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Tuesday, Sep 16, 2003

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`Unorganised sector tops job creation'

G.K. Nair

Kochi , Sept. 15

GOING by India's globalisation experience, Small and Medium Enterprises (SMEs) appear to present the only hope for growth and employment creation.

In the year 1999-2000, the organised sector's total contribution to employment was only 8 per cent, of which the private sector's contribution was only 2.5 per cent. The remaining 92 per cent came from the unorganised sector. On this basis, the Planning Commission estimates that if the organised sector grows at 20 per cent per annum and the private organised sector at 30 per cent per annum, their contribution to employment will increase hardly by 1.5 to 2 per cent of the total over the Tenth Plan period. As such, the Commission has targeted the unorganised sector to achieve the Plan target of employment creation.

And yet, the opportunities and threats to the SME sector in the context of globalisation have not received adequate academic attention, according to Dr P.M. Mathew, Director, Institute of Small Enterprises Development, here. Some studies have, however, found out that greater openness can lead to increased employment, but it is not a cure-all in terms of poverty reduction.

While, the `globaphobes' attribute most of the sector's ills to globalisation, the `globaphiles' see extending globalisation as the key to providing employment opportunities and eliminating poverty, Dr Mathew told Business Line. "Unfortunately, there are not many studies on the impact of globalisation on manufacturing, both its growth dimension and employment," he said. Though there are optimistic and pessimistic viewpoints on the impact of globalisation on economic activities and the lives of people around the world, its real impact has not been understood in the absence of adequate studies.

The results of a recent UEA-IDS study conducted in four countries — Bangladesh, Kenya, South Africa and Vietnam — indicate that integration with the global economy has led to a significant increase in the number of unskilled jobs, particularly for women, in Bangladesh and Vietnam. Job creation as a result of greater openness has been minimal in Kenya and South Africa and is biased towards more skilled workers. Where export growth is limited, increased competition from imports can significantly depress the employment impact. Unless a significant number of unskilled jobs is created, globalisation is unlikely to lead to poverty reduction.

These findings, according to him, suggest that the specific context in terms of resource endowments, market access and geographical location plays a part in determining the likely impact of globalisation on poverty.

Trade policy can also play a part in ensuring that the gains from increased employment in export industries are not offset totally by increased import penetration.

"The lesson India should learn is that, given the large size of the country and the magnitude of its unemployment problem, any policy for SME development has to be anchored on the employment dimension." Besides, being a strategic variable, it is employment, which can act as a cause that can build up consensus in society in favour of SMEs, he pointed out.

However, between the lines, the UEA-IDS report indicates the problems consequent to the neglect of local manufacturing in favour of serving the interests of global supply chains. The conventional concept of entrepreneur-centric SME development still has significant relevance in a large country such as India, unlike those smaller countries which are largely dependent on the export market. The contribution of India's small entrepreneur to the entrepreneurial resources of the country has no parallel in other developing countries.

The study shows that the argument of `managing globalisation well' in order to make it work for the poor is often an illusion. There may be real contradictions in the process, and contradictions can be resolved only with a decisive role of the state in encouraging training and skill formation, and in providing social safety nets. Countries may have to choose between increasing employment in the unskilled sector as a way of lifting the largest number of people out of poverty or trying to upgrade within value chains and developing niche markets as a way of raising incomes and skill levels.

The process of globalisation, which was intensified during the past decade, affects all economic activities. SMEs are mostly the weakest link of the industrial system, and naturally, represent the lower end of the economic strata.

The reality "as we experience today prompted ISED to have an explanatory attempt on the road ahead, which had led to the Programme on Globalisation and SMEs (PROG-SME)", Dr Mathew said. It is an integrated programme with focus on action and that is expected to come through a participative process, he added.

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