Notes Of Shailesh GururaniIntroduction

There is a growing recognition worldwide that small and medium enterprises (SMEs) have an important role to play in the present context given their greater resource-use efficiency, capacity for employment generation, technological innovation, promoting inter-sectoral linkages, raising exports and developing entrepreneurial skills. Their locational flexibility is an important advantage in reducing regional imbalances. The future of SMEs is of major policy concern given their strategic importance in any discussion of reshaping the industrial sector. This is more so in the case of India, which has one of the longest histories of government support to the small-scale industrial sector since independence compared to most developing countries.

Definitions of Micro, Small & Medium Enterprises

In accordance with the provision of Micro, Small & Medium Enterprises Development (MSMED) Act, 2006 the Micro, Small and Medium Enterprises (MSME) are classified in two Classes:  (a) Manufacturing Enterprises- The enterprises engaged in the manufacture or production of goods pertaining to any industry specified in the first schedule to the industries (Development and regulation) Act, 1951). The Manufacturing Enterprise are defined in terms of investment in Plant & Machinery.

(b) Service Enterprises:  The enterprises engaged in providing or rendering of services and are defined in terms of investment in equipment.

            The limit for investment in plant and machinery / equipment for manufacturing / service enterprises, as notified, vide S.O. 1642(E) dtd.29-09-2006 are as under:

Manufacturing Sector

    Enterprises

 Investment in plant & machinery

    Micro Enterprises

 Does not exceed twenty five lakh rupees

    Small Enterprises

 More than twenty five lakh rupees but does not exceed five crore rupees

    Medium Enterprises

 More than five crore rupees but does not exceed ten  crore rupees

Service Sector

    Enterprises

 Investment in equipments

    Micro Enterprises

 Does not exceed ten lakh rupees:

    Small Enterprises

 More than  ten lakh rupees but does not exceed two crore rupees

    Medium Enterprises

 More than two crore rupees but does not exceed five core rupees

Definition

In the Indian context, we have not so far defined medium enterprises clearly. What is neither small nor large is being loosely defined as medium. Further, enterprise encompasses businesses, services and industries. In the broadband of ' small', the discussion extends to medium as well. Another possible connotation for the SMEs is the small manufacturing enterprises.

Small and medium enterprises, both in size and shape, are not uniform across the globe. This asymmetry comes in the way of any effort of their integration. The way they are defined depends on the stage of economic development and the broad policy purposes for which the definition is used. According to a World Bank study, there are said to be more than 60 definitions of small and medium industries used in 75 countries surveyed (cited in Kim Seung Jin and Suh Jang-Won, 1992, 9). The most commonly used definitions relate to either size of employment and/or quantum of capital investment /fixed assets. As the process of economic development leads to changes in industrial sector shares in GDP and the contribution of sub-sectors within industry, the definition is extended to include not only manufacturing industries but all enterprises which fall within or below the defined cut-off point. In the ASEAN countries in general, the definition is restricted to SMIs in the manufacturing sector only, whereas in the OECD group, the definition is broadened to include all Small and Medium Enterprises.

In India, small-scale industries (SSIs) were given due importance in the process of industrialization as far back as 1951 when post-independence economic planning was initiated. The Industries Development and Regulation Act legislated by the Centre in that year, became the framework for the small-scale industrial sector's development. The Act determined licensing policies for the sector and the reservation of products, among several other important provisions. The definition of small-scale industries is mainly in terms of investment ceilings which have changed over the years

to keep pace with economic development. Though employment and turnover are also used to define small industries, as these indicators are implicit in the requirement for registration under the Factories Act, the core definition of SSIs in India remains based on investment limits - "historical costs of plant and machinery."

Therefore, the contribution of SME sector to the GDP in different countries is not on comparable parameters. Still, in both developed and developing economies, they were accorded special status, specific dispensations and particular attention. Although the broad canvas of "enterprise" suggests that we look at the contribution of both industry and trade, more particularly exports, in the growth of GDP, lack of separate data on SME's contribution in the developed economies like the US, Canada, Japan and Germany restricted the scope of this paper to having a look at some policy interventions in ASEAN and OECD economies.

