The small scale industries (SSIs) play a very important role in a densely populated country like India, by providing productive employment, by diversifying industrial activity, by bringing about balanced regional development and even by boosting exports.
The big role of small sector in India can be understood from the fact that this sector, having about 32.25 lakh units, gives output valued at about Rs. 6 lakh crore, provides employment to 180 lakh people and exports commodities valued at around Rs. 54,000 crores.
The sector contributes over 40% the gross turnover in the manufacturing sector, about 45% of manufacturing exports, and 35% of the total exports. The SSI now produces about 8000 items.
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In spite of many problems, the small scale sector’s performance is better than the overall performance of the Indian economy. For instance, in 1996-97, the 11.3 percent growth in production at 1990-91 prices was much higher than the 7.1% growth in overall industrial production. Employment growth of 4.5% in 1996-97 was also higher than the target of 4.2% for the year (Economic survey 1997-98)
a. Value of production of SSI in 1998-99 was 527515 crores as compared to 178699 crores in 1991-92. Number of units in SSI also increased from 20.82 lakh to 31.21 lakh
b. Employment generated was 171.6 lakh in 1998-99 as compared to just 123.8 lakh in 1989-90, the creation of employment depends crucially upon development of SSI and cottage industry.
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c. In 1998-99, export valued at 49481 crores compared to just 155 are in 1971-72. There is drastic change in the pattern. Now, bulk of exports from SSI in non-traditional items (more than 90%) consisting of ready-made garments, finished leather products processed, food, chemical and allied products and large number of engineering goods.
d. As far as efficiency of SSI is concerned availability of credit is an important problem. In fact creditors are reluctant in advancing credit to SSI units as Capital base is weak. Many SSI units sell their products on Credit basis which impairs resource availability, SSI units cannot venture into the Capital market or EURO-route, so they cannot get capital at easier terms.
e. SSI ensures equitable distribution of National Income and wealth. Ownership in SSI is more
i. Widespread than large scale.
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ii. SSI provides larger employment.
f. SSI can be set up in rural areas also where local raw material is available. This will reduce regional and intra-regional disparity. For instance in 1996-97, about 62.2% of the small units were located in the backward areas including Assam, Bihar, Nagaland, Himachal Pradesh, Jammu and Kashmir, Manipur, Maghalaya, Sikkim, Tripura, Arunachal Pradesh, Dadra and Nagar Havali, Mizoram, Andaman and Nicobar islands, Daman and Diu and Pondicherry. However, there is scarcity of raw material particularly chemical and extractive raw material.
g. Large numbers of entrepreneurs are engaged throughout the country in this sector. Due to SSI they mobilise capital as well as effectively use the local raw materials.