The small-scale sector

THE GROWTH AND TRANSFORMATION OF SMALL FIRMS IN INDIA: Sebastian Morris, Rakesh Basant, Keshab Das, K. Ramachandran and Abraham Koshy; Oxford University Press, "Oxford House", 219, Anna Salai, Chennai-600006. Rs. 595.

SMALL FIRMS need to be freed rather than protected. The deep schism in the labour market makes small firms crucial to the transformation of the economy and to labour absorption. Individually, they can hardly affect their environment in the war large oligopolistic or strategic enterprises can.

The theme that runs through the 350 pages of the book under review is one of "functional space of small firms i.e., that small firms are not a homogenous category but can be viewed in terms of a few archetypes".

The authors had planned to work with all possible secondary data sources such as the Annual Survey of Industries, Directory of Manufacturing Establishments etc., but found that major errors and contradictions rendering these nearly useless and the task of washing these unproductive data have wasted their considerable time and energy.

However, the authors have succeeded in giving the reader flair of the kind of situations and problems that small firms encounter by their primary survey and unstructured discussions with a number of informed persons who had their own perspective and concerns.

The main findings of this wonderful study by the authors are: The key to reform growth and transformation of small firms is enhanced credit flow to the sector. Reservation ought to go. Considerable scope for procedural simplifications exist in major areas like excise and labour law enforcement mechanisms.

Many changes, which could energize the sector lie in general policies — exchange rates, credit policies, tariff rates etc. Liberalization reforms like changes in Factories Act are possible and crucial.

Discussing about the growth and transformation of small firms, the authors conclude:

"There is no way the quality of the environment in states such as Gujarat can improve unless punitive measures are raised steeply". This applies equally to other States as well! The authors' finding that "in terms of customer orientation, exporting firms perform much better by every measure" and "interestingly the growth in sales has been more or less the same for firms facing competition for small and large firms, firms competing with foreign firms etc., have seen faster growth" is not surprising.

The recent McKinsey report has found that "removing small industry reservations will allow the 830 products manufacturers to expand and achieve an efficiency of a scale sorely needed to enable competition with imports" supports the view of the authors. The Chinese example is well worth emulating.

The authors advocate liberalization-meaning freedom from interference. They have quoted rightly and there is opposition just because "no Government official would like to give up the power that emanates from production reservation". Even the Home Minister of India has stated that "SSIs are faced with severe challenges" and with the present trend of thinking in labour law reforms, which the authors of the book as also McKinsey feel necessary, it is hoped things will improve.

The book contains a number of real situation case studies, which are very interesting and educative. "Sickness in small units is hardly as large as is usually made out to be" is the logic of one case study while discussing "Finance and small firms".

How true! One of the case studies analyses to prove that there are fewer hassles to getting a loan from co-operative banks than nationalised banks. Perhaps this is an eye-opener — scams of some banks apart — for nationalised banks in dealing with their funds. The inadequacy and idiosyncracies of nationalised banks are very well discussed in the chapter "Growth and transformation''.

The small-scale industrial sector, which is vibrant and dynamic, has played a very vital role in shaping our destiny. Today, the sector accounts for 95 per cent of industrial units, contributes 40 per cent of the value added manufacturing sector and over 33 per cent of the national exports through 28-lakh units with 132- lakh people employed by the 28-lakh entrepreneurs.

This book, containing excellent sample study should be of interest to the existing entrepreneurs as also those in the making, students of industrial economics and public administration. This well got up book, though priced with an eye on libraries, is certainly a prelude to further studies with regard to the performance and role of small firms.

N. RAMASWAMI

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