The industrial sector in India is broadly segmented into three categories namely : (i) Large Scale factory sector, (ii) Small Scale factory sector, and (iii) Village and Small Industries sector. The units in the large scale factory sector and small scale factory sector are classified on the basis of an upper limit on investment in Plant and Machinery. The SSI sector has been further divided into two broad categories namely, the modern Small Scale Industries and Traditional Industries. The modern Small Scale Industries cover SSI units (both in the Factory/Non-Factory sectors) and Powerloom units. The Traditional Industries sub-sector comprises Tiny and Cottage Industry segments, like Handloom, Khadi and Village Industries, Handicrafts, Sericulture, Silk and Coir. The SSI sector consists of different segments, such as, SSIs, ancillary undertakings, tiny units, export-oriented units, women enterprises and small scale service and business (industry related) enterprises. This segmentation within the SSI sector has been taken up in tandem with the socio-economic policies of the country from time to time.

The Small Scale Industries Sector (SSIs) has grown steadily over the years, and presently occupies an important place in the Indian economy. The SSI sector has played a very important role in the socio-economic development of the country during the past 50 years. It has significantly contributed to the overall growth in terms of the Gross Domestic Product (GDP), employment generation and exports. The performance of the small scale sector, therefore, has a direct impact on the growth of the overall economy. Currently the sector accounted for 95% of the total number of industrial units in the country and contributing 40% of the manufacturing sector output and approximately one-third of the nation's exports. 

The number of registered units in the SSI sector has increased from 0.42 million as at end of 1974 to 3.37 million at the end of March 2001. These numbers are exclusive of units in the unregistered sector. Production in the SSI sector has shown exponential growth from a level of Rs.72 billion in 1973-74 to Rs.6,455 billion in 2000-01, at current prices. In fact, for most of these years, the sector has achieved a rate of growth higher than that of the overall industry sector. As against the growth rate of industry sector of 6.3% in 2000-01 and 4.9% in 1999-2000, the SSI sector achieved growth of 8.2% and 8.1% during the past two years respectively. With regard to the employment the number of persons directly employed in the sector has gone up from 3.97 million as at the end of March 1974 to 118.74 million persons at the end of March 2001. The most significant achievement of the SSI sector is its performance in terms of exports. The share of SSI sector in overall exports from the country has gone up from 16% in 1973-74 to about 35% in 2000-01. The growth of the sector was possible due to the inherent strength of SSIs coupled with developmental support extended by the Government in the past five decades. 

The Government has been taking various measures from time to time in order to enhance the productivity, efficiency and competitiveness of the SSI Sector. In pursuance of the comprehensive policy package announced last year, the major developments that have been taken place in the SSI sector during 2001-02 are briefly indicated below:- 

(a) The investment limit for units in hosiery and hand tool sub sectors was enhanced from Rs.1 crore to Rs.5 crore;

(b) The corpus fund set up under the Credit Guarantee Fund Scheme has been raised to Rs.200 crore from Rs.125 crore;

(c) Credit Guarantee cover against an aggregate credit of Rs.22.88 crore was provided till the end of December, 2001;
(d) 14 Items were dereserved on June 29, 2001 related to leather goods, shoes and toys;

(e) A new scheme named Market Development Assistance Scheme was launched exclusively for the SSI sector; and

(f) Under the Cluster Development Programme, 4 UNIDO assisted projects have been commissioned during the year. 


As on March 31, 2001, there were 2,49,630 sick SSI units which had obtained loans from banks. An amount of Rs.4,506 crore of bank credit was blocked in these units. Of these, only 13,076 units were considered potentially viable by the banks with outstanding credit of Rs.399 crore. Further, banks had identified 2,25,488 units with outstanding bank credit amounting to Rs.3,943 crore as unviable. Rehabilitation of sick units is a costly proposition as it involves rescheduling of past overdues, additional credit for modernisation and technology upgradation and provision for fresh working capital. Presently, the State Level Inter-Institutional Committee (SLIIC) of banks and financial institutions is the only forum looking into rehabilitation of potential viable sick SSI units. However, in the absence of statutory backing, SLIICs has no power to enforce its decisions. 

