As the process of economic development led to changing priorities, the policy focus shifted to addressing regional imbalances (1977), facilitating linkages between large firms and their subcontractors (1980), and finally boosting exports especially from rural areas (1990).
However, Government controlled the entire industrial activity through the industrial licensing system; trade and foreign investments also had similar controls at the entry point. A whole host of subsidies, concessions, and Government support were pumped in the economy through protective policies of the Government of India in favour of small industries.
Though de-regulation is nowadays accepted as the basic thrust of industrial policy, yet the precise contours and the extent to which the process of deregulation can be carried out, the limits to de-regulation itself, and the type of interventions that must remain even in a de-regulated system are issues which still remain open.
The quasi-federal Indian system has had a major influence on the implementation of industrial policies with the Central Government formulating policies and the States having a good deal of flexibility to pursue their own policies.
Consequently, there are the Central laws; Central laws with rules framed by the State Governments and the State laws and rules. 56 laws, 72 product control orders, 165 returns, 60 inspectors encompass the functioning of SMEs.
The fact that regulations raise the cost of doing business shouldn’t however be understood to mean that the regulations should be done away with: environmental standards, for example, impose a cost on the business sector, but these costs may be outweighed by the social benefits of improved environmental quality.
Under the Constitution of India, development of SSIs is a State subject. However, the Union Government provides the overall policy guidelines. The post- reform period (since 1991) witnessed assertions of regional parties and stability of coalition Governments. This has also brought to fore the power of the State Governments both in formulation and implementation of policies.
At the State level, the Commissioner ate/Directorate of Industries implements the ‘State-specific policies for promotion and development, among others, of the SMEs. Each State has its own policies of incentive packages.
District Industries Centers (DICs) at the District level aim at providing support facilities and services to the industries. In addition to the DICs, State Financial Corporations, State Industrial Development Corporations, and Technical Consultancy Organizations operate at the State level to assist the promotion and development of SMEs.
Other State level agencies include State Small Industries Development Corporations (in some States they were wound up due to non-viability), State Cooperative Banks, Regional Rural Banks, State Export Corporations, Agro- Industries Corporations, Handloom and Handicraft Development Corporations etc.
With the new coalition Governments coming to power in 2004, the GOI launched two major initiatives: 1. National Commission on Unorganized Sector (Dr. Arjun Sen Gupta-Chairman) and 2. National Manufacturing Competition Council (Dr. V. Krishna Murthy-Chairman). These Commissions are influencing the policies of the Government both at the Centre and the State levels in the industrial sector.
August 9, 2005 witnessed the ushering in of a new policy for the development of the SME sector. For the first time it defined the medium industry, which later became part of the MSME Development Act, 2006.
The package proposed, included a one-time settlement scheme under which the banks and financing institutions could settle their non-performing loans under a compromise with the borrower; a corporate debt restructuring (CDR) mechanism for the SMEs, similar to those in the large corporate sector; public sector banks enjoined upon to attain an annual growth of 20 percent in SME credit flow; doubling of credit to the sector by 2009-10; SMEs to be credit rated – the SIDBI in association with the Credit Information Bureau Ltd., set up a Small and Medium Enterprise Rating Agency under its aegis to boost up the quality of credit; commercial bank branches in semi-urban and urban areas to finance at least five new units per annum.
The small scale industrial sector in India has posted an impressive growth in the last decade. It has, by and large, recorded higher growth rates in comparison with the industrial sector as a whole throughout the period 1991-92 to-1999-2000.
Further, the growth of the SSI sector is higher at the end of the period than a decade earlier. Production in the SSI sector registered a twelve-fold increase (at constant prices) during the 27-year period from 1973-74 to 2000-01, while employment grew to over four times during this period. In 2000-01, the SSI sector achieved a growth of 8.2 per cent compared to 6.3 per cent for the industrial sector.
Although the increase in percentage share of this sector is partially attributable to the redefinition of SSI, growth by itself in this sector is impressive enough indicating a positive response to the economic reform process initiated in the country since 1991. Still, there is demand for a further redefinition of this sector by enlarging the scope for modernization to enhance competitiveness.
In terms of numbers, there were 3.4 million small industrial units in the country in 2001-02 representing over 90 per cent by number of industrial units (DC/SSI). A majority of the industrial work force finds employment here (19.2 million persons in 2002) and the sector’s contribution to industrial output is substantial, estimated at over 35 per cent, while its share of exports is also valued to be somewhat over a third.
The composition of exports shows that the largest shares of SSIs are in the industry groups like hosiery and garments (29.0%), food products (21.4%) and leather products (18%). The industry groups which have recorded high growth rates and a large share in total production of SSIs are: textile products, wood, furniture, etc., paper and printing, and metal products. By any reckoning, therefore, the reach of this sector and its importance for the national economy needs little emphasis.