Module – IV

Modern Small Business Enterprises

Prof. Kailas S. Patil
Associate Professor, Department of E & CE, SUK - 02
Meaning and Concept of Small Scale Industry:

In most of the developing countries like India, Small Scale Industries

(SSI) constitute an important and crucial segment of the industrial sector.
They play an important role in employment creation, resource utilization
and income generation and helping to promote changes in a gradual and
phased manner. They have been given an important place in the
framework of Indian planning since beginning both for economic and
ideological reasons.

Definition of Small Scale Industry:

Defining small-scale industry is a difficult task because the definition of

small-scale industry varies from country to country and from one time to
the another in the same country depending upon the pattern and stage of
development, government policy and administrative set up of the
particular country.
I. Role of SSI in economic development

Production

The small-scale industries sector plays a vital role in the growth of the country. It
contributes almost 40% of the gross industrial value added in the Indian economy. It has
been estimated that a million Rs. of investment in fixed assets in the small scale sector
produces 4.62 million worth of goods or services with an approximate value addition of
ten percentage points. The small-scale sector has grown rapidly over the years. The
growth rates during the various plan periods have been very impressive. The number of
small-scale units has increased from an estimated 0.87 million units in the year 1980-81
to over 3 million in the year 2000. When the performance of this sector is viewed against
the growth in the manufacturing and the industry sector as a whole, it instills confidence
in the resilience of the small-scale sector.
Employment
SSI Sector in India creates largest employment opportunities for the Indian populace, next only
to Agriculture. It has been estimated that 100,000 rupees of investment in fixed assets in the
small scale sector generates employment for four persons.

Generation of Employment - Industry Group-wise

Food products industry has ranked first in generating employment, providing employment to
0.48 million persons (13.1%). The next two industry groups were Non-metallic mineral
products with employment of 0.45 million persons (12.2%) and Metal products with 0.37
million persons (10.2%).

Per unit employment

Per unit employment was the highest (20) in units engaged in beverages, tobacco & tobacco
products mainly due to the high employment potential of this industry particularly in
Maharashtra, Andhra Pradesh, Rajasthan, Assam and Tamil Nadu.

Location-wise Employment Distribution - Rural

Non-metallic products contributed 22.7% to employment generated in rural areas. Food
Products accounted for 21.1%, Wood Products and Chemicals and chemical products shared
between them 17.5%.
Urban
In metropolitan areas the leading industries were Metal products, Machinery and parts
except electrical and Paper products & printing (total share being 33.6%).

State-wise Employment Distribution

Tamil Nadu (14.5%) made the maximum contribution to employment.
This was followed by Maharashtra (9.7%), Uttar Pradesh (9.5%) and West Bengal (8.5%)
the total share being 27.7%.
Gujarat (7.6%), Andhra Pradesh (7.5%), Karnataka (6.7%) and Punjab (5.6%) together
accounted for another 27.4%.
Per unit employment was high - 17, 16 and 14 respectively - in Nagaland, Sikkim and
Dadra & Nagar Haveli.
It was 12 in Maharashtra, Tripura and Delhi.
Madhya Pradesh had the lowest figure of 2. In a ll other cases it was around the average of
6.
Export

SSI Sector plays a major role in India's present export performance. 45%-50% of the Indian Exports
is contributed by SSI Sector. Direct exports from the SSI Sector account for nearly 35% of total
exports. Besides direct exports, it is estimated that small-scale industrial units contribute around
15% to exports indirectly. This takes place through merchant exporters, trading houses and export
houses. They may also be in the form of export orders from large units or the production of parts
and components for use for finished exportable goods.
Opportunity

The opportunities in the small-scale sector are enormous due to the following factors:
 Less Capital Intensive
 Extensive Promotion & Support by Government
 Reservation for Exclusive Manufacture by small scale sector
 Project Profiles
 Funding - Finance & Subsidies
 Machinery Procurement
 Raw Material Procurement
 Manpower Training
 Technical & Managerial skills
 Tooling & Testing support
 Reservation for Exclusive Purchase by Government
 Export Promotion
 Growth in demand in the domestic market size due to overall economic growth
 Increasing Export Potential for Indian products

