VILLAGE & SMALL INDUSTRIES AND FOOD PROCESSING INDUSTRIES
Village and Small Industries
Overview 6.1 Village and small industries sector consists of two broad sub- sectors, viz, modern small industries and traditional industries. The former covers small scale industries and powerlooms and the latter khadi, village industries, handlooms, secriculture, handicrafts and coir industry. With effect from 2nd April, 1991, an industrial unit in which investment in fixed assets in plant and machinery does not exceed Rs.60 lakhs is regarded as a small scale undertaking. In the case of industrial units undertaking to export at least 30 per cent of the annual production by the end of the third year from the date of commencement of production, the ceiling of investment in fixed assets has also been fixed at Rs.75 lakhs. This measure is expected to result in greater technological input and export thrust in the small scale sector.
6.2 A policy package for small, tiny and village industries has been announced in August, 1991 with the primary objective of imperting more vitality and growth impetus to this sector. The ceiling of investment in the case of `Tiny' enterprises has now been raised to Rs.5 lakhs, locational restrictions on setting of these enterprises have been removed and their scope has been enlarged to include all industry related service and business enterprises. Further, equity participa- tion, not exceeding 24 per cent, by other industrial undertakings, including that by foreign collaborators in the small scale sector has been permitted with a view to encouraging modernisation and technolog- ical upgradation. Other salient features of this policy pertain to the setting up of a monitoring agency to ensure that the genuine credit needs of this sector are fully met; review of all statutes, regula- tions and procedures and their modification to ensure that their operation does not militate against the interests of the small and village enterprises; encouraging industry associates to establish quality counselling and common testing facilities; sub-contracting exchanges and expansion of entrepreneurship development programme; further liberalisation of schemes of National Equity Fund and Single Window Loans, etc.
Review 6.3 The progress of village and small industries sector during the Seventh Plan (1985-90) and Annual Plans (1990-91 and 1991-92) is indicated in Statements 6.1 and 6.2 respectively.
6.4 It will be observed from Statement 6.1 that the value of output in this sector increased, at constant prices, at a compound rate of 12.06 per cent between 1984-85 and 1989-90. However, the production of khadi, village industries, handloom cloth and coir yarn and coir products fell short of their respective target. Exports from this sector have increased, at current prices, at a compound rate of 26.57 per cent. In the case of employment coverage (full time and part time employment), while the rate of compound growth is 4.43 per cent, it is short of the Seventh Plan target. The growth rate achieved during the Seventh Plan is not likely to be maintained during 1990-91 and 1991-92 on account of constraint of foreign exchange affecting the availabili- ty of imported raw materials, components and capital goods, credit squeeze, high rates of interest, recession in foreign markets, etc.
Eighth Plan.
Approach and Strategy 6.5 The Eighth Plan aim at a growth rate of 5.6 per cent. The growth rates for the manufacturing sector and exports have been kept at 7.3 per cent and 13.6 per cent respectively. While no growth rate has been indicated for the village and small industries sector, it has to be higher than that of the manufacturing sector.
6.6 In the new orientation to planning during the Eighth Plan, people's initiative and participation would be a key element in the process of development Greater emphasis will be laid on private initiative in industrial
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development. the public sector will become very selective in the coverage of activities and in making investment small enterprises in the village and small industries sector are, more or less, based on private initiative and entrepreneurship.
6.7 One of the areas of priority of the Eighth Plan is generation of adequate employment to achieve near full employment level by the turn of this century. Several activities pertaining to this sector like processing of agricultural produce in rural areas, sericulture and allied activities have been identified as critical goals in priority sectors. It is possible to dovetail programmes of khadi, village industries, handlooms, sericulture and handicrafts to integrated local area development programme for selected villages for poverty allevia- tion through increase in employment. It is also envisaged that entry into the service sector, which is expected to play a major role in generating employment during the Eighth Plan, and the 'informal' sector will be made free of innumerable rules, regulation and bureau- cratic controls. Further, research and innovation in the tools and techniques of traditional occupations, including the of rural arti- sans, will be encouraged and their extensive adaptation will be in- duced.
