Small Scale Industry

Small Scale Industry
Presented By: Prakhyath Rai

Contents
Introduction and Definition of SSI
Classification of SSI
Characteristics of SSI
Need and Rationale of SSI
Objectives of SSI
Scope of SSI
Role of SSI in economic Development
Advantages and Weaknesses of SSI
Steps to Start a SSI
Government Policy towards SSI
Government Support to SSI during 5 Year Plans
Impact of Privatization, Liberalization and Globalization on SSI
Supporting Agencies of Government for SSI

Introduction
Prakhyath Rai, Asst. Professor, Department of ISE, SCEM, Mangaluru-575007

Introduction Cont..
Small scale Industries have occupied an important place in the process of
industrialization in the country, resolving certain issues such as:
 Abundant manpower
 Poor finances
 Problem of unemployment and underemployment
 Over dependence on agriculture
 Transportation difficulty and Lack of modern technology

Introduction Cont..
Small scale industries makes use of local raw materials, local skills, local finance and
generally local markets.
Small scale industries contribute to socio-economic development of the country.
Small scale industries and business sectors have emerged as a dynamic and vibrant
sector for the Indian economy.
SSI’s account to 35% of Indian industrial exports.

Definition of SSI
“An industrial undertaking in which the investment in fixed assets, plant and machinery
does not ross Rs. 10 million is treated as a SSI unit. This is irrespective of whether the
assets are held on ownership terms, on lease or on hire purchase.”

Examples of SSI

Classification of SSI
Small Scale Industries are broadly classified as:

Traditional Industries
Khadi and Village industry
Handloom
Handicrafts
Coir
Sericulture

Modern Industries
Small-scale industrial undertaking
EOU (Export Oriented) SSI units
Ancillary industrial unit
Tiny industrial unit
Small-scale business and enterprises

EOU SSI Unit

Ancillary Industrial Unit

Tiny Industrial Unit
Industrial Units where the investment in plant and machinery is limited to Rs. 25 Lakh,
irrespective of the location of the unit are referred as tiny industrial units.

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Characteristics of SSI Cont..
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Need and Rationale of SSI

Need and Rationale of SSI Cont..
Need for Employment
Given scarce capital and abundant
labour, it is necessary to provide large
scale employment opportunities so as
to lift people above poverty line.

Large scale industries may lead to
concentrate income into few hands
whereas SSI’s ensure equitable
distribution of national income and
wealth.
Need for Equality

SSI’s basically help in identifying
small time entrepreneurs who would
have not come up otherwise. SSI’s
provide opportunities for unearthing
latent entrepreneurial talents.
Need for Entrepreneurs

Need for Decentralization
Decentralization of industries actually
help in taping local resources like raw
materials, local labour and talent etc.
which in turn helps local economy

Objectives of SSI
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Objectives of SSI Cont..
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• To generate immediate and large scale employment opportunities in all parts
of the country with relatively low investment.

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• To reduce the unemployment and underemployment problems in the country 12

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• To encourage setting up of industries in small towns and villages thus
improving local economy. 23

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• To bring poor and backward areas to the mainstream of national
development 34

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• To ensure a better and equitable distribution of national income and wealth
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• To mobilize the country’s untapped capital and human resources
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• To generally improve the standard of living in our country
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• To encourage small entrepreneurs and help them to grow and realize their
dreams 78

Scope of SSI
‘Scope of SSI’ refers to the range of activities and the type of products that come under
the SSI.
Example:
1) Manufacturing activities 2) Construction activities
3) Public Activities 4) Service/Repairing activities
5) Financial activities 6) Retailing activities
7) Wholesale business

Scope of SSI Cont..
 In India, the small scale sector is protected by the government by way of
reservation.
 Indian government has made a list of items which are reserved for exclusive
production in small sector { No large scale industry may produce any of these items
reserved in favor of SSI’s}.
 The main objective of this reservation is to insulate the smallsector from unequal
competition with the large industrial establishment.

