Study Conducted by: Rajiv Gandhi Institute for … SECTOR IN INDIA: STATUS, GROWTH AND...

SMALL SECTOR IN INDIA: STATUS, GROWTH AND DE-RESERVATION

Study Conducted by:

Rajiv Gandhi Institute for Contemporary Studies

In Association with Indicus Analytics Pvt. Ltd.

August 2006

Executive Summary

The post-independence development policy in India evolved around targeted efforts to

foster economic growth. As discussed by Bhagwati (1998), key strategy then was to achieve

rapid industrial growth by inducing private investment and import of newer technologies.

However, within less than a decade, the initial policy prescription was radically altered

towards “import substitution”. It was envisaged that SSIs would help generate employment

and expansion of industrial activity across the country (NIPFP, 1996). However, from 1991

onwards, general economic policy moved towards openness of the economy both for

investment and imports, the very rational for continuation of reservation of items to be

produced exclusive by the SSI was brought under scrutiny. Consequently, de-reservation

process finally began in 1997.

• Government Agencies (e.g., SSI Census reports) or other agencies (e.g. SIDBI, 2002)

that use data available from Ministry of SSI, show a very healthy performance of the

sector. In terms of production and employment, the SSI sector has shown a consistent

secular increase even in the post liberalization period.

• Using second census data Sandesara (1993) studied small-scale industries producing

reserved items with the hypothesis that small scale-industries producing reserved

items should be performing better than their counterparts, as they do not have to

compete with larger manufacturers. Contrary to his hypothesis, he found that capacity

utilization in 1987-88 and aggregate change in production in 1987-88 were both

lower for reserved than for unreserved items. He also suggests that lackluster

performance of the reserved industries might be attributed to excess entry of small

firms into these protected sectors.

• Expert Committee (GOI, 1997) constituted to review policy on the SSI’s

recommended de-reservation of items to be produced by the SSI sector. These

sentiments are also well articulated by a study at NCAER, Mohan (2001), where he

has argued for complete abolition of reservation for SSI sector.

• Little et al (1987) have argued that reservation creates inefficiencies and decreases

welfare. Among the more recent studies NIPFP (1996) provide evidence against

reservation.

• Katrak (1999) found that reservation has increased the number of production units per

item produced compared to those that produced unreserved items. Reservation has

not helped reduce the problem of closures of small units.

• Morris et al (2001) surveyed around 1200 SSI units and demonstrated that production

of reserved items grew at a retarded rate to that of other producers in the SSIs. Again

the results showed the firms manufacturing reserved items ranked poorer in measures

of efficiency. An interesting aside was that firms that did not know they were

manufacturing a reserved product were not very different from those SSIs who were

manufacturing an unreserved product. Summarizing their observations, Morris et al

(2001) argue that on the whole the effects of de-reservation would be non-volatile for

most firms. There are only a handful of products that would shift entirely into the

larger sector with de-reservation. The area where small-scale sector firms would

suffer the most with dereservation is in lifestyle consumption goods.

• Shridharan (2002) finds that only four industry groups account for two-thirds of

reserved products, suggesting that reservations were decided on the basis of the most

vocal campaigners rather than a sound analysis of items appropriate for small-scale

production. Again, of the 200 products leading in value of output in the small sector,

reserved products tallied only 21 per cent.

• Shridharan (2002) undertook case studies of four industries in and around Hyderabad

to find out what the effects of de-reservation have been on these industries. These

were rice milling, corrugated paper and paperboard, Biscuits & ice cream. Based on

these case studies Shridharan (2002) identifies three typologies for de-reserved

industries. The first comprises those industries in which sector specific qualities work

against the entry of larger firms. These can be industries with little or no economies

of scale or steep seasonal/demand fluctuations etc. For these industries, dereservation

is unlikely to make much of an impact and the small scale will continue to operate

much as it these did before. The second is industries where industry specific reasons

make it attractive for large firms to subcontract their production to smaller units

rather than take over the manufacturing themselves. Though this can be beneficial to

the small-scale units, it relegates them to the position of a producer rather than an

entrepreneur. The third is one in which medium and large units enter. Here small-

scale units either have to increase their production size and graduate to become a

larger player or watch their market share dwindle.

• A study by UNDP for the on 15 dereserved items indicated that there has been no

negative impact on the sector with exception of marginal impact in case of biscuits.”1

The Dalal Consultants study showed that in the 15 sectors studied, SSIs were doing

well post reservation.

These policy documents and academic studies very forcefully put forth the argument for

de-reservation. Moreover, they also call for rapid de-reservation within a span of a few

years. This study further finds the following evidence:

The broad insights that emerge from the analysis are:

1. The Reserved SSI sector is a minor component of the SSI sector

2. The reserved sector from all available evidence continues to be less efficient than

the un-reserved sector

3. A few industry classifications account for the bulk of the reserved output and

units producing reserved items.

4. Dereservation has not been followed by any significant SSI output fall in most

dereserved product segments - in other words past dereservation has not harmed

the sector.

1 http://www.smallindustryindia.com/sido/press/pressrel.htm

5. De-reservation is followed by a fall in the growth rate of imports of the de-

reserved items.

6. Some large units have professed an interest (as reflected in LOI) in entering the

reserved sector but not to a large extent.

Taken together the above evidence suggests that:

• Dereservation policy should be continued

• If there are any concerns on the potential negative impact should be

identified and addressed in parallel to the de-reservation process.

• Some sequencing of de-reservation would enable taking measures that

would help the SSIs in meeting new market conditions.

• The government should play a role in facilitating greater SSI dynamism

rather than protect and provide for them.

The study has identified the following method for a 3-phased dereservation process.

Stage of De-

Reservation

Sub-

stage

Criteria for item

being de-reserved

Number of

AICC items

to be de-

reserved in

each stage

A Output < Rs. 1 cr 130

B Output b/w Rs 1-5 cr 124 1

C Output b/w Rs 5-10 cr 64

2 Remainder 183

3

Share of output > 1%

of State/UT’s output 32

Total 533

The last stage should be those items that account for greater than 1% of any state/UTs

SSI output. These 32 items should be de-reserved last. In the intervening period policies

to aid the SSIs falling in this category should be taken up. In stage one those remaining

items that account for less than Rs 10 crore all India output should be de-reserved. And

the remainder should be de-reserved in stage 2.

The de-reservation process has in the past been consultative in nature. This is the right

process where the views and concerns of SSIs and their representatives are brought taken

into consideration in fine-tuning the de-reservation process.

It should be recognized that local industry associations can play a strong pro-active role

in the long term growth of the SSI sector. A time bound process should be started where

such associations are strengthened and consulted on a regular basis for all issues related

to SSI growth.

SSIs suffer from a range of hindrances that individual entrepreneurs have to face;

transactions cost, marketing constraints, credit constraints, etc. are well documented. It is

these constraints that need to be removed. A change in the orientation of the government

where it is facilitative and cooperative with SSIs would be a necessary pre-condition for

many unnecessary constraints to be removed, while at the same time preserving the

incentive structure and flexibility that characterizes the inherent advantages of SSIs.

**

Acknowledgement

This study has highly benefited from the advice and consultations of Mr. Anupam Dasgupta

(Secretary, MoSSI), Mr Sanjeev Kaushal, Mr. Dey at the Ministry of Small Scale Industry.

We would like to exprees our thanks to Mr. S. Mishra and Mr. Deepak Goyal at DC-SSI.

We would also like to thank Dr. Nilachal Ray and Dr. Mukhopadhyay for help and insights

with data from Annual Survey of Industries.

We also thank Ms. Aparna Panwar for her help during data analysis.

Research Team

Bibek Debroy

Amaresh Dubey

Laveesh Bhandari

Mridusmita Bordoloi

August 2006, New Delhi

Table of Content

Executive Summary I-V

Chapter 1: Scope, Data and Methodology and Outline

1.1 Introduction 1.2

1.2 Objectives and Scope of the Study 1.4

1.3 Data and Methodology 1.5

1.3.1 Sources of Data 1.6

1.3.2 Impact of Dereservation 1.8

1.4 SSIs in India 1.9

1.5 Organisation of the Report 1.19

Chapter 2: The Small Scale Sector: Growth and Performance


2.2 The SSI sector 2.3

2.2.1 Trends in the SSI Sector 2.3

2.2.2 SSI Sector in Indian Manufacturing: Indicators from Third SSI Census 2.5

2.3 Distribution of SSIs by Industry Division 2.7

2.4 Geographical Distribution of SSIs 2.16

2.5 Distribution of Small units by Type of Ownership 2.22

Chapter 3: Reserved Vs Unreserved – Lessons for De-reservation


3.2 Characteristics of SSI units (Reserved Vs. Non-reserved), 2001-02 3.3

3.3 The Regional and Sectoral Dimension of SSI Reservation 3.5

3.4 Post De-reservation Output Growth of Selected De-reserved Items 313

3.4.1 Units Whose Output is consistently Growing/Falling 3.13

3.4.2 Annualized Growth in Output 3.15

3.5 Impact of de-reservation on technology 3.17

3.6 Entry and/or expansion of large units in the production of de-reserved items 3.19

3.7 Import of reserved vs. de-reserved products by India from the rest of the world 3.23

3.7.1 India's imports from world pre and post de-reservation 3.23

3.7.2 Trend in import of products still reserved in 2005 3.25

3.8 Export of reserved vs. de-reserved products by India to the rest of the world 3.27

3.8.1 India's exports to world pre and post de-reservation 3.27

3.8.2 Trend in export of products still reserved in 2005 3.29

3.9 Views of SSI associations 3.31

3.10 Concluding Note 3.32

Chapter 4: The Way Forward


4.2 De-reservation: What and When 4.3

4.3 Consultation with SSI Representative/ Associations 4.4

4.4 Future De-reservation Sequencing 4.4

4.4.1 Methodology 4.5

4.5 Strengthening De-reserved Units: What do SMEs require? 4.7

4.6 General Principles 4.8

4.7 Strengthening Associations 4.10

Step 1: Ensuring Basic Level Associations - Aggregators 4.11

Step 3: Facilitating Mature Associations - The Pro-active/Action Takers 4.12

4.8 Marketing and Market Information 4.13

Appendix 4.1 4.14

Appendix 4.2 4.33

Chapter 1: Scope, Data and Methodology and Outline

Table of Contents

1.1 Introduction............................................................................................................ 1.11

1.2 Objectives and Scope of the Study ....................................................................... 1.13

1.3 Data and Methodology .......................................................................................... 1.14

1.3.1 Sources Of Data............................................................................................... 1.15

1.3.2 Impact Of Dereservation............................................................................... .1.17

1.4 SSIs in India............................................................................................................ 1.18

1.5 Organisation of the Report ................................................................................... 1.28

1. 1.1 Introduction

This study seeks to evaluate the impact of de-reservation of the small-scale industries (SSIs)

in India. It has been argued, mostly in government publications and reports that the small-

scale sector has been one of the most dynamic components of the Indian economy. In

India’s industrialization strategy it occupies an important place.

SSIs comprise of several types of units producing a variety of good and services. There are

several sub-divisions within SSIs. It incorporates both the organized and unorganized and

manufacturing and services sectors.2 SSIs have enjoyed various forms of favoured treatment,

including access to credit facilities, subsidies for the use of certain inputs, advice on

technology, production and marketing as well as reservation of certain products for the

exclusive production by SSIs. They have also been provided with fiscal concessions---

exemptions in excise duties and sales taxes.

Recent assessments of the sector put forward by the concerned government departments

suggest that despite global and domestic recession, SSIs have recorded relatively higher

growth in overall industrial sector in terms of number of units, production, employment and

exports (GOI, 2005). Since the start of liberalisation in 1991, the SSI sector shows

impressive growth in its all aspects. During 1994-95 to 2001-02, the number of SSIs grew at

over 4.1 percent annually and employment in them grew by over 4 percent annually during

the same period. Total production grew at about 9 percent annually, while exports grew

close to 16 percent annually during the above mentioned period.

The importance of SSI sector grew when the Indian economy evolved around a protectionist

regime. The SSI sector too was supervised and regulated by a Ministry for Small-Scale

Industry at the national level, which provided overall direction to this sector. Besides these,

most state governments have separate ministry for it. The SSIs have been provided favored

treatment by both the central as well as state governments. The most important

consideration for favoured treatment often put forward has been its unique characteristics of

2 The details about definitional aspects of SSIs in India is given in Appendix 1.

being labour intensive along with expansion of industrial activity across the country. In

addition to favoured treatments cited above, by far the most important element of the small-

scale sector policy has been reservation of a number of products to be produced exclusively

by SSIs since later part of 1960s.

These measures have played a crucial role in fostering growth of the SSI sector under

protected environment. But with the on set of economic reforms in almost all aspects of

management of the economy since 1991, the perception among the experts has been that in

the changed economic environment the continued protection of SSI sector is working

against the sector itself by constraining its growth.

One of the results of these debates has been the consensus among experts that the SSI

sector has to embrace the changes occurring in the economy. It culminated into policy of

dereservation announced in 1997 where a number of items reserved for production by the

SSI sector were deserved. The situation today is that, while there is agreement over the need

to de-reserve, the pace at which it should be done is still being debated. In this context, a

question of great policy importance is whether de-reservation has benefited the SSI sector in

general and industrial sector in particular?

This study is one such attempt where we have tried to evaluate the impact of dereservation

on SSI sector.

2. 1.2 Objectives and Scope of the Study

This study primarily aims at evaluating whether de-reservation of the products that were

produced by the SSI sector has benefited the industry at large and what have been effects

of de-reservation on production, employment and exports. Specifically, we would look

into:

• What are the scale, scope, and spread in terms of the numbers, geographical

distribution, product groups, employment, capital, output, exports, ownership

characteristics, etc.

• How important is the unorganized component across different industry segments

in terms of share of output and employment?

• What has been the impact (in terms of output and employment) of de-reservation

in those segments where de-reservation has occurred?

• How rapidly is de-reservation followed by changes in employment, output,

number of units, and capital/investment characteristics of the units producing de-

reserved items?

• Have de-reservations been beneficial for:

o The small sector

o The large sector

• What broad inferences can we draw for future de-reservation? For instance faster

growth of value of output, technological upgradation, more exports as percentage

of output value, higher employment generation per unit of additional investment,

investment, better access to institutional credit, requirement for Business

Development Services, market research and information, marketing?

• How might future de-reservation be sequenced? What should be the time frame;

what support would be required by units facing de-reservation; and how can that

be linked with future de-reservations?

3. 4. 1.3 Data and Methodology

The study reviews the best sources of data on the small sector. These are primarily the

large databases, which government agencies have compiled from surveys conducted over

the last few years.

Though the study goes by the definitions used by the raw data sources, it also critically

examines these definitions. This is because policies based on inappropriate definitions can

create perverse incentives. This has been seen to happen in many sectors of the economy

and the SSI sector is not an exception. Alternate definitions that do not create perverse

incentives for growth will also be discussed. The conventional definition of SSIs in India

according to the Ministry of SSI is:

“An industrial undertaking in which the investment in fixed assets in plant and machinery

whether held on ownership terms on lease or on hire purchase does not exceed Rs. 10

million”.3

While this is the main criterion for “defining” SSI sector, additional conditions have also

been stipulated (GOI, 1997). This arises primarily for two reasons. One, SSI sector not

only comprises of manufacturing units but also Small Scale Service and Business

(Industry related) Enterprises (SSSBEs). The SSSBEs are defined as:

“SSSBEs are industry related service/ business enterprises with investment up to Rs.

1,000,000 in fixed assets, excluding land and building, are called Small Scale Service/

Business Enterprises (SSSBEs)”.

3 See Appendix 1 for a greater detail of the definitions used.

Secondly, while one might use “Un-incorporated proprietary and partnership enterprises”

as the basic definition for the unorganized sector, there are unincorporated manufacturing

enterprises that have fixed assets in plant and machinery above Rs. 1 crore. These might

be the result of relaxation provided by the SSI Ministry in some product categories where

the investment limit in plant and machinery could go up to Rs. 5 crores.

Another important feature of SSIs is that these fall into two categories -- registered and

unregistered. While registration is not mandatory for SSIs in general, those SSIs that fall

into the category of Factories Act of 1948, have to be registered under that act.

1.3.1 Sources Of Data

Given the non-uniformity of the definition of SSI sector as well as type of enterprises it

encompasses, the coverage of the sector in terms of gathering information about it turns

out be multiple. By far the widest coverage of SSI sector is by the SSI Ministry. The SSI

Ministry conducts periodic census of SSIs. There are two other sources of information on

SSIs. These are the Annual Survey of Industries (ASI) for registered units (those

registered under Factories Act 1948) and the National Sample Survey Organisation

(NSSO) survey, which covers both registered and unregistered units. NSSO surveys are

countrywide and are conducted periodically. Of these three data sources, the ASI collects

data in a more systematic manner and is available over time.

The Annual Survey of Industries collects data on registered manufacturing units where a

subset of SSIs is covered as part of the ASI data collection exercise. The SSI units that

are covered in ASI are registered units falling under Factories Act, 1948. But for the

units, even though these might be registered under Factories Act, 1948, having number of

workers below a pre-specified cut off level and falling in the purview of ASI, information

is collected on a sample basis. The number of SSI units covered under ASI is very small

(over 100,000). But these provide useful insight into the effects of the recent policy

changes, especially the effect of de-reservation initiated since 1997 on various

characteristics of SSIs.

The National Sample Survey Organisation collects information on SSI sector by

conducting periodic surveys. In NSSO surveys, both registered and unregistered units are

covered. These fall into three broad categories, Own Account Manufacturing Enterprises

(OAME), Non-Directory Manufacturing Enterprises (NDME) and Directory

Manufacturing Enterprises (DME). In recent times there were two such surveys

conducted by the NSSO during 51st and 56

th rounds of surveys. The corresponding time

periods are agricultural years, 1994-95 and 2000-01, respectively.

Third data source on SSIs is census of SSIs organised by the Ministry of SSI. So far there

have been three censuses conducted during 1973-74, 1987-88 and 2001-02. The SSI

census covers both registered and unregistered enterprises and SSSBEs. But the

information provided in the three censuses is generally not comparable as these differed

on the scope of the coverage of SSI over the years.

Besides the data collected by the Government agencies, there are individual researchers

and organizations have also collected information and carried of analyses of performance

of SSIs.4 The coverage and scope of these data are objective specific. Consequently, these

data are not comparable. In addition to problem of scope and comparability, the

information collected by individual researchers and organizations is not available in the

public domain.

The most important feature of the data on SSIs is that despite the fact that there multiple

government agencies involved in data gathering exercise, no two data sources provide

comparable information--- number of SSIs, production, employment, and other

characteristics turn out to be different from different data sources. These data are not

comparable in scope and coverage, frequency of data collection and so on. Therefore, it is

difficult to carry out an analysis of the working of SSIs in India that will be consistent in

different aspects of analysis.

4 See for example, NCAER (1993), NIPFP (1996), Morris et al (2001), Shridharan (2002) among several

studies.

In this study we have made use of the data collected by all the three sources to study the

status and performance of the SSI sector. However, for the analysis of reservation policy,

we have used unit record level data of third SSI Census conducted by the Ministry of SSI.

In addition to SSI census data, we have also used unit record level data available from

ASI for three years, 1999-2000, 2000-01 and 2001-02 wherever required. For an

assessment of unregistered part of the SSI sector, we also refer to NSSO data for the two

most recent rounds of their surveys.

1.3.2 Impact Of De-reservation

The main objective of this study is to assess the impact of dereservation of items, which

were produced exclusively by the SSI sector till later part of 1990s. These analyses are

expected to provide insights that can help future policies towards SSI sector, more

specifically towards dereservation.

It is to be noted that the dereservation that started since 1997 is an ongoing process. The

concerned ministry has been announcing dereservation periodically only. As a result, we

had to decide, for purposes of this study, what could be considered as the effective year

of dereservation. It was decided that items deserved before 31st October in a fiscal year

were to be considered to have taken place in the same financial year in which the

dereservation took place (notification was issued). If the notification came after October

31 but before March 31 next year, the effective date of dereservation will be next

financial year. This was necessary in order to identify the impact, if any, of the items

dereserved on performance of the firm(s). In other words, for a period less than six month

we assume that the effect is not likely to be captured in the data as increasing the

investment and its consequences on output and indicators might have some lag.

Yet another issue that we have to resolve was matching the reserve items with their

corresponding codes in the data. Given that ASI as well as SSI census in the last census

used the standardised item code list (ASICC codes), most of the item dereserved were

identified in the data set using these codes.

Another issue needed to be resolved was that the number of reserved products has been

increased and decreased in rapid succession. This makes time-series analysis

troublesome. There have also been partial dereservations where some SSIs producing

specific items were permitted to raise the level of investment in plant and machinery up

to Rs 5 crore but at the same time continue to enjoy the status of SSI and producing items

reserved for them.

There is also a lack of reliable and homogenous data sources. Without any official

compilation of year-by-year statistics for reserved products, charting the impact of

reservation on small-scale industries cannot be done easily. Instead, researches have had

to do their own sampling, or piece together data from multiple government sources. We

have surveyed two types of literature here: case studies and all-India time series.

