Module 4

Chapter 6: Small Scale

Industry(SSI)
Small Scale Industry(SSI):
• Under the Micro, Small and Medium Enterprises Development
(MSMED) Act, 2006, the earlier rather limited concept of
“Industries” have been widened to that of “Enterprises”.
• Enterprises have been classified broadly into (MSME, 2009a):
a. Enterprise engaged in the manufacture/production of
goods pertaining to any industry, and
b. Enterprises engaged in providing/rendering of services.
• The figure shows the
new nomenclature and
classification of
MSMED Act, 2006.
 • Manufacturing enterprises have been defined in terms of
investment in plant and machinery and further classified into:
a. Micro enterprises- investment up to Rs 25 lakh.
b. Small enterprises- investment above Rs 25 lakh and up to Rs
5 crore.
c. Medium enterprises- investment above Rs 5 crore and up
toRs 10 crore.
• Service enterprises have been defined in terms of that
investment in equipment and further classified into:
a. Micro enterprises- investment up to Rs 10 lakh.
b. Small enterprises- investment above Rs 10 lakh up to Rs 2
crore.
c. Medium enterprises- investment above Rs 2 crore and up to
Rs 5 crore.
Definitions:
• Small scale enterprise: In the Indian context, a small-scale
enterprise is broadly defined in terms of the value of investment
in plant and machinery.
• A small-scale enterprise is the one in which the investment is
fixed assets in plant and machinery, wheather held on
ownership terms, on lease, or on hire purchase, is above Rs 25
lakh and up to Rs 5 crore, subject to the condition that the unit
is not owned, controlled or subsidiary of any other industrial
undertaking.
• In calculating the value of plant and machinery, the original price
thereof, irrespective of whether the plant and machinery are
new or second hand, shall be taken into account.
 • In the case of imported machinery, the following shall be
included in calculating the value, namely:
a. Import duty,
b. the shipping charges,
c. customs clearance charges, and
d. sales tax
• Computer software development and software services
including computer graphics, engineering design, computerised
design and drafting have been recognised as industrial activities
eligible for registrations as small-scale enterprises.
• Ancillary Industrial undertaking: It is an industrial undertaking
which is engaged or is proposed to be engaged in the
manufacture art production of parts, components,
sub-assemblies, tooling or intermediates, or the rendering of
services; and undertaking supplies or renders are proposes to
supply or render not less than 50% of its production or services,
as the case may be, 21 or more other industrial undertakings
and U.S. investment and fixed assets in plant and machinery
whether on ownership terms or on lease or on hire purchase
does not exceed Rs 1 crore.
Characteristics of SSI:
• The figure shows the various characteristics of SSI
undertakings:
1. Production output in small quantities:
• By virtue of small planned capacity of SSI enterprises, the
production output is small.

2. Small number of workers and employees:

• The small scale of operations in SSI requires small number of
workers and employees.

3. Lowest possible capital investment in plant and machinery:

• The investment in fixed assets in plant and machinery whether
held on ownership terms, on lease, or on hire-purchase does
not exceed Rs. 5 crore.
4. Have lower gestation period and are easy to set up in rural
and backward areas:
• Gestation period is the time taken to conceptualise and develop
the enterprise before it starts generating business.
• In case of SSI, the gestation period is relatively lower than
medium and large enterprises, which take much longer time to
conceptualization and development.
• For this reason, SSIs are easy to set up in rural and backward
areas where the resources are limited, and the local market is
small.
• Thus, in such areas, SSIs can be quickly set up for generating
employment and for utilising local resources, while addressing
the needs of the local market with an innovative product/
service.
5. The unit is not owned, control or subsidiary of any other
industrial undertaking:
• Where two or more industrial undertakings are set up by the
same person as a proprietor, each of such industrial
undertakings shall be considered to be controlled by the other
industrial undertaking or undertakings.
• In that scenario, all such industrial undertakings would not be
considered as SSIs.
• Therefore, it is necessary that in order to quality as an SSI, the
unit should not be owned, controlled or subsidiary of any other
industrial undertaking.
6. Generally utilise local resources and produce goods/services
to meet local demand:
• The small scale of operations in SSI generally requires
utilization of local resources (to avoid transportation cost for
sourcing the raw materials from distant locations).
• Similarly, the local markets are most easily accessible to the
SSIs for selling their products and services at competitive
prices.

