Small industry needs large aid

By Alok Mukherjee

NEW DELHI, FEB. 23. The small-scale sector has come into sharper focus in the budget-making exercise this year for two reasons. One, the Prime Minister and the Finance Minister have been proffered advice to do away completely with the system of reservation for the sector. The second is the lifting of the Quantitative Restrictions (QRs) on imports by April 1, which means a host of consumer items made essentially by the small- scale sector could be freely imported and could cause the death of the financially, technologically and entrepreneurially weak small-scale industries.

The point of curiosity in the Budget, therefore, will be whether the Finance Minister, Mr. Yashwant Sinha, starts implementing the dereservation exercise or provides some protection to the sector from the expected competition.

The small sector was conceived sometime around 1967 as a means to perpetuate the entrepreneurial skills among the general population, apart from the fact that substantial employment would be generated over a wide geographical area so that people do not have to migrate to look for jobs either in large industries or with the Government. And to protect this nascent industry, certain limitations were specified in terms of investment in land and machinery so that the large industries did not creep into the sector, which was offered a host of excise and other concessions. Some 47 items were initially reserved for exclusive manufacture by the small-scale sector so that it did not have to face competition from established units. This list was progressively expanded to reach a peak of 873 in 1983 after which some deletions brought it down to the present 812 items.

Large-scale sickness

Today, the sector is plagued by large-scale sickness, poor quality of products because low investment limits inhibit technological upgradation and inadequate marketing facilities. Hence, the suggestion to dereserve the sector, which effectively means the concept of small-scale units would wither away. But the small industry has its own list of complaints.

For one, the initial recommendation of the Abid Hussain Committee for dereservation was accompanied by the suggestion that a credible support package for the small industries be provided. This package was to include equity support, interest rate concessions and technology assistance. The Committee had also recommended that funds to the tune of Rs. 500 crores per year, that is, Rs. 2,500 crores over the next five years, be provided. Any move for dereservation should, therefore, have the accompanying package as well, the small industry argues.

The Abid Hussain Committee report was followed by the S. P. Gupta Committee report which too recommended several support measures. But here too, nothing has been done in terms of low cost and timely credit, an export assistance package, improvement in infrastructure and a comprehensive package to face import competition as recommended by the Gupta Committee.

No large investment

Attempts to marry the small and large industries so that some sort of capital and technological support was provided to the former bore no fruit. In 1991, the Government allowed 24 per cent investment by large industries in the small sector but till date, no significant investment has materialised.

On the competition front, the small industry argues that if the lifting of the QRs is accompanied by dereservation, the competition to it will not only be from foreign companies but also from domestic large units. While unfair imports could be tackled through anti-dumping measures, competition from large industries which have access to finance, professional management, marketing outfits and better technological back-up, would be almost fatal for the small scale sector.

For the lakhs and lakhs of small and tiny units in the country, the Budget would be a pointer to their future. Will the Government provide the promised financial and technological package or will it initiate the process of annihilation of the small-scale sector?

Send this article to Friends by E-Mail

Section  : Opinion
Previous : Kerala's way forward