Growth of small scale industries in India: Some policy issues

A major objective of planned economic development has been industrialisation and employment generation. The industrial policy resolutions had, from time to time, encouraged the growth of small scale industries in order to generate employment, promote balanced regional growth, have equitable distribution of wealth anf promote exports. The analysis in the paper is based on the data available from the ASI; Development Commissioner, Small Scale Industries; and the plan documents. A comparison is made between the performance of large industries, modern SSI and traditional industries. It is found that the smaller SSIs are growing not only numerically but also in terms of employment, investment and output. SSIs in the factory sector (synonymous with larger SSIs) have however, not been showing any growth in the number of factories and employment, through capital is being accumulated at a fast pace. It is felt that some of the policies of the government are making capital cheaper vis-a-vis labour and there has been a tendency to substitute capital for labour among the large scale units and SSIs in factory sector. In terms of size, the larger units among the SSIs are becoming larger and small are becoming smaller. As regards efficiency of the units, while labour productivity is higher in larger SSIs, smaller units have better utilization of scarce capital and are also more labour intensive. The traditional industries have also been performing well in terms of labour absorption and capacity to earn foreign exchange. In this context, it is important to review whether the current policies to set up new units be encouraged, or should the government policies be directed to promote the growth of existing SSIs. It is also important to examine the growth of SSIs in the context of more liberal economy and see what kind of technonology-flexible pecialisation or mass production-should be followed for further growth and to encourage employment generation.