The approach to economic development since Independence has been historically driven by the premise that the launching of large investment projects would inevitably result in the growth of small industrial establishments to service the requirements of the “mother” industry. It was only during the 1950-70 period that the growth of small industry sector occurred and several policy measures were initiated.
India’s industrial policies have been shaped in a wide range of contexts. However, the broad policy thrust remains the same: to expand the capability of small and micro enterprises to generate employment, promote exports, further the process of rural industrialisation, facilitate the development of appropriate technologies and new entrepreneurial skills.
The Industries Development and Regulation Act of 1951 provided the basic framework for the post-independence industrialization strategy. Regulatory policies were laid down for the regulation of licensing, location, production, pricing, imports, exports, foreign exchange controls, inter-State movement of commodities and several other areas of industrial operation.
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For small scale industries, there were regulations with regard to definition which was in terms of ownership – i.e. a small scale unit had to be an entrepreneur-directed concern and not a subsidiary to another industrial undertaking.
The Karve Committee Report (1955) was one of the earliest of the exercises which recommended a protective environment for the growth of small industries in India. Supportive policies through the 1 960s, 70s and 80s took the form of reservation of products exclusively for the SSI sector (at one point, 836 products were reserved exclusively for SSIs), grant of fiscal concession and Government procurement of supplies from the sector.
For increased credit flow to the SSI sector, a policy of priority sector lending through nationalized banks has been followed, though this has not been adequate for the growth requirements of the sector.
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This is perhaps the most compelling reason for the Expert Committee on Small Enterprises to state that: “Small enterprises will continue to need exceptional support in terms of financial resources, technological development and infrastructure.” (Expert Committee on Small Enterprises; 1997: 21).
As the process of economic development led to changing priorities, the policy focus shifted to regional imbalances (1977), ancillarisation (1980), exports and dispersal in rural areas (1990) and then to small, tiny and village industries (1991) (Mahajan and Raju, 2002).
The industrial policy statements made periodically were not always translated into facilitative laws and regulations, which beg for immediate attention of a Government that craves for accelerating the reform process towards liberalization and globalization.