Small scale industry and its sickness

Small Scale Industry-types of Small Scale Industry,Importance of small scale industry,problems faced by SSI,SSI sickness and remedies

1. Unit-2 Small Scale industries

2. Introduction Small business has greatly contributed for the growth of any economy in the world. It is easy to establish and manage. It is recognized on the principle “Small is beautiful” and small is effective.

3. Small industries comprises of 1.Small Scale industry 2.Tiny Industry 3.Ancillary Industry 4.Cottage Industry

4. Definition of SSI These are the industrial undertakings having fixed investment in plant and machinery, whether held on ownership basis or lease basis or hire purchase basis not exceeding Rs 1 cr Unit engaged in manufacturing,servicing,processing etc

5. Classification of SSI Traditional Modern

6. Khadi Village industries Handlooms Coir industries Sericulture Cottage Artisans Traditional

7. Power loom Small scale industry Export – oriented Ancillaries Tiny enterprise Small scale service Modern

8. Ancillary Industries An ancillary industry is a subsidiary industry or supplementary industry to a main industry, having fixed investment in plant and machinery not exceeding Rs 1Cr. Eg:if food production is a main industry, then supply of plastic cups and plates to the food industry will become an ancillary industry

9. Tiny industry A unit is treated as tiny industry where investment in plant and machinery does not exceed Rs.25lakhs. It includes laundry,xeroxing,repair and maintenance etc Number of persons employed is less than 50

10. Cottage industries are traditional in nature and dependent on local raw materials. They are located at the homes of the producers. Cottage industries include carpet weaving,painting on wood,silk etc Cottage Industries

11. SSI -1cr Ancillary – 1cr Tiny -25lakhs

12. CHOCOLATES. PAPER NAPKINS, TOILET ROLLS & FACIAL TISSUE WOODEN TOOTHPICK. PAPER PLATES. CANDLE MAKING UNIT. PHENYL (BLACK & WHITE ) POTATO CHIPS DISPOSABLE PLATES FROM BANANA LEAVES The Government of India has taken certain measures for the development of cottage and small scale industries

13. Importance of SSI Employment generation Mobilization of resources and entrepreneurial skills Small is beautiful Happier in work Equitable distribution of income Regional dispersal of industries

14. Indigenization Promotes export Supports the growth of large industries Better industrial relations Innovative

15. Features of SSI Ownership Management and control Gestation period Area of operation –indigenous resources Technology – labour intensive Dispersal of units Flexible

16. Do not require a high level of technology Labour intensive Can be undertaken in a short period of time Utilize localized raw materials Earn foreign exchange by exporting the goods Act as a training ground for entrepreneurs Advantages

17. Equitable distribution of income Create jobs in rural area Growth of large industries create opportunity for ancillary industry. Short gestation period Does not require heavy and costly infrastructure

18. Capital investment Any capital structure has three vital components Capital Structure F ixed Cost Variable Cost Revenue (Fixed capital) (Working capital) (Income)

19. Financial plan is a concept which clearly indicates the total project cost. Total project cost can be classified into: Fixed capital Working Capital Sources of finance R evenue projection Financial plan

20. It is discussed in two dimensions 1.General investment decision(GID) 2.Capital investment in SSI Capital investment

21. Cost is associated with each and every sources of funds. Equity –cost of dividend Debentures –cost of interest Preference share –cost of dividend The process through which different projects are evaluated is called capital budgeting. 1.General investment decision(GID)

22. Expenditure ,risk and uncertainties associated with each project has to be evaluated and best project should be selected for investment.

23. Availability of funds Structure of capital Taxation policy Government policy Lending policies of financial institution Immediate need of the project Factors influencing investment decision

24. Earnings Capital returns Economic value of the project Working capital Accounting practices Trends of earnings

25. Sole proprietorship Partnership Co-operative society Joint stock company Ownership Patterns

26. Individual invest his own capital, uses his own skill and intelligence. Solely responsible for the results of its operation. It is also known as individual entrepreneurship. It can be started in own house or in rented premises. Sole proprietorship

27. No legal formalities Unlimited liability Enjoys full profit One man control Unlimited risk Features

28. No separate legal entity No government regulations Undivided risk Features

29. Easy and simple formation Smooth management Promptness in decision making Direct motivation to work Personal touch with customers Advantages of sole proprietorship

30. Secrecy Social advantages

31. Limited financial resources. Limited managerial ability Unlimited liability Lack of continuity Disadvantages

32. Such organisation are governed by Indian Partnership Act,1932. According to this Act defines partnership as,”the relation between persons who have agreed to share profits of a business carried on by all or any of them acting for all” Partnership organisation

33. Google, a company founded by Larry Page and Sergey Brin Proctor and Gamble is an iconic company named after William Proctor and James Gamble. Examples

34. Atleast 2 persons must be there to form a partnership organisation . 20-for general business 10-for banking business Contractual relationship No legal distinction between firm and its partners Unlimited liability Features

35. Assignment on detailed study of life history of any entrepreneur and do the write-up on the same. Submit on : 5/8/2019(Monday) Assignment

36. Easy formation Flexibility Pooling of resources and skill (compared to sole proprietor) Division of risks Encouragement of mutual trust, faith and goodwill. Advantages

