GLOBALISATION AND SMALL SCALE INDUSTRIAL SECTOR IN...
Transcript of GLOBALISATION AND SMALL SCALE INDUSTRIAL SECTOR IN...
231
Chapter – VIII
GLOBALISATION AND SMALL SCALE INDUSTRIAL
SECTOR IN PUNJAB AND HARYANA
Globalisation refers to the multiplicity of linkages and interconnections
between the states and societies that make up the present world system. It
describes the process by which events, decisions and activities in one part of the
world come to have significant consequences for individuals and communities in
quite distant parts of the globe. Therefore, globalisation is a process of growing
economic interdependence among different countries of the world and 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 indispensable for India to take part in the process of globalisation.
Indian economy had experienced major policy changes in early 1990s, with series
of reforms undertaken in industrial sector, aimed at making the economy more
efficient, fast growing 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 industrial 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 (Nemedia, 1997). Besides offering greater opportunities for
232
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 both at national and regional level.
In this context, the present chapter aims to examine the relationship
between liberalisation process, globalisation and Indian manufacturing sector in
general and small scale industrial sector of Punjab and Haryana in particular. To
fulfill this objective the present chapter has been divided into four broad sections.
Section-I concentrates on the issues of globalisation in the WTO regime.
Section-II examines the relationship between globalisation and Indian
manufacturing sector vis-a-vis other major developing economies of the world,
whereas, Section-III examines the relationship between globalisation and small
scale industrial sector of Punjab, Haryana vis-a-vis All India alongwith the
opportunities and challenges confronting this sector in the era of globalisation.
The last section concludes the discussion along with policy implications.
Section – I
With the formation of WTO in 1995, the world economy became
interdependent and started changing into a global village. 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. The positive group of thinkers contemplates
globalisation as purely an objective and descriptive phenomenon that is taking
place under current trends. It is a process of increasing integration into the world
economy, the characteristics of the process is by no means uniform (Chandra,
233
2004). The normative group of analysts explore the reality from objective, truth,
norms, policies, prescription which are being taken as a form of advice to
developing countries for liberalising and integrating themselves with the rest of
world as far as possible as the definite way to achieve the pace of sustainable
development (Nayar, 1998). Therefore, the process of globalisation has continued
and will intensify further. At micro-level, there is intensified pressure on business
enterprises from both competitors and consumers to continuously innovate and
improve quality of products, whereas, at macro-level, more and more countries are
following policies of liberalisation, privatisation, de-regulation of markets,
removal of structural distortions and liberalisation of Foreign Direct Investment
(FDI) etc. In this context, there are rapid shift towards market-oriented policies
wherein profit motive and price mechanism determine the allocation of scarce
resources in all the parts of the world.
In view of the fact that the process of globalisation and liberalisation has
significant impact on the economies of the world especially the developing
countries like India, it is, therefore, imperative to examine the issues relating to
emergence, activities and principles of GATT/WTO. In 1944, Bretton Woods
conference was held for new international economic order, which recommended
for setting up of International Monetary Fund (IMF), to deal with exchange rate
and balance of payment problems, International Bank of Reconstruction and
Development (IBRD) popularly called World Bank, to deal with the problem of
reconstruction and development and International Trade Organisation (ITO) to
deal with problems of international trade. From January 1, 1948, General
Agreement on Tariffs and Trade (GATT) became effective for providing a
framework for the conduct of trading relations, a system of rules to avoid
unilateral action and framework for the progressive elimination of trade barriers.
On 1st January 1995, WTO was established in the place of GATT, to
implement the agreement reached during Eighth Round and to develop co-
234
operation with other institutions like IMF and World Bank for better results. The
Uruguay Round (GATT-94), establishing the WTO has introduced the most
fundamental reforms in the world trading system since the establishment of GATT
in 1947. The initial focus of GATT (first seven rounds) was focused to remove
trade distorting policies, including the excess of trade restrictions during 1930’s
and 1940’s via tariff reductions only but the Uruguay Round overhauled and
strengthened the GATT rules on trade in goods, covered wide range of products
and countries, extended trade rules to cover services, trade related intellectual
property rights, investment measures and incorporated wide ranging
commitments to trade liberalisation by member countries, thereby infusing
dynamism in the world economy. The various rounds relating to GATT and WTO
are summed up in Table 8.1.
Uruguay Round lists 60 agreements, annexes, decisions and
understandings. These sixty agreements fall in six main parts: an umbrella
agreements (a) the agreement establishing WTO; (b) Agreement covering (goods,
services and intellectual property rights); (c) Dispute settlements; (d) reviews of
governments trade policies. Later on, WTO negotiations were expanded to cover
non-trade issues like environment, child labour standards in Seattle Ministerial
Conference in 1999. GATT-94, covered following agreements in goods and
services:
A. Trade in Goods
• Health regulations for farm products (SPS).