Growth in Requirements for ancillary units due to the increase in number of Greenfield
units coming up in the large scale sector. Small industry sector has performed exceedingly
well and enabled our country to achieve a wide measure of industrial growth and
diversification.
Advantages of Small Scale Industries

There are numerous arguments in favor of the small-scale industries which justify the
rational of industry development. The Industrial Policy Resolution 1956 has put forward
four arguments in favor of small-scale industries which emphasize the very rational of
small-scale industry in the Indian economy.

The arguments are:

1. Employment argument
2. Equality argument
3. Decentralization argument
4. Latent Resource argument.
II. Globalization will kill Small-Scale Industries in India

Globalization is the metamorphosis of the individual nations into an integrated entity by

means of their interconnection on an economic, social and cultural level, fuelled by easy
transport and communication among them. It is the modern renaissance that makes ideas,
goods, services, trade, technology and culture permeate into the entire geography of the
world thus turning it into a global village.
WTO AND ITS IMPACT ON SMALL SCALE INDUSTRIES IN

INDIA Introduction

The small-scale industries sector plays a vital role in the growth of the country. It
contributes almost 40% of the gross industrial value added in the Indian economy. It has
been estimated that a million Rs. of investment in fixed assets in the small scale sector
produces 4.62 million worth of goods or services with an approximate value addition of
ten percentage points.

The small-scale sector has grown rapidly over the years. The growth rates during the
various plan periods have been very impressive. The number of small-scale units has
increased from an estimated 0.87 million units in the year 1980-81 to over 3 million in the
year 2000.
From 1947 to 1994, General Agreement on Trade and Tariff (GATT) was the forum for
negotiating lower customs duty rates and other trade barriers. The World Trade
Organization (WTO) was established on 1st January 1995. When the GATT came into
WTO’s umbrella, it has annexes dealing with specific sectors such as agriculture and
textiles, and with specific issues such as State Trading, Product Standards, Subsidies and
Actions taken against dumping. The WTO has 148members, accounting for over 97% of
world trade. Around 30 others are negotiating membership.

WTO aims to develop the country’s economy by encouraging its export among the
member countries. Further, it facilitates for availing new technologies from various
countries at a lower cost. In this connection, this paper focuses on the positive role played
by the WTO in the globalization scenario.
III. GROWTH OF SSI SECTOR IN INDIA
Small Scale Industries (SSIs) are the pillars of India’s industrial economy. The SSIs’ chief aims are:
To Remove the regional disparities To facilitate for the Equitable distribution of national income and
wealth To earn the Return on Investment in shorter period To produce some consumption goods and
essential commodities.

As the SSIs consume local resources, the growth of SSIs was quite appreciable at the dawn of new
century. It is evidential from the fact that there were over 32 lakhs Small Scale Units in the organized
sector as on 31st March 2000 (Naik: 2002) & (Economic Survey: 2001).

SSIs require comparatively a smaller investment and avails the financial support of various financial
institutions. There have a number of schemes of direct and self -employment. The employment
through SSIs has been tremendously increased from 119.6 lakh during the year 1989 – 90 to 178. 5
crore during the year 1999 – 2000. In succeeding years also in the well grown in all areas.
Ancillary industry
Ancillary industries are those which manufacture parts and components to be used by
larger industries. Eg- Companies like GE (ancillary) produce engines for the aircraft
industry.

The programme of ancillarisation includes motivation of public and private sector units to
offload production of components, parts, sub-assemblies, tools, intermediates, services
etc., to ancillary units. The programme of ancillary development has specific advantages
both for large as well as small industries and also for the total economy of the country.

