INTRODUCTION

The small enterprise is a logical step forward in the development

process of businesses from the level of the enterprising artisan to
that of a very large enterprise. The small enterprises include the
areas other than those of manufacturing, such as agriculture, trade
and service industries. Small enterprises play a vital role in the
Indian economy.

ADVERTISEMENTS:

There is a rapid growth in the services sector of economy due to

development of small enterprises, particularly in the areas of trade,
transport, construction and other ancillary services. One of the
main reasons for their rapid growth is that, they have been left
entirely to the private entrepreneurs, which are comparatively free
from the government interference.

Since about one-third of the gross manufacturing output is from the

small industry sector, it is necessary to extend due attention for this
sector while formulating growth promotion strategies. Such
strategies may improve global competitiveness.

One of the most important reasons for the success of small

enterprises is the interest and motivation of the entrepreneurs,
whereas large industries do not provide enough room for
experimentation and innovation by the creative people because of
large hierarchical organisation structure.

Project Report # 2. Definitions of Small Scale

Industries (SSI):
“Small scale industry” is an industry, investment of which does not
exceed Rs. 300 lakhs (Rs. 300 lakhs in case of ancillary industrial
units also) in plants and machinery, irrespective of the number of
persons employed. Generally, these industries employ 10 to 50
persons.

ADVERTISEMENTS:
“Ancillary industries” are those small scale industries
which are engaged in:
The manufacture of parts, components, sub-assemblies and tooling
etc. for supply against known or anticipated demand of one or more
large industries.

“Cottage Industries” according to Fiscal Commission, are the

industries which are run by the numbers of the family either for full
time or for part time.

According to “Mumbai Economic and Industrial Investigation

Committee” cottage industries are those industries, which do not
use modern power and engage a maximum of 9 persons.

ADVERTISEMENTS:

Tiny Units:
Tiny industry is one in which investment in plant and machinery
does not exceed Rs. 25 lakhs and it should be located in towns with
population less than 50,000. (This locational limitation has now
been dispensed with).

In the definition of small scale industry, the value of plant and

machinery includes the investment made in productive plant and
machinery. In calculating the value of plant and machinery, the
actual payment made by the owner, irrespective of whether the
plant and machinery is old or new, will be taken into account.

The cost of consumable stores and the cost of installation of plant

and machinery will not be taken into account. The cost of
consumable stores and the cost of installation of plant and
machinery will not be taken into account in calculating the value of
plant and machinery.

ADVERTISEMENTS:

Similarly, cost of generating sets, extra transformers, bank and

service charges etc., are not taken into account in calculating the
cost of plant and machinery.
Project Report # 3. Role of Small Scale Industries:
The contribution of this sector is considerable to the Indian
economy. About 2.4 million units are providing employment to over
14 million people, and contributing over a third of the overall gross
output of the manufacturing sector. Output from small enterprises
now stands at Rs. 236,500 crores and is growing at a rate of about
8% per annum. This sector is also contributing about a third of
country’s exports.

Today Central and State governments are providing all types of help
of the interested persons to solve their problems including money
problems. These play a dynamic role in accelerating the rate of
industrial growth and attaining economic prosperity of a developing
nation. Therefore, in a developing country like India, small
industries are of much importance for building up of national
economy.

The Planning Commission observed that these industries

can play the following important roles in accelerating the
rate of industrial growth and economic prosperity:
ADVERTISEMENTS:

(a) These create immediate and permanent employment on a large

scale at relatively small capital cost.

(b) These can immediately meet a substantial part of the increased

demand for consumer goods and simple producer’s goods.

(c) These offer a good method of ensuring more equitable

distribution of national income.

(d) These help for growing into an efficient and progressive

decentralised sector of economy.

ADVERTISEMENTS:

(e) These provide more opportunities of work and income.

In this regard once Dr. Shyma Prasad Mukerjee the then Minister of
Industries said, “If we really want to tackle the grave
problem of unemployment that faces the country today,
we can do so not only by having large scale industries in
different parts of the country but also by regional
planning of small scale and medium sized industries in
different areas”.

Project Report # 4. Industrial Policy Regarding SSI:

Development of small scale industry is primarily the responsibility
of the State Governments. However, the Central Government is very
active in helping the state activities in the fields in which they are
less developed.

The Industrial Policy Resolution 1956 shows more importance to

the role of small scale industries in the industrial development of
the country. This new policy was declared on 30th April, 1956 to
take place of the industrial policy of 1948.

