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A STUDY OF PROBLEMS
OF SMALL SCALE
INDUSTRIES IN
JALGAON DISTRICT

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CHAPTER 1

 INTRODUCTION

1.1 Background

1.2 Review of Literature

1.3 Significance of the Study

1.4 Limitations of the Study

1.5 Organization of the Thesis

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Chapter 1:
Introduction

1.1 BACKGROUND

Industrialization is one of the best ways of economic development. Small scale sector

contributes significantly in industrialization. Small scale industries have emerged as a

dynamic and vibrant sector in many underdeveloped as well as developing countries. This

sector has played a vital role to change our economy. As an important segment of the

Indian economy, SSI sector enjoys the pride of being one of the largest employer in the

country. This sector is widely dispersed throughout the country and produce a diverse

range of products catering to various segments of the market. The geographic spread,

diverse product range and potential for innovation and employment generation make

them extremely important in the context of economic growth with equity and regional

balance.1 The sector serves a Greenfield for the nurturing of entrepreneurial talent.

Recognizing the important role that small industries play in the national economy,

Central and State Governments have taken active steps to promote and foster their

growth. These measures have been particularly effective, but many of the problems of

production, distribution and finance etc. are still continue. 2 The SSIs all over the world

have undergone through tremendous changes in respect of structure, performance,

policies etc. Indian SSIs are also going through this phase of change and development. As

a sequence of liberalization, privatization and globalization (LPG) process, growth of

large scale and multinational companies have caused many difficulties in smooth running

of SSIs and remained as major threats to their survival. To adjust with the rapidly

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changing economic phase, SSIs have to change themselves thoroughly. The challenges of

changing economic scenario to SSIs are investigated in this research study. To find out

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solutions to the problems that are likely to arise with developing economic process and

search opportunities form the basis of the present study.

1.2 REVIEW OF LITERATURE

Reviewing literature refers to a way of developing a proper understanding of the research

problem.3 In the early literature on economic growth and development, industrialization

as a source of employment and capital accumulation has been recognized by various

economists. For the first time Keynes (1936)4 focused attention on the forces that

determine employment policy followed in industrialization. Researcher propounded the

theory that entrepreneurs will offer the amount of employment which maximizes their

output and profit and stressed the productivity of labour as the determining factor of the

level of employment. There is a positive relationship among productivity of labour,

output and employment. According to Keynes, “Employment can only increase pari-pasu

with an increase in investment”. Lewis (1954)5 has strongly advocated the application of

labour intensive techniques of production to have a steady and smooth economic growth.

According to the Village and Small scale Industries Committee Report (1955) 6, popularly

known as Karve Committee Report, establishments of small scale and village industries

will provide employment to unemployed and underemployed groups. Village and small

industries in their different aspects are an integral and continuing element both in the

economic structure and in the scheme of national planning.

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The National Committee on Science and Technology report on Khadi and Village

Industries (1975)7 gave a gloomy picture of these industries as a source of employment in

industrialization. The report shows that the “compounded rates of growth of employment in these

industries, as compared to growth of output, are very meager”. Ruddar Datt and

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Sundaram (1979)8 strongly advocated the small scale and household enterprises as an

important component of an industrialization. Researchers found that employment-output

ratio is the lowest in the small scale sector while that employment generation capacity is

eight times higher than that of large sectors. Desai (1983) 9 also stated that rapid

industrialization in India depends on the growth of small scale industries. Most of the

small scale industries are operating under certain handicaps like shortage of raw

materials, low levels of technical knowledge and counseling, poor infrastructure,

`inadequate capital and credit facilities, improper distribution system, lack of facilities for

market analysis, research and development.

