Small Sector in India 08

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- Sub- Criteria for item Number of

Reservation stage being de-reserved AICC items
to be de-
reserved in
each stage
A Output < Rs. 1 cr 130
1 B Output b/w Rs 1-5 cr 124
C Output b/w Rs 5-10 cr 64
2 Remainder 183
Share of output > 1%
3 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 56th 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
Year Number of Units in ’00,00 Employment
Registered Unregistered Total (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 Units in Registered SSI Units in Registered
SSI’s sector 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 Actual No. of SSI
Distribution of SSI units (in number)
units (%)
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
units (%)
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

Office & Computing
30 Machinery 0.11 953
Electrical Mach. & App.
31 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
Furniture; Manufacturing
36 N.E.C. 9.63 86,774
37 Recycling 0.06 526
Electricity, Gas, Steam And
40 Hot Water Supply 0.04 330
Collection, Purification And

41 Distribution Of Water 0.01 106
50 Construction 0.8 7,249
Sale , Maintenance And

Repair Of Motor Vehicles
And Motorcycles; Retail Sale
52 Of Automotive Fuel 1.43 12,877
Wholesale Trade And

Commission Trade, Except Of
Motor Vehicles And
63 Motorcycles 0.14 1,244
Retail Trade, Except Of Motor

Vehicles And Motorcycles;
Repair Of Personal And
64 Household Goods 0.06 542
units (%)
71 Hotels And Restaurants 0.02 177

Land Transport; Transport Via
72 Pipelines 0.48 4,324
74 Water Transport 0.35 3,188
85 Air Transport 0.01 118
Supporting And Auxilliary

Transport Activities;
92 Activities Of Travel Agencies 0.01 95
Post And
93 Telecommunications 0.04 389
Missing 0.02 178
Total 100 901,291
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)
NIC 98 Industry Names Percentage Actual
Distribution Employment of
of SSI units (in ‘000s)
Employment
of SSI units
(%)
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
NIC 98 Industry Names Percentage Actual
Distribution Employment of
of SSI units (in ‘000s)
Employment
of SSI units
(%)
Water
50 Construction 0.58 30
Sale, Maintenance & Repair Of Motor Vehicles
52 & Motorcycles; Retail Sale Of Automotive Fuel 0.77 39
Wholesale & Commission Trade, Except Of
63 Motor Vehicles & Motorcycles 0.22 11
Retail Trade, Except Of Motor Vehicles And
Motorcycles; Repair Of Personal & Household
64 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
Supporting And Auxiliary Transport Activities;
92 Activity of Travel Agencies 0.01 0
93 Post And Telecommunications 0.04 2
Missing 0.03 1.3
Total 100.00 5,151
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)
NIC 98 Industry Names Percentage Actual Value of
Distribution of Gross Output of
Gross Output SSI units (in Rs.
of SSI units 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
Electricity, Gas, Steam And Hot Water
40 Supply 0.18 34,496
NIC 98 Industry Names Percentage Actual Value of
Distribution of Gross Output of
Gross Output SSI units (in Rs.
of SSI units Lakh)
(%)
Collection, Purification And Distribution
41 Of Water 0.01 1,235
50 Construction 0.48 94,295
Sale, Maintenance & Repair Of Motor

Vehicles & Motorcycles; Retail Sale Of
52 Automotive Fuel 0.35 67,679
Wholesale Trade And Commission Trade,

Except Of Motor Vehicles And
63 Motorcycles 0.26 51,136
Retail Trade, Except Of Motor Vehicles

And Motorcycles; Repair Of Personal And
64 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
Supporting And Auxiliary Transport

92 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
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)
NIC 98 Industry Names Percentage Actual Value

Distribution of of Exports of
Exports of SSI SSI units (in
units (%) 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
NIC 98 Industry Names Percentage Actual Value
Distribution of of Exports of
Exports of SSI SSI units (in
units (%) Rs. Lakh)
Electricity, Gas, Steam And Hot Water

40 Supply 0.01 60
Collection, Purification And Distribution Of

41 Water 0
50 Construction 0
Sale, Maintenance & Repair Of Motor

Vehicles &Motorcycles; Retail Sale Of
52 Automotive Fuel 0
Wholesale &Commission Trade, Except Of

63 Motor Vehicles And Motorcycles 0.5 5,977
Retail Trade, Except Of Motor Vehicles &

Motorcycles; Repair Of Personal And
64 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
Supporting & Auxiliary Transport Activities;

92 Activities Of Travel Agencies 0.01 80
93 Post And Telecommunications 0

Missing 0.05 553.4
Total 100 1,190,352
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 Actual No. of SSI units (in
SSI units (%) 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
State Percentage Distribution of Actual No. of SSI units (in
SSI units (%) number)
Nagaland 0.06 550

