SMALL SCALE INDUSTRY IN INDIA

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SMALL SCALE INDUSTRY IN INDIA ASSESSMENT OF
GROWTH AFTER LIBERALISATION ALL INDIA MANAGEMENT
ASSOCIATION Executive Summary
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EXECUTIVE SUMMARY
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Executive Summary Small Scale Industry in
India Assessment of Growth after Liberalisation
Introduction In India, the small-scale
industrial (SSI) sector has acquired a prominent
place in the socio-economic development of the
country during the past 50 years. This sector
constitutes 95 of the industrial units and
contributes 40 to the total industrial output of
the country and 35 to direct export. According
to the latest statistics, there are about 3.6
million SSI units in India and these employ
approximately 19.3 million people, which is
second highest next only to agriculture. This
achievement has been possible due to the
consistent and sustained policy support from the
Government including policy of reservation,
investment ceiling for the SSI sector and
priority lending. The economic reforms started in
1991 in India provided the opportunity to SSIs to
grow big. However, the formation of WTO in 1995
has started posing a major challenge to the SSIs
in India. There have been some sweeping changes
which have taken place in the SSI sector in the
last two years. The hitherto protection of the
SSI sector by way of reservations and
quantitative restrictions have been removed. More
than 160 items which were reserved for the SSI
sector have been de-reserved. The higher rate
of growth of SSIs during 1991-2000 period,
compared to the overall industrial growth rate,
does not offer much satisfaction in the immediate
future, unless concrete remedial measures are
taken. Indian industry does not face any
immediate threat from developed countries but
faces serious competition from neighbouring
countries particularly from Chinese manufacturers
where productivity is 60-100 more than the
Indian companies. It has been concluded through
previous studies on the SSI sector that Indian
SSIs should remain competitive in the era of
globalisation. These studies have suggested that
competitiveness is possible only if there is a
technology up-gradation and adoption of new
technologies. There is a need to introduce new
tools and equipments for production, changes in
manufacturing process, improvement in the quality
of products and quality assurance, introduction
of new designs and diversification, use of new
raw materials and usage of modern management and
IT tools. There could, however, be other factors
besides technology which have impacted the growth
of the SSIs. There have been varied views which
have been formed about the growth of the SSI
sector post liberalisation and the features which
have acted as contributors or inhibitors for the
growth. The vulnerable areas as experienced by
the SSIs have been cited as low capital base,
difficulties in accessing technology, credit
constraint, low access to business services,
constraint of quality of human resources, low
market awareness, low lobbying capacity,
Inspector-raj and infrastructural constraints.
The factors which
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Executive Summary Small Scale Industry in
India Assessment of Growth after Liberalisation
have been identified as aiding the growth of SSIs
are advancement in generic technology of
computers and telecommunications, rise in
electronic commerce, multilateral trading rules
under agreements of World Trading Organization
(WTO), mergers and acquisitions, liberalisation
of services/ infrastructure and sourcing out of
activities to outside firms. The scope of the
present study is to identify the growth trend of
the SSIs and map out the reasons for the growth
or decline as the case may be. The study also
seeks to prioritize the factors which have helped
the growth and those which have hampered the
growth. It also ascertains whether there has been
a difference in the growth pattern and factors
helping and inhibiting growth with respect to the
geographical region, the type of industry,
manufacturing or service or the size of the
company. The training needs felt by the SSI
sector and the outlook for the sector has been
enumerated. The study provides an assessment of
the SSI sector in terms of their current problems
and means of overcoming those as suggested by the
SSIs. The findings can be used as inputs by the
policy makers and institutional mechanism which
exist for the sector. Objectives of the Study To
identify the growth pattern of the SSI sector and
identify the reasons for success/failure To
evaluate the impact of liberalisation measures on
SSIs. To identify the barriers and constraints
that SSIs are facing To prioritize the growth
challenges the SSIs are facing presently in the
areas of marketing, exports, finance,
technology, alliances, human resources,
identification of suitable opportunities
etc. Methodology Used The study has been
undertaken in two phases in order to capture the
views of all the stakeholders involved as well as
of different industries in the SSI sector.