• Product standards (TBT)
• Investment measures (TRIMS)
• Market Access for industrial goods.
• Textile and clothing.
• Rules of origin.
• Import licensing.
• Subsidies and countervailing measures.
235
TABLE 8.1
GATT AND WTO TRADE ROUNDS
Year Name/No of
Countries
Subject Covered Achievement
1946 Geneva Round /23
Tariffs Signing of GATT, 45,000 tariff concessions affecting $10 billion of trade
1949 Annecy Round/13
Tariffs Countries exchanged some 5,000 tariff concessions.
1951 Torquay Round/38
Tariffs Countries exchanged some 8,700 tariff concessions, cutting the 1948 tariff levels by 25%
1956-57 Geneva II/26 Tariffs/admission of Japan
$2.5 billion in tariff reductions
1960-62 Dillon/26 Tariffs Tariff concessions worth $4.9 billion of world trade
1964-67 Kennedy/62 Tariffs, Anti-dumping
Tariff concessions worth $40 billion of world trade
1973-79 Tokyo/102 Tariffs, non-tariff measures, "frame work" agreements
Tariff reductions worth more than $300 billion dollars achieved
1986-94 Uruguay/123 Tariffs, non-tariff measures, rules, services, intellectual property, dispute settlement, textiles, agriculture, creation of WTO, etc
The round led to the creation of WTO, and extended the range of trade negotiations, leading to major reductions in tariffs (about 40%) and agricultural subsidies, an agreement to allow full access for textiles and clothing from developing countries, and an extension of intellectual property rights.
2001 Doha/141 Tariffs, non-tariff measures, agriculture, labor standards, environment, competition, investment, transparency, patents etc
The round is not yet concluded.
Source: Compiled From Various GATT and WTO Rounds
236
• Safeguards.
• Anti dumping measures.
• Customs valuation methods.
• Pre-shipment inspection
B. Trade Related Intellectual Property Rights (TRIPS)
C. Trade in Services
• Movement of national persons.
• Financial services
• Shipping
• Air Transport.
• Tele-communications
In case of the agreements on trade in goods, it was agreed in Uruguay
Round that developed countries would cut their tariffs on industrial products
import by 40 percent. On March 26, 1997, 40 countries accounting for more than
92 percent of world trade in information technology products agreed to eliminate
import duties and other changes on these products by 2000 (by 2005 in handful
cases). Negotiating Group on Market Access (NGMA), on May 2003 gave
proposals for zero tariff commitments in seven major sectors (auto components,
fish and fish products, textiles, gems and jewellery, leather products and electric
and electronic goods) for special and differential treatment and less than full
reciprocity for developing and less developed countries. The agreement on
‘Market Access Negotiations on Non-Agricultural Products’ is expected to
increase market access of industrial goods by reducing tariffs.
The new GATT agreement agreed to phase out Multi-Fibre Arrangement
(MFA) and agreement on Textile and Clothing (ATC) committed to remove quota
by January 1, 2005 by integrating sector fully into GATT rules. ATC has
following main elements:
237
• Liberalisation process;
• Establishment of Textile Monitoring Body;
• Special and Safeguard mechanisms;
• Product coverage;
• Integration of textile products; and
• Other provisions including rules, circumvention for quota,
administrative, treatment of non-MFA restrictions and commitments
undertaken elsewhere under WTO agreements.
The products covered under agreement include yarns, fabrics made up of
textile products and clothing. Under the liberalisation process, the former MFA
growth rates applicable to each of these quotas were increased on 1st January, 1995
by factor of 16 percent for the first stage of agreement and new growth rate were
to be applied annually. The growth rate was to be increased by factors of
25 percent in the second stage and was to be further increased by 27 percent for
the last stage beginning January 1, 2002. In case of damage to industry, country
could impose ‘transitional safeguard’ measures subject to review by ‘Textile
Monitoring Body’. Further, Article XX of GATT allowed governments to use
Sanitary and Phytosanitary (SPS) measures, provided they do not discriminate or
use this as disguised protectionism. Key features of SPS measures are:
(a) Protection (b) Justification (c) International standards (d) adopting to
conditions (e) alternative measures (f) risk assessment (g) transparency and
(h) dispute settlement.
In respect of the product standards, Uruguay Round ensures that Technical
Barriers to Trade (TBT) measures as well as testing and certification procedures
are not used for restricting trade. Countries have right to establish protection for
human, animal or plant life and environment or to meet other consumer interests.
