A Small business may be defined in terms of size. Once of firm goes beyond a certain size, it is no longer classified as small. The size limit for a small firm may be laid down in any one or more of the following criteria, namely: (a) the number of persons employed, (b) the amount of capital-invested, and (c) the value of annual turnover.

Some countries of the world have defined small business in terms of the number of workers employed. While some in terms of investment in plant and machinery. But many countries use a combination of both the criteria, i.e., number of workers employed and investment. The value of annual turnover is not used as a basis of defining small business as it would affect productivity adversely. However, in India, only one criterion, i.e., amount of capital investment, is used to identify the small scale enterprises. This has simplified the task of enumeration of small scale enterprises, ancillary units and tiny (or very small) units. The division of small sale sector into three types of enterprises has been done to design policy measures for each category and to give proper importance to them.

At present, various segments of small units have been classified as follows:

(i)    Small Scale Industrial (SSI) Units having investment in plant and machinery up to Rs. 1 crore.

(ii)    Ancillary Industrial Units having investment in plant and machinery upto Rs. 1 crore. Such an undertaking must sell not less than 50 per cent of its output to other industrial undertakings.

(iii)    Export-oriented Units having investment in plant and machinery upto Rs 1 crore. The unit must export at least 30% of its output by the end of three years from the date of commencement of production.

(iv)    Tiny Units having investment in plant and machinery upto Rs. 25 lacks irrespective of location.

The investment limit in plant and machinery in case of specified hi-tech and export oriented industrial units has been raised to Rs. five crore to ensure suitable technology upgradation and to enable them to attain competitive edge.

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