UNIT-VI Small Scale Industry (SSI)

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Definition of SSI.
Classification of SSI.
Characteristics of SSI.
Need and Rational of SSI.
Objectives of SSI.
Scope of SSI.
Role of SSI in Economic Development.
Advantages and Dis-advantages of SSI.
Steps to start a Small Scale Industry.
Government policy towards SSI or Different Policies for SSI.
Government support to SSI during 5year plans.
Impact of Liberalization, Privatization and Globalization on SSI.
Effect of WTO on SSIs , Functions of WTO & Advantages of WTO.
Supporting Agencies of Government for SSI.
Ancillary Industry and Tiny Industry.
Advantages of Ancillary Industry and Tiny Industry.

1) Definition of SSI.
An Industrial undertaking in which the investment in fixed assets, plant and
machinery does not cross Rs 10 million is treated as SSI unit This is irrespective
of whether the assets are held on ownership terms or on lease.
Ex: Ice Creams, Bread, Biscuits, Rice Mills, Garments, Auto Repair and service etc
New Definition of SSI:
Union ministry of commerce and Industries (1960)
SSI will include all Industrial limits with a capital investment not more than Rs
5lakhs, irrespective of the number of persons employed
2) Classification of SSI.
SSI are broadly classified as:
I)

Traditional Industries:
1. Khadi and village Industry.
2. Handloom.
3. Handicrafts.
4. Coir ( Fiber from the outer husk of the coconut, used in making Ropes.)
5. Sericulture ( Manufacturing of Silk.)

II) Modern Industries:

1. Small Scale Industrial Undertaking.
2. EUO [ Export Oriented] SSI uits.
3. Ancillary Industrial Unit.
4. Tiny Industrial Unit.
5. Small- Scale Business and Business Enterprise.

3) Characteristics of SSI.
Some important Characteristics of SSI are:

1. Generally owned by a single or at the most 2 persons and engaged in

production of small goods.
2. Capital investment is low.
3. Most SSIs employ less than 10 workers.
4. Most of them are family owned industries.
5. Small Scale units generally use local resources although the market for its
product can be far and wide.
6. SSIs are generally labour intensive.
7. Organization structure of an SSIs would be very simple.
8. Innovation and risk bearing are high in SSIs.
9. Technology may become obsolete, resulting in closure of SSIs.
10. Generally found in urban or semi urban areas.

4) Need and Rational of SSI.

The following are some of the important points that stress the need and
Rationale of SSIs
1. Innovative: Small units are generally have highly innovative. In SSIs, there
will not be enough facilities, machines or resources. To get the jobs done with the
limited available facilities, innovation arises.
2. Self Satisfaction: It gives lot of self-satisfaction to workers for having done a
good job with limited facilities.
3. Caters to individual taste and Styles:
Provide food and drink at a social event.
SSIs can change the process of production according to the changes in the taste
and fashions of the customers.
4. Small in Operation: SSIs utilize local labour, small in operation and leads to
satisfaction of the entrepreneur.
5. Strength of nation: SSI are generally locally owned and well controlled. This
leads to strengthening of a family and other social system.

6. Spread over wide areas: SSIs can spread over the entire nation leading to
uniform development of country.
Govt is supporting to starts SSIs in backwards areas with an aim to improve
the nation.
5) Objectives of SSI.
The objectives of an SSIs are listed below:
1. Creation of employment opportunities.
2. Improvement of output, income and better standard of living.
3. Elimination of economic backwardness of rural and under developed areas.
4. To reduce regional imbalances.
5. To improve the quality of industrial products produced.
6. To encourage entrepreneurship and self-reliance.
7. To mobilize regional resources of capital.
8. To provide employment and means of a regular sources of income to the
needy people living in rural and semi-urban areas.

6)Scope of SSI.
Generally means The range of activities and the types of products that come
under the SSI sector
Some of the important activities that SSIs are normally involved are:
1) Manufacturing Activities.
2) Construction Activities.
3) Financial Activities.
4) Whole sale Activities.
5) Service / Repairing Activities.
6) Transport Activities.
7) Communication etc
In India, the small scale sector is protected by the government by way of
reservation. This means that the Indian government has made a list of 114 items
which are reserved for exclusive production in small sector.
Some of the industries reserved for exclusive development in the small sector are:
Leather products, Natural essential oils, Sports goods, Electro plating, Lock
making, Pickles and chutneys, Printing press, clock and watches, Rubberproducts,
Boat making, Ceramics, Food processing, Ice creams, Wooden furniture etc

7) Role of SSI in Economic Development.