The Ministry of Micro, Small and Medium Enterprises is the nodal Ministry for formulation of policies, programmes and schemes, their implementation and related co-ordination, for the promotion and development of small scale industries in India. The role of the Ministry is to assist the States in their efforts for the growth of the small scale sector, by enhancing their competitiveness in an increasingly liberalised economy. It is assisted by an attached office and two public sector enterprise, namely:-

Micro, Small and Medium Enterprises Development Organisation (MSME-DO) :- the Office of the Development Commissioner (Micro, Small and Medium Enterprises) [earlier known as the O/o the DC (SSI)] is also known as Micro, Small and Medium Enterprises-Development Organisation (MSME-DO). It is the apex body for assisting the Government in formulating, coordinating, implementing and monitoring policies and programmes for micro, small and medium

enterprises (MSMEs) in the country. MSME-DO provides a comprehensive range of common facilities, technology support services, marketing assistance, entrepreneurial development support, etc.

National Small Industries Corporation Ltd (NSIC) :- was established by the Government with a view to promoting, aiding and fostering the growth of micro, small and medium enterprises in the country, with a focus on commercial aspect of their operations. It implements several schemes to help the MSMEs in the areas of raw material procurement, product marketing, credit rating, acquisition of technologies, adoption of improved management practices, etc.

Khadi and Village Industries Commission (KVIC) :- established under the Khadi and Village Industries Commission Act, 1956, as a statutory organisation engaged in promotion and development of khadi and village industries for providing employment opportunities in the rural areas.

Coir Board :- is a statutory body, established under the Coir Industry Act, 1953, for the promotion and development of coir industry in India as well as for uplifting the living conditions of the workers engaged in this industry.

Also, a National Commission on Enterprises in the Unorganised Sector (NCEUS) has been set up for addressing the wide range of issues affecting the productive potential of the unorganised micro and small productive units.

Besides, there are three national level 'Entrepreneurship Development Institutes (EDIs)' for the development of training modules, undertaking research and providing consultancy services for entrepreneurship development in the small scale sector. These include:-

National Institute of Small Industry Extension Training (NISIET) renamed as the National Institute for Micro, small and Medium Enterprises (NIMSME) at Hyderabad

National Institute of Entrepreneurship and Small Business Development (NIESBUD) at Noida

Indian Institute of Entrepreneurship (IIE) at Guwahati.

The “Micro, Small and Medium Enterprises Development (MSMED) Act, 2006” is the first single comprehensive legislation in India, covering micro, small and medium enterprises. Under the Act, the terms "medium sector" and "micro enterprises" have been defined for the first time.Also, the concept of ‘Industries’ has been widened to that of ‘Enterprises’. Enterprises have been classified broadly into two categories, namely, enterprises engaged in the manufacture/production of goods pertaining to any industry; and enterprises engaged in providing/rendering of services. The term "enterprise" has been defined in terms of investment in plant and machinery/ equipment (excluding land & building). Accordingly, the definition of micro, small and medium enterprise is:-

 Investment in plant and machinery/

equipment (excluding land and building)

 Manufacturing Enterprises

Service Enterprises

Micro Up to Rs. 25 lakh Up to Rs. 10 lakh

SmallMore than Rs. 25 lakh and up to Rs. 5 crore

More than Rs. 10 lakh and up to Rs 2 crore

MediumMore than Rs. 5 crore and up to Rs. 10 crore

More than Rs. 2 crore and up to Rs. 5 crore

In order to protect, support and promote small enterprises as also to help them become self-supporting, a number of protective and promotional policy measures have been undertaken by the Government. The promotional measures cover:- (i) industrial extension services; (ii) institutional support in respect of credit facilities; (iii) provision of training facilities; (iv) supply of machinery on hire-purchase terms; (v) assistance for domestic

marketing as well as exports; (vi) technical consultancy and financial assistance for technological upgradation; etc.

