Unit 3: Issues in Small Enterprise Initiatives
Small Scale Industries (SSI): Definition, Rationale, Objective, Scope
Definition
Small Scale Industries (SSI) are industrial units in which the investment in plant and machinery is below a specific limit set by the government. This definition has evolved over time.
Today, SSIs are part of the broader MSME (Micro, Small, and Medium Enterprises) category. The definition (as of the 2020 revision) is composite, based on both Investment and Turnover:
- Micro: Investment < ₹1 Crore AND Turnover < ₹5 Crore.
- Small: Investment < ₹10 Crore AND Turnover < ₹50 Crore.
- Medium: Investment < ₹50 Crore AND Turnover < ₹250 Crore.
Rationale (Why promote SSIs?)
The government actively promotes SSIs because they are crucial for the economy:
- Employment Generation: SSIs are highly labor-intensive (they use more labor per unit of capital). They are the second-largest employer after agriculture.
- Balanced Regional Development: They can be set up in rural and backward areas, reducing regional economic disparities.
- Use of Local Resources: They utilize local raw materials and skills, adding value to the local economy.
- Decentralization of Wealth: They prevent the concentration of economic power in a few large corporations.
- Export Potential: Many SSIs produce goods for export, earning valuable foreign exchange.
Objective
The primary objectives of promoting SSIs are:
- To create large-scale employment opportunities.
- To foster entrepreneurship and innovation at the grassroots level.
- To achieve equitable distribution of income and wealth.
- To promote balanced regional development.
- To support the growth of large-scale industries (by acting as ancillary units).
Scope
The scope of SSIs is vast and covers nearly all sectors of the economy:
- Manufacturing: Food processing, textiles, electronics, auto components.
- Ancillary Units: Businesses that supply components to large industries.
- Service Sector: Repair shops, IT services, consulting, logistics.
- Handicrafts and Artisanal Products.
SSI Registration
What is SSI Registration?
SSI Registration was the process by which a small-scale unit registered itself with the government (typically the District Industries Centre - DIC). This has now been replaced by the Udyam Registration.
Udyam Registration is a completely online, paperless process for registering an enterprise as an MSME. It is based on self-declaration and requires only the entrepreneur's Aadhaar number.
Benefits of Registration
Registering as an MSME (formerly SSI) provides numerous benefits, which is why it's a critical "issue" for a new enterprise:
- Access to Priority Sector Lending: Banks are mandated to give a specific portion of their loans to MSMEs, often at lower interest rates.
- Government Subsidies: Access to various subsidies, such as capital investment subsidies, interest subvention, and technology upgradation subsidies.
- Participation in Government Tenders: Registered units get preference in government procurement. Some tenders are reserved exclusively for MSMEs.
- Protection against Delayed Payments: The government provides legal protection to MSMEs against buyers who delay payments for goods/services.
- Tax Benefits: Various tax exemptions and concessions.
NOC from Pollution Control Board
What is an NOC?
An NOC (No Objection Certificate) from the relevant State Pollution Control Board (SPCB) is a mandatory clearance required for most industrial units before they can be established.
It certifies that the proposed industry will not cause undue pollution and has made adequate provisions to treat its effluents and emissions to meet environmental standards.
The Process and Categories
The SPCB categorizes industries based on their Pollution Potential Index (PPI):
- Red Category: Highly polluting industries (e.g., chemical plants, sugar mills). These face the strictest scrutiny and are often not permitted in ecologically sensitive areas.
- Orange Category: Moderately polluting industries (e.g., food processing, automotive servicing).
- Green Category: Low-polluting industries (e.g., small bakeries, assembly of electronics).
- White Category: Non-polluting industries (e.g., software development). These are generally exempt from needing an NOC and only need to inform the SPCB.
Exam Tip: For a small enterprise, failing to get this NOC (or not knowing which category they fall into) can be a major legal and financial disaster, halting the project entirely. It is a critical part of the initial "Issues" and feasibility analysis.
Machinery and Equipment Selection
Choosing the right machinery and equipment is a critical decision for a small enterprise, as it involves a significant capital investment and locks the firm into a specific production technology.
Key Factors to Consider in Selection:
- Scale and Capacity: The equipment must match the *planned* production volume. Buying oversized machinery wastes capital, while undersized machinery creates production bottlenecks.
- Technology:
- Indigenous vs. Imported: Imported tech may be more advanced but harder to service. Indigenous (domestic) tech is often cheaper and easier to repair.
- New vs. Second-hand: Second-hand machinery saves capital but may have higher maintenance costs and lower efficiency.
- Level of Automation: Choose between labor-intensive (manual) or capital-intensive (automatic) machines, depending on labor costs and quality requirements.
- Cost-Benefit Analysis: The equipment must be financially viable. The cost (including installation and training) must be justified by the expected output and quality.
- After-Sales Service and Spares: How easy is it to get repairs and spare parts? A cheap machine with no service support can be a very expensive mistake.
- Flexibility: Can the machinery be adapted for different products or production levels in the future?
- Resource Consumption: How much power, water, or other utilities does the machine consume? High-running-cost machines can kill profitability.