Contribution of Public Policy to the Evolution of SSI in India

Planners and policy makers have been strengthening the small scale sector through various measures. The Government's numerous industrial policy statements, over the years, stan ample testimony to the vibrancy and competitiveness of this sector. These are presented in this article.

INTRODUCTION

Public policy plays a crucial role in directing the development process of the country for accelerating growth and progress in every sphere, thus contributing to the generation of wealth, sustained growth, economic development, employment generation, with equitable opportunities and just life for one and all.

Small and medium-sized enterprises (SMES) are considered to be one of the principal driving forces in economic development with particular reference to developing countries. They stimulate private ownership and entrepreneurial skills; they are flexible and can adapt quickly to changing market demands and supply situations; they generate employment, help diversify economic activity and make a significant contribution to exports and trade. Majority of the countries in transition have acknowledged this sector as crucial for an overall industrial development and formulated appropriate national policies and programmes. Indian initiatives in this regard begin with her quest for industrial development after Independence in 1947.

The Industrial Policy Resolution of 1948 marked the recognition of the need that industries have a very important role to play in our national economy. A study of the subsequent policies reveals their thrust to small scale sector and how this sector has been assigned an important role throughout the period since 1956. For example, protection and promotion of small scale industry has all along been listed as a major objective in all of the industrial policy documents. From 1991, there has been a shift towards liberalisation and open economy. This gives greater weightage to acceleration of growth and internationalisation of the industrial sector by integrating the national economy with the global economy.

SECTION 1

Review of Industrial Policies

Industrial Policy, 1948

The policy visualised that :-

(i) The State would play a progressively active role in the development of industries.

(ii) The State would secure continuous increase in production and its equitable distribution.

(iii) The State would be exclusively responsible for establishment of new undertakings in six basic industries apart from arms and ammunition, atomic energy and railway transport.

It left most of the fields open to private investors, though it was made clear that the State would also progressively participate in these fields as and when it was felt necessary.

Thus, the policy allowed scope for private enterprise - individual as well as co-operative- to develop cottage and small scale industries.

Industrial Policy, 1956

Government of India recognised the role that cottage, village and small scale industries should play in the development of the national economy, and their development was encouraged and supported with a view to avoiding concentration of wealth and concentration of means of production. This was one way of ensuring that ownership and control of material resources of the community were distributed to subserve the common good.

This approach perfectly fitted the endeavour for "Socialistic Paftern of Society" adopted by the Government as an objective of social and economic policy.

Government of India has been following a policy of supporting cottage and small scale industries by restricting the volume of production in the large scale sector by differential taxation or by direct subsidies. While such measures will continue, wherever necessary, the aim of the State policy will be to ensure that the decentralised sector acquires sufficient vitality to be self- supporting and its development is integrated with that of large- scale industry.

Industrial Policy, 1973

Government of India used the instrument of industrial licensing to place restrictions on large industrial houses with the objective of exercising more effective control on concentration of economic power. Licensing policy sought to promote development of ancillaries, wherever feasible and appropriate, in the medium or small scale sector.

As a natural corollary, preferential treatment was given to competent small and medium enterprises over large industrial houses and foreign companies in setting up of new capacities. Co-operatives and small and medium entrepreneurs were encouraged to participate in the production of consumption goods with the public sector also playing an expanded role. Licensing provisions were exempted for substantial expansion, and for new undertakings of up to Rs. 1 0 million by way of fixed assets in land, buildings and machinery.

Monopolies and Restrictive Trade Practices Act, 1969 was enforced more vigorously to encourage development of small and medium enterprises.

Industrial Policy, 1977

The importance assigned to village and small scale industry was emphasised in greater measure in 1977 as a tool for promoting decentralised pattern of development and for minimising regional inequalities.

The main aim was to remove distortions, and to facilitate effective promotion of cottage and small scale industries widely dispersed in rural areas and small towns.

The list of products exclusively reserved for production in the SSI sector has been expanded to cover more than 500 items from the earlier list of 180 items (the list has since been expanded to 812 items). Government provided maximum support to small scale industries for product standardisation, quality control, marketing, etc., on priority basis. Within the sman scale sector, a sub-sector of tiny units has been created, and this sub-sector was expected to receive preferential treatment in comparison to bigger small scale units. It was also proposed in the policy statement to enact special legislation for protecting the interest of cottage, household and small scale industries. In each district, a District Industries Centre was set up to provide, under single roof, all the services and support required by small and village entrepreneurs. A separate wing was created in the Industrial Development Bank of India for small scale industries to provide effective financial support to this sector. Special efforts were made for modernising khadi and village industries, and for promoting appropriate technologies all round.