In the context of globalization it is important to examine the need for Government

intervention when information and technology have become two important instruments

for growth and productive efficiency and Small Scale Industries don’t have same degree

of access to these as large firms. It may be then crucial for Government to play an

important role to provide information and encourage small industries to go for flexible

specialization (instead of mass production) type of technology (Nanjudan 1994) 10,

collective efficiency emphasizing horizontal linkages along with vertical linkages needs

to be encouraged to promote small sector in India. At the same time, it is important to

consider whether the Government policies should encourage the growth in the number of

small units which are seen to be performing better than larger scale industries in terms of

productivity and employment or larger small scale industries should be encouraged

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within this framework. It is also important to ensure that the traditional industries do not

die considering their high employment and export potential (Garg Oct.96)11.

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To counter the competition in the long run and to be economically viable, the small scale

sector needs to improve its productivity and quality, reduce costs (given the higher

qualities) and innovate. Government policy should promote the small scale sector by

helping them to increase their efficiency and competitiveness within a market driven

economy. For this it is essential that it no longer follows of protectionary stage, as that

has already been shown to be harmful to the sector (Arti Singh).12

Sickness in the small scale sector is a matter of great concern in India. Sickness or

financial distress results in lacking of resources, wastage of capital assets and loss of

production in addition to affecting the circulation of loan and credit. A number of causes

have been attributed to sickness in SSI units in India such as faulty planning,

management inefficiencies, inadequacy of working capital. (Bhati, 2002) 13 The

performance of SSI sector in India can be analyzed based on the economic rationale for

intervention by the government in support of small and medium scale enterprises. It also

draw attention to the importance of evaluating the impact of interventions on institutional

performance, market development & ultimately SME competitiveness (Halberg, 2000).14

Government of India has taken various initiatives to make this sector more vibrant and

significant player in development of the Indian economy. The definition and coverage of

the MSME sector was broadened by ‘MSME Development Act, 2006’ which recognized

concept of 'enterprise' to include both manufacturing and service sectors.

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Small and Medium Enterprises (SMEs) contribute to economic development in various ways such as

creating employment opportunities for rural and urban population, providing goods & services at

affordable costs by offering innovative solutions and sustainable development to the economy as a whole.

SMEs in India face a number of

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problems - absence of adequate and timely banking finance, non-availability of suitable

technology, ineffective marketing due to limited resources and non-availability of skilled

manpower. Small and Medium Enterprises (SME) play an important role in the

development of a country. There are around 26 million MSME units in India, of which 13

million are SMEs. SMEs contribute nearly 45% share of manufactured output,

accounting for 40% in overall exports of the country and providing employment to about

32 million people. The Micro, Small and Medium Enterprises (MSME) sector contributes

significantly to manufacturing output, employment and exports of the country. (Nagraja

Murthy)15

Executive summary of the report of the Task Force on Micro, Small and Medium

Enterprises stated that the MSME sector contributes 8 percent of the country’s GDP, 45

percent of the manufactured output and 40 percent of its exports. The MSMEs provide

employment to about 60 million persons through 26 million enterprises. The labour to

capital ratio in MSMEs and the overall growth in the MSME sector is much higher than

in the large industries. The geographic distribution of the MSMEs is also more even. The

MSME sector in India is highly heterogeneous in terms of the size if the enterprises,

variety of the products and services produced and the levels of technology employed.

While one end of the MSME spectrum contains highly innovative and high growth

enterprises, more than 94 percent of MSMEs are unregistered, with a large number

established in the informal or unorganized sector. Besides the growth potential of the

sector and its critical role in the manufacturing and value chains, the heterogeneity and

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the unorganized nature of the Indian MSMEs are important aspects that need to be

factored into policy making and programme implementation.16

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P. R. Morakar (Jan. 2012)17 has observed in the study region that the skilled labours have

replaced the technical labours. The industrial policy 2003 is not oriented towards the

prospering of such units due to the lack of geographical aspects. Therefore, the study has

suggested the effective planning strategy for development of SSI units to be prepared and

executed. The Small Scale Industries are not free from challenges as the policies of

deregulation and de-reservation have resulted into increased competition for the MSME

sector. Due to the globalization the labour force has changed tremendously and paved the

way for getting avenues according to their skills and it has helped to improve the life

style. A recurrent opinion in industry and policy making bodies is that there is lack of

skilled labour to cater the need to meet the demand of the product. Hence, there are a lot

of opportunities for skilled work. The definition of small scale industries are changing its

central idea and have been shaped in the planning period. Since then it was maintained

till the year 2006. These units have been merged with “Micro, small and Medium

Enterprises” (MSME). The act clearly divided into two categories of industries; one is

enterprises engaged in manufacturing of goods pertaining to any industry and another is

enterprises engaged in providing or rendering of services.

