Growth of Micro, Small and Medium Enterprises in Chittoor District, Andhra Pradesh

Commerce Spectrum Vol. I. No. 1 June, 2013 ISSN 2321-371X Growth of Micro, Small and Medium Enterprises in Chittoor District, Andhra Pradesh K. Munaswamy Reddy Research Scholar Department of Commerce, S.V. University, Tirupati Email: kmrsvu@gmail.com P. Sankarappa Research Scholar Department of Commerce, S.V. University, Tirupati Email: sankar.mcom@gmail.com Dr. B. Bhagavan Reddy Professor of Commerce Department of Commerce, S.V. University, Tirupati Email: bbrsvu@gmail.com Abstract Andhra Pradesh (AP) is known for its diversity in terms of geography, human and natural resources and composition of industry. Rayalaseema is a backward region in terms of per capita income, employment opportunities, pace of industrialization and so on. Chittoor district is one of the four districts of Rayalaseema region. In this paper, an attempt is made to evaluate the growth of MSMEs in terms of number of units, capital employed to procure plant and machinery, total capital invested in aggregate assets and employment generated from the period of enactment of MSMEs Development Act, 2006. The study revealed that there is a rapid and significant growth in small and micro enterprises in terms of number of units, investment and employment generation when compared to medium enterprises in the district. The trend in the growth is spectacular in the case of small enterprises relative to microenterprises. The revision/modification of definition in terms of investment limit in the MSME Act and positive initiatives of government such as subsidy, incentives, rebates, concessions, provision of raw materials etc, have brought in significant changes in the industrial outlook of Chittoor district in the recent past as compared to the period before 2006. Keywords: Industrial Development MSMEs Chittor District Andhra Pradesh I. Introduction Micro, small and medium enterprises (MSMEs) play a momentous role in the overall economic development of a country like India where millions of people are unemployed or underemployed. Today, poverty and unemployment are the burning problems of the 83

Vol. I. No. 1 June, 2013 country. This sector solves these two problems through provision of immediate large-scale employment, with lower investments. According to Dr. Manmohan Singh, the Prime Minister of Inida, the key to our success in employment lies in the success of manufacturing in the small scale sector (Selvaraj, 2005). The economic development of a country primarily depends upon the establishment of industries, which in turn depends on the availability of adequate capital. In a country like India where capital is scarce and unemployment is wide spread and high, growth of MSMEs is vital to achieve balanced economic growth. The strength of MSMEs lies in their wide spread dispersal in rural, semi-urban and urban areas, fostering entrepreneurial base, shorter gestation period, and equitable distribution of income and wealth. The Govt. of India has set up several agencies and institutions at different levels, central/state/regional/ and local, to promote MSMEs. These agencies are pursuing the policy of protection and promotion and also offer several incentives and concessions for the growth and development of MSMEs. Since the launching of Five-Year Plans, the SSI sector has grown at a phenomenal rate in the length and width of the country. This sector comprises 95 per cent of total industrial units in the country, accounting for 40 per cent of aggregate industrial production, 34 percent of national exports and 250 lakh persons industrial employment (Antony, 2007). Thus, this sector has emerged as a bosom and dynamic part of Indian economy. In fact, it is one side of the coin. The other side is the sad story of declining trend in the small-scale industries in India. The importance of government has shifted from labour-intensive industries to capital-intensive ones due to the adoption of liberalization, privatization and globalization (LPG) policies. Commerce Spectrum II. Definitional Issues Ever since the official recognition of smallscale industrial units in the Independent India during 1950s, the definition of small-scale industry has been revised many a time taking into consideration the felt needs and the emerging changes in the socio-economic, political, cultural and industrial environment of the country. A brief review of small industry s definition over the years since 1955 brings to light the modifications/changes that took place concerning the scope of small industry. During 1955, the Small-Scale Industries Board (SSIB) defines small industry as a unit employing less than 50 persons if uses power and less than 100 persons without use of power, and with capital assets not exceeding Rs. 5 lakh (Govt. of India, 1955). The Ministry of Commerce and Industry, Govt. of India has modified this definition during 1959. In the modified form, the restriction of employment was made applicable separately to each shift. Then a unit working double or triple shift could get the benefit of government policy and programme even when it employed double or triple the number of workers admitted in the aforesaid definition. Owing to the development of small-scale industries, it was felt necessary to alter the definition once again in 1960. In the revised definition, the employment condition was altogether removed. As per this definition, smallscale industry includes all industrial units with a capital investment of not more than Rs.5 lakh, irrespective of number of persons employed. In 1962, with the interest of developing viable ancillary units, a relaxation of Rs.5 lakh limit in fixed capital has been incorporated to smallscale units, which supply parts/components to certain specified large-scale industries. A limit of Rs.10 lakh has been adopted for this purpose (Govt. of India, 1959). Thus, a new kind of small-scale industry has emerged in the country. 84

