VILLAGE AND SMALL INDUSTRIES
Small scale industries have now been redefined to include those manufacturing and repairing units as have investment in plant and machinery upto Rs. 20 lakhs (and in the case ancillary units upto Rs. 25 lakhs). With this as the upper limit, the village and small industries (VSI) sector consists broadly of (i) traditional industries (viz. handlooms, khadi and village industries, sericulture, handicrafts and coir) and (ii) modern small scale industries including 'tiny' units and powerlooms. While the traditional industries are generally artisan-based, located mostly in rural and semi-urban areas, involve lower levels of investment in machinery and provide largely part-time employment, modem small scale industries and powerlooms use mostly power-operated appliances and machinery, have some technological sophistication and, are generally located close to or in the urban areas including the large industrial centres.
REVIEW 12.2 The objectives of the programmes for the development of these industries in the preceding Plan periods have been to generate large scale employment opportunities on a decentralised and dispersed basis, to upgrade the existing levels of skills of artisans as well as quality of their products, and to step up production both for mass consumption and export. To achieve these objectives, the earlier Plans envisaged, inter alia, promotion and development of entrepre- neurship backed by a package of consultancy services, improvement in production techniques, institutional support in respect of supply of credit and raw materials, formulation of common production programmes, various incentives for organising industrial cooperative societies, rebate on sales of handloom and khadi, etc.
12.3 While the precise impact of the various policy measures and development programmes cannot be assessed for want of adequate data, particularly in respect of the traditional village and household industries, the following table gives a broad picture of the progress made in this sector:
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In the six years period 1974-80, the estimated value of production registered a growth rate of 6.8 per cent per annum. The gross value added at factor cost rose from around Rs. 2800 crores in 1973-74 to Rs. 4100 crores in 1979-80 (at 1970-71 prices) registering a growth rate of 6.6 per cent.
12.4 On the basis of data and norms available from the National Accounts Statistics and Central Statistical Organisation, it has been estimated that in the year 1979-80, the share of the VSI Sector* in the contribution made by the manufacturing sector was around 49 per cent in terms of gross value of output and 51 per cent in terms of value added. As regards employment, this sector had offered employ- ment opportunities to about 23.58 million persons* (both part-time and full-time) as against around 4.5 million persons estimated to be engaged on full-time basis in the large and medium industries sector. In the field of exports, this sector accounted for more than one-third of the total exports of the country.
*This comprises the whole of the unregistered manufacturing sector and certain portion of the registered manufacturing sector units which have investment in plant and machinery upto Rs. 20 lakhs (and in the case of ancillary units upto Rs. 25 lakhs) in terms of the revised definition of Small Scale Industries of July, 1980.
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12.5 However, some of the important objectives set for the village and small industries sector are yet to be fully achieved. The dispersal of small scale units far away from the metropolitan areas and large cities has not taken place to an appreciable extent. Available data indicate that the industrially developed States along with Delhi accounted for nearly 67 per cent of the, registered small scale units which had come up to 1976 and about 75 per cent of the employment generated by them. And within the developed States, there has been concentration of units in a few areas which are either metropolitan or large cities or industrial complexes. There has not been much improvement in the activisation of idle capacities of the units either. It has been estimated that capacity utilisation in different village and small industries has been ranging from about 45 to 60 per cent, Though there are varying estimates regarding the number of sick units in the VSI sector, there is general agreement about the enormity of the problem. In spite of credit expansion (from about Rs. 250 crores in 1973-74 to about Rs. 600 crores in 1979-80), the share of the 'tiny' units with investment of upto Rs. one lakh has been very little. According to a survey conducted by the Reserve Bank of India, of the units assisted financially by the commercial banks upto June, 1976, about 69 per cent of the total credit: flow was availed of by 11 per cent of the bigger units in the small industries sector which accounted for 55 per cent of the production. Taking into account the units which could not have access to institutional credit the disproportionate supply of credit becomes more pronounced. The Entrepreneurial Development Programme has not made significant progress except in a few States like Gujarat etc. in widening the entrepreneurial base.
12.6 Low levels of tecnology resulting in poor productivity and inadequate returns have continued to characterise the traditional industries sector. Coupled with this, the problem of obtaining raw materials of desirable quality at reasonable prices and lack of marketing arrangements for selling their produce at fair prices have deprived the artisans of a good part of the earnings which should have accrued to them. The increased flow of institutional funds in favour of the decentralised industrial sector has not covered the artisan sector adequately which continues to depend, for a major part of its capital requirements, on non-institutional sources, often, at exorbitant rates of interest.
