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Chapter – VIII

GLOBALISATION AND SMALL SCALE INDUSTRIAL

SECTOR IN PUNJAB AND HARYANA

Globalisation refers to the multiplicity of linkages and interconnections

between the states and societies that make up the present world system. It

describes the process by which events, decisions and activities in one part of the

world come to have significant consequences for individuals and communities in

quite distant parts of the globe. Therefore, globalisation is a process of growing

economic interdependence among different countries of the world and whole

world is changing into a global village in the sense that economic activities in one

part of the globe are affecting significantly the rest of the world. For this purpose,

it becomes indispensable for India to take part in the process of globalisation.

Indian economy had experienced major policy changes in early 1990s, with series

of reforms undertaken in industrial sector, aimed at making the economy more

efficient, fast growing and much better integrated with the rest of the world.

The liberalisation and economic reform process which included both short

term and long term measures have direct and indirect bearing on the

manufacturing sector of India in general and small scale industrial sector in

particular. The dynamics of change will bring about inflow of technology,

resources and both human and physical capital that are scarce or costly to be

procured locally in the developing economies like India. This will lead to rise in

the productive capacity of the nation to supply increasingly diverse economic

goods and services to its growing population. Therefore, globalisation can bring

immense benefits to various countries that are able to harness the resulting

opportunities for the proper development of their material and human resource

endowments (Nemedia, 1997). Besides offering greater opportunities for

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economic growth, globalisation has also posed some important challenges which

may be viewed as problems from the perspective of developing countries like

India. With the launching of the process of liberalisation, globalisation and

formation of WTO, the Indian small scale industrial sector will have to upgrade its

technology, adopt modern marketing and management practices along with an

improvement in the quality of its products to become more competitive and

resource efficient both at national and regional level.

In this context, the present chapter aims to examine the relationship

between liberalisation process, globalisation and Indian manufacturing sector in

general and small scale industrial sector of Punjab and Haryana in particular. To

fulfill this objective the present chapter has been divided into four broad sections.

Section-I concentrates on the issues of globalisation in the WTO regime.

Section-II examines the relationship between globalisation and Indian

manufacturing sector vis-a-vis other major developing economies of the world,

whereas, Section-III examines the relationship between globalisation and small

scale industrial sector of Punjab, Haryana vis-a-vis All India alongwith the

opportunities and challenges confronting this sector in the era of globalisation.

The last section concludes the discussion along with policy implications.

Section – I

With the formation of WTO in 1995, the world economy became

interdependent and started changing into a global village. Globalisation is thus, a

supranational phenomenon, which has reduced the distances between various

countries by the provision of international trade and the relaxation of quantitative

restrictions on commodities. The positive group of thinkers contemplates

globalisation as purely an objective and descriptive phenomenon that is taking

place under current trends. It is a process of increasing integration into the world

economy, the characteristics of the process is by no means uniform (Chandra,

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2004). The normative group of analysts explore the reality from objective, truth,

norms, policies, prescription which are being taken as a form of advice to

developing countries for liberalising and integrating themselves with the rest of

world as far as possible as the definite way to achieve the pace of sustainable

development (Nayar, 1998). Therefore, the process of globalisation has continued

and will intensify further. At micro-level, there is intensified pressure on business

enterprises from both competitors and consumers to continuously innovate and

improve quality of products, whereas, at macro-level, more and more countries are

following policies of liberalisation, privatisation, de-regulation of markets,

removal of structural distortions and liberalisation of Foreign Direct Investment

(FDI) etc. In this context, there are rapid shift towards market-oriented policies

wherein profit motive and price mechanism determine the allocation of scarce

resources in all the parts of the world.

In view of the fact that the process of globalisation and liberalisation has

significant impact on the economies of the world especially the developing

countries like India, it is, therefore, imperative to examine the issues relating to

emergence, activities and principles of GATT/WTO. In 1944, Bretton Woods

conference was held for new international economic order, which recommended

for setting up of International Monetary Fund (IMF), to deal with exchange rate

and balance of payment problems, International Bank of Reconstruction and

Development (IBRD) popularly called World Bank, to deal with the problem of

reconstruction and development and International Trade Organisation (ITO) to

deal with problems of international trade. From January 1, 1948, General

Agreement on Tariffs and Trade (GATT) became effective for providing a

framework for the conduct of trading relations, a system of rules to avoid

unilateral action and framework for the progressive elimination of trade barriers.

On 1st January 1995, WTO was established in the place of GATT, to

implement the agreement reached during Eighth Round and to develop co-

234

operation with other institutions like IMF and World Bank for better results. The

Uruguay Round (GATT-94), establishing the WTO has introduced the most

fundamental reforms in the world trading system since the establishment of GATT

in 1947. The initial focus of GATT (first seven rounds) was focused to remove

trade distorting policies, including the excess of trade restrictions during 1930’s

and 1940’s via tariff reductions only but the Uruguay Round overhauled and

strengthened the GATT rules on trade in goods, covered wide range of products

and countries, extended trade rules to cover services, trade related intellectual

property rights, investment measures and incorporated wide ranging

commitments to trade liberalisation by member countries, thereby infusing

dynamism in the world economy. The various rounds relating to GATT and WTO

are summed up in Table 8.1.