Physical Targets 6.8 Indicative targets in respect of production, employment coverage and exports for village and small industries for the Eighth Plan are given in Statement 6.3.
6.9 Major activities envisaged for the Eighth Plan are discussed in the subsequent paragraphs, sub-sector wise:
Small Scale Industries 6.10 It will be observed from Statement 6.4 that the growth rates in respect of production, employment and exports relating to small scale industries envisaged for the Eighth Plan are lower than those achieved during the Seventh Plan. These rates have been worked out taking into consideration the prevailing difficult resource position. Quick esti- mate of Index of Industrial Production for April-September, 1991, vis- a-vis, the corresponding period of 1990 indicates negative growth rate of 1.9 per cent in manufacturing sector. Similarly, export per- formance, net of devaluation and inflation, for the above period has not been encouraging.
6.11 Credit continues to be crucial for the establishment and expansion of small industries. Advances from commercial banks to the small scale sector as on 23rd March, 1990, was Rs.15,543 crores as against Rs.6,766 crores at the end of June, 1985. This increased to Rs.17,151 crores as on 22nd March, 1991. In percentage terms, advances to the small scale sector were 15.7 per cent of the total bank advances in March, 1991. It would be necessary to increase the share of credit available to the SSI sector from commercial banks from the present 16-18 per cent. It is needless to reiterate that timely and adequate availability of credit is of greater importance than concessional credit. This would call for strengthening of SIDBI and NABANRD. With the establishment of SIDBI, certain new initiatives like sanction of composite loans under Single Window concept, concessional loans to State Corporations for infrastructure development and provision of factoring services have been introduced.
6.12 A development which is likely to increase the cost of credit to small scale industries is the deregulation of interest rates to be changed by banks on advances above Rs.2 lakhs. Its adverse effect would be felt by SSI units in general and tiny units in particular. Reserve Bank of India has appointed a Committee in December, 1991, to review the arrangements for meeting the working capital requirements of small scale industries and for the rehabilitation of sick small scale industries and to examine any other issues relating to small scale industries. The Committee will also look into the above issues with a view to ensuring that the interests of SSI sector are not adversely affected.
6.13 Entrepreneurs have limited access to quality raw materials. In the case of critical raw materials, new enterprises face problem in obtaining these in the absence of a proper and equitable policy of raw material distribution. After the decontrol of steel prices, drying up of canceling agencies (like MMTC, etc) and the devaluation of Rupee, the availability of raw materials, particularly to the small producer, has been severely affected. Industry associations will be encouraged to come forward and evolve a suitable distribution mechanism so that the interest of this sector is protected.
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6.14 In order to upgrade technology, greater emphasis has to be given on the establishment of tool rooms and provision of training facili- ties. State intervention in improving the quality may be confined to establishment of tool rooms and assistance in the establishment of testing facilities. The operation of testing facilities should be the responsibility of the industry. During the Eighth Plan, a bigger programme of development of appropriate technology and technology upgradation has to be initiated.
6.15 Technological obsolescence is high in small industries. To im- prove marketability, there is need to induct better and appropriate technology. Need is felt for an agency which can take up the functions of collection, documentation and storing information on technology, conducting studies and preparing technology guidelines, assessing the need for establishment of tool rooms, testing centres, PDTCs etc., provision of technology inputs, import of samples from abroad, assimi- lation of technology, assisting entrepreneurs in obtaining suitable know how from indigenous sources, coordination with organisations engaged in technology development and its transfer. NSIC can handle these functions both for small industries as well as for others.
