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New Delhi, 5 April 2006

Small-Scale Sector


By Dhurjati Mukherjee

Over the last few decades, the small-scale sector has acquired a prominent place in the socio-economic development of the country.  The sector has played a crucial role in spreading the benefits of economic growth among the masses by providing productive non-farm employment, so essential for a country like India.  The definition of this sector has thus evolved in the recent past to include not only traditional small-scale industry but also small-scale service and business entities.

The National Manufacturing Competitiveness Council (NMCC) has therefore appropriately termed this Sector as small enterprises.  It may be mentioned here that a ‘small enterprise’ is defined, in case of manufacturing enterprises, as an enterprise with investment in plant and machinery not exceeding Rs.5 crore and, in case of enterprises in providing services, as an enterprise with investment in equipment not exceeding Rs.2 crore.


The size of this sector is indeed quite big with around 114 lakh units, employing 271.36 lakh persons.  It has contributed nearly 16 per cent of the country’s GDP and about 40 per cent of the total industrial output.  Even exports have been given a boost by this sector with a steady 20 per cent growth. The potential for growth of the small sector is indeed immense for which it merits special encouragement. When we talk of rapid industrialization, it is only this sector that can contribute the maximum towards fulfilment of this objective.


In China, the small sector has played a significant part in regenerating the rural economy.  Even in countries like the US, Japan, Korea and Taiwan, the small and medium sectors have a major share in activities such as manufacturing, trading and services.  In our country also, this sector can become an engine of growth, spreading far and wide, and generate large-scale employment for which the right policy decisions have to be taken.


The problems faced by this sector are legion, especially in our country and there is an imperative need to improve efficiency while at the same time reduce costs and maintain international standards.  A key reform, suggested by the NMCC, is promotion of growth poles or industrial clusters, referred to in the PURA (Provision of Urban Amenities in Rural Areas) context as envisaged by our President.  The growth poles cover all elements of the cluster approach – industrial clusters, artisan clusters and agro-based clusters.


On the basis of experience of many developing countries, one can say the support strategies for the small and also the medium sector development may be broadly classified as: capacity building for infrastructure delivery; loan finance support; technological upgradation through linkage with academic institutions; training and research; and partnership and institutional linkage.


The development of the small sector is crucial for overall economic growth as also to provide large-scale employment. While the Government and the Reserve Bank have unfolded several policy measures to ensure adequate credit flow and attempts are being initiated to induct IT usage in this sector for greater efficiency and quality, the problems possible lies elsewhere.


The marketing of products of the small and tiny sectors, both in the country and abroad, has become a big problem because of intense competitiveness from bigger outfits as also multinational corporations.  Obviously, most of the small scale units lack economies of scale and cannot compete in the market though at times their products may be superior in quality.

It is thus necessary that the Government should help this sector by arranging for tie-ups with other organizations that could help them market their products. Also, the Government could think of creating an organization for marketing products of the small and tiny sector in world markets.  The demand for Indian products in the international market and also the pricing and quality structure could be assessed by this organization and passed on to the manufacturers for adhering to those specifications.

The development of the small sector is not a quick fix solution. The improvement in credit and infrastructure facilities have already started and should greatly help this sector in the coming years. These are intimately linked with manufacturing strategy and competitiveness though there is no need to believe that producing at a lower cost would always help as other considerations of quality and trustworthiness are equally important. 

Meanwhile, the Government put up the Small and Medium Enterprise Development Bill in May last year where some of the key issues have been addressed. An Industry Facilitation Council has been formed along with the National Small and Medium Enterprise Board, which have representatives from the concerned Government departments.

One can expect that the small and medium sector have great prospect to emerge big and strong as some of these have the potential to emerge as large corporates in the coming years.  A strong foundation will enable these firms to climb the ladder of success of course, with help and support from the Government, financial institutions and technology and marketing tie-ups. ---INFA

(Copyright, India News and  Feature Alliance)



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