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Definition :
There can be two basis for defining small scale
business

1. Scale of Business

The size or scale of business can be measured in

various ways like
i. Investment on plant and machinery
ii. Employment generation
iii. Investment and Employment
iv. Volume and / or Value of production
v. Volume and /or value of sales
II. Qualitative aspects
i. Ownership of small business is in the hands of
an individual or a few individuals
ii. Management and control of small scale firm is
with the owner or owners
iii. Technology adopted in small scale unit is
normally labour intensive
iv. Small scale business is normally carried on in
a limited or local area

Various definitions of small scale unit are as under :

Dz A unit operating mainly with hire labour

usually 10 to 50 hands ǯǯ
fiscal Commission ---1950
 DzA unit employing less than 50 persons if using
power and less than 100 persons without the use of power
and with a capital investment not exceeding Rs. 5 lakhsdz
Small Scale Industries boards -1955
Dz An undertaking having an investment in plant and
machinery of not more than Rs. 1 croredz
Government of India ---- 2000

Tiny Industries :

Investment less than 25 lakhs

Number of persons less than 50
Operated under sole proprietorship form of
ownership
Managed by family members and not professionals
Ancillary Industries:
Industrial units having an investment in P& M
whether hold on ownership or by lease or by HP does not
exceed 1 crore

Engaged in manufacturing / Production of parts,

Components ,sub assemblies ,tooling's and intermediaries
to one or more other industrial undertakings

Cottage Industries :

Organized by private individuals

with the help of family members
Pursued as full or part time occupation
Using local resources and local skills
Output sold in the local market



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1. Ownership

2. Management and Control

3. Gestation Period

4. Area of operation

5. Technology

6. Resources

7. Dispersal of Units

8. Flexibility
 
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1. To create more employment opportunities with less
investment
2. To remove economic backwardness of rural and less
developed regions of the economy
3. To reduce regional imbalance
4. To mobilize and ensure optimum utilization of
unexploited resources of the country
5. To improve the standard of living of people
6. To ensure equitable distribution of income and wealth
7. To solve unemployment problem
8. To attain self reliance
9. To adopt latest technology aimed at producing better
quality products at lower costs
 


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Capital investment problems in SSIǯs are greatly

solved by providing various types of financial
incentives such as Seed capital ,Venture capital ,
Subsidized interest rates ,Subsidies for purchase of raw
material .
Loans are also given to develop infrastructure of SSIǯs.

Financial Plan:
financial plan is a concept which indicates the
total project outlay of a business activity
Financial plan considers the total project cost , the
classification of project cost in terms of
1. Fixed Capital and Working Capital
2. Sources through which these two types of capital
have to be raised
3. Supply of these capitals on time
 


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The financial plan gives a picture of total

capital outlay and revenue analysis of a business
enterprise irrespective of the size .
Capital investment is discussed in two dimensions
1. General Investment Decision and its components
2. Capital Investments in SSIǯs

1.General Investment Decision (GID)

Investment decision is concerned with allocation
of funds .Since financial management deals with
mobilization and deployment of funds, equal
importance should be given to both the functions

Funds mobilized thru ȂLong ,Medium and short

term sources


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2.Capital investment in SSIǯs :
Sickness in Small Scale Industries
A sick unit commonly means a unit which is not healthy .
Sickness means different to different persons like

Workers Ȃ If they donǯt get their wages and other benefits

Investors Ȃ Fails to earn a reasonable return on capital employed
Financial institutions Ȃ Fails to meet the contractual obligations

Definition of industrial sickness

Prior to the enactment of the sick Industrial companies ( Special

Provisions ) Act, 1985 there was no proper definition

In General

Dz The situation where the revenues of a firm are insufficient to meet

the costs and the rate of return on investment is less than firmǯs cost
of capital dz
According to the Sick industrial Companies Act,
1985

A industrial company is defined as sick if

a. It was registered for at least 7 years
b. It incurred a cash loss for the current and the preceding
year , and
c. Its net worth was eroded

According to the State Bank of India

A sick unit is one Dz which fails to generate an

internal surplus on a continuous basis and depends for its
survival upon frequent infusion of fundsdz
Classification of Sickness :
1. Genuine Sickness

2. Incipient sickness

3. Induced sickness
Symptoms of sickness ï

1.Current Ratio

2. High cost of capital

3.Piled up Inventory

4.Default in payment of interest of debentures

5. Operating below break even point

6. Ration Analysis
Causes of Sickness :
External Causes :
1. Power Cuts
2. Non Ȃ Availability of funds
3. Competition
4. Government policies
5. Unfair exploitation
6. Lack of infrastructural facilities
7. Problems with financial institutions
8. Incapacity to procure credit loans
9. Labour problems
10.Limited financial base of promoters
11.Augmenting Working capital
Causes of Sickness :
Internal Causes :
1. Low Quality
2. Poor Marketing Efforts
3. Faulty capital structure
4. Managerial Incompetence
5. Unplanned Capital expenditure
6. Excessive growth of Inventories
7. Under Ȃ Utilization of Capacity
8. Limited financial Base of the promoters
9. Inadequate Margin
10. Long credit period
11. Wrong Location
Suggestive Measures
ð Identification at incipient stage

2. Integrated approach

3. Change in Management

4. Setting up a screening committee

5. Audit

6. Regular Rehabilitation Programmes

7. RBI Guidelines
Remedial Measures
1. Sick industries Policy,1978

2. Sick Industries Policy,1981

3. Sick industrial Companies Act (1985)

4. Reserve Bank of India

5. Assistance By SFCǯs

6. Services By Technical Consultancy

Organizations (TCOǯs)

7. Margin Money Scheme

8. Excise Relief

9. Single Window Scheme

10.Income- Tax Relief

11.Board for Industrial And Financial

Reconstruction (BIFR)

12.Companies Amendment Act ,2002

13.Companies (Second Amendment) Act,2002

14.State Ȃ Level Inter Institutional Committees

(SLIICs)