The large scale units have the advantages in the form of savings in investments,
inventories, employment of labour, etc. and getting the items of the desired specifications,
while the small scale units have the advantage of getting assured market for their
products, availability of technical assistance and improved technology from the parent
units. This programme also helps in overall economy of the country.
IV. Liberalization and its impact on small scale industries
In general, liberalization refers to a relaxation of previous government restrictions, usually
in areas of social and economic policy. In the area of social policy it may refer to a
relaxation of laws, restricting the society. Most often, the term is used to refer to economic
liberalization, especially trade liberalization or capital market liberalization.
Policies of liberalization are being pursued as part of economic reforms in India. The
objectives of liberalization basically are:
1. To enhance budgetary receipts.
2. To minimize budgetary support towards loss making units.
3. To improve performance by bringing out changes in ownership and performance through
disinvestment.
4. To ensure long term viability and sustainable levels of employment in public sector
enterprises.
V. Liberalization and it’s impact on SSIs in India
India has traditionally always had a very vibrant and competitive SSI. Even after the dawn
of industrialization, British producers of textiles found handmade Indian textiles such a
threat that they lobbied hard to have its import banned, succeeding in the late 18th
century (Gupta and Sharma,C1996).

During pre-economic liberalization period a wide variety of incentives, concessions and

institutional facilities were extended for the development of SSIs but these socialistic
promotional policy measures, (Tripathi, 2006), in many cases resulted in protection of
weak units rather (Parthasarathy, 1996) than the independent growth of units under
competitive business environment (Porter and Linde, 1995; Nyati, 1988). Such situation
continued up to the middle of 1991. Under the regime of economic liberalization, the
focus was shifted from ―protection‖ to ―competitive promotion‖ (Peattie, 1995; Raja and
Rajashekar, 2002).
VI. Five-Year Plan of Industrial Development

The target for industrial growth in the Ninth Plan was set at 8.2 per cent. The major focus
of the plan was on the building of adequate infrastructural facilities and also improving the
'quality‘ infrastructure. To promote foreign direct investment, the plan proposed to increase
the number of industries in which automatic approval would be granted. Special steps were
envisaged to encourage industries in backward areas.

It aimed to 'priorities' the efforts on the large number of Growth Centers under
implementation so that maximum benefits can be obtained from the investments in these
centers in the shortest possible time. The Plan advocated a number of steps for the
industrial development of the North Eastern Region.
The plan divided Public Sector Enterprises (PSEs) into three categories:
(i) Profit making PSEs,
(ii) PSEs making only marginal profits or losses, and
(iii) PSEs incurring substantial losses. The Government categorised PSEs as Navratnas and
97 as Miniratnas amongst the first category which will be provided increased financial and
managerial autonomy.

The second category of PSEs would be provided limited budgetary support and
assistance to enable them to stand on their own feet. The Plan advocated for taking 'hard
decisions in case of third category of PSEs.
In the field of small-scale industries, the Ninth Plan advocates de-reservation. This will
help a number of small scale units to upgrade their technology, improve the quality of their
products, expand the scale of their operations, and boost their exports. Since the biggest
problem facing the small-scale industries is the inadequate availability of credit, the Plan
proposed a number of steps to mitigate this problem.
VII. State Level Institutional Support
A. TECSOK
TECSOK(Technical Consultancy Services Organization of Karnataka) is a multidisciplinary
management consultancy organization promoted by the Government of Karnataka to
provide reliable consultancy services in India. TECSOK has been excelling its expertise in a
wide range of services.

The package of services includes feasibility studies, market research, valuation of assets,
environment impact studies, energy management and audit, management studies like
corporate plan, reorganization and restructuring of enterprises, man power planning,
budgetary control systems, mergers and acquisitions, investment opportunities,
technology transfers, diagnostic studies and also designing and organizing training
programmes in all related areas. Of late, TECSOK is also concentrating on studies relating
to Cleaner Production technologies and methods.

TECSOK has been considered by the Government of Karnataka, Government of India,

State & Central Financial Institutions, Commercial Banks, Asian Development Bank and a
host of other institutions of the Government and Private as the recognized consultancy
agency.

TECSOK has been recognized as the State Nodal Agency by the Ministry of Food
Processing Industries, Govt of India to operate the Ministry's Promotional Schemes in
Karnataka.
The TECSOK consultancy is driven by top-notch professionals from different disciplines;
engineers, management experts, economists and financial consultants. TECSOK partners
with reputed national and multinational consultants, outsourcing expertise for
professional synergy.

