Problems of the Small Scale Industrial Units




Pic - :: The Problem Faced By The SSI Unit


Problems of SSIs:


The problems that the SSI units faces are either very critical or very intricating in nature. The problems exists from both the side. We always  look upon the Government to find the problems for the SSI units, but in many a case, the SSI units too are responsible for the kind of a problem that they are in. One can list the problems of the SSI units and can make a huge study of it.

The organisational pattern of SSIs places them at a distinct disadvantage vis-a-vis well-organised real, i.e., the organised urban industries and large- sale industries. This disadvantage, in turn, gives rise to a number of problems with which these industries have to contend. As a preparatory note to these problems two observations need be made.

OK- let an effort be made to learn all about all the problems that the Small Scale Industrial Unit faces and let both the explicit and implicit analyse be made about the same. Butting and rebutting ther points, a effort be made about the problems that the SSI units faces. 

i. Most of the problems of these industries arise from their being small in size. They seem to be caught in a vicious circle. Their small size prevents them from taking advantages which can accrue only to large units; lack of these: advantages prevents them from moving up the ladder.

ii. Most of the SSIs refuse to move up the ladder, primarily because that prevents them from taking advantage of many benefits and incentives mat are extended by the State only to the small units. With this preparatory note, we discuss the major problems being faced by these industries in India.

(i) Problem of Finance:

The most important problem faced by these industries is that of finance. Partly, the financial problem of SSIs is a part of the wider problem of capital scarcity in the economy as a whole, and partly because of the peculiarity of small industry organisation.

It is common to find several firms involved in a related business and operating from the same office. Usually, the same people manage different firms and the multiplication is merely to get around the excise net. It is difficult to find willing lenders for unknown firms.

SSIs cannot resort to capital market, nor float CPs or tap GDR/Euro- route, they have poor capital base and are also compelled to sell their products/services on credit basis to their clients which in turn impairs their resource availability.

The creditworthiness of small borrowers is generally weak, and, therefore, they find themselves face to face with reluctant creditors who may be induced to lend only at higher rates of interest. A rough estimate would indicate that in the small-scale sector about 15 per cent manage their affairs with their own funds and about 35 per cent with funds borrowed from private sources such as friends. The remaining units depend on funds secured from institutional credit agencies.

The institutional agencies smack of a number of evils. Not only are the funds allocated by them inadequate, but also entrepreneurs are often required to furnish detailed information about many aspects. More often than not, much of the initial enthusiasm and energy of entrepreneurs is spent on proving eligibility and justifying the quantum of assistance sought.

(ii) Problem of Raw Materials:

Another major difficulty facing the SSIs is the procurement of raw materials. Scarcity of raw material means a waste of productive capacity for the economy, and a loss for the unit.

The problem has assumed the shape of:

(i) An absolute scarcity,

(ii) A poor quality of materials, and

(iii) A high cost.

A scarcity of metal, chemical and extractive raw materials is a general problem faced by the economy. Because of scarcity, competition has increased, and the small units competing with the large-scale producers have suffered severely.

(iii) Problem of Power:

The problem of shortage of power has become so widespread that for the last few years it has been among the most glaring and telling problems of the economy. But its impact is decidedly fatal on small producers; large industries manage to escape somehow.

There are two aspects to the problem:

i. Power supply is not always, everywhere, available to the small industry on the mere asking, and wherever it is available, it is rationed out, limited to a few hours in a day. It means that if a small unit can manage to take advantage of the supply at fixed hours, well and good, otherwise, it will have to let its capacity go un-utilised, thus adding to cost.

ii. Unlike large industries the SSIs cannot afford to go in for alternatives, like installing own thermal units, because of heavy costs involved. A small unit has to manage as best as it can within the available means.

(iv) Problem of Marketing:

Most of the SSIs, except a few urban-based units which act as ancillaries to the large industry, are forced to restrict their sales to the local market, tailoring their supplies to the local needs.

Not infrequently, a lack of demand and accumulating stocks leave with them no working capital to procure more raw materials and other physical resources to keep the production units moving. The inability to procure clientele from distant markets compels them to restrict their scale of operation, and forgo economies of scale, which a unit of an optimum size can derive.

