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Q-What Is The Rationale For SSI/MSME Policy? What Were The Instruments Used For Promotion of SSI/MSME in India?

The document discusses the rationale for promoting small and medium enterprises (SMEs) in India and the policies adopted. It notes that SMEs are a major contributor to GDP and employment in India, accounting for over 30% of GDP and employing over 11 crore people. To support the growth and competitiveness of SMEs, the government has implemented several schemes, including expanding credit availability, developing industrial clusters, skills training programs, and simplifying business registration. Structural reforms in the early 1990s aimed to liberalize, privatize, and open the Indian economy to address a balance of payments crisis driven by high fiscal and current account deficits. Prior policies in the 1980s had started incremental liberalization but the basic control system

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83 views

Q-What Is The Rationale For SSI/MSME Policy? What Were The Instruments Used For Promotion of SSI/MSME in India?

The document discusses the rationale for promoting small and medium enterprises (SMEs) in India and the policies adopted. It notes that SMEs are a major contributor to GDP and employment in India, accounting for over 30% of GDP and employing over 11 crore people. To support the growth and competitiveness of SMEs, the government has implemented several schemes, including expanding credit availability, developing industrial clusters, skills training programs, and simplifying business registration. Structural reforms in the early 1990s aimed to liberalize, privatize, and open the Indian economy to address a balance of payments crisis driven by high fiscal and current account deficits. Prior policies in the 1980s had started incremental liberalization but the basic control system

Uploaded by

Saurav Anand
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Q- What is the rationale for SSI/MSME policy?

What were the instruments


used for promotion of SSI/MSME in India?
The Micro, Small or Medium Enterprise sector, or the MSME sector as it is called, has been
recognized globally as a major contributor to Gross Domestic Product (GDP) and stimulator
for economic growth.
• Micro, Small and Medium Enterprises (MSMEs)
are expected to become the backbone of India
as the economy grows larger.
• MSMEs form more than 95% of the industries in
India.
• They produce more than 45% of the total
manufacturing output and employ more than
40% of the workforce.
• According to the Economic Survey 2020-21,
over 6 crore MSMEs employ more than 11 crore
people and contribute roughly 30% to the GDP
and half of the country’s export.
Government of the day realizes its immense potential and added to slew of schemes and
policies to promote and upgrade this sector in order to make it globally competitive. Some
of them are undermentioned.
1) The Credit Guarantee Fund Scheme with limit of loan being doubled from Rs 1 crore to Rs
2 crore to address capital availability issue.
2) The Cluster Development Programme of the government aims to create assets like
Common Facility Centres to access latest tools, technology, designs, etc.
3) The Entrepreneurship Development programmes and Vocational Training Programmes of
the government seek to address the issue of skilled human resources which is crucial to
make world class product.
4) As part of ‘Ease of Doing Business’ and to formalize the sector, Udyog Aadhaar
Memorandum (UAM) has also been notified in September 2015. The system offers one –
page single point registration, thereby avoiding delays and replacing heterogeneity in the
existing system of Entrepreneurship Memorandum (EM) Part I and II. This is a path-breaking
initiative taken to offer ease to Indian MSMEs in terms of registering their businesses.
5) ZED (Zero Defect Zero Effect) Certification Scheme – this scheme envisages to develop an
Ecosystem for Zero Defect Manufacturing in MSMEs by promoting adaptation of Quality
tools and Energy Efficient manufacturing.
6) Scheme of Fund for Regeneration of Traditional Industries (SFURTI) The objectives of the
scheme is to organize the traditional industries and artisans into clusters to make them
competitive and provide support for their long term sustainability and sustained
employment.

Q-2- In simple economic terms, what do structural reforms really mean? When
were they initiated in India under what context?

Ans- Since Independence, India followed the mixed economy framework by combining the
advantages of the capitalist economic system with those of the socialist economic system.
The role of that policy makers determined for government was quite large and several
sectors were put under their command while domestic capitalist class was protected
through tariffs and trade barriers from foreign industries which discouraged any
competition. The idea behind such economic model was to bridge the inequality, alleviate
poverty which could not have been done with capitalist model of production.

The structural reforms meant moving away from this model towards creating a more
competitive environment in the economy and removing the barriers to entry and growth of
firms. The policies thus adopted can be divided into- the stabilisation measures and the
structural reform measures.

The former was meant for short term while the later were long term policy change, aimed at
improving the efficiency of the economy. These structural reforms fell under three heads-
Liberalisation, Privatisation and Globalisation, aka 1991 LPG OR ECONOMIC REFORMS.

The context of these reforms lies in the Balance of payment crisis that erupted in 1991. The
Government Expenditure was more than the earnings. Hence the Fiscal Deficit was high. The
Gross Fiscal deficit rose from 9 % of GDP in 1980-81 to 12.7 % of GDP in 1990-91. The
Internal Debt of the Government rose due to the above reason. It rose from 35 % of GDP in
1985-86 to 53 % of GDP in 1990-91. In addition, the country was importing more than
exporting. Hence the Current Account Deficit was high.
The current account deficit was triggered by the rise in crude oil prices because of the Gulf
War. Due to this, the Forex Reserves of India depleted massively. Despite substantial
borrowings from the International Monetary Fund (IMF) earlier in the year. By June 1991,
India had less than $ 1 billion forex reserves, just sufficient to meet import requirements for
a period of 3 weeks.

In these circumstances, a new government have to bite the bullet and open up the
economy.

Q- Discuss the policies adopted by INDIA during 1980 to 1990 and how did it
impact the Balance of payment crisis?
Ans- The Need for economic liberalization were started to be felt from beginning of this
tumultuous decade. A process of liberalizing the control regime had started in the first half
of the 1980s, under Prime Minister Indira Gandhi, and was intensified in the second half of
the decade under Prime Minister Rajiv Gandhi. However, these changes were incremental
rather than structural. In essence, the basic control system remained in place, but it was
made more flexible at the margin. Industrial licensing continued, but some industries were
exempted from industrial licensing. Existing enterprises were allowed an automatic
expansion of approved capacity every 5 years to allow them to undertake debottlenecking,
and new licenses were given for larger-sized plants in order to exploit economies of scale.
Import licensing continued, but several items were made freely importable and this list was
slowly widened. Foreign technology continued to require government approvals, but these
were given more freely.

This decade saw 6th five-year plan (1980-85) came into action which realised the folly of
past and in essence, pledged to undertake a string of measures aimed at boosting the
economy’s competitiveness. This meant the removal of price controls, initiation of fiscal
reforms, a revamp of the public sector, reductions in import duties, and de-licensing of the
domestic industry, or in other words ending the licence, Raj.

After the death of Indira Gandhi in 1984, Rajiv Gandhi took over and made his intention

clear through policies and a new team of technocrat to liberalize the economy. The 1985-86
budget lowered direct taxes for companies and raised exemption limits for income tax. He is
widely credited for ushering in the information technology and telecom revolutions in the
country. The reward of his IT policies were reaped later after full liberalization and new IT
boom took over the whole country.

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