MICRO AND SMALL ENTERPRISE IN GENERAL ENGINEERING
(An analytical study of selected light engineering units from North Malabar)
Premavalli Panakkata Veetil
Dr. T. Asokan
(Research Scholar))
(Supervisor & Guide)
D e p a r t me n t of M a n ag e me nt S t u d i e s
K a n n ur U ni v e r s i t y
Introduction
Worldwide, MSMEs have been recognized as engines of economic growth. This sector is an important component of our national
economy as well. The MSME sector is reckoned as the backbone of the Indian economy as it contributes significantly to the GDP
growth of the country. The current contribution of MSME sector to GDP is 8 %. They employ 80 % of the total labour force
contributing around 40 % of the total manufactured output. India has a strong engineering and capital goods base and is a major
exporter of light engineering goods. The presence of well-developed and sound light engineering sector is the basis of almost all
productive and business activities in the country. The demand for engineering applications among the Small and Medium
Enterprises is increasing rapidly. The leading companies are providing a portfolio of the industry specific readymade templates,
pre-configured and easy-to-deploy design, manufacturing and data management solutions, specifically designed for the needs of
SMEs. Light engineering industry is one of the largest segments of the overall industrial sector of a nation. Being labour
intensive, the light engineering sector generates a lot of employment opportunities in the economy, especially in the areas where
there is an abundant supply of skilled and semi-skilled labour. Another important factor to be considered is the symbiotic
relationship between MSMEs and large scale units. To boost the smooth functioning of these large units, several MSMEs will
have its own contribution by way of supplying key parts, sub assemblies, spares etc. to such large units. MSMEs benefit by way
of getting continuous orders from large units and large units get steady supply from MSMEs situated in its periphery. The
changing demographic profile of the Indian consumer, viz. Increasing income levels and greater propensity to spend, lifestyle
changes like nuclear families and working women, exposure to global trends etc are generating opportunities for growth of light
engineering industries. These changes have been driving consumption in end-user sectors such as consumer durables, building
accessories, household utensils kitchenware, and home exercise equipments.
Scope and significance of the Study
Although industrial development holds the key to the economic progress, Kerala has been quite slow considering the
potentialities as well as requirements of the state. Of the different micro and small scale enterprises functioning throughout
Kerala, engineering units occupy major position. In all the fourteen districts of the state, engineering industries occupy a
prominent status. Though infrastructure facilities like developed land and buildings, transport and communication, utilities like
power and water, distribution and other facilities etc are more or less available throughout the state, industries in the light
engineering sector, especially spares and sub assemblies needed for the automobiles, machinery and construction sectors have
not prospered in Kerala. Likewise, lots of building materials and utensils for the household are coming from the neighbouring
states and other industrially developed stated like Maharashtra, Gujarat, Punjab, Haryana etc. There must be some bottlenecks for
such industries not concentrated in Kerala and it is learnt that no serious study has been conducted from this angle. The
researcher, therefore, believe that there is scope for conducting a detailed study in this area.
North Malabar has been selected as the study area because:

Kozhikode is considered as the commercial capital of North Malabar. Kannur, and Kozhikode districts accommodate
large number of tile, brick, timber and textile industries. To cater to the needs of the above referred traditional
industries, General Engineering industry assumes importance as suppliers of equipments and service providers.

Moreover, Kannur district is going to be a major business hub of the country especially, textiles on the following
grounds. Textile related Central and State organizations like Textile committee, Weaver’s Service Centre, Power loom
Service Centre, National Handloom Development Corporation, HEPC Design studio, Apparel Park(TCID), NIFT,
IHTT, proposed container freight station, Azhikkal sea port and air port – all are in Kannur district. These institutions
will definitely fuel the growth of engineering industries, especially in textile related industries.
Objectives of the study
The study aims to analyse the role of light engineering units in employment generation and the extent of
industrialization of the state. The major objectives of the study are:
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1.
To examine the growth pattern of light engineering units in the four districts (Kozhikode, Waynad, Kannur, and
Kasargod) of Kerala state in the context of the operation of the industrial estates.
2.
To analyse the economics of light engineering units operating in North Malabar in terms of
product/service.
3.
To explore the product mix, design and demand profile of light engineering industries in North Malabar.
4.
To enquire into and ascertain whether there is any production linkage between light engineering units in North
Malabar and the group of engineering or other industries within or outside the state of Kerala.
5.
To examine the financial support availed by units and to assess the sector-wise repayment position as on date, and
6.
To make suggestions for further growth of light engineering units in North Malabar.
cost, price and profit per
Research Methodology
This is an explorative cum descriptive research based on both primary and secondary data. Primary data are required
for verifying the objectives set for the study while secondary data are relevant for the overall analysis of the industry. Primary
data is collected through a sample survey by means of pre tested interview schedule while secondary data are collected from the
records of District Industries Centres and different Government publications.
Population and Sample size
The total number of light engineering units in the North Malabar area constitutes the population. The
registered light engineering units in micro/small-scale sector in Kerala approximately numbers to 18,114 in 2007. Of this, around
3,310 are in the study area. Considering 75 % as the survival rate, approximately 15 % of the units (370) are identified for the
study on a multi-stage random sampling basis, giving due importance for different types of products and services, rural and urban
units. Final selection of the units from the sample is based on working status.
Period of the study
The study is undertaken by collecting data for a period of 10 years from 2000 to 2009.
Data Analysis Techniques
Data analysis involves converting a series of recorded observations into descriptive statement and /or inferences about
relationships. For the statistical analysis of data, major tools used include: Chi-Square test, Pie-Charts, Averages, %s graphs, Bar
diagrams, tests of significance and software packages SPSS and Micro Soft Excel.
Major Findings
The major findings and observations arrived at by the researcher are summarized below.

