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WTO AND ITS IMPACT ON SMALL SCALE INDUSTRIES IN INDIA

                                                      

Introduction

The small-scale industries sector plays a vital role in the growth of the country. It contributes almost 40% of the gross industrial value added in the Indian economy. It has been estimated that a million Rs. of investment in fixed assets in the small scale sector produces 4.62 million worth of goods or services with an approximate value addition of ten percentage points.

The small-scale sector has grown rapidly over the years. The growth rates during the various plan periods have been very impressive. The number of small-scale units has increased from an estimated 0.87 million units in the year 1980-81 to over 3 million in the year 2000.                        

From 1947 to 1994, General Agreement on Trade and Tariff (GATT) was the forum for negotiating lower customs duty rates and other trade barriers.  The World Trade Organization (WTO) was established on 1st January 1995. When the GATT came into WTO’s umbrella, it has annexes dealing with specific sectors such as agriculture and textiles, and with specific issues such as State Trading, Product Standards, Subsidies and Actions taken against dumping. The WTO has 148 members, accounting for over 97% of world trade. Around 30 others are negotiating membership. 

WTO aims to develop the country’s economy by encouraging its export among the member countries. Further, it facilitates for availing new technologies from various countries at a lower cost. In this connection, this paper focuses on the positive role played by the WTO in the globalization scenario.

GROWTH OF SSI SECTOR IN INDIA

Small Scale Industries (SSIs) are the pillars of India’s industrial economy. The SSIs’ chief aims are:

• To Remove the regional disparities
• To facilitate for the Equitable distribution of national income and wealth
• To earn the Return on Investment in shorter period
• To produce some consumption goods and essential commodities.

As the SSIs consume local resources, the growth of SSIs was quite appreciable at the dawn of new century. It is evidential from the fact that there were over 32 lakhs Small Scale Units in the organized sector as on 31st March 2000 (Naik: 2002) & (Economic Survey: 2001).

Overall Performance of SSI Sector in India

Year

No. of Units

(In lakh)

Production (Rs. In Crore)

Employment
(In lakh)

Exports (Rs. in

Crore)

1950 – 51

0.16

615

7

40

1980 - 81

8.74

28060

71

1643

1985 - 86

13.55

61228

96

2769

1989 - 90

18.26

132320

119.6

7626

1991 - 92

20.82

178699

129.8

13883

1995 - 96

27.44

356213

156.61

36470

1999 - 2000

32.25

578470

178.5

53975

2000-01

101.1

261297

238.7

15278

2001-02

105.2

282270

249.3

14938

2002-03

109.5

311993

260.2

17773

2003-04

114.0

357733

271.4

21249

2004-05

118.6

418263

282.6

.

2005-06 P

123.4

471244

294.9

.

P : Provisional.;  Source : Ministry of Small Scale Industries, Government of India.

SSIs require comparatively a smaller investment and avails the financial support of various financial institutions. There have a number of schemes of direct and self -employment. The employment through SSIs has been tremendously increased from 119.6 lakh during the year 1989 - 90 to 178. 5 crore during the year 1999 – 2000. In succeeding years also in the well grown in all areas.  But it

ORIGIN AND OBJECTIVES OF WTO

  The World Trade Organization (WTO) was established on 1st January 1995.  The ‘Marrakesh Declaration’ of 15th April 1994,  affirmed that the results of the Uruguay Round would ‘Strengthen the world economy and lead to more trade, investment and employment and income growth throughout the world. The WTO is the embodiment of the Uruguay Round Results and successor to the GATT. From 1947 to 1994, General Agreement on Trade and Tariff (GATT) was the forum for negotiating lower customs duty rates and other trade barriers. When the GATT came into WTO’s umbrella, it has annexes dealing with specific sectors such as agriculture and textiles, and with specific issues such as State Trading, Product Standards, Subsidies and Actions taken against dumping. WTO aims to develop the country’s economy by encouraging its export among the member countries.

Key subjects in WTO

WTO not only frames rules regarding the marketing of produces in  agriculture, textiles and clothing sectors, but also it fixes international standardized labour wages and working conditions, globalizes the trade and weeds out the corruption at Government level in Government procurement policies. Further, it facilitates for availing new technologies from various countries at a lower cost.

Problems facing the SSI sector

            The SSI sector confronts several problems despite its strategic importance in any industrialisation strategy and its immense potential for employment generation.