5. 6. 1.4 SSI’s in India

The post-independence development policy in India evolved around targeted efforts to

foster economic growth. With some degree of industrialisation at the time independence

(Bhagwati, 1998), key strategy was to embark on a rapid industrialisation process that

would accelerate growth. Such growth strategy required a policy framework that induces

private investment and import of newer technologies. However, within less than a

decade, the initial policy prescription was radically altered towards “import substitution”

(Bhagwati, 1998). Given the absence of a larger entrepreneurial skill and shortage of

capital, the policy gradually moved towards industrialisation through fostering small-

scale industry. It was envisaged that SSIs would help generate employment and

expansion of industrial activity across the country (NIPFP, 1996).

Under these situations, the SSI sector was given a prominent place in Indian

industrialisation policy. Given that the industrialisation policy gradually moved towards

an insulated environment for development and growth of industries in general, the SSI

sector too developed in those environments. In case of large industries, the public sector

took the lead, thereby becoming under the direct control of the state, the SSI sector

benefited from such an insulation in the form of reservation of certain items that were to

be exclusively produced by the SSIs. This was achieved by restricting the expansion of

large firms that were already producing these items as well as barring the entry of new

firms with large-scale production capacities in 1960s.5 The list of items that were

reserved for SSI was initially small (47 with effect from April 1, 1967) which grew over

the years. At the peak of reservation it numbered over 873 items (or 1045 products).6

With the drastic economic policy changes announced in July 1991, no addition or

deletion of items reserved for production by the SSIs took place. During this period

several studies tried to evaluate the performance of SSI sector (NCAER, 1993;

Sandesara, 1993; NCAER, 1996; Tendulkar and Bhavani, 1997). A common theme of

these studies has been the evaluation of reservation policy towards SSI sector. Given that

the general economic policy moved towards openness of the economy both for

investment and imports, the very rational for continuation of reservation of items to be

produced exclusive by the SSI was brought under scrutiny. Most of the studies during

early 1990s recommended that there are reasons to do away with policy of reservation.

Consequently, dereservation process began in 1997. Currently, over 500 hundred items

are still under reserved list, to be produced exclusively by the SSI sector.

The performance SSI sector in terms of contribution to industrial output, employment

generation as well as its efficiency has been subject of intensive research for purposes of

policy intervention. While the SSI sector as whole has performed well compared to other

sectors it has also experienced serious sickness and exit problems.7

The existing literature on performance evaluation of SSIs can be divided into two broad

categories: theoretical and empirical. On both these issues there is a large body of

literature. One of the first studies to look into the working of SSIs has been by Dhar and

5 For the details on specific consideration going into reservation see GOI (1997) especially Appendix-I.

6 The number of items and number of products changed some what because of adoption of NIC codes for

items to be produced. 7 See ‘Small-Scale Industry, Large Scale Exit Problem’, by Debroy and Bhandari for summary of these issues.

Lydall (1961).8 Other studies that attempted measuring efficiency of SSIs in the pre-

liberalisation era include those by Hajra (1965), Mehta (1969), Bhavani (1980 and 1991)

Goldar (1985 and 1988), Little et al (1987), Ramaswamy (1990) and many others.9

On overall growth performance of the SSI sector, emanating from a number of reports

compiled by the Government Agencies (e.g., SSI Census reports) or other agencies (e.g.

SIDBI, 2002) that use data available from Ministry of SSI, show a very healthy

performance of the sector. In terms of production and employment, the SSI sector has

shown a consistent secular increase even in the post liberalisation period.

Other researchers have scrutinized the working SSI sector. In the post liberalisation

period, one of the first attempts to take stock of the small-scale industries producing

reserved items was by Sandesara (1993). He explores some of the performance related

statistics on SSIs and begins his analysis with the hypothesis that small scale-industries

producing reserved items should be performing better than their counterparts as they do

not have to compete with larger manufacturers. He tests this hypothesis by analyzing the

second census of India dataset, from which he used figures on capacity utilization in

1987-88 and changes in production between 1985-86 and 1987-88 for both reserved and

unreserved items. His analysis is restricted to changes in capacity utilization and

production. In contradiction to his hypothesis, capacity utilization in 1987-88 and

aggregate change in production in 1987-88 were both lower for reserved than for

unreserved items. Capacity utilization for reserved items was 48 per cent compared to 50

per cent in the unreserved SSI sector. With regard to production, reserved items saw an

increase of 34 per cent compared to 40 per cent in the unreserved items.

A sector-wise analysis revealed that of the 15 industries surveyed, capacity utilization for

reserved items was lower than for the unreserved manufacturers in eight of them.

Similarly, for 10 of the different industries, total production was lower in the reserved

sector than in the unreserved SSI sector. Reserved items saw an absolute decrease in

8 For a detailed survey of various aspects of the literature, see Bhavani ((1980) and Nath (1996)

9 See Nath (1999) for a survey of the earlier literature.

production in two industries -- wood products and miscellaneous manufacturing.

However, there was only one such absolute decrease for the unreserved items, that of

Non-Metallic Mineral products.

Reserved items proved worse both vertically and horizontally, belying the argument that

it was isolated shocks to one or two industries generating the relatively poor results in the

aggregate for reserved products. Sandesara (1993) suggests that the lackluster

performance of the reserved industries might be attributed to excess entry of small firms

into these protected sectors. Whatever be the cause, the lesson for dereservation is clear --

removing items from the reservation list should improve their capacity utilization and

production.

With the large-scale changes in Indian economic policy taking effect since 1991, the

liberalisation of a capacity constrained Indian economy became the key policy mantra.

Since SSIs dominated the production and employment in the industrial sector, the

functioning of this sector too came up for scrutiny. In a pioneering work on the

functionings of the SSIs, Expert Committee (GOI, 1997) was constituted to review policy

on the small scale industries in the changed economic policy environment.

The Expert Committee argued that the reservation policy for SSIs was envisaged as a

means for protecting small industries from their larger counterparts. That might have

been justifiable in the past on the grounds that the small-scale industry would provide

larger employment opportunities at a lower capital cost, engender a wide entrepreneurial

base, and aid in the redistribution of national wealth. But in the new policy environs, he

stressed a need for change in the thinking towards SSIs and recommended de-reservation

of items to be produced by the SSI sector. These sentiments are also well articulated by a

study at NCAER, Mohan (2001), where he has argued for complete abolition of

reservation for SSI sector.

These recommendations have been justified on the theoretical as well as empirical

grounds. In one of the most influential piece of research, Little et al (1987) have argued

that reservation creates inefficiencies and decreases welfare. Among the more recent

studies NIPFP (1996) provide evidence against reservation. They conducted their own

sample survey of 900 SSI units in 18 districts of 10 states. Sorting the data by reserved

and unreserved manufacturers enabled them to draw several conclusions about the

differences between these sectors.

Katrak (1999) investigated the effects of reservation using a theoretical framework and

testing his hypotheses using Indian data. His tests showed three main results. First,

reservation has increased the number of production units per item produced compared to

those that produced unreserved items. Secondly, units that produce mainly reserved items

have higher levels of installed capacities than those making mainly unreserved items but

the former do not have higher levels of per unit production thereby resulting in

significantly lower levels of capacity utilization which was highlighted earlier by

Sandesara (1993). Third, reservation has not helped reduce the problem of closures of

small units. These results suggest that reservation has not achieved its objectives and may

have caused a loss in overall welfare.

Morris et al (2001) address the differences in capacity utilization between reserved and

non-reserved small-scale industries. Specifically, they express doubt that capacity

utilization can be shown to differ using the census data, citing the possibility that

differences in the nature of the industry themselves might be causing the perceived

difference in capacity utilization between reserved and unreserved small scale industries.

They do not find the evidence advanced by Sandesara (1993) to be strong enough to

either confirm or reject the position that inferior capacity utilization and production are

the result of reservation.

Using their own survey data of more than 1200 units, the authors (Morris et al, 2001)

explore capacity utilization in a multivariate context, using dummy variables to control

for the other industry factors that might be giving rise to differences in capacity

utilization. Their examination demonstrates that reservation is not an important factor in

explaining differences in capacity utilization. The factors that mattered were the size of

unit, the rate of growth of the market, the state within which the unit was located and the

industry in which the unit was operating. However, they stress that theirs is a preliminary

analysis using a limited dataset and a more expansive exercise might introduce different

results.

Their results show that manufacturers of reserved products were less reliant on

technology, showed significantly less innovativeness and were motivated more by

subsidies and concessions than their counterparts. In addition, they tended to be less

educated, less technically inclined and guaranteed a steady, if low-growth, market.

Manufacturers of reserved products also had more of their entrepreneurs with a family

background in trade and service related activities. Their results also revealed that the

production of reserved items grew at a retarded rate to that of other producers in the SSIs.

They attribute these results to the impact of reservation on the industry itself. Excess

entry is not ruled out since there is evidence that capacity utilization does differ between

the reserved and unreserved sectors of SSI. This was confirmed by the analysis of the

data collected by Morris et al (2001).

Other important observations resulting from their study concern returns to fixed capital,

value added per unit of capital, and value added per worker. Returns to fixed capital as

proxied for by plant and machinery at original value showed inferior results for the

reserved manufacturers in comparison to the unreserved units. The case of value added

per unit of capital was similarly inferior for reserved manufacturers. However, in terms of

value added per worker, the analysis revealed no significant difference between the

reserved unreserved industries. Another comparison, of labour value added per unit of

plant and machinery, proved once again that reserved industries were on the inferior side

of the line up.

They also regressed value added using a translog production function against capital and

labour, as a translog form supports the variation of prices among inputs. Again the results

showed the firms manufacturing reserved items ranked poorer in measures of efficiency.

An interesting aside was that firms that did not know they were manufacturing a reserved

product were not very different from those SSIs who were manufacturing an unreserved

product.

They note that reserved firms have a decreased likelihood to participate in national and

international markets and instead targeted local and regional markets. They also tend to

compete exclusively with small firms, as one would expect from a reservation policy

protecting them from large firms. It is noteworthy that despite such protection, slightly

less than half of all reserved firms reported competing solely with other small firms,

indicating there is a fair degree of slack in the efficacy of reservation.

The analysis measures the static efficiency of reservation but the authors also recognize

the importance of measuring the dynamic effects of reservation which would seek to

provide a holistic picture of the reserved firm within the changing context of the

economy. Reading several characteristics of the reserved firm together, the authors

construct a picture of an SSI entrepreneur as someone who relies more on information

about barriers to start-up and political contacts than a sound assessment of market

potential and technology.

Summarizing their observations, Morris et al (2001) argue that on the whole the effects of

de-reservation would be non-volatile for most firms.

This conclusion follows from two general findings from their sample study. First, in the

great majority of cases, entrepreneurs have entered reserved industries for reasons other

than just that they were reserved. Second, that for many of the products manufactured in

the reserved small-scale sector there is little or no economies of scale or a quick

plateauing economies of scale which makes these sectors unattractive to competition

from larger firms.

They suggest that there are only a handful of products that would shift entirely into the

larger sector with de-reservation. The area where small-scale sector firms would suffer

the most with dereservation is in lifestyle consumption goods.

The authors foresee three possible futures for dereserved firms. One is that they will be

gutted by larger, brand-name producers. Another is that a few may become large players

themselves. The third is the remainder will become sub-contractor or franchisee for large

manufacturers.

Of the units surveyed 40 per cent were in the reserved sector. In all measures which

included employment, capital, and production, it was seen hat units manufacturing

reserved items were lowly placed compared to unreserved manufacturers. Reserved units

performed worse than unreserved ones for capital intensity, capital productivity and

labour productivity. The only silver lining was for units with an investment less than Rs

10 lakh. These showed slighter better capital intensity and labour productivity than non-

reserved SSIs of the same size.

Shridharan (2002) finds, like Expert Committee (GOI, 1997) that only four industry

groups account for two-thirds of reserved products, suggesting that reservations are being

decided on the basis of the most vocal campaigners rather than a sound analysis of items

appropriate for small-scale production. The second noteworthy characteristic he

highlights is that of the 200 products leading in value of output in the small sector,

reserved products tallied only 21 per cent. This casts some doubt on the idea that

reservation is creating a habitat for success among the small-scale firms. He also calls to

our attention to the fact that as many as 90 reserved items were being manufactured by

one company each – which is suspiciously like a monopoly. What’s more 22 per cent of

reserved products were not being manufactured at all and just 68 reserved items

comprised 81 per cent of the total value of reserved products produced.

For good measure he cites an NCAER survey (1993) in which only 32 per cent of SSI

associations were in favor of reservation with 57 per cent balloting for phased de-

reservation.

Industry specific analyses by Shridharan (2002) are also insightful. He undertook case

studies of four industries in and around Hyderabad to find out what the effects of de-

reservation have been on these industries. The first industry investigated in his study is

rice milling. He provides a detailed account of the milling industry, post-dereservation.

The impact of dereservation has so far been negligible and it been business as usual since

dereservation took place in 1997. Shridharan (2002) suggests that this is primarily due to

excess capacity in the industry. Other industry specific variables have also militated

against the entry of larger players, namely seasonal production which entails long periods

of down time in the milling industry.

The second industry he studied was corrugated paper and paperboard, which was de-

reserved in April 1997. He identifies two primary considerations that weigh with

investors -- expectations about the growth of the industry vis a vis the economy as a

whole and the prior establishment of a some key contacts in ancillary industries to whom

the product can be sold. Reservation was of little consequence to entrepreneurs, many of

who reported not having even known that the industry had such status until it was

removed in 1997. Entry by larger units into the industry post-de-reservation has been

slight. According to industry sources, only two larger firms had entered the paperboard

industry up until 2002 when the study was published, one in Gujarat and one in Andhra

Pradesh. While the one in AP closed down, the Gujarat factory was reported to be faring

well. The author advances structural reasons why larger firms have not moved into the

sector in a big way. The requirements for paperboard cartons vary by quantity and size

and are subject to streaks of high demand or dry spells. The argument is that small firms

are better equipped to handle these fluctuations, reservation or no reservation, and it

unlikely that this will change in the near future.

Biscuits are the third industry Shridharan (2002) studied. It was dereserved in 1997. The

biscuit industry is notable in that there were several large producers operating before

reservation came into being. But they were allowed to remain in the market. Other large

players penetrated the market by franchising the small-scale producers and were thus able

to circumvent the reservation system. In many ways this was convenient for the small

biscuit produces who were then assured a buyer for their product. With dereservation,

the prevailing system has remained intact, with large unit preferring to remain in the

franchise arrangement. One of the reasons large units prefer to keep the current business

strategy is to sidestep labour restrictions and other legal considerations. The burden of

maintaining fair labor practices and dealing with the repercussions if violations are

detected rests solely with the small franchise units. The biscuit industry revolves around

brand names, making it difficult for smaller units to compete with the branded

manufacturers even if that was their desire. Only in the rural areas did some of the small

companies develop a devoted consumer base. With liberalization and multinational

competition, international biscuit makers have “discovered” India’s rural market and the

indigenous biscuit makers are getting bought out or franchised. In the case of biscuits,

reservation never really had an impact but actually reinforced the market tendency. So the

effects of de-reservation were minor.

The last industry surveyed by Shridharan (2002) is ice cream. Almost immediately after

dereservation the small scale producers felt the impact as larger units and multinationals

moved in. Many small units around Hyderabad considered selling off their company or

being franchised. Production and turnover slipped for small-scale units. But overall the

consumer has gained with the try of the big firms. These gains include an increase in the

level of technology, ensuring speedy and safe delivery systems. Prices have remained low

despite rising input costs.

Shridharan (2002), therefore, identifies three typologies for de-reserved industries. The

first comprises those industries in which sector specific qualities work against the entry

of larger firms. These can be industries with little or no economies of scale or steep

seasonal/demand fluctuations etc. For these industries, dereservation is unlikely to make

much of an impact and the small scale will continue to operate much as it these did

before. The second is industries where industry specific reasons make it attractive for

large firms to subcontract their production to smaller units rather than take over the

manufacturing themselves. Though this can be beneficial to the small-scale units, it

relegates them to the position of a producer rather than an entrepreneur. The third is one

in which medium and large units enter. Here small-scale units either have to increase

their production size and graduate to become a larger player or watch their market share

dwindle.

Two other studies have been commissioned by the government to explore the impact of

dereservation. One is by Dalal Consultants and the other through UNDP. A publication of

Press Information Bureau, GoI, reports that “a study by UNDP for the ministry on 15

dereserved items indicated that there has been no negative impact on the sector with

exception of marginal impact in case of biscuits.”10

This study has however since become

untraceable. The Dalal Consultants study showed that in the 15 sectors studied, SSIs

were doing well post reservation.

The empirical studies reviewed above do not provide a comprehensive coverage of the SSI

sector in terms of the impact of dereservations. Most studies cover the dereserved items

partially and arrive at a conclusion that mostly favours further dereservation. One possible

reason for such mixed outcome could be the timing of these studies as it was only a couple

of years into the dereservation.

Keeping these in mind, we investigate the impact of dereservation in terms of growth in

output and employment – overall and for the small scale sector in these segments.

7. 8. 1.5 Organization of the Report

Given the objectives of this study, the report is organised around following main themes:

Chapter 2 contains an overview of the sector – the number of enterprises, the output and

employment of the various segments at the aggregate as well as disaggregated level by

states and industry. The study includes both organized and unorganized sectors in

manufacturing as well as services. The number of establishments, their average size,

10

http://www.smallindustryindia.com/sido/press/pressrel.htm

where they are located, in what concentrations, the top clusters, etc are covered. The

share of the organized and the unorganized clusters are e highlighted. Our major concern

in this chapter is not to provide status report of the SSI sector but to highlight the issues

concerning growth and performance of the sector as a whole.

Chapter 3 analyses the impact of de-reservation, namely, which sectors have gained in

terms of employment and output, which sectors are growing and which have stagnated.

This section also contains a cross-industry comparison of the segments that have had

some relaxation of the reservation vis-à-vis those that have not. This analysis is

conducted at the finest product level possible.

Chapter 4 analyses the framework for establishing policy alternatives. For this purpose

ranking various industry segments on the criteria of maximizing long-term gains and

minimizing short term losses from de-reservation are assessed. The gains/losses are

measured by potential employment and output growth. The potential impact on the

remaining reserved sectors is also analysed in the light of the insights and parameters

obtained from the previous sections.

Chapter 2: The Small Scale Sector: Growth and

Performance

Table of Contents

2.1 Introduction......................................................................... 2.31

2.2 The SSI sector...................................................................... 2.32

2.2.1 Trends in the SSI Sector................................................................................. 2.32

2.2.2 SSI Sector in Indian Manufacturing: Indicators from Third SSI Census 2.34

2.3 Distribution of SSIs by Industry Division ........................ 2.36

2.4 Geographical Distribution of SSIs .................................... 2.45

2.5 Distribution of Small units by Type of Ownership ......... 2.51

9. 2.1 Introduction This chapter focuses on the various characteristics of small-scale units (SSIs) -- both SSIs as

a whole as well as in relation to non-SSI manufacturing units and their industrial and

geographical distribution. It has been emphasized that the SSIs account for two-fifths of

industrial production in India, and over a third of total exports. The term SSIs loosely

describes small, tiny and cottage industries. As a result, they range from modern production

units with big (up to Rupees five crores) investments in plant and machinery to small

handicraft units and even to women-run homegrown enterprises.

As already discussed in the last chapter, government policy has traditionally been that of

encouraging SSIs for a variety of reasons. It was articulated that the SSI sector is the most

employment-intensive sector after agriculture; it has enormous growth potential; it

contributes significantly to industrial production, employment and exports as well as

expansion of industrial activity across country. These advantages were to accrue as the units

are flexible enough to adapt to changing business conditions and they contribute to

decentralisation of industry and a more equitable distribution of income.

The recent evidence reviewed in the last chapter suggests that the performance of SSIs

producing reserved items is not as impressive. This chapter provides a brief glimpse into

status of the SSI sector in recent times.11

This also is intended to put the discussion of

current policy issue, namely dereservation in perspective.

For the purpose of this study besides providing the key indicators of SSI sector at the

aggregate levels, we have looked SSIs at various levels of dis-aggregation, geographical,

two-digit NIC 1998 classification as well as ownership pattern. The study provides an

overview of the sector, namely, the number of enterprises that are there and the output

and employment of the various segments.

11

For a status report and other related material on SSI, see SIDBI (2002).

As was also mentioned in the previous chapter, the SSI sector consists of both registered

and unregistered segments. The data for most SSIs in the unregistered category is

available in periodic surveys conducted by the NSSO and SSI Censuses conducted by the

ministry for small-scale industries. Whereas for the SSIs in registered category, data is

available from two sources; the SSI Censuses carried out by the Ministry of SSI and the

Annual Survey of Industries data compiled by Department of Statistics of Government of

India. Keeping in mind the objectives of this study, we have used unit record data from

third SSI Census (2001-02) and supplemented that with ASI time series data for three

years, 1999-2000, 2000-01 and 2001-02.

The rest of this chapter is organized in the following manner. The next section looks at

trends in the growth of small-scale units in the last decade. We see how the small units

are distributed across different NIC codes at the two-digit level and their performance in

section 2.3. Section 2.4 provides a distribution of SSI units by geographical location

while section 2.5 entails an analysis of SSIs based on the different types of ownership

patterns.

10. 2.2 The SSI sector

We have pointed out that there are multiple sources of data on SSI sector. In this section, we

have reported some major indicators of SSI sector from three different sources of data

namely, those compiled by the MOSSI on both registered and unregistered categories, the

NSSO data on unregistered category and ASI data on registered units.