Industrial Sickness : 

As on March 31, 2001, there were 2,52,947 sick/weak units consisting of 2,49,630 units in the SSI sector and 3,317 units in the non-SSI sector. Among the 3,317 units, the private sector, public sector and joint/co-operative sector accounted for 2,942 units, 255 units, and 106/14 units, respectively. The total number of sick SSI units has decreased from 3,04,235 units to 2,49,630 units but the number of sick/weak units in the non-

SSI sector has increased from 3,164 to 3,317. The total bank credit blocked in sick units has increased from Rs.23,656 crore (as on March 31, 2000) to Rs.25,775 crore (as on March 31, 2001). The small scale sector has Rs.4,506 crore (17.5 percent) blocked in its units while the non-SSI sector has Rs.21,270 crore (82.5 percent). Bank credit blocked in the non-SSI sector in private, public and joint/co-operative units was Rs.17,705 crore, Rs.2,986 crore, and Rs.537 crore / Rs.42 crore, respectively. 
Causes Of Sickness In SSIs : 

i) Absence of proper appraisal of the project and defective analysis of the market acceptability of the product proposed to be manufactured;

ii) Impractical projections for estimated turnover and profitability based on wrong assumptions;

iii) Lack of demand for the products - due to inferior quality and higher prices. Absence of effective marketing arrangement;

iv) Willful mis-management of the units and diversion of funds to other activities i.e. real-estate etc.;

v) Technology obsolescence leading to lack of competitiveness;

vi) Lack of timely and adequate working capital loan available from the banks;

vii) Changes in the Government Policies relating to Import and Export of goods affecting the prospects of SSIs;

viii) Performance of obligation under World Trade Organisation (WTO) agreement regarding free-flow of goods and services and removal of import restrictions etc.


To tackle the problem of rehabilitation of potentially viable sick SSI units, the RBI constituted a working group on November 25, 2000 under the Chairmanship of Shri S.S. Kohli, the then Chairman of Indian Banks Association, to look into the issue. The Working Group submitted its report in May, 2001. All the major recommendations of the working group have been accepted by the RBI, including a change in the Definition of Sick SSI Units, etc. The revised definition would enable banks to take action at an early stage for revival of the units. Based on the accepted recommendations of the Working Group, the RBI has drawn up the revised guidelines for Rehabilitation of sick SSI units, which have been circulated on January 16, 2002 to all the Banks for implementation. 


An SSI unit should be considered "Sick" if 

(a) any of the borrowal accounts of the unit remains sub-standard for more than six months i.e. principal or interest, in respect of any of the borrowal accounts has remained overdue for a period exceeding one year. The requirement of overdue period exceeding one year will remain unchanged, even if the present period for classification of an account as sub-standard, is reduced in due course; 


(b) there is erosion in the net worth due to accumulated cash losses to the extend of 50% of its net worth during the previous accounting year; 


(c) the unit has been in commercial production for atleast two Years. 


A unit may be regarded as potentially viable if it would be in a position, after implementing a relief package spread over a period not exceeding five years from the commencement of the package from banks, financial institutions, Government and other concerned agencies, as may be necessary, to continue to service its repayment obligations as agreed upon including those forming part of the package, without the help of the concessions after the aforesaid period. Based on the norms specified above, it will be for the banks/financial institutions to decide whether a sick SSI unit is potentially viable or not. Viability of a unit identified as sick, should be decided quickly and made known to the unit and other concerned at the earliest. The rehabilitation package should be fully implemented within six months from the date the unit is declared as "Potentially Viable".


Banks have been given the freedom to extend reliefs and concessions beyond the parameters in deserving cases. Only in exceptional cases, concessions/reliefs beyond the parameters should be considered. In fact, the viability study itself should contain a sensitivity analysis in respect of the risks involved that in turn will enable firming up of the corrective action matrix. Norms for grant of reliefs and concessions by banks/financial institutions to potentially viable Sick SSI Units for rehabilitation have already been published in COSIDICI COURIER - January-February, 2002 Issue.

* By Shri K.K. Mudgil, Secretary General, COSIDICI & former Executive Director, National Housing Bank.