The Agreement covers processing and production method. Central Government
bodies, local governments and NGOs can prepare, adopt and apply standards. The
238
agreement further permits the assessments of products through testing in exporting
country to see if product meets importing country’s standard or not.
Under the new provision of TRIMS, new arrangement will open the
floodgates of foreign investment in the Third World Countries. The TRIMS
incorporated certain provisions so as to ensure that Government should not
discriminate against foreign capital and compels the member countries to offer
equal treatment to foreign capital at par with domestic capital/investment. Article
V states that members would notify through the WTO all TRIMS that do not
conform with the agreement within ninety days of entry into the force of
Agreement. Developed countries were required to eliminate these measures within
two years (by the end of 1996); developing countries within five years (by the end
of 1999) and least developed countries within seven years (by the end of 2001).
Article VI of Uruguay Round allows governments to act against dumping.
A country cannot use anti-dumping measures if (a) margin of dumping is
insignificantly small (less than 2 percent of the export price of the product),
(b) volume of dumped import is negligible. At Doha, it was agreed that no second
anti-dumping investigation within a year would be allowed unless circumstances
have changed. Further, developed countries would provide special safeguards to
developing countries while enforcing anti-dumping measures. The main objectives
of WTO agreements on custom valuation are fairness, uniformity and neutral
system. The agreement stipulates that customs valuation shall be based on actual
prices of goods to be valued. If declared value of imported goods is in doubt then
custom authorities have the right to get further information and custom value of
the imported good is not be determined on the basis of declared value. Under pre-
shipment inspection practice, specialised private companies check price, quantity
and quality of imported goods. GATT-94 agreement on pre-shipment inspection
requires the governments to follow the principles of non-discrimination,
transparency, protection of confidential business information, avoid unreasonable
239
delays, use specific guidelines for conducting price verification and avoid conflicts
of interest by the inspection agencies. Further, agreement ensures that rules of
origin should be objective, understandable, transparent, non-trade distorting,
harmonized based on consistent, uniform, impartial and reasonable manner.
Uruguay Round applies only to specific subsidies, which can be prohibited
as well as actionable. These subsidies can be domestic or export subsidies and are
given to meet certain export targets. Safeguard measures are defined as
‘emergency’ action with respect to increased imports of particular product, where
such imports cause or threaten to cause serious injury to the importing country’s
domestic industry. These safeguard measures have been designed to (a) clarify and
reinforce GATT disciplines (b) re-establish multilateral control over safeguard and
eliminate measures that escape such controls (c) encourage structural adjustment
on the part of industries adversely affected by increased imports, thereby
enhancing competition in international market. Safeguard measures rest on four
guiding principles: (a) temporary, (b) MFN principle, (c) progressive liberalisation
and (d) compensation to countries whose trade is affected. In case of developing
countries, safeguard measures will be applied only if single developing country is
supplying more than 3 percent of imports. Developing countries may extend the
application of safeguard measures for an extra two years beyond that normally
permitted. The proposal for Trade Related Intellectual Property Rights (TRIPS)
has extended the area of GATT. The proposal for TRIPS include protection of
patents, copyrights, trademark, trade secrets etc. Finally, as per the new GATT
proposal under trade in services, access of service personnel into markets of
member countries will henceforth be possible on a non-discriminatory basis under
a transparent and rule based system.
India adopted the policies of liberalisation, privatisation and globalisation
as a prelude to the Uruguay Round which signalled a distinct movement towards
240
market mechanism with a limited role of the government. By pursuing these
policies, domestic liberalisation has been supplemented by increasing
globalisation of the economy and as a result various economic units are
increasingly being encouraged to enter into growing economic relations with the
rest of the world. This developing integration offers both prospects and challenges
to developing countries of the world. In fact, developing countries like India,
require Herculian efforts to bring their trade policies in line with the prescribed
norms of the WTO agreements, while the practices of the developed countries are
already according to those as mentioned by these rules. The developing countries
will have to introduce new laws and new administrative measures to reinforce
their administrative and judicial capacity to apply to WTO regulations. Also these
economies are faced with multitude production and economic bottlenecks such as
scarcity of inputs and raw materials, lack of adequate and efficient infra-structure,
hi-tech manpower, government controls and market regulations, presence of
monopolies and oligopolies, factors and market rigidities. Due to the presence of
such economic rigidities, not only is the domestic production rendered inefficient
and sub-optimal but also the externalities of free trade are hindered. Therefore, the
new economic policies framed in the WTO regime encouraged the entry of multi-
national corporations which pose stiff competition to small scale industrial sector
both at national and regional level. Thus, Indian economy will have to gear up if it
is to confront these challenges effectively in the reformed era.
