The small scale sector has played a very important role in the socio-economic development of the country during the past 50 years. It has significantly contributed to the overall growth in terms of the Gross Domestic Product (GDP), employment generation and exports. The performance of the small scale sector, therefore, has a direct impact on the growth of the overall economy.
According to projections made by the Ministry of Small Scale Industries during 2000-01, the SSI sector recorded growth in production of 8.09 per cent over the previous year. The small scale industries sector has recorded higher growth rate than the industrial sector as a whole (4.9 per cent during 2000-01). This traditional sector in India is considered to have huge growth prospect with its wide range of products. With 40 percent share in total industrial output and 35 percent share in exports, the small-scale industrial sector in India is acting as Engine of Growth in the new millennium.
The definition for small-scale sector undertakings has changed over time. Initially they were classified into two categories- those using power with less than 50 employees and those not using power with the employee strength being more than 50 but less than 100. According to Ruddrdatt and K.P.M.
Sundaram1 the small-scale sector is classified in to two categories i.e. traditional and modern small-scale units. The traditional industries include khadi and handloom village industries, handicrafts, sericulture, coir, etc. Modern small-scale sector provide wide range of goods from comparatively simple items of sophisticated products such as television sets, electronic control systems, various engineering products, particularly as ancillaries to the large industries. The traditional sector is highly labour intensive and uses less of machine power.
However the capital resources invested on plant and machinery buildings have been the primary criteria to differentiate the small-scale industries from the large and medium scale industries. An industrial unit can be categorized as a small- scale unit if it fulfils the capital investment limit fixed by the Government of India for the small-scale sector.
Background: Small Scale Sector- its reservation
• Reservation of products for exclusive manufacture in the small scale sector as a policy instrument for its promotion owes its origin to the Industries (Development & Regulation) Act, 1951 (section 11B). The main aim for reservation of items for exclusive production in the Small scale sector were the feasibility of producing an item in the Small scale sector without compromising on quality; level of employment generation, diffusion of entrepreneurial talent and prevention of economic concentration etc.
• The reservation policy was initiated in 1967 with 47 items which was enlarged to 504 items by 1978. In 1978, the reservation list was recast into NIC codes which converted these items to 807. Since then, from time to time some items have been added and also some items have been deleted from the list. In addition based on the requirements, the nomenclature of certain items has also been changed. As on today, there are 836 items reserved for exclusive manufacture in the small scale sector. It may be mentioned that the small scale sector produces over 7500 items.
• The term reservation for Small Scale Sector was introduced in Industries (Development & Regulation) Act 1951. In 1984 through an amendment the policy got a statutory backing. The 1984 amendment also provided for constitution of an Advisory Committee on reservation, which meets periodically and considers reservation issues. The Committee was reconstituted in August, 1995. While taking a decision for reservation, the Committee is required to go into aspects like, i) economy in production, ii) level of employment generation, iii) scope of diffusing entrepreneurship and iv) prevention of concentration of economic power.
• There are about 2.7 million small scale units producing around Rs. 3, 37,000 crores worth of goods and employing about 15 million people. At present, the small scale sector accounts for about 40% of industrial production and 35% of the exports of the country.
• It is argued that the policy of reservation has led to rapid growth of the Small Scale Sector, since a significant number of units have come up in the reserved field. According to the Second All India Census, while only about 11% of items are reserved, the units producing reserved items accounted for 36% of the total number of registered units and as such, employ a large number of persons. It is also argued that the policy has also action a price control mechanism for consumer items like biscuits, electrical and electronic goods, safety matches, looks, etc. and that it has led to the promotion of ancillaries as the large units have to obtain reserved components from the small scale units in sectors such as auto mobiles, mechanical and electrical engineering etc. It is also argued that it has helped export promotion, since it is obligatory for the large scale units to export 75% of the produce in case they decide to manufacture reserved items.
Small Scale Sector: A Boon to the Indian Society
The small scale sector has acquired a prominent place in the socio-economic development of the country. Small scale sector aims at maintaining self sustainability in various sectors of the economy. Small scale sector ensures a more equitable distribution of the national income and they facilitate an effective mobilization of resources of capital and skill which might otherwise would have remained unutilized.
The total number of small scale units in the country was 28.6 lakh at the end of 1996-97.Value of Production in 1996-97 aggregating at Rs.4,12,636 crore showed an increase of 15.8per cent over 1995-96. Employment generated by the sector stood at 160 lakh, indicating a growth of 4.8 per cent in the year and exports increased by 7.6 per cent in 1996-97.
