Subject – Economics,

Class: M.A. Economics, Semester - II

Cottage and Small Industries

Dr. Saroj Sinha,

Cottage and Small industries are, for several strong

reasons, of great significance for the Indian economy. To enable

small and cottage industries to play their role well in the

development of the country, it is necessary to remove their

difficulties and make them healthy and sound.

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 The government has, in its development-profile,

assigned an important place to this sector. It is considered a very

helpful factor in the growth of the country. As provider of various

consumer goods, mostly for mass consumption, as also items for

high-income groups and exports, it has been given fairly high

ranking in the economy. The policy leans much on this sector for a

widespread dispersal of industries. In this connection it is

emphasized that this sector is of considerable significance in

creating and sustaining employment, in particular self-employment.

Alongside it implies a direct way of raising the levels of earnings of

artisans, as also of the poor and the very poor. This sector is also

favoured as crucial for the use of local skills and resources. It is also

much praised for providing opportunities for the development of

entrepreneurial skills. Through the promotion of this sector, the

policy also looks upon this sector as a good contributor to the

furtherance of the objectives of growth and welfare.

Besides plan-resources, quite a large investment has

taken place on private account financed partly by government

financial institutions, and partly from promoter's own financial, and

non-financial sources.

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 In a country like India, the position of small scale

industry is quite worth mentioning. The number of small scale units

has been increasing in a comprehensive manner in recent years,

more particularly after the introduction of economic reforms. Table 1

shows the present position of cottage and small scale industries

(C&SSI) units in India. The small scale industry sector continues to

remain an important sector of the economy with a noteworthy

contribution to GDP, industrial production, employment generation

and exports. The performance of the small scale industry sector

based on final results of the Third All India Census of SSIs, 2004 is

given in Table 1. It is observed from Table 1 that, there were all total

25.71 lakh SSI units in the country in 1994-95, out of which 19,44

lakh were registered units and 6.27 lakh were unregistered units.

Again total number of such SSI units in 2004-05 increased to 118.59

lakh, showing a growth of 4.1 per cent over the previous year, out of

which 17.53 lakh were registered units and 101.06 lakh were

unregistered units. It is estimated that the number of SSI units

during 2006-07 has increased to 128.44 lakh registering a growth

rate of 4.1 per cent over the previous year. The value of production

of SSI units in India at current prices has increased from Rs.

2,98,886 crore in 1994-95 to Rs. 4,18,263 crore in 2004-05 and then

to Rs. 4,76,209 crore in 2005-06, registering a growth rate of 16.9

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per cent and 13.9 per cent respectively over the previous year.

Again total value of production of SSI sector at constant prices has

increased from Rs. 2,66,054 crore in 1994-95 to Rs. 2,51,511 crore

in 2004-05 and then to Rs. 2,77,668 crore in 2005-06, registering a

growth rate of 10.0 per cent and 10.4 per cent respectively over the

previous year. Again total value of production of SSI sector

calculated at 2001-02 prices increased to Rs. 4,71,663 crore

registering a growth rate of 12.6 per cent over that of previous year.

Total number of persons employed in these SSI units has also

increased from 146.56 lakh in 1994-95 to 271.36 lakh in 2004-05

and then to 312.52 lakh in 2006-07, showing a growth of 4.1 per

cent and 4.2 per cent respectively over the previous year.

Again exports emanating from SSI sector account for

about 35 per cent of the total value of exports of the country. Total

value of exports of SSI units in India has increased from Rs. 29,068

crore in 1994-95 to Rs. 1,50,242 crore in 2005-06 registering a

growth of 20.8 per cent over the previous year.

Table – 1

Performance of cottage and small scale sector

Year No. of Units (lakh) Production (Rs. Crore) Employment Exports

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 Regd. Unregd. Total (at current at in lakh (Rs.
prices) constant Crore)
prices)*

1994-95 11.61 67.99 79.60 1,22,210 1,09,116 191.40 29,068

(4.1) (23.7) (10.4) (4.8) (14.9)

1996-97 11.99 74.22 86.21 1,68,413 1,35,380 205.86 39,248

(4.1) (13.6) (11.3) (4.0) (7.6)

1998-99 12.00 81.36 93.36 2,12,901 1,59,407 220.55 48.979

(4.1) (12.5) (7.8) (3.5) (10.2)

2000-01 13.10 88.00 101.10 2,61,289 1,84,428 239.09 69.797

(4.1) (11.5) (8.0) (4.4) (28.8)

2002-03 15.91 93.58 109.49 3,11,993 2,10,636 263.68 86,013

(4.1) (10.5) (7.7) (4.5) (20.7)

2004-05 18.34 100.35 118.59 4,18,263 2,51,511 287.55 1,24,417

(4.1) (16.9) (10.0) (4.5) (27.4)

2006-07 20.32 108.12 128.44 N.A. 4,71,663 $ 312.52 N.A.

(4.1) (12.6) (4.2)

* : 1993-94. $ - at 2001-02 prices.

Note : Figures in brackets indicate percentage growth over previous

Source : Ministry of Small Scale Industries and Economic Survey,

Again the total value of exports in US dollar terms from

the SSI sector has increased from $ 8.07 billion in 1993-94 to $

10.90 billion in 1995-96 and then to $ 13.13 billion in 2000-01.

