Small Business In India 5m1h5b

SMALL BUSINESS IN INDIA

INDIAN SMALL BUSINESS - At a Glance

12.3 Million

SSI Units in India

29.5 Million People employed in Small Businesses.

4762.01 Billion Production at current prices.

1215 Billion Value of exports from Micro, Small and Medium Units

What These Facts Mean… 7% Share of small businesses in GDP

95 % The proportion of Micro, Small and Medium Units in the total industrial units in India

40 % Employment provided by small businesses.

50 % Percentage of exports ed by

Small Business is indeed the driving force of the Indian Economy

Definition Criteria • The common criteria used to measure the size of business are – The number of people employed – The amount of capital invested – The value of annual sales turnover.

• In India, at present, small scale industries are defined and classified on the basis of total investment in plant and machinery.

Definition of Small Business in India • According to the latest Micro, Small and Medium Enterprises Development Act, 2006, small enterprises are classified as – Manufacturing Enterprises Units

Investment Criteria

Service Enterprises Units

Investment Criteria

Micro Enterprise < 25 Lakh

Micro Enterprise < 10 Lakh

Small Enterprise 25 Lakh - 5 Crore

Small Enterprise 10 Lakh - 2 Crore

Medium Enterprise

Medium Enterprise

5 Crore - 10 Crore

2 Crore -5 Crore

Changes in Definition of SSIs and Ancillaries Year

Units

Investment Criteria

The Industrial (Development and Regulation) Act, 1951

SS

Rs 5 lakh and employing less than 50 people with power and less than 100 persons without power

1966

SS

Not exceeding 7.5 lakh

1975

SS

Rs 10 lakh

AU

Rs 10 lakh

SS

Rs 20 lakh

AU

Rs 25 lakh

SS

Rs 35 lakh

AU

Rs 45 lakh

19990

SS

Rs 60 lakh and Rs 75 lakh for EOU

1991

AU

Rs 75 lakh

1997

SS

Rs 3 Crore - but later reduced to 1 Crore

1980 1985

Tiny

25 lakh

Investment Ceilings for Small Scale Industries in the Year 2004 Type of Unit

Investment Ceiling Limit in IRS

Conditions

Small Scale Industry

1 crore (10 million)

Original value of plant and machinery

Ancillary

1 crore (10 million)

At least 50% of its output to go together other industrial undertakings

Export Oriented Unit

1 crore (10 million)

Obligation to export 50% of production

Tiny Enterprise Service and Business (industry related) Enterprise

25 lakhs (2.5 million) 10 lakhs (1 million)

No location condition No location condition

Women Enterprises

1 crore (10 million)

51% equity holding by women

High Tech and Export oriented units

5 crore (50 million)

Total only for 64 items

Objectives For Periodic Changes In Definition • To facilitate growth of this sector with changing economic scenario • To facilitate growth within the framework of social and economic policy of the country • To encourage technology modernization • To promote entrepreneurship among technically qualified persons • To improve product standards • To create opportunities for in house R&D • To provide greater export thrust

Characteristics of Small Business • Personal Character • Independent Management • Limited Investment • Simple Technology • Local Area of Operation

Scope of Small Business • Manufacturing • Wholesale Trade • Retails Trade • Services

Rationale of Small Business • Limited Demand • Specialized Services • Flexibility • Employee Relations • Introduction of New Products • Direct Motivation

Role of Small Business in Indian Economy • • • • • • • •

Employment Balanced Regional Development Optimisation of Capital Mobilisation of Local Resources Exchange Earnings Egalitarian Society Feeder to Large Industries Social Advantage

Comparative Growth Rates of SSI Sector and Total Industrial Sector Year

SSI Sector Growth Rate

Total Industrial Sector Growth Rate

1993-94

5.65

6.00

1994-95

10.44

9.10

1995-96

11.49

13.00

1996-97

1.29

6.10

1997-98

9.19

6.70

1998-99

7.84

4.10

1999-00

7.09

6.70

2000-01

8.04

5.00

2001-02

6.06

2.70

2002-03

7.68

5.70

2003-04

8.06

6.09

Growth of SSI Sector Year

No of Units (In lakhs

Output at Current Prices

Employment Export (Rs Cr) Earnings (Rs Cr)

1991-92

20.82

1,78,669

129.80

13,883

1992-93

22.46

2,09,300

134.06

17,785

1993-94

23.90

2,41,648

139.40

25,307

1994-95

25.71

2,96,886

146.56

29,068

1995-96

26.60

3,62,656

152.61

36,470

1996-97

28.00

4,11,858

160.00

39,249

1997-98

29.40

4,62,641

167.20

43,946

1998-99

30.80

5,20,650

171.50

48,979

1999-00

32.10

5,72,887

178.50

53,975

2001-01

33.12

6,39,024

185.60

59,978

2001-02

34.42

6,90,316

192.23

NA

2002-03

35.72

7,42,021

199.65

NA

Problems Faced by Small Businesses • Shortage of Material and Power • Lack of Adequate Finance • Outdated Technology • Inadequate Marketing Facilities • Weak Organisation and Management • Lack of Trained Personnel • Competition From Large Sector