ADVERTISEMENTS:

The aim of this new industrial policy was:

(i) To speed up the economic growth.

(ii) Rapid Industrialisation.

(iii) To frame progressive co-operative sector.

(iv) To reduce social and economical imbalances.

(v) To reduce the concentration of economic power.

Salient Features of the Industrial Policy of 1956 (Revised

in Aug. 1991):
The new industrial policy has the following salient
features:
(a) Objects:
It stressed for the following objects:
(i) To establish a socialistic society.
(ii) To increase the rate of economic development by rapid
industrialisation.

(iii) To develop large industries and machine manufacturing

industries.

(iv) To develop public sector industries.

(v) To form large co-operative sector.

(vi) To check monopoly and the concentration of the economic

power.

(vii) To reduce the imbalance of income and property.

(b) Importance:
It stressed on the importance of the cottage and small scale
industries because these industries provide immediate
opportunities for employment, distribute national income in a
better way.

These industries should be encouraged in the following

ways:
(i) By introducing taxes on the production of big industries.

(ii) By helping small scale industries.

(iii) Small scale industries should be self-supported.

(iv) By improving the method of manufacture and by providing

technical assistance

(v) By supplying electricity at cheaper rate.

(vi) By encouraging industrial co-operative societies.

(c) Facilities:
It also stressed for providing the transport and power facilities in
the industrial backward areas to reduce the regional disparity.
(d) For industrial peace, it stressed for improving the conditions of
labourers so that their working capacity may increase by providing
incentives to them. It also stressed for allowing labourers and
experts to take part in the management.
Industrial Policy 1991:
Industrial Policy 1991 has dismantled of the capacity licensing
regime and only fourteen industries remain under the purview of
industrial licensing; all substantial expansion by the existing units is
currently exempted from licensing, licensing requirements for
imports of capital goods and for goods used as inputs by Indian
firms have been relaxed.

The reforms include simplification of procedural rules and

regulations, reduction of areas reserved exclusively for the public
sector, setting up of the disinvestment commission for identifying
public sector enterprises for equity disinvestment as well as for
working out the modalities of disinvestment.

Government is taking various measures for encouraging flow of

foreign investment and to invite foreign technology agreements.
Similarly, as a measure towards liberalization in the financial
sector, a number of private banks have been given licences and the
insurance sectors have also been opened to private sector.

Industrial licensing has been abolished for all projects except for a
short list of industries related to security and strategic importance,
hazardous chemicals and items of elitist consumption.

Projects requiring imported capital goods have been given

automatic clearance where foreign exchange availability is ensured
through foreign equity or where the CIF value of imported capital
goods required is within the prescribed limits.

Project Report # 5. Organisations for Assistance to

SSI:
To fulfill the various objectives of Small Scale Industries
programmes, various organisations have been setup both at the
Central and State level. Although the development of the small scale
industries is the responsibility of the State Governments, various
issues regarding programme of development of small scale
industries having all India character are tackled at the central level.
Thus the Government of India takes the responsibility of planning
and coordinating the basic programme of development of small
scale industries.

A. Organisations at the Central Level:

Following are some of the important organisations at
central level:
1. All India Small Scale Industries Board:
This board was set-up in 1945 and is responsible of overall
planning, coordinating and development of small scale industries in
the country. The board comprises the State and Central
Government officers, representatives of various institutions,
financing bodies and a number of non-officials representing trade.

It deals with the questions relating to the supply of raw materials,

credit facilities and reviews, the programmes of implementation
and formulates new directives for further growth of small scale
sector.

2. Small Industries Development Organisation (SIDO):

This organisation was set up in 1954 with Development
Commissioner as its head. Its main object is to maintain close rela-
tion with the State Government and different organisations and
institutions of central and state levels.

It has following important functions:

(a) Co-ordination:
This organisation co-ordinates the work relating to the development
of small scale industries according to the All India Policy
programme. It co-ordinates the policies and programmes of various
State Governments and the programme for the development of
large and small industries.

(b) Industrial Development:

This organisation suggests a similar pattern for the whole country.
It assists giving technical advice and helps in the procurement of
raw material and machinery.

(c) Industrial Extension Service:

It works for the marketing assistance, training to help the small
industries, improvements in productivity and the competitive
strength.

