REPORT OF

CONTEMPORARY ISSUE IN MANAGEMENT

“TOPIC OF SEMINAR”
“ANAYSIS OF PERFORMANCE OF SSI IN ERA OF
GLOBLISAATION”

Submitted to
MR. B.L. KHODPIA SIR

MAHARAJA COLLEGE OF MANAGEMENT, UDAIPUR

(RAJ.)
(Rajasthan Technical University, Kota)

(Session 2007-2010)

Submitted By:
Name of the student
AASHISH ARYA
 MBA, Semester II

MCM, UDAIPUR

I AM AASHISH ARYA STUDENT OF MBA IIND SEM.

OF MAHARAJA COLLEGE OF MANAGEMENT

I DECLARE THAT THE INFORMATION

FUNNISHED ABOVE IS TRUE TO THE

BEST OF MY KNOWLEDGE.

AASHISH ARYA

[2]
First of all thanks to Director of Maharaja college of
management DR. Harvinder Soni mam. & I express my sincere
thanks to my project guide, Mr. B.L. KHODPIA SIR. (Facility
member of Maharaja College of management Udaipur) for
guiding me right from the inceptions till the successful
completion of the project. I sincerely acknowledge him for
extending their valuable guidance, support for literature,
critical reviews of project and the report and above all the
moral support he had provided to me with all stages of this
project.

I would also like to thank the supporting staff of Maharaja

College for their help and cooperation throughout our project.

AASHISH ARYA

(Signature of Student)

[3]
 Title Page no.
[1.] Introduction of topic: - 5-25
(I) Objective: - 7

(II) SSI’s in India: - 8-16

(III) The SSI sector: - 16-19
(IV) Distribution of SSIs by Industry Division: - 19-25

[2.] Research Methodology :- 26-34

(I) Introduction:- 27-27
(II) Material & Methods:- 27-28
(III)Results & Discussion:- 28-34

[3.] Conclusion :- 35-36

[4.] Appendix :- 37-44
[5.] Bibliography :- 45-45

[4]
Introduction:-
Small Scale Industries (SSI’s) have a significant role to play in the
socioeconomic of developing countries like India. This sector continued to
receive a special thrust from the Government of India due to its contribution
[5]
towards achieving the multiple objectives of employment generation, regional
dispersal of industry and developing as a seedbed for entrepreneurship. India’s
small scales Enterprise (SSEs) contribute about 39% of the gross industrial
value-added and about 35% of the exports. In India, the SSE sector is the
second largest employer of human resources after agriculture.
After independence, the Indian government recognized the importance of
developing the village and the small sector and incorporated the same in its
Industrial Policy Resolution of 1948. Because of the importance of SSIs in
Indian economy, one of the measures of the policy support for promoting SSIs,
is the policy of reservation of economically viable and technically feasible
items for exclusive manufactures by the SSI sector . SSI units were granted
protection by preventing fresh capacities being created in the large scale sector.
Within the small scale units, those units, which export more than 50% of their
output, are classified as Export Oriented Units. Industry related service or
business enterprises with investment in fixed assets, excluding land and
building, up to Rs. 10Lakh are registered under Small Scale Service and
Business Enterprises (SSSBEs).
Globalization is defined as policies that decease the restrictions on trade, to
encourage the free movement of goods and services across borders. This is
exactly opposite to the policy of imports substitution. If markets work as they
are expected and supply elasticities are sufficiently strong, these measures lead
to increase in imports and exports. This is implemented by bringing more
goods from the restrictive list under the Open General Licensing (OGL). The
market is allowed to play a free role rather than the governmental regulations
in determining the pattern and nature of imports.

India initiated globalization in 1991 with the objective of faster economic

growth, as the liberalization process is in vogue from the last 16 years in India;
it is high time to examine the impact of reforms on Indian economy. The SSI
sector being an important component of Indian economy is the right case for
examining the impact of economic reforms on its performance. This sector has

[6]
emerged as a powerful instrument for bringing about a rapid and decentralized
growth in a country that faces adverse features such as having a large army of
unemployment labor and scarcity of capital resources. It is considered as an
important dispersal and equitable distribution of national income. It also checks
unplanned migration from rural and semi-urban areas. The urban areas. The
sector provides the necessary boost for the development of new entrepreneurial
initiatives to inject a sense of encouragement and competitiveness the industrial
sector. Moreover, the SSI sector accounts for more than 30% of India’s total
exports.

