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IMPACT OF SSIs ON THE GDP OF THE COUNTRY

Abstract: This paper explores the impact of small scale industries on the GDP of the country. Using a data of growth of employment in SSIs and contribution of SSIs on GDP we find a strong and positive association of impact on economic growth .The performance of the small-scale sector has a direct impact on the growth of the overall economy in terms of number of unit, production, employment and exports. It may help to understand its role in the economic development of the country .The small-scale industries sector plays a vital role in the growth of the country. It Keywords: Small Scale Industries, GDP.

contributes almost 40% of the gross industrial value added in the Indian economy. The other arguments in favor of this are making provision for selfemployment and capital formation. Small Scale Industries (SSI) Sector, besides creating employment opportunities for over 300 lakh people, will grow at 11% with its 7.25% contribution to GDP and exports volume touching at Rs.1,35,000 crore by March 31, 2007, according to The Associated Chambers of Commerce and Industry of India (ASSOCHAM).

Introduction Small-scale industries are industries using power with less than 50 employees and those not using power with the employee strength being more than 50 but less than 100. Small Scale Industries may sound small but actually plays a very important part in the overall growth of an economy. Small scale industry sector occupies a place of strategic importance in economic structure due to its considerable contribution in terms of output, exports and employment. Small scale industries play a key in the industrialization and development of a country. This is because they provide

immediate large scale employment comparatively higher capital ratio, they need lower investment, offer a method of ensuring a more equitable distribution of national income and facilitate an effective mobilization of resources, capital and skill which might other wise remain unutilized. In countries like India and China, a large number of goods such as clothes, toys, furniture, edible oil and leather goods are produced by small scale industries. Analysis of the data on SSIs has received different responses from different economists in different studies, right from one of the earliest studies in1961. The performance of the smallscale sector 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, production, employment and exports will help to understand its role in the economic development of the country.

Literature Review There have been a lot of studies that has been undertaken on entrepreneurship and small-scale industries. The major studies focus on the argument over the issue of efficiency in the small-scale industries Dhar and Lydall (1961), Sandesara (1954) in their study have found out that the small scale industries are generating less amount of employment vis--vis large scale industry. These small-scale industries in the modern times have become more capital intensive rather than labour intensive. Biswanath Goldar (1988) in his study on productivity of the small scale sector found out that the SSIs have low labour productivity while capital productivity is very high. But the overall total factor productivity has been less. Goldar in his studies also further emphasized that the SSI should not be relied upon as a source of efficient employment generation. Ramsingha K Asher (1987) showed that the value added by a rupee worth of fixed investment in small factories is at least three times as large as that for a large factory. This has also been supported by a recent study by SIDBI and NCAER (1999). Furthermore, empirical evidence suggests that firm size is not a good predictor of labor intensity, and that
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labor intensity varies more across industries than across firm-size groups within industries. Many small firms are more capital intensive than large firms in the same industry (Little, Mazumdar, Page, 1987; Snodgrass and Biggs, 1996). Empirical evidence shows that large firms offer more stable employment, higher wages and more non-wage benefits than small firms in developed and developing countries, even after controlling for differences in education. Although the Pro-SSI view argues that small firms are more innovative than large firms, the microeconomic evidence is at best inconclusive. Examining U.S. firms, Acs and Audretsch (1987) find that small firms have higher innovation rates in high technology skillintensive. Some of the studies have been undertaken on the factors that are proving a hindrance to growth of these small enterprises promoted by various entrepreneurs. . Many specific macroeconomic policy-induced distortions work against the small-scale sector such as tariff inversion, conservative monetary policy, nonaggressiveness of exchange rates, tight credit , perverse incentives in banks, erroneous Sickness Data, underdeveloped venture capital incentive, reservation etc. Significance Of The Study The limited literature review shows that small-scale industry development is dynamic and a comprehensive one-time study is not possible, which explores the causal relationship among the variables

