Small-scale Sector in the wake of the on-going Reforms Process:

Small scale sector is greatly inhibited by a number of exogenous, endogenous, supply-side and demand-side constraints. These are generated by a number of factors and processes. For example, the reforms process in India, like in other developing countries, has gradually generated a number of severe exogenous constraints and bottlenecks for the small business development centre scale sector. These constraints are even beyond the control of the Government and other authorities that are responsible to protect the interests of the small business development centre.

This Paper briefly looks at the nature of these exogenous constraints impinging on both the survival and expansion of the small business development centre. In time to come, they will surely have a highly adverse affect, essentially on the tiny, micro and small units of the small scale sector.

The country is going through the second phase of the reforms process, and the Government is determined to check the slowdown of the economy by reviving economic growth, arresting industrial decline, and reversing negative growth in the agriculture sector. These prescriptions apply generally to the whole country, though with inter-state and inter-region variations. How exactly these prescriptions have to be implemented has to be seen. In the wake of such considerable pessimism and uncertainty that invariably dominates the business sentiment, the 2001 Report on India by the Financial Consultants, McKinsey and Company, covering 13 sectors (2 in agriculture, 5 in manufacturing, and 6 in services) and accounting for 26 per cent of the GDP, had reminded the country of its potential in terms of foreign reserves, a huge and unparallel skilled manpower, and high liquidity of the banking system, and predicted a high per cent GDP growth in the coming five years, provided the following assumptions are met:

* eliminating reservation of all products of the small scale sector;

* privatization of power, telecommunication, and infrastructure sectors, and airlines;

* further reduction in import duties;

* removing the ban on foreign direct investment in retail trade, insurance, and telecommunication;

* affecting full flexibility in use of contract labor;

* transfer of management of transport infrastructure including airports, ports, and roads; and

* implementing land market reforms, essentially by establishing fast track courts to settle disputes involving real estates.

The report, however, ignored the importance of an effective regulatory framework and good governance. The scenario has not changed much over the recent years

The conditions, as laid down above, are very difficult, and one wonders if they can be fully met within the given time frame, and without violating our built-in economic and social assumptions revolving around the basic needs of the majority of our people. The government, however, realizes that (a) rural economy needs urgent attention to eliminate hunger and unemployment and to give a boost to the industrial sector, and (b) the rural and urban infrastructure needs drastic improvement. There have been attempts to privatize the power sector, and to de-reserve the small-scale industries, and to amend the labor laws. The Government had earlier unveiled its 14-point reform agenda in order to reverse the economic slowdown. Going ahead with the second phase of the reforms process requires a much greater effort in terms of striking a healthy compromise between the requirements of the reforms process and protection of our key sectors like the small industry sector from the new competition policy. No one would dispute the fact that introducing sweeping changes to promote competition would be a lethal dose for the economy and that we have a very critical small industry sector, of which micro and small segments are very basic to the economy. The small business development centre is already vulnerable to the changes brought about by the on-going reforms. We will have to safeguard the interest of this key sector at any cost because of its tremendous employment potential, if not for anything else. Every country including the US protects its key sectors and interests in the guise of one pretext or another. So, why cant we also do it

The policy of globalization, opening-up, and liberalization, as reflected in the WTO agreement, will become a serious bottleneck in terms of generation of additional demand though not so much for the micro and small units at present, but for medium, and large units. A few doubts that are often raised in this context are briefly analyzed below:

(1) The danger of granting patents on a number of products that are indigenously Indian to other WTO member countries do not offer any threat to Indian manufacturing units because of the simple fact that a patent is granted for something that apart from being new, is also useful and non-obvious. Most of our indigenous products (both agricultural and non-agricultural) manufactured by micro and small units are age-old and obvious (in the sense of being unique), and hence are not new and not even non-obvious. And hence, by and large patent rights will not hit our products. But we do, however, have a threat to our medium and large industries that produce and export non-traditional items in rivalry with WTO member nations. Despite this logic our country should, however, be cautious small business development centre enough and be prepared to act promptly without waiting for infringements by international competitors who would always want to poach into the vast variety of products that we have been producing on the basis of our age-old knowledge and indigenous techniques. This is the only way to safeguard our interests and rich bio diversity in this age of globalization. The onus, therefore, lies on the government, and it is believed that it will live up to the expectations of our producers.

(2) Apart from being sensitive to the issue of patents, the Government should also try to safeguard the interests of our indigenous units in terms of labor absorption, which is under threat in the wake of the on-going reforms process, which is based on economic liberalization and market autonomy. India is an excess labor economy, and hence any reduction in labor demand and the resulting labor absorption would add to the already existing high levels of poverty. In fact poverty level is inversely linked with labor demand. This inverse linkage, therefore, implies that poverty can be reduced by affecting such an increase in labor demand that cannot be met by the available labor supply. This task becomes difficult especially in an excess labor economy like India, and that too when the reforms process has already taken off. This shift in the economic management of the country is introducing, though gradually, capital-intensive techniques almost in all the spheres that matter in our day-to-day life. In terms of this constraint there is, therefore, a need to evolve a strategy whereby, on the one hand, we can take the advantage of the newly developed techniques of production, and on the other, also maintain, and even enhance, the demand of labor.