Soni Anita (Aug. 2012) 18 concluded that small scale industries in India are facing great

threats and competition due to liberalized policies. The robust and vibrant small scale

industries sector (now MSE) can derive benefits of the new opportunities provided by the

supporting policies which aim not only to protect but also to promote this segment. This

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step towards dereservation by the Government is definitely a positive step as it has not

proved to benefit much.

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1.3 SIGNIFICANCE OF THE STUDY

Small scale industries are considered as the backbone of the economy of any nation and

especially of developing countries like India. They play a strategic role in the progress of

the country. The last decade of the last century has witnessed rapid economic changes.

The whole world is going to shrink into a global village. Liberalization, privatization and

globalization have been introduced in India. Now our economy is facing a challenge of

economic growth. It has to accelerate the productivity of many important areas. SSIs

have been assigned to fulfill these expectations in more economic and diversified way.19

In this changing climate, it is the general belief that the SSI sector in India which has

been playing a significant role in terms of exports, output and employment creation has

remained relatively oblivious to these changes. It has managed to survive so far due to

protected environment, priority sector lending, fiscal exemptions or concessions etc. But

such protections cannot continue and be fruitful for long.

Therefore there is a growing fear that SSI units will be swamped in the current changing

scenario and many units may also have to wind up their units due to growing global

competition. These fear raise major questions not only for the SSI unit owners but for the

whole economy also. Small units in India need to find out a way which can take it from

local to global. But it seems quite difficult.

This research is an effect in the direction to address the above question which can help to

enhance global competitiveness of the small scale industries in India.

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Jalgaon district is one of the rich region for available resources but industrially on back

foot in our country. It has a large potential for industrial development. But still very few

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industries are well established here. The region was not able to attract much of the

foreign investment. Hence the researcher thought that it is important to find out the

reasons for the backwardness. The process of liberalization, privatization and

globalization, while providing tremendous opportunities, has thrown up new challenges

for the Indian small scale industrial sector. This sector is nurtured in India in a sort of

protective environment. With industrial globalization, it now finds itself difficult to cope

up with cross-border enterprise activities such as free international movement of goods,

investment, strategic alliances for product development, production and marketing.

Therefore in this global scenario, it is required that small scale sector has to find a place

for itself in the domestic as well as international market. Eventually the stronger SSIs

with upgraded technology, marketing and quality etc. will come out successful whereas

the weak and defenceless are likely to suffer.20

This study aims at finding the problems of SSI units and developing the suitable

strategies, suggesting solutions for their growth and development. Hence it is worth

mentioning that the study can be helpful to the SSI unit owners in the Jalgaon district in

particular and in India in general. It is helpful to the various Government and Non-

Government organizations which are established for the development of SSI sector. It can

serve as a guideline to the various industry associations in the country.

1.4 LIMITATIONS OF THE STUDY

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The present study includes the registered small scale industries and does not include

unregistered units. In addition some type of industries are considered under one head for

convenience. Though necessary precautions are taken to minimize individual perception

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and personal bias while interviewing the respondents, a certain degree of bias is likely to

prevail.

1.5 ORGANIZATION OF THE THESIS

The study on Problems of Small Scale Industries in Jalgaon District is divided in nine

chapters. The first chapter gives the introduction about the research topic, motivation of

the study, review of literature, significance and limitations of the study.

The second chapter covers profile of Jalgaon district which includes introduction of the

district. It also explains topography, location, population, infrastructure facilities and

industrial development in the district.