Uruguay Round lists 60 agreements, annexes, decisions and

understandings. These sixty agreements fall in six main parts: an umbrella

agreements (a) the agreement establishing WTO; (b) Agreement covering (goods,

services and intellectual property rights); (c) Dispute settlements; (d) reviews of

governments trade policies. Later on, WTO negotiations were expanded to cover

non-trade issues like environment, child labour standards in Seattle Ministerial

Conference in 1999. GATT-94, covered following agreements in goods and

services:

A. Trade in Goods

• Health regulations for farm products (SPS).

• Product standards (TBT)

• Investment measures (TRIMS)

• Market Access for industrial goods.

• Textile and clothing.

• Rules of origin.

• Import licensing.

• Subsidies and countervailing measures.

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TABLE 8.1

GATT AND WTO TRADE ROUNDS

Year Name/No of

Countries

Subject Covered Achievement

1946 Geneva Round /23

Tariffs Signing of GATT, 45,000 tariff concessions affecting $10 billion of trade

1949 Annecy Round/13

Tariffs Countries exchanged some 5,000 tariff concessions.

1951 Torquay Round/38

Tariffs Countries exchanged some 8,700 tariff concessions, cutting the 1948 tariff levels by 25%

1956-57 Geneva II/26 Tariffs/admission of Japan

$2.5 billion in tariff reductions

1960-62 Dillon/26 Tariffs Tariff concessions worth $4.9 billion of world trade

1964-67 Kennedy/62 Tariffs, Anti-dumping

Tariff concessions worth $40 billion of world trade

1973-79 Tokyo/102 Tariffs, non-tariff measures, "frame work" agreements

Tariff reductions worth more than $300 billion dollars achieved

1986-94 Uruguay/123 Tariffs, non-tariff measures, rules, services, intellectual property, dispute settlement, textiles, agriculture, creation of WTO, etc

The round led to the creation of WTO, and extended the range of trade negotiations, leading to major reductions in tariffs (about 40%) and agricultural subsidies, an agreement to allow full access for textiles and clothing from developing countries, and an extension of intellectual property rights.

2001 Doha/141 Tariffs, non-tariff measures, agriculture, labor standards, environment, competition, investment, transparency, patents etc

The round is not yet concluded.

Source: Compiled From Various GATT and WTO Rounds

236

• Safeguards.

• Anti dumping measures.

• Customs valuation methods.

• Pre-shipment inspection

B. Trade Related Intellectual Property Rights (TRIPS)

C. Trade in Services

• Movement of national persons.

• Financial services

• Shipping

• Air Transport.

• Tele-communications

In case of the agreements on trade in goods, it was agreed in Uruguay

Round that developed countries would cut their tariffs on industrial products

import by 40 percent. On March 26, 1997, 40 countries accounting for more than

92 percent of world trade in information technology products agreed to eliminate

import duties and other changes on these products by 2000 (by 2005 in handful

cases). Negotiating Group on Market Access (NGMA), on May 2003 gave

proposals for zero tariff commitments in seven major sectors (auto components,

fish and fish products, textiles, gems and jewellery, leather products and electric

and electronic goods) for special and differential treatment and less than full

reciprocity for developing and less developed countries. The agreement on

‘Market Access Negotiations on Non-Agricultural Products’ is expected to

increase market access of industrial goods by reducing tariffs.

The new GATT agreement agreed to phase out Multi-Fibre Arrangement

(MFA) and agreement on Textile and Clothing (ATC) committed to remove quota

by January 1, 2005 by integrating sector fully into GATT rules. ATC has

following main elements:

237

• Liberalisation process;

• Establishment of Textile Monitoring Body;

• Special and Safeguard mechanisms;

• Product coverage;

• Integration of textile products; and

• Other provisions including rules, circumvention for quota,

administrative, treatment of non-MFA restrictions and commitments

undertaken elsewhere under WTO agreements.

The products covered under agreement include yarns, fabrics made up of

textile products and clothing. Under the liberalisation process, the former MFA

growth rates applicable to each of these quotas were increased on 1st January, 1995

by factor of 16 percent for the first stage of agreement and new growth rate were

to be applied annually. The growth rate was to be increased by factors of

25 percent in the second stage and was to be further increased by 27 percent for

the last stage beginning January 1, 2002. In case of damage to industry, country

could impose ‘transitional safeguard’ measures subject to review by ‘Textile

Monitoring Body’. Further, Article XX of GATT allowed governments to use

Sanitary and Phytosanitary (SPS) measures, provided they do not discriminate or

use this as disguised protectionism. Key features of SPS measures are:

(a) Protection (b) Justification (c) International standards (d) adopting to

conditions (e) alternative measures (f) risk assessment (g) transparency and

(h) dispute settlement.