7. Usually present in the form of family business:

• SSIs are usually present in the form of family business not only
in India, but also elsewhere in the world.
8. Informal management style:
• Informal management style is prevalent in SSIs, whereby
members of family business, relatives, friends, and outside
employees assume multiple roles as warranted by the small
business from time to time.
• The work atmosphere is characterised by unity, harmony, love,
and affection.
Objectives
of SSI:
• The figure shows the
objectives of SSI:
 •Objectives of SSI:
1. Increase employment opportunities
2. Address the needs of local markets
3. Stimulate growth of local entrepreneurship
4. Foster diversification of economic activities
5. Introduce new products
6. Improve the standard of living
7. Provide equitable dispersal of industries
8. Promote a decentralised pattern of ownership
1. Increase employment opportunities:
• Most SSIs utilise labour-intensive processes and thus, provide
employment to local population in our country where
unemployment is widespread.
2. Address the needs of local markets:
• There is a demand of low-prized products in local markets like
small towns and villages which cannot be largely fulfilled by the
products manufactured by large scale enterprises due to their
relatively higher prices.
• Therefore, SSIs play a major role in creating products for the
local populace which are much more economical due to
avoidance of transportation costs, traditional production
systems, and cheap local labour. Example: Washing soaps.
3. Stimulate growth of local entrepreneurship:
• There are unemployed youth in our small towns and villages, some of
whom have the potential of becoming successful entrepreneurs a
financial support is extended to them. SSIs are a viable option in this
regard.
• Prime minister’s Rozgar Yojana for employment generation calls for
educated unemployed youth with family income up to Rs 40,000 per
annum by granting them loans of up to Rs. 1 lakh for self-employment
business/service projects.
• Subsidies released as a grand by the government, through the RBI, to
the participating banks for crediting to the account of beneficiary, and
adjusted against the repayment of last installment of loan by the
beneficiary.
• The subsidy is 15% of the project cost or Rs 7500 per entrepreneur,
whichever is less.
4. Foster diversification of economic activities:
• It was realised by the Government of India much earlier that
Indian economy cannot be made robust only by large scale
enterprises.
• It was therefore a conscientious effort on the part of the
government to support and nurture SSIs through various
policies in Five-year plans.
• This diversification of economic activities through lesser
dependence on large scale industry makes India more or less
immune to the vagaries of global economic crisis like the one
experienced by the world in 2008.
5. Introduce new products:
• SSIs are expected to create new products for local markets
without use investments in research and development.
• The government has provided necessary local infrastructure in
this regard by way of setting up of tool rooms, testing
laboratories, MSME technology development centre, etc.

