Small-scale and cottage industries are important parts of the structure and texture of Indian manufacturing sector. Small-scale industrial units are those which operate with a modest investment in fixed capital, relatively small-scale work force and which produce a relatively small volume of output of goods/services. They differ from large-scale industries with respect to size of capital, employment, prodution and management, flow of input and outputs and so on. They differ from cottage industries with respect to the degree of mechanisation of production, ratio of hired labour to family labour, geographic size of market, capital employed and so on.
The present Industrial policy of the Government of India has defined a small-scale industrial unit as a unit having investment upto Rs. 1 crore (Reduced from Rs. 3 crore) in plant and machinery. In the case of an ancillary industrial unit, the limit is also Rs. 1 crore (Reduced from Rs. 3 crore).
The medim sector definition, which would cover enterprises with investment between Rs. 1 crore and Rs. 3 crore has been introduced to help SSI units graduate to medium and then to large scale. Although, the medium scale units would not be provided fiscal and other policy support given to SSI units, they would be provided credit for technology upgradation and modernisation., While units with investment upto Rs. 25 lakhs should be classfied as tiny, units with investment upto Rs. 1 crore should be classifed as SSI units.
Rationale
Small scale and cottage industries occupy an important place in the Indian economy. The Government’s Industrial Policy Resolution of 1956 outline the rationale for small scale industries thus:
“They provide immediate large scale employment; they offer methods of ensuring a more equitable distribution of the income. They facilitate an effective mobilisation of resources, capital and skills which might otherwise remain unutilised. Some of the problems that unplanned urbanisation tend to create will be avoided by the establishment of small centres of industrial production all over the country.”
Thus the rationale for development and support for small industries may be outlined as follows:
1 They are labour-intensive and hence their employment creation potential per unit of investment is higher than that of large industries. In countries like India which carry huge mass of unemployed manpower, small industries are a boon.
2 They are more broad-based and dispersed than large industrial units. Their impact on decentralised regional development, reduction of extreme disparities in income and wealth, improvement of living standards of people and removal of poverty tend to be high.
3 They facilitate the creation of a wider entreprenerial base consisting of small industrial owners and operators. They represent a diffusion of economic power among a large number of small entrepreneurs rather than concentraction of economic power among a small number of large entrepreneurs.
4 They permit an effective mopping up and mobilisation of small savings, scarce captial and local materials, human resources and skills.
5 They help in development of small and medium-seized towns and cities which have more spread-effects on regional industrial development.
6 Their capital resources are modest. They are more suitable for capital-scarce countries like India. The capital-output ratio for small industries is said to be lower than for large industries.
7 They contribute substantially to industrial production and industrial growth.
Performance and contribution
Since Independece, there has been an all-round development of small-scale and cottage industries in India. Their performance and contribution to the growth of the industrial economy of India has been quite remarkable. This will be clear from the following points.
1 The growth rate of small scale sector in term of production has been far faster than that of large scale. It is estimated that they contribute about 40% of the gross value of output in the manufacturing sector.
2 The number of registered and unregistered small scale units which stood at 16,000 units in1950 increased to 5.30 lakh in 1981-82 and 32.25 lakh in 2004.
3 The small scale sector employed 178.5 lakh persons is 1998-99 compared to 67 lakh and 90 lakh persons in 1979-80 and 1984-85 respectively. This represents about 60% of the total industrial employment. Employment in small scale and cottage industries is next only to that of agricultural sector.
4 Exports from this sactor increased from Rs. 852 cores in 1973-74 to Rs. 4,535 crores in 1988-89 and further to around more than Rs 54,000 crores in 1999-2000. It is estimated that this sector contributes over 45 per cent of the manufacturing exprots and 33 per cent of the total exports.
5 Small scale industrial units produce a very wide range of producer goods and consumer goods items needed by the economy. They include both simple and sophisticated engineering products, electrical, electronics, chemicals, plastics, steel, cement, textiles, paper, matches, ready made garments and so on.
6 Ancillary units contribute greatly and cater to requirements of medium and large industrial units for materials, components, consumables and so on.
7 The traditional village and cottage industries which are generally clubbed with modern small-scale industries provide vital means of living to artisans, sustain the vitality and viability of countlesss number of villages and towns, enrich the quality of life in society by providing fine handicrafts and pieces of art and project the heritage of India.
8 A large number small-scale industries which are generally clubbed with modern small-scale industries provide vital means of living to artisans, sustain the vitality and viability of countless number of villages and towns, enrich the quality of life in society by providing fine handicrafts and pieces of art and project the heritage of India.
9 A large number small-scale industries are engaged in the manufacture of consumer goods of mass consumption, thereby making them available in plenty which serves as a non-inflationary force.