As an investor, there are many imponderables that will engage your mind. For instance,
you would like to have reliable information on the kind of product that would be feasible,
the location for your industry, and the procedures for establishing the industry. Other
inputs you may require would be in the area of market research, manpower planning,
technology, environmental issues etc.

TECSOK, with its vast experience will provide you valuable insights and practical
solutions in all of these areas and others in which you may need assistance. With its range
of services, TECSOK offers a single platform from which you can get all the inputs you
require.
U can rely on TECSOK for

Location Specific identification of investment opportunities.

Assistance in obtaining statutory and procedural clearances.
Feasibility studies and environment impact studies.
Preparation of detailed project reports as per investment norms and financial norms.
Market survey and research.
Project implementation and turn key assistance.
Reorganization and restructuring of enterprises.
Valuation of assets, man power planning & budgetary control system.
Energy management & audit, corporate plan, technology transfer.
Diagnostic studies and rehabilitation of sick industries.
Designing and organizing training programmes
Since its inception, TECSOK has catalysed a large number of industries throughout the
province.
Management studies, company formation, corporate plan, enterprise restructuring.
Port tariff study and related areas.
Consultancy for agro-base industries as a Nodal Agency of Government of India.
Consultancy for merger/takeovers.
Infrastructure development project reports.
U can rely on TECSOK for

Location Specific identification of investment opportunities.

Assistance in obtaining statutory and procedural clearances.
Feasibility studies and environment impact studies.
Preparation of detailed project reports as per investment norms and financial norms.
Market survey and research.
Project implementation and turn key assistance.
Reorganization and restructuring of enterprises.
Valuation of assets, man power planning & budgetary control system.
Energy management & audit, corporate plan, technology transfer.
Diagnostic studies and rehabilitation of sick industries.
Designing and organizing training programmes
Since its inception, TECSOK has catalysed a large number of industries throughout the
province.
Management studies, company formation, corporate plan, enterprise restructuring.
Port tariff study and related areas.
Consultancy for agro-base industries as a Nodal Agency of Government of India.
Consultancy for merger/takeovers.
Infrastructure development project reports.
B. KSSIDC (Karnataka State Small Industrial Development Corporation Ltd)
INTRODUCTION: The growth of Small Scale Industries in our country since independence
is rightly regarded as one of the most significant features of planned economic
development. The very concept of small-scale industries, as we know, was not in vogue on
the eve of independence. Rural and Cottage industries, which constituted the
―indigenous sector‖ of our industries, were wide spread throughout the length and
breadth of our country.

Various programmes to sustain, modernise and further develop this group of industries
were initiated soon after the independence and the modern small-scale industry scheme
has gradually emerged out of this programme. The Small Scale Industries have provided
opportunities for self employment to educated young men and experienced technicians
from the middle level of society and contributed full to the growth of industrial
entrepreneurship in our country.

To day small-scale industries is regarded as power tool for balanced regional economic
development. These achievements are primarily due to the dynamic enterprising spirit of
the small-scale industrialists themselves. A positive programme for assistance of small-
scale industries was initiated towards the end of 1954 on the basis of a suggestion made
by the international planning team sponsored by the Ford Foundation at the request of
Govt. of India.
Further, on the basis of the recommendations of the central small scale industries
advisory board the state level organisations to assist the small scale industries for
procurement of scarce raw materials establishment of industrial estates, etc, have been
set up in all states. KSSIDC, is one of such Corporations, established on 29 th April 1960.

The registered office of the Company started functioning at Bangalore in the State of
Karnataka. The Company framed comprehensive and well defined Memorandum of
Association and Articles of Association. Which permit the Corporation to take up any
activity aimed at the rapid development of small-scale industry, subject to the guidelines
issued by the Government from time to time and also as per Govt order as under.
C. KIADB (Karnataka Industrial Area Development Board)

KIADB, a pioneer agency with ISO 9001: 2000 Certification, offers to entrepreneurs an
unmatched convenience of world-class infrastructure for their new ventures and projects.
KIADB rolls out a red-carpet runway to the world of prosperity by providing quality
facilities and services to its clients all over the state of Karnataka .Come and be a part of
our family.

