Everything you need to know about the government support to small scale industries. The support system for small scale industries in India is quite comprehensive. Many of these agencies belong to the Central Government, while the rest belong to the state governments.
The small scale industry sector output contributes almost 40% of the gross industrial value-added, 45% of the total exports from India (direct as well as indirect exports) and is the second largest employer of human resources after agriculture.
The development of small scale sector has therefore been assigned an important role in India’s national plans.
In order to protect, support, and promote small enterprises as also to help them become self-supporting, a number of protective and promotional measures have been undertaken by the government.
The various types of help extended by different support agencies of the government are:- 1. Credit Support 2. Marketing Support 3. Entrepreneurship Development 4. Technology Upgradation 5. Industrial Infrastructure 6. Technical Training 7. Institutional Structures 8. Assistance Programmes.
Government Support to Small Scale Industries: Credit Support, Marketing Support, Technology Upgradation and a Few Others
Government Support to Small Scale Industries – Central Government Agencies and State Government Agencies
The small scale industry sector output contributes almost 40% of the gross industrial value-added, 45% of the total exports from India (direct as well as indirect exports) and is the second largest employer of human resources after agriculture. The development of small scale sector has therefore been assigned an important role in India’s national plans.
In order to protect, support, and promote small enterprises as also to help them become self-supporting, a number of protective and promotional measures have been undertaken by the government.
The promotional measures cover the following:
i. Industrial extension services,
ii. Institutional support in respect of credit facilities,
iii. Provision of developed sites for construction of sheds,
iv. Provision of training facilities,
v. Supply of machinery on hire-purchase terms,
vi. Assistance for domestic marketing as well as exports,
vii. Special incentive for setting up enterprises in backward areas, etc.
viii. Technical consultancy and financial assistance for technological up gradation.
While most of the institutional support services and some incentives are provided by the Central Government, others are offered by the state governments in varying degrees to attract investments and promote small industries in varying degrees to attract investments and promote small industries with a view to enhance industrial-production and to generate employment in their respective states.
i. MSME Board:
Micro, Small, and Medium Enterprises Board (MSME Board, formerly known as Small Scale Industries Board, SSI Board) is reconstituted every two years and is headed by the minister-in-charge of Ministry of Micro, Small, and Medium Enterprises in the Government of India.
The Board comprises industry ministers of state governments, secretaries of various departments of Government of India, the heads/senior representatives of financial institutions, public sector undertakings, industry associations and eminent experts in the field.
To facilitate coordination and inter-institutional linkages among various ministries, state governments, banks, financial institutions, MSME associations, etc., the MSME Board has been constituted as the apex advisory body to advise the government on all issues pertaining to the small scale sector.
Though a non-statutory body, the MSME Board provides an effective platform for informed debate and facilitates coordination and inter-institutional linkages.
Established in 1954, the MSME Development Organization (formerly known as the Small Industries Development Organization, SIDO) headed by the Additional Secretary and Development Commissioner (MSME), is one of the apex bodies of the Government of India, Ministry of MSME, to assist the government in formulation of policies and programmes, projects schemes, etc., for the promotion and development of MSME in the country and also coordinating and monitoring the implementation of these policies and programmes, etc.
Promotion and development of MSME is primarily the responsibility of the States and Union Territories (UTs) and the role of the Central Government (including the MSME Development Organization) in this field is to aid and assist the States/UTs in this endeavour.
MSME Development Organization functions through a network of MSME development institutes (formerly known as Small Industries Service Institutes), Branch MSME development institutes, regional testing centres (RTCs), field testing Stations (FTSs), and autonomous bodies.
The major functions of MSMEDO include:
a. Advising the government in policy formulation for the promotion and development of MSME and small scale service and business entities (collectively referred to as small enterprises) and for their graduation to medium enterprises.
b. Providing techno-economic and managerial consultancy, common facilities, and extension services to small enterprises.
c. Providing facilities for technology up gradation, modernization, quality improvement and infrastructure of/for small enterprises.
d. Developing human resources through training and skill up gradation of small entrepreneurs as well as its own manpower.
e. Providing economic information services to the government and small enterprises.
f. Maintaining liaison with other central ministries, planning commission, state governments, and other organizations concerned with development of small enterprises
There are 30 MSME development institutes (formerly Small Industries Service Institutes, SISI) and 28 branch MSME development institutes set up in state capitals and other industrial cities all over the country.
The main functions of these institutions are as follows:
a. Assistance/consultancy to prospective entrepreneurs
b. Assistance/consultancy rendered to existing units
c. Preparation of state industrial profiles
d. Preparation/up gradation of district industrial potential surveys
e. Project profiles
f. Entrepreneurship development programmers
g. Motivational campaigns
h. Production index
i. Management development programmes
j. Energy conservation
k. Pollution control
l. Quality control and up gradation
m. Export promotion
n. Ancillary development
o. Common facility workshop/labs
p. Preparation of directory of specific industry
q. Intensive technical assistance
r. Coordination with district industries centers
s. Linkage with state government functionaries
t. Market surveys
MSME development institutes and their branches have common facility workshops in various trades. There is at present 42 such common facility workshops attached to MSME development institutes.
