Looking at the role played by the Small-scale sector in the country’s economy, one cannot underestimate its sizeable. The sector today contributes over Rs. 4.6 lakh crore of output, which is nearly half of the gross turnover in the manufacturing sector. Providing direct employment to around 165 lakh people, SSI units also contribute around 45 per cent of manufacturing exports and 34 per cent of total exports thereby earning precious foreign exchange for the country. Besides its contribution to the national economy, the sector serves important goals of employment generation, more equitable distribution of incomes, reduction in regional growth imbalances, exploitation of local resources and capital and development of entrepreneurial skills.

Keeping in view the above economic and social factors as also with a view to encouraging entrepreneurship, the Government has been providing support to the SSI sector on a protective basis by offering subsidies, fiscal concessions, priority lending, reservation of items of manufacture and has directed financial support through banks and other financial intermediaries. With these the sector has been growing robustly often at a pace higher than the average industrial growth. As a result, there has been a gradual shift in the policy from protection to promotion. Promotion is indeed needed today, as in a globalised economy insulation of any sector of economy is not practicable and therefore cannot be sustained. Promotional efforts have to be directed to ensure that the small industries gear up to face the challenges of the free economy.

The process of liberalisation and globalisation of the Indian economy initiated more particularly since 1991 has not only thrown up myriad opportunities for the SSI sector, but has also exposed it to the inherent risks of the free economy. While there is a general perception that in a free economy, the viability and sustainability of smaller manufacturing units are under threat, it has to be realised that there will always be industrial activities which are carried out by the tiny, small and medium units rather than in large units. It cannot make business sense for a large company to do anything that can be done more competitively by a small unit. In a liberalised and efficient industrial system, linkages between the small, medium and large sectors are mutually supporting and not competitively erosive. In fact, in the first seven years after the liberalisation was started, the SSI has been sustaining growth rates higher than industrial average thus proving its resilience. However, it has to admit that opening up of the economy does pose a number of challenges in immediate future to SSI sector, which has so far been insulated in a number of areas. In view of equitable distribution of incomes and several desirable objectives of healthy social and economic growth, Abid Hussain Committee made out a strong case for support policies to encourage the development of SSIs beyond the point which the sector might attain left to free market forces. In order to achieve this, we have to effectively address the problems faced by the SSI units.

• Delayed payments against the supplies made by SSI.
• Difficulties in obtaining adequate working capital finance -Despite RBI’s directives in response to Nayak Committee’s recommendations to provide working capital facilities equivalent to 20 percent of the projected actual turnover (for working capital limits upto Rs. 2 crore), actual credit made available to the sector is only 7-8 per cent.
• Limited avenues for resource Mobilisation.
• Obsolescence of technology and processes.
• Inefficient management and human resource development mechanisms.
• Poor marketing network and
• Inadequate infrastructure.

To address these problems, SIDBI, as the apex institution for promotion, financing and development of this sector, has over the years taken several initiatives. These include enlarging and liberalising the scope of existing schemes of assistance, development of tailor made products in tune with the changing requirements of the SSI sector and undertaking various promotional measures. Besides encouraging and supporting various agencies involved in assisting the small-scale industries SIDBI is also pursuing the aim of becoming 'one stop shop’ catering to all the needs of the small industries, be it finance, technology, marketing or infrastructure. Today while 45% of our assistance is through refinance route, 55% of assistance is extended directly. SIDBI has today a number of products, which aim to solving to some extent the problems listed out above. These are bills financing, Single Window Scheme, Working Capital Term Loan, Factoring Services, Forex Services, Technology Development and Modernisation Fund (TDMF), Venture financing, Marketing finance and assistance for development of infrastructure for healthy growth of SSI, and extensive support services programmes such as Small Industries Management Assistants Programmes, Skill-cum- Technology Upgradation Programme, Entrepreneurship Development Programme, special programmes for Quality and Environment Management.

The Nayak Committee had estimated the long-term credit requirements of the SSI sector during the Eighth Plan period at Rs. 13,700 crore. Of this, Rs. 2000 crore was to come from NABARD. Rs. 9950 crore from SIDBI and the balance from SFCs and banks. As against Rs. 9950 crore, SIDBI during the Plan period 1992-97 extended over Rs. 12,000 crore to this sector, by way of refinance and direct finance, thus exceeding the given target for term credit to SSI. The cumulative assistance provided by SIDBI during the last eight years of its operations has been over Rs. 36,200 crore in terms of sanctions and Rs. 26, 700 crore in terms of disbursements. While maintaining the average growth rate, SIDBI is poised to meet the long-term credit requirements of the SSI sector with estimated disbursements of about Rs. 35,000 crore over the next five years.

Prospects
By the very nature of their operations, industrial units in the small-scale sector enjoy certain inherent advantages over their larger counterparts. Some of these are -high flexibility, low overheads, greater control of promoters, better geographical spread of industry, adaptability to changing environment etc.

The free economy will usher in accessibility to bigger markets, greater linkages for SSI with larger companies and marketing outfits, improved manufacturing techniques and processes. Various measures adopted by Government of India, Reserve Bank of India and SIDBI have attempted to alleviate the problems of SSI sector. These initiatives coupled with other developments in the economic environment, which are discussed below, have enhanced the prospects of SSIs towards the new millennium.

The enhancement of investment ceiling in December 1997 has provided an opportunity to SSIs for increased investment in technology upgradation, modernisation, expansion etc. without losing their priority status. This has removed an impediment for the SSI units in taking up the backlog of modernisation, undertaking investment necessary to upgrade their production processes or installing balancing equipment for improving their capacities and operational efficiencies. Instead of horizontal expansion resorted hitherto to derive SSI benefits, much potential has now been created for vertical integration of SSI units and to derive advantages from economies of scale.

With increasing globalisation and entry of multinationals, immense opportunities have been created for outsourcing, sub- contracting and ancillarisation of the products manufactured by corporates particularly in non-core sectors like automobiles, engineering and consumer electronics. SSI the vibrant sector can derive maximum benefit of these developments.

The liberalised regime has also opened the doors for a large number of entrepreneurs to embark upon setting up of ventures with innovative technologies and their commercial applications with a high risk-high return profile. These projects may involve new and untried processes and technologies, which have good potential but at the same time may not qualify for assistance through the conventional route of term financing. Although the venture capital assistance is still at the nascent stage, it is poised to gain momentum and help SSIs for setting up such ventures. SIDBI has been encouraging this with direct venture capital as also support to other venture funds committed to the SSI.

The modern information network available today has opened the gates for applied research and keeping abreast with advancement of technology with changing trends. SIDBI has set up a Technology Bureau for the SSI in association with the Asia Pacific Centre for Transfer of Technology (APCTT), a body under the UN umbrella. The centre facilities technology tie-ups between Indian small enterprises and overseas companies.

I have no doubt that SSI sector will only get stronger as it improves its competitiveness in a free economy. As already mentioned, SIDBI is taking all the steps to render all possible, assistance to the sector and is fully geared in this regard. To achieve smooth transition of SSI sector during this critical phase of liberalisation, SIDBI has identified thrust areas for support to SSI as modernisation, promotion of linkages with the large industries and marketing agencies, timely realisation of dues, working capital, development of infrastructure dovetailed to meet the requirement of the SSI, promotion of exports through Forex services, increasing export competitiveness through quality certification and strengthening of management and manpower skills. Besides, at the lowest segment the programmes of SIDBI aim at fostering the growth of micro-credit to encourage development of enterprise at the tiniest of the levels across the country.