In respect of the product standards, Uruguay Round ensures that Technical

Barriers to Trade (TBT) measures as well as testing and certification procedures

are not used for restricting trade. Countries have right to establish protection for

human, animal or plant life and environment or to meet other consumer interests.

The Agreement covers processing and production method. Central Government

bodies, local governments and NGOs can prepare, adopt and apply standards. The

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agreement further permits the assessments of products through testing in exporting

country to see if product meets importing country’s standard or not.

Under the new provision of TRIMS, new arrangement will open the

floodgates of foreign investment in the Third World Countries. The TRIMS

incorporated certain provisions so as to ensure that Government should not

discriminate against foreign capital and compels the member countries to offer

equal treatment to foreign capital at par with domestic capital/investment. Article

V states that members would notify through the WTO all TRIMS that do not

conform with the agreement within ninety days of entry into the force of

Agreement. Developed countries were required to eliminate these measures within

two years (by the end of 1996); developing countries within five years (by the end

of 1999) and least developed countries within seven years (by the end of 2001).

Article VI of Uruguay Round allows governments to act against dumping.

A country cannot use anti-dumping measures if (a) margin of dumping is

insignificantly small (less than 2 percent of the export price of the product),

(b) volume of dumped import is negligible. At Doha, it was agreed that no second

anti-dumping investigation within a year would be allowed unless circumstances

have changed. Further, developed countries would provide special safeguards to

developing countries while enforcing anti-dumping measures. The main objectives

of WTO agreements on custom valuation are fairness, uniformity and neutral

system. The agreement stipulates that customs valuation shall be based on actual

prices of goods to be valued. If declared value of imported goods is in doubt then

custom authorities have the right to get further information and custom value of

the imported good is not be determined on the basis of declared value. Under pre-

shipment inspection practice, specialised private companies check price, quantity

and quality of imported goods. GATT-94 agreement on pre-shipment inspection

requires the governments to follow the principles of non-discrimination,

transparency, protection of confidential business information, avoid unreasonable

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delays, use specific guidelines for conducting price verification and avoid conflicts

of interest by the inspection agencies. Further, agreement ensures that rules of

origin should be objective, understandable, transparent, non-trade distorting,

harmonized based on consistent, uniform, impartial and reasonable manner.

Uruguay Round applies only to specific subsidies, which can be prohibited

as well as actionable. These subsidies can be domestic or export subsidies and are

given to meet certain export targets. Safeguard measures are defined as

‘emergency’ action with respect to increased imports of particular product, where

such imports cause or threaten to cause serious injury to the importing country’s

domestic industry. These safeguard measures have been designed to (a) clarify and

reinforce GATT disciplines (b) re-establish multilateral control over safeguard and

eliminate measures that escape such controls (c) encourage structural adjustment

on the part of industries adversely affected by increased imports, thereby

enhancing competition in international market. Safeguard measures rest on four

guiding principles: (a) temporary, (b) MFN principle, (c) progressive liberalisation

and (d) compensation to countries whose trade is affected. In case of developing

countries, safeguard measures will be applied only if single developing country is

supplying more than 3 percent of imports. Developing countries may extend the

application of safeguard measures for an extra two years beyond that normally

permitted. The proposal for Trade Related Intellectual Property Rights (TRIPS)

has extended the area of GATT. The proposal for TRIPS include protection of

patents, copyrights, trademark, trade secrets etc. Finally, as per the new GATT

proposal under trade in services, access of service personnel into markets of

member countries will henceforth be possible on a non-discriminatory basis under

a transparent and rule based system.

India adopted the policies of liberalisation, privatisation and globalisation

as a prelude to the Uruguay Round which signalled a distinct movement towards

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market mechanism with a limited role of the government. By pursuing these

policies, domestic liberalisation has been supplemented by increasing

globalisation of the economy and as a result various economic units are

increasingly being encouraged to enter into growing economic relations with the

rest of the world. This developing integration offers both prospects and challenges

to developing countries of the world. In fact, developing countries like India,

require Herculian efforts to bring their trade policies in line with the prescribed

norms of the WTO agreements, while the practices of the developed countries are

already according to those as mentioned by these rules. The developing countries

will have to introduce new laws and new administrative measures to reinforce

their administrative and judicial capacity to apply to WTO regulations. Also these

economies are faced with multitude production and economic bottlenecks such as

scarcity of inputs and raw materials, lack of adequate and efficient infra-structure,

hi-tech manpower, government controls and market regulations, presence of

monopolies and oligopolies, factors and market rigidities. Due to the presence of

such economic rigidities, not only is the domestic production rendered inefficient

and sub-optimal but also the externalities of free trade are hindered. Therefore, the

new economic policies framed in the WTO regime encouraged the entry of multi-

national corporations which pose stiff competition to small scale industrial sector

both at national and regional level. Thus, Indian economy will have to gear up if it

is to confront these challenges effectively in the reformed era.