3. National Small Industries Corporation (NSIC):

It was established in 1953 with the main objects of:
(i) Supplying machinery and equipment to small scale industries on
hire-purchase basis.

(ii) To help them in procuring government orders for supplying

various items.

(iii) Distribution of basic raw materials through t heir raw material

depots.

(iv) Import and distribution of components to actual small scale

users.

(v) Construction of industrial estates and the establishment and

running of Proto-type production-cum-training centres.

4. Small Industries Service Institutes (SISI):

The Small Scale Industries Development Organisation functions
through the Small Industries Service Institutes situated one each in
all the states. These have full-fledged mechanical workshop and
testing laboratory. Mechanical workshops are equipped with
machine shop, heat treatment, milling etc., to undertake the jobs for
small scale industries.

Laboratory provides facilities for chemical testing, analysis of

various raw materials and testing for strength etc. Such laboratories
and workshops are situated in the important industrial towns.
Institutes also offer the technical service regarding selection, in-
stallation and layout of machinery; preparation of designs, drawings
and model schemes. It also provides facility of on-the-spot advice
through field visits to the factory sites.

5. Department of Small Scale Industries:

This department has been created in 1990 to function as nodal
agency for the policy formulation, promotion, development and
protection of small scale industries. It regularly monitors their
implementation. The department is evolving various programmes
for the growth of small scale and rural industries.

B. Organisations at the State Level:

Following are some organisations set-up in different states for the
development of small scale industries. All the states do not have all
the organisations.

1. Industrial Advisory council:

It advises the State Government regarding industrial development
in the state. Its chairman is the minister for industries.

2. Directorate of Industries:
This is the main department of the state to look after the work
relating to the development of the small scale industries in the state.

3. Small Industries Corporation:

Most of the states are also having small industries corporations.

The main objects of the corporation are:

(a) To help the growth of small industries by providing them with
monetary and technical assistance.

(b) To provide the sheds in the industrial estates on rent.

(c) To procure orders for supply of goods in the government orders.

(d) To arrange the supply of machinery.

(e) To help in the procurement of raw materials.

4. District Industries Centres (DIC):

These help the small, tiny and cottage industries in their effective
development. These provide a package of assistance needed for
setting up small, tiny and cottage industries. They provide requisite
service and support assistance to the entrepreneur in the form of
technical guidance, project reports and help in getting the credit
and other essential inputs.

5. Technical Consultancy Organisations (TCOs):

TCOs were set up by IDBI, IFCI and ICICI in collaboration with
state-level financial/development institutions and commercial
banks. Presently 16 TCOs are working in the country, some of them
are covering more than one state.

TCOs provide assistance in the fields of preparation of project

reports and feasibility studies, training of entrepreneurs, project
implementation, rehabilitation, management consultancy, detailed
design engineering and turn-key services, energy audit and
conservation.

C. Other Agencies:
1. Commercial Banks, Cooperative Banks and Regional Rural Banks.

2. Small Industries Development Bank of India (SIDBI).

3. Some State Governments have set up their own training

institutes.

4. Large number of semi-government, voluntary and private

agencies also conduct development and training courses for
entrepreneurs. Notable among them are Nationalised banks.
Management Institutes, Women’s organisations, Universities,
National Productivity Council and its branches in states, IITs, All
India Management Association (AIMA), PHD Chambers of
Commerce and Industry, and Federation of Indian Chambers of
Commerce and Industry (FICCI).

Project Report # 6. Activities not Covered as SSI:

1. Activities which fall within the purview of any statutory Board or
Special agency viz. KVIC (Khadi and Village Industries
Commission), Silk Board, Handicrafts Board, Textile
Commissioner, Handloom Board, Coir Board etc.

2. Biochemical/Biological testing laboratories.

3. Hatcheries.

4. Tissue culture.

5. Beedi making/Tabaco processing.

6. Colour film processing studios.

7. Laboratories engaged in testing of raw materials and finished

products.

8. Documentary film production units.

9. Servicing industrial undertakings engaged in repair,

maintenance, testing and servicing of vehicles and machinery of any
description.

Activities mentioned at 7 to 9 above can be registered as Small Scale

Service Business enterprises.

Project Report # 7. Advantages of Small Scale

Industries:
1. It provides better and quick employment.

2. It is labour intensive and capital saving.

3. With small investment production can be easily and quickly

started.

4. Highly sophisticated machines and modern technology is not

needed.
5. It attracts small savings and diverts them into productive
channels.