6.16 According to the All-India Census of Small Scale Industrial Units, with 1987-88 as the base year, registered working SSI units and closed units as on 31.3.1988 were 5,82,368 and 3,01,370 respectively. It is indicative of extensive sickness in the small scale sector. Though sickness is reported in all market economies, locking of re- sources in the form of bank loans, materials, equipment and loss of employment are serious matters of concern. The Centrally Sponsored Scheme for Revival of Sick SSI Units has not proved effective. The caused of sickness are many, like selection of unviable projects, inadequate availability of raw materials, power shortage, marketing problems, obsolete technology, inadequate working, inefficient manage- ment, etc. In order to prevent sickness at the incipient stage, it is necessary that SFCs and commercial banks should properly monitor the project. The quality of consultancy, particularly in technology has to be improved. Rehabilitation of sick units is very difficult and it re- quires not only proper diagnosis but also effective coordination among the various organisations involved.
6.17 In the State sector, a number of programmes of subsidies on in- vestments in fixed assets, purchase of diesel generating sets, elec- tricity duty, etc, are under implementation leading to unhealthy competition among the States and Union Territories to attract invest- ment. Further, concessions on purchase of land and exemption from the payment of sales tax for a specified period/investment limit are also provided to entrepreneurs. These schemes, generally, lead to flight of investment from less developed States to developed ones. It is impera- tive to evolve a uniform policy on the above issues based upon consen- sus among the State Governments in the interest of growth of industry on healthy and equitable basis.
6.18 The cumbersome procedures and a large number of returns that entrepreneurs have to furnish, distract them from production and marketing activities. It is, therefore, necessary to undertake a comprehensive review of laws and procedures and to simplify them so that entrepreneurs are able to concentrate on efficient running of their units.
6.19 Marketing is one of the intractable problems of the SSI sector. Marketing assistance through Small Industries Corporations, NSIC, etc, has so far been able to cover only a very small fraction of turnover in this sector. The existing fiscal regime and the operation of labour laws are not conducive to vertical growth of SSI sector. There is need to modify them suitably. Industry association will be encouraged to form marketing organisations which, besides marketing, will go into the quality aspect of products.
6.20 The Growth Centre approach has already been accepted as a suit- able measure for industrial dispersal and is under implementation in large and medium industries sector. During the Eighth Plan, establish- ment of 70 Growth Centres has been envisaged. It is proposed to ear- mark a certain percentage of developed industrial area for small industries. There is also need to establish functional industrial estates at suitable locations in areas with substantial agricultural, vegetable and horticultural produce. Besides the growth centres, integrated infrastructure development centres for tiny units in rural and backward areas would be set up involving the Centre, State Govern- ments and industry associations.
6.21 The experience of economic growth the world over indicates that greater employment generation takes place in
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the tertiary sector. Hence, there is need for emphasis on the promotion of industrial units catering to services and maintenance of equipment. In rural areas and small towns such facilities do not exist. A programme of suitable training and provision of tool kits needs to be taken up.
Khadi & Village Industries 6.22 The production of khadi cloth in 1989-90, estimated at 107-47 million sq. metres, is less not only than the Seventh Plan target of 180 million sq. metres but also than the level of production of 127.82 million sq. metres achieved in 1984-85. Similarly, employment coverage of 14.12 lakh persons in khadi sub-sector in 1989-90 is less than the target as well as the employment of 14.58 lakh persons in 1984-85. This trend in production persisted in 1990-91 and 1991-92. In the case of village industries, the value of output in 1989-90 was Rs.1,101 crores at constant prices and Rs.1,705 crores at current prices against the Seventh Plan target of Rs. 1,700 crores. However, the employment coverage in village industries in 198-90 estimated at 32.14 lakh persons is marginally higher than the Seventh Plan target of 30 lakh persons. In 1990-91, there is a slight fall in employment cover- age in village industries, vis-a-vis, the target. However, in 1991-92, the target of employment coverage of 35.40 lakh persons in village industries is expected to be achieved.
