Micro and SmallI

13 Enterprises: An
Ckepte
"Small is beautiful."
Introductory Framework
Small-scale enterprises provide immediate large-scale
-Ernst Friedrich Schumacher
method of ensuring distribution of nationalemployment, they otfer a
a more
an effective mobilization of
equitable income and they
resources facilitate
unutilized. Some of the problems thatof capital and skill which might otherwise remain
avoided by the establishment of smallunplanned
centres of
urbanisation tends to create will be
country." industrial production all over the
-Industrial Policy Resolution, 1956

LEARNING OBJECTIVES
After
studying this chapter, you should be able to:
.Define small enterprises and list their essential characteristics.
Define micro and macro/small enterprises.
.Highlight the main objectives behind developing micro enterprises.
.Outline the scope for development of micro enterprises.
.Establish relationship between enterprise and
society.
Appreciate the role played by micro enterprises in economic development of
India.
Give an overview of MSMEs in the country.
ldentify the specific problemsfaced by MSMEs in the country.
So far, you have studied all about who an entreprerneur is. From here
onwards, you will study and know what the entrepreneur actually does to
establish and run his/her enterprise. Let us begin with understanding all about
small-scale and micro enterprises.

13.1 SMALL ENTERPRISES: MEANING AND DEFINITION

are two legs of industrialisation
way, small and large-scale enterprises
na
POcess of a country. Hence, small-scale enterprises are found in existence in

erye country. Small-scale enterprises have been given an important place

in tramework of Indian planning since beginning both for economic and
ideol
gical Today, India operates
reasons.
the largest and oldest programmes
for the development in any developing country (Vepa
100e develo of small-scale enterprises
has now emerged as a dynamic and
18). AS a matter of fact, small sector recent years. Therefore, it is in
nt sector for the Indian economy in the

249
250 Entrepreneurial Developmens
of this vibrant sectr
logical order that we should know the major aspects sector in
the national economy. Let us begin with defining the term 'Small enterprie.

popularly called 'Small-Scale Industries (SSIs)' in our country.

small-scale industry comprisec.
What is a small-scale industry?' In fact, of
of small-scale ndustry (SSI) Vario
aries
a variety of undertakings. The definition time to another in thesame count
from one country to another and from one Government policy and
y
and stage of development,
depending upon the pattern there areattcast 5
admiistrative set up of the particular country. As a result, All these
used in 75 countries (GT1955).
ditterent definitions of SSls found andemployment or any other criteria
orboth
definitions either relate to capital or of small-scale industry in
Let us trace out the evolution of the legal concept
India.
(GOI 1950), for the first time, defined
a smal.
1950
The Fiscal Commission,
which is operated mainly with hired labour usually 10 to
scale industry as one
50 hands. the Government
small-scale industries in the country,
In order to promote and the Small-
the Central Small-Scale Industries Organisation
of India set up first meeting held
Board (SSIB) in 1954-55. The SSI Board at its
Scale Industries
as a unit emploving
on January 5th and
6th 1955, defined small-scale industry
without
less than 50 employees, if using power,
and less than 100 employees
not exceeding 7 5 lakhs.
the u s e of power and with a capital asset
in India
-
definitional change of small-scale industry o v e r the period
The Table 13.1:
1994: 488-493) is resumed in the following
(Khanka
An Overviewv
Table 13.1: Definitions of Small Industry:
Employment Criterion
Investment Criterion
Year
Ancillary unit
SSI Unit 50
upto
Same as SS unit Employment
Upto Fixed capital workers if using power
or

investment upto power.

