The support system for small scale industries in India is exceptionally comprehensive. Most of these companies belong to the Central Government, while the rest fall under the state governments. The small scale industry sector output is known to contribute at least 40% of the gross industrial value-added, 45% of the total exports from India (both direct and indirect exports). It is the second-largest employer of human resources right after agriculture. The development of small business units and the future has thus been assigned an essential role in India’s national plans.
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Government Assistance to Small Scale Industries
The overall contribution of small industries and businesses to the Indian economy is clearly boundless. They not only build wealth and employment but are also a huge source of social development. In reality, so great is their significance that there is a special ministry dedicated to micro, small and medium industries. Here, the whole concept of government assistance to small industries is explained in a comprehensive way.
Government Assistance to Small Industries and Small Business Units
The Indian government has been continuously supporting and enhancing small unit sectors in multiple ways. India is focusing on rural industries and cottage sectors. In layman’s language, a small business is a project or venture that needs a small budget or is directed by a small group of people.
Both the central and state government have been highlighting self-employment opportunities in rural industries by offering assistance and support in financing in regards to loans, training in regards to programs, raw materials, infrastructure and technology.
The central aim of the government assistance to small industries and small business units is to use the local workforce and locally available resources that are later transformed into action by agencies, provincial departments and corporations, etc.
Government Assistance to Small Industries
In order to support, promote and protect small businesses and help them become self-supporting, numerous protective and promotional measures have been introduced by the Indian government.
National Bank for Agriculture and Rural Development (NABARD): It was introduced by the government in 1982 to offer action and promote the rural industries in the best possible way. The plan has adopted multi-purpose strategies to promote rural business in India. It supports small industries, rural industries and artisans, cottage industries and agriculture. Also, it elevates training, counselling, along with development programmes for rural entrepreneurs.
A Rural Small Business Development Centre (RSBDC): It is a government centre sponsored by NABARD for micro, small and medium businesses which are set up by world organizations. The major aim of RSBDC is to work for financially and socially disadvantaged people and groups. The plan does numerous programmes on skill upgradation, awareness, entrepreneurship, training and counselling. Such programmes encourage several unemployed youth and young women to learn various trades and introduce them to other good advantages from it.
Direct Industries Centres (DICs): It was established in May 1978 to offer a ‘focal point’ for the development of small industries. The primary objective to set up these centres was to evolve modern small scale units and offer institutional set up for traditional cottage sectors. The DICs schemes were supposed to provide for all the services and support at pre-investment and post-investment stages like assistance on raw materials, marketing, credit, training and a lot more. These centres act as an intermediate party among the developmental blocs and well-specialized institutions and small scale enterprises.
National Small Industries Corporation (NSIC): It was established in 1995 by the government to expand and support small businesses emphasizing on commercial factors. The vital functions of NSIC are as follows:
Supply imported goods and machines on the hire purchase agreement.
Evolving small businesses by importing their items.
Procurement of supply imported indigenous raw materials.
Create awareness of technical upgradation.
Also, a new scheme known as performance and credit rating for small units has been introduced by NSIC. It ensures that the more their credit rating, the more their financial assistance for their investment and capital needs.
Small Industries Development Bank of India (SIDBI): It is a leading government bank to offer direct and indirect financial assistance and support under multiple schemes to meet all the credit needs of numerous small businesses.
The National Commission for Enterprises in the Unorganized Sector (NCEUS): NCEUS was created in September 2004 by the government with the following goals:
Strategies to boost the productivity of small industries in the informal sector.
Forming links between small sector and finance, raw materials, infrastructure, technology, etc.
To build public and private partnerships for engagement in transmitting skills for the informal sector.
Offering microfinance for the informal sector.
Offering social security for the informal sector.
To introduce competition among small scale industries in a global environment.
Rural and Women Entrepreneurship Development (RWED): It is a government based organization that focuses on increasing the business environment for women and offering support for women’s business approaches and initiatives. It also provides a manual for training in entrepreneurship and renders advisory services.
Small Business Units and the Future
Today, the government of India also focuses more on the economic and industrial development of various areas in India like backward, tribal and hilly. There are committees established for government assistance to small industries and small business units. Moreover, small industries are adapting to the changing requirements of the market-driven economy. So, the government should explore new strategies that motivate partnership between small and large industries.