OBJECTIVES 12.7 Promotion of village and small scale industries will continue to be an important element in the national development strategy particularly because of its very favourable capital-output ratio and high employment intensity. During the Sixth Five Year Plan, the programmes for the village and small industries sector would be so designed as to subserve the following objectives:-
(i) improvement in the levels of production and earnings, particularly of the artisans, through measures like upgradation of skills and technologies and producer-oriented marketing, etc.;
(ii) creation of additional employment opportunities on a dispersed and decentralised basis;
(iii) significant contribution to growth in the manufacturing sector through, inter alia, fuller utilisation of existing insatalled capacities;
(iv) establishment of a wider entrepreneurial base through appropriate training and package of incentives;
(v) creation of a viable structure of village and small industries sector so as to progressively reduce the role of subsidies; and
(vi) expanded efforts in export promotion.
TARGETS 12.8 The targets of production and exports set for this sector and the employment to be generated during the 1980-85 Plan period are indicated in the following table:-
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12.9 The incremental output target of Rs. 15725 crores in the terminal year 1984-85 would correspond to a growth rate of 8 per cent per annum against the annual growth rate of 7.6 per cent projected for the whole manufacturing sector. Within the village and small industries sector, while the traditional industries (including 'others') would have a projected incremental output of Rs. 3637 crores with a growth rate of 7.3 per cent, the modern small scale industries including powerlooms would account for an incremental output of Rs. 12088 crores, and a growth rate of 8.2 per cent. The export target of Rs. 3685 crores at 1979-80 prices for 1984-85 would mean a growth rate of 10.6 per cent per annum. The employment coverage (both full-time and part-time) is estimated to increase from about 23.58 million persons in 1979-80 to about 32.60 million persons in 1984-85, i.e., the additional employment generation during the Plan period would be of the order of around 9 million. Expressed in terms of standard persons-years, the employment coverage would roughly correspond to 17 million, 22 million and 5 million, respectively.
OUTLAYS AND INVESTMENT 12.10 In the Five Year Plan 1980-85, a public sector outlay of Rs. 1780.45 crores would be provided. Its industry-wise break-up would be as follows:-
The Sixth Plan outlay would provide a step up of over 3.3 times the outlay during 1974-79. The break-up of the States' sector outlay of Rs. 857.05 crores is indicated in the Annexure.
12.11 The VSI sector outlay of Rs. 1780.45 crores would be supplemented, to some extent, by the provisions made for schemes in other sectors, like (i) the schemes of Industrial Development Areas, Spinning Mills, Investment Subsidy and Transport Subsidy for industrially backward areas, provided for in the programme for Large and Medium Industries sector; (ii) the schemes for development of industrial cooperatives, provided for under Cooperation; (iii) the scheme of Integrated Rural Development (IRD), TRYSEM; etc., provided for under Rural Development; (iv) scheme for Gobar Gas provided under Energy Sector, and (v) special programmes for scheduled castes and scheduled tribes.
12.12 It is estimated that of the total outlay, investment component would be about Rs. 1000 crores in the form of margin money assistance, capital subsidy, creation of infrastructure facilities and investment in the share capital of the financial, promotional and developmental corporations concerned with the development of village and small industries. Besides the public sector investment, it is estimated that private Sector investment in this sector would be of the order of Rs. 12,600 crores which would be forthcoming from financial institutions, promoters' own resources and non-institutional sources.
POLICY MEASURES 12.13 According to the Industrial Policy Statement of July, 1980, "Government is determined to promote such a form of industrialisation in the country as can generate economic viability in the villages .... Handlooms, handicrafts, khadi and other village industries will receive greater attention to achieve a faster rate of growth in the villages." Laying emphasis on balanced and harmonious development of all sectors of industries, the Statement adds that "while making all efforts towards integrated industrial development, it is proposed to promote the concept of economic federalism with the setting up of a few nucleus plants in each district, identified as industrially backward, to generate as
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many ancillaries and small and cottage units as possible'. Also, "Policy regarding marketing support to the decentralised sector and reservation of items for Small Scale Industries, shall continue to be in force in the interest of growth of the small scale indstries."
