The promotion of small-scale industry has been a consistent theme of post-independence Indian planning. While various protectionist measures and fiscal concessions had been put in place in the 1950s, it was not until the late 1960s that planners began to use directed credit as a tool of policy. A series of policies introduced from 1967 onwards, and facilitated by the nationalisation of most of the commercial banks in 1969, demanded sharp increases in the share of bank lending going to designated 'priority' sectors.
The post-liberalisation business environment has become harsh for the small-scale industries (SSI) sector because of increased internal and external competition. In addition, the far-reaching impact of the various WTO norms are now threatening to further affect the fortunes of small and medium enterprises. Unfortunately, despite sufficient notice and the growing awareness of the impending threats, the SSI sector does not appear to be adequately prepared for the new challenges. While a number of units in the sector have been striving hard to obtain ISO or BIS certifications and compete against cheaper imports, the overall picture appears gloomy for want of proper policy support.
Even after several committees and study group reports over the past decade, the policymakers are still groping for a WTO-compatible policy for this sector. There is much confusion over a number of issues such as the cap on capital investment, foreign direct investment (FDI) ceiling, interest subsidy, de-reservation of items, and creation of a technology upgradation fund and so on. It has become fashionable for
successive governments to promise a new deal for the SSI sector, but deliver practically nothing.
Even the creation of a new Ministry of Small-scale Industry and Agro and Rural Industries in 2008 did not make any difference to the sector's plight. Soon after its creation, the new Ministry decided to do a detailed sector-wise study of the impact of various WTO agreements on the SSI sector but nothing seems to have happened since. Not surprisingly, though the sector has grown at a rapid pace post-Independence, the incidence of sickness is on the rise.
While the official figures show only about 10 per cent of the over 32 lakh SSI units as sick, the unofficial figures put this figure at over 40 per cent.
Given the crucial importance of the SSI sector to the economy with 40 per cent share in the total industrial output, 35 per cent in exports and over 80 per cent in industrial employment, it deserves all the policy support the Government can offer. What the small entrepreneurs need is not protection but institutional support to fund modernisation and technology upgradation, infrastructural support, and adequate working capital finance from the banking sector.
There is also a need for small entrepreneurs to keep pace with the structural and technological changes taking place in large industries. The accent should be on the much greater degree of ancillarisation and on providing services as the larger companies are keen on offloading a number of job works to smaller units. True, a section of the SSI sector is already undergoing structural changes but the process is still quite slow.
There is an urgent need to refashion the policies governing the sector so as to improve its competitive strength and long-term outlook. The recast and reform of the SSI policy will have to largely concentrate on the following areas:
As can be inferred from the information in the preceding section, the various Indian governments have proclaimed many policies and also implemented several initiatives and programs. Most of the policies before the 1999s were aimed at protecting the small sector rather than making it competitive. Some of the major issues that these policies did not address are as follows:
Problems in obtaining credit One of the serious problems affecting the small scale sector is the hardship of obtaining credits from the banking sector. Although this has been a problem for past several years and though the issue has been mentioned in budget speeches by government, none of the policies seem to solve it. Many entrepreneurs who had been drawn into industrial activities hoping to receive financial assistance have subsequently found that working capital is not forthcoming[4]. The internal financial resources of the SSIs are held to be so small that have no surplus money in times of business strain. This along with the situation of unstable profits prevent the banks from issuing them unsecured loans. As a result, many of these SSIs are still dependent for funds on money-lenders who charge high interest rates. And those who have tried to obtain loans from the various financial institutions have only faced corruption associated with grant of loans and long delays in delivery.
In a 2005 survey of small entrepreneurs by the Confederation of the Indian Industry (CII), a large proportion of the respondents attributed their problems to delayed payments, high cost of borrowing and inadequate credit.
Sickness in the SSIs As of September 2001, about 233 thousand small-scale units were sick. Many of the sick units ultimately close down due to finance and marketing problems. Poor management has also be identified as a major cause of sickness.
Therefore a need exists to countinously provide help in terms of training for the small enterprises to manage themselves. The recent policies and programs providing management training by the SIDBI is hopefully a step towards solving this problem.
Negative impacts of reservation policy The previous and current small-scale industries policies have followed the policy of reserving certain items to be manufactured only by the SSIs. Many of the items that are reserved are in the mechanical engineering, chemical products and auto-ancillary industry groups. Though the policy was mainly aimed at protecting the small firms from competition from the large firms, the lack of any licensing to identify SSIs has resulted in the entery by large firms into those areas.
There is no enforceable penalty for moving into reserved areas. It is also held by many authors that the policy is actually counterproductive as those producing non-reserved items have performed better than those in non-reserved areas. Hence the reservation policy tends to become large redundant.
The Equity policyThe New Small Industry Policy allows the large firms to have equity in SSIs. This policy is contended to be a bad one as it only encourages the small units to continue to act as dependent on the large firm. A fear that the large firms might at a later stage takeover the small units is also expressed by some industry experts.
