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Chapter: 11th 12th std standard Indian Economy Economic status Higher secondary school College

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Role of Small Scale Industries in Economic Development

Small Scale Industries (SSIs) play 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.

Role of Small Scale Industries in Economic Development
 
Small Scale Industries (SSIs) play 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 unorganised 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 industry is mostly defined in terms of the size of investment and labour force. The Industries (Development & Regulation) Act 1951 defines SSI 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 SSI. 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 SSI. During Ninth Plan period, SSI was producing about 8000 items out of which 812 items (15%) were reserved for protection in the small scale sector. In addition, the SSI has been supported and encouraged by various government policies for infrastructure support, technology upgradation, preferential access to credit, preferential policy support, etc.
 
Over the last five decades the small scale industries (SSIs) have emerged as a dynamic and vibrant sector of the Indian economy by helping to generate more new employment avenues, supplying variety of products, contributing to exports facilitating equitable distribution of income, emerging as outsourcing designations.
The SSI sector has been able to achieve 1 to 2 percentage points higher growth than the growth achieved by the whole industries sector. There were 3.4 million small scale industrial units in India that account for more than 40% of the gross value of output in the manufacturing sector and about 35 % of total exports by the end of march 2002.
 
The following are some of the specific contributions of SSIs.
 
The contribution of SSIs to the manufacturing sector and GDP as a whole is significant in terms of its share in total value added.
 
SSI performs a very significant role in generating employment opportunities in a sustainable manner.
 
SSI can play a role in mitigating the problem of imbalance in the balance of payment accounts through its export promotion.
 
While the large scale industries are expected to increases the inequities of income and concentration of wealth, SSI is expected to help widespread equal distribution of income and wealth.
 
SSI may provide opportunities to a large number of capable and potential entrepreneurs who are deprived of appropriate opportunities.
 
It can help to release scarce capital towards productive use.
 
SSI can reap the benefits of lean production and can find new cost-efficient techniques of lean production.
 
As small units can use resources more efficiently to the full capacity without any wastage, they may have higher allocative efficiency.
 
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 Industries

 
SSIs are facing many problems. The following are some of their major problems.
 
Scarcity of inputs
 
Inadequate capital
 
Marketing
 
Under-utilization of capacity
 
High cost of production
 

Government Policy on SSI

 
Having realized the importance of small scale industries to the Indian econmy, the government has supported the SSI through various policy measures since independence.
 
The appointment of Karve Committee by the Planning Commission in 1955 was the first major effort towards the improvement of small scale industries.
 
During the second Five Year, a Japanese team of experts studied the organisation of SSIs in India and made many recommendations including the setting up of industrial estates in large numbers to promote small scale industries.
 
The policy of reservation of items for manufacturing in small scale industries was introduced in 1967. This has received a statutory banking in 1984.
 
A policy package for SSI has been announced in 1991 with the primary objectives of imparting more utility and growth impetus to SSIs.
The Tenth Plan announced a policy package on the basis of the recommendations made by S. P. Gupta's Study Group. It includes policies regarding
 
enhancement of excise duty exemption limit
 
increase in loan limits
 
credit facilities
 

enhancement of investment limit


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