6. Improve the standard of living:

• There is a cumulative effect of improvement in the standard of
living for the local population when SSIs generate employment,
create new products, and mobilise resources locally.
7. Provide equitable dispersal of industry:
• Many regions in our country where deprived of industrial activity due to
lack of interest of large business houses to set up their facilities there.
• SSIs strive to fill-in this gap due to the encouragement of the
government through its various policies of promoting industrial activity
in rural and backward areas.
• Our North-Eastern states have been getting special attention from the
government in this regard for the past few decades.
8. Promote a decentralised pattern of ownership:
• SSIs are helpful in decentralising the pattern of ownership of industrial
activity.
• In most instances of large-scale enterprises owned and controlled by a
few like business houses in the country (like the groups of Tatas,
Birla's, Ambani's, etc.), there is a likelihood of concentration of capital in
a few hands only.
Advantages
of SSI:
• There are several
advantages of SSI as
shown in the figure.
 • Advantages of SSI:
1. Require lesser capital resources
2. Have lower gestation period
3. Provide local employment opportunities
4. Attract subsidies from the government
5. Earn valuable foreign exchange
6. Enjoy privileges for exclusive manufacturing
7. Mobilize local resources
8. Help in shifting the concentration of industrial activity
9. Enjoy preferential purchase of products
10. Demonstrate entrepreneurial acumen and ability
1. Require lesser capital resources:
• By virtue of the small scale of operations, SSIs require lesser
capital resources.
• Central and state governments have created financial
institutions to support SSIs and they provide funding to the SSI
entrepreneurs at lucrative terms, conditions, and interest rates.
2. Have lower gestation period:
• Lesser initial capital in SSIs is recovered faster by revenues
generated by them, resulting in lower gestation period.
• This is in contrast to medium and large-scale enterprises which
have relatively much longer gestation period.
3. Provide local employment opportunities:
• Many of the SSIs are located in rural and backward areas with
much lower capital investment for purchasing land, buildings,
etc.
• The overall capital requirement as much lesser due to small
scale of operations as well.
• Most SSIs have human intensive operations, das generating
employment for local people at relatively small capital
investment compared to large scale enterprises.
• The employment intensity of the registered units indicate that an
investment of Rs 0.72 lakh is required for creating one
employment in MSME sector as against Rs 5.56 lakh in the
large organised sector.
4. Attract subsidies from the government:
• The government takes a very supportive view of SSIs by
providing subsidies incentives, tax exemptions, etc.
• This makes them have a competitive advantage against their
large-scale rival enterprises.

5. Earn valuable foreign exchange:

• Indian handicrafts and khadi garments are very popular in
developed nations due to their exclusivity and low prices.
• Similarly, there are other unique products manufactured by
SSIs, which make them earn valuable foreign exchange for the
country.
6. Enjoy privileges for exclusive manufacturing:
• Small enterprises are protected by the government by imposing
restriction upon large scale enterprises in manufacturing items
identified for exclusive manufacture by SSIs.

7. Mobilize local resources:

• SSIs utilise the skills and talent of local population and also use
local natural resources and raw materials in most instances.
• In the lack of SSIs, these resources may remain unutilised or
under-utilized.
8. Help in shifting the concentration of industrial activity:
• by virtue of having better infrastructure and other facilities, big
cities have been successful in attracting huge industrial
investments.
• Smaller towns, villages, and backward areas, on the contrary, I
have been deprived of industrial activity.
• Government’s intervention in promoting SSIs in small towns,
villages, and backward areas as helped in reducing this regional
imbalance and industrial activity.
• In recent times, North-Eastern states of the country have
received special privileges from the government in this regard.
 9. Enjoy preferential purchase of products:
• The government has granted preferences to purchase of goods
manufactured SSIs compared to their large-scale counterparts.

