In 1960, the employment criterion was discarded and only investment ceiling was retained. SSI included all industrial units with capital investment of not more than Rs 5 lakhs, irrespective of the number of persons employed. Ancillary industries included all units manufacturing components for a specified number of industrial undertakings with capital investment of not more than Rs 10 lakhs.

Enhancement in investment limit in plant and machinery for SSI units to Rs 300 lakh in December, 1997 from Rs 60 lakh is based on certain factors and it has its own justification and importance. Increase in thelimit is justified for the following reasons;

The increase in wholesale price index for manufacturing products (base 1981-82) is more than 10 fold over the period 1966-97. During the same period value of rupee in terms of dollar has depreciated to one-sixth. Thus, even for the base level of investment in plant and machinery the investment limit requires upward revision.

The need for continuous technological upgradation has resulted in higher cost of plant and machinery which again necessitates enhancement in the investment limit.

Small-scale sector plays a vital role in industries such as leather, garments, food processing, chemicals, auto-ancillaries, engineering goods, pharmaceutical, electronic components, specialised plastics, etc. These industries are also important from the export point of view. Keeping the requirements of exports in terms of quality, technological superiority and packaging higher investment in plant and machinery becomes imperative. In the industrial world dominated by constanttechnology upgradation, the success of small-scale sector depends on its ability to move into technologically more advanced and sophisticated product lines. The product and process determine the size of investment in plant and machinery. Any artificial low investment limit may act as a hindrance to the natural growth of SSI. Low level of investment in plant and machinery has resulted in horizontal expansion/even under statement of investment in plant and machinery by successful units. Logically, there should not be any artificial limitations/incentives which makes it profitable to remain SSI. There should be inter-firm competition in the small-scale sector itself which can be possible only by having a higher investment limit in plant and machinery.

This will act as a stimulus to grow.

Higher investment limit does provide flexibility for growth in size of SSI units. Moreover, in some of the reserved items, lower investment limit in plant and machinery may prevent SSIs from installing modern, highquality equipment and machinery. This in turn leads to low turnover, insufficient resources to support the R&D expenditure needed to improve product quality, lack of standardisation and quality control and technological obsolence. Experience in other countries suggests that medium-size enterprises are more innovative and adaptive which is required in a market economy.

Report of Expert Committee on Small Enterprises 1997 chaired by Dr Abid Hussain has rightly said that `traditional industries with low levels of technology reached their peak and unless enterprises venture to new generation of products the dynamism of growth slows down'. In Japan, small scale industries have developed as sub-contracting/ancillary units to large scale industries. This trend is increasingly seen in India also.

Ancillarisation does require comparatively large investment in plant and machinery. With lowering of customs tariffs on one hand and reservation of items for the SSI on the other, make it more logical to increaseinvestment limit to enable the small-scale sector to face the competition from imports more effectively by modernisation and quality improvement in their products. The policy of allowing 24 per cent share holding by other industrial concerns including international firms in SSI units can have a real meaning only when this limit is kept atleast at Rs 300 lakh.

With a view to encourage the industrial units in the small-scale sector to modernise their production facilities by acquiring capital equipment embodying advanced technology and technical know-how, acquiring standard quality certification, upgrading the process technology improvement in packaging so as to strengthen their export capabilities, a Technology Development and Modernisation Fund (TDMF) has been launched by SIDBI in April, 1995, by earmarking Rs 200 crore. TDMF Scheme has not picked up in the first two years because of lower investment limit for SSI till November, 1997. The utilisation of this fund will be better if the limit is kept at Rs 3crore.

It is true that there is a genuine fear that with the increase in investment limit of SSI units, banks may find it easier to give credit to bigger units in the small-scale sector to meet their priority sector lending targets. However, RBI has fixed sub-lending targets for tiny and smaller of the small units in its credit policy announced on April 15, 1997. The policy clearly stipulates that out of the credit targets set for small-scale sector, banks should ensure that 40 per cent would be made available to units with investment in plant and machinery upto Rs 5 lakh, 20 per cent for units investment between Rs 5 lakh and Rs 25 lakh and the remaining 40 per cent for other SSI units. To further strengthen the credit availability to tiny and smaller of the small units, it is suggested that for priority sector lending the investment limit in plant and machinery may be kept at Rs 60 lakh.