Government's policy with regard to Small Scale Industries | Management Optional Notes for UPSC PDF Download

Introduction

In India, Small-scale enterprises have been given an important place for both ideological and economic reasons. It is well documented that the small scale industries have an important role in the development of the country. It contributes almost 40% of the gross industrial value added in the Indian economy. Government's approach and intention towards industries in general and SSIs in particular are revealed in Industrial policy Resolutions. There are many Government Policies for development and promotion of Small-Scale Industries in India. These are mentioned as below:

1. Industrial Policy Resolution (IPR) 1948

• The IPR of 1948 recognized the significance of small-scale industries (SSIs) in India's industrial development, acknowledging their role in utilizing local resources and creating employment opportunities. However, these enterprises faced challenges such as accessing raw materials, capital, skilled labor, and marketing. 
• The government, through the IPR of 1948, aimed to address these issues by collaborating with state governments. The policy highlighted the importance of SSIs in achieving local self-sufficiency in essential consumer goods. It introduced a dualistic approach focusing on both traditional and modern small-scale sectors, which has remained the foundation of industrial policy towards SSIs.

2. Industrial Policy Resolution (IPR) 1956

• The IPR of 1956 was a comprehensive statement on India's industrial development, aiming to establish a socialist pattern of civilization. It categorized industries into three schedules, defining the role of the state and private enterprise in their development. This resolution built upon the groundwork laid by the IPR of 1948, emphasizing the integration of SSIs with large-scale industries. 
• It initiated measures to protect and develop SSIs, including differential taxation and direct subsidies, as recommended by the Karve Committee. The policy focused on improving the competitive strength of SSIs through technological advancement, financial assistance, and infrastructure support, such as industrial estates and rural electrification. It underscored the importance of industrial cooperatives in promoting SSIs and called for constant attention to their development.

3. Industrial Policy Resolution (IPR) 1977

Introduced by Janata Dal in 1977, the IPR of 1977 aimed to address the uneven industrial development witnessed in the two decades following the IPR of 1956. This policy prioritized the development of small-scale and cottage industries as a solution to rising unemployment and regional disparities in industrial growth. It emphasized the promotion of such industries in rural areas and small towns, stating that whatever could be produced by small and cottage industries should be done so exclusively.

Key Features of IPR 1977:

• Reservation of 504 items for exclusive production in the small-scale sector.
• Introduction of District Industries Centres (DICs) to provide comprehensive support to SSIs within each district.
• Emphasis on technological upgrading in traditional sectors.
• Establishment of special marketing arrangements to facilitate small-scale industries.

4. Industrial Policy Resolution (IPR) 1980

Issued on July 23, 1980, the IPR of 1980 marked a significant shift in the development policy for small-scale industries. It aimed to synchronize the growth of SSIs with that of large and medium-scale industries. The policy identified industrially backward districts for accelerated growth of existing SSIs and focused on maximizing industrial production through efficient utilization of capacity and technological modernization.

Highlights of IPR 1980:

• Increase in investment ceilings for small-scale units and ancillaries.
• Introduction of nucleus plants to promote SSIs in backward districts.
• Promotion of village and rural industries for economic viability.
• Continuation of reservation of items and marketing support for small industries.
• Strengthening of the agricultural base through preferential treatment for agro-based industries.

5. Industrial Policy Resolution (IPR) 1990

Declared in June 1990, the IPR of 1990 continued to emphasize the importance of small-scale enterprises in generating employment. It stressed the need for modernization and technological advancement to enhance the contribution of SSIs to employment generation, rural industrial dispersal, and export promotion.

Key Elements of IPR 1990:

• Increase in investment ceilings for small-scale industries and ancillary units.
• Reservation of 836 items for exclusive manufacture in the small-scale sector.
• Introduction of a Central Investment Subsidy scheme for SSIs in rural and backward areas.
• Implementation of technology upgradation programs under the Small Industries Development Organisation (SIDO).
• Establishment of the Small Industries Development Bank of India (SIDBI) to ensure timely flow of credit to SSIs.
• Emphasis on training programs for women and youth entrepreneurs under the Entrepreneurship Development Programme (EDP).

Industrial Policy Resolution of 1991

• The Industrial Policy Resolution of 1991 introduced several pivotal measures to support small-scale industries (SSIs). These measures aimed to simplify regulations and procedures by exempting SSIs from licensing requirements for all manufactured articles. Additionally, the investment limit for tiny enterprises was raised to Rs. 5 lakh, irrespective of their location. 
• The policy also allowed equity participation by other industrial undertakings up to 24 percent of shareholding in SSIs. Furthermore, factoring services were introduced to address delayed payments to SSIs, while priority was given to small and tiny units in the allocation of indigenous and raw materials. Market promotion of products was emphasized through cooperatives, public institutions, and other marketing agencies.

Contemporary Policy Measures for Small-Scale and Cottage Industries

Comprehensive Policy Package for Small Scale and Tiny Sector, 2000

The Government of India announced this policy to enhance the competitiveness of the small-scale and tiny sectors. Key aspects of this policy included:

• Exemption of excise duty raised from Rs. 50 lakh to Rs. 1 crore.
• Increase in investment limit for industry-related service and business enterprises.
• Expansion of the Integrated Infrastructure Development (IID) scheme.
• Enhancement of family income eligibility limit under the Prime Minister Rozgar Yojana (PMRY).
• Continuation of the scheme granting Rs. 75,000 for ISO 9000 certification.

Industrial Policy Packages for Small Scale Industries, 2001-02

This policy introduced several measures including:

• Enhanced investment limit for units in hosiery and hand tool sub-sectors.
• Increase in the corpus fund under the Credit Guarantee Fund Scheme.
• Credit Guarantee cover provided against aggregate credit.
• De-reservation of fourteen items related to leather goods, shoes, and toys.
• Launch of the Market Development Assistant Scheme.

Policy Package for Small and Medium Enterprises, 2005-06

In 2005-06, a policy package was declared for small and medium enterprises, featuring:

• Identification of 180 items for de-reservation.
• Recognition of Small and Medium Enterprises in the services sector.
• Extension of insurance cover to approximately 30,000 borrowers.
• Emphasis on Cluster Development model for industrial growth.

Enactment of Micro, Small and Medium Enterprises Development Act, 2006

• The MSMED Act, endorsed in May 2006, provided a legal framework for recognizing enterprises. It fixed investment limits for manufacturing and service enterprises and established a consultative mechanism at the national level.

North East Industrial and Investment Promotion Policy (NEIIPP), 2007

• This policy aimed to encourage investment in the North Eastern region by offering fiscal and other incentives, addressing its economic backwardness.

Summary

Small-scale and cottage industries have become a dynamic sector in India's economy, contributing significantly to GDP, industrial production, and exports. Policy initiatives have evolved to support their growth, aiming to achieve socioeconomic objectives such as employment generation, poverty alleviation, and regional development.