Thus over last five decades after independence, the

small scale industries sector has acquired a place of prominence in

the economy of the country. It has contributed significantly to the

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growth of the gross domestic product (GDP), employment

generation and exports. The sector now broadly includes not only

SSI units but also small scale service and business enterprises

(SSSBEs) and is thus referred to as the small enterprises sector.

SSI sector is maintaining an important position on the

industrial map of the country. Total value of production of SSI units

accounts for nearly 40 per cent of the total value of industrial output

of the country in general. The SSI sector being an labour-intensive

project, can employ on an average 18 to 19 persons with an

investment of Rs. 1 lakh only. Moreover, the SSI sector is also

maintaining a good number of export oriented units (EOUs)

producing goods for meeting demands coming from international

market.

To implement the policy objectives, the government has

adopted several measures to promote these industries. These may

be listed as under :

Facilitative set-up : One set of measures pertain to the

establishment of a number of agencies or organizations to render

various services free or at nominal charges for the development of

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these industries. Some of the important organizations are, for

example, the National Small Industries Corporation, Small Industries

Development Organisation, District Industries Centres, State

Financial Corporations, All India Handloom and Handicrafts Board,

The Central Silk Board, The Khadi and Village Industries

Commission, the State Khadi and Village Industries Boards, etc. In

addition, the commercial banks are under obligation to provide

credit to these industries as part of help to the priority sector. Most

of these organizations provide support of many types at various

stages beginning with the setting up of these industries to the final

stage of scale of their products. These various agencies are the

responsibility of the state governments as the promotion of

industries in this dispersed sector primarily falls within their

responsibility. The Centre, however, plays its important role at the

national level, although it only supplements the efforts of states.

Concessions and reservations : The services, rendered

by the above-mentioned organizations, as also other government

measures of support to these industries, are of various types. One

of them relate to fiscal concessions like those in the field of excise

duties on their products. There is provision also for the procuring of

machinery for the small manufacturers on hire-purchase basis on

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easy terms. Land is also allotted to them on cheap rates.

Considerable latitude is also shown in respect of import of raw

materials for this sector. The small units are also exempted from

certain labour and factory laws. These industries are given

protection in various forms, the most important being reservation of

a large number of products for exclusive production in the small

sector.

Credit flow : Government measures also bear upon the

credit supplies to the small sector. Such agencies as Commercial

Banks, Cooperative Banks, Regional Rural Banks, State financial

Corporation etc. fulfil this function under the direction of

government. In fact these small units are included in the priority

sector to which commercial banks provide a certain percentage of

their credit, at present fixed at 40 per cent. Although non-institutional

sources of finance (like the moneylenders) still figure much in this

field, Government's efforts are to reduce this dependence. The

credit offered is both for long-term purposes like buying of

equipment etc, and for short-term needs like for inputs such as raw

materials, also for marketing etc. Quite a significant part of the credit

is given on concessional terms. Efforts are also being made to

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overcome this difficulty of small borrowers to offer adequate security

for loans by extending loans on the basis of their viability of projects.

Supply of raw materials : Arrangements have also been

made to ensure the supply of raw materials. In the past, the policy

has been to earmark specified quantities of raw materials from

major suppliers and to route them through the state small industries

development corporations for distributions to the small-scale and

cottage units. There have also been selective relaxation in the

import policy in favour of the small-scale sector for the import of

certain raw materials. Buffer-stocks of some of the essential and

scarce raw materials have also been set up for this purpose. As for

the supply of critical inputs (like iron and steel etc.) are concerned,

efforts are made to see that the small sector does not suffer. And

that in the event of scarcity of these inputs becoming acute, its

impact is at least evenly spread between the large and the small

industries.

Marketing support : Government efforts also aim at

improving the marketing of the products. For this, measures are

adopted to orient production so as to meet the consumer needs.

The strategy adopted includes such elements as diversification of

markets and product-mix, introduction of modern marketing

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techniques, better management practices, exploring new markets

etc. The mass media is also made use of for consumer education

and sales promotion. The encouragement of ancillary units is also

seen as helpful factor in this regard, as the products of these

industries get an assured demand for their products from the large

industries. Besides, cooperatives are also promoted to undertake

marketing of these products. In all this, the object is both to sell

more and keep the cost of marketing low.

Improving skill and technology : Government help is also

available for skill-formation and technological upgradation. As for

skill-formation, facilities have been provided for the development of

basic as well as process-oriented skills. These facilities are made

available through training institutes, demonstration centres, mobile

training units etc. Training in technology is also made available so

as to enable the workers to overcome obsolescence in their skills

which is caused by rapidly progressing modern science and

technology. At the technological front, efforts are also being made to

develop suitable technologies which ensure better utilization of local

abundant resources, substitutions of plentiful domestic materials for

the imported ones, reduction of drudgery and fatigue of the workers

etc. At the same time emphasis is laid on the improvement of quality

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of products and production of new products. Measures are also

being adopted to reduce the costs of new and improved

technologies. For all this the government utilizes the expertise and

facilities available with such institutions as national laboratories,

Indian Institutes of Technology, and other research-oriented

organizations.

From the above description of the government approach

and measures, it is clear that these are by and large on the right

lines. If, however, the small sector still suffers from various

handicaps, it is obviously because these measures are not being

effectively applied. There is, however, a more basic flaw in the

government policy. It is that the efforts are more in the direction of

"protection" of this sector, and there is very little by way of raising its

efficiency and competitive strength. Unless this becomes the centre-

theme of the policy, the cottage and small industries will not become

a dynamic sector.

SSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSS

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