A & N Islands 0.06 501
Arunachal Pradesh 0.03 230
Sikkim 0.02 139
Lakshadweep 0.01 54
Total 100 901,291
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)
State Percentage Distribution of Actual Employment of
Employment of SSI units (%) 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
State Percentage Distribution of Actual Employment of
Employment of SSI units (%) 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
Total 100 5,151
Table 2.9: Gross Output of Registered SSI units across states, All India (2001-02)
State Percentage Distribution of Actual Value of Gross
Gross Output of SSI units 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
State Percentage Distribution of Actual Value of Gross
Gross Output of SSI units 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
Total 100 19,509,316
Table2.10: Exports of Registered SSI units across states, All India (2001-02)
State Percentage Distribution of Actual Value of Exports of
Exports of SSI units (%) 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
State Percentage Distribution of Actual Value of Exports of
Exports of SSI units (%) 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
Total 100 1,190,352
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
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.
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.
*
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 Percentage Percentage Percentage Percentage Percentage Percentage

type Distribution Distribution Distribution Distribution Distribution Distribution
of Number of of Gross- of Exports of Fixed of Value of
of SSI units Employment Output Assets 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 Exports as % Output per Output per unit

per unit Output employee in Rs. value of Plant &
Lakh 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 % Units Not Total Number of
producing producing Available Regd. SSI
Unreserved Reserved units in
items items 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 % Units Not Total Number of
producing producing Available Regd. SSI
Unreserved Reserved units in
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 % Output Not Total Gross-Output
Unreserved Reserved Available of SSI units in
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 % Output Not Total Gross-Output
Unreserved Reserved Available of SSI units in
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
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
Furniture; Manufacturing
36 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
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 Cumulative
reserved items as % of
All units producing
reserved items
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- Sector Unreserved Reserved Gross- % Cumulative
98 Output Distribution
of SSI of reserved
units items
Rs.lakh
Food Products &
15 Beverages 88 10 4,134,346 19 19
Chemicals &
24 Products 78 18 1,952,586 16 35
28 Fabricated Metal 77 21 1,634,580 16 50

Furniture;
36 Manufacturing nec. 50 48 513,169 11 61
27 Basic Metals 88 9 1,871,969 8 69

Machinery &
29 Equip. N.E.C. 83 15 1,072,523 7 76
Non-Metallic Min.
26 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

Electrical Mach. &
31 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

Motor Vehicles &
34 Trailers 90 6 326,393 1 96
Other Transport
35 Equip. 89 9 214,040 1 97
33 Instruments 85 12 123,395 1 98
Radio, TV, Comm.
32 & 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)
Product During 1999-2002 Total
Growing Falling output Output
output fluctuating or
stagnant
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 – Falling Output to Capital ratio after de-
de-reservation reservation
Ice Cream Biscuits
Daal Milling Rice Milling
Poultry Feed Synthetic Syrup
Katttai Ice Cream
Bunwar leather
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
Products Number of
Firms with LOI
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
Products Number of
Firms with LOI
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
Products Number of
Firms with LOI
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
100000
Import in Rs. Lakh 10000
1000
100 1991-92
1993-94
1995-96
1997-98
1999-00
2001-02
2003-04
Year of import
De-Res.1997
Fig 2:Impact of De-reservation on import from world

by India for products de-reserved during 1999
100000
Imprt in Rs. Lakh
10000
1000
100
1991-92
1993-94
1995-96
1997-98
1999-00
2001-02
2003-04
Year of import
De-Res.1999
Fig 3:Impact of De-reservation on import from world by
India for products de-reserved during 2001
100000
Import in Rs. Lakh
10000
1000
100
1991-92
1993-94
1995-96
1997-98
1999-00
2001-02
2003-04
Year of import
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
100000000
Value of import in Rs. lakh

10000000
1000000
100000
10000
1000
1990-91
1992-93
1994-95
1996-97
1998-99
2000-01
2002-03
2004-05
Year of import
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
100000
Export in $ '000 10000
1000
100
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
Year of export
De-Res.1997

100000
Export in $ '000
10000
1000
100
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
Year of export
De-Res.1999
100000
Export in $ '000 10000
1000
100
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
Year of export
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
100000000
Value of export in $ '000
10000000
1000000
100000
10000
1000
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
Year of import
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
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.
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
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- Sub-stage Criteria for item being de- Number of AICC
Reservation reserved 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
Share of output > 1% of
3 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. ASICC Description Stage of Sl. ASICC Description Stage of
No. (Reserved De- No. (Reserved De-
in 2005, resrvation in 2005, resrvation
March) March)
Azoic Coupling
Soda Lime Silica Pressed Component-5 (Naphthol
1 94169 Glass Tumbler 1A 72 35521 As-G) 1A
Brilliant Blue H-7G Spark Plug Tester &
2 35555 Reactive Blue - 3 1A 73 82532 Cleaners 1A
Adjustable Beds -
3 32169 Dimethyl Phthalate 1A 74 79509 Hospital 1A
Vitrite Glass (Except For Dust Covers- Auto
4 94178 Captive Use) 1A 75 82548 Rubber Components 1A
Azoic Coupling
Components-2 (Naphthol
5 35511 As) 1A 76 55133 Transfer Labels 1A
6 35404 Basic Violet -11 1A 77 82522 Battery Terminal Lifters 1A

Fork Blade Crown Tyre Inflators-Both Hand
7 82433 Covers -Cycle 1A 78 82543 And Foot Operated 1A
Azoic Coupling
Component-10 (Naphthol Revolution Counters-
8 35512 Ase) 1A 79 75050 Mechanical 1A
Soda Lime Silica Pressed Yellow R Reactive
9 94149 Glass Vases 1A 80 35553 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

Navy Blue 3Rh Reactive
12 35575 Blue -26 1A 83 91810 Nail Pullers 1A
13 31239 Cadmium Oxide 1A 84 32451 Stearate Of Magnesium 1A