Karnataka Industrial Areas Development Board (KIADB) is a wholly owned infrastructure

agency of Government of Karnataka, set up under Karnataka Industrial Areas Development
Act of 1966. This Board functions as per statutory provisions, rules and regulations enacted
there under.

The Board comprises of senior government officers in their ex-officio capacities. The Board
of members meet regularly to take decisions and monitor the functions. KIADB holds pride
in being the first government organization in Karnataka to obtain ISO 9001 certification in
the year 1997.

Now the KIADB is following ISO 9001:2000 module covering its functions of Land
Acquisition, Development and Allotment functions in Bangalore Urban and Rural districts.
Aims and Objectives :
Promote rapid and orderly development of industries in the state.
Assist in implementation of policies of government within the purview of KIAD
Act.
Facilitate for establishing infrastructure projects.
Function on corporate lines, with ―No Profit – No Loss‖ policy.

Functions :
Acquire land and form industrial areas.
Provide all infrastructure to such industrial areas.
Acquire land for Single Unit Complexes.
Acquire land for Government agencies for their schemes and infrastructure
projects.
 Functional units of KIADB :-
Acquisition Wing:
This wing conducts the proceedings of acquisition and hands over the land to KIADB. Special Deputy
Commissioner heads acquisition wing and assisted by Special Land Acquisition officers at zonal level.
This section is an arm of Government which conducts the proceedings. Board identifies land for
development of industrial areas, for single unit complexes, projects & schemes envisaged by
Government. On ascertaining the suitability of land, notifications under relevant provisions are issued
under KIAD Act of 1966 with approval of Government. Thus the action of acquisition ofbland is
initiated.

Engineering Wing:
Engineering section prepares a design & development plan taking into consideration different
parameters like:
 Infrastructure requirements.
 Statutory & Regulatory requirements.
 Co-0rdination with other agencies.
Chief Engineer and Chief Development Officer heads Engineering section assisted by Development
Officers who are in charge at the Zonal Offices. This wing of KIADB also provides service to the
allottees by approving building plans, providing water supply connections, NOCs for obtaining power
connections from supply agencies and addressing the grievances of allottees at industrial areas in the
matters related to infrastructure.
D. KSFC ( Karnataka State Financial Corporation)
KSFC is one of the fast track term lending financial institutions in the country with assistance to over
1,63,643 units amounting to nearly Rs 10,465 crore over the last 52 years in the State of Karnataka.
KSFC is one of the robust and professionally managed State Financial Corporations. The Infrastructure
Sector is an integral part in the economy of the nation and it is a catalyst in boosting the development
and economy of the country.

Realising this vital factor there is a national focus on infrastructure development. Keeping the need and
potentiality in view, KSFC has decided to contribute in this sector also. Hence, as part of the new
initiative and diversification process, has decided to take up infrastructure development projects with
public / private participation.

The Corporation initially focus and identify valuable vacant lands in the prime localities, to start with
in and around Bangalore city, owned by various Government Departments / Governmental Agencies /
Registered Societies/Trusts, etc., and explore for joint development including SEZ. The Corporation
would take care of all the financial tie ups for development of these properties. The expected income
out of different revenue models, will be shared with the owners of the properties in appropriate ratio on
mutually agreeable terms, after studying economics / viability.

The joint venture infrastructure will be of world class and state of art technology. It could be IT park,
Shopping Mall, Commercial complex, SEZ, etc., depending upon the location of the property and
potentiality. This new activity will ensure sustained cash flow for the concerned owner of the property
as well as our Corporation by way of rentals and other earnings, which will obviously be mutually
beneficial to both the institutions. Accordingly, a separate Infrastructure Development Department
(IDD) has been created and necessary approval from SIDBI has also been obtained.