6. It provides economic development by rapid industrialisation.

7. It provides check on monopoly.

8. It reduces imbalance of income and property.

Project Report # 8. Financial Assistance to SSI:

Mostly small scale units are financially weak. Their main worry is
the arrangement of capital. They require financial assistance not
only to purchase machinery and equipment but also for purchasing
raw materials and working capital. Today various organisations
have come forward for sufficient financial help at reasonable rates
of interest.

These are:
1. State Governments.
2. State Financial Corporations.

3. Banks.

4. State Industrial Co-operative Banks.

1. State Governments:
State Governments may allow loans for any of the
following purposes:
(а) For the construction of factory building including godowns and
warehouses etc.

(b) For the purchase of industrial land.

(c) For the purchase of raw materials.

(d) For the purchase and erection of plant and machinery.

(e) For working capital requirement

Loans are to be repaid in seven annual installments, first
installment falling due after two years from the date of receipt of the
last installment of the loan. Generally, the rate of interest is 10% per
annum, subject to a rebate of 2% for timely repayments.

2. State Financial Corporations:

These corporations are in most of the states and grant loan to small
scale industries. They usually grant loan for the acquisition of fixed
assets that is land, building, plant and machinery, vehicles etc. for
the establishment of a new industry or for expansion,
modernisation and renovation of the existing industry. In some
special cases, loans for working capital may also be granted.

Loans are not granted for an amount of less than Rs. 10,000. The
maximum loan to be granted to a single person is Rs. 25 lakhs
except in case of limited company or a registered cooperative
society for which the limit is Rs. 30 lakhs. Loans upto Rs. 2 lakhs
are granted to the technocrats without margin of security. The rate
of interest is, say, about 4 to 12½%. The duration of repayment may
be 10-12 years.

Soft Loan Scheme of State Corporation:

Under the scheme loans are granted at concessional rates of
interest. The loans are granted from Rs. 10,000 to Rs. 1,50,000 and
in case of technicians, engineers and diploma holders upto Rs.
2,00,000. Loans are granted for the construction of building and
purchase of plant and machinery.

In special cases, loans are granted for working capital upto 25% of
the total amount of loan sanctioned for fixed capital.

3. Banks:
Today, banks finance the entire business cycle from the purchase of
raw materials to the realisation of sale proceeds.

State Bank of India and its subsidiaries grant loan to small

industries. All nationalized banks and other commercial banks have
also now started to grant loan to small industries. The Bank of
Baroda, The Central Bank of India, The United Commercial Bank,
The Punjab National Bank, Indian Overseas Bank, The Bank of
Allahabad and so many others have started to finance small
industries considerably.

These banks grant loan to industries for fixed as well as for working
capital requirements at the interest rates normally varying between
11 to 13%.

The loan is to be secured by a registered mortgage of the fixed assets

in the case of loans for land, building and immovable machinery. In
the case of loans for movable assets, it should be secured by pledge
of movable machinery/equipment.

A margin of about 50% is kept in respect of immovable assets

charged to the bank, which may be relaxed, where found necessary.
In case of movable machinery and equipment, a margin of 33½% is
normally allowed, which margin be relaxed to 25% where found
necessary.

Loans are to be repaid within a duration of 4-5 years in equal

installments.

4. State Industrial Co-operative Banks:

Most of the States have set up the Industrial co-operative societies
and other industrial undertakings to provide loans at the cheap rate
of interest and on easy installments.

Procedure to get Loan:

An application for loan is submitted to the District Industries
Officer/Assistant Director of Industries, in a prescribed form. In
case of Industrial Co-operative Societies the application should be
submitted to the Assistant Registrar, Co-operative Societies, who
will forward the same with the recommendations to the authorities
concerned.

Every application for loan should have the following

enclosures:
1. Detailed approved scheme (in triplicate) for which the loan is
needed.
2. Full details of property along with 3 copies of the drawings of the
immovable property which the applicant proposes to offer as
security against the loan applied for.

3. An affidavit to the effect that capital investment in the machinery

and equipment’s in the industry does not exceed Rs. 60 lakhs (or 75
lakhs in case of ancillary units).

4. An affidavit to the effect that the property is owned by the

applicant or his surety.

5. In case of property being in joint ownership, an affidavit is signed

in presence of first class Magistrate by all the owners offering
property as security against the loan.