Scope of SSI Cont..
 Some of the items in the reserved list are as follows,
1) Leather products 2) Rubber products
3) Cotton hosiery 4) Natural essential oils
5) Auto ancillary 6) Boat making
7) Foundries 8) Khadi products
9) Flour mills 10) Wooden furniture

Role of SSI in Economic Development
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Role of SSI in Economic Development Cont..
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Advantages of SSI
Defensive Stocks
Most units do nor require high-end technology
SSI’s can be located anywhere
SSI’s use local resources and manpower thus improving local economy
Gestation period of SSI’s are less
SSI’s help earn and save foreign exchange
SSI’s provide self-employment opportunities with low investments

Advantages of SSI Cont..
Defensive Stocks
SSI’s introduce to the world local craftsmanship and handicrafts
SSI’s require simple technology and low managerial skills
SSI’s assist large and medium industries by acting as ancillaries
SSI’s inspire entrepreneurs to start their own ventures
SSI’s help in facilitating decentralization of wealth in certain hands
SSI’s make use of the large semi skilled and unskilled labour

Weaknesses/Drawbacks/Disadvantages of SSI

Raw Materials
Finance
Marketing
Capacity under-utilization
Outdated Technology
The problem with respect
to raw materials are as
follows,
Absolute scarcity
Poor quality
High cost

Raw Materials
Finance
Marketing
Outdated Technology
The problem with respect to
finance are due to,
Scarcity of Capital
Weak creditworthiness of
small units in country.

Raw Materials
Finance
Marketing
Outdated Technology
SSI units lack professional
marketing executives as
employed by large sectors,
hence marketing can be a
weakness.

Raw Materials
Finance
Marketing
Outdated Technology
Capacity in SSI is not fully
utilized leading to lower
optimization.

Raw Materials
Finance
Marketing
Outdated Technology
Continued usage of old
technology and no upgradation
brings down their efficiency.

Over Protection
Inefficient Entrepreneurs
Zero R & D
Lack of Successors
Low Wages
Most of the SSI units do not
have desire to grow to medium
and large scale because of the
benefits of protection and
reservation given to them.

Over Protection
Zero R & D
Lack of Successors
Low Wages
Entrepreneurs who are young, and
lack industrial experience, and also
whose financial background is
weak and those who are stressed
out, are like to fail faster.

Over Protection
Zero R & D
Lack of Successors
Low Wages
SSI units hardly invest in R & D
and hence they lack in
introducing any innovation into
the market.

Over Protection
Zero R & D
Lack of Successors
Low Wages
Many entrepreneurs who run SSI units may,
 Transfer the responsibility to their children
who might be inefficient or are unwilling
to continue family business
Due to these reasons SSI unit may die

Over Protection
Zero R & D
Lack of Successors
Low Wages
SSI’s are labor intensive, the wages paid in
SSI’s are low when compared to those paid
in large scale industries. In many SSI’s
because of lack of safety measures and
proper training to workers, accidents and
injuries are common occurrences.

Steps to Start a SSI
As a pre requisite the entrepreneur must familiarize himself on following activities,
i. Priorities and policies of government.
ii. Assistance, subsidies and facilities offered by various states.
iii. Various organizations like KIADB, SIDBI etc., which help budding entrepreneurs.
iv. Government incentives available for starting a new industry.
v. Licensing and registration requirements.
vi. Policies and regulations concerning imports, exports, laws (legal and industrial),
taxes etc.

Steps to Start a SSI Cont..
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Steps to Start a SSI Cont.
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Steps to Start a SSI Cont.
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Project identification is the process of identifying broad areas where
opportunities for new business ventures exits. The following points have to be
considered with respect to product identification:
i. A new product idea can be pulled from a study of what people need or
what people love. This is known as Market – Pull.
ii. A new product idea can also be pushed into the market with the help of R
& D. This is known as Technology – Pull..
iii. Awareness – market potential, existing competition, availability of raw
material, technology, man power, future demand etc.

Selecting the form of ownership is an important decision taken by the
entrepreneur, various forms of ownership that would be chosen for SSI
are as follows:
i. Sole proprietorship
ii. Family ownership
iii. Partnership
iv. Private limited company
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Factors for deciding the location of the unit are:
i. Proximity to the source of raw materials
ii. Nearest to the market
iii. Availability of all kinds of manpower
iv. Infrastructure available with respect to – factory sheds, industrial
estates, transportation facility, water , waste disposal etc.
v. General business climate of the region
vi. Climate and environmental factors
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A project report is a written document pertaining to the investment proposal. A
project report should include the following information:
i. General information about project
ii. Preliminary analysis of alternatives
iii. Project description
iv. Technical feasibility
v. Economic viability
vi. Financial analysis
vii. Marketing plan etc.
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The registration of small scale units is inculcated in two stages as follows:
i. Provisional Registration – Temporary registration which is needed at
the planning stage in order to bring unit into existence. It is issued by
district unit of Directorate of industries. Provisional registration is
issued for one year initially and then extended by six months for a
maximum of four times.
ii. Permanent Registration – It is applied when the entrepreneur is ready
to commence commercial production.