The rate of growth in light engineering units indicates that majority (51.1 %) of the units were started after 1994.

In Kannur district, 83.93 %; in Kasargod district, 88.24 %; in Kozhikode district, 83.57 %; and in Waynad district, 92
% are carried on by single owners.

Majority of the sample units in Kannur (44.64) and Kasargod (30.88) districts, are run by blacksmiths. But in
Kozhikode and Waynad districts, thiyya caste dominated the blacksmiths by having a share of 36.43 % and 26 %
respectively in the ownership of light engineering units.

All of the unit owners are literate. Majority of the owners are below Pre Degree 70.54 %. Out of the sample, 57.30 % of
the owners started their enterprise after gaining practical experience from light engineering units.
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
Additions to the machinery are made by 74 % of the sample units. It means that these units introduced better
technologies to cope with the changing needs, to improve quality and productivity.

In Kannur, Kasargod and Kozhikode districts, around 50% of the enterprises work in own buildings, where as it is only
33 % in Waynad district.

The average investment in machinery is highest for machines and engineering products (5.45 lakhs) followed by 3.59
lakhs for engine work, 3.56 lakhs for steel furniture, 0.86 lakh for Structural Fabrication and 0.83 lakh for automobile
repairing and servicing.

The average amount of working capital required is highest for steel furniture (1.82 lakhs), followed by machines and
engineering products (1.60 lakhs), 0.39 lakh for engine work, and 0.37 lakh for structural fabrication.

In steel furniture and machines and engineering units, 18 to 20 % of production is for stocking. Hundred % of the work
of automobile repairing, engine work and structural fabrication, 81.82 % of machines and engineering units, 79.69 %
of steel furniture units are done on job order.

Majority of the sample units - 63 %; had taken short term loans in the form of cash credits or overdrafts for meeting
working capital needs. Only 37 % obtained term loans.

Loan availed of by majority of the units (81.25 %) are from banks. The share of KFC is meager with 8.11%.

42.14 % of the units in Kozhikode district depend on loans, followed by Kasargod with 39.71 %, Kannur 30.36 % and
Waynad 22%.

Majority of the units are (81.25 %) are regular in repayment of loans. Out of the units which have availed themselves of
loans, only (18.75 %) are irregular in the repayment.

In general, the district wise default in loan repayment remains in the range of 16 to 19 % except for Waynad district
where the default rate is around 24 %.

More than 97 % of the units get the raw materials supplied locally whether it is steel furniture/structural
fabrication/engineering products.

52 to 65 % of the workers in different light engineering units under study are skilled workers.

Average employment per light engineering unit under study is 5 persons. In Steel furniture unit, average employment
per unit is 7. On an average, 5 persons are employed in a structural fabrication unit and in an automobile unit.
Employment generation capacity of machines and engineering products as well as engine works are same, with 4
persons per unit.

To employ one person in machine and engineering products, an investment of Rs. 1.7 lakhs is required. The investment
required for employing one person in steel furniture unit is only 0 .77 lakh and in Engine work it is 0.99 lakh. For
structural fabrication it is 0.25 lakh and in automobile repairing and servicing units, 0.20 lakh only is needed.

In nearly half of the units of automobile workshops, engine works and structural fabrication units, the number of
employment has come down considerably over the last 6 years, while in steel furniture; the decrease is only 16 %. The
number of light engineering units which are able to reap the benefit of the emerging opportunities is only 12.43 %. In
all the different sectors of light engineering, in nearly 50 % of the units, there is no change in the number of workers,
though there is sufficient scope for increased production/service and proportionate increase in employment.

