Cottage and Small Scale Industries Analysis

PESTLE ANALYSIS OF COTTAGE AND SMALL SCALE INDUSTRIES

PREFACE

AS MBA Degree requires equal attention practical as well as theoretical aspect of the business, various problems are to be dealt with in these courses, that is why research programs are there to give deep as well as through knowledge of the subjects.

I have attempted to live up these requisites while preparing this term paper. It is part of professional courses. With the help of term paper we can able to understand the deep knowledge about the specific topic assign to us.

OBJECTIVES OF STUDY

* To know what is PESTLE.

· PESTLE analysis of COTTAGE AND SMALL SCALE INDUSTRIES.

· To find the problems faced by the Cottage and small scale industries and give suggestion .

PESTLE analysis

INTRODUCTION

PESTLE analysis stands for “Political, Economic, Social, Technological, Legal and Environmental analysis” and describes a framework of macro-environmental factors used in the environmental scanning component of strategic management. Some analysts added Legal and rearranged the mnemonic to SLEPT; inserting Environmental factors expanded it to PESTEL or PESTLE, which is popular in the UK. The model has recently been further extended to STEEPLE and STEEPLED, adding education and demographic factors. It is a part of the external analysis when conducting a strategic analysis or doing market research, and gives an overview of the different macroenvironmental factors that the company has to take into consideration. It is a useful strategic tool for understanding market growth or decline, business position, potential and direction for operations.

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The growing importance of environmental or ecological factors in the first decade of the 21st century have given rise to green business and encouraged widespread use of an updated version of the PEST framework. STEER analysis systematically considers Socio-cultural, Technological, Economic, Ecological, and Regulatory factors.

* Political factors, are how and to what degree a government intervenes in the economy. Specifically, political factors include areas such as tax policy, labour law, environmental law, trade restrictions, tariffs, and political stability. Political factors may also include goods and services which the government wants to provide or be provided (merit goods) and those that the government does not want to be provided (demerit goods or merit bads). Furthermore, governments have great influence on the health, education, and infrastructure of a nation.

* Economic factors include economic growth, interest rates, exchange rates and the inflation rate. These factors have major impacts on how businesses operate and make decisions. For example, interest rates affect a firm’s cost of capital and therefore to what extent a business grows and expands. Exchange rates affect the costs of exporting goods and the supply and price of imported goods in an economy

* Social factors include the cultural aspects and include health consciousness, population growth rate, age distribution, career attitudes and emphasis on safety. Trends in social factors affect the demand for a company’s products and how that company operates. For example, an ageing population may imply a smaller and less-willing workforce (thus increasing the cost of labor). Furthermore, companies may change various management strategies to adapt to these social trends (such as recruiting older workers).

* Technological factors include ecological and environmental aspects, such as R&D activity, automation, technology incentives and the rate of technological change. They can determine barriers to entry, minimum efficient production level and influence outsourcing decisions. Furthermore, technological shifts can affect costs, quality, and lead to innovation.

* Environmental factors include weather, climate, and climate change, which may especially affect industries such as tourism, farming, and insurance.Furthermore, growing awareness to climate change is affecting how companies operate and the products they offer–it is both creating new markets and diminishing or destroying existing ones.

* Legal factors include discrimination law, consumer law, antitrust law, employment law, and health and safety law. These factors can affect how a company operates, its costs, and the demand for its products.

COTTAGE AND SMALL INDUSTRIES

Introduction

Small-scale and cottage industries play a very vital role in the country’s economy despite the phenomenal growth in the large-scale sector. In fact, the small-scale sector is playing a vital role in the growth of national economies the world over and is considered to be the engine of growth in most countries. The small-scale industries are labour – intensive and provide employment to nearly 1.86 crores persons in the country.

The emphasis on Village and Small-Scale Industries (SSIs) has always been an integral part of the Indian Industrial strategy, more so after the Second Five Year Plan. It was envisaged that Village and Small-Scale Industries would play an important role as producer of consumer goods and absorber of surplus labour thereby addressing to the problems of poverty and unemployment. Other advantages of small industries are that they ensure a more equitable distribution of national income, enhance balanced regional industrial development, act as a nursery for entrepreneurship and facilitate mobilization of local resources and skills which might otherwise remain unutilized.