Section – II
Since globalisation is a mean to invite foreign investment and to restructure
the existing organization for developing nations so that they could enter to
compete in the world market, therefore, in this context, it is imperative to study the
growth process of manufacturing sector in different countries of world. With the
241
increased industrialization, western nations like U.S.A. Germany and France
surpassed U.K. in terms of industrial output. In 1970, U.S.A., Japan, Germany,
France, U.K. Italy and Canada accounted for around 75 percent of world’s
manufacturing output. From 1970 to 1985, the share of these countries was around
67 percent. During this period, with the exception of Japan, whose share grew by
50 percent, the share of other countries contracted. During the same period Brazil,
Spain and Mexico increased their industrial output to be amongst the top ten
industrial nation of the world. In the Developing world, the major catalysts for
growth have been the economies of South East Asia. In 1963, Hong Kong,
Singapore, Taiwan and South Korea accounted for only 0.35 percent of the
world’s manufacturing output while their share had grown to 1.55 percent by
1980. The annual trend growth rate of total manufacturing gross value added
(output) during the last two decades is close to 7 percent while this represents a
turn around compared to the preceding period of ‘relative stagnation’ (1965-1980).
The record is modest in contrast to China’s double-digit growth during this period
and most of other industrialized Asian economies.
Table 8.2 depicts the growth of manufacturing sector in major Asian
economics during 1979-80 to 2007-08. The table shows that developing nations
have shown robust growth in manufacturing activity over the two decades. China
is exhibiting one of the highest growth rates of 14.7 percent. The other countries
that exhibited healthy growth rates during the same period were, Malaysia
13.7 percent, Indonesia 12.1 percent, Thailand 11.1 percent while India is showing
only the growth of 8.3 percent. Although the economy has been opened to global
competition over the last two decade, manufacturing sector in India is still a long
way behind global standards as the growth rate in Indian manufacturing sector is
least among the major Asian economics.
242
On the other hand, in case of major developing Asian economies, the share
of manufacturing sector is increasing. Table 8.3 shows the growth of
manufacturing sector as percentage of GDP in major Asian economies. The table
shows China grew by 49 percent, Malaysia by 48 percent, Korea by 37 percent,
Indonesia by 48 percent, Thailand by 46 percent and India by only 29 percent. The
reason that, in the early years of independence, the focus of the government was
on attaining self-sufficiency in all the sectors of the economy, protecting and
nurturing industries and preventing private sector monopolies. Over the years,
these policies had the detrimental effect of breeding inefficiencies, low
productivity and lack of professional management. In 1991-92, as a result of the
reforms, Indian industry has been opened out to competition from global players.
Indian manufactures are also freer to grow, invest and compete in global markets.
However, the pace of reforms has been slow, especially with regard to freeing
government controls. Also, procedural and bureaucratic delays in approvals and
decision-making added the fuel. As a result, Indian manufacturing sector has not
developed to keep a pace with other developing Asian economies of the world.
For better presentations of the performance of India, vis-à-vis with its
global counterparts in manufacturing sector it is important to compare the export
performance of major Asian economies. Between 1979-80 to 2007-08, the
merchandise exports of developing countries grew at an average annual rate of
13.8 percent as compared to 10.8 percent for the world as a whole, resulting in
their shares in world trade increasing from less than one fourth to almost one third.
During this period, developing countries also became important for each other’s
product, the share of trade among themselves reached 40 percent of their total
exports at the end of the last decade. During the 1970s and early 1980s the share
of manufactured exports was around 20 percent, while the share of agricultural
commodities fell from about 20 percent to 10 percent during the same period.
Earning from mineral and oil exports fluctuated considerably due to changes in
243
prices, but the overall trend was in a downward direction. This, among the world
manufacturing exports, which can be attributed to greater share of labour intensive
and low value added manufacturing.
Table 8.4 shows the percentage share of world exports in major developing
Asian economies from 1979-80 to 2007-08. It can been seen from the table that
the share of world export in China grew by 4.57 percent, in Korea by 2.89 percent,
in Singapore 2.93 percent, in Malaysia by 2.07 percent whereas the figure for
India was only 0.92 percent during the same period. Table 8.5 shows that the per
capita value added in manufacturing sector in major developing Asian economies
of the world. The table shows that the highest per capita value added in
manufacturing sector in 2007-08 was experienced by Singapore ($7174), followed
by Korea ($2442), Brazil ($1184), Thailand ($689), and Indonesia ($187) whereas,
the per capita value added in manufacturing sector in India was only $92 in
2007-08. The slowdown of India in comparison with other developing nations is
further demonstrate by the fact that despite tariff reductions through the 1990s,
India has second-highest average products covered under non-tariff barriers.