Industrial Policy, 1980

The policy primarily sought to harmonise the growth in the small scale sector with that in the large and medium sectors. The emphasis in the policy was to ensure that the large and small sectors were complementary to each other so that the new dichotomies (which are more apparent than real) between the two sectors did not distort the economic pattern.

The broad socioeconomic objectives of the policy of 1980 were set out as follows :

(i) Optimum utilisation of the installed capacity

(ii) Maximising production and achieving higher productivity

(iii) Higher employment generation

(iv) Correction of regional imbalances through a preferential development of industrially backward areas

(v) Strengthening of the agricultural bass by according a pref- erential treatment to agro-based industries and promoting optimum inter-sectoral relationship.

(vi) Faster promotion of export oriented and import-substitution industries.

(vii) Promoting economic federalism with an equitable spread of investment and the dispersal of returns amongst widely spread over small but growing units in rural as well as urban areas.

(viii) Consumer protection against high prices and poor quality.

An important element of the new policy was raising of investment limits of tiny and small scale sectors. These limits were redefined in terms of investment in plant and machinery, and were fixed at Rs. 0.2 million for tiny sector instead of Rs. 0.1 million, Rs. 2 million for the small scale sector instead of Rs. 1 million and Rs. 2.5 million instead of Rs. 1.5 million for ancillaries. These measures facilitated modernisation of many of the existing small scale units.

The policy aimed to bring into the fold of the small scale sector, a number of technology oriented units whose growth would be backed by a suitable system of incentives. The policy spelt out some of these incentives so that the small scale sector could grow in a significant measure and contribute to the national economy.

The then prevailing support programme for marketing as well as the reservation of items in the small scale sector continued.

A special emphasis was laid on the establishment of nucleus plants in backward districts around which a programme of ancillarisation developed. To quote from the policy statement : "The proposed nucleus plants in industrially backward districts would generate a spread-out network of small scale units, or the existing network of small scale units in the area would acquire faster growth by development of a nucleus plant in the area. In between the nucleus plants and the satellite ancillaries, the Government would promote a system of linkages for an integrated industrial development. The small scale sector might look forward to a steady and balanced growth through upgradation of technology within the framework of the new policy statement of the Government of India".

Industrial Policy, 1990

A policy relating principally to three areas (namely, industrial licensing, foreign investment and foreign collaboration agreement, anii investment ceilings for small industry) was announced, and in all of these it stipulated liberalisation as can be seen from the following:

(i) New units with an investment of Rs. 250 million in fixed assets, when located in a non-backward area, and with an investment of Rs. 750 million in fixed assets, when located in a backward area, are exempted from the requirements of obtaining a licence. 'For 100 per cent export-oriented units, and units located in free trade zones the investment in fixed assets is limited to Rs. 750 million.

(ii) Proposals by a company with foreign investment of up to 40 per cent equity are automatically cleared. Also foreign col- laboration agreements providing for royalty payments, not exceeding 5 per cent on domestic sales and 8 per cent on exports, could be concluded without reference to the gov- ernment.

(iii) Investment ceiling for various categories of small industry have been raised, for tiny units to Rs. 0.5 million, for small units to Rs. 6 million, and for ancillary units to Rs. 7.5 million.

Industrial Policy 1991 and its support for small scale industries

Government of India used the Industrial Policy of 1991 as an instrument for a major shift in its approach for faster industrial growth and development. The role of the Government shifted the focus from 'Control' to 'Help and Guide', to encourage entrepreneurship and enterprise development.

Some of the significant steps announced in this policy are as follows :

(i) Industrial licensing is abolished with a few exceptions.

(ii) Foreign investment is encouraged allowing Foreign Direct Investments up to 51 per cent in high technology and high priority areas, where large investments are required.

(iii) Automatic approvals are permitted for technology agree- ments related to high priority industries within specified pa- rameters.