1958 upto 100 if not using
75lakhs 50
upto
value of Same as SSI Employment or
1959 The workers if using power
machine was taken unit power
upto100 if not using
as the original price
paid irrespective
of new or old

machinery criterion

value of Gross value of Employment

1960 Gross
fixed asset upto fixed asset upto dropped
5 lakhs 10 lakhs
criterion

1966 7.5 lakhs 10 lakhs Employment

dropped criterion

715lakhs Employment
1975 10 lakhs
dropped
 d Gpises
Micro d 251
1980 20 lakhs 7 25 lakhs
Employment criterion

7 35 lakhs dropped
1985 745 lakhs Employment criterion

1991 60 lakhs dropped

75 lakhs
Employment criterion
1997 7 3.00 crore dropped
3.00 crore Employment criterion

1999 71.00 crore dropped

1.00 crore Employment criterion
ate: #Since 1966 investment limit dropped
The export units are those who
applicable only plant and machinery.
to
export at least 30% of the annual
The ceiling of investment
shall be 75 lakhs for it. production.
Source: S.S. Khanka: Growth vis-a-vis Sickness
in Small-Scale
Productivity, Vol. 35, No. 3, October-December, 1994, pp. 488-493. Industries in India,
As per the Abid Hussain Committee's
recommendations on small-scale
industries, the Government of India has, in March 1997, further raised
ceiling to 7 3 crores for small-scale industries and to z 50 lakhs for investment
The New Policy Initiatives in 1999-2000 for the tiny units.
small-scale sector has reduced
the investment limit for small scale and
to 1 crore.
ancillary undertakings from existing 7 3 crore
An ancillary unit is one which sells not less than 50% of its manufacturers
to one or more industrial units.
For small-scale industries, the Planning Commission of India uses
terms
village and small-scale industries (VSI)'. These include modem small-scale
industry and the traditional cottage and household industries. This is
in the following chart: depicted
Small-scale industry

Modem small Cottage Village Ancillary

Scale industry industry industry industry

Ypes of
Small-Scale Industries
mall-scale industries can be classified into five main types as follows:
Alanufacturing industries, i.e., industries producing complete articles for
direct consumption and also
processing industries;
252
Entrepreneurial Develc
of products and servi.
Feeder industries specialising in certain types es,
(2) etc.
casting, electroplating, welding,
shops necessary to
(3) Serving industries covering light, repair, maintai,
mechanical equipment;
(4) Ancillary to large industries, producing parts and components and render
services; and
(5) Mining or quarryin8

13.2 MICRO AND MACRO UNITS

In accordance with the provision of Micro, Small & Medium Enterpriges
Development (MSMED) Act, 2006, the Micro, Small and Medium Enterprises
(MSME) are classified into two Classes.
(a) Manufacturing Enterprises: The enterprises engaged in the manufactue
or production of goods pertaining to any industry specified in the first schedule
to the Industries (Development and
Regulation) Act, 1951. The Manufacturing
Enterprise is defined in terms of investment in Plant and Machinery.
(b) Service Enterprises: The enterprises engaged in providing or
rendering
of services and defined in terms of investment in equipment.
are

Enterprises engaged in the manufacture or production, processing or

preservation of goods are specified as follows:
(i) Amicro enterprise is an enterprise where investment in
plant and machinery
(original cost excluding land and building and the items specified by the
Ministry of Small-Scale Industries vide its notification No. S.O. 1722E)
dated October 5, 2006) does not exceed R
25 lakh;
() A small enterprise is an
enterprise where the
machinery (original cost excluding land and investment
in plant and
specified by the Ministry of Small Scale Industriesbuilding and the items
vide its notification No
S.O. 1722(E) dated October
5, 2006) is more than 25 lakh but
exceed 5 crore. does
(ii) A medium enterprise is an
and enterprise
where the investment in blant
pa
machinery (original cost
excluding land and building and the tems
specified by the Ministry of Small Scale iS 0
1722(E) dated October 5, 2006) is more Industries vide its notificatio
7 10 crore. than 7 5 crore but does not Ceed

e
Enterprises engaged in
providing or
rendering
Ose

investment in equipment (original cost

of
services ana
fittings and other items not excluding land and building and fur
notified
notified under the MSMED directly related to the service
rendered or as
small road and water
Act, 2006) are
specified below. de
transport operates (owning a These will in
ten vehicles), retall trade fleet of vehicles not e e d i n g