2.2.1 Trends in the SSI Sector

Given that SSI sector has been considered as a major source of employment, growth of

manufacturing output and exports, we examine the statistical evidence available from

published sources of data in this section. At the outset, it is to be borne in mind that

information on the number of SSIs as well as on their characteristics differs according to

the source of data used.

11.

Table 2.1: Status of SSI: No of Units and Employment

Number of Units in ’00,00 Year

Registered Unregistered Total

Employment

(in ’00,000)

1993-94 10.63 65.86 76.49 182.64

1994-95 11.61 67.99 79.60 191.40

1995-96 11.57 71.27 82.84 197.93

1996-97 11.99 74.22 86.21 205.86

1997-98 12.04 77.67 89.71 213.16

1998-99 12.00 81.36 93.36 220.55

1999-00 12.32 84.83 97.15 229.10

2000-01 13.75 87.35 101.10 238.73

2001-02 14.89 90.32 105.21 249.33

2002-03 15.91 93.58 109.49 260.21

2003-04 16.97 96.67 113.95 271.42

Source: Ministry of Small Scale Industry

Table 2.1 shows the number of units in both the registered and the unregistered categories

along with employment. The table suggests that there has been an overall increase in the

number of units--- both registered and unregistered categories as well as in employment.

While in the registered category, the number of units increased by close to 60 percent in

the last ten years, the increase in unregistered units has been only about 47 percent. The

employment too appears to be keeping pace with the number of units as it increased by

over 48 percent during the same period. But this impressive growth has been slowing

down, both in terms of the number of units as well as in terms of employment.

As for the unregistered sector Appendix 2 goes into the details, but we generally find that

there is a dissonance between the NSSO data on the unregistered sector and that from the

SSI Survey of unregistered units. This could be because of differences in definitions or

some other factors that are beyond the scope of this study and therefore not considered

here.

2.2.2 SSI Sector in Indian Manufacturing: Indicators from Third

SSI Census

By far the most comprehensive coverage of SSI sector is in the SSI census carried out by

the MOSSI. So far there have been three censuses, conducted during 1973-74, 1987-88

and 2001-02. The data from two earlier censuses are not generally comparable in scope

and coverage of SSI sector. Moreover, the detailed data is not available for first two

censuses. Therefore, in this section and also in rest of the analysis in this report, we use

unit record data from third SSI census. Moreover, as the issue of reservation is pertinent

for registered segment of SSI, we report different characteristics for SSIs that are

‘registered’.

The term registered here refers to being registered under the Factories Act, as reported by

each unit in the Census.

Table 2.2 has different characteristics of the registered segment of the SSI sector as

tabulated from the 3rd

SSI census data. A little over nine lakh units out of over 11 million

SSI units are registered and a large proportion (about 95%) are in manufacturing sector.

Total employment in the registered segment of SSI is more than 5.1 million, again most

of it is in the manufacturing sector.

Table 2.2: Characteristics of SSI units, All India (2001-02)

Characteristics of Registered

SSI’s

SSI Units in Registered

sector

SSI Units in Registered

Manufacturing Sector

Number of SSI units (in '000) 901 870

Employment for SSI units (in

'000) 5,151 5,020

Gross-Output for SSI units in

Rupees billion 1,951 1,907

Exports for SSI units in Rupees

billion 119 117

Fixed Assets for SSI units in

Rupees billion 823 796

Value of Plant & Machinery

Physically installed for SSI in

Rupees billion 271 263

Employment per unit 5.71 5.8

Output per employee 0.38 0.38

Output per unit Fixed Asset 2.37 2.4

Fixed Asset per unit Labour 0.16 0.16

Export as % of Output 6.1 6.13

Value of Plant & Machinery per

unit Labour (in million) 0.05 0.05

Output per unit value of Plant &

Machinery 7.21 7.26 Source: Estimates from 3rd All India Census of SSI’s, 2001-02

12. 2.3 Distribution of SSIs by Industry Division

This section looks at SSI units in terms of industry divisions. The Industry divisions have

been taken from NIC 1998. There are 99 two-digit descriptions ranging from agriculture,

forestry and manufactures to construction, retail trade, transportation and social work.

The SSIs are engaged in production of over 6000 items as per 3rd

SSI Census. Dispersion

of these can be seen through the distribution of units across two-digit NIC groups.

Table 2.3 shows the spread of SSIs according to the type of items they manufacture. The

maximum number of SSIs -- close to 19 per cent -- in our data set belongs to the food

product and beverage manufacturing industry. The next highest share – over 14.6 per cent

– consists of SSIs making fabricated metal products, followed by other non-metallic

mineral products. Small textile units have a share of 8.7 per cent. Chemicals and

chemical products, machinery and equipment and other fabricated equipment account for

around seven per cent.

Table 2.3: Number of Registered SSI units across Industry Divisions (NIC-1998), All

India (2001-02)

NIC 98 Industry Names Percentage

Distribution of SSI

units (%)

Actual No. of SSI

units (in number)

15 Food Products & Beverages 18.21 164,107

16 Tobacco Products 0.28 2,510

17 Textiles 6.63 59,777

18 Apparel 4.78 43,042

19 Leather & Products 3.65 32,921

20 Wood & Products 5.73 51,604

21 Paper & Products 1.2 10,795

22 Recorded Media 4.1 36,962

23 Energy/Fuel 0.39 3,473

24 Chemicals & Products 4.45 40,072

25 Rubber & Plastic 4.07 36,656


Distribution of SSI

units (%)

Actual No. of SSI

units (in number)

26 Non-Metallic Min. Products 6.94 62,561

27 Basic Metals 2.57 23,135

28 Fabricated Metal 14.69 132,409

29 Machinery & Equip. N.E.C. 4.74 42,701

30

Office & Computing

Machinery 0.11 953

31

Electrical Mach. & App.

N.E.C 2.3 20,708

32 Radio, TV, Comm. & App. 0.4 3,635

33 Instruments 0.43 3,853

34 Motor Vehicles & Trailers 0.76 6,847

35 Other Transport Equip. 0.49 4,453

36

Furniture; Manufacturing

N.E.C. 9.63 86,774

37 Recycling 0.06 526

40

Electricity, Gas, Steam And

Hot Water Supply 0.04 330

41

Collection, Purification And

Distribution Of Water 0.01 106

50 Construction 0.8 7,249

52

Sale , Maintenance And

Repair Of Motor Vehicles

And Motorcycles; Retail Sale

Of Automotive Fuel 1.43 12,877

63

Wholesale Trade And

Commission Trade, Except Of

Motor Vehicles And

Motorcycles 0.14 1,244

64

Retail Trade, Except Of Motor

Vehicles And Motorcycles;

Repair Of Personal And

Household Goods 0.06 542


Distribution of SSI

units (%)

Actual No. of SSI

units (in number)

71 Hotels And Restaurants 0.02 177

72

Land Transport; Transport Via

Pipelines 0.48 4,324

74 Water Transport 0.35 3,188

85 Air Transport 0.01 118

92

Supporting And Auxilliary

Transport Activities;

Activities Of Travel Agencies 0.01 95

93

Post And

Telecommunications 0.04 389

Missing 0.02 178

Total 100 901,291 Source: Estimates from 3rd All India Census of SSI’s, 2001-02

In keeping with their share in numbers, food product and beverages SSIs also matched

their share in total employment. These SSIs, with the highest share in numbers employed

as much as 20 per cent of the total number of people (Table 2.4). The big departure is by

the tobacco products SSIs -- despite their small 2.2 per cent share in the total number,

they had a disproportionately large share of the employment at 13.2 per cent. This can

probably be explained by the fact that these units are country cigarette or bidi making

units and since this is a hand-rolled product, a large number of people are needed to make

products of seemingly much less value.

Table 2.4: Total Employment Registered SSI units across Industry Divisions (NIC-

1998), All India (2001-02)


Distribution

of

Employment

of SSI units

(%)

Actual

Employment of

SSI units (in ‘000s)

15 Food Products & Beverages 15.08 777

16 Tobacco Products 0.77 40

17 Textiles 8.31 428

18 Apparel 4.87 251

19 Leather & Products 2.60 134

20 Wood & Products 3.76 193

21 Paper & Products 1.75 90

22 Recorded Media 3.20 165

23 Energy/Fuel 0.49 25

24 Chemicals & Products 7.40 381

25 Rubber & Plastic 5.13 264

26 Non-Metallic Min. Products 10.82 557

27 Basic Metals 4.17 215

28 Fabricated Metal 12.09 622

29 Machinery & Equip. N.E.C. 4.90 252

30 Office & Computing Machinery 0.17 9

31 Electrical Mach. & App. N.E.C 2.54 131

32 Radio, TV, Comm. & App. 0.61 31

33 Instruments 0.56 29

34 Motor Vehicles & Trailers 1.45 75

35 Other Transport Equip. 0.76 39

36 Furniture; Manufacturing N.E.C. 5.97 307

37 Recycling 0.08 4

40 Electricity, Gas, Steam And Hot Water Supply 0.06 3

41 Collection, Purification And Distribution Of 0.01 1


Distribution

of

Employment

of SSI units

(%)

Actual

Employment of

SSI units (in ‘000s)

Water

50 Construction 0.58 30

52

Sale, Maintenance & Repair Of Motor Vehicles

& Motorcycles; Retail Sale Of Automotive Fuel 0.77 39

63

Wholesale & Commission Trade, Except Of

Motor Vehicles & Motorcycles 0.22 11

64

Retail Trade, Except Of Motor Vehicles And

Motorcycles; Repair Of Personal & Household

Good 0.04 2

71 Hotels And Restaurants 0.03 1

72 Land Transport; Transport Via Pipelines 0.46 24

74 Water Transport 0.30 16

85 Air Transport 0.01 0

92

Supporting And Auxiliary Transport Activities;

Activity of Travel Agencies 0.01 0

93 Post And Telecommunications 0.04 2

Missing 0.03 1.3

Total 100.00 5,151

Source: Estimates from 3rd All India Census of SSI’s, 2001-02

Looking at the output across industry divisions we find that food and beverages SSIs

again rule the roost. The share in total output of food etc is over 21 percent as evident

from Table 2.5. This is followed by chemical and chemical products at just over 10

percent. Other important industry divisions in terms of contribution to output are Basic

Metals, Fabricated Metal, Rubber & Plastic, Textiles and Machinery & Equip. N.E.C.

Table 2.5: Gross Output of Registered SSI units across Industry Divisions (NIC-

1998), All India (2001-02)


Distribution of

Gross Output

of SSI units

(%)

Actual Value of

Gross Output of

SSI units (in Rs.

Lakh)

15 Food Products & Beverages 21.19 4,134,346


17 Textiles 6.83 1,331,772

18 Apparel 4.02 783,613


20 Wood & Products 1.59 310,819



23 Energy/Fuel 0.75 147,235

24 Chemicals & Products 10.01 1,952,586

25 Rubber & Plastic 6.98 1,361,246


27 Basic Metals 9.6 1,871,969

28 Fabricated Metal 8.38 1,634,580

29 Machinery & Equip. N.E.C. 5.5 1,072,523

30 Office & Computing Machinery 0.46 89,875

31 Electrical Mach. & App. N.E.C 3.58 697,668

32 Radio, TV, Comm. & App. 0.95 185,004




36 Furniture; Manufacturing N.E.C. 2.63 513,169

37 Recycling 0.18 34,746

40

Electricity, Gas, Steam And Hot Water

Supply 0.18 34,496


Distribution of

Gross Output

of SSI units

(%)

Actual Value of

Gross Output of

SSI units (in Rs.

Lakh)

41

Collection, Purification And Distribution

Of Water 0.01 1,235

50 Construction 0.48 94,295

52

Sale, Maintenance & Repair Of Motor

Vehicles & Motorcycles; Retail Sale Of

Automotive Fuel 0.35 67,679

63

Wholesale Trade And Commission Trade,

Except Of Motor Vehicles And

Motorcycles 0.26 51,136

64

Retail Trade, Except Of Motor Vehicles

And Motorcycles; Repair Of Personal And

Household Goods 0.03 4,980

71 Hotels And Restaurants 0.02 4,571

72 Land Transport; Transport Via Pipelines 0.61 119,915

74 Water Transport 0.18 35,690

85 Air Transport 0 442

92

Supporting And Auxiliary Transport

Activities; Activities Of Travel Agencies 0.01 1,773

93 Post And Telecommunications 0.06 12,318

Missing

0.05 10,624.70

Total

100 19,509,316 Source: Estimates from 3rd All India Census of SSI’s, 2001-02

The distribution of units, employment and output are predominantly in manufacturing SSI

units, the share in exports show some surprises as apparent from table 2.6. More than 50

percent of the total export from the registered SSIs is from food and beverages, textiles and

wearing apparels. Fourth position in terms of exports is by fabricated metal products. The

chemical and chemical products contribute about 6% to total exports from SSI.

Table 2.6: Exports of Registered SSI units across Industry Divisions (NIC-1998), All

India (2001-02)


Distribution of

Exports of SSI

units (%)

Actual Value

of Exports of

SSI units (in

Rs. Lakh)

15 Food Products & Beverages 17.26 205,446


17 Textiles 14.66 174,552

18 Apparel 21.9 260,690


20 Wood & Products 0.53 6,294



23 Energy/Fuel 0.08 905

24 Chemicals & Products 5.78 68,792

25 Rubber & Plastic 2.06 24,503


27 Basic Metals 3.11 37,020

28 Fabricated Metal 7.63 90,796

29 Machinery & Equip. N.E.C. 1.64 19,468

30 Office & Computing Machinery 0.07 833

31 Electrical Mach. & App. N.E.C 1.83 21,804

32 Radio, TV, Comm. & App. 0.53 6,250




36 Furniture; Manufacturing N.E.C. 5.44 64,803

37 Recycling 0.03 307


Distribution of

Exports of SSI

units (%)

Actual Value

of Exports of

SSI units (in

Rs. Lakh)

40

Electricity, Gas, Steam And Hot Water

Supply 0.01 60

41

Collection, Purification And Distribution Of

Water 0

50 Construction 0

52

Sale, Maintenance & Repair Of Motor

Vehicles &Motorcycles; Retail Sale Of

Automotive Fuel 0

63

Wholesale &Commission Trade, Except Of

Motor Vehicles And Motorcycles 0.5 5,977

64

Retail Trade, Except Of Motor Vehicles &

Motorcycles; Repair Of Personal And

Household Goods 0

71 Hotels And Restaurants 0

72 Land Transport; Transport Via Pipelines 1.12 13,355

74 Water Transport 0.06 763

85 Air Transport 0

92

Supporting & Auxiliary Transport Activities;

Activities Of Travel Agencies 0.01 80

93 Post And Telecommunications 0

Missing 0.05 553.4

Total 100 1,190,352 Source: Estimates from 3rd All India Census of SSI’s, 2001-02

13. 14. 15. 2.4 Geographical Distribution of SSIs

The favoured treatment of SSIs by means of reservation of products and other fiscal

incentive was expected to contribute to spread of industrial activity across the country.

The distribution of SSI units across 35 states and union territories was tabulated, which is

reported in table 2.7. Though the small-scale units are dispersed all over India but there

are states that have a greater concentration of such units. Setting up SSIs in states that

have higher levels of industrialization would be more beneficial for such units. Our data

bears this out.

Table 2.7 illustrates that while 11 percent of the small scale units are located in Uttar

Pradesh, over one third of registered SSI units are located in four southern states. Six

states, namely, Assam, Bihar, Chhattisgarh, Jharkhand, Orissa and West Bengal account

for just about 13 percent of total SSI units. Further over a quarter of units are located in

three states in the western region. This distribution bears out the fact that there is serious

regional imbalance as far as the distribution of SSIs is concerned.

Andhra Pradesh’s percentage share in total SSI employment has grown from 10 per cent

in 1998-99 to 11.6 per cent in 2001-02. By contrast, Maharashtra, the state which

generated the most jobs in this sector, is slowing down from over 16 per cent to 15 per

cent in these four years. The surprise is Tamil Nadu, which has actually increased its

share from 13 per cent to 14 per cent in the same period. However, across the country,

SSI employment shows a rapidly declining trend.

Table 2.7: Number of Registered SSI units across states, All India (2001-02)

State Percentage Distribution of

SSI units (%)

Actual No. of SSI units (in

number)

Uttar Pradesh 11.01 99,218

Gujarat 9.89 89,103

Tamil Nadu 9.56 86,160

Kerala 9.53 85,857

Karnataka 8.89 80,167

Maharashtra 8.6 77,541

Madhya Pradesh 6.0 54,122

Andhra Pradesh 5.46 49,179

Punjab 5.09 45,853

Bihar 3.97 35,792

West Bengal 3.95 35,613

Rajasthan 3.53 31,781

Haryana 3.03 27,317

Chhattisgarh 1.84 16,550

Jharkhand 1.46 13,122

Assam 1.23 11,098

Jammu & Kashmir 1.21 10,878

Himachal Pradesh 1.08 9,756

Orissa 1.08 9,751

Uttaranchal 1.08 9,746

Delhi 0.81 7,280

Manipur 0.38 3,414

Goa 0.23 2,028

Mizoram 0.22 2,020

Pondicherry 0.16 1,427

Meghalaya 0.15 1,382

Chandigarh 0.14 1,218

Daman & Diu 0.11 1,025

Tripura 0.08 729

D & N Haveli 0.08 691


SSI units (%)

Actual No. of SSI units (in

number)

Nagaland 0.06 550

A & N Islands 0.06 501

Arunachal Pradesh 0.03 230

Sikkim 0.02 139

Lakshadweep 0.01 54


The number of units when seen in conjunction with the distribution of employment, which

has been the main argument going in favour of SSI protection and promotion, it is Tamil

Nadu which has highest share in employment. However Maharastra with a little less

employment share has significantly higher share of the total SSI output.

Table 2.8: Employment in Registered SSI units across states, All India (2001-02)


Employment of SSI units (%)

Actual Employment of

SSI units (in '000)

Tamil Nadu 12.94 666

Maharashtra 11.81 608

Gujarat 9.3 479

Uttar Pradesh 8.62 444

Karnataka 7.9 407

Kerala 7.89 406

Andhra Pradesh 6.66 343

Punjab 5.87 302

West Bengal 4.61 237

Haryana 4.22 217

Rajasthan 3.42 176

Madhya Pradesh 3.42 176

Bihar 2.09 108

Delhi 1.66 86


Employment of SSI units (%)

Actual Employment of

SSI units (in '000)

Orissa 1.4 72

Chhattisgarh 1.24 64

Jharkhand 1.16 60

Assam 1.08 56

Jammu & Kashmir 0.84 43

Himachal Pradesh 0.68 35

Uttaranchal 0.59 31

Daman & Diu 0.49 25

Pondicherry 0.36 19

Goa 0.32 16

Manipur 0.3 15

D & N Haveli 0.25 13

Tripura 0.21 11

Chandigarh 0.19 10

Meghalaya 0.16 8

Mizoram 0.14 7

Nagaland 0.09 5

A & N Islands 0.04 2

Sikkim 0.02 1

Arunachal Pradesh 0.03 1

Lakshadweep 0 0


Table 2.9: Gross Output of Registered SSI units across states, All India (2001-02)


Gross Output of SSI units

(%)

Actual Value of Gross

Output of SSI units (in

Rs. Lakh)

Maharashtra 17.41 3,397,480

Punjab 9.71 1,893,504

Uttar Pradesh 8.23 1,605,108

Haryana 7.58 1,479,751

Tamil Nadu 7.14 1,393,559

Andhra Pradesh 6.38 1,243,767

Rajasthan 5.6 1,092,550

Gujarat 4.75 926,959




Delhi 3.59 699,732

Kerala 2.98 580,768

Daman & Diu 2.94 573,096

D & N Haveli 2.15 419,901

Orissa 1.63 318,152


Jammu & Kashmir 1.05 204,486


Goa 0.91 176,789

Chhattisgarh 0.89 173,592


Assam 0.57 110,290

Bihar 0.45 87,479



Tripura 0.08 16,345

Nagaland 0.05 9,756

Meghalaya 0.05 9,569


Gross Output of SSI units

(%)

Actual Value of Gross

Output of SSI units (in

Rs. Lakh)

Manipur 0.04 7,228

Mizoram 0.03 5,438

A & N Islands 0.02 4,798

Arunachal Pradesh 0.02 3,201

Sikkim 0.01 2,719

Lakshadweep 0 201


Table2.10: Exports of Registered SSI units across states, All India (2001-02)


Exports of SSI units (%)

Actual Value of Exports of

SSI units (in Rs. Lakh)

Tamil Nadu 15.2 180,963

Haryana 11.99 142,737

Uttar Pradesh 11.9 141,691

Maharashtra 10.86 129,239

Delhi 10.5 124,963

Punjab 9.23 109,854

Kerala 6.17 73,492

Rajasthan 4.82 57,384



Andhra Pradesh 3.89 46,259

Orissa 2.41 28,690


Daman & Diu 0.79 9,352


D & N Haveli 0.27 3,221


Gujarat 0.16 1,931


Exports of SSI units (%)

Actual Value of Exports of

SSI units (in Rs. Lakh)

Goa 0.14 1,618




Assam 0.04 508

Bihar 0.02 198

Chhattisgarh 0.01 127

Jammu & Kashmir 0.01 115

Nagaland 0.01 111

Sikkim 0 27

Manipur 0 13

Tripura 0 6

Mizoram 0 4

Arunachal Pradesh 0 0

Meghalaya 0 0

Lakshadweep 0 0

A & N Islands 0 0


16. 17. 2.5 Distribution of Small units by Type of

Ownership

Table 2.11 shows that the majority of SSI units are partnership followed by those which

are wholly owned by individuals. Close to 89 percent of units in SSI sector fall in the

privately owned category though type of organization might differ. About 29 percent are

individual proprietary and 41 percent are in partnership. The data are from ASI where the

ownership characteristics of the units are reported. Since the ASI data are from a sample

of small units these figures should only taken as indicative.