Hand And Animal Drawn
Soda Lime Silica Pressed Carriage Fittings,Tonga
14 94139 Glass Bowls 1A 85 84504 Parts And Wheel Rings 1A
Crown Outer Cover-
15 82430 Cycle 1A 86 55418 Decorative Papers 1A
Building Models (
16 82454 Perambulators 1A 87 42948 Prototype), Plastic 1A
Chopping Knives &
Lancets For Match
17 76945 Industry 1A 88 42644 Desk Calender, Plastic 1A
Plaster Boards (Excepting
For Using Automatic
18 31519 Barium Sulphide 1A 89 21306 Process) 1A
March) March)
19 35426 Direct Red -13 1A 90 82527 Gear Flushers 1A

Water Soluble Wood
Preservative Based On
Copper, Chrome,
Arsenic, Boric
20 31923 Compounds 1A 91 82435 Frame Collars -Cycle 1A
Bench Grinder Upto 300 Aluminium Hydroxide
21 75239 Mm Diameter 1A 92 31244 Gel 1A
22 82529 Ring Expanders 1A 93 35489 Acid Red-85 1A
Liquid Level Controller

(Excepting Electronic
23 71423 Forks -Cutlery 1A 94 77558 Type) 1A
Blue Brr Reactive Blue -
24 35562 56 1A 95 31615 Copper Nitrate 1A
Brilliant Orange Rx
25 35570 Reactive Orange -37 1A 96 42645 Pen Stand, Plastic 1A
Acid Yellow-23 (Food
26 35484 Yellow 4) 1A 97 82417 B B Cups 1A
27 42946 Corridor Lights, Plastic 1A 98 71366 Tin Cutters 1A

Chains-Wheels &
Adjusters-Bicycles
Except Chain Wheels
Benzyl Chloride Pt For And Adjusters For Light
28 32098 Captive Consumption 1A 99 82424 Weight Bicycles 1A
29 42660 Coffee Pot Covers 1A 100 84502 Cart, Hand Driven 1A

Spokes And Nipples-
Auto Cycle Other Than
30 82545 Swaged Type 1A 101 35421 Direct Yellow -8 1A
Windscreen Beedings-
31 76620 Hand Lamps 1A 102 82550 Auto Rubber Components 1A
Electric Kettles- Sauce
Golden Yellow Hr Pan/Ring Types Upto 1.7
32 35566 Reactive Orange -11 1A 103 77728 Litres 1A
33 35401 Basic Yellow -2 1A 104 35492 Acid Blue-113 1A

Direct Red (Congo Red) -
34 35425 28 1A 105 12745 Sealing Wax 1A
35 42643 Office Table Tray, Plastic 1A 106 32370 Nickle Formate 1A

Filter Funnels For
36 94348 Pippet Rests 1A 107 94346 Vacuum Presses 1A
March) March)
Brilliant Blue H-5G

37 55214 Teleprinter Rolls 1A 108 35559 Reactive Blue - 25 1A
38 42654 Hair Brushes 1A 109 32564 Xanthates 1A

Nickel Sulphate - Other
Than Manufactured By
Primary Producer As
39 31539 Byproduct 1A 110 91813 Wire Cutters 1A
Flash Light Torch Cases -
40 42145 Plastic 1A 111 71363 Dust Bins 1A
41 35487 Acid Brown-14 1A 112 42650 Key Chains 1A

Hand Numbering Door Channels- Auto
42 95228 Machines 1A 113 82551 Rubber Components 1A
Phthalocyanine
Blue(Except For Captive
Scarlet H-Cr Reactive Consumption For Phthele
43 35534 Red -8 1A 114 35522 Cyanine Green) 1A
44 82443 Lamp Brackets -Bicycle 1A 115 82432 Eye Bolts Cups -Cycle 1A
Azoic Coupling
Component-4 (Naphthol
45 82514 Sun Shades-Auto 1A 116 35519 As-Bo) 1A
Soda Lime Silica Pressed
46 94170 Glass Plates 1A 117 35488 Acid Black-1 1A
47 82506 Horn Button 1A 118 77440 Street Light Fittings 1A
Balls & Cubes Made Of

48 35481 Acid Yellow-11 1A 119 32179 Para Dichlorobenzene 1A
Azoic Coupling
Component- 20 Potassium Meta Bi-
49 35516 (Naphthol As-Ol) 1A 120 31357 Sulphate 1A
Methyl Parabens And
Sodium Salt Starting
From Para Hydroxy Household Knitting
50 32339 Benzoic Acid 1A 121 76621 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

Grain Dryers- Upto 5Hp
55 32269 Glycero Phosphoric Acid 1A 126 76132 Motive Power 1A
March) March)
Meat& Food Safes

56 42945 Street Lights, Plastic 1A 127 71386 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

Fenders, Spoons And Lock Nuts & Rings -
61 82524 Hammers 1A 132 82440 Bicycle 1A
62 31346 Sodium Thio Sulphate 1A 133 31319 Sodium Iodide 1A

Precipitated Silica Except Metal Fittings For
Fumed Silica And Spray Leather Goods &
63 31263 Dried Silica 1A 134 71530 Garments 1A
64 71425 Bread Cutters 1A 135 42528 Sheets, Polyester 1A

Direct Dye [Brilliant Advertising Novelties ,
65 35427 Congo C(A)] 1A 136 95404 Plastic 1A
Nickel Carbonate- Other
66 31261 Than Lab 1A 137 31240 Copper Carbonate 1A
67 91806 Anvils 1A 138 35477 Acid Red-88 1A