(with credit limits

not ex small/

hsiness (whose original cost exceeding 7 10 lakn kh),

price of the p m e n t used for the purpDurposeo /
business does not exceed
1usiness does exCeed 7k 20
20 lakh) and
lakh) and equipment used for the plul sons

professional and self employea P

 Micro and Small Enterprises 253
(whose borrowing limits do not exceed 7 10 lakh of which not more than 2
lakh should be for working capital
requirements except
in case of professionally
qualified medical
practitioners setting up of practice in semi-urban and
areas, the borrowing limits should not exceed 7 15 lakh with
rural*
3 lakh for working capital requirements).
a sub-ceiling of

A micro enterprise is
not exceed 10 lakh.
an
enterprise where the investment in
equipment aoes
() A small
enterprise is an enterprise where the investment in
than 7 10 lakh but does not
more
exceed 7 2 crore, and
equipment 1s
(ii) A medium enterprise is an
is more than 7 2 crore but enterprise
where the investment in
does not exceed 7 5 crore. equipment
Now, the above definitions of micro, small and
medium enterprises are
summarized in a tabular form as follows:
Manufacturing Sector
Enterprises Investment in Plant & Machinery
Micro Enterprises Does not exceedtwenty five lakh rupees
Small Enterprises More than twenty five lakh
rupees but does not
exceed five crore
rupees
Medium Enterprises More than five crore
rupees but does not exceed
ten crore rupees

Service Sector
Enterprises Investment in Equipments
Micro Enterprises Does not exceed lakh rupees:
ten

Small Enterprises More than ten lakh rupees but does not exceed
two crore rupeees
Medium Enterprises More than two crore rupees but does not exceed
five crore rupees

13.3 ESSENTIALS, FEATURES AND CHARACTERISTICS

"Small Ci.e., micro enterprise) is beautiful" because of its following important
essentials, features and characteristics:
1. A small or micro enterprise is generally a one-man show. Even the small
units which run by a partnership firm or company, the activities are
mainly carried out by one of the partners or directors. n practice, the
others are simply as sleeping partners or directors who mainly assist in
providing funds.
2. In case of micro enterprises, the owner himself/herself is a manageralso.
Thus, these units are managed in a personalized fashion. The owner has
firsthand knowledge of what is actually going on in the business. He
takes effective participation in all matters of business decision taking
254
Entrepreneurial evelopment
industrial unit has a lesser
3. Compared to large units,
period, i.e. the period
a micro

after which the

return o n investment startsation estation
and small industrial undertaki.
4. The scope of operation of micro
to the local and regional demands.
kings is
generally localized catering
r e s o u r c e s and, theretore, can be l
5. Micro units use indigenous d
these r e s o u r c e s like raw ma
anywhere subjectto the availability of erials,
labour etc.
6. Micro enterprises are fairly labour intensive with comparatively smal.

units. Let the facts speak. Accorcdine to

capital investment than the larger
P.C. Mahalnobis (1968: 1219), small-scale units require very little capital
About six or seven hundred rupees would get an artisan family started
With any given investment, employment possibilities would be ten
fifteen or even twenty times greater in comparison with correspondino

factory system.
7. Using local resources, micro enterprises are decentralised and dispersed
to rural areas. Thus, the development of micro enterprises in rural areas
promotes more balanced regional development, on the one hand, and
prevents the influx of job seekers from rural areas to cities and urbanizing
centres, on the other.
8. Last but not the least, compared to large-scale units, small-scale units
are more change susceptible and highly reactive and receptive to socio-
economic conditions. They are more flexible to adapt changes like
introduction of new products, new method of production, new materials,
new markets, new forms of organisation, etc.

13.4 RELATIONSHIP BETIWEEN IICRO AND MACRO ENTERPRISEs

Going through the above definitions and distinct characteristic of micro and
macro enterprises, it appears that small and medium enterprises form 'macro
enterprises.' However, one should not assume that the both - micro and macro
enterprises are antithetic to each other. In other words, the both cannot sustain
in an
economy. It is, in fact, true the other way round, and to a great extent,
one is often ancillary or complementary to the other.
The relationship between the micro and macro enterprises can be seen u
various respects. Yet, the
following are the important ones:
1. Competitive: Micro enterprises cannot compete
certain circumstances and in selected with macro enterprise in
products.
industries are bricks and tiles, fresh baked Examples
of such enterprise
goods and perishable edibt
preserved fruits, goods requiring small engineering skill, items
craftsmanship and artistry. demana
2. Supplemeniary: Micro enterprise can fill in the scale

production and standard outputs caused by macro gaps between This

largeh
this supplementary role of micro enterprises. 1s
ad
and flourished alongside a large enterprises, a small tricycle factory
susta
cycle infactory Chennai city.
Micro a n d Small terprises 255