6. In case the loan is required for the purchase of machinery,

equipment etc., three quotations from the standard machinery
suppliers must be enclosed.

Hurdles in the Progress of Small Industry Sector:

Generally, average Indian small industry finds it difficult to upgrade
the level of technology, and the search for modernisation and
upgradation in small industry have to be contended with several
hurdles, mainly due to procurement of resources and investment
limits.

Only 5% units have automation, while 40% are semiautomatic. In

order to accept global competition and to be successful, it is
necessary to adopt latest technology to meet challenges related to
quality, productivity, skill and economy.

Project Report # 9. Market Survey for SSI:

The aim of market survey is to find out all the relevant economic
and social facts about the markets in which manufacturer’s goods
will be sold. In market survey, investigation about the product
demand, design and cost of production is made. An owner always
wants that his money should be utilised to the best possible extent.
For this reason planners must survey the market conditions, where
the customers are in need of that product, whether the demand is
continuous or intermittent. The next important factor a planner
should consider is to see that whether similar products are being
produced by- some other manufacturers or not and whether he will
be able to complete them as regards quality and cost is concerned.

As size of industry is related with the consumption of product

therefore, this fact must be considered while deciding the capacity
of plants and machinery.

The following points are of utmost importance while

making market survey:
1. Demand for products in the market.

2. Selling method to be adopted.

3. Possible new markets for the products.

4. Comments of consumers about the product.

5. To see that existing size, quality and design suit the customers or
not.

Scope for Foreign Collaboration:

In any country, when some firm jointly manufacture with the help
of some other foreign firm, it is known as “Collaboration”. For
example, we have made collaboration with British for Durgapur
Steel Plant, German for Rourkela and Russia for Bhilai Steel Plant
etc. Collaboration is only done with the permission of Government.

The aim of collaboration is to make use of technical know-how,

experience and technical ability of other countries, which so far has
not been developed in their own country. In this way large amount
of money and time on research, analysis and experiment can be
saved.

There is large scope of collaboration of small industries in our

country also. It can be said that small industries are back-bone of
any country. With the collaborations, small industries can be
developed with great speed.

Foreign collaboration is allowed by the Government of India only in

the field of relatively high priority and in areas where sophisticated
foreign technology would become available to the country.

It is mainly allowed in industries, the products of which will help to

increase India’s foreign resources either by increasing exports or by
reducing current imports. Government of India has issued
illustrative list of industries where foreign investment or technical
collaboration is allowed.

For the approval of foreign collaboration, an application on the

prescribed form with 16 spare copies is submitted to the Secretariat
for Industrial approval, Ministry of Industrial Development, Udyog
Bhawan, New Delhi. A decision on application is made within 90
days from its receipt.

Project Report # 10. Facilities, Incentives and

Concessions for SSI:
Governments have also offered a number of facilities, incentives
and concessions to the small industries to encourage the industrial
development.

Some of these are briefly explained as under:

i. Hire Purchase of machinery.

ii. Tax Concessions.

iii. Procurement of Raw-materials.

iv. Power Supply.

v. Water Supply.

vi. Market Assistance.

vii. Technical Assistance.

viii. Testing Facilities.

ix. Export Promotion.

x. Import Licences.

xi. Industries Reserved for Small Scale Sector.

xii. Purchase Programme.

xiii. Reservation of Items.

xiv. Price Preference.

1. Hire Purchase of Machinery:

Small-scale industries can obtain machinery and equipment on
“Hire-Purchase” basis through the National Small Industries
Corporation. For obtaining machinery, application on prescribed
form should be submitted to the District Industries
Officer/Assistant Director, to supply machinery to the S.S.I. Units
offering a long repayment period with moderate rate of interest.

When imported machines are required, the N.S.I.C arranges the

foreign exchange and import licence obviating the need for the
small industrialists to go through this time consuming process.
Another advantage is that the industrialist is not required to block
his funds in these assets; he can use the bulk of his resources
towards working capital.

Earnest money ranging from 10 to 20% is charged before the

placement of the order.

Interest is charged by the corporation at the following

rate:
(i) From units in declared backward areas – 11% per annum

(ii) From technocrats – 11% per annum

(iii) From others – 13% per annum

A rebate of 2% is allowed in case the installment is paid before the
due date of its payment.

(a) Administrative charges (payable by inclusion in installment)

(i) Imported machines – 4% of the value calculated on the basis of

landed cost.