6.23 The decline in the growth of khadi sub-sector is attributable to several factors. Spinning on traditional charkhas in the northern belt could not be expanded due to low level of earnings and consequent decline in the number of traditional home spinners as well as prefer- ence of weavers for yarn produced by New Model Charkha (NMC). In some States adequate number of weavers are not willing to take up khadi weaving. The present structure as well as guidelines regarding lending to khadi institutions do not permit the khadi & Village Industries Commission (KVIC) to advance loans to those institutions which have received over Rs. 3 crores. These institutions have requisite infra- structure and expertise to increase the production of khadi, whereas new institutions which are eligible for funding take a lot of time to develop infrastructure and expertise. Further, as the production of khadi is bound by several restrictions such as certification, cost chart and its sale on no profit no loss basis, very few voluntary organisations come forward to take up this programme. It is, however, relevant to state in this context that the production of polyvastra which is a blend of polyester and cotton presently covered under village industries has been increasing during this period and in value terms it has increased from Rs. 2.17 crores in 1984-85 to Rs.16.61 crores in 1989-90.
6.24 There are other areas in KVIC programmes where performance is not satisfactory. A large number of artisans' cooperatives engaged in village industries have continued to remain dormant. Though the pro- ductivity and earnings of artisans have improved, they are lower than those obtaining in the farm sector. The linkages between KVI pro- grammes and general programmes of area development like IRDP, are inadequate. The gaps in performance are partly attributable to the fact that since its inception, KVIC has continued the policy of as- sisting institutions/private individuals registered with it directly and consequently the State Governments have not been according priori- ty to its programmes.
6.25 The main objectives of khadi and village industries (KVI) pro- grammes during the Eighth Plan would be to create additional employ- ment opportunities in the non-farm sector and to ensure increased wages/earnings to rural workers. For this purpose, it would be neces- sary to reorient khadi programme and identify thrust areas among village industries keeping in view the growth potential and the con- sumer demands, provide escort services to artisans and adopt aggres- sive marketing approach.
6.26 The KVI depend on institutional finance, besides budgetary sup- port for the implementation of its programmes. But the flow of funds to the KVI sector has not been commensurate with its requirements. Thus, the institutional finance flowing to the KVI sector under the interest subsidy scheme increased from Rs.40.94 crores in 1984-85 to Rs.120.61 crores in 1990-91. The KVIC issued interest interest subsidy eligibility certificates to State KVIBs and directly aided institu- tions for an amount of Rs.234.27 crores in 1990-91, but KVI received only Rs.120.61 crores of institutional finance during 1990-91. It is, therefore, essential to ensure adequate institutional finance for the stepped-up activities of KVIC. In this context, it is necessary to increase the active involvement of banks in funding of KVI programmes and in this process to reduce their dependence on the budgetary sup- port. It is also necessary to review the subsidies which are presently being provided for the development of khadi and village industries. The present policy of KVIC to advance loans for the development of village industries to the
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beneficiary organisations at 4% rate of interest also needs to be reviewed in view of the hike in the lending rates of commercial banks.
6.27 Artisans engaged in khadi and village industries face problem in obtaining assured and timely supply of raw materials of requisite quality as well as quantity at reasonable rates to enable them to produce quality goods at competitive cost on account of their weak resource base. Though KVIC have arrangements for supply of some raw materials, for example, cotton, raw wool, polyester fibre, silk co- coons, edible and non-edible oil seeds and splints and veneers, requisite support in regard to supply of essential chemicals and raw materials for the remaining village industries, including the expanded village industries, needs to be provided.
6.28 It has been noted that the utilisation of S&T funds by KVI sector has not picked up during the past seven years. There is urgent need to develop new types of tools, equipment an machines and they should be tested on pilot basis before recommending their adoption on a wide scale. It is, therefore, imperative that technical problems of this sector should be recognised by national laboratories and they should help this sector in a big way to produce marketable products. R&D should pay attention not only to production process but also to quali- ty finishing, packaging etc. For agro and food processing industries in rural areas, the activities of CSIR and other research institutes functioning under its aegis including CFTRI should be reoriented and coordinated for development of appropriate technologies.