Small Business in India

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Small Scale Industry (SSI)

In layman’s language, a small scale business can be called as a project or venture which involves a small budget or is run by a small group of people. According to the definition provided by the government website for business,, a small scale industry (SSI) is a business setup in which the financial commitment towards infrastructure such as building & equipment, whether made as an owner or on rental or purchase basis, does not surpass Rs. 1 Crore. However, this investment cap is subject to change by the Government of India anytime.

New Definition for MSME approved by the Government in 2018

  • Micro enterprise are those Business with revenue up to Rs 5 Crore
  • Small Enterprise are those Business with Revenue from Rs 5 crore to Rs 75 Crore
  • Medium enterprise constitutes Business with revenue from Rs 75 crore to Rs 25o crore
A proposal to redefine the micro, small and medium entreprises in India has been approved by the government of India. The new categorization will be based on the annual revenue and will replace the current definition that relies on the investment in plant and machinery.

This is expected to improve the ease of doing business and void unncessary inspections by authorities. With the introduction of GST, the sales data can be pulled from GST network.

Other steps taken in growing MSME growth include

  • cut in corporate tax rate from 30% to 25%
  • Increase the repayment period of loans by MSME from 90 days to 180 days

Government Rules and Regulations for Small Scale Industries

As per the rules of the government, you need not procure a license either from the state or central government to set up a small business venture anywhere in India. Nor, you need to register your small business.

However, registering your small scale business with the State Directorate or Commissioner of Industries or DIC's will make it easier for you to apply for financial assistance from the government bodies such as the Department of Industries. Nowadays, State Financial Corporations and other commercial banks disburse medium to long term SME loans, too. The National Small Industries Corporation is also a government body which assists the small business owners in availing financial assistance machinery on hire-purchase basis.

Government has also eased the rules and regulations to avail the benefits of schemes such as capital subsidy reduced custom duty on selected items, credit guarantee scheme, various state government benefits and ISO-9000 certification reimbursement and furthermore, you need not register your small unit to avail all these.

Sector wise Growth of Small Businesses in India

We can have an overview of how small scale industries are growing sector wise by the figures of employment generated by those sectors. Food products industry comes on top in terms of employment generation, providing jobs to nearly 5 lakh people. The second rank goes to non-metallic mineral products which created 4.5 lakh jobs and metal products industry is ranked three with an employment of 3.75 lakh people.

It is followed by small businesses of wood products, basic metal industries, chemicals & chemical products, machinery parts, hosiery & garments units, repair services, paper products & printing industry, and rubber & plastic products, with a contribution in employment generation of anywhere between 10% and 5%.

Therefore the total contribution in employment generation by the above mentioned sectors was around 50%. The rest of the small scale businesses had a less than 5% part in the total employment creation.

Government Policies to Promote SME Sectors

Government is striving hard to promote smaller scale industries by announcing different promotional schemes. The first and foremost step of the government in the direction of providing financial benefits was to announce tax concessions and certain exemptions on indirect taxes. As a matter of fact, there were many sick units, where more funds were to be injected and they needed rehabilitation.

The Reserve Bank of India formed a committee in the year 2000, headed by the chairman of Indian Banks Association to handle the issue of rehabilitation of sick small scale units. This committee also undertook the task of providing assistance in marketing through National Small Industries Corporation by providing an umbrella brand; encouraging top quality standards and ISO 9000 certification and setting up Technology Up-gradation Funds.

The government also emphasized on paving the way for greater cooperation between the Industry and the Government. Government also asked the small business owners, to pool their resources with that of the government-resources and to create strong partnerships in R&D to sustain the global challenge.

A new initiative was taken by the government to help ease the central and state industrial laws for small scale industries to boost entrepreneurship and reduce red tape. A body under the cabinet secretary was formed to execute this task.

The Marketing Development Assistance (MDA) was established to help SSI in 2001. The Purchase Preference Scheme was launched to provide priority to small business units during departmental purchases of the government. According to latest news, Indian government agencies such as the Small Industries Development Bank of India and International Finance Corporation are planning to set up venture capital funds comprising of a whopping $1.4 billion fund for the small scale sector.

In a latest development, the government is working upon to increase the loan amount to be provided to the SSI to Rs. 25 lakhs under the Credit Guarantee Fund for Small Industries (CGFSI). The investment cap is also being extended to Rs. 5 crore from the existing Rs. 1 crore for four businesses viz. auto components, hosiery, hand tools, and granites. Government is also considering to raise this investment cap to some hi-tech and export oriented industries up to Rs. 5 crore in the wake of growing challenges faced by these industries.

Last Updated on 02/08/2018