Phase One Qualitative Research with Policy
makers and Institutions Phase Two Structured
Survey The phase one consisted of interviews
with Banks, Financial Corporations, Industrial
Development Authorities, opinion makers like
Industry Associations, Regulatory Bodies and
Ministry of Small Scale Industry.
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Executive Summary Small Scale Industry in
India Assessment of Growth after Liberalisation
The information collected comprised of
understanding the role of the institutions
towards the development of the SSI sector and
their views on the reasons for the growth or
decline of the SSIs in India. The phase two
consisted of a structured survey based on a
questionnaire. The survey was conducted through
face to face personal interviews with the owners
of the SSIs or decision-makers in the firm.
Qualitative Research with Policy makers and
Institutions The stakeholders were asked to
identify the factors which were posing as
constraints and those that were enabling the
growth of the SSI sector. Some salient views have
emerged particularly on technology acquisition
and adoption, ancillarisation as a strategy for
growth and market related barriers. Technology
Acquisition, Adoption and Upgradation According
to the policy makers, obsolete technology and
management practices have been a major barrier
for growth. This leads to low scale economies as
well as low quality. Technological awareness
exists among the SSIs but they are not taking the
advantage of the same because they do not feel
that there is a market at that cost. The SSIs
feel that acquiring and applying technology is a
costly exercise which pushes up the manufacturing
cost of the product and makes the price unviable
in the market to which the SSIs cater. In other
words, the SSIs have a belief that they cater to
only the low end of the market for which quality
is not a major requirement. The National
Productivity Council believes that SSIs are not
willing to invest in experimentation to identify
parameters of attention and productivity
improvement. The Technology Bureau of Small
Enterprises also feels that SSIs have a tendency
to compromise on quality but at the same time the
entrepreneur should understand what his needs are
before investing in an imported or indigenous
technology. According to the spokesperson and
opinion makers of the industry, the situation on
technology upgradation is in fact to the
contrary. Whenever, the SSIs feel the need, they
are quick to take up technology upgradation and
adopt it. However, it is felt that the limit in
investment in plant and machinery should increase
if technology has to be upgraded. It should
increase from the present limit of Rs. 1 crore to
Rs. 3 crore. Ancillarisation as a strategy for
growth The Ministry of SSI feels that dependence
of ancillary units on bigger companies results in
their closure when a better technology
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Executive Summary Small Scale Industry in
India Assessment of Growth after Liberalisation
product is available. However, Subcontracting has
been the route for growth for most SSIs. This
relationship needs to be nurtured. There is
immense potential to be tapped towards
ancillarisation that needs proper networking
systems to be developed for exchange of
information, database, assignments and projects
between bigger companies and SSIs. The Government
could take a lead on developing these kinds of
systems. Market related barriers The policy
makers feel that the SSIs should be driven by
market forces rather than reservation of items.
At times, somewhat larger industries have been
hindered in their growth plans because of the
reservation of the product under small scale.
Keeping this in mind, the barriers have been
removed and about 160 items have been de-reserved
from SSI sector. This would also make them more
competitive. The inputs from the qualitative
research were used to frame the structured
questionnaire in more detail. Sample Profile of
Structured Survey A sample of 1000 companies in
the SSI sector had been planned for the
quantitative survey. The final number on which
the analysis has been conducted is 872. The
companies in the Eastern region and the Northern
region were not enthusiastic about the survey,
therefore the required sample size could not be
achieved. The survey work was completed in a span
of three months from February 2003 to April 2003.