Local employment is more in automobile repairing and servicing (89 %). Engine work units accommodate 83 % local
people. 78 % of the workers in steel furniture are from Kerala state. It is 87 % in Structural Fabrication units. In
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machines & engineering products, local employment is the lowest (64 %) Rest of the workers are from Tamil Nadu,
Karnataka and other states.

All units pay bonus to the workers, usually once in a year. 81 % of the unit owners contribute towards the Welfare
Fund of the workers. ESI contribution is made in 22 % of the units. PF and ESI coverage is given only in 5 % of the
units.

54.55 % of the production of the machines & engineering units is according to trend design, it is 37.5 % in steel
furniture and 100 % in structural fabrications.

The average sales made by the units from 2000 to 2009 show an upward trend, though it is little for engine work and auto
repairing units.

The average rate of profit earned by the micro and small light engineering units in Kozhikode and Kannur districts,
increased approximately from 25 % in the year 2000 to 34 % 2009. It increased from 26 % to 32 % in Waynad district
and from 24 to 32 % in Kasargod district. Rate of profit showed an upward trend for all the years in all the districts.

The average rate of profit earned by the structural fabrication and automobile repairing and servicing, increased
approximately from 25 % in the year 2000 to 34 % in 2009. It increased from 25 % to 32 % in steel furniture, 27 to 33
% in machines and engineering products and from 24 to 32 % in engine work units.

Presently, there is not much problem to find market for the products or services. For products like steel furniture and
engineering products, there exists certain amount of competition from other states. For engine work, competition within
the state as well as from other states is almost the same. (7 % and 9 % respectively) Competition for machines &
engineering products is comparatively high with 23 % of the units facing competition from other states, while the
competition from within the state is only 14 %.

Labour availability is a crucial problem for almost all the enterprises. Problem of power failure and work interruption,
though not common, is indicated by all type of units. 12.43 % of the total units expressed frequent power failure as one
of their problems. 15 % of the automobile repairing and servicing units surveyed, expressed their inability to take up
work related to the new generation vehicles due to the new technology used in them.