01mplementary: Apart from supplementary relationship, micro enterprises

3. C o n

plementary to their macro counterparts. In the real world, many

nicro enterprises produce intermediate products for macro units. Such sub-
ntracting
ting relati
relationship between the micro and macro was particularly marked
ntheAseconomic history of today's industrially developed Japan (Paise 1971: 115-
in

133) strialisation proceeds, micro and small-size firms seem naturally to

hift from activities that compete with macro and large firms to complementary
shift from

ones. milarly, China too continues to rely on Mao's aphorism of "walking on

es. Sim
lees"-one being micro and the other macro.
vo

Under complementary relationship, micro units function under the tutelage ot

the macro unts and enjoy the advantage of protected market for their products.
Then, the tlourishment of such micro units remains beyond doubt.
4. initiative: Attracted by the high profits of macro units, micro units can
also take initiative to produce the particular product. If succeeds, the micro
unit grows to macro over a period of time. Evidences are available to quote
that many of the automobile factories started this way in the United States of
America. In our country too, the electronic industry looks like following to this
initiative pattern of development.
[Link]: Micro enterprises do also install servicing and repairing shops
for the products of macro units. In the case of India, such micro servicing units
can be seern proliferating in respect of macro industries like refrigerators, radio
and television sets, watches and clocks, cycles and motor vehicles.

13.5 RATIONALE BEHIND MICRO AND SMALL ENTERPRISES

Having discussed the distinct characteristics of micro and small enterprises
as also their relationship with large-scale enterprises, we now discusses the
rationale of micro and small enterprise development in India.
Emphasizing the very rational of small-scale industry in the Indian economy
the Industrial Policy Resolution (IPR), 1956 stated:
"They provide immediate larges--cale employment, they offer a method of ensuring
a more equitable distribution of the national income and they facilitate an effective
mobilisation of resources of capital and skill which might otherwise remain
unutilized. Some of the problems that unplanned urbanisation tends to create will
be avoided by the establishment of small centres of industrial production all over
the country."
The rationale behind micro and small enterprise development in the country,
Or the convenience of our better understanding, can broadly be classified into
ur arguments, viz., (1) Employment argument, (2) Equality argument, (3)
Decentralisation argument, and (4) Latent resources argument. Let us discuss
ese in more details one by one
Employment Argument
the most
View of India's scarce capital resources and abundant labour,
and small enterprises is that
ant argument advanced in favour of micro
 Entrepreneurial Developmo
256 opporhn.
to create
immediate large-scale employment
in developing CO
nitie
they have a potential small enterprises
on micro
and
The increasing emphasis c o n c e r n over unemplo
from the widespread
like India stems largely research findings
available which
ich well
There are many
hovering in the country. are m o r e
labour intensive than lan
that micro and small enterprises
establish of labour per uni
In other words, small units use more
scale enterprises.
output than investment.
while the
study (Venkataraman 1993:565),
outns
According to a research
micro and small-scale sector, employment.
employment ratio is the lowest in the scale sector. Ac
generating capacity of small sector is eight times that of the large
mentioned earlier, P.C. Mahalnobis (1968:1219) also supports the view that micro
and small industries are fairly labour intensive. He mentions that with any given
investment, employment possibilities in micro and small enterprises would be
ten or fifteen or even twenty times greater in comparison with corresponding