Objectives:-
This papers aims to achieve the following objectives:
 To examine the performance of SSIs terms of growth rates of the
number of units, employment, output and exports d5uring the 1980s,
1990 and the later period.
 To find sickness level in the SSI sector in pre- and post –
liberalization era.
 To analyze the trend and growth rate in the bank credit to SSIs in the
era of liberalization
The board hypothesis tested in this study is that, ‘There is no impact of
liberalization and globalization process on SSI in India.’

SSI’s in India:-
The post-independence development policy in India evolved around targeted
efforts to faster economic growth. With some degree of industrialization at the
time independence (Bhagwati, 1998), key strategy was to embark on a rapid
industrialization 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 industrialization through fostering

[7]
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
Industrialization policy. Given that the industrialization 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
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 somewhat because of adoption of NIC codes for
[8]
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 liberalization 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 liberalization period.

Other researchers have scrutinized the working SSI sector. In the post
liberalization 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% 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
[9]
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
[10]
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.
[11]
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 lineup.

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
[12]
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 nonreserved

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 dereservation.

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 dereservation 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
[13]
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 dereserved 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.

[14]
 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.

[15]
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.

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 tothe source of data used.

[16]
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 scopeand 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 useunit 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.

[17]
Distribution of SSIs by Industry Division:-

[18]
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.

[19]
[20]
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

[21]
hand-rolled product, a large number of people are needed to make products of
seemingly much less value.

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
[22]
[23]
 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.

[24]
[25]
Small-scale industries in Jordan in the globalization era
performance and prospects:-
INTRODUCTION:-

Small scale industry sector occupies a place of strategic importance in

Jordanian economy structure due to its considerable contribution in terms of
output, exports and employment. Small scale industries play a key in the
industrialization and development of a country. This is because they provide
immediate large scale employment comparatively higher capital ratio, they
need lower investment, offer a method of ensuring a more equitable
distribution of national income and facilitate an effective mobilization of
resources, capital and skill which might other wise remain unutilized (4).
Development of small scale industries was governorate affair therefore; these
industries were planned by the governorates. The governorate co-ordinate the
development programs through its agencies.

Small scale industries sector was a major contributor to the industrial economy
of Jordan. It accounts for 50% of the total manufacturing sector, has 20% share
in exports and provides 80% of employment in industrial sectors (10). In spite
of all the odds it has always performed well. Despite the global and domestic
recession, small scale industries registered a higher growth rate when the
overall industrial sector in terms of number of units. Liberalization have forced
all industries to constantly up grade their quality while cutting down the costs
if they want to remain and retain their place and share in the global market.
Small scale industries world over including Jordan were facing the on slight of
the adverse effects of globalization in the stringent requirements of quality
costs, tight delivery schedules and productivity (1).

MATERIALS AND METHODS

this research is based on the survey and analysis of secondary data, the data
was a gathered from published studies and reports available in English and in
Arabic. Relevant statistics were obtained from Central Bank of Jordan and
Department of Statistics. The answer to the following questions is one of the
objectives of this study

[26]
* Why global and national policy development should affect small business
scale industries in Jordan? How? What are its implications?

* How far small scale industries have been able to cope up with the
competitive environment? What was its growth performance in the last decade?
How different was it compared to the earlier decades?

* What are the future prospects of small scale industries in Jordan in the era of
globalization? What steps need to be taken to strengthen small scale industries
to ensure its sustained contribution to Jordanian economy?