There are six MSME technology development centers (formerly known as Product-cum-Process Development Centers, PPDCs) at Kannauj (U.P.), Firozabad (U.P.), Meerut (U.P.), Agra (U.P.), Ramnagar (Uttaranchal), Mumbai (Maharashtra).
The functions of these technology development centers are:
a. Research and development in areas of dense industry clusters
b. Product design and innovation
c. Product and process improvement and development of improved packaging techniques
d. Common facility centre
e. Manpower development/training
MSME technology development centers – Footwear (formerly central footwear training institutes, CFTIs) at Agra and Chennai serve the primary objective of human resources development in the footwear sector.
Both the institutes at Agra and Chennai are modernized with UNDP assistance under national leather department programme and fully equipped with state-of-the-art machinery to impart training in the modern methods of footwear manufacturing. The functions of these institutes are to develop footwear designing to promote exports and to provide training for manpower in footwear industry.
MSME testing centers (formerly known as regional testing centers) provide testing and calibration facilities to industries in general and small scale industries in particular for raw materials, semi-finished and finished products manufactured by them. At present, there are four MSME testing centers located at Delhi, Mumbai, Chennai, and Kolkata. Besides, there are seven MSME testing stations located at Jaipur, Bhopal, Kolhapur, Bangalore, Hyderabad, and Chenganacherry.
These MSME testing stations provide testing facilities, in the area of cluster of industries and some strategic industrial locations. These centers as well as stations are equipped with the state-of-the-art indigenous and important equipments in the disciplines of chemical, mechanical, metallurgical, and electrical engineering to undertake performance test, type test, and acceptance test of semi-finished, finished products, etc.
The centers also undertake calibration works for measuring instruments and equipments conforming to international standards. The MSME testing centers are accredited by internationally recognized national accreditation board of testing and calibration laboratories (NABL) certification as per ISO17025.
Major functions of MSME testing centers and MSME testing stations are:
a. Provide testing facilities for quality upgradation
b. Training/consultancy in testing, quality control and quality management
c. Process quality control systems, etc.
d. Product specific testing facilities are provided by MSME testing stations
Coir is the fibre obtained from the husk of coconut, used chiefly in making rope and matting. Coir Board is a statutory body established by the Government of India under a legislation enacted by the Parliament namely, Coir Industry Act 1953 (45 of 1953) for the promotion and development of Coir Industry in India as a whole.
Major functions of the Coir Board are:
a. Promoting exports of coir yarn and coir products and carrying on propaganda for that purpose;
b. Regulating, under the supervision of the Central Government, the production of husks, coir yarn, and coir products by registering coir spindles and looms for manufacturing coir products as also manufacturers of coir products, licensing exporters of coir yarn and coir products, and taking such other appropriate steps as may be prescribed;
c. Undertaking, assisting or encouraging scientific, technological and economic research and assisting the maintenance of one or more research institutes;
d. Collecting statistics from manufacturers of, and dealers in, coir products and from such other persons as may be prescribed, on any matter relating to the coir industry, the publication of statistics so collected or portions thereof or extracts thereof;
e. Fixing grade standards, and arranging when necessary, for inspection of coir fibre, coir yarn and coir products;
f. Improving the marketing of coconut husk, coir fiber, coir yarn, and coir products in India and elsewhere and preventing unfair competition;
g. Setting up or assisting in the setting up of factories for the producers of coir products with the aid of power;
h. Promoting cooperative organization among producers of husks, coir fibre and coir yarn and manufacturers of coir products;
i. Ensuring remunerative returns to producers of husks, coir fiber, and coir yarn and manufacturers of coir products;
j. Licensing of retting places and warehouses and otherwise regulating the stocking and sale of coir fiber, coir yarn, and coir products, both for the internal market and for exports;
k. Advising on all matters relating to the development of the coir industry;
l. Such other matters as may be prescribed.
MSME Tool Rooms/Tool Design Institutes are autonomous bodies under the Ministry of MSME. There are 10 tool rooms in the country to assist SSI units in their technical up gradation by providing good quality tooling’s to meet the growing need and to assist SSI units with the assistance of countries such as Denmark and Federal Republic of Germany who have provided the sophisticated machines with latest technology.
Some of the tool rooms have also been set up with the assistance of UNIDO/ ILO. These tool rooms are located at Indore, Ahmedabad, Ludhiana, Hyderabad, Bhubaneswar, Jamshedpur, Calcutta, Jalandhar, and Nagpur.
State Government run tool rooms are at Lucknow, Delhi, Bangalore, Mysore, and Goa. These tool rooms are equipped with latest imported equipments like CAD/CAM and specialized CNC machines like CNC milling, CNC copy milling, CNC EDM- sparkerosion, CNC wirecut, profile grinding, jig boring, jig grinding, vacuum heat treatment, etc. to provide tooling of international standards at competitive rates.