Consequently, the Government of India had been encouraging and supporting the promotion of Small-Scale Industries through deliberate policies such as:

1) Protection from large-scale industries,

2) Capital subsidies,

3) Differential tax treatment,

4) Reservation etc.

The Government continues to provide protection to the small scale sector, inter-alia, through the policy of reserving items for exclusive manufacture in the small-scale sector. Industrial undertakings other than the small-scale industrial undertakings engaged in the manufacture of items reserved for exclusive manufacture in the small-scale sector are required to obtain an industrial licence and undertake an export obligation of 50 per cent of the annual production. However, the condition of licensing is not applicable to such industrial undertakings operating under 100 per cent Export Oriented Undertakings Scheme, the Export Processing Zone and the Special Economic Zone Schemes.

The reservation policy was introduced in 1967 an attempt to protect SMEs from competition from corporations and 44 goods were specified to be exclusively manufactured by SMEs (Large Corporations were allowed to enter this sector on condition that 50% of their produce would be exported). As a result, SMEs dominated readymade garments, leather goods, autocomponents, electrical appliances and the hand tool industries. Over the years, the number of items reserved for SMEs increased and it stood at over 800 in 1989.

However, the Abid Hussain Committee set up by the Government of India which submitted its report in January 1997 observed that the reservation policy was inconsistent with the current trade reforms which allow free import of a large majority of the goods and most of the remaining can be imported under the special Import Licence. The number of reserved items has, therefore, been coming down.

Industrial undertakings with investment in plant and machinery up to Re. 1 crore qualify for the status as small-scale or ancillary industrial undertaking with effect from 24 December 1999. The investment limit for tiny units is Rs. 25 lakh.

The Small-Scale Industry sector has emerged as a dynamic and vibrant sector of the Indian economy in recent years, displaying phenomenal growth in the field of production, employment and dispersed development in general and exports in particular. There are nearly 34 lakhs Small-Scale

Industries in the county accounting for about 40% of the gross value of output in the manufacturing sector and about 34% of the total exports of the country. It provides employment to nearly 186 lakhs persons, which is second only to agriculture.

The Small-Scale sector contributes amply to other socio-economic aspects such as reduction in income inequalities, product diversification, dispersed development of small industries and linkage with other sectors of the economy.

Position as in 2007-2008

No. of small scale industries units Rs.66.70 lakhs

Production at current prices Rs.9,45,496 crores

Employment 386 lakh persons

Exports Rs.89,978 crores

POLITICAL ANALYSIS-

Eleventh Plan Programmes

During the year 2008-09, a number of new schemes were or are to be taken up for implementation.

· New Anna Marumalarchi Thittam under 15 Points Programme of Chief Minister to promote Agro-Based /Food Processing Industries with investment of one crore and above in each of 385 blocks of the State with special package incentives and Escort Support, to generate employment and to uplift rural economy.

· On-line Registration and issue of Provisional SSI Registration Certificate to new Entrepreneurs through the approved Browsing Centres at District and Taluk Headquarters was inaugurated by the Chief Minister on 12.9.2002. On-line filing for Permanent SSI Registration Certificate is also proposed to be introduced. The furnishing of data by SSI units through online will also be introduced.

· Public Private Partnership Concept for maintenance and infrastructure in the Estate, Business Development/ Documentation / Advisory Services / Consultancy Services/ Marketing Assistance, Common Facility Centres and Product Display Business Development Centres, Human Resource Development for development of SSI sector. Under this scheme, a part of Capital Cost shall be borne by the Association / State and Central Government and the Balance Capital Cost shall be obtained as loan from financial institutions

· Cluster Development Scheme with 75% of the cost of the Project as Grant will be provided by Government of India towards creation of infrastructure facilities/ services for development of Industrial Clusters.

· Formation of Export Guidance Cell under the chairmanship of the District Collector in the District Industries Centres to provide information on export activities, potential and procedural matters for export and to initiate measures for development of export in the State.

On Going Schemes

Centrally Sponsored Schemes

1)Setting up of Nucleus Cells

A new Scheme of Collection of monthly production details from the selected sample Small Scale Industrial Units was introduced for the purpose of computing Index of Industrial production so as to assess the growth of this Sector. This has assumed national importance because of the present economic scenario. The DC (SSI) has provided Computer Hardware and Software to the 11 selected District Industries Centres and to the district offices for transferring the IIP to the Directorate of National Informatics Centre, and DC (SSI), New Delhi.

