What is Small Scale Industries (SSI)?

What is Small Scale Industries (SSI)?

Small Scale Industries (SSIs) are businesses or manufacturing units that produce goods and services on a small scale using limited capital and manpower. They play a crucial role in a country’s economic development, especially in generating employment and promoting entrepreneurship.

Definitions of Small Scale Industries (SSI)

The definition of small scale enterprise has undergone changes over years with the ceiling raised to take into account the rising cost of machinery as well as failing values of rupee. Various definitions of small scale unit are as u

According to Fiscal Commission – 1950: “A unit operation mainly with hired labour usually 10 to 50 hands.”

According to Small Scale Industries Board – 1955: “A unit employing less than 50 persons if using power and less than 100 without the use of power and with a capital investment not exceeding Rs. 5 lakhs.”

According to Ministry of Commerce and Industry – 1960: “An industrial unit with a capital investment of not more than Rs. 5 lakhs irrespective of the number of persons employed.”

According to Ministry of Commerce and Industry – 1966: “An undertaking having a capital investment in plant and machinery of not more than 7.5 lakhs and Rs. 10 lakhs in case of ancillary units.”

According to the Government of India – 1975: “An undertaking having a capital investment of not more than Rs. 10 lakhs and Rs. 15 lakhs in case of ancillary units.”

According to the Government of India – 1980: “An undertaking having an investment in plant and machinery of not more than 20 lakhs and Rs. 25 lakhs in case of ancillary units.”

According to the Government of India – 1985: “An undertaking having an investment in plant and machinery of not more than 35 lakhs and Rs. 45 lakhs in case of ancillary units.”

According to the Government of India – 1991: “An undertaking having an investment in plant and machinery of not more than 60 lakhs and not more than 75 lakhs in case of ancillary units.”

According to the Government of India – 1997: “An undertaking having an investment in plant and machinery of not more than Rs. 3 crores.”

According to the Government of India – 2000: “An undertaking having an investment in plant and machinery of not more than Rs. 1 crores.”

It is evident from the above definitions that there was an upward revision in the investment limit on plant and machinery in small scale sector from Rs. 5 lakhs to Rs. 3 crores over years but this limit has been reduced from Rs. 3 crores to Rs. 1 crore in the year 1999- 2000.

The Small Scale Industrial Sector has emerged as a dynamic and vibrant sector of the economy during the eighties. At the end of the Seventh Plan period, it accounted for nearly 35 percent of the gross value of output in the manufacturing sector and over 40 percent of the total exports from the country. It also provided employment opportunities to around 12 million people.

The primary objective of the Small Scale Industrial Policy during the nineties would be to impart more vitality and growth-impetus to the sector to enable it to contribute its mite fully to the economy, particularly in terms of growth of output, employment and exports. The sector has been substantially delicensed. Further efforts would be made to deregulate and debureaucratise the sector with a view to remove all fetters on its growth potential, reposing greater faith in small and young entrepreneurs.

All statutes, regulations and procedures would be reviewed and modified, wherever necessary, to ensure that their operations do not militate against the interests of the small and village enterprises.

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Features of Small Scale Industries (SSI)

• Ownership: Ownership of small scale unit is with one individual in sole proprietorship or it can be with a few individuals in partnership.
  
  
• Management and Control: A small scale unit is normally a one man show and even in case of partnership the activities are mainly carried out by the active partner and the rest are generally sleeping partners. These units are managed in a personalized fashion. The owner is activity involved in all the decisions concerning business.
  
  
• Gestation Period: Gestation period is that period after which teething problems are over and return on investments starts. Gestation period of small scale unit is less as compared to large scale unit.
  
  
• Area of Operation: The area of operation of small scale unit is generally localized catering to the local or regional demand. The overall resources at the disposal of small scale units are limited and as a result of this, it is forced to confine its activities to the local level.
  
  
• Technology: Small Industries are fairly labour intensive with comparatively smaller capital investment than the large units. Therefore these units are more suited for economies were capital is scarce and there is abundant supply of labour.
  
  
• Resources: Small scale units use local or indigenous resources and as such can be located anywhere subject to the availability of these resources like labour and raw materials.
  
  
• Dispersal of Units: The development of small scale units in rural and backward areas promotes more balanced regional development and can prevent the influx of job seekers.
  
  
• Flexibility: Small scale units as compared to large scale units are more change susceptible and highly reactive and responsive to socio-economic conditions. They are more likely to adopt changes like new method of production, introduction of new products etc.

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Objectives of Small Scale Industries (SSI)

The small scale sector can stimulate economic activity and is entrusted with the responsibility of realizing the following objectives:

• To create more employment opportunities with less investment.
  
  
• To remove economic backwardness of rural and less develop regions of the economy. 3. To reduce regional imbalances.
  
  
• To mobilize and ensure optimum utilization of unexploited resources of the country.
  
  
• To improve standard of living of people.
  
  
• To ensure equitable distribution of income and wealth.
  
  
• To solve unemployment problem
  
  
• To attain self reliance
  
  
• To adopt latest technology aimed at producing better quality products at lower costs.

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Importance of Small Scale Industries (SSI)

Small scale industries play a very important role in the economic development of our country. The socio-economic development of India depends upon the development of small scale industries. This sector is contributing a lot towards generation of employment, increasing overall production and exports. Highlighting the importance of small scale business even Industrial Policy Resolution 1956 states.