Further on, in the post-WTO scenario SSIs would have to face increasing competition from imports. The process of removal of quantitative and non-quantitative restrictions across countries has led to agree movement of goods between countries including India. The SSIs would have to gear themselves up for these realities.

Ancillary industries have their own problems, like:

(i) Delayed payments by parent units,

(ii) Inadequacy of technological support extended and/or supply of critical raw materials by parent units,

(iii) Non-adherence to quality and delivery schedules, thus disturbing the programme of the parent units,

(iv) Frequent changes in fiscal levies, and

(v) Absence of a well-defined pricing system and regulatory agency.

(v) Export Difficulties:

The systematic evolution of the small sector in India with its economies of operation particularly in the case of labour-intensive or batch-process items has contributed in a large measure to the gradual expansion and divergence of the country’s export pattern. But the sector faces problems in exports which make it difficult for it to undertake exports in an organised and appreciable manner.

Pic - :: Export Through The Trade Of The SSI Unit 

Linkages like those provided by the Shogososha in Japan and the large trading houses in Korea are lacking. So far very little organised effort seems to have been made by this sector towards organising specific export-oriented industries.

(vi) Problem of Technical Know-How:



Pic - : Problem Faced By The SSI Unit In Terms Of Technology 

Except for a small segment of modern small-scale industry that makes use of state of art technology, the sector is saddled with obsolete technology. With no access to latest developments in the field of knowledge and skills, productivity in this sector continues to be low.

The new policy regime, with a virtual ‘open door’ policy towards foreign investment and technology in most areas of industry and infrastructure, is likely to intensify and accelerate the process of technological polarisation between the large and small-scale sectors.

Further, there is a growing tendency for small units to go in for capital- intensive and labour-saving techniques of production, defeating the very concept and the very justification of small units. This can be attributed to the large measure to entrepreneurs’ fear of getting involved in employment- related laws and of getting victimized.

These laws warn the entrepreneur of a jungle of formalities of Factories Act, E.S.I., P.F. and so on, of penalties, damages, court proceedings, fines, convictions and even imprisonments for violating any of the innumerable provisions. The entrepreneur becomes vulnerable to all these if he employs enough people to get ‘covered’ under any of these Acts, and hence his preference to switch over from labour to capital.

(vii) Exogenous Forces:

The exogenous forces acting on SSI performance are both direct and indirect. They come from multiple sources and influence the policy environment within which the SSIs operate. Such forces are exposing SSIs to a world of intense competition, risks and uncertainties, technological progress, mandatory and voluntary standards.

Some of these exogenous forces are as under:

1. Advancement in generic technology of computers and telecommunications.

2. Rise in E-commerce

3. Globalisation and liberalisation policy including unilateral liberalisation

4. Multilateral trading rules under the WTO.

5. Bilateral/regional agreements

6. Mergers and acquisitions

7. Labour and environmental standards

8. Liberalisation of services/infrastructure

9. ‘Sourcing out’ of activities to outside firms

10. Growth in world demand for variety of services, such as web- marketing, mark, research-based advertising, customize’ products, micro retail marketing, etc.

(viii) Other Problems:

There are a few other problem also that merit immediate attention of the policy-makers.

(a) A significant problem facing the small industry is that when they grow from small-scale size an just pass the value limit of in-plant and machinery, i.e., the sacrosanct ‘Lakshman Rekha ‘the ‘Sita’ of spate of concessions and protection available to them is withdrawn. They have to face open competition in every sphere of activity. A major problem that the small units face all over the country is on account of delayed payments by their large-sized customers.

Government undertakings and departments are just as guilty in this respect as the industrial houses in the private sector. The general pattern on which the small units function is that they purchase their raw materials against cash and effect their supplies to large houses on credit Any delay in payments is only a test of patience for survival for them.

This problem remains as it is despite enactment of the Interest on Delayed Payment to Small-scale and Ancillary Industrial Undertakings Act, 1999 which makes payment of interest obligatory of delayed payments.