Table 2.11: Share in Number of SSIs by Type of Ownership in 2001-02 (in percent)

Type of Ownership Non-SSI SSI

Individual Proprietorship 0.73 28.77

Joint family (HUF) 0.15 2.78

Partnership 2.58 40.92

Public Limited Company 50.97 4.42

Private Limited Company 41.37 20.48

Govt. Departmental Enterprise (Incl. Khadi and

Handlooms) 0.43 0.44

Public Corporation by Special act of Parliament 1.66 0.31

Co-operative Society 1.91 1.26

Others (incl Trusts, wakf board, etc) 0.19 0.63

Missing 0 0

Total 100 100 Source: Estimated from Annual Survey of Industries data

18.

Table 2.12: Share in Employment in SSIs by Type of Ownership

in 2001-02 (in percent)

Type of Ownership Non-SSI SSI

Individual Proprietorship 0.26 17.96

Joint family (HUF) 0.17 2.15

Partnership 1.34 38.92

Public Limited Company 64.23 12.63

Private Limited Company 21.55 23.82

Govt. Departmental Enterprise

(Incl. Khadi and Handlooms) 0.89 0.72

Public Corporation by Special act

of Parliament 6.73 0.97

Co-operative Society 4.56 2.13

Others (incl Trusts, wakf board,

etc) 0.26 0.71

Missing 0 0

Total 100 100 Source: Estimated from Annual Survey of Industries data

In case of employment the distribution is somewhat different. Though the private units

continue to have the largest share in employment (Table 2.15), it is Private Limited SSIs

that have higher share than their share in the number of units. Once again, the source of

data used for this analysis is ASI. Therefore, the distribution reported here is for

registered units only.12

12

Overall the SSI sector is spread across the country, but not evenly. In terms of activities

as well, we find that almost all types of industry sub-sectors have some SSI presence.

However, here as well a few manufacturing sub-sectors account for the bulk of the units,

output, and employment. This is not a negative aspect, and will in fact make it easier for

policy to address the problems of the SSI sector.

*

The Unregistered SSI Sector

The interested reader may refer to the appendix to this chapter where appropriate

figures on the unregistered sector are reported on employment, output as well as

spread of the units.

Using data from the NSSO we find that the ownership pattern that emerges from

NSSO data for the year 2000-01 shows that over 98 percent of the un-registered units

are proprietary with about three fourths owned by male and about a fourth are female

owned. The relevant tables are not reported here but are available with the authors

upon request.

Chapter 3: Reserved Vs Unreserved – Lessons for De-reservation

Table of Contents

3.1 Introduction.......................................................................... 3.56

3.2 Characteristics of SSI units (Reserved Vs. Non-reserved),

2001-02 ....................................................................................... 3.58

3.3 The Regional and Sectoral Dimension of SSI Reservation

..................................................................................................... 3.60

3.4 Post De-reservation Output Growth of Selected De-reserved

Items............................................................................................ 3.68 3.4.1 Units Whose Output is consistently Growing/Falling ...................................... 3.68

3.4.2 Annualized Growth in Output........................................................................... 3.70

3.5 Impact of de-reservation on technology ............................. 3.72

3.6 Entry and/or expansion of large units in the production of

de-reserved items........................................................................ 3.74

3.7 Import of reserved vs. de-reserved products by India from the

rest of the world.......................................................................... 3.78 3.7.1 India’s imports from world pre and post de-reservation................................... 3.78

3.7.2 Trend in import of products still reserved in 2005 ........................................... 3.80

Section 3.8 Export of reserved vs. de-reserved products by India

to the rest of the world ............................................................... 3.82 3.8.1 India’s exports to world pre and post de-reservation........................................ 3.82

3.8.2 Trend in export of products still reserved in 2005............................................ 3.84

3.9 Views of SSI associations .................................................... 3.85

3.10 Concluding Note ................................................................ 3.86

19. 3.1 Introduction As outlined in chapter one, one of the objectives of this study is to evaluate and suggest the

future strategy for de-reservation. With the onset of economic liberalisation of the Indian

economy since 1991, the continuation of reservation and other fiscal incentives towards SSI

sector were critically examined along with other such measures to other sectors. In chapter

one we have seen that most of the literature in 1990s suggests that the reserved SSI sector

was not particularly efficient (Sandesara, 1993), and fiscal incentives like other sectors have

been mis-directed (Garg et al, 1996). The consensus view among policymakers was that

reservation is acting as bottleneck for rapid industrial growth (Mohan 2001, for example).

As also discussed in Chapter 1, keeping the changing economic policy environments, an

Expert Committee under the Chairmanship of Dr. Abid Hussain was constituted to review

the working of SSI sector and suggest possible course of action towards dereservation. The

report of the Committee brings out some very interesting features of the reservation

policy. First, gradual de-reservation started in after 1984. Second, reservation has been

concentrated in mostly four industry groups. Third, the large units that were producing items

brought under reserved category were allowed to continue operating without further

expansion of capacity. And both Non- SSI producing reserved items as well SSIs were

allowed to expand capacity provided additional production capacity is utilised primarily for

exports--- 75% of the additional capacity created has to be exported.

SSIs in India produce just over 6000 items as per third census of SSIs. However, at the peak

of reservation of items in 1984, only 873 items were reserved for being produced by SSIs.

Thereafter, it declined to 823 items by 1989. Between July 1989 and December 1996

reservation policy remained stagnant before de-reservation started in a phased manner

following recommendations of Abid Hussain Committee. Up to 2005, over 300 items

produced by the SSI sector has already been dereserved. At present, there are about 506

items still in the reserved category, out of which about 100 items are going to taken of the

reserved items list soon as per media reports.13

It has been discussed in the introduction that the available literature is generally not in favour

of continuation of reservation policy. Even within SSI associations there is support for de-

reservation. This chapter briefly provides the status of the reserved items vs. non-reserved in

the SSI sector. It then investigates the spread and scope of reservation as it exists today.

Both in terms of geographical spread as well as the sectoral scope of the reserved items is

analyzed. The objective being to ascertain whether the insights obtained from other studies

on the poor performance of the reserved component of the SSI sector continues today, and

also to understand the importance of the reserved segment.

These insights along with those available from literature will then help ascertain in what

manner dereservation should be continued. The rest of the chapter is organised in the

following fashion:

• Section 3.2 provides a profile of units producing reserved item vis-à-vis those

producing un-reserved items in SSI sectors. The objective being to understand what

proportion of the total SSI sector is reserved.

• Section 3.3 analyses the geographical and sectoral spread of the reserved component

of the SSI sector.

• Section 3.4 analyses how past de-reservation has impacted output of SSI units

producing formerly reserved items.

• Section 3.5 analyses the impact of de-reservation on technology. This is measured in

terms of capital output ratio and labour output ratio pre and post de-reservation.

• Section 3.6 reviews the entry and/or expansion of large units in the production of

dereserved items.

• Section 3.7 reviews the imports into the country with a focus towards the de-reserved

items. It analyses the impact of de-reservation on India’s imports from the rest of

the world.

13

An item reserved may have more than one product. As a result, the number of products that are reserved

is substantially higher than the list of items.

• Section 3.8 studies the trend in export from India to the rest of the world for

various products de-reserved in 1997, 1999 and 2000, during their pre and post de-

reservation period. It also looks into the change in exports of the reserved products

(during 2005) from 1993-94 till 2005-05 using time series data.

• Section 3.9 discusses the views of industry associations.

• Finally, the insights from the analysis are summarized in Section 3.10.

20. 3.2 Characteristics of SSI units (Reserved Vs. Non-

reserved), 2001-02

The following tables report key characteristics of the units that are producing some reserved

output, and those that are not. Since the objective is to understand the current scale of the

reserved sector, we take up all the de-reserved items uptil 2005.14 For this purpose a mapping

was conducted between the ASICC codes present for each unit’s records in the SSI Census

raw data with the list of reserved items available from the MoSSI.

The following insights show up:

1. Units that produced reserved items are barely a fifth of the total SSI sector

2. They account for about a sixth of the total employment

3. But only one eighth of the output of the sector

4. Their exports are only a twentieth of the total SSI exports.15

In other words, a large number of SSI units produce significantly lower output, and employ

proportionately less than the unreserved SSIs. If exports are an indication of

competitiveness and product quality, these units also do not show up favorably.

14

Note that the data are from the SSI Census and therefore from 01-02. Detailed data on SSIs for later

years are not available. Though there is likely to have been some change in the figures since then, however,

the broad patterns would not have changed. Since our current objective is to understand the share of the

currently reserved items, only the reserved items as of 2005 are considered for this analysis. 15 We consider a unit as in the reserved category even if it produces just one product in the reserved category

even though the firm might be producing other products that are in the un-reserved category. Clearly, the proportion of the SSI units producing items in the reserved category would be less than the one reported above.

Table 3.1: Characteristics of SSI units in Manufacturing Sector

Factory type

Percentage Distribution of Number of SSI units

Percentage Distribution

of Employment


of Gross-Output


of Exports


of Fixed Assets


of Value of Plant &

Machinery

Unreserved in 2005 78 81 86 94 86 87

Reserved in 2005 20 17 12 5 12 11

Product information NA 2 2 2 1 2 2

Total 100 100 100 100 100 100 Note: The units included here are for the registered SSIs in the manufacturing sector Source: SSI Census 2001-02

The following table also shows that the reserved sector has significantly lower employment

per unit, lower output per employee and much lower export intensity. They also have a

slightly higher output per unit capital (as measured by value of plant and machinery) an

indication that it is more labour intensive. However, in line with other studies that indicate

that there is greater excess capacity in this sector, this data also reveals greater inefficiencies

present in the reserved sector.

Table 3.2: Characteristics of SSI units in Manufacturing Sector

Factory Type Employment per unit

Exports as % Output

Output per employee in Rs.

Lakh

Output per unit value of Plant &

Machinery

Unreserved in 2005 6 6.7 4 7.2

Reserved in 2005 4.8 2.5 2.7 7.6

Total 5.8 6.1 3.8 7.3 Source: As above

21. 3.3 The Regional and Sectoral Dimension of SSI

Reservation The above section shows that the reserved items form a small proportion of the overall SSI

sector in the country; the units producing these items also tend to below the non-reserved

item-producing units in terms of standard productivity indicators. However, a more

disaggregated picture is essential in better understanding the reservation-non-reservation

debate. As in the previous sub-section, here as well we concentrate on those registered

manufacturing units that produce items that are reserved as of 2005.

The following table shows the distribution across unit types for all the states and union

territories in India. While there are units producing reserved items in all the states, but it is

the distribution, which is quite interesting. The distribution of units shows that in the

western and southern states, units producing reserved items is about 20 percent or lower.

But five states in the northern and eastern region--- UP, Bihar, Chhattisgarh, Jharkhand, and

Assam have greater than 25 percent of their units producing currently reserved items.

North-eastern states tend to have much higher reserved unit intensity. More interestingly,

the industrially more advanced states of Maharashtra and Gujarat have reserved unit

intensity of 15 percent or less.

This table suggests that, in general, industrially more advanced states have lower proportion

of SSIs engaged in production of items reserved for SSI sector. Another interesting point

that emerges from this table is that it is smaller states and union territories where the share

of SSI units in production of reserved category items is much higher, on an average over 40

percent of the total units.

Table 3.3: Percentage Distribution of Number of SSI units in Manufacturing Sector

across states

State % Units producing

Unreserved items

% Units producing Reserved

items

Not Available

Total Number of Regd. SSI

units in Manufacturing

Sector

Uttar Pradesh 71 26 2 100 94,821

Gujarat 87 12 2 100 85,554

Kerala 81 18 1 100 83,854

Tamil Nadu 80 18 2 100 83,348

Karnataka 79 20 1 100 78,248

Maharashtra 83 15 1 100 74,537

Madhya Pradesh 80 17 3 100 52,546

Andhra Pradesh 80 17 3 100 47,320

Punjab 80 18 2 100 43,628

West Bengal 76 21 4 100 34,952

Bihar 65 34 1 100 34,500

Rajasthan 77 21 1 100 30,920

Haryana 80 18 2 100 26,469

Chhattisgarh 65 33 2 100 16,078

Jharkhand 69 30 1 100 11,995

Assam 71 27 1 100 10,738

Jammu & Kashmir 76 23 1 100 10,248

Himachal Pradesh 72 28 0 100 9,610

Orissa 79 20 1 100 9,562

Uttaranchal 82 17 1 100 9,528

Delhi 76 17 7 100 7,099

Manipur 63 36 1 100 3,328

Goa 73 24 3 100 1,935

Mizoram 64 35 1 100 1,917

Pondicherry 77 21 1 100 1,403

Meghalaya 66 33 1 100 1,361

Chandigarh 73 26 1 100 1,192

Daman & Diu 86 13 1 100 1,023

State % Units producing

Unreserved items

% Units producing Reserved

items

Not Available

Total Number of Regd. SSI

units in Manufacturing

Sector

Tripura 69 31 0 100 708 Dadra & Nagar Haveli 86 11 4 100 683

Nagaland 51 48 1 100 532

A & N Islands 44 53 4 100 438

Arunachal Pradesh 64 35 0 100 224

Sikkim 92 8 0 100 127

Lakshadweep 39 61 0 100 50

Total 78 20 2 100 870,474 Source: 3rd SSI Census

The following table provides the distribution of output produced by SSI units. In general the

share in output from the units producing items reserved for SSI sector is smaller. The table

shows that for most of the larger states, the reserved sector accounts for less than 20 percent

of the output. Among the states that have a significant share of the output from the

reserved sector most are from the North-East. Moreover apart from Assam, most of these

states have low overall SSI output (less than Rs 100 crores each)

Table 3.4: Percentage Distribution of Gross-Output of SSI units in Manufacturing

Sector across states

State % Output Unreserved

items

% Output Reserved

items

Not Available

Total Gross-Output of SSI units in

Manufacturing Sector in Rs.

Lakh

Maharashtra 88 10 2 100 3,341,857

Punjab 85 13 2 100 1,834,146

Uttar Pradesh 89 10 1 100 1,538,118

Haryana 86 12 2 100 1,449,604

Tamil Nadu 87 11 2 100 1,317,862

Andhra Pradesh 90 7 3 100 1,217,560

Rajasthan 80 19 1 100 1,079,602

State % Output Unreserved

items

% Output Reserved

items

Not Available

Total Gross-Output of SSI units in

Manufacturing Sector in Rs.

Lakh

Gujarat 86 12 2 100 902,931

West Bengal 86 9 5 100 823,837

Karnataka 84 14 1 100 822,334

Madhya Pradesh 81 16 4 100 699,661

Delhi 82 11 8 100 690,836

Daman & Diu 87 12 1 100 572,618

Kerala 88 11 0 100 572,267 Dadra & Nagar Haveli 84 10 6 100 411,460

Orissa 93 6 1 100 309,847

Pondicherry 90 9 1 100 215,909

Jammu & Kashmir 81 18 0 100 202,172

Himachal Pradesh 85 15 0 100 195,794

Goa 87 4 8 100 175,789

Chhattisgarh 82 17 1 100 169,480

Uttaranchal 84 14 1 100 132,804

Assam 80 19 1 100 109,101

Bihar 81 18 1 100 86,076

Chandigarh 86 13 1 100 73,199

Jharkhand 86 12 2 100 67,241

Tripura 94 6 0 100 16,272

Nagaland 41 49 10 100 9,684

Meghalaya 78 22 0 100 9,523

Manipur 66 33 1 100 7,086

Mizoram 60 39 1 100 5,207

A & N Islands 71 26 3 100 4,473

Arunachal Pradesh 27 71 3 100 3,189

Sikkim 98 2 0 100 2,439

Lakshadweep 81 19 0 100 187

Total 86 12 2 100 19,070,162 Source: 3rd SSI Census

The above tables reveal that barring a few smaller states, the larger states cannot be highly

sensitive to a de-reservation that is conducted in a phased manner. However some of the

smaller states may be. For this purpose the next chapter identifies products/items for de-

reservation on the basis of their concentration in different states – large or small. Before

deriving the appropriate principles of de-reservation however, a better understanding of the

various industry/product segments is required. This is done below.

It has been pointed out that a large proportion of SSI units producing reserved items are

mainly in four product groups (GOI, 1997) as per the earlier NIC classification system. The

products have been systematically classified into National Industrial Classification. The Third

SSI census used most recent NIC classification, NIC-1998 in classification of units

producing different items.

Among the major 2 digit groups – furniture, wood products, and chemicals, each are sectors

where greater than 30 percent of the units are producing some reserved item. This sectoral

concentration of reservation has often been mentioned by other studies as well for the

earlier nineties and before. We find that this has continued into the 2000s.

Table 3.5: Percentage Distribution of Number of SSI units in Manufacturing Sector

across NIC-98

NIC2 -98

Un-reserved %

Reserved % Total Units

15 Food Products & Beverages 82 16 164,107

28 Fabricated Metal 76 22 132,409

36 Furniture; Manufacturing N.E.C. 31 67 86,774

26 Non-Metallic Min. Products 87 11 62,561

17 Textiles 98 1 59,777

20 Wood & Products 65 33 51,604

18 Apparel 98 0 43,042

29 Machinery & Equip. N.E.C. 87 11 42,701

24 Chemicals & Products 62 35 40,072

22 Recorded Media 92 7 36,962

NIC2 -98

Un-reserved %

Reserved % Total Units

25 Rubber & Plastic 93 5 36,656

19 Leather & Products 98 1 32,921

27 Basic Metals 77 21 23,135

31 Electrical Mach. & App. N.E.C 83 14 20,708

21 Paper & Products 72 26 10,795

34 Motor Vehicles & Trailers 88 9 6,847

35 Other Transport Equip. 72 25 4,453

33 Instruments 84 13 3,853

32 Radio, TV, Comm. & App. 89 9 3,635

23 Energy/Fuel 85 12 3,473

16 Tobacco Products 97 0 2,510

30 Office & Computing Machinery 90 7 953

37 Recycling 96 3 526

Total 78 20 870,474 Note: Figures may not add up to 100 due to missing information on product code

Source: 3rd SSI Census

The following table provides another look into the extent of dereservation in some sectors.

Column 3 in the table below provides figures of the percentage distribution of all the

reserved units. We find that about 75 percent of the units producing some reserved item are

concentrated in just 4 sectors, namely Furniture, Fabricated Metals, Food Products &

Beverages, and Wood & Products. If we added chemicals, non-metallic mineral products

and basic metals to this list we obtain about 90 percent of the reserved units.

Table 3.6: SSI in Manufacturing Sector – Units producing reserved items by major 2

digit NIC sectors

NIC2-98 Sector Units producing reserved items as % of

All units producing reserved items

Cumulative

36 Furniture; Manufacturing N.E.C. 33 33

28 Fabricated Metal 17 50

15 Food Products & Beverages 15 65

20 Wood & Products 10 75

24 Chemicals & Products 8 83

26 Non-Metallic Min. Products 4 86

27 Basic Metals 3 89

29 Machinery & Equip. N.E.C. 3 92

31 Electrical Mach. & App. N.E.C 2 94

21 Paper & Products 2 95

22 Recorded Media 1 97

25 Rubber & Plastic 1 98

35 Other Transport Equip. 1 98

99 All 100 100 Source: SSI 3rd Census

In other words, the list of remaining reserved items is highly concentrated in a few 2 digit

sectors. This is also borne out in terms of the output amount (see table below). Where the

top 4 sectors account for greater than three fifths of the total output from all reserved

sectors. And the top nine 2 digit sectors account for almost 90 percent of the reserved item

output.

Table 3.7: Output of SSI in Manufacturing Sector – Output of reserved items by

major 2 digit NIC sectors

NIC2-98

Sector Unreserved Reserved Gross-Output

of SSI units

Rs.lakh

% Distribution of reserved

items

Cumulative

15 Food Products & Beverages 88 10

4,134,346 19 19

24 Chemicals & Products 78 18

1,952,586 16 35

28 Fabricated Metal 77 21

1,634,580 16 50

36 Furniture; Manufacturing nec. 50 48

513,169 11 61

27 Basic Metals 88 9

1,871,969 8 69

29 Machinery & Equip. N.E.C. 83 15

1,072,523 7 76

26 Non-Metallic Min. Products 86 12

814,203 4 81

25 Rubber & Plastic 90 7

1,361,246 4 85

20 Wood & Products 69 29

310,819 4 89

31 Electrical Mach. & App. nec 88 9

697,668 3 92

21 Paper & Products 85 12

377,491 2 94

22 Recorded Media 90 8

395,072 1 96

34 Motor Vehicles & Trailers 90 6

326,393 1 96

35 Other Transport Equip. 89 9

214,040 1 97

33 Instruments 85 12

123,395 1 98

32 Radio, TV, Comm. & App. 91 8

185,004 1 99

Others

Total 86 12

19,070,162 100 100

22. 3.4 Post De-reservation Output Growth of Selected

De-reserved Items

What has been the impact (in terms of output) of de-reservation in those segments where

de-reservation has occurred? An analysis using data from the third SSI census was

conducted by studying how the units producing the formerly reserved products these

products have been performing post de-reservation, specially during the period starting in

the beginning of FY1999 and ending in March 2002? Note that for such a time series

analysis only a balanced data is usable – that is, only those units for which we have each

years data. If some unit had missing data for any of the years, it was not used in the above-

mentioned analysis.