These tool rooms serve the industries in areas indicated below:
a. Tool Design and Production:
(a) Design and manufacture of dies and tools, mould, jigs and fixtures, gauges and tool components, etc. (up to 1 micron accuracy).
(b) Computer aided design and computer aided manufacturing (CAD/ CAM).
(c) Heat treatment of all types of steels.
(d) Quality control and testing.
b. Training and Consultancy:
(a) Industry-based long-term training for tool and die makers.
(b) Short-term training for managers and supervisors, to upgrade their knowledge and skill.
(c) Need-based technical training for skilled workers/tool-makers/machinists, etc.
(d) Training in CNC technology, inspection, quality control, testing, etc. Entrepreneurship development institutes (EDIs)
viii. Entrepreneurship Development Institutes (EDIs):
There are three national level Entrepreneurship Development Institutes:
a. National Institute of Micro, Small and Medium Industry Extension Training (NIMSMIET), Hyderabad.
b. National Institute for Entrepreneurship and Small Business Development (NIESBUD), New Delhi, which conducts national and international level training programmes in different fields and disciplines.
c. Indian Institute of Entrepreneurship (HE), Guwahati. The main, objective of the institute is to act as a catalyst for entrepreneurship development with its focus on the North East.
Since its establishment in 1955, the National Small Industries Corporation Ltd (NSIC), has been working to fulfill its mission of promoting, aiding and, fostering the growth of small scale industries in the country. Over a period of five decades of transition, growth and development, NSIC has proved its strength within the country and abroad by promoting modernization, up gradation of technology, quality consciousness, strengthening linkages with large and medium enterprises and enhancing exports—projects and products from small industries.
NSIC operates through 9 zonal offices, 33 branch offices, 14 sub-offices, 10 NSIC business development extension offices, 5 technical services centres, 3 extension centres, and 2 software technology parks supported by a team of over 500 professionals spread across the country. To manage operations in African countries, NSIC operates from its office in Johannesburg.
NSIC carries forward its mission to assist small enterprises with a set of specially tailored schemes designed to put them in a competitive and advantageous position. The schemes comprise of facilitating marketing support, credit support, technology support, and other support services.
Established on 2 April 1990, the Small Industries Development Bank of India (SIDBI) is the principal development financial institution for promotion, financing and development of industries in the small scale sector and for coordinating the functions of other institutions engaged in similar activities. SIDBI has the mission to empower the MSME sector with a view to contribute to the process of economic growth, employment generation, and balanced regional development.
SIDBI performs the following major functions:
a. Indirect Finance:
Refinance scheme is used for catering to the need of funds of eligible primary lending institutions (PLIs) like state financial corporations, state industrial development corporations, scheduled commercial banks both in the public and private sector, etc. for financing small scale industries. Under the scheme, SIDBI grants refinance against term loans granted by the eligible PLIs to industrial concerns for setting up industrial projects in the small scale sector as also for their expansion/ modernisation/diversification.
b. Direct Finance:
Through 38 of SIDBI’s own offices by means of several tailor-made schemes to provide financial assistance to specific SSI target groups.
c. Promotional and Developmental Activities:
Like human resource development in SSI sector, technology up gradation, programmes on environment and quality management, market promotion, information dissemination, etc. by involving accredited non-governmental organizations, voluntary organizations, scientific and research institutions, technology institutions, management institutions, etc.
Just imagine a cloth 15 meters long, passing through an ordinary finger ring and weighing merely 10 grams per square meter. Sounds like fantasy? Actually it is a stark reality. We are referring to the handspun, hand-woven cloth — Muslin made by thousands of skilled artisans of rural India known as “Khadi.”
A Village Industry means:
…any industry located in a rural area which produces any goods or renders any service with or without the use of power and in which the fixed capital investment per head of an artisan or a worker does not exceed one lakh fifty thousand rupees for hilly areas and one lakh rupees for other areas or such other sum as may, by notification in the Official Gazette, be specified from time to time by the Central Government;
…any other non-manufacturing unit established for the sole purpose of promoting, maintaining, assisting, servicing (including mother units), or managing any village industry.
The Khadi and Village Industries Commission (KVIC) is a statutory body established by an Act of parliament (No. 61 of 1956, as amended by Act No. 12 of 1987 and Act No. 10 of 2006). In April 1957, it took over the work of former All India Khadi and Village Industries Board.
The broad objectives that the KVIC has set before it are:
a. The social objective of providing employment.
b. The economic objective of producing saleable articles.
c. The wider objective of creating self-reliance amongst the poor and building up of a strong rural community spirit.