31 of the sample comprises of companies in the
Northern region, 31 in the Southern region,
23.5 in the Western region and 14 in the
Eastern region. The cities which were covered in
each region were Northern region Dehradun,
Delhi and NCR, Jallandhar, Kanpur, Lucknow,
Ludhiana, Meerut Western region Ahmedabad,
Baroda, Jaipur, Mumbai, Pune Eastern
region Bhubaneshwar, Guwahati, Kolkata Southern
region Bangalore, Chennai, Coimbatore, Hosur,
Hyderabad, Tirupur, Trivandrum The sample
comprised of 81 companies in the manufacturing
sector and 19 companies in the services
sector. The ownership pattern of the companies in
the sample was as follows
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Executive Summary Small Scale Industry in
India Assessment of Growth after Liberalisation
Sole Proprietor 53 Partnership 22 Private
Ltd 22 Public Ltd 3 The sample comprised of
45 companies belonging to the pre liberalization
era (pre 1991) and 55 of companies belonging to
the post liberalization era (post 1991). Among
manufacturing companies the industry sectors
which were covered are Textiles, Leather and
Garments Printing, Packaging and Paper, Plastic
and Rubber, Machinery and Mechanical Products,
Electrical and Electronic products, Chemical
Industry and Products and Automobile Auto
Products/Services. The kind of companies which
were covered in the Services sector are office
automation, computer products and IT services
consulting, architecture, interior decoration,
retailing and insurance services and beauty and
health services etc. Growth of SSI sector The
cumulative growth rate for the 872 companies in
the sample over the five year period 1998 to 2002
has been negative (-5.18). This is based on a
sample of 350 companies out of the 872 which have
been interviewed who have provided information on
their turnover figures for the last five years.
The negative growth rate is primarily on account
of the companies in the Northern and Eastern
region. The companies in the Southern region have
recorded a growth rate of 25 in their turnover
in the last five years. For the period, 1999-2000
too the overall growth has been positive (8.48)
but this is because of companies in the South
alone. In case of companies in the North, East
and West, it has been stagnant but the Southern
region has reported a 24 growth. The apparent
wide disparity in the growth pattern of the SSIs
between the Southern region and the rest of India
points to the fact that SSIs in South had
exploited the market opportunities better than
others. So free market per se is not inhibiting
growth, rather attitude of the people to learn,
to upgrade the skills of the manpower, being
flexible enough to adopt new technology and
market practices are acting as hindrances. The
companies in the manufacturing sector have
recorded a negative growth of 8.14 in the last
five years while the companies in
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Executive Summary Small Scale Industry in
India Assessment of Growth after Liberalisation
the services sector have recorded a growth of
16.34 in the last five years. The companies
were asked to state their actual turnover for the
last five years. The year-to-year growth was
computed for the last four year period based on
these figures. Accordingly, the years 1998-99
have witnessed a negative growth of -36.67 among
the companies in the sample, which improved to
-3.82 in the following year. In the period from
2000 to 2001 the growth increased to 11.87 while
it improved further in the year 2001 to
2002. However, the growth is more on account of
the positive growth recorded consistently for the
Southern region and for the Western region in the
last two years. The growth in the manufacturing
sector has been slow but steady but in case of
the services sector it has shown a cyclical
trend. Impact of liberalisation on growth of
SSIs 70 of the companies could respond to this
question after explaining the meaning
liberalisation. 24 felt that liberalisation did
not have an impact on the growth of the sector,
19 felt that it had adversely affected the
sector, 17 felt that it had brought in new
opportunities while 9.5 opined that the market
growth had become uncertain after
liberalisation. Barriers cited for growth of
SSIs The main reasons cited by the SSIs for the
non growth of the sector have been market related
(70), finance related (25), Government policies
and regulations (12.78), worker inefficiencies
(13.2), power (14) and technical (14.6). The
market barriers included low sales less demand
for products, competitive market, stagnancy and
market fluctuations. Marketing support for SSIs
is essential for identifying their target markets
SSIs are getting confused about the market they
should serve, there is the local regional
unorganised player at one end selling cheap
quality goods imported Chinese and Taiwanese
goods on the other hand and the MNCs infiltrating
into their domain on the other. As an example is
the biscuit industry many of the local players
had to shut down because of competition from
small bakeries on one hand and large regional
players like Priyagold on the other and still
larger national players like Britannia and Parle
all of which offer similar products at almost the
same prices. The primary benefit offered by the
local players is low price which is being eroded
by the larger regional players as well as the
multinationals which have penetrated the market
with lower prices to match the regional players.
This has been possible due to the economies of
scale which enable the players with larger
capacities to lower their prices.
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Executive Summary Small Scale Industry in
India Assessment of Growth after Liberalisation
More companies in the Northern and Western region
(nearly 75) in comparison to companies in the
South (65) have mentioned market as a constraint
to growth. Companies in the South have been able
to achieve higher sales volumes, more demand for
products and target growing markets much better
than companies in other regions but they have
been constrained by market fluctuations and
uncertainties. Infrastructure bottlenecks like
power and transportation have been cited as more
important barriers for growth by companies in the
South. With better infrastructure facilities
these companies are likely to fare even better.