Section – II

Since globalisation is a mean to invite foreign investment and to restructure

the existing organization for developing nations so that they could enter to

compete in the world market, therefore, in this context, it is imperative to study the

growth process of manufacturing sector in different countries of world. With the

241

increased industrialization, western nations like U.S.A. Germany and France

surpassed U.K. in terms of industrial output. In 1970, U.S.A., Japan, Germany,

France, U.K. Italy and Canada accounted for around 75 percent of world’s

manufacturing output. From 1970 to 1985, the share of these countries was around

67 percent. During this period, with the exception of Japan, whose share grew by

50 percent, the share of other countries contracted. During the same period Brazil,

Spain and Mexico increased their industrial output to be amongst the top ten

industrial nation of the world. In the Developing world, the major catalysts for

growth have been the economies of South East Asia. In 1963, Hong Kong,

Singapore, Taiwan and South Korea accounted for only 0.35 percent of the

world’s manufacturing output while their share had grown to 1.55 percent by

1980. The annual trend growth rate of total manufacturing gross value added

(output) during the last two decades is close to 7 percent while this represents a

turn around compared to the preceding period of ‘relative stagnation’ (1965-1980).

The record is modest in contrast to China’s double-digit growth during this period

and most of other industrialized Asian economies.

Table 8.2 depicts the growth of manufacturing sector in major Asian

economics during 1979-80 to 2007-08. The table shows that developing nations

have shown robust growth in manufacturing activity over the two decades. China

is exhibiting one of the highest growth rates of 14.7 percent. The other countries

that exhibited healthy growth rates during the same period were, Malaysia

13.7 percent, Indonesia 12.1 percent, Thailand 11.1 percent while India is showing

only the growth of 8.3 percent. Although the economy has been opened to global

competition over the last two decade, manufacturing sector in India is still a long

way behind global standards as the growth rate in Indian manufacturing sector is

least among the major Asian economics.

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On the other hand, in case of major developing Asian economies, the share

of manufacturing sector is increasing. Table 8.3 shows the growth of

manufacturing sector as percentage of GDP in major Asian economies. The table

shows China grew by 49 percent, Malaysia by 48 percent, Korea by 37 percent,

Indonesia by 48 percent, Thailand by 46 percent and India by only 29 percent. The

reason that, in the early years of independence, the focus of the government was

on attaining self-sufficiency in all the sectors of the economy, protecting and

nurturing industries and preventing private sector monopolies. Over the years,

these policies had the detrimental effect of breeding inefficiencies, low

productivity and lack of professional management. In 1991-92, as a result of the

reforms, Indian industry has been opened out to competition from global players.

Indian manufactures are also freer to grow, invest and compete in global markets.

However, the pace of reforms has been slow, especially with regard to freeing

government controls. Also, procedural and bureaucratic delays in approvals and

decision-making added the fuel. As a result, Indian manufacturing sector has not

developed to keep a pace with other developing Asian economies of the world.

For better presentations of the performance of India, vis-à-vis with its

global counterparts in manufacturing sector it is important to compare the export

performance of major Asian economies. Between 1979-80 to 2007-08, the

merchandise exports of developing countries grew at an average annual rate of

13.8 percent as compared to 10.8 percent for the world as a whole, resulting in

their shares in world trade increasing from less than one fourth to almost one third.

During this period, developing countries also became important for each other’s

product, the share of trade among themselves reached 40 percent of their total

exports at the end of the last decade. During the 1970s and early 1980s the share

of manufactured exports was around 20 percent, while the share of agricultural

commodities fell from about 20 percent to 10 percent during the same period.

Earning from mineral and oil exports fluctuated considerably due to changes in

243

prices, but the overall trend was in a downward direction. This, among the world

manufacturing exports, which can be attributed to greater share of labour intensive

and low value added manufacturing.

Table 8.4 shows the percentage share of world exports in major developing

Asian economies from 1979-80 to 2007-08. It can been seen from the table that

the share of world export in China grew by 4.57 percent, in Korea by 2.89 percent,

in Singapore 2.93 percent, in Malaysia by 2.07 percent whereas the figure for

India was only 0.92 percent during the same period. Table 8.5 shows that the per

capita value added in manufacturing sector in major developing Asian economies

of the world. The table shows that the highest per capita value added in

manufacturing sector in 2007-08 was experienced by Singapore ($7174), followed

by Korea ($2442), Brazil ($1184), Thailand ($689), and Indonesia ($187) whereas,

the per capita value added in manufacturing sector in India was only $92 in

2007-08. The slowdown of India in comparison with other developing nations is

further demonstrate by the fact that despite tariff reductions through the 1990s,

India has second-highest average products covered under non-tariff barriers.

