Facing Global Competition
- Globalisation means gradual integration of economies through free movement of goods, services and capital which has significant impact on the economies of both developed and developing countries.
- Globalisation refers to a process of growing economic interdependence among different countries of the world. Thus, in the globalised era, the whole world is changing into a global village in the sense that economic activities in one part of the globe are affecting significantly the rest of the world. For this purpose, it becomes necessary for India to participate in the process of globalisation.
- The New Economic Policy of 1991 aimed at making Indian economy competitive and much better integrated with the rest of the world.
- The liberalisation and economic reform process which included both short term and long term measures have direct and indirect bearing on the manufacturing sector of India in general and small scale sector in particular.
- The dynamics of change will bring about inflow of technology, resources and both human and physical capital that are scarce or costly to be procured locally in the developing economies like India. This will lead to rise in the productive capacity of the nation to supply increasingly diverse economic goods and services to its growing population.
- Therefore, globalisation can bring immense benefits to various countries that are able to harness the resulting opportunities for the proper development of their material and human resource endowments.
- Besides offering greater opportunities for economic growth, globalisation has also posed some important challenges which may be viewed as problems from the perspective of developing countries like India.
- With the launching of the process of liberalisation, globalisation and formation of WTO, the Indian small scale industrial sector will have to upgrade its technology, adopt modern marketing and management practices along with an improvement in the quality of its products to become more competitive and resource efficient
The issues of liberalisation and globalisation in the WTO regime
- When the liberalisation process intensified in most of the developing countries in early nineties by following market oriented policies alongwith the widening of the scope of GATT and formation of WTO in 1995, the world started changing into a global village.
- The world economy became increasingly structurally interdependent and the use of the concept „global‟, as distinct from „international‟ became acceptable and justifiable.
- Globalisation represents closer integration of the world economy resulting from increase in trade, investment finance and multicountry production network of MNCs.
- It extends beyond economic interdependence to include dilution of time and space dimensions as a result of spread of information technology.
- Globalisation is thus, a supranational phenomenon, which has reduced the distances between various countries by the provision of international trade and the relaxation of quantitative restrictions on commodities and thus has changed whole world into the world without borders.
The opportunities and challenges confronting the Indian small scale industrial sector in the era of globalization
- The development of small scale industrial sector has been one of the major planks of India‟s economic development strategy since independence.
- India accorded high priority to this sector from the very beginning and pursued support policies to make these enterprises viable and vibrant. Despite numerous protection and policy measures for the past so many years Indian small scale units have remained mostly small, technologically backward and uncompetitive.
- The opening of the Indian economy in 1991 added to the problems of this sector and at present, the small scale industrial sector in India is at cross roads and intense debate is centered around questions like what would be the future of this sector? How can these enterprises survive in the international trade arena? What role can the government play in making this sector more competitive?
- In this context, it is important to re-examine the opportunities and challenges confronting this sector in the globalised regime.
- It has been observed that small scale industrial sector in India has been facing an increasingly competitive environment due to:
- Liberalisation of the investment regime in the 1990s, favouring foreign direct investment (FDI);
- The formation of the World Trade Organisation (WTO) in 1995, forcing its member countries (including India) to drastically scale down quantitative and non quantitative restrictions on imports; and
- Domestic economic reforms.
- The cumulative impact of all these developments is a remarkable transformation of the economic environment in which small industry operates, implying that this sector has no option but to „compete or perish‟.
- While the WTO engineered trade regime is likely to affect almost the entire range of industries, its effect would be more pronounced on the small scale sector because of the largely unorganised nature of his sector, lack of data/information, obsolete technology, poor infrastructure, weak capital base and inadequate access to economies of scale.
- The provisions/ agreements which are likely to affect the Indian small scale industrial sector under the WTO regime are Quantitative Restrictions (QRs), tariff reductions, antidumping practices, subsidies and countervailing measures, Technical Barriers to Trade (TBT), Trade Related Investment Measures (TRIMs) and Trade Related Intellectual Property Rights (TRIPs)
- While the domestic market is going to be fully exposed to external competition, the small enterprises may have to be cautious against possible dumping by their competitors from abroad, which may be difficult to establish in many cases.
- What is also significant is that the cost of anti dumping investigations may be prohibitive. On the other hand, anti dumping charges by the importing countries may do serious damage to the export prospects as well.
- The small enterprises would need to understand the challenges posed by the Agreement on Anti-Dumping Measures.
- There are certain provisions (Special and Differential Provisions) that are intended to benefit the developing countries, but may act against the small and medium enterprises when it comes to trade among the developing countries.
- Article 5.8 of the Agreement provides that the volume of dumped imports shall normally be considered negligible if dumped import from a particular country is found to be less than 3 per cent of imports of the like products, unless countries which individually account for less than 3 per cent of the import of the like products collectively account for more than 7 per cent of the import.
- There has been an increase in number of anti-dumping cases initiated against low and middle income countries particularly by OECD countries to protect their own domestic industries.
SWOT ANALYSIS OF INDIAN SMALL SCALE INDUSTRIAL SECTOR
Strengths
- Flexible Manufacturing system
- Lower cost of production
- Low level of capital investment per unit of
- Utilization of local resources
- Inherent ability to innovate
- Ability to make quick adjustments to changing economic and trading scenario
- Operational Flexibility
- Knowledge of internal markets
Weaknesses
- Lack of Development policy framework
- Inadequate capital for investment/ expansion
- Absence of brand equity‟ for „Made in India labels
- Technologically weak due to inadequate capital
- Product reservation Policy
- Low recognition and appreciation of this sector in view of its contribution to industry output, exports
- Lack of infrastructure facilities
- Lack of Well-developed data/ information system
- 24 percent cap on formation of joint ventures(JVs) with foreign companies.
Opportunities
- Untapped exports potential in sectors such as computer software, leather and leather products, light engineering products, hand tools and implements, auto components and ancillaries, garments including hosiery
- Growing service sector
- Sector and stability of access under the WTO regime
- Tariff reduction by all countries
- Phasing out of MFA
- Establish backward forward linkages, both nationally and internationally
- Joint venture
- Technology upgradation
Threats
- Technological Obsolescence
- Inadequate use of information and communication technologies
- Slow adoption of quality culture
- Poor infrastructure support
- International environmental agenda which is in stark contrast to low emphasis by Indian firms
- Non–compliance with non-tariff barrier particularly environment, health and safety standards.
- Growth of cheap imports
- High cost of funds