Actual production of the small scale sector has always exceeded the annual targets in recent years. In 1996-97, the 11.3 per cent growth in production at 1990-91 prices was much higher than the 7.1 per cent growth in overall industrial production. Employment growth of 4.8 per cent in 1996-97 was also higher than the target of 4.2 per cent for the year and the Union Budget 1997-98, the Small scale industries Excise Exemption Scheme was further simplified and the concessional excise limit was increased to Rs.100 lakh from Rs.75 lakh. While clearances up to Rs.30 lakh are fully exempt from excise duties @ 3 and 5 per cent ad valorem are being charged for clearances between Rs.30-50 lakh and Rs.50-100 lakh, respectively. In June 1997, MODVAT, along with concessional rate of 60 per cent of normal duty on clearances up to Rs.50 lakh and 80 per cent on clearances up to Rs.100 lakh were restored for the SSI sector.
Developments that have taken place during the year 2001-02 for the Small Scale Sector:
1. The investment limit for units in hosiery and hand tool sub sectors was enhanced from Rs.1crore to Rs.5crore.
2. The corpus fund set up under the Credit Guarantee Fund Scheme has been raised to Rs.200crore from Rs.125crore.
3. Credit Guarantee cover against an aggregate credit of Rs.22.88crore was provided till the end of December, 2001.
4. 14 items were de reserved on June 29, 2001 related to leather goods, shoes and toys.
5. A new scheme named Market Development Assistance Scheme was launched exclusively for the SSI sector.
6. Under the Cluster Development Programmed, 4 UNIDO assisted projects have been commissioned during the year.
Small Scale Sector: An Important catalyst for the growth of India’s economy.
Since independence, the small scale sector has rendered a major contribution to the gross domestic product of the country and is important in stabilizing the economic growth of the country.
They play a vital role in changing the industrial scenario and strengthening the industrial sector tremendously. They assist the utilization of assets for productive purposes with minimal initial resources. Small scale sector have contributed greatly in nurturing private enterprise and in hastening the economic development by generating employment, exports, and reducing local unevenness.
This sector estimated to possess a huge potential in the growth of trade with the array of products it offers. With 40 percent share in total industrial output and 35 percent share in exports, small scale sector significantly contribute to the fiscal intensification of the country.
The adored possession of India, the khadi handloom is a favorite product of these industries. Household products to raw materials for large scale industries mark the range of produce by these industries. They are instrumental in transfiguring the areas of horticulture, sericulture, fishery, and garments with the products they supply. The traditional small scale sectors that have been at hand for a long time form the crafty portion and tap the above fields.
In a nation like India small scale sector come as boon. They persuade entrepreneurship and help in employment of local population. As per a report about 273 lakh people are working in small scale sector with a turnover of about 348,059 crores currently. The domestic talents are put to good use to produce commodities that have found market worldwide.
Small scale sector to a degree avert needless urbanization. The number of people migrating to cities in search of jobs shrinks by the employment options domestic industries create thereby reducing pollution and over population in cities and also helps in decentralized industrial expansion. The main reason of a small scale sector is to achieve self reliance by utilizing the resources available and harnessing the skills of local people to lay a platform that yields a steady income.
The industries are characterized by the wise utilization of labor for the commodity production and the advantage lies in the fact that is consumption of ample laborers who are not qualified to work for the large scale industries and thus reducing unemployment and poverty in the country as well. Small Scale Sector helps the financial system in promoting even handed development of industries across all the regions of the economy and also in the efficient distribution of money.
Government has always supported the small scale sector. Government has reserved certain products for manufacture in the small scale sector in areas where there is an economic justification for such an approach to encourage these industries, there are about 675 items reserved for the small industries presently.. There are about 115.2 lakh small scale industries in the country which have influenced the economy of the country by a great deal.
While examining the list of items reserved for exclusive production in the small scale sector the committee of officials should keep in mind the following:
1. The interests of small industries.
2. The minimum economic scale of production.
3. The need for technological up gradation.
4. National and international competitiveness.
5. Productivity.
6. Serving consumer interests.
7. The import and export policies particularly export orientation of small enterprises.
8. Labour intensity.
9. Other related considerations as deemed appropriate.
Policies for Small Scale Sector:
Reservation of items of manufacture exclusively for the small scale sector forms an important focus of the industrial policy as a measure of protecting this sector. Since 24th December 1999, industrial undertakings with an investment up to rupees one crore are within the small scale and ancillary sector. A differential investment limit has been adopted since 9th October 2001 for 41 reserved items where the investment limit upto rupees five crore is prescribed for qualifying as a small scale unit. The investment limit for tiny units is Rs. 25 lakhs.
