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Economic reforms

yeld growth

opportunities for

Indian small traders

NEW DELHI: India's four-year-old economic reforms have yielded growth opportunities for small businesses, which are finally rallying behind the government's liberalisation programme, a leading industry group said on Thursday.

The Confederation of Indian Industry (CII) released a survey which said 82 percent of small firms favour liberalisation and 72 percent expect business to pick up between October 1995 and November 1996.

That contrasted with previous surveys which showed most small producers strongly opposed liberalisation, CII director Gurpal Singh told Reuters.

India's small firms, which traditionally have enjoyed protected markets, tax breaks and easy bank credit, have long feared that economic reforms would wipe them out.

Such apprenhensions may have been misplaced. The small-scale sector grew at a faster rate than big business between 1991, when Prime Minister P.V. Narasimha Rao launched his reform programme, and 1994.

Small-scale output grew by 5.6 percent in 1992/93 (April-March) and 7.1 percent in 1993/94, while overall industrial production expanded by 2.3 percent in 1992-93 and 4.1 percent in 1993-94, government data showed.

The CII's 10th annual outlook for small business was based on a survey of 414 small firms across sectors. The poll was limited to firms with up to $2 million in capital and in the case of companies with electricity connections, 50 workers, or for those without power, 100.

Small businesses account for 95 percent of all industrial units in India, 40 percent of industrial production, more than 80 percent of employment and around 35 percent of exports.

Deregulation of industry and trade liberalisation have spurred demand for small firms' goods, a government official said.

"Liberalisation has increased demand for products manufactured by small business, particularly auto-components, garments, electronics and chemicals," N. Mohanty, secretary of the department of small-scale industry, told Reuters.

"There is more sourcing from the small-scale sector by large and medium industries," said Raju Sharma, a director in the office of the development commissioner of small industries.

To support small industry, Finance Minister Manmohan Singh announced a seven-point plan in the 1995/96 budget to increase the flow of bank credit.

Mohanty, however, feels some small industries which use traditional technology and have little capital still fear liberalisation.

Some products can only be made by small businesses because of their technological characteristics and scale, he said.

To protect the sector, the government has reserved over 800 items for small businesses.

But rapid changes in technology have created strong linkages between some small and large producers, as for example the high growth experienced by small car parts makers which are not protected.

Efforts to scrap the vestiges of the protective wall around small firms have met with loud protests from small business but Mohanty said the government had "an open mind" about increasing competition. -Reuter