RESULTS AND DISCUSSIN

The over all performance and contribution of small scale industries to

Jordanian economy is generally described in terms of its absolute growth in
units, employment, production and exports. Equally important is its relative
contribution, which can be analyzed in terms of its share in the national
income, total exports and total organized sector employment. Thus, the growth
of small scale industries can be evaluated in two ways:

* To compare the growth rates of units, employment, output and exports of

small scale industries in the 2000 with that of 1990s

* To ascertain the change in the relative contribution of small scale industries

to GDP, exports and organized sector employment in the 2000s with that of
1990s

This will reveal how the sector is copying up with challenges and changes in
the intensifying competitive environment emerging since 1990-1991. The
growth of small scale in terms of units, employment, production and exports is
estimated based on the figures given in bulletins issued by the Central Bank of
Jordan (CBJ) and Department of Statistics (DOS). The share of small scale
industries in National Income is arrived at as follows: The Gross Value Added
(GVA) of firms having investment more than that of the small scale industries
investment limit is deducted from the manufacturing sector's contribution to
Gross Domestic product (GDP) and the remainder is the contribution of small
scale industries to GDP. This value is calculated as a percentage of the total
GDP.

[27]
The growth rates of small scale industries in terms, of units, employment,
output and exports for the 1990s and 2000s are percentage in table 1.
Table 1: Growth of small scale industries (1990s and 2000s)

Export Output Employment Units Period

10.5 13.2 4 5.2 1995-1990

15.9 15.3 8.3 7.3 1996-2000
25.3 19.3 10.2 9.5 2001-2005

Source: Department of Statistics, Annual statistical Bulletin, (various Issues)

It is clear that the growth of small scale industries has come up in terms of not
only units and employment, but also in terms of output. This could be an
indication that increasing competition in the globalization period and the
agreements signed with other affected the growth of Jordanian small scale
industries positively. Growth rates are estimated for 5 years period. The growth
rates of units, employment, output and exports steadily come up. In fact, the
growth rate increased in the 2000s as compared to early 1990s.

The other dimension of small scale industries is its relative contribution to

national income (GDP). The contribution of small scale industries is
considered for four periods of time: 1990, 1995, 2000 and 2005 (Table 2).
Table 2: Small scale industries in Jordan's national income (GDP) in percent

National income Year

3 1990
4.2 1995
5 2000
5.8 2005

Source: Department of Statistics, Annual statistical Bulletin, (various issues)

The share of small scale industries in national income has consistently

increased. The infrastructure constraints confronted by small scale industries
can be broadly classified as economic, technological, marketing and financial.
[28]
Stable and reliable economic infrastructure such as power, water, transport and
communications are a pre-requisite for the official functioning of any economic
activity including small scale industries. Inadequate economic infrastructure is
one major factor affects the performance and competitiveness of small scale
industries. It is to overcome the infrastructural deficiencies faced by the sector,
particularly in rural/backward areas and to strengthen linkages between
agriculture and industry the government introduced many schemes. The
purpose of there schemes is to contain developed sites, power distribution
network, water, telecommunications, drainage and pollution control facilities,
roads, banks, raw material depots, storage and marketing, outlets, common
facilities and technological back-up services. Recently, the government of
Jordan has proposed to extend these schemes to the entire country (5).
However, it is not clear how and when the schemes will be expended to cover
the entire country.

The need for improving the competitive strength of small scale industries
through technology improvement and modernization was recognized as early
as in the 1990s with the setting up of small industries development programs
(6). Since then, over a period of time, particularly in the 2000s exclusive
technology infrastructure has come up for small scale industries to facilitate
technology transfer. Thus, policy makers in Jordan have considered technology
development in small scale industries only from a single dimension, that is,
through institutional technology transfer.
How far technological infrastructure meant for small scale industries has
helped them in another issue. Technology development in small scale
industries can be achieved through in-house technological innovations as well
as inter-firm linkages with large firms (2). Technological innovation involves
the situationally new development and introduction of knowledge- derived
tools, artifacts and devices by which people extend and interact with their
environment. It is primarily rooted in a firm's internal competencies. The
advantage with in-house technological innovations is that it can be firm
specific and continuous. Similarly, a small firm can get technological inputs
and technology through sub-contracting relationship with large firms on a
continuous basis. In Japan, effective sub-contracting relationship between
[29]
small and medium enterprises and large firms works as an important
mechanism of technology transfer (3). But in Jordan, policy seems to have over
looked the ability of small firms to innovate and the extent of ancillarisation,
through increasing in recent years, is well below potential.