1) Providing Employment: SSIs are more labour intensive and less sophisticated
(highly developed) technologically, they provide employment on a large scale.
In fact, SSI accounts for 75% of total employment in the industrial sector and 20
million people are currently in SSI in India.
2) Mobilization of local resources: SSI uses local resources with respect to raw
materials, labour, talent, savings etc thus improving local economy.
SSI also helps in promotion of traditional family skills and handicrafts.
3) Feeding large scale industries: Small scale industries complement the large
scale industries by providing them parts, components, Sub-assemblies,
Accessories, service etc
4) Promotion of Exports: SSIs help improve Indias balance of payments in 2
ways:
i) First, they donot require importing og sophisticated( highly developed or
latest) equipments thus saving foreign exchange.
ii) Second, they export their goods and earn foreign exchange.

5) Equitable distribution of wealth: SSIs help an equitable distribution of

Indians income and wealth by creating more small business than large businesses.
6) Promoting Regional Development: SSIs help promoting a balanced regional
Development. This also reduce congestion( impossible to move freely) in cities,
migration of village to cities, pollution in cities etc
7) Capital optimization: Small scale units requires less capital per unit of output.
Produced. They also provide quick return on investment due to shorter gestation
Period (Time taken to start industry and produce goods) is less.
8) Inspiring New Entrepreneurs: Existing and successful small scale industries
inspire many more entrepreneurs to start on their own which improves quality and
Competition.
8) Advantages of SSI.
1) SSIs provide self-employment opportunities with relatively low investments.
2) Most units donot require high-end technology.
3) These industries can be located anywhere.
4) They use local resources and local manpower thus improving local economy.
5) Time taken from conceptual stage up to production stage is less.

6) Small firms require simple technology and low managerial skills.

7) They make use of the large semi skilled and unskilled labour which is available
in our country.
8) They help earn and save foreign exchange.
9) The projects related to SSIs can be completed in short period and hence can
become productive in a short period.
10) They helps in economic growth of the country.
Dis-advantages of SSIs:
1) Raw material: The problem w.r.t raw material could in the shape of
i) Absolute Scarcity( available in quantities that are too small)
ii) Poor Quality iii) High Costs
2) Finance: problem of finance in small sector is mainly due to
i) Scarcity of capital in the country.
ii) Weak credit worthiness of small units in the country.
3) Marketing: SSI units may lack professional marketing executives as employed
by large sectors.

4) Capacity under-utilization: Capacity in SSI is not fully utilized leading to

lower optimization and profitability.
5) Out dated Technology: Continued usage of old technology and no
upgradation brings down their efficiency.
6) Over protection: Most SSI units donot have desire to grow to mediun and
large scale because of the benefits of protection.
7) Inefficient Entrepreneurs: Entrepreneurs who are young and lack industrial
experience.
8) Zero R&D: Small scale sectors hardly invest in R&D which prevents them
from introducing any innovation into the market.
9) Lack of Successors: When many entrepreneurs who runs SSI units become
old they may transfer the responsibility to their children who might be
inefficient.

9) Steps to start a Small Scale Industry.

The main steps involved in establishment of small scale industry are listed below:
1) Project / Product identification: Project identification is the process of
identifying broad areas where opportunities for new business ventures exist.
Product identification is the selection of the actual product to be made and is the
first major step in the setting up of a business enterprise.
2) Selecting the form of ownership: Important decision taken by the
entrepreneur. Commonly chosen form of ownership for SSI would be:
Sole proprietorship, Family ownership, Partnership, Private limited company.
3) Location of unit: Factors which are normally considered while deciding the
location of the unit are:
i. Proximity to the sources of raw material.
ii. Nearness to the market.
iii. Availability of all kinds of man power.
iv. General business climate of the region.
v. Climate and environmental factors.

4) Preparation of project Report: It is basically a document which explains the

road map to reach the destination, as determined by the entrepreneur.
A typical project report should include the following information:
1. General information about project.
2. Preliminary analysis of alternatives.
3. Project Description.
4. Technical Feasibility.
5. Economic Viability.
6. Financial Analysis.
7. Marketing Plan etc
5) Registration of Project Report: Registration of Small Scale units is done in
2 stages:
i) Provisional Registration: It is a temporary registration which is needed at the
planning stage in order to bring the unit into existence.
ii) Permanent Registration: It is then applied for when the entrepreneur is ready to
commence commercial production.

