NAME: RUTWIK RAO

Prn: 16060242043

Topic: The effect of small -scale

industries on economic growth.

Subject : Economic growth theory

ABSTRACT:
The small- scale industry in India has emerged as a vibrant and dynamic
segment of the economy. The strategy of economic development for any
country is to eradicate poverty and provide large scale employment,
training and education to the vast population of this country. Second
generation of economic reforms gave rise to SSI with more relaxed
regulatory framework and provide further impetus to growth to the
Indian economy. Technology development and access to capital is
needed to boost SSI and thus growth targets can be achieved
Literature Review

2002,Shyam Bhati India is an emerging economy with a population of

more than One billion. Nearly 40% of the population lives below
poverty line and 70% of the population is dependent on agriculture
for sustenance. The Economic reconstruction of India depends on the
balanced growth of economy in the fields of industry and agriculture.

Satish modi, asst prof Indira Gandhi national Tribal University ,2014
said, Small scale industry exists in every country. In a developing
country like India the small scale sector occupies a special place in
the industrial sector. In a country like India man power is abundant
but capital relatively scarce.

2005,M.H. Bala Subrahmanya, Dept of management studies Indian

institute of science .The development of small scale industries has
been one of the major planks of India’s economic development
strategy since independence .The SSI sector occupies a place of
strategic importance in the Indian economic structure due to its
considerable contribution in terms of output ,exports and
employment. By the end of 2002 there were 3.4 million small scale
units, accounting for more than 40% of the Gross value OF OUTPUT
IN THE MANUFACTURING SECTOR.

RAM SINGH,OP VERMA ,DR Bimal anjum,HPU,said, the small scale

sector in india has particularly emerged as a vibrant and dynamic
segment of the indian economy. The second generation of reforms
gave momentum to SSI with more relaxed regulatory framework to
provide further impetus to growth.Indian economy has undergone a
transition phase witnessing the challenges of more free and market
oriented environment of the liberalized era.

2015,Anindya Sen and Partha Ray, profs, Indian institute of

management-C ,Small sacle sector has occupied the centre stage in
Indian industries right after Independence. The classical Gandhian is
that small scale industries plays a key role in planning
paradigm,there was an emphasis on small scale industries that can be
traced to its perceived higher employment intensity. It started with
47 Items in 1967 and came to cover 836 categories in 1998.With the
initiation of economic liberalization in the 90’s, the list of reserved
categories of SSI dwindled to around 20 by the end of 2010.
R.Nagraj, some aspects of small scale Industries in India-special
article, said, the emergence of the ‘modern’ small scale industries
sector is considered to be a recent phenomenon in the Indian
economy. But very little hard evidence seems to exist on the rate, the
pattern and the characteristics of its growth. Although the concerned
government department –Development commissioner ,small scale
industries, periodically publishes data on the number of registered
small units and the estimate of their output ,the statistical basis of
their estimates seem to be extremely weak.

2012,Yogender and Ranbir Singh ,Transportation study to achieve a

set of strategic objectives involves making a series of complex
decisions over time. Making these decisions in a way that supports a
firms high level objective requires an understanding of how detailed
design issues affect the interactions among various components of a
manufacturing systems; those components may vary from industrial
environment to another.

INTRODUCTION

CONCEPT AND DEFINITION OF SME’S IN INDIA

Small-scale industries exist in every country, but the concepts largely

differ between developed and developing nations. In a country like India
small -scale industries occupy a special place in terms of employment
and output and in turn drives the economic growth of the country.
Obviously India has shown improvement post liberalization in the SSI
sector, but has tremendously slowed down post the start of the
millennium due to scarcity of capital and global competition. There has
also been increased change in means of production in terms of
technology and knowledge giving rise to increased capital needs. Indian
industries haven’t been able to match up to these needs obviously due
to lack of support and marketing ability in the global sphere. This has led
to the fall in export competitiveness in the overall global scenario.
Industrial units have been classified as small-scale, medium scale and
large scale; considering their size, capital resources and the number of
laborers engaged in the industry. The definition has been changing over
time with the growing size of the economy, thus taking out any sort of
uniformity in definition.
Basic criterion of defining small business in various countries
 INDIA, PAKISTAN- INVESTMENT IN PLANT AND MACHINERY
 USA AND U.K-EMPLOYMENT
 JAPAN, KOREA AND PHILLIPINES-INVESTMENT IN PLANT AND
MACHINERY
 CHINA –PRODUCTION AND SALE TURNOVER
 MALAYSIA-INVESTMENT AND SALES TURNOVER

The fabric of the uniform definition of small- scale industries in

India has changed and kept evolving. According to the fiscal
commission report, 1950 “A small scale industry is one which is
operated mainly with hired labor usually 10 to 50 hands
.”Accordingly the industries (Development and Regulation )Act,
1951 exempted small scale units employing less than 50 workers
with power and less than 100 workers without power , from the
system of registration. These were termed as small- scale
industries.