Arrangement of finance is required for two reasons:
i. Fixed capital – Finance required for setting up infrastructure like land,
buildings, machinery etc.,. This can be generated by,
 Partnership
 Bank loans
 Venture capitalists
 Personal savings
ii. Working Capital – Finance necessary for buying raw materials and
recurring expenditure, can also be raised by various sources.
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Depending on the SSI been set up and the area where the unit is located, a
number of licences and clearances are required to be procured such as:
i. Municipal authorities (If within city limits)
ii. Chief Inspector of Factories (If employed more than 10 individuals)
iii. Ministry of Agriculture (For food and vegetable processing)
iv. State Drug Controller ( For making drugs and cosmetics)
v. Collector, Central Excise (Excise items like alcohol, cigarette etc.,)
vi. Bureau of Indian Standards (For all measurements)
vii. Company law board (For Reg. to corporate body)
viii. Pollution Control Board (For pollution control clearances) etc.,.
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Creating physical infrastructure includes acquiring land and building, selecting,
buying and installation of machinery, and so on.
In case of setting up a manufacturing unit creating physical structure is time
consuming and requires more effort.
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Manpower power is key to success of any organization. The right kind of staff –
right from managerial to worker have to be recruited so that all types of work
can be accomplished.

Raw materials have to be procured in the right quality, quantity and
delivery schedules.
Preferably raw materials have to be collected from several sources.
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Factors to be taken care with respect to power and water supply are:
 Application for connection of power (HT and LT) have to be given in
advance and alternate sources of power and water supply have to be
arranged.

After the basic trial runs, commercial production has to begin with proper
quality checks in place
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Marketing the product is the most important step in realizing the business
ambition. Business is not complete without selling the products and eensuring
that the revenue flows into the organization.

Impact of Liberalization, Privatization and Globalization on SSI
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Impact of Liberalization, Privatization and Globalization on SSI Cont..
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Impact of Liberalization, Privatization and Globalization on SSI Cont..
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Government Policy towards SSI

Government Policy towards SSI Cont..

Effect of WTO/GATT on Indian SSI
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Effect of WTO/GATT on Indian SSI Cont..
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Effect of WTO/GATT on Indian SSI Cont..
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Supporting Agencies of Government for SSI
The agencies of government supporting SSI are classified as:
i. Central Level Institutions
ii. State Level Institutions
iii. Other Agencies

Central Level Institutions
 SSI Board: Small Scale Industries Board
 KVIC: Khadi and Village Industries Commission
 SIDO: Small Industries Development Organization
 NSIC: National Small Industries Corporation Ltd.,
 NSTEDB: National Science and Technology Entrepreneurship Development Board
 NPC: National Productivity Council
 NISIET: National Institute for Small Industry Extension and Training
 IIE: Indian Institute of Entrepreneurship
 EDII: Entrepreneurship Development Institute of India
 NIESBUD: National Institute for Entrepreneurship and Small Business Development

State Level Institutions
 DI: Directorate of Industries
 DIC: District Industries Centre
 SFC: State Financial Corporation
 SIDC: State Industrial Development Corporation
 SSIDC: State Small Industrial Development Corporation

Other Agencies
 SIDBI: Small Industries Development Bank of India
 HUDCO: Housing and Urban Development Corporation Ltd.,
 NGO’s: Non-governmental Organizations
 EPC: Export Promotion Council
 CII: Confederation of Indian Industries
 LUB: Laghu Udyog Bharati
 ICSI: Indian Council of Small Industries
 CSIR: Council of Industrial and Scientific Research
 NABARD: National Bank for Agricultural and Rural Development
 FICCI: Federation of Indian Chambers of Commerce and Industry

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