(iv) Fresh approach will be adopted to public enterprises. Enter- prises, which are in the reserved areas of operation or in high priority areas or are generating good or reasonable profits, will be strengthened by giving greater autonomy. Competition will be induced by inviting private sector par- ticipafion. Disinvestment of government equity will be pur- sued in select cases. Sick public enterprises need to be attended to through restructuring strategies.

(v) Monopolies and Restrictive. Trade Practices Act of 1969 is substantially relaxed.

Following are some of the significant measures for promoting and strengthening small scale, tiny and village enterprises.

(i) Investment limits have been increased for each category as follows

Tiny -     0.5 million

SSI  -     6.0 million

Ancillary- 7.5 million

Export Oriented SSI - 7.5 million

(ii) Industry-related service and business enterprises are rec- ognised as small scale enterprises.

(iii) A separate package for promotion of tiny enterprises was introduced.

(iv) While SSEs would be entitled to one-time benefits (like pref- erence in land allocation, power connection, access to fa- cilities for technology upgradation), "tiny" enterprises would also be eligible for additional support on a continuing basis (relaxation from some provisions of labour laws, priority in Government purchases, easier access to institutional finance, etc.).

(v) The scope of National Equity Fund Scheme, and Single Window Loan Scheme, has been enlarged.

(vi) Adequate flow of credit and quality of delivery for viable operations of this sector were to be ensured.

(vii) Regulatory provisions relating to management of private limited companies were to be liberalised.

(viii) "Factoring" services for delayed payments through Small Industries Development Bank of India (SIDBI) were to be operated through commercial banks, followed by the prom- ise of a suitable legislation to ensure prompt payment of SSI bills.

(ix) A Technology Development Cell would be set up to provide technology inputs to improve productivity and competitive- ness in the small scale sector.

(x) Adequate and equitable distribution of indigenous and im- ported raw materials for SSis would be ensured.

(xi) The exisfing mechanism to provide marketing support both in domestic and export markets would be reviewed and strengthened.

(xii) Government of India would continue to support first gen- eration entrepreneurs and women entrepreneurs through training and development.

(xiii)Schemes for the handloom sector would be redesigned and redrawn under three major heads:

• Project Package Scheme

• Welfare Package Scheme

• Organisation Development Package

These schemes were designed to help product development and upgradation of technology, improve marketing facilities and welfare schemes, and provide better management systems in the existing State agencies.

(xiv) Provide a mechanism for increased supply of hank yarn, dyes and chemicals, and provide seed money for cotton growers, spinning mills and weavers.

(xv) Provide facilities for training and design development and for production and marketing assistance for handloom sector. Considering the importance of this sector from the point of view of employment and exports, Government of India will provide an integrated development thrust to this sector.

(xvi) With respect to other rural and village industries, such as khadi and village industries, emphasis will be shifted to consumer preferences and better flow of credit.

(xvii) In the khadi and village industries sector, agro processing and food processing industries were to be promoted with a view to utilis@ng locally available agricultural produce.

SECTION 2

A Recap on the recommendations of the Expert Committees and their impact on support measures for SSI

Small enterprises are now increasinaiv recoanised aq vital not merely for providing jobs at reasonable cost but also as a dynamic engine of growth for the national economy. Their ability to adopt flexible production techniques has made them especially suitable to meeting customer needs. With the new electronic techniques, customised production has not only become possible but has become more efficient than conventional mass production methods. The traditional concept of small units as useful for only low technology items has given way to hi-tech small volume production, often meant for export. The report of the Expert Committee on Small Enterprises (Abid Hussain Committee, 1997) states that time has come for the policy of protection to be replaced by one of promotion. The basic accent of the policy in earlier years has been defensive, airning to insulate it from the dynamics of competitive growth. Such insulation is no longer practicable in the context of liberaiisation, privatisation and globalisation. Any new polidy should aim to make the sector be on its own and compete on equal terms with other industrial sectors, and the role of the state should be to merely ensure a level playing field for the purpose. This change of perspective -in the policy field is essential if the small sector is to survive and grow as a dynamic component of the economy.

The recent reviews of the reports on small scale sector in the context of liberalisation are :

(i) Abid Hussain Committee, 1997 (Report of the Expert Committee on Small Enterprises),

(ii) S. L. Kapur Committee, 1998 (Report of the High Level Committee on Credit to Small Scale Industries), and

(iii) Report of a Study Group on Development of Small Enterprises, 2000 (Chairman: S.P Gupta).