Year SSI limit in Rs

1955 05 lakhs
1966 7.5lakhs
1975 10 lakhs
1980 20 lakhs
1985 35 lakhs
1991 60 lakhs
1997 03 lakhs
1999 01 cr
2007 1.5 cr

Performance of small-scale industries in terms of

production:

Sr.no Year Production in

crore
1. 1990-91 78802
2. 1991-92 80615
3. 1992-93 84413
4. 1993-94 98796
5. 1994-95 122154
6. 1995-96 147712
7. 1996-97 167805
8. 1997-98 187217
9. 1998-99 210454
10. 1999-00 233760
11. 2000-01 261297
12. 2001-02 282270
13. 2002-03 314850
14. 2003-04 364547
15. 2004-05 429796
16. 2005-06 497842
17. 2006-07 562356
18. 2007-08 624586
DATA: Ministry of small and medium enterprises

The above table exhibits production at constant

prices in India has increased at around 11 %. It
comes to our notice that production at constant
prices have increased from 84728 crore in 1990-
91 to 522942 crore in 2007-08. The annual
increase in production has slightly lowered
during the period of 1997-2004 as compared to
the previous years. The percentage change in
annual increase in production is maximum during
2002-03 followed by minimum during 2007-
08.The growth rates in India have been found to
be exemplary

Performance of small-scale industries with

regard to employment:

Sr.no year employment Annual %change

 increase in annual
(lac increase
persons)
1 1990- 158.34
91
2 1991- 165.19 6.85 4.3
92
3 1992- 174.84 9.65 5.8
93
4 1993- 182.64 7.8 4.4
94
5 1994- 191.4 8.76 4.7
95
6 1995- 197.93 6.53 3.4
96
7 1996- 205.86 7.93 4.00
97
8 1997- 213.16 7.3 3.5
98
9 1998- 220.55 7.39 3.4
99
10 1999- 229.1 8.55 3.8
00
11 2000- 238.73 9.63 4.2
01
12 2001- 249.33 10.6 4.4
2002
13 2002- 260.21 10.88 4.3
03
14 2003- 271.42 11.21 4.3
04
15 2004- 282.57 11.15 4.1
05
16 2005- 294.91 12.34 4.3
 06
17 2006- 312.55 17.64 5.9
07
18 2007- 326.25 13.70 4.3
08
Source: Annual reports of MSME (New Delhi)

From the observable data the total number of

persons employed in this sector has gone up
from 158.34 lakh persons in 1991 to 238.73lakh
persons in 2001 to 326.25 lakh people in 2008.It
is to be understood that growth rate of
employment has grown at a compound rate of
around 4%. The annual increase in employment
has seen a decline during the years 1993-
94,1995-96,1997-98,2004-05 and 2007-08 as
compared to the previous years. The above table
provides us with significant evidence that small-
scale industries have provided employment to a
very large extent.

Comparative study between the growth rates of

overall industry growth rate with small-scale
industries
Year Growth rate of Growth rate of
SSI sector (%) overall
industrial
sector
1993 5.7 6.0
1994 10.0 9.1
1995 11.5 13.0
1996 11.3 6.1
1997 9.2 6.7
1998 7.8 4.1
1999 7.1 6.7
 2000 8.0 5.0
2001 6.1 2.7
2002 7.7 5.7
2003 8.6 6.9
2004 9.96 8.4
2005 10.20 9.32
2006 10.76 9.85
2007 11.13 10.09
2008 11.65 10.52

The small -scale sector has comparatively seen

better growth rates than the overall industrial
sector except in the year 1993 and 1995.The
maximum growth rate was seen in the year 2008
at 11.65 percent. During the year 1995 the
growth in small- scale industry was less than the
industrial growth rate. But in 1995 the growth
rate of SSI’s was second largest under that
particular study period.