Tricycles- Parts And
68 82453 Accessories 1A 139 96101 Cigaratte Lighter 1A
Para Amino Phenol-Indl.
69 32399 Grade 1A 140 82438 Hub Oil Clips -Bicycle 1A
Wooden Boats Body Bins Of Various Sizes,
70 85229 Building 1A 141 42140 Plastic 1A
Cotton Delinting
Machine- Upto 5Hp
71 76134 Motive Power 1A
Source: Estimates from SSI third census, 2001-02
Table A4.2: Stage 1 (B) of future De-Reservation Sequence
March) March)
142 42142 Salad Baskets 1B 209 32449 Stearate Of Zinc 1B
143 42947 Passage Lights, Plastic 1B 210 84505 Wheel Barrows 1B

Cranks Except Cold
Forged Cranks Including
Single Piece Cranks-
144 95220 Paper Pins 1B 211 82429 Cycle 1B
145 42657 Salt Containers 1B 212 42649 Badges/Folders 1B

Dust Pans And Bins,
146 82519 Electrical Fuses -Auto 1B 213 42143 Plastic 1B
Calcium Gluconate (I P Micro Cover Glasses &
147 33649 & Injectable) 1B 214 94181 Slides For Microscopes 1B
148 79510 Steel Tables -Hospitals 1B 215 71369 Belt Fastners 1B

Alums,Incld. Aluminium
Sulphate- Ind. Gr. Excld.
Its Mfr. In Integrated
Sulphuric Acid Plants
And Also Recovery From
149 94110 Block Glass 1B 216 31915 Wasre Toxic Effluent 1B
150 77802 Armature Testers 1B 217 35234 Paints, Aluminium 1B
151 76229 Bottle Washing Machine 1B 218 13405 Pastry 1B

Coffee Pots (Injection
Brilliant Red M-5B Moulding Thermo
152 35531 Reactive Red -2 1B 219 42659 Plastic) 1B
153 82422 Bells -Bicycles 1B 220 82442 Mudguards -Bicycle 1B

Stranded Wire
(Excluding High Tensil
Prestressed Concrete
154 71365 Wires) 1B 221 91801 Hacksaw Frames 1B
Gummed Paper Other
155 31546 Nickle Chloride 1B 222 55330 Than For Stamps 1B
Storage Water Heaters
Geyser Upto 100 Litres
156 35227 Paints, Wagon Black 1B 223 77711 Capacity Upto 3 Kw 1B
Stud Removers-
157 82441 Lugs All Types -Bicycle 1B 224 82533 Extractors 1B
158 91818 Pickers-Metallic 1B 225 95213 Pencils 1B

March) March)
159 42655 Hinged Hair Pins 1B 226 55404 Paper Napkins 1B

Side Lamps Assembly-
Auto- Excluding
Combination Lamp
160 94328 Basins, Flat Tipped 1B 227 82515 Assembly 1B
Gummed Paper For
161 55329 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
Other Brushes (Tooth
Brushes Are Classified In
164 82537 Flanging Tools 1B 231 92309 365) 1B
Painting Equipments Like

165 42662 Passport Covers 1B 232 82541 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

Flexible Metallic Pipe
Upto 35 Mm Dia - For
Non-Pressure
168 74080 Locks, Tumbler 1B 235 71378 Applications 1B
Wiper Blade
Components - Auto Condensers & Resistance
169 82549 Rubber Components 1B 236 82523 Testers 1B
170 82526 Flaring Tools 1B 237 39035 Office Gum Paste 1B

Textile Welding For
171 82427 Cotter Pins -Cycle 1B 238 42653 Garments 1B
Bone Meal (Except
Captive Consumption
172 11914 For 100% Export) 1B 239 95405 Advertising Materials 1B
Propyle Parabens And
Sodium Salt And
From Para Hydroxy Waste Paper Baskets,
173 32439 Benzoic Acid 1B 240 42144 Plastic 1B
174 82423 Carriers -Bicycles 1B 241 76325 Lanterns, Hurricane 1B

Husked & Dehusked
Guar Gum Splits & Inside Assembly Of Brief
175 12821 Meals 1B 242 42665 Cases 1B
March) March)
176 82425 Lamps -Bicycle 1B 243 82517 Battery Cell Testers 1B

Perambulators Parts And Stainless Steel Refiner/
177 82455 Accessories 1B 244 71427 Bar Knives 1B
Trolleys-Railway Clutch Pedals- Auto
178 71375 Platform Drinking Water 1B 245 82547 Rubber Components 1B
179 82503 Grease Nipples 1B 246 32170 Dichlorophenol 1B
180 74078 Safe/Cabinet Locks 1B 247 82531 Screw Extractors 1B

Wooen Storage Shelves
181 51213 & 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

Hot Air Blowers/Heat
Convector Upto 2 Kw
Upto Fan Size 26 Cm X
184 92307 Fibre Brushes 1B 251 77732 20 Cm X 6Cm 1B
185 82420 Handles-Bicycle 1B 252 31606 Barium Nitrate 1B