In the light of the recommendations of these Committees, and the report of a group of union ministers headed by the Hon'ble Union Home Minister L K Advani on 30 August, 2000, the Hon'bie Prime Minister Atal Behari Vaipayee, announced a wide package of incentives in the context of liberalisation, in his inaugural address at the first ever National Conference on Small Scale Industries organised by the Union Minis" of Small Scale Industries, and Agro and Rural Industries on 30 and 31 August, 2000 in New Delhi.

The salient features of these recommendations are as follows :

Definftion and Coverage of SSI Sector

Formal definitions were given for small scale industries, tiny industries, ancillary industries, 100 per cent export-oriented industries, service and business enterprises, etc., over a period of time. A close observation of these would highlight their significant position in the overall economy of the country.

SSI, Ancillary, Export-Oriented Units : Rs 10 millions (investment limit in fixed assets in plant and machinery).

Tiny : Rs. 2.5 millions

Service and Business Enterprises: Rs. 1.0 million (Excluding land and building)

The following table presents the evolution of the definition of small industrv in the country.

                                                                  TABLE - 1

Evolution of the definition of Tiny, Small Scale, Ancillary & E.0 Industries in India

Period	Ceiling on investment in Plant and Machinery (Gross value)(in Rs. million)
	Tiny	SSI	Ancillary	Export-oriented SSI unit
1999(December)@	2.5	10	10	10
1997(December)@	2.5	30	30	30
1991(April)@	0.5	6	7.5	7.5
1985(March)	0.2	3.5	4.5	7.5
1980(July)	0.2	2	2.5
1977(December)	0.1	1	1.5	-
1974(May)		1	1.5
1966(October)		0.75	1
1960(January)		+0.5	1

@ In calculating the value of plant and machinery, cost of Research and Development (R & D) and pollution control equipment will be excluded

+ Investment in all fixed assets

1.The Concept of industry-related service and business enterprise was introduced in 1982. Its present definition (from September 2000) is an enterprise with investment limit in fixed assets excluding land and building of Rs. one million, which was earlier Rs. 0.5 million. For tiny sector, and service and business enterprises, population limit was also specified earlier, which has since been removed.

2. In addition to the stipulation regarding gross investment in plant and macnnery, for ancillary and export-oriented units, there are a few other aspects, which form part of the definition.

3. Ancillary industrial undertaking are those which are engaged or proposed to be engaged in the manufacture or production of parts, components, sub-assemblies, tooling or intermediates, or rendering of services, and the undertakings supply or render or propose to supply not less than 50 per cent of their production or services, as the case may be, to one or more other industrial undertakings. No such undertaking shall be subsidiary of or owned or controlled by any other industrial undertaking. The parent enterprise can be small, medium or large unit.

4. Export-oriented small scale unit (EoU) is one which undertakes to export at least 30 per cent of the annual production by the end of the third year from the date of commencing production. In respect of medium and large units wanting to manufacture any of the items reserved for manufacture in the small scale sector, export obligation, which was earlier 75 per cent, has been reduced to 50 per cent from 1997.

In order to give further boost to exports from SSI sector, export obligation on large units manufacturing items served for SSI sector was reduced from 75 per cent to 50 per cent in 1997. There is need to carve out another definition for micro with investment ceiling in plant and machinery going up to Rs. 1 million. In functional sense, the term'micro enterprises'is already in vogue referring to enterprises promoted under specific development programmes covering industry, service and business venutres. Micro and tiny enterprises which are unorganised and informal in their managerial and organisational practices need greater continued support compared to bigger among small scale units which have the necessary wherewithal to withstand national and global competition. These need at best one time support.

Equity participation not exceeding 24 per cent by other industrial -undertakings (including foreign companies) is permitted in a small scale unit. However, non-industrial undertakings (like finance companies), non-resident Indians (NRis) and foreign companies can invest upto 100 per cent and own a small scale unit provided the NRI/foreign company concerned has no equity interest in any other industrial undertaking in the country.