Data Methodology and analysis:

Contribution of MSME (%) to

Year Total Industrial Gross Domestic Product
production (GDP)
1999-
39.74 5.86
00
2000-
39.71 6.04
01
2001-
39.12 5.77
02
2002-
38.89 5.91
03
2003-
38.74 5.79
04
2004-
38.62 5.84
05
2005-
38.56 5.83
06
2006-
45.62 7.20
07
2007-
45.24 8.00
08
2008-
44.86 8.72
09
Annual report of MSME 2011-12

Mathematical model:
Yt =α+ β1X1t+β2X2t+ui

Yt=GDP
α=SLOPE PARAMETER
β=INTERCEPT
X1t=Total industrial production
X2t=Total employment
Year GDP Total Total
production employment
(crore) (lac)
2000-01 6.04 261297 238.73
2001-02 5.77 282270 249.33
2002-03 5.91 314850 260.21
2003-04 5.79 364547 271.42
2004-05 5.84 429796 282.57
2005-06 5.83 497852 294.91
2006-07 7.20 709398 594.61
2007-08 8.00 790768 626.34
2008-09 8.72 880805 659.35
2009-10 9.30 982919 695.38
Linear Regression :

Regression Statistics:

R 0.85787

R-square 0.73594

Adjusted R-square 0.66049

S 0.63113

N 10

Yt = 4.61368 + 4.5657E-6 * x1t - 0.00152 * x2t

ANOVA

d.f. SS MS F p-level

Regression 2 7.77077 3.88538 9.75431

0.00946

Residual 7 2.78827 0.39832

Total 9 10.55904

Coefficient Standard Error LCL UCL t Stat

p-level H0 (5%)

Intercept 4.61368 0.48772 3.46040 5.76696

9.45967 0.00003 rejected

x1t 4.56570E-6 3.51214E-6 -3.73919E-6

0.00001 1.29998 0.23478 accepted

x2t -0.00152 0.00476 -0.01277 0.00972 -0.32022

0.75815 accepted

T (5%) 2.36462

LCL - Lower value of a reliable interval (LCL)

UCL - Upper value of a reliable interval (UCL)

Explanation: The R value shows us how the 2 values

are moving. R square has a value of 0.73594 which is
showing the covariance proportion of variability in y
which is caused by the independent variables in this
case total production and employment. So it says
that 73% of fluctuation in GDP is caused by the
independent variables. We accept the null hypothesis
of the independent variable stating that the values
are not randomly showing and have some level of
significance. The p-LEVEL has a very low level of
variability thus stating that the results are not
occurring randomly. F-test shows us if the regression
is significant or not, in the above regression we
realize that our f-test is significant and shows us that
fluctuation in the GDP is caused by Industrial output
and employment.

Findings:
The small- scale industries in India have increased at
around 3 lakh units a year. The study indicates that
production has increased at 12% compound growth
rate, which is really remarkable. There has been
annual increase in the employment level but has also
shown signs of slowdown. Post reform there has been
significant increase in employment and number of
units, but has also seen slowdown in credit supply.
The annual increase in employment has come down
during 1993-94,1995-96,1997-98,2004-05 and 2007-08
as compared to previous years.

Conclusion:
Small -scale industries have proved to be a vital
engine of the economy, but due to the increased
global pressure and lack of marketing opportunities
and credit supply, the small scale industries have
fallen prey and have become increasingly vulnerable
to shocks and recessions. But at the same time,
international and national policy changes have
thrown open new opportunities and markets to Indian
SSI’s. Concentration is needed from both Government
and SSI to imbibe new technologies and spirit of
innovation to drive further growth.
REFERENCES:

Ram singh, Dr O.P Verma,Dr Bimal ghosh, small scale

industry :An engine of growth,2012.Himachal Pradesh
university

M.H. Balasubramanya,dept of management studies

IIS banglore,small scale industries in India in the
globalization era,2005.

Yogender and Ranbir Singh,Yogi industries. Research

perspectives for small scale industries in India,
international journal for science and technology,2012.

Anindya Sen and Partha Ray,professor,IIM-C,the

ascent and decline of reservation in Indian small
scale industries: Evolution of the policy environment.

Prof. Satish Modi, dept of commerce,IGNTU, problems

and prospects of indian small scale industries.

Shyam bhati,university of Wollongong ,India:the role

of SI in emerging economy.

R.Nagraj, some aspects of small scale industries in

India, findings based on two all India sample surveys.