Problems and Deficiencies
Though small-scale and cottage industries have recorded impresive growth in terms of numbers, production, employment, exports, regional development and so on, the sector is characterised by several inefficiencies and dogged by several problms which are outlined as follows:
1 Small scale units are concentrated in more industrialised States and around urban conglomerats along with large scale units than in backward States and in medium and small scale town. This is natural since several small scale units depend on large scale units and on large cities as sources of their markets. Their location in developed States like Maharashtra, Gujarat, Tamilnadu, Punjab etc. and large cities is beneficial from their point of view though not so for a balanced and decentralised development of industries in all States, small cities and towns. In a way, small-scale units have let to increased well-developed States and urban conglomerates have, by and large, prospered, traditional small, village and cottage industries which generally are found in small towns and villages have not flourished much. They do not get as much attention, public support and resources as modern small scale industries even though they have a more important role in ameliorating poverty, unemployment, misery and desolation in rural and small town areas and in arresting migration of people to large cities.
2 A large number of small-scale units are said to be bogus and fictitious units. They exist only in name and in the register of government agencies, and not in reality. Unscrupulous individuals find it very easy to float small units and take advantage of concessional and liberalised allocation of import licences, scarce raw materials, and finance only to divert them in the market to the highest bidder. This abuse is said to be very wide-spread in the small industry sector. Genuine small industrial units suffer thereby, because bogus units grab the cream.
3 It is contended that employees and workers of small and cottage industries are less organised and united than those of large-scale industries and hence are more exploited by the owner ship groups. Average salary and wage levels in small and cottage industries are only 50% of the levels which prevail in large industries. Employees and workers of small-scale units work longer hours and in more shabby working conditions than their counterparts in large scale industries. Such employent condition are fertile breeding grounds for strained industrial relations.
4 Doubts have been expressed about the entreprenerial spirit of the owners of small enterprises. Small industry entrepreneurs are said to show more anxiety in availing of the liberal credit and other facilities offered by Government than in developing self-reliance and building up their own resources. Development of small industries would have been much less without government support, protection and patronage.
5 Evidence in favour of the above argument gets strengthened when the extent of industrial sickness and mortality in small industries are considered. Industrial sickness in small industries is far more chronic than in large industries. There are reasons to believe that several thousands of unregistered small unit are sick or likely to be so. The resistance power of small units against sickness is low. The average life span of a large number of small industrial units is hardly two years.
6 As in large scale industries, small-scale industrial units suffer from serious under-utilisation of capacity, which has reached 50% in several units. Proliferation of units in the same industry, because of easy entry conditions, create more capacity than warranted by demand; small units sometimes indulge in unhealthy competition with each other under conditions of buyers’ markets.
7 A few immature behavioral trends characterise small scale industrial units. Just to avoid the problems of compliance with a plethora of factory and labour laws, some small-scale units are said to resort to replacement of labour by capital and becomes more capital-intensive, thereby underminig one of their major strong points, namely, labour intensity. Some other small scale units with a view to continue to enjoy the government support, protection, facilities and concessions, refuse to grow up once they reach the plant and machinery ceiling fixed by government in defining small scale units. They prefer to peg their operations and remain stagnant.
8 It is also stated that a few big business houses have indirectly spread their operations into small scale industrial units because of attractive concessions and facilities offered by government. If this is true, the distinction between small scale and large-scale industrial units, so far as owner-ship structure is concerned, tends to become confused.
9 Inspite of several protective and promotional measures adopted by the Central and State Governments, small scale and village industrial units still face problems in getting scarce raw materials, adequate credit, technical assitance, marketing avenues and so on.
10 In the case of a large number of small scale industries, the quality of products manufactured by them is not upto the desired standard. Several reasons account for this. Small industrial units lack the technical sophistication to make high quality products. For many products, there are no set standards of quality. There is no quality consciousness among some of the users of small industry products. There is no quality control system among many small industrial units.
Remedial measures
The following remedial measures are suggested for a healthy and all-round development of small scale and village industries apart from other remedial measures which suggest themselves on an understanding of the problems outlined above.
1 There should be greater co-ordination among the various government agencies which are associated with meeting the needs of small industries like finance, raw materials, technical expertise, marketing, export promotion, import substituion and so on.
2 There should be a separate public agency at State level to issue licenses for establishment of small scale units so as to ensure that the basic obectives of development of small scale industries are achieved. The scheme of licencing should be simple and free from procedural tangles. Aspects such as location, size, financing scheme, products to be manufactured, back-ground of the promoter, employment potential, demand, cost dynamics, and competitive considerations have to be carefully considered before issuing licences by the Agency.
3 There should be separate and sound institutional arrangements for (i) monitoring the functioning of small industrial units so as to ensure that they operate along commercially sound directions, (ii) for identifying at an early stage likely sickness among the units, (iii) for initiating quick preventive measures to remove the basic sources of sickness and (iv) for rehabilitating sick units.
4 Management Development Institute should be established specifically for providing appropriate management education and training on how to manage small industrial units, for undertaking action research on problems of small industries and for providing consultancy services to small units.
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