Out of 21 products that were to be analysed (see Appendix for a list of those items), 7 were

de-reserved in 2001 and as a result adequate post de-reservation data was not available. Of

the remaining 14 three items had to be combined into one as they are categorized together as

per the ASICC codes. As a consequence the change in output for 12 items is analyzed and

reported.

First this section reports the distribution of units as those that have consistently been

growing, consistently been falling in terms of their output, and those that have a stagnant or

fluctuating output during the three year period under consideration. Next it looks at the

aggregate annualized growth in output during 1999-2002.

3.4.1 Units Whose Output is consistently Growing/Falling It was pointed out earlier that the third SSI census has value of output of all the units

covered in the census for three years, 2001-02 and two earlier years. Based on the observed

growth rate from this data, units have been classified into three categories, units which have

experienced growth in output during each year in the 1999-00 to 2001-02 and units that have

experienced decline in output each year in the same period. A third category of units are

those which did not record sustained growth or decline. The distribution of three types of

units is reported in table 4.1.

In 12 products studied, a large majority of them (11) experienced positive growth of output

during 1999-2002. First consider items de-reserved in 1997, we find that over 60 percent of

units engaged in production of four products, Ice Cream, Biscuits, Dal Milling and Rice

Milling recorded growth in output. Whereas, only a fourth of units (around 25%) reported

fall in the output. In two products, Poultry Feed and Corrugated Papers and Paperboards, 58

percent of units had growth in output. It is only in Vinegar and Synthetic Syrup, that less

than 50% of the units reported consistent growth in output during 1999-2002 period. More

importantly, in none of the 12 items did we find that a majority of the units had consistently

falling output.

Among the items de-reserved in 1999 that were studied, a similar pattern is observed.

Greater than 70 percent of units in two products, Sole Leather and Kattai etc, recorded

growth and in Picking band Leather and other agricultural machinery etc 57 percent of the

units had sustained output growth during 1999-2002.

Table 3.8: Percentage Distribution of Number of units across different output status

for each product (Balanced Sample)

During 1999-2002 Product

Growing output

Falling output Output fluctuating or

stagnant

Total

1. Ice Cream 62 12 26 100

2. Biscuits 65 13 23 100

3. Vinegar 45 17 38 100

4. Rice Milling 62 12 26 100

5. Dal Milling 63 9 28 100

6. Poultry Feed except in Pellet form 58 12 30 100

During 1999-2002

7. Synthetic Syrup 46 23 31 100

8. Corrugated paper and paperboards 58 11 31 100

9. Sole Leather 71 8 21 100

10. Kattai and Bunwar Leather 71 8 20 100

11. Picking Band Leather 57 29 14 100

12. Other Agricultural Machinery 57 8 35 100

All Above Products 64 11 25 100 Source: Estimates from SSI Census, 2001-2002

3.4.2 Annualized Growth in Output

The table below has annual change in output of the products under consideration. In the

post-dereservation period, out of 12 items for which calculated growth in output, only 1

recorded decline in output during 1999-2002. Among the products dereserved in 1997, only

Vinegar had declined in output while in case of Synthetic Syrup, growth was highest at 14.8

percent while out put of small units producing Ice Cream grew at 14.6 percent annually.

Lowest positive growth was experienced in the units producing Rice milling. A similar

performance is observed for the products deserved in 1999 as well as in 2001. Going by the

growth in output of the items reported in table 4.2, the dereservation does not appear to

have affected SSI sector adversely.

Table 3.9: Annual Change in Gross Output (Balanced Sample) between 1999-02 (%)

Product Year Dereserved Annualized Growth Rate

Ice Cream 1997 14.6

Biscuits 1997 8.3

Vinegar 1997 -2.3

Rice Milling 1997 1.8

Daal Milling 1997 8.3

Poultry Feed except in Pellet form 1997 13.9

Synthetic Syrup 1997 14.8

Corrugated paper and paperboards 1997 4.2

Sole Leather 1999 2.1

Kattai and Bunwar Leather 1999 12.4

Picking Band Leather 1999 6.7

Other Agricultural Machinery 1999 17.5

All Reserved (Balanced Sample) 4.9

All Non-Reserved (Balanced Sample) 6.3 Source: Estimates from SSI Census, 2001-2002

To repeat, the above data show that de-reservation has not harmed the SSI units producing

de-reserved items. Note that it may or may not have benefited the non-SSI units, but data is

not available to analyze that in any robust manner.

23.

24. 3.5 Impact of de-reservation on technology

What has been the impact of de-reservation on technology up-gradation? The answer

requires us to look at various parameters such as output to capital ratio and output to

labour ratio and understand how they have changed over time.

Typically, it is found that industries where technical improvements occur tend to have an

increase in capital initially, without requisite increases in output immediately after.

Therefore the output to capital ratio falls initially and then may rise after all the

improvements have been put in place and initial hurdles circumvented. In many cases

however productivity increases tend to be accompanied by a fall in the capital output

ratio over the long term.

Improvements in technology should lead to greater output per unit of labour and therefore

the output to labour ratio typically rises. This is more so when technology improvements

are of the labour saving kind.

The 3rd

Census data does not allow us to undertake such an analysis as the data on capital

and labour are not present as a time series. However required data are available from the

ASI. And some indication is possible from this data source.

Out of the 14 products considered for study and de-reserved prior to 2001, the ASI had

comparable data with large enough sample size for factories producing nine of them.

Although data from ASI was extracted for four years (1998-99, 1999-00, 2000-01, 2001-

02), finally only the latest 3 years’ data was used since 1998-99 data didn’t have enough

sample size for units producing these products. Moreover, ASI data was not based on a

balanced sample. As a result we only looked into the above two ratios and not at absolute

numbers. Each of the items considered had a sample size of greater than 30 units for

each of the years. The products considered for this analysis are mentioned in the

following tables.

Products de-reserved across different years

Product Year of De-reservation

Ice Cream 1997 Biscuits 1997 Sole Leather 1999 Rice Milling 1997 Daal Milling 1997 Poultry Feed except in pellet form 1997 Synthetic syrup 1997 Currogated paper and paperboards 1997 Katttai and bunwar leather 1997

We find that for most (six out of nine) of the products, the output per unit of capital is

falling over time suggesting that capital embedded technology improvements are

occurring in the post de-reservation phase (see Table A3.2 in appendix). Moreover, for

most (five out of nine) product segments the output to labour ratio is also increasing,

indicating an improvement in labour productivity. In the case of corrugated paper and

paperboards we find no change in either output to capital or output to labour ratios –

suggesting that technologies are not changing in any significant manner in this industry.

Overall therefore we find that there is some indication that technology improvements

follow de-reservation. The results are however indicative and will require a more

industry focused approached for greater insights to emerge.

Growing Output to Labour ratio after –

de-reservation

Falling Output to Capital ratio after de-

reservation

Ice Cream Biscuits

Daal Milling Rice Milling

Poultry Feed Synthetic Syrup

Katttai

Bunwar leather

Ice Cream

Sole Leather Daal Milling

Poultry Feed

Source: ASI data, various years See Appendix

25. 3.6 Entry and/or expansion of large units in the

production of de-reserved items

One of the core issues concerning dereservation has been the possible adverse effect of

entry of large firms in the manufacturing sector. Indeed, the reservation process itself has

been in place just to safeguard the SSI sector with such possibilities. There have been several

reasons that prompted dereservation--- mainly the change in economic policy environs since

1991. Fears have been expressed that once the products reserved for SSI sector are put off

the list, the SSI units would get wiped out because of greater competition from entry of

medium and large units besides removal of quota restrictions in foreign trade front resulting

out of India’s participation in WTO.

In this section we review the evidence on entry of new non-SSI units in the production of

items in the reserved list. This was possible as under the

Under this background the table below shows the number of Large and Medium size firms

that have been issued letter of intent since 2000 to produce items that are reserved for SSI

sector, we find that during six-year period a total of 104 firms got letter of intent. The table

shows that out of all the 53 products for which we could get the information, in 28 products,

one large/or medium size firm got letter of intent. In only one product, Canvas-cum-

Rubber/Plastic Footwear, there were six firms. Five firms got letter of intent in two

products, namely, CPC Blue and Grinding and Processing of Spices. Ten products had three

letters of intent each while nine products had two each.

Table 3.10: Letter of Intent issued under IDR Act 1951 from January 2000 to October

2005 by Dept. of IP&P

Products Number of Firms with LOI

issued

Canvas cum rubber/plastic footwear 6

Basic dyes & colors 5

Grinding & Processing of spices 5


issued

Barium Carbonate 4

Composite Pipes & Fittings, Tanks, Industrial components made of FRP composite cylinders, Engineering tools 4

Plastic moulded products 4

Spectacle Lenses 3

Kitchen & other appliances 3

Stationary made from Paper & paper products 3

Paper Bags & Cartons

Oral/Dental Hygiene products 3

Diethyl Phthalate 3

Utensil, Kitchenware & Table-ware 3

Corrugated laminated boxes 3

Poly-vinyl chloride compounds 3

Essential oils & resinoids etc. 3

Clay Graphite Crucible 2

Naphthol ASG 2

Synthetic or artificial mono filament yarn plastic products, toothbrushes, domestic brushes and paintbrushes 2

Safety matches 2

Seating interiors & cushions for cars and other vehicles 2

Insulated wires & cables-PVC wires, cords compensating cables, control cables etc. 2

Hand tools other than agricultural other metal products not elsewhere classified, parts & accessories of machine tools, parts and accessories of industrial machinery etc. 2

Complete bicycle and bicycle parts & rickshaws 2

Moulds, dyes and tools, jigs & fixtures, plastic components, special purpose machinery parts, pressure dye-cast components of aluminum, printing machinery spares etc. 2

Bread 1

Flexible intermedia bulk containers, jumbo-bags made out of P/P/HDPE/LDPE. 1

Unsaturated polyester resins 1


issued

Washing soap 1

Pressure & temperature measuring instrument 1

Seal-less centrifugal pump 1

Coffee, cocoa processing machines 1

Hand operated conventional type domestic sewing machine 1

Perfumes 1

Self-adhesive and security labels printed with customer design and specifications 1

Ball-pens 1

Calcium stearate 1

Pressure dye cast components of aluminum, zinc and copper alloys 1

Metal (other than wood based) manufacture of reinforced safes, vaults, strong room doors and gates etc. Manufacture of furniture and fixtures etc. other than wood based. 1

Zinc oxide 1

Metal cabinets, Steel trunks, hydraulic jacks 1

Material handling equipment and parts, electrical motors, parts of electrical motor. 1

Measuring tapes, spirit levels, knives etc. 1

Headlamps, rear combination lamps and signal lamps, other lamps. 1

Steel stranded wires 1

Chlorinated paraffin wax 1

Hard boiled sugar candy 1

Granite tiles more than 10mm thickness 1

Sanitary fittings made of copper alloys, sanitary castings, sanitary fittings made of SS/MS, aluminum, plastic etc. 1

P.U. Foam 1

Bolts & nuts 1

Plastic bags 1

Electrical light fittings, electrical wiring accessories, electric chokes & starters 1


issued

Total 104 Source: Ministry of Small Scale Industry

LOIs historically translate into actual investments in 20-40 percent of the cases. In other

words, of the 108 odd LOIs only about 20-40 units are likely to come up. But the fact

remains, that due large units are already entering the reserved segment (though in a limited

way).

26. 3.7 Import of reserved vs. de-reserved products by

India from the rest of the world

3.7.1 India’s imports from world pre and post de-reservation

What has been the impact of de-reservation on India’s imports? To study this and related

questions, a matching of the reserved and dereserved items list with imported items data as

per the ITC HS classification system was conducted. This matching exercise then allowed

the study of imports growth before and after the dereservation year.

Using yearly data from 1990-91 to 2004-05, the trend in import of items de-reserved in a

specific year is plotted pre and post their de-reservation period. Figures 1, 2 and 3 show

how the aggregate import of items de-reserved during 1997, 1999 and 2001 respectively has

changed before and after dereservation. The continuous line shows the growth in imports

prior to the de-reservation year, whereas the dashed line shows the growth in imports for the

period after de-reservation.

It is found that imports were growing prior to the de-reservation period for all the reserved

products. However, post-de-reservation the growth in imports has declined noticeably

compared to the pre-de-reservation period. In other words, even though the imports of

items de-reserved in the past are rising, they are rising at a much slower pace. This is true

for all reserved products irrespective of their year of de-reservation.

Fig 1:Impact of De-reservation on import from world

by India for products de-reserved during 1997

100

1000

10000

100000

1991

-92

1993

-94

1995

-96

1997

-98

1999

-00

2001

-02

2003

-04

Year of import

Impo

rt in

Rs.

Lak

h

De-Res.1997

Fig 2:Impact of De-reservation on import from world

by India for products de-reserved during 1999

100

1000

10000

100000

1991

-92

1993

-94

1995

-96

1997

-98

1999

-00

2001

-02

2003

-04

Year of import

Impr

t in

Rs.

Lak

h

De-Res.1999

Fig 3:Impact of De-reservation on import from world by

India for products de-reserved during 2001

100

1000

10000

100000

1991

-92

1993

-94

1995

-96

1997

-98

1999

-00

2001

-02

2003

-04

Year of import

Impo

rt in

Rs.

Lak

h

De-Res.2001

3.7.2 Trend in import of products still reserved in 2005

It is sometimes stated that the units that are producing reserved items are already suffering

from greater imports and therefore opening them up further to domestic competition might

be harmful. However when the imports in currently reserved items are compared with total

imports, we find that they have followed the same pattern since 1991. In other words,

though imports of products in currently reserved items are increasing, they are increasing no

more than overall imports.

Fig 4:Growth of imports

1000

10000

100000

1000000

10000000

100000000

1990

-91

1992

-93

1994

-95

1996

-97

1998

-99

2000

-01

2002

-03

2004

-05

Year of import

Val

ue o

f im

port

in R

s. la

kh

Import of products Resrved in 2005 Total imports all products

27. Section 3.8 Export of reserved vs. de-reserved

products by India to the rest of the world 28.

3.8.1 India’s exports to world pre and post de-reservation

In order to study the impact of de-reservation on India’s exports and related questions, a

matching of the reserved and de-reserved items list as per ASICC with exported items data

as per the ITC HS classification system was conducted. This matching exercise then allowed

the study of exports before and after the de-reservation year.

Using yearly data from 1993-94 to 2004-05, the trends in export of items de-reserved in a

specific year are plotted pre and post their de-reservation period. Figures 1, 2 and 3 show

how the aggregate export of items de-reserved during 1997, 1999 and 2001 respectively has

changed before and after de-reservation. The continuous line shows the growth in exports

prior to the de-reservation year, whereas the dashed line shows the growth in exports for the

period after de-reservation.

It is found that exports were growing prior to the de-reservation period for all the reserved

products. Post-de-reservation period exports of the de-reserved products are growing either

at a slower rate (for de-reserved items in 1997), similar rate (for de-reserved items in 1999),

or higher rate (for items de-reserved in 2001). In other words, it is difficult to derive any

general conclusions on this issue.

Fig 1:Impact of De-reservation on export from India

to world for products de-reserved during 1997

100

1000

10000

100000

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

Year of export

Exp

ort i

n $

'000

De-Res.1997



100

1000

10000

100000

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

Year of export

Exp

ort i

n $

'000

De-Res.1999



100

1000

10000

100000

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

Year of export

Exp

ort i

n $

'000

De-Res.2001

3.8.2 Trend in export of products still reserved in 2005

When the exports of currently reserved items are compared with total exports, we find that

they have followed the an almost similar pattern since 1993-94 till 2004-05. In other words,

though imports of products in currently reserved items are increasing, they are increasing no

more than overall imports.

Fig 4:Growth of exports from India to World

1000

10000

100000

1000000

10000000

100000000

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

Year of import

Val

ue o

f exp

ort i

n $

'000

Export of products Resrved in 2005 Total exports all products

29. 3.9 Views of SSI associations

The SSI Associations are the main stakeholders that work towards safeguarding interests of

SSI units and are important sounding board on changes in government policies. For

example, in the wake liberalisation some studies, e.g. NCAER (1993) tried to elicit response

from the Industry Associations as to the future of the SSI sector. The NCAER study did a

detailed analysis of these responses. The study conducted by NCAER in 1993 (much before

the benefits of reforms had kicked in) revealed that 71% of the associations at the time

favoured either outright abolition (31%) or phased reduction (40%). More than a decade

later this support for dereservation is only likely to be higher. Moreover, the policy of

consultations preceding de-reservation also enables an open and free environment where

associations concerns are incorporated (see the next chapter).

Generally the poor performance of the reserved sector as documented by earlier studies has

continued into the 2000s. These issues were taken into account by the Expert Committee

(GOI, 1997) while recommending de-reservation. Indeed, the Committee recommended

phased de-reservation.

30. 3.10 Concluding Note

The broad insights that emerge from the analysis are:

7. The Reserved SSI sector is a minor component of the SSI sector

8. The reserved sector from all available evidence continues to be less efficient

9. A few industry classifications account for the bulk of the reserved output and units

producing reserved items.

10. De-reservation has not been followed by any significant SSI output fall in most de-

reserved product segments - in other words past de-reservation has not harmed the

sector.

11. There is some indication that technology improvements occur after de-reservation,

however sufficient time needs to have elapsed before these processes can be

captured by data.

12. De-reservation is followed by a fall in the growth rate of imports of the de-reserved

items.

13. Some large units have professed an interest (as reflected in LOI) in entering the

reserved sector but not to a large extent.

Taken together the above evidence suggests that:

• De-reservation policy should be continued

• If there are any concerns on the potential negative impact should be

identified and addressed in parallel to the de-reservation process.

• Some sequencing of de-reservation would enable taking measures that would

help the SSIs in meeting new market conditions.

• The government should play a role in facilitating greater SSI dynamism rather

than protect and provide for them.

These issues are elaborated discussed in the succeeding chapter.

Chapter 4: The Way Forward

Table of Contents

4.1 Introduction............................................................................. 88

4.2 De-reservation: What and When ........................................... 90

4.3 Consultation with SSI Representative/ Associations ............ 91

4.4 Future De-reservation Sequencing........................................ 91

4.4.1 Methodology .................................................................. 92

4.5 Strengthening De-reserved Units: What do SMEs require?94

4.6 General Principles .................................................................. 95

4.7 Strengthening Associations .................................................... 97 Step 1: Ensuring Basic Level Associations – Aggregators........................................... 98

Step 3: Facilitating Mature Associations – The Pro-active/Action Takers................... 99

4.8 Marketing and Market Information .................................... 100

Appendix 4.1................................................................................ 102

Appendix 4.2................................................................................ 121

31. 32. 4.1 Introduction

The rapid changes in the economic environment are redefining the very basis for the SSI

sector. In an environment where competition was limited, extra care was required to

ensure that rents were not concentrated in the hands of a few; SSI support, including

reservation policies, was in part due to such considerations. This was true not only in

India but in many other countries as well.

That SSIs have a significant role to play in accelerating and sustaining economic progress

is undeniable. Also undeniable are the numerous advantages that they offer:

Whatever be the level of development, SMEs in general are a significant component of

the economy in terms of number of units, output, and employment. Since small entities

by definition have low entry and exit costs, they introduce a level of flexibility in the

economy which enables the economy itself to adjust rapidly to a changing environment.

Replacing of inefficient enterprises with more efficient ones occurs much more rapidly in

the small sector; this in turn promotes overall economic efficiency. Moreover, since small

units can better specialise in specific products and services, they are essential components

of the global supply chains; consequently, they enable downstream entities (that may or

may not be larger units) to concentrate on business and market development activities.

China’s large export sector is, for instance, in a very large part due to this orientation.

Given such inherent advantages of the SSIs the question is, what type of support or help

should be given to them. Here, two different and mutually exclusive routes are present.

The first route is based on a presumption that SSIs should be protected vis-à-vis larger

entities. This, to a very large extent, was the approach of the past. However, as we have

pointed out in the preceding chapters, this approach has been much criticised on the

ground that it does not lead to promoting efficiency. And, in dynamic internationally

competitive economies, this approach is just not sustainable. Empirical evidence is also

quite unambiguous in that protected (or reserved) SSIs are not as effective in promoting

efficiency. More importantly, if efficiency losses are present in one component of the

economy, other sectors will have to be that much more productive and efficient to

compensate.

The second route is based on the judgment that SSIs/SMEs are active participants in the

development process, and that their inherent advantages should be utilised in further

strengthening the economy. Examples from other developing countries such as China and

the ASEAN show that SMEs have, in fact, led their sustained high economic growth.

Japan is another country the economic success of which was to a very large extent

facilitated by an active and dynamic small enterprise sector. Though there have been

many differences in their approach, the commonality has been the focus of the

government in creating an environment where the flexibility and dynamism of the small

units have been utilised to the maximum. The support for the small sector has generally

been towards strengthening the units in becoming more competitive both domestically

and internationally, not protecting them. Indeed, as discussed in the previous chapters,

even the Indian government is moving in that direction.