Problems Faced by SSIs as Barriers to Growth Market Related

70 %

Finance Related

25 %

Government Policy Related

12.78 %

Power Related / Infrastructure

14 %

Technology

14.60 %

Sickness in SSI Units Year

No of Units Amount Outstanding (Rs Cr)

1999

3,06,221

4313.48

2000

3,04,235

4608.43

2001

2,49,630

4505.54

2002

1,77,336

4818.95

2003

1,67,980

5706.35

Source : Reserve Bank of India, Handbook of Statistics on the Indian Economy, 2003-04

Closed Shops : Plagued with Problems Reasons

No of Units (In ‘000) % of Total

Labour Problems

7

2.3

Disputes among Owners

11

3.7

Raw Materials Problems17

5.6

Finance Problem

105

34.9

Marketing Problem

43

14.3

Natural

10

3.3

More than One Reason 50

26.6

Others

19.3

Total

58

301 100 Source : Second Census of Small Industries Report

Trends Of Lending By Banking Sector To SSI As at end March

Total advances Banking Sector

byTotal Advances to SSI Proportion of SSI to Sector Total Advances

1999

2,46,203

42674

17.30

2000

2,92,943

45788

15.63

2001

4,69,153

56002

1.94

2002

5,36,727

57199

10.66

2003

6,69,534

60394

9.02

2004

7,64,383

65855

8.62

2005*

9,72,587

76114

7.83

Source : RBI Report on Trend and Progress of Banking in India

Measures Taken by the Government • Protective Measures • Promotional Measures • Institutional Measures

Protective Measures • Reservation of products exclusively for small sector. At present, the number stands at more than 800. • A cess imposed on certain products of the organized sector to enable the small sector industries to compete successfully in the market. • Government proposes to provide legislative protection to small scale industries

Promotional Measures • Providing raw materials at a reasonable prices and on priority basis. • Setting up of Small Industries Development Bank of India (SIDBI) and Small Industries Development Fund (SIDF) for providing financial assistance. • Increasing the money earmarked for the development of small scale industries under the successive five year plans. • Providing technical assistance and improved tools and methods.

Institutional Measures • National Small Industries Corporation • Small Scale Industries Development Organisation • All India Boards • District Industries Centers • Industrial Estates • Industrial Cooperatives

Industrial Policy Resolution ( 6th August, 1991) Objective • To impart more vitality and growth-impetus to the sector to enable it to contribute its mite fully to the economy, particularly in of growth of output, employment and exports. • Substantial delicensing of the sector. • To deregulate and debureaucratise the sector with a view to remove all fetters on its growth potential, reposing greater faith in small and young entrepreneurs.

Tiny Enterprises • Increase in the limit of investment in plant and machinery  Small Scale Industries – up to 60 lakhs  Ancillary Units – up to 75 lakhs  Export Oriented Units – up to 75 lakhs • All Industry-related service and business enterprises, irrespective of their location, would be recognised as small scale industries and their investment ceilings would correspond to those of Tiny Enterprises. • To widen the scope of the National Equity Fund Scheme to cover projects upto Rs.10 lakh for equity (upto 15 %). • Single Window Loan Scheme enlarged to cover projects upto Rs.20 lakh with working capital margin upto Rs.10 lakh.

Financial Measures • Emphasis shifted from subsidised/cheap credit, except for specified target groups, and efforts were made to ensure both adequate flow of credit on a normative basis, and the quality of its delivery, for viable operations of this sector. • To provide access to the capital market and to encourage modernisation and technological upgradation, it was decided to allow equity participation by other industrial undertakings in the SSI, not exceeding 24 per cent of the total shareholding. • Regulatory provisions relating to the management of private limited companies are being liberalized.

Small Industries Development Bank of India • Set up as a wholly owned subsidiary of Industrial Development Bank of India by an Act of Parliament in 1989. • Commenced its operation on 2nd April, 1990. • The move came after establishment of Small Industrial Development Fund (SIDF) by IDBI was unsuccessful in meeting the demand of small scale sector

Functions of SIDBI • Refinancing of term loans granted by SFCs, SIDCs/banks. • Providing assistance for development of marketing infrastructure and creating new marketing channels. • Assistance for developing industrial estates. • Resource to National Small Industries Corporation and Small Industrial Development Corporations for raw material supply. • Providing equity type of assistance to get special target groups like new promoters and women under National Equity Fund, Mahila Udyam Nidhi etc.

Small Sector : THE SWOT Analysis STENGTHS WEAKNESS • Flexibility in production volumes and design changes • Faster decision making • Lower labour costs • Lower overhead costs

• Often lack in management, marketing or financial skills • Technological obsolesce • Poor financing • Lack of marketing strength

OPPOPTUNITIES

THREATS

• Large companies are outsourcing more to reduce their own costs. • Promising export market • Higher investment limits mean companies can expand and modernise • Big companies can take a larger equity stake in small ones

• With concessions disappearing, inefficient units will die • With dereservation, competition will come from large companies • With import liberalisation, competition will come from MNCs and cheap units • Smaller, less aggressive companies will suffer

“The entrepreneur always searches for change, responds to it, and exploits it as an opportunity.” - Peter F Drucker