Strengthening of credit flow to SSI sector in India: new approaches

Abstract

Importance of the Sector : Thus far, Small Scale Industries (SSI) sector is being talked about. With the recent enactment of Micro, Small and Medium Enterprises and Development (MSMED) Act, 2006 Small and Medium Enterprises (SMEs) sector has emerged which will replace the SSI sector. Like in any other developing countries, in India SMEs play a very significant role in terms of their balanced and sustainable growth, employment generation, development of entrepreneurial skills and contribution to export earnings. As at the end of March 2006, there were around 12.0 million units - constituting 95 per cent of the industrial units in the country which produced more than 80000 items with associated technology varying from traditional to state-of-art. These units provide employment to nearly 24.9 million persons and account for 40 per cent of the value added in the manufacturing sector, 34 per cent of total national exports and 7 per cent of GDP during 2005-06. Official Definitions : In the Indian context, the definition of the SME sector is largely framed in terms of cumulative investment in plant and machinery. While most of the countries adopt the level of employment as the criterion for defining the SME sector. According to the official definition adopted in India till recently, the investment limit up to Rs.10 million in plant and machinery is treated as Small Scale Industries(SSI) unit. However, in respect of certain specified items such as hosiery, hand-tools, drugs and pharmaceuticals and stationary items, the above investment limit in plant and machinery has been enhanced up to Rs.50 million. But under MSMED Act, new official definitions are available separately for Manufacturing and Service rendering enterprises. Accordingly for Manufacturing enterprises, the criteria is investment in plant and machinery i.e. micro up to Rs 25 lakhs; small above Rs 25 lakhs and up to Rs 5 crores and medium above Rs 5 crores and up to Rs 10 crores.