Unit 1

INTRODUCTION TO SMALL SCALE INDUSTRIES AND

ENTERPRISE:
1.1.1 Concept and definition of Micro, small
and Medium enterprise
INTRODUCTION of MSME
• MSME stands for micro, small and medium
enterprises.
• It plays a important role for economic
development of our country.
• The major advantage of the sector is its
employment potential at low capital cost. The
labor intensity of the MSME sector is much higher
than that of the large enterprises.
• It satisfies the demand of local customer.
Bases for defining small business and these are:

I. Scale of Business:
The size or scale of business can be measured in various
ways like :

(i) Investment on plant and machinery

(ii) Employment generation.
(iii) Investment and Employment.
(iv) Volume and/or value of production.
(v) Volume and/or value of sales.
Con’d
II. Qualitative Aspects: These can be:-

(i) Ownership of small business is in the hands of an

individual or a few individuals.
(ii) Management and control of small-scale firm is with the
owner or owners.
(iii) Technology adopted in small-scale unit is normally
labour intensive.
(iv) Small-scale business is normally carried on in a limited
or local area.
Modification in limit
• According to Government of India, 1991 “An undertaking
having an investment in plant and machinery of not more
than Rs. 60 lakhs and not more than 75 lakhs in case of
ancillary units.”

• According to Government of India, 1997 “An undertaking

having an investment in plant and machinery of not more
than Rs. 3 crores.”

• According to Government of India, 2000 “An undertaking

having an investment in plant and machinery of not more
than Rs. 1 crores.”
Definition of Small Scale Industries

• Three ways:
1) Conventional
2) Operational
3) National accounting
Conventional Definition

• Cottage and handicraft industries that employ

conventional labour–oriented methods to produce
conventional products, mainly in the rural areas. Some
examples are handloom and handicrafts.
Operational definition

• i) a micro enterprise, where the investment in Plant and

Machinery or Equipment does not exceed one crore
rupees and turnover does not exceed five crore rupees;
(ii) a small enterprise, where the investment in Plant and
Machinery or Equipment does not exceed ten crore
rupees and turnover does not exceed fifty crore rupees;
(iii) a medium enterprise, where the investment in Plant
and Machinery or Equipment does not exceed fifty crore
rupees and turnover does not exceed two hundred and
fifty crore rupees.
•.
National Income Accounting
• This includes all manufacturing & processing activities,
including maintenance and repair services, undertaken by
both household and non-household small scale units
which are not registered under factories act.
MSME
• (i) a micro enterprise, where the investment in Plant and
Machinery or Equipment does not exceed one crore
rupees and turnover does not exceed five crore rupees;
(ii) a small enterprise, where the investment in Plant and
Machinery or Equipment does not exceed ten crore
rupees and turnover does not exceed fifty crore rupees;
(iii) a medium enterprise, where the investment in Plant
and Machinery or Equipment does not exceed fifty crore
rupees and turnover does not exceed two hundred and
fifty crore rupees.
Examples
• These are listed below :

• Food Products
• Chemical & Chemical Products
• Basic Metal Industries
• Metal Products
• Electrical Machinery & Parts
• Rubber & Plastic Products
• Machinery & Parts Except Electrical goods
1.1.2 filing of Memoranda by MSMEs
• As per MSMED Act, 2006, a person intends to set up micro, small
enterprise, shall file memorandum of micro, small enterprise, as the
case may be, with District Industries Centre/Sub-DIC of the
concerned district where enterprise will be set up.

• The system of registration followed so far has been changed w.e.f.

02.10.2006. The District Industries Centre/Sub-DIC of the respective
district where the enterprise is situated has been declared as
specified authority for micro and small enterprise for
acknowledgement, of memorandum.