Apart from the abovementioned critical issues, there are several other issues such as non-classification of a separate medium enterprise under the Indian industrial sector, regional imbalances in the concentration of small scale industries and survey data
showing that government institutions were the ``least important sources of technological information.'' More information on these issues could not be obtained.
Another concern is the lack of coordination between the various support organizations set up by the government. It would also be interesting to know if any evaluation systems are in place for these institutes and their programs. Information on this aspect could not be gathered.
An article by Ira Gang mentions that policies intended to support the small industry such the reservation, financial incentives, etc. are ``neither promoting employment nor improving the competitive base of small firms. Rather, they are working as strong disincentives for growth of small firms.''
Though all the previous efforts at helping the SSIs to grow and modernize seem to have had very little effect, the recent modernization efforts such as the setting up of the Technology Development Board, the Technology Development and Modernization Fund, greater emphasis on providing management skills and in obtaining ISO 9000 certification seem more focused and promising. Since these have very new, no specific conclusions as to their success or impact can be drawn at this time. Hopefully, some systematic methods to ensure that SSIs are actually receiving benefits and necessary assistance will be put in place
The major environmental concerns in India today are poverty coupled with growing population and the side effects of enhanced industrial activities. As long as poverty remains the main stumbling block, industrialization provides hope of significantly improving the standard of living. One of the measures most talked about that might gain recognition within these industries is sustainable development. Removal of poverty and environmental protection are two sides of the same coin that is
sustainable development (Dwivedi & Khator, 2004), but policy makers, governments, politicians, and industrialists have challenged many of the underlying values and assumptions of sustainability. Sustainability or sustainable development can also be described as development or progress that meets the needs of the present without compromising the ability of future generations to meet their own needs.
Although, industrialization is seen as a solution to providing economic growth and increasing employment levels, irrespectively, industries, whether large or small, low-tech or hi-low-tech, manufacturing or agricultural, all inevitably produce discharges and wastes that are capable of polluting. Where high population and economic growth demands resources (inputs) and discharges (outputs) in the form of pollutants, not many industries have arrived at suitable suggestions on sustainable measures, thus putting pressure on the environment. Hart (2006), in fact, recognised the problem of a growing population, rapid economic development in emerging economies, and political and social issues that exceed the mandate and the capabilities of any corporation. However, the suggestion that learning to balance ecological principles, economic growth, and social responsibility be priorities of businesses (Johannson, 2003) does eventually make more sense. Sustainable development challenges industry to produce high levels of output while using lower levels of inputs and generating less wastes with a more effective use of raw materials in production that would eventually result in diminishing costs. This greener corporate image could then lead to an increased market share (Welford & Bhargava, 2005). Hart (2006) states that the business logic for greening has been largely operational or technical, and bottom up pollution prevention programs have saved billions of dollars, but few have realised that environmental opportunities might actually become a major source of revenue
growth. The suggestion made by Hart, and the concept of sustainable development should, in fact, be made the core objective within the operations of small industries.
Small industries could also go one step further in addressing a sustainable vision i.e. a trade-off between economic growth, profitability, and sustainable environment.
Within industries, management should be charged with the responsibility of implementing this concept of the sustainable vision into action by firms. One such measure is Johannson's (2003) trisect of sustainable business. It is founded on the concept of balancing ecology, economic, and social factors that are included in the industry’s value system, and included in the business planning or design phase resulting in profits through ecologically sound products, processes, or services. In a complex relationship between population, economy, industry, and ecology, managing the environmental responsibility is a prime issue in India. Population will always be a problem if not properly curtailed, but in the case of industrialization there is a growing need for a sustainable vision where industries are made responsible for their acts. With today's current technology and strategic management systems, industries can be effective in reducing the gravity of environmental impacts. The green challenge is an issue that is relevant to every industry big or small. Every business faces pressure to improve its eco-performance.
As regards regulatory pressure and compliance, many businesses spend more time in fighting regulations and take a less proactive, strategic approach to environmental management (Schoemaker and Schoemaker, 2004). Although Indian courts closed almost 1,000 factories for pollution problems, and the Supreme Court fined 15 plants, including some multinationals (Shaman, 2005), the effectiveness of these regulatory pressures and compliance has still to be realized. Johannson (2003) addresses a
“green firm” as one that does not look at regulatory or legal compliance as a first step.
The ability to assure that a firm is “in compliance” is therefore a poor tactic, and very cost-ineffective. Managers who understand environmental laws can be counted on. In other words, regulation, compliance, and environmental laws will take care of themselves if managers adopt a sustainable vision or green objectives for industries.
Much of the literature seeks to establish that there is an acute need for regulatory and legal measures. However, pressure for sustainable vision in these small industries lies within themselves. They must realize the importance of environmental management and quality and that it could be highly effective if it is administered by the small units themselves.