The Reservation Policy is the most important policy of the Government for the sector. It has the twin objectives of ensuring increased production of consumer goods in the small scale sector; and expanding employment opportunities through setting up of small scale industries. Reservation of items for exclusive manufacture in SSI sector is statutorily provided for in the Industries (Development and Regulation) Act, 1951. The overwhelming consideration for reservation of an item is its suitability and feasibility for being made in the small scale sector without compromising the quality aspect. But, with a view to providing to the sector, opportunities for technological upgradation, promotion of exports and economies of scale, items so reserved have been dereserved from time to time. The issue of reservation/de-reservation of product is examined on a continual basis by an Advisory Committee on Reservation constituted under the Act. During the year 2006-07, 180 items reserved for manufacture in small scale industries have been dereserved. As on 13th March, 2007, 125 items were dereserved and as on 8th February, 2008, 79 more were dereserved. At present, the total number of items reserved for exclusive manufacture in the micro and small scale sector are 35.

Recognising the role of credit for the small scale sector, a focused credit policy has been in place since the early days. Priority sector lending is its most important component. Under it, banks are compulsorily required to ensure that defined percentage of their overall lending is made to the priority sectors, which includes small industries. As a part of the institutional arrangement, Small Industries Development Bank of India ( SIDBI ) has been set up as the apex refinance bank. Term loans are provided by State Financial Corporations (SFCs) and Scheduled Banks.

The other important policies for the sector relate to:- (i) excise duty; (ii) foreign direct investment approval;and labour laws.

Besides, several schemes and programmes have been undertaken by the Government with the aim of facilitating access

to:- (i) adequate credit from financial institutions; (ii) funds for technology upgradation and modernisation; (iii) integrated infrastructural facilities; (iv) modern testing facilities and quality certification laboratories; (v) modern management practices, entrepreneurship development and skill upgradation through appropriate training facilities; etc. The schemes so announced include:-

Tax Holiday Scheme Composite Loan Scheme Industrial Estate Scheme Scheme for International Cooperation Scheme of Surveys, Studies and Policy Research Scheme of Fund for Regeneration of Traditional Industries

(SFURTI) Scheme of Product Development, Design Intervention and

Packaging (PRODIP) Scheme of Khadi Karigar Janashree Bima Yojana for Khadi

Artisans Scheme of Interest Subsidy Eligibility Certification (ISEC)

Small Industry Development Organisation also operates a number of schemes for the sector:-

Credit Linked Capital Subsidy Scheme for Technology Upgradation

Credit Guarantee Fund Scheme for Small Industries ISO 9000/ISO 14001 Certification Reimbursement Scheme Scheme for reimbursement of fees to adopt barcoding Integrated Infrastructure Development (IID Scheme) Scheme for setting up of Mini Tool Rooms Scheme for setting up of testing centres Scheme for Market Development Assistance (MDA) for SSI

exporters Assistance for Strengthening of Training Infrastructure of

existing and new Entrepreneurship Development Institutions Scheme of Micro Finance Programme

National Small Industries Corporation Ltd (NSIC) schemes for small scale industries relate to:-

Bill Financing Working Capital Finance Export Development Finance Equipment Leasing Scheme Raw Materials Procurement Support Marketing Assistance Programme and Exports Assistance; Stores Purchase Programme Single Point Registration Scheme and other services.

Problems of SSIs

Small-scale industries in India could not progress satisfactorily due to various problems that they are confronted with while running enterprises. In spite of having huge potentialities, the major problems, small industries face are given below.

1. Problem of skilled manpower:

The success of a small enterprise revolves around the entrepreneur and its employees, provided the employees are skilled and efficient. Because inefficient human factor and unskilled manpower create innumerable problems for the survival of small industries. Non-availability of adequate skilled manpower in the rural sector poses problem to small-scale industries.

2. Inadequate credit assistance:

Adequate and timely supply of credit facilities is an important problem faced by small-scale industries. This is partly due to scarcity of capital and partly due to weak creditworthiness of the small units in the country.

3. Irregular supply of raw material:

Small units face severe problems in procuring the raw materials whether they use locally available raw materials or imported raw materials. The problems arise due to faulty and irregular supply of raw materials. Non-availability of sufficient quantity of raw materials, sometimes poor quality of raw materials, increased cost of raw materials, foreign exchange crisis and above all lack of knowledge of

entrepreneurs regarding government policy are other few hindrances for small-scale sector.