(b) Although SSIs have been taken off from location, restrictions under the IDR Act, there are various kinds of locational bars under various land development regulations and local body laws such as Municipal Acts, Urban Land Development Act, Gram Panchayat Act, etc. In addition, site clearance and approval are also required under the Factories Act and Pollution Control Acts. A related problem being faced, in more receive times, is the lack of accommodation.

(c) The entrepreneurs are being forced to set up their unit in rented accommodation. However, such units a very often not in authorised industrial areas. Even these happen to be in industrial areas, the entrepreneurs are denied registration since they will not that original allottees of the plots. Denial of registration means that they cannot avail of any of the benefits applicable to small-scale units, this problem arises in part due to the fact that contrary to expectations SSIs have tended to concentrate at a few places only.

(d) Another major problem being faced by SSI is that of deteriorating industrial relations. In the organised sector of industry, labour is well organised ; there exist established channels of negotiation between the employer and the employees.

Any disturbance in a large unit also attracts the attention of the government. But it is not so in a small unit. The direct communication between the employer and the employees is the only source of negotiation; if their relations are strained, tempers boil up spoiling the peace of the unit.

This adversely affects the production and utilisation of installed capacity. There is the problem of high rate of mortality among units. Most of these units are marginal buyers of inputs and marginal sellers of output. Any factor that adversely affects the input or output situation tends to throw out a number of existing units from existence. Sickness among small units is a widespread malady.

(e) The States worst affected are West Bengal, Tamil Nadu, Uttar Pradesh, Andhra Pradesh, Maharashtra and Madhya Pradesh in that order. The problem of sickness in SSI, as recently noted by the Small-Scale Industries Board- the highest government body dealing with policy formulation relating to SSI-is two-fold: One, the inability to detect sickness at the incipient stage; and two, incidence of large number of non-viable sick units with both the entrepreneur and the bank saddled with idle non-performing assets.

Talking about sickness in the small sector, we get confronted with a few other problems:

(a) Faulty planning and inadequate appraisal of projects. Majority of the SSI units are started without feasibility studies or detailed project reports.

(b) Problem of recoveries. It is an established practice for buyers to expect credit from sellers. This practice is forced upon the small industrialists by the large ones. A situation has developed in which buyers do not pay for fairly long and get away with it.

(c) Small sector does not have the advantage of latest technology which alone can ensure quality and a high rate of productivity.

(d) There is a lack of interest on the part of financial and banking institutions in the revival of sick units.

(e) Small industries lack resources for modernisation which is essential in many cases for rehabilitating them.

(f) In view of the difficulty in achieving rationalisation of operations, small industries find it difficult to improve quality standards and productivity.

(g) Both for rehabilitation and modernisation the small industrialists require a first rate consultancy service which is not available.

(h) The full potential of ancillary production which affords a certain measure of market security to small firms has not been exploited.

SSIs constitute an important segment of the Indian economy. It is admitted that some of the problems facing SSIs are a part of the problems being faced by the economy in general, but the other problems of SSIs are due to their peculiar character. The State’s role would very much be called for to remove the disadvantages arising out of such peculiarities.

Well , that is it and That sums it all.

Regards and Thanks

Pics



Shyamal Bhattacharjee 

Mr Shyamal Bhattacharjee, the author was born at West Chirimiri Colliery at District Surguja, Chattisgarh on July 6th 1959 He received his early education at Carmel Convent School Bishrampur and later at Christ Church Boys' Higher Secondary School at Jabalpur. He later joined Hislop College at Nagpur and completed his graduation in Science and he also added a degree in    B A thereafter. He joined the HITAVADA, a leading dailies of Central India at Nagpur as a      Sub-Editor ( Sports ) but gave up to complete his MBA in 1984 He thereafter added a Diploma In Export Management. He has authored THREE books namely Notable Quotes and Noble Thought published by Pustak Mahal in 2001 Indian Cricket : Faces That Changed It  published by Manas Publications in 2009 and Essential Of Office Management published by NBCA, Kolkatta  in 2012. He has a experience of about 35 years in Marketing .






Signature Of Shyamal Bhattacharjee 

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