Hence, cross-country comparisons on direct and surrogate measures of

competitiveness point towards a significant lack of competitiveness in Indian

manufacturing sector. Global competitiveness survey rankings such as those in the

WEF’s Global Competitiveness Report provide corroborative results, where

Indian has been ranked 37th and 49th in terms of current and growth

competitiveness respectively.

Table 8.6 shows WEF Ranking on selected Indicators of competitiveness in

2001-02. The table shows that there are significant barriers, which stand in way of

Indian manufacturing sector growing to its full potential. The major barrier in the

growth of manufacturing sector has been poor infrastructure as compared to its

Asian counterparts. The Global Competitive Report shows that India ranked at 54th

position (out of 59 countries surveyed) in case of the quality of infrastructure and

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TABLE 8.2

GROWTH OF MANUFACTURING SECTOR

IN ASIAN ECONOMIES

(1979-80 to 2007-08)

Country Growth Rate (Percent)

China 14.7

India 8.3

Indonesia 12.1

Korea 11.2

Malaysia 13.7

Singapore 9.7

Thailand 11.1

Source: World Development Report, 2010.

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TABLE 8.3

MANUFACTURING AS PERCENTAGE OF

GROSS DOMESTIC PRODUCT

(1979-80 to 2007-08)

Country Growth Rate (Percent)

China 49

India 29

Indonesia 48

Korea 37

Malaysia 48

Singapore 28

Thailand 46

Source : World Development Report , 2010.

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TABLE 8.4

SHARE OF WORLD EXPORTS

(1979-80 to 2007-08)

(In percentage)

Country Growth Rate (Percent)

China 4.57

India 0.92

Indonesia 1.02

Korea 2.89

Malaysia 2.07

Brazil 1.43

Thailand 1.98

Singapore 2.93

Source: World Development Report, 2010.

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TABLE 8.5

PER CAPITA VALUE ADDED IN MANUFACTURING

SECTOR IN 2007-08

(US dollars)

Country Per Capita Value Added in

Manufacturing Sector

China 386

India 92

Indonesia 187

Korea 2442

Malaysia 1082

Brazil 1184

Thailand 689

Singapore 7174

Source: World Development Report , 2010.

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TABLE 8.6

W.E.F. RANKING ON SELECTED INDICATORS OF

COMPETITIVENESS (2001-2002)

Parameter India China Korea Malaysia Indonesia Taiwan

Overall Quality of

Infrastructure 54 46 28 18 42 26

Sophistication of

Technology Available 38 42 23 27 48 16

Import Fees-Combined

Effect of Import 59 45 32 25 40 24

Tariffs, Licence Fees and

Time Required for

Administrative Average

Tariff Rates

59 57 40 41 45 13

Base of Starting a New

Business 39 37 33 10 24 6

Local Development of

Product Designs 47 35 22 50 51 19

Efficient Production Process 42 43 28 29 46 21

Labour Flexibility 53 32 18 38 26 13

Pay Related to Productivity 52 15 23 29 42 2

Average Ranking 50 39 27 29 40 15

Source: World Global Competitive Report, 2004.

249

absence of world-class infrastructure affects information flow and division making

and hampers business development. Further, staring a business in India entails

considerable procedural delayed and requires the management to spend a lot time

with government officials. According to Report, India ranked at 39th position at the

parameter – base of starting a new business, while Taiwan and Malaysia ranked at

6th and 10th position. Moreover, Indian lagged behind in the parameter of efficient

product process, which leads to low quality levels adversely affecting Indian

exports. Also, labour laws in India make it difficult for firms to terminate

employment. This makes it difficult for firms to take business decisions and

forces them to continue operating, even under inefficient conditions. In case of

labour flexibility India ranked 53rd position in the Report and India’s advantage

of low labour cost is almost negated by low productivity levels. This mainly

due to the fact that majority of the labour force in India is employed in the

unorganized sector.

Thus, it can be concluded that in terms of average ranking with respect to

the selected parameters, Indian manufacturing sector ranked in the lowest bracket

as compared to major developing Asian economies of the world. Due to this

reason even in the reformed era, Indian manufacturing sector is growing at the

slow pace and is unable to complete in the world market during WTO regime.

Section -III

Since independence, nurturing the growth of small scale industrial sector

has continued to remain an important and integral part of development strategy in

Punjab, Haryana and All India. The intensive policy stresses upon small scale

industrial sector as a vital vehicle of progress because of its crucial historical role

in creation of employment opportunities that provides a source of income to

millions of people. In order to achieve self sufficiency in the manufacturing

250

sectors of the economy government protected and nurtured small scale industrial

sector on one hand and prevented private sector monopolies on the other.

Therefore, these policies had the detrimental effect of breeding inefficiencies, low

productivity, lack of professional management and technologically backward

leading to incompetitiveness.