4. Absence of organised marketing:

Another important problem faced by small-scale units is the absence of organised marketing system. In the absence of organised marketing, their products compare unfavourably with the quality of the product of large- scale units. They also fail to get adequate information about consumer's choice, taste and preferences of the type of product. The above problems do not allow them to stay in the market.

5. Lack of machinery and equipment:

Small-scale units are striving hard to employ modern machineries and equipment in their process of production in order to compete with large industries. Most of the small units employ outdated and traditional technology and equipment. Lack of appropriate technology and equipment create a major stumbling block for the growth of small-scale industries.

6. Absence of adequate infrastructure:

Indian economy is characterized by inadequate infrastructure which is a major problems for small units to grow. Most of the small units and industrial estates found in towns and cities are having one or more problems like lack of of power supply, water and drainage problem, poor roads, raw materials and marketing problem.

Thus absence of adequate infrastructure adversely affect the quality, quantity and production schedule of the enterprises which ultimately results in under-utilization of capacity.

7. Competition from large-scale units and imported articles:

Small-scale units find it very difficult to compete with the product of large-scale units and imported articles which are comparatively very cheap and of better quality than small units product.

8. Other problems:

Besides the above problems, small-scale units have been of constrained by a number of other problems also. They include poor project planning, managerial

inadequacies, old and orthodox designs, high degree of obsolescence and huge number of bogus concerns. Due to all these problems the development of small-scale industries could not reach a prestigious stage.

Sickness in SSIs

Sickness in the industrial units is not a new phenomenon as is evident in the developing countries. Even in the industrially advanced countries of the world, varying degrees of sickness are found to occur. An industrial unit may face a number of odds during its implementation and operation stage because of a number of factors in the environment – internal and external. If the problems perpetuate & does not permit the unit to pursue the normal course of operations leading to reasonable utilization of capacity, generation of surplus, debt servicing, etc, it can be presumed that some kind of sickness has engulfed the unit and if this trend grows unchecked, it would adversely affect production and employment in the country besides other socio-economic repercussions. However, it is also recognised that in a market economy, the survival of the fittest and weeding out of inefficient industrial units is a natural outcome which is considered useful as well. Because the exit of the non-competitive and loss-incurring units should not pose difficulty to any society. But sickness assuming an epidemic shape creates concerns to the policy makers and stakeholders. Experience suggests that small scale industries are more prone to sickness as compared to medium and large scale industries. In this context, sickness in small industry should not be left only to the market forces. Creation of objective conditions and enabling environment through suitable policy support are essential for sustained growth of the small industry sector in the developing economies. It is, therefore, imperative to diagnose the causes of sickness so that preventive measures are suggested. Even if a small unit turns sick despite taking all possible precautionary measures, efforts should be

made to find out the possibility of its revival. This warrants appropriate package of restructuring and rehabilitation strategies. If the unit’s survival is still under threat, it should be better

allowed to die a natural death. Though the Small Scale industries in India have been growing constantly over the years there has been a gradual increase in the incidence of sickness in Small Scale Industries.

The definition of sick industries has been undergoing changes. The Reserve Bank of India (RBI) was instrumental in appointing commities from time to time to look into the issues of sickness affecting the sector. The latest definition of sickness given by the working group on rehabilitation of sick units set up by the RBI ( Kohli comittee) is given below:-

“ A small scale industrial is considered sick when

(a) If any of the borrowal accounts of the unit remains substandard for more than six months, i.e., the principal or interest, in respect of any of its borrowal accounts has remained overdue for a period of exceding one year will remain unchanged even if the present period for classification of an account as an substandard is reduced in due course; OR

(b) There is erosion in the net worth due to accumulated losses to the extent of 50 percent of its net worth during the previous accounting year, and

(c) The unit has been in commercial production for atleast two years.”