In Eastern region government rules and
regulations have been blamed much more than other
regions while in the Western region the mind set
is more towards solving the problem through
finance. Measures adopted to overcome
problems The companies have resorted to internal
measures like reducing the costs of production
and increasing the productivity of their existing
workers or increasing the employee strength and
also reducing raw material procurement and other
costs. They have also tried to increase the
productivity by deploying generators and
increasing shifts. The companies in the
Southern region have resorted to human resource
measures as well as market expansion measures
much more than the other regions. In the Southern
region, the effort has been to move out and
target beyond local needs. The services sector
companies have deployed cost reduction measures,
market expansion measures and solving power
problems and increasing working hours of existing
employees much more in comparison to the
manufacturing sector companies. The
manufacturing sector companies have primarily
used measures of finance infusion or increasing
manpower which is better trained. Exploitation
of market opportunity 53 of the companies have
mentioned that they could exploit the opportunity
presented to them. This has been through better
utilisation of government policy and arrangement
of funds. The remaining 47 could not avail of
the opportunity because they could not face the
market conditions of sluggish growth and
competition.
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Executive Summary Small Scale Industry in
India Assessment of Growth after Liberalisation
The companies in the Northern region have been
slower in responding to opportunities in the
environment. In the remaining three regions the
responsiveness has been nearly 15-20
higher. Confidence Index The companies were
asked to state to what extent they would be able
to continue to perform in the present economic
environment. 60 of the companies have expressed
a capacity to survive in the next five years, but
40 of the companies are pessimistic. The most
pessimistic view has emerged from the East which
is mainly due to their overdependence on
Government policies to bail them out of their
losses and their own inability to understand the
market needs. Maximum number of the companies
in the South mentioned that they would be able to
continue for the next 10 years. The optimism was
backed by their own capabilities of market
readiness, harnessing resources and encouragement
by the regulatory and Government bodies. The
confidence index for the next ten years was
strongest in the South. Factors which have
helped growth The respondents were provided with
a list of selected factors and asked to rate them
on a five point agreement scale where 1
Completely disagree and 5 Completely agree. The
Agree has been computed using the sum total
of the Agree somewhat and Completely
Agree Among the factors, which have contributed
the most towards growth are market related
factors and IT factors like rise in e-commerce
and usage of Internet. The strategy of
subcontracting/ ancillarisation and sourcing out
has enabled the companies to grow. The usage of
subcontracting and ancillarisation or out
sourcing has been deployed less by firms in the
Southern region but has been predominantly in the
Northern region. The companies in the Southern
region have been able to find their own
independent markets rather than depending on a
parent company. The common factors which have
contributed towards manufacturing and service
both are rise in e commerce and sourcing out.
Globalisation and Liberalisation policies have
benefited the service sector more than the
manufacturing sector.
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Executive Summary Small Scale Industry in
India Assessment of Growth after Liberalisation
Institutional Support The respondents were
provided with different schemes and programs
which have been offered through the institutional
support mechanism for the SSI sector. They were
asked to state whether or not they have availed
of these programs. The SSI sector has used the
Industrial Estates and Growth Centres and
District Industry Centre the most. State
Financial Corporations and Cluster Development
Schemes have also contributed towards the success
of SSI sector. However, Preferential Purchase
Policy, Export Processing Zones, Software
Technology Parks, SIDO, NSIC, SISI, SIDC, SIDBI
have not lent much support to the growth of the
sector. The manufacturing sector has received
more support through cluster development schemes,
preferential purchase policy, industrial estates
and District Industries Centre as compared to the
service sector. The present system seems to be
more geared towards supporting manufacturing
activities rather than service based companies.