Wooden Storage
186 35405 Basic Violet -1 1B 253 51212 Cupboards 1B
Stoneware Jars Bowls
187 35236 Paints, Red Oxide 1B 254 94351 Kundi 1B
Calcium Chloride Indl.
Grade Except As Hand Presses(Manually
188 31522 Byproduct 1B 255 75242 Operated) 1B
189 92306 Hair Brushes 1B 256 75199 Steadies 1B
190 94312 Salt Glazed Sewer Pipes 1B 257 82456 Chain Covers 1B
Typewriter Ribbons For
Mechanical Type
191 95227 Typewriters 1B 258 93111 Ball, Hockey 1B
Wooden Sewing Hydraulic Jacks Upto 30
192 51287 Machine Covers 1B 259 76809 Tonnes Capacity 1B
193 76619 Signal Lamps 1B 260 71370 Snap Fastenrs 1B
194 42138 Saucers, Plastic 1B 261 94330 Jar & Other Containers 1B
March) March)
Power Hacksaw-
Mechanical -300 Mm Mechanical Jacks Upto
195 75240 Blade Size 1B 262 75133 30 Tonnes 1B
Cable Drums For Aa &
196 74035 Acsr Conductors 1B 263 42617 Soap Cases, Plastic 1B
Industrialpackings For
Calculators,Microphones
Etc.(Thermo Welded
197 32159 Dibutyl Phthalate 1B 264 42664 Plastic Products ) 1B
Silicon Carbide Crucibles
198 94324 Tea Sets 1B 265 29129 - Upto 150 Nos. 1B
Spokes And Nipples-
199 31512 Barium Chloride 1B 266 82448 Cycle 1B
Cufflinks, Tie Pins,
Metallic Dress Buttons
200 74066 & Buckles 1B 267 42220 Toilet Lids 1B
Dumb-Bellsand Chest Shackel Pins-Automobile
201 93150 Expanders 1B 268 82507 Use 1B
Table Knives/ Calcium Nitrate Except
202 71424 Household Knives 1B 269 31602 As Byproduct 1B
Flexible Polyurethane
203 82439 Hub Axle Nuts -Bicycle 1B 270 42943 Foam Product 1B
204 35235 Paints, Red Lead 1B 271 82452 Tricycles 1B

Sodium Sulphide Except
205 94142 Glass Marbles 1B 272 31344 As By-Product. 1B
Toilet Paper Rolls And Decorative And Industrial
206 55415 Sheets 1B 273 42907 Fixture , Plastic 1B
207 32559 Sodium Saccharine 1B 274 71385 Wire Brushes 1B

Machine Models (
208 42949 Prototype), Plastic 1B
Table A4.3: Stage 1 (C) of future De-Reservation Sequence
March) March)
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

Polypropylene Box
278 42648 File Covers 1C 325 42419 Strapping 1C
279 42959 Diaries 1C 326 71334 Hob Nails 1C

Identity Cards And
280 42513 Visiting Cards 1C 327 74079 Locks -Bicycles 1C
Slitting Of Ordinary
Paper Into Rolls And
281 71558 Watch Straps - Metallic 1C 328 55216 Sheets 1C
Graphite Crucibles - Storage Cupboards- Iron
282 29127 Upto 500 Nos. 1C 329 71520 & Steel 1C
283 82445 Saddles -Cycle 1C 330 79573 Doctor Blades 1C
284 82419 Bicycle Tube Valves 1C 331 31545 Magnesium Sulphate 1C

Knives And Shearing
Blades (All Types
Including Those Of
Sulphur Powder Other Metal, Paper, Bamboo
Than Insoluble For And Wood For Mannual
285 21114 Rubber Valcanisation 1C 332 91809 Operations) 1C
Sterlisers Stainless Steel
286 71309 M S & C I Flanges 1C 333 79533 & Aluminium 1C
Cycle Frames-Except
For Captive
287 82415 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

Flooring Tiles -Marble
(Excluding Tiles Of
Trolleys -Iron And Thickness Less Than 10
290 79519 Steel- Hospital 1C 337 29132 Mm) 1C
Racks -All Types
Plastic Shredding & Including Angular
291 76724 Granulating Knives 1C 338 71338 Racks - Iron And Steel 1C
March) March)
Bread Toasters
Ordinary/Auto/Semi-
292 77707 Auto Upto Cap. 6 Slices 1C 339 57304 Paper Cups 1C
293 55515 File Board 1C 340 35321 Distemper, Dry 1C

Fan, Exhaust -Upto 460
294 77822 Mm 1C 341 95229 Pen Holders 1C
Electrical Fuse Boxes -
295 94339 Insulators, Low Tension 1C 342 82518 Auto 1C
296 31554 Zinc Chloride 1C

Hubs And Cups -Bicycle
Alongwith Components
Except Single Piece
Hub-Shell And Flange
For Light Weight
297 82449 Bicycle 1C
Concrete Mixer Upto 3
298 76408 Cubic Metre Capacity 1C
299 31368 Potassium Silicate 1C

Table Calender Stands,
300 42642 Plastic 1C
301 32450 Stearate Of Aluminium 1C
302 76618 Pressure Stove 1C

Metal Cabinets All
303 71347 Types 1C
304 82504 Gun Metal Bushes 1C
305 95219 Hand Stapling Machines 1C
306 32369 Nephthalene Balls 1C

Thermometers Upto 150
307 91319 Degree Celsius 1C
Drums Upto 60 Litre
308 71339 Capacity 1C
Electroplating Salts-
309 31909 Compounded 1C
310 82444 Pedal Assembly -Cycle 1C

Bandsaw Blades- For
311 76137 Cutting Wooden Logs 1C
March) March)
312 71206 Beam Scales 1C
313 32489 Tartrates 1C
314 71376 Wire Adjusting Screws 1C

