Page 228 - DECO303_INDIAN_ECONOMY_ENGLISH

Unit 13: Small Scale Industrial Sector in India

grant of fiscal concessions and government obtaining of supplies from the sector. Currently, 836 Notes
products are reserved completely for SSIs. For increased credit flow to the SSI sector, a policy of
priority sector lending through nationalised banks has been followed, though this has not been
sufficient for the growth requirements of the sector.
Since the 1980s and, more specifically, in the 1990s, there have been marked changes in the
policy climate across the globe towards freer markets and reduced government intervention.
The global economy is categorised by greater integration, a more liberalised global trade
regime following the establishing of the World Trade Organisation (WTO), a rapid pace of
technological change, particularly in some high-growth areas for instance, information and
knowledge-based industries, and intensified global competition. India’s economic policies are
in the process of being restructured, through the second generation reforms, to adjust to the
emerging challenges. The core emphasis of future policy will be to promote the growth of this
dynamic sector through emphasised, sustained and wide-ranging interventions, as the SSI sector
has so far been insulated to a large extent from pressures of competition both domestically and
globally.

What are the issues and prospects for the development of the SSI sector over the medium-term?
Before turning to the issues involved, the economic profile of the SSI sector is useful as a signal
of the success or failure of past policies.
The SSI sector is non-homogenous in construction and includes diverse types of production
units varying from traditional crafts to high-tech industries. The total number of SSI working
units in the nation is approximated to be around 3 million. In terms of ownership, the vast
majority of SSI units are proprietary concerns (80.5%) with only 16.8% operating as partnerships
and private limited companies. The first census of SSIs in the nation was undertaken in 1972 and
the second in 1987-88. Tamil Nadu engaged the first rank in both years in terms of number of
units and employment, followed by Maharashtra. Andhra Pradesh was placed at No. 6 and 7
respectively. By 1993, Punjab appeared at the top. One essential factor to be noted in the statistics
on small industries is the mortality rate. Whereas the industries may get recorded at the entry
point, there is no record of their exit.

The potential of SSIs to create employment has remained the strongest argument in their support.
The sector now recruits 17 million persons and is the second largest employer of India’s workforce
after agriculture. The role of SSIs in the economy can be seen from the fact that it now explains
for 95% of all industrial units in the nation and 40% of total output. About 7,500 products are
produced in the small-scale sector. The export share is 35%. The composition of exports shows
the largest shares of SSIs are in the industry groups: hosiery and garments (29.0%), food products
(21.4%) and, leather products (18%). The industry groups which have registered high growth
rates and a large share in total production of SSIs are: wood, furniture, textile products, etc.,
paper and printing, and metal products.
The future policy emphasis for SSIs will be on the development of industrial clusters which have
been found in various studies to be effective in terms of resource use and in encouraging inter-
industry and inter-sectoral connections. A cluster is described as a geographically bound
concentration of similar, associated or complementary businesses. A UNIDO study describes
clusters as 100 registered small-scale units. There are approximated to be 350 SME clusters in
India which contribute directly and indirectly to 60% of India’s exports. Nevertheless, the spatial
concentration in clusters will earn a slower dispersion of industrial activity to backward areas.
The location-wise distribution of clusters reveals 65% concentrated in cities and metros and only
13% in small towns and rural areas. There is scope for motivating the development of clusters in
rural areas and rural-based artisan centres.

LOVELY PROFESSIONAL UNIVERSITY 223