Institutional Support. Government has recognized the important role of entrepreneurs in the industrial development of the country, especially through the small scale industries (SSIs). SSIs are essential for Indian economy in terms of employment generation, foreign exchange earnings, its share in industrial

output, and contribution to national income. The government of India and state governments provides a number ofspecial facilities and incentives. The incentives not only motivate entrepreneurs to set up industries in the small scale sector, but also strengthen the entrepreneurial base in the economy. The new entrepreneurs face a number of problems on account of inadequate infrastructure facilities and other support services. The government offers a package of services through its specialized institutions and motivates entrepreneurs to take advantage of the various facilities and establish enterprises and flourish. This package includes assistance in obtaining finance, help in marketing, technical guidance, training, and technology up gradation etc. It is hoped that institutional incentives would play a key role in the promotion of small enterprises and ensure their self-sustained growth.

In order to facilitate the growth of small scale sector, the central and stategovernments have created an elaborate institutional framework in the country. The institutions providing assistance to small scale industries are broadly classified as “ All India Institutions “, “ State Level Institutions” and “Fund-Based Institutions”.

1. All India Institutions

(i). Small scale industries Board. SSI Board is the apex non-statutory advisory body constituted by the Government of India to render advice on all issues pertaining to the SSI sector. It provides a forum to its members for interaction to facilitate co-operation and inter-institutional linkages and to render advice to the Government on various policy matters, for the development of the sector.The Board was first constituted in 1954. Its term is for two years. The Board waslast constituted on 18th January 2003, with 101 members and held its 48th meeting on 17 January, 2004.

(II). Ministry of Small Scale Industries. The process of liberalization and market reforms has created wide-ranging opportunities of the development of small scale industries. At the same time, changing world scenario has thrown up new challenges to the very existence of this sector. The need of the hour is to suitably strengthen the sector so that it could adapt itself to the changed environment and face the challenges boldly and effectively.

The implementation of policies and various programmes/schemes for providing infrastructure and support services to small enterprises is undertaken through itsattached office, namely the Small Industries Development Organization (SIDO),statutory bodies/other organizations like Khadi and Village IndustriesCommission (KVIC) & Coir Board, National Small Industries Corporation(NSIC) and three training institutes- National Institute of Small IndustryExtension Training (NISIET), Hyderabad, Indian Institute for Entrepreneurship(IIE), National Institute for Entrepreneurship and Small Business Development(NIESBUD)

(iii).Small Industries development organization (SIDO). The Office of the Development Commissioner (Small Scale Industries) is also known as the Small Industry Development Organization (SIDO). It is an apex body, established in 1954, for assisting the Ministry in formulating, coordinating, implementing and monitoring policies and programmes for the promotion and development of small scale industries. It has over 60 offices and 21 autonomous bodies under its management, including Tool Rooms, Training Institutions and Project-cum-Process Development Centres etc.

Functions of such main bodies are as follows:-

a) Small Industries Service Institutes (SISIs) are operational one in each state. They provide technical support and consultancy services, conduct entrepreneurship development programmes, and export promotion and liaison activities Emphasizes is also placed on implementation of programmes on modernization, energy conservation, quality control /upgradation and pollution control for the benefit of entrepreneurs.b) Regional Testing Center (RTC) provides Testing facilities for productquality upgradation.c) Tool Rooms/Tool Design Institutes (TRs/TDI) assist SSIs in technicalupgradation, and provide good quality tooling by designing and producingtools, moulds, jigs & fixtures, components, etc.d) Product-cum-Process Development Centres (PPDCs) look into theirspecific problems and render technical service.e) Central Footwear Training Institutes (CFTIs) develop footwear designingto promote exports.f) Sub-Contract Exchanges for Ancillary Development (SCXs) register and create database of the spare manufacturing/service capacity of SSI; create database of requirements of large/medium units and match the requirements with the spare capacity available with small units; and arrange Buyer-Seller Meets, organise vendor exhibitions, seminar, workshops for large-small units coordination, quality upgradation, exportpromotion, etc and facilitate flow of data on vendor development.

Thus, the main services rendered by DC SSI office are:a) Advising the Government in policy formulation for the promotion and development of small scale industries.b) Providing techno-economic and managerial consultancy, common facilities to small scale units.

c) Providing facilities for technology upgradation, modernisation, quality improvement and infrastructure.d) Developing Human Resources through training and skill upgradation.e) Providing economic information services.f) Maintaining a close liaison with the Central Ministries, Planning Commission, State Governments, Financial Institutions and other Organisations concerned with development of Small Scale Industries.g) Evolving and coordinating policies and programmes for development of Small Scale Industries as ancillaries to large and medium scale industries.h) Monitoring of Prime Minister Rozgar Yojna (PMRY) Scheme.