A sum of Rs. 4.25 crores has been proposed for eleventh Plan for this scheme towards staff costs which will be fully met by Government of India.

2. Prime Ministers Rozgar Yojana Scheme (PMRY)

PMRY.scheme for providing Self-Employment to Educated Unemployed Youth was announced by the Prime Minister of India on 15th August 1993 to provide Self-employment opportunities to one million educated unemployed youth in the country. This Scheme benefits persons who are educated unemployed youth in the age group of 18 to 35 years and having passed VIII standard with family income not exceeding Rs. 40,000/- (per annum). The age limit has been relaxed upto 45 Years in respect of SC/STs, Ex-Serviceman, physically handicapped and women from 1.4.99 onwards. Preference is being given to those who have received training in any trade in Government approved/ recognised Institutions (I.T.I. etc) for a period of at least 6 months. The Scheme envisages 22.5% reservation for SC/ST candidates and 27% for other backward classes. An outlay of Rs. 8.50 crores is proposed for implementation of the Scheme during Tenth Plan. The entire amount will be borne by Government of India.

Centrally Shared Schemes

Market Development Assistance State’s Share – for sale of coir by Indl . Co-operative Socities

Under this scheme, all the Coir products are eligible for assistance throughout the year. A sum of Rs. 2.25 crores has been provided for eleventh plan period towards the State’s share for this scheme.

Entrepreneur Development Institute (E.D.I.)

It is proposed to establish an E.D.I. with model of E.D.I. Ahmedabad. This is meant to meet the entrepreneurial needs of the Southern Region in future.

During eleventh Plan a sum of Rs. 4.50 crores has been provided for this scheme towards State’s share.

State Schemes

1.Industrial Estates-Maintenance (Maintenance of Additional sheds in TACEL at Vridhachalam.)

TACEL Industrial Estate, Vridhachalam comprises of total area of 42.80 acres and at present there are 64 Units on rental basis. For maintenance of the sheds in the Industrial Estate during the eleventh Plan period a sum of Rs. 50 lakh will be provided.

2. Technical Information Sections in Industrial Estates

The Technical Information Sections are functioning at Guindy, Ambattur, Madurai, Pettai, Katpadi, Trichy, Coimbatore and Salem to disseminate information to the industrialists and prospective entrepreneurs. The Sections have libraries containing technical books on Science, Technology, Management, Industrial Information Digests and Journals, Project profiles on SSI and details of ISI specifications for various products. The Technical Information Section, Guindy has a well-furnished auditorium with a video scope system. For the eleventh Plan period Rs. 80 lakhs is provided for maintenance of Technical Information Sections.

3. State Industries Centres – EDP Training, Women Entrepreneur Development Programme, Construction of DIC building, maintenance, contribution to specific fund (TTM) etc. It is proposed to train 1,25,000 women entrepreneurs within a period of five years from 2007-08 to 2011-12 at the rate of 25,000 women per year. . An amount of Rs. 9.97 crores is provided.

ECONOMIC ANALYSIS

In 1947 after gaining independence, India initiated a path of industrialization to achieve economic prosperity. India focused on developing the manufacturing base. Much of the countries development was done through the five year plans. Industries like iron and steel, oil refineries, cement and fertilizer were brought under the gamut of public sector enterprises. The decision makers then encouraged the development of small scale industries. They perceived that Indian small scale industries would play a vital role in the economic progress of the country and had immense potential for employment generation. Developing small scale sector would also result in decentralized industrial expansion, better distribution of wealth and to encourage investment and entrepreunial talent.

The government has initiated several policies for the growth and development of small scale industries. They included reservation of certain items to be manufactured only by the small scale sector. Other measures include credit marketing, technology, and entrepreneurship development, fiscal, financial and infrastructural support. In 1999, the government established the Ministry of Small Scale Industries and Agro and Rural industries to make policy decisions for the development and well being.

Initially the small scale sector was characterized as traditional labor intensive units with outdated machineries and inefficient production techniques. But in the recent past the condition of the small scale units has improved. Today they have installed modern machines, applied better management techniques and are much more productive.