12.14 In the light of the above, the policy support for the development programmes relating to village and small industries during the Sixth Five Year Plan would be along the following directions:-
(i) integration of the promotional programmes in the sector with other area development programmes and adoption of a cluster approach particularly for the traditional industries;
(ii) restructuring of the organisational base at the district level to make it more effective and result- oriented;
(iii) development of appropriate technologies and skills; their effective extension and transmission;
(iv) increased availability of raw materials including creation of buffer stocks particularly of critical raw materials;
(v) accelerated flow of institutional funds specially in favour of artisans, village industries and 'tiny' units and rationalisation of the interest rate structure;
(vi) organisation of producer-oriented marketing both within and outside the country;
(vii) selective reservation of items for exclusive production and purchase from the cottage and small industries;
(viii) effective promotion of ancillaries;
(ix) strengthening and extension of cooperative form of organisation particularly for the cottage and tiny units; and
(x) building up of a sound data base to facilitate proper policy formulation and evaluation.
12.15 The various policy measures have been spelt out briefly in the following paragraphs.
Industry-cum-area development approach 12.16 The existing programmes for the promotion of village and small industries which have been based mainly on an industry' approach have no doubt led to increase in production and employment, but have not helped in raising to an appreciable extent, the levels of income of the artisans. The rural artisans are scattered; they find it difficult to obtain credit and raw materials; the size of the market is small and even at places where there are clusters of artisans engaged in specific industries, their operations are not viable. A strategy based on industry-cum-area development approach leading to vertical and horizontal integration of the programmes can alone sus- tain the industries in rural areas. This calls for integration of beneficiary-oriented schemes with the overall 'area' development plans to be drawn up after taking the resource endowments into account. All types of industries cannot be developed everywhere, there are certain areas where clusters of artisans already exist; there may be certain other areas which have potential for the development of a specific industry. For such groups of artisans and craftsmen, the approach would be to provide a package of assistance including setting up of functional industrial estates so that the clusters could turn into growth centres. In fact, the emphasis would be on selected industries with maximum potential rather than on spreading the efforts thinly on promoting all types of industries in the same area.
12.17 A beginning in this direction has already been made by inclusion of the 'Industry', 'Service and Business' component in the programme of IRD which has been extended to cover all the blocks in the country. Of the 600 families to be covered under the programme in each block every year, 100 families would be through village and cottage industries and another 100, families through 'service' activities. It is expected that during the Plan period about 25 lakh families would get assistance in setting up rural industries and an equal number in the 'service' sector for self-employment.
Organisational arrangements at District and Sub-District levels 12.18 By March, 1980, 382 District Industries Centres (DICs) were sanctioned covering 392 districts with the objective of providing all the services and support facilities under a single roof. Although a two year period is too short for any proper evaluation of a new organisational structure, it has been felt that DICs, by and large, have not made a very significant impact particularly in the traditional industries sector. The Industrial Policy Statement of July, 1980 ha's observed that DICs have "riot produced benefits commensurate with the expenditure involved" and that "more effective alternatives are being explored". it is, however, recognised that an industrial promotional structure at the district level seems unavoidable. Also, if the 'alternatives' were to assume larger responsibility for the promotion of traditional industries than hitherto, some technical/extension staff at the sub District/ Block level would be necessary. During the Sixth Five year Plan, it is envisaged that the industrial promotional agencies at the district level would play a catalytic role in generating opportunities for selfemployment in close cooperation with the District Manpower Planning and Employment Generation Council. It would also establish purposive linkages with the official and voluntary organisations engaged in the promotion of various traditional industries particularly at the subdistrict and the Block levels, and effectively monitor the programmes of rural industrialisation.
