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Home >> Government Policies >> Framework

Small Industry Policy Framework

The foundation of SSI policy was laid in the Second Five Year Plan. The 1956 industrial policy chose equity as the guiding principle for SSI development. It said: "Small-scale industries provide immediate large-scale employment, offer a method of ensuring a more equitable distribution of national income and facilitate an effective mobilisation of resources of capital and skill which might otherwise remain unutilised".

A brief overview of the Small Industry Policy since 1991 is given below:

1991 policy reforms

The Industrial Policy of 1991 was accompanied by a special Policy Statement for Small Scale Industries whose main features were:

  • To impart greater vitality and growth to the sector, it would be deregulated and debureacratised.
  • Modifications in all statements, regulations and procedures to ensure they do not go against the interest for small and village enterprises.
  • Separate package for promoting tiny units and recognition of all industry-related service and business enterprises except for specified target groups to ensure adequate flow of credit on normative basis.
  • To provide access to capital markets by allowing 24 per cent equity participation by other industrial undertakings
  • Legislation to ensure prompt payment of bills and legislation for Limited Partnership Act.
  • Introduction of a new scheme of Integrated Infrastructural Development to promote industrialisation in rural and backward areas.
  • Stress on technology upgradation by setting up a technology Development Cell and strengthening the facilities available with SIDO, and enforcement of quality control.
  • Promotion of exports by setting up Export Development Centre.
  • Change in definition of women's enterprises and support to women entrepreneurs
  • Significant expansion in programmes for entrepreneurship.

Union Budget 98-99 Policy Highlights

  • Working Capital limit for SSIs doubled from Rs 2 crores to Rs 4 crores
  • RBI to advise banks to accord SSI units with good track record, the benefit of lower spreads over prime lending rate
  • Banks to modify their credit appraisal systems
  • Delinking of SIDBI from IDBI and IDBI shareholding in SFCs to be transferred to SIDBI
  • RBI to strengthen existing mechanism available to SSI for discounting of Bills
  • RBI to modify its guideline to Commercial banks on credit appraisal to give greater weight to the amount of overdue outstanding that the large units have in respect of SSI supplier
  • Ministry of Industry to bring about amendments in the Interest on Delayed Payments to Small Scale and Ancillary Industry Undertaking Act 1993 to make the existing legislation more effective.
  • Increase in Central Excise exemption limit from Rs30 lakhs to Rs 50 lakhs
  • Units having value of clearances between 50-100 lakhs, to pay 5% flat rate of duty
  • Restrict availability of Modvat credit by 5% of duty paid in case of inputs used in the manufacture of excisable goods. No restriction is placed on Modvat credit in respect of capital goods.
  • Changes in the Administration of Central Excise to curtail Inspector Raj
  • States to review their existing laws & regulations. Carry inspection in the least burdensome manner
  • Introduction of Single one page tax payer friendly Return Form to all non-corporate tax payers called "SARAL"
  • Dereservation of farm implements from small scale production on the grounds that farmers should have access to cheaper, better quality implements.

Union Budget 1999-2000 Policy Highlights

Tiny Sector

  • Stress on Credit to Microenterprises by SIDBI & NABARD.
  • Rural Industrialisation by formation of 100 Rural Clusters spread evenly across the country.
  • Marketing of their products through joint efforts of SIDO, Laghu Udyog Boards etc.

Administrative Reforms

  • Relaxation of the Labour laws through the review of the Industrial Development Regulation Act.

Finance / Banking

  • Easing the flow of Credit by enhancing the limit of the Composite loan (Rs 2 lacs to Rs 5 lacs) scheme of SIDBI and other Commercial Banks.
  • Enhancing the Computation limit for Working capital requirements on basis of the Nayak Committee recommendations from Rs 4 crore to Rs 5 crores.
  • Introduction of the Credit Insurance Scheme to facilitate credit specifically to the Export Oriented Units.
  • Increase in the number of the Specialised SSI bank branches and their restructuring in terms of more powers to the branch managers as well as simplification of procedures for credit appraisal.

Sickness in the Small sector

  • Establishment of 8 Debt Recovery Tribunals (DRTs) and the formation of Settlement Advisory Committee.

Excise Duty

  • Restoration of the 100% Modvat credit.
  • Reduction in the Multiplicity of the existing rate structure to three Advalorem rates i.e. 8 %, 16% & 24%.
  • Sectoral Extension of the Excise exemption to specific industries e.g Cotton Yarn & Refrigeration etc.
  • Extension of the Excise Duty concessions to the units producing goods to be marketed under different Brand names.
  • Payment of Excise Duty on a monthly basis to improve the liquidity position.
  • Doing away with the maintenance of specific Excise records in cases of the Small units paying excise duty above Rs 5 crores.

Widening of Priority sector Lending

  • Inclusion of Food and Agro-processing industries.
  • Inclusion of other lines of credit by the Banks to FIs etc.