(ii) Indigenous machines – 2% of work price.

(b) Clearing charges (Payable by inclusion in installments)

(i) Towards marine insurance: 1½ of the C and F value of goods.

(ii) Towards clearing charges: 1½%.

(c) Insurance. 0.5% of the value of machines is charged and

recovered along with installments.

The hire-purchase value is recovered in 13 half yearly installments.

2. Tax Concessions to Industrial Units:

To encourage fresh investment in setting up industrial units and to
enable existing units to expand, Central and State Governments
have granted a number of tax concessions to industries. These are:

A. Income Tax concessions:

Under this, following concessions are allowed:
(a) Tax holiday for new Industrial Undertakings:
New industrial undertakings are exempted from payment of
income-tax on their profits upto 7.5% per annum of the capital
employed. This concession is available for a period of 5 years
including the year in which it starts production.

(b) Deduction of depreciation:

An industrial unit is entitled to deduction of depreciation out of the
net profits at prescribed rates in building, furniture, plants and
machinery. The depreciation is calculated on the reducing balance
systems.

(c) New industrial undertakings in backward areas:

In case of an industrial undertaking manufacturing articles, a
deduction equal to 30% of profits shall be allowed in computing the
total income of the industrial units set up in backward areas
prescribed by the Government (specified in eighth scheduled to the
Income Tax Act). The deduction shall be available for two –
assessment years.

(d) Development rebate:

Development rebate is allowed in respect of plant and machinery
(other than appliances or transport vehicles) over and above normal
amount of depreciation. The allowance is available in the year in
which such plant or machinery is put to use.

The rate of rebate is as follows:

1. In case of new plant and machinery,

(i) In case of priority — 25% when installed after 31.3.70

(ii) Being capital assets for scientific research — 25% when installed
after 31.3.70

(iii) In any other case —15% when installed after 31.3.70

2. Subject to certain conditions, the development rebate is also

allowed for the second hand machinery where the same has been
used outside India.

(e) Rehabilitation allowance:

Any industrial undertaking whose business is discontinued
according to natural calamities. Such as flood, riot, explosion, war,
earthquake etc., if re-established with in a period of 3 years, 60% of
the terminal depreciation is allowed as rehabilitation or re-
establishment.

(f) Scientific research:

In order to encourage research work in any factory, expenditure of
revenue as well as capital nature incurred by an industrial
undertaking on scientific research is allowed as a deduction in
computing the business income of the year in which the expenditure
is incurred.
In addition to the above, following additional Income tax
concessions are allowed:
These are:
(g) Export market development allowance.

(h) Agricultural Development allowance.

(i) Amortisation of certain preliminary expenses.

(j) Prospecting and development of certain minerals.

(k) Expenses of family planning.

(I) Acquisition of patent rights or copy rights.

(m) Inter corporate dividends.

(n) Tax-free income from royalty and technical services fees.

(o) Dividend from foreign companies.

(p) Royalty etc., from foreign Enterprises

(q) Carry forward and set off of business losses.

B. Exemption for Payment of Central Excise Duty:

To encourage small producers, differential excise duties have been
prescribed. In certain cases producers manufacturing excise able
items have been completely exempted from duty and in certain
other cases a reduced duty is charged as compared to other units
manufacturing similar excisable goods above a certain fixed value.

C. Other Tax Concessions:

(i) Concession in Stamp Duty:
Certain concessions have been allowed by the State Governments on
stamp duty payable on the agreements and mortgage deeds
executed in favour of State Governments in connection with the
advance of loan by the Governments for small scale and cottage
industries.

(ii) Sales Tax:

State Governments have exempted sales tax on machines purchased
for setting up small scale industries. They have given certain other
concessions.

3. Procurement of Raw Material:

State Governments assist the small scale industries in obtaining
their requirements of essential and scarce categories of raw
materials through the various agencies in the country by issuing
essentiality certificates of their raw material and machinery
requirements from abroad.

4. Power Supply:
Small scale industries whose power consumption is less than 15 kW
are assisted by way of a power subsidy.

5. Water Supply:
Special concessions in water supply rates have been granted to
industries which draw water from irrigation projects both for
industrial and drinking purposes.

6. Marketing Assistance:
Most of the State Governments have allowed a price preference
(about 10%) to small scale and cottage industries on all purchases
made by the government.

