What is the impact of LPG on small Enterprises?

• Before the advent of the new economic policy in 1991, 812 items were reserved for production in the Small Scale sector. The New Economic Policy (NEP) storm mercilessly killed this policy of reservation.
• Similarly, Small Scale Industries (SSIs) were given preference in government procurement as well, both in terms of price and purchase preference. Slowly these concessions to SSIs vanished in the name of promoting competition.
• It was argued that if we continue protecting domestic industry including Small Scale Industries, Foreign Investors would be discouraged and consumers' choices would be also hampered.
• Policy of open imports in the era of globalization did help us in getting number of goods and sometimes even technology, but at the cost of closure of millions of Small Enterprises, which couldn't face fierce competition from the rest of the world.
• Though, in some sectors like automobile, we do find some growth in ancillary small scale units; however, Small Scale sector in general faced extinction especially due to import flood from China.
• Huge import surge from China, not only caused huge burden of foreign exchange payment on the country due to heavy imports of toys, power equipment, mobile, computer and other electronics accessories, project goods, power plants etc., our industry and businesses were also destroyed, causing widespread unemployment.

What is the solution?

Need for Separate Labor Laws :

• Small Enterprises, instead of hiring regular labor, have started shifting to contract labor.
• Contract labor is exploited by the intermediaries and organic relationship between entrepreneur and the labor goes missing, affecting welfare of both entrepreneurs and workers.
• Given this problem, the Second Labor Commission gave an important recommendation to enact separate laws for Small Enterprises. Workers organizations also favored such initiative.
• Sometime ago, a bill called 'Micro Small and Medium Enterprises Bill' was formulated. However, need to have separate labor laws for Small Enterprises remains.

Finance:

• Banks and other Financial Institutions feel that it's risky and cumbersome to lend to small enterprises. There is hardly any truth in this thinking, given the NPA crisis being faced by banks due to big loans turning bad.
• Due to this preconceived notions of banks, they try to avoid lending to Small Enterprises, even circumventing their legal binding of priority lending to Small Enterprises.
• Further, Small Enterprises get loans at higher interest rates, whereas big borrowers get loan at much cheaper rates and on more easy terms, without hassles.
• After the current government took over the rein of power, it has tried to facilitate Small and Micro Enterprises through Micro Units Development and Refinance Agency (MUDRA), Startup schemes etc.

Restricting Flooding and Dumping of Imports :

• Although foreign trade is a normal phenomenon in modem days, however, it has been a major cause for distress to Small Enterprise.
• Reason is dumping by some foreign countries, especially China. Central government has now started imposing Anti-Dumping Duty in a big way.
• We find that the imposition of anti-dumping duties on some items in the year 201 6-17 yielded desirable results. Now since, on many other items of imports from China anti-dumping duty has been imposed, it is expected that in the current year imports from China will further decline.

Preference in Government Procurement :

• In order to protect and promote small enterprises, there used to be a clear and comprehensive policy of preferential procurement from SSIs, which used to take the form of price preference or purchase preference. However, with the passage of time, these preferences were more or less weaned away.
• Recently, a new preferential procurement policy has been made by the government, implemented by making General Financial Rules (GFR). Rule 153 of GFR states:
• "In procurement of goods for Rs. 50 lakhs and less, and where the Nodal Ministry determines that there is sufficient local capacity and local competition, only local suppliers will be eligible.
• For procurements valued at more than Rs. 50 lakhs ( or where there is insufficient local capacity/ competition) if the lowest bid is not from a non-local supplier, the lowest-cost local supplier who is within a margin of 20 per cent of the lowest bid, will be given the opportunity to match the lowest bid."
• It is expected that preferential procurement of domestic goods would go a long way in encouraging domestic industry in general and Small Scale Industry in particular.

Ending Inspector Raj :

• There are more than 40 laws applicable on SSIs and more than 50 Inspectors visit their factories, and many of them have wide ranging powers to penalize SSIs.
• Living under these threats, SSIs find it difficult to concentrate on core areas like production, marketing and up gradation of technology.
• There are many such laws which have lost utility in modem times, and there are many others which come in way of healthy functioning of the economy in general and industry in particular.
• There is a need to facilitate new entrepreneurs by single window clearances of all types. Some states have initiated this process.
• As more and more state governments are going online, this process will further accelerate. Under new initiatives for Startups, online clearances are already being given.

Building Infrastructure :

• Almost impossible to start and run Small Enterprises in a remote area. They are neither connected with rail or road; nor do they have assured source of power.
• Even in big and developed places, assured power supply is a big issue. At many places, generators are under rampant usage. This not only raises cost, but is a source of pollution and units equipped with generators are subject to exploitation by concerned departments' inspectors.
• There is need to develop infrastructure of various kinds including rail, road, power, skill development, markets (including e-portals) etc.
• Universal electrification of villages, boost being given to solar energy, fast tract building of roads by the present government is expected to help promotion to small scale and tiny industries, especially in rural areas. E-procurements have also started by the governmen