“They provide immediate large scale employment: they offer a method of ensuring a more equitable distribution of the national income and they facilitate an effective mobilization of resources of capital and skill which might otherwise remain unutilized.”

The second Five Year Plan while recognizing the importance of small scale industries states the following five points.

• Generation of employment opportunities.
• An equitable distribution of national income
• Mobilization of capital
• Mobilization of entrepreneurial skills.
• Regional dispersal of industries.

It is evident from the above small scale enterprises play an important role in employment generation, resource mobilization and utilization, income generation and in helping to promote change in a gradual and phase manner.

India occupies a distinct position amongst developing countries specifically in the area of development of small scale industries. India has a vast reservoir of scientific and technical manpower and occupies third position in the world as far as technical manpower is concerned. It has already emerged as a leading player in the development of software technology.

The importance of small scale industries can be judged from the following points.

Employment Generation

Small scale industries employ intensive technology and hence generate more employment opportunities. Small scale industries generate opportunities for self employment of technically qualified persons, artisans and professional.

A major problem confronting our country is of increasing pressure of population on land and need to generate more employment avenues. A given amount of capital is invested in a small industry provide more employment than the same amount of capital invested in a large scale industry.

In a country like India confronted with the twin problems of employment and scarcity of capital, it is only the small scale industry which can be solved these problems. Small scale industries can be located anywhere and hence provide employment to workers near their homes, more work for the under employed and additional work for the farmers when they are idle.

Self Employment

Small scale sector provides numerous opportunities for self employment and hence is more for our country faced with the major problem of unemployment. A self employed entrepreneur is the master of his own show and he thus gets opportunity for doing something creative, new and different. He instead of seeking job for himself, provides employment to others working for himself creates personal interest and successful accomplishment of the task generates job satisfaction and sense of attainment.

Optimum Use of Capital

Small scale enterprises require relatively lesser amount of capital as compared with large scale enterprises. In the context of Indian economy where capital is scarce, small scale sector can act as a stabilizing force by providing high output capital ratio as well as high employment capital ratio. Moreover, due to shorter gestation period small scale units provide early returns to the entrepreneurs.

Small scale units help in capital formation by mobilizing ideal and small scattered saving of the people and put these into productive use by investment in small scale units O.C. Mahalanobis has rightly observed “. In view of the meagerness of capital resources there is no possibility in the short run for creating much employment through the factory industries (large scale). Now consider the household or cottage industries.

They require very little capital. About six or seven hundred rupees would get an artisan family started. With any given investment, employment possibilities would be ten or fifteen times greater in comparison with corresponding factory industries.”

Facilitates Entrepreneurial Development

Small scale sector helps in entrepreneurial development. The units provide self employment to educated unemployed and reduce their over dependence on the government. It also generates feeling of self reliance amongst the people. This sector generates more employment opportunities with relatively lesser capital investment.

Large scale industries cannot provide opportunities to a large number of entrepreneurs, who are scattered over a wide territory. Small scale industries on the other hand can mobilize such entrepreneurial skills more effectively and put these into productive use.

Use of Local Resource

Small scale enterprises employ local resources like raw material, saving, entrepreneurial skill more effectively. In the absence of these enterprises these resources are likely to remain unutilised. Thus on one hand small scale sector ensures better use of the local resources and on the other generates employment opportunities and income for the local population.

Balanced Regional Development

Large scale units are normally concentrated places and this result in generation of employment opportunity, income and development of only these places. Whereas the small scale industries utilises local resources and promote decentralized development of industries. It is only through dispersal of industries in rural and backward areas that the objective of balanced regional development can be achieved.

The small scale sector is by providing employment to people in rural and backward areas help in solving the problems of industrial slums, congestion and pollution in industrial towns. the small scale sector is by generating employment and income in backward areas help in raising standard of living of people.

Conservation of Foreign Exchange

Small scale industries help in saving precious foreign exchange. Firstly small scale units utilize local resources like raw material and available machinery and they are not dependent on costly imports. These units also produce those products, which were earlier being imported.

Secondly there has been considerable increase in exports from the small sector over years and presently this sector contributes about 35 percent to India’s total exports, thus earning precious foreign exchange for the country.

Equitable Spread of Income and Wealth

Small scale industries help in the development of socialistic pattern of society by ensuring equitable distribution of income and wealth. This sector inculcates spirit of entrepreneurship among the people by providing them self employment with limited means.

Ownership of small scale industries is widespread and offer more employment potential as compared with large scale industries. Large scale industries result in concentration of income and wealth in a few hands and that too at selected places whereas small scale industries ensure equitable spread of income and wealth amongst all and that too at all places. Small scale industries thus promote the objective of social justice.

Supporting Large Scale Industries

Small scale industries can facilitate growth and development of large scale industries by providing various parts, components and accessories to large scale industries. Small scale units serve ancillaries to large units by playing a complementary role.

Contribution towards National Economy

Small scale industries have made rapid strides over years and can produce wide range of products having mass consumption. More than 5000 different products are being manufactured in the small sector. This sector is helping in realization of the objective or export promotion and import situation.

Nearly 50 percent of the output of the manufacturing sector in our country is produced by small scale sector. The small scale sector thus plays a very important role in the economic development of our country.