Small-Scale Industries: Government Policy & Support

Government Policy Towards SSIs: A Historical Perspective

Government support for SSIs dates back to the post-independence era, recognizing their potential for inclusive growth. Early policies focused on protective measures like reservation of items for exclusive production by the SSI sector.

• Pre-1991: Emphasis on import substitution and protectionism. Policies included price preferences, excise duty exemptions, and reservation of items for SSI production. However, this led to inefficiencies and lack of competitiveness.
• 1991-2006: Liberalization and globalization brought about significant changes. The reservation scheme was gradually dismantled, and focus shifted towards improving competitiveness through technology upgradation and skill development. The MSME Development Act, 2006, provided a comprehensive framework for promoting MSMEs (which include SSIs).
• Post-2006: Policies have centered around credit facilitation, infrastructure development, marketing assistance, and cluster development. Schemes like the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) and the Prime Minister’s Employment Generation Programme (PMEGP) were launched.
• Recent Developments (2020 onwards): The government has introduced initiatives like the ‘Atmanirbhar Bharat Abhiyan’ (Self-Reliant India Mission) to boost domestic manufacturing, including MSMEs, with a focus on credit access and technology adoption. The introduction of the Udyam Registration portal in 2020 simplified the registration process for MSMEs.

Role of IDBI in Promoting SSI Growth

The Industrial Development Bank of India (IDBI), established in 1964, played a pivotal role in financing and promoting SSIs, particularly in its early years.

• Direct Lending: IDBI provided direct loans to SSIs for modernization, expansion, and working capital requirements.
• Refinance Assistance: It refinanced loans extended by State Financial Corporations (SFCs) and commercial banks to SSIs, thereby increasing the availability of credit.
• Equity Participation: IDBI participated in the equity of SSIs, providing them with capital for growth.
• Institutional Support: IDBI established specialized institutions like the Small Industries Development Bank of India (SIDBI) in 1990 to focus exclusively on the development of the SSI sector. SIDBI took over many of IDBI’s functions related to SSI financing.

Role of NABARD in Promoting SSI Growth

While primarily focused on agriculture and rural development, NABARD has significantly contributed to the growth of SSIs, especially those operating in rural areas and agro-processing industries.

• Credit Support: NABARD provides refinance assistance to Regional Rural Banks (RRBs), Cooperative Banks, and other financial institutions for lending to SSIs in rural areas.
• Infrastructure Development: It supports the development of rural infrastructure, such as roads, power, and communication facilities, which are crucial for the growth of SSIs.
• Skill Development: NABARD promotes skill development programs for rural entrepreneurs, enhancing their managerial and technical capabilities.
• Cluster Development: It supports the formation and development of SSI clusters, facilitating collective marketing, technology upgradation, and access to credit.
• Microfinance Support: NABARD actively promotes microfinance institutions (MFIs) that provide financial assistance to micro and small enterprises, including those in the SSI sector.

Addressing Financial, Managerial, and Operational Sickness

SSIs are particularly vulnerable to sickness due to various factors. IDBI and NABARD have implemented several measures to address these challenges:

However, despite these efforts, the problem of SSI sickness persists. Issues like bureaucratic delays, inadequate infrastructure, and lack of market information continue to hinder their growth. The recent emphasis on digitalization and formalization of the sector, through initiatives like the Udyam Registration, aims to address some of these long-standing challenges.