Small Scale Industries (SSI)

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Small Scale Industries / Business

Meaning and Definition of Small Scale Industries

The definition of small scale industries sector is broadly based on the criterion of original value of plant and machinery. This limit has been revised over the years. Under the Industries (Development and Regulation) Act, 1951 the small scale industry is defined as one with an investment upto Rs. 1 crore in plant and machinery, excluding land and building. However, in the changed economic scenario of liberalization and globalization and with a view to increasing the competitiveness of manufacturing SSI, the investment limit in respect of 71 products has been enhanced to Rs. 5 crore to enable the units manufacturing these products to carry out technological up gradation and modernization 6f units. In addition, investment limit for 69 hi-tech products as well as those for the pharmaceutical sector is also being enhanced to Rs. 5 crore. Presently, the investment limit for a tiny/micro sector is upto Rs. 25 lakh. A small scale industry cannot be owned, controlled or be subsidiary of another industrial undertaking.

The SSI sector covers a wide spectrum of industries. These are categorized under:

  1. Small scale industrial undertakings.
  2. Ancillary industrial undertakings. (ANC)
  3. Export-oriented Units (EOUS)
  4. Tiny enterprises (TINY)
  5. Small scale service enterprises(SSSES)
  6. Small scale service business (Industry Related)
  7. Artisans, village and cottage industries, and
  8. Women entrepreneurs’ enterprises, i.e., a small scale unit where one or more women entrepreneurs have not less than 51 per cent financial holding.

Registration in the SSI sector is voluntary. The registration is done with the District Industries Centres (DICs), firstly on a temporary basis and subsequently, on the request of the concerned entrepreneurs, on a permanent basis. However, as far as manufacturing units are concerned, their registration is mandatory under sections 2m (i) and 2m (ii) of the Factories Act. Besides, some State Governments notify certain industrial activities for mandatory registrations.

Importance of Small Scale Industries

The following points can be put in favour of small scale industries or business:

  1. Balanced Regional Growth:

    Small scale industries help in regional dispersal of industries so as to achieve the goal of balanced regional growth in the country. Large scale industries are established in big cities. Hence rural areas are deprived of the benefits of Industrialisation. Big industries also create problems of pollution, slums, shortage of civic facilities, etc. Small scale industries can be easily located in rural and semi-urban areas to promote regional balanced growth.

  2. Help in Tapping Latent Resources:

    It is also a fact that small scale units help in tapping latent resources like entrepreneurial skills and hoarded wealth especially in rural areas. These enterprises promotes discarding and self-expression in localized innovation. Small enterprises also promote a growing network of feeder and complementary activities.

  3. Promotes Equal Distribution of Wealth:

    Growth of large scale industries results in concentration of economic power in a few hands. It increases inequalities of income and wealth in the country. On the other hand, small enterprises disperse income more widely. The reason is wide ownership and decentralized location of small scale units.

  4. Employment Generation :

    Small scale industries are labour intensive and thus create more employment per unit, of capital. It is found that employment generating capacity of small scale industries is eight times that of the large scale sector. Data indicate that household and small industrial units accounted for about 60 per cent of the total employment generated in industrial sector.

  5. Harmonious Relations:

    Most of the small scale units are either proprietary or partnership firms. As a result, relations between workers and employers are more harmonious in small enterprises than in large enterprises.

  6. Productive Efficiency:

    Small scale industries maintain their cost and productive efficiency in many ways. Small enterprises pay factor prices that are closer to existing scarcities. They pay lower wages. They use unstable labour. They use less capital per unit of output. Their training and development costs are quite low. Also the administrative, selection and insurance costs of loans are quite low in SSIs as compared to large enterprises. The process of receiving capital and loan SSIs is quite simple and cheap. Small units make use of local resources and cater largely to local needs. All this result in higher productive efficiency with lower capital output rations.

  7. Low Social Costs:

    It can be noted that social costs of developing small units especially handicrafts and village industries is lower. Siropolis says, “Benefits of small scale industries include not only lower prices and better product quality for consumers but also a better quality of life-for example, cleaner air.”

  8. Elasticity:

    Elasticity in technical and economic matters in SSI sector is higher as compared to large scale enterprises. It ensures better innovation.

  9. Export Potential:

    Studies prove that small scale sector has a strong export potential. It can promote export-oriented growth. SSIs have the advantages of low overheads and capacity to respond quickly to changing foreign consumer needs. Also, there is growing international preference for high-quality personalized items. Such products require flexibility which can be given by the smaller firms.

  10. Consumer Satisfaction:

    Small enterprises sometimes produce luxury products making intensive use of skilled labour. They cater to every type of consumers to provide maximum satisfaction to them. They also cater to the luxury segment of the market. They also meet the basic needs of poor consumers. The welfare of low income groups is best served by SSIS.

  11. Quick Returns:

    SSIs are expected to earn more quick returns on the capital invested in such industries. These have short gestation period in comparison to medium and large industries.

  12. Fostering Entrepreneurship:

    Small scale units can be started with small capital and low level of skill. These need small infrastructure and have low social costs. There are much more widely dispersed in rural areas and villages. They provide the easy source of employment. Thus, these units attract small entrepreneurs to start their small business. Thus, SSIs are the important source of fostering entrepreneurship in rural areas. They have become more attractive to talented, individualistic men and women.

  13. Flexibility:

    Generally, small units are better able to adapt to changing conditions of business environment. SSIs use the craftsmen’s skills and ability to produce even more varied products. These units produce the entire range of products of modern industry from shoes, ceramics, textiles, garments, agricultural equipment and machine parts. Thus SSIs have quick response to changing economic conditions.

  14. Product Differentiation:

    Small firms emphasize basic product attributes. They emphasize on better quality with low costs. They create new product attributes. They use simple technologies successfully.

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