Prime Minister of India - Dr. Manmohan Singh

PM's speech at the SSI Convention

"Let me begin by greeting the Small Industries Development Organisation (SIDO) on its Golden Jubilee. I compliment all the officers and employees who have contributed to SIDO's work over the years by their dedication and service to the country and I hope that they will continue to work with renewed dedication and commitment to the industrial development and progress of our Nation. I take this opportunity to congratulate all those distinguished Ladies and Gentlemen who have been honoured on this historic occasion. These honours are well deserved but I sincerely believe and pray that the next 50 years of SIDO's life will be still more creative and still more productive in the service of the people of our country.

Over the last 50 years, this organisation has played an important role in the growth and development of small and medium enterprise and of new businesses in our country. One of the most positive stories of industrial development in post-Independence India has been the growth and diversification of the small scale sector and, more importantly, the emergence of a new class of first generation entrepreneurs through the ranks of the small scale industry.

Many of today's large and growing firms started out as small enterprises, often with the help and support from State and Central Governments and agencies like SIDO. In industrial estates in Punjab, Tamil Nadu, Andhra Pradesh, Karnataka, Gujarat and Maharashtra, many of today's large industrial groups began their journey as small and medium enterprises assisted by SIDO. Many business families started off as small businesses and today have acquired a global scale and presence.

Indeed this is one of the great achievement of post-Independence industrial policy that we have enabled the growth and success of several generations of new entrepreneurs. Many of today's successful and prominent businesses have had humble origins in the small scale sector. One name that comes immediately to my mind is that Shri Brij Mohan Lal Munjal who began life as a small businessman and whose Hero Cycles has grown into the world's largest two-wheeler manufacturing company today.

When economists analyse the success or failure of industrial policy they normally look at what is quantifiable in terms of statistics. What we do not often reckon with is the qualitative dimension to industrialisation, namely the emergence of entrepreneurial capabilities associated with the transition from pre-industrial to an industrial society, which is why a purely economic critique of our small industry policy, in terms of the sub-optimal industrial structures it may have encouraged, does not capture the full sociological dimensions of the growth of first generation enterprise in a pre-dominantly agrarian economy.

There is still inadequate appreciation of the fact that enterprise and risk-taking are important attributes of the people of our country. Given the proper environment we have seen creativity blossom. It will be the endeavour of our Government to create that positive environment in which the "animal spirits" of private enterprise will be unleashed and a new era of entrepreneurial development will begin.

Today, we live in an increasingly globalised world, in a world where tariff barriers are rapidly coming down. We have therefore to examine the implications of this for all enterprises, particularly the small scale and the cottage sectors. It needs to be seen whether protection in the form of reservation of items for production in the SSI sector continues to be an adequate mechanism to enable this sector to thrive. While the reservation can protect SSI firms from the domestic competition, it will not protect them from international competition. This is the reality one must reckon with. Trade is a substitute for domestic competition. And given this future scenario of trade driven competition, the efforts of all government agencies must be towards enhancing the capabilities of small enterprises to face this onslaught of competition. There is an urgent need to work out effective promotional measures, which will enhance the efficiency and productivity of these enterprises.

Once the focus shifts to promotion, Government agencies will need to start understanding the processes which determine the competitiveness of small enterprises and will need to create new organizational and institutional mechanisms which facilitate their healthy growth. Small enterprises across the world have benefited from economies of agglomeration. Right across the length and breadth of our own country, we see clusters of successful industries. From textiles in Surat to hosiery in Tiruppur, from woodcraft in Saharanpur to leather in Agra, from sports goods in Jullundur to software in Bangalore, policies aimed at promoting the small sector must take into account this reality of agglomeration and design policies to suit the specific requirements of each cluster. Policies for technological upgradation, marketing support, credit support, etc. must evolve new approaches which are flexible enough to adjust to the requirements of each sector and cluster. They must also work in cooperation with industry associations and encourage the formation of viable public-private partnerships. Other countries such as China and Italy have demonstrated the feasibility of such approaches. It is time for India as well, to tap into the creative energies of the millions of small enterprises that exist in our country, to boost growth and employment just as other countries have successfully done.