• DIC shall issue acknowledgement in the form of E.M. getting duly

filled in Entrepreneurship Memorandum complete in all respects with
necessary signature and undertaking.
•
Con’d
• Filing of Memorandum has been categorized in two ways

• part-l, applicable for setting up of (proposed) micro and

small enterprises and

• part-ll (after commencement of production/services to be

rendered of those enterprises).
 1.1.3 Classification, objectives and characteristics
of Small Scale Industries
OBJECTIVES OF SMALL SCALE INDUSTRIES

1. To create more employment opportunities with less

investment.
2. To remove economic backwardness of rural and less
developed regions of the economy.
3. To reduce regional imbalances.
4. To mobilize and ensure optimum utilization of
unexploited resources of the country.
5. To improve standard of living of people.
6. To ensure equitable distribution of income and wealth.
7. To solve unemployment problem.
Con’d
8. To create a workforce of self-employed professionals.
9. To adopt latest technology aimed at producing better
quality products at lower costs.
10. To utilize locally available resources
11. To promote production
12. To avoid unplanned urbanization
13. To contribute to local sufficiency through effective use
of local resources & local talent.
Classification of small scale industry
Traditional industries Modern
Khadi & village Industries Small scale industries undertaking
Handlooms Export oriented SSI units
Handicrafts Ancillary Industrial undertakings
coir Tiny enterprises
Sericulture Small scale services
Power looms
Handloom
Handicraft
coir
The fiber obtained from the husk of a coconut, used in
making rope and matting and as a medium for cultivating
plants.
Sericulture
• The production of silk and the rearing of silkworms for this
purpose.
Tiny industry
• Unit is treated as Tiny industry where investment in plant
and machinery does not exceed Rs. 5 lakhs.
Ancillary undertaking
These are industrial undertakings having fixed investment
in plant and machinery not exceeding 1 crore engaged in or
proposed to engage in,

(a) The manufacture of parts, components, sub assemblies,

tooling or intermediaries, or

(b) The rendering of services supplying 30 percent of their

production or services as the case may be, to other units
for production of other articles.
Examples
Power looms
Characteristics of small scale industries
1) They are generally organized proprietary units .studies
in India suggest that nearly 70% of small scale
enterprises are proprietary.
2) They operate in localized area catering needs to local
requirements.
3) They require limited capital & usually labor intensive.
4) They employ simple technology & rely on extensive use
of individual skills.
5) They enjoy high degree of flexibility which enables their
survival & growth.
6) They can be started easily without intricate legal
formalities.
Con’d
7) As one of priority sector of the government these units
enjoy the benefit of state protection & number of
concessions & facilities which render them highly attractive.
8) Managed by owner so decisions are quicker and
automatically.
9) They need a shorter gestation period
Gestation period
Its the period of time between a business Idea or plan and
its implementation
Scope and trends of small enterprises in India
Scope and trends of small enterprises in India

• They are suitable for the Indian economy which is short of

capital & labor intensive.
• They contribute as much as 35 to 40 % of direct exports.
• They have higher per unit output of capital invested.
• They reinvest a major portion of their profits out of
necessity & thus helps in increasing national production.
• They are more flexible & innovative.
• They may reduce economic & regional disparities .
• Solve problem of unemployment
• Less demanding to the environment.
Small Scale Industries and Gandhiji
Small Scale Industries and Gandhiji
• Industrial structure of a country consists of large , medium
& small scale industries. of these three types of
industrialization ,the role of small scale industries in the
industrial development of country is supreme importance.

• Mahatma Gandhiji in 1937 ,with his theory of trusteeship

for economic progress , first introduced the idea of
massive development of small scale industries in order to
regenerate India's stagnant economy.
•
Con’d
• In India ,further development of movement of small
industries started in the 1950s when Ford Foundation
team visited India & prepared practical plan for
development of small scale industries.
Following factors are responsible for emergence
of SSI in India
• Low capital intensity & high employment potential
• Exports
• Lion’s share in production
• Low gestation period
• Establishment of Homegrown enterprises
• Dispersal of industries in rural & backward area
• Exploitation of local raw material and undeveloped
entrepreneurship
• Equitable distribution of income & wealth
• Innovation
• Local economic development
1.1.6 Specific Advantages of Small Scale
Industries

• Provide employment
• Problems of surplus man power can be better handled
• Small scale industries reduce effect of monopoly ,
concentration of wealth and restrictive trade practices
• Balanced regional growth by facilitating decentralization
• Reduce unplanned urbanization
• Reduce dependence on agriculture
• Help to raise purchasing power of villages & contribute to
a better quality of life
Business: The Driving force for National Growth
• Labour intensive technology and provide more
employment

• Conversion of persons from unemployment to self

employment
Role of Government in promoting SSI in India

• India over the past four decades, has taken up several

small enterprise development programs for providing
assistance to individuals & institution for setting up small
scale enterprises benefiting youth , women , minorities ,
socially & economically weaker section of society.