7. Technical Assistance:
Free technical assistance is provided by the State Directorates of
Industries and Small Industries Service Institute to Small scale
industries regarding selection of machinery, their installation, and
plant layout, use of modern machinery and equipment, preparation
of design, drawing and model schemes.

Several model schemes have already been prepared and are

available with State Director of Small Industries Service Institute,
and Publication Division, Government of India, Delhi 6. Specialised
courses in Production Management, Financial Management, and
Cost Accounting etc. are also organised from time to time.

8. Testing Facilities:
Testing facilities have been provided by the Small Industries Service
Institute at all the branches in the different states. These have
mechanical workshops, chemical laboratories etc. at various centres
as explained earlier.

9. Export Promotion:
State Governments assist exporters of small scale industry products
by registering them under the export scheme and with the Export
Promotion Council, Export Houses, Export Credit, and Overseas
Trading Institution. Government also provides assistance for
publicity of their goods in foreign markets, participation in
exhibitions, fairs etc. State Governments give priority for import to
the exporters in issuing essentiality certificates.

10. Import Licences:

Licences are granted, to small scale industries for their successful
running, for the import of raw materials, components and spares
which are not available in the country. The Government of India
issue the import Licences to small scale industries as “Actual users”.

For the guidance of the actual users, the governments have

published a hand book of rules and procedures under Import Trade
Control, which can be obtained from the Manager, Government
Publication, Civil Lines, and Delhi-6.

For getting import licences of raw materials, components and

spares, application should be sent to the Regional Licensing
Authorities. The application should be accompanied with the
prescribed fee.

11. Industries Reserved for Small Scale Sector:

Governments have declared a list of 836 industries which are
exclusively reserved for small scale sector. These industries cannot
be started on medium and large scale. By reserving some of the
industries, small scale sector does not have competition with
medium and large scale sector; otherwise small scale sector cannot
stand in competition.

12. Purchase Programme:

Marketing of the finished products is the major problem for the
small scale industries. The individual industrialists have to take the
initiative to produce products of good quality at a competitive cost
and to push them into the market. However, Central and State
governments assist small scale industries in marketing through
their store purchase programmes.

Small scale industrial units desirous of participating in Government

purchase programme may get themselves enlisted with the National
Industries Corporation Ltd., New Delhi. For the enlistment they
should apply to the District Industries Officer in triplicate, on the
prescribed form for investigation and then onward transmission.
No security deposits are demanded from small scale units after the
Corporation has issued a certificate of competency.

13. Reservation of Items:

Government has declared 384 items exclusively reserved for
purchase from the small scale industries. The list of these reserved
items is revised from time to time. These items can be procured
only from small scale units.

14. Price Preference:

The small scale units have to compete with the large scale units for
the items other than those included in the list of reserved items.
Since small scale units are not in a position to compete with the
large scale units, hence State and Central Governments have
allowed a price preference of 10% over the lowest acceptable tenders
received from the large scale units.

Project Report # 11. Ancillary Industries and their

Scope:
Ancillary Industries are those small scale industries, which do not
sell their products in the open market but produce them for
medium and large scale enterprises. Governments have allowed an
investment up to Rs. 300 lakhs for ancillary industries.

It is not possible for large scale producers, specially those whose

products are of assembly type such as of engines, sewing machine,
scooters, motorcycles, bicycles, fans, electric motors, transformers,
pumps etc., to produce all the components.

All such types of industries, design the whole product but

manufacture few special items in their own organisation and rest of
the components are purchased from ancillary industries. In this way
all the parts are assembled to form one complete unit by the big
enterprises.

In this way there are unlimited items which can be produced by the
“Ancillary Industries” at cheap rates and thus help the medium and
large scale units to manufacture more efficiently and economically.

Project Report # 12. Preparation of Model Schemes

for SSI:
For all the items which are reserved for small scale industries and
all other items which can be profitably sold, if produced by small
units “Model Schemes” are prepared, several model schemes have
already been prepared and are available with the State Director of
Small Industries Service Institute and Publications Division,
Government of India, Delhi-110006. These are also published and
made available by the Directorate of Industries and Civil Supplies of
different States.

Model schemes are prepared with the object of installing an

economic unit with minimum investment. Whosoever is coming
forward to establish small industries, may find it difficult to have
ready idea of anticipated investment on machinery and equipment,
raw-materials and other expenditures in certain industries.

Therefore, model schemes are made available to serve this purpose.