10. Demonstrate entrepreneurial acumen and ability:

• Entrepreneurship helps in restoring the confidence and pride of
people having entrepreneur acumen and talent, particularly the
unemployed youth in the country.
• SSIs provide an excellent platform for entrepreneurs in this
direction.
Government Policy towards SSI:
• Government policies towards SSI have aimed at the
simultaneous development of all the segments of small industry,
viz. the village, cottage, and modern enterprises.
• The policy framework and the promotional measures are
intended to enable the small-scale units withstand competition
from the large-scale enterprises.
• So far, a total of 6 industrial policy resolution statements have
been formulated so as to promote industrial growth and also to
determine the pattern of State and assistance to small
industries for fulfilling socio-economic objectives.
• Industrial policies have over the years promoted SSIs through
various incentives in order to fulfil socio-economic objectives.
• Incentives were related to financial, fiscal, an infrastructural
measures and were targeted at achieving the growth of the
sector during various 5-year plan periods.
• Incentives where extended either on a “one-time” basis or in the
form of sustained support for a specified period.
• While some incentives were made available to all industrial
units including the large-scale sector, others were available
exclusively for the SSIs.
Different Policies of SSI:
• The government has created a myriad of policies to attract
entrepreneurs to start their small-scale ventures and to support
them.
• The government has provided policies in which it has directly
provided concessions to SSIs in the form of excise duties, sales
tax, reservations, etc. rather than through institutions created by
it to support the SSIs in various ways.
• The figure shows the different policies provide concessions and
support to the SSIs in a big way.
Different Policies of SSI
 • Different policies of SSI:
1. Reservation of items for exclusive manufacturer in the small-scale sector
2. Reservation of items for exclusive purchase from SSIs
3. Excise duty exemption on third party branded goods manufactured by SSI
units in rural areas
4. SSIs allowed to pay excise duty on a monthly basis as against payment of
duty at the time of removal of goods from the factory
5. All industrial units in the North-Eastern region are exempted from excise
duty for 10 years starting from 17th August 1999 or from the respective date
of commencement of production
6. A grant of Rs. 75,000 to each SSI unit which opts for ISO-9000 certification
7. One-time Capital grant of 50% for Small Scale Associations which wish to
develop and operate Testing Laboratories, provided they are of international
standard
8. No liability for SSIs under State Sales Tax Law for import of the goods into
or export of goods out of the territory of India
9. Export sales for SSIs exempted from levy of sales tax under Central Sales
Tax Act, 1956
 1. Reservation of items for exclusive manufacturer in the
small-scale sector:
• In order to strengthen the SSIs and make them economically
viable, a policy of reservation of products for exclusive
manufacturer in the SSI sector was initiated in 1967 with 47
items having been initially reserved to promote and protect the
small-scale sector vis-à-vis the large-scale sector.
• The list of reserved items has been reviewed from time to time
aiming at:
i. De-reservation of items, which no longer required reservation;
ii. reservation of additional items; add
iii. change in the nomenclature of listed items.
2. Reservation of items for exclusive purchase from SSIs:
• Under the Government Stores Purchase Programme, the Director
General of Supplies and Disposal(DGS&D) of the Ministry of
Supplies arranges for the purchase and delivery of all stores intended
by different Ministries of the Government of India and their attached
offices.
• The purchase policy of the government has two ways of providing
marketing support to SSIs as against latest scale units/other
suppliers.
a. Purchases are made exclusively from SSI units for specified items
known as reserved items.
b. Even for those items which are not reserved, a purchase price
preference of 15% as against the quotations from large scale
units/other suppliers, is given to the SSI units.
• Thus, SSIs get protected from market competition in the matter of
purchases made by DGS&D.
3. Excise duty exemption on third party branded goods manufactured
by SSI units in rural areas:
• This policy promotes entrepreneurship and rural areas whereby
entrepreneurs manufacture goods there, which are latest supplied to
other companies(third parties) for selling them with their brand.
• This policy thus helps in employment generation in rural areas.

4. SSIs allowed to pay excise duty on a monthly basis as against

payment of duty at the time of removal of goods from the factory:
• This policy provides flexibility to the small enterprises to make excise
duty payment for all the supplies made by them in a month taken
together rather than taking the trouble of making excise duty payment
every time a supply of goods leaves the facility for being dispatched to
the customer.
5. All industrial units in the North-Eastern region are exempted
from excise duty for 10 years starting from 17th August 1999
or from the respective date of commencement of production:
• The North-Eastern region of the country was deprived of
industrial activity for a long time and this policy of the
government seeks to eliminate this regional imbalance.