Despite numerous protection and policy measures for the past four decades,

small scale industrial sector remained mostly small and technologically backward

both at national and regional level. During 1991 the opening of the economy

further added to the problems of this sector, therefore, it is imperative to examine

the relationship between globalization and small scale industrial sector alongwith

the opportunities and challenges confronting this sector in the globalised regime.

To empirically examine the impact of globalisation on small scale industrial

sector of Punjab, Haryana vis-a-vis All India, an attempt has been made to

measure the employment elasticity and export elasticity which are indicative to the

response of number of persons employed and export to production respectively.

For the calculation of elasticity of employment and export, time series data for the

period of 1971-72 to 2006-07 has been used which was further, bifurcated in to the

pre reforms (1971-72 to 1990-91) and post reforms period (1991-92 to 2006-07).

For this purpose a multivariate log-linear regression model with dummy variables,

(Di), was used and is given in equation (1).

(1)

In equation 1, the elasticity of employment with respect to production is

given as This is calculated by differentiating both sides of equation 1 and

solving for ∂E /∂Y;

(2)

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TABLE 8.7

EMPLOYMENT ELASTICITY IN SMALL SCALE INDUSTRIAL

SECTOR OF INDIA, PUNJAB AND HARYANA

PERIOD INDIA PUNJAB HARYANA

Pre-reforms

(1971-72 to 1990-91)

0.72 0.85

0.60

Post Reforms

(1991-92 to 2006-07)

0.33

0.15

0.02

Entire Period

(1971-72 to 2006-07)

0.84

0.51

0.57

Slope of Dummy

variable

-0.39 -0.70 0.58

Source: Author’s Calculation

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TABLE 8.8

EXPORT ELASTICITY IN SMALL SCALE INDUSTRIAL SECTOR

OF INDIA, PUNJAB AND HARYANA

PERIOD INDIA PUNJAB HARYANA

Pre-reforms

(1971-72 to 1990-91)

1.67 0.96 0.89

Post Reforms

(1991-92 to 2006-07)

1.25 1.30 1.24

Entire Period

(1971-72 to 2006-07)

2.42 1.21 1.09

Slope of Dummy

variable

-0.39 -0.70 0.58

Source: Author’s Calculations

253

Using this econometric method, represents the change in variables

(employment and export) allied with a differential change in output. Thus, an

elasticity of 1 implies that every 1 percentage point of production is associated

with a 1 percentage point increase in employment. Further, for the calculation of

elasticity of employment and export in Punjab, Haryana vis-a-vis All India for the

entire period equation 3 is used;

(3)

Table 8.7 examines the employment elasticity of Punjab, Haryana vis-a-vis

All India. The table shows that employment elasticity during the pre reforms

period is capital intensive in nature because of the negative slope of dummy

variable. The observed elasticity worked out to the tune of 0.72 which means that

1 percent increase in output of small scale industrial sector was generating

employment at the rate of 0.72 percent, however, during the post reforms period,

the coefficient becomes very weak (0.33). Moreover, the employment elasticity

during the entire period worked out to be 0.84. Further, employment elasticity in

small scale industrial sector of Punjab, during the entire period worked out to be

0.51 in comparison to 0.85 and 0.15 in pre reforms and post reforms period

respectively. It indicates that in Punjab capital intensity has increased at a faster

rate than that of India. On the other hand results of employment elasticity in

Haryana shows that during the entire period it worked out to be 0.57 in

comparison to 0.60 and 0.02 during pre reforms and post reforms period

respectively. The similar picture has also been observed in Punjab during the post

reforms period.

Table 8.8 demonstrated the comparison of export elasticity in Punjab,

Haryana vis-a-vis All India. The table shows that at All India level, the export

elasticity was found to the tune of 2.42 in comparison to 1.21 in Punjab and 1.09

in Haryana in the entire period. Further, in the pre reforms period it worked out to

254

be 1.67 at All India level, 0.96 in Punjab and 0.89 in Haryana. However, in the

post reforms period it worked out to be 1.25, 1.30 and 1.24 at All India level,

Punjab and Haryana respectively, which showed that during the post reforms

period the value of export elasticity is declining, thereby implying the decline in

exports from the small scale industrial sector at national level. However, at the

regional level a slight improvement in the export elasticity has been noticed during

the post reforms period.

Since in the process of globalization, the small scale industrial sector is

exposed to market competition to a greater extent and confronting many

opportunities and challenges, therefore, it is imperative to understand the strength,

weakness, opportunities and threats with the help of SWOT analysis. Table 8.9

highlights SWOT analysis for Indian small scale industrial sector which reveals its

strength in terms of operational flexibility, resilience, efficient management,

abundance supply of labour, inherent ability to innovate and organization; the

challenges thrown open by domestic liberalisation, establish backward forward

linkages both nationally and internationally and new world trade regime; also new

opportunities existing in the exports market; and threats from new world trade

order, lack of infrastructure and growth of cheap imports. From Table 8.9, we can

enumerate unfolded and numerous opportunities for the growth of Indian small

scale industrial sector.

