Model Answer
0 min readIntroduction
Small Scale Industries (SSIs), now encompassed within the broader Micro, Small and Medium Enterprises (MSME) sector, have long been recognized as vital engines of economic growth, employment generation, and inclusive development in India. Historically, the government’s policy towards SSIs has aimed to foster their growth, address their specific challenges, and integrate them into the larger economic framework. From the initial focus on reservation and protection to the current emphasis on competitiveness and innovation, the policy landscape has undergone significant transformations, particularly after the economic liberalization of 1991. The sector currently contributes significantly to the nation’s GDP and exports, making a nuanced understanding of government policies crucial.
Evolution of Government Policy Towards SSIs/MSMEs
The government’s policy towards SSIs/MSMEs can be broadly categorized into three phases:
1. Pre-1991: Protectionist and Promotional Phase
- Industrial Policy Resolution (1948 & 1956): These resolutions laid the foundation for a mixed economy, with a significant role for the public sector and a supportive role for the small-scale sector. Emphasis was on promoting self-sufficiency and reducing dependence on imports.
- Reservation Policy: A large number of items were reserved for exclusive production by the SSI sector, protecting them from competition from large-scale industries. This was intended to promote domestic production and employment.
- Financial Assistance: Various schemes were introduced to provide financial assistance to SSIs, including concessional credit, subsidies, and seed capital. Institutions like the Small Industries Development Bank of India (SIDBI) were established in 1990 to cater specifically to the financial needs of the SSI sector.
- Promotional Measures: Establishment of Small Industries Service Institutes (SISIs), National Small Industries Corporation (NSIC), and Khadi and Village Industries Commission (KVIC) to provide technical assistance, marketing support, and infrastructure facilities.
2. Post-1991: Liberalization and Deregulation Phase
- Dismantling of Reservation Policy: Gradual dismantling of the reservation policy, starting in 1991, to promote competition and efficiency. Many items were de-reserved, allowing large-scale industries to enter these segments.
- Deregulation of Licensing: Removal of licensing requirements for most SSI units, simplifying the process of starting and expanding businesses.
- Focus on Competitiveness: Policies shifted towards enhancing the competitiveness of SSIs through technology upgradation, quality improvement, and skill development.
- Investment in Infrastructure: Increased investment in infrastructure development, such as power, transportation, and communication, to support the growth of SSIs.
- Credit Guarantee Schemes: Expansion of credit guarantee schemes to encourage banks to lend to SSIs. The Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) was established in 2000.
3. Recent Developments (2006 onwards): Inclusive Growth and Modernization
- MSME Development Act, 2006: This Act provided a legal framework for the promotion and development of MSMEs, addressing issues related to credit, infrastructure, technology, and marketing.
- Prime Minister’s Employment Generation Programme (PMEGP): Launched in 2008, this scheme aims to generate employment opportunities through the establishment of new micro-enterprises.
- National Manufacturing Competitiveness Programme (NMCP): Launched in 2007, this programme focuses on enhancing the competitiveness of MSMEs through technology upgradation, infrastructure development, and skill development.
- Digital MSME Scheme: Launched in 2022, this scheme aims to enhance the digital capabilities of MSMEs, enabling them to leverage digital technologies for growth and innovation.
- Emergency Credit Line Guarantee Scheme (ECLGS): Introduced during the COVID-19 pandemic in 2020, this scheme provided guaranteed loans to MSMEs to help them overcome the financial difficulties caused by the pandemic.
- Revised MSME Classification (2020): The definition of MSMEs was revised in 2020, based on both investment and turnover criteria, simplifying the classification process and expanding the scope of the sector.
Challenges Facing MSMEs
- Access to Finance: Limited access to affordable finance remains a major challenge for MSMEs.
- Infrastructure Deficiencies: Inadequate infrastructure, such as power, transportation, and communication, hinders the growth of MSMEs.
- Technology Adoption: Slow adoption of new technologies limits the competitiveness of MSMEs.
- Marketing and Branding: Lack of effective marketing and branding strategies restricts the reach of MSME products and services.
- Regulatory Compliance: Complex regulatory procedures and compliance requirements pose a burden on MSMEs.
| Policy Phase | Key Features | Objective |
|---|---|---|
| Pre-1991 | Reservation, Protection, Subsidies | Self-reliance, Employment Generation |
| Post-1991 | Liberalization, Deregulation, Competitiveness | Efficiency, Integration with Global Markets |
| Recent Developments | MSME Act, PMEGP, Digital MSME | Inclusive Growth, Modernization, Resilience |
Conclusion
The government’s policy towards SSIs/MSMEs has evolved significantly over the years, reflecting changing economic priorities and challenges. While the initial focus was on protection and promotion, the emphasis has shifted towards enhancing competitiveness, fostering innovation, and promoting inclusive growth. Despite the progress made, MSMEs continue to face challenges related to access to finance, infrastructure, technology, and regulatory compliance. Future policies should prioritize addressing these challenges and creating a conducive ecosystem for the sustainable growth of this vital sector, particularly focusing on digitalization and skill development to enhance their global competitiveness.
Answer Length
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