De-reservation in India has followed the overall reforms that have generally been

oriented at creating a more open economic environment with lowered intervention in the

functioning of economic entities. And the Indian industry has generally been supportive

of this greater openness, including that related to de-licensing, freeing of imports,

lowering of tariffs, etc. Even the de-reservation of SSIs has been quite smooth with

negligible opposition from the stakeholders. How was this achieved?

The NCAER survey of 1993 first clearly brought out that the majority of the SSI

associations were in favour of ending reservations. And this was in the early 1990s when

the benefits of the post-1991 reforms were yet to be observed. De-reservations started in

1997, first slowly, but have gained momentum since. The ‘smoothness’ of the past de-

reservations has been primarily due to two reasons. The first has been the acceptance of

Indian industry that greater competition allows them to benefit from the greater flexibility

in their operations, and scaling up options, that de-reservation brings. The second is, if

not more, as important: the de-reservation process itself is based on extensive

consultations with the SSI associations and representatives across the country.

Best practices on SSI policies across the world stress on a consultative process for any

policy changes. The advantages are many. First, the process enables all stake-holders to

appreciate the various forces bearing on each. Second, it enables the identification of the

issues that actually matter, rather than those that are perceived by a few. Third, they

enable the government to tweak policy such that benefits are maximised and costs

minimised. Fourth, and perhaps the most important, it creates an environment of trust

between the policy-makers, the bureaucracy, and the entrepreneurs. This has led to the

creation of a harmonious environment, which in turn has large positive externalities for

the future growth of the SSI sector in particular and the economy in general.

This consultative process is a very important and positive aspect of the SSI de-reservation

methodology in India and should be continued.

33. 34. 4.2 De-reservation: What and When

There is by now enough evidence on the importance of de-reservation. How might the

remaining items be de-reserved? Should this be done in one go, or in a phased manner?

And if this is done in a phased manner, how should the phasing be sequenced? However,

consultations with representatives of various SSI units are equally important. This is

As on 28th

March 2005, there are 506 items and 562 products in India that are

reserved for exclusive manufacture by the SSI sector as per the MoSSI’s Gazette

Notification Number. As defined by the S&D division of MoSSI, there can be more

than one product under each item code. When these 506 reserved items (including

individual products under each item code) are arranged as per ASICC codes, it is

found that there are 562 reserved products as a whole. This analysis is conducted at

the the product level to ensure complete concordance with the system followed by the

MoSSI. The mapping of ASICC codes to the reserved products as per the Gazette

Notification is also as per the system followed by the MoSSI.

mainly because all aspects related to de-reservation might not be possible to be covered

by data always. We therefore discuss this equally important aspect of de-reservation

below before suggesting the future de-reservation sequence based of available data.

35. 4.3 Consultation with SSI Representative/ Associations

The consultative process with the SSI representatives and associations is an integral part

of SSI reforms. De-reservation can have a strong impact on units of many types, and the

impact can be in many ways. These range from increased competition in the output

market, increased competition in the input markets, access to technology, etc. While

many of these issues have been considered in this study, it is not possible to study and

analyze all quantitative and qualitative issues that are related to de-reservations.

By interacting directly with units and their representatives, it is [possible to ascertain the

industry and unit specific issues in a finer detail. This can then help in pre-poning or

postponing the de-reservation process.

Another important advantage of the consultative process is that it enables the

synchronization of the interests of all the stakeholders. This ensures that sensitive

decisions can be taken in an atmosphere of mutual trust and consent.

36. 37. 4.4 Future De-reservation Sequencing

Despite data constraints we have been able to identify some important aspects of

reservation. As is well known, there are many items that have insignificant output. These

should be de-reserved first as de-reservation is unlikely to have any significant negative

impact. Items whose total output in the sector is less than Rs 10 crore belong to this set.

This set can further be broken into those items the total output of which is less than Rs. 1

crore, between Rs. 1 crore and Rs. 5 crore, and between Rs. 5 crore and Rs. 10 crore.

However, as was also discussed, if some units account for a significant share of a

State/UT’s total SSI output, then de-reserving these items a bit later should be

considered. In the meantime, specific actions could be undertaken to help the units

producing these items re-adjust (later sections discuss this). The remaining items that do

not have a significant output share in any State should be de-reserved in the intermediate

stage. We have chosen the benchmark for significance at 1 per cent. That is, if any item

accounts for greater than 1 per cent of any State/UT’s total SSI output, then that item

should be de-reserved in the last stage. The number of items in these three suggested

stages is given below:

Stage of De-

Reservation

Sub-stage Criteria for item being de-

reserved

Number of AICC

items to be de-

reserved in each

stage

A Output < Rs. 1 cr 141

B Output b/w Rs 1-5 cr 133

1 C Output b/w Rs 5-10 cr 68

2 Remainder

180

3

Share of output > 1% of

State/UT’s output 40

Total

562

38.

39. Methodology

The SSI Census (Registered sector) provides data on output of each factory/unit as well

as the top five products produced by the factory. However, these product codes used by

the SSI Census are the ASICC (A Standard Commodity Classification 2000) codes

developed by the Ministry of Statistics and Programme Implementation. On the other

hand, a separate product code (Gazette Notification Number) has been followed in the list

of reserved and de-reserved list of products as published by the Ministry of SSI. As a

result, to identify the reserved products for 2005, a mapping of the products as published

by the Ministry of SSI and the ASICC had to be done. Once the mapping was done, it

was found that 563 ASICC code items map onto the 506 products as listed by the

Ministry of SSI that remain reserved.

Note that in some cases a unit produces more than 1 item. Even though the SSI

Census had data on total output of the factory/unit, it does not provide data on

output separately from each item produced. However, its been observed that around

85% of the registered units produced/rendered just one product/service. For the

remaining 15% of the SSI units producing more than one a product, a most of gross

output of the unit is based on the most prominent product/service that it produces/renders.

The other product/s contribute a very insignificant share to the total outpout of the SSI

unit. Therefore after consulting with the S&D division of MoSSI, the gross output of the

unit is assumed to be the total output of the most important/prominent product/service.

Once output for each item was estimated, total output of each reserved product was

calculated both at the all India as well as (each) State levels separately. The share of

output of each reserved product as a percentage of the total SSI output in each of the 35

States and UTs was then calculated.

As mentioned before, items for de-reservation have been classified into three stages of

de-reservation. As mentioned in Tables 5.1 to 5.5, the products listed in Stage 1 should be

de-reserved first in order of their serial number, followed by Stages 2 and 3. The

characteristics of these lists are as follows:

� Stage 3: Irrespective of the value of their output at the all India level, these

products contribute more than 1 per cent to the total output of SSIs for at least one

of the States in India. They are ranked in ascending order of their output. These

should be de-reserved at the end. Note that even if an item has insignificant output

at the all India level (less than Rs 10 crore), if it has greater than 1 per cent share

of a State/UT’s SSI output, it is included in this set.

� Stage 1:

o Stage 1A: Output from these reserved products is less than Rs. 1 crore.

These are listed in ascending order of their output. This list excludes the

products listed in Stage3. These should be de-reserved first.

o Stage 1B: Output from these reserved products is between Rs. 1 and Rs. 5

crore. These are listed in ascending order of their output. This list excludes

the products listed in Stage3. These should be de-reserved after Stage 1A.

o Stage 1C: Output from these reserved products is between Rs. 5 and Rs.

10 crore. These too are listed in ascending order of their output and

exclude the products listed in Stage3. These should be de-reserved after

Stage 1B.

� Stage 2: Whatever is not included in stages 3 and 1. These are ranked in

ascending order of their output. These should be de-reserved after stage 1C.

The List of specific items and the stage that they are in is provided in the Appendix.

40. 4.5 Strengthening De-reserved Units: What do SMEs require?

The critical constraints that affect SMEs are well known and need not be discussed in

detail. However, it should be accepted that the support of reservation will need to be

replaced with a more enabling environment. This environment should be one where the

following are addressed:

• Human Resources

• Managerial and Technical Know-how

• Funds

• Market Information

• Linkages between/among Firms

• Costs of Dealing with Government

• Greater Sensitivity to Infrastructure Constraints

Smaller units cannot afford a large managerial cadre and, as a result, are dependent upon

the time, effort, and skills of the entrepreneur. Moreover, small units necessarily are more

vulnerable to extraneous shocks. At the same time, smaller units are more flexible and

quicker to respond to changing circumstances. Support to SSIs should be able to

strengthen them without affecting their flexibility and ability to respond rapidly to

changes in the market.

In other words, government action should be facilitative and cooperative and not

protective and providing. To illustrate, a protective/providing government would react to

a lack of technical know-how by itself trying to provide the know-how, whereas a

facilitative policy would create conditions where the information on technology is easily

available and the entrepreneur has the ability to chose for himself which technology

option to implement. Or, high production costs due to low scale economies would be

compensated by protective/providing governments through other types of monetary

concessions such as land or credit at lower cost, whereas a facilitative policy would call

for enabling entrepreneurs to lower their costs through internal efficiencies.

It should be noted that recommendations for a facilitative and cooperative policy cannot

be related to specific acts at supporting the SSI units, but at creating an environment

where this occurs. In line with these principles, the process of de-reservation should be

accompanied by the following changes

41. 4.6 General Principles

1. Strengthening Market-linkages: The contribution of large trading firms to the

success of small firms in East Asia cannot be underplayed. By concentrating on

production activities, small units have been able to grow as well as improve their

quality to meet international specifications. This is only one example of greater

market linkages whether they are with domestic consumers (through large

retailers) or international trading firms.

2. Enabling Better Information Flows: Greater use of the internet, participation in

trade fairs, product-specific publications, etc., are some ways by which

information on technologies, know-how, markets, consumer requirements can be

made available to the small entrepreneur.

3. Removing Undue Hindrances: The many constraints affecting small units in their

day-to-day operations are well known and documented (see Appendix). Whether

it is the “Inspector Raj”, or delays in accessing credit, or infrastructure

constraints, such hindrances have to be removed, whatever the difficulty in doing

so.

4. Problem of Credit: Much has been written about credit constraints and the small

sector. The set of solutions are also well known in the context of market

determined economies – they all revolve around credibility of the entrepreneur,

flexibility of the creditors, and facilitative laws.

5. Strengthening Associations: SSI associations, including local associations, have

tremendous advantages in aggregating the requirements of small businesses,

thereby generating scales large enough for them to benefit as a group.

Information, technology, input suppliers, environment issues, infrastructure costs,

etc., can all be ‘shared’, thereby enabling small units to benefit from scale

advantages.

6. Consultations with SSIs: The process of consultations is not only about which

items/products to de-reserve but also of the kind of supplementary action that

needs to be taken. The best source of information on the best policy would be the

units and their entrepreneurs.

Of all of these, the last two are the most important. Strong, pro-active associations can

not only bring disparate entities together, they can also deal with governments, suppliers,

other service providers and also funding entities much more effectively than individual

entrepreneurs. Moreover, they can enable suppliers of credit to better nuance their terms

and facilities.

And a consultative process can enable the creation of an environment where policy and

its implementation are continually in sync with changing economic conditions.

42. 4.7 Strengthening Associations

Local associations have an internal dichotomy – though their collective actions have the

potential to benefit the entire group, they comprise units that are competitors. That is,

they are in competition with each other not only where their output is concerned but also

for inputs such as land, employees, energy (where it is scarce and rationed), and in many

cases the ear of the government functionaries. As a consequence, many associations

remain non-cohesive and full of internal dissensions. Like any democratic institution,

associations also take some amount of nurturing, visionary members, and a membership

that has a high level of trust in its functioning. Moreover, since traditionally associations

in India have primarily dealt with various government entities, the support of government

is also essential in their maturing.

However associations cannot overnight become strong enough to be fully able to meet

their full potential. For this purpose, SSI associations can broadly be divided on the basis

of (i) their membership participation, (ii) awareness, and (iii) activities of common

benefit. Such a rating can be done on the basis of (a) their meetings and internal systems

(b) quality of representations to the government and quality of their secretariat and (c) the

type of activities that they conduct. This rating system would need to evolve through

consensus but a broad framework is provided below.

As an association reaches higher levels of performance, greater government

acknowledgement to their representations, greater acceptance of their recommendations,

and greater benefits (that would need to be jointly identified) can be assigned to them. In

other words, the cohesiveness and development of association can be catalyzed by an

incentive system.

Box: Fostering Strong Local SSI Associations

Step 1: Ensuring Basic Level Associations – Aggregators • Ensure that the government only deals with associations that have regular and fair

elections.

• Ensure that they have well attended and regular meetings as only then would they

be able to aggregate the views of the many.

• Ensure that associations are able to provide some benefits to all members –

market information, business and legal advice by experts, regular talks/seminars from

national/international experts.

• Ensure that government functionaries attend their meeting frequently to further

strengthen the consultative process between the government and industry (rather than

having such meetings in state/central capitals)

Those associations that are perceived to be good ‘aggregators’ of individual requirements

can also take up other more advanced tasks.

Step 2: Creating Moderately Strong Associations – Awareness Generators

Characteristics

1. Such associations should be able to as a group take their grievances as well as

suggestions to the government that are within the scope of the possible.

2. Should be able to pinpoint underlying problems rather than make demands tax

concessions and subsidies.

3. Bring a wide range of issues in front of its members – including those like

environment, etc.

4. Also able to identify the responsibilities of the members and take collective action

in that regard.

Requirements

• This would require the development of a secretariat that is knowledgeable and

understands the intra-governmental processes.

• A membership that is knowledgeable of the requirements of the new economy, is

aware of the importance of private initiative, and does not seek to increase its

dependence on the government

• Awareness of members is a precondition for mature associations and only those

who have as a group reached this level can provide pro-active solutions that are in

line with the objectives of a free and fair economy.

Step 3: Facilitating Mature Associations – The Pro-active/Action

Takers Characteristics

1. These associations have strong internal systems where a few can without

hindrance talk/negotiate for the many.

2. They have sufficient knowledge and abilities internally to interact with

common suppliers/input providers including infrastructure providers.

Requirements

• Such associations would require to have had some experience with holding and

commonly participating in regular events such as trade fairs.

• They should be regularly interacting with the government at the local level and

appraising it of the problems created due to the negligence of the local businesses.

• They should be able to show many instances of activities that have benefited the

membership in general.

Only those local associations that have achieved stage 3 level of maturity would be able

to work on a strong and common platform where activities such as common

infrastructure, common negotiations, micro-funding, specialized services, etc. can occur

through them.

43. 4.8 Marketing and Market Information

It is evident that any help for the units whose items are de-reserved would have to have a

strong marketing/selling related component, what might this be? Issues of marketing are

clearly related to:

1. Better information that is latest, of good quality and is accessible

2. Better and greater contacts with buyers, suppliers, other providers

3. Better advice from consultants

4. Specificity of the information and knowledge to the requirements of the unit

Clearly, perfect specificity is not possible to small units as highly specific information

and knowledge is more difficult and costly to provide. However, there are some cheaper

ways around this:

• Information products designed specifically for SSIs would include information on

district and sub-district level markets and market sizes, lists of suppliers,

distributors, retailers – such items have large scale economies. Large numbers can

benefit from such micro-data. But such data are highly expensive for individual

units to gather or commission others to collect.

• Websites are by far the most growing way for marketing of SMEs the world over.

However, few SMEs in India are using this in a big way. As larger firms, trading

entities and even the government start to search more and more on the internet,

this mode is also going to become important in India. However, few SMEs have

the expertise of conceptualising and evaluating how their web presence should be

structured.

• Trade fairs continue to be the major source of information flows. However, small

units find it costly in terms of time and funds to participate in trade fairs.

Reserving space for small units, subsidising all small units to send their

representatives, common facilities in national and international trade fairs,

working with SSI associations to generate scale economies are some ways that

this can be considered.

44. Appendix 4.1

Table A4.1: Stage 1 (A) of Future De-Reservation Sequence

Sl.

No.

ASICC

(Reserved

in 2005,

March)

Description Stage of

De-

resrvation

Sl.

No.

ASICC

(Reserved

in 2005,

March)


De-

resrvation

1 94169

Soda Lime Silica Pressed

Glass Tumbler 1A 72 35521

Azoic Coupling

Component-5 (Naphthol

As-G) 1A

2 35555

Brilliant Blue H-7G

Reactive Blue - 3 1A 73 82532

Spark Plug Tester &

Cleaners 1A

3 32169 Dimethyl Phthalate 1A 74 79509

Adjustable Beds -

Hospital 1A

4 94178

Vitrite Glass (Except For

Captive Use) 1A 75 82548

Dust Covers- Auto

Rubber Components 1A

5 35511

Azoic Coupling

Components-2 (Naphthol

As) 1A 76 55133 Transfer Labels 1A

6 35404 Basic Violet -11 1A 77 82522 Battery Terminal Lifters 1A

7 82433

Fork Blade Crown

Covers -Cycle 1A 78 82543

Tyre Inflators-Both Hand

And Foot Operated 1A

8 35512

Azoic Coupling


Ase) 1A 79 75050

Revolution Counters-

Mechanical 1A

9 94149


Glass Vases 1A 80 35553

Yellow R Reactive

Yellow - 44 1A

10 82446 Shakles Rivets- Cycle 1A 81 39033 Animal Glue 1A

11 82535 Tyre Valve Pullout Tools 1A 82 42219 Toilet Seats 1A

12 35575

Navy Blue 3Rh Reactive

Blue -26 1A 83 91810 Nail Pullers 1A

13 31239 Cadmium Oxide 1A 84 32451 Stearate Of Magnesium 1A

14 94139


Glass Bowls 1A 85 84504

Hand And Animal Drawn

Carriage Fittings,Tonga

Parts And Wheel Rings 1A

15 82430

Crown Outer Cover-

Cycle 1A 86 55418 Decorative Papers 1A

16 82454 Perambulators 1A 87 42948

Building Models (

Prototype), Plastic 1A

17 76945

Chopping Knives &

Lancets For Match

Industry 1A 88 42644 Desk Calender, Plastic 1A

18 31519 Barium Sulphide 1A

89 21306

Plaster Boards (Excepting

For Using Automatic

Process) 1A

Sl.

No.

ASICC

(Reserved

in 2005,

March)


De-

resrvation

Sl.

No.

ASICC

(Reserved

in 2005,

March)


De-

resrvation

19 35426 Direct Red -13 1A 90 82527 Gear Flushers 1A

20 31923

Water Soluble Wood

Preservative Based On

Copper, Chrome,

Arsenic, Boric

Compounds 1A 91 82435 Frame Collars -Cycle 1A

21 75239

Bench Grinder Upto 300

Mm Diameter 1A 92 31244

Aluminium Hydroxide

Gel 1A

22 82529 Ring Expanders 1A 93 35489 Acid Red-85 1A

23 71423 Forks -Cutlery 1A 94 77558

Liquid Level Controller

(Excepting Electronic

Type) 1A

24 35562

Blue Brr Reactive Blue -

56 1A 95 31615 Copper Nitrate 1A

25 35570

Brilliant Orange Rx

Reactive Orange -37 1A 96 42645 Pen Stand, Plastic 1A

26 35484

Acid Yellow-23 (Food

Yellow 4) 1A 97 82417 B B Cups 1A

27 42946 Corridor Lights, Plastic 1A 98 71366 Tin Cutters 1A

28 32098

Benzyl Chloride Pt For

Captive Consumption 1A 99 82424

Chains-Wheels &

Adjusters-Bicycles

Except Chain Wheels

And Adjusters For Light

Weight Bicycles 1A

29 42660 Coffee Pot Covers 1A 100 84502 Cart, Hand Driven 1A

30 82545

Spokes And Nipples-

Auto Cycle Other Than

Swaged Type 1A 101 35421 Direct Yellow -8 1A

31 76620 Hand Lamps 1A 102 82550

Windscreen Beedings-

Auto Rubber Components 1A

32 35566

Golden Yellow Hr

Reactive Orange -11 1A 103 77728

Electric Kettles- Sauce

Pan/Ring Types Upto 1.7

Litres 1A

33 35401 Basic Yellow -2 1A 104 35492 Acid Blue-113 1A

34 35425

Direct Red (Congo Red) -

28 1A 105 12745 Sealing Wax 1A

35 42643 Office Table Tray, Plastic 1A 106 32370 Nickle Formate 1A

36 94348 Pippet Rests 1A

107 94346

Filter Funnels For

Vacuum Presses 1A

Sl.

No.

ASICC

(Reserved

in 2005,

March)


De-

resrvation

Sl.

No.