factory system.
There are some scholars also like Dhar and Lydall (1961: 11) who oppose
to this employment argument of micro and small enterprises. They hold the
view that employment should not be created for the sake of employment. The
important problem, according to them, is not how to absorb surplus resources,
but how to make the best use of scarce resources. Then, the employment
argument becomes an output argument.
2. Equality Argument
One of the main
arguments put forward in favour of the micro and smal
enterprises is that they ensure a more
equitable distribution of national income
and wealth. This is
(i)
accomplished because of the two major considerations
Compared to the ownership of
large-scale units, the ownership pattern n
micro and small
enterprises more broad-based and widespread. (ii)
is
more labour-intensive
nature, on the one hand, and their Ther
dispersal rural and backward areas, on the
to decentralization ana
-opportunities to the unemployed. This resultsother, provide more employmeent
in more
of the equitable distributio"
produce of the micro and small
of the micro and small enterprises. It is also held that as mo
enterprises
relations between the workers are
proprietary or partnership concerns the
and the
and small employers are more harmonious in m
enterprises than in the large-scale ro

Here again, Dhar and

Lydall enterprises.
(1961) have
as fallacious.
Giving statistical evidence, pointed out this equality argun ment

paid to workers are much less in microthey establishedthe fact that waages

paid to the workers and small

in enterprises than
large-scale industries. In India, an the wage
w*
enterprise are about half
the
wages paid in wages in micro and s
small

not difficult to seek.

Workers in micro arnd large-scale industries. The reas
existence of trade unions, are unorganizedsmall
and, enterprises,
therefore, are easily exp
ual no
due to virtua
by the employers. d o i t e d
 Enterprises 257
Micro and Small
There is no doubt that the argument of Dhar and Lydall does have some
rce. But in an under-developed country like India, the workers have choice
t between a high paid job and a low paid job but between a low paid job and
iob at all. Then, even if micro and small enterprises provide low paid jobs,
they would be of virtual importance in an economy like ours where millions
are already in search of employment to eke-out their livelihood.
a
Decentralisation Argument
Decentralisation argument impresses the necessity of regional
dispea
of industries to promote balanced regional development in the country. Big
industries are concentrated every where in urban areas. But, micro and small
enterprises can be located in rural and semi-urban areas to use local resources
and to cater to the local demands. Admittedly, it will not be possible to start
micro and small enterprises in every village, but it is quite possible to start
micro and small enterprises in a group of villages. The International Perspective
Planning Team (1PPT 1963) also rightly stressed that the focus for industrial
development under a dispersal policy should be neither the metropolis nor
the village, but rather the large range of potentially attractive cities and town
between these two extremes.
Decentralisation of industrial enterprises will help tap local resources such
as raw materials, idle savings, and local talents and ultimately improves the
standard of living even in erstwhile backward areas. This, in turn, helps achieve
inclusive growth i.e. the cherished goal of the country. The most glaring example
of this phenomenon is the economy of Punjab which has more micro and small
enterprises than even the industrially developed state of Maharashtra.

