Entrepreneurship development and Industrial Consultancy

Module.3 Government policies

Lesson 14
GOVERNMENT POLICY ON SMALL AND MEDIUM ENTERPRISES (SMEs/SSIs)

14.1 Meaning

The small scale industry can be defined in different ways. The conventional definition covers cottage and handicraft industries. This employs labour intensive methods. They do not depend upon hired labor and is largely predominant in village households e.g. Khadi and village industries, handlooms, handicrafts, coir and sericulture.

For the purpose of policy making, an operational definition is given based upon investment limit. It includes all establishments having an investment in fixed asset in plant and machinery, whether held on ownership terms or by lease or by hire purchase, not exceeding rupees sixty lakhs.

For a tiny unit, this limit is of rupees five lakhs. For ancillary industry, investment in plant and machinery does not exceed rupees 75 lakhs and is engaged in

a) The manufacturing of parts, components, sub assemblies, tooling or intermediates or

b) Rendering of services or supplying 1/3 percent of their total service or production as the case may be, to other units for production of other articles.

According to the latest policy measures, SSIs are now categorized as given below in the Table 14.1.

Table 14.1 Classification of SSI

14.2 Government Policy

This can broadly be classified into three categories. A) Policy initiative B) Institutional support C) Credit dispersion.

A) Policy Initiative

1. Small industry policies and incentives: Central government announces its industrial policy resolutions. In all the industrial policy resolutions announced by central government starting form 1948 onwards, gave a thrust for promotion of small units. Central government announces financial, fiscal and infrastructure related initiatives for SSIs for its growth. Along with central government, state governments also announce suitable policy initiative. Some of the items are kept reserved solely to be manufactured by small scale units. A preferential purchase policy is also given in vogue. The director general of supplies and disposal (DGS&D) purchases goods / items from small scale units.

2. Liberalization and SSIs: India adopted policy of liberalization since 1991. Along with other sectors, this move has also facilitated the growth of SSIs. Under liberalization, foreign direct investment in SSIs sector allowed up to 24 persons. Such a policy improves the financial strength and leads to up gradation of technology.

3. Infrastructural facilities: Industrial estates programme, integrated infrastructure development scheme and growth center schemes are some of the schemes initiated by central government for the development of appropriate infrastructure conducive to SSIs. All state governments also implement such schemes in their states.

4. Small industry clusters: Clusters here means an area where similar kinds of industries are located. Such clusters gain advantage of obtaining different materials and services at lower cost from different suppliers. Government helps in development of clusters. e.g. Brass part unit in Jamnagar of Gujarat.

5. Marketing support: For any production organization, the main emphasis is on marketing of their products. This becomes very crucial for SSIs as marketing involves huge costs. To help SSIs in this competitive world, government does adopt suitable measures. Government has established National small Industries Corporation (NSIC) to promote the marketing of SSIs products to government department under the preferential purchase policy. Government also organizes specific training programmes related to marketing and export. It also organizes exhibitions and international trade fair for SSIs and reimburses expenses for foreign visit for marketing purpose by SSIs delegates.

B) Institutional support

Large number of institutions have been established by central government, state government, and industry associations as shown in Table number 14.2 which provides institutional support.

Table 14.2. Network of institutional support

C) Credit support

Several financial institutions/banks etc have been established specifically to cater to the needs of SSIs. e.g. Small Industries Development bank of India etc.

Abid Hussain committee recommendations

An expert committee on small enterprises was constituted in December 1995 under the chairmanship of Shri Abid Hussain, Vice Chairman, Rajiv Gandhi Institute of Contemporary Studies, New Delhi, which submitted its report in January, 1997. The major recommendations of the Abid Hussain Committee are as follows.

1. Abolition of reserved items.

2. Hiking the investment limit for SSIs.

3. Scrapping the foreign investment of 24 percent.

4. New law to cover business practices.

5. Special incentives to clusters of units.

6. Inclusion of service sector under SSIs.

7. National Research Institutions for SSIs.

8. Sanctioning of composite loans and credit rating of SSIs.

9. Liberalizing excise benefits for manufacturing brand name items.