Hence, cross-country comparisons on direct and surrogate measures of
competitiveness point towards a significant lack of competitiveness in Indian
manufacturing sector. Global competitiveness survey rankings such as those in the
WEF’s Global Competitiveness Report provide corroborative results, where
Indian has been ranked 37th and 49th in terms of current and growth
competitiveness respectively.
Table 8.6 shows WEF Ranking on selected Indicators of competitiveness in
2001-02. The table shows that there are significant barriers, which stand in way of
Indian manufacturing sector growing to its full potential. The major barrier in the
growth of manufacturing sector has been poor infrastructure as compared to its
Asian counterparts. The Global Competitive Report shows that India ranked at 54th
position (out of 59 countries surveyed) in case of the quality of infrastructure and
244
TABLE 8.2
GROWTH OF MANUFACTURING SECTOR
IN ASIAN ECONOMIES
(1979-80 to 2007-08)
Country Growth Rate (Percent)
China 14.7
India 8.3
Indonesia 12.1
Korea 11.2
Malaysia 13.7
Singapore 9.7
Thailand 11.1
Source: World Development Report, 2010.
245
TABLE 8.3
MANUFACTURING AS PERCENTAGE OF
GROSS DOMESTIC PRODUCT
(1979-80 to 2007-08)
Country Growth Rate (Percent)
China 49
India 29
Indonesia 48
Korea 37
Malaysia 48
Singapore 28
Thailand 46
Source : World Development Report , 2010.
246
TABLE 8.4
SHARE OF WORLD EXPORTS
(1979-80 to 2007-08)
(In percentage)
Country Growth Rate (Percent)
China 4.57
India 0.92
Indonesia 1.02
Korea 2.89
Malaysia 2.07
Brazil 1.43
Thailand 1.98
Singapore 2.93
Source: World Development Report, 2010.
247
TABLE 8.5
PER CAPITA VALUE ADDED IN MANUFACTURING
SECTOR IN 2007-08
(US dollars)
Country Per Capita Value Added in
Manufacturing Sector
China 386
India 92
Indonesia 187
Korea 2442
Malaysia 1082
Brazil 1184
Thailand 689
Singapore 7174
Source: World Development Report , 2010.
248
TABLE 8.6
W.E.F. RANKING ON SELECTED INDICATORS OF
COMPETITIVENESS (2001-2002)
Parameter India China Korea Malaysia Indonesia Taiwan
Overall Quality of
Infrastructure 54 46 28 18 42 26
Sophistication of
Technology Available 38 42 23 27 48 16
Import Fees-Combined
Effect of Import 59 45 32 25 40 24
Tariffs, Licence Fees and
Time Required for
Administrative Average
Tariff Rates
59 57 40 41 45 13
Base of Starting a New
Business 39 37 33 10 24 6
Local Development of
Product Designs 47 35 22 50 51 19
Efficient Production Process 42 43 28 29 46 21
Labour Flexibility 53 32 18 38 26 13
Pay Related to Productivity 52 15 23 29 42 2
Average Ranking 50 39 27 29 40 15
Source: World Global Competitive Report, 2004.
249
absence of world-class infrastructure affects information flow and division making
and hampers business development. Further, staring a business in India entails
considerable procedural delayed and requires the management to spend a lot time
with government officials. According to Report, India ranked at 39th position at the
parameter – base of starting a new business, while Taiwan and Malaysia ranked at
6th and 10th position. Moreover, Indian lagged behind in the parameter of efficient
product process, which leads to low quality levels adversely affecting Indian
exports. Also, labour laws in India make it difficult for firms to terminate
employment. This makes it difficult for firms to take business decisions and
forces them to continue operating, even under inefficient conditions. In case of
labour flexibility India ranked 53rd position in the Report and India’s advantage
of low labour cost is almost negated by low productivity levels. This mainly
due to the fact that majority of the labour force in India is employed in the
unorganized sector.
Thus, it can be concluded that in terms of average ranking with respect to
the selected parameters, Indian manufacturing sector ranked in the lowest bracket
as compared to major developing Asian economies of the world. Due to this
reason even in the reformed era, Indian manufacturing sector is growing at the
slow pace and is unable to complete in the world market during WTO regime.
Section -III
Since independence, nurturing the growth of small scale industrial sector
has continued to remain an important and integral part of development strategy in
Punjab, Haryana and All India. The intensive policy stresses upon small scale
industrial sector as a vital vehicle of progress because of its crucial historical role
in creation of employment opportunities that provides a source of income to
millions of people. In order to achieve self sufficiency in the manufacturing
250
sectors of the economy government protected and nurtured small scale industrial
sector on one hand and prevented private sector monopolies on the other.
Therefore, these policies had the detrimental effect of breeding inefficiencies, low
productivity, lack of professional management and technologically backward
leading to incompetitiveness.