4. Latent Resources Argument

This argument suggests that micro and small enterprises are capable of
mopping up latent and unutilized resources like hoarded wealth and ideal
entrepreneurial ability, etc. However, Dhar and Lydall feel that the real force
of latent resources argument lies in the existence of entrepreneurial skill. They
argue that there is no evidence of an overall shortage of small entrepreneurs
in India. Hence, they doubt the force of this latent resources argument. Their
assertion does not appear to be very sound simply because of the fact that
it small entrepreneurs were present in abundance, then what obstructed the
growth of small enterprises in the country?
The emergence of entrepreneurial class requires a conducive environment.
he fact remains that micro and small enterprises provide such environment
n which the latent talents of entrepreneurs find self-expression. Our economic
history also bears this evidence. The impressive growth in the number of micro
and small enterprises in the post-Independence period highlights the same fact
that
at providing the necessary conditions such as power and credit facilities, the
n t resources of entrepreneurship can be tapped by the growth of micro and
Small enterprises only.
258
Entrepreneurial Develon.
SMALL ENTERPRISES
13.6 ScOPE OF MICRO AND
is quite vast coverina.
fact, the scope for micro and small enterprises
In
In consonan
less sophisticated technology.
range of activities requiring
its distinct characteristics, the activities
which are found particularly a i
to and can be successfully operated in micro and small sector are too ma
ones are:
ny
mention. Among them, the important
Manufacturing activities
Servicing/repairing activities
Retailing activities
Financial activities
Whole-sale business
Construction activities
.Infrastructural activities like
transportation, communication and other
public utilities.
In order to
strengthen the scope for micro enterprise development in
the country, the Government of India
has, along with its other
programmes, announced its reservation policy for small sector assistane
of micro enterprises in the mainly consisting
when only 47 items
country. The reservation policy was initiated 19 in
reserved for exclusive manufacture in the
were
sector. By 1983, the reserve list included 836 small-scale
the small-scale sector. items for exclusive
Later, the Abid Hussain Committee production in
and, thus, there are still 824 items dereserved 12 items
sector. The main reserved for exclusive
objective of the reservation production in smali
sector, or say, micro and small policy has been to insulate the smal
scale industrial enterprises
from unequal
competition of larg
of existing units establishments, so
and the entry of new
that the sector can
grow through expansion
for exclusive firms. The
development in the micro and important industries reserveu
Food and Allied small sector are:
Industries;
including Footwears; Rubber Textile Products; Leather and Leather
Chemical Products; Natural Products; Plastic Products; Chemical Produc
and
Chemical
Products; Glass and Ceramics;Essential Oils; Organic Chemicals and
Metal Cabinets of all Mechanical Engineering Chen
Equipments and Types; Pressure Stove; Electrical Transport Equip
Components; Ancillary Components;Boats and Truck Appliances; Elec Pars
Body Buildings;
troni

and
Garrage Aut
Perambulators; Miscellaneous TransportEquipment; Bicycle Parts, Trycyee
Instruments; Sports Goods, Equipments; Mathematical and
Stationery
Sure

Here, it seems items, Clocks and

and small pertinent to mention that watches, etc.
industries the
does not
industries. Researchers attribute outshine that of performance of reserve
non-reserved micro and
performance of financiallyanantot
units as well as the poor
those in the
micro and small "reserved" industries to
enterprise
the sector, and resulted in sector, which has intensified
'easy' entry i t h i n

excess competition
supply and, thus, a fall in protit
Micro and
Small Enterprises
259
hey hold the view that the reservation policy is calculated to keep 'infant
The

ndustries in
industries a
permanent state of
infancy (Sandesara 1988: 271-298).
However, one
may find not
himself/herself in agreement with other. 1 t id t,
the noble intention ot the reservation
policy has been to insulate the micro and
emall enterprises from unequal competition of powerful large-scale industrial
units (macro. enterprises),
so that the micro and small
expansion of existing units, on the one hand, and by enterprises
the entry ofcan
new through
gofirms, On
the other. Examples are
galore to the view.
support
13.7 OBJECTIVES OF MICRO ENTERPRISES
The major objectives of developing micro enterprises are as follows:
1. To generate immediate and large scale employment
relatively low investment. opportunities with

2. To eradicate unemployment
problem from the country.
3. To encourage dispersal of industries to
all over country covering small
towns, villages and
economically
lagging regions.
4. To bring backward areas too in the of mainstream national development.
5. To promote balanced regional development in the whole country.
6. To ensure more equitable distribution of national income.
7. To encourage effective mobilisation of country's untapped resources.
8. To improve the level of living of people in the country.
13.8 ENTERPRISE AND SOCIETY
Enterprise (commonly called as business and used interchangeably) and
society as brother and sister have been coeval since time immemorial. Both have
been inter-related and inter-dependant in one way or other. Only the nature of
interdependence between the two has, perhaps, changed over the period. Both
depend on each other's support and cooperation. One cannot survive without
the coexistence of and cooperation from the other.
Society helps and cooperates with enterprise / business in various ways but
not confined to the following only:

.Itoffers business inputs like raw materials.

I t provides business different types of resources such as human resources,
financial resources, technological resources, etc.
I t creates market for the products or services of business.
I n the forms of various acts, lawS and regulations, Society also monitors
and protects business to run in a desired manner.
On reciprocal basis, business also provides society various benefits for its
Survival and well being. These include:
I t provides various goods and services for the consumption and use of the
SOciety that society itself cannot produce.
 Micro and Small Enterprises 271
data on
exports of products/services manufactured/provided oy
Small and medium enterprises, including khadi and village industries.