(iv). National Small Industries Corporation. The National Small Industries Corporation Ltd. was set up in 1955 with a view to promoting, aiding and fostering the growth of small scale industries in the country with focus on commercial aspects of these functions. NSIC continues to implement its various programmes and projects throughout the country to assist the SSI units. The Corporation has been assisting the sector through the followingschemes and activities:a) Composite Term Loan SchemeTo promote small-scale sector, NSIC has launched a Composite Term Loan Scheme for the benefit of existing and prospective entrepreneurs to acquire land and building, machinery and equipment and working capital under one roof to the tiny units.b) Hire Purchase SchemeSupply of indigenous and imported machinery and equipment on easyfinancial terms with special focus on women entrepreneurs, weakersections, handicapped and ex-servicemen and SC/ST entrepreneurs.c) Equipment leasingIt is done mainly to facilitate SMEs to expand their capacities or diversifyand/or upgrade their technology according to the needs of the market.d) Working Capital FinanceThis Scheme aims at augmenting working capital of viable and wellmanaged units, on selective basis in case of emergent requirements toenable them to pay-off their purchase of consumable stores, spares andproduction related overheads particularly electricity bills, statutory dues.e) Raw Material AssistanceIt facilitates availability of scarce raw material either through the domesticmarket or by importing.f) Marketing Support ProgrammeNSIC has been trying to act as a major agency to bring SMEs closer tovarious Governmental purchasing agencies, with the intention of creatingconfidence in the purchasing agencies about SMEs, and their capabilitiesto supply goods and services of requisite quality, economic prices andadherence to agreed delivery schedules.g) Tender Marketing

It participates in bulk local/global tender on behalf of Small Scale Industries/Enterprises. It is aimed at assisting SSIs with the ability to manufacture quality products but which lack brand equity & credibility or have limited financial capabilities.h) Integrated Marketing SupportNSIC has been operating an Integrated Marketing Support Programme in which bills pertaining to supplies made by small scale units to eligible purchasers are discounted by NSIC up to a certain specified limit.i) Government Stores Purchase ProgrammeThe units registered with the Corporation for participation in government purchase programme are considered at or with individual purchase organisations and derive all the benefits like free supply of tender forms, exemption from payment of earnest money, security deposits, etc.j) Technology UpgradationExcellent technical support is provided to SSIs/SMEs through five NSIC Technical Service Centres. These centres have been recognised by Council of Scientific and Industrial Research for in-house R&D. NSIC has set up a Technology Transfer Centre. The latest information is provided to on-line connections and networks of computers on matching technology seekers and technology providers are arranged through the Technology Transfer Centre.k) Software Technology ParksNSIC has set up a NSIC-STP Complex under Software Technology Parks of India (STPI). Software Technology Parks facilitates small scale units to establish their units for the 100% export of software and also act as the major point to activate software exports directly through NSIC. NSIC-STP Complex at Okhla, New Delhi is one of such Parks set up by the National Small Industries Corporation under the Software Technology Parks of India to promote small entrepreneurs in software development.NSIC-STP provides high speed better communication facilities through VSNL/SATCOM networks, built-up office space, and uninterrupted power supply, back-up power through DG sets, a modern business centre and other administrative support.l) ExportsNSIC is providing a complete package of export assistance, testing facilities, pre-shipment credit facility, export incentives etc. apart from exposure to the products of SSEs in trade fairs, buyer and seller meets etc. The Corporation has been endeavoring to increase share of Indian industries in purchases to United Nations Organization, it being the largest single buyer in the world.

(v). The Khadi and Village Industries Comission (KVIC). The Khadi and Village Industries Commission (KVIC) is a statutory body created by an Act of Parliament in April 1957. The KVIC is supposed to do the planning, promotion, organisation and implementation of programmes for the development of khadi and other village industries in the rural areas in coordination with other agencies engaged in rural development wherever necessary.

