What are the issues and prospects for the development of the SSI sector over the medium-term?

Before turning to the issues involved, the economic profile of the SSI sector is useful as a signal of the success or failure of past policies.

The SSI sector is non-homogenous in construction and includes diverse types of production units varying from traditional crafts to high-tech industries. The total number of SSI working units in the nation is approximated to be around 3 million. In terms of ownership, the vast majority of SSI units are proprietary concerns (80.5%) with only 16.8% operating as partnerships and private limited companies. The first census of SSIs in the nation was undertaken in 1972 and the second in 1987-88. Tamil Nadu engaged the first rank in both years in terms of number of units and employment, followed by Maharashtra. Andhra Pradesh was placed at No. 6 and 7 respectively. By 1993, Punjab appeared at the top. One essential factor to be noted in the statistics on small industries is the mortality rate. Whereas the industries may get recorded at the entry point, there is no record of their exit.

The potential of SSIs to create employment has remained the strongest argument in their support. The sector now recruits 17 million persons and is the second largest employer of India’s workforce after agriculture. The role of SSIs in the economy can be seen from the fact that it now explains for 95% of all industrial units in the nation and 40% of total output. About 7,500 products are produced in the small-scale sector. The export share is 35%. The composition of exports shows the largest shares of SSIs are in the industry groups: hosiery and garments (29.0%), food products (21.4%) and, leather products (18%). The industry groups which have registered high growth rates and a large share in total production of SSIs are: wood, furniture, textile products, etc., paper and printing, and metal products.

The future policy emphasis for SSIs will be on the development of industrial clusters which have been found in various studies to be effective in terms of resource use and in encouraging inter-industry and inter-sectoral connections. A cluster is described as a geographically bound concentration of similar, associated or complementary businesses. A UNIDO study describes clusters as 100 registered small-scale units. There are approximated to be 350 SME clusters in India which contribute directly and indirectly to 60% of India’s exports. Nevertheless, the spatial concentration in clusters will earn a slower dispersion of industrial activity to backward areas. The location-wise distribution of clusters reveals 65% concentrated in cities and metros and only 13% in small towns and rural areas. There is scope for motivating the development of clusters in rural areas and rural-based artisan centres.

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