13.12 PROBLEMS OF MICRO AND SMALL ENTERPRISES

We have discussed so far the distinguished peculiarities of micro and smal
enterprises in the context of India. We have found that the organisational partem
of these industries places them at a distinct disadvantage vis-à-vis the larg8
scale enterprises. It is due to this peculiarity of micro and small enterprises,
Murphy's Law ie., "if anything can go wrong, it will" squarely applies to tne
This disadvantage has given rise to various problems with which the micro and
small enterprises have been contending with. The micro and
major problems
small enterprises face are but not confined to the following only:
1. Problem of Raw Material: A major problem that the micro and smal
enterpriseS have to _contend with is the procurement of raw material. The
problem of raw
material has assumed the shape of (i)_an absolute scarcity, (n
a poor qualityofrawmaterials,and (iü) ahigh [Link],themajority of micro
d
small enterprises mostly produced items dependenton local raw materigl.
Then, there was no severe problem in obtaining the required raw materials. But,
ever since the emergence of modem small-scale industries manufacturing a lot
of sophisticated items, the problem of raw material has emerged as a serious
problem on their production efforts. The small units that use imported raw
material face raw material problem with more severity mainly due to difficulty
in obtaining this raw material either on account of the foreign exchange crisis
or some of other reasons.
Even the micro and small enterprises that depend on local resources for raw
material requirements face the problem of other type. An example of this type is
handloom industry that depends for its requirement of cotton on local traders.
These traders often supply their cotton to the weavers on the conditions that
they would sell their ready clothes to these traders only. Then, what happens
:that the traders sell cotton to them at fairly high prices. This becomes a clearest
example of how the poor weavers are subjected to double exploitation at the
hands of traders.
Keeping in view the raw material problem of micro and small enterprises,
the Government makes provisions for making raw material available to these
units. Nonetheless, micro and small enterprises with no special staff to liaise
with the official agencies, these units are lett with inadequate supplies of raw
material. As a result, they have to resort to open market purchases at very high

prices. This, in turn, increases their cost of production, and, thus, puts them in
an
adverse position vis-a-vis their larger rivals.
2. Problem of Finance: An important_problem faced by micro and small
enterprises in the country is that of finance. The problem of finance in micro
and small sector is mainly due to two reasons. Firstly, it is partly due to
due to weak
sCarcifyot capital in the country as a whole. Secondly, it is partly
eredit worthiness of micro and small enterprises in the country. Due to their
272 Entrepreneurial Development
weak economic base, they find it difficult to take financial assistance from
commercial banks and financial institutions. As such, they are bound to oh the
credit from the money lenders on a very high rate ot interest and are, thus
obtain
exploitative in character. It is a happy augury that ever since the nationalisation
of banks in 1969, the credit situation has improved still further. The positiva
change in attitude of banks would be clear from the fact that whereas the amount
of credit outstanding (of public sector banks) to small-scale industries stood at
only 251 crores in June 1969, it rose to a staggering figure of 15,105 crores
in March 1990.
From the above figures, it appears that the availability of institutional credit
to micro and small enterprises is certainly increasing. Nevertheless, the fact
remains that the criterion of 'credit worthiness' still weights heavily with the
nationalised commercial banks. This would be clear from this fact that of the
units assisted by commercial banks upto. June 1976, about 69 per cent of the
total credit was availed of by 11 per cent of the. (bigger) units in. the small-scale
industries sector, which. accounted for 55 per cent of the total production (Ghosh
1986: 315). This underlines theneed tochange the outlook of the banks towards
MSEs. For. this,. it [Link] further liberalise the rules and practices of
banking in the country.
3. Problem of Marketing: One of the main problems faced by the micro and
small enterprises is in the field of marketing. These units often do not
possess any
marketing organisation. In consequence, their products compare unfavourabiy
with the quality of the
products of the large-scaleindustries. Therefore, they
suffer from competitive
disadvantages vis-a-vis large-scale units.
In order to protect micro and small
enterprises from this competiny
disadvantage, the Government of India has reserved certain items for the smau
Scale sector. The list of reserved items has
and at present stands at 824 items.
continuously expanded over the per
Besides, the Trade Fair Authority of India a
the State
Trading Corporation (STC) help the small-scale industries in
their sales. The National Small orgalrni
Industries Corporation (NSIC) set up in i
also helping the small units in
export markets. obtaining the government orders and l ating
Ancillary units face the problems of their own types like ntb
parent units, inadequacy of delayed payme
adherence to quality and technological support extended by parent un
n0