6. A grant of Rs. 75,000 to each SSI unit which opts for

ISO-9000 certification:
• Quality of products produced by the SSI sector has been a
concern and therefore, the government floated this policy to
increase SSIs for establishing quality management system so
that their products may compete well in the market place
against the products of their large-scale rivals.
7. One-time Capital grant of 50% for Small Scale Associations
which wish to develop and operate Testing Laboratories,
provided they are of international standard:
• The government has created several testing laboratories itself.
• Nevertheless, this policy aims to strengthen the efforts of SSI
associations to establish their own testing laboratories.
• This will help and encouraging private participation in SSI
infrastructure development.
8. No liability for SSIs under State Sales Tax Law for import of
the goods into or export of goods out of the territory of India:
• The State governments have, through this policy, provided a
great relief to SSIs which are into export-import activities.

9. Export sales for SSIs exempted from levy of sales tax under
Central Sales Tax Act, 1956:
• The Central Government has provided this exemption to
encourage SSIs to export their products abroad and earn
valuable foreign exchange for the country.
 Chapter 7:
Institutional Support
MSME-DI: (Micro, Small, and Medium
Enterprises)
• There are 30 MSME development institutes ( formerly Small
Industries Service Institutes, SISI) and 28 branch MSME
development institutes set up in state capitals and other
industrial cities all over the country.
• Functions of MSME-DI institutions:
1. Assistance/consultancy to prospective entrepreneurs
2. Assistance/consultancy rendered to existing units
3. Preparation of state industrial profiles
4. Preparation/updation of district industrial potential surveys
5. Project profiles
 6. Entrepreneurship development programmers
7. Motivational campaigns
8. Production index
9. Management development programmes
10. Energy conservation
11. Pollution control
12. Quality control and upgradation
13. Export promotion
14. Common facility workshop/labs
15. Coordination with district industries centres
16. Linkage with state government functionaries
17. Market surveys
• MSME Development institutes and their branches have
common facility workshops in various trades.
• There are at present 42 such common facility workshops
attached to MSME development institutes.
National Small Industries
Corporation(NSIC):
• NSIC Established in the year 1955.
• It has been working to fulfill its mission of promoting, aiding, and
fostering the growth of small-scale industries in the country.
• Over a period of 5 decades of transition, growth and
development, NSIC has proved its strength within the country
and abroad by promoting modernization, upgradation of
technology, quality consciousness, strengthening linkages with
large and medium enterprises and enhancing exports-projects
and products from small industries.
• NSIC operates through 9 zonal offices, 33 branch offices, 14 sub
offices, 10 NSIC business development extension offices, 5
technical service centres, 3 extension centres, and 2 software
technology parks supported by a team over 500 professionals
spread across the country.
• Functions:
• NSIC carries forward its mission to assist small enterprises with
a set of specially tailored schemes design to put them in a
competitive and advantageous position.
• The schemes compromise of facilitating marketing support,
credit support, technology support, and other support services.
Small Industries Development Bank of
India(SIDBI):
• Established on 2nd April 1990, the Small Industries
Development Bank of India (SIDBI) is the principal development
financial institution for promotion, financing and development of
industries in the small-scale sector and for coordinating the
functions of other institutions engaged in similar activities.
• SIDBI has vision to empower the MSME sector with a view to
contribute to the process of economic growth, employment
generation, and balanced regional development.
 • Functions of SIDBI:
1. Indirect finance:
• Refinance scheme is used for catering to the need of funds
of eligible primary lending institutions (PLIs) like state
financial corporations, state industrial development
corporations, scheduled commercial banks both in the public
and private sector, etc. for financing small scale industries.
• Under the scheme, SIDBI grants refinance against term
loans granted by the eligible PLIs to industrial concerns for
setting up industrial projects in the small-scale sector as also
for their expansion/modernization/diversification.
2. Direct finance:
• Through 38 of SIDBI’s own offices by means of several
tailor-made schemes to provide financial assistance to specific
SSI target groups.

