1. Small-Scale Enterprises
Chapter-7
Small-Scale Enterprises
Author: Alpana Trehan
© 2011, Dreamtech Press :: Chapter 7

2. Define Small-Scale Enterprises
An SSE can be defined as a privately owned and operated business unit that is composed of a small number of employees and has relatively low turnover.
Small enterprises are those in which the management lies in the hands of one or two people who are responsible for the major decisions. --- P. Neck (1977)
© 2011, Dreamtech Press :: Chapter 7

3. Enterprises Included in Small-Scale Sector
Small-Scale Industrial Undertaking
An industrial undertaking in which the investment in fixed assets, such as plant and machinery (whether held on ownership terms, on lease, or by hire-purchase) does not exceed ` 1 crore.
Ancillary Industrial Undertaking
An industrial undertaking that deals with the production of spare parts, components, sub-assemblies, and tooling, or the rendering of services.
Micro or Tiny Enterprise
An enterprise in which investment limit in plant and machinery is ` 25 lakhs irrespective of location of the unit.
© 2011, Dreamtech Press :: Chapter 7

4. Distinction among Micro, Small and Medium Enterprises
Investment in Plant and Machinery in Manufacturing Sector
Investment in Equipment in Service Sector
Micro Enterprises
Does not exceed ` 25 lakhs
Does not exceed ` 10 lakhs
Small Enterprises
More than ` 25 lakhs, but does not exceed ` 5 crores
More than ` 10 lakhs, but does not exceed ` 2 crores
Medium Enterprises
More than ` 5 crores, but does not exceed ` 10 crores
More than ` 2 crores, but does not exceed ` 5 cores
© 2011, Dreamtech Press :: Chapter 7

5. Characteristics of Small Scale Enterprises
Labor Intensive
SSEs provide employment opportunities to individuals in urban and rural areas, which, in turn, enhances the economic position of the country.
Flexibility
SSEs adapt themselves as per the dynamic industrial environment.
Innovative
SSEs use new and innovative materials, methods of production, markets, sources of materials, and even new forms of organizations, such as sole proprietorship, partnership, and co-operatives.
Decentralization
SSEs facilitate a balanced growth of the economy as a whole due to dispersal of industries.
Outlet of Entrepreneurial Spirit
The enthusiasm, perseverance, and creativity of an individual, who establishes the enterprise.
© 2011, Dreamtech Press :: Chapter 7

6. Role of SSEs in the Development of an Economy
Utilization of Domestic Technology
Tapping of Savings
Better Utilization of Local Resources
Poverty Alleviation
Higher Productivity
Complement to Large Industries
Employment Generation
Contribution to Decentralization
Export Contribution
Regional Balance and Rural Development
© 2011, Dreamtech Press :: Chapter 7

7. Small-Scale Enterprises in Indian Environment
There is an experienced note-worthy growth of the SSEs after independence.
They have played significant role in economic development, employment generation, and growth in export.
SSEs in India are of the following two types:
Traditional
Includes khadi, village industries, handlooms, handicrafts, sericulture, and coir industries
Modern
Includes textile products, wood, furniture, paper and printing, metal products, chemicals, rubber and plastic products, electrical machinery, and transport equipment
© 2011, Dreamtech Press :: Chapter 7

8. Factors Influencing the Small-Scale Enterprises
Political Factors
Economic Factors
Technological Factors
Socio-Cultural Factors
© 2011, Dreamtech Press :: Chapter 7

9. Industrial Policies Related to Small-Scale Enterprises
Providing tax concessions to SSEs to promote investment in the small-scale sector
Granting relief to small-scale entrepreneurs in terms of repayment of loans
De-licensing the small-scale sector substantially
Increasing technological facilities
Facilitating adequate flow of credit
Improving infrastructure facilities and promoting marketing of products
Improving access to latest information by automating the government departments meant for supporting the small-scale sector
Initiating various services, such as advisory and mentoring services, technology business incubators, and supplier rating accreditation services
© 2011, Dreamtech Press :: Chapter 7

10. Strategies Related to Small-Scale Enterprises
It include plans or schemes meant for the progress of SSEs by the government.
Mahalanobis was the first strategy formulated by the government for the promotion of SSEs and was evolved during the 2ndFive Year Plan.
The strategy envisaged that small-scale sector would have to bear the responsibility of fulfilling the growing needs of consumer goods in the economy.
© 2011, Dreamtech Press :: Chapter 7

