The changing Small Scale Industries

Smaller firms have done better in the new, more open and competitive environment than larger firms. 

In each year of the 1990s, growth in production of small scale industry has overshot that of its larger and medium scale counter parts, since small firms have the ability to respond very quickly to a change in their environment. For larger industries it takes much longer to react.

Therefore, when a particular product line shows a slow-down in growth smaller firms can change to related products where opportunities are better. And if a particular product line shows higher growth, smaller firms can rapidly expand production. 

Flexibility, not lower costs, are the key advantage of smaller firms. In a more competitive environment, flexibility and adaptability are the key traits of any successful economic activity. Small firms can easily change their product profile and fill in the gaps that larger firms take time to detect, or find too costly to service. 

This flexibility of SSIs is due to various reasons, but there are three which are most important. First, of course, is the fact that because of their nature, change is easier to administer in a small industry. Second, small industry is typically run by an entrepreneur with few hierarchical levels, so decision making is quicker. Third, the incentives for success are much more direct in SSIs. The success or failure of the activity undertaken directly and immediately impacts the entrepreneur. In larger industry the impact takes longer to be felt. As a result, SSI entrepreneurs are much more inclined to change with changing environment. 

This flexibility however can be exploited much better if the unit is located close to the centres of demand (and sometimes supply). This is so because only these centres or markets have the necessary range and variability of requirements and products for trade and transactions to occur. 

Unlike their larger counterparts, small industries are extremely dependent on location. They either have to be close to their markets, or close to their key supply sources. Also, unlike larger industries, small firms gain in many ways from being close to each other. Almost everywhere in the world, and increasingly in India as well, smaller firms in similar product categories tend to be clustered. 

Clustering has advantages, the most important being lower search costs. That is, suppliers and clients of small firms incur lower selling and buying costs because of geographical closeness of the competing units. These lower search costs eventually lead to lower overall costs, lower prices, greater competitiveness, and as a result higher growth. 

In 1987-88 about two thirds of small industries were in backward areas, by 1994-95 a survey on SSIs found that this was less than half, and when data for 2000 is made available, it is indicated that we will find that figure to have fallen below a third. The new SSIs could be in rural or urban areas and close to major centres of demand, but not in backward areas. (Trying to set up SSIs in backward districts was a very bad idea, and is thankfully a dying one. Backward districts have neither the demand for nor the supply of resources). Demand and supply centres tend to be at a distance, accessing them only increases costs and time to service them. The small business is doomed to fail even before it starts. Moreover, small firms are too small to affect the backward nature of the region around them. 

One measure of new SSIs is based on the assigning of a permanent registration number. Almost a fourth of all new SSIs granted permanent registration between 1995-96 and 2000-01 have been in TamilNadu. After that follow Uttar Pradesh, Kerala, Gujarat, Maharashtra. {extracted from an article by Shri Laveesh Bhandari courtesy Business Standard (01.05.2002)}

SSI list sheds 51 reserved items

To open up the small scale sector, the government has removed 51 items, including toothpaste, clocks and watches and hosiery from the list of items reserved for the sector. 

The department of industrial policy and promotion on May 24, 2002 issued a notification dereserving 51 items pertaining to chemicals and drugs, mechanical engineering, mathematical and survey instruments, clocks and watches, auto components, and textiles from the SSI list. 

The move is based on the recommendations of the advisory committee to the department, as also following the representations made by concerned associations to the SSI ministry. With 51 more items off the quota list, there are only 748 items on the reserved list now. 

SSI sector projected to grow at 6.0 - 6.5%

The SSI sector is projected to achieve a moderate 6.0 to 6.5 percent growth rate in 2001-02, marginally lower than an estimated growth of 8.1 percent in 2000-01, according to the latest report on SSI sector prepared by SIDBI. "With regard to the SSI sector, given the policy initiatives taken by the government and a degree of correlation between the industry sector growth and SSI sector growth it is projected that the sector may achieve a growth rate in the range of 6.0 - 6.5 percent," the report for 2001 said. 

SSI limit in drugs, stationary sectors raised to Rs.5 crore

The govt. has decided to increase the investment ceilings for the stationery, drugs and pharmaceuticals sectors to Rs.5 crore, up from the present Rs.1 crore. 

The increase in the investment limits is expected to help these sectors in upgrading technology, improving export potential and adopting international standards. 

Stationery items for which the investment limit has been increased include writing and fountain pen inks, ball point pens, fountain pens, pencils, hand staplers, paper pins, carbon paper, type writer ribbon and pencil sharpeners. Drugs and pharmaceuticals for which the investment limit has been hiked include paracetamol, niacinamide, aluminium hydroxide gel, calcium gluconate, benzyl benzoate and pyrazolones. 

The govt. had earlier raised the investment limit for hand tools and hosiery sectors to Rs.5 crore from an earlier limit of Rs.1 crore. 

Panel set up to review venture funds

The Centre has constituted a task force to review the existing regulatory, tax and legal framework for the venture capital funds and suggest a role for the government in providing a conducive atmosphere for promoting venture capital firms in the small scale sector. 

Senior govt. officials said the task force on financing knowledge-based industries in the small scale sector would review the funding scenario and identify sunrise sectors. The 10 member group, set up by the ministry of small scale industries, will also suggest measures for facilitating small enterprises' access to venture capital options, including the exit route for the venture capital invested.

The group chaired by Shri S.K. Tuteja, Additional Secretary and Development Commissioner, SSI Ministry will include senior officials from the finance ministry, ministry of information technology, department of bio-technology and financial institutions like SIDBI and IDBI. 

New legislation for SSIs on the Anvil

The government is formulating special law for SSIs encompassing all the laws so far governing the sector with a view to provide them conducive environment to face global competition. MoS for SSIs Ms. Vasundhara Raje has said her ministry is also giving final touches to various schemes for strengthening and encouraging tech-upgradation, capital subsidy and creating processing centres at various SSI centers.