Small scale industries

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Small Scale Industries: Problems and Policies

Government Policies for Development and Promotion

  • Industrial Policy Resolution (IPR) 1948:
    • Focus: The IPR 1948 recognized the critical role of small-scale industries (SSIs) in India’s industrial development. These industries were seen as vital for utilizing local resources and creating employment opportunities.
    • Protection: Emphasized the need to address problems faced by SSIs, such as shortages of raw materials, capital, skilled labor, and marketing difficulties. The resolution called for cooperation between the Central and State Governments to protect SSIs.
  • Industrial Policy Resolution (IPR) 1956:
    • Development: Building on IPR 1948, IPR 1956 aimed to develop SSIs by integrating them with the broader industrial framework. It continued policy support for SSIs and sought to ensure their growth alongside large-scale industries.
    • Initiatives:
      • Reserved 128 items exclusively for SSIs.
      • Established the Small-Scale Industries Board (SSIB) in 1959 to create development plans for SSIs.
      • Launched specific projects like Rural Industries Projects and Industrial Estates Projects during the Third Five Year Plan (1961-66).
  • Industrial Policy Resolution (IPR) 1977:
    • Promotion: The IPR 1977 shifted the focus to promoting cottage and small-scale industries, particularly in rural areas and small towns, to address industrial imbalances and unemployment.
    • Classification:SSIs were classified into three categories:
      • Cottage and Household Industries: Provided self-employment on a large scale.
      • Tiny Sector: Industrial units with an investment in plant and machinery up to Rs. 1 lakh in towns with populations under 50,000.
      • Small-scale Industries: Units with investments up to Rs. 10 lakhs, and ancillary units up to Rs. 15 lakhs.
    • Measures:
      • Reserved 504 items for exclusive production by SSIs.
      • Established District Industry Centres (DICs) to provide comprehensive support to SSIs.
  • Industrial Policy Resolution (IPR) 1980:
    • Expansion: The IPR 1980 aimed to increase industrial production by optimizing the use of installed capacity and expanding industries.
    • For SSIs:
      • Increased investment ceilings for tiny units to Rs. 2 lakhs, small-scale units to Rs. 20 lakhs, and ancillary units to Rs. 25 lakhs.
      • Introduced the concept of nucleus plants to promote SSIs in industrially backward districts.
      • Focused on promoting village and rural industries for economic viability and environmental compatibility.
  • Industrial Policy Resolution (IPR) 1990:
    • Further Promotion and Development: The IPR 1990 continued to emphasize the importance of SSIs in generating employment and promoting balanced regional development.
    • Key Measures:
      • Increased investment ceilings for SSIs to Rs. 60 lakhs and ancillary units to Rs. 75 lakhs.
      • Raised investment limits for tiny units from Rs. 2 lakhs to Rs. 5 lakhs.
      • Reserved 836 items for exclusive manufacture by SSIs.
      • Introduced a Central Investment Subsidy for SSIs in rural and backward areas to generate employment.
      • Focused on technology upgradation and established the Small Industries Development Bank of India (SIDBI) for timely credit facilities.
      • Emphasized training women and youth through Entrepreneurship Development Programs (EDPs).

Problems Faced by Small Scale Industries

  • Finance:
    • Scarcity of Capital: SSIs often struggle with inadequate funds and credit facilities.
    • High-Cost Funds: Entrepreneurs with weak economic bases have lower creditworthiness, forcing them to borrow at high-interest rates.
  • Raw Material:
    • Availability Issues: SSIs face problems like inadequate quantity, poor quality, and irregular supply of raw materials.
    • High Prices: Larger units corner available raw materials, forcing SSIs to buy at higher prices, increasing their production costs.
  • Idle Capacity:
    • Underutilization: Factors such as raw material shortages, financial constraints, and power supply issues lead to 40-50% underutilization of installed capacity.
  • Technology:
    • Obsolete Methods: Limited access to modern technology and resources leads to lower productivity, inferior quality, and higher costs.
  • Marketing:
    • Limited Information: SSIs often lack access to market data, affecting their ability to compete with large-scale units.
    • Government Support: Some items are reserved for SSIs, and agencies like the Trade Fair Authority of India help in marketing products.
  • Infrastructure:
    • Inadequate Facilities: Poor transportation, communication, and power supply in backward areas hinder operations.
  • Underutilization of Capacity:
    • Limited Use: SSIs often operate at 40-50% capacity due to problems like raw material shortages, financial issues, and power supply interruptions.
  • Project Planning:
    • Poor Planning: Lack of proper feasibility studies and project planning leads to inefficiencies and delays.
    • Inadequate Resources: Limited financial resources prevent SSIs from hiring professional consultants for project planning.
  • Skilled Manpower:
    • Labor Shortage: Difficulty attracting skilled workers to remote areas leads to high labor turnover and absenteeism.
    • Labor Issues: Problems like absenteeism, strikes, and indiscipline affect productivity and quality.
  • Managerial Issues:
    • Lack of Competence: Many small-scale entrepreneurs lack the necessary managerial skills and training to run their businesses effectively.

Government Initiatives for Improvement:

  • Credit Facilities: Easier credit terms and the establishment of SIDBI to support SSIs.
  • Technology and Training: Programs for technology upgradation and training under Entrepreneurship Development Programs.
  • Market Support: Reservation of items for SSIs and support from government agencies in marketing.

These policies and initiatives aim to address the challenges faced by small-scale industries, fostering their development and contribution to the economy.