delivery schedules, thus, disturbing the progr

of the parent units and absence
m n e s

of a well-defined
laws. pricing system and reg
[Link] of Under-Utilization of leardy

bring out the gross under-utilization of Capacity: There are studies nal
installed capacities in nicro
enterprises. Acording to Arun Ghosh asis
(Ghosh 1988: 315-316), on tnezati
All India Census of Small-Scale
of capacity Was only 47 in Industries, 1972, the percentageloct
mechanical engineering ustries, 50 in
industries,
uipment,
equipment 58 in automobile
ancillary ancs
only 29 in plastic products. On an industries, 55 in leather P t o40per
p r o d u c t s

cent of capacity were not utilized average, we can safely say that>
in micro and
small enterprises.
 Micro and Small Enterprises
273
The very integral to the problems of
roblem faced by micro and small under-utilization of capacity Is powe
to the problem: One, power enterprises. In short, there are two
supply is not always available to the small
aspects
on the mere asking, and
whenever it is available, it rationed out, limitedunits
few hours in a day. Second, unlike to
a
enterprises cannot afford to large-scale industries, the micro and small
go in for alternatives; like
units, because these involve installing Own therntd
heavy
in economic front, they have to
costs. Since micro and small units are
meagre means. manage as best as it can
we
within their availabe
5. Other Problems: In addition to the
and small enterprises have been problems enumerated above, the
micro
constrained by
also. According to the Seventh Five Year Plan number of other problems
a

technological obsolescence, inadequate and (GOI 1985: 98), these include

lack of organised market channels, irregular supply of raw materials,
unorganised nature of operations, imperfect knowledge of market conditions,
inadequate availability of credit facility,
constraint of infrastructure facilities including
and technical skills. There has been lack power, and deficient managerial
of effective co-ordination
various support organisations set among the
up over the period for the
development of these industries. Quality consciousness has not been promotion and
the desired level despite various measures generated to
taken in this regard. Some of the fiscal
policies pursued have resulted in unintended splitting up of these
uneconomic operations and have inhibited their smooth capacities into
transfer to the
sector. All these constraints have resulted in a medium
skewed cost structure placing this
sector at a disadvantage vis-a-vis the
large industries, both in the domestic and
export markets.

13.13 SUMMARY
This summary is organized as per the
learning objectives given on page no. 249:
.Definition of micro and small-scale enterprises in India has
the years. At present, a micro changed over
enterprise is one whose investment in plant &
machinery does not exceed ? twenty five lakh (in case of manufacturing sector)
and ten lakh in equipments (in case of service sector). A small
with investment in plant & machinery more than
enterprise is one
twenty five lakh but does not
exceed five crore rupees (in case of manufacturing sector) and more than ten
lakh but does not exceed ? two crore in equipments (in case of service
sector).
.Thechiefcharacteristics of microenterprises are its one-man show, lesser gestation
period, use of indigenous and local resources, catering to local demands, labour-
intensive, decentralisation of industrial activities, etc. The relationship between
micro and macro enterprises is often ancillary or complementary to each other.
Micro enterprises encompass vast scope covering activities like manufacturing,
servicing, retailing, financing, construction, infrastructure etc. In view of the
Government ofIndia s ever increasirng importance given to the micro and small
enterprises in the national economy, more and more micro and small units are to
be set up in the years to come. Thus, these are to provide ample opportunities to
the people to assume entreprerneurial career.