SSI-Location

Small Scale Industries are located throughout the country, though predominantly in the rural areas. The small scale industries in the rural areas are skill based, wherein the skill for manufacturing is passed on from one generation to another. Some of the goods manufactured in these units are textile handicrafts, woodcarving, stone carving, metal ware etc. Small scale industrial factories are also present in urban areas and usually they account for the maximum volume of production for that particular good in the country. For e.g. Ludhiana in the state of Punjab is the main center in the country for producing woolen hosiery, sewing machine parts, bicycles and its parts, similarly Tiruppur in Tamil Nadu accounts for small scale firms.

Post

Liberalization

Post liberalization economic conditions has created immense growth prospect for the small scale industries. The government has also supported the small scale industries by the way of implementing policies like investment ceiling for the SSI sector and priority lending. The formation of WTO in 1995 resulted in a major challenge to the well being of the SSI. The protection given to the SSI in the form of reservation and quantitative restrictions has been withdrawn. More than 160 items reserved under the SSI category have been de reserved. It has been found that if the SSI upgrades the technology, adopt better management practices, reengineer the factories to improve productivity and provide qualitative product, they would be competitive in the post WTO scenario. The advancement in computer and telecommunication technology, increase in e commerce, opening up of markets due to WTO, mergers and acquisitions, improved infrastructure and outsourcing noncore area of business have all contributed to the growth of SSI.

SOCIAL ANALYSIS

The small scale sector has played a very important role in the socio-economic

development of the country during the past 50years. It has significantly contributed to the overall growth in terms of the Gross Domestic Product (GDP), employment generation and exports. The performance of the small scale sector, therefore, has a direct impact on the growth of the overall economy. The performance of the small scale sector in terms of parameters like number of units (both registered and unregistered), production, employment and exports is given in

Table 7.15.

According to projections made by the Ministry of Small Scale Industries during 2007-08, the SSI sector recorded growth in production of 8.09 per cent over the previous year. The small scale industries sector has recorded higher growth rate than the industrial sector as a whole (6.9 per cent during 2007-08). It contributed about 40 per cent towards the industrial production as a whole and 35 per cent of direct exports from the country.The Government has been taking various measures from time to time in order to enhance the productivity, efficiency and competitiveness of the SSI sector. In pursuance of the comprehensive policy package announced last year, the major developments that have taken place in the SSI sector during 2007-08.

Sickness in the SSI Sector

As on March 31, 2008, there were 5,49,630 sick SSI units which had obtained loans from banks. An amount of Rs. 6,506 crore of bank credit was blocked in these units. Of these only 23,076 units were considered potentially viable by the banks with outstanding credit of Rs. 399 crore. Further, banks had identified 4,25,488 units with outstanding bank credit amounting to Rs. 5,943 crore as unviable.

Rehabilitation of sick units is a costly proposition as it involves rescheduling of past overdues with concessions on interest amount due, additional credit for modernisation and technology upgradation and provision for fresh working capital.

Presently, the State Level Inter- Institutional Committee (SLIIC) of banks and financial institutions is the only forum looking into rehabilitation of potentially viable sick SSI units. However, in the absence of statutory backing, SLIICs has no power to enforce its decisions. To tackle the problem of rehabilitation of potentially viable sick SSI units, the RBI constituted a working group on November 25, 2008 under the chairmanship of Shri S.S. Kohli, the chairman of Indian Banks Association, to look into the issue. The Working Group submitted its report in May, 2008.

All the major recommendations of the working group have been accepted by the RBI, including a change in the definition of Sick SSI units, norms for deciding on the viability of sick units, etc. The revised definition would enable banks to take action at an early stage for revival of the units.Based on the accepted recommendations of the Working Group, the RBI has drawn up the revised guidelines for Rehabilitation of Sick SSI units, which have been circulated on January 16, 2008 to all the Banks for implementation.

