This paper examines the impact of economic reforms on the growth of the Indian small scale sector by comparing the growth rates of the key growth parameters between the pre- and post-reforms periods. The results reveal that the economic reforms and the liberalization process since 1991 have had a very deleterious effect on the growth of the small scale sector. The average annual growth rates of the number of units, production, employment, and exports have tapered off in the post-reforms period relative to what has been observed during the pre-reforms period. Also, the sickness in small scale sector has reached epidemic proportions. The analysis of production structure in terms of production per unit and employment per unit show that (i) no significant technological change has emerged in the small scale sector during the post-1991 years, and (ii) the present production structure in small scale sector promoted the use of labor-saving technology. On the whole, the study concludes that the recent thrust on the liberalization and globalization of the Indian economy has failed to render any positive impact on the growth of the small scale sector.
Before the introduction of economic reforms in 1991, India’s industrialiszation strategy was
almost characterized by a forced import substitution regime through stringent import controls,
direct government involvement in production activities in the critical areas and other
government controls on trade and finance. Under the influence of insular policies of industrial
protection and excessive regulation, the Indian industrial sector turned out to be highly
capital-intensive and technically inefficient. In addition, the performance of the public sector
undertakings was equally dismal on account of over staffing and poor management.
To obliterate this regime of inefficiency, the new Government which came to power in
1991 decided to invigorate the Indian economy by launching a series of reforms in the four
principal policy arenas: trade, industrial policy, public enterprises and financial sector. The
chief objective of the reforms package was to enhance the resource use efficiency in the
industrial sector, augment exports and attract foreign investment to gain a new source of
capital and technology. Overall, the initiation of the reforms process marked the adoption ofan outward looking strategy of export-led growth along with the replacement of an
interventionist regime by a more liberalized economic environment where the market forces
could come into full play. It was perceived that the program of market liberalization and
outward orientation would help in securing sustainable growth in the Indian industrial sector. |