Some of the major functions of KVIC are:
a. The KVIC is charged with the planning, promotion, organization, and implementation of programs for the development of Khadi and other village industries in the rural areas in coordination with other agencies engaged in rural development wherever necessary.
b. Its functions also comprise building up of a reserve of raw materials and implements for supply to producers, creation of common service facilities for processing of raw materials as semi-finished goods and provisions of facilities for marketing of KVI products apart from organization of training of artisans engaged in these industries and encouragement of cooperative efforts amongst them. To promote the sale and marketing of khadi and/or products of village industries or handicrafts, the KVIC may forge linkages with established marketing agencies wherever feasible and necessary.
c. The KVIC is also charged with the responsibility of encouraging and promoting research in the production techniques and equipment employed in the KVI sector and providing facilities for the study of the problems relating to it, including the use of non-conventional energy and electric power with a view to increasing productivity, eliminating drudgery and otherwise enhancing their competitive capacity and arranging for dissemination of salient results obtained from such research.
d. Further, the KVIC is entrusted with the task of providing financial assistance to institutions and individuals for development and operation of Khadi and village industries and guiding them through supply of designs, prototypes, and other technical information.
e. In implementing KVI activities, the KVIC may take such steps as to ensure genuineness of the products and to set standards of quality and ensure that the products of KVI do conform to the standards.
f. The KVIC may also undertake directly or through other agencies studies concerning the problems of KVI besides research or establishing pilot projects for the development of KVI.
g. The KVIC is authorized to establish and maintain separate organizations for the purpose of carrying out any or all of the above matters, besides carrying out any other matters incidental to its activities.
All the state governments have their own state-specific policies for the promotion and development of the small, cottage, medium and large scale industries.
In each state, the commissioner/director of industries implements the state government policies and directives for promoting industrial development. The central policies for the SSI sector serve as guidelines for framing state-level policies as well as the package of incentives. The commissioner/director of industries also oversees the activities of their field offices, viz. district industries centers at the district level which are mostly engaged in extension activities, apart from administrative and regulatory work.
The District Industries Centers (DICs) Programme was initiated in May 1978, as a centrally sponsored scheme, with the objective of developing the small, tiny and cottage sector industries in the country and to generate greater employment opportunities especially among rural and backward areas.
The establishment of the offices of DICs at the district level aimed at providing support facilities/concessions/services in dispersed rural areas and other small towns. There were 430 centrally approved DICs, which covered almost all parts of the country except the metropolitan cities at the time of the withdrawal of the central sponsorship in 1993-94. At present, DICs are being operated by respective states.
The extension services provided by the DICs include:
a. Dissemination of information
b. Supply of machinery and equipment
c. Provision of raw materials and quality inputs
d. Arrangements for credit facilities
The State Financial Corporations (SFCs) are state-level financial institutions, operating as regional development banks and playing a crucial role in the development of small and medium enterprises in the states concerned in tandem with national priorities. There are 18 SFCs in the country, of which 17 were set up under the SFCs Act 1951. Tamil Nadu Industrial Investment Corporation Ltd established in 1949 under the Companies Act as Madras Industrial Investment Corporation, also functions as a SFC.
The major functions of SFCs are:
a. SFCs provide financial assistance by way of term loans, direct subscription to equity/debentures, guarantees, discounting of bills of exchange and seed capital.
b. The SFCs operate a number of schemes of refinance arid equity type assistance on behalf of IDBI/SIDBI in addition to special schemes for artisans and special target groups such as SC/ST, women, ex-servicemen, physically handicapped, etc.
c. With the increasing diversification/expansion in the Indian industry, SFCs have started providing assistance to newer types of business activities including floriculture, tissue culture, poultry farming, commercial complexes and services related to engineering, marketing, etc.
d. SFCs have also started offering facilities such as equipment leasing and have entered the field of consultancy, merchant banking, debenture trusteeship, and capital-related services.
e. They also provide financial assistance for small road transport operators, hotels, tourism-related activities, hospitals, nursing homes, etc.
State Industrial Development Corporations / State Industrial Investment Corporations (SIDCs / SECs) were set up under the Companies Act, 1956 as wholly-owned undertakings of the state governments to act as catalysts for industrial development in their respective states. At present, there are 28 SIDCs in the country, of which 11 also function as SFCs and are therefore, termed as twin-function IDCs. SIDCs develop land and provide industrial infrastructure facilities like roads, power, water supply, drainage, and other amenities.
Set up primarily for providing assistance to medium and large scale industries, SIDCs/SIICs also extend assistance to the small scale sector by way of term loans, subscription to equity, and promotional services.
State Small Industries Development Corporations (SSIDCs) were established under the Companies Act, 1956 as state government undertakings to cater to the needs of the small, tiny, and village industries in the respective states/union territories.
Being operationally flexible, SSIDCs undertake a variety of activities for the benefit of the SSI sector such as:
a. Procurement and distribution of scarce raw materials
b. Supply of machinery to SSI units on a hire-purchase basis
c. Providing assistance for the marketing of products
d. Construction of industrial estates, provision of allied infrastructure facilities and their maintenance
e. Extending seed capital assistance on behalf of the State Government
f. Providing management assistance to production units
Technical Consultancy Organizations (TCOs) were set up in different states with the objective of providing a package of consultancy services to small and medium scale enterprises, individual entrepreneurs, government departments, other state-level institutions, and commercial banks for activities relating to industrial development and financing.