749 items are reserved for manufacture in the small scale sector. All undertakings other than the small scale industrial undertakings engaged in the manufacture of items reserved for manufacture in the small scale sector are required to obtain an industrial license and undertake an export obligation of 50% of the annual production. This condition of licensing is, however, not applicable to those undertakings operating under 100% Export Oriented Undertakings Scheme, the Export Processing Zone (EPZ) or the Special Economic Zone Schemes (SEZs).
Role of Small Scale Sector in bringing about Economic Development:
Small Scale Sector plays an important role in the economic development of a country. Their role in terms of production, employment generation, contribution to exports and facilitating equitable distribution of income is very critical. The small scale sector consists broadly of 1) the traditional cottage and household industries viz., khadi & village industries, handicrafts, handlooms, sericulture and coir industries; and 2) modern small scale industries.
The traditional village and cottage industries as distinguished from modern small scale industries are mostly unorganized and located in rural areas and semi-urban areas. They normally do not use power operated machines/appliances and use relatively lower levels of investment and technology. But they provide part-time employment to a very large number of poorer sections of the society. They also supply some essential products for mass consumption and exports.
The modern small scale sector is mostly defined in terms of the size of investment and labour force. The Industries (Development & Regulation)
Act 1951 defines Small scale sector having less than 50 workers with the aid of power or less than 100 workers working without the aid of power. The more formal definition is in terms of the fixed assets less than Rs. 35 lakh (1981). In 1991 the limit was raised to Rs. 60-75 lakh. The Ninth Plan fixed the ceiling at Rs. 100 lakh and the Tenth Plan increased to it to 50 corers in the case of hi-tech and export oriented sectors.
Government is extending various steps to the Small scale sector. In India, a unique instrument called reservation in the sense of legal ban on production by large units introduced in 1970s was for the protection and promotion of Small scale sector. During Ninth Plan period, Small scale sector was producing about 8000 items out of which 812 items (15%) were reserved for protection in the small scale sector. In addition, the Small scale sector has been supported and encouraged by various government policies for infrastructure support, technology up gradation, preferential access to credit, preferential policy support, etc.
De-Regulation of Reserved Items:
The Finance Minister had announced in his Budget speech that 108 items would be de-regulated after consulting the stakeholders and on the recommendations of the Advisory Committee constituted under the Industries (Development & Regulation) Act, 1951. Accordingly, the Ministry of Small Scale Industries issued a notification on March 28, 2005 de-regulating 108 items including ten sub items ranging from textile products to agricultural implements from the list of items reserved for exclusive manufacture in the small scale sector. The objective of the de-regulation is to enhance competitiveness in manufacturing these products by freeing them from the limitations of investment. With the deletion of these items the number reserved for exclusive manufacture now stands at 506. The small and medium enterprises fund of Rs.10,000 crore has been operationalised by Small industries development bank of India since April 2004. Eighty per cent of the lending from this fund will be for Small scale units, at interest rate of 2 per cent below the prevailing rates of SIDBI.
Specific contributions of Small scale sector:
1. The contribution of Small scale sector to the manufacturing sector and GDP as a whole is significant in terms of its share in total value added.
2. Small scale sector performs a very significant role in generating employment opportunities in a sustainable manner.
3. Small scale sector can play a role in mitigating the problem of imbalance in the balance of payment accounts through its export promotion.
4. While the large scale industries are expected to increases the inequities of income and concentration of wealth, Small scale sector is expected to help widespread equal distribution of income and wealth.
5. Small scale sector may provide opportunities to a large number of capable and potential entrepreneurs who are deprived of appropriate opportunities.
6. It can help to release scarce capital towards productive use.
7. Small scale sector can reap the benefits of lean production and can find new cost-efficient techniques of lean production.
8. As small units can use resources more efficiently to the full capacity without any wastage, they may have higher allocative efficiency.
9. As the element of risk is minimum in small scale sectors, more resources will be employed by large number of labour force.
Problems of Small Scale Sector:
Small scale sector are facing many problems. The following are some of their major problems:
a) Scarcity of inputs
b) Inadequate capital
c) Marketing
d) Under-utilization of capacity
e) High cost of production
Incentives of Small Scale Sector:
Small Scale sector play an important role as less capital-intensive producers of consumer goods and providers of employment to labour thereby addressing the problems of reducing the poverty and unemployment. According to rough estimates of 2003-04 there are about 113.95 lakh SSI units (registered and unregistered) in the country accounting for more than 40 percent of gross value of output in the manufacturing sector and about 35 percent of the total export of the country. It provides employment to about 271.36 lakh persons, which is second only to agriculture.
