Small Business in India

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The presentation covers the Indian Small Business in a very brief but effective way.

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SMALL BUSINESS IN INDIA

12.3 Million 29.5 Million

INDIAN SMALL BUSINESS - At a Glance
SSI Units in India

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 accounted 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 Micro Enterprise < 25 Lakh Small Enterprise 25 Lakh - 5 Crore Medium Enterprise 5 Crore - 10 Crore

Service Enterprises
Units Investment Criteria

Micro Enterprise < 10 Lakh Small Enterprise 10 Lakh - 2 Crore Medium Enterprise 2 Crore -5 Crore

Changes in Definition of SSIs and Ancillaries
Year The Industrial (Development and Regulation) Act, 1951 1966 1975 1980 1985 19990 1991 1997 Units SS Investment Criteria Rs 5 lakh and employing less than 50 people with power and less than 100 persons without power Not exceeding 7.5 lakh Rs 10 lakh Rs 10 lakh Rs 20 lakh Rs 25 lakh Rs 35 lakh Rs 45 lakh Rs 60 lakh and Rs 75 lakh for EOU Rs 75 lakh Rs 3 Crore - but later reduced to 1 Crore 25 lakh

SS SS AU SS AU SS AU SS AU SS Tiny

Investment Ceilings for Small Scale Industries in the Year 2004
Type of Unit Small Scale Industry Ancillary Investment Ceiling Limit in IRS 1 crore (10 million) 1 crore (10 million) Conditions Original value of plant and machinery At least 50% of its output to go together other industrial undertakings Obligation to export 50% of production No location condition No location condition 51% equity holding by women Total only for 64 items

Export Oriented Unit Tiny Enterprise Service and Business (industry related) Enterprise Women Enterprises High Tech and Export oriented units

1 crore (10 million) 25 lakhs (2.5 million) 10 lakhs (1 million) 1 crore (10 million) 5 crore (50 million)

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
5.65 10.44 11.49 1.29 9.19 7.84 7.09 8.04 6.06 7.68 8.06

Total Industrial Sector Growth Rate
6.00 9.10 13.00 6.10 6.70 4.10 6.70 5.00 2.70 5.70 6.09

1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04

Growth of SSI Sector
Year No of Units (In lakhs 20.82 22.46 23.90 25.71 26.60 28.00 29.40 30.80 32.10 33.12 34.42 35.72 Output at Current Prices 1,78,669 2,09,300 2,41,648 2,96,886 3,62,656 4,11,858 4,62,641 5,20,650 5,72,887 6,39,024 6,90,316 7,42,021 Employment Export (Rs Cr) Earnings (Rs Cr) 129.80 134.06 139.40 146.56 152.61 160.00 167.20 171.50 178.50 185.60 192.23 199.65 13,883 17,785 25,307 29,068 36,470 39,249 43,946 48,979 53,975 59,978 NA NA 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2001-01 2001-02 2002-03

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 % 25 % 12.78 % 14 % 14.60 % Finance Related Government Policy Related Power Related / Infrastructure Technology

Sickness in SSI Units
Year 1999 2000 2001 2002 2003 No of Units Amount Outstanding (Rs Cr) 3,06,221 3,04,235 2,49,630 1,77,336 1,67,980 4313.48 4608.43 4505.54 4818.95 5706.35

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

Closed Shops : Plagued with Problems
Reasons Labour Problems Disputes among Owners No of Units (In ‘000) % of Total 7 11 2.3 3.7 5.6 34.9 14.3 3.3 26.6 19.3

Raw Materials Problems17 Finance Problem Marketing Problem Natural 105 43 10

More than One Reason 50 Others Total 58

301 100 Source : Second Census of Small Industries Report

Trends Of Lending By Banking Sector To SSI
As at end March 1999 2000 2001 2002 2003 2004 2005* Total advances Banking Sector 2,46,203 2,92,943 4,69,153 5,36,727 6,69,534 7,64,383 9,72,587 byTotal Advances to SSI Proportion of SSI to Sector Total Advances 42674 45788 56002 57199 60394 65855 76114 17.30 15.63 1.94 10.66 9.02 8.62 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 terms 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 support (upto 15 %). • Single Window Loan Scheme enlarged to cover projects upto Rs.20 lakh with working capital margin upto Rs.10 lakh.

Financial Support 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 support 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 OPPOPTUNITIES • 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 • Often lack in management, marketing or financial skills • Technological obsolesce • Poor financing • Lack of marketing strength THREATS • 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

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