The initial thrust of TCOs activities was in the area of pre-investment studies.
Over the years, TCOs have diversified their service domain to include:
a. Preparation of project profiles and feasibility studies
b. Undertaking industrial potential surveys
c. Identification of potential entrepreneurs and provision of technical and management assistance
d. Undertaking market research and surveys for specific products
e. Carrying out energy audits and energy conservation assignments
f. Undertaking export management consultancy for export-oriented projects
g. Conducting entrepreneurship development and skill up gradation programmes, etc.
Other state-level agencies that extend facilities for the promotion of SSIs are state infrastructure development corporation, state cooperative banks, regional rural banks, state export corporation, agro industries corporations and hand- loom and handicrafts corporation.
Government Support to Small Scale Industries – 6 Types of Help Extended by Different Support Agencies of the Government
The various types of help extended by different support agencies of the government. Let us discuss them in detail.
Of all the elements that go into a business, credit is perhaps the most crucial. The best of plans can come to naught if adequate finance is not available at the right time. MSEs need credit support not only for running the enterprise and operational requirements but also for diversification, modernization/up gradation of facilities, capacity expansion, etc.
In respect of MSEs, the problem of credit becomes all the more critical whenever any episodic event occurs such as a large order, rejection of consignment, inordinate delay in payment, etc. In general, MSEs operate on tight budgets, often financed through owner’s own contribution, loans from friends and relatives and some bank credit.
Government of India recognized the need for a focused credit policy for MSEs in the early days of promotion of MSEs.
This in turn led to a credit policy with the following components:
i. Priority Sector Lending:
Credit to the MSE sector is ensured as part of the priority sector lending by banks. Banks are required to compulsorily ensure that a specified percentage (currently 40% for domestic commercial banks and 32% for foreign banks) of their overall lending is made to priority sectors as classified by the government. These sectors include agriculture, small enterprises, retail trade, etc.
ii. Institutional Arrangement:
SIDBI is the principal financial institution for promotion, financing, and development of the MSE sector. Apart from extending financial assistance to the sector, it coordinates the functions of institutions engaged in similar activities. State financial corporations (SFCs) and twin-function state industrial development corporations (SEDCs) at the state level are the main sources of long-term finance for the MSE sector.
With the liberalization of the Indian economy, greater emphasis was placed on meeting the credit needs of MSEs.
This was manifest through the following initiatives:
a. Earmarking of credit for micro enterprises within overall lending to micro and small enterprises.
b. Opening of specialized SME branches.
c. Enhancement in the limit for computation of the aggregate working capital requirements on the basis of minimum 20% of the projected annual turnover.
d. Enhancement of composite loan to Rs.1 crore (Rs.10 million).
e. No collateral security for loans up to Rs.5 lakh (Rs.0.5 million). Banks may on the basis of good track record and financial position of the units, increase the limit of dispensation of collateral requirement for loans up to Rs.25 lakh (2.5 million).
In today’s world, marketing is much more than mere selling. Small enterprises can hardly match the advertising might or distribution reach of a large corporation. In India, small units sell best in limited or neighbourhood markets or when they are meeting a low volume specialized demand which no large player can effectively cater to.
Increasingly, now, the endeavour is to build the marketing activity of small units around their competitive advantage, i.e. products which are labour intensive, items which cater to niche markets, low-volume high- margin products, sub-assembly tasks, outsourcing jobs, and ancillarization.
Subcontracting exchanges are being established through government and industry associations to promote such interface. After-sales service for imported products, AMCs (Annual Maintenance Contracts) on electronic equipment, reverse engineering (to the extent that it is WTO compatible) are the other areas being encouraged.
Activities such as brand building, sustaining loss leaders, extension of product portfolio, nationwide advertising, huge sales force, competing with large scale imports, are tasks best left to large players. Small enterprises in India are realizing that the term “marketing” perhaps implies different things to different people. For new start-ups, head-on competition with established giants makes little sense. A better mouse trap does not ipso facto lead to increased sales and more profits.
The government agencies under marketing support provide the following types of help to SSIs:
i. Subcontracting exchanges – These exchanges enlist SSIs and identify items which can be supplied to public sector undertakings.
ii. Marketing development assistance scheme – The government reimburses 60% of the expenditure incurred by SSI delegations that visit foreign countries for the purpose of exploiting marketing possibilities.
iii. Training programmes for export packaging – Exporters are provided information on the latest packaging standards and techniques in order to boost exports.
iv. Organizing exhibitions and international trade fairs – Exhibitions and international trade fairs are organized abroad by the India Trade Promotion Organization. All expenses for SSIs on space charges, display, shipment, insurance, handling and clearance, publicity, etc. are borne by the government.