Dereservation for SSI Sector

The Expert Committee advocated total abolition of reservation policy for exclusive manufacture in SSI sector. For meeting the transitional arrangements, the Committee recommended that a financial package of Rs. 25,000 million be provided by the Union Government for a five-year period to industrial units affected by dereservation. This can be used to leverage greater resources from SIDBI, banks and other financial institutions to provide concessional funding for expansion, technology upgradation, modernisation and training and fiscal concessions. Among the reserved items, 68 products which account for more than 80 per cent of the total value of production of reserved products, need to be paid special attention by identifying geographical areas state-wise where such affected units are concentrated. Government has already dereserved 15 items of this list.

In the context of liberalisation, opening of reserved product lines through open general licence (OGL), removal of quantitative restrictions, and in the light of the performance of SSI sector in the reserved list of product lines, dereservation is an imperative. Perhaps through phased dereservation a fast pace could be achieved. Any dereservation with a financial package of support to the affected units would be harmful to the overall interests of the SSI sector. With respect to 24 items dereserved since 1997, bringing down the reserved list from 836 to 812, no financial package has been provided to the affected units. This needs to be attended to on a priority basis. There is no feedback so far on the impact of dereservation. Studies need to be carried out for assessing the impact of dereservation. It should be borne in mind that reservation is not a highlight measure, but one of the important measures to promote small industries. There is need to strengthen other measures for the growth of the SSI sector. Product lines which can be manufactured equally efficiently in SSI sector should be continued to be reserved, and those which are beyond the scope of SSI should be dereserved.

Another category is the list of items reserved for SSI sector for Central Government purchases. The number stands at present at 358 items (including 8 items of handicrafts sector).Concentration of SSI units, which have secured orders under this provision, continues to be largely from the Western and Northern States. About half a dozen States account for the major share. It is important to encourage SSI units from other States to avail of this opportunity.

Credit facilities and other incentives

With the increase in the investment limit for SSE sector, to ensure availability of credit to all segments of the enlarged small scale enterprise (SSE) sector, Reserve Bank of India (RBI), issued instructions to banks for ensuring that out of the funds available to all segments of the SSE sector, 40 per cent could be made available to units with investment upto Rs. 0.5 million in plait and machinery, 20 per cent for units with investment ranging between Rs. 0.5 million and Rs. 2.5 million and 40 per cent for other SSES. The Kapur Committee recommended that the first slab of 40 per cent of units with investment in plant and machinery up to Rs. 0.5 million might continue. However, the allocation of 20 per cent for units in the next slab of Rs. 0.5 million to Rs. 2.5 million investment should be raised to 30 per cent. The balance 30 per cent might be allocated to other SSI units. Another directive from the RBI is that all advances issued to khadi and village industries covered by Khadi and Village Industries Commission (KVIC), irrespective of their size of operation and location, would be covered under priority sector lending, and would be eligible for inclusion under the sub-target (40%) of the SSI segment within the priority sector.

The ceiling on composite loan scheme implemented by SIDBI has been raised to Rs. 2.5. million from September 2000 from the earlier levels of Rs. I million, Rs. 0.5 million, Rs. 0.2 million and Rs. 0.05 million at different periods. The Single Window Scheme of SIDBI has emerged as a popular channel for refinancing the loans given by primary lending institutions (PLis) covering both term loan and working capital assistance from a single PLI up to the venture outlay of Rs. 20 million. A simplified procedure for assessing working capital requirements of enterprises on the basis of minimum of 20 per cent of annual turnover has been made applicable in respect of borrowers having working capital limit up to Rs. 50 million.

National Equity Fund, operated by SIDBI to provide equity assistance to tiny and small scale units with revised project outlay up to Rs. 2.5 million, is in operation with a ceiling on loan assistance subject to a maximum of Rs. 0.625 million per project, at 25 per cent of project cost.

The main problem facing the SSI sector is the availability of adequate and timely credit. Credit guarantee scheme will facilitate small enterprises to avail credit up to certain limits from banks and financial institutions without having to bother about collateral. The scheme operated by SIDBI for SS[ sector has become operational with a budget provision of Rs. 1250 million from September 2000. This will cover loans of up to Rs. I million. The guaranteed loans will be securitised and will be tradable in the secondary debt market.

The scope of the Technology Development and Modernisation Fund(TDMF) of SIDBI has been enlarged to cover non-exporting units and units graduating out of the SSI sector in respect of all modernisation proposals including those which involve improvement of capabilities and competitiveness in the domestic market. The operation of the scheme has been extended by another three years, up to 2002-03. The scheme will cover direct finance as well as refinance for assisting technology development and modernisation of SSI units.