Despite numerous protection and policy measures for the past four decades,
small scale industrial sector remained mostly small and technologically backward
both at national and regional level. During 1991 the opening of the economy
further added to the problems of this sector, therefore, it is imperative to examine
the relationship between globalization and small scale industrial sector alongwith
the opportunities and challenges confronting this sector in the globalised regime.
To empirically examine the impact of globalisation on small scale industrial
sector of Punjab, Haryana vis-a-vis All India, an attempt has been made to
measure the employment elasticity and export elasticity which are indicative to the
response of number of persons employed and export to production respectively.
For the calculation of elasticity of employment and export, time series data for the
period of 1971-72 to 2006-07 has been used which was further, bifurcated in to the
pre reforms (1971-72 to 1990-91) and post reforms period (1991-92 to 2006-07).
For this purpose a multivariate log-linear regression model with dummy variables,
(Di), was used and is given in equation (1).
(1)
In equation 1, the elasticity of employment with respect to production is
given as This is calculated by differentiating both sides of equation 1 and
solving for ∂E /∂Y;
(2)
251
TABLE 8.7
EMPLOYMENT ELASTICITY IN SMALL SCALE INDUSTRIAL
SECTOR OF INDIA, PUNJAB AND HARYANA
PERIOD INDIA PUNJAB HARYANA
Pre-reforms
(1971-72 to 1990-91)
0.72 0.85
0.60
Post Reforms
(1991-92 to 2006-07)
0.33
0.15
0.02
Entire Period
(1971-72 to 2006-07)
0.84
0.51
0.57
Slope of Dummy
variable
-0.39 -0.70 0.58
Source: Author’s Calculation
252
TABLE 8.8
EXPORT ELASTICITY IN SMALL SCALE INDUSTRIAL SECTOR
OF INDIA, PUNJAB AND HARYANA
PERIOD INDIA PUNJAB HARYANA
Pre-reforms
(1971-72 to 1990-91)
1.67 0.96 0.89
Post Reforms
(1991-92 to 2006-07)
1.25 1.30 1.24
Entire Period
(1971-72 to 2006-07)
2.42 1.21 1.09
Slope of Dummy
variable
-0.39 -0.70 0.58
Source: Author’s Calculations
253
Using this econometric method, represents the change in variables
(employment and export) allied with a differential change in output. Thus, an
elasticity of 1 implies that every 1 percentage point of production is associated
with a 1 percentage point increase in employment. Further, for the calculation of
elasticity of employment and export in Punjab, Haryana vis-a-vis All India for the
entire period equation 3 is used;
(3)
Table 8.7 examines the employment elasticity of Punjab, Haryana vis-a-vis
All India. The table shows that employment elasticity during the pre reforms
period is capital intensive in nature because of the negative slope of dummy
variable. The observed elasticity worked out to the tune of 0.72 which means that
1 percent increase in output of small scale industrial sector was generating
employment at the rate of 0.72 percent, however, during the post reforms period,
the coefficient becomes very weak (0.33). Moreover, the employment elasticity
during the entire period worked out to be 0.84. Further, employment elasticity in
small scale industrial sector of Punjab, during the entire period worked out to be
0.51 in comparison to 0.85 and 0.15 in pre reforms and post reforms period
respectively. It indicates that in Punjab capital intensity has increased at a faster
rate than that of India. On the other hand results of employment elasticity in
Haryana shows that during the entire period it worked out to be 0.57 in
comparison to 0.60 and 0.02 during pre reforms and post reforms period
respectively. The similar picture has also been observed in Punjab during the post
reforms period.
Table 8.8 demonstrated the comparison of export elasticity in Punjab,
Haryana vis-a-vis All India. The table shows that at All India level, the export
elasticity was found to the tune of 2.42 in comparison to 1.21 in Punjab and 1.09
in Haryana in the entire period. Further, in the pre reforms period it worked out to
254
be 1.67 at All India level, 0.96 in Punjab and 0.89 in Haryana. However, in the
post reforms period it worked out to be 1.25, 1.30 and 1.24 at All India level,
Punjab and Haryana respectively, which showed that during the post reforms
period the value of export elasticity is declining, thereby implying the decline in
exports from the small scale industrial sector at national level. However, at the
regional level a slight improvement in the export elasticity has been noticed during
the post reforms period.