Beginning with psychological de-freezing and achievement motivation techniques, knowledge is imparted to participants on the scope and potential of different items, which can be manufactured in a small scale industry, its technical feasibility, economic viability and commercial prospects as a self-employment venture. Efforts are directed not only to inform but to enable them to determine and identify all these themselves. Thus, they are led towards an entrepreneurial decision of product browsing and identification.
The critical areas of product/process design, manufacturing practices, testing, quality control/assurance, appropriate machinery and equipment, project profile preparation, marketing avenues/techniques, product/services pricing, export opportunities, infrastructural facilities, finance and financial institutions, cash flow, industrial policy etc. are also dealt with by experts.
This is supplemented by visits to small scale units and hands-on practices on machinery/process. This enables them to prepare their own project report for which they are helped. Project reports are duly appraised, evaluated, and corrected in consultation with the experts.
Small enterprises are regarded for their labour intensity and the capability to work with local resources. In the past, this has often led to less emphasis on technology. Run-of-the-mill coupled with functional packaging and inadequate, finishing have at times led to small sector products being labelled as being substandard. This has a cascading impact on competitiveness.
In the Indian context, a desire to cut initial costs led to hand-me-down machines being purchased. As small enterprises realized the need to link up with large ones, they are having a re-look at technology options which would improve productivity, effectiveness, and competitiveness.
While sourcing technology, small businesses need to concentrate on the essential issues discussed below:
i. Information about Technology:
For small units, information about technology options is often through word of mouth or from a visit to an advanced unit. Only a few have access to technical literature, professional, journals or information about new product launches. In India, much of this is changing. With the advent of Internet, new vistas are opening up through electronic journals, catalogue downloads and advanced search facilities.
The Technology Bureau for Small Enterprises (TBSE) (www(dot)techsmall(dot)com) promoted with the assistance of the UN offers access to databases and information on technology. In addition, NSIC has taken up an initiative to enhance technology options for SSIs.
Technology intervention in clusters offers nearby units an opportunity for a look and feel of advanced technology. Entrepreneurs are also assisted to participate in overseas trade fairs to update them with the latest technology worldwide. MSME tool rooms, MSME testing centers and testing stations, MSME technology development centers and workshops also assist in this task.
ii. Actual Procurement of Technology:
Even with information, barriers to import of technology, technology transfer issues, vendor capability, after-sales support, import procedures impede procurement. In India, the Asia Pacific Centre for Transfer of Technology promotes match-making between buyer and seller and facilitates procurement through escort services. Encouragement to import of capital goods has also helped matters.
iii. Finance for Technology Upgradation:
Small enterprises look to external sources of funding for upgrading technology as withdrawing money from business entails its own costs. In India, a technology upgradation and modernization fund and a hire-purchase scheme attempts to meet this requirement. These are, however, funds at normal lending costs. A new scheme called credit linked capital subsidy scheme for technology upgradation in small industries has been put into place to reduce the cost of funds.
Government agencies have provided the following types of industrial infrastructure to SSIs:
i. Export Processing Zones (EPZ).
EPZ are special areas designated for providing export production or the processing of manufactured products at low cost. Each EPZ has certain basic infrastructural facilities available like developed land sites, standard designated factory buildings, roads, power, water, and drainage.
ii. Industrial Parks:
The new focus in the specialized industrial clusters, both for the domestic and the export market, is on the development of industrial or technology parks. In this initiative, the government has created electronics hardware technology parks, software technology parks, biotech parks, etc.
iii. Integrated Infrastructual Development Centers (IIDCs):
IIDCs aim at augmenting infrastructural facilities in the rural and backward areas with a special emphasis upon the linkage between agriculture and industry. The DODCs have proximity to the rail head and road links, availability of water, telecommunications facilities, etc. for SSI and tiny units.
Various agencies provide technical training to SSIs for upgrading the technical skills of their employees in specific areas. This is imperative to ensure that SSIs produce quality products which can compete well against the products of the large industrial enterprises and multinational corporations.
Government Support to Small Scale Industries – Institutional Structures and Assistance Programmes
Building upon the problems faced by units in the small scale sector, the Government of India undertook certain measures to assist these units.
These measures may be understood in two broad heads, viz.:
1. Institutional structures and
2. Assistance programmes.
It is the responsibility of the state to provide for development in small scale industries sector. The nodal agency for implementation of various assistance programmes for SSI sector is the State Director of Industries. It is the director who undertakes measures for development of the sector through his team of regional and district officers. Alongside, a range of central and state level institutions also work to look into different aspects of developmental programmes.
The Central Ministry of Industry appoints the Development Commissioner (Small Scale Industries), who heads the Small Industries Development Organization (SIDO) to formulate policies, coordinate and monitor the development of SSIs.
It also seeks to provide technical, economic and management consultancy services to small entrepreneurs through a network of 27 small industries, service institutes (SISIs), 31 branch institutes, 37 extension centres, 18 field testing centres and a number of training and production centres.
The National Small Industries Corporation (NSIC) is another central agency which basically works to provide machinery to small enterprises on a hire-purchase basis. It also promotes schemes to supply raw materials and components to small enterprises besides assisting them in marketing their products. State governments have also set up their own State Industries Corporations in order to provide for development of the sector.