6) Arrangement of Finance-Fixed and working:

Arrangement of finance is required for 2 reasons:
i) Fixed capital: It is the finance required for setting up infrastructure like land,
building, machinery etc. This can be generated by partnership,
Bank loans, Venture capitalists, personal savings etc
ii) Working capital: Which is necessary for buying raw materials and recurring
expenditure can also be raised by various sources.
7) Procuring licenses and clearances: Depending on the product and the area
where the units is located, a number of licencses and clearances are required to be
Procured some of them are
i) Municipal Authorities.
ii) Chief Inspector of Factories
iii) Ministry of Agriculture.
iv) State Drug Controller
v) Collector, Central Excise.
8) Creating physical Infrastructure: This is the toughest and most time
consuming step involved in the opening of a new business venture.

Creating physical infrastructure includes acquiring land and building, selecting,

buying etc
9) Recruitment of staff: The right kind of staff-right from managerial level to
worker level, has to be recruited so that all types of work can be accomplished.
10) Procuring Raw materials: Raw materials have to be procured in the right
quality, quantity and delivery schedules.
11) Power connection and water supply: The application for connection of
power have to be given well inadvance.
It is also advisable to have alternate sources of power and water supply.
12) Starting production: After the basic trial runs, commercial production has to
begin with proper quality checks in place.
13) Marketing the product: This is the last but moat important step in realizing
the business ambition.
No business is complete without selling the products and ensuring that the revenue
flows into the organization.

10) Government policy towards SSI:

The government objectives and intensions towards industries in general and small
scale industries in particular have been made clear through in Industrial Policy
Resolutions(IPR) These Resolutions were announced in 1948,1956,1980,1990
and 1991 these were follows.
IPR,1948: First time in which important of SSIs in the overall industrial
development of the country was accepted.
The emphasis in IPR.1948 was to solve the acute problems faced by small
producers with respect to raw material, skilled labour, capital, transportation,
marketing etc
IPR,1956: The IPR of 1956 basically aimed at protection plus Development
IPR of 1956 aimed at integrating the efforts of small sector with that of large sector.
In this several products were reserved for exclusive production in small scale sector.
IPR,1977: In this classified all small scale business into 3 categories and defined
them for promotion purpose. i) cottage and house hold industries ii) Tiny industries
iii) Small Scale industry.

 IPR,1980: Government of India adopted a new industrial policy

Resolution(IPR) on july23, 1980.
The main objective of IPR 1980 was defined as "Facilitating an increase in
industrial production through optimum utilization of installed capacity and
expansion of industries
For Tiny industry, it helped the small sector by increasing the ceiling from Rs
1lakhs to Rs 2 lakhs.
For Small scale units from Rs10 lakhs to Rs 20 lakhs.
For Ancillaries from 15 lakhs to 25 lakhs.
IPR,1990: The resolutions made during IPR,1990 were as follows:
For Tiny industry it was raised from 2 lakhs to 5 lakhs.
For Small scale industries was raised from 35 lakhs to 6o lakhs.
For Ancillary units it was raised from 45 lakhs to Rs 75 lakhs.
To help technology upgradation in SSI, the government started Small
industries Development organization[SIDO]
To extend credit facilities for SSIs the government started small Industries
Development Bank of India [SIDBI]

 IPR,1991: Under Narasima Rao in 1991, the government came out with new
IPR called The New Small Enterprise Policy 1991
The salient features and effects of this policy were:
i)It aimed at increasing the vitality and growth of small sectors to improve Indian
economy.
ii) Efforts were made to reduce license required to starts a SSI.
iii) Tiny industries were allowed to come up any where in the country.
iv) Partnership Act was amended to suit SSI.
v) Better market promotion of SSI products was taken in.
Government policy Resolution in 1999:
Government took steps to improve investment limits, Facilitate foreign
Participation.
The turn over limit for SSI was enhanced from 4 crores to 5 crores.
Government-policy Resolution in 2003:
75 more items were de-reserved from SSI sectors.
Lending rates to open SSI was reduced by 2%
More SIDBI branches were opened.
All India census of SSI was carried out.

11) Government support to SSI during 5year plans.