The third chapter covers the main objectives of the research work, hypothesis

formulated, methodology of the research, sources of data, preparation of questionnaire,

statistical tools and techniques used for data analysis and study of hypothesis, limitations

of the research work.

The fourth chapter discusses about the definition, concept and importance of small scale

industries. It also focuses on the status of SSIs in India, Maharashtra and Jalgaon district.

It discusses about comparative growth and performance of SSIs.

The fifth chapter presents information of government policies, initiatives taken by

Government and institutional support system for the growth and development of SSIs in

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India. This chapter touches on the provisions for providing support to small units in

industrial policy resolutions.

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Chapter 1: Introduction

In the sixth chapter of this thesis the researcher has analyzed the collected data and

interpretation of data is presented in tabular form. Corresponding graphs are given with

interpretation of data.

The seventh chapter explains in depth the results and findings of the study obtained after

analysis and interpretation of the survey samples. This chapter highlights the SWOT

analysis of SSIs. It has the explanation that how objectives are achieved and validation of

hypotheses is done.

The eighth chapter of this thesis presents conclusions from the research work and the

further scope for research.

The ninth chapter is devoted for suggestions and recommendations based on the

statistical analysis and interpretation of the data collected from the survey samples.

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SUGGESTIONS AND RECOMMENDATIONS

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Chapter 9: Suggestions And Recommendations

SUGGESTIONS AND RECOMMENDATIONS

The researcher has made some observations on the basis of responses collected from SSI

unit owners in Jalgaon district through field surveys and interviews. Generalized

observations and suggestions are made by the researcher considering all the categories of

SSI units covered by the researcher in her survey. Suggestions and recommendations

summarized with reference to the conclusions and based on the findings are listed below:

 SUGGESTIONS

Suggestions to SSI unit owners:


1. The researcher has keen observation that many SSI units are not ready to change. They

think traditionally. Absence of strong willpower do not allow them to try for technology

upgradation. These unit owners should understand that without upgradation of

technology, the business cannot survive in this modern era. SSIs should take benefits of

the policies and programs of Government and various institutions which provide

assistance to this sector for the inclusion of modern technology.

2. SSIs should associate with the associations designed for small scale sector, industries

etc. They must attend trade fairs and exhibitions organized by different institutions to

know the latest changes in their field not only at local and national level but at global

level too.

3. When the researcher surveyed, it is found that very few units in this region are involved

in research and development activities. Many of them do not give importance to this

activity. They think either it is not for small units or without finance it is useless. But

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innovation in products, methods, processes is always necessary to enhance the

competitive strength of SSIs. They should take into consideration that only imitation

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Chapter 9: Suggestions And Recommendations

of the products will not save them from the competition. Research and development

activity must be an essential part of their business to stay in the market. If every unit

has not the facility of R & D, the unit should take help of consultancies and other

laboratories.

4. The survey explored that the procedure for quality control used by SSIs is not good

enough. Only standardized and quality products can reach up to global markets.

Hence these units must develop attitude towards quality consciousness.

5. Trained, skilled and motivated workforce can grow the business speedily; even if

there might be many problems. But SSIs in Jalgaon district did not follow scientific

process of recruitment, proper training programs and career advancement schemes.

Hence SSIs should recruit the employees scientifically and give them training so that

their productivity and margin of profit will increase. Motivational approach is to be

applied to lessen labour turnover and increase the efficiency of the workers.

6. SSIs purchase raw material and other related items on small basis, hence they lose the

benefits of bulk purchasing. Therefore small scale units must design the groups of

similar manufacturing units for bulk purchasing. This will reduce the cost of

production and increase the profit margin.

7. Many SSIs do not have formal organization structure. This minimizes the

performance of the unit. Hence they should try to adopt formal organizational

structure and follow scientific principle of division of labour which will increase the

efficiency of the workers. If the units and their business is very small, it is not

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affordable to them. But in such conditions SSIs should train their workers properly so

that they will perform efficiently.

