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G.K. Nair

Kochi , Sept. 29

THE current rural industrialisation policy seems to be more attuned to the interests of specific institutional structures already existing, rather than a clear-cut policy framework looking for appropriate institutional structures, says Dr P.M. Mathew, Director, Institute of Small Enterprises Development (ISED) here.

As a result, development of industries in the rural areas has been crucial to the industrial policy formulation in the country, though the emphasis has shifted from time to time. "The fact that the products of the rural industries do not attract an appropriate market indicates a basic contradiction in India's rural industrialisation policy," Dr Mathew told Business Line.

It was this approach, which got reflected in the setting up of a variety of institutions, exclusive as well as general, which consider rural industrialisation as a potential area of activity. "Irrespective of the policy instruments, programmes and institutional structures, the official focus on rural industry has been primarily viewed as a programme for the preservation and revitalisation of traditional industries, and not as a programme for rural industrialisation," he said.

As a result, rural industries have not played an effective role in providing a reasonable level of incomes to those engaged in them, or in integrating rural areas into the overall process of industrialisation in the country.

Rural industrialisation was viewed in terms of a limited concept of promoting village industries. Under such a limited approach, a vicious circle of static technology, competition from substitutes and low- income elasticity of demand, are natural. These issues gain an added complexity under globalisation where markets are characterised by extreme competition and volatility, he said.

Though, in theory, the relevance of rural industry has been decimated, its functional relevance continues. The broad features of a rural industrial enterprise are that it is located in a rural setting with obvious limited market and linkages; labour abundant and capital-scarce; and focus on local skills and relatively low technology.

Based on these criteria, India's rural industries cover its significant informal sector. The term informal sector covers both the micro base of entrepreneurship, which spontaneously emerge, as also, a micro sector that has been deliberately created as an appendage of large capital.

Viewed from this angle an array of economic activities, falling under the `rural crafts' category, such as handlooms, handicrafts etc. can form the compass of rural industries. The overall implication of the new WTO-led trade regime is that every single individual enterprise in India, small or large, rural or urban, whether exporting or serving the domestic market, has to face intense competition.

While exporting enterprises directly face the challenge in the international market, those confining to the domestic market, face the challenge indirectly, through cheaper substitutes, product obsolescence etc.

All enterprises are forced to work as subjects or links of global supply chains, directly or indirectly. Therefore, no criteria can be suggested for rural industries to behave as market players. Probably, the only thumb rule is one of quality, and meeting the international standards, which many smaller enterprises cannot adhere to. However, no enterprise can stick on to its own standard and continue in the market, any longer.

Though there were apprehensions on the potential export scene in the context of the WTO stipulations, the export position of the SSI sector has generally remained more or less constant.

Enhancing the relative export capability requires some urgent imperatives: Firstly, it is necessary to closely monitor the export composition of India's SSI sector, in terms of products and services, Secondly, it is also necessary to identify who the exporters are, and how they perform.

For example, as per available data, more than 90 per cent of the garment exports from the country are accounted by the SSI sector. But the number of SSI exporters in the garment sector, are negligible. It is therefore, necessary to distinguish between exporters and exports. There is tangible gap in data in this area, which does not permit evolution of any meaningful policies.

A characteristic feature of the SSI sector in India is that, there is a product concentration with regard to exports: 70 - 80 per cent of the total exports are accounted by items such as readymade garments, leather products, basic chemicals, marine and processed foods and some engineering items. While production has substantially grown, efforts towards diversification and quality upgradation remain backward.

Another crucial area relates to the extensive dependence on the traditional exports. While this sub-sector has been considered a milk cow, attempts towards quality improvement and design development remain badly neglected. Besides, there has also been a progressive decline in the share of manufacturing exports.

The dollar contribution of Indian exports is much low. While volume of exports grows, export proceedings continuously remain low.

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