DMPQ: What are 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:
  1. Liberalisation of the investment regime in the 1990s, favouring foreign direct investment (FDI);
  2. 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
  3. 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.
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