Various All India and State level institutions like All India Handloom Board, the Khadi and Village Industries Commission, the (Central) Handlooms and Handicrafts Board, the Central Sick Board and the Coir Board, etc., have been set up primarily to target cottage and traditional industries.
There are various assistance programmes that have been initiated to develop SSI sector by Government both at Central and State levels.
These programmes include both:
i. Positive measures, and
ii. Negative measures.
There is a big room created for Government’s assistance in terms of technology and management for small scale sector on account of inadequate managerial and technical expertise inbuilt in them. Technical assistance to these units thus, involve identification of new lines of production, provision of operational schemes indicating therein the details of production techniques and equipment required, assistance to plant and machinery installation and timely solution for various production problems.
Besides performing these extensive tasks, institutes set up especially for development of small scale sector also organize common workshops and prototype and production centres to undertake specific manufacturing processes and production of prototypes and machine tools, respectively for the small scale industries.
Training programmes are also conducted for entrepreneurs, managers and workers. In 1993, a scheme covering three major areas was introduced in order to promote the adoption of clean technology by small firms. The areas covered under the scheme were – reduction of waste and pollution from manufacturing process; recycling; collection, storage and processing of industrial and household wastes for re-use, and effluent treatment and disposal.
Another project was undertaken by United Nations Industrial Development Organization on similar lines. This primarily focused at reducing the colossal amount of waste generated by small scale industries. In order to improve upon the standards of quality of SSI products, a quality certification scheme was introduced in 1994. SSI units, under the scheme were granted assistance through financial support and awareness programmes on account of acquiring ISO 9000 or similar international certifications.
Specialized institutions and commodity boards provided assistance in technology in terms of design development and improved production methods to traditional cottage industries. KVIC also conducted special training programmes for supervisor, managers, technicians and artisans in khadi and village industries.
Similarly, artisans in handicraft, sericulture and coir sector also attended such training workshops. The Council for Development of Rural Technology (CART) – now renamed as CAPART (Council for People’s Action and Development of Rural Technology) – acts as a nodal point for coordination of all efforts for the dissemination of technology relevant for rural areas.
(b) Physical Facilities:
Small scale entrepreneurs receive developed basic infrastructure facilities such as power, water, transport, etc., through the Industrial Estate Programme which initiated its operation in 1955. The main objective of the programme is to promote industrialization in backward areas and to provide the benefits of economies of scale to industries in production process.
A scheme to provide assistance for developing industrial areas has also been introduced by SIDBI. The scheme works for extending assistance to bodies working to develop SSI sector such as State Small Industries Development Corporations, State Infrastructure Development Corporations, etc.
Schemes to develop backward areas will be accorded priority in the programme. NABARD also launched a District Rural Industries Project in Mid-1993. The Project envisaged creating an environment and infrastructure conducive to increased production and opportunities for income generation by establishing commercially viable units in the rural sector. Alongside, about 1000 rural technology parks were developed to provide for infrastructure development in village through a mega plan.
(c) Financial Assistance:
It is difficult for firms operating on small scale to raise loans from markets. Also, these units are generally constrained with limited capital. Understanding the difficulties faced by the sector, Government has accorded priority, to the sector in extending credit by financial institutions.
Learning from the experience of reluctant attitude of commercial banks to provide credit to small entrepreneurs, the loans provided by banks to State Industrial financial corporations is also included in priority credit. These financial corporations use these funds to extend credit to units in SSI sector.
Also, commercial banks have been motivated to provide for medium term loans to these units in order to meet their working capital needs. The loans to the sector through commercial banks are provided at concessional rates. Hence, a policy of differential rates of interest has been adopted by commercial banks.
Most of the financial needs of cottage and village industrial sector are fulfilled through budgetary resource from the government. These resources from the government are channelized through the specialized institutions developed to promote specific industries. The Reserve bank, through its cooperative banking system also provides credit to handlooms and other traditional industries.
Small Industries Development Bank of India, SIDBI was set up in 1990 in order to promote, finance development of industries in small sector, and coordinate the functions of institutions engaged in promoting small units. It is an apex All India financial institution with its 25 offices in different states. The equity worth of the institution at the time of its introduction was about Rs.250 crore.
As noted in problems of SSI sector, units in the sector are constrained with unavailability of raw materials to undertake productive activities. To help the sector on this front, the State Small Scale Industries Corporations have been delegated the responsibility to distribute these scarce raw materials in different parts in each state.
However, the system brought with itself the inbuilt limitation to accord priority to relatively efficient firms. In order to provide for uninterrupted supply of raw materials to small scale sector so as to have a break free production process, the government has recently launched a scheme to create buffer stock of these key raw materials. This buffer stock will act as an insurance against their sudden supply disruption and consequent loss of industrial production.
Since units in small scale sector are capital deficient, no attention is paid to market the produced products.