Table 8.10 demonstrates the SWOT analysis of small scale industrial sector

in Punjab. The table shows the strength in terms of as cheap availability of

agricultural raw materials, availability of skilled labour, well developed hosiery

industry and high income/consumption level of the people; the challenges are

stipulations of WTO, threat from foreign competitors, lack of infrastructure,

international labour and environment laws; also new opportunities as the challenge

of upgrading skills, scope of agro-based industry and scope of cotton and other

textiles industries; and weaknesses are shortage of labour, landlocked and located

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TABLE 8.9

SWOT ANALYSIS OF INDIAN SMALL SCALE

INDUSTRIAL SECTOR

Strengths

• Flexible Manufacturing system

• Lower cost of production

• Low level of capital investment per unit of

output and employment

• Utilization of local resources

• Inherent ability to innovate

• Ability to make quick adjustments to the

changing economic and trading scenario

• Operational Flexibility

• Knowledge of internal markets

• Abundance supply of labour

Weaknesses

• Inadequate capital for investment/ expansion

• Inadequate working capital

• Lack of demand

• Technologically weak due to inadequate capital

• Weak bargaining power

• Absence of brand equity’ for ‘Made in India labels

• Lack of Development policy framework

• Product reservation Policy

• Low recognition and appreciation of this sector in view of its contribution to industry output, exports

• Lack of infrastructure facilities

• Lack of Well-developed data/ information system

Opportunities Threats

• Untapped exports potential in sectors such as computer software, leather and leather products, light engineering products, hand tools and implements, auto components and ancillaries, garments including hosiery

• Growing service sector

• Sector and stability of access under the WTO regime.

• Tariff reduction by all countries

• Phasing out of MFA

• Establish backward forward linkages, both nationally and internationally

• Joint venture

• Technology upgradation

• Technological Obsolescence

• Inadequate use of information and communication technologies

• Slow adoption of quality culture

• Poor infrastructure support

• International environmental agenda which is in stark contrast to low emphasis by Indian firms

• Non–compliance with non-tariff barrier particularly environment, health and safety standards.

• Growth of cheap imports

• High cost of funds.

Source: Author’s Observation

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TABLE 8.10

SWOT ANALYSIS OF SMALL SCALE INDUSTRIAL SECTOR

IN PUNJAB

Strengths Weaknesses

• Tradition of trade, business and industry

• strong in agricultural raw materials

• Well developed infrastructure base

• Availability of skilled labour

• Dynamic entrepreneurship

• High-income/consumption level of the people.

• Well developed Hosiery industry

• Manufacturing Flexibility

• Landlocked and located in a corner of the country

• Far away from ports

• land prices are higher than in other parts of the country

• Weak industrial policy regime

• Shortage of power supply

• Lack of Mineral and natural resources

• peripheral position distant from major national markets

• Shortage of Labour power

Opportunities Threats

• The Challenge of upgrading skills

• Scope of Agro-based Industry

• Scope of Cotton and Other Textiles industries

• New Petroleum Refinery and a Petro-chemical Complex

• End of Quota regime

• Shift in Domestic market

• Emerging economy and expansion

• Pressure on Natural Resources– especially soil and water

• variety of government incentives and concessions

• stipulations of WTO

• Threat from foreign Competitor

• International labour and environment Laws

Source: Author’s Observation

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TABLE 8.11

SWOT ANALYSIS OF SMALL SCALE INDUSTRIAL

SECTOR IN HARYANA

STRENGTHS WEAKNESS

• Locational Advantage

• Availability of material in sufficient quantity

• Easy and cheap workforce

• Local access to banks & Financial Institutions

• Well connected by road, rail & air

• Demonstration effect

• Easy availability of other materials

• Availability of Technical & Engg. Institutes

• Low level of investment with little gestation period

• Strong presence in the domestic market

• Assistance from State & Central Govt.

• Developing trust and relationship

• Utilization of local resources

• Implementation of Govt. sponsored schemes through DIC & Blocks

• Absence of market intelligence and

Limited to local markets & lack of exposure to different markets

• Potential for export not explored

• Low productivity & high cost of production

• Lack of advanced technology

• Wastage of manpower & material

• Inability of timely execution of large orders

• Lack of awareness and measures for quality assurance

• Under utilization of financial facilities

• Poor coordination with local banks & Financial Institutions

• Ignorance of different schemes & incentives by Govt.