Five year plan of India have played an important role in shaping government
support towards SSI.
First Five year plan (1951-1956)
- In this, Rs 48 crore was spent in SSIs, covering the entire field of small scale
and cottage industries.
- 6 boards were formulated by the end of first five year plans.
i) All India Handloom Board ii) All India Handicraft Board
iii) All India Village Industries Board iv) Small scale Industries Board.
v) Cori Board
vi) central Silk Board
Second Five year plan (1956-1961)
- Focused on dispersal of Industries with an out lay of Rs 187 crore.
Third Five year plan (1961-1966)
- Third five year plan out layed Rs 264 crore for the development of SSI and
cottage industries.
- It has put lot of stress on the extension of the coverage of SSIs.

Fourth Five year plan (1969-1973)

- This plan adopted and encouraged the development of SSIs like the earlier 3
plans.
- The plan out layed Rs 293 crore.
- During fourth five plans about 346 industrial estates were completed providing
employment to about 80,000 people.
Fifth Five year plan (1974-1978)
- Govt had initiated wide development programmes leading to the development
of SSIs.
- The plan out layed Rs 611 crore.
Sixth Five year plan (1980-1985)
- The sixth plan included many programs like reservation of 409 items for
purchase from SSIs and 836 items are reserved for exclusive production in small
scale industries.
- The plan ou lay of Rs 1945 crore

Seventh Five year plan (1985-1990)

- The main trust of 7th plan was upgradation of technology to increase
competitiveness of SSIs.
- The plan out layed of Rs 2752 crore.
- The number of small scale industries had gone up, the employment also
increased considerably from 96 lakhs to about 120 lakh persons.
Eight Five year plan (1992-1997)
- It started with a main focus of employment generation.
- In this plan proposed to establish appropriate tool rooms and training institutes.
- The eight plan ensured timely and adequate availability of credit by the
establishment of SIDBI.
- The plan out layed of Rs 6334 crore.

12)Impact of Liberalization, Privatization and Globalization on SSI

The impact of liberalization, privatization and Globalization on SSIs sector in
India are summarized as follows:
1) Small Scale units are now more exposed to severe competition both from the
large scale sector to foreign as well as from MNCs.
2) In a liberalized environment, the SSIs did not have to face the following
Problems i) Delay in project implementation. ii) Inadequate availability of finace
iii) Marketing problems iv) Delay in payment v) Lack of technological
upgradation vi) Lack of infrastructure facilities.
3) There is now no restriction on FDI [ Foreign Direct Investment] which has led
to the entry of many MNCs especially in areas such as Automobiles and
Electronics.
4) Competition in the domestic market has intensified with the arrival of cheap
and low quality products. Ex: Chinese products have flooded in India threatening
the very existence of several Indian Small Scale units.
5) Globalization, on the other hand also has made the world truly flat.

6) SSI units have shifted their strategy some what post-globalization.

- Earlier they were producing a wide variety of products of lower quality.
- Now they produce a lesser variety of products but of higher quality in order
to be accepted globally. This has paid rich dividends.

13) Effect of WTO on SSIs & Functions of WTO.

World Trade Organisation ( WTO) was established in January 1st , 1995 as a
successor to the General Agreement on Tariffs and Trade (GATT), serves as
the legal and institutional foundation of the multilateral trading system.
Objectives of WTO:
1. Make optimum utlization of worlds resources for improving the incomes and standard of
living, promoting employment and expanding production and trade activities among varies
countries.
2. Encourage sustainable development and ensure that environment care and
developmental activities together.
3. Efforts should be made that poor countries as well as developing countries
get an opportunity to have a share in the growth in the world trade.
4. Removal of quantitative restriction on imports.

Functions of WTO:
1. It covers all the commodities that are internationally traded and have
formulated rules and procedures for each category as a guideline to member
countries.
2. Through WTO does not interfere in economic and political issues of the
member countries, it does involve in case of policies regarding international trade.
3. WTO has various expert committees and subcommittees for different categories
to review various subjects and also to work as consultants.
4. It arranges visits of its expert committees to various countries for training and
development activities.
5. WTO acts as an arbitrator (determine) to sort out disputes between various
countries in the international trade.
6. Implementation and monitoring of multilateral and bilateral trade agreements
Which are essence of the WTO.

7. It reviews and advises trade policies of various countries so that such policies are
conductive for essence of the WTO.
8. To keep a track of trade related activities, member countries will inform WTO
about various trade activities they have been doing in the global market.
9. Evaluation of international trade and seek explanation wherever abnormal
Variations in terms of over dominance or very poor performance are observed.