Public sector banks are asked to accelerate the programme of operating specialised SSI branches to ensure that every district and SSI clusters within districts are served by at least one specialised SSI branch of a bank. To improve the quality of banking services, SSI branches are asked to obtain ISO certification.

Commercial banks have been advised by RBI to moderate the cost of credit to SSI sector by lower spreads over PLR (primary lending rate) for units with good track record. The powers of bank managers of specialised SSI branches have been enhanced for disposing of credit decision at the branch level.

 SIDBI has been delinked from Industrial Development Bank of India (IOBI). IDBI share holding in State Financial Corporation (SFCS) will be transferred to SIDBI.

Commercial banks have been directed by RBI to give greater weightage to overdue outstandings that large units have in respect of SSI suppliers, while appraising credit proposals.

 Capital subsidy of 12 per cent is admissible for investment in technology upgradation in select sectors. An inter-ministerial committee of experts will be set up to define the scope of technology upgradation and sectoral priorities.

 To encourage total quality management in the SSI sector, Central Government will continue to grant Rs. 75,000 for each unit that obtains ISO 9000 Certification for the next six years, up to 2006.

A one time grant of 50 per cent will be given to small industry associations planning to develop and operate testing laboratories of global standards.

The system of credit rating of SSES, for which SIDBI introduced a new scheme to provide grant up to 50 per cent of the fee paid by them to the credit rating agency or Rs. 15,000, whichever is lower, will increase the capacity of the SSI sector to access institutional credit in adequate measure and also expedite the process of credit appraisals, thus facilitating faster flow of assistance to the sector. Existing industrial concerns and service enterprises with good track record which obtain minimurti satisfactory ratings from credit rating agencies either generally or specifically for a debtaoan programme, will be eligible to avail of this facility.

 To rid the small scale sector of the problem of frequent inspections by multiple agencies, an expert group will be set up to recommend, within three months, measures for streamlining the inspections. Currently, it is found that SSI units are subjecti to a minimum of 37 inspections, 52 laws and 116 forms and registers. Efforts are being made to frame a single legislation to reduce procedural hassles and eliminate inspections. It is planned to repeal laws and regulations that have become redundant.

Central Excise exemption limit for small scale units has been raised to Rs. 10 million from the earlier level of Rs. 5. million.

SECTION 3

ANALYSIS OF THE GROWTH STRATEGIES FOR SSI

 Planning era in the country revealed that till the 1980s socialism was equated with an expanding public sector and self- reliance with an import-substitution strategy, in which export pessimism prevailed. The economy was getting over-regulated as it came up with constraints to production, and matching demand and supply The growth rate of GDP (Gross Domestic Product) in the first three decades (1 950s, 60s, and 70s) was at an average of 3.5 per cent despite massive outlays in the public sector. Growth record turned impressive in the 1980s even with slow, cautious liberalisation of economic policies, as the then leadership began displaying pragmatism and taking note of external realities. The year 1991 thus becomes a watershed in India's development saga when the economy was opened up and policies were overhauled to promote greater improvement of the private sector. Liberalisation and reforms covering trade, industry, investment, foreign exchange and financial sectors helped to move the country on a higher growth path from an average of 5.7 per cent in the 1980s to over 6 per cent in the 1990s. However, continuing fiscal imbalances with a marked increase in revenue deficits and virtual pause in reforms in the lafter half of the 1990s threatened to flatten the growth curve.

 A controlled economy and planning could go together with a dominant role for the public sector. In the 1990s, as liberalisation caught up, the limitations of the planning process came to the fore. Growth and social objective criteria had to be simultaneously pursued in all the plan periods. In some periods, social objectives were given importance, and in some others growth of heavy industries and infrastructure development. The present realisation in the post-reibrm period of the 1990s is that unless high growth rate is achieved, it would not be possible to bring about greater social transformation through accelerated employment generation minimising social inequalities. High technology and building up of competitiveness in the global scenario is the norm for the industrial sector, including village and small scale industries. The Government's inability to inject larger resources for productive purposes and social development, and the growing dependence on private investments- domestic and foreign- for infrastructure have turned the prospects of development financing bleak. Whatever the shortcomings in plan implementation, the Indian economy has shown a growth momentum in the 1990s-thanks to the policy of liberalisation. Freed from the shackles of licensing and other regulations, productive sectors have begun to exhibit greater dynamism than in the days of public sector dominance.