Since in the process of globalization, the small scale industrial sector is
exposed to market competition to a greater extent and confronting many
opportunities and challenges, therefore, it is imperative to understand the strength,
weakness, opportunities and threats with the help of SWOT analysis. Table 8.9
highlights SWOT analysis for Indian small scale industrial sector which reveals its
strength in terms of operational flexibility, resilience, efficient management,
abundance supply of labour, inherent ability to innovate and organization; the
challenges thrown open by domestic liberalisation, establish backward forward
linkages both nationally and internationally and new world trade regime; also new
opportunities existing in the exports market; and threats from new world trade
order, lack of infrastructure and growth of cheap imports. From Table 8.9, we can
enumerate unfolded and numerous opportunities for the growth of Indian small
scale industrial sector.
Table 8.10 demonstrates the SWOT analysis of small scale industrial sector
in Punjab. The table shows the strength in terms of as cheap availability of
agricultural raw materials, availability of skilled labour, well developed hosiery
industry and high income/consumption level of the people; the challenges are
stipulations of WTO, threat from foreign competitors, lack of infrastructure,
international labour and environment laws; also new opportunities as the challenge
of upgrading skills, scope of agro-based industry and scope of cotton and other
textiles industries; and weaknesses are shortage of labour, landlocked and located
255
TABLE 8.9
SWOT ANALYSIS OF INDIAN SMALL SCALE
INDUSTRIAL SECTOR
Strengths
• Flexible Manufacturing system
• Lower cost of production
• Low level of capital investment per unit of
output and employment
• Utilization of local resources
• Inherent ability to innovate
• Ability to make quick adjustments to the
changing economic and trading scenario
• Operational Flexibility
• Knowledge of internal markets
• Abundance supply of labour
Weaknesses
• Inadequate capital for investment/ expansion
• Inadequate working capital
• Lack of demand
• Technologically weak due to inadequate capital
• Weak bargaining power
• Absence of brand equity’ for ‘Made in India labels
• Lack of Development policy framework
• 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
Opportunities Threats
• 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
• 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.
Source: Author’s Observation
256
TABLE 8.10
SWOT ANALYSIS OF SMALL SCALE INDUSTRIAL SECTOR
IN PUNJAB
Strengths Weaknesses
• Tradition of trade, business and industry
• strong in agricultural raw materials
• Well developed infrastructure base
• Availability of skilled labour
• Dynamic entrepreneurship
• High-income/consumption level of the people.
• Well developed Hosiery industry
• Manufacturing Flexibility
• Landlocked and located in a corner of the country
• Far away from ports
• land prices are higher than in other parts of the country
• Weak industrial policy regime
• Shortage of power supply
• Lack of Mineral and natural resources
• peripheral position distant from major national markets
• Shortage of Labour power
Opportunities Threats
• The Challenge of upgrading skills
• Scope of Agro-based Industry
• Scope of Cotton and Other Textiles industries
• New Petroleum Refinery and a Petro-chemical Complex
• End of Quota regime
• Shift in Domestic market
• Emerging economy and expansion
• Pressure on Natural Resources– especially soil and water
• variety of government incentives and concessions
• stipulations of WTO
• Threat from foreign Competitor
• International labour and environment Laws
Source: Author’s Observation
257
TABLE 8.11
SWOT ANALYSIS OF SMALL SCALE INDUSTRIAL
SECTOR IN HARYANA
STRENGTHS WEAKNESS
• Locational Advantage
• Availability of material in sufficient quantity
• Easy and cheap workforce
• Local access to banks & Financial Institutions
• Well connected by road, rail & air
• Demonstration effect
• Easy availability of other materials
• Availability of Technical & Engg. Institutes
• Low level of investment with little gestation period
• Strong presence in the domestic market
• Assistance from State & Central Govt.
• Developing trust and relationship
• Utilization of local resources
• Implementation of Govt. sponsored schemes through DIC & Blocks
• Absence of market intelligence and
Limited to local markets & lack of exposure to different markets
• Potential for export not explored
• Low productivity & high cost of production
• Lack of advanced technology
• Wastage of manpower & material
• Inability of timely execution of large orders
• Lack of awareness and measures for quality assurance
• Under utilization of financial facilities
• Poor coordination with local banks & Financial Institutions
• Ignorance of different schemes & incentives by Govt.
• Inadequate Institutional credit flow leading to exploitative lending
Opportunities Threats
• Developing tariff and non-tariff barriers
• Participation in National and International Trade Fair
• Advent of latest technology
• Creation of technology awareness among Entrepreneurs
• Establishing ties with R&D Institutions and Laboratories
• Availability of sufficient manpower
• Cheap raw-material due to bulk purchasing
• Demonstration effect
• Scale down the production cost due to availability of cheaper inputs
• Availability of traditional skills
• Ample scope of Govt. through varied schemes
• Availability of finance
• Entrepreneurial financial awareness
• Increasing competition due to globalization
• Increase of imports due to depleting barriers
• Imitation by others due to lack of Patenting
• Adoption of changed or modernized technology
• Low level of technological development
• Expensive sophisticated technology
• Expensive raw-material imports
• Stiff competition due to WTO norms
• Arrival of MNC’s
• Threat from changing Business Environment
• Economic Downturn adding pressure to revenue
• Complicated documentation procedures
• Irregular payment of dues
Source: Author’s Observation
258
in a corner of the country, far away from the ports, lack of natural resources, weak
industrial policy regime and land prices are higher than in other parts of the
country.