• The successive Five Year plans. Industrial Policy

Resolution announced in 1948 , 1956 , 1977 , 1980 , &
1991 have emphasized the importance of small scale
industries.
Planning commission
• The Planning Commission was set up in March, 1950 by a
Resolution of the Government of India.

• The economy of India is based on planning through its

five-year plans, developed, executed and monitored by
the Planning Commission
Role of Government
Five year plan Main Thrust for SSI by Government
First(1951-56) Measures were initiated to make the village & small scale
industry sector progressive & efficient
Third(1961-66) Intensive development of village & small industries was
taken up in selected areas under the rural industries project
Fourth(1969-74) Development of industrially backward areas by announcing
a number of policy measures like subsidy for industries
Industrial policy  Effective promotion of cottage & small industries in
resolution of townships.
1977  The concept of tiny enterprise introduced
 Development of rural & semi urban area with population
not exceeding 50000
 A new administrative set up was introduced at district
level
Con’d
Industrial policy To harmonize the growth in the small scale sector with that
statement of 1980 in the large & medium sector
Seventh( 1985-89) Up gradation of technology & modernization to improve
the competitiveness of small industries by creation of
tooling & workshop facilities.
New industrial  Industrial licensing
policy 1991  Foreign investment
 Foreign technology agreements
 Public sector policy
 MRTP Act
Eighth (1992-97) Generation of adequate employment to achieve near full
employment level by the turn of the 20th century.
Ninth (1997-2002) The village & small scale industries includes various other
basic industries .
The micro, small and medium enterprises
development act, 2006

• An act to provide for facilitating the promotion and

development and enhancing the competitiveness of micro,
small and medium enterprises and for matters connected
therewith or incidental thereto.
Role of the Act
• The act provided very clearly the necessary structure &
regulatory mechanism to overall development of MSMEs.
• The act clearly defined various types of industries &
services that come under its preview.
• Simplified the registration process for industries that come
under its preview
• Stated penalties for late payments to MSMEs.
• The clearly stated agenda for future development policies
for MSME.
Functions of Board

• Examine the factors affecting the promotion and

development of micro, small and medium enterprises and
review the policies and programmes of the Central
Government in regard to facilitating the promotion and
development and enhancing the competitiveness of such
enterprises and the impact thereof on such enterprises;

• Advise the Central Government on the use of the Fund or

Funds
Con’d

• Make recommendations on matters referred to in clause

(a) or on any other matter referred to it by the Central
Government which, in the opinion of that Government, is
necessary or expedient for facilitating the promotion and
development and enhancing the competitiveness of the
micro, small and medium enterprises; and
1.1.9 Classification of Enterprises

Particulars Manufacturing Services

(investment in P & M) (Investment in equipment)
Micro Enterprise Up to 25 lakh Up to 10 lakh
Small Enterprise 25 lakh to 5 Crore 10 lakh to 2 Crore
Medium Enterprise 5 Crore to 10 Crore 2 Crore to 5 Crore

Types of Enterprises New Definitions

Micro Enterprises
Net investment in plant and machinery or equipment upto Rs. 1 crore and net
turnover ≤ Rs. 5 crores
Small Enterprises
Net investment in plant and machinery or equipment ≤ Rs. 10 crores and net
turnover ≤ Rs. 50 crores
Medium Enterprises
Net investment in plant and machinery or equipment ≤ Rs. 50 crores and net
turnover ≤ Rs. 250 crores
Thank you