One of the measures of the policy support for promoting Small Scale Industries is the policy of reservation of economically viable and technically feasible items for exclusive manufacture in SSI sector. The policy of reservation initiated in 1967 primarily as promotional and protective measure vis-à-vis the large scale sector, grant protection to SSI units by preventing fresh capacities being created in the large scale sector in areas which are techno-economically highly suitable for being taken up in the small scale sector. The only exception being the case of large-scale units, which undertake minimum level of exports as 75% of their total production. The IDR act was amended in March 1984 empowering Government to reserve items for SSI sector. Reservation/ Dereservation of items for manufacture in SSI sector is a continuing process regularly monitored by an Advisory Committee on Reservation constituted under IDR Act. The total number of items reserved for Small Scale Sector are 675 as on 3rd June 2003 and 605 as on 20th October 2004.
The Small Scale Sector has acquired a prominent place in the socio-economic development of the country
during the past five decades, contributing to the overall growth of the gross domestic product towards employment generation and exports. During the year 2002-03 SSI contribution to the Gross Domestic product was 6.81 percent. Having emerged as the engine of growth for Indian Industry, performance of SSI sector has had a direct impact on the growth of the national economy.
There has been a steady increase in number of SSI units, their production, employment and exports over the years. On the production front also, there has been a steady increase over the previous years. The increase was 9.19% in1997-98, 7.84% in 1998-99, 7.09% in 1999-2000 & 8.04% in 2000-01 respectively. In the year 2001-02 the increase over the previous year was registered 6.06% at constant prices i.e. 1993-94 prices. Similarly the increase in production in the year 2002-03 & 2003-04 were 7.68%, 8.59% respectively.
Products for Small Scale Sector:
In India products have been reserved for exclusive manufacture in the Small scale sector for promoting this sector. Currently the investment limit for items to be manufactured in Small scale units is 1 crore. At present 812 items are reserved for manufacture in this sector. This Policy got a legal backing when the Industries (Development & Regulation) Act was amended in March, 1984 empowering the Government to reserve items under this Act. This Act also provided for the Constitution of an Advisory Committee headed by Secretary (SSI & ARI).
Review Of Reservation List:
After the introduction of economic reforms with emphasis on liberalisation, de-licensing and de-regulation, a need was felt by the Government to review the reservation policy. Accordingly, a Committee was constituted under the Chairmanship of Shri T.S Vijayaraghavan, former Additional Secretary in the Ministry of Commerce who has recommended to the Government for de-regulation of 91 items out of 821 items presently reserved in this sector.
Another committee known as Expert Committee under the Chairmanship of Shri Abid Hussain was also constituted to review the policies in the changed economic scenario for Small scale sector who had recommended for total abolition of the reservation for Small scale sector.
Advisory Committee on Reservation constituted under the Industries (Development & Regulation) Act in its meeting held on 19th February 1997 recommended to the Government that the complete de-reservation at this stage is not desirable and de-reservation should be done in a phased manner.
Violation And Punishment:
As per policy no medium/large including multi-national companies are allowed to manufacture reserved items except under 50% export obligation. Those who had been manufacturing reserved items prior to the date of reservation can continue to do so after obtaining a Carry-On Business (COB) Licence from the Government.
Any violation of the policy of reservation is punishable under Section 24 of Industries (Development &Regulation) Act. Appropriate action on the cases of violations of the Policy of Reservation is taken up suitably by the concerned Administrative Ministry/Department.
812 products reserved for exclusive production in the small scale sector.
Revamping Khadi and Village Industries Commission:
The Government is working on the revamping of the Khadi and Village Industries Commission (KVIC). Programmes for modernising the coir, handlooms, power looms, garments, rubber, cashew, handicrafts, food processing, sericulture, wool development, leather, pottery and other cottage industries are also being launched.
Khadi and Village Industries Commission revamping has been necessitated primarily because of the steep decline in employment and nearly stagnant sales of Khadi over the past six years, the need to take effective measures to introduce modern management practices in Khadi and village Industries Commission and make the Khadi products competitive in the globalised economy. Towards these objectives the government dissolved the KVIC on October 14, 2004 and set up a ten-member Expert Committee.
The small enterprises sector also faces several problems which impede its full growth potential. Some of the major problems faced by the sector are access to timely and adequate credit, technological obsolescence, infrastructural bottlenecks, marketing constraints and a plethora of rules and regulations.
Some policy initiatives were taken during the last one year to help promote and develop the Small scale sector. The Government launched a new scheme on the performance and credit rating of the small scale units. The basic objective of the scheme is to sensitise the Small scale sector to the need for credit rating and encourage the SSI units to maintain good financial track record, which would help them earn higher rating for their credit requirements when they approach the financial institutions for their working capital and investment requirements. Here a one-time government grant will be provided to units availing themselves of the benefits of this scheme.
