Committing to a major policy overhaul for the small scale sector, Prime Minister Manmohan Singh on Monday said if policies of the past have not worked well, they should be 'discarded' and asked the small-scale industries ministry to expedite the proposed single law and curtail inspector raj.
"If policies of the past have not worked well, we should be prepared to discard them," Singh said at the convention of small scale industries while pointing out that the debate on small versus large businesses called for 'innovative thinking' to bolster the growth of SSIs.
Highlighting the significance of SSIs as "key to our success in employment," he said "I understand that the Ministry of SSI is working on a single law for the sector. Let us finalise this shortly and bring it before Parliament."
Admitting that the policy of reservations would not be enough to protect the SSIs from the global competition, particularly in the shape of international trade, Singh said this necessitated a 'paradigm shift' in the policy framework. There is an urgent need to address key issues of credit and marketing support, technology upgradation and infrastructure development in the SSI clusters, he said.
Singh regretted the sector was not getting enough credit despite banks being flush with money.
Singh said various initiatives like the Credit Guarantee Trust and a Credit Linked Capital Subsidy Scheme were launched in the recent years to help small enterprises with new credit schemes and higher limits for loan eligibility, but availability of credit still remained a problem.
"Even as bankers exercise their commercial judgement, they must also pay heed to the development dimension of lending to small enterprises," the prime minister said.
The government is also setting up a National Commission to examine the problems facing enterprises in the unorganised and informal sector, he said adding this commission would have a comprehensive mandate to examine and review existing institutional mechanisms for supporting small enterprises.
In an era of increasingly globalised world with tariff barriers, there is a need to examine the implications of these on all enterprises, particularly the small scale and cottage sectors.
It needs to be seen whether protection in the form of reservation of items for production in SSIs is an adequate mechanism to enable the sector thrive, he said, adding, "while reservation can protect from domestic competition, it will not protect them from international competition."
This is the reality one must reckon with, he said adding "trade is a substitute for domestic competition."
Given the future scenario of trade-driven competition, the efforts of all government agencies must to be towards enhancing the capabilities of SSI enterprises to face competition, Singh said.
"There is an urgent need to work out effective promotional measures which will enhance efficiency and productivity of these enterprises," he said.
The policies, whether for technological upgradation, marketing support or credit support, must evolve approaches which are flexible enough to adjust to the requirement of each sector and cluster, the Prime Minister said.
Recognising the importance of the SSI sector, not only in its contribution to India's GDP but also for its stellar performance in exports and generating employment, he said employment is a key thrust area of 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 for by agriculture and that of people working in it, if we have to eradicate poverty, we need to boost our manufacturing sector which alone can absorb workers on a massive scale," Singh said.
"The key to our success in employment lies in the success of the SSI sector," he added.
Earlier, SSI Minister Mahabir Prasad said about 100,000 units of SSIs get registered every year but only 50,000 credit accounts are opened with banks.
On the contrary, credit accounts have come down to 1.7 million in 2003 from 2.6 million in 1999, he said, adding that this reflects the acute credit problems being faced by the SSI.