New Economic Policy in Changes and Choices on Small Scale Industry in Kanyakumari District

The New Economic Policy refers to economic liberalisation or relaxation of import tariffs, deregulation of markets or opening the markets to private and foreign players, and reduction of taxes to expand the economic wings of the country. Former Prime Minister Manmohan Singh is considered to be the father of the New Economic Policy (NEP) of India. Manmohan Singh introduced the NEP on 24 July 1991. The main objective was to plunge the Indian economy into the arena of “globalisation” and to give it a new thrust towards market orientation. The NEP intended to bring down the rate of inflation. It aimed to achieve economic stabilisation and to convert the economy into a market economy by removing all kinds of unnecessary restrictions. Beginning in mid-1991, the government made some radical changes in its policies related to foreign trade, foreign direct investment, etc. The various elements, when put together, constitute an economic policy that marks a big departure from what had gone before.

The thrust of the New Economic Policy has been towards creating a more competitive environment in the economy as a means of improving the productivity and efficiency of the system. This was to be achieved by removing the barriers to entry and the restrictions on the growth of firms.

Before 1991, the Indian economy was strictly under the control of the government. It was the public companies that ruled the roost. The very few private companies that operated in those days had to follow myriad government-sanctioned dos and don’ts. However, as 1991 approached, the Indian economy was on the brink of collapse. The government had to take the help of the IMF, and it secured a bailout package from it.

As per the terms and conditions of the bailout package from the IMF, the Indian government had to deregulate the domestic market and reduce the import tax and other kinds of taxes. Further, it had to open its market to foreign players. This policy of opening the market and liberalising it is known as the New Economic Policy, 1991. The then Prime Minister P. V. Narasimha Rao, the then Finance Minister Manmohan Singh and the minister P. Chidambaram were the key players in making this policy see the light of day.

The Soviet NEP represented a more market-oriented economic policy (deemed necessary after the Russian Civil War of 1918 to 1922) to foster the economy of that country, which had suffered severely since 1915. The Soviet authorities partially revoked the complete nationalisation of industry (established during the period of War Communism of 1918 to 1921) and introduced a mixed economy, which allowed private individuals to own small and medium-sized enterprises, while the state continued to control large industries, banks and foreign trade. In addition, the NEP abolished prodrazvyorstka (forced grain requisition) and introduced prodnalog, a tax on farmers payable in the form of raw agricultural produce. The Bolshevik government adopted the NEP in the course of the 10th Congress of the All-Russian Communist Party (March 1921) and promulgated it by a decree on 21 March 1921: “On the Replacement of Prodrazvyorstka by Prodnalog”. Further decrees refined the policy. Other policies included monetary reform (1922–1924) and the attraction of foreign capital.

Owing to various controls, the economy became defective. Entrepreneurs were unwilling to establish new industries (because laws such as the MRTP Act, 1969 demotivated entrepreneurs). Corruption, undue delays and inefficiency rose due to these controls. The rate of growth of the economy came down. In such a scenario, economic reforms were introduced to reduce the restrictions imposed on the economy.

The study of small industry in industrial countries such as the USA and Italy and in developing countries such as India and China shows that the industrial development of these countries is due to the growth of small industries and to the government programmes implemented for the growth of small industries. Small scale industries are the lifeline of the economy, especially in developing countries like India. These industries are generally labour-intensive, and hence they play an important role in the creation of employment. Small scale industries (SSIs) are a crucial sector of the economy from both a financial and a social point of view, as they help with per capita income and resource utilisation in the economy.

The small scale industries sector occupies a pivotal position in the industrial sector. Liberalisation of the economy and reforms have had an impact on the health of this sector. The results of the latest small scale industries census indicate that these units have survived mainly due to product and geographical market segmentation and policy protection. However, globalisation and liberalisation have affected Indian small scale industrial units to a great extent. The role of segmentation and protection has been reduced, shifting these units from “protection-led growth” to “competition-led growth”. The removal of quantitative restrictions and the reduction in import duties have opened up foreign markets to Indian small scale industrial units as much as the Indian markets are open to foreign goods. Efficient and export-oriented small firms have been benefiting from this development by stabilising and maintaining quality requirements. At the policy level, the endeavour has been to balance the imperatives of competitiveness and the overall development of the sector.

The Government of India has some guidelines for small scale industries in terms of the investment the company is making and the revenue it has generated. Small scale industries are categorised into three parts: manufacturing (production), ancillary and service industries.