 The small scale sector has recorded consistently good performance in comparison to the manufacturing sector and industrial sector as a whole during the 1990s as indicated in the following table:    

TABLE-2

Performance of Modern Small Scale Industries-All India

Note : Figures in brackets indicates percentage variation over the previous year.

Source : Government of India, Office of Development Commissioner (Small Scale Industries), New Delhi. 

 The rate of growth of production in SSI sector at 1990-91 prices was 7.7% in 1998-99, 8.4 % in 1997-98, 11.3% in 1996- 97, 11.4% in 1995-96, 10.1% in 1994-95 and 7.1% in 1993-94. It was 5.6% in 1992-93, while it was 3.1% in 1991-92.

An important area of concern is the growth pattern of exports, with respect to both total exports from the country and from SSI sector as indicated in the following table:

TABLE-3

Growth of Exports-All India Total and for Small Scale Sector

A) At current prices-Value in Rs. billion

Period	Total Exports	Exports from SSI Sector	Share of SSI(%)	Growth of Total exports(%)	Growth of SSI exports
1990-91	325.53	96.64	29.69	17.70	26.74
1991-92	440.42	138.83	31.52	35.29	43.66
1992-93	536.88	177.88	33.13	21.90	28.11
1993-94	697.51	253.07	36.28	29.92	42.29
1994-95	826.74	290.68	35.16	18.53	14.86
1995-96	1063.53	364.70	34.29	28.64	25.46
1996-97	1188.17	392.49	33.03	11.72	7.62
1997-98	1301.01	444.42	34.16	9.50	13.23
1998-99(Estimated)	1416.04	494.81	34.94	8.84	11.34

       (B) At Current prices-Values in US $ billion

1990-91	18.143	5.386	29.69	9.22	17.62
1990-92	17.865	5.632	31.52	(-)1.53	4.57
1990-93	18.537	6.141	33.13	3.76	9.04
1990-94	22.238	8.068	36.28	19.97	31.38
1990-95	26.330	9.258	35.16	18.40	14.75
1990-96	31.797	10.904	34.29	20.76	17.78
1990-97	31.797	10.904	34.29	20.76	17.78
1990-98	35.006	11.958	34.16	4.59	8.16
1990-99(Estimated)	33.659	11.762	34.94	(-)3.85	(-)1.64

Source:Government of India,Office of Development

Commissioner (Small Scale Industries), New Delhi.

The country's exports in 1998-99 declined by 3.9% in dollar terms. There is evidence of a pick-up during 1999-2000. It is necessary that this momentum be sustained. The exports from SSI sector in dollar terms recorded a growth of 31.4% in 1993-94, 14.8% in 1994-95, and 17.8% in 1995-96. Prior to 1993- 94, it was very low ranging from 1.4 to 9.0%. In 1997-98, it was 8.2% and in 1998-99, it has shown decline by 1.6%. The target for the country's exports for 2000-2001 is 18 per cent. SSI sectoes contribution is yet to be revealed clearly. For achieving a sustained growth of 20 to 25% per annum, the export basket needs to be considerably diversified, and a paradigm shift needs to be brought about in export policy and procedures. However, the recently announced export policy for SSI contains some measures which go to a certain extent in this direction. The gains at the turn of the century through industrial recovery and better export performance need to be strengthened by persevering with well-structured measures to reduce institutional rigidities, and further economic activity.

Major Initiatives for Economic Prosperity

General

* Use of foreign trade markets permitted

* Foreign Exchange Regulation Act and Monopolies & Re- strictive Trade Practices Act were replaced by the liberal- ised  Foreign Exchange Management Act.

* NR[s allowed to invest up to 100% equity with full benefits of repatriation in most industry sectors.

* 5Tax holiday for new industries in industrially back- ward states and backward districts in the country.

* Rupee was made partially convertible in 1992 and fully con- vertible on current account in 1994.

*Across the board reductions in import tariffs- also on capital goods.

*Progressive reduction in minimum lending rates by banks.

* Liberalised bank lending norms.

* Access to international capital markets allowed for Indian companies.

*Foreign institutional investors permitted to invest in Indian capital markets.