• Inadequate Institutional credit flow leading to exploitative lending

Opportunities Threats

• Developing tariff and non-tariff barriers

• Participation in National and International Trade Fair

• Advent of latest technology

• Creation of technology awareness among Entrepreneurs

• Establishing ties with R&D Institutions and Laboratories

• Availability of sufficient manpower

• Cheap raw-material due to bulk purchasing

• Demonstration effect

• Scale down the production cost due to availability of cheaper inputs

• Availability of traditional skills

• Ample scope of Govt. through varied schemes

• Availability of finance

• Entrepreneurial financial awareness

• Increasing competition due to globalization

• Increase of imports due to depleting barriers

• Imitation by others due to lack of Patenting

• Adoption of changed or modernized technology

• Low level of technological development

• Expensive sophisticated technology

• Expensive raw-material imports

• Stiff competition due to WTO norms

• Arrival of MNC’s

• Threat from changing Business Environment

• Economic Downturn adding pressure to revenue

• Complicated documentation procedures

• Irregular payment of dues

Source: Author’s Observation

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in a corner of the country, far away from the ports, lack of natural resources, weak

industrial policy regime and land prices are higher than in other parts of the

country.

Table 8.11 reveals SWOT analysis of small scale industrial sector in

Haryana. The table shows the strength in terms of locational advantage,

availability of raw material in sufficient quantity, cheap workforce and

government liberal policies; weakness as absence of market intelligence, limited to

local markets and lack of exposure to different markets, Inability of timely

execution of large orders, lack of awareness and measures for quality assurance

and under utilization of financial facilities; opportunities as existing in the exports

market, availability of sufficient manpower and ample scope of government

through varied schemes; and threats as increasing competition due to

globalization, increase of imports due to depleting barriers, imitation by others due

to lack of patenting and quality of raw material.

Thus, the analysis shows that in Punjab, Haryana and at All India level,

ample scope exists for the development of small scale industrial sector. Although,

opening up of the economy in the early 90s, with accelerated pace of liberalisation

has thrown a number of opportunities for the small scale industrial sector but to

compete in the world market this sector has to be technologically efficient and

economically viable both at national and regional level. The new world trade

regime has opened the global market for Indian enterprises where they can now

compete with the other enterprises of the developing and developed countries.

However, the success of small enterprises engaged in exports market heavily

depends on the quality and price of their product relative to that of others. This

needs technology upgradation and modernisation and in this context, it is worth to

mention that this sector is now going to have a large open market for exports. To

tap these opportunities, however, an improvement is needed in competitiveness

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since other countries especially China and Pakistan have already flexed their

muscle. Therefore, the present competitive environment would surely improve the

efficiency and productivity of this sector if the policy is implemented with some

safety guards by the government both at national and regional level.

Section -IV

The globalization and liberalization has posed certain challenges as well as

opportunities to the small scale industrial sector of Punjab, Haryana and at All

India level. The challenges are in the form of increased competition arising out of

reduced protection due to removal of restrictions on imports and lowering of

tariffs. Opportunities have come in the form of access to better technology,

availability of a variety of raw materials and components, impetus to quality,

efficiency and opportunity to restructure and to diversify. The emergence of

multilateral trade regime, WTO conditionalities have added urgency to the task of

enhancing competitiveness. It is essential to remove the constraints which limit the

competitive strength of small scale industrial sector of Punjab, Haryana and at All

India level. Further, the provisions/ agreements which are likely to affect the small

scale industrial sector under the WTO regime are: Quantitative Restrictions (QRs),

tariff reductions, anti-dumping practices, subsidies and countervailing measures,

Technical Barriers to Trade (TBT), Trade Related Investment Measures (TRIMs)

and Trade Related Intellectual Property Rights (TRIPs). With the removal of

quantitative restrictions, all reserved items have become freely importable,

therefore, the small scale industrial sector will have to be safeguarded by the

government both at national and regional level.

To analyse the impact of globalisation, employment elasticity and export

elasticity of small scale industrial sector have been calculated by using the

technique of multivariate log-linear regression model including dummy variables.

The comparison of employment elasticity showed that during the entire period it

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worked out to be 0.84, 0.51 and 0.57 for All India, Punjab and Haryana

respectively, whereas, during pre reforms period it worked out to be 0.72, 0.85 and

0.60 and in post reforms period 0.34, 0.15 and 0.02 respectively, implying thereby

capital intensive nature of small scale industrial sector in the post reforms period

both at national and regional level. On the other hand the comparison of the export

elasticity of small scale industrial sector in Punjab, Haryana vis-a-vis All India,

showed that at All India level it was found to the tune of 2.42 in comparison to

1.21 in Punjab and 1.09 in Haryana in the entire period. Further, in the pre reforms

period it worked out to be 1.67 at All India level, 0.96 in Punjab and 0.89 in

Haryana, however, in the post reforms period it worked out to be 1.25, 1.30 and

1.24 at All India level, Punjab and Haryana respectively, which showed that

during the post reforms period the exports from the small scale industrial sector is

declining at All India level.

Therefore, the new economic policies framed in the WTO regime

encouraged the entry of multi-national corporations which pose stiff competition

to small scale industrial sector both at national and regional level. Thus, the

process of globalization would help to explore the existing opportunities for small

scale industrial sector only if the government focuses on improving infrastructural

facilities, encourages research and development and improves the efficiency to

make this sector viable in the globalised regime.

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