In small scale industry, employees are the most important resources or assets. They endeavour to provide excellent products, meet and execute customer expectations, and achieve competitive advantage and exceptional organisational performance. So, human resources play a pivotal role among the various other resources that are required for ensuring the growth and development of this industry. The availability of skilled managerial and technical manpower in India will contribute considerably to the prosperity of small scale industry in future. Against this backdrop, the present study attempts to study the impact of work-related factors on the quality of work life of employees in the small scale industries in Kanyakumari District (Sree Devi & Ganapathi, 2014).

The Indian micro, small and medium enterprises (MSME) sector is the backbone of the national economic structure and has unremittingly acted as the bulwark of the Indian economy, providing it with resilience to ward off global economic shocks and adversities. With around 63.4 million units throughout the geographical expanse of the country, MSMEs contribute around 6.11% of the manufacturing GDP and 24.63% of the GDP from service activities, as well as 33.4% of India’s manufacturing output. They have been able to provide employment to around 120 million persons and contribute around 45% of the overall exports from India.

Rapid economic development has been the primary objective of independent India. It has been pursued through industrialisation, especially the development of basic and heavy industries within the ideological framework of a “socialist pattern of society” stressing equitable distribution. In order to ensure equitable distribution, the state, as the principal agency acting on behalf of society as a whole, assumed direct responsibility for the development of industry. The state’s direct involvement in the development of industry resulted in the formation of a dominant public sector and a heavily regulated private sector. To enable the government to control the course of industrial development public utilities and industries that were essential but quality coupled with existing income inequalities segmented the product market into two parts: a price-sensitive and quality-insensitive segment, and a price-insensitive and quality-sensitive segment. Lower-income households constitute the latter market segment. Small scale industrial units, mostly being producers of lower-quality but cheaper products, cater mainly to the price-sensitive and quality-insensitive market segment. Product market segmentation exists in India for numerous consumer items such as water heaters, washing machines, pressure cookers, tape recorders, sewing machines, garments and footwear. Underdevelopment of infrastructure such as transport created sheltered local markets for small scale units. The only competition these units have so far faced is competition with each other due to overcrowding. The business environment has, however, changed drastically since the 1990s due to new economic policies. The radical shift in Indian economic policies occurred partly due to the country’s own macroeconomic crisis and partly as a consequence of the global trend.

One of the advantages of small scale industries is that they are more flexible in adapting to changes such as new methods of production, the introduction of new products, etc. Compared with large scale units, small scale units are more susceptible to change and highly reactive and responsive to socio-economic conditions. The objective of small scale industries is to adapt to the latest technology and to produce better-quality products at lower costs.

Even in this type of business, registration is voluntary and not compulsory. However, registration with the State Directorate or Commissioner of Industries or the District Industries Centres (DICs) makes the unit eligible to avail different types of government assistance, such as financial assistance from the Department of Industries, medium- and long-term loans from State Financial Corporations and other commercial banks, machinery on a hire-purchase basis from the National Small Industries Corporation, etc.

Kanyakumari District lies at the southernmost tip of the Indian peninsula, where the confluence of the Indian Ocean, the Arabian Sea and the Bay of Bengal occurs. It is the smallest district in Tamil Nadu, with a total geographical area of 1,672 km². The area comprising the present Kanyakumari District was a part of the erstwhile Travancore State. In 1835, when the state was divided into Northern and Southern divisions, this area formed part of the Southern division and was placed in the charge of the Dewan Peishkar, Kottayam. In July 1949, when the United State of Travancore and Cochin was inaugurated, the present Kanyakumari area continued to be a part of Trivandrum District of Kerala State. The people of the Agastheeswaram, Thovalai, Kalkulam and Vilavancode taluks, which formed the southern divisions of the former Trivandrum District, were predominantly Tamil-speaking. They agitated for the merger of this area with Madras State. The States Reorganisation Commission also recommended this. Accordingly, the States Reorganisation Act, 1956 was passed, and Kanyakumari District was formed on 1 November 1956 with the four taluks, viz. Agastheeswaram, Thovalai, Kalkulam and Vilavancode, and merged with Tamil Nadu.

Kanyakumari is mainly an agricultural district. Its prosperity is mainly dependent on the development of agricultural resources.

Details of existing micro and small enterprises are listed below.

Kanyakumari District is the smallest district in Tamil Nadu. Even though it is the smallest in terms of area (1,672 km²), its population density of 1,119 persons per km² is the highest in Tamil Nadu after Chennai. In literacy, it stands first. It is the only place in the entire world where one can witness both the rising and the setting of the sun. It has a coastline of 71.5 km stretching along three sides. This small district is famous for its vast green stretches of paddy fields, coconut groves, rubber gardens and luxuriant forests, the rare earth of the western seashore and the stretched valley mountains of the Western Ghats.