ASICC

(Reserved

in 2005,

March)


De-

resrvation

37 55214 Teleprinter Rolls 1A 108 35559

Brilliant Blue H-5G

Reactive Blue - 25 1A

38 42654 Hair Brushes 1A 109 32564 Xanthates 1A

39 31539

Nickel Sulphate - Other

Than Manufactured By

Primary Producer As

Byproduct 1A 110 91813 Wire Cutters 1A

40 42145

Flash Light Torch Cases -

Plastic 1A 111 71363 Dust Bins 1A

41 35487 Acid Brown-14 1A 112 42650 Key Chains 1A

42 95228

Hand Numbering

Machines 1A 113 82551

Door Channels- Auto

Rubber Components 1A

43 35534

Scarlet H-Cr Reactive

Red -8 1A 114 35522

Phthalocyanine

Blue(Except For Captive

Consumption For Phthele

Cyanine Green) 1A

44 82443 Lamp Brackets -Bicycle 1A 115 82432 Eye Bolts Cups -Cycle 1A

45 82514 Sun Shades-Auto 1A 116 35519

Azoic Coupling


As-Bo) 1A

46 94170


Glass Plates 1A 117 35488 Acid Black-1 1A

47 82506 Horn Button 1A 118 77440 Street Light Fittings 1A

48 35481 Acid Yellow-11 1A 119 32179

Balls & Cubes Made Of

Para Dichlorobenzene 1A

49 35516

Azoic Coupling

Component- 20

(Naphthol As-Ol) 1A 120 31357

Potassium Meta Bi-

Sulphate 1A

50 32339

Methyl Parabens And

Sodium Salt Starting

From Para Hydroxy

Benzoic Acid 1A 121 76621

Household Knitting

Machines 1A

51 82431 D Nuts -Cycle 1A 122 32448 Stearate Of Calcium 1A

52 94349 Spotting Plates 1A 123 42951 Letter/ Words 1A

53 75060 Dog Plates 1A 124 71377 File Mechanism 1A

54 82536 Tube Cutters 1A 125 82534 Toe-In Guage 1A

55 32269 Glycero Phosphoric Acid 1A

126 76132

Grain Dryers- Upto 5Hp

Motive Power 1A

Sl.

No.

ASICC

(Reserved

in 2005,

March)


De-

resrvation

Sl.

No.

ASICC

(Reserved

in 2005,

March)


De-

resrvation

56 42945 Street Lights, Plastic 1A 127 71386

Meat& Food Safes

Metallic 1A

57 55411 Treated Tracing Paper 1A 128 73412 Tin Trays 1A

58 82530 Ring Compressors 1A 129 95207 Nibs, Foundain Pen 1A

59 82437 Handle Bar Grips 1A 130 42663 Tool Kit Covers 1A

60 95215 Pencil Sharpener 1A 131 35475 Acid Yellow-36 1A

61 82524

Fenders, Spoons And

Hammers 1A 132 82440

Lock Nuts & Rings -

Bicycle 1A

62 31346 Sodium Thio Sulphate 1A 133 31319 Sodium Iodide 1A

63 31263

Precipitated Silica Except

Fumed Silica And Spray

Dried Silica 1A 134 71530

Metal Fittings For

Leather Goods &

Garments 1A

64 71425 Bread Cutters 1A 135 42528 Sheets, Polyester 1A

65 35427

Direct Dye [Brilliant

Congo C(A)] 1A 136 95404

Advertising Novelties ,

Plastic 1A

66 31261

Nickel Carbonate- Other

Than Lab 1A 137 31240 Copper Carbonate 1A

67 91806 Anvils 1A 138 35477 Acid Red-88 1A

68 82453

Tricycles- Parts And

Accessories 1A 139 96101 Cigaratte Lighter 1A

69 32399

Para Amino Phenol-Indl.

Grade 1A 140 82438 Hub Oil Clips -Bicycle 1A

70 85229

Wooden Boats Body

Building 1A 141 42140

Bins Of Various Sizes,

Plastic 1A

71 76134

Cotton Delinting

Machine- Upto 5Hp

Motive Power 1A

Source: Estimates from SSI third census, 2001-02

Table A4.2: Stage 1 (B) of future De-Reservation Sequence

Sl.

No.

ASICC

(Reserved

in 2005,

March)


De-

resrvation

Sl.

No.

ASICC

(Reserved

in 2005,

March)


De-

resrvation

142 42142 Salad Baskets 1B 209 32449 Stearate Of Zinc 1B

143 42947 Passage Lights, Plastic 1B 210 84505 Wheel Barrows 1B

144 95220 Paper Pins 1B 211 82429

Cranks Except Cold

Forged Cranks Including

Single Piece Cranks-

Cycle 1B

145 42657 Salt Containers 1B 212 42649 Badges/Folders 1B

146 82519 Electrical Fuses -Auto 1B 213 42143

Dust Pans And Bins,

Plastic 1B

147 33649

Calcium Gluconate (I P

& Injectable) 1B 214 94181

Micro Cover Glasses &

Slides For Microscopes 1B

148 79510 Steel Tables -Hospitals 1B 215 71369 Belt Fastners 1B

149 94110 Block Glass 1B 216 31915

Alums,Incld. Aluminium

Sulphate- Ind. Gr. Excld.

Its Mfr. In Integrated

Sulphuric Acid Plants

And Also Recovery From

Wasre Toxic Effluent 1B

150 77802 Armature Testers 1B 217 35234 Paints, Aluminium 1B

151 76229 Bottle Washing Machine 1B 218 13405 Pastry 1B

152 35531

Brilliant Red M-5B

Reactive Red -2 1B 219 42659

Coffee Pots (Injection

Moulding Thermo

Plastic) 1B

153 82422 Bells -Bicycles 1B 220 82442 Mudguards -Bicycle 1B

154 71365

Stranded Wire

(Excluding High Tensil

Prestressed Concrete

Wires) 1B 221 91801 Hacksaw Frames 1B

155 31546 Nickle Chloride 1B 222 55330

Gummed Paper Other

Than For Stamps 1B

156 35227 Paints, Wagon Black 1B 223 77711

Storage Water Heaters

Geyser Upto 100 Litres

Capacity Upto 3 Kw 1B

157 82441 Lugs All Types -Bicycle 1B 224 82533

Stud Removers-

Extractors 1B

158 91818 Pickers-Metallic 1B

225 95213 Pencils 1B

Sl.

No.

ASICC

(Reserved

in 2005,

March)


De-

resrvation

Sl.

No.

ASICC

(Reserved

in 2005,

March)


De-

resrvation

159 42655 Hinged Hair Pins 1B 226 55404 Paper Napkins 1B

160 94328 Basins, Flat Tipped 1B 227 82515

Side Lamps Assembly-

Auto- Excluding

Combination Lamp

Assembly 1B

161 55329

Gummed Paper For

Stamps 1B 228 57305 Paper Plates 1B

162 91812 Pincers 1B 229 91811 Chisels 1B

163 42619 Washing Bowls, Plastic 1B 230 82428 Crank Shafts -Cycle 1B

164 82537 Flanging Tools 1B 231 92309

Other Brushes (Tooth

Brushes Are Classified In

365) 1B

165 42662 Passport Covers 1B 232 82541

Painting Equipments Like

Spray Guns Etc. 1B

166 82418 B B Shells 1B 233 82447 Stands -Cycle 1B

167 82528 Puller Of All Types 1B 234 31532 Copper Chloride 1B

168 74080 Locks, Tumbler 1B 235 71378

Flexible Metallic Pipe

Upto 35 Mm Dia - For

Non-Pressure

Applications 1B

169 82549

Wiper Blade

Components - Auto

Rubber Components 1B 236 82523

Condensers & Resistance

Testers 1B

170 82526 Flaring Tools 1B 237 39035 Office Gum Paste 1B

171 82427 Cotter Pins -Cycle 1B 238 42653

Textile Welding For

Garments 1B

172 11914

Bone Meal (Except

Captive Consumption

For 100% Export) 1B 239 95405 Advertising Materials 1B

173 32439

Propyle Parabens And

Sodium Salt And


From Para Hydroxy

Benzoic Acid 1B 240 42144

Waste Paper Baskets,

Plastic 1B

174 82423 Carriers -Bicycles 1B 241 76325 Lanterns, Hurricane 1B

175 12821

Husked & Dehusked

Guar Gum Splits &

Meals 1B

242 42665

Inside Assembly Of Brief

Cases 1B

Sl.

No.

ASICC

(Reserved

in 2005,

March)


De-

resrvation

Sl.

No.

ASICC

(Reserved

in 2005,

March)


De-

resrvation

176 82425 Lamps -Bicycle 1B 243 82517 Battery Cell Testers 1B

177 82455

Perambulators Parts And

Accessories 1B 244 71427

Stainless Steel Refiner/

Bar Knives 1B

178 71375

Trolleys-Railway

Platform Drinking Water 1B 245 82547

Clutch Pedals- Auto

Rubber Components 1B

179 82503 Grease Nipples 1B 246 32170 Dichlorophenol 1B

180 74078 Safe/Cabinet Locks 1B 247 82531 Screw Extractors 1B

181 51213

Wooen Storage Shelves

& Racks 1B 248 42658 Pencil Boxes 1B

182 55204 Stencil Paper 1B 249 71539 Safety Pins 1B

183 94325 Dinner Sets 1B 250 71364 Storage Bins -Steel 1B

184 92307 Fibre Brushes 1B 251 77732

Hot Air Blowers/Heat

Convector Upto 2 Kw

Upto Fan Size 26 Cm X

20 Cm X 6Cm 1B

185 82420 Handles-Bicycle 1B 252 31606 Barium Nitrate 1B

186 35405 Basic Violet -1 1B 253 51212

Wooden Storage

Cupboards 1B

187 35236 Paints, Red Oxide 1B 254 94351

Stoneware Jars Bowls

Kundi 1B

188 31522

Calcium Chloride Indl.

Grade Except As

Byproduct 1B 255 75242

Hand Presses(Manually

Operated) 1B

189 92306 Hair Brushes 1B 256 75199 Steadies 1B

190 94312 Salt Glazed Sewer Pipes 1B 257 82456 Chain Covers 1B

191 95227

Typewriter Ribbons For

Mechanical Type

Typewriters 1B 258 93111 Ball, Hockey 1B

192 51287

Wooden Sewing

Machine Covers 1B 259 76809

Hydraulic Jacks Upto 30

Tonnes Capacity 1B

193 76619 Signal Lamps 1B 260 71370 Snap Fastenrs 1B

194 42138 Saucers, Plastic 1B

261 94330 Jar & Other Containers 1B

Sl.

No.

ASICC

(Reserved

in 2005,

March)


De-

resrvation

Sl.

No.

ASICC

(Reserved

in 2005,

March)


De-

resrvation

195 75240

Power Hacksaw-

Mechanical -300 Mm

Blade Size 1B 262 75133

Mechanical Jacks Upto

30 Tonnes 1B

196 74035

Cable Drums For Aa &

Acsr Conductors 1B 263 42617 Soap Cases, Plastic 1B

197 32159 Dibutyl Phthalate 1B 264 42664

Industrialpackings For

Calculators,Microphones

Etc.(Thermo Welded

Plastic Products ) 1B

198 94324 Tea Sets 1B 265 29129

Silicon Carbide Crucibles

- Upto 150 Nos. 1B

199 31512 Barium Chloride 1B 266 82448

Spokes And Nipples-

Cycle 1B

200 74066

Cufflinks, Tie Pins,

Metallic Dress Buttons

& Buckles 1B 267 42220 Toilet Lids 1B

201 93150

Dumb-Bellsand Chest

Expanders 1B 268 82507

Shackel Pins-Automobile

Use 1B

202 71424

Table Knives/

Household Knives 1B 269 31602

Calcium Nitrate Except

As Byproduct 1B

203 82439 Hub Axle Nuts -Bicycle 1B 270 42943

Flexible Polyurethane

Foam Product 1B

204 35235 Paints, Red Lead 1B 271 82452 Tricycles 1B

205 94142 Glass Marbles 1B 272 31344

Sodium Sulphide Except

As By-Product. 1B

206 55415

Toilet Paper Rolls And

Sheets 1B 273 42907

Decorative And Industrial

Fixture , Plastic 1B

207 32559 Sodium Saccharine 1B 274 71385 Wire Brushes 1B

208 42949

Machine Models (

Prototype), Plastic 1B


Table A4.3: Stage 1 (C) of future De-Reservation Sequence

Sl.

No.

ASICC

(Reserved

in 2005,

March)


De-

resrvation

Sl.

No.

ASICC

(Reserved

in 2005,

March)


De-

resrvation

275 35224 Paints, Bitumen Based 1C 322 76143 Disc Harrows 1C

276 71359 Ghamelas 1C 323 56149 Letter Pads 1C

277 32104 Benzyl Benzoate 1C 324 51127 Wood Wool Slabs 1C

278 42648 File Covers 1C 325 42419

Polypropylene Box

Strapping 1C

279 42959 Diaries 1C 326 71334 Hob Nails 1C

280 42513

Identity Cards And

Visiting Cards 1C 327 74079 Locks -Bicycles 1C

281 71558 Watch Straps - Metallic 1C 328 55216

Slitting Of Ordinary

Paper Into Rolls And

Sheets 1C

282 29127

Graphite Crucibles -

Upto 500 Nos. 1C 329 71520

Storage Cupboards- Iron

& Steel 1C

283 82445 Saddles -Cycle 1C 330 79573 Doctor Blades 1C

284 82419 Bicycle Tube Valves 1C 331 31545 Magnesium Sulphate 1C

285 21114

Sulphur Powder Other

Than Insoluble For

Rubber Valcanisation 1C 332 91809

Knives And Shearing

Blades (All Types

Including Those Of

Metal, Paper, Bamboo

And Wood For Mannual

Operations) 1C

286 71309 M S & C I Flanges 1C 333 79533

Sterlisers Stainless Steel

& Aluminium 1C

287 82415

Cycle Frames-Except

For Captive

Consumption 1C 334 42208 Mug, Plastic 1C

288 35406 Basic Blue-7 1C 335 66137 Cotton, Absorbent 1C

289 13532 Chutneys 1C 336 42139 Lunch Boxes, Plastic 1C

290 79519

Trolleys -Iron And

Steel- Hospital 1C 337 29132

Flooring Tiles -Marble

(Excluding Tiles Of

Thickness Less Than 10

Mm) 1C

291 76724

Plastic Shredding &

Granulating Knives 1C

338 71338

Racks -All Types

Including Angular

Racks - Iron And Steel 1C

Sl.

No.

ASICC

(Reserved

in 2005,

March)


De-

resrvation

Sl.

No.

ASICC

(Reserved

in 2005,

March)


De-

resrvation

292 77707

Bread Toasters

Ordinary/Auto/Semi-

Auto Upto Cap. 6 Slices 1C 339 57304 Paper Cups 1C

293 55515 File Board 1C 340 35321 Distemper, Dry 1C

294 77822

Fan, Exhaust -Upto 460

Mm 1C 341 95229 Pen Holders 1C

295 94339 Insulators, Low Tension 1C 342 82518

Electrical Fuse Boxes -

Auto 1C

296 31554 Zinc Chloride 1C

297 82449

Hubs And Cups -Bicycle

Alongwith Components

Except Single Piece

Hub-Shell And Flange

For Light Weight

Bicycle 1C

298 76408

Concrete Mixer Upto 3

Cubic Metre Capacity 1C

299 31368 Potassium Silicate 1C

300 42642

Table Calender Stands,

Plastic 1C

301 32450 Stearate Of Aluminium 1C

302 76618 Pressure Stove 1C

303 71347

Metal Cabinets All

Types 1C

304 82504 Gun Metal Bushes 1C

305 95219 Hand Stapling Machines 1C

306 32369 Nephthalene Balls 1C

307 91319

Thermometers Upto 150

Degree Celsius 1C

308 71339

Drums Upto 60 Litre

Capacity 1C

309 31909

Electroplating Salts-

Compounded 1C

310 82444 Pedal Assembly -Cycle 1C

311 76137

Bandsaw Blades- For

Cutting Wooden Logs 1C

Sl.

No.

ASICC

(Reserved

in 2005,

March)


De-

resrvation

Sl.

No.

ASICC

(Reserved

in 2005,

March)


De-

resrvation

312 71206 Beam Scales 1C

313 32489 Tartrates 1C

314 71376 Wire Adjusting Screws 1C

315 92308

Brushes - Natural

Bristles 1C

316 82512 Radiators Grill Auto 1C

317 71320 G I Buckets 1C

318 75020

12 Mm Drilling

Machines Upto 1500

Rpm Bench & Pedestral

Type 1C

319 82542 Grease Guns 1C

320 77744

Electric Bells And

Buzzers 1C

321 31372 Potassium Iodide 1C


Table A4.4: Stage 2 of Future De-Reservation Sequence

Sl.

No.

ASICC

(Reserved

in 2005,

March)


De-

resrvation

Sl.

No.

ASICC

(Reserved

in 2005,

March)


De-

resrvation

343 42930 Plastic Rain Coats 2 433 55516 File Cover 2

344 76725

Electo Formed Screens/

Liners Used In Chemical

& Sugar Industries 2 434 42942 Buttons, Plastic 2

345 42408

Film, Polythylene - With

Thickness Less Than

0.10 Mm Except Co-

Extruded Film Cross

Linked Polymer Films

And High Density

Molecular Films 2 435 79416

Air Condtioning Ducting

Louvers,Grills & Other

Sheet Fabrication In Air-

Conditioning 2

346 42141

Babies Bath Tubs,

Plastic 2 436 82516

Battery Cables And

Fittings 2

347 51153 Seasoned Wood 2 437 76142

Plough Shears /Iron

Ploughs 2

348 77319

Switches, Metal Clad

Upto 100 Amps 2 438 94419

Roofing Tiles Cement

Concrete 2

349 71426 Other Cutlery Items 2 439 77430

Electric Light Fittings

Starters 2

350 93112 Sticks, Hockey 2 440 76125 Wood Working Saws 2

351 73819

Pressure Die

Casting.Over 0.75 Kg 2 441 35217

Inks (Writing Inks &

Fountain Pen Inks) 2

352 71422

Spoons, Cutlery

(Spoons, Plastic Are

Classified In 426) 2 442 39009

Indl. Adhesives Based

On Starch,Gum,Dextrin

& Silicates 2

353 42651 Albums 2 443 79520 Stretchers -Iron & Steel 2

354 74261

Zip Fastners -Metallic

Except In The Case Of

Integrated Plants

Manufacturing All

Components 2 444 29120 Flooring Tiles Clay 2

355 93149

Protective Equipments,

For Sports Like Pads,

Gloves, Etc.- Soft

Leather Goods 2 445 74271

Sanitary Fittings, Non-

Ferrous-Others 2

356 76135

Harvester Grader, Blade

& Other Earth Moving

Blades In Agriculture

Machines 2 446 71360

Barreles Upto 60 Litre

Capacity 2

357 71354 Metallic Washers 2 447 77107

Room Cooler-Desert

Type 2

358 32135 Camphor Tablets 2

448 82426

Cones-Hub Cones -

Bicycle 2

Sl.

No.

ASICC

(Reserved

in 2005,

March)


De-

resrvation

Sl.

No.

ASICC

(Reserved

in 2005,

March)


De-

resrvation

359 75049 Coolant Pumps Etc. 2 449 57114

Paper Bags Incl. Craft

Paper Bags 2

360 21926

Chalk Crayyons

Including Tailor Chalk 2 450 57108 Envelops For Packaging 2

361 51102 Wooden Crates 2 451 77717

Mixer/Grinders Such As

Meat Mincer, Juice

Extractor Cap. Of Jar

Upto 1 Lit.Max./Upto

500 Watts 30 Minutes

Rating 2

362 76615

Wick Stoves Other Than

Those Manufactured In

Accordance With Design

Numbers

145215,145216,145299

(Nutan Type Stoves)

Registered In The Name

Of Ioc 2 452 77237

Centrifugal Pump<= 10

Cm2 Size 2

363 82416

B B Axles Except

Through Cold Forging

Process 2 453 11913 Bone Crushed/ Powder 2

364 93119 All Types Of Sports Nets 2 454 76214 Dal Mill Machinery 2

365 57112 Covers, Paper 2 455 76104 Cultivators 2

366 84501 Cart, Animal Driven 2 456 64117

H D Polythylene Mono

Filament(Exception For

Captive Use For Rope

Manufacturers) 2

367 42605 Combs, Plastic 2 457 94119

Glass Halloware By

Mouth Blown And/Or

Semi-Automatic Process 2

368 77946

Carbon Brushes

Manufactured From

Carbon Block 2 458 42137 Cups, Plastic 2

369 31241 Calcium Silicate 2 459 55328

Stickers, Labels Of

Gummed Paper Etc.

(Plastic Stickers Are

Classified In 429) 2

370 77736

Expresso Coffee Makers

Upto 1.7 Litres Capacity 2 460 35223 Paints (Paste) 2

371 91134 Photographic Enlarger 2

461 64116

Polypropylene

Monofilament (Except

For Captive Use For

Rope Manufacturers) 2

Sl.

No.

ASICC

(Reserved

in 2005,

March)


De-

resrvation

Sl.

No.

ASICC

(Reserved

in 2005,

March)


De-

resrvation

372 77706

Electric Iron Other Than

Steam Irons 2 462 93202

Umbrella Parts (Please

See 429 Also) 2

373 21305

Plaster Of Paris (Except

For Use As Construction

Material) 2 463 71516 Chair, Steel 2

374 94329 Cups & Saucers 2 464 42666

Polyster Resins

Unsaturated 2

375 93128 Shuttle Cock 2 465 77419

Electric Light Fittings

Chokes 2

376 56148 Envelopes, Postal 2 466 75241

Screw Presses

(Manually Operated) 2

377 35229 Paints, Graphite 2 467 91803 Hammers 2

378 93151

Football, Volley Ball

And Basket Ball Covers 2 468 82421

Bolts,Studs & Screws -

All Types-Bicycle 2

379 31528

Copper Sulphate Other


Primary Producer As By

Product 2 469 75231

Weighing Machines/

Weight Bridges-

Ordinary 2

380 71560

Welded Wire Mesh-

Except For Expansion

Of Existing Units 2 470 94407

Asbestos Pipes &

Fittings - For Household

Purposes Only

According To Isi

Specifications 2

381 93101 Balls, Cricket 2 471 95209

Fountain Pens And Ball

Pens Components

Excluding Metallic Tips 2

382 94120

Scientific Lab. Glass

Ware (Excluding Boro-

Silicate Type) 2 472 71519

Iron & Steel Cots - All

Types 2

383 42958

Hessian, Paper And

Cloth To Polythylene

Laminations - Straight &

Sandwitched By

Extrusion Coating

Process Except Paper To

Polythyline Laminations

For Integrated Packing 2 473 93201 Umbrella 2

384 75030 Water Meters 2 474 71324 Nails, Wire 2

385 94180

Glass Mirrors Ecluding

Those Manufactured By

Using Auto Matic Spray

Or Vaccum Coating

Process 2 475 82513 Seat Cushions 2

386 76133

Shell Huskers- Upto 5Hp

Motive Power 2

476 42205

Polythylene & Pvc

Flexible Hoses Except

Wire Braided Hoses 2

Sl.