When 67 % of the entrepreneurs/units faced one or other type of problems, only 33 % were free from problems while
setting up their units. Entrepreneurs experienced difficulty in getting power connection and local body license. About
50 % of the units opined that they experienced a lot of difficulty in getting the required loan sanctioned.
Observations
1.
Light engineering entrepreneurs have been able to earn profits which raised their standard of living and they have
moved up in the social hierarchy.
2.
In Kerala, there is no demarcation of industrial, commercial, residential and agricultural land. Hence, all area is treated
as residential area and therefore, consent has to be obtained from nearby residents for starting an industrial unit. So,
most of the entrepreneurs experienced problems in getting license from local bodies. This is really a problem in a
thickly populated State like Kerala.
3.
Many entrepreneurs are not aware of the measures available for development of skill in the employees, provision for
technological up-gradation, marketing assistance, and delayed payments to MSMEs or cluster development of such
enterprises with a view to enhancing competitiveness of MSMEs.
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4.
Lack of sincerity and commitment for work and poor work culture among workers is a major issue. More often they
work on contract for different entrepreneurs and change jobs frequently. So, more labour absenteeism is there and
entrepreneurs are not able to execute their orders promptly.
5.
Enterprises run by the owner/partners/family members gain much as they are able to adjust with the problem of labour
shortage. Entrepreneurs who are not workers are not in a position to run the unit now, and have given the unit on lease
to workers.
6.
Training facilities in the automobile workshops are poor. It takes more time and physical strain to become a skilled
worker. So, the new generation is reluctant to work in this field. They go for unskilled or semi skilled works which give
them better wages than working with micro small and medium enterprises.
7.
New generation vehicles have designated repair and service centres and vehicle owners take vehicles to such
designated repair shops. But this is not a threat to the ordinary workshops because after the guarantee period of the
vehicles, owners usually move on to the traditional shops if facilities are available.
8.
Entrepreneurs who have units in Kerala as well as in Tamil Nadu or entrepreneurs who had work experience from
Tamil Nadu says that the rate of tax on sales is higher in Kerala. (12.5 instead of 4%) The Government of neighboring
States also provides many facilities to them and entrepreneurs are served better by the industries department in other
states
9.
No unwanted trade unionism and strike threat exists now. Labourers dictate the terms and if a worker is not satisfied, he
will quit and can easily get a better job.
10.
No problem of seeking credit by customers. Customers are ready to give down payment or even advance and hence
entrepreneurs needn’t depend much on banks for working capital.
11.
Unlicensed workers without premises, who needn’t pay establishment and electricity charges, are doing job work for
customers at their premises. It is a threat to the organized units, who work by incurring establishment charges and
electricity charges at a higher rate.
12.
Though a consortium of light engineering units was formed in 2006 in Kannur district, it is not functioning at the
expected level. Steps have been taken to form Consortiums in Kozhikode and Kasargod Districts
13.
Fabrication units and automobile service stations have sufficient work as the customers are ready to pay whatever is the
rate for the service.
14.
Some of the old entrepreneurs opined that earlier they received good advice and support from District Industries
Centers, especially from Industries Extension Officers. They also remarked that the standard of service from Industries
Department deteriorated over the years. Most of the field officers are not able to give guidance to sort out a problem.
15.
It is observed that some units started five/six years back, stopped production as they were not cost conscious. To catch
the market, they reduced the rates and compromised on quality and, so, naturally had to withdraw from the field.
16.
With the introduction of “Three Tier System of Panchayath” several Panchayaths at Grama, Block and District level
acquired land for industrial infrastructure development but only some had built industrial sheds on such lands.
Suggestions
1.
The schemes introduced under priority sector lending, such as sanctioning of loans to micro enterprises without any
collateral security up to a maximum of Rs. 5 lakhs, providing guarantee for loans to MSMEs up to Rs. 25 lakhs using
Credit Guarantee Fund etc should be strictly implemented by banks.
2.
Upto 5 lakhs, Project Report need not be insisted, but such details needed may be collected in the application form
itself to evaluate the potential of the project.
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3.
Banks may be encouraged or at least it may be made mandatory for banks to lend certain % of total credit to MSMEs.
4.
For the working capital loans, banks can follow Pandian Committee principle (ie 20% of annual turnover) which is an
easy way of computing working capital requirements of MSEs.
5.
Clusters should be developed wherever clusters are not there and where they exist, their activities should be improved
to get raw materials including spare parts and paints and for common facilities required for light engineering industries.
6.
Local bodies should acquire and allot plots for industrial activities where ever there is shortage of available land; and
uninterrupted, quality power supply must be ensured by the authorities concerned.
7.
Getting license from local bodies is a problem. Local bodies may be insisted to give a maximum number of Dangerous
and Offensive trade License (D&O licenses) which is an indicator of development and increased income of local body.
8.
Single window and Green channel committee is to be made more effective. Industries Department should, as a policy,
approve proposals through “single window clearance” for starting new micro enterprises, to avoid delay in starting the
units which will avoid overrun in cost and time which is a major problem for Micro and Small Enterprises.
9.
There must sufficient motivation from the side of the Industries Department to attract entrepreneurs.
10.
ESI or any form of insurance, PF and Gratuity should be made compulsory for workers and the formalities for its
operation should be made easy so that workers can continue these schemes even if they change the work place.
11.
On the job training to the students of ITI/VHSE /NTTF/PolyTechnic etc. should be made compulsory which will have
dual benefit, - skill of the students will be improved and the problem of labour shortage in the sector can be solved.
12.
Small repair shop owners must upgrade their facility and also shall get good training in repairing all type of vehicles to
match with the designated repair and service centers.
13.
Modern techniques should be adopted which will reduce the physical strain. This can be done through consortia by
pooling the resources.
14.
Kerala is a state of educated people. So, people crave for blue collar/white collar jobs. If workers are given such
working premises and system, we can retain those who are leaving for abroad in search of job.
15.
Instead of giving subsidy to the units it will be more effective if finance is made available at lower rates. The reason is
that some entrepreneurs start the organisation and avail the subsidy and after that they either sell or close down the unit.
What is to be done is that the govt. should provide or improve necessary infrastructure, and motivation to boost the
growth of industries.
16.
Government/Industries department may take initiative to tie up with all automobile manufacturing companies to
provide training to micro and small enterprise employees on modern automobile servicing and repairs which will
benefit the company as well as entrepreneurs.
17.
Industries department may take steps to promote at least one automobile complex in a district which will be a one stop
destination for repairing any kind of automobile. It will consist of 10 or more repair shops, paint shops, upholstery,
body repair shops, spare parts shop, welding shop, engine reboring unit and a service unit. Any two wheeler, three
wheeler, four wheeler can be repaired /serviced in one complex, where each unit is owned by each entrepreneur. This
will be a novel idea.
18.
The State Govt., while inviting investment, should try to make proper tie up with the investors for ensuring sufficient
forward and backward linkage to local industries in general and light engineering industries in particular.
19.
The Government should take necessary steps to popularize ED Club activities in all educational institutions from
Higher Secondary Level. Though ED Clubs have been started in selected schools and colleges, presently they are
almost defunct.
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