To study and examine production and employment.

Moghtadaee et al. (2007) focused on the elaborate three-tier structure that the central and state governments in India have together set up for promoting the small scale sector. At the national level, in pursuance of the recommendations of the International Perspective Planning Team, several institutions have been set up, largely meant for modern small scale industry. At the state level, the governments have set up institutions to develop infrastructure in the form of industrial plots and industrial sheds, to provide long-term credit facilities, marketing assistance for exports from the small scale sector, and technical, financial and marketing consultancy to the sector, and ultimately to promote entrepreneurship through training.

Sugin Raj and Soundara Raja (2016) focused on the overall performance of small scale industries in employment generation, contribution to GDP, investment and production, which is highly positive globally and nationally. However, the district-wise performance of small scale industries is not at the expected level owing to lack of financial support, management failures, lack of an industrial work culture, lack of technology updating and availability, and poor market access. Only government policies and stakeholder support can strengthen small scale industries.

The present study is based on primary data and on secondary data collected from books, journals, reports and other web sources.

The study is based on data on the number of units, total production, productivity per employee, small scale exports and GDP compiled from secondary sources, i.e. the Handbook of Statistics on the Indian Economy, Reserve Bank of India. The study is based on the data available for the period 1991–2015 for the performance evaluation of small scale industries.

Source: Statistical Handbook of Kanyakumari District.

In the survey, of the 169 small scale industrial units in various categories, only 16 were visited.

Source: Primary data.

At present, 60% of these companies are profitable at their production level, and 30% of the companies are neutral, that is, they do not have any kind of transactions. Finally, 10% of the companies are incurring losses, so they need to prepare plans for any kind of situation.

Source: Primary data.

Of these 16 companies, 80% come under regular employment and 20% come under seasonal employment.

• The scarcity of capital and inadequate availability of credit facilities.
• Inadequate quantity, poor quality and irregular supply of raw materials.
• These industries do not fully use the latest technology. Many of them use obsolete methods of production.
• They face difficulty in marketing their products.
• Inadequate availability of transportation, communication, power and other infrastructure facilities in backward areas affects SSIs.
• SSIs are not fully utilised. Large scale units, by contrast, work 24 hours a day, i.e. in three shifts of 8 hours each, and thus make the best possible use of their machinery and equipment.
• Poor project planning and unskilled workers.
• Small scale industries suffer from a lack of managerial competence on the part of the entrepreneur.

1. The present study contributes to a greater understanding of the problems faced by small scale industries.
2. The government needs to play a vibrant role by providing timely credit at a reasonable rate of interest to small scale manufacturers.

Trade, ventures, development and business have been totally affected, and the emergency will affect performance: the Indian economy is expected to report GDP growth of around 1–2 percent by the end of 2020, with private companies and destitute individuals being the worst casualties.

It can be concluded that setting up small scale industries is not a difficult task. The procedure for setting up small scale industries is simpler and easier than that for large scale industries. So, if one wants to set up an industry, one can surely go for it. It is profitable and easier, and it helps in the growth of the economy of the country.

The main aim of the present study was to identify the problems faced by small scale firms that act as a hindrance to their growth and development. Factor analysis was applied to the data to obtain authentic results, and the results identified five major factors that affect the intensification of small scale firms, namely power constraints, approach up to the local market, absence of effective administrative support, lack of basic facilities and financial constraints (Bedi et al., 2021). Small scale industries also serve objectives such as the mobilisation of resources, distribution of economic power, decentralisation of industry, generation of employment and rural development. The growth and development of small scale industries can be assured by providing sufficient and appropriate finance, by upgrading the technological base by connecting all the DICs and the Tamil Nadu Small Industries Development Corporation (SIDCO) under a separate network, and by providing marketing support to the units in the study area.

Entrepreneurial traits are higher among experienced women industrialists than among less experienced respondents. The entrepreneurial traits of women industrialists have a significant positive impact on enterprise involvement, whereas a significant reduction in entrepreneurial risk and enterprise problems occurs to a higher extent among less experienced respondents than among experienced respondents.

Small scale industrial units must ensure that employees receive sufficient income, and increments should be paid based on the performance of the employees, as this will motivate them to perform well. Small scale industrial units should provide opportunities for employees to learn new techniques and to develop their knowledge. Besides, employees should be encouraged to adopt modern and innovative methods to enhance productivity. Small scale industrial units should allow employees to interact with others in terms of ideas and feelings, and management should pay attention to the grievances of employees in order to create a smooth and conducive climate that increases work efficiency (Sree Devi & Ganapathi, 2014).