The problem which continues to be a big hurdle for the development of the sector is lack of access to timely and adequate credit. The Abid Hussain Committee on SSIs (1997) examined the problems of the SSI sector and recommended a package of policies to restructure the industry in the context of current global economic changes. The Expert Committee was of the view that the existing institutional structure for delivering credit to SSEs needs a thorough overhaul. It endorsed the recommendations of the Nayak Committee and urged the RBI to implement the same. The Committee recommended restructuring of financial support through SFCs and SIDCs, tapping of other sources of funding for SSEs, extending credit rating servcies to small units, and addressing the credit needs of tiny units to ensure that they are not bypased by the commercial banking system. The overall credit availability for SSIs during 1991-1996 amounts to only 13% of the value of production.

The Nayak Committee had recommended a desirable norm of 20% of the value of production to be made available by way of working capital through term-lending institutions and commercial banks A norm of 75% was set for fixed capital assets whereas actual availability is only 55%. Lack of finance has been one of the major causes of sickness in the SSI sector, blocking access to technological modernisation and other growth possibilities. There is an urgent need to enlarge flow of credit to the SSI sector from institutional sources. The creation of a facilitating environment for SSIs will centre on access to credit. The Ninth Five Year Plan (1997-2002) estimates additional working capital funds at Rs. 1420 to 1460 billion for the small sector. Lowering interest-rates, specifying a time-frame to clear loan applications and adherence to norms set down by the Nayak Committee are some of the minimum measures that need to be taken.

Legislative measures have a role to play with regard to funding and financing of small scale units. There are measures which can basically ensure that impediments to credit availability are removed. These measures include:

• Right to reasonable credit from commercial banks as per RBI guidelines framed after consultation with representative Board
• Protection against non-normative demands for security
• Appeal and enforcement by Ombudsman/Board
• Access to public funds by way of debentures, deposits, securities
• Government guarantee for loans from banks

The measures to support Marketing and Competitiveness are as follows:

• State to exempt from contract security
• Prompt return of contract securities in case of others
• Prompt payment measures
• Protection against undue bundling of contracts by the state
• Protection against restrictive and monopolistic trade practices
• Ombudsman/arbitral services for enforcement

Positive impact of WTO on SSIs

            After the origin of WTO, the SSIs in India enjoy the following privileges:

• Enabling India to export goods to the member countries of the WTO with fewer restrictions. Reduction of tariffs on the export products to India i.e., Tariff based protection has become the rule.
• Export in India has been increased from Rs.13883 crores in 1992 to Rs.53975 crores in the year 2000 in SSI sector.  
• Prospects in agricultural exports as a result of likely increase in the world prices of agricultural products due to reduction in domestic subsidies and barriers to trade.
• Greater Market orientation
• Radical trade in SSI sector opened new investment opportunities thereby the acceleration of economic growth.
• Availability of modern technologies from the other countries at reduced cost.

In India, there has been a significant and absolute gain in trade under WTO. Exports increased marginally from $ 30.63  billion during the year 1995 to $ 44.2 billion in the year 2000 though share in the global trade increased marginally from 0.6 to 0.65 percent. India has been a net gainer, though in a limited way. Growth in India’s exports has been marginally above the growth in world exports. This shows that WTO has made significant contribution to the expansion of world trade (Somayajulu & Venkataramana: 2002).

Conclusion         

            WTO plays positive role in strengthening the SSIs. On the other hand, it is feared that many rules of WTO are biased and in the favour of developed countries; they are formulated to force the developing countries to open their economy which would benefit the developed countries and many indigenous industries of developing countries might fail as they will not be able to compete with the international enterprises. This may cause adverse effect on the employment opportunities in the country.

            High investment; High return! Though it is the reason for the handicaps of our SSIs, It can be confronted by the innovativeness, novelty in products and the development of lean technologies in the manufacturing sector. Number of Innovative entrepreneurs having strong need for achievement can surely ensure success and tackle the challenges of open competitions at global level.

References

1. Naik S.D. (2002), ‘Small – Scale Industries: Preparing for the WTO Challenges’, The Hindu Business Line, July, 12, 2002.
2. India – Business Year Book (2005), Vikas Publishing House Pvt. Ltd., p. IV-23.
3. GOI (1981) to (2007), Economic Survey.
4.  Somayajulu G. & Venkataramana V. (2002), ‘Impact of  Exim policy – 2001 – WTO on Small and Medium Enterprises’, Southern Economist, April, 1 – 15.

About the Author

M.VASAN, M.B.A., M.Com.,M.Phil.
Research Scholar
Periyar University
Salem, Tamil Naud, India
drmvasan@gmail.com