Institutional Finance 12.19 Financial assistance to the village and small industries sector is available primarily through commercial banks, cooperative banks. Regional Rural Banks, State Financial Corporations, under the overall guidance of Reserve Bank of India and Industrial Development Bank of
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India, etc. Over the period, various measures have been taken to accelerate the flow of credit to this sector. There has been a substantial increase in the number of bank branches covering semi- urban and rural areas; the sector has been included in the list of 'priority' sectors for commercial bank endings. Because of the various policy and operational measures taken, there has been some increase in the flow of credit to this sector. Loans advanced by com- mercial banks (loans outstanding) increased from about Rs. 686 crores in March, 1973 to about Rs. 2,633 crores, by December, 1979. In the case of cooperatives, the credit limits sanctioned under the Reserve Bank of India scheme of Handloom Finance increased from about Rs. 14 crores in 1973-74 to Rs. 58 crores in 1979-80. Assistance to other 22 groups of industrial cooperatives eligible for such facility, however, was not substantial. The Regional Rural Banks had by March, 1979, granted loans to small borrowers to the extent of Rs. 45 crores of which, it is estimated that, the rural artisans would have availed of about Rs. 14 crores only. The State Financial Corporations had sanctioned medium and long term loans to the tune of about Rs. 702 crores and had disbursed about Rs. 451 crores by March, 1979. The sanctions by the IDBI of re-finance to eligible institutions (including State Financial Corporations and commercial banks) increased from about Rs. 10.5 crores in 1970-71 to about Rs. 300 crores in 1979-80. The RBI continues to operate the Credit Guarantee Scheme for small scale industries and the amount of outstanding guarantees had gone up to Rs. 3289 crores by March, 1980.
12.20 While there has been a step up in the institutional credit flow to this sector, the beneficiaries have mostly been the larger among the small scale units. The availability of finance to 'tiny' and artisan type units has not been commensurate with their needs and levels of production. Of the total limits sanctioned by commercial banks upto December, 1978, the craftsmen and other qualified entrepreneurs had accounted for about 4.2 per cent; the term finance availed of by the 'tiny' units was around 10 per cent of the amount sanctioned by the IDBI. The impact of the, scheme of 'composite' loan has been very peripheral, to some extent, due to the reluctance of the bank managers in advancing loans without proper collateral security.
12.21 The target for 'priority' sector lendings by commercial banks has recently been increased from 33 to 40 per cent' The RBI have issued instructions that commercial banks should provide increasing proportion of their total advances to village and small industries so as to reduce, their dependence upon non-institutional sources, with the objective that no worthwhile Project in this sector should be rejected for want of adequate security. It has been decided that under the Differential Rate of Interest (DRI) scheme, the cooperatives and institutions concerned with the promotion of SC/ST artisans would also be eligible for concessional assistance. Similarly, instructions have been issued to the cooperative banks to provide finance to individual artisans and village and cottage industries. More branches both of Commercial Banks and Rural Regional Ranks are planned to be opened, mostly in the un-banked areas. The IDBI which has been charged with the task of coordinating, guiding and monitoring the entire range of credit facilities offered by various agencies to the sector, has opened a separate window to facilitate automatic re- finance of term loans to the primary lenders for loans upto Rs. 5 lakhs. It has also set up a Credit Committee for Small and Village industries which over-views the credit needs and the measures taken to augment the flow of credit. It has recently been decided, in principle, to set up a National Bank for Agriculture and Rural Development which would among other activities discharge the functions of an apex institution for flow of credit to the artisan and cottage type units in rural areas.
12.22 While a number of important measures, have been introduced recently, there is need for their effective implementation at the operational level. The liberalised scheme of credit to cottage and small industries for providing 'composite' loan upto Rs. 25,000 without insisting on margin money/collateral security would need to be made more effective through proper project formulation facilities, detailed district credit planning, provision of institutionalised support for raw materials and marketing, etc. Proper and continuous monitoring and attitudinal change in the field staff of lending institutions would go a long way in accelerating the credit flow and ensuring the adequacy thereof.
12.23 A related problem is the effective rate of interest for various industries and the concerned promotional institutions. At present, interest is being charged at varying rates from artisans, craftsmen, bandloom weavers in the cooperative fold and those outside, the tiny units and comparatively large among the small scale units. A village industry unit with investment of over Rs. 2 lakhs is eligible for funds at an effective rate of 4 per cent under the KVIC programme, while artisans under the 'composite' loan scheme are subjected to pay 9 1/2 per cent to 11 per cent* (depending on whether they are in backward or non-backward areas). Even in the modem small scale sector an educated/engineer entrepreneur can get funds at an effective rate of 7 per cent, the balance being subsidised from budgetary sources. On the other hand, various States' Development Corporations for handlooms, handicraft, small industries, etc., are being charged 16 to 18 per cent, as these have paid-up equity exceeding Rs.1 crore or so. This heavy interest burden virtually deters them from, resorting to institutional finance and forces them to depend heavily on budgetary support, thereby restricting their commercial activities. Attempts would,