TABLE 7.15

Overall performance of Small Scale Industry

Year No. of units Production Employment Exports (in million) (at current (at constant (at current prices) prices) prices)

(1993-94)

(Rs.crore) (Rs.crore) (in millions) (US $ in Billions)

2001-02 2.94 4,62,641 3,57,749 16.72 11.96

(5.0) (12.3) (8.4) (4.5) (8.1)

2003-04 3.08 5,20,650 3,85,296 17.16 11.64

(4.8) (12.5) (7.7) (2.6) (-2.7)

2005-06 6.21 5,72,887 4,16,736 17.85 17.51

(4.2) (10.0) (8.2) (4.0) (7.5)

2007-08(E ) 9.37 7,45,496 6,50,450 26.56 24.13

(6.0) (17.7) (15.1) (8.0) (9.0)

Notes :

s in the brackets give percentage growth over previous year.

E :Estimates

BOX 7.6

Developments that have taken place during the year 2007-08 for the SSI Sector

1.The investment limit for units in hosiery and hand tool sub sectors was enhanced from Rs. 5 crore to Rs.10 crore

2. The corpus fund set up under the Credit Guarantee Fund Scheme has been raised to Rs. 200 crore from Rs. 525 crore.

3. Credit Guarantee cover against an aggregate credit of Rs. 52.88 crore was provided.

4. 14 items were dereserved on June 29, 2008 related to leather goods, shoes and toys.

5. A new scheme named Market Development Assistance Scheme was launched exclusively for the SSI sector.

6. Under the Cluster Development Programme, 4 UNIDO assisted projects have been commissioned during the year.

ENVIRONMENTAL ANALYSIS

With a view to meeting the infrastructure needs of the micro, small and medium enterprises (MSMEs) in the state, the government plans to set up exclusive industrial parks for these units in different states.

The proposed industrial parks will come up in major industrial hubs in the state and will have all basic infrastructure facilities like water supply, power, waste management, testing laboratories and other civic amenities.

The locations identified for establishment of these industrial parks include NOIDA in U.P,MOHALI in Punjab,SIDCUL in Uttarakhand, Kalinga Nagar, Barbil, Jharsuguda, Sambalpur, Dhenkanal, Angul, Paradeep, Rourkela, Bragarh, Balasore, Dhamra, Gopalpur, Chhatrapur, Raygada, Kalahandi and Choudwar etc.

The government also intends to set up industrial parks closer to the special economic zones (SEZs). The state-owned Industrial Infrastructure Development Corporation (Idco) has been entrusted with the promotion of the industrial parks, sources said.

It will put in place the required infrastructure for the MSMEs and will also upgrade and maintain the infrastructure facilities in the existing industrial estates and growth centres in association with the user industries.

It may be noted that the new MSME Development Policy adopted by the state government emphasizes infrastructure development to meet the needs of the MSMEs. Besides, it says that 20 per cent of the area in the industrial parks, industrial estates, industrial corridors and land banks will be reserved for MSME units.

The services of the large units are mostly outsourced, which provides ample scope for the growth of the micro and small units. With the mother industry around, the external infrastructure will be automatically developed, and the proposed industrial parks being equipped with all the basic infrastructure facilities, the MSMEs can readily move in and set up their units.

To facilitate the setting up of downstream and ancillary industries in the state, 10 per cent of the total land requirement of the large and mega units, subject to a ceiling of 200 acres, is proposed to be earmarked for such industries. Besides, sector-specific ancillary and downstream industrial parks are proposed to be set up by Idco, preferably in association with the mother plants.

CONCLUSION:

The Cottage and small scale industries constitute a timeless part of the rich cultural Heritage of India. The element of art and craft present in these industries makes it a potential sector for the upper segments of market domestic as well as global. However, the sector is beset with manifold problems such as obsolete technologies, unorganized production system, low productivity, inadequate working capital, conventional product range, weak marketing link, overall stagnation of production and sales and, above all, competition from power loom and mill sector. As a result of effective Government intervention through financial assistance and implementation of various developmental and welfare schemes, the cottage and small scale sector, to some extent, has been able to tide over these disadvantages. Thus, cottage sector forms a precious part of the generational legacy and exemplifies the richness and diversity of our country and the artistry of the weavers.

BIBLIOGRAPHY:

1. texmin.nic.in/annualrep/ar02_c05.

2. apparel.indiamart.com/industry/handlooms/

3. www.hepcindia.com

4. texmin.nic.in/tex_07.htm

5. www.ieport.com/epc.htm

6. www.indiatogether.org/2006/feb/eco-handloom.htm