Brushes - Natural
315 92308 Bristles 1C
316 82512 Radiators Grill Auto 1C
317 71320 G I Buckets 1C

12 Mm Drilling
Machines Upto 1500
Rpm Bench & Pedestral
318 75020 Type 1C
319 82542 Grease Guns 1C

Electric Bells And
320 77744 Buzzers 1C
321 31372 Potassium Iodide 1C

Table A4.4: Stage 2 of Future De-Reservation Sequence
March) March)
343 42930 Plastic Rain Coats 2 433 55516 File Cover 2

Electo Formed Screens/
Liners Used In Chemical
344 76725 & Sugar Industries 2 434 42942 Buttons, Plastic 2
Film, Polythylene - With
Thickness Less Than
0.10 Mm Except Co-
Extruded Film Cross Air Condtioning Ducting
Linked Polymer Films Louvers,Grills & Other
And High Density Sheet Fabrication In Air-
345 42408 Molecular Films 2 435 79416 Conditioning 2
Babies Bath Tubs, Battery Cables And
346 42141 Plastic 2 436 82516 Fittings 2
Plough Shears /Iron
347 51153 Seasoned Wood 2 437 76142 Ploughs 2
Switches, Metal Clad Roofing Tiles Cement
348 77319 Upto 100 Amps 2 438 94419 Concrete 2
Electric Light Fittings
349 71426 Other Cutlery Items 2 439 77430 Starters 2
350 93112 Sticks, Hockey 2 440 76125 Wood Working Saws 2

Pressure Die Inks (Writing Inks &
351 73819 Casting.Over 0.75 Kg 2 441 35217 Fountain Pen Inks) 2
Spoons, Cutlery Indl. Adhesives Based
(Spoons, Plastic Are On Starch,Gum,Dextrin
352 71422 Classified In 426) 2 442 39009 & Silicates 2
353 42651 Albums 2 443 79520 Stretchers -Iron & Steel 2

Zip Fastners -Metallic
Except In The Case Of
Integrated Plants
Manufacturing All
354 74261 Components 2 444 29120 Flooring Tiles Clay 2
Protective Equipments,
For Sports Like Pads,
Gloves, Etc.- Soft Sanitary Fittings, Non-
355 93149 Leather Goods 2 445 74271 Ferrous-Others 2
Harvester Grader, Blade
& Other Earth Moving
Blades In Agriculture Barreles Upto 60 Litre
356 76135 Machines 2 446 71360 Capacity 2
Room Cooler-Desert
357 71354 Metallic Washers 2 447 77107 Type 2
Cones-Hub Cones -
358 32135 Camphor Tablets 2 448 82426 Bicycle 2
March) March)
Paper Bags Incl. Craft

359 75049 Coolant Pumps Etc. 2 449 57114 Paper Bags 2
Chalk Crayyons
360 21926 Including Tailor Chalk 2 450 57108 Envelops For Packaging 2
Mixer/Grinders Such As
Meat Mincer, Juice
Extractor Cap. Of Jar
Upto 1 Lit.Max./Upto
500 Watts 30 Minutes
361 51102 Wooden Crates 2 451 77717 Rating 2
Wick Stoves Other Than
Those Manufactured In
Accordance With Design
Numbers
145215,145216,145299
(Nutan Type Stoves)
Registered In The Name Centrifugal Pump<= 10
362 76615 Of Ioc 2 452 77237 Cm2 Size 2
B B Axles Except
Through Cold Forging
363 82416 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

H D Polythylene Mono
Filament(Exception For
Captive Use For Rope
366 84501 Cart, Animal Driven 2 456 64117 Manufacturers) 2
Glass Halloware By
Mouth Blown And/Or
367 42605 Combs, Plastic 2 457 94119 Semi-Automatic Process 2
Carbon Brushes
Manufactured From
368 77946 Carbon Block 2 458 42137 Cups, Plastic 2
Stickers, Labels Of
Gummed Paper Etc.
(Plastic Stickers Are
369 31241 Calcium Silicate 2 459 55328 Classified In 429) 2
Expresso Coffee Makers
370 77736 Upto 1.7 Litres Capacity 2 460 35223 Paints (Paste) 2
Polypropylene
Monofilament (Except
For Captive Use For
371 91134 Photographic Enlarger 2 461 64116 Rope Manufacturers) 2
March) March)
Electric Iron Other Than Umbrella Parts (Please

372 77706 Steam Irons 2 462 93202 See 429 Also) 2
Plaster Of Paris (Except
For Use As Construction
373 21305 Material) 2 463 71516 Chair, Steel 2
Polyster Resins
374 94329 Cups & Saucers 2 464 42666 Unsaturated 2
Electric Light Fittings
375 93128 Shuttle Cock 2 465 77419 Chokes 2
Screw Presses
376 56148 Envelopes, Postal 2 466 75241 (Manually Operated) 2
377 35229 Paints, Graphite 2 467 91803 Hammers 2

Football, Volley Ball Bolts,Studs & Screws -
378 93151 And Basket Ball Covers 2 468 82421 All Types-Bicycle 2
Copper Sulphate Other
Than Manufactured By Weighing Machines/
Primary Producer As By Weight Bridges-
379 31528 Product 2 469 75231 Ordinary 2
Asbestos Pipes &
Fittings - For Household
Welded Wire Mesh- Purposes Only
Except For Expansion According To Isi
380 71560 Of Existing Units 2 470 94407 Specifications 2
Fountain Pens And Ball
Pens Components
381 93101 Balls, Cricket 2 471 95209 Excluding Metallic Tips 2
Scientific Lab. Glass
Ware (Excluding Boro- Iron & Steel Cots - All
382 94120 Silicate Type) 2 472 71519 Types 2
Hessian, Paper And
Cloth To Polythylene
Laminations - Straight &
Sandwitched By
Extrusion Coating
Process Except Paper To
Polythyline Laminations
383 42958 For Integrated Packing 2 473 93201 Umbrella 2
384 75030 Water Meters 2 474 71324 Nails, Wire 2