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Chapter 9: Suggestions And Recommendations

8. It is also observed that many of these units hire the workers on lower payments.

While selecting the employees, their physical, mental ability and skills are not taken

into consideration. But if they are ready to work on offered wages, the workers are

appointed. This is a red signal. Skilled workers will not be attracted towards such

units. Less cost of production and quality maintenance is possible only with the help

of skilled workers. Hence the units should design the policy for attracting skilled

workers. Fair wages and proper promotion scheme should be implied for the workers.

9. Many SSIs did not take care of branding and proper packaging. They have the local

mind set and think about local market only. But due to globalization they have to

compete with LSIs and MNCs. Hence they have to be conscious for packaging and

branding to maintain competitiveness of their products.

10. Effective marketing has the crucial importance for any business unit. Many unit

owners mentioned that they predict the customer needs by contacting personally to

their customers. This policy cannot be helpful to search and attract the potential

customers. For this advertising, publicity and conduction of survey should be used.

Single small scale unit cannot take these efforts at its own. Hence they should

associate some organization for organized marketing which will conduct customer

survey, analyze and predict for demand of the product, take efforts for advertising the

products to increase sales.

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11. SSIs in Jalgaon district are not taking full benefits of institutional finance, incentives,

subsidies and other promotional schemes provided by the central and state

Government. This assistance is not related to only finance but training, education and

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Chapter 9: Suggestions And Recommendations

information of their related industry also. Hence they must try to take the full benefits

of these schemes.

 RECOMMENDATIONS

Recommendations to the Government, Government institutions and Agencies

1. All available resources can be utilized effectively, if adequate infrastructure facilities

are available to any industrial unit. SSIs in Jalgaon district do not avail adequate

infrastructure facilities. This results in high overhead costs, delay in production,

defective goods and services and more rejections. The Government should take

initiatives in this direction and provide adequate infrastructure supports in all districts

and villages too. Government should adopt Public Private Partnership strategy to

make sufficient water, road, banking, electricity, transportation, etc. facilities

available to this sector. Many manufacturing units expend major part of payments on

electricity charges. Machinery need electricity and the rates are growing very fast. To

promote small scale industry Government should supply electricity to these units on

subsidized rates.

2. It is found that Government is trying to provide finance to SSIs through banks and

financial institutions. But these banks and institutions demand for excess collateral

security from SSIs which they cannot make provide properly and reject the credit to

them. Therefore it is recommended that Government should design an agency which

will guarantee for collateral security and take efforts to ensure timely provision of

credit to SSIs.

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3. Tax procedure and laws for the small sector should not be complicated and must be easy

to know. Exemption in all taxes for a stipulated time period, minimum for twelve

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Chapter 9: Suggestions And Recommendations

months which is its emerging period, should be provided to develop and survive this

sector. These units are thrown into cut-throat competition due to globalization. Hence it

will take some time for them to cope up with the situation. Because of this exemption

these units can concentrate towards the business during its striving period. Government

must arrange training and information providing programme whenever the tax procedure

and laws related to this sector changes. From these type of programmes small unit owners

will come to know how to comply with Government laws.

4. Industrial policy should be strengthened in such a way that technicians, experts

should be attracted towards this sector to start their own units on small basis even

though they do not have backing of sufficient capital.

5. Due to absence of managerial skills, required workforce and sufficient finance SSIs

cannot concentrate and take special efforts separately in every field related to finance,

product management, marketing, distribution, human resource issues, relations with

customers, creditors, Government officials etc. Hence Government should take

initiative steps to promote specific organizations or associations of such units with the

collaboration of private and public investors. These associations will provide services

for marketing, conducting survey, testing the products, bulk purchasing, exporting the

products etc. This will boost the small scale sector and make this sector competent for

global competitiveness.

6. Special efforts should be taken to design and implement marketing support programme

through which the scientific marketing methods will be introduced. It will help this sector

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to improve its marketability and reduce the costs. Government should start their retail

outlets in consultation with the industry associations at all major cities of the

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Chapter 9: Suggestions And Recommendations

country. These outlets would sell the products which are manufactured by SSI units

only. This can help the SSI units to overcome the problem of distribution of the

products at fair rates.