No.

ASICC

(Reserved

in 2005,

March)


De-

resrvation

Sl.

No.

ASICC

(Reserved

in 2005,

March)


De-

resrvation

387 42206 Handles, Plastic 2 477 56143 Registers 2

388 75054

Diesel Engines Upto 15

Hp-Slow Speed Except

Those With Specific

Fuel Consumption Less

Than 180 Gms Per Bhp/

Per Hour 2 478 91814

Other Hand Tools For

Blacksmithy, Carpentry,

Hand Forging, Foundry

Etc. 2

389 31513 Barium Sulphate 2 479 74049

Locks, Drawer And

Suitcase 2

390 92304 Brush, Painting 2 480 42950

Fittings For Pvc Pipe

Including Conduits Upto

110 Mm Dia 2

391 71340

M S Storage Tanks Upto

15000 Litres Capacity

(Simple Type With

Rivets/ Welds But

Excluding Pressed Ribs.) 2 481 71561

Wire Guage And Wire

Netting Metallic-Coarser

Than 100 Mesh Size

And Upto 2 Meter

Width 2

392 32165 Diethyl Phthalate(Dep ) 2 482 82451

Other Cycle Parts &

Accessories, Except Free

Wheels Chains;Single

Piece Hub-Shell And

Flange For Light Weight

Bicycle; B.B. Axles

Through Cold Forging

Process; Chain Wheels

And Adjusters For Light

Weight Bicycles; Cold

Forged Including Single

Piece Cold F 2

393 71357 Signal Ladders 2 483 23210

Chlorinated Paraffin

Wax (Upto 60%

Chlorine Content) 2

394 71379 Panel Pins 2 484 42427 Cane, Plastic 2

395 82546

Brake Pedals- Auto

Rubber Components 2 485 39019

Alkyd Resins (Except

For Captive

Consumption) 2

396 71380 Wood Screws 2 486 76235 Rice Mill Machinery 2

397 79522

Microscope-Student &

Medical Use 2 487 77480

Electrical Wiring

Accessories Other Than

Switches, Plugs, Sockets 2

398 91802 Pliers 2

488 91804 Screw Drivers 2

Sl.

No.

ASICC

(Reserved

in 2005,

March)


De-

resrvation

Sl.

No.

ASICC

(Reserved

in 2005,

March)


De-

resrvation

399 42623 Tumblers, Plastic 2 489 77481

Pvc Wires-Domestic

Type 2

400 42656 Plates & Dishes 2 490 78202

Amplifiers For

Entertainment And

Public Address System 2

401 31618

Potassium Nitrate

Produced From Salt

Petre 2 491 95205 Pens, Fountain 2

402 95226 Carbon Paper 2 492 29121 Roofing Tiles Clay 2

403 42934 Umbrella Frames 2 493 42409

Products Of Polythylene

Films As Coloured

Printed Films And Bags 2

404 82544

Seats For Buses And

Trucks 2 494 21129

Lime Used For

Construction And Lime

Wash (Hydrated) 2

405 12114 Cashew Shell Oil 2 495 29105

Fire Clay Bricks &

Blocks Containing Less

Than 40% Alumina 2

406 91807 Wrenches 2 496 94127 Bangles, Glass 2

407 91103

Lens, Opthalmic From

Blanks (Glass) 2 497 91805 Spanners 2

408 71362

Sanitary Fixtures,

Metallic 2 498 71329

M S Pipe Fittings Upto

100 Mm Dia. 2

409 76519 Cotton Ginning Knives 2 499 82521 Fuel Tank Caps -Auto 2

410 32239

Ethyl Parabens And


From Para Hydroxy

Benzoic Acid 2 500 31232 Barium Carbonate 2

411 71358 Domestic Utensils- Iron 2 501 42109 Bags, Shopping 2

412 94420

Flooring Tiles Cement

Concrete 2 502 42410

Polypropylene Tubuler

Films (Except Biaxially

Oriented) 2

413 32379 Niacinamide 2 503 91808

Knives & Shredding

Blades (All Types

Including Thosse For

Metal, Paper, Bamboo

And Wood For Hand

Operated Machines) 2

414 76614

Gas Appliances Such As

Cooking Range,Oven

Etc. 2 504 71348 Steel Trunks 2

415 41467

Hose Pipes And Radiator

Hoses-Auto 2

505 74059

Cocks Valves-Water

Pipe Fittings 2

Sl.

No.

ASICC

(Reserved

in 2005,

March)


De-

resrvation

Sl.

No.

ASICC

(Reserved

in 2005,

March)


De-

resrvation

416 82552

Rubber Beedings- Auto

Rubber Components 2 506 74081 Locks, (Pad Locks) 2

417 73241 Furniture, Aluminium 2 507 31555

Zinc Sulphate- Other


Primary Metal Producer

As A By-Product 2

418 42957

Fibre Glass Reinforced

Plastic Products - Others 2 508 35338 Oil, Turpentine 2

419 35219

Artists Colours-Oil,

Water And Wax Based 2 509 36506 Tooth Powder 2

420 42906

Industrial Items From

Engg Plastics Material

By Fabrication Process

Only 2 510 57120

Corrugated Fibre Board

Containers 2

421 94179

Glass Beads Except

Industrial Beads 2 511 76536

Sewing Machines

Domestic, Hand

Operated Conventional

Type 2

422 82216

Truck Body Building-

Wooden Structure 2 512 12506

Sesame Oil (Except

Solvent Extracted) 2

423 74060 Locks, Door 2 513 75019

Turning, Boring &

Treading Addas-Small-

Single Or Multiple

Operation Devices 2

424 91112

Spectacle Frames By

Fabrication Or By

Injection Moulding 2 514 77545

Voltage Stabilizers-

Domestic Type 2

425 71575

Steel Tables -All Other

Types (Hospital Tables

Are Classified In 795) 2 515 71323

Nuts & Bolts - Except

High Tensile & Special

Types 2

426 82553

Rubber Mats- Auto

Rubber Components 2 516 73404

Tin Containers

Unprinted - Other Than

Ots And Cans Upto 18

Litres Capacity 2

427 36153

Other Natural Essence

Oils 2 517 71349 Builders Hardware 2

428 36502 Tooth Brushes 2 518 71204 Bars, Bright 2

429 94437

Reinforced Cement

Concrete Pipes Upto 100

Cm Dia 2 519 72243 Utensils, Brass 2

430 57119

Paperboard Cartons

(Unlaminated) 2 520 77238

Electric Motor 1Hp To

10 Hp- Ac Except

Special Types 2

431 42129 Water Jugs 2 521 56116 Exercise Books 2

432 42301

Full Pvc Chappals,

Sandal And Shoes 2

522 71416 Utensils , Stinless Steel 2


Table A4.5: Stage 3 of future De-Reservation Sequence

Sl.

No.

ASICC

(Reserved

in 2005,

March)


De-

resrvation

Sl.

No.

ASICC

(Reserved

in 2005,

March)


De-

resrvation

523 71371 Gun Cases 3 546 31349 Sodium Thiocynate 3

524 21130

Lime Used For

Construction And Lime

Wash (Non-Hydrated) 3 547 37301 Fireworks 3

525 71592

Steel Vaults,Safes &

Cash Boxes Except Fire

Resistant Record

Protection

Equipment,Fire And

Burglar Resistance

Safe,Jewelers Safe ,Safe

Deposit Locker And

Safes With Safe Deposit

Lockers Etc. 3 548 73243 Pilfer Proof Caps 3

526 77102

Air Compressors Upto 5

Hp For Spray Painting

Repair Shops 3 549 37304

Matches, Safety (Match

Box) 3

527 36239

Formulated Perfumery

Compounds 3 550 36227 Agarbatties 3

528 71381 Machine Screws 3 551 73237 Utensils, Aluminium 3

529 12275

Ground And Processed

Spices (Other Than

Spices Oil & Oleo Resin

Spices) 3 552 95201 Ball Point Pen 3

530 94436

Flooring Tiles- Cement

Mosaic 3 553 42667 Pvc Compounds 3

531 71355 Barbed Wire 3 554 42201

Pvc Pipes Inclusive

Conduits - Upto 110

Mm Dia 3

532 13534 Pickles 3 555 13404 Bread 3

533 94343

Round & Rectangular

Type Dishes 3 556 76124

Wheat & Rice

Threshers-Upto 5 Hp

Motive Power 3

534 32168 Diocytyl Phthalate(Dop) 3 557 51107 Sawn Timber 3

535 36405 Wax, Candles 3

558 36314

Soap, Washing

(Laundry) 3

Sl.

No.

ASICC

(Reserved

in 2005,

March)


De-

resrvation

Sl.

No.

ASICC

(Reserved

in 2005,

March)


De-

resrvation

536 71372

Doors Window &

Ventilators - Metallic

(Excluding Heavy Duty

Hollow Steel Doors

Fitted With Non-

Metallic Core Suitable

For Special Applications

Like Security, Fire

Protection, Sound

Proofing And Bullet

Penetration Resistance) 3 559 71545 Steel Furniture (Other ) 3

537 12518

Rapeseed Oil (Except

Solvent Extracted) 3 560 12507

Ground Nut Oil (Except


538 31274 Zinc Oxide Indl. Grade 3 561 51229

Furniture & Fixtyre,

Wooden, N.E.C 3

539 71373 Rolling Shutters 3 562 12515

Mustard Oil (Except


540 29133

Flooring Tiles -Granite

(Excluding Tiles Of

Thickness Less Than 10

Mm) 3

541 31337 Sodium Silicate 3

542 71501 Almirah, Steel 3

543 42646

Zip Fastners - Non-

Metallic (Except In The

Case Of Integrated

Plants Manufacturing

All Components) 3

544 42115 Buckets, Plastic 3

545 33601 Paracetamol 3


45. Appendix 4.2

How do laws, rules, regulations affect doing business for SSIs.

The government’s active role in the economy affects small business in many ways and across all stages of the small business lifespan: At entry (setting up), during operations, and finally at the last (or exit) stage. Of these the exit stage has been discussed elsewhere and will not be repeated here.

I. Setting Up A Unit

Setting up a manufacturing unit requires the entrepreneur to obtain land, capital, utility connection, environmental clearances, and then depending upon its area of operations many other clearances such as from the food and beverages department in the case of food products, etc. First consider the problems experienced across the board:

Land and Utility Connections: Take the case of setting up a unit on government revenue land. In many cases, the scales and location characteristics of a project are such that a piece of land, not a part of some industrial estate, is ideal for a unit. However, getting the necessary permissions through the DIC, Tahsildar, Electricity Boards, environment/pollution control agencies, etc., are tedious and time consuming. Admittedly, locating in an industrial estate is significantly easier. In a study on the reform process in different states by NCAER,16 it was found that obtaining various permissions for locating a small industry on revenue land required about three months and obtaining electricity connections took approximately three and a half months. On the other hand, it took approximately forty days to obtain the necessary permissions to locate on land developed by an Industrial Development Corporation, and less than a month for the necessary electricity connections.

Capital: Though it is not necessary to access Public Sector State Financial Corporations and Banks for financing, they are the major source of funds in the organized sector. On an average, it takes more than four and a half months to access funds from these sources. It is not only the time taken and the loss in terms of opportunity costs that harm the economy. Entrepreneurs and their agents have to make repeated visits, make repeated applications, provide details time and again to these bodies, make ‘facilitation payments’, and so forth.

Clearances: Environmental and labour related clearances also require repeated visits to the relevant departments and getting permissions. There are multiple clearances that are required from multiple organs of the governments. Each of these organs has an inspector whose duty is to ensure that the SSI follows the norms on which the clearance was based (see below). Sector specific: Food and beverages, pharmaceuticals, polluting industries (such as those having oil or coal furnaces, or recycling plastics, or those that have chemicals as inputs or outputs), are even more affected by the government’s role in the economy. These have more clearances to obtain and these vary from state to state. The attitude’ of the state

16

R. Venkatesan, “Problems in the Implementation of Economic Reforms at the State Level”, NCAER, 1996

government agents also varies, typically it is felt that those in the northern part of the country are less sympathetic to the requirements of the entrepreneur. The major problems therefore can be broadly classified as necessity of repeated interface with bureaucratic-administrative machinery. These in turn leads to delays in putting up a project, loss of flexibility, and higher costs of setting up and as a result, higher operating costs. Many if not all SSI entrepreneurs circumvent these cost add-ons by finding other ways of getting the relevant documents stamped. Be that as it may, the ‘single window clearance’ system has to be implemented. This would involve the getting together of all the government functionaries involved in setting up a project, the finance corporations, electricity and water authorities, environment related authorities, etc., together to give the necessary clearances.

II. Operating a Unit

II a. Inspector Raj

In a study by NCAER on industrial policies and procedures, it was found that there were

more than fifty major acts covering the operations of any enterprise. In addition, there

are many supplementary acts.17

To enforce each of these acts, there is the government

administrative machinery. Government inspectors are but one set of government agents

responsible for this. The issue here is not so much the various acts, but the duplication of

records, multiple inspector visits, and consequent procedural complexities that they lead

to. In many cases, even if some unit is meeting the legal obligations, inspectors have to

be ‘satisfied’ because they have the ability to trouble the entrepreneur and divert his/her

attention from operating the unit. This leads to a situation where even if some laws do

not apply to a particular unit, the entrepreneurs are forced to deal with the representative

inspectors. Since the possible inspectors are many, the potential procedural transaction

costs are also high.

Table A4.6: Inspectors in various Ministries and Departments

17

Bhandari and Ramani, “Industrial Policies and Procedures in India”, NCAER, 1998. There is also administrative

law, as opposed to statutory law. Administrative law consists of government rules, orders and regulations, allowed

under enabling legislation, but not part of statutory law itself. These are not even readily available and was last collated

and put together in one place in 1966. Today even this is extremely difficult to obtain.

Ministry/Department Function

Industry Registration Inventories Safety, Quality, tax

Home Fire protection, Explosives

Planning and Statistics Data on Production, Manpower

Finance Income Tax, Excise

Revenue Enforcement, Sales Tax, Weights & Measures

Revenue (State) Professional Tax

Labour Compliance with labour laws

Municipal Municipal by – laws

Power & Energy Electricity Connections

Health & Family Welfare Hygiene & Occupational Health

Urban Affairs & Employment Sanitation

Environment Pollution

Communications Telecom facilities

Local Governments Octroi and Mass Raids

Food & Drug Administration Safety Standards

Needless to say, not all units are inspected by each of the above. The above table only

reflects the various inspectors that exist under various ministries and departments.

However, most units come under many of the above (and others not noted here)

inspectors. In many cases, even if some unit is meeting the legal obligations, inspectors

have to be ‘satisfied’ because they have the ability to trouble the entrepreneur and divert

his/her attention from operating the unit. This leads to a situation where even if some

laws do not apply to a particular unit, the entrepreneurs are forced to deal with the

representative inspectors. Since the possible inspectors are many, the potential

procedural transaction costs are also high.

II b. Labour18

18

This part has also benefited from a study on labour reforms by Hanumantha Charya, Uppal, and Sharma, entitled,

“Simplification of Labour Laws and Procedures”, in B. Debroy and N. R. Madhava Menon edited, Some Aspects of -

Legal Reform in India, Allied Publishers, 1994.

One of the most serious problems faced by all industries leave alone SSIs has to do with the labour laws and enforcement machinery. There are many laws, rules, regulations related to labour, compensation, working conditions in India. The majority of these were put in place in the first half of the 20th century when a different set of priorities shaped industrial policy. In addition, there are a variety of laws dealing with various subjects, using different definitions of terms such as wages and workers and overlapping in many cases, leading to confusion and uncertainty. Various case laws have also since got incorporated, further contributing to the complexities.

This leads to many procedural complexities and duplication of records. The related procedural transaction costs are also so high that many entrepreneurs find it better to circumvent these by not complying with them and ‘managing’ the government machinery set up to enforce them. Not only does this increase the degree of illegal operations, it also harms labour and industrial relations. Consequently, both employer and employee efforts are diverted towards day-to-day labour and employment issues, harming quality, innovative-ness and smooth operations.

Table A4.7: Large Number of Acts Governing Labour

Labour Related Acts Related to:

Factories Act, 1948 -

Industrial Disputes Act, 1947 Industrial Relations

Industrial Employment Act, 1946 (Pg 26) Industrial Relations

Employment Exchange Act Industrial Relations

Trade Union Act, 1926 Industrial Relations

Contract Labour Act, 1970 Industrial Relations

Employees Provident Fund & Miscellaneous Acts & Schemes,

1952

Social Security

Employees State Insurance Act, 1948 Social Security

Payment of Bonus Act Social Security

Workers Compensation Act, 1923 Social Security

Payment & Gratuity Act Social Security

Bonded Labour System Abolition Act, 1948 Social Security

Child Labour Prohibition & Regulation Act Social Security

Payment of Wages Act, 1936 Compensation Related

Minimum Wages Act, 1948 Compensation Related

Single Remuneration Act Compensation Related

Many believe, mistakenly, that SSIs are not as affected by labour laws, however many SSIs are large enough to be under the ambit of the various labour laws. The following table shows otherwise.

Table A4.8: Varying Applicability of Laws – SSIs are not out of range for labour laws

Apply on Employment

greater than equal to:

Wage/month (Rs.)

Provident Fund Act 20 >9500

ESI Act 10 <9000

Gratuity Act 10 <3500

Bonus Act 20/10 <2500

Ind. Disputes. Act 50 <1600

Payment of Wages Act <1600

Contract Labour Act <500

II c. Exports

Though Indian exporting units have had a good run in recent years, significant

operational problems continue. For the larger firms these are proportionately less costly

as the time required to receive various clearances are about the same. The table below

lists the time required for a typical garment-exporting unit.

Table A4.9: Time costs associated with export clearance

Document Number of

copies

Number of

signatures

Time required only for

typing

1. Proforma invoice 4 4 1 hour

2. Buyer’s order 4 16 1 hour

3. Letter of credit 1 4 1 hour

Document Number of

copies

Number of

signatures

Time required only for

typing

4. Shipping instruction 2 2 30 minutes

5. Commercial invoice 11 27 2 hours

6. Packing list 10 26 2 hours

7. GRI (exchange control) 2 4 30 minutes

8. Freight certificate 2 2 5 minutes

9. Origin certificate, Form A 2 2 30 minutes

10. AR4/AR4A 4 or 5 16 or 20 30 minutes

11. G receipt 3 6 15 minutes

12. Inspection certificate 2 2 15 minutes

13. Total tax 2 3 10 minutes

14 Insurance certificate 2 2 15 minutes

15 Insurance 3 3 2 hours

16. Shipping bill 10 72 1 hour

17. Carting order 4 5 15 minutes

18. Forwarding note 2 7 10 minutes

19. Special custom invoice 2 4 15 minutes

20. GSP 4 4 1 hour

21. Meas. certificate 4 4 1 hour

22. Fumigation certificate 3 15 1 hour

23. Container Ld. Pl. 3 3 30 minutes

24. Railway receipt 2 2 10 minutes

25. N. forms 2 2 10 minutes

26. Mate’s receipt 3 3 10 minutes

27. Bill of lading 18 18 1 hour

28. Freight/cargo manifest 2 2 4 hours

29. Application to bank for

negotiation

1 1 30 minutes

Source: Transaction costs in Textile Sector, Bhandari and Debroy, mimeo. 2000.

In terms of money costs as well many of these clearances and procedures impose significant costs. The EXIM bank of India estimated these costs of various export related clearances for different sectors. It did so by simply asking entrepreneurs and managers to estimate the Rupee costs of obtaining various clearances for exports. As the table below shows, the costs tend to be higher for those sectors where the key exporters are smaller firms – garments, chemicals, light engineering, food related items, etc.

Table A4.10: Costs of Procedures

Commodity/Group Procedural Transaction Costs (As a % of export earnings)

Textiles & Garments 15.0 Chemicals 14.0 Light Engineering 10.0 Pharmaceuticals 10.0 Software 10.0 Fish and Marine 8.5 Agro-commodities 7.0 Jute 7.0 Rubber & Allied Products 7.0 Leather 6.5 Tea 3.0 Gems and Jewellery 0.8 Others 6.0 Source: “Transaction Cost of Indian Exports: An Analysis”, Export-Import Bank of India, Occasional

Paper No. 64, October 1998.

III. Concluding Note

All in all SSIs tend to have a greater relative burden due to unfriendly rules, procedures and laws. These tend to differ to some extent across sectors and states. However, SSIs in every sector face significant hurdles – many of which are unnecessary. It is significantly more burdensome for smaller firms to bear these costs.

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