The services sector has received some financial
support only from the State Financial
Corporations. The institutions which have been
recognised as providing support to the sector
have to be given further impetus to improve their
systems and deliveries so that they can serve the
sector better. Marketing Constraints The
respondents were provided with a list of
marketing constraints and asked to rate them on a
five point agreement scale where 1 Completely
disagree and 5 Completely agree. The market
constraints which have been experienced are
increase in the cost of manufacturing on the one
hand and influence of imported and Chinese goods
on the other hand resulting in small markets to
be addressed with lower margins and, therefore,
increasing the risk factor. They themselves have
been unable to exploit global opportunities
because of lack of consistency in products. The
companies in the South have not been constrained
as much due to competition from Chinese goods or
lowering of import duties as in the case of other
regions but they have attributed the increase in
cost of manufacturing as the main reason for the
lack of growth. Companies in South have been able
to seize market opportunities despite
competition. While cost of manufacturing is a
concern for the manufacturing sector and lack of
product standardisation is a concern for the
service sector.
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Executive Summary Small Scale Industry in
India Assessment of Growth after Liberalisation
Financial Constraints The respondents were
provided with a list of financial constraints and
asked to rate them on a five point agreement
scale where 1 Completely disagree and 5
Completely agree. This has been identified as
the second most important constraint in the
growth of SSIs. However, more companies in the
West and South have mentioned finance as a
constraint in growth. All the financial
constraints including bank credit for working
capital, documentation of bank loans, lack of
collateral securities and delays in payments to
ancillary are equally important. Financial
constraints have been identified as a major
barrier towards growth more in the Eastern
region. All the constraints are equally
important to both the manufacturing and services
sector, however, lack of collateral securities
has been mentioned as more important by the
manufacturing sector. Human Resource Constraints
The respondents were provided with human
resource constraints which have been identified
by previous studies on the SSI sector and asked
to rate those on a five point agreement
scale. This has been identified as much as an
important barrier as finance. There are regional
differences as far the human resource constraints
are concerned. In the Northern region, stringent
labour laws and cost of human capital have
emerged as the more important human resource
constraints. In the Eastern region, all the
constraints are important but the lack of
training programs for SSIs has emerged as more
important. In the Western region too it is the
lack of programs for the SSIs which have been
considered as an important constraint. In the
Southern region human resources or lack of
programs have not been considered as a
constraint. Inadequate programs for the SSIs is
more of a concern among the services sector in
comparison to the manufacturing sector while
stringent labour laws as well as cost of human
capital are barriers for growth in the
manufacturing sector. Infrastructure
Constraints The respondents were provided with
few infrastructure constraints which have been
identified by previous studies on the SSI sector
and asked to rate them on a five point agreement
scale. These have been identified to be as
important as finance and human resource
constraints. Infrastructure constraints like
power and lack of physical infrastructure like
roads have emerged as crucial. In the Southern
region as many as 47 companies
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Executive Summary Small Scale Industry in
India Assessment of Growth after Liberalisation
consider power shortage to be important which
implies that the Southern region could have fared
better if these bottlenecks had been eliminated.
Power has not emerged a main concern in the
Western region implying that the policy of
privatisation of power seems to be working. In
the North and East there have been major problems
due to power constraints. Infrastructure
constraints have impacted the manufacturing
sector more significantly as compared to the
services sector. Regulatory Constraints The
harassment of the industry by the Inspector
visits has been mentioned as the primary
constraint for growth (51.46). However, this is
more rampant in North (78) and East (61) rather
than West (53) and lowest in South (19)
implying that a healthy business environment is
vital for the growth of the sector. The
manufacturing sector is more troubled by the
Inspector Raj in comparison to the Services
sector. De-reservation of products has also been
cited as a barrier for growth by 32 of the
companies interviewed implying that nearly one
third of the companies in the SSI sector would
like to continue to thrive in a protected
environment. Technological Constraints 36
companies have mentioned technological
constraints as a hindrance to growth. The
technological constraints which have been
identified as the main reason for non growth are
technological upgradation, low productivity and
lack of knowledge about technology sourcing.
Companies in South are not concerned about
technology being a constraint as they have been
constantly upgrading. However, those in the
Northern and Western region have higher concern
for technology upgradation and low
productivity. While technology up-gradation is a
major constraint in both manufacturing as well as
services sector, low productivity and technology
acquisition through licensing are more important
constraints in case of the manufacturing
sector. Training Needs 51 of the respondents
have expressed a need for marketing training, 33
for financial training and remaining 21.2 for
exports, 21.6 for human resources and 21.3 for
information technology.