Table 8.11 reveals SWOT analysis of small scale industrial sector in
Haryana. The table shows the strength in terms of locational advantage,
availability of raw material in sufficient quantity, cheap workforce and
government liberal policies; weakness as absence of market intelligence, limited to
local markets and lack of exposure to different markets, Inability of timely
execution of large orders, lack of awareness and measures for quality assurance
and under utilization of financial facilities; opportunities as existing in the exports
market, availability of sufficient manpower and ample scope of government
through varied schemes; and threats as increasing competition due to
globalization, increase of imports due to depleting barriers, imitation by others due
to lack of patenting and quality of raw material.
Thus, the analysis shows that in Punjab, Haryana and at All India level,
ample scope exists for the development of small scale industrial sector. Although,
opening up of the economy in the early 90s, with accelerated pace of liberalisation
has thrown a number of opportunities for the small scale industrial sector but to
compete in the world market this sector has to be technologically efficient and
economically viable both at national and regional level. The new world trade
regime has opened the global market for Indian enterprises where they can now
compete with the other enterprises of the developing and developed countries.
However, the success of small enterprises engaged in exports market heavily
depends on the quality and price of their product relative to that of others. This
needs technology upgradation and modernisation and in this context, it is worth to
mention that this sector is now going to have a large open market for exports. To
tap these opportunities, however, an improvement is needed in competitiveness
259
since other countries especially China and Pakistan have already flexed their
muscle. Therefore, the present competitive environment would surely improve the
efficiency and productivity of this sector if the policy is implemented with some
safety guards by the government both at national and regional level.
Section -IV
The globalization and liberalization has posed certain challenges as well as
opportunities to the small scale industrial sector of Punjab, Haryana and at All
India level. The challenges are in the form of increased competition arising out of
reduced protection due to removal of restrictions on imports and lowering of
tariffs. Opportunities have come in the form of access to better technology,
availability of a variety of raw materials and components, impetus to quality,
efficiency and opportunity to restructure and to diversify. The emergence of
multilateral trade regime, WTO conditionalities have added urgency to the task of
enhancing competitiveness. It is essential to remove the constraints which limit the
competitive strength of small scale industrial sector of Punjab, Haryana and at All
India level. Further, the provisions/ agreements which are likely to affect the small
scale industrial sector under the WTO regime are: Quantitative Restrictions (QRs),
tariff reductions, anti-dumping practices, subsidies and countervailing measures,
Technical Barriers to Trade (TBT), Trade Related Investment Measures (TRIMs)
and Trade Related Intellectual Property Rights (TRIPs). With the removal of
quantitative restrictions, all reserved items have become freely importable,
therefore, the small scale industrial sector will have to be safeguarded by the
government both at national and regional level.
To analyse the impact of globalisation, employment elasticity and export
elasticity of small scale industrial sector have been calculated by using the
technique of multivariate log-linear regression model including dummy variables.
The comparison of employment elasticity showed that during the entire period it
260
worked out to be 0.84, 0.51 and 0.57 for All India, Punjab and Haryana
respectively, whereas, during pre reforms period it worked out to be 0.72, 0.85 and
0.60 and in post reforms period 0.34, 0.15 and 0.02 respectively, implying thereby
capital intensive nature of small scale industrial sector in the post reforms period
both at national and regional level. On the other hand the comparison of the export
elasticity of small scale industrial sector in Punjab, Haryana vis-a-vis All India,
showed that at All India level it was found to the tune of 2.42 in comparison to
1.21 in Punjab and 1.09 in Haryana in the entire period. Further, in the pre reforms
period it worked out to be 1.67 at All India level, 0.96 in Punjab and 0.89 in
Haryana, however, in the post reforms period it worked out to be 1.25, 1.30 and
1.24 at All India level, Punjab and Haryana respectively, which showed that
during the post reforms period the exports from the small scale industrial sector is
declining at All India level.
Therefore, the new economic policies framed in the WTO regime
encouraged the entry of multi-national corporations which pose stiff competition
to small scale industrial sector both at national and regional level. Thus, the
process of globalization would help to explore the existing opportunities for small
scale industrial sector only if the government focuses on improving infrastructural
facilities, encourages research and development and improves the efficiency to
make this sector viable in the globalised regime.
***************