* Reduction in corporate tax rates to a moderate level.

* Excise duty rates lowered and duty structures lowered.

Strategic Support Measures for SSis

* No licensing or restriction for production in SSI.

* Locational restrictions have been reduced to the minimum.

*Industry related services have been brought within the fold of small scale developmental programme.

* The procedure for registration of SSI has been made lib- eral and is simplified. The procedure is now investor-friendly. *Enforcement of Labour Laws for SSis has been transformed from a regime of regulation to an era of self-discipline and voluntary compliance.

* Environmental clearance procedures for SSis have been rationalised and simplified. 

* Credit policies for SSI sector are being fine-tuned by Reserve Bank of India from time to time.

SECTION 4

FUTURE OF SSI IN INDIA

Suggested Government Measures

It is important to examine the changing profile of SSI entrepreneurs and find out if a segment of the SSis has developed a vested interest in remaining "small". It is possible that even well managed units want to split and continue to remain within the SSI limit to avail of the concessions. The Central Government, must, therefore, evolve a package that prescribes a time frame for tax holidays and incentives for SSI units which plan to graduate into medium sized concerns. Small industries must be encouraged to merge and collaborate for this purpose. The proposed Third Census of Small Scale Units to be undertaken by the Office of the Development Commissioner (Small Scale Industries) must find out whether there has been any significant inflow of foreign equity to in SSis. It should also cover the incidence of sickness and its causes.An updated data base on SSI sector is the prime need for effective policy formulation and implementation. Banks, financial institutions and state promotion agencies in charge of small industries must improve their supervision and service to detect signs of sickness early on, and nurse the units back to sound health. When the government reviews the outdated labour and industrial laws, it must come up with a single piece of legislation for small units to remove procedural hurdles and hassles. Ancillarisation, should be pursued as a Oicy far more vigorously, particularly in the context of global competition. Export promotion offers a greater scope compared to earlier years. SSI sector should be helped to meet a level playing field. The sector should be helped to face the challenges of globalisation and improve productivity and product quality to effectively deal with competition. Government should extend support on a sustainable basis to help the sector to overcome these challenges. Every encouragement must be given to SSis through the cluster approach in particular, to focus on new technology, optimal production and quality control so that they can continue to play a major role in the country's economy.

Issues for Consideration

Many industries that are big in India today started in a small way.

How many that started in a small way could grow into large industries? (Example: Nirma, Wipro, lnfosys, etc.) What are their success stories? What are the lessons entrepreneurs can learn from these success stories? How should policy makers re-tune and fine-tune their approaches in order to encourage every SSI to grow into a large industry?

What are the reasons for the failure of some SS[s (though the number is negligible)? How does a prospective entrepreneur avoid the pitfalls? What are the lessons each instituton involved should learn? How should policy makers shape and re-shape the policies in order to eliminate sickness in SSIS? These are some of the questions, which need to be addressed to achieve the goal. It should be stated that the creation of an enabling political and economic environment suitable for the creation of SSis is a major task of the Government. Assistance to small and medium-sized business development is an intergal part of overall economic reforms together with enterprise restructuring and ownership reform, investment promotion and financial reform. They should be the concerns of Government of India for tomorrow.

References

Ministry of Commerce and Industry, Office of the Economic Adviser (1 999) Handbook of lndusifial Policy and Statistics, 1999 New Delhi.- GOI.

Ministry of Industry (1997) Report of the Expert Committee on Small Enterprises (Chairman: Abid Hu&sain), New Delhi: GOI.

Nagaiya, D. (1 998) Impact of Economic Liberalisation on Small Industry. Hyderabad: nisiet. A study sponsored by NSIC.

National Council of Applied Economic Research and Friedrich- Neumann-Stiftung(FNS)(1993).StructureandPromotionofSmaliscale Industries in India-Lessons for Future Development, New Delhi.

Reserve Bank of India (1 998). Report of the High Level Committee on Credit to Small Scale industries (Chairman : S. L. Kapur). Mumbai.

Sandesara, J.C. (1992) Industrial Policy and Planning, 1947-91 Tendencies, Interpretations and Issues, New Delhi, Sage Publications.

Small Industries Development Bank of India (SIDBI) (1999), SIDBI Re,oort on Small Scale Industries Sector, 1999, Lucknow.