These may provide pattern for adaptation in the light of available
resources and circumstances and serve as “Guiding Lines”. Model
schemes are revised from time to time in the light of further
experience and suggestions from experts in the field.

Generally, a model scheme provides the following

information:
1. Introduction: Scope of product.

2. Non-recurring expenditure.

(a) Land and Building.

(b) Machinery and equipment.

3. Recurring expenditure.

(a) Staff and labour.

(b) Raw materials for one month

4. Other expenditure per month, such as packing, advertising,

stamping, electricity, water, labour, welfare, recreation etc.

5. Working capital, Total production cost/month. Percentage profit

approximately.

6. List of machinery manufacturers’ and suppliers’ of raw materials,

office equipment etc.

Project Report # 13. Modernisation Programme for

SSI:
Modernisation programme is necessary for achieving overall
production efficiency and keep the small scale industries abreast
with the latest information on production, processes, product
designs, technological developments, training facilities. For
motivating the SSIs to modernise their units, seminars, workshops
are organised under this programme.

The main objectives of the modernisation programme are:

1. Improvement in production technology.

2. Product development and design.

3. Testing design and quality control.

4. Installation of modern machinery and equipment.

5. Application of modern management techniques.

These measures help in increasing the profits by installing new

equipment so that production increases per employee and per unit
of investment. IDBI is providing concessional finance to units
following the modernisation scheme. Industrial Finance
Corporation of India also operates a scheme of subsidy for
encouraging modernisation of tiny, small scale and ancillary units.

Technical Upgradation:
Here, technology upgradation means the induction of commercially
proven advanced technology leading to significant improvements in
quality, productivity, cost reduction, saving of energy, saving of
scare materials and use of new materials. For this purpose
entrepreneur can seek help from IDBI and SIDO.

Project Report # 14. Sickness in SSIs:

The Sick Industrial Companies (special Provisions) Act 1985 defines
sick industrial company to mean an industrial company which has
at the end of any financial year accumulated losses equal to or
exceeding its entire net worth and has also suffered cash losses.

According to Development Commissioner (SSI), a unit is

sick, if:
(а) Capacity utilisation is below 50% in comparison to highest
capacity utilised during preceding five years,

(b) Erosion of net worth by more than 50%, and

(c) Closure of the unit for a period of more than six months.

Thus the sickness is failure to generate internal surplus on a

continuous basis.

Causes of Sickness:
(i) Marketing problems.
(ii) Raw material shortage.

(iii) Inventory control problems.

(iv) Inadequate working capital.

(v) Power shortage.

(vi) Poor management.

(vii) Diversion of funds.

(viii) Disputes among partners.

(ix) Delay in Govt. approval/sanctions.

(x) Lack of infrastructural facilities.

(xi) Changes in market conditions.

(xii) Miscalculation of project cost.

(xiii) Defective plant and machinery.

(xiv) Defective layout.

(xv) Poor manufacturing methods.

(xvi) Untrained and unskilled Workers.

(xvii) Higher rates of interest on borrowed funds.

(xviii) Loans not sanctioned at needed time.

Measures for Avoiding Sickness:

1. Estimation of realistic project cost taking into account possible
price escalation.

2. Completion of project on scheduled time.

3. Commercial production to start at the earliest possible.

4. Market should be as wide as possible.

5. Judicious mix of cash and credit sale should be worked out.

6. Adequate limits for working capital requirements should be got

sanctioned.

7. Right type of manpower in right quantity is employed.

8. Quality concept at all levels should be implemented.

Assistance to Sick Units:

1. The Government provides such reliefs and concessions as may be
feasible and necessary as part of the rehabilitation package
prepared by banks and financial institutions.
2. Healthy units are encouraged through income tax relief to take
over sick units.
3. Assistance is available under technical development fund and the
import policy for the import of capital goods for replacement of
absolute plant and machinery.
4. RBI had advised banks to set up cells at their head-quarters and
at the important regional centres to deal with sick industrial units
and to provide expert staff including technical personnel to look
into the technical aspects.
5. Following sources are rendering assistance to sick
viable units:
(a) Financial assistance by Government on long term basis at low
interest rate to improve the condition of sick units.

(b) Nursing assistance by banks to potentially viable sick SSIs on

reduced margins and rate of interest along with rephrasing the
repayment schedule etc.

(c) Technical consultancy service of NSISIs free of cost to sick units.