I do recognize the importance of the SSI sector, not only in its contribution to our GDP but also for its stellar performance in exports and in generating employment. Employment is a key thrust area for our Government. While we will be enhancing investment in agriculture to improve both yields and incomes, given the imbalance between the proportion of GDP accounted by agriculture and the proportion of people working on it, if we have to eradicate poverty, then we need to boost our manufacturing sector which alone can absorb workers on a massive scale. Thus the key to our success in employment lies in the success of manufacturing in the SSI sector.

All this will require organizations like SIDO to be ready to respond and be prepared for hand-holding wherever required. However, going beyond support and handholding, SIDO will also need to be active in facilitation and advocacy. With the evolving heterogeneity of the small scale sector, SIDO's work has also diversified and acquired a multi-faceted personality.

The National Common Minimum Programme, draws attention to the fact that in the past few years, the most employment-intensive segment of small-scale industry has suffered extensive neglect. The National Common Minimum Programme also states that the SSI sector will be freed from "Inspector Raj" and will be given improved access to credit, technological and marketing support. It also assures small businesses that infrastructure upgradation in major industrial clusters will receive adequate attention. I have already announced the intention of the Government to seek a drastic reduction in the number of inspectors SSI units have to receive in a particular year. Indeed, the tyranny of the so-called "Inspector Raj" is even more debilitating for small enterprises. I understand that the Ministry of SSI is working on a single law for this sector. I hope the Ministry will finalise this legislation soon and bring it before Parliament.

There are several other measures the Government is presently contemplating to aid and support the SSI sector. We will soon be setting up a National Commission to examine the problems facing enterprises in the unorganized, informal sector. This Commission will have a comprehensive mandate to examine and review existing institutional mechanisms for supporting small enterprises.

As I said, small enterprises require support in such areas as access to affordable credit, marketing support and access to modern technology. There are already several official windows of assistance available to the small scale sector. However, I have a feeling that the net impact of what the Government is trying to do to help the sector is getting dissipated by the multiplicity of efforts and agencies. There has been no dearth of ideas on how to increase credit flow. While initiatives like the Credit Guarantee Trust were launched in recent years to help small enterprises, with new credit schemes and higher limits of loan eligibility, and a Credit Linked Capital Subsidy Scheme, the availability of credit still remains a problem. Banks today are flush with funds and yet small enterprises continue to complain about lack of funds.

Even as bankers exercise their commercial judgement they must also pay heed to the developmental dimensions of lending to small enterprises. Three banks have been chosen as awardees today. I congratulate them for their missionary zeal and hope that their example is emulated by others.

If we are to have more winners from the SSI sector then technology upgradation, marketing support and improved infrastructure will be critical. Even within these overall concerns, space has to be created to factor in the special requirements of sub sectors such as knowledge based industries or the micro credit requirements of NGOs supporting income generating activities in rural India.

In a globalised pattern of trade, inter-dependence is a fact of life. Increasingly therefore, the debate is shifting from small vs. big to the complementarities amongst the small and the large. The success of small units as suppliers of choice in the automobile and pharmaceutical sectors augurs well for the organic growth of industry. This must be built upon.

This calls for innovative thinking on what small industry policy should be. If policies of the past have not worked well we should be prepared to discard them and seek new ways of realizing the goals of employment generation and entrepreneurial development. These remain vital goals for industrial policy. However, the test of our commitment to these goals need not be in the continued commitment to outmoded or non-working policies. I do believe the small scale sector is an important part of our economy and society. It must be given all possible facilities to flourish and to grow but we must also critically review all our existing policies and find out if some of them have ceased to be relevant to the needs of the times. It is only then that even as we remain committed to small scale enterprises, we should be willing try and test new technologies and new policies. Growth has to be viewed as an organic entities - both small scale and large scale sectors need space to grow and I think the challenge before all of us is to find a development paradigm which takes advantage of the mutual complementarities and the inherent competitiveness of various sectors in achieving the national goal of a dynamic industrial economy. In this task, as I said, small enterprises will continue to play a very important role and our Government is committed to giving all possible encouragement for the growth of this vital sector of the economy. I also hope that in the years to come SIDO will play a still more creative and constructive role in this national endeavour of building a dynamic small scale sector in our economy".