11. Entrepreneurial Success in Rural India
According to the third census on SSI:
1,05,21,190 units of small-scale enterprises in India
44 lakhs SSEs
61 lakhs SSSBEs
Several entrepreneurship development programs have started by Indian government
Crucial factors for rural entrepreneurship development programs:
Communication technology
Knowledge management
Science and business education
Accessibility to information
© 2011, Dreamtech Press :: Chapter 7

12. Steps for Establishing Entrepreneurial System1
Providing proper infrastructure and related services to enable the establishment of enterprises 2
Imparting entrepreneurial training 3
Providing support and resources to entrepreneurs
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13. Assistance for Small-Scale Enterprises1
Financial assistance 2
Technical assistance 3
Marketing assistance
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14. © 2011, Dreamtech Press :: Chapter 7
Financial assistance
An SSE cannot exist without the proper arrangement of financing.
The success of SSEs in developing countries, such as India, is laid by several financing programs by the government.
The government through financing programs provides finance to SSEs at less interest rates as compared to prevalent commercial rates.
The Prime Minister’s RozgarYojna is a scheme introduced by the government to encourage the youths of the country to involve in entrepreneurial activity.
© 2011, Dreamtech Press :: Chapter 7

15. © 2011, Dreamtech Press :: Chapter 7
Technical assistance
SSEs lack in accessing technology due to poor consultancy support/services for technological information.
Some of the centers established by the government are as follows:
National Small Industries Corporation Limited (NSIC)
Software Technology Parks (STPs)
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16. © 2011, Dreamtech Press :: Chapter 7
Marketing assistance
The small-scale sector is characterized by the absence of strong brand presence in the market and unorganized marketing network.
Some of the schemes implemented by the government are as follows:  
Government Purchase and Price Preference Policy
Market Development Assistance (MDA) Scheme
Vendor Development Programs (VDPs)
© 2011, Dreamtech Press :: Chapter 7

17. Sickness in Small-Scale Enterprises
One which fails to generate internal surplus on a continuing basis, and depends for its survival on frequent infusion of external funds. --- State Bank of India
A unit may be defined as sick, if it had incurred cash loss for one year and, in the judgment of the bank, is likely to continue to incur cash losses for the current year as well as the following year and which has an imbalance in its financial structure, such as current ratio of less than 1:1 and worsening debt equity ratio. --- Reserve Bank of India (1976)
© 2011, Dreamtech Press :: Chapter 7

18. Reasons for Sickness in Small-Scale Enterprises
Lack of Management Expertise
Resistance to Apply Basic Management Principles
Lack of Working Capital
Improper Cash Management
Inadequate Planning and Controlling
Lack of Marketing Expertise
Lack of Technical Expertise
Improper Assessment of Viability of Projects
Changes in Government Policy
© 2011, Dreamtech Press :: Chapter 7

19. actions taken by the government to prevent sickness
RBI Guidelines
Monitoring Programs
Government Policy
Rehabilitation of Sick Units
Rescheduling/Rephasement of Loans/Advances
Debt Reconstruction Scheme (DRS)
Kapur Committee
Bureau of Industrial and Financial Reconstruction (BIFR)
Negotiated Settlement Scheme
© 2011, Dreamtech Press :: Chapter 7

20. Organizational Structure of a Small-Scale Enterprise
Owner
Production Assistant
Multiplication
Processing
Storage
Marketing Assistant
Promotion
Distribution
Sales
© 2011, Dreamtech Press :: Chapter 7

21. Export Promotion Measures by Government of India
Marketing assistance and export promotion scheme
Participation in the International Exhibitions/ Fairs
Training Programmes on Packaging for Exports
Market Development Assistance Scheme for MSME exporters (MSME-MDA)
National Award for Quality Products
Packaging for exports
Technical & managerial consultancy services
National awards for quality products
© 2011, Dreamtech Press :: Chapter 7

22. Institutional Setup for Export Promotion
Trade Fair Authority of India
Indian Institute of Foreign Trade (IIFT)
Export Credit Guarantee Corporation (ECGC)
Export houses
© 2011, Dreamtech Press :: Chapter 7

23. © 2011, Dreamtech Press :: Chapter 7
recap
The small-scale sector strives to make efficient utilization of capital, land, and labor to produce goods and services.
The small-scale sector contributes around 40% to the total exports of the country; therefore, accounts for an important segment of the Indian economy.
The Indian government has recognized the contributions of the small-scale sector in the socio-economic development of the country.
The government has set the target of annual growth of 12% and creation of 4.4 million additional jobs in the small-scale sector.
© 2011, Dreamtech Press :: Chapter 7