3. Promotional and developmental activities:

• Like human resource development in SSI sector, technology
upgradation, programmes on environment and quality
management, market promotion, information discrimination, etc.
by involving accredited non-governmental organisations,
voluntary organisations, scientific and research institutions,
technology institutions, management institutions, etc.
Karnataka State Industrial Investment
and Development Corporation(KSIIDC):
• Established in 1964, Karnataka State Industrial Investment and
Development Corporation(KSIIDC) has been greatly
instrumental in the industrialization of the State, especially in the
large and medium sector.
• Functions:
1. An important arm of the state is bringing industrial move in
various sectors, KSIIDC has assisted 135 startup ventures
through equity participation to the extent of Rs. 118.28 crores
spread over the length and breadth of the State.
2. KSIIDC has also extended financial assistance in the form of debt to
core sector industries like steel, cement, mining and textiles and
modern sector industries like information technology, aviation,
telecommunication, and other infrastructure projects to the extent of
around Rs. 2,223 crores.
3. KSIIDC has been instrumental in establishing Jindal Vijayanagar
Limited (JSW Limited), Vikrant Tyres Limited, Karnataka Antibiotics
and Pharmaceuticals Limited, etc.
4. Persistent efforts of KSIIDC as the nodal agency of the State aided
in realising the dream of setting up the country's first green field
International Airport at Devanahalli on public private sector
partnership. This has brought in international standards in the
aviation sector. Established at a cost of about Rs. 2000 crores, the
airport is presently meeting the search of air traffic in Bangalore.
Karnataka Industrial Areas Development
Board (KIADB):
• Karnataka Industrial Areas Development Board (KIADB)
engaged in acquiring and developing industrial lands in different
industrial areas.
• In case the investor desires, KIADB acquires land in specific
location of investors choice and develops the land if required, at
entrepreneur’s cost.
• KIADB industrial lands are generally of “ready to occupy”
condition with all basic infrastructure facilities.
• The KIADB allot the land on lease-cum-sale basis and the
period of lease is 10 years.
• The allottees are required to set up the industry within a
specified time frame.
• Further, allottees are required to construct the factory and other
buildings as per the plan approved by the Directorate of
Factories and Boilers(DFB).
• The stipulations on coverage, setback, floor area, etc. are to be
followed as spelt out in the agreement to be executed between
the KIADB and allottee at the time of allotment.
Karnataka State Financial
Corporation(KSFC):
• Karnataka State Financial Corporation(KSFC) is one of the fast
track term lending financial institution in the country, with
assistance to more than 1,59,225 units amounting to nearly Rs.
8,537 crore over the last 49 years in Karnataka.
• It is one of the robust and professionally managed state
financial corporations.
• Functions:
• KSFC provides term loans for establishment of new
Tiny/SSI/MSI/ service units and for
expansion/modernization/diversification of existing units.
Directorate of Industries and
Commerce(DIC):
• The Directorate of Industries and Commerce, Government of
Karnataka, is one of the oldest institutions set up under the
aegis of the government.
• Established in the year 1913 under the erstwhile Princely State
of Mysore, the department oversees the industrial development
in the State.
• The department is able to reach out to the small businesses as
well as the industrial houses by the great degree of
decentralization within the organizational structure.
• The department functions through the districts industries
centres, KVI offices, various boards, corporations and special
purpose vehicles.
• The implementation of policies of the government has done
through various schemes and the implementation of these
schemes is decentralised for faster delivery of services.
• The department has established the single window mechanism
for faster, single point clearances to be given to projects seeking
infrastructure facilities/incentives/concessions and helps in
establishing industries and businesses in Karnataka.
• Karnataka Udyog Mitra is the nodal agency under the single
window setup.
• They are the District Level Single Window Agency(DLSWA),
State Level Single Window Agency(SLSWA), and the High
Level Committee(HCL).
• There is a screening committee, which screens projects to be
placed before high level committee.
• The screening committee as recently been empowered to
sanction infrastructure facilities and such of those incentives
and concessions which are laid out within the approved policies
of the State.