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Executive Summary Small Scale Industry in
India Assessment of Growth after Liberalisation
The marketing training has been suggested for
market development, planning customer promotional
activities, global marketing and dealer
development and network. The financial training
has been identified as necessary for obtaining
loans, activity based costing and financial
policies. In case of exports courses for legal
procedures country wise, help in finding
importers and Government assistance are needed.
In the area of human resources, it has been
suggested that programs addressing industrial and
labour law, improvement of employee performance,
team work management and motivational techniques
can be introduced. Programs to develop skills of
knowledge management and data base, Internet and
Internet based technology and improvement of
communication can be introduced for training in
Information Technology. Outlook for the
Sector The respondents were provided an outlook
scale for the SSI industry, their industry sector
and for their own company after five years and
asked to rate them on a five point survival scale
where 1 More profitable than today and 5 Cannot
survive definitely. The Survive has been
computed using the sum total of the more
profitable than today and Somewhat profitable
than today and Same as today A positive
outlook has emerged for the SSI sector, each
individual industry sector and the companies but
it is inclined towards a status quo and somewhat
more profitability rather than much more
profitability. 14 of the companies within the
sample have felt that they are likely to be more
profitable in the next five years on the other
hand nearly 6 feel that they will definitely not
survive. The companies in the Southern (83) and
Eastern (84) regions are more upbeat about the
outlook of SSI sector, the industries sector and
their companies. Among the companies in the North
65 have shown a positive outlook whereas in the
West 61 have shown a positive outlook. Nearly
30 of the companies in the Southern region feel
that they would be more profitable in the next
five years. The companies operating in the
services sector are more positive in their
outlook for their growth as well as the growth of
their sector in comparison to those in the
manufacturing sector. Implications and
Recommendations for the SSI sector In the light
of the findings from the survey some areas which
are important for policy thrust have emerged.
With the advent of liberalisation, multilateral
free trade regimes the SSIs are now subject to
the dictum of the market forces. No longer they
will be
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Executive Summary Small Scale Industry in
India Assessment of Growth after Liberalisation
able to get the preferential treatment, subsidy,
support, protection from the Government as well
as from the institutional mechanisms. So if they
want to survive and prosper in this New World
order, they have to be competitive. The
implications for the SSIs which have emerged from
this study are Growth Pattern The striking
learning that has emerged out of the study is the
difference in the growth of the SSI sector across
regions. The overall growth of the SSI sector in
the last five years has been negative (-5.18)
contrary to the popular belief that the sector is
prospering. The regional differences are stark
the growth in the SSI sector is led by the
Southern region, which has shown a constant
growth of 25 in the last 5 years. On the other
hand, companies in the North and East have
recorded a negative growth while the Western
region has recorded a negligible positive growth.
There are major learnings which other regions can
derive from the Southern success story. The
foremost implication which has emerged is
regarding the perception of the role that the
Government should play in the growth of the SSI
sector. In the other regions there has been a
clear mindset to blame the government policies
and lack of support from the government as the
reason for the dismal performance of the sector,
however, in case of the entrepreneurs in the
Southern Region no such complaints have been
recorded. On the contrary, they are supportive of
the government policies and feel that government
has been a good facilitator. There is also not
much hindrance felt in the South from the
regulatory point of view whereas in case of other
regions, particularly in the North the harassment
caused by regulatory visits has been cited as a
major bottleneck in growth. The state governments
in the region other than South could take lessons
from the support mechanism instituted by the
state governments of the Southern states and
apply it to their own conditions. Market
Constraints Though previous studies have
highlighted technology awareness, acquisition and
adoption as the main reason for the slow growth
of the SSI sector, marketing related factors have
been cited as the primary reason for the low
performance of the sector according to the
present survey. Some of the salient constraints
are inability to find a target market for the
products due to competition at either end of the
quality spectrum. This points towards the
following measures to be introduced
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Executive Summary Small Scale Industry in
India Assessment of Growth after Liberalisation
The SSI units need to be provided with market
related information, new avenues for their
products both domestically as well as abroad, new
production and business practices through trade
fairs and workshops. The industry forum and
association should undertake publication and
dissemination of such information in the form of
bulletins and journals. The emphasis should be
on standardization, brand equity building and
brand positioning strategy to develop a good
market presence for these products. This requires
standards and code procedures to be available
within easy reach of the SSIs. The SSI owner is
intrigued by the presence of Chinese and other
cheap foreign goods in the market which lure
their customer. There is, therefore, a need to
educate them about the effect of WTO on their
business. The cost of manufacturing for the SSIs
goes up due to poor understanding of the supply
chain resulting higher costs of raw materials.