that help in judging the performance of the small-scale industries for all times. In this study the author have tried to find the causal relationship among the three variables GDP, SSI out put and SSI exports and also the performance of SSIs. Objectives Of The Study The specific objectives of the study are: To evaluate the performance of the small scale industries taking into account the parameters like employment generated, exports, number of units and productivity per employee. To test the bi-directional causal relationship between exports of SSI with GDP, and total output in SSI with GDP. Policies for SSIs In order to protect, support and promote small enterprises as also to help them become self-supporting, a number of protective and promotional measures have been undertaken by the Government. technical consultancy & financial assistance for technological upgradation. supply of machinery on hirepurchase terms, special incentive for setting up enterprises in backward areas etc. Advantages Of The SSIs One of the major advantages of small businesses is that the investment for running the business is not a major issue.
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Another advantage of small businesses is that it is very easy to record business transactions. Data and Methodology The study is based on the data on number of units, total production, productivity per employee, small scale exports and GDP compiled from the secondary sources. The study is based on the data available for evaluation of Small Scale Industries. A. Variables: Units (in Lakhs) of smallscale industries as defined from time to time, Production (Rs. Crores) at current prices, Employment (Lakh Nos.), Production per employee (Rs. in thousand), SSI Exports at current prices (Rs. Crores). B. Data: In a Study on SSI Impact on economy it has been projected that its total production at current prices will rise to Rs. 540000 crore by end of current fiscal against last fiscal production worth of Rs. 470966 crore. The Study also projects that the number of small scale units across the country will rise to about 129 lakh by March 31, 2007 against their number of 123.4 lakh in 2005-06. The reason for this is that since the economy has been growing at over 8% growth rate, it is natural that SSI sector will be witnessing a boom in terms of its unit growth to meet the growing demand of industrial sector. According to Study, the contribution of SSI sector to national GDP during 2005-06 stood at 6.80%, its

contribution to overall industrial production was 39.5% in the same period against the projected level of 7.25% and 41.10% respectively by March 31, 2007 in view of acceleration in economic activities for which most of the industrial inputs will be supplied to manufacturers by SSI sector in the remaining period of current fiscal. The growth rate of SSI sector stood at 10.01% compared to growth rate of overall industrial sector at 8.6% in fiscal 2005-06 which will grow at 11% and 9.5% towards the end of the current fiscal.

The reason as brought out in the Study for SSI sectors higher contribution to GDP, overall industrial production and for its higher growth as well as its still higher contribution to industrial sector comprise largely because of increased economic activities for which the inputs would be provided by small scale sector in the future and this fiscal also. Secondly, the SSI sector as a result of cut throat competition has already ushered in technological innovations in their manufacturing units with bringing in new and latest technologies which will naturally enlarge their contribution not only to domestic GDP, overall industrial production but also to exports.

The total production of SSI sector and its exports will rise to the level of Rs.54,000 crore and Rs.1,35,200 crore by March 31, 2007. In 2005-06, the SSI sector produced goods and services that were measured at Rs.470966 crore with its total exports was estimated at Rs. 1,24,416 crore. The employment figure estimated for SSI sector for current fiscal is estimated at 305 lakh by end of current fiscal. It may be mentioned here that the SSI sector provided employment opportunities both direct and indirect to 295.2 lakh people in fiscal 2005-06 and their exports volumes was estimated at 1,24,416 crore.
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Disadvantages Of The SSIs It requires tremendous marketing and the planning and implementation of proper strategies. A disadvantage of small businesses is the non-payment of loans or grants undertaken by the business owner, when he is not capable of running a business properly. Limitations of the study Insufficient database for small-scale industry is one of the major limitations of the study. The data are not available for all the years. Conclusion From the above study it can be found that the annual average growth rate of different parameters of SSIs have increasing. The production, employment, Exports and GDP rate in SSI has increased. But large number of sick SSI units shows the worry performance of SSI sectors. The emergence of the new sectors like information technology, services is expected to bring a lot of changes in the small scale sector.

At the end of March 2000, the total number of sick SSI was numbered at 3,04,233 lakh and the potential SSI was mere 14,373 with loan outstanding of Rs.4,608.43 crore and Rs.369.43 crore respectively. In 2004, sick SSI units was 1,38,811 lakh with potential SSI units of 2,385 only with loan outstanding of Rs. 5,284.54 and Rs. 421.18. This shows the worry performance of SSI sector in the era of globalisation which is lagging behind with other industrial sectors.

Bibliography

Dhar, P.N. and Lydal, H.F.(1961), Role of small enterprises in economic development, New Delhi. http://www.assocham.org http:// www.smallbusinessbible.org Goldar, Biswanath (1993), Employment Growth in modern small scale industries in India,Journal of Indian School of political economy, Vol V, no. 4. Sandesara, J.C.(1981), The small Industry Questions: Issues, Evidence and Evidence and Suggestions, Published in Bagchi, A.K. and Banarjee (eds) Change and Choice in Industry.