7. Many SSIs are not aware of the schemes and subsidies provided by different

institutions and Government for their promotion and support. The courses which will

give information about such programs and how to take benefits from this, should be

designed and run for the education of SSI unit owners so that they come to know

which efforts are taken by the Government for the sake of them. Government through

its various institutions like MIDC, DIC, SIDBI, and SISI should conduct some short

term courses of relevance to SSIs for giving all kind of information concerned with

availability of raw material, financial support, other resources. This media can be

helpful for conducting the courses concerned in inventory control, financial

management, material management, product development and latest technological

development etc. This will enable SSIs to strengthen themselves with the help of such

different programs and schemes.

8. District Industries Centers (DICs) should be strengthened so that they can play a vital

role for promoting and developing the small scale sector. Government frame different

type of schemes for the sake of small scale sector. These schemes should be

implemented effectively. The required authority is to be provided to DICs so that they

can coordinate between financial institutions supported by Government and small

scale industries. DICs will provide not only the information about the schemes, funds

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and subsidies but help the small scale units to take benefit of it. They will help them

to make application, to complete the required formalities and to get the benefits of the

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Chapter 9: Suggestions And Recommendations

schemes. This must be done at minimum charges. Hence it is necessary that DICs

should be strengthened to play an important and active role in the growth and

development of this sector.

Recommendations to Industry Associations:

1. Industry Associations should give suggestions and recommendations to the

Government while framing laws and policies for this sector so that it must be ensured

that these laws and policies will support this sector. But at first they should encourage

small scale units to be member of such associations. These associations should make

a group of the similar associations from different states, regions or districts. They

should make special efforts to expand the scope of membership. They should try to

broaden the scope of the association so that these associations can be considered as a

representative of SSIs in a specialized region or state. Then they can collect the data

from small scale unit owners. This will be helpful to provide needed, updated and

accurate information of SSIs to Government while framing policies. They should

communicate the various problems faced by these units, impact of various

legislations, changes in the business environment etc. to the Government. In short

these associations should play a role of liaison agent between Government and SSIs.

2. Industry Associations should try to resolve the local problems of SSIs with the help of

local media or channel. If these are successful in expanding their scope in local area

then they can play a leadership role by solving the problems of availability of roads,

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water etc. with the help of local controlling bodies such as Municipal Corporations,

Jilha Parishads, Gram Panchayats etc.

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Chapter 9: Suggestions And Recommendations

3. Industry Associations should arrange various training programs related to business

management. These programs should be categorized according to industry, region and

responsibility wise. They can arrange refresher programs through which the updated

information and skill related to the specific industry can be imbibed in these unit

owners. Guidance lectures can be supportive from time to time at district level to

provide information related to small scale sector, available opportunities and

upcoming challenges. This will help this sector to take important steps to overcome

the challenges and catch opportunities at the proper time.

4. Industry Associations should try to establish linkages between SSIs and LSIs

horizontally and vertically so that both sectors will be developed and equally helpful

to each other. They can provide information about the needed components, spare parts

or services for large scale industries and the availability of such type of products or

services in small scale sector. Then the both sectors can take help of each other to

develop themselves.

5. Industry Associations should arrange local trade fairs and exhibitions. Through such

activities the products with new technological changes in different type of industry

and product, updated information about the changes in production process, marketing

techniques etc. can be provided. These trade fairs and exhibitions should provide

better outlet for marketing and selling the products of small scale sector.

6. Industry Associations should encourage small scale units to make industry wise, region

wise groups. These groups should take initiatives in providing different type of training

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and development programs to the employees and employers in small scale sector. These

programs must be according to the developing stage of SSIs. These groups should be

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Chapter 9: Suggestions And Recommendations

promoted for organized marketing for the products of group members. These

associations should promote the agencies which will develop database related to

small scale sector, conduct regular survey, and do market research. These services

should be made available to all SSIs so that they can face the challenges of

globalization and make them competent to compete globally.

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