(vi).Coir Board. Coir Board is a statutory body established by the Government of India under a legislation enacted by the Parliament namely Coir Industry Act 1953 for the promotion and development of Coir Industry in India as a whole.

(vii) Training Institutes. There are three National Level Training Institutes. These are:

National Institute of Small Industry Extension Training (NISIET), Hyderabad, which undertakes operations ranging from training, consultancy, research and education, to extension and information services.National Institute for Entrepreneurship and Small Business Development(NIESBUD), New Delhi, which conducts national and international level training programmes in different fields and disciplines. Indian Institute of Entrepreneurship (IIE), Guwahati was established to act as a channel for entrepreneurship development with its focus on the North East.

2.State Level InstitutionsState Level Institutions execute different promotional and developmental projects/schemes and provide a number of supporting incentives for development and promotion of small scale sector in their respective States. These are executed through State Directorate of Industries, who has District Industries Centres (DICs) under them to implement Central/State Level schemes. The State Industrial Development Corporations also look after the needs of the small-scale sector.

(i). State Industrial Development Corporations. Incorporated under the companies Act 1956 SIDC’s were set up in different states as wholly owned companies for promoting industrial development in their respective states. The main functions of SIDC’s are as follows: a) Providing term finance to all small, medium and large industrialenterprises set up in state.b) Underwriting and directly subscribing to shares, and debentures ofdebentures of industrial enterprises being set up in the state.c) Preparing feasibility studies, conducting market surveys and motivatingprivate entrepreneurs to set up their industrial ventures in the state.d) Collaborating with private entrepreneurs to set up industrial ventures injoint and assisted sector.e) Implementing scheme of ‘Industrial Development Bank of India’ of seedcapital in the state.

(ii). State Directorate of Industries. Under the constitution of India promotion and development of small scale industries is a State subject. Therefore, the primary responsibility for implementation of policies and programmes of assistance rests with the Directorate of Industries in each State. It acts under the overall guidance of SIDOand concerned Central institutions. It performs both regulatory and developmental functions. It functions through a network of District Industries offices, industriesoffices and extension offices at district sub-division and block level respectively.

The main functions of Directorate of Industries are as follows:a) Registration of small scale unitsb) Providing financial assistancec) Distributing scare and indigenous raw materials to industrial unitsd) Granting essentiality certificates for import of raw materiale) Establishing industrial estates and industrial co-operativesf) Developing industrial infrastructureg) Undertaking industrial surveys and collecting information

h) Arranging concessions and incentives for industries.i) Overall administration of village and small scale industries.j) Maintaining liaison with other agencies for industrial development.

(iii). District Industries Centre. The District Industries Centers programme was launched in 1978 for effective promotion of cottage and small scale industries widely dispersed in rural areas and small towns. These centers are the focal points providing all the services and support required by small scale and village entrepreneurs under one roof. These serves as an integrated administrative framework at the district level for industrial development.

The main functions of DIC’s are as follows:a) It conducts surveys to know industrial potential of a district keeping in view the availability of raw material, human skills, infrastructure, demand, etc.b) It prepares an action plan for industrial development.c) It appraises the various investment proposals received from entrepreneurs.d) It guides and assists entrepreneurs in buying appropriate machinery andequipment and raw material.e) It suggests appropriate marketing strategies to entrepreneurs.f) It maintains links with research and development institutions forupgradation of technology, quality improvement, industrial training etc.g) It conducts artisans training programmes.h) It has been assigned operation responsibility for special schemes toprovide self-employment to educated unemployed youths.

3. Fund Based Institutions

Of all the elements that go into a business, credit is perhaps the most crucial. The best of plans can come to naught if adequate finance is not available at the right time. SSIs need credit support not only for running the enterprise & operational requirements but also for diversification, modernisation/ upgradation of facilities, capacity expansion etc. In respect of SSIs, the problem of credit becomes all the more critical when ever any episodic event occurs such as a large order, rejection of consignment, inordinate delay in payment etc. In general, SSIs operate on tight budgets, often financed through owner's own contribution, loans from friends and relatives and some bank credit.Government of India recognised the need for a focused credit policy for SSIs in the early days of promotion of SSIs and RBI has been instrumental in devising a multi-stage approach/financial system for credit dispensation to different sectors of the economy, for example, agriculture, industry, exports, SSIs etc.