Timely availability of adequate finance is another issue, which crucially

determines the survival and growth of small firms. Small firms are largely
dependent on bank credit to meet their financing requirements while the big
firms have alternative sources of finance (13). To ensure better financial
infrastructure, government of Jordan directed its institutions and commercial
banks to meet the working capital needs of small scale industries at a very low
interest rate (12). However, despite the development of exclusive financial
infrastructure for small scale industries, the growth in the amount of credit
extended to small scale industries is not sufficient.

Marketing has been identified as one of the major problem areas of the small
scale industries and it has been ranked as the second most reason for the
closure of small scale units (8). It is quite logical and obvious, if small firms do
not have access to reliable and efficient economic infrastructure, they suffer, in
general, from technological obsolescence and if credit flow is not sufficient,
they will not be able to produce quality goods and productivity will not be
higher either. In such a case, small firms will not be able to penetrate markets,
national or international, even if marketing support is coming from government
agencies. After 1990s, two major steps have been taken by the government to
promote small scale industries marketing:

* The scheme of establishing strong relation between small and large firms,
one of the major objectives of this scheme is to provide good in formations by
large scale industries to the small scale industries about the new method of
marketing and low to take chance in the international market

* With a view to ensure that exports from small scale industries sector exhibit
their produces in the International Exhibitions, required assistance and support
is provided. Expenditure on account of space rent, handling and clearing
[30]
changes, insurance and shipment charges, etc., are met by the government of
Jordan under one of the plan schemes
Thus, the current status of small scale industries in Jordan can be appropriately
understood in the above context. Given the good performance of small scale
industries in the context of constraints, it is essential to ponder over its future
prospects and the strategy to be adopted by the stakeholders; namely, the
government and more importantly the small scale industries sector itself.

Based on the data analysis the research concluded the following results:
* First of all, if small scale industries have to thrive steadily, infrastructural
bottlenecks must be overcome to enable them to compete based on their
internal potential. And it is the responsibility of the government to remove any
structural bottleneck for small scale industries performance especially when
market forces are given prominence through the removal of protective
elements. It is essential to provide the much-needed level playing field to small
enterprises through infrastructure development. But overcoming the
infrastructural bottlenecks' for small scale industries is easier said than done

* To enable efficient monitoring and provision of infrastructural facilities,

small scale industries should be permitted to come days only in designated
industrial areas or estates. Each state should be asked to develop a database of
small scale industries, which should be up dated at least, once in three years.
There will facilitate policy corrections from time to time. In addition, the
government along with industry associations should involve the private sector
in the development of infrastructure in existing industrial areas and clusters and
permit provision of infrastructural services on payments. Similarly, private
sector investment should be encouraged for the development and management
of existing as well as new industrial parks and clusters. These steps would go
along may in strengthening the infrastructure for small scale industries
development in Jordan
* There is a need to explicitly recognize and exploit the innovation potential of
small scale industries. In developed countries small scale industries are
promoted, among others. Small scale enterprises have the specific advantages

[31]
of flexibility, concentration and internal communications for carrying out
technological innovations. Technological innovations contribute to
competitiveness. Even in the Jordanian context a significant number of small
firms do carry out technological innovations and there by enhance their
competitiveness. Therefore, it is appropriate to incorporate schemes in the
existing policy and institutional network to provide technological and financial
assistance to in-house technological innovations at the district level and make it
easily accessible to small scale industries. There is a need to create fund at the
government level for disbursement as margin money through district industries
centers to small scale industries units to encourage them to undertake
technological innovations
* These schemes are not to undermine the significance of the present strategy
of technology transfer. It essential to pursue with more intensity the existing
strategy of technological up gradation and modernization by involving
governorates and small scale industries associations, particularly with a focus
on small scale industries clusters.

* There is a need for technological transformation of Jordanian small scale

industries is gigantic task and government alone cannot achieve the objective,
however extensive its infrastructure may be. Therefore major initiative has to
come from small scale industries itself, particularly through their associations.
The importance of achieving and sustaining competitiveness in the long and
investing self-efforts and resources needs to be realized and spread among
small scale industries units through their associations at regional level. This
will play a good role in their long-term development in the future.