Deregulation of reserved items: Good or Bad?
It is important to look in to the entrepreneurial issues in the light of efficiency building and value addition of this particular sector to the whole economy, particularly after the opening up of the quantity restrictions and deregulation of certain sectors, which were earlier marked exclusively for the Small scale sector. If the result of the second All- India Census of Registered Small-Scale units by Small Industries Development Organisation (SIDO) is any indicator, the small-scale sector needs an emergency attention to save it from mass closure. The rate at which the Small scale units are closing down and others becoming non functional, we are likely to have a large unemployed workforce emerging out of the small scale sector and remaining jobless to add more burden to our already rising level of unemployment in the country.
The standing committee on industry, chaired by Ashok Mitra, has called for an immediate halt to the deregulation of the small scale sector. The panel has, in its report to the Rajya Sabha, made a series of recommendations to protect the small scale sector.
These run counter to the Abid Hussain Committee, which had proposed a gradual withdrawal of protection for the sector.
Deregulation of small scale units should be discontinued till such time that an expert committee made gauged the impact of these moves in recent years. Import duty restructuring, affecting small scale operations that have taken place through 1996-97 and 1997-98 budgets should be kept in abeyance until the expert committee has made a comprehensive support.
The committee has argued that a panel be set up to study deregulation of the small scale sector further. Budget allocations for the small sectors be substantially increased over allocations made in 1997-98 budget.
The small-scale sector is responsible for roughly 30 per cent of total employment in the country. They contribute around 30 per cent to the country’s total exports. In such a scenario, the improvement in these units would mean a substantial reduction in poverty. “It is, therefore, a matter of grave concern that not even 0.3 per cent of the budget outlay is currently allocated towards the small scale sector,”
As a result of the government’s apathy, multinational companies have penetrated areas reserved for the small scale sector with impunity.
The allocation for the small scale sector should be increased four times. And, for the khadi and handloom sector, the budget should be increased six times, the committee argued.
For the khadi and handloom sector the panel has contended that subsidies for khadi units be increased. Arrangements for ensuring regular supply of inputs at substantially low rates to the khadi and handloom units be made. In addition, measures should be taken for improving the marketing infrastructure for their finished products.
With regard to labour and welfare legislations the Committee has argued that no relaxations on vigilance issues be made. The ministries must take the lead to make sure that social welfare measures are enforced with objectivity and compassion.
Environmental issues in administration of old industrial settlements should not be ignored. The new settlements should be carefully planned, the Committee has said. Ministries must exercise continuous vigilance so that contentious issues get amicably settled.
With regard to the ship-breaking industry, the committee has said that attention should be given to the poor working conditions. Issues related to import and excise duties on the industry should be given adequate attention.
Conclusion:
The Small scale sector is non-homogenous in structure and includes diverse types of production units ranging from traditional crafts to high-tech industries. After the introduction of economic reforms with emphasis on liberalization, de licensing and deregulation a need has been felt for a review of the reservation policy. In today’s environment, one has to not only globally compete but has also to compete in the domestic market when the imports are freely allowed except in consumer items. The items produced must be competitive and must meet the needs of consumers from the angles of quality, safety and hygiene. It is being argued that Small scale units reservation has resulted in monopoly like situation in the production of some consumer items by some large scale units who were having an approved capacity prior to reservation and thus dismantling the very objective for which reservation was made. According to a study carried out by National Informatics Centre (NIC) based on data made available by the Second All India Census of Registered SSI Units (1987-88). It was reported that a large number of items as are reserved for small scale are not even produced in the country (The Office of Development Commissioner, however, verified this from the State Governments and SSI Associations and found that many of these items are manufactured in the SSI Sector). Necessity for a relook has also arisen on account of better awareness on safety, quality, environment pollution, productivity etc.
References
1. http://dcmsme.gov.in/publications/reserveditems/itemrese.htm
2. http://pib.nic.in/release/release.asp?relid=9408
3. www.textbooksonline.tn.nic.in/Books/11/Econ-EM/Chapter_07.pdf
4. http://www.education.nic.in/cd50years/15/8P/88/8P880402.htm
5. http://www.books.iupindia.org/overview.asp?bookid=IB1100165
6. http://www.smallindustryindia.com/ssiindia/reservitems.html#list2
7. http://dcmsme.gov.in/publications/reserveditems/itemrese.htm
8. http://dcmsme.gov.in/publications/reserveditems/itemrese.htm
{ 0 comments… add one now }