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Policy on Modern Small Scale Industries: A Case of Government Failure


  • Suresh D. Tendulkar

    (Delhi School of Economics)

  • T. A. Bhavani

    (Institute of Economic Growth)


In this paper, we address ourselves to an evaluation of government policy designed for the modern segment of the small scale manufacturing sector. We argue that the policy has been and continues to be supply-driven and paternalistic leading to dependency. In addition, the individual unit-centered atomistic approach of policy is dominated by continuous protective and discretionary promotional measures with perverse incentive effects for the healthy growth of this segment. We underline the need to move away from continued protection and bureaucratic discretion-based promotion and argue for a radical shift in this policy towards a demand-driven, group-oriented and collective effort-based (rather than atomistic) approach. We argue for the abolition of indiscriminate reservation of production lines for exclusive production in the small scale sector and introducing and strictly enforcing the time bound character of promotional concessions. It would induce this segment to get out of the syndrome of remaining small and inefficient. The suggested shift in policy is necessary in order to flexibly adjust to fast changing circumstances so as to better serve the longstanding and as yet unattained objective of developing a vibrant and self-reliant modern small scale industry.

Suggested Citation

  • Suresh D. Tendulkar & T. A. Bhavani, 1997. "Policy on Modern Small Scale Industries: A Case of Government Failure," Indian Economic Review, Department of Economics, Delhi School of Economics, vol. 32(1), pages 39-64, January.
  • Handle: RePEc:dse:indecr:v:32:y:1997:i:1:p:39-64

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    References listed on IDEAS

    1. Olivier J. Blanchard & Lawrence H. Summers, 1986. "Hysteresis and the European Unemployment Problem," NBER Chapters,in: NBER Macroeconomics Annual 1986, Volume 1, pages 15-90 National Bureau of Economic Research, Inc.
    2. Blanchard, Olivier Jean & Quah, Danny, 1989. "The Dynamic Effects of Aggregate Demand and Supply Disturbances," American Economic Review, American Economic Association, vol. 79(4), pages 655-673, September.
    3. Ashima Goyal, 1994. "Industrial Pricing and Growth Fluctuations in India," Indian Economic Review, Department of Economics, Delhi School of Economics, vol. 29(1), pages 13-32, January.
    4. Julio J. Rotemberg & Michael Woodford, 1993. "Dynamic General Equilibrium Models with Imperfectly Competitive Product Markets," NBER Working Papers 4502, National Bureau of Economic Research, Inc.
    5. Stiglitz, Joseph E., 1992. "Capital markets and economic fluctuations in capitalist economies," European Economic Review, Elsevier, vol. 36(2-3), pages 269-306, April.
    6. Olivier Jean Blanchard & Stanley Fischer, 1989. "Lectures on Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262022834, January.
    7. Matthew D. Shapiro, 1989. "Assessing the Federal Reserve's Measures of Capacity and Utilization," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 20(1), pages 181-242.
    8. Robert G. King, 1993. "Will the New Keynesian Macroeconomics Resurrect the IS-LM Model?," Journal of Economic Perspectives, American Economic Association, vol. 7(1), pages 67-82, Winter.
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    Cited by:

    1. Nezih Guner & Gustavo Ventura & Xu Yi, 2008. "Macroeconomic Implications of Size-Dependent Policies," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(4), pages 721-744, October.
    2. T. A. Bhavani & Suresh Tendulkar, 2001. "Determinants of firm-level export performance: a case study of Indian textile garments and apparel industry," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 10(1), pages 65-92.
    3. T.A. Bhavani & Suresh D. Tendulkar, 2010. "Determinants of Firm-level Export Performance: A Case Study of Indian Textile Garments and Apparel Industry," Working Papers id:2964, eSocialSciences.
    4. Bhavani, T.A. & Bhanumurthy, N.R., 2014. "Financial Access - Measurement and Determinants: A Case Study of Unorganised Manufacturing Enterprises in India," Indian Economic Review, Department of Economics, Delhi School of Economics, vol. 49(1), pages 85-108.
    5. Bhavani, T.A., 2002. "Impact of Technology on the Competitiveness of the Indian Small Manufacturing Sector: A Case Study of the Automotive Component Industry," WIDER Working Paper Series 076, World Institute for Development Economic Research (UNU-WIDER).
    6. T.A Bhavani & Suresh D. Tendulkar, 2000. "Determinants of Firm-level Export Performance: A Case Study of Indian Textile Garments and Apparel Industry," Working papers 81, Centre for Development Economics, Delhi School of Economics.

    More about this item

    JEL classification:

    • H19 - Public Economics - - Structure and Scope of Government - - - Other
    • L52 - Industrial Organization - - Regulation and Industrial Policy - - - Industrial Policy; Sectoral Planning Methods
    • P41 - Economic Systems - - Other Economic Systems - - - Planning, Coordination, and Reform


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