Training on supply chain management needs to be
introduced so as to reduce the intermediate cost
of transaction and marketing the product at the
targeted area. Subcontracting has emerged as the
route to success for the SSI sector. This can be
nurtured through better coordination and
cooperation mechanisms between small and large
companies. There should be close-knit
coordination between large industrial houses and
SSIs so as to reap the benefits of the small
sectors in the production processes. This can be
undertaken by introduction of common exchange
platform of projects. The consortium approach
has also been successful in increasing the
bargaining power of the SSIs and making them
stronger. In the leading textile zone of Tirupur
in Tamil Nadu, the hosiery manufacturers have
approached the international labels like Benetton
for procuring orders for manufacturing on their
behalf. They have assured them about the quality
as well as delivery schedules as well as the cost
effectiveness of manufacturing through them. The
consortium approach needs to be encouraged
through the cluster schemes. Financial
Constraints The second most important constraint
identified by the study after the market-related
barriers is the financial constraints. It
includes both the procedural hassles as well as
availability constraints. The recommendations
which follow suggest introduction of a resource
pack containing details of government policies
regarding the financial norms. These packs may be
prepared and distributed among the SSIs letting
them know the details of financing and other
schemes available to them.
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Executive Summary Small Scale Industry in
India Assessment of Growth after Liberalisation
Human Resource Constraints The human resource
constraints ranked on par with financial
constraints in terms of their importance. Some of
measures which need to be adopted to reduce these
constraints are Labour laws should be made more
flexible and simplified for the SSIs to give the
entrepreneurs a free hand in the choice of labour
hiring and firing. There should be training
program from the industry associations to upgrade
the skill of the workers and to make them
acquainted with the skills, compatible with the
new technology. Poor productivity of the labour
force being a major concern can also be addressed
through upgradation of skills. Training
programs in marketing have been most demanded
particularly in the areas of market development,
dealer networking and exports. Technology
Constraints Technology has not emerged as the
main concern of the SSIs, however, this is due to
the fact that they are not aware of the ability
of technology to translate into new markets or
reduce costs. They feel that technology is
essentially an expensive proposition which should
be deployed only if everything else stops working
or if they are certain about the demand that it
would generate. The SSIs in India are by and
large viewed as units producing poor quality
outputs using outdated technology. The growth and
development of SSIs in India greatly depends on a
change in this perception and the reform process
should include a strategy to catalyze the
change. To this end some of the areas which
could be addressed are Setting up of technology
awareness sourcing centres to enable
entrepreneurs to access buy the appropriate
technology at a reasonable price. Develop
project reports incorporating the latest proven
technology for different sectors with buy back
arrangements in order to inspire confidence among
the entrepreneurs. This approach would be
particularly feasible in case of
clusters. Create awareness about the utility of
technology upgradation and about the level when
the entrepreneur should take a decision about the
same.
18
Executive Summary Small Scale Industry in
India Assessment of Growth after Liberalisation
Infrastructure Constraints Improper roads and
insufficient power supply have emerged as the
leading infrastructure constraints. Power
shortage stood out as the most important
constraint in the Southern region, the best
performing SSI region. Power has not emerged as a
main concern for the Western region implying that
the policy of privatization power seems to be
working. So a lot is needed to be done in the
power sector reforms, mainly in the distribution
of power. The cluster approach has worked well
and has been appreciated by entrepreneurs in all
the regions. Schemes and programs encouraging the
use of clusters must be encouraged. District
Industries Centres have also received a positive
feedback from the SSI sector. These need to be
made stronger by increasing their capacity to
cater to the needs of the SSI sector. The
present research has been able to identify
certain problems which occur at the ground level
and are faced by the SSIs in their day to day
working and progress. The policy makers and
institutions require to give due consideration to
these issues for optimising the potential of the
SSI sector.