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Advantages of WTO.
Safeguard from unilateral actions of the developed nations.
Increased access to export markets.
Increased R&D efforts in the country.
Access to advanced technology to the existing and new industries.
Increased opportunity to subcontracting and job work for SSI.
Increased global competition resulting higher efficiency and improved quality.

14) Supporting Agencies of Government for SSI.

A classification of all agencies are:
1. Central Level Institutions.
2. State Level Institutions.
3. Other Agencies.
Central Level Institutions.
SSI Board: Small Scale Industries Board.
- It is the apex advisory body to central government in matters related to small
scale sector in the country
KVIC: khadi and Village Industries Commission.
- It promotes development of Khadi and other village Industries.
SIDO: Small Industries Development Organization.
- It gives wide ranging technical and consultancy service.
NSIC: National Small Industries Corporation Ltd.
- Nature of support is wide ranging industrial inputs.
NSTEDB: National Science and Technology Entrepreneurship Development
Board.
- This agency suggests various ways of improving productivity.

NPC: National Productivity Council.

- This agency suggests various ways of improving productivity.
NISIET: National Institute for Small Industry Extension and Training.
- It imparts high quality training to budding as well as existing entrepreneurs.
IIE: Indian Institute of Entrepreneurship.
- It aims to carryout research and development activities in entrepreneurship
studies.
EDII: Entrepreneurship Development Institute of India.
- It is an autonomous body sponsored by financial institutions like IDBI, ICICI
etc.
State Level Institutions.
DI: Directorate of Industries.
- It is involved in promotion of small scale sector at the state level.
DIC: District Industries centre.
SFC: State Financial Corportion.
- It provides finance support for starting SSIs

SIDC: State Industrial Development Corporation.

- It promotes infrastructure facilities.
SSIDC: State Small Industrial Development Corporation.
- It helps small and tiny units in procurements of scarce raw materials.

Other Agencies:
SIDBI: Small Industries Development Bank of India.
NABARD: NAtional Bank for Agricultural and Rural Development.
HUDCO: Housing and Urban Development Corporation Ltd.
NGOs: Non-Government organizations.
EPC: Export Promotion Council.
CSIR: Council of Industrial and Scientific Research.
CII: Confederation of Indian Industries.
ICSI: Indian Council of Small Industries.

15) Ancillary Industry and Tiny Industry.

Ancillary Industry: are small Industries having investment in fixed assests, plant
and machinery not exceeding Rs 75 lakhs and engaged in manufacturing of
parts, components, sub-assemblies, tooling etc or rendering of sevices,
supplying, rending or proposing to supply etc.
Objectives of Ancillary Industry:
1. Development of employment opportunities.
2. Help the medium and large scale industries with, specialized functions.
3. Increase the production of SSIs.
4. Develop single or multi-discipline expertise in different fields.
5. Growth of low cost economy.
Advantages of Ancillary industry:
1. Indirect development of business activities in area where ancillary
industries have been setup.
2. Creating Cadres of single disciplined experts.
3. Providing an effective solution to the marketing problem of SSIs.

4.Complementary with regard to output and enable reduction in the production

cost.
5.Employment generation and utilization of money in untapped hands.
6.Reduction in gestation period of production.

Tiny Industry:
A unit is treated as Tiny Industry where investment in plant and machinery does
not exceeds Rs 5 lakhs.
The growth in Tiny Industry Facilitates self employment, results in wider
dispersal of industrial and economic activities and ensures maximum utilization
of local resources.
Advantages of Tiny Industry:
1. Utilization of local resources like men and materils.
2. Less risk involved.
3. Smaller gestation period.
4. Limited capital to start the industry.
5. Production of goods as per choice of consumers.

6. Exports, there by earning foreign exchange.

7. Employment generation to rural people.
8. Regional development and
9. Entrepreneurial Development.

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Important Question for Internal and External:

Define SSI. Enumerate various objectives of SSI.
(08 Marks)
Discuss the need for SSI and mention the objectives.
(05 Marks)
Write a short note on Institutional support to SSI
(05 Marks)
Explain the characteristics of Small Scale Industries?
(06 Marks)
State the Function of WTO?
(08 Marks)
Define Ancillary Industry & Tiny Industry?
(04 Marks)
Describe the steps for starting a Small Industry.
(10 Marks)
Discuss the impact of Globalization on small scale industries in
India and the role of WTO.
(05 Marks)
Briefly write about government support to small scale enterprises,
during Five Year plans.
(10 Marks)