Glass Mirrors Ecluding
Those Manufactured By
Using Auto Matic Spray
Or Vaccum Coating
385 94180 Process 2 475 82513 Seat Cushions 2
Polythylene & Pvc
Shell Huskers- Upto 5Hp Flexible Hoses Except
386 76133 Motive Power 2 476 42205 Wire Braided Hoses 2
March) March)
387 42206 Handles, Plastic 2 477 56143 Registers 2

Diesel Engines Upto 15
Hp-Slow Speed Except
Those With Specific Other Hand Tools For
Fuel Consumption Less Blacksmithy, Carpentry,
Than 180 Gms Per Bhp/ Hand Forging, Foundry
388 75054 Per Hour 2 478 91814 Etc. 2
Locks, Drawer And

389 31513 Barium Sulphate 2 479 74049 Suitcase 2
Fittings For Pvc Pipe
Including Conduits Upto
390 92304 Brush, Painting 2 480 42950 110 Mm Dia 2
M S Storage Tanks Upto Wire Guage And Wire
15000 Litres Capacity Netting Metallic-Coarser
(Simple Type With Than 100 Mesh Size
Rivets/ Welds But And Upto 2 Meter
391 71340 Excluding Pressed Ribs.) 2 481 71561 Width 2
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
392 32165 Diethyl Phthalate(Dep ) 2 482 82451 Piece Cold F 2
Chlorinated Paraffin
Wax (Upto 60%
393 71357 Signal Ladders 2 483 23210 Chlorine Content) 2
394 71379 Panel Pins 2 484 42427 Cane, Plastic 2

Alkyd Resins (Except
Brake Pedals- Auto For Captive
395 82546 Rubber Components 2 485 39019 Consumption) 2
396 71380 Wood Screws 2 486 76235 Rice Mill Machinery 2

Electrical Wiring
Microscope-Student & Accessories Other Than
397 79522 Medical Use 2 487 77480 Switches, Plugs, Sockets 2
398 91802 Pliers 2 488 91804 Screw Drivers 2

March) March)
Pvc Wires-Domestic
399 42623 Tumblers, Plastic 2 489 77481 Type 2
Amplifiers For
Entertainment And
400 42656 Plates & Dishes 2 490 78202 Public Address System 2
Potassium Nitrate
Produced From Salt
401 31618 Petre 2 491 95205 Pens, Fountain 2
402 95226 Carbon Paper 2 492 29121 Roofing Tiles Clay 2

Products Of Polythylene
Films As Coloured
403 42934 Umbrella Frames 2 493 42409 Printed Films And Bags 2
Lime Used For
Seats For Buses And Construction And Lime
404 82544 Trucks 2 494 21129 Wash (Hydrated) 2
Fire Clay Bricks &
Blocks Containing Less
405 12114 Cashew Shell Oil 2 495 29105 Than 40% Alumina 2
406 91807 Wrenches 2 496 94127 Bangles, Glass 2

Lens, Opthalmic From
407 91103 Blanks (Glass) 2 497 91805 Spanners 2
Sanitary Fixtures, M S Pipe Fittings Upto
408 71362 Metallic 2 498 71329 100 Mm Dia. 2
409 76519 Cotton Ginning Knives 2 499 82521 Fuel Tank Caps -Auto 2
Ethyl Parabens And
From Para Hydroxy
410 32239 Benzoic Acid 2 500 31232 Barium Carbonate 2
411 71358 Domestic Utensils- Iron 2 501 42109 Bags, Shopping 2

Polypropylene Tubuler
Flooring Tiles Cement Films (Except Biaxially
412 94420 Concrete 2 502 42410 Oriented) 2
Knives & Shredding
Blades (All Types
Including Thosse For
Metal, Paper, Bamboo
And Wood For Hand
413 32379 Niacinamide 2 503 91808 Operated Machines) 2
Gas Appliances Such As
Cooking Range,Oven
414 76614 Etc. 2 504 71348 Steel Trunks 2
Hose Pipes And Radiator Cocks Valves-Water
415 41467 Hoses-Auto 2 505 74059 Pipe Fittings 2
March) March)
Rubber Beedings- Auto