37. Lack of harmony Limited resources (ideal no is 3-5 even though limit is 20) Unlimited liability Instability Social losses Disadvantages

38. According to Indian Companies Act,1956.The Act defines a company as an artificial person created by law, having a separate legal entity, with perpetual succession and a common seal. Joint –stock company

39. A company is an incorporated voluntary association of persons in business having joint capital divided into transferable shares of a fixed value, along with the features of limited liability, common seal and perpetual succession

40. Artificial legal person Perpetual Succession Separate legal entity Features

41. Jindal steel and power ltd Indian Oil Corporation Reliance industries Examples

42. Limited liability Transferability of shares ( sold & purchased through stock exchange) Large financial resources Continuity Social benefits ( issue of shares,job,tax ) Advantages

43. Costly formation Lack of personal touch with stake holders Disadvantages

44. It is a voluntary association of persons who work together to promote their economic interest. Main purpose is to render service to its members and to the society in general. Co-operative society

45. Main objective is to provide support to the members and not to earn profit Co-operative societies has to be registered under Co-operative Societies Act,1919.

46. Voluntary association Service motive Separate legal entity State regulation Distribution of surplus ( 1/4 profit to general reserve,10% utilized for social service and rest distributed in form of bonus) Characteristics

47. Co- optex Mother Dairy Amul Grameen Bank Examples

48. Finance Raw materials Idle capacity SSI Problems

49. Technology: not fully exposed to latest technology lack of modernization obsolete methods of production

50. Marketing lack of market survey lack of standardization poor designing poor quality poor finish lack of after sales services

51. Infrastructure: inadequate availability of transportation power failure poor facilities in backward areas poor communication network

52. License : lot of time and energy are wasted to obtain permission and license Import and export procedure

53. Poor project planning: They do not study about market, marketing problem, availability of raw materials, proper infrastructure before starting business

54. Unskilled manpower: located in remote area skilled labours are not ready to work in rural area

55. Managerial Issues: Modern Business demands Vision, knowledge creativity etc Many SSI turned to sick unit due to lack of managerial competence

56. Institutions promoting SSI: D irectorate of industries SIDO Industrial development corporation NSIC KVIC National Industrial Development Corporation Steps taken to solve the problems of SSI

57. IFCI ICICI IDBI IRBI SIDBI KSFC KSIIDC Institution offering financial support

58. State trading corporation EXIM Export promotion council Indian institute of packaging Institution offering marketing support

59. CITD NID Product and process development centers Industrial and technical consultancy organization Institution offering technical support

60. Center for entrepreneurship development EDII IIE NABARD TCOs Institution promoting entrepreneurship

61. Meaning : An intrepreneur is a person having all the qualities and characters of an entrepreneur, but not having economic and other support to take a business activity on his own. Therefore he works for others as a paid employee. Eg : manager or employee at any level Intrepreneur

62. The govt of India has reserved certain products for SSI Large companies can manufacture these products reserved for SSI only if they obtain COB(carry on business) license Policies governing SSI

63. Promote the export of SSI by simplifying export procedure. NOC shall be obtained from state pollution control board As per Industrial policy ,1956,facilities such as industrial estate and rural community workshops to promote SSI

64. The government will grant Rs 75,000 to SSI if they obtain ISO-9000 certification. Govt has launched National Manufacturing Competitiveness Program(NMCP ) to enhance competitiveness of SSI. Marketingn Development Assistance (MDA) to SSI to facilitate market research.

65. Loan has been raised from 15lakhs to 25lakhs incase of SSI with good track record. Infrastructure development scheme in rural areas Handloom,handicrafts,khadi and village industries were given special attention.

66. Supply of machinery on hire purchase, technical consultancy and financial assistance for technological up gradation

67. SSI sickness and remedies

68. Aircel Sick units

69. Ruchi Soya Industries Ltd

70. Tungabhadra Steel Products Ltd

71. Reliance Communications ( RCom )

72. A sick industrial unit may be defined as one when it fails to generate surplus on a continuous basis and depends on external funds for its survival. Definition

73. According to RBI,”a sick unit should be considered if it has incurred cash loss in the previous accounting year and is likely to continue to incur cash loss in the current accounting year and has an erosion on account of cumulative cash losses to the extend of 50%of those of its net worth”

74. Internal Cause External Cause Causes of sickness

75. Irregular supply of raw materials Power shortage Transportation problem Non-availability of finance Government price controls ( eg:GST ) Changes in government policies ( demonitization ) Market saturation Natural calamities War Strikes External Cause

76. Early detection of sickness FI and banks should initiate necessary corrective actions. Restore sick units to financial health Retraining of workers Preventive and remedial measures for sickness

77. Proposal to setup special institution Unit that has lost net worth will not be allowed to manage that unit Management responsible for mismanagement should not be allowed to get assistance from FI. Reconstruction of sick unit

78. Incentives should be provided Success of an industry depends on satisfactory management of finance , inventory, marketing and manpower.

79. IRBI-Industrial R econstruction B ank of India Special cell at IDBI for diagnostic study and suggest remedial measures RBI has setup special cell to co-ordinate with commercial bank to support sick unit. Rehabilitation of sick unit