* The increase in the competitiveness of small scale industries will also be

determined by the availability and quantum of finance. The demand for
finance- implicit as well explicit-from small scale industries will be substantial
considering its size, structure, growth pattern need for its reconstructing and
technology development. Particularly, the investment demand for finance from
small scale industries will increase considerably due to technology and
modernization, expansion quality, improvement and technological innovations,

[32]
environment related investments, etc. To meet the growing and diversified and
specifically to take care of the technological transformation of small scale
industries and lay more thrust on adequate flow of finance to the sector. The
promotion of inter firm linkages is another issue deserving more recognition.
Till recently small and medium-sized enterprises in general were precluded
from participating in the lucrative supply-chain transactions generated by much
larger manufacturers and suppliers. In most cases small and medium
enterprises were unaware or unable or unwilling to spend the necessary capital
or transactional system implementations, or infrastructure upgrades. However,
time is changing now. The increasing presence of transnational corporations in
the country would open up new opportunities for sub-contracting/outsourcing.
This is because FDI has flowed into industries such as telecommunications,
transportation, where opportunities for sub-contracting/outsourcing are high for
small scale industries.
* Globalization need not affect Jordanian small Scale Industries adversely. It
would have created beneficial opportunities as well. The removal of quantities
restrictions and reduction of import duties, particularly after the setting up of
WTO in 1995, have opened up foreign markets to Jordanian small scale
industries as much as Jordanian market to foreign goods (7). Many efficient
and export oriented small firms in Jordan to enhance their competitiveness to
penetrate the global market. This could also be achieved by small firms
becoming vendors or sub-contactors to foreign large scale industries. The trend
is outsourcing of supplies by Transnational Corporations and they are always
on the look out for firms who could supply reliable and quality products.

* Finally, irrespective of the degree of support extended by the government,

Jordan is going to experience the emergence of small scale industries sector,
which is qualitatively superior, technologically vibrant and internationally
competitive, in the next five-to-ten years because the inefficient ones are likely
to vanish gradually. The objective of the policy makers as well as scale
industries associations should be to enable the sector to emerge vibrant and
competitive without a considerable reduction in its size and thereby enable it to

[33]
make a sustainable contribution to national income, output and exports.

[34]
[35]
 CONCLSION:-
Small scale industries in Jordan find itself in an intensely competitive
environment since 1991 due to globalization domestic economic liberalization
and dilution of sector specific protective measures. As a result, its growth in
terms of units, employment, output and exports has come up. This has resulted
in more growth in its contribution to national income and exports in the 1990s.
International and national policy changes have thrown open new opportunities
and markets to Jordanian small scale industries. Concerted efforts are needed
both from the government and more importantly, from small scale industries
themselves to imbibe technological dynamism into Jordanian small scale
industries. Technological up gradation and in-house technological innovations
and promotion of inter-firm linkages need to be encouraged consciously and
consistently. The benefits and need to go for technology development through
either technology transfer or technological innovations or inter-firm linkages
should be emphasized in the light of dimensions of global competition and its
negative fall outs as well as positive opportunities, to small scale industries
entrepreneurs through seminars and work shop, at the local level. Financial
infrastructure needs to be broadened and adequate inflow of credit to the sector
ensured taking into consideration the growing investment demand including
the requirements of technological transformation. Small scale industries should
be allowed to come up only in designated industrial areas for better monitoring
and periodic surveys though Ministry of industry should enable policy
corrections from time to time. A technological vibrant, internationally
competitive small scale industries sector should be encouraged to emerge, to
make a sustainable contribution to national income, employment and exports.

[36]
[37]
Appendix:-

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 labor related
clearances also require repeated visits to the relevant departments and getting
permissions. There are multiple clearances that are required from multiple

[38]
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

[39]
inspectors. Since the possible inspectors are many, the potential procedural
transaction costs are also high.

Table A4.6: Inspectors in various Ministries and Departments

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
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.
[40]
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

[41]
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

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.

[42]
Table A4.9: Time costs associated with export clearance

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.

[43]
[44]
[1] I HAVE TAKEN THE METTER OF PROJECT REPORT
FROM THE ICFAI UNIVERSITY JOURNAL OF
MANAGERIAL ECONOMICS.

[2] I HAVE ALSO TAKEN THE METTER OF PROJECT

REPORT FROM INTERNET... (www.smallindustryindia.com)

[45]