416 82552 Rubber Components 2 506 74081 Locks, (Pad Locks) 2
Zinc Sulphate- Other
Than Manufactured By
Primary Metal Producer
417 73241 Furniture, Aluminium 2 507 31555 As A By-Product 2
Fibre Glass Reinforced
418 42957 Plastic Products - Others 2 508 35338 Oil, Turpentine 2
Artists Colours-Oil,
419 35219 Water And Wax Based 2 509 36506 Tooth Powder 2
Industrial Items From
Engg Plastics Material
By Fabrication Process Corrugated Fibre Board
420 42906 Only 2 510 57120 Containers 2
Sewing Machines
Domestic, Hand
Glass Beads Except Operated Conventional
421 94179 Industrial Beads 2 511 76536 Type 2
Truck Body Building- Sesame Oil (Except
422 82216 Wooden Structure 2 512 12506 Solvent Extracted) 2
Turning, Boring &
Treading Addas-Small-
Single Or Multiple
423 74060 Locks, Door 2 513 75019 Operation Devices 2
Spectacle Frames By
Fabrication Or By Voltage Stabilizers-
424 91112 Injection Moulding 2 514 77545 Domestic Type 2
Steel Tables -All Other Nuts & Bolts - Except
Types (Hospital Tables High Tensile & Special
425 71575 Are Classified In 795) 2 515 71323 Types 2
Tin Containers
Unprinted - Other Than
Rubber Mats- Auto Ots And Cans Upto 18
426 82553 Rubber Components 2 516 73404 Litres Capacity 2
Other Natural Essence
427 36153 Oils 2 517 71349 Builders Hardware 2
428 36502 Tooth Brushes 2 518 71204 Bars, Bright 2

Reinforced Cement
Concrete Pipes Upto 100
429 94437 Cm Dia 2 519 72243 Utensils, Brass 2
Electric Motor 1Hp To
Paperboard Cartons 10 Hp- Ac Except
430 57119 (Unlaminated) 2 520 77238 Special Types 2
431 42129 Water Jugs 2 521 56116 Exercise Books 2

Full Pvc Chappals,
432 42301 Sandal And Shoes 2 522 71416 Utensils , Stinless Steel 2
Table A4.5: Stage 3 of future De-Reservation Sequence
March) March)
523 71371 Gun Cases 3 546 31349 Sodium Thiocynate 3

Lime Used For
Construction And Lime
524 21130 Wash (Non-Hydrated) 3 547 37301 Fireworks 3
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
525 71592 Lockers Etc. 3 548 73243 Pilfer Proof Caps 3
Air Compressors Upto 5
Hp For Spray Painting Matches, Safety (Match
526 77102 Repair Shops 3 549 37304 Box) 3
Formulated Perfumery
527 36239 Compounds 3 550 36227 Agarbatties 3
528 71381 Machine Screws 3 551 73237 Utensils, Aluminium 3

Ground And Processed
Spices (Other Than
Spices Oil & Oleo Resin
529 12275 Spices) 3 552 95201 Ball Point Pen 3
Flooring Tiles- Cement
530 94436 Mosaic 3 553 42667 Pvc Compounds 3
Pvc Pipes Inclusive
Conduits - Upto 110
531 71355 Barbed Wire 3 554 42201 Mm Dia 3
532 13534 Pickles 3 555 13404 Bread 3

Wheat & Rice
Round & Rectangular Threshers-Upto 5 Hp
533 94343 Type Dishes 3 556 76124 Motive Power 3
534 32168 Diocytyl Phthalate(Dop) 3 557 51107 Sawn Timber 3

Soap, Washing
535 36405 Wax, Candles 3 558 36314 (Laundry) 3
March) March)
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
536 71372 Penetration Resistance) 3 559 71545 Steel Furniture (Other ) 3
Rapeseed Oil (Except Ground Nut Oil (Except
537 12518 Solvent Extracted) 3 560 12507 Solvent Extracted) 3
Furniture & Fixtyre,
538 31274 Zinc Oxide Indl. Grade 3 561 51229 Wooden, N.E.C 3
Mustard Oil (Except
539 71373 Rolling Shutters 3 562 12515 Solvent Extracted) 3
Flooring Tiles -Granite
(Excluding Tiles Of
Thickness Less Than 10
540 29133 Mm) 3
541 31337 Sodium Silicate 3
542 71501 Almirah, Steel 3

Zip Fastners - Non-
Metallic (Except In The
Case Of Integrated
Plants Manufacturing
543 42646 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, Social Security
1952
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 Wage/month (Rs.)
greater than equal to:
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 Number of Time required only for
copies signatures 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 Number of Time required only for
copies signatures 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 1 1 30 minutes
negotiation
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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SMALL SECTOR IN INDIA:

STATUS, GROWTH AND DE-RESERVATION

Study Conducted by:

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

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

The broad insights that emerge from the analysis are:

Taken together the above evidence suggests that:

Stage of De- Sub- Criteria for item Number of

August 2006, New Delhi

Executive Summary I-V

Chapter 1: Scope, Data and Methodology and Outline

1.1 Introduction 1.2

Chapter 2: The Small Scale Sector: Growth and Performance

2.1 Introduction 2.2

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

3.1 Introduction 3.1

Chapter 4: The Way Forward

4.1 Introduction 4.1

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

• How important is the unorganized component across different industry segments

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

• Have de-reservations been beneficial for:

o The small sector

1.3.1 Sources Of Data

1.3.2 Impact Of De-reservation

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

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

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

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

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

10. 2.2 The SSI sector

2.2.1 Trends in the SSI Sector

2.2.2 SSI Sector in Indian Manufacturing: Indicators from Third

Number of SSI units (in '000) 901 870

Value of Plant & Machinery

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

Output per unit value of Plant &

15 Food Products & Beverages 18.21 164,107

26 Non-Metallic Min. Products 6.94 62,561

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

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

Collection, Purification And

Sale , Maintenance And

Wholesale Trade And

Retail Trade, Except Of Motor

71 Hotels And Restaurants 0.02 177

Supporting And Auxilliary

15 Food Products & Beverages 21.19 4,134,346

26 Non-Metallic Min. Products 4.17 814,203

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