FAQs on Government Assistance for Small Industries and Future Prospects
1. What are the main types of government assistance provided to small scale industries in India?
The government provides multifaceted assistance to support small scale industries in India, which can be broadly categorised as follows:
- Financial Assistance: Providing funds through loans and credit schemes from specialised banks like SIDBI to meet capital and operational needs.
- Technical and Infrastructural Support: Offering access to modern technology, machinery on hire-purchase, and space in developed industrial estates.
- Raw Material Supply: Ensuring the availability of essential raw materials, both indigenous and imported, through agencies like the National Small Industries Corporation (NSIC).
- Marketing Support: Helping small businesses market and sell their products, including assistance for participating in trade fairs and exporting goods.
- Training and Skill Development: Conducting entrepreneurship development programs to enhance managerial and technical skills.
2. Which key government institutions are responsible for supporting small industries?
Several specialised institutions have been established by the Government of India to promote and support small industries. The primary ones include:
- National Bank for Agriculture and Rural Development (NABARD): Focuses on promoting rural industries, artisans, and cottage industries.
- National Small Industries Corporation (NSIC): Aims to aid, counsel, and foster the growth of micro, small, and medium enterprises with a focus on commercial aspects.
- Small Industries Development Bank of India (SIDBI): Serves as the principal financial institution that provides direct and indirect credit to small businesses.
- District Industries Centres (DICs): Established to provide a single window for all services and support required by entrepreneurs at the district level.
3. What are the common challenges faced by small scale industries that necessitate government support?
Small scale industries often face significant challenges that hinder their growth and competitiveness, making government support essential. Key issues include:
- Inadequate Finance: Difficulty in securing sufficient long-term capital and working capital.
- Shortage of Raw Materials: Lack of access to quality raw materials at competitive prices.
- Lack of Marketing Support: Inability to compete with large corporations in branding, advertising, and distribution.
- Outdated Technology: Limited capacity to research and invest in modernising production processes.
- Managerial Incompetence: Lack of professional management skills in areas like finance, marketing, and operations.
4. Why are government incentives considered crucial for the growth and protection of small scale industries?
Incentives are vital as they act as a powerful motivator for entrepreneurs. For small scale industries, they serve two main purposes. Firstly, they encourage growth by reducing financial burdens through tax benefits and subsidies, which promotes investment in new technology and skills. Secondly, they protect these businesses from the intense competition posed by large-scale industries, ensuring a more level playing field and fostering balanced regional development across the country.
5. How do the roles of NABARD and SIDBI differ in their approach to supporting small businesses?
While both institutions support small businesses, their primary focus areas differ significantly. NABARD (National Bank for Agriculture and Rural Development) concentrates on promoting and financing development in rural areas, including cottage industries, artisans, and agriculture-based small enterprises. In contrast, SIDBI (Small Industries Development Bank of India) is the principal financial institution for the overall promotion, financing, and development of the entire MSME sector, offering a wider range of credit schemes that are not limited to a rural context.
6. How does the government's focus on rural and women entrepreneurship contribute to national development?
The government's focus on rural and women entrepreneurship is a strategic move for inclusive economic growth. By promoting ventures in rural areas through bodies like NABARD and District Industries Centres, it helps utilise local resources and create local employment, reducing migration to urban centres. Specialised organisations like the Rural and Women Entrepreneurship Development (RWED) aim to create a supportive business environment for women, which helps in unlocking their potential, integrating them into the economic mainstream, and thus diversifying the nation's entrepreneurial base.
7. What are the future prospects for small industries, and how is government strategy evolving to meet new challenges?
The future for small industries is geared towards greater integration with the global economy and enhancing competitiveness. Government strategy is evolving from pure protectionism to promoting self-sufficiency and resilience. This adaptive strategy includes:
- Encouraging partnerships between small and large industries for mutual benefit.
- Promoting technology upgrades and innovation to meet market demands.
- Improving access to credit based on performance and credit rating systems.
- Focusing on developing industries in backward, tribal, and hilly areas to ensure balanced growth.