Government assists the units in marketing their products in the following ways:
(i) Exclusive purchase of SSIs products by the government.
(ii) Differential pricing policy followed which provides preference to small scale enterprises in public sector purchases.
(iii) Provision of quality control and testing facilities with a view to increase the competitiveness of the products through small scale units.
(iv) State owned cooperatives and other assisted cooperative societies have opened sales emporia in order to assist products from the sector.
In order to gather information on areas where both large and small sector units work in partnership, a sub-contract exchange for SSIs has been set up recently. A consortium for small scale units has been set up which is entrusted with a responsibility to channelize and identify markets for SSI’s products in India and abroad.
Also, it is the responsibility of consortium to ensure the quality of products as per international standards. Also, the consortium would provide for proper infrastructure and distribution system along with timely payment to the sector against the supply of goods.
Also, Government has undertaken high expenditure to provide for obtaining ISO and ISO 9000 Certification to meet international standards of quality.
The scheme for DICs was introduced in May, 1978 to provide a “focal point” for development of small industries. The main object to set up these centres was to develop modern small scale units and provide institutional set up for traditional cottage industries.
The DICs were responsible to provide for all the services and support at pre-investment and post-investment stages including assistance on raw materials, credit, marketing, training, etc. These centres work as an intermediate party between the developmental blocs and specialized institutions and small scale enterprises.
Numerous fiscal incentives have been provided to small scale industries by governments both at centre and state level.
Some of them may be numbered as:
(1) Tax holidays for new industrial undertakings.
(2) Capital subsidy to industries in backward areas.
(3) Investment allowances.
(4) Price preference of 15 per cent over medium and large enterprises.
(5) Excise duty exemption, etc.
Some special programmes have also been introduced by government along with the above mentioned programmes of general nature. For example, Rural Industries Projects (RIP) and Rural Artisan Programme (RAP) have been implemented to disperse small scale enterprises in backward areas in order to ignite the developmental process in these areas.
The programmes provide subsidiary occupation to small and marginal farmers by upgrading their skills and use of improved tools and equipments. Another scheme introduced by Government for development of backward areas was development of ancillary units around large scale industries in order to produce raw material for them.
However, arguments have been placed both in favour and against the scheme. While some argue that development of such units would make artisans highly dependent on the parent company. Others have considered development of such ancillary unit’s nodal agent to bring about industrialization in backward areas.
(a) The most important of the negative measures adopted by Indian government is the policy of reservations of product lines. The number of reserved product brought down to 21 from about 873. However, the reservation policy of the government could not deliver the projected results.
It could not improve upon the quality and technology of the products in SSI sector. Hence, with introduction of New Policy for Small Sector in August, 1991, big industries were allowed to float small firms by holding about 24 per cent share and manufacture reserved products.
Likewise, the government has allowed enhancement of capacities through investments in plant and machinery in all the reserved areas, provided the additional investments generate incremental exports of 50 per cent of the total turnover with effect from February 7, 1997 as against the requirement of 75 per cent stipulated earlier. This will formally do away with the policy of reservation.
(b) The capacity in a few large industries has been pegged at the exiting level, so as to augment labour-intensive development in the small sector.
(c) Another negative measure is the Government’s decision not to give industrial licenses to new industrial units within the limits of large metropolitan cities having population of more than 1 million so as to promote dispersal of industries to the less congested areas.
(d) Likewise, the Government has decided to reserve purchase of a number of items by the public sector exclusively from Khadi and Village Industries and small scale units. The goods of KVI would be given preference over the private sector goods in buying or selling of goods from the public sector.
Government Support to Small Scale Industries – 8 Important Measures Adopted by the Government to Improve the Lot of Small Business Sector
Small business sector, on the one hand, is crucial for the economic development of the country and on the other hand, it faces severe financial, technological and managerial problems.
Following is a brief account of the important measures adopted by the Government to improve the lot of small business sector:
1. The Government has set up a new ministry of Small Scale Industries and Agro & Rural Industries for looking after small scale business units.
2. The Government gives purchase preference to products manufactured by the small sector.
3. More than 800 items have been reserved for exclusive production by the small scale sector.
4. SIDBI (Small Industries Development Bank of India) has formulated a credit guarantee trust fund for small industries for guaranteeing the loans and advances up to Rs.10 lakhs, without collateral or third party guarantees.
5. The investment in small scale business is generally upto Rs.1 crore. However, in case of high-tech and export oriented units, it has been raised to Rs.5 crores, so as to enable these units to upgrade technology and gain competitive edge.
6. Government has permitted limited partnership for small businesses to enable them to attract capital from friends and relatives, who will have only limited liability. In fact, limited partnerships, otherwise, are not allowed in India.
7. There are many concessions to small scale units in matters of levy of excise duty, custom duty and sales-tax. The income-tax also grants relief to small scale business units.
8. The Government has announced a new policy package for small scale industries. This package aims at providing small sector with the same concessions as—raw materials, bank credit, power and other infrastructure as available to large scale and medium scale industries.