problem of Marketing• Low-Level Technology• Competition from Large-Scale Industries• Sickness• Lack of infrastructural facilities• Competition from imported Goods and MNCs

Promotional Measures for Small Industries

• Intuitional Arrangement– The National Small Industries Corporation– State Financial Corporation– All India Handlooms and Handicrafts Board– The Khadi and Village Industries Commission

• Financial Assistants– Govt. provide credit for starting of the factory– Machinery, tools, renovation and modernization of

plants

Cont…• Technical support– Small Industries Development provides technical

support & advice to SSI– The Govt. set up two institutes for of design to

help SSI (chemical electrical and metallurgical Industries )

• Marketing Support– The state Govt. the khadi and village industries

commission & all India handloom board have started their retail stores for popularized SSI

Cont…

• Reservation Policy• Establishment of Industries Estates– Under this programme Govt. acquired suitable

pieces of land & developed also provide facilities water, road, electricity, banking and postal service.

• Provision of Raw-Material & Machinery– In order to overcome the problem of raw material

SSI use out of date machinery Govt.

Cont…

• Store-purchase policy of the Govt.– Govt. provide 15% discount on purchase of SSI

products• Fiscal Incentive– Govt. provide tax holiday for undertaking of SSI

• Financial Support during Five-Year Plans– First Plan (1951-56) Rs.42 crores– Second Plan (1956-61) Rs.187 “– Eighth plan (1992-97) Rs.6334 “

Industrial policy 1991 & SSI• Investment limit in plant & machinery– Rs.35lakhs to 60lakhs for SSI– Export oriented units Rs.45lakhs to 70lakhs for

Subsidiary industries• Financial Support– Non active partner & new partner extent capital

investment– Equity participant by non SSI up to 24% share

holding• Marketing policy

Cont..

• The policy ensuring larger production and better quality of products through modernization of units

• Special measures for the development of handloom, handicrafts, khadi and village industries

• The policy provides for training, managers to simplify the rules and procedures

• Single Window Scheme

• Set up by the government of India in April 1990• Principal Development Financial Institution for :

- Promotion - Financing- Development of Industries in the small scale sector and -Co-ordinating the functions of other institutions engaged in similar activities.

Function of SIBDI• For setting up new micro and small enterprises and

for expansion, modernization, diversification• To discount and rediscount bill arising from the sale

of machinery by SSI• To provide beginning capital and soft loan assistance • To provide direct assistance as well as refinance for

SSI• To provide technical, leasing and other services to

the SSI • To provide financial support to SSI for providing

limited raw materials and marketing

Performance & Progress of the Bank

• SIDBI retained its position in the top 30 Development Banks of the World in the latest ranking of The Banker, London.

• As per the May 2001 issue of The Banker, London, SIDBI ranked 25th both in terms of Capital and Assets.

• To initiative steps for technological up- gradation and modernization of existing units

Cont…

• To extend channels for marketing the products of SSI

• To promote employment in sub-urban areas• A single window scheme for enlarged to cover

more units• Refinance facility • The bank has also set up a venture capital to

provide assistance to small entrepreneurs

State Financial Corporation (SFC’s)

• The industrial Development Bank of India & the Industrial Reconstruction Bank of India were established & provide financial support to Industries

Financial Resources of the SFC’s

• Their own share capital• Income from investment and repayment of

loan• Sale of bonds• Loans from the IDBI• Borrowing from the Reserve Bank of India• Deposits from public• Sometimes loans from the State Government

Industries Eligible for Financial Assistance from the SFC’s

• Manufacture, processing of goods• Mining activities• Generation & distribution of electricity• Hotel Industries• Transport of passenger• Packing industries• Fishing• Maintenance, repair, testing and servicing

machinery

Financial Assistance by the SFC’s

• Loans & subscription to debentures of industrial concern repayable within a period not exceeding 20years

• Providing guarantee for loans raised by Industrial units from commercial bank

• Providing guarantee for deferred payments in cases where industrial units have purchased capital goods on a differ payment

Cont…

• To underwrite the issue of shares, bonds and debentures of industrial concerns

• To subscribe to shares, bonds & debentures of industrial units

• Main function of SFC’s to grant loans to Industrial units

Industrial assistance by the SFC’s

Year Rs (in crores)

1980-81 284

1985-86 608

1990-91 1,260.01

1997-98 15,560

National Small Industries Corporation (NSIC)

• NSIC was established in 1955. own and managed by the central Govt. o India

• Head office at Delhi and Regional offices at Bombay, Madras and Calcutta

• NSIC provide assistance to SSI through the provision of finance, making available raw-material and machinery

Nature or Assistance by the NSIC

• Supply of machinery on hire-purchase basis• Securing purchase contracts from Central Govt.

stores purchase agencies• Providing training workers and supervisors at

prototype development centers at okhla, Rajkot• Management of Industrial Estate• Distribution of limited raw materials needed by

SSI• Helping promotion of exports SSI goods

State Industrial Development Corporations (SIDCS)

• Many states Govt. and Union Territories have established sin 1960 SIDCS

• Main aim of SIDCS is to promote industrial development of respective States and Union Territories

Services of SIDCS

• Provide financial assistance like direct investment, loans, guarantees, loan for deferred payments

• State like Karnataka and Bihar the SIDC are empowered to take special activities like managing estates, generation of electricity

• As at the end of June 1980 total financial assistance by the SIDCs was 260 crores