(I). Small Industries Development Bank of India (SIDBI). The SIDBI was established in 1990 as the apex refinance bank. The SIDBI is operating different programmes and schemes through 5 Regional Offices and 33 Branch Offices. The financial assistance of SIDBI to the small scale sector is channelised through the two routes – direct and indirect. Indirect assistancea) SIDBI’s financial assistance to small sector is primarily channelized through the existing credit delivery system, which consists of state level institutions, rural and commercial banks.

b) SIDBI provides refinance to and discounts bills of Primarily Lending Institutions (PLI).c) The assistance is available fori. Marketing of SSI productii. Setting up of new venturesiii. Availability of working capitaliv. Expansionv. Modernisationvi. Human resource developmentvii. Diversification of existing units for all activitiesDirect assistancea) The loans are available for new ventures, diversification technology upgradation, modernization and expansion of well run small scale enterprises. Assistance is also available for private sector.b) Small scale sector is eligible for maximum debt-equity ratio of 3:1c) Foreign currency loan for import of equipment are also available to export oriented small scale enterprises.d) SIDBI also provide venture capital assistance to the entrepreneurs for their innovative ventures if they have a sound management team, long term competitive advantage and a potential for above average profitability leading to attractive return on investment.

New Initiatives of SIDBIa) Two Subsidiaries viz. SIDBI Venture Capital Limited and SIDBI TrusteeCompany Limited formed to oversee Venture Capital.b) Technology Bureau for Small Enterprise formed to oversee Technology Transfer, Match making Services, Finance Syndication and facilitating Joint Ventures.c) SIDBI Foundation for Micro Credit has been launched to provide financial assistance to the poor and to meet emerging needs of the micro finance sector especially in rural areas.

(ii). Commercial Banks. Credit requirement of SSIs is basically of two types – long term loans and working capital. Commercial banks with their extensive network of branches operating nation wide are primary channel for working capital requirement.Banks are required to compulsory ensure that defined percentage (currently 40%) of their overall lending is made to priority sectors as classified by RBI. These sectors include agriculture, small industries, export etc. The inclusion of small industries in this list makes them eligible for this earmarked credit. With the liberalisation of the Indian economy, greater emphasis was placed on meeting the credit needs of SSIs. This was manifest through the following initiatives taken by RBI.a) Credit for tiny sector has been earmarked within overall lending to small industries. In order to ensure that credit is available to all segments of SSI sector, RBI has issued instructions that out of the funds normally available to SSI sector, 40% be given to units with investment in plant and machinery up to Rs.5 lakhs, 20% for units with investment between Rs.5 lakhs to Rs.25 lakhs and remaining 40% for other units.b) Public sector banks have been advised to operationalise more specialized SSI branches at centres where there is a potential for financing many SSI borrowers. As on March 2002, 391 specialised SSI branches are working in the country.

c) 'Single Window Scheme' was extended to all districts to meet the financial requirements (both term loan & working capital) of SSIs.d) Laghu Udyami Credit Card (LUCC) Scheme was launched by Public Sector Banks for providing simplified & borrower friendly Credit facilities to SSI, tiny enterprises retail traders & artisans.e) Composite loan limit was enhanced to Rs.50 lakhs from Rs.25 lakhs.f) Limit on collateral free loans was increased to Rs.25 lakhs in deservingcases.

(iii). State Financial Corporations (SFCs). State Financial Corporation Act 1951 was brought into force to enable all the state governments (except Jammu and Kashmir) to set up State Financial Corporations as regional development banks. Presently following assistance is provided to small scale and medium scale entrepreneurs or units:a) Providing long term finance to industrial enterprises having sole proprietary, partnership, company and co-operative society form of business organization.b) Subscribing equity and debentures of industrial enterprises.c) Providing financial assistance to small and medium enterprises engaged in service sector.d) Provide working capital loans and meeting various short-term needs of their clients.