Commerce Spectrum Vol. I. No. 1 June, 2013 These units were defined as ancillary units and the investment limit was fixed at Rs.10 lakh instead of Rs.5 lakh. During 1966, on the recommendations of SSIB, the government of India has raised the investment limit from Rs.5 lakh to Rs.7.5 lakh for non-ancillary units irrespective of number of persons employed and it had retained at Rs.10 lakh for ancillary ones. Capital investment for this purpose will mean investment in plant and machinery only (Govt. of India, 1967). In the context of rising prices, once gain small scale and ancillary industries were redefined during 1974. The investment ceiling in plant and machinery has been raised from Rs.7.5 lakh to Rs.10 lakh and from Rs.10 lakh to Rs.15 lakh to small and ancillary units respectively (Govt. of India 1979). The tiny sector was recognized and brought into the policy frame in the Industrial Policy Resolution of 1977. Tiny industries were defined as those with investment of not more than Rs.1 lakh and situated outside the metropolitan areas (Govt. of India, 1982). Once again in 1980, the Government revised the definition of tiny, small and ancillary industries. Tiny units were those with investment in plant and machinery not exceeding Rs.2 lakh and situated in areas with a population of less than 50000. Small units were those with investment in plant and machinery not exceeding Rs.20 lakh and ancillary units with investment in plant and machinery not exceeding Rs.25 lakh (Govt. of India, 1982). III. Concept of MSMEs The Section 7 (1) of the Micro, Small and Medium Enterprises Development Act, 2006 takes into account enterprise in place of erstwhile industry. Enterprises have been broadly classified into two categories: (i) enterprises engaged in the manufacture/ production of goods and (ii) enterprises engaged in providing/rendering of services. In the case of manufacturing sector, units with an investment of less than Rs. 25 lakh in plant and machinery are treated as micro enterprises, Rs. 25 lakh - Rs. 5 crores small enterprises and those with Rs. 5 crores - Rs. 10 crores medium enterprises (see Table 1). With regard to service sector, enterprises with an investment up to Rs. 10 lakh are considered micro, Rs. 10 lakh Rs. 2 crores small and those with Rs. 2 crores - Rs. 5 crores medium. The government support is based on the aforesaid criteria from the date of implementation of MSME Act in the country. Table1: Investment Slabs in MSMSs Category Size of unit Investment limit Manufacturing Service Source: www.smallindustryindia.com Micro enterprises Small enterprises Medium enterprises Micro enterprises Small enterprises Medium enterprises 85 Up to Rs. 25 lakh Rs.25 lakh - Rs.5 crores Rs.5 crores - Rs.10 crores Up to Rs. 10 lakh Rs.10 lakh - Rs.2 crores Rs.2 crores - Rs.5 crores

Vol. I. No. 1 June, 2013 IV. Objective and Methodology The study attempts to evaluate the growth of MSMEs in terms of number of units, capital employed to procure plant and machinery, total capital invested in aggregate assets and the employment generated. The study covers a period of seven years from the enactment of MSMEs Development Act, 2006 (2006 to 2012). It is based on the secondary data collected from various Govt. Reports, books, journals and websites. Simple Average and Compound Annual Growth Rate (CAGR) are primarily computed to interpret the data. V. Results and Discussions Commerce Spectrum The particulars of factories registered under the Factories Act in the Chittoor district up to the year 2010 are provided in Table 2. The total number of factories in the district counts 1258, the number of men workers in these factories is 23,678 and the women workers figure 3,338. The men workers are 7.08 times higher than that of the women workers. After the enactment of MSMEs Development Act, 2006, the industrial units in the district are divided into medium, small and micro categories. Table 2: Factories Registered under Factories Act in Chittoor District (2010) S. No. Items Figures 1 Number of factories 1,258 2 Number of men workers 23,678 3 Number of women workers 3,338 4 Average workers/factory 21.47 5 Average male workers/factory 18.82 6 Average female workers/factory 2.65 Source: Hand Book of Statistics: Chittoor District V (A). Growth of Medium Enterprises The growth statistics of medium enterprises in the Chittoor district during 2006-2012 are presented in Table 3. It can be observed from the table that the number of medium enterprises which stood at 19 at the end of 2006 gone up to 29 by the end of 2012. The CAGR of increase is 6.23 per cent. The amount of plant and machinery in these units amounts to Rs.29,727 lakh in 2006 against and Rs. 36,876 lakh in 2012 (CAGR 3.13 per cent). The total capital invested figures Rs. 41,231 lakh in 2006 vis-à-vis Rs.53, 115 lakh in 2012. The number of employees working in all these units figures 679 in 2006 as against 2,320 in 2012 (CAGR of 19.19 per cent). It may be concluded that the medium enterprises measured in terms of number units, investment in plant and machinery, total capital employed and number of employees show progressive trend. 86

Commerce Spectrum Vol. I. No. 1 June, 2013 Table 3: Medium Enterprises in Chittoor District (2006-2012) Year No. of Units Plant & Machinery Employed (in Lakh) TotalCapital (in Lakh) No. of Employees 2006 19 29,727 41,231 679 2007 21 31,235 44,217 854 2008 23 32,653 46,110 1,740 2009 25 34,034 47,903 1,947 2010 26 34,807 49,498 2,040 2011 27 35,307 50,698 2,135 2012 29 36,876 53,115 2,320 CAGR (%) 6.23 3.13 3.68 19.19 Source: Compiled and computed from the records of District Industrial Center, Chittoor V (B). Small Enterprises The small enterprises in Chittoor district for the period 2006-12 is depicted in Table 4. The number of small units increased from 100 in 2006 to 559 in 2012 (CAGR 29.14 per cent). The investment in plant and machinery which stood at Rs. 5,974 lakh in 2006 reached Rs. 45,054 lakh in 2012 (CAGR 33.46 per cent). Similarly, the total capital employed which stood at Rs. 7,826 lakh in 2006 rose to Rs. 71,724 lakh in 2012 (CAGR 37.23 per cent). The employment generated by these units to 2,549 persons in 2006 rose to 16,679 persons in 2012 (CAGR 30.78 per cent). It may be summed up that there is a continuous progress in the number of units established, investment in plant and machinery and total assets. Year Table 4: Small Enterprises in Chittoor District (2006-12) No. of Units Plant & Machinery TotalCapital Employed No. of (in Lakh) (in Lakh) Employees 2006 100 5,974 7,826 2,549 2007 179 10,950 16,991 4,504 2008 286 18,854 29,459 7,692 2009 366 26,375 42,508 1,0805 2010 446 33,365 53,132 13,213 2011 523 39,690 63,331 15,115 2012 599 45,054 71,724 16,679 CAGR (%) 29.14 33.46 37.23 30.78 Source: Compiled and computed from the records of District Industrial Center, Chittoor. 87

Vol. I. No. 1 June, 2013 V (C). Micro Enterprises The details of micro enterprises in Chittoor district during 2006-2012 are shown in Table 5. The number of micro enterprises which figures 278 in 2006 increased to 870 in 2012 (CAGR 17.7 per cent). The amount invested in plant and machinery which amounts to Rs. 1,630 lakh in 2006 rose to Rs. 4,669 lakh in 2012 (CAGR 16.22 per cent). The total capital Commerce Spectrum employed in all the assets put together has increased from Rs. 2,007 lakh in 2006 to Rs. 7,216 lakh in 2012 (CAGR 20.05 per cent). The number of employees in all the units rose from 2,930 in 2006 to 9,470 in 2012 (CAGR 18.25 per cent). It may be concluded that there is an increasing trend in the number of units, investment in plant and machinery, total capital and labour force employed with respect to micro enterprises during the study period. Table 5: Micro Enterprises in Chittoor District (2006-2012) Year No. of Units Plant & Machinery Total Capital Employed No. of (in Lakh) (in Lakh) Employees 2006 278 1,630 2,007 2,930 2007 303 1,777 2,269 3,192 2008 405 2,312 3,195 4,847 2009 491 2,661 3,833 6,266 2010 604 3,186 4,806 7,327 2011 710 3,710 5,694 8,230 2012 870 4,669 7,216 9,470 CAGR (%) 17.7 16.22 20.05 18.25 Source: Complied and computed from the records of District Industrial Center, Chittoor. The micro enterprises in Chittoor district are classified into 10 sub-groups such as Edibles, Granite, Storage, Plastic, Forest, Beverages, Construction, Machinery, Printing and Others. A look at the Table 6 reveals that Plastics rank first with a share of 21.15 per cent in number of units, 27.65 per cent in investment in plant and machinery, 25.75 per cent in total capital employed and 27.55 per cent in the labour force. Next to it is the Others category. This has formed 20.32 per cent, 13.24 per cent, 15.38 per cent and 20 per cent respectively in the aforesaid criteria. Of the remaining categories, the order of priority in respect of number of units is construction, edibles, printing, machinery, beverages, granite, forest based and storage. With regard to plant and machinery, a similar trend prevails except beverages and granite. They have occupied the sixth and seventh places serially. In the case of 88

Commerce Spectrum Vol. I. No. 1 June, 2013 total capital employed, the exceptions are edibles, beverages and granite. These came third, fifth and seventh in the order sequentially. The reasons for difference in ranking between number of units, investment and labour force across different categories are (normally) many. Some of the categories of micro enterprises are capital-intensive as compared to the rest. In short, the average capital and labour per unit differ from industry to industry. Table 6: Category-wise Micro Enterprises in Chittoor District (2012) Year No. of Units Plant & Machinery TotalCapital Employed No. of (in Lakh) (in Lakh) Employees Plastic 184(21.15) 1,291(27.65) 1,858(25.75) 2609(27.55) Others 176(20.23) 618.49(13.24) 1,110(15.38) 1894(20.00) Construction 135(15.52) 540.9(11.58) 866.28(12.00) 1182(12.48) Edibles 125(14.37) 535(11.46) 907(12.58) 947(10.00) Printing 91(10.46) 508(10.90) 659(9.14) 767(8.10) Machinery 47(5.40) 141(3.03) 243(3.38) 295(3.12) Beverages 41(4.71) 481(10.31) 824(11.43) 495(5.23) Granite 31(3.56) 338(7.25) 404(5.60) 287(3.03) Forest based 22(2.53) 81(1.75) 209(2.90) 268(2.83) Storage 18(2.07) 132(2.83) 132(1.83) 725(7.66) Total 870(100) 4,669(100) 7,216(100) 9470(100) Note: Figures in parentheses are percentage to respective column total Source: Complied from the records of District Industrial Center, Chittoor. VI. Conclusion The Chittoor district is endowed with rich resources like forest, mineral, agricultural, manpower etc. But in the recent past due to inadequate rainfall, the district was frequently subject to recurrence of famine and draught conditions. The alternate strategy for employment generation, income creation and asset formation is industrialisation. In this regard, to boost the pace of industrialisation, emphasis is bestowed on village/cottage/tiny/ small units. The MSME Act, 2006 was introduced to boost the process. Evidently, there is a rapid and significant growth in small and 89

Vol. I. No. 1 June, 2013 micro enterprises in terms of number of units, investment and employment generation when compared to medium enterprises in the district. The trend in the growth is spectacular in the case small enterprises relative to micro enterprises. It may be concluded that as a result of revision/ modification of definition in terms of investment limit in the MSME Act and positive initiatives of government such as subsidy, incentives, rebates, concessions, price preference, provision of raw materials etc. there has been significant changes in the industrial outlook of Chittoor district in the recent past as compared to the scenario existed prior to 2006. References Govt. of India (1959). Report of Small Scale Industries Program of Work for the Third Five Year Plan, Planning Commission, New Delhi. Commerce Spectrum Government of India (1967). Report of Ministry of Industries, Department of Company Affairs, New Delhi. Government of India (1979). Report of Small Scale Industries Development Organization, Development Commissioner (SSI), New Delhi. Government of India (1982). Guidelines for Industries, Ministry of Industry. Govt. of India (1955). Report on the Village and Small Scale Industries, Planning Commission, New Delhi. Selvaraj, A. (2005). SSIs Deserve a Better Deal, The Hindu, June 20. Antony, Valasamma (2007). Small Scale Sector At Crossroads: An Overview, Southern Economist, 10( 6),10-29 90