12 Main Problems Faced by Small Scale Industry in India are described below:
Problems of SSI:
(1) Finance and Credit
(2) Underutilization of Capacity
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(3) Production and Marketing
(4) Inadequate and Incomplete
(5) Machine and Equipment Production of Raw Material
(6) Inefficient Management
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(7) Power Production not Normal
(8) Slow Responsiveness or Production Pattern
(9) Burden of Excessive Tax
(10) Competition from Large Scale Industries
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(11) Poor Transport Facilities
(12) Technology in Many Cases not up to Date.
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Scarcity of finance and credit is main obstacle in the development of small scale industries and situation is worse in the case of cottage and village industries.
According to the Nayak Committee Report, the small scale sector was getting working capital only to the extent of 8.1 percent of its annual output as against the normative requirement of 20 percent.
As per a report of the RBI, out of 40 percent earmarked for priority sector lending; only 15 percent is being funded to SSIs. The internal capabilities of SSIs in financial management are comparatively weak and support for overcoming this weakness is inadequate. The banker is still seen as an inquisitor and not as a development partner.
S.L. Kapoor committee has given some important recommendations for their development-like
i. give more power to branch manager of Banks to grant loan,
ii. simplification of forms-strengthening of recovery mechanism
iii. opening of more specialised SSI branch etc.
a. Most of the SSI units are underutilized. This may be due to lack of raw materials, or power shortage or managerial problem etc. By one estimate in SSI 50% capacity are not utilised.
b. Poor quality and high production cost leads to competitive disadvantage vis-a-vis large scale units, although State Trading Corporation and Trade Development Authority help SSI to find market.
c. Improved technology leads to productive efficiency but the technological base of small units is weak. There is also no clear idea yet of the technology absorptive capacity of small units. The inability of rural enterprises to adopt to the changing market conditions has quite often proved detrimental to rural industrialisation.
d. Marketing continues to be a major problem facing small units. As most of the units are in the unorganised sector, they do not pay proper attention to technological up gradation and quality control—control measures. Marketing becomes a big problem when big units to start producing products like soap which can easily be produced in the small scale sector.
b. Together with this export financial mechanism is not fully in place. The establishment and enlargement of pre and post shipment credit facilities, export credit guarantees, insurance and exchange rate cover can help improve the competitiveness of small firms.
a. Majority of SSI and cottage industries depends on local raw materials e.g. cotton, tobacco etc. but in many modern SSI raw material constraints are due to foreign exchange and import policy.
b. Lack of proper database creates difficulties in devising suitable policy for development of SSI.
c. Burden of excessive laws, inspections and taxes also creates problems for SSI. Even today, the single man units are subject to a minimum of 37 inspections, 52 laws and 116 forms and registers.
d. The conservative and selfish policy of some SSI units also acts as an obstacle in the overall development of this sector. The various fiscal incentives offered to the small scale sector are often misused. Though these incentives are offered with good intention, they produce negative results. For instance, in order to enjoy incentives, some units refused to grow and remained “small”.
The Seventh Plan also highlighted number of constraints in the development of SSI and cottage industries. These are:
i. Inadequate and irregular supply of raw material.
ii. Imperfect knowledge of market condition
iii. Unorganised nature of operation
iv. Infrastructure constraints e.g. power
v. Lack of managerial skill.
vi. Lack of organised market
vii. Lack of effective coordination among